$48,000,000 Build-to-Suit Industrial (350,000 SF) in City of Industry, CA

The Deal

Commercial Lending Solutions recently closed a $48 million construction-to-permanent financing for a 350,000 square foot build-to-suit industrial facility in City of Industry, California. The project was developed for a national e-commerce fulfillment company under a 15-year triple net lease executed prior to construction commencement.

The facility represents the growing demand for last-mile distribution infrastructure in the Inland Empire, strategically positioned to serve Southern California's consumer markets. With e-commerce logistics driving unprecedented industrial development, this transaction exemplifies the institutional capital appetite for credit-anchored industrial assets in prime distribution corridors.

The Challenge

The transaction presented several complex financing requirements that required sophisticated structuring. The $48 million construction budget demanded institutional scale capital, but the developer needed certainty on both construction funding and permanent financing to proceed with confidence.

The primary challenge was eliminating re-underwriting risk between construction and permanent phases. Traditional construction financing typically requires borrowers to secure separate permanent financing upon completion, exposing them to potential market changes, credit tightening, or shifts in lender appetite. For a project of this magnitude and duration, that uncertainty was unacceptable.

Additionally, the 20-month construction timeline created extended interest rate exposure. With the Federal Reserve in a tightening cycle, the developer needed protection against rising rates that could compromise project economics. The scale also limited lender options, as many construction lenders lack the balance sheet capacity or risk appetite for $48 million single-asset exposure.

Finally, the build-to-suit structure, while providing lease certainty, created timing complexities. The permanent financing needed to align with lease commencement rather than construction completion, requiring precise coordination of multiple moving parts.

The Solution

We structured a construction-to-permanent facility with a life insurance company that provided both construction draws and permanent take-out commitment from day one. This eliminated re-underwriting risk entirely, giving the developer complete certainty on exit financing before breaking ground.

The capital stack included 65% loan-to-cost during construction, stepping down to 60% loan-to-value upon conversion to permanent financing. This structure provided adequate construction leverage while ensuring conservative permanent financing aligned with the life company's underwriting standards.

Critical to success was locking permanent loan pricing at construction closing. The life insurance company committed to permanent rates tied to Treasury yields at the time of construction funding, protecting against interest rate volatility throughout the build period. This rate lock mechanism was essential given the extended construction timeline and volatile rate environment.

The construction facility provided interest-only payments with draws tied to completion milestones verified by third-party inspections. Upon lease commencement, the loan automatically converted to permanent financing with 25-year amortization, creating seamless transition without additional underwriting, appraisal, or approval processes.

We negotiated flexible construction timing provisions allowing for potential delays without penalty, while maintaining the permanent conversion option. The life company also provided a 12-month extension option for the construction period, giving additional protection against unforeseen circumstances.

The Outcome

The transaction closed within 90 days of initial application, demonstrating the efficiency possible when matching appropriate capital sources with well-structured deals. The construction-to-permanent structure eliminated refinancing risk and provided complete capital certainty for the developer's business plan execution.

The locked permanent pricing protected the developer from approximately 150 basis points of rate increases that occurred during the construction period, saving significant carrying costs over the permanent loan term. This rate protection enhanced overall project returns and validated the structure's risk management benefits.

For the life insurance company, the transaction provided a high-quality industrial asset with long-term stable cash flows backed by investment-grade tenant credit. The pre-leased structure and build-to-suit nature delivered exactly the predictable income stream that life companies seek for their portfolios.

The facility achieved full occupancy upon construction completion, with the tenant taking possession on schedule. The seamless conversion to permanent financing occurred without delays or complications, demonstrating the structure's operational effectiveness.

This transaction highlights how sophisticated financing structures can eliminate execution risk while providing institutional capital sources access to high-quality industrial assets. The success reinforces the value of early capital markets engagement in complex development projects requiring creative solutions.