Case Study: $1.78M Net Lease Retail Refinance in Chaska, Minnesota at 3.63% Fixed for 10 Years

The Deal That Walked in the Door

We are Commercial Lending Solutions, a commercial mortgage brokerage based in Los Angeles, CA. Commercial Lending Solutions specializes in permanent loans and credit union relationships for net lease retail investors nationwide. This one is a lesson in what a prepayment penalty really costs, and when it is worth paying anyway. The client: a Santa Barbara, California investor who holds, through a family trust and a single-purpose LLC, a two-tenant net lease retail building in Chaska, MN. Chaska sits in Carver County on the southwest edge of the Twin Cities metro, a fast-growing suburban corridor where national credit tenants have been planting pads for a decade. The building is leased to a national fast-casual restaurant chain and a national coffee chain, about as clean a rent roll as retail gets. The refinance ultimately closed with a credit union, beating out a bank and a life insurance company.

The problem was the debt. The existing loan sat with a Southern California bank at a rate well above where the market had moved, and the payoff demand carried a prepayment fee of $49,950, roughly 3% of the balance. In late 2021, with 10-year money available in the mid 3s, the math said move now, eat the fee, and never sign a prepayment penalty again.

What Made It Hard

• A three-state transaction. California borrower, Minnesota collateral, and the eventual winning lender in suburban Chicago. Every document, from the trust certifications to the Minnesota combination mortgage, had to work across jurisdictions.
• The prepayment fee math. A $49,950 exit cost only makes sense if the new loan is meaningfully better and does not recreate the same trap. That shaped the entire lender search: long fixed period, no prepayment penalty, or the refinance was pointless.
• Trust and entity structure. The ownership ran through multiple trusts into a California LLC foreign-registered in Minnesota. The lender needed certifications of trust, an attorney opinion letter on the personal guaranty, and clean entity documentation before it would fund.
• Full diligence on a tight winter timeline. A new Phase I environmental, a fresh ALTA survey, zoning compliance letters, tenant SNDAs and estoppels, all ordered and completed across a Minnesota December and January to hit a February closing.

"A prepayment penalty is the cost you don't see until you try to leave. We steered this search toward credit unions on purpose, because that is the one lender type that generally will not do that to you again."

How We Ran the Process

Trevor Damyan, a California-licensed real estate broker (CA DRE 02244836), took the deal wide and let the market tell us the answer. Six lenders quoted it: four credit unions, a bank, and a life insurance company. The life company priced a smaller loan. The bank matched the proceeds but with bank-style structure. The credit unions were the story, because credit unions bring one feature almost nobody else offers: they generally cannot charge prepayment penalties at all.

The winning proposal came from a Chicago-area state chartered credit union on November 30, 2021, and the client signed it December 6. The structure:

• $1,782,000, capped at 60% of appraised value, sized against a 1.35x global and primary debt service coverage test on a 25-year amortization schedule for pricing purposes
• 3.63% fixed for the entire 10-year term, no resets, no adjustment periods, monthly principal and interest of $8,183.90 on a 30-year amortization
• No prepayment penalty. The loan can be paid off in whole or in part on any payment date with three business days notice, at par
• 0.5% origination fee ($8,910), with the $7,500 good faith deposit credited back at closing
• Full recourse with unlimited personal and trust guaranties, a 1.20x property-level coverage covenant in the note, and credit union membership for the borrowing entity

Diligence ran through the holidays: Phase I environmental with a reliance letter, a new ALTA/NSPS survey delivered in January, zoning compliance letters from the city, tenant estoppels and an SNDA, and the title commitment out of the Los Angeles office of the title company. The loan closed February 10, 2022. The payoff to the incumbent bank was $1,720,772.95, including the $49,950 prepayment fee, and the borrower actually received a refund at the closing table.

Why We Won This One

The first lesson is that the cheapest rate is not always the point; the exit is. Our client had just experienced firsthand what a 3% prepayment penalty feels like. By steering the search toward credit unions, we locked a decade of 3.63% money and guaranteed that the next refinance, sale, or estate decision costs nothing to execute. That option has real dollar value, and in this case it came with the best rate on the board anyway.

The second lesson is that geography is negotiable when credit is strong. A Los Angeles brokerage financing Minnesota real estate for a Santa Barbara client through an Illinois credit union sounds complicated. It was not, because the collateral was two national credit tenants on net leases in a growing Twin Cities suburb. We packaged the leases, the tenant credit, and the guarantor's full financial picture so any lender in the country could underwrite it from their desk, and six of them did.

And competition, as always, did the final negotiating. With four credit unions, a bank, and a life company all holding live quotes, the winner sharpened its terms to a full 10-year fixed period at 60% leverage with a half-point fee. Nobody offers their best structure to a borrower with one term sheet.

Is This Structure Right for Your Deal?

If you own net lease retail, a strip center, or any stabilized commercial property and your current loan carries a heavy prepayment penalty or a looming reset, the credit union market deserves a look. We arrange permanent loans, retail property loans, and specialty financing from a network of more than 1,000 capital sources, including the credit unions that lend nationwide with no prepayment penalties.

Apply for refinancing or call us at 310.708.0690 to talk through your property.

Trevor Damyan

Commercial Mortgage Broker, Commercial Lending Solutions | CA DRE 02244836

Trevor Damyan is a commercial mortgage broker at Commercial Lending Solutions with a background in structured finance at CBRE and Marcus and Millichap Capital Corporation. He specializes in bridge loans, construction financing, SBA programs, DSCR loans, and complex capital structures for investors and developers across all 50 states.

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