Commercial Acquisition Financing | Class A Mixed-Use Investment

The transaction presented five distinct challenge layers operating simultaneously, each of which had to be resolved before the financing could close.

The first was the fund structure. This was the second acquisition in an emerging institutional investment fund operating under a private placement memorandum. New funds without an established track record face heightened lender scrutiny. Getting any lender comfortable with the GP entity, the LP investor base, and the fund governance required documentation and positioning that went beyond what a typical acquisition credit package contains. The LP/GP waterfall (10% preferred return, three IRR hurdles at 12%, 14%, and 16%, with LP holding 90% and GP holding 10%) created specific debt performance thresholds the loan terms had to satisfy. A rate that was acceptable for coverage might still be unacceptable for LP return modeling if the year 5 reset created unpredictability at a critical point in the hold.

The second was the 2022 office lending environment. Post-COVID, office was the sector under the most lender scrutiny nationally. Vacancy rates in major markets had risen significantly, and most conventional lenders and CMBS originators had reduced or suspended office exposure. The asset was not in a major market experiencing those trends. It operated in a niche urban-suburban submarket with near-full occupancy and premium rents that had remained stable through the disruption. But most capital sources applying national underwriting guidelines would not differentiate. To them, this was office. To a lender familiar with or willing to accept analysis of the specific submarket, it was a fully stabilized asset at a below-market cap rate justified by the quality of the location and tenant base.

The third was the multi-parcel execution complexity. The property consisted of one office building and three separate retail buildings across multiple parcel IDs, some involving adjacent City-owned land with encumbrances and bond obligations that ran with the parcels. Coordinating clear title across all components, Phase I environmental reports for each building, estoppel certificates from ten tenants across four buildings, and SNDA agreements with lender requirements for each lease required concurrent management of many interdependent moving parts. Any gap in one component had the potential to delay the entire closing.

• Emerging fund structure with no prior performance track record required lender comfort with fund governance, LP investor base, and GP capacity independent of property NOI
• LP/GP waterfall imposed specific constraints on acceptable debt cost, rate structure, and prepayment flexibility that standard office loans did not address
• Broad 2022 post-COVID office lending contraction meant most capital sources applied sector-level discounts that did not reflect the specific submarket's performance
• The niche urban-suburban submarket had a vacancy profile and rent dynamic fundamentally different from national office trends, but required documentation and lender education to underwrite correctly
• Four-building campus across multiple parcel IDs with City-owned land complications, ten-tenant estoppel and SNDA coordination, and multi-building Phase I environmental requirements all had to close simultaneously

Cornovus Capital ran a structured nationwide capital search across four distinct lender categories before placing the loan. Each was evaluated against the fund's return requirements and the property's specific credit profile, not just against standard coverage metrics.

CMBS was evaluated and declined. While CMBS could achieve the required leverage and offered competitive pricing in certain scenarios, the defeasance and yield maintenance prepayment structures conflicted with the fund's hold strategy flexibility requirements. An LP/GP structure with a defined investment period and potential exit windows needs debt that does not impose punitive exit costs at the wrong time. CMBS could not provide that cleanly.

Debt funds were evaluated and declined. Debt funds offered creative structuring but priced at a premium that would have compressed LP returns below the 10% preferred threshold in the early years of the hold. At that pricing level, the fund economics did not work. Passing on pricing in exchange for structure makes sense in some transactions. Here it did not.

The regional bank identified through the nationwide search offered the combination the fund required: 70% LTV at a 5-year fixed rate of 5-Year Treasury plus 240 basis points with a floor of 5.25%, resetting at the 5-year mark. The 2-year interest-only opening period protected LP distributions during the early ramp while the 25-year amortization provided the long-term debt profile the hold strategy needed. The rate reset mechanism at year 5 gave the lender the repricing flexibility it required while leaving the fund with clarity on debt costs for the first five years of ownership. The lender was willing to underwrite the submarket on its specific fundamentals, not the national office sector trend, because the documentation Cornovus Capital provided made the differentiation explicit and supportable.

The fund structure was documented and positioned clearly: GP track record, LP investor composition, fund governance, and PPM criteria all presented in a format the lender's credit team could evaluate without requiring inference. Multi-parcel due diligence was coordinated concurrently across all four buildings, with all environmental reports, title commitments, and tenant estoppels managed through a single coordinated closing process.

• Conducted a nationwide lender search across CMBS, debt funds, alternative capital, and bank balance sheet, evaluating each against both credit coverage and LP/GP return criteria
• Eliminated CMBS on prepayment structure grounds incompatible with the fund's hold and exit requirements
• Eliminated debt funds on pricing grounds that would have compressed LP returns below the preferred return threshold
• Identified and closed with a regional bank willing to underwrite the specific submarket performance rather than applying national office sector discounts
• Structured 5-year fixed rate with reset mechanism, 2-year IO, and 25-year amortization to satisfy both lender requirements and fund return model constraints
• Documented the emerging fund's LP investor base, GP track record, and PPM governance in a credit package the lender could underwrite without requiring additional justification
• Coordinated concurrent multi-parcel due diligence across four buildings, ten tenants, and multiple parcel IDs through a single managed closing process

The $9,341,989 commercial acquisition financing closed through a conventional bank balance sheet lender at 70% LTV, with a 2-year interest-only opening period, 25-year amortization, and a 5-Year Treasury plus 240 basis point rate at a floor of 5.25%, resetting at year five. Year 3 projected DSCR came in at 1.81x with an 11.7% debt yield. Total equity deployed was $4,194,300 across the LP and GP structure. The acquisition closed as the fund's second asset, with the debt structure fully aligned to the PPM's LP return criteria and the fund's planned hold strategy.

The nationwide lender search produced a result that two of the most commonly cited capital sources for this asset class, CMBS and debt funds, could not provide: a long-term balance sheet lender with submarket knowledge, LP/GP structure comfort, and a rate and amortization profile that worked for the fund at the property level. The multi-parcel, multi-building execution across four buildings and ten tenants closed without structural compromise.

• $9,341,989 conventional acquisition loan closed at 70% LTV
• 5-Year Treasury plus 2.40%, floor 5.25%, rate reset at year 5
• 2-year interest-only opening period / 25-year fully amortizing term
• DSCR of 1.81x and debt yield of 11.7% projected at year three stabilization
• Total equity of $4,194,300 deployed across LP and GP fund structure
• LP/GP waterfall structure with 10% preferred return and tiered IRR hurdles satisfied by the debt terms
• Nationwide lender search resolved two capital source eliminations before identifying the right execution partner
• Four-building, ten-tenant, multi-parcel closing coordinated and executed without structural modification

Additional financing outcomes are available in our Transaction Highlights archive.