$3,500,000 Acquisition in Tracy, CA
How an Interest Reserve Lowered the Cost of Capital for a Tracy Industrial Refinance
Loan Amount: $3,500,000
Loan Term: 12 Months
LTV: 65%
Lien Position: 1st Deed of Trust
Refinancing a commercial property when a loan is approaching maturity requires more than speed. It requires clear thinking, careful underwriting, and a structure that improves the borrower’s overall cost of capital. In this transaction, an interest reserve played a central role in delivering a better outcome for the borrower.
Rubicon Mortgage Fund, LLC closed a $3,500,000 refinance loan on a 38,600 square foot industrial building situated on 1.7 acres in Tracy, California. The loan was structured with a twelve month term and included a ten-month interest reserve, allowing the borrower to reduce debt-service strain while preparing for an orderly sale of the property.
The Challenge: A Bank Loan Coming Due
The borrower is a family-owned carpentry business that has operated for three generations. Their facility supports the production of custom cabinets, tables, and specialty woodwork, making the property essential to daily operations.
As their bank loan approached maturity, the owners needed to refinance existing debt and lower their cost of capital. Time was a factor, and like many borrowers in this situation, they initially explored hard money options. The first proposal they received carried a high interest rate and expensive terms, including the possibility of a costly loan extension if the property was not sold quickly.
Recognizing that the structure would place unnecessary financial pressure on the business, the broker continued to explore alternatives.
How the Broker Found a Better Option
While researching options on LinkedIn, the broker came across a post from a loan officer at Rubicon Mortgage Fund, LLC. That single post led to a conversation that changed the trajectory of the deal.
At Rubicon Mortgage Fund, LLC, we believe brokers serve their clients best when they fully explore the market and evaluate multiple structures. In this case, taking the extra step led to a meaningfully better solution.
Diligent Underwriting Uncovered Additional Equity
The initial request submitted to Rubicon Mortgage Fund, LLC was for a smaller loan amount. However, through diligent underwriting and in house capabilities, our team identified significantly more equity in the property than originally anticipated.
The industrial building is well located within Tracy and sits on a sizable parcel, factors that supported a larger loan amount. Based on our analysis, we increased the loan to $3,500,000 and structured the transaction to better align with the borrower’s business needs and exit strategy.
Why an Interest Reserve Made the Difference
One of the most important components of this refinance was the inclusion of an interest reserve. The loan included a ten month interest reserve, covering the majority of the twelve month term.
An interest reserve allows interest payments to be funded from the loan proceeds rather than from their monthly business operating cash flow. For this borrower, that meant reduced pressure on day to day operations and greater predictability during a transitional period.
From a cost of capital perspective, the interest reserve helped the borrower manage liquidity more effectively and focus on preparing the property for sale rather than servicing debt. Compared to the competing hard money proposal, the structure delivered a significantly better spread and a more efficient use of capital.
A Clear Exit Strategy
The borrower’s plan is to liquidate the asset. With a completed refinance, stabilized cash flow, and sufficient runway, they now have the time needed to execute a thoughtful sale process without being forced by near term payment obligations.
The interest reserve provided flexibility while maximizing the business’s monthly net income which was a priority for a family that has built its business over multiple generations.
Active and Aggressive on Industrial Real Estate
Rubicon Mortgage Fund, LLC remains active and aggressive on well located industrial real estate throughout California. When the underlying asset is strong and the structure makes sense, we are prepared to move quickly and deliver solutions that improve outcomes for borrowers and brokers clients alike.
This Tracy refinance demonstrates how a well structured interest reserve, paired with careful underwriting, can lower the true cost of capital and create a better path forward
The planned exit strategy is to refinance the property once renovations are complete and the building is stabilized. Improved occupancy and increased rental income are expected to support permanent financing that will replace the acquisition loan.
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