$3.94 Million Build To Suit Loan — Lake Elsinore, CA

Freedom Financial Funds completed a $3.94 million build-to-suit loan to finance the acquisition of land and create pads for two ground lease tenants: 7-Eleven and Super Star Car Wash. Freedom has an established relationship with sponsor, having previously funded two similar loans for 7-Eleven ground leased pads. The sponsor has proven to be a tenacious developer who gets things done despite COVID delays at the city.

7-Eleven remains a strong tenant. While its current S&P rating is AA-, the rating could slip slightly due to the company’s recent acquisition of Speedway — a 3,900-unit C-store and Gas Station operation. That said, 7-Eleven remains one of the darlings of the NNN market. 

Super Star Car Wash, a privately held company with 32 operating locations in Arizona and California, is a strong operator.  

Key challenges in this deal were twofold. One is that the sponsor is rebuilding due to the Great Recession. Although aware of this when underwriting its first transaction with the sponsor, Freedom moved forward after its due diligence found the sponsor did all the right things when it came to creditors. 

The second matter of concern was that the return on sale was somewhat lower than Freedom’s usual target, but it is explainable since the site has three parcels, only two of which are being built out in this loan. The vacant parcel, which is intended to be sold, created a downward drag on the overall project. However, Freedom was able to structure the loan to meet the needs of the borrower while also meeting its published credit policy guidelines.

Overall, Freedom considered this a favorable deal with good tenants. The sale of the land or either tenant brings the LTV down on the remaining two pieces. The sponsor is highly capable, and the conditions in the ground leases are well within his capability to manage. The property is well situated with excellent visibility windows from both north and south. Lake Elsinore is a growing community, and there is good housing stock and other retail near the site.