We were recently approached to refinance a 35,000 square foot warehouse — the kind of asset that looks routine on the surface until you pull the rent roll and review the title work. The property was well-located and the sponsor had a clean track record, but two issues surfaced almost immediately during initial underwriting.

First, the property was only two-thirds occupied, falling short of the stabilized occupancy threshold most conventional lenders require — typically 90% or above for industrial assets. Second, the title report flagged outstanding building permits tied to construction work that had not yet been formally completed and closed out with the municipality.

Either issue alone can slow a deal significantly. Together, they required a structured, layered response to move forward — not a simple pass/fail underwriting decision.

The vacancy issue was the more consequential of the two. A property that is only 67% leased carries real cash flow risk, and lenders who rely on a stabilized DSCR model have no clean way to underwrite it. The standard response is to wait — require the borrower to lease up the space, then come back when the property qualifies.

We took a different approach. Rather than treating the vacant third as dead weight, we worked alongside the borrower to actively source a prospective tenant. After targeted outreach, we identified an occupant who was genuinely interested in the space. They executed a lease for the remaining square footage — though with a future effective date a few months out.

This introduced a judgment call that separates experienced bridge and transitional lenders from strictly institutional ones: can you underwrite a future-effective lease with reasonable confidence? We reviewed the tenant’s financials, the structure of the lease, and the likelihood of occupancy commencing on schedule. Satisfied with what we found, we were comfortable underwriting the deal as if the space were already leased — accepting the modest timing risk in exchange for moving the transaction forward.

The outstanding permit issue required a different kind of solution — less about judgment, more about deal structure. Open permits can cloud title, complicate future financing, and in some cases trigger municipal enforcement actions. Lenders need assurance that the underlying construction work will be completed and formally signed off.

Rather than requiring permit closure as a condition to closing — which would have added additional weeks or months to the timeline — we structured a holdback on a portion of the loan proceeds. The funds would be escrowed at closing and released once the remaining construction work was completed, inspected, and the permit formally closed with the local building department.

This approach protected all parties: the lender had assurance that the work would be completed; the borrower received the bulk of their proceeds at closing and had a clear mechanism to access the holdback; and the title company could insure over the open permit with the holdback in place.

The outstanding permit issue required a different kind of solution — less about judgment, more about deal structure. Open permits can cloud title, complicate future financing, and in some cases trigger municipal enforcement actions. Lenders need assurance that the underlying construction work will be completed and formally signed off.

Rather than requiring permit closure as a condition to closing — which would have added additional weeks or months to the timeline — we structured a holdback on a portion of the loan proceeds. The funds would be escrowed at closing and released once the remaining construction work was completed, inspected, and the permit formally closed with the local building department.

This approach protected all parties: the lender had assurance that the work would be completed; the borrower received the bulk of their proceeds at closing and had a clear mechanism to access the holdback; and the title company could insure over the open permit with the holdback in place.