Mixed-Use Ground-Up Development
Construction financing for a first-time developer through strategic partnership structuring.
Deal Overview
| Property | 4-story mixed-use (12 apartments + 6,500 SF retail) |
| Location | Arlington County, Virginia |
| Strategy | Ground-up development |
| Total Capitalization | $14.5M |
| Timeline | 24 months (construction + lease-up) |
The Situation
A Northern Virginia entrepreneur had assembled an entitled development site in a high-traffic corridor with strong residential and retail demand. The project—a 4-story mixed-use building with 12 luxury apartments over 6,500 SF of ground-floor retail—had solid fundamentals and pre-leasing interest from two retail tenants.
The challenge: The developer had significant real estate investment experience but had never completed a ground-up construction project. Most construction lenders require sponsors to have completed 2-3 similar projects before providing financing.
The Challenges
First-time developer
No prior ground-up construction experience disqualified the sponsor from most construction lenders
Complex mixed-use
Lenders view mixed-use as higher complexity than single-use projects
Equity gap
Developer had $2.1M available but needed $3.2M total equity for the capital stack
Construction risk
Lenders required experienced oversight and completion guarantees
Our Approach
Brookmont structured a solution that addressed the experience gap through partnership:
1. Co-GP Partnership
We introduced the developer to an experienced multifamily sponsor willing to serve as co-GP, providing:
- Construction oversight and lender credibility
- Completion guarantee to satisfy lender requirements
- Shared promote structure aligned with project success
2. Preferred Equity for Gap Capital
We sourced $1.1M preferred equity from a family office to bridge the gap between developer capital and required equity.
3. Construction Lender Matching
With the strengthened sponsorship team, we secured a regional bank construction loan with competitive terms.
The Capital Structure
| Source | Amount | % of Cost |
|---|---|---|
| Construction Loan | $11,300,000 | 78% |
| Developer Equity | $2,100,000 | 14% |
| Preferred Equity | $1,100,000 | 8% |
| Total Project Cost | $14,500,000 | 100% |
The Execution
Months 1-3: Pre-Development
- Finalized co-GP partnership and operating agreement
- Closed construction loan and preferred equity
- Broke ground and commenced site work
Months 4-16: Construction
- Vertical construction completed on schedule
- Two retail tenants signed leases during construction
- Received certificate of occupancy month 15
Months 16-22: Lease-Up
- Achieved 100% retail occupancy (both pre-committed tenants)
- Leased 11 of 12 apartments within 4 months
- Stabilized at 95%+ occupancy
Month 24: Permanent Financing
- Refinanced into CMBS permanent loan
- Appraised value: $17.8M
- Repaid construction loan and preferred equity
- Distributed profits to developer and co-GP
The Outcome
The developer completed their first ground-up project, established a track record for future developments, and earned a strong return despite giving up promote to the co-GP.
Key Takeaways
1. Experience gaps can be bridged
First-time developers can access institutional-quality financing by partnering with experienced sponsors willing to provide guarantees and oversight.
2. Co-GP alignment is critical
The partnership structure aligned incentives—the co-GP shared in upside, motivating active involvement and risk management.
3. Preferred equity fills gaps efficiently
Rather than bringing in another LP or over-equitizing, preferred equity provided gap capital at a fixed cost, preserving more upside for the developer.
4. Pre-leasing de-risks mixed-use
Retail pre-leasing commitments strengthened the loan application and reduced lease-up risk.
This case study represents a representative transaction. Specific details have been modified to protect client confidentiality.