Lotus Capital structures novel residential development package

The four-tranche, five-year financing is split into two components, and each was designed to address a specific part of the development.

Lotus Capital Partners has structured a complex, four-part financing package on behalf of sponsor Centaur Holdings and funded by Monroe Capital that will finance the construction of Panther National, a planned private residential community in Palm Beach, Florida.

The financing package, with a potential total borrowing capacity of more than $400 million, comprises two term loans, a revolver and a construction revolver, Faisal Ashraf, managing partner at New York-based boutique advisory Lotus, told Real Estate Capital USA.

The complexity of the financing package reflects the structure of the project, which will comprise 218 single-family homes and is part of the Avenir Master Planned Community in Palm Gardens. The project will feature an 18-hole Jack Nicklaus golf course and a 40,000-square-foot club house and is also adjacent to a 2,000-acre nature preserve.

There were several factors which drew the sponsor to the project, including the growth and demographic changes within the Palm Beach market and the scarcity value. Centaur Holdings then hired Lotus because of its reputation in sourcing complex, creative financing solutions. The development is the last of its kind that can be built in Palm Beach, simply because there is no more land for a project of this scale, Ashraf said.

Palm Beach, like many Florida markets, has seen a domestic and international population influx over the past two years that has amplified an existing demand for luxury housing that is distinct from what is now largely available.

“Palm Beach is probably the hottest real estate market in the country, and obviously the hottest property sector is residential and specifically single-family home residential,” Ashraf said. “These new residents flocking the Northeast and the West Coast don’t like the older, Mediterranean-style house houses that are common in Palm Beach and prefer something sleeker and more modern.”

Loan structure

The four-tranche, five-year financing is split into two components, and each was designed to address a specific part of the development, Ashraf said.

An $80 million component, made up of two independent term loans and a revolver, will finance infrastructure and predevelopment costs to prepare the property for the construction of single-family homes. This component of the financing will also allow Centaur to develop the golf course and club house, Ashraf said.

Meanwhile, the $90 million construction revolver will activate when Centaur achieves certain milestones and will be used for the project’s vertical financing. At the sale closing of each home, the net sale proceeds will be used to repay the construction revolver tied to that home and allow the sponsor additional draws for a phased build-out period, Ashraf said.

“We designed a very innovative capital structure to fit the business plan versus traditionally where a sponsor has to adapt to the lending terms of a conventional loan,” Ashraf said. “Having four tranches across two loans means you have different monies for the construction of the clubhouse, the golf course, and the homes. We funded these loans for different things and the sponsor can borrow from different loans at different times. It is a complicated financing package that fits the sponsor’s business plan.”

Looking ahead, the structure is something that could be adapted for the growing for-sale residential market, where a structure like this hasn’t been deployed before, at a time where lenders have been structuring bespoke financings as institutional sponsors have been building homes on a large scale. “It could be a tool that could be used to finance residential going forward,” Ashraf said.