Enact Partners helped a first-time borrower leverage the City of San Diego’s Accessory Dwelling Unit Bonus Program to transform a single-family home into a six-unit property. The borrower worked closely with Enact Partners to secure an acquisition loan and construction loan. As a result, this borrower was able to create a profitable multi-unit property consisting of six rentable units (four of which are ADUs), while also providing affordable housing options.
(Learn more about how the City of San Diego’s ADU program works in our previous blog, “Use Accessory Dwelling Units (ADUs) To Turn A Single-Family House Into 8+ Units.”)
Property Purchase
The original property consisted of an existing single-family home with a garage. The home was a three-bedroom, two-bathroom house comprising 1,178 square feet, along with a spacious 469 square feet garage, for a total of 1,647 square feet.
The home was situated on a 6,200 square feet lot in an RS-1 zone, which typically allows only single-family units. However, under San Diego’s ADU program and because it was located within the Transit Priority Area (making it eligible for the ADU Bonus program), the lot could accommodate four ADUs in the backyard.
To acquire the property and get it ready for construction, the borrower sought out Enact Partners to secure a 12-month bridge loan.
Transitioning to a Construction Loan
Six months into the project, Enact Partners worked with the borrower to convert the 12-month bridge loan into a construction loan, extending the loan maturity an additional six months, bringing the total project duration to 18 months.
The construction phase entailed rehabilitating the existing house and garage into two separate units and constructing four ADUs in the backyard. Notably, two of these ADUs were deed-restricted as affordable units, while the remaining two were market-rate “Bonus ADUs” made possible by the affordable ADUs.
This resulted in a total of six rentable units, four of which were ADUs. (The affordable deed restrictions expire after 15 years, after which time all units can be rented at market rates.)
Extension of Construction Loan
Nearing the end of the initial loan term, the borrower faced minor construction delays. Enact Partners extended the construction loan maturity by an additional eight months and the project was completed in a total of 26 months. The 8-month extension provided ample time to finalize construction, achieve 100% occupancy, and “season” the property to meet the requirements of long-term lenders.
Explore the Possibilities
For this borrower, planning and preparation was vital to success. Having direct access to Enact Partners and our decades of collective real estate development and lending experience was also a critical value-add. Along the way, we were able to extend loan terms and/or modify loan types to fit the changing needs of the project. This is because our lending approach allows us to focus on the merits of borrowers and their specific projects versus the more rigid practices of traditional banks.
As a result, this borrower’s journey to maximize the potential of the property by transforming a single-family home into a six-unit property realized in-place rent that surpassed the original pro forma by 23%.
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