The Modern Apartments San Diego Stress Test

A sponsor is requesting acquisition financing at 70% LTV for The Modern Apartments in San Diego. Stress test the deal: what happens to DSCR if rent growth comes in at the bear-case forecast and exit cap rates widen 50 bps?

Sep 11

Purchase price / basisNo purchase price or T12 was provided. Defaulting to a value implied by the market cap rate against benchmark NOI unless you give me the actual contract price.

70% LTV

Recourse

Non-recourse (standard agency)

Modern_Apts_SanDiego_Underwriting.xlsxAI Created

Excel·128 KB·Sep 11, 2026

Setup: 70% LTV ($127.8M) acquisition-term loan on The Modern Apartments (369 units, San Diego), Freddie Mac CME 10yr fixed at 6.06%/30yr am, non-recourse, sized against benchmark operations since no T12 was provided — full detail and every input is in the attached workbook.

This deal doesn't clear before you stress anything — and the stress makes it worse

The 70% LTV request implies $127.8M of proceeds against a lender-case NOI of $8.47M — that alone prices to a 0.91x DSCR , already below breakeven. The debt yield test caps supportable proceeds at $89.1M (49% LTV) , a $38.7M gap to what's being asked for. The market cap rate compressed to 4.93% while the lender's own vacancy/opex floors (5% MF norm, 42% expense ratio) cut harder into revenue than the raw benchmarks suggest — that gap exists before either stress is applied.

Layer in the two stresses:

DSCR Under Bear-Case Rent Growth, at $127.8M Requested Proceeds

Bear-case rent growth (San Diego MF in-place rent CAGR of -1.2%/year, per the forecast engine's downside case ) pulls DSCR from 0.90x in Year 1 to 0.81x by Year 10 — never above water for a single year of the term.
Exit cap +50bps (4.93% → 5.43%) hits at maturity, on top of the bear-case NOI decay. Balance at Year 10 is $107.1M; a stressed takeout lender (debt-yield-governed) only supports $78.4M — a $28.7M refi shortfall (73% coverage) . The maturity test reads SHORTFALL .

What a lender actually sizes to. At the $89.1M supportable proceeds (49% LTV), Year-0 DSCR is a healthy 1.31x — but run the same bear-case rent path against that fixed debt service and coverage still crosses below the 1.25x floor around Year 4 and drifts to roughly 1.16x by Year 10 . Even the right-sized loan has thin room against a sustained rent downturn; it just survives it instead of failing it.

Recommendation: Decline as requested; Approve with Structure at $89.1M (49% LTV). The binding constraint is the debt yield test, not leverage optics — cutting proceeds to $89.1M is what buys the cushion to survive the bear case. Sponsor financials weren't provided, which caps any verdict at "Approve with Structure" regardless . At -20% value decline in a default scenario, recovery on the requested $127.8M is 84% of par — value would need to fall roughly 26% before recovery breaks below par .

What would change this: a sponsor T12 running materially above the market-benchmark NOI used here (no document was provided), or a purchase price meaningfully below the $182.6M this request implies at the current market cap rate.