PITTSBURGH-Making use of a new construction loan program for net-lease developers, Envoy Net Lease Partners has closed a high-leverage $3.4 million loan for construction of a partially pre-leased retail center.

The developer was given 94% loan-to-cost construction financing for a two-tenant, 7,780-square-foot building. The development is 49% pre-leased to Select Comfort, a mattress retailer. 

The "wrap loan" to cover construction of the entire building was possible because of the excellent market situation in the North Hills neighborhood, where the project is located, says Ralph N. Cram of Envoy.

"North Hills is a tight urban infill market with nearly zero shop vacancy, no vacant land and no other new shop space scheduled for delivery in 2014," says Cram, who is Envoy's COO.

"With more retailers entering the Pittsburgh market, there are few options for retailers seeking a prominent street-front location in the high-income area surrounding Ross Park Mall, which is anchored by Nordstrom and Macy's," he says.

The retail center transaction is the first to be completed under a new high-leverage construction program, designed to provide builders with capital to expand their development pipelines and meet tenant construction schedules.

Envoy's program allows up to 95% loan-to-cost financing of net lease development properties. It permits developers to avoid "the hassles associated with JV agreements or mezzanine loan documentation," Cram says.

Also, "they no longer have to give up control, as is typical with pre-sale contracts," he says.