My cold storage deal in Stockton started as a sub-to conversation and I want to talk about why I walked away from that structure

The assumption doing the most work here is that the due-on-sale risk is binary, but the actual exposure is the lender's motivation to call the note, which is much lower when payments are current and the loan is seasoned. That does not change your conclusion on this specific deal, it just means the risk varied by lender and loan age, not only by structure.

The point that does not get said enough is that $2,100 a month in rate savings is a fixed number while the cost of a called note mid-stabilization is open-ended, and on a thin-comp asset where your exit buyer pool is four or five groups, a distressed sale scenario gets very ugly very fast. The math on sub-to almost always gets run against a stabilized pro forma rather than against the worst-case leasing timeline.

What was the debt service on the conventional loan during that twelve-month vacancy stretch, and did you have reserves pre-funded to cover it or was that a lender requirement at close?

The framing here is exactly right, and the number makes it concrete. $2,100 a month in rate savings against a twelve-month vacant stretch is $25,200 of benefit sitting next to an undefined liability. The due-on-sale risk is not just about whether the lender calls the note. It is about when. A lender who calls it during stabilization on a specialized asset, where your exit buyer pool is four or five groups nationally, gives you no clean options. You cannot sell quickly into a thin market and you cannot refinance a vacant cold storage building on a compressed timeline. The contingency plan that works on a stabilized residential property does not transfer.

The assumption doing the most work in most sub-to cases is that the stabilization timeline is short and predictable. On a turnkey single-family with a tenant in place, that assumption is reasonable. On a specialized commercial asset with a twelve-month lease-up that slipped, it collapses. The rate gap between 3.9% and conventional 2023 commercial rates was real, but the rate is a cash flow variable. The due-on-sale risk during an unstabilized period is a capital stack variable. Those are not the same trade.

The risk you did not name explicitly is seller exposure. The person whose name stayed on that loan through your stabilization period would have been carrying a non-performing asset on their credit profile if anything went sideways operationally, even if you kept payments current. For a twelve-month zero-income stretch, that relationship requires a level of trust and documentation that commercial sub-to structures rarely formalize adequately.

Conventional debt at a higher rate gave you clean control of the liability. On a thin-comps, thin-exit-pool, uncertain-timeline asset, that is the right trade, not a conservative one.

What did your lender's permanent financing conversation look like at month eight, when the lease-up was running behind model? Was the conventional structure giving you covenant flexibility or were you watching the same clock, just from a cleaner position?