Model Study: SBA 504 Financing of a New Indoor Climbing Gym Under the Energy Public Policy Route, Butterfield Business Center Lot 37, Tucson, Arizona

A new 24,000 SF tilt-up climbing and fitness facility on a listed 1.92-acre light industrial lot in Tucson fails SBA 504 compliance as proposed at the standard 50/40/10 structure: the 10 percent injection does not meet the 20 percent minimum for a special purpose property owned by a new business, the $3,634,191 debenture requires 25 jobs at the $150,000 energy ratio against 17 created, and the structure finances holds, fitness equipment and an operating reserve with 25-year real estate debt. Restructured at 50/30/20, with $520,000 of short-life equipment and a $375,000 ramp reserve moved to a 10-year 7(a) tranche of $895,000, the Project passes every stated test: the $2,457,143 debenture requires exactly the 17 jobs created, the 100 kW rooftop array reaches a modeled 58.3 percent renewable share against the 10 percent threshold, and global DSCR reaches 1.30x at stabilization (project-level 1.62x). Determination: not approvable as proposed; feasible as restructured, subject to the Conditions and Limitations.

Model study prepared by MMCG Invest | Michal Mohelsky, J.D., FMVA | October 5, 2026

As proposed, the Project is not approvable. The 10 percent borrower injection does not meet the 20 percent minimum that applies when a project is both special purpose property and a new business under the 504 contribution rules. The $3,634,191 debenture at 50/40/10 requires 25 jobs at the $150,000 energy public policy ratio against 17 FTE created. The proposed structure also finances holds, fitness equipment and an operating reserve with 25-year real estate debt, which fails asset-life matching.

As restructured, the Project is feasible. The 504 project is limited to long-life assets of $8,190,478, financed at 50/30/20. Equipment of $520,000 and a $375,000 ramp reserve move to a 10-year 7(a) tranche of $895,000. The $2,457,143 debenture requires 17 jobs at $150,000, which matches the 17 FTE created. Stabilized Year 3 global DSCR is 1.30x and project-level DSCR is 1.62x; the ramp reserve covers the Year 1 shortfall of $355,596.

The determination depends on four judgement calls that are not stated rules, each addressed below: the special purpose classification, the job credit for coaching FTE built from part-time hours, the alternative-use value, and the engineered energy baseline.

This is a model study. The sponsor and borrower are hypothetical and unnamed: an owner-operator Operating Company (OC) with an Eligible Passive Company (EPC) holding the real estate. No private client data and no analog from any other engagement are used. The subject site is a real, publicly listed property; competitors appear only with their own published prices. Every figure carries a documentary source or is labeled "MMCG assumption." The analysis applies SOP 50 10 8 as updated by SOP 50 10 8.1 and 13 CFR Part 120. Web sources were accessed 5 October 2026 unless dated otherwise.

Stated rules applied: the 50 percent third-party lender, 40 percent CDC, 10 percent borrower base structure; 15 percent injection for special purpose or a new business and 20 percent for both; the $5.0 million general and $5.5 million energy debenture caps (13 CFR 120.931); the $95,000 job ratio, or $150,000 for an energy public policy project (90 FR 47117); the energy public policy goals at 13 CFR 120.862(b)(11) and (b)(13); and the $10 million combined 7(a) plus 504 limit effective 4 July 2026. Judgement calls are labeled MMCG judgement. The framework is described on our indoor sports complex feasibility page.

The method is set out in full in MMCG's feasibility study methodology.

Four metros were screened against four tests: gym density, the trade-area cohort, a qualifying building or tilt-up land, and solar resource.

Two Tucson buildings were considered and set aside: a 50,430 SF I-10 frontage property at $6,950,000 with no published clear height and partial occupancy, and a 30,000 SF 1972 building at 3360 E Ajo Way carried at two conflicting prices with no published clear height. The Butterfield lot is selected as land priced for a tilt-up: at $215,643 per acre it allows a purpose-built 36-foot hall.

The Project operates as a full-service indoor climbing, bouldering and fitness facility on a 1.92-acre light industrial lot at Palo Verde Road and I-10 in south-central Tucson. The facility is a 24,000 SF single-story concrete tilt-up (MMCG assumption) with a 14,500 SF climbing hall at 36 feet of clear height; 14,000 SF of wall surface split between 15-foot bouldering terrain over 6,000 SF of padded flooring and 30-foot auto-belay and top-rope walls served by 12 auto-belays; a 3,000 SF fitness and yoga area; 1,200 SF of locker rooms; and front desk, retail and youth program space. Hours are 6:00 a.m. to 10:00 p.m. weekdays and 8:00 a.m. to 8:00 p.m. weekends, with 17 FTE: three route setters, seven front desk FTE, five coaching and instruction FTE and two managers (MMCG assumption). The EPC acquires the land and owns the building; the OC occupies 100 percent under a lease whose term is at least the debenture term and whose rent equals the 504 debt service. The OC and the principal guarantee the debt. The positioning target is the south-central and university-adjacent market, which no dedicated climbing gym serves today: the nearest competitor is Rocks and Ropes Downtown, and The BLOC and Rock Solid serve the east and northwest sides.

Marketing and Sales Strategy. Presales open nine months before opening, with a founding-member rate and a target of 350 founding members (MMCG assumption). Channels: university and college nights, following the College Night programming already published by Rock Solid Climbing; youth teams, school-break camps and homeschool sessions; corporate team-building packages for the airport and I-10 industrial corridor; and birthday and group events. Retention relies on a weekly reset cadence across the bouldering terrain and a monthly reset of roped terrain (MMCG assumption).

Amenities.

Listing record. LoopNet Listing ID 3786841: S Palo Verde Rd, Tucson, AZ 85714, cross street I-10; asking $414,028 ($215,642.73 per acre); 1.92 AC; zoning "CI-1 - Light Industrial/Warehouse"; brokerage Cushman & Wakefield PICOR (search snippets name Paul Hooker as offering agent; an older snippet names Jesse Blum of CBRE). The lot has been on market since 12 March 2005, and the listing describes the lots as ready for development with fiber optic infrastructure and airport-area access.

Building facts (as designed, MMCG assumption). Clear height of 36 feet in the climbing hall and 16 feet in support areas; a 6-inch reinforced slab-on-grade thickened at wall-base footings; joist girders with designed point loads at wall tie-backs; a 50-by-60-foot column grid with a column-free bouldering field; Group A-3 assembly occupancy with a full NFPA 13 sprinkler system; 96 parking spaces.

Zoning. The listing reports CI-1 Light Industrial/Warehouse. Assembly or indoor recreation use under CI-1 is not confirmed from the zoning code text and is carried as a Condition; the permitted-use list must be verified with the jurisdiction of record before closing.

Physical analysis. The improvements include a 36-foot clear hall without dock doors, climbing structures anchored into the slab and tilt-up panels, padded floor systems, assembly-rated HVAC and egress, and locker rooms. As built, the design and layout restrict the building to its climbing use, which meets the special purpose definition of a limited-market property (MMCG judgement).

Alternative use and conversion. The highest alternative use is light industrial or warehouse space. Conversion back covers removing the walls and padding, cutting four dock positions into the tilt-up panels, demising the locker rooms and re-zoning the HVAC, estimated at $28 per SF, or $672,000 (MMCG assumption). LoopNet reports an average Tucson industrial asking price of about $179 per SF (5 October 2026), and a 32-foot clear Class A comparable (Tucson Commerce Center, 3610 E Valencia Rd) sold in May 2024 at approximately $118.65 million combined, or $147 per SF. At $179 per SF, the alternative-use value is $4,296,000 less $672,000, or $3,624,000: 44.2 percent of the $8,190,478 long-life project cost.

Equity consequence. As a special purpose property owned by a new business, the Project requires a 20 percent injection. Designing knock-out dock panels into the tilt-up shell lowers the conversion cost but does not change the classification.

Electric. The utility of record is Tucson Electric Power. The Large General Service schedule (TILGS, Sheet No. 220, effective 1 September 2023, Decision No. 79065) applies from 300 kW of demand; the Project's modeled peak of about 150 kW falls below it (MMCG assumption), so a smaller general service schedule applies and is carried as a Condition. A pending rate case (Docket E-01933A-25-0103, filed 17 June 2025) seeks a $220 million non-fuel increase that TEP's public notice describes as an overall retail increase of about 13 percent; no final order was identified as of 5 October 2026. Modeled cost: an all-in $0.20 per kWh on 300,000 kWh per year, or $60,000, plus $36,000 for water, sewer, gas and refuse (MMCG assumption).

Solar interconnection and export. TEP compensates exports under the Resource Comparison Proxy rider: the export rate is locked for 10 years, cannot fall more than 10 percent per year, and is $0.0462 per kWh for 1 October 2026 through 30 September 2027, which the model uses; RCP customers take a time-of-use plan.

Property tax. Arizona taxes commercial property as Class 1; the assessment ratio falls from 15.5 percent in tax year 2026 to 15.0 percent beginning in 2027 (Arizona JLBC fiscal note on SB 1093), and the Pima County Assessor moved commercial valuation to the CoreLogic Marshall & Swift square-foot method in tax year 2026. Modeled tax: a $3,600,000 full cash value (MMCG assumption) at 15.0 percent gives $540,000 of net assessed value; at a combined rate of $12.50 per $100 (MMCG assumption), annual tax is $67,500.

Pima County had 1,074,685 residents on 1 July 2025, up 3.0 percent from April 2020; 18.8 percent under 18 and 24.4 percent aged 65 or older, so 56.8 percent aged 18 to 64 (U.S. Census QuickFacts). Census figures for the 5-mile trade area were not retrieved; the model assumes 110,000 adults aged 18 to 44 within 5 miles, including University of Arizona students and the airport and I-10 employment corridor (MMCG assumption, carried as a Condition).

Climbing Business Journal's Gyms and Trends 2025 report counts 53 new North American gyms in 2025 and 41 net new, a 4.7 percent net growth rate, with 356,314 SF of new climbing terrain; in its survey of 240 facilities, 73 percent of operators reported worsening economic conditions and 61 percent expected revenue to improve in 2026. One operator summed up the year as "Boom times are over." The same report highlights youth programming as the rising revenue stream.

Stabilized demand of 1,300 members equals 1.18 percent of the assumed 110,000-adult cohort, and the staffing target is 76.5 members per FTE (MMCG assumption). Youth demand is documented locally: Rock Solid publishes youth programs, a fall break camp, a climbing club and homeschool programs; The BLOC fields a youth team; Rock Solid's College Night is the only documented university-oriented program, and no formal corporate or university partnership agreement is documented in the Tucson market. SFIA participation data were not retrieved and are carried as a Condition.

The census covers every dedicated climbing gym within a 30-minute drive of the subject; drive times are MMCG estimates. No Movement, Bouldering Project or Touchstone location is present, and no announced Tucson opening was found. Rocks and Ropes Downtown and The BLOC share ownership.

Competitor Number 1: Rocks and Ropes Downtown, 330 S Toole Ave #400 (about 12 minutes). 14,000-plus SF and 35 feet tall with 50 top-ropes (secondary); opened 1992 and later doubled in size; roped climbing, bouldering, a spray wall and a Kilter board. Membership (operator site, 5 October 2026): EFT at $74 per month plus a $50 initiation fee; one-month prepaid $94, or $84 discounted; household one-month $159; punchcards $150 and $200. Day visits: $30 first-visit package, $20 admission, $8 gear rental; a September 2026 promotion sold 20-admission punchcards at $245.

Competitor Number 2: The BLOC climbing + fitness + yoga, 8975 E Tanque Verde Rd #155 (about 28 minutes). 20,000 SF, founded 2011, with 7,000 SF of bouldering walls, a dozen auto-belays and a MoonBoard. The 1 to 15 October 2026 membership drive prices a 6-month individual at $399, a 12-month individual at $745 and a 12-month household at $1,350 (operator site).

Competitor Number 3: Rock Solid Climbing + Fitness, 3949 W Costco Dr Suite 151, Marana (about 22 minutes). More than 12,000 SF of climbing terrain plus a fitness studio and kid zone. The operator's July 2026 rate sheet lists an all-inclusive individual monthly membership at $91 and an all-inclusive day pass at $28; older FAQ pricing of $625 per year is carried as possibly superseded.

Competitor Number 4: Kick Rocks, 8330 N Thornydale Rd (about 25 minutes). A cardio kickboxing studio with indoor climbing walls (Arizona Daily Star); prices not verified. A hybrid concept and only a minor competitor.

The subject's list price is $89 per month, between Rocks and Ropes' $74 EFT rate and Rock Solid's $91 all-inclusive rate. Realized yield after household, student and founding discounts is $78 per member per month, rising 3 percent a year from Year 4. Other prices (all MMCG assumptions): day passes and punchcards net $24 a visit against a market range of $20 to $30; youth team of 70 athletes at $185 per month for 11 months ($142,450); 8 weeks of camps with 40 campers at $325 ($104,000); classes and yoga add-ons $60,000; parties, groups and corporate events $110,000; retail and gear rental $95,000. Annual attrition is modeled at 40 percent (MMCG assumption); published climbing attrition benchmarks were not retrieved.

Other revenue reaches 70 percent of its stabilized level in Year 1 and 90 percent in Year 2, then grows 3 percent a year (MMCG assumption).

Source: Marshall & Swift CoreLogic, MMCG

All unit costs other than the land price are MMCG assumptions; the wall-cost spread runs from $840,000 at the modular rate to $1,540,000 at the premium rate.

Loan Assumptions (as restructured)

SOP 50 10 8, Section A, Chapter 3, Paragraph A.1 governs matching loan maturity to asset life, so the 25-year debenture and first lien finance only long-life assets.

The $895,000 7(a) loan funds the equipment and working capital columns.

Sources and uses

Debenture pricing. The September 2026 25-year debenture priced on 10 September 2026 at 5.41 percent against a 4.91 percent comparable Treasury (the pool held 567 loans totaling $632,918,000); the effective rate including the 0.364 percent SBA, 0.625 percent CDC and 0.100 percent central servicing fees is 6.54 percent, with a 50 bp upfront guaranty fee for non-manufacturing projects. October 2026 pricing had not been published at the study date. Published prime-rate sources conflict (6.75 versus 7.00 percent); the 7(a) tranche is modeled at 9.50 percent.

Annual debt service by tranche

Compliance table

The restructured case passes every stated test, with the job test met exactly at the $150,000 energy ratio; that pass depends on the energy public policy determination and on crediting five coaching FTE built from part-time hours (MMCG judgement).

Stabilized Year 3; all figures MMCG assumption unless noted.

The solar credit combines 140,000 kWh consumed on site at $0.11 and 35,000 kWh exported at $0.0462. Stabilized EBITDA before rent is $901,127, a 42.7 percent margin; on a leased-operator basis at an equivalent market rent of $336,000 (24,000 SF at $14 NNN, MMCG assumption), the margin is 26.8 percent, the comparable figure for leased climbing gyms. No published climbing-gym margin benchmark was retrieved for reconciliation, and this is carried as a Condition.

Project-level DSCR divides EBITDA by first-lien and debenture debt service; global DSCR combines the OC and EPC, eliminates the intercompany rent, and divides by all tranches. The Year 1 global shortfall of $355,596 is funded from the $375,000 ramp reserve, leaving $19,404. Guarantor personal cash flow is excluded.

Each member contributes $936 a year at Year 3 yield, against $895,450 of non-membership revenue.

The Project reaches 1.25x only with 97 percent of target membership. Membership is the controlling variable.

The attrition cases hold gross annual additions at 520 members. The appraisal case is a sizing consequence rather than a coverage risk: it adds $1,377,239 of equity, raising the injection to 36.8 percent of the 504 project. A new competitor within 15 minutes is the single case that pushes coverage below 1.00x.