Securing construction financing can be one of the most complex steps in bringing a real estate development to life. Whether you’re building a multifamily property, retail center, or industrial facility, lenders will scrutinize every element of your project. Understanding their key priorities can make the difference between a quick approval and costly delays.
Developer Experience and Track Record
Lenders want confidence that the borrower has the capacity to execute the project successfully. This includes a proven history of completing similar projects, delivering on time and on budget, and assembling a strong team that includes experienced architects, contractors, and consultants. For first-time developers, teaming up with seasoned professionals can go a long way in reducing lender risk.
Project Feasibility and Market Demand
Lenders evaluate whether your project fits within the current market. They’ll assess whether there’s proven demand for the property type, if your pro forma rents or sale prices are in line with comparables, and whether you’ve commissioned credible third-party market studies. Projects located near employment hubs, transit, or educational institutions often receive stronger interest.
Loan-to-Cost and Loan-to-Value Ratios
Most construction lenders are willing to finance 65% to 80% of a project’s total cost – some may fund up to 100% – and often underwrite up to 75% of stabilized value – again, some are higher. The rest must be covered by borrower equity or subordinate capital such as mezzanine or preferred equity. A strong capital stack signals commitment and mitigates risk.
Exit Strategy
Lenders want clarity on how their loan will be repaid. Common exit strategies include refinancing into a permanent loan after lease-up, selling the stabilized asset, or a sell-out in the case of for-sale units. Demonstrating realistic timelines and sound underwriting for your exit strategy is essential.
Construction Budget and Contingencies
Your detailed development budget—including both hard and soft costs—will be under close review. Lenders also expect to see proper contingency reserves (typically 5% to 10%) and an interest reserve. The general contractor’s credentials, bondability, and fee structure also weigh heavily into the decision process.
Permits, Approvals, and Environmental Readiness
Before a lender releases funds, they want to see finalized plans, zoning and permit approvals, and a clean environmental assessment (often a Phase I or II). If approvals are still pending, this may delay closing or reduce leverage.
Financial Strength of the Borrower
Even the best project can be derailed without a financially capable borrower. Lenders usually require borrowers to meet net worth and liquidity minimums, often tied to a percentage of the loan amount. Personal guarantees or completion guarantees are common, especially for non-institutional sponsors.
Final Thoughts
Construction loans come with higher scrutiny than stabilized assets, but the right preparation can help your deal stand out. At i95 Capital, we specialize in pairing real estate developers with lending partners who understand the complexities of ground-up construction. From budgeting to structuring, we help streamline the financing process so you can focus on execution.
Ready to Build?
Whether you’re planning a new development or repositioning an existing site, we’re here to help you secure the construction capital you need.
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