Draws, reserve, completion
Ground-up construction
Vertical construction debt with a draw schedule, a funded interest reserve and a completion guarantee.
A construction loan funds a building that does not exist yet, so it is administered rather than simply closed: inspections, lien waivers, draw requests and a budget that has to balance every month. Interest accrues only on what has actually been drawn, which is why the true cost is far below the face amount.
What this programme covers
- Land, hard cost, soft cost and contingency all inside one budget
- Draws follow an S-curve — slow mobilisation, fast middle, slow closeout
- Interest reserve capitalised into the loan and drawn monthly
- Completion and carry guarantees, plus a payment and performance bond or an approved alternative
Loan-to-cost and loan-to-stabilised-value are both tested. Whichever produces the smaller number is the loan.
Test it on your numbersWhat underwriting actually reads
The budget
Line by line against a guaranteed maximum price contract where one exists. Soft cost is checked as hard as hard cost, because it is where budgets are usually thin.
The contractor
Bonding capacity, backlog, financial statements and completed projects of this size and type.
The schedule
Critical path, long-lead items, and what a three-month delay does to the interest reserve.
The take-out
Stabilised NOI at an exit cap and an exit coverage floor. Construction debt sized above what permanent debt will refinance is a problem deferred, not solved.
Who it suits
- Experienced developers with a completed comparable project
- Build-to-suit with a signed lease in hand
- Owner-users constructing their own facility
- Not this programme: A first development, land without entitlements, or a budget with no contingency.
Illustrative scenarios in this class
- S-06 — illustrativeGround-up flex, two buildings$6,720,000 · Loan-to-cost binds70% of an $9.6M budget carrying 7% contingency on hard cost. Interest accrues only on drawn funds; on an S-curve draw the capitalised interest lands near $340K against a face amount ten times that.
Questions on this programme
When does the interest reserve run out?
When the schedule slips past what it was sized for. That is why the reserve is sized to the extended term rather than the base term.
Do you fund land acquisition?
Land already owned counts as equity at cost, not at appraised value. Land purchased at closing is funded inside the budget at the purchase price.