Question:

What is a good commercial construction loan LTV?

Answer:

Why would lenders agree to a commercial construction loan LTV of 100%? After the completion of the construction project, the new appraised value may be much higher than the original appraised value of the project.

Consider an office building that cost $60 million to build. Upon completion, the appraiser stated the building was worth $100 million. That makes a construction loan LTV of 60%, which is a great LTV.

What is a reasonable commercial construction loan LTV on today's market?

No matter what type the commercial construction project is, LTV is rarely over 75% - for apartment and retail buildings, hotels and industrial projects. Lenders are particularly cool to office towers in central locations and assisted living apartment buildings, located anywhere.

With a commercial construction loan, you want an LTV of 75, or at least 20-25% for the project to appraise out. If it doesn't, you may like to get a mezzanine loan. Those are equity loans secured by the stock of the company in ownership of the construction project.

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