Loan-to-Cost (LTC)
The ratio of a loan amount to the total project cost, commonly used for construction and development financing. For example, a $70 million loan on a $100 million project has a 70% LTC. Construction lenders typically limit LTC to 60-75% of total project costs, with the remainder funded by equity.
Related Terms
LTV (Loan-to-Value Ratio)
The ratio of a loan amount to the appraised value of a property, expressed as a percentage. For example, a $7 million loan on a $10 million property has a 70% LTV. Lower LTVs represent less risk to lenders and typically result in better rates. Maximum LTVs vary by lender type: life companies (55-65%), CMBS (up to 75%), and agencies (up to 80% for multifamily).
Construction Loan
Short-term financing used to fund the development of new commercial real estate projects. Construction loans are disbursed in draws as work is completed, with interest accruing only on funds advanced. They typically feature floating rates, 18-36 month terms, and require personal guarantees. Upon completion, the loan is paid off through permanent financing or sale.
Ground-Up Development
New construction of a commercial property from raw or improved land. Ground-up development involves significant execution risk, including entitlement, construction, and lease-up phases. It typically requires construction financing with recourse guarantees, followed by bridge or permanent financing upon stabilization.
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