Loan-to-Cost (LTC)

Loan-to-cost is the loan amount divided by the total cost of a project: acquisition price, hard construction or renovation costs, soft costs like architecture and permitting, and contingency reserves. A sponsor with $5,000,000 of acquisition cost, $2,200,000 in renovation, $500,000 of soft costs, and $300,000 of reserves has an $8,000,000 total project cost; a $5,600,000 loan against that is 70% LTC. LTC is the leverage metric of choice for construction and value-add lending, where there is no stabilized income yet to support an LTV test against appraised value.

LTC sets the equity check on a construction or heavy value-add deal, and it is rarely the only test a lender runs. Ground-up construction typically caps out around 65%–75% LTC, and value-add bridge loans sometimes stretch to 75%–80% for experienced sponsors, but most lenders also underwrite loan-to-value against the projected as-stabilized appraisal and fund to whichever of the two produces the smaller number. Brokers pitching a construction quote tend to lead with the more generous LTC figure; borrowers should ask for the as-stabilized LTV test up front rather than discovering the real proceeds ceiling once the appraisal comes back below pro forma.

LTC ceilings, and whether a quote was for land, ground-up construction, or renovation, are exactly the kind of detail we capture in the observed lending terms of banks and debt funds active in construction and transitional lending.