A Charlotte-based multifamily developer secured $26 million in construction financing for a 120-unit garden-style project in the Uptown/South End submarket, demonstrating that well-positioned Charlotte multifamily deals continue to attract competitive construction lending despite broader market headwinds. The transaction closed at 65% loan-to-cost with a regional Southeast bank, paired with a forward commitment from a Fannie Mae DUS lender for the permanent takeout.
The Deal
The borrower needed construction financing for a ground-up multifamily development positioned between Charlotte's central business district and the established South End corridor. The 120-unit garden-walkup design targets the urban renter demographic while maintaining construction efficiency through lower-density positioning. The sponsor required a construction lender comfortable with Charlotte's multifamily fundamentals and a clear path to permanent financing at stabilization.
The project's urban positioning created specific underwriting considerations. Unlike suburban garden communities, the site required navigating Charlotte's evolving zoning framework while capturing rent premiums justified by proximity to employment centers and transit access. The borrower needed a lender that understood both the construction complexities and the local rental market dynamics driving absorption.
The Challenge
Construction lending for ground-up multifamily has contracted significantly across most Sunbelt markets, with many regional and community banks reducing exposure to new development loans. National construction lenders have pulled back from secondary markets, while local banks face deposit pressures and regulatory scrutiny on commercial real estate concentrations.
Charlotte presented a specific challenge within this broader context. While the market has shown resilience compared to Austin, Nashville, or Phoenix, lenders remained selective about location, sponsorship, and project positioning. Many construction lenders required pre-leasing levels that made ground-up development uneconomical, while others had suspended multifamily lending entirely.
The borrower also needed certainty on permanent financing given the extended construction and lease-up timeline. With permanent rates volatile and takeout requirements tightening, securing a forward commitment at attractive terms required careful lender selection and timing.
The Solution
We identified a regional Southeast bank with specific Charlotte market knowledge and maintained appetite for well-located multifamily construction. The lender's Charlotte-based underwriting team understood the Uptown/South End corridor's rental dynamics and felt comfortable with the sponsor's local track record.
The construction loan structured at 65% loan-to-cost with full recourse during the construction and lease-up phases, burning off to non-recourse at stabilization (defined as 90% occupancy for 90 consecutive days). The rate priced at prime plus 100 basis points with a 2.5% floor, providing some downside protection if rates declined during the construction period. The 24-month initial term included two six-month extension options, giving adequate time for construction completion and initial lease-up.
For permanent financing, we secured a forward commitment from an established Fannie Mae DUS lender with significant Charlotte multifamily experience. The permanent loan commitment provides 75% loan-to-value based on a 6.25% cap rate assumption, with rate lock available 90 days prior to conversion. The permanent loan structured as a 12-year term with 30-year amortization, providing attractive long-term financing for the stabilized asset.
The timing coordination between construction and permanent lenders proved critical. The DUS lender's underwriting assumptions needed to align with the construction lender's stabilization requirements, while both lenders required consistent market analysis and project proformas.
The Outcome
The borrower secured construction financing at terms that made the development economically viable while maintaining a clear path to permanent financing. The 65% loan-to-cost basis preserved adequate equity returns while minimizing recourse exposure through the burn-off provision.
The forward commitment on permanent financing eliminated takeout risk and provided rate certainty within 90 days of conversion. The DUS lender's 75% loan-to-value assumption created potential for significant cash-out at stabilization, improving the project's overall returns.
Most importantly, the deal demonstrated that Charlotte multifamily construction can still access competitive financing when properly positioned. The regional bank's continued appetite for local deals, combined with agency permanent financing, created a financing structure that worked for both construction and long-term hold strategies.
The transaction closed within 90 days of application, allowing the borrower to commence construction on schedule. Both lenders provided certainty on terms and timing that enabled the sponsor to move forward with confidence despite broader market volatility in construction lending.