Case Study: $14.2M Ground-Up Multifamily Construction in Dallas, TX: 150 Units, 80% LTC, Regional Bank
A Texas-based developer broke ground on a 150-unit market-rate apartment community in Dallas with $14.2 million in construction financing from a regional bank. CLS CRE sourced the loan at 80% of total project costs, SOFR plus 285 basis points, on a 24-month interest-only draw schedule. The project closed 42 days from application to funding.
Deal at a Glance
The Project
The subject development is a 150-unit market-rate apartment community located in a high-growth submarket of Dallas, Texas. The project consists of a four-story wood-frame building on a 2.1-acre infill site, with one level of podium parking below the residential floors. The unit mix is weighted toward one-bedroom and two-bedroom layouts, targeting the workforce renter demographic that dominates Dallas demand.
Total project cost of $17.75 million includes land acquisition, hard construction costs, soft costs, and a 10% contingency reserve. The land was purchased 18 months prior and was fully entitled at the time of loan application. Architectural plans and permits were in hand, and a general contractor with an executed contract was in place before CLS CRE began lender outreach. These factors were critical in securing 80% LTC from a bank that typically caps new construction relationships at 75%.
Stabilized underwriting projected annual net operating income of approximately $1.62 million at 95% occupancy and market rents of $1,650 per unit per month on average, producing a stabilized value estimate of $21 million to $22 million at a 7.5% to 8.0% cap rate. The stabilized LTV on the construction loan was projected at 65 to 68%, giving the bank a meaningful equity cushion at exit.
The Borrower
The developer is a Dallas-based real estate group with seven completed multifamily projects in Texas totaling over 900 units. The sponsor's track record in the Dallas market, combined with long-standing relationships with the city's permitting office and established subcontractor relationships, gave the bank confidence in execution. Construction delays are among the top risks a lender underwrites in a ground-up deal, and an experienced local operator with a proven GC relationship substantially reduces that risk.
Sponsor equity at close was $3.55 million, representing 20% of total project cost. The bank required full personal guarantees from the operating partners throughout the construction period, with a burn-off provision tied to a certificate of occupancy and 85% physical occupancy. No borrower names are published per CLS CRE's privacy policy.
Project Cost Breakdown
| Cost Category | Amount | Per Unit |
|---|---|---|
| Land (purchased prior) | $2,100,000 | $14,000 |
| Hard construction costs | $12,400,000 | $82,667 |
| Soft costs (A&E, permits, legal) | $1,750,000 | $11,667 |
| Financing costs and interest reserve | $900,000 | $6,000 |
| Contingency (10%) | $600,000 | $4,000 |
| Total Project Cost | $17,750,000 | $118,333 |
Construction cost of $82,667 per unit is within the expected range for wood-frame multifamily construction in the Dallas metro in 2026. Hard costs have stabilized relative to the 2022 to 2024 period, and material lead times have normalized for most structural components. The 10% contingency, while meaningful at $600K, gave the lender comfort against cost overruns without requiring the borrower to over-capitalize.
Why a Regional Bank Beat the Debt Fund
CLS CRE evaluated two execution paths: a regional bank relationship and a private debt fund specializing in construction lending. Both were competitive, but the bank won on rate and structure. The comparison illustrates why lender selection matters even when multiple term sheets are available:
- Rate: The bank priced at SOFR plus 285 basis points. The debt fund offered SOFR plus 385 basis points, a full point higher. On a $14.2M loan, that 100 basis point spread represents approximately $142,000 in annual interest savings during the construction period.
- Interest reserve: The bank funded a 12-month interest reserve built into the loan budget, reducing out-of-pocket carrying costs during the construction draw period. The debt fund required a separate reserve funded by the borrower.
- Extension option: The bank included a 6-month extension option at a 25 basis point fee with no requalification required, provided the project was on schedule at month 18. The debt fund offered no extension provisions.
- Relationship value: The bank expressed interest in providing the permanent take-out loan at stabilization, eliminating a future refinance risk. The debt fund is a pure construction lender with no agency or permanent lending capabilities.
Debt fund construction loans are not always the expensive option. In many cases they offer faster execution, higher LTC, and less documentation friction than banks. This deal favored the bank because the sponsor's track record and the fully entitled, permitted project met the bank's credit standards. Sponsors without a Texas construction history or with incomplete entitlements would have had a harder time with bank execution at 80% LTC.
The Underwriting
Bank construction lenders underwrite to stabilized metrics rather than current NOI, since the asset produces no income during construction. The key underwriting tests for this deal:
- Loan to cost: 80% (the bank's maximum for this product; most banks cap at 70 to 75%)
- Stabilized LTV: 65 to 68% at a 7.5 to 8.0% exit cap rate (the primary de-risking metric)
- Debt yield at stabilization: 11.4% on the construction loan balance (well above the 9% minimum)
- Interest coverage: The interest reserve covers 12 months; completion is projected at month 20, leaving 4 months of reserve cushion
- Sponsor net worth: 1.0x loan amount minimum, met by the operating partners combined
- Sponsor liquidity: 10% of loan amount in unencumbered liquid assets, met
- GC qualification: Bank-approved general contractor with bonding capacity and completed projects in excess of $30M
Loan Structure
- Loan amount: $14,200,000 (draw facility; not fully funded at close)
- Interest rate: SOFR plus 285 basis points (floating; resets monthly)
- Term: 24 months interest-only with a 6-month extension option
- Draw schedule: Monthly draws tied to independent inspector certifications and AIA G702 requisitions
- Interest reserve: 12 months funded at close, built into loan budget
- Recourse: Full personal guaranty during construction; burn-off at 85% occupancy and 12 months of stabilized DSCR above 1.20x
- Origination fee: 1.0%
- Exit fee: None
- Time to funding: 42 days from signed application to first draw
What Made This Deal Work
- Fully entitled, permitted project. Nothing delays a construction loan close like an incomplete entitlement or a missing permit. Having city approvals in hand and the GC under contract before approaching lenders reduced the bank's execution risk and allowed the underwriting to focus on financial metrics rather than permitting timeline risk.
- Experienced sponsor with in-market track record. Seven completed Texas multifamily projects is not a checkbox, it is a competitive advantage. The bank had visibility into the sponsor's actual construction performance, cost control history, and subcontractor relationships. New-to-market sponsors with similar projects in other states would have received a different underwriting result.
- Stabilized LTV inside 70%. Even at 80% LTC, the stabilized LTV stayed below 68%. This is the key ratio that moves bank credit committees on new construction deals. When the exit math works at market cap rates, the credit approval is simpler.
- Interest reserve built into the budget. Funding the interest reserve from the loan rather than requiring the borrower to carry it out-of-pocket improved the sponsor's equity efficiency and reduced the risk of a cash flow crunch during the pre-revenue construction period.
- CLS CRE ran a competitive process. Presenting simultaneous term sheets from both the bank and the debt fund gave the borrower leverage to negotiate. The bank's final pricing moved 15 basis points tighter after seeing the competing term sheet.
Key Takeaway for Multifamily Developers
Ground-up construction lending in 2026 remains available at 75 to 80% LTC for experienced sponsors in high-demand markets, but lender selection and timing of the loan application relative to the entitlement process matter enormously. Bank construction loans offer the best economics for well-qualified borrowers with fully permitted projects. Debt funds fill the gap for sponsors who need to move faster, have less seasoned track records, or are in secondary markets where bank lending appetite is thinner.
Dallas, Austin, Nashville, Charlotte, and Phoenix remain the most active markets for bank construction lending in 2026. Lenders in these markets are comfortable with the rental demand fundamentals and the exit cap rate assumptions required to underwrite stabilized LTV. Projects in markets with weaker rental growth or higher delivery pipelines are seeing wider spreads and lower LTC availability.
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