$20M Ground-Up Multifamily Construction Houston | Commercial Lending Solutions 
Loan Size Example

$20 Million Ground-Up Multifamily Construction in Houston

By Trevor Damyan, Commercial Mortgage Broker at Commercial Lending Solutions

A $20 million ground-up multifamily construction loan in Houston represents a mid-sized urban or urban-adjacent development typical of the Houston market's steady apartment demand. At this loan size, sponsors are usually building 150 to 250 units in submarkets like Midtown, East End, or the Heights where land and construction costs justify the capital commitment. Lenders at this level favor experienced teams with strong balance sheets, typically requiring 20 to 30 percent equity and offering construction-period rates in the 8.00 to 8.50 percent range, with permanent financing structured at 7.75 to 8.25 percent depending on stabilized underwriting and market conditions.

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Capital Stack

What a $20M Ground-Up Multifamily Construction Capital Stack Looks Like

Capital stacks for $20 million ground-up construction in Houston typically pair a construction facility from a regional bank or debt fund with a forward commitment from an agency lender or life company for permanent takeout. Lender selection hinges on the sponsor's equity position, the submarket's rent growth trajectory, and the timeline to stabilization, with most deals using a 65 to 75 percent loan-to-cost structure on construction and stepping down to 60 to 70 percent LTV at permanent close.

Capital Source Rate / Cost Size / LTV Notes
Regional bank or construction-focused debt fund 8.00 to 8.50 percent, typically priced off prime or SOFR plus spread $14M to $16M (70 to 75 percent LTC) Provides 24 to 30 month construction facility with interest-only accrual. Lender typically retains appraisal and annual monitoring rights. Recourse is full or partial depending on sponsor net worth and prior deal track record.
Agency lender (Freddie Mac DUS or Fannie Mae DUS standard program) 7.75 to 8.25 percent, 10-year Treasury plus agency spread $12M to $14M (60 to 70 percent LTV at stabilization) Forward commitment locked during construction; funds at permanent close after lease-up and operational proof. Requires 75 percent occupancy and 1.20x DSCR minimum. Term is typically 10 years with 30-year amortization.
Sponsor equity N/A (cost of capital varies) $5M to $6M (25 to 30 percent of total development cost) Covers land, soft costs, contingency, and debt service during construction phase. Strong equity presence demonstrates sponsor commitment and reduces lender risk. Preferred equity or mezzanine may be layered if sponsor seeks to stretch leverage.
Life company (alternative to agency for larger or premium sponsors) 7.90 to 8.40 percent, fixed or floating indexed option $12M to $15M (60 to 65 percent LTV at stabilization) Offers longer fixed-rate term, faster approvals, and more flexible underwriting than agencies. Preferred by sponsors wanting simplicity or operating in markets perceived as higher-risk. Recourse is typically full.

Pricing reflects active CLS CRE quote pipeline as of April 2026. Specific deal pricing depends on sponsor, property, and structure.

Sponsor Profile

Who Closes a $20M Ground-Up Multifamily Construction Deal

Typical sponsors closing $20 million ground-up multifamily in Houston have net worth of $10 million to $25 million and a track record of 3 to 7 completed or stabilized apartment projects. They are usually experienced multifamily operators or regional developers with strong banking relationships and an existing presence in the Houston market, often motivated by favorable Houston rent growth, population inflow, and the city's cost advantage relative to coastal markets. Many are repeat borrowers seeking to recycle equity or diversify their portfolio across complementary Houston submarkets.

From the CLS CRE Pipeline

A Real $20M Example

A sponsor in the East End submarket obtained a $20 million construction loan for a 180-unit garden-style apartment community. The structure included a $14.5 million construction facility from a regional bank at 8.10 percent with a 28-month draw period, paired with a $12 million forward permanent commitment from an agency lender at 8.05 percent locked during construction. The sponsor invested $5.5 million in equity covering land and soft costs, achieving a 72.5 percent loan-to-cost structure on construction and 65 percent LTV at permanent close. The project stabilized at 88 percent occupancy within 18 months of delivery, exceeding the 1.35x permanent DSCR covenant and allowing the sponsor to refinance into a longer fixed-rate product.

Anonymized. All deal references protect borrower and lender identity.

FAQ

$20M Ground-Up Multifamily Construction Houston FAQ

Most construction facilities are 24 to 30 months with quarterly interest accrual or monthly accrual depending on lender preference. Interest accrues during construction and is either capitalized into the outstanding loan balance or paid directly by the sponsor. At permanent close, accrued interest rolls into the permanent loan balance, so sponsors should model debt service from day one of construction.
Agencies typically do not provide construction funding directly; they provide forward permanent commitments that fund only after lease-up and operational performance proof. A sponsor must secure construction debt from a bank or debt fund for the 24 to 30 month development period, then transition to agency permanent financing at delivery. Using a single lender for both construction and permanent is possible with some life companies or banks, which simplifies coordination but may limit pricing options.
Agency lenders typically require 75 percent occupancy and a 1.20x stabilized DSCR before permanent close, though strong markets like Houston may see lenders accept 70 percent occupancy with supporting market data. Operating history of 6 months is preferred to demonstrate actual rent and expense performance. Missing these thresholds may delay permanent funding or require rate adjustments.
Most lenders want to see 25 to 30 percent equity, meaning a total development cost of $26 million to $27 million with a $20 million loan. This equity covers land, permits, soft costs, contingencies, and debt service during construction. If a sponsor is capital-constrained, some lenders will accept 20 to 22 percent equity with additional guarantees or reduced leverage on permanent, though pricing will reflect higher risk.
Yes, premium inner-loop neighborhoods like Midtown and the Heights command lower rates and higher leverage due to stronger rent growth and tenant demand, while outer suburbs or emerging areas may face 25 to 50 basis points higher rates or require lower LTV. Lenders also prefer projects with amenities and modern unit finishes in competitive submarkets. Market rent growth history and comparable supply levels significantly influence pricing, so submarket selection affects both feasibility and permanent takeout terms.


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