Deal snapshot
| Location | Sun Belt job-center satellite (example) |
| Property type | 12-unit garden walk-up (new construction) |
| Loan type | Multifamily construction — interest-only draws |
| Loan amount | $2.55M (75% of $3.40M as-completed) |
| Close time | 12 business days from complete construction package |
Problem — cost and value did not agree on the same loan amount
A sponsor controlled an entitled pad next to a job-center satellite and wanted a 12-unit garden walk-up. Hard-cost bids plus land basis plus soft cost plus contingency plus reserve landed near $2.88 million all-in. Unit comps in the same product supported about $3.40 million as-completed.
The sponsor asked for 90% of cost — roughly $2.59 million — because that is the phrase that shows up in construction marketing. The value cap said otherwise. 75% of $3.40 million is $2.55 million. The loan that can be repaid is the lower number.
This example is the stack, the draws, and the takeout math — not a HUD story and not a scattered build-to-rent pod. Product page: multifamily construction loans. Starting point across build types: new construction loans for investors.
Property snapshot
| Line | Amount |
|---|---|
| Entitled pad (already owned, as-is) | $420,000 |
| Hard cost | $1,860,000 |
| Soft cost | $210,000 |
| Contingency (12% of hard) | $223,000 |
| Interest + lease-up reserve | $165,000 |
| All-in | ~$2.88M |
| As-completed value (unit comps) | $3.40M |
| 75% of as-completed | $2.55M |
| Loan in the example | $2.55M |
| Cash to make the stack work | ~$330K above pad equity already in |
Pad equity is not free cash for taps and a slipped inspection. The sponsor still needed liquidity outside the land.
Challenge
Three failures show up on files like this.
Slogan LTC. “90% of cost” ignores the as-completed cap. When land is already in and finish is ambitious, the cap binds first.
Takeout modeled on construction IO. Interest-only on a rising balance is not a 25-year amortizing payment. A file that “clears” at 10.5% IO can fail DSCR at 6.75% amortizing on a 70% permanent.
Lease-up treated as a weekend. Twelve units delivering into a shoulder season need concessions and vacancy in the reserve. The example posts a lease-up reserve inside the $165,000 interest-and-lease-up line, not as a hope.
HUD 221(d)(4) would have been the wrong desk: wrong size, wrong timeline, wrong sponsor. Existing-building multifamily bridge would have been the wrong desk: there is no T-12 yet.
Solution — lower of cost and 75% as-completed, then draws
Jaken Finance Group construction box used in the example: 8.99%–13.5% interest-only, 10–14 business days on a complete package, business-purpose only. The loan amount is $2.55 million. Rate used in the carry model: 10.5% IO on the drawn balance.
Draw gates
| Gate | Work | Share of hard (example) |
|---|---|---|
| 1 | Site, footings, foundation | 18% |
| 2 | Structure / dry-in | 28% |
| 3 | MEP rough | 18% |
| 4 | Drywall, exterior, windows | 22% |
| 5 | Finish, CO, punch | 14% |
Each gate waits on a third-party inspection. Change orders need paper before the next draw increases. We do not advance a large share of hard cost before the foundation inspection.
Credit was reviewed. Approval rode on the budget, the GC who had delivered garden product in that metro, the comp set, and the takeout model.
Result — timeline in the example
| Milestone | Timing |
|---|---|
| Complete package in | Day 0 |
| Term sheet | Day 4 |
| Close / first land-and-site advance | Day 12 |
| Foundation inspection / Gate 1 | Week 6 |
| Dry-in / Gate 2 | Month 5 |
| MEP rough / Gate 3 | Month 7 |
| Drywall and exterior / Gate 4 | Month 9 |
| CO / Gate 5 | Month 12 |
| 70% leased | Month 14 |
| DSCR takeout conversation on trailing leases | Month 16 |
Interest accrues on what is drawn. A sponsor who models 10.5% on the full $2.55 million from day one overstates carry. A sponsor who models three months of interest on the full amount understates it. Follow the gates.
If the GC had walked at Gate 3, the file would have moved to mid-construction refinance with a remaining-work bid and lien review — not a polite upsize of the same facility.
Takeaway
Multifamily construction is a value-cap product that happens to use draws. If 75% of as-completed is lower than the cost story, bring cash or change the building. Model the permanent payment before you pour. HUD is a different product. BTR is a different product. A 12-unit garden is this product.
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Sponsor profile
The sponsor in this example had delivered two 4-unit buildings and hired a GC who had delivered 8–16 unit gardens in the same metro. That pairing matters more than a personal flip count. A first-time multifamily sponsor with that GC and a conservative unit mix can still clear. A first-time sponsor with no GC and a 90%-of-cost request does not.
Takeout math — the payment that has to work later
Assume 12 units at $1,450 advertised rent, 6% vacancy, taxes and insurance of $4,800 per month, and operating expenses at 30% of effective gross (excluding those tax/insurance lines already pulled out — keep the chart honest in your own model; the point is conservatism).
A sketch:
- Gross: 12 × $1,450 = $17,400 / month
- Vacancy 6%: $16,356 effective
- After a heavy opex and tax load, monthly NOI in a conservative sketch might land near $8,500–$9,500. Run your actual bills.
Permanent leverage at 70% of $3.40M = $2.38M. At 6.75% and 25-year amortization, monthly P&I is about $16,400. That does not clear a $9,000 NOI. The example therefore does one of three things before vertical starts:
- Cut cost so the construction loan and the takeout loan are smaller
- Prove higher rent with executed pre-leases or tighter comps
- Plan a larger equity check so takeout is on a smaller balance
Construction IO at 10.5% on an average drawn $1.6M is about $14,000 per month at peak draw — also tight, which is why the reserve exists. The lesson is not a single NOI number. The lesson is: run both payments before you publish a start date.
DSCR takeout terms live on 5–10 unit multifamily DSCR and 10+ unit multifamily DSCR. Use 5.75%–10.5% as the published permanent band, not a 4% wish.
Diligence that moved the example
Unit comps, not a cap rate. Three sold or leased gardens with the same bedroom mix and parking. A downtown mid-rise cap rate is not a comp.
GC schedule vs inspection reality. Twelve months plus a weather month. The example does not pretend dry-in happens in week eight in a rainy season.
Sprinklers, accessibility, parking. Cost lines that were in the bid. Files that “find” them at Gate 3 eat the contingency.
Tax and insurance quotes on the finished product. Garden multifamily insurance is not an SFR number times twelve.
What the first lender’s term sheet got wrong
A construction shop quoted “up to 90% LTC” on a one-pager and asked for plans later. When plans arrived, the as-completed appraisal — had they ordered one — would have bound at 75% of $3.40M. The example does not wait for that surprise at the commitment committee. It runs the cap on day one.
A second shop wanted a full recourse 25-year amortizing construction loan at a bank rate. That product exists. It was not going to close in 12 business days on this pad. The sponsor needed a draw facility, not a 25-year construction myth.
Change orders and the contingency that has to survive Gate 3
The example’s $223,000 contingency is 12% of hard cost. Gate 2 found a soil correction. Gate 3 found a wet-stack redesign. Together they used about $90,000. The file still had powder for finish. A 5% contingency would have been gone, and the next conversation would have been a mid-build refinance with liens.
Write change orders before the draw, not after the drywall is up. We will not increase a draw on a handshake.
When this example does not apply
- Scattered SFR build-to-rent — BTR pages
- $900K+ single-family spec — luxury new construction
- Unentitled acreage — A&D loans
- Infill scrape of one house — infill lot development financing
- Owner-occupied fourplex rebuilds
Rent roll the takeout desk will actually accept
The example does not send a brochure of “market rents.” It sends:
- Unit mix by bedroom and bath
- Asking rent and any concession
- Comp leases within a tight radius and the same product
- A lease-up calendar by month, not a single “stabilized” column
- Tax and insurance quotes on the finished garden, not an SFR estimate
A takeout desk that sees twelve units at the same rent with no concessions and a 2% vacancy will send it back. New construction leases like new construction: faster on the good floor plans, slower on the odd ones, and never all on one Tuesday.
What “12 business days to close” required
The example closed in 12 business days because the package was complete: plans, bid, GC contract, survey, entity, comps, and a takeout sketch. A file that arrives as a rendering and a wish is not a 12-day file. It is a 12-day delay after the package is finally complete.
Title on an entitled pad is usually cleaner than title on a scrape. That helped. A pad with an old easement fight would not have made the same clock.
Parking count that almost redesigned the building
The first plan showed 12 units and 11 spaces. The city wanted 1.25 spaces per unit. That is 15 spaces. The pad held 13 if the dumpster moved. The example cuts one bedroom mix that needed a third space and keeps 12 units with a fee-in-lieu on two spaces — written, paid, in the budget. A rendering with 11 spaces and a smile is not a construction package.
If your city has no fee-in-lieu, you cut a unit or you buy more dirt. Buying more dirt is infill or A&D, not a change order on this loan.
Why the example uses unit comps instead of a cap rate
A 5.5% cap on $186,000 of hoped NOI is a $3.38 million story that moves when you change the cap. Unit comps do not care about your cap. They care about what a two-bedroom garden leased for last quarter on this side of the highway. The example’s $3.40 million as-completed is a comp story. If the comps were $3.10 million, the 75% cap would have been $2.325 million and the cash gap would have been larger. The building would have needed a cheaper finish or a smaller loan. It would not have needed a more optimistic cap.
Interest curve across the five gates
Interest-only at 10.5% on a rising balance is a curve, not a flat $22,000 a month.
- After Gate 1 the drawn balance is mostly pad residual plus site work — interest is still modest.
- After Gate 3 the drawn balance is most of the hard cost. That is when carry hurts.
- After Gate 5 the building is standing and lease-up starts. Interest continues until takeout.
The $165,000 interest-and-lease-up reserve in the example is sized for that curve plus two empty months after CO. A reserve sized as “six months on the full loan from day one” overstates early carry and understates late carry. Follow the gates. If the GC slips 60 days at dry-in, the reserve has to absorb 60 days of peak-balance interest, not 60 days of Gate 1 interest.
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Example deal math on investor real estate. Rates, terms, and conditions apply only to qualified borrowers and may change without notice. Jaken Finance Group does not finance owner-occupied housing.