The Post-2023 Lender Landscape
Regional and community banks historically dominated construction lending, providing relationship-driven financing to local developers. The stress events of 2023 changed that picture permanently for many institutions. Regulatory pressure, CRE concentration limits, and rising non-performing loan ratios pushed dozens of banks to pause or significantly scale back new construction commitments.
Who Is Lending Today
The gap has been filled — partially — by a different set of capital providers:
- Debt funds: Non-bank lenders have become the primary construction execution source for many mid-market developers. Higher pricing (typically SOFR + 450–600 bps) but flexible underwriting and faster closings.
- Large national banks: Still active, but primarily for institutional sponsorship on $30M+ projects with substantial pre-leasing or pre-sales.
- Life company construction-to-perm: A small but growing segment for stabilized asset types — multifamily and industrial — with sub-75% LTC and strong sponsorship.
- Agency forward commitments: For multifamily, forward rate lock structures through Fannie and Freddie have gained traction as a construction exit risk mitigation tool.
Underwriting Shifts
Lenders today underwrite construction loans with significantly tighter parameters than three years ago. LTC has compressed from peaks of 80–85% down to 65–75% for most asset types. Cost contingency requirements have increased, and completion guarantees are non-negotiable.
Opportunities in the Dislocation
With starts still below replacement levels in most major markets, developers who can navigate the current financing environment have less competition and better exit dynamics. Getting construction financing done today requires the right lender relationships and a well-packaged deal.