The CRE Suite: Understanding the Construction Loan


The purpose of this post is to outline the key functions of the Construction Loan in CREModels development models. These features should be universal across all development models unless noted otherwise.


Construction Loan Amount

The amount of the development that the Construction Loan will fund is based on the users Loan-to-Cost (LTC) input. This can be found on the Inputs tab of any of the development models (found under the Financing Assumptions section usually located near the top of the tab). Any remaining balance needed to fund the development will be supplied by equity. For example, if the total Development Budget is ($10,000,000) and the user inputs (70%) as the LTC, then the loan will fund ($7,000,000) while the remaining ($3,000,000) will be funded by equity.

Loan Draws

Before draws are made against the loan, the model will draw the equity down until depleted. The amount drawn each month is determined by the development schedule entered by the user in the Development Budget section of the Inputs tab. Using the example above, the model will draw upon the $3,000,000 of equity each month to cover the cost of the development until there is no equity remaining. At that point, the model will start making draws against the loan and interest will begin to accrue.



The Construction Loan interest rate is entered by the user and, in most development models, is the sum of “LIBOR/SOFR”, “Lender Spread”, and “Add’l Spread”.


Interest will begin to accrue once draws are made against the loan. The model will ONLY service the interest on the loan once it has generated enough operating cash flow to cover it each month. Until that point, the model will service the interest with the Interest Reserve (or Interest Carry). The model will automatically determine how much interest will accrue between the beginning of the loan and the point in time in which there is enough operating cash flow to cover it, this amount will be the Interest Reserve. The Interest Reserve will be considered a development cost which will be funded either by the Construction Loan and/or equity.

Max Loan Balance

The Max Loan Balance is the largest balance that the Construction Loan will be at any point in time during its life. This does not necessarily equal the sum of total draws since occasionally a development could have positive cash flows while draws are still being made against the loan hence reducing the outstanding loan balance. See the “Paydown” section below for further information.

Last Disbursement

The Last Disbursement figure shows the final month in which there is a development cost. It’s important to note that the Construction Loan Term cannot be less than the Last Disbursement month. In some instances, the Last Disbursement month will appear larger than the last development cost item entered the user. In most cases this is due to the Operating Deficit line, meaning that although the construction itself may be complete, the property isn’t producing enough revenue to cover all operating expenses. Always make sure you set the Construction Loan Term to at least 1 month after the Last Disbursement


The loan is paid down either when the Construction Loan is re-financed (controlled by the loan term input) or at the end of the project’s life (as determined by the Month of Sale input). In most development models, the construction loan can be re-financed by “Permanent Financing” or “Mini-Perms” as applicable.
NOTE: Unit Sales Development Model does NOT have the ability to refinance the Construction Loan. The loan is either paid down when the final unit has sold, or when the balance has been paid off via release price payments (see below).


a) Unit Sales

The Unit Sales Development Model has the ability to make release payments towards the Construction Loan balance as units are sold off. In most cases, the loan should be paid off before the end of the life of the project.


b) Commercial Development

Like the Unit Sales model, the Commercial Development also has the ability to make release payments based on the sale of outparcels. Outparcels can be sold any time prior to the Month of Sale for the project and the user can input to make a release payment towards whichever loan is currently active upon the month of sale.