How is BTR construction-to-perm financing structured?

BTR construction loan structures and takeout mechanics

Construction loan with separate perm takeout: most common structure. Bank or debt fund construction loan with 24-36 month tenor plus extension options. Stabilized agency or bank perm takeout at lease-up completion. Sponsor bears Treasury rate risk between construction closing and perm rate-lock.

Construction-to-perm with locked perm rate: construction loan with embedded perm rate-lock. Common with bank execution; less common with agency. Sponsor pays a rate-lock fee to lock the perm rate at construction closing. Eliminates Treasury rate risk during construction.

HUD 221(d)(4) construction-to-perm: HUD provides 40-year fully-amortizing fixed-rate construction-to-perm directly. Construction phase typically 24-36 months; perm phase begins at construction completion. Single closing, single rate. Pricing: HUD's published rate plus MIP.

Phased delivery accommodation: BTR construction loans must accommodate phased delivery, phased TCO, phased rent commencement, phased operating expense start. Loan agreements typically reference phase delivery schedule with phase-by-phase completion tests.

Reserve mechanics: construction loan typically holds interest reserves through stabilization. With phased delivery, reserves may step down as phases stabilize and generate cash flow. Stabilized phases may be pulled out of the construction reserve calculation.

Sponsor playbook: model both construction-to-perm and standalone construction. Construction-to-perm provides rate certainty but typically prices wider; standalone construction is cheaper but exposes sponsor to perm-takeout rate movement. Agency takeout is the cheapest perm execution, so standalone may be more economic if rate environment is stable.