Condo construction lenders require pre-sale thresholds (typically 30 to 50 percent of units under contract with non-refundable deposits) before closing the loan, elevated sponsor equity (typically 30 to 40 percent of cost), and structured release-pricing where unit closings paydown the loan at a stated multiple of allocated value.
Why are pre-sales required?
Pre-sales validate market demand and pricing assumptions, reducing the lender's exit risk. The deposit (typically 10 to 20 percent of unit price) shows buyer commitment. Lenders structure release prices to make sure that early closings paydown the loan faster than the unit value would suggest, protecting against negative selection.
What happens if pre-sales stall?
Lenders typically require a marketing-period extension test: pre-sale velocity must keep PACE with construction progress. Persistent stall can require sponsor recourse re-engagement, a partial paydown, or conversion of unsold units to rental and a recapitalization with permanent debt rather than continued condo execution.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Quarterly Banking Profile · Federal Deposit Insurance Corporation · 2026-Q1