Standard release: retainage is held at 10% on each hard-cost draw and released in two tranches, 50% at substantial completion against the certificate of occupancy plus architect sign-off, with the balance released at final completion (punch list closed, all final lien waivers delivered). Sponsor-friendly drafts step retainage to 5% at 50% complete and release the bulk at substantial completion.
Retainage mechanics that affect sponsor working capital
Retainage is the lender's (and the sponsor's) hold-back from each construction draw to make sure the GC and subs finish the job. On a $40M hard-cost budget at 10% retainage, the held-back amount climbs to $4M by substantial completion, meaningful working capital that the sponsor and the GC's subs cannot deploy elsewhere.
Two release patterns dominate. Conservative lender draft: 10% retainage held throughout, released only at final completion. Sponsor-friendly draft: 10% on the first 50% of work, stepping to 5% on the second 50%, with the bulk released at substantial completion (CO + architect sign-off + final lien waivers from the GC and listed subs).
Negotiating retainage at the loan-document stage is high-leverage because the lender's exposure is theoretically the same under either pattern (the GC and subs are still owed money and motivated to complete). The release mechanic primarily controls who carries the working capital, the sub or the project.
Coordination with the GC contract: the loan documents and the construction contract should match on retainage. A loan document holding 10% with a construction contract requiring release at 50% complete creates a financing gap the sponsor must fund out of equity. Align both at closing.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Semiannual Risk Perspective · Office of the Comptroller of the Currency · 2025-12