The draw schedule
Interest depends on when funds are drawn and how long the loan remains outstanding. Model the actual construction and lease-up schedule rather than applying interest to the full commitment for the entire term.
Costs beyond interest
Review origination, inspection, draw, unused commitment, legal, extension and exit fees where charged. Clarify which costs can be financed and which must be funded by the sponsor.
Allow for delays
Test a slower construction or lease-up scenario. A larger interest reserve does not automatically mean the lender will increase the commitment.
Compare lender term sheets · Official interest-rate benchmarks
The draw schedule drives interest carry
Construction interest depends on the amount advanced and the time it remains outstanding. A model that applies the full loan balance from day one can overstate early interest, while a model that assumes every draw arrives exactly on schedule can hide a cash shortfall. Connect the interest calculation to the actual spending and funding assumptions.
Include lender fees, inspections, legal work, third-party reports and any extension or exit charges. Review how the interest reserve is funded, when it may be used and who covers a shortfall if construction or leasing takes longer.
Model completion and repayment separately
Physical completion does not necessarily produce immediate sale proceeds or a permanent refinance. Allow for leasing, tenant improvements and the operating performance needed for the intended exit. Carry financing costs through that period in the budget.
Compare proposals using the same project schedule, draw assumptions and repayment date. Then test a delay and identify the additional cash or extension requirements. That comparison is more useful than selecting a lender from its quoted rate alone.