In one sentence
The loan amount as a percentage of total project cost, the primary sizing metric for construction and value-add loans.
The longer version
LTC measures leverage against what a project actually costs to build or reposition, complementing LTV which measures against value. Construction lenders lean on LTC because cost is more concrete than projected value.
The sponsor's equity is the flip side of LTC: an 80% LTC loan requires 20% equity, and lenders care where that equity sits in the capital stack.
Common questions
- How is loan to cost calculated?
- Divide the loan amount by total project cost, including land, hard costs, soft costs and financing costs.
- Why do construction lenders use loan to cost?
- Because a property under construction has no stabilized income or value yet. LTC ensures the sponsor has meaningful equity in the project from the start.
- What is the difference between LTC and LTV?
- LTC compares the loan to what the project costs. LTV compares it to what the property is worth. Construction loans often test both, against cost and stabilized value.
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