The ground-up capital stack
A typical ground-up development capital stack ranges from 80 to 95 percent of total project cost financed with senior debt and subordinate capital, with the balance funded by sponsor and equity-partner common equity. The split between layers depends on the asset class, the market, the sponsor's experience, and what the senior lender will underwrite.
- Senior construction debt: 55% to 70% loan-to-cost
- Mezzanine debt: 10% to 15% incremental, behind senior
- Preferred equity: 10% to 20% incremental, behind senior and mezz
- Common equity: 10% to 20% of total cost
Markets and asset classes we cover
VS Capital Group has placed ground-up development capital across multifamily, build-to-rent, hospitality, industrial, cold storage, data centers, self-storage, medical office, mixed-use, urban infill, and adaptive reuse, in every major U.S. market and across secondary and tertiary markets where defensible business plans support institutional capital.
Structuring the development stack
The senior construction lender, the mezzanine lender, the preferred equity investor, and the common equity partner all need to coexist under an intercreditor structure that works for every party. Recognition agreements, cure rights, change-of-control provisions, and cash management waterfalls have to align with the equity partnership's promote structure and the sponsor's development fee.
VS Capital Group structures every layer simultaneously and runs term sheets across all layers in parallel, not sequentially, so the sponsor closes a fully assembled stack with internally consistent terms.
Frequently asked questions
- What is the maximum leverage on a ground-up development?
- Senior construction lenders typically finance 60 to 70 percent of total project cost. With mezzanine debt or preferred equity layered behind the senior, total debt and preferred capital can reach 85 to 92 percent of cost, leaving 8 to 15 percent in true common equity from the sponsor and equity partners.
- How much equity does a developer have to bring to a ground-up project?
- Sponsor co-investment requirements vary by capital partner. Institutional equity partners typically require the sponsor to fund 5 to 15 percent of the common equity, with the balance funded by the limited-partner equity investor. Programmatic equity relationships may allow lower sponsor co-investment for proven operators.
- How long does it take to close a ground-up development capital stack?
- A fully assembled capital stack, senior construction, subordinate debt or preferred equity, and common equity, typically closes 90 to 150 days from term sheet acceptance, depending on the complexity of the equity partnership, the intercreditor structure, and the readiness of plans, GMP contract, environmental reports, title, and survey.
- Will lenders finance pre-development?
- Most senior construction lenders will reimburse documented pre-development costs at closing as part of the sponsor's equity contribution, but they will not advance against pre-development costs before closing. Pre-development is typically funded with sponsor equity or pre-development capital from a programmatic equity partner.
- Can ground-up developments be financed non-recourse?
- Most senior construction debt requires a completion guaranty and a carry guaranty. Repayment is frequently non-recourse on debt-fund executions and partial-recourse or springing-recourse on bank executions. Fully non-recourse construction debt is available from select debt funds at higher pricing.