Construction loans are used to finance the construction of new commercial real estate developments. Lenders usually enter the project lifecycle when the development is “permit ready”, and there is no longer any entitlement risk.
Historically, banks provided the vast majority of construction loans, but recently there have been a host of new entrants into the construction lending market, primarily private funds that aim to fill the gap (i) when bank lenders are at capacity in terms of construction loan allocation, or (ii) at leverage points above where traditional banks will lend.