What is LTC (loan-to-cost)

Updated October 2026 · HC2 Capital Research · Dallas, Texas

LTC means loan-to-cost: the size of a real estate loan divided by the total cost of the project it finances. A construction lender that funds $65 of every $100 a project costs is lending at 65% LTC. The other 35% has to come from capital that sits below the lender, usually sponsor equity, preferred equity or mezzanine debt. LTC is the first number to read when you want to know how much of a deal is debt and how protected the senior lender is.

What does LTC mean in real estate?

In real estate lending, LTC (loan-to-cost) is the ratio between the loan amount and the full cost of building or acquiring and improving a property. It is the standard sizing metric for construction and value-add loans, because during construction there is no stabilized income or finished value to measure against. Lenders use it to cap their exposure; investors use it to see how much subordinate capital stands between the senior loan and a loss.

The LTC formula

LTC = Loan amount ÷ Total project cost × 100

The denominator is the whole budget, not just the purchase price. A typical construction budget includes:

Because financing costs and contingency sit inside the budget, two projects with the same building cost can show different LTC ratios depending on how the budget is drawn. Always ask which line items the lender's "total cost" includes.

A worked LTC example

The figures below are illustrative, chosen to show the arithmetic. They are not a projection or an HC2 offering.

Read from the senior lender's side, the project would have to lose more than 35% of its cost basis before the senior loan's principal is impaired, before taking into account sale costs, time and enforcement. That subordinate layer is the lender's first protection, which is why a lower LTC generally means a safer senior position.

LTC vs. LTV: what is the difference?

LTC measures the loan against what the project costs; LTV (loan-to-value) measures it against what the property is worth, usually by appraisal. During construction the two can diverge widely, so lenders often look at both.

A construction lender commonly sizes a loan on LTC and checks it against a loan-to-value on the expected stabilized value, so that both the cost basis and the finished asset support the debt.

What does stabilization mean in real estate?

A property is stabilized when it has finished construction or renovation and reached a sustainable level of occupancy and net operating income (NOI). Before stabilization, income is still ramping up through lease-up; after it, the property behaves like a normal operating asset that can be valued on its income and refinanced or sold.

There is no single legal definition. The loan documents set it, usually as a minimum occupancy or NOI level maintained for a number of consecutive months. Stabilization matters to LTC because the construction loan is normally repaid from a refinancing or sale that only becomes possible once the property is stabilized. A late lease-up stretches the period in which the loan carries interest without stabilized income to support it.

What is an interest reserve?

An interest reserve is money set aside in the project budget, usually funded from the loan itself, to pay the loan's interest during construction and lease-up, before the property produces enough income to cover it. The lender draws the monthly interest from the reserve instead of billing the borrower.

• It raises total cost. The reserve is a budget line, so it increases the LTC denominator and, typically, the loan amount.
• It has to be sized for delay. If construction or lease-up takes longer than planned, the reserve can run out before stabilization and the sponsor must fund the shortfall.
• Is it an asset? A funded reserve held in a controlled account is generally shown by the borrower as restricted cash, while the interest it pays is a project cost. Treatment depends on the loan structure and accounting framework, so confirm it with your accountant.

Other ratios that sit next to LTC

LTC and LTV describe leverage; DSCR and debt yield describe income coverage and only become meaningful once the property is producing stabilized NOI.

How HC2 Capital reads LTC in a senior loan

HC2 Capital, an SEC-registered investment adviser based in Dallas, structures EB-5 capital primarily as senior loans, where LTC defines how much capital stands beneath the investors' position. In HC2's current offering, the Farmers Branch EB-5 senior loan, the project page describes a $43.2 million first-lien senior loan at approximately 65% loan-to-cost on a 262-unit multifamily community in a Targeted Employment Area, secured by the property and backed by budget and completion guarantees from the sponsor.

For an EB-5 investor this matters because the immigration outcome and the financial outcome are separate. The capital must stay at risk under the program rules, so no structure can guarantee repayment, but the position in the capital stack decides who absorbs losses first. To see how this fits the wider program, read the EB-5 Immigrant Investor Program explained, EB-5 loans and borrowed funds and EB-5 regional centers and Form I-829.

This article is for informational purposes only and is not investment, legal, tax or accounting advice, nor an offer to sell or a solicitation of an offer to buy any security. Any offering is made only to accredited investors through definitive offering documents. EB-5 capital must remain at risk; repayment is not guaranteed and loss of principal is possible.

Frequently asked questions

What does LTC stand for?

LTC stands for loan-to-cost. It is the loan amount divided by the total cost of the project, expressed as a percentage.

Is LTC the same as LTV?

No. LTC divides the loan by the project's total cost; LTV divides it by the property's appraised value. Construction loans are usually sized on LTC and checked against LTV on the expected stabilized value.

Does loan-to-cost include land?

Yes. Total project cost normally includes land or acquisition, hard costs, soft costs, financing costs such as the interest reserve, and contingency. Ask the lender which items its total cost includes.

Is the interest reserve part of LTC?

Usually yes. The interest reserve is a line in the project budget, so it raises total cost and is typically funded from the loan.

What does a lower LTC mean for a senior lender?

A lower LTC means more subordinate capital sits beneath the senior loan, so the project can lose more value before the senior lender's principal is impaired. It does not eliminate risk.

Reviewed by Jim Crigler, Founder, Partner