Financial Home Solutions LLC Funded a $120M Hotel. Here’s the Same Math That Works at $1M and any scale.
A real-world scale from $1M to $120M—and the leasing fear that should shape the number you actually ask for
“I would not want something so large that I would be pulling my hair out to lease the building.” That line, from a recent post in a real estate investor forum, says more about how to size a construction loan than any leverage formula does.
The investor had $2 million in equity and reasonable questions: what's the largest construction loan that equity could support, and what size building is realistic for it? But buried in the question was the real concern—not “how big can I go,” but “how big should I go before I've built something I can't fill.” That distinction matters more than the math, and it's worth addressing directly before getting into the numbers.
The Fear Behind the Question
Every sponsor sizing a construction loan runs into this tension eventually. More leverage means more building, and more building means more potential upside—but it also means more units or square footage that has to find tenants, more operating complexity once the project is finished, and a longer runway between completion and the property generating the income that was supposed to justify the loan in the first place.
This is a legitimate concern, not a lack of ambition. A sponsor with $2 million in equity who builds a 60-unit project they can't lease efficiently is in a worse position than one who builds a 24-unit project that fills up in three months and cash flows immediately. Size for its own sake isn't the goal. The goal is a project sized to what the sponsor can actually execute—lease up, operate, and stabilize—given their experience, their market, and their team.
With that as the starting filter, the equity-to-loan-size math becomes a useful tool rather than a reason to overbuild.
The Actual Math: Equity, Leverage, and Total Project Cost
Construction lenders size loans primarily off loan-to-cost (LTC)—the loan amount as a percentage of total project cost, which includes land, hard construction costs, and soft costs like architecture, permitting, and financing fees. This is different from loan-to-value, which is more common in lending against an asset that already exists.
A typical private construction loan runs somewhere in the 60-70% LTC range for a well-qualified sponsor with a solid project. That means the sponsor's equity needs to cover the remaining 30-40% of total project cost. Run that backward from a fixed equity amount, and you get a rough sense of total project size the equity can support.
At 65% LTC, $2 million in equity covering 35% of total cost implies a total project cost of roughly $5.7 million, with a construction loan in the neighborhood of $3.7 million. That's the ballpark the forum investor was actually asking about, even though the question was phrased as “what's the largest loan I could get.”
It's worth being clear that this is a starting estimate, not a guaranteed number. Actual loan sizing also depends on the lender's view of the specific deal—location, asset type, sponsor experience, market rents, and exit strategy all factor in. Two sponsors with identical equity can qualify for meaningfully different loan amounts depending on how strong the rest of the deal is.
It helps to walk through a few points on this scale side by side. A sponsor with $500,000 in equity, at 65% LTC, supports a total project cost of roughly $1.4 million and a construction loan around $930,000—typically enough for a small multifamily project or a handful of townhomes, depending on the market. Move up to $2 million in equity, and the math points toward the $5.7 million total project cost discussed above. At $5 million in equity, total project cost rises to roughly $14.3 million, supporting a construction loan in the $9.3 million range—often enough for a larger mid-rise multifamily project or a small boutique hotel, depending on location and unit costs.
The pattern holds at every point on this scale: equity covers roughly a third of total cost, the lender covers the rest, and the total project size scales proportionally with the equity behind it. A sponsor can use this relationship to sanity-check what they're being told by a lender or broker, and to avoid either underestimating what their capital can support or, just as importantly, overestimating it based on a single high-leverage example they heard about from someone else's deal.
What That Looks Like for a 30-60 Unit Building
The forum investor specifically asked about sizing for a 30-60 unit multifamily building, which is a useful range to ground the math in something concrete. Construction costs vary significantly by market and building type, but a reasonable planning range for a mid-rise multifamily project in many markets falls somewhere between $180,000 and $280,000 per unit, all-in, including land and soft costs.
At the lower end of that range, a $5.7 million total project cost supports roughly 20-30 units. At the higher end, it supports closer to 20 units. This is rough, illustrative math—actual costs in coastal California or South Florida markets often run higher, while costs in other regions run lower—but it gives a sponsor a realistic starting point rather than guessing.
The practical takeaway: $2 million in equity, at standard leverage, points toward something in the 20-30 unit range for many markets, not the 60-unit upper end of the investor's original question. That's not a limitation—it's a sizing exercise that keeps the project aligned with what the equity can actually support without stretching leverage to its absolute maximum.
Scaling the Same Math All the Way Up
The reason this math is worth understanding is that it doesn't change as the numbers get larger—it scales linearly, all the way up to the largest construction loans in the market.
A private lender recently closed a $120 million construction loan for a 200-room hotel project in San Francisco at 65% LTC. That structure meant the sponsor brought roughly $65 million of equity into a $185 million total project cost. Same ratio, same underlying logic as the $2 million example—just two orders of magnitude larger. The lender evaluating that $120 million request asked the same fundamental questions as a lender evaluating a $3.7 million request: is the site entitled, are the drawings complete, does the sponsor have the experience to execute, and is the leverage conservative enough to give the lender a real cushion.
This matters for smaller sponsors specifically because it means the path from a first 20-30 unit project to something significantly larger isn't really about finding a fundamentally different kind of lender or a different kind of math. It's about building a track record—successfully completing and leasing up smaller projects—that lets a lender extend more confidence, and therefore more leverage or larger loan sizes, on the next deal.
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Why the Conservative Number Is Often the Right Number
Going back to the original concern—not wanting to end up with more building than can be leased efficiently—there's a real argument for sizing toward the lower end of what your equity could theoretically support, especially on a first or second ground-up project.
A smaller, well-leased project accomplishes several things a larger, harder-to-fill project doesn't. It completes a clean track record that makes the next loan easier to get. It reduces the operational complexity of lease-up, which matters considerably for a sponsor managing their first stabilization process. And it preserves equity and balance sheet capacity for a second project, rather than concentrating all available capital into one larger, higher-risk bet.
Lenders notice this pattern too. A sponsor who sizes appropriately to their experience level and successfully executes is a more attractive borrower on the next deal than one who stretched to the maximum loan size their equity could theoretically support and then struggled with lease-up or operations. Conservative sizing on an early project is frequently the faster path to qualifying for a larger loan on the next one.
What to Bring to a Lender Regardless of Size
Whether the project is a 24-unit building supported by $2 million in equity or a 200-room hotel supported by $65 million, the preparation checklist a private construction lender works through is the same: site control and entitlements, complete construction drawings, a signed general contractor agreement, a detailed and reconciled construction budget, sponsor financials and track record, and a credible exit strategy.
The sizing conversation—how large a loan your equity can support—is really the first of these conversations, not a separate one. A lender who understands your equity position, your experience level, and your market can usually give a realistic loan size range early, before the rest of the documentation is assembled. That conversation is worth having directly with a lender rather than estimating alone, because the answer depends on specifics—market, asset type, sponsor track record—that a general formula can't fully capture.
The investor who asked this question in a forum had the right instinct on both sides: understand what the equity can support, and don't let “what's the maximum” become the only question that matters. The size that lets you execute well, lease up efficiently, and build the track record for the next project is usually the better answer than the largest number on paper.
Why the Timing Around This Question Matters Right Now
This sizing question isn't happening in a vacuum. Commercial real estate has been through one of its more difficult stretches in years, with multifamily, office, and retail values pulling back significantly from rising rates, tighter lending standards, and oversupply in some markets. That backdrop is part of why a sponsor asking “how big should I build” right now deserves a more careful answer than the same question would have gotten during a less cautious lending environment.
At the same time, several of the conditions that made the last few years difficult are shifting. New construction starts have slowed considerably as financing tightened and costs rose, which means the supply of new units coming onto the market over the next year or two is more moderated than it's been in some time. For a sponsor delivering a well-positioned project into a market with less competing new supply, that timing can meaningfully improve lease-up speed compared to a project that would have been competing against a wave of newly delivered units.
This is part of why conservative sizing matters even more in the current environment. A sponsor who builds a well-located, appropriately sized project right now is positioned to lease into a market with a more favorable supply-demand balance than existed two or three years ago. A sponsor who overbuilds relative to their experience and market depth risks slower lease-up regardless of the broader market tailwind, simply because the project itself becomes harder to manage and fill.
None of this changes the underlying math—equity still determines loan size at a given leverage ratio, regardless of what the broader market is doing. But it does mean the conversation about how large to build is worth having with current market conditions in mind, not just a static formula. A lender who is actively underwriting deals in your market right now can usually speak to current rent trends, absorption rates, and construction costs more specifically than a general industry estimate can.
