Watching the Bottom Line: Construction Cost Insights Every Lender Should Know

Lucas Giacalone
Jun 4
2 min read

Grounded in data from real projects we’ve vetted through our Plan & Cost Review process, so you can trust the numbers.

Helping you finance smarter, safer, and with fewer surprises.

1. Why Construction Costs Deserve Your Full Attention

When costs spiral, projects stall, and loans get stressed. A sharp eye on cost trends and efficiency metrics helps you:

Benchmark budgets against regional and project‑type norms.
Flag red‑zone risks before they snowball into overruns.
Protect returns by sizing contingencies and covenants to real‑world data.

2. Cost Trends at a Glance

Regional realities

New York City: ~$330 /SF median - highest in the dataset.
West Coast metros (e.g., LA, SF): ~$280/SF.
Tri‑State & New England (outside NYC): ~$220–250/SF.
Southeast U.S.: ~$150–160/SF.

Project‑type premiums

High‑Cost Specialties	Mid‑Range Staples	Cost‑Efficient Builds
Data centers ($600+/SF)	Mixed‑use, offices, multifamily ($250–350/SF)	Warehouses, basic industrial ($100–200/SF)
Luxury custom homes ($500–600+/SF)

Inflation in action

Typical multifamily cost per SF has risen 20–30 % since 2018, mirroring industry‑wide material and labor inflation. Budgets older than a year need a reality check - and escalation reserves.

3. Efficiency Metrics That Matter

Cost per Square Foot (PSF)

Dataset median: ~$240 /SF (range $150–350 for most projects).
Quick test: If a suburban garden‑style apartment claims $400 /SF, dig deeper.

Cost per Unit (CPU)

Multifamily median: $250k–300k per unit (affordable ≈ market‑rate).
Hotels: $150k+ per key (varies widely by class).
Red flag: A 100‑unit project at $100 M = $1 M per unit - outlier alert!

4. Red Flags Lenders Can’t Ignore

Outlier costs vs. peers in the same region/type.
High variability in “similar” projects - signals scope creep or weak estimates.
Budget revisions mid‑stream (15–20 % of projects in the dataset saw cost bumps).
Prevailing‑wage or heavy‑regulation premiums that squeeze contingency room.
Rapid contingency drawdowns or ballooning “Other” line items.

Pro Tip: Require third‑party cost reviews when a budget exceeds market benchmarks by >10–15 %.

5. Lender Takeaways

Benchmark ruthlessly. Costs drift upward fast; historic comps ≥12 months old are stale.
Stress‑test contingencies. Complex, high‑cost, or high‑variability projects warrant bigger buffers.
Track metrics monthly. Cost/SF and cost/unit are early warning sensors - watch them like DSCR.
Align collateral to reality. If costs outrun value, tighten covenants or seek additional security.

Closing Thoughts

Construction lending is a balance of opportunity and risk. By grounding every deal in real‑time cost data—regionally tuned, type‑specific, and efficiency‑tested—you reduce surprises, safeguard capital, and build stronger borrower relationships.

Ready to dive deeper or need tailored benchmarks for an upcoming deal?

Let’s talk. Together we’ll keep your projects—and your portfolio—on solid ground.