Determine the evidence required to fund an unfinished project.
Refinancing an unfinished project requires a reconciliation of funded debt, remaining conditional commitments, unpaid costs and continuing completion obligations. The new loan must replace the old funding structure as well as pay the old lender. A lower coupon or larger headline commitment can still leave the project without enough cash to complete.
The OCC construction credit-administration discussion addresses monitoring construction progress and remaining funds relative to completion needs. A historical construction loan agreement, Section 3.9, separately shows that interest-reserve advances can become principal. Actual payoff, advance and completion terms must be verified for the project being refinanced.
Rebuild the project at the refinance date
Assume an old construction commitment of $6 million, of which $4.5 million has been funded. The funded amount includes $200,000 of capitalized interest. Undrawn availability is $1.5 million, subject to conditions. Remaining unpaid project cost is $1.8 million, including $100,000 earned contractor retention and $1.7 million other remaining obligations. The sponsor has $300,000 available.
Before refinancing, the simplified remaining sources are $1.5 million conditional debt plus $300,000 sponsor cash, exactly matching $1.8 million costs. That does not prove every draw will be approved or every payment date funded, but it establishes the starting arithmetic.
The payoff principal is $4.5 million, not $4.3 million. Capitalized interest already advanced is part of that balance in this example. Do not subtract it because it was not spent on physical construction. Also do not add the $100,000 retention again if it is already included in the $1.8 million unpaid-cost figure.
Compare the replacement commitment in two pieces
A new lender proposes a $6.5 million total commitment: $4.8 million initially funded and $1.7 million reserved for future eligible draws. Initial uses are the $4.5 million payoff, $130,000 transaction costs and a $100,000 new cash reserve. Those uses total $4.73 million, leaving $70,000 initial cash for the project under the assumed permitted uses.
Future sources are $1.7 million conditional draws, $70,000 initial project cash and the sponsor’s $300,000, totaling $2.07 million. Against $1.8 million unpaid costs, the capacity cushion is $270,000. The new $100,000 reserve is excluded from those available sources unless its actual release terms permit use for the same obligations.
| Refinance item | Amount | Classification |
|---|---|---|
| New total commitment | $6,500,000 | Initial plus conditional future funding |
| Initial funding | $4,800,000 | Actual new principal at closing under this example |
| Future allocation | $1,700,000 | Conditional, not closing cash |
| Old principal payoff | $4,500,000 | Includes already capitalized interest |
| Costs and new reserve | $230,000 | Separate closing uses |
| Initial project cash | $70,000 | Available only under assumed permitted use |
The old $1.5 million undrawn commitment is replaced, not carried forward as another source. Adding both old and new future commitments would overstate funding by $1.5 million.
Test a cost and timing change
Suppose an updated completion review adds $400,000 to unpaid cost, raising it to $2.2 million. The $2.07 million identified sources now leave a $130,000 gap. The new commitment is larger than the old commitment, but the complete project still lacks capital.
Alternatively, retain the original $1.8 million cost but assume $500,000 must be paid before the new lender reimburses eligible work. Initial project cash of $70,000 plus sponsor cash of $300,000 provides $370,000, creating a $130,000 temporary gap. This has the same number as the overrun case but a different cause and solution. One is a total funding deficit; the other can be a timing deficit if reimbursement is actually approved and available later.
Transfer the obligations, not just the balance
Review the construction contract, remaining scope, contractor payment status, lien and title matters, guarantees, permits, insurance and inspections. Identify which consents or assignments are needed and which old obligations survive payoff. A new lender’s funding does not automatically release a completion guarantor or transfer contractual rights.
The new budget should distinguish paid costs, unpaid earned work, unfinished work, contingent claims, carry and remaining reserves. Attach the same cost IDs to both lenders’ reconciliations so costs cannot disappear or duplicate during the handoff. Confirm who pays an invoice spanning the refinance date and which draw system receives it.
A decision-ready refinance package shows the old closing state, the new initial state and the remaining completion schedule. It should demonstrate both total sufficiency and the lowest dated cash balance. That is the evidence needed to decide whether replacing construction debt improves the project’s ability to finish.
Sources and evidence
- OCC — Commercial Real Estate LendingPrinted pages 45–46: Acquisition, Development, and Construction Credit Administration and monitoring; pages 102–103: Inspections and Disbursements · Checked 2026-10-21 · Bank supervisory context; actual inspection, lien-waiver, funding and completion conditions depend on the loan, contracts and applicable law.
- SEC-filed Saint George Apartments construction loan agreementExtension conditions; Section 3.7 Retainage; Section 3.9 Interest/Operating Reserve · Checked 2026-10-21 · One Texas construction agreement illustrates separate completion, financial, release and reserve conditions. No percentage, waiting period or extension right is generalized.
Source dates and applicability matter. Report an error or a changed source.