Condo development is the process of acquiring land, securing entitlements, financing construction, building a multi-unit residential structure, and selling individual units to buyers. Unlike rental apartment projects where a developer retains ownership, condo developers build with the intent to sell each unit separately under a condominium legal structure. The process typically spans 2 to 5 years from initial concept to final unit closing and involves complex coordination between financing, construction, marketing, and legal requirements.
Whether you are an experienced commercial developer branching into for-sale product or a first-time condo developer evaluating a project, understanding the full lifecycle is essential. This guide walks through every stage of condo development, from feasibility and zoning to construction financing and unit delivery, so you can plan your next project with confidence.
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What Are the Stages of Condo Development?
Condo development follows a structured sequence of phases that moves from initial concept through delivery of finished units. Most projects pass through six core stages: site selection and feasibility, entitlements and design, pre-sales, financing, construction, and unit closings. Each phase has specific milestones that must be completed before advancing to the next.
Stage 1 - Site Selection and Feasibility. The process begins with identifying a parcel of land suited for condominium density. Developers evaluate market demand, comparable sales prices per square foot, land cost, construction cost estimates, and projected absorption rates. A formal feasibility study determines whether the project pencils out with sufficient profit margin, typically targeting 15% to 25% return on cost.
Stage 2 - Entitlements and Design. Once feasibility is confirmed, the developer works with architects and land-use attorneys to design the project and secure municipal approvals. This includes zoning verification or rezoning, site plan approval, environmental review, and building permits. The entitlement process can take 6 to 18 months depending on the jurisdiction and whether the project requires variances or public hearings.
Stage 3 - Pre-Sales and Marketing. Before most lenders will fund construction, the developer must demonstrate buyer demand through pre-sales. This phase involves creating a sales center, marketing materials, and reservation or contract agreements with prospective buyers. Achieving the lender's pre-sale threshold is one of the most critical milestones in the entire process.
Stage 4 - Construction Financing. With pre-sales in hand, the developer secures a construction loan to fund the build. Lenders evaluate the developer's track record, pre-sale volume, project pro forma, and guarantor strength before issuing a commitment. Learn more about structuring construction debt in our guide to horizontal vs. vertical construction loans.
Stage 5 - Construction. The building phase begins with site work and excavation, progresses through structural framing floor by floor, and concludes with interior finishes and common area buildout. According to Prevel, most mid-rise condo towers progress at roughly one floor per week during the structural phase.
Stage 6 - Unit Closings and Delivery. As construction reaches completion, the developer obtains a certificate of occupancy, completes final inspections with buyers, and closes individual unit sales. Deliveries often proceed floor by floor from the bottom up.
How Do Developers Finance Condo Construction Projects?
Developers finance condo construction through a combination of equity, pre-sale deposits, and a senior construction loan. The typical capital stack includes 25% to 35% developer equity, 5% to 15% from buyer deposits held in escrow, and 55% to 65% from a construction lender. Some projects also incorporate mezzanine debt or preferred equity to bridge the gap between senior debt and developer cash.
Condo construction loans are structured as short-term, interest-only facilities with terms of 18 to 36 months. Funds are disbursed through a draw schedule tied to construction milestones, and interest accrues only on the amount drawn. As of early 2026, interest rates on condo construction loans from commercial banks typically range from 7.0% to 9.5%, while private and bridge lenders may charge 9% to 13% for higher-leverage or less-experienced borrowers.
The lender's primary security is the project itself, including the land, improvements, and the assigned pre-sale contracts. Most construction lenders also require personal recourse guarantees from the developer or key principals, especially on projects under $20 million. You can estimate your debt service obligations using our commercial mortgage calculator.
Clearhouse Lending offers vertical construction financing for condo projects with competitive rates, flexible draw schedules, and experienced construction lending teams. Reach out to discuss your project.
What Are the Pre-Sale Requirements for Condo Development Loans?
Pre-sale requirements are the minimum percentage of units that must be under binding purchase contracts before a lender will fund a condo construction loan. Most commercial banks require 40% to 60% of total units to be pre-sold, while Fannie Mae guidelines require at least 50% of units to be conveyed or under contract before end-buyer financing becomes available. Some lenders in competitive markets may accept as low as 30% pre-sales with stronger guarantor financials.
Pre-sale thresholds serve two purposes. First, they demonstrate market demand and reduce the lender's exposure to absorption risk. Second, the deposits collected from pre-sale buyers (typically 10% to 20% of the purchase price) provide additional project liquidity and borrower commitment.
Developers should be aware that not all pre-sale contracts carry equal weight with lenders. Most construction lenders require "arm's-length" contracts with unrelated third-party buyers. Contracts with the developer's affiliates, friends, or family members are often excluded or discounted. Additionally, lenders may require that deposits be held in a third-party escrow account rather than released to the developer during construction.
Meeting the pre-sale threshold is often the single biggest hurdle in launching a condo development. Developers who fall short may need to adjust pricing, increase marketing spend, or seek alternative lenders with lower pre-sale requirements, such as debt funds or bridge loan providers.
How Much Does It Cost to Develop a Condominium Project?
The total cost to develop a condominium project typically ranges from $180 to $420 per square foot for construction alone, with all-in development costs (including land, soft costs, and financing) reaching $250 to $550 per square foot depending on market, building type, and finish level. According to Multifamily Loans, mid-rise construction (4 to 7 stories) averages $220 to $400 per square foot nationally in 2025, while high-rise projects (8+ stories) can exceed $500 per square foot in gateway markets.
Here is how the major cost categories typically break down for a condo development project:
- Land acquisition: 15% to 25% of total development cost
- Hard construction costs: 50% to 60% of total development cost
- Soft costs (architecture, engineering, permits, legal): 10% to 15%
- Financing costs (interest, origination, fees): 5% to 10%
- Marketing and sales commissions: 3% to 6%
- Developer contingency: 5% to 10%
For a 50-unit mid-rise project with average unit sizes of 1,000 square feet, total development costs could range from $12.5 million to $27.5 million. Construction costs have risen approximately 5% to 8% year over year from 2025 to 2026, driven by labor shortages and material cost increases, with potential tariffs on imported goods adding further upward pressure.
What Zoning and Regulatory Approvals Are Needed for Condo Development?
Condo development requires a series of zoning and regulatory approvals collectively known as the entitlement process. At minimum, developers must secure zoning compliance or a rezoning approval, site plan approval, environmental clearances, building permits, and condominium plat or declaration approval. The specific requirements vary significantly by municipality, but the entitlement process generally takes 6 to 18 months and can cost $50,000 to $500,000 or more in application fees, consultant studies, and legal expenses.
Zoning approval confirms that the proposed use (multi-family residential for sale) and density are permitted on the site. If the current zoning does not allow condominiums, the developer must apply for a rezoning or conditional use permit, which typically involves public hearings before a planning commission and city council.
Site plan approval covers the physical layout of the project, including building placement, parking, landscaping, stormwater management, and utility connections. Most municipalities require engineering studies for traffic impact, drainage, and utility capacity.
Environmental review may include wetland delineation, endangered species assessments, Phase I and Phase II environmental site assessments, and compliance with state environmental quality acts. Projects on previously developed urban sites may face brownfield remediation requirements.
Building permits authorize the actual construction and are issued after the developer submits final construction drawings that comply with building codes, fire codes, and accessibility requirements.
Condominium declaration and plat are the legal documents that create the condominium regime, define individual units and common elements, establish the homeowners association, and record the project with the county. These documents must comply with the state's condominium act. For more on the pre-development phase, see our pre-development financing guide.
How Do Condo Development Loans Differ from Standard Construction Loans?
Condo development loans carry additional requirements and risk considerations that make them structurally different from standard construction loans used for rental apartments or commercial buildings. The primary difference is the exit strategy: condo loans depend on individual unit sales to repay the debt, while standard construction loans are typically repaid through a single refinance into permanent financing or a bulk property sale.
This sales-dependent repayment creates several key distinctions. Condo construction lenders impose pre-sale requirements (typically 40% to 60%) that do not exist for rental construction loans. They also conduct more rigorous market absorption analysis to assess whether units will sell at projected prices within the loan term. The loan-to-cost ratio on condo projects is generally lower (55% to 65%) compared to rental construction loans (65% to 75%) because of the additional market risk.
Interest rates on condo construction loans tend to run 50 to 150 basis points higher than comparable rental construction loans, reflecting the added complexity and risk. Lender fees, including origination points and exit fees, may also be higher. Many condo construction lenders require a partial release schedule that defines how much of the loan must be repaid as each unit closes, ensuring the loan balance decreases proportionally with inventory.
Additionally, condo developers face unique legal and regulatory requirements. They must create a condominium declaration, establish an HOA, produce offering documents (in states that require them), and comply with consumer protection regulations governing pre-sale deposits.
For a deeper comparison of construction loan structures, review our guide on ground-up development financing. You can also explore how ADC loans work in our ADC loan guide.
What Are the Biggest Risks in Condo Development?
The biggest risks in condo development include market absorption risk, construction cost overruns, pre-sale fallout, interest rate fluctuations, and regulatory delays. Unlike rental developments where the owner can hold and operate the asset through a downturn, condo developers must sell units to recoup their investment, making them more vulnerable to market timing.
Market absorption risk is the possibility that units will not sell at projected prices or within the expected timeframe. According to Multi-Housing News, condo construction starts fell 51% from 2023 to 2024, partly because developers could not achieve pricing levels needed to justify new construction. If sales stall, the developer faces mounting interest costs on the construction loan with no income to offset them.
Construction cost overruns represent a significant threat to project profitability. Material and labor costs have risen steadily, with construction costs increasing 5% to 8% annually in recent years. A 10% cost overrun on a $20 million project translates to $2 million in additional capital the developer must fund, often from personal resources.
Pre-sale fallout occurs when buyers who signed purchase contracts during the pre-construction phase cancel before closing. Fallout rates of 10% to 20% are common, and in challenging markets they can exceed 30%. Developers mitigate this risk by collecting substantial deposits (10% to 20% of purchase price) and using binding contracts with liquidated damages provisions.
Insurance and HOA cost escalation has emerged as a growing concern. According to National Mortgage Professional, many master condo insurance policies have doubled in cost since late 2023, and heightened reserve funding requirements following the 2021 Surfside collapse in Florida are increasing ongoing association costs that can reduce buyer demand.
Interest rate risk affects both the developer's construction loan costs and buyers' ability to qualify for permanent mortgages at closing. Rising rates can squeeze project margins and reduce the pool of qualified buyers simultaneously.
How Long Does the Condo Development Process Take?
The full condo development process typically takes 3 to 5 years from initial concept to final unit closing. A streamlined project in a developer-friendly jurisdiction with strong pre-sales can be completed in as little as 2 years, while complex projects requiring rezoning, environmental remediation, or phased construction may extend to 7 years or more.
Here is a general timeline breakdown for a typical mid-rise condo development:
- Feasibility and site acquisition: 3 to 6 months
- Entitlements and design: 6 to 18 months
- Pre-sales and loan origination: 4 to 12 months (often overlaps with entitlements)
- Construction: 18 to 30 months for mid-rise; 24 to 48 months for high-rise
- Unit closings and delivery: 3 to 6 months
According to Vistoo, excavation alone takes approximately one-third of the overall construction timeline, roughly 6 to 10 months for a mid-rise project. The structural phase progresses at approximately one floor per week, while interior finishing and common area completion add another several months.
The timeline can vary dramatically based on local permitting processes. Some municipalities offer expedited review for projects that include affordable housing units or meet certain sustainability standards. Others have backlogs that can add 6 to 12 months to the entitlement phase alone. Developers should build a minimum 10% to 15% time contingency into their project schedules to account for weather delays, inspection backlogs, and supply chain disruptions.
Planning a condo development project? Clearhouse Lending's construction lending team can help you structure the right financing from the ground up. Whether you need a vertical construction loan or a bridge loan for land acquisition, we can get you pre-qualified quickly. Schedule a consultation today.
Frequently Asked Questions
What is the minimum number of units for a condo development to be financially viable?
Most developers find that projects need at least 10 to 20 units to achieve the economies of scale that justify the fixed costs of condominium legal documentation, HOA formation, marketing, and dedicated project management. Smaller projects of 4 to 8 units can work in high-value markets where per-unit sale prices are sufficient to absorb these overhead costs, but the profit margins are typically thinner.
Can you convert an existing apartment building into condominiums?
Yes, condo conversions are a viable development strategy. The process involves purchasing or refinancing an existing rental building, renovating units to for-sale standards, creating the condominium legal documents, and selling individual units. Conversion projects typically require lower total investment than ground-up construction but face unique challenges including tenant relocation, local conversion ordinances, and potentially higher renovation costs for older buildings.
What is a condo declaration and when is it created?
A condominium declaration (also called a master deed or declaration of condominium) is the legal document that creates the condominium regime. It defines individual unit boundaries, common elements, percentage ownership interests, HOA governance rules, and maintenance responsibilities. The declaration is typically prepared during the entitlement and pre-sale phase and recorded with the county before the first unit closing.
How do rising interest rates affect condo development feasibility?
Rising interest rates create a dual impact on condo development. On the cost side, higher construction loan rates increase the developer's carrying costs during the build phase. On the demand side, higher permanent mortgage rates reduce buyers' purchasing power and can slow absorption. As of early 2026, with mortgage rates in the low-6% range and construction loan rates at 7% to 9.5%, developers must carefully model both scenarios when underwriting new projects.
What happens if pre-sales fall short of lender requirements?
If a developer cannot meet the lender's pre-sale threshold, they have several options: negotiate a lower pre-sale requirement with the existing lender (sometimes possible with additional equity or guarantees), seek alternative financing from a debt fund or bridge lender with more flexible pre-sale standards, reduce the project scope or phase the development to lower the total loan amount, or increase marketing efforts and adjust pricing to accelerate buyer commitments. Our guide on how to finance subdivision development covers alternative financing strategies in detail.
Do condo developers need a real estate license?
Requirements vary by state. In most states, the developer does not need a personal real estate license to sell units in their own project, but they must either hire a licensed real estate broker to handle sales or comply with the state's developer exemption requirements. Many states also require the developer to register the condo offering with the state attorney general's office or real estate commission before sales can begin.