An AD&C loan is a single financing package that covers three distinct phases of a real estate project: acquiring the land, developing the site with infrastructure, and constructing the buildings. Rather than securing separate loans for each stage, builders and developers use an AD&C loan to streamline funding from raw land purchase through completed construction. This loan type is one of the most common tools used by homebuilders, subdivision developers, and commercial real estate developers across the country.
According to the NAHB's quarterly AD&C Financing Survey, the total outstanding balance of AD&C loans across the U.S. was $463 billion in Q3 2025, reflecting how central this financing tool is to the building industry. Whether you are developing a single commercial building or a multi-phase subdivision with hundreds of lots, understanding how AD&C loans work can save you time, reduce costs, and help you secure better terms.
If you are planning a ground-up development project, contact Clearhouse Lending to speak with a construction loan specialist who can walk you through AD&C loan structures tailored to your project.
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What Does AD&C Stand For in Real Estate Lending?
AD&C stands for Acquisition, Development, and Construction. It refers to a category of commercial real estate loans that finance the full lifecycle of a building project, starting with land purchase and ending with completed structures. Federal regulators including the OCC and FDIC use this classification when evaluating bank portfolios and assessing risk exposure.
The Federal Reserve assigns AD&C exposures a higher risk weight than stabilized CRE loans because repayment depends on the future income, sale proceeds, or refinancing of the completed project rather than existing cash flow. This classification directly affects how much capital banks must hold in reserve, which influences the interest rates and terms offered to borrowers.
For builders and developers, the practical benefit of an AD&C loan is consolidation. Instead of negotiating three separate closings with potentially three different lenders, you negotiate one loan with one set of documents. The lender advances funds in stages as the project progresses, reducing administrative burden and often lowering total closing costs.
How Is an AD&C Loan Structured?
An AD&C loan is structured as a single credit facility with multiple draw phases that align with the project timeline. The lender commits a total loan amount upfront, but funds are disbursed incrementally as the borrower completes specific milestones. This draw-based structure protects the lender by ensuring that money is only released as value is created on the ground.
The typical structure begins with an initial advance for land acquisition, followed by development draws for site work like grading, utilities, and road construction, and then construction draws for vertical building. Each draw request requires an inspection to verify the work has been completed. Most AD&C loans use interest-only payments during the construction period, with the borrower paying interest only on the amount drawn rather than the full commitment.
Loan terms generally range from 12 to 36 months depending on project scope. At maturity, the borrower either sells the completed units, refinances into permanent financing such as a commercial mortgage, or converts the loan into a mini-perm. Many lenders require a take-out commitment or evidence of a clear exit strategy before approving the loan.
Interest rates on AD&C loans are typically variable, tied to the prime rate or SOFR plus a spread. According to the NAHB AD&C Financing Survey, effective rates in Q3 2025 ranged from 10.15% for land acquisition to 12.04% for speculative single-family construction.
What Are the Three Phases of an AD&C Loan?
The three phases of an AD&C loan are acquisition, development, and construction. Each phase represents a distinct stage of the project with its own funding requirements, risk profile, and draw schedule. Understanding these phases helps borrowers plan budgets and anticipate lender requirements at each milestone.
Phase 1: Acquisition. The first draw covers the purchase of raw land or entitled lots. The lender typically finances 50% to 65% of the land value, with the borrower contributing the remainder as equity. Land is the riskiest component because it generates no income on its own. The OCC's supervisory guidelines set maximum LTV limits at 65% for raw land and 75% for land development.
Phase 2: Development. Once the land is secured, development draws fund horizontal construction work such as grading, road building, utility installation, stormwater management, and lot subdivision. This phase transforms raw land into buildable lots. Draw requests are tied to completion percentages verified by the lender's inspector. Development work typically takes 3 to 12 months depending on scale.
Phase 3: Construction. The final and largest phase funds vertical construction of the actual buildings. Draws follow a detailed schedule tied to milestones such as foundation, framing, mechanical systems, and finishing. Construction typically represents 55% to 65% of the total AD&C loan amount.
What Are the Requirements for an AD&C Loan?
To qualify for an AD&C loan, borrowers must meet requirements related to equity contribution, experience, creditworthiness, and project feasibility. Since AD&C loans carry higher risk than stabilized property loans, the qualification bar is correspondingly higher.
Equity contribution. Most lenders require 15% to 25% of the project's total cost as equity. Federal banking regulators require a minimum 15% borrower equity based on the "as completed" appraised value to avoid HVCRE classification. This capital must remain in the project for the life of the loan.
Experience. Lenders strongly prefer borrowers with a proven track record. A first-time developer seeking an AD&C loan for a 50-lot subdivision will face much tougher scrutiny than a builder who has completed five similar projects. Many lenders require two to three successfully completed projects of comparable scope.
Credit score. Most institutional lenders look for personal credit scores of 680 or higher for the guarantors. Private lenders may accept lower scores but charge higher rates.
Project documentation. Borrowers must submit architectural plans, engineering reports, environmental assessments, building permits, a detailed construction budget, and a market study demonstrating demand for the finished product.
Exit strategy. Lenders want a clear plan for repaying the loan, whether through pre-sales, a take-out commitment, or market absorption data.
If you have a project in the planning stages, reach out to Clearhouse Lending for a preliminary evaluation of your financing options.
How Do AD&C Loan Rates Compare to Other Construction Loans?
AD&C loan rates are generally in line with or slightly higher than standalone construction loan rates because they carry additional risk tied to the land acquisition and development phases. The rate premium reflects the longer project timeline and the fact that the lender's exposure begins before any physical improvements exist.
Based on the NAHB's Q3 2025 survey data, effective interest rates for AD&C loan components were: land acquisition at 10.15%, land development at 10.92%, speculative single-family construction at 12.04%, and pre-sold single-family construction at 12.74%. These rates reflect the full cost of borrowing including origination fees.
By comparison, standalone construction loans for vertical building only typically carry rates from 8% to 11%. Bridge loans for existing properties run from 7% to 10% but serve a fundamentally different purpose. The convenience of a single AD&C loan often offsets the marginal rate difference.
Credit conditions have tightened for 15 consecutive quarters as of Q3 2025. The most common way lenders have tightened is by lowering maximum loan-to-value ratios and requiring larger equity contributions.
Who Qualifies for an AD&C Loan?
Experienced builders, residential developers, and commercial real estate developers with strong balance sheets and a track record of completed projects are the primary candidates for AD&C loans. These loans are not typically available to first-time investors without development experience, though exceptions exist with private lenders.
The ideal borrower has completed at least two to three similar projects, maintains a personal net worth equal to or greater than the loan amount, can contribute 15% to 30% equity, has strong personal credit (680 or higher), and can demonstrate a clear exit strategy through pre-sales or take-out financing.
Homebuilders developing residential subdivisions are the largest user group. Regional production companies that buy raw land, develop lots, and construct homes use this loan type as their primary financing vehicle. The NAHB survey focuses on this segment.
Commercial developers building office, retail, industrial, or multifamily properties also use AD&C loans, though commercial deals often require pre-leasing commitments and more conservative LTV ratios.
Land developers who acquire raw land, install infrastructure, and sell finished lots to builders sometimes use the acquisition and development portions without the construction phase. These A&D-only loans carry higher rates due to the lack of a completed product as collateral.
Use the commercial bridge loan calculator to estimate potential monthly costs and compare options.
What Is the Difference Between an AD&C Loan and a Bridge Loan?
An AD&C loan finances the full development cycle from land purchase through completed construction, while a bridge loan provides short-term financing for acquiring or repositioning an existing property. The two serve fundamentally different purposes, though both are common tools in commercial real estate finance.
AD&C loans are designed for ground-up projects where no usable structure currently exists. Funds are disbursed incrementally through a draw process, and the project timeline often spans 18 to 36 months. The lender takes on development risk, including the possibility that the project encounters delays, cost overruns, or market shifts before completion.
Bridge loans, by contrast, are used to acquire an existing property that needs repositioning, renovation, or lease-up before qualifying for permanent financing. Bridge loan funds are generally disbursed in a lump sum. Terms run 6 to 24 months, and rates can be lower because the lender has a completed asset as collateral from day one.
For a detailed comparison of development financing approaches, read our guide on horizontal vs. vertical construction loans.
How Do Builders Use AD&C Loans for Subdivision Development?
Builders use AD&C loans to finance the entire lifecycle of a subdivision project, from purchasing raw acreage through developing lots and constructing homes. This is the most common financing structure for production homebuilders developing subdivisions of 10 to 500 or more lots.
The typical process works as follows. The builder identifies a tract of raw land with appropriate zoning, negotiates a purchase price, and submits a loan application that includes site plans, engineering reports, development and construction budgets, a market absorption study, and financial statements. The lender underwrites based on both the developer's experience and the projected economics of the finished subdivision.
Once approved, the lender funds the land acquisition. The builder then begins horizontal construction work: clearing, grading, installing roads, curbs, gutters, storm drainage, water lines, sewer connections, and electrical infrastructure. After lots are improved and platted, the builder begins vertical construction on individual homes, drawing funds according to a per-unit construction budget.
As homes are completed and sold, the sale proceeds pay down the loan balance. Most AD&C loans include a release price mechanism where the lender releases its lien on each completed home upon receipt of a predetermined payment, typically set at 100% to 120% of the per-unit loan allocation.
For subdivision builders evaluating options, our ground-up development financing guide and land acquisition financing guide provide additional detail.
What Are the Risks of an AD&C Loan?
AD&C loans carry elevated risk for both borrowers and lenders compared to loans on stabilized income-producing properties. The primary risks include construction delays, cost overruns, market timing, and interest rate volatility.
Construction and development risk. Delays caused by weather, labor shortages, supply chain disruptions, or permitting issues can extend the timeline and increase costs. Most AD&C loans include contingency reserves of 5% to 10% of the project budget, but severe delays can exhaust these reserves.
Market risk. If housing demand softens or commercial absorption slows during construction, the developer may not sell or lease the completed product at projected prices. This is why lenders scrutinize market studies and require evidence of demand.
Interest rate risk. Since AD&C loans carry variable rates, rising rates during the project can significantly increase borrowing costs. A 200-basis-point increase on a $10 million loan adds $200,000 in annual interest expense.
Regulatory risk. The HVCRE rule requires banks to hold 150% risk-weighted capital against AD&C loans that do not meet specific exemption criteria. Borrowers can help avoid HVCRE classification by contributing at least 15% equity and staying within LTV guidelines.
For more on managing construction loan costs, see our construction loan interest rate guide.
Frequently Asked Questions About AD&C Loans
What is the minimum down payment for an AD&C loan?
Most lenders require 15% to 25% of the project's total cost. Federal regulators require at least 15% of the "as completed" appraised value for HVCRE exemption, but many lenders set their own minimum at 20% to 30% depending on risk profile and borrower experience.
How long does it take to get approved for an AD&C loan?
The approval process typically takes 30 to 90 days from application to closing. Projects with complete plans, permits, and a strong borrower track record can close faster. Complex projects involving rezoning or environmental remediation may take longer.
Can I use an AD&C loan for a single building project?
Yes. While AD&C loans are commonly associated with subdivisions, they can finance any project involving land acquisition, site development, and construction. Single commercial buildings, multifamily developments, and mixed-use projects all qualify.
What happens if my project runs over budget?
The borrower typically must contribute additional equity to cover the shortfall. Most AD&C loans include a 5% to 10% contingency reserve, but amounts beyond that require the borrower to fund the difference.
Are AD&C loan interest payments tax deductible?
Interest paid on AD&C loans for business purposes is generally deductible. However, the IRS requires capitalization of interest during the construction period under Section 263A. Consult a tax advisor for your specific situation.
What is the difference between an AD&C loan and a C&D loan?
A C&D (Construction and Development) loan covers only the development and construction phases, assuming the borrower already owns the land. An AD&C loan adds the acquisition phase. If you already own the property, a C&D loan may be sufficient. If you need to buy the land, an AD&C loan packages everything together.
Ready to move forward with your development project? Clearhouse Lending specializes in construction loans and development financing for builders and developers nationwide. Whether you need an AD&C loan for a subdivision, a standalone construction loan, or bridge financing for a value-add project, our team can help you find the right structure. Schedule a consultation today to discuss your project.