Why Is Arlington Attracting Ground-Up Commercial Development?
Arlington, Texas has entered a period of aggressive construction activity, fueled by the Entertainment District's ongoing transformation, Downtown Arlington's revitalization, and the broader demand generated by a city of approximately 394,000 residents positioned at the center of the DFW Metroplex. The city's construction pipeline spans multifamily housing, mixed-use developments, hotels, retail, and infrastructure projects that collectively represent billions of dollars in investment.
The Entertainment District has attracted over $4 billion in development investment since 2020, with projects like One Rangers Way (a $70 million luxury apartment community near Globe Life Field), the National Medal of Honor Museum, and the upcoming IndyCar Grand Prix infrastructure demonstrating the district's continued evolution beyond its stadium anchors. Downtown Arlington is seeing the Caravan Court hotel (145 rooms), the Front Street mixed-use development (150+ residential units and 14,500 square feet of commercial space), and the Main/Abram Street redevelopment (160+ residential units and 40,000 square feet of commercial).
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TxDOT's Southeast Connector Project, involving approximately 1 million construction man-hours in both 2025 and 2026, represents one of the largest infrastructure construction projects in the DFW area and creates downstream demand for commercial development along the improved corridors. The city's permitting activity has increased significantly, reflecting developer confidence in Arlington's growth trajectory.
Texas's business-friendly regulatory environment, absence of a state income tax, and Tarrant County's relatively streamlined permitting process give Arlington a development cost advantage over many comparable markets, making construction financing economics more favorable for both developers and lenders.
What Construction Loan Programs Are Available in Arlington?
Arlington developers have access to multiple construction financing programs, each designed for different project types, sizes, and developer experience levels.
Conventional Construction Loans from banks and credit unions provide the most common ground-up financing for mid-size commercial projects. Rates range from approximately 7.5% to 9.5% with 18 to 36 month terms, up to 70% of total project cost and 75% of as-completed value. Draw schedules are structured around construction milestones, with funds released as the project progresses. Texas-based banks with DFW construction experience offer the most competitive terms.
Construction-to-Permanent Loans combine construction financing with a forward commitment for permanent financing upon project completion and stabilization. This single-close structure eliminates the risk of being unable to secure takeout financing and saves on closing costs. Rates on the construction phase range from roughly 7.5% to 9.0%, converting to permanent rates of 6.25% to 7.75% upon stabilization.
SBA 504 Construction Loans provide owner-occupants with construction financing at up to 90% of project cost, with the SBA providing a second lien position. Fixed rates on the SBA portion range from approximately 5.75% to 6.75% for 20 to 25 year terms. This program is valuable for Arlington business owners building custom facilities for their own use, including restaurants, medical offices, and light industrial buildings.
Bridge Construction Loans serve developers who need to begin construction before permanent financing is secured. Rates range from around 9.0% to 12.0% with 12 to 24 month terms. This program works for developers with strong track records who can demonstrate a clear path to permanent financing or sale upon completion.
Hard Money Construction Loans provide financing for smaller projects or developers who cannot meet conventional lending requirements. Rates range from roughly 11.0% to 15.0% with 6 to 18 month terms and up to 65% of project cost. These loans close quickly but carry significantly higher costs.
Mezzanine and Preferred Equity fill the capital stack gap between the senior construction loan and the developer's equity. Mezzanine financing at rates of 12% to 18% can reduce the developer's required equity contribution, though at significant cost. This structure is common for larger Entertainment District projects where total development costs exceed the senior lender's comfort level.
What Types of Projects Are Being Built in Arlington?
Arlington's construction pipeline reflects the city's diverse economic drivers and the specific demand patterns generated by its unique position in the DFW Metroplex.
Multifamily Development represents the largest category of new construction in Arlington. Projects like One Rangers Way ($70 million, luxury apartments near Globe Life Field), the Front Street project (150+ units downtown), and the Main/Abram redevelopment (160+ units) demonstrate the range from luxury to workforce housing. Lenders finance multifamily construction actively because the product type's lease-up patterns are well understood and the DFW Metroplex's population growth provides a fundamental demand floor.
Mixed-Use Development combines residential, retail, and sometimes office components into integrated projects. Downtown Arlington's transformation is being driven by mixed-use projects that integrate ground-floor commercial space with upper-floor residential. These projects attract financing from lenders who are comfortable underwriting multiple income streams and understand the synergies between residential and commercial components.
Hotel and Hospitality construction continues in the Entertainment District, with the Caravan Court hotel (145 rooms) set to open in 2026. The district's roughly 15.6 million annual visitors create hotel demand that supports new construction, particularly for upscale and boutique concepts that complement the existing hotel inventory.
Retail and Restaurant pad sites and outparcels continue to be developed along Arlington's major corridors and within the Entertainment District. Quick-service restaurants, coffee shops, and convenience retail generate strong pre-leasing interest that supports construction loan underwriting.
Industrial and Warehouse construction serves the growing logistics demand along the I-20 and SH-360 corridors. Build-to-suit industrial projects for specific tenants generate the strongest construction loan terms, while speculative industrial development requires the developer to demonstrate absorption projections supported by market data.
How Do Lenders Evaluate Arlington Construction Loan Applications?
Construction loan underwriting is the most complex form of commercial real estate lending, requiring lenders to evaluate not just the finished project but the entire development process.
Developer Experience is the single most important factor in construction loan approval. Lenders want evidence of successfully completed projects of similar type and scale in the DFW Metroplex. First-time developers may need to partner with experienced operators, provide higher equity, or accept more conservative terms to compensate for the experience gap.
Pre-Leasing and Pre-Sales reduce construction loan risk by demonstrating demand for the finished product before construction begins. Retail and industrial projects with 50% or higher pre-leasing can access more favorable terms. Multifamily projects typically do not require pre-leasing but benefit from market studies showing demand absorption.
Feasibility Analysis must demonstrate that the completed project will generate sufficient income to support permanent financing or achieve a sale price that produces adequate returns. Lenders evaluate construction costs, projected rents, absorption timelines, and operating expenses to determine whether the project makes economic sense in the current market.
Guaranteed Maximum Price (GMP) Contracts with established general contractors provide lenders with cost certainty that reduces the risk of overruns. Lenders strongly prefer GMP contracts over cost-plus arrangements, particularly for less experienced developers.
Entitlements and Permits must be in place before construction loan funding. Arlington's permitting process through the city's development services department should be completed or substantially advanced before approaching construction lenders.
What Are the Current Construction Loan Rates and Terms in Arlington?
Construction loan rates in Arlington reflect both the inherent risk of ground-up development and the current interest rate environment.
Interest is typically charged only on drawn funds, meaning the effective rate during the construction period is lower than the stated rate because not all loan proceeds are disbursed at once. A construction loan at 8.5% with an average outstanding balance of 50% of the total commitment has an effective interest cost of approximately 4.25% during the early construction phases.
Lender fees for construction loans are higher than for permanent financing. Origination fees range from 1.0% to 3.0%, with additional fees for construction monitoring, inspections, and draw processing. These fees should be factored into the overall project budget.
Interest reserves allow developers to capitalize interest payments during construction, when the project generates no income. Most construction lenders include 6 to 12 months of interest reserve in the loan budget, with the reserve funded from loan proceeds at closing.
Construction contingency of 5% to 10% of hard costs is typically required by lenders and built into the loan budget. This contingency covers unexpected cost increases, change orders, and scope adjustments during construction.
What Are the Biggest Risks in Arlington Construction Lending?
Construction loans carry higher risk than any other form of commercial real estate financing, and both borrowers and lenders must carefully evaluate these risks.
Cost Overruns represent the most common construction loan challenge. Material costs, labor availability, and supply chain disruptions can push actual construction costs above budget. Building in adequate contingency (10% to 15% of hard costs) and securing GMP contracts with experienced contractors mitigates this risk.
Timeline Delays extend the construction period and increase interest carry costs. Texas weather, including the severe storms and temperature extremes that affect the DFW area, can delay exterior construction activities. Permitting delays, material delivery issues, and subcontractor scheduling also contribute to timeline risk.
Market Shifts during the construction period can affect the project's lease-up or sale prospects. A multifamily project that made economic sense when construction began may face a different demand environment 18 to 24 months later. Stress-testing the project against lower rent and occupancy scenarios provides protection.
Entitlement Risk affects projects in the early stages of the approval process. Zoning changes, community opposition, or environmental requirements can delay or modify a project's scope. Completing the entitlement process before seeking construction financing eliminates this risk.
Contractor Default can halt construction and create significant cost increases to restart with a replacement contractor. Selecting well-capitalized contractors with strong track records and requiring performance bonds reduces this exposure.
How Does Arlington's Location Affect Construction Costs and Demand?
Arlington's position in the DFW Metroplex directly affects both the cost structure and demand dynamics of new construction.
Construction labor availability in the DFW area has improved from the severe shortages of recent years but remains a factor affecting project timelines and costs. The DFW Metroplex's massive construction pipeline, including commercial, residential, and infrastructure projects, creates competition for skilled labor. Developers who establish relationships with reliable general contractors and subcontractors gain a competitive advantage in both cost control and timeline management.
Land costs in Arlington are generally lower than in Dallas, Fort Worth core, and premium suburban communities like Frisco, Plano, or Southlake. This cost advantage translates into more favorable construction loan economics because the total project cost per unit or per square foot is lower, which improves the project's return metrics and reduces lender risk.
The city's position between Dallas and Fort Worth provides access to the tenant pools of both cities, expanding the potential market for completed projects. A new multifamily development in north Arlington draws tenants from the DFW Airport corridor, while a retail project along the I-20 corridor serves consumers from across southern Tarrant and Dallas counties.
Arlington's Entertainment District provides a unique demand driver for construction projects that most cities cannot offer. Hotels, restaurants, entertainment venues, and residential projects near AT&T Stadium and Globe Life Field benefit from the approximately 15.6 million annual visitors who create demand that supplements the local residential market.
What Permanent Financing Options Exist After Construction Completion?
The exit from construction financing into permanent debt is a critical transition that must be planned from the project's inception.
Agency Loans (Fannie Mae/Freddie Mac) provide the most competitive permanent financing for completed multifamily projects with 50 or more units. Rates range from approximately 5.5% to 6.75% with up to 80% LTV and non-recourse structure. Achieving the minimum occupancy threshold (typically 90% for 90 days) is required.
Conventional Bank Permanent Loans serve stabilized commercial projects across all property types. Rates range from roughly 6.25% to 7.75% with 5 to 10 year terms. Banks that provided the construction financing often offer the most competitive permanent terms to retain the relationship.
CMBS Permanent Loans provide non-recourse financing for larger stabilized projects. Rates range from approximately 5.88% to 7.49% with 5 to 10 year terms. The non-recourse structure is attractive to developers who want to limit their personal liability after the construction risk period ends.
DSCR Loans serve completed projects where the developer prefers not to provide personal income documentation for the permanent loan. Rates range from roughly 7.0% to 9.0% with 30-year terms.
How Should Arlington Developers Structure Their Construction Loan Applications?
A comprehensive construction loan application requires significantly more documentation than a permanent loan application.
Prepare a detailed development pro forma showing all project costs, projected income, expense projections, and return analysis. The pro forma should include sensitivity analysis showing project performance under adverse scenarios, including 10% cost overruns, 20% lower rents, and 6-month longer lease-up timelines.
Provide complete architectural and engineering plans. Construction lenders require plans that are sufficiently detailed to support cost estimation and construction monitoring. Conceptual plans are not sufficient for loan approval.
Document your development track record with specific project examples including costs, timelines, lease-up results, and returns. Lenders evaluate whether your experience matches the scope and complexity of the proposed project.
Secure general contractor bids, preferably a Guaranteed Maximum Price contract. The contractor's qualifications, financial statements, and references are evaluated alongside the developer's credentials.
Obtain or demonstrate progress toward all required entitlements, permits, and approvals. Construction lenders will not fund until all governmental approvals are in place.
Contact Clearhouse Lending to discuss your Arlington construction financing needs and connect with lenders experienced in DFW ground-up development.
Frequently Asked Questions About Construction Loans in Arlington
What is the minimum down payment for a construction loan in Arlington?
Minimum equity requirements for Arlington construction loans range from 10% to 40% of total project cost depending on the program and developer experience. SBA 504 construction loans require as little as 10% for owner-occupied projects. Conventional construction loans typically require 25% to 35% equity. Experienced developers with strong track records in the DFW market may negotiate lower equity requirements.
How long does it take to close a construction loan in Arlington?
Construction loan closings in Arlington typically take 60 to 120 days from application to funding. The longer timeline compared to permanent loans reflects the additional due diligence required, including plan review, cost estimation, contractor qualification, environmental assessment, and entitlement verification. Having complete plans, permits, and contractor documentation at application can accelerate the timeline.
Can I get construction financing for a project near the Entertainment District?
Yes, construction financing is actively available for projects near Arlington's Entertainment District. The district's $4 billion+ investment track record and approximately 15.6 million annual visitors give lenders confidence in the demand fundamentals for new development. Hotels, multifamily, retail, restaurant, and mixed-use projects near AT&T Stadium and Globe Life Field can access competitive construction terms when the developer demonstrates experience and project feasibility.
What is the typical interest reserve for an Arlington construction loan?
Interest reserves for Arlington construction loans typically cover 6 to 12 months of interest payments, capitalized into the loan amount at closing. The reserve ensures that interest payments can be made during the construction period when the project generates no income. The specific reserve amount depends on the construction timeline, loan amount, and interest rate. Some lenders allow the reserve to extend through the initial lease-up period.
Do construction loans in Arlington require a guaranteed maximum price contract?
While not always required, a Guaranteed Maximum Price (GMP) contract with the general contractor significantly strengthens a construction loan application and can improve terms. GMP contracts provide cost certainty that reduces the lender's exposure to overruns. Lenders may accept cost-plus contracts for experienced developers with strong track records, but typically require larger contingency reserves and may impose lower leverage limits.
What happens if construction costs exceed the budget in Arlington?
If construction costs exceed the budget, the developer is typically responsible for funding the overage from their own equity. Construction loan agreements usually require the developer to inject additional equity before the lender will continue funding draws. Having adequate contingency (10% to 15% of hard costs) in the original budget, combined with a GMP contract, provides the first line of defense against cost overruns.
Moving Forward With Arlington Construction Financing
Arlington's construction market offers developers a compelling combination of strong demand drivers, lower land costs relative to Dallas and Fort Worth core, and a city government that supports commercial development. The Entertainment District's continued evolution, Downtown's revitalization, and the broader DFW Metroplex's growth trajectory provide the market fundamentals that construction lenders require.
Whether you are developing multifamily housing near UTA, a mixed-use project in Downtown Arlington, a hotel serving the Entertainment District, or an industrial facility along the I-20 corridor, the right construction financing structure is essential to project success.
Contact Clearhouse Lending to discuss your Arlington construction financing needs and receive guidance on structuring your development project for optimal lending terms.