Boston remains one of the most active commercial construction markets in the Northeast, with $4.8 billion in development projects approved by the BPDA in 2025 and over 16,000 multifamily units under construction across the metro. The city's unique combination of life sciences demand, housing shortage, institutional anchors, and world-class transit infrastructure creates ongoing development opportunities across multiple property types. However, Boston is also one of the most expensive and complex markets in the country to build in, with elevated labor costs, stringent regulatory requirements, and construction costs that continue to rise 5% to 7% annually.
This guide covers everything you need to know about securing construction financing in Boston, from loan programs and rates to the BPDA approval process, construction cost benchmarks, and draw schedule mechanics.
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Why Is Boston One of the Most Active Construction Markets in the Northeast?
Boston's construction activity is driven by several converging forces that create persistent demand for new development.
The housing shortage is the most powerful driver. Boston's population grew at its fastest rate since the early 2000s in 2024, fueled by international immigration and domestic in-migration. Yet housing production has consistently lagged population growth, creating a supply deficit that supports both new construction and renovation of existing properties. Mayor Michelle Wu's housing-focused agenda and the MBTA Communities Act, which requires transit-adjacent communities to zone for multifamily development, are creating new development opportunities throughout the metro.
The life sciences sector continues to drive substantial construction activity, particularly in Cambridge, the Seaport, and along the Route 128 corridor. While lab vacancy has risen to 36% following a speculative building boom, the long-term demand from pharmaceutical companies and biotech firms anchors a significant portion of Boston's development pipeline. Lab and life sciences construction is among the most expensive building types, often exceeding $400 to $800 per square foot.
Institutional expansion from Harvard, MIT, Boston University, and major hospital systems generates steady construction demand that is less sensitive to market cycles. University-related construction benefits from institutional credit backing, which lenders view favorably.
Office-to-residential conversions represent a growing category of construction activity. The city's conversion program has approved 1,517 new housing units across 27 buildings, with five projects totaling 306 units currently under construction. This trend is creating a new category of construction financing demand as developers transform underperforming office buildings into residential assets.
What Types of Construction Loans Are Available in Boston?
Boston developers have access to several construction financing structures, each designed for different project types and borrower profiles.
Conventional construction loans from banks and credit unions offer the most competitive rates, typically priced at Prime plus 1% to 3% with loan-to-cost ratios of 65% to 75%. These loans carry 18 to 36 month terms with interest-only payments during construction. Boston's major banks, including Bank of America and Citizens Bank, along with regional lenders, are active in the local construction market. Conventional construction loans require fully entitled projects with building permits in hand, a licensed general contractor, and a detailed construction budget. Visit our construction financing page for more details.
Construction-to-permanent loans provide a single closing that covers both the building phase and the long-term mortgage. Rates typically run Prime plus 1% to 2.5% during construction, converting to a permanent fixed rate upon project completion. This structure eliminates refinancing risk and saves on closing costs. It is particularly popular for owner-occupied commercial properties in Boston, where the developer intends to occupy the building long-term.
SBA 504 construction loans are the most powerful financing tool for owner-occupied projects. The program allows loan-to-cost ratios up to 90%, meaning a business building a new facility in Boston can contribute as little as 10% equity. The SBA portion carries below-market fixed rates, while the bank first mortgage carries market rates. Massachusetts's active network of Certified Development Companies supports robust SBA construction lending activity.
Hard money construction loans provide speed and flexibility for developers who cannot meet conventional requirements or need to move quickly. Rates range from 10% to 14% with loan-to-cost ratios of 60% to 70% and terms of 12 to 24 months. These loans close in as little as two to three weeks, making them suitable for time-sensitive land acquisitions and speculative projects. Explore our hard money lending options for more details.
Bridge-to-construction loans fund land acquisition while the developer pursues entitlements and permits through the BPDA process. Rates range from 8% to 12% with terms of six to 18 months. The loan converts to a construction facility once permits are secured, or the borrower refinances into a conventional construction loan.
How Much Does It Cost to Build in Boston?
Boston is one of the most expensive construction markets in the United States, with costs that reflect union labor requirements, stringent building codes, elevated material costs, and the complexity of building in a dense urban environment.
Commercial construction costs in Boston generally range from $300 to $400 per square foot for standard commercial buildings, with significant variation by property type. High-rise residential construction costs $350 to $550 per square foot, reflecting the structural requirements and premium finishes expected in Boston's competitive rental and condo market. Mid-rise mixed-use projects range from $275 to $425 per square foot depending on the residential and commercial component mix.
Life sciences and lab construction is the most expensive building type in Boston, ranging from $400 to $800 per square foot. The specialized mechanical, electrical, and plumbing systems required for clean rooms, lab environments, and biotech facilities drive these elevated costs.
Industrial and warehouse construction is the most affordable at $120 to $225 per square foot, though available land for industrial development in the Boston core is extremely limited.
Construction costs have been rising 5% to 7% annually, driven by labor shortages, material cost inflation, and ongoing supply chain pressures. Federal trade policy uncertainty, particularly around tariffs on imported building materials, adds another layer of cost unpredictability for developers planning projects in 2026 and beyond.
Use our commercial mortgage calculator to estimate long-term financing costs for your completed project, or try our DSCR calculator to evaluate whether projected income will support permanent financing.
What Does the BPDA Approval Process Look Like?
The Boston Planning and Development Agency (BPDA) oversees development approvals through the Article 80 review process, which is one of the most comprehensive in the country.
Large Project Review applies to developments exceeding 50,000 square feet or 50 residential units. This process involves public meetings, community engagement, environmental review, and design review. The timeline typically runs six to 18 months, depending on project complexity and community dynamics.
Small Project Review covers projects between 15,000 and 50,000 square feet. This streamlined process is faster but still requires community notification, design review, and BPDA board approval.
In 2025, the BPDA board approved 60 new development proposals totaling 5.8 million net square feet and approximately $4.8 billion in estimated value. These approvals included 3,773 net residential units, of which 1,278 (29%) will be income-restricted. However, development approvals were down by approximately half from the 11.6 million square feet approved in 2024, reflecting the chilling effect of rising construction costs and financing uncertainty.
The BPDA and Zoning Commission have approved zoning changes that allow towers of up to 700 feet in certain downtown zones, opening new development opportunities in areas that were previously height-restricted. These zoning reforms are part of the city's effort to encourage housing construction and commercial investment.
Most construction lenders require full BPDA approval and building permits before committing construction financing. Some bridge lenders will fund pre-entitled land acquisitions for borrowers with a clear path to entitlements.
How Does the Construction Draw Process Work in Boston?
The draw schedule determines when and how construction loan funds are disbursed throughout your project.
A typical Boston construction project has five to seven draws, each tied to specific milestones. The first draw covers land acquisition and pre-construction costs. Subsequent draws fund foundation, framing, mechanical systems, interior build-out, and final finishes. Each draw requires submission of invoices, lien waivers from subcontractors, and a third-party inspection verifying that work matches the draw request.
Retainage is a critical element of construction lending. Most Boston lenders hold back 5% to 10% of each draw as a safety net, releasing retained funds after final completion, certificate of occupancy, and expiration of the lien-free waiting period. Plan your cash flow to account for this holdback, and make sure your general contractor understands the structure.
Interest accrues only on funds that have been disbursed, not on the full loan commitment. This interest-only structure during construction helps preserve your cash for project-related expenses. At a rate of 7.5% on an $8 million project, monthly interest starts at approximately $7,500 on the first draw and grows to $50,000 by the final draw.
For more details on construction financing structures, visit our commercial bridge loan calculator to model carry costs.
What Are the Biggest Risks of Construction Projects in Boston?
Construction in Boston carries elevated risks compared to most other markets, and understanding these risks is essential to successful project execution.
Cost overruns are the primary risk. Boston's 5% to 7% annual construction cost inflation, combined with uncertainty around tariffs and material pricing, makes budget management challenging. Developers should build a contingency of 15% to 20% into their project budget, significantly higher than the 10% contingency common in less volatile markets.
Permitting delays can extend project timelines and increase carry costs. The BPDA approval process, while transparent, can take six to 18 months for large projects. Building permit processing through the Inspectional Services Department adds additional time. Boston's historic district requirements, environmental review obligations, and community engagement process all contribute to longer pre-construction timelines than in many peer markets.
Labor availability remains tight in the Boston construction market. The metro's strong construction activity competes for a limited pool of skilled trades workers, and Massachusetts prevailing wage requirements increase labor costs for many projects. Securing a qualified general contractor with capacity for your project should be a priority before applying for financing.
Interest rate risk affects construction borrowers because most construction loans use variable rates tied to Prime or SOFR. Rising rates during the 18 to 36 month construction period increase carry costs with each draw. Some lenders offer rate caps that limit this exposure.
For a comprehensive overview of financing options in Boston, visit our Boston commercial loans hub.
How Do You Choose the Right Construction Lender in Boston?
Selecting the right construction lender involves more than comparing interest rates. The lender's experience, flexibility, and understanding of Boston's development environment all affect project success.
Local and regional banks like Citizens Bank, Eastern Bank, and Brookline Bank understand Boston's neighborhoods, regulatory environment, and construction market dynamics. These banks often offer competitive terms for mid-size projects and maintain existing relationships with local contractors and development teams.
National commercial lenders and debt funds serve larger projects, typically above $10 million. These lenders may offer higher leverage or more flexible structures but may require more extensive documentation and longer underwriting timelines.
SBA-preferred lenders are essential for owner-occupied projects pursuing SBA 504 construction financing. Massachusetts's Certified Development Companies partner with banks to structure these loans, providing up to 90% financing at below-market rates.
Private lenders and hard money sources fill gaps where traditional banks cannot or will not lend, including speculative projects, borrowers with limited experience, and deals requiring rapid execution. Rates are higher, but the speed and flexibility can be decisive for the right project.
Contact our team to get connected with construction lenders who specialize in the Boston market. We can provide multiple quotes from competing lenders to ensure you receive the best available terms.
What Is the Outlook for Boston Construction in 2026?
Boston's construction outlook for 2026 is characterized by cautious optimism tempered by cost and policy uncertainty.
The positive fundamentals remain in place. Boston's housing shortage continues to drive residential construction demand. The life sciences sector, while recalibrating, supports long-term lab and R&D construction activity. The city's zoning reforms, including new downtown height allowances and the MBTA Communities Act, are expanding the addressable development market.
However, developers face headwinds. Construction costs continue to rise 5% to 7% annually, squeezing project margins. Development approvals fell by half in 2025 compared to 2024, reflecting developer caution. Federal tariff policy adds uncertainty to material costs. The city paused a scheduled increase in developer linkage fees in recognition of these pressures.
The office-to-residential conversion pipeline provides a partial offset to slowing new construction starts. These projects repurpose existing buildings, often at lower cost than ground-up construction, and benefit from the city's conversion incentives.
For developers who can manage costs, navigate the regulatory environment, and secure favorable financing, Boston's structural undersupply of housing and continued institutional demand create development opportunities that justify the complexity and expense of building in this market.
Frequently Asked Questions About Construction Loans in Boston
What is the minimum down payment for a construction loan in Boston?
Most conventional construction lenders require 25% to 35% equity based on total project cost. SBA 504 construction loans allow as little as 10% down for qualifying owner-occupied projects, making them the most accessible option for business owners building their own facilities. Hard money construction loans typically require 30% to 40% equity. First-time developers should expect to contribute equity at the higher end of each range, while experienced builders with a track record of successful Boston projects may qualify with less equity.
How long does it take to get a construction loan approved in Boston?
Construction loan approval typically takes 60 to 90 days for conventional lenders, including the appraisal, environmental review, and underwriting process. Hard money construction loans can be approved in 14 to 21 days. The timeline often extends if the project requires additional environmental review or if outstanding permits are pending. Having fully entitled plans, a committed general contractor, and organized financial documentation before applying can significantly accelerate the process.
Do I need BPDA approval before applying for a construction loan?
Most conventional construction lenders require full BPDA approval and building permits before committing construction financing. However, some bridge lenders will finance pre-entitled land acquisitions, allowing you to secure the site while pursuing the BPDA Article 80 review process. These bridge-to-construction loans carry higher rates (8% to 12%) but provide the flexibility to control the site during the entitlement process. Once permits are secured, the bridge loan converts to or is refinanced into a construction facility.
What are the typical construction costs in Boston?
Construction costs in Boston range from $120 to $225 per square foot for industrial buildings to $400 to $800 per square foot for life sciences facilities. Standard commercial construction averages $300 to $400 per square foot. High-rise residential costs $350 to $550 per square foot. These costs are significantly above national averages and continue to increase 5% to 7% annually. Budget a contingency of 15% to 20% to protect against cost overruns.
Can I get a construction loan with limited development experience?
Yes, but it will be more challenging. Boston construction lenders strongly prefer borrowers with experience completing comparable projects. If this is your first project, you can improve your chances by partnering with an experienced general contractor, bringing a larger equity contribution (35% or more), starting with a smaller or less complex project, and demonstrating strong personal financial strength. Some lenders offer co-sponsorship or mentorship programs for first-time developers.
What happens if my construction project goes over budget in Boston?
Cost overruns must typically be funded by the borrower rather than the lender. If your project exceeds the approved budget, you will need to contribute additional equity. This is why building a 15% to 20% contingency into your original budget is critical in Boston's high-cost construction environment. Some lenders allow a loan modification to increase the loan amount if the project's as-completed value supports additional financing, but this requires new underwriting and is not guaranteed.
Contact Clear House Lending today for a free consultation on construction financing in Boston. Whether you are planning a ground-up development, a major renovation, or an office-to-residential conversion, our team can connect you with experienced construction lenders who understand the Boston market.