Tucson Construction Loans: Ground-Up Financing Guide

Why Is Tucson Attracting New Commercial Construction Activity?

Tucson's commercial construction pipeline is expanding as population growth, suburban expansion, and infrastructure investment converge to create development opportunities across multiple property types. For developers and investors seeking construction loans in Tucson, the combination of growing demand, moderate land costs compared to Phoenix and other Sun Belt metros, and supportive municipal planning creates favorable conditions for ground-up development.

The Tucson metro area, home to approximately 1.05 million people across Pima County, is experiencing development activity driven by several interconnected forces. Residential growth in Oro Valley and Marana is generating demand for new retail, mixed-use, and service-oriented commercial properties. The University of Arizona's research enterprise, generating roughly $734 million in annual research activity, fuels demand for laboratory, office, and innovation space at UA Tech Park and surrounding areas. RTX (formerly Raytheon), with over 12,000 local employees, and Davis-Monthan Air Force Base, contributing approximately $1.15 billion annually, support industrial, flex-space, and office construction near the I-10 corridor and airport area.

Major infrastructure projects are reshaping Tucson's development landscape. The city is completing an I-10 widening project on the northwest side, continuing I-10 improvements southeast of downtown, and beginning an I-19 interchange reconstruction. A new 22nd Street bridge over the Union Pacific railroad tracks and a downtown tunnel under the UP tracks are scheduled for 2026. These transportation improvements open new development corridors and increase accessibility to commercial sites.

The City of Tucson's Planning and Development Services processed a robust pipeline of permits through 2025, with continued activity expected in 2026. Projects to watch include a 146,963-square-foot industrial building near Tucson International Airport, the Bass Pro Shops 100,000-square-foot mega store at The Bridges, La Posada at Pusch Ridge (a 166-unit senior care facility in Oro Valley), and multiple residential developments in Marana and Northwest Tucson.

For developers seeking construction financing, Clear House Lending connects Tucson builders with a network of over 6,000 commercial lenders, including specialized construction and development capital providers.

What Types of Construction Loans Are Available in Tucson?

Tucson developers have access to several construction loan structures, each designed for different project types, scales, and risk profiles.

Ground-Up Construction Loans finance the complete development of new commercial properties from site preparation through certificate of occupancy. These loans cover land acquisition (if not already owned), hard construction costs, soft costs (architectural, engineering, permits, legal), and interest reserves. Rates range from approximately 7.0% to 10.0% with terms of 12 to 36 months, LTC (loan-to-cost) up to 80%, and LTV (loan-to-value based on completed value) up to 70% to 75%.

Construction-to-Permanent Loans (also called one-time-close or mini-perm construction loans) combine the construction phase and permanent financing into a single loan, eliminating the need for a separate refinance at project completion. The construction phase carries interest-only payments at rates of 7.0% to 9.5%, and upon completion and stabilization, the loan converts to a permanent mortgage with amortization of 20 to 30 years. This structure reduces closing costs and eliminates refinance risk.

Renovation and Repositioning Loans finance major improvements to existing Tucson commercial properties. While not strictly ground-up construction, these loans use similar underwriting and draw-based disbursement structures. Rates range from 7.5% to 11.0% with terms of 12 to 24 months and LTV up to 75% of the after-renovation value.

Spec Construction Loans finance development of commercial properties without pre-leasing commitments. These carry higher rates (8.0% to 11.0%) and lower LTC (65% to 75%) due to the added lease-up risk. Spec construction is more common for industrial and multifamily properties in Tucson, where vacancy rates are low enough to support absorption of new supply.

Pre-Leased Construction Loans finance projects where a significant portion of the building is pre-leased to creditworthy tenants. Pre-leasing (typically 40% to 60% of the space) significantly improves loan terms, with rates from 6.5% to 8.5% and LTC up to 80% to 85%. Build-to-suit developments for tenants like healthcare systems, government agencies, or defense contractors align well with this structure in Tucson.

Use the commercial mortgage calculator to model construction financing scenarios.

What Property Types Are Developers Building in Tucson?

Tucson's construction pipeline reflects specific demand drivers in the local market. Understanding which property types lenders favor for construction financing helps developers position their projects for approval.

Multifamily Development remains the most active construction category in Tucson. Student housing near the University of Arizona, market-rate apartments in Downtown and Midtown, and suburban apartments in Oro Valley and Marana all attract development capital. Projects like the Ari on Fourth (323 units in a 13-story tower on 4th Avenue) and Union on Sixth (165 units with 7,000 SF of commercial space) demonstrate the scale of downtown multifamily development. Lenders favor multifamily construction in Tucson due to the metro's strong rental demand from students, military personnel, university employees, and RTX workers.

Industrial and Logistics construction is expanding along the I-10 corridor and near Tucson International Airport. A 146,963-square-foot industrial building adjacent to the airport and the Butterfield Logistics Center (194,874 SF) exemplify the new industrial development responding to defense sector demand, cross-border trade via I-19, and regional distribution needs. Industrial construction receives favorable lending terms due to Tucson's manageable vacancy of approximately 6.6% and strong tenant demand.

Senior Living and Healthcare facilities represent a growing construction niche in Tucson. La Posada at Pusch Ridge, a 350,000-square-foot, 166-unit senior care facility on 79 acres in Oro Valley, highlights the demographic-driven demand for age-restricted and healthcare properties. The aging population of Pima County and the expansion of healthcare services create reliable demand for purpose-built medical and senior living facilities.

Retail and Mixed-Use construction is concentrated in growing suburban corridors. The Bass Pro Shops 100,000-square-foot store at The Bridges, Marana's planned 40-acre downtown center, and various pad site developments along Oracle Road and I-10 interchanges reflect the retail construction activity. Mixed-use projects combining residential and commercial components are increasing in Downtown Tucson, near the Sun Link streetcar, and along major transit corridors.

Institutional and Education construction continues with new K-8 schools in Rocking K (70,000 SF) and Gladden Farms (98,000 SF), reflecting the residential growth in southern and western Tucson that generates demand for adjacent commercial development.

What Do Construction Lenders Require for Tucson Projects?

Construction lending involves more complex underwriting than permanent financing because the lender is financing a project that does not yet generate income. Tucson construction lenders evaluate multiple risk factors before approving a loan.

Developer Experience is the most critical qualification factor. Lenders strongly prefer developers who have successfully completed similar projects in terms of property type, scale, and market. A developer with a track record of completing multifamily projects in Tucson will receive significantly better terms for a new multifamily construction loan than a first-time developer. Newer developers can improve their positioning by partnering with experienced co-developers or general contractors with strong local track records.

Financial Strength requirements include net worth equal to or exceeding the total project cost, liquid assets of 10% to 20% of the loan amount, and strong personal credit (typically 680+ for the lead developer). Construction lenders want to ensure that the developer has the financial capacity to fund cost overruns, carry the project during delays, and cover debt service during the stabilization period.

Project Feasibility documentation includes a detailed development budget with hard and soft cost breakdowns, an appraisal projecting the completed property value, a market study demonstrating demand for the proposed use, environmental reports (Phase I at minimum), geotechnical studies, and all required permits and entitlements from Pima County and the City of Tucson.

Pre-Leasing and Pre-Sales significantly impact construction loan terms. Projects with 40% to 60% pre-leasing to creditworthy tenants qualify for higher leverage and lower rates. Speculative projects without pre-leasing face more conservative terms. In Tucson's tighter submarkets (industrial, small-shop retail, medical office), lenders may accept lower pre-leasing thresholds.

General Contractor Qualification is evaluated independently. Lenders require a licensed, bonded, and insured GC with experience on comparable projects. Fixed-price or guaranteed maximum price (GMP) contracts are preferred over cost-plus arrangements because they cap the developer's cost exposure.

Exit Strategy must clearly demonstrate how the construction loan will be repaid, either through refinancing into permanent debt upon stabilization or through sale of the completed property. Lenders may require evidence of permanent financing commitments or a letter of intent from a takeout lender.

How Does the Construction Loan Draw Process Work in Tucson?

Construction loans are not disbursed in a lump sum. Instead, funds are released in a series of draws as work progresses, with the lender verifying completion at each stage.

The draw process typically begins with an initial advance covering land costs (if included in the loan), permits, and early soft costs. Subsequent draws are tied to construction milestones such as foundation completion, framing, rough mechanical/electrical/plumbing, exterior envelope, interior finishes, and final completion. The lender's inspector visits the site before each draw to verify that the work has been completed according to the approved plans and budget.

Draw requests in Tucson typically take 5 to 10 business days to process, depending on the lender and the complexity of the inspection. Developers should plan their cash flow to accommodate this timeline and maintain sufficient working capital to bridge the gap between paying contractors and receiving draw funds.

Interest on construction loans accrues only on the amount that has been disbursed, not the total commitment. This means that early-stage interest costs are lower and increase as the project progresses and more funds are drawn. Most construction loans include an interest reserve (typically 12 to 18 months of projected interest) that is funded from the loan proceeds, so the developer does not make out-of-pocket interest payments during construction.

Retainage (typically 5% to 10% of each draw) is held back by the lender until final project completion and satisfaction of all punchlist items. This retention protects the lender against incomplete work or deficiencies discovered during final inspection.

What Are the Costs and Risks of Construction Loans in Tucson?

Construction loans carry higher rates and fees than permanent financing, reflecting the elevated risk of financing a project that does not yet exist as a completed, income-producing asset.

Total construction loan costs include the interest rate (7.0% to 11.0% depending on project type and developer experience), origination fees (1.0% to 2.5% of the total commitment), inspection and draw fees ($500 to $2,000 per draw), legal and documentation fees ($5,000 to $20,000), environmental and geotechnical reports ($5,000 to $15,000), and appraisal costs ($3,000 to $10,000). These costs should be included in the development budget and factored into the project's overall return analysis.

Construction risks specific to Tucson include extreme heat during summer months that can slow outdoor work and increase labor costs, monsoon season (July through September) that can cause flooding, erosion, and construction delays, soil conditions in certain areas that may require specialized foundation work, and supply chain variability for materials shipped through the Tucson market.

Cost overrun risk is the most common challenge in commercial construction. Tucson developers should maintain contingency reserves of 10% to 15% of hard construction costs to absorb unexpected expenses. Common sources of overruns include hidden site conditions, material price escalation, labor shortage premiums, and change orders.

Permitting and entitlement risk can extend project timelines and increase carrying costs. While the City of Tucson and Pima County have streamlined their development review processes, complex projects may still face multi-month review periods, neighborhood opposition, or environmental compliance requirements. Developers should factor realistic permitting timelines into their project schedules and construction loan terms.

How Should Tucson Developers Structure Their Construction Financing?

The optimal construction financing structure depends on the project type, the developer's experience and financial capacity, and the intended exit strategy.

For experienced developers building stabilized-product property types (multifamily, industrial) in proven Tucson submarkets, a construction-to-permanent loan minimizes total financing costs by eliminating the separate refinance transaction. This structure works best when the developer has high confidence in the project timeline and the permanent financing market.

For first-time Tucson developers or projects in emerging submarkets, a standalone construction loan with a separately committed permanent takeout provides more flexibility. If the project encounters delays or market conditions change, the developer can negotiate permanent financing terms based on actual (rather than projected) property performance.

For value-add and renovation projects on existing Tucson properties, a renovation bridge loan provides the simplest structure. These loans fund improvement costs with draw-based disbursement and convert to permanent financing or are refinanced upon completion. Projects like converting office to medical use, renovating an apartment complex, or repositioning a retail center fit this structure well.

For larger institutional-quality projects, joint venture structures with equity partners can reduce the developer's capital requirement and improve construction loan terms. Lenders view well-capitalized equity partnerships favorably because they reduce the loan-to-cost ratio and provide additional financial backstop for cost overruns.

Contact Clear House Lending to discuss the optimal construction financing structure for your Tucson project.

Frequently Asked Questions About Tucson Construction Loans

What is the minimum down payment for a Tucson construction loan?

Minimum developer equity for Tucson construction loans typically ranges from 15% to 35% of total project cost, depending on the project type, pre-leasing status, and developer experience. Pre-leased projects with experienced developers may qualify at 15% to 20% equity. Speculative projects without pre-leasing typically require 25% to 35% equity. Land contributed at appraised value can count toward the equity requirement.

How long does it take to close a construction loan in Tucson?

Construction loan closings in Tucson typically take 45 to 90 days from application to funding, longer than permanent financing due to the additional documentation required (detailed budgets, plans, contractor agreements, permits). Projects that have all permits, a qualified GC under contract, and complete plans can close at the shorter end of this range. Complex projects requiring environmental review or zoning changes may take longer.

Can I include land acquisition in my Tucson construction loan?

Yes. Many construction lenders will include land acquisition costs in the construction loan, provided the total loan amount stays within LTC and LTV parameters. If you already own the land, its appraised value typically counts as equity toward the project, reducing or eliminating the cash equity requirement. Some lenders require a separate land loan that is paid off at construction loan closing.

What happens if my Tucson construction project goes over budget?

Cost overruns are the developer's responsibility unless the lender has approved a loan modification. The construction loan agreement typically requires the developer to fund any costs exceeding the approved budget from personal or entity resources before the lender will release additional draws. Maintaining 10% to 15% contingency reserves in the project budget is essential. Clear House Lending recommends discussing potential overrun scenarios with your lender before they arise.

Do I need permits before applying for a Tucson construction loan?

Most construction lenders require that all major permits and entitlements be in place (or in advanced stages of approval) before closing the loan. Some lenders will close with permits pending if the developer has a strong track record and the remaining approvals are routine. Having your permits secured before applying streamlines the loan process and demonstrates project readiness.

What is the difference between LTC and LTV for construction loans?

LTC (loan-to-cost) measures the loan amount as a percentage of total project cost (land + hard costs + soft costs). LTV (loan-to-value) measures the loan amount as a percentage of the completed property's appraised value. Both metrics are used in construction lending, and the loan amount is typically limited to whichever metric produces the lower number. For example, a Tucson project with $5 million in total costs and a completed appraised value of $6.5 million might qualify for 80% LTC ($4 million) or 70% LTV ($4.55 million), with the loan capped at the lower $4 million figure.

Building in Tucson: Your Construction Financing Partner

Tucson's development pipeline reflects a growing metro with expanding suburban communities, infrastructure investment, and diversified economic drivers. From multifamily towers on 4th Avenue to industrial buildings near the airport, from senior care facilities in Oro Valley to retail centers in Marana, the construction opportunities are broad and varied.

Successful construction financing requires a lending partner who understands both the development process and the Tucson market. Clear House Lending provides access to construction lenders who specialize in the property types and project scales that define Tucson's development landscape.

Contact Clear House Lending today to discuss your Tucson construction project and get matched with the right lender from our network of over 6,000 commercial lending sources.