The quick read: A construction loan for a small Boston apartment building funds the project in monthly draws as work is verified, charges interest only on the money drawn, and is repaid at completion by a permanent loan or a sale. Boston's builder base is unusually wide for a metro of its size. The Census Bureau's 2025 annual permit file counts 5,695 units in 278 buildings of five or more units across the Boston metro, about 20 units per building, so the real construction lane is 25 to 60 unit infill in neighborhoods such as Dorchester and Jamaica Plain rather than towers. The local fact that moves the takeout is Boston's classified property tax: for fiscal 2026 the city taxes residential property at $12.40 per $1,000 of value and commercial property at $26.96, so a ground-floor shop in a small mixed-use building carries more than twice the tax rate of the apartments above it.
How does a construction loan work on a small Boston apartment building?
A construction loan on a small Boston apartment building funds the project in stages as work is completed, charges interest only on the money drawn so far, and is repaid at completion by a permanent loan or a sale, so the lender underwrites both the build and the exit before closing.
NerdWallet's guide to commercial construction loans lays out the standard mechanics. Loan funds are released in stages, each disbursement is tied to a project milestone, and a lender may release a set percentage only after an inspection. While the build is under way, most lenders let the borrower pay interest only, and only on the amount drawn to date. Terms are often short, six to 36 months, and an interest-only construction loan ends in a balloon payment at completion unless it converts to permanent financing.
That last point is the one Boston sponsors underestimate. The construction lender is lending against a building that does not exist yet, so it needs to believe a permanent lender will take it out. Every assumption that affects stabilized net operating income, including rents, income-restricted units, operating expenses and the property tax line, feeds the size of the construction loan as well as the size of the refinance.
Our guide to the construction draw schedule walks through each draw cycle in detail: pay application, inspection, lien waivers and retainage.
What does Boston's small-building construction pipeline actually look like?
Boston's small-building pipeline is mid-rise infill on underused commercial lots, typically 25 to 60 apartments over a ground-floor shop or restaurant with a handful of income-restricted units, and the city's own approval announcements from 2025 show that shape repeating across Dorchester and Jamaica Plain rather than isolated tower projects.
The Census file supports the pattern at the metro level. The Boston-Cambridge-Newton metro permitted 5,695 units in 278 buildings of five or more units in 2025, an average of about 20.5 units per building. That is a large number of separate projects, each with its own sponsor, general contractor and lender.
The City of Boston's January 17, 2025 announcement of six approved projects gives two concrete examples. At 101-109 Boston Street in Dorchester, a six-story building with 59 housing units, eight of them income-restricted, will replace underused land and include a ground-floor restaurant. At 3458 Washington Street in Jamaica Plain, a five-story building will replace an autobody repair shop; the city's description gives 36 housing units with ground-floor retail and eight income-restricted units, while the project's summary line lists 34 units. The city's August 15, 2025 announcement adds a third: 1444-1446 Dorchester Avenue, a mixed-use project with 47 new homes, nine of them income-restricted, plus retail space.
| Attribute | 101-109 Boston Street | 3458 Washington Street | 1444-1446 Dorchester Ave |
|---|---|---|---|
| Attribute Neighborhood | 101-109 Boston Street Dorchester | 3458 Washington Street Jamaica Plain | 1444-1446 Dorchester Ave Dorchester |
| Attribute Housing units | 101-109 Boston Street 59 | 3458 Washington Street 36 (summary lists 34) | 1444-1446 Dorchester Ave 47 |
| Attribute Income-restricted units | 101-109 Boston Street 8 | 3458 Washington Street 8 | 1444-1446 Dorchester Ave 9 |
| Attribute Ground floor | 101-109 Boston Street Restaurant or retail | 3458 Washington Street Retail | 1444-1446 Dorchester Ave Retail and commercial |
| Attribute City announcement | 101-109 Boston Street January 17, 2025 | 3458 Washington Street January 17, 2025 | 1444-1446 Dorchester Ave August 15, 2025 |
These are approvals, not construction starts. The city's announcements do not state a start or completion date for any of the three, so treat them as evidence of what gets approved in Boston, not as completed comparables.
How much will a construction lender fund, and what do you bring?
A construction lender usually funds a percentage of total project cost rather than the full budget, and NerdWallet puts the typical range at 70% to 90% of total project cost, which means a Boston sponsor brings the remainder as equity before or alongside the first draw and carries any overruns.
NerdWallet describes the two ways lenders size the loan. Loan-to-cost is the share of total project cost the lender will finance, and loan-to-value is the share of appraised value. On a ground-up building, the binding number is usually whichever produces the smaller loan, and the as-stabilized value depends on the same rent and tax assumptions a permanent lender will test later.
Illustrative example, our arithmetic: a 36-unit building with a total project cost of $18,000,000. At 75% loan-to-cost, the construction loan is $13,500,000 and the sponsor's equity is $4,500,000. If the lender also caps the loan at a percentage of as-stabilized value and the appraisal comes in lower than the pro forma, the loan shrinks and the equity check grows. Run your own figures through the loan-to-cost calculator at two or three cost levels.
What lenders in this lane will want to see:
- Approved plans and the city's approval record for the project
- A construction budget split into land, hard costs, soft costs, interest reserve and contingency
- The general contractor's contract and schedule
- A rent schedule separating market-rate and income-restricted units
- A stabilized operating budget with a tax line built on the classified rates
- Sponsor experience with comparable buildings
How does Boston's classified tax rate change the takeout on a mixed-use building?
Boston's classified tax rate changes the takeout because the city taxes the commercial share of a mixed-use building at $26.96 per $1,000 of value for fiscal 2026 against $12.40 for the residential share, so every dollar of value allocated to a ground-floor shop raises the stabilized tax line and lowers the loan a permanent lender will size.
Boston's Assessing Department states the fiscal 2026 rates directly: $12.40 per thousand dollars of value for residential property and $26.96 for commercial, industrial and personal property. The same page notes that the current-year rate appears on the third-quarter bill, typically issued in late December, and that Proposition 2½ does not limit year-to-year growth in an individual property's assessment.
The allocation rule comes from state law. Section 2A of Chapter 59 of the Massachusetts General Laws defines residential property as property used for human habitation and commercial property as property used for business purposes. Where real property is used for more than one purpose and those uses fall in different classes, the assessors allocate to each class the percentage of fair cash value devoted to that use. A building with apartments upstairs and a restaurant downstairs is taxed at two rates.
Illustrative example, our arithmetic: a finished mixed-use building assessed at $15,000,000, using the fiscal 2026 rates.
| Tax line | All residential | 5% of value commercial | 10% of value commercial |
|---|---|---|---|
| Tax line Residential value | All residential $15,000,000 | 5% of value commercial $14,250,000 | 10% of value commercial $13,500,000 |
| Tax line Commercial value | All residential None | 5% of value commercial $750,000 | 10% of value commercial $1,500,000 |
| Tax line Residential tax at $12.40 | All residential $186,000 | 5% of value commercial $176,700 | 10% of value commercial $167,400 |
| Tax line Commercial tax at $26.96 | All residential None | 5% of value commercial $20,220 | 10% of value commercial $40,440 |
| Tax line Total annual tax | All residential $186,000 | 5% of value commercial $196,920 | 10% of value commercial $207,840 |
| Tax line Change from all residential | All residential None | 5% of value commercial About 5.9% higher | 10% of value commercial About 11.7% higher |
Why a takeout lender cares: a permanent loan is sized on net operating income after taxes. At the 5% allocation, the extra $10,920 of tax, tested at a 1.25x coverage ratio on a 6.5%, 30-year amortizing loan (our assumptions, not a quote), removes roughly $115,000 of loan proceeds. The retail space has to earn enough rent to cover its own higher tax and still add value. If the shop will sit vacant during lease-up, model that too, because the assessment does not wait for a tenant.
How do inclusionary zoning units change the construction budget and the exit?
Inclusionary zoning changes a Boston construction loan because any market-rate project with seven or more units must support income-restricted housing, and those units rent below market, which lowers stabilized income, the appraised value and therefore both the construction loan and the permanent loan that repays it.
The City of Boston's housing department summarizes the rules that took effect in October 2024. The threshold dropped from ten units to seven. The required share of income-restricted units rose from 13 percent to a range of 17 to 20 percent, depending on the size of the building and the affordability of the restricted units. Large rental projects add a 3 percent set-aside for households with mobile housing vouchers, and affordability deepened from 70% of area median income to an average of 50% or 60%. In some cases developers may contribute to a fund instead of building the units.
For a lender, the restricted units are simply a different rent roll. Build the stabilized budget with the restricted rents at the level the city will allow, not at a blended average, and expect the appraiser to do the same. The January 2025 approvals carry eight restricted units on 59 homes and eight on 36; do not copy a neighbor's ratio. Confirm which rule set applies to your filing and size the deal on that answer.
What should you compare across Boston construction loan quotes?
Compare Boston construction loan quotes on the terms that decide whether the building finishes funded and refinances on schedule, including leverage, reserves, extension rights and draw mechanics, because the quote with the lowest rate can still cost more if it requires extra equity mid-build or forces a rushed exit.
Line up every term sheet against the same list:
Loan-to-cost: the share of total project cost funded, and whether land is valued at cost or appraisal. Loan-to-value cap: whether an as-stabilized value cap can cut the loan after the appraisal. Interest reserve: months of interest funded inside the budget, sized to a slower lease-up than planned. Term and extensions: initial term, number of extensions, and the fee and tests for each. Draw process: inspection timing, retainage percentage and turnaround from request to funding. Tax assumption: whether the lender's model uses the classified rates on the commercial share. Recourse and completion guarantee: what the sponsor personally backs and when it burns off.
The Boston market hub collects our Boston material, and the Massachusetts market hub covers the rest of the state; neither is a promise of any particular lender or term.
How do you get lenders competing on a Boston construction loan?
You get lenders competing on a Boston construction loan by sending each one the same complete package, including approved plans, a budget, the rent roll split between market and restricted units and a tax line built on the classified rates, so every quote answers the same question and can be compared side by side.
YieldStack is a commercial mortgage brokerage. Its software matches the deal against a catalog of 20,000+ loan programs, which is a count of programs, not of lenders, and human brokers structure the request, negotiate for the borrower and carry the deal toward closing. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
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The bottom line
A construction loan on a small Boston apartment building is sized backward from the permanent loan that will repay it. Boston builds in 25 to 60 unit infill, usually with ground-floor retail and income-restricted units. Model the commercial share at $26.96 and the residential share at $12.40, price the restricted rents honestly, and compare quotes on leverage, reserves and extensions before rate.