Outstanding AD&C Loans Drop to $469.1 Billion as Builder Credit Tightens

United States, September 26, 2025

News Summary

Federal data show outstanding acquisition, development and construction (AD&C) loan balances fell to $469.1 billion, marking a sixth consecutive quarterly decline and a 5.3% drop year-over-year. The fall was led by reductions in other real estate development, while 1–4 family construction and land development balances stood at $89.8 billion, about 56% below the long-run peak. Reported delinquencies eased to roughly $1.1 billion (about 1.2% of the 1–4 family construction stock). With banks pulling back, builders are increasingly turning to private lenders, equity partners and institutional capital amid tighter underwriting and higher upfront requirements.

Outstanding AD&C Loans Drop to $469.1 Billion in Q2 2025 as Builder Credit Tightens

Key takeaway: The total outstanding balance of acquisition, development and construction (AD&C) loans fell to $469.1 billion in the second quarter of 2025, continuing a multi-quarter slide as lenders pull back and credit conditions for builders tighten.

What happened most recently

Federal data show the total AD&C loan stock declined for the sixth straight quarter. The quarter placed the aggregate level at $469.1 billion, a drop of 5.3% from one year earlier. The decline in overall AD&C lending was driven mainly by reductions in the category classified as other real estate development, which fell to $379.3 billion, down 2.3% from the prior quarter.

Residential construction lending

Outstanding balances for 1–4 family residential construction and land development loans totaled $89.8 billion in Q2 2025. That level was 2.0% lower than a year earlier and down 0.3% from $90.0 billion in Q1 2025. The long-term trend shows much smaller volumes than in past cycles: the current stock is about 56% below the peak residential construction lending level of $204 billion recorded in the first quarter of 2008.

Delinquencies and problem loans

As the outstanding 1–4 family construction loan balances fell, reported problem loans also eased. Loans that were 30 or more days past due or in nonaccrual status totaled about $1.1 billion in Q2 2025, down from approximately $1.2 billion in the prior quarter. Those problem loans represented roughly 1.2% of the total 1–4 family construction loan stock. Within that amount, loans in nonaccrual status were near $572.1 million, while loans 30–89 days past due totaled roughly $469.2 million.

How nonaccrual is determined

Loans are placed on nonaccrual status when borrowers have missed payments for an extended period or when a lender expects that full repayment is unlikely. Typical conditions for nonaccrual classification include:

• Loans 90 days or more past due on principal or interest unless well secured and in active collection
• The lender no longer expects full repayment of principal and interest
• The borrower’s financial condition has significantly deteriorated, prompting cash-basis accounting

Data notes and limits

The reported figures reflect the outstanding balances of loans at the reporting date. They do not measure flows such as new originations or payoffs over the period, so they paint an incomplete picture of lending dynamics. Still, the stock measures clearly show that lending capacity in construction finance remains much reduced compared with earlier cycles.

Market context and financing alternatives

Reduced bank exposure to construction lending has pushed market participants to combine other sources of capital. Sponsors and builders increasingly use equity partners, private lenders, and institutional finance to fill gaps left by traditional bank lending. One institutional lender recently announced new capital to originate up to $1 billion in multifamily construction loans, signaling growing institutional demand for asset-backed construction credit. That lender reported having closed several billion dollars of loans year-to-date and managing a multi-billion-dollar servicing portfolio, with targeted loan sizes from $30 million to $200 million and funding up to 80% loan-to-cost on eligible projects.

Practical implications for builders and borrowers

With traditional bank construction exposure still constrained, developers and homebuilders should expect:

• Stricter underwriting focused on cost, scope and timeline
• Higher up-front capital requirements, including larger down payments and equity contributions
• Greater use of staged draws tied to construction milestones
• A wider role for private capital, specialty lenders and equity partners

Types of construction financing to expect

Common structures in the current market include short-term construction-only loans, construction-to-permanent one-time-close loans, two-time-close loans (construction followed by a separate permanent financing), government-insured construction products for eligible borrowers, and private or hard-money bridge loans for higher-risk or faster-turn projects. Lenders often request detailed plans, contractor agreements and full budget breakdowns before closing.

What to watch next

Key indicators to follow in coming quarters are changes in the outstanding loan stock (to see whether declines level off), new originations data (to track flow activity), and the extent to which institutional capital continues to scale up construction lending programs. Builders will also watch underwriting standards and pricing from the major bank and nonbank lenders that remain active in construction finance.

Frequently Asked Questions

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Key figures at a glance

Deeper Dive: News & Info About This Topic

Additional Resources

• Bankrate — Best Construction Loan Lenders
• Wikipedia: Construction loan
• BusinessWire — Dwight Secures Capital to Originate $1 Billion in Multifamily Construction Loans
• Google Search: Dwight secures capital originate $1B multifamily construction loans
• Investopedia — The Best Construction Loan Lenders
• Google Scholar: construction loan lenders institutional construction finance
• Forbes Advisor — Best Construction Loan Lenders
• Encyclopedia Britannica: construction loan
• CoStar — US Hotel Construction Lending Remains Tight Despite Interest Rate Drops
• Google News: construction lending Q2 2025

Author: Construction FL News

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