--- title: "Construction & Land Development Loans: definition, formula, and thresholds" description: "Construction and land development (C&D) loans finance the building and preparation of real estate before it generates income. They are the highest-risk slice of commercial real estate and carry their own supervisory concentration guidance." canonical_url: https://www.bankregreports.com/glossary/construction-land-development-loans/ source: BankRegReports category: "Asset Quality" units: "$" schedule: "Schedule RC-C" --- # Construction & Land Development Loans > Construction and land development (C&D) loans finance the building and preparation of real estate before it generates income. They are the highest-risk slice of commercial real estate and carry their own supervisory concentration guidance. ## Formula ``` C&D Loans = Loans for 1-4 family construction + other construction and land development (Schedule RC-C) ``` Schedule RC-C reports construction and land development as a distinct real estate subcategory. Supervisors flag banks whose C&D loans exceed 100% of total capital as having a concentration that warrants enhanced risk management, a tighter threshold than for CRE overall. ## Why it matters C&D lending repays only if a project is completed and sold or leased, so it is acutely exposed to construction delays, cost overruns, and demand shocks. It was at the center of the 2008-2010 community-bank failure wave and remains the riskiest real estate category. ## How to read it Measure C&D against capital, not just against the loan book. The supervisory trigger is 100% of total capital. A high C&D concentration, especially combined with a high overall CRE ratio, is one of the strongest historical predictors of community-bank distress. ## Thresholds | Range | Reading | What it means | |---|---|---| | < 50% of capital | Strong | Modest construction exposure. | | 50-100% of capital | Adequate | Within supervisory guidance for C&D. | | 100-150% of capital | Watch | Above the 100%-of-capital supervisory flag. | | > 150% of capital | Concern | Heavy exposure to the riskiest real estate category. | ## Worked example A bank with $250 million of capital and $300 million of construction and land development loans is at 120% of capital, past the supervisory guidance level, and a profile that mirrored many of the community banks that failed in the 2008-2010 cycle. ## Questions ### Why are construction loans riskier than other CRE? A construction loan is repaid only once the project is finished and sold or leased. Delays, cost overruns, or a demand downturn can leave the loan with no income source, so C&D loss rates spike hardest in downturns. ### What is the 100% of capital guideline? Interagency guidance flags a bank for heightened CRE risk management if construction and land development loans reach 100% or more of total capital, or if total CRE reaches 300% or more of total capital and the CRE portfolio has grown 50% or more in the prior 36 months, thresholds examiners use to focus attention. ## Sources - [FFIEC Call Report Schedule RC-C (Loans and Lease Financing Receivables)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF) - Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices (interagency guidance, 2006) ## Related metrics - [Construction Loan Concentration](https://www.bankregreports.com/glossary/construction-concentration/): The Construction Loan Concentration measures construction, land, and land development loans as a percentage of Tier 1 capital plus the allowance for credit losses. The 2006 interagency guidance threshold of 100% is the most-watched construction risk indicator. - [Commercial Real Estate Loans](https://www.bankregreports.com/glossary/cre-loans/): Commercial real estate (CRE) loans are credit secured by income-producing or owner-occupied commercial property: office, retail, multifamily, industrial. They are the largest asset class at many community banks and the focus of intense supervisory attention since 2023. - [Commercial Real Estate Concentration Ratio](https://www.bankregreports.com/glossary/cre-concentration/): The CRE Concentration Ratio measures supervisory commercial real estate loans (construction and land development + multifamily + non-owner-occupied CRE + loans to finance CRE not secured by real estate) as a percentage of Tier 1 capital plus the allowance for credit losses. The interagency guidance threshold of 300% is the most-watched CRE risk indicator in community banking. - [Total Loans & Leases](https://www.bankregreports.com/glossary/total-loans/): Total loans and leases is the gross amount a bank has lent out (commercial, real estate, consumer, and agricultural credit) before subtracting the allowance for credit losses. It is usually a bank's largest asset and its primary earning engine. ## About this document This is the markdown twin of the page named in `canonical_url` above. Source filings are public record; the cleaning, normalization, cross-source linkage, and derived metrics are BankRegReports' own. Attribute with a link to the canonical URL. Markdown twins are published for editorial content only. Institution data pages do not have them. For data at scale use the API, which is documented at https://www.bankregreports.com/api/ and specified at https://www.bankregreports.com/openapi.json. It returns typed JSON with explicit units and periods, and one call replaces hundreds of page fetches. ## Sitemap - [Glossary](https://www.bankregreports.com/glossary/): every metric, with formula and thresholds - [Blog](https://www.bankregreports.com/blog/): analysis and explainers - [API documentation](https://www.bankregreports.com/api/): the programmatic way to get this data - [XML sitemap](https://www.bankregreports.com/sitemap.xml): the complete crawlable index