Understanding construction mortgages (cost vs value)

Given the numerous construction deals that our office has seen over the past half year, I thought I would provide some details on how construction mortgages work with particular focus on the concept of “cost to complete”.  Banks and lenders use two primary ways to determine their exposure on a construction deal.  One method is referred to as Loan to Value and the other method is referred to as Loan to Cost.  They may sound the same but they are significantly different and can change the entire risk profile of a deal in the eyes of a bank or lender.