Debt Yield Calculator: Commercial Real Estate
Calculate debt yield for commercial real estate loans. Determine max loan amount, required NOI, and compare to lender requirements.
LTV: 71.4%
Debt Yield Formula
DY = NOI / Loan = $180,000 / $2,000,000 = 9.00%
Alternative Formula
DY = Cap Rate / LTV = 6.43% / 0.71 = 9.00%
Cap Rate
6.43%
LTV
71.4%
Debt Yield
9.00%
9.00%
Acceptable
Standard CMBS/bank requirement
Maximum Loan Amount
$2,000,000
Exceeds max by $0
Required NOI for Current Loan
$180,000
Current NOI exceeds by $0
| LTV | Loan Amount | Debt Yield | Status |
|---|---|---|---|
| 50% | $1,400,000 | 12.86% | Strong |
| 55% | $1,540,000 | 11.69% | Good |
| 60% | $1,680,000 | 10.71% | Good |
| 65% | $1,820,000 | 9.89% | Acceptable |
| 70% | $1,960,000 | 9.18% | Acceptable |
| 75% | $2,100,000 | 8.57% | Marginal |
| 80% | $2,240,000 | 8.04% | Marginal |
Notice how DSCR changes dramatically with interest rates, while debt yield (green line) remains constant at 9.00%. This is why lenders use debt yield as a stable risk metric.
Debt yield is the ratio of a property's net operating income (NOI) to the total loan amount, expressed as a percentage. Unlike DSCR which depends on interest rates, debt yield measures a lender's potential return if they had to foreclose and sell the property.
Formula:
Debt Yield = Net Operating Income / Loan Amount × 100Higher debt yield means lower risk for lenders. Minimum requirements typically range from 8-12% depending on property type.
- 1
Enter the property's net operating income (NOI)
- 2
Input the loan amount requested
- 3
The calculator shows the debt yield percentage
- 4
Compare against lender minimum requirements
- 5
Adjust loan amount to meet debt yield thresholds
- 6
Use alongside DSCR and LTV for complete analysis
- Debt yield is independent of interest rates and amortization
- Lenders increasingly use it as primary underwriting metric
- Provides clearer picture of loan risk than DSCR alone
- Helps determine maximum loan amount
- Critical for CMBS and life company loans
- Sizing commercial real estate loans
- Comparing loan offers from different lenders
- Stress-testing deals in rising rate environments
- Preparing loan applications
- Analyzing acquisition financing
- Evaluating refinancing options
- •Debt yield requirements increase during economic uncertainty
- •Higher debt yield = more equity required = safer investment
- •Debt yield is more stable metric than DSCR across rate environments
- •Target debt yield above minimums for refinancing flexibility
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Frequently Asked Questions
What is debt yield in commercial real estate?
Debt yield is the ratio of Net Operating Income (NOI) to the loan amount, expressed as a percentage. Formula: Debt Yield = NOI / Loan Amount. It measures lender risk independent of interest rates or amortization. A 10% debt yield means the property generates 10% of the loan amount annually.
What is a good debt yield for commercial loans?
Most CMBS and institutional lenders require minimum 8-10% debt yield. Banks may accept 7-9%. Higher debt yields (10%+) indicate lower lender risk and may qualify for better terms. Debt yield requirements have increased post-2008 as lenders seek additional protection beyond DSCR.
Why do lenders use debt yield instead of just DSCR?
Debt yield is rate-independent and cannot be manipulated by extending amortization or using interest-only periods. DSCR can look strong with 30-year amortization but weak with 20-year. Debt yield provides a consistent measure of the loan's risk relative to property income.
How does debt yield affect loan sizing?
Max Loan = NOI / Minimum Debt Yield. At 9% minimum debt yield with $180,000 NOI, max loan = $180,000 / 0.09 = $2,000,000. Debt yield often becomes the constraining factor for loan sizing, especially in low interest rate environments where DSCR constraints are less binding.
What's the relationship between debt yield, cap rate, and LTV?
Debt Yield = Cap Rate / LTV. If cap rate is 7% and LTV is 70%, debt yield = 7% / 0.70 = 10%. This formula shows why lenders use debt yield - it captures both property yield (cap rate) and leverage (LTV) in one metric. Higher cap rates or lower LTV = higher debt yield.