Debt yield is the ratio of a property’s net operating income (NOI) to the total loan amount, expressed as a percentage. A property generating $1 million in NOI against a $10 million loan has a 10% debt yield. Unlike DSCR, which depends on the interest rate and amortization schedule, debt yield strips out all loan-specific terms and simply asks: “What return does this property’s income represent on the lender’s capital?” This makes debt yield a lender-centric metric that allows comparison across loans with different structures. Most institutional lenders require a minimum debt yield of 8% to 12% at origination, with the threshold varying by property type, market, and lender risk appetite.
How It Works in Practice
Debt yield has become increasingly important in CRE lending because it is immune to interest rate manipulation. A borrower can make their DSCR look better by choosing an interest-only period or a longer amortization schedule, but debt yield doesn’t change because it ignores the loan’s terms entirely. This is exactly why CMBS lenders and life insurance companies adopted debt yield as a primary underwriting metric — it gives them a clean view of their downside protection. For borrowers, debt yield matters because it often acts as the binding constraint on maximum loan proceeds. Even if your DSCR and LTV ratios support higher leverage, the debt yield floor may limit how much a lender will advance. Understanding which metric governs your maximum proceeds — DSCR, LTV, or debt yield — is critical to structuring the right capital stack.
Related Terms
Part of the LoanBoss CRE Debt Glossary. For hedging-specific terms, see Pensford’s resources.