What it is
Debt yield answers one question: if the lender had to foreclose tomorrow, what return would the property's income give it on the money it lent? It ignores the interest rate, the amortization schedule and the cap rate. That is the point. It is the leverage test that market conditions can't easily flatter.
How it's calculated
Divide net operating income by the loan amount.
| Input | Amount |
|---|---|
| Net operating income | $1,000,000 |
| Loan amount | $10,000,000 |
| Debt yield | 10.0% |
Flip it around to size a loan. If a lender requires a 9% debt yield, the maximum loan on $1,000,000 of NOI is $1,000,000 ÷ 0.09, about $11.1 million. Try your own numbers with the debt yield calculator.
Why lenders use it
DSCR moves with interest rates. When rates are low, a deal can show strong coverage on a very large loan. LTV moves with cap rates. When cap rates compress, values rise and the same LTV allows a bigger loan. Debt yield moves with neither. It ties loan size directly to income.
That made it a standard test in CMBS lending, and many banks, debt funds and bridge lenders use it too. Minimums commonly fall somewhere around 8% to 10% for stabilized assets, higher for riskier property types, and they vary by lender, asset and market. Bridge lenders sometimes look at debt yield on in-place income and again on projected stabilized income.
How it interacts with other tests
Loan sizing takes the smallest loan allowed by each constraint. In a low-rate environment, debt yield is often the one that binds. In a high-rate environment, DSCR usually binds first. Run all of them; don't assume.
Common mistakes
- Using pro forma NOI on a permanent loan request. The lender will recalculate on in-place income and the debt yield will drop.
- Not knowing the lender's NOI. Lenders apply their own vacancy, management fee and reserves. Your 9.5% may be their 8.7%.
- Ignoring it entirely. Brokers who size only to LTV and DSCR are often surprised when a CMBS quote comes back smaller than expected.
In the package
Show debt yield next to DSCR and LTV on the summary page, all calculated on the same underwritten NOI. Dori scores each deal's metrics against every lender's box in lender matching, so a lender with a debt yield floor you can't meet shows up as a hard fail, not a surprise.