Debt Yield

Formula

Why lenders use debt yield

Loan-to-value (LTV) depends on an appraisal, and the debt service coverage ratio (DSCR) depends on the loan's interest rate and amortisation. Both can make a larger loan look acceptable when rates are low or values high. Debt yield depends only on property income and loan size, so it acts as a floor on credit quality across rate and valuation cycles. Lenders apply a minimum debt yield alongside a maximum LTV and a minimum DSCR, and the most restrictive test sets the loan size.

Conventions to check

• Income basis: in-place, trailing twelve months, underwritten, or stabilised NOI; NOI vs net cash flow after capital reserves.
• Debt basis: senior loan only, or all debt including mezzanine (combined debt yield).
• Timing: going-in debt yield for stabilised assets; for transitional loans, the debt yield expected on stabilisation, which is a projection.

Debt yield in practice

Commercial mortgage lenders, including those originating loans for CMBS, use debt yield as a sizing constraint, and some loan agreements use it as a cash-management trigger: if debt yield falls below a level, excess cash is trapped in a lender-controlled account. Required levels vary with market conditions and property type. The metric is mainly used for income-producing real estate. In corporate lending, the analogous inverse measure is debt-to-EBITDA.

Worked examples

Examples are illustrative; figures are not market data.

Not the same as

• Debt Service Coverage Ratio (DSCR): DSCR divides income by debt service, so it moves with the interest rate and amortisation. Debt yield divides income by the loan balance.
• Cap Rate (Capitalization Rate): The cap rate divides NOI by property value. Debt yield divides NOI by the loan.
• Yield on Cost: Yield on cost divides stabilised NOI by total project cost and is a developer's return measure.

Common mistakes

• Using underwritten or pro forma NOI and presenting the result as an in-place debt yield.
• Comparing debt yields across property types without adjusting for their different risk and capex needs.
• Calling debt yield the loan's interest yield. It has nothing to do with the coupon.

Edge cases

• For a vacant or transitional property, in-place debt yield can be near zero. Lenders then rely on a projected stabilised figure, which is an underwriting assumption, not a measurement.

Sources

1. Comptroller's Handbook: Commercial Real Estate Lending (Version 2.0). Office of the Comptroller of the Currency (OCC), Version 2.0, March 2022. Status: current Comptroller's Handbook booklet (checked 2026-10-01). pp. 41, 43; glossary p. 138 — supports: Debt yield is NOI divided by the loan amount, as a percent; it measures risk independently of the interest rate, amortisation period and cap rate; lower debt yields mean higher leverage; it is most useful when rates and cap rates are low; it is a common financial covenant and sizing metric, used with DSCR and LTV; required levels vary with market conditions and property type
2. Global Definitions Database (GDD). INREV (hosted); entries attributed to INREV, NCREIF or NCREIF PREA, Per-entry versions and dates (entries opened 2026-10-01). Status: current (checked 2026-10-01). D0684 Debt Yield (INREV, 2020-02-26) — supports: Debt yield is a property's operating income as a percentage of the total principal loan amount

• Debt Service Coverage Ratio (DSCR)
• Loan-to-Value (LTV)
• Net Operating Income (NOI)
• Cap Rate (Capitalization Rate)