--- title: "Debt Yield | Altss Glossary" description: "Debt yield is a commercial real estate lending metric equal to a property's net operating income divided by the loan amount; it gives the lender's cash…" canonical: "https://altss.com/glossary/debt-yield" --- Glossary · Underwriting metric # Debt Yield Also called: debt yield ratio Debt yield is a commercial real estate lending metric equal to a property's net operating income divided by the loan amount; it gives the lender's cash return on taking the property over, independent of cap rates, interest rates and amortisation. Publisher: Altss LLCContent modified 2026-10-01 ALTSS-CREDIT-042 If a lender foreclosed and kept the building, debt yield is the income return it would earn on the money it lent. A 10% debt yield means the property's annual net operating income equals 10% of the loan. Because it uses only income and loan size, debt yield cannot be flattered by a low interest rate, a long amortisation schedule or an optimistic valuation. ## Formula ### Debt yield ``` Debt yield = net operating income / loan amount ``` `NOI` annual net operating income: in-place, trailing or underwritten, as the lender defines it; some lenders use net cash flow after reserves `L` loan amount; for a combined debt yield, total debt through the tranche Two identities link debt yield to the other sizing tests: debt yield = cap rate / LTV, and debt yield = DSCR × debt constant (annual debt service / loan). The NOI basis must match across comparisons. ## Why lenders use debt yield [Loan-to-value](https://altss.com/glossary/loan-to-value) (LTV) depends on an appraisal, and the [debt service coverage ratio](https://altss.com/glossary/dscr-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](https://altss.com/glossary/net-operating-income); NOI vs net cash flow after capital reserves. - **Debt basis**: senior loan only, or all debt including [mezzanine](https://altss.com/glossary/mezzanine-debt) (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](https://altss.com/glossary/debt-to-ebitda). ## Worked examples ### Illustrative debt yield at origination A property produces $6.5m of NOI and carries a $65m loan. Debt yield is **10.0%**. Valued at a 6.5% [cap rate](https://altss.com/glossary/cap-rate) ($100m), the same loan is a 65% LTV, consistent with debt yield = cap rate / LTV = 6.5% / 0.65. ### Cap-rate compression flatters LTV, not debt yield If the market cap rate falls to 5.0%, the same $6.5m NOI supports a value of **$130m**. ### The larger loan the new value would allow A lender sizing only to 65% LTV would now lend $84.5m against the same income. Debt yield shows the risk: it falls to **7.7%**. A minimum debt-yield test of, say, 9% would cap the loan at $6.5m / 0.09 = $72.2m, whatever the appraisal says. Examples are illustrative; figures are not market data. ## Not the same as - [Debt Service Coverage Ratio (DSCR)](https://altss.com/glossary/dscr-debt-service-coverage-ratio): 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)](https://altss.com/glossary/cap-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 - [Comptroller's Handbook: Commercial Real Estate Lending (Version 2.0)](https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf). 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 - [Global Definitions Database (GDD)](https://www.inrev.org/definitions/EN/all). 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 ## Related terms 4 terms - [Debt Service Coverage Ratio (DSCR)](https://altss.com/glossary/dscr-debt-service-coverage-ratio) - [Loan-to-Value (LTV)](https://altss.com/glossary/loan-to-value) - [Net Operating Income (NOI)](https://altss.com/glossary/net-operating-income) - [Cap Rate (Capitalization Rate)](https://altss.com/glossary/cap-rate) ## Concept record Concept ID ALTSS-CREDIT-042 Classification Underwriting metric Topics Real estate · Private credit Version 2.0.0 Last reviewed 2026-10-01 Structured data [JSON](https://altss.com/reference/concepts/debt-yield.json) ## Canonical URL https://altss.com/glossary/debt-yield