{"concept_id":"ALTSS-CREDIT-042","slug":"debt-yield","canonical_name":"Debt Yield","aliases":["debt yield ratio"],"kind":"metric","authority":"industry","facets":["MET"],"domains":["REAL-ESTATE","PRIVATE-CREDIT"],"display_title":"Debt Yield","search_aliases":["what is debt yield","debt yield formula","debt yield vs dscr","debt yield commercial real estate","minimum debt yield","how to calculate debt yield"],"one_sentence_definition":"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.","plain_english":"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.","parent_concepts":["real-estate-debt"],"child_concepts":[],"related_concepts":["dscr-debt-service-coverage-ratio","loan-to-value","net-operating-income","cap-rate","yield-on-cost","cmbs","loan-to-cost"],"comparison_concepts":[],"not_the_same_as":[{"slug":"dscr-debt-service-coverage-ratio","distinction":"DSCR divides income by debt service, so it moves with the interest rate and amortisation. Debt yield divides income by the loan balance."},{"slug":"cap-rate","distinction":"The cap rate divides NOI by property value. Debt yield divides NOI by the loan."},{"slug":"yield-on-cost","distinction":"Yield on cost divides stabilised NOI by total project cost and is a developer's return measure."}],"formula_ids":["F-CREDIT-042-debt-yield"],"worked_examples":[{"title":"Illustrative debt yield at origination","paragraphs":["A property produces $6.5m of NOI and carries a $65m loan. Debt yield is **10.0%**. Valued at a 6.5% [cap rate](/glossary/cap-rate) ($100m), the same loan is a 65% LTV, consistent with debt yield = cap rate / LTV = 6.5% / 0.65."],"calc":{"fn":"debt_yield","inputs":{"noi":6.5,"loan":65},"expected":{"debt_yield":0.1},"tol":0.0005}},{"title":"Cap-rate compression flatters LTV, not debt yield","paragraphs":["If the market cap rate falls to 5.0%, the same $6.5m NOI supports a value of **$130m**."],"calc":{"fn":"value_from_cap_rate","inputs":{"noi":6.5,"cap_rate":0.05},"expected":{"value":130},"tol":0.0005}},{"title":"The larger loan the new value would allow","paragraphs":["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."],"calc":{"fn":"debt_yield","inputs":{"noi":6.5,"loan":84.5},"expected":{"debt_yield":0.076923},"tol":0.0005}}],"sections":[{"heading":"Why lenders use debt yield","paragraphs":["[Loan-to-value](/glossary/loan-to-value) (LTV) depends on an appraisal, and the [debt service coverage ratio](/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."]},{"heading":"Conventions to check","paragraphs":["- **Income basis**: in-place, trailing twelve months, underwritten, or stabilised [NOI](/glossary/net-operating-income); NOI vs net cash flow after capital reserves.\n- **Debt basis**: senior loan only, or all debt including [mezzanine](/glossary/mezzanine-debt) (combined debt yield).\n- **Timing**: going-in debt yield for stabilised assets; for transitional loans, the debt yield expected on stabilisation, which is a projection."]},{"heading":"Debt yield in practice","paragraphs":["Commercial mortgage lenders, including those originating loans for [CMBS](/glossary/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](/glossary/debt-to-ebitda)."]}],"classification_rules":[],"calculation_rules":[],"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."],"external_standard_mappings":[],"source_ids":["SRC-INTL-INREV-GDD","SRC-US-OCC-CH-CRE-2022"],"citations":[{"source_id":"SRC-US-OCC-CH-CRE-2022","pinpoint":"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","source":{"source_id":"SRC-US-OCC-CH-CRE-2022","title":"Comptroller's Handbook: Commercial Real Estate Lending (Version 2.0)","publisher":"Office of the Comptroller of the Currency (OCC)","document_type":"supervisory handbook","url":"https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf","publication_date":"Version 2.0, March 2022","jurisdiction":"US","status":"current Comptroller's Handbook booklet","last_verified":"2026-10-01"}},{"source_id":"SRC-INTL-INREV-GDD","pinpoint":"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","source":{"source_id":"SRC-INTL-INREV-GDD","title":"Global Definitions Database (GDD)","publisher":"INREV (hosted); entries attributed to INREV, NCREIF or NCREIF PREA","document_type":"glossary","url":"https://www.inrev.org/definitions/EN/all","publication_date":"Per-entry versions and dates (entries opened 2026-10-01)","jurisdiction":"intl","status":"current","last_verified":"2026-10-01"}}],"faq":[],"seo":{},"first_published":null,"last_reviewed":"2026-10-01","last_modified":"2026-10-01","content_version":"2.0.0","url":"https://altss.com/glossary/debt-yield","json_url":"https://altss.com/reference/concepts/debt-yield.json","title":"Debt Yield","formulas":[{"formula_id":"F-CREDIT-042-debt-yield","concept_id":"ALTSS-CREDIT-042","label":"Debt yield","plain":"Debt yield = net operating income / loan amount","latex":"\\mathrm{DY}=\\frac{\\mathrm{NOI}}{L}","variables":[{"symbol":"NOI","meaning":"annual net operating income: in-place, trailing or underwritten, as the lender defines it; some lenders use net cash flow after reserves"},{"symbol":"L","meaning":"loan amount; for a combined debt yield, total debt through the tranche"}],"convention_note":"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.","implementation":"debt_yield"}],"sources":[{"source_id":"SRC-INTL-INREV-GDD","title":"Global Definitions Database (GDD)","publisher":"INREV (hosted); entries attributed to INREV, NCREIF or NCREIF PREA","document_type":"glossary","url":"https://www.inrev.org/definitions/EN/all","publication_date":"Per-entry versions and dates (entries opened 2026-10-01)","jurisdiction":"intl","status":"current","last_verified":"2026-10-01"},{"source_id":"SRC-US-OCC-CH-CRE-2022","title":"Comptroller's Handbook: Commercial Real Estate Lending (Version 2.0)","publisher":"Office of the Comptroller of the Currency (OCC)","document_type":"supervisory handbook","url":"https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf","publication_date":"Version 2.0, March 2022","jurisdiction":"US","status":"current Comptroller's Handbook booklet","last_verified":"2026-10-01"}]}