Debt yield is a commercial real estate underwriting metric calculated as Net Operating Income (NOI) divided by total loan balance. It measures the lender's return if they were forced to foreclose today, independent of interest rates or amortization. Most CRE lenders require debt yield of 8–12% or higher.
Debt Yield = Net Operating Income / Loan Amount. Unlike DSCR, debt yield is interest-rate agnostic — it does not depend on current rates or amortization schedule. This makes it a more stable underwriting floor across rate cycles, which is why institutional CRE lenders (CMBS, life insurance companies, banks) use it as a primary constraint. ## Why Lenders Use It When a lender forecloses, they inherit the property and must sell or operate it. The debt yield tells them: 'At this loan balance, what income yield would I receive as an owner?' A 10% debt yield means the NOI equals 10% of the loan — if cap rates are at 8%, the lender could sell at a value higher than the loan, recovering full principal. If cap rates rise to 12% (values fall), a 10% debt yield offers thin protection. The Federal Reserve's supervisory guidance on commercial real estate concentrations and interagency CRE guidelines reference income-based underwriting standards that align with debt yield analysis. ## Benchmarks Typical minimum debt yield requirements: CMBS lenders: 8.5–10.0%. Life insurance companies: 9.0–11.0%. Construction/bridge lenders: 10.0–12.0%+. In high-demand markets with stable NOI, some lenders accept 7.5–8.0% for trophy assets. Lower cap rate environments (implying higher values) mechanically produce lower debt yields at the same LTV. ## Relationship to DSCR and LTV Debt yield and DSCR often give different answers because DSCR depends on the current interest rate. In low-rate environments, DSCR looks comfortable but debt yield may be tight. In high-rate environments, DSCR fails first. Institutional lenders use all three metrics simultaneously — the binding constraint varies by rate cycle.
Cap rate = NOI / Property Value. Debt yield = NOI / Loan Amount. Cap rate is a property valuation metric; debt yield is a lender risk metric. For a 75% LTV loan on a property at an 8% cap rate, the debt yield = cap rate / LTV = 8% / 0.75 = 10.67%. In general: Debt Yield = Cap Rate / LTV.
The lender reduces the loan amount until debt yield reaches its minimum floor. If a lender requires 9% debt yield and the NOI is $700K, the maximum loan is $700K / 0.09 = $7.78M — regardless of the LTV the property's appraised value would support. Debt yield is often the binding constraint in high-value, low-cap-rate markets.
SBA 7(a) and 504 lenders focus primarily on DSCR (1.15–1.25 minimum) rather than debt yield. Debt yield is most common in institutional CRE underwriting — CMBS, life company, and large-bank commercial real estate portfolios. For owner-occupied property (the SBA's primary market), DSCR and LTV are the dominant metrics.