Debt Yield

Debt yield measures a loan's risk independent of interest rate or amortization by dividing a property's NOI by the loan amount, showing the lender's return if it had to foreclose and hold the asset unlevered. CMBS and institutional lenders commonly require a minimum debt yield of 8–10%, treating it as a floor that protects against low-rate-driven over-leverage.

Formula: Debt Yield = Net Operating Income ÷ Loan Amount × 100

Debt yield emerged as an underwriting safeguard after the 2008 financial crisis, when lenders realized that DSCR alone could understate risk during periods of very low interest rates or long amortization schedules — both of which inflate DSCR without actually reducing loan risk. Debt yield strips out rate and amortization entirely, measuring pure cash return on the loan balance.

Because debt yield ignores interest rate, it functions as a hard floor that DSCR-based sizing cannot get around: even if a low rate would let a DSCR test support a much larger loan, the debt yield test will cap proceeds if NOI relative to loan size is too thin. This is especially relevant in CMBS and life-company lending, where 8–10% is a common minimum, with some conduit lenders requiring 9%+ on riskier property types like hospitality.

Sponsors evaluating competing loan quotes should calculate debt yield alongside DSCR and LTV, since a loan that looks attractive on DSCR and rate alone can still get rejected or downsized once the debt yield floor is applied.

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