Glossary · Underwriting

Debt yield

Also called: debt yield ratio, NOI to debt

Defined by the Research desk, The Lender Report · Sources reviewed

Net operating income divided by the loan amount, shown as a percent. It measures how much income stands behind each dollar lent, whatever the rate or term.

Debt yield is net operating income divided by the loan amount, expressed as a percent. The OCC’s handbook for examiners points out what sets it apart: it does not depend on the interest rate, the amortization period or the cap rate. A low rate or a long interest-only period can lift a coverage ratio, and a low cap rate can lift an appraised value, but neither changes debt yield.

Example: net operating income of $150,000 on a $1,500,000 loan is a debt yield of 10 percent. Raise the loan to $2,000,000 on the same income and the debt yield falls to 7.5 percent.

The handbook reads the number this way: a lower debt yield means more debt against the same income, and a lender may want a higher debt yield on a property type it sees as riskier. There is no public standard floor. Each lender sets its own, and many bank and credit union lenders size on coverage and loan to value and do not use debt yield at all, so ask.

How it shows up in the data here

Not in any public file. No filing here records the debt yield on a loan or the floor a lender uses. Run your own number in the debt yield calculator and ask the lender whether it sizes loans on debt yield, on coverage, or on both.

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Related terms

Sources

  1. OCC Comptroller's Handbook, Commercial Real Estate Lending, Version 2.0 (Debt Yield, p. 43), published .

Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.