Tag: Debt Yield

Where to Set Minimum Debt Yield Ratio

Improving CRE Underwriting - picture of a office building

In one of our blogs last week we discussed why community banks should adopt minimum debt yield ratio for underwriting purposes.  We demonstrated how a debt yield ratio could help community banks properly measure the interplay between cap rates, interest rates, and cash flow.  We analyzed how real estate loans originated today at 1.20X debt service coverage ratio (DSCR) and 75% loan-to-value (LTV) may quickly become substandard credits if cap rates normalize, interest rates rise to long-term averages, or NOI is stressed in an economic downturn.

Why Community Banks Should Adopt A Minimum Debt Yield Ratio

Enhancing CRE Underwriting -Picture of a industrial building

In one of our blogs last week, we discussed why real estate loans originated today at 1.20X DSCR and 75% LTV may quickly become substandard credits if cap rates normalize, interest rates rise to long-term averages, or NOI is stressed in an economic downturn.  We argued that community banks should be favoring 1.50X DSCR credits, as that is the minimum cash flow required to withstand a standard recession.  We also stated that lenders must incorporate a minimum debt yie

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