The Debt Yield Blind Spot: The Hidden Metric Killing CRE Loans
by Trevor Calton
Your property has a great loan-to-value and the cash flow covers the debt service. So why did your lender just cut your loan proceeds by 10%?
You did all the homework. The LTV looks good. The Debt Service Coverage Ratio is solid. But what many investors don't realize is that ever since the 2008 financial crisis, there's a third, non-negotiable metric that often matters more. If you ignore it, you're walking into your negotiation blind.
The phone rings, and the lender tells you that despite your good numbers, you've failed the one requirement that matters: Debt Yield. And to fix it, you either need to bring cash to the table, or the deal is dead.
Demystifying Debt Yield
Debt Yield isn't complicated. It's simply the Net Operating Income divided by the Loan Amount. It's the lender's version of a cap rate, their direct return on the cash they've loaned if they had to take over the property.
Because it's rate-agnostic, it acts as a floor. If a lender's minimum required Debt Yield is 8.5%, and your deal only produces an 8%, they will lower your loan amount until your NOI achieves that 8.5% yield on their loan.
Your Takeaway
Stop focusing only on LTV and DSCR. You have to solve for all three metrics. Running a quick Debt Yield calculation before you create a loan package is the single best way to avoid a surprise at the eleventh hour and walk into the conversation knowing exactly what loan amount your property can truly support.
Your Next Step: Get the Playbook
I've built a simple calculator to help you run this calculation on your own deals and included it in my Multifamily Capital Strategy Playbook.
Download the Free Playbook Now
Trevor Calton is a 25+year veteran of the commercial real estate industry who has originated hundreds of commercial multifamily loans, executed over $5B in acquisitions, and directed the asset management of more than 6,000 multifamily units. As the founder of the Real Estate Finance Academy and Evergreen Capital Advisors, he now serves as a trusted strategic partner for owners and operators navigating high-stakes capital decisions.
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