Multifamily Financing
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Commercial DSCR Explained: NOI, Debt Service and Loan Sizing
Learn how debt service coverage ratio, NOI and lender stress assumptions can affect commercial real estate loan sizing.
In this guideWhat DSCR is designed to showNOI is not simply gross rentWhy lender DSCR can differ from borrower DSCRBridge and construction deals can be different
What DSCR is designed to show
Debt service coverage ratio compares a property’s available operating income with required debt service. It is a central sizing metric for many stabilized commercial properties.
NOI is not simply gross rent
Net operating income generally starts with property revenue and subtracts operating expenses before financing costs. Lenders may adjust owner-provided numbers for vacancy, management, repairs, taxes, insurance or other recurring expenses.
Why lender DSCR can differ from borrower DSCR
A lender may use a different interest rate, amortization schedule or underwriting NOI than the sponsor uses. Stress assumptions are intended to test whether the property can support the proposed debt under the lender’s criteria.
Bridge and construction deals can be different
A transitional or construction project may not have stabilized DSCR today. In those cases, lenders may focus more heavily on cost basis, leverage, sponsor liquidity, interest reserves, project feasibility and the path to stabilization.
Important: Lending criteria, definitions and calculations can vary by lender and transaction. This page is educational and is not a commitment to lend or a statement that a specific transaction will qualify.
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Commercial Refinance
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