Debt Yield — Definition & CMBS Underwriting Guide

Definition

**Debt Yield** is the ratio of a property's underwritten net cash flow to the loan amount, expressed as a percentage.

**Formula:** Debt Yield = NOI ÷ Loan Amount × 100

The NOI is computed with **vacancy reserves + replacement reserves + market-rate management fee** deducted from gross income — same NOI used in DSCR calculation.

Debt yield is **rate-agnostic and amortization-agnostic** — it can't be manipulated by extending amortization or quoting a lower rate. This is what makes it CMBS bondholders' preferred metric: it's the only leverage measure that survives appraisal disputes and amortization gaming.

How Debt Yield Floors Vary by Property Type (May 2026 CMBS Conduit)

| Property Type | Min Debt Yield | Best Execution | |---|---|---| | Multifamily / MHC | 7.5% | 8.0%+ | | Industrial / Logistics | 8.0% | 8.5%+ | | Self-Storage | 8.0% | 9.0%+ | | Anchored Retail | 8.5% | 9.0%+ | | Office (Class A) | 9.0% | 9.5%+ | | Hotel / Hospitality | 12.0% | 12.5%+ |

Hotel debt yield is materially higher than other property types — reflects operating-business cash flow volatility + brand-flag concentration risk + RevPAR cyclicality. Multifamily lowest because rental cash flows are most predictable. Specialty programs (senior housing, lab, data center) have separate underwriting and distinct floors.

How Debt Yield Is Calculated

**Formula:** Debt Yield = NOI ÷ Loan Amount × 100

**Worked example 1 — multifamily, 1.5M NOI:** - Property NOI: $1,500,000 (underwritten with vacancy + reserves + management fee) - Requested loan: $18,000,000 - Debt yield: $1.5M ÷ $18M = **8.33%** - Result: PASSES 7.5% multifamily floor; close to best-execution 8.0% target

**Worked example 2 — finding max loan at floor:** - Same property NOI: $1,500,000 - Multifamily debt yield floor: 7.5% - Max loan: $1.5M ÷ 0.075 = **$20,000,000** - Compare to LTV cap on $30M appraisal at 75%: $22,500,000 - Compare to DSCR cap at 1.25x: ~$22,000,000 (depending on rate + amort) - **Binding constraint: Debt Yield at $20M** (smallest of three)

**Worked example 3 — hotel debt yield:** - Hotel NOI: $2,000,000 (post-PIP stabilized) - Hotel debt yield floor: 12.0% - Max loan: $2M ÷ 0.12 = **$16,666,667** - LTV on $30M appraised value at 65%: $19,500,000 - DSCR at 1.40x: ~$17,000,000 - **Binding: Debt Yield at $16.7M** — debt yield IS the binding constraint on hotel deals more often than not

Why CMBS Bondholders Care About Debt Yield More Than DSCR or LTV

Three reasons debt yield is the cleanest leverage metric in CMBS:

**1. DSCR can be manipulated by amortization gaming.** A 30-year amortization vs 25-year on the same loan + same rate reduces monthly debt service and inflates DSCR. The DSCR ratio looks better, but the actual loss-given-default exposure to bondholders hasn't improved.

**2. DSCR can be manipulated by rate quoting.** Lower contract rate = lower debt service = higher DSCR. Bondholders care about the leverage at the actual locked rate, not the optimistic rate.

**3. LTV depends on appraisal methodology.** Two appraisers can value the same property within a 5-10% spread depending on comp selection + cap rate assumptions + condition adjustments. CMBS pools need pricing that survives appraisal disputes.

Debt yield uses two unmanipulable inputs: actual underwritten NOI from operating statements + actual loan amount. **It survives all three forms of gaming that DSCR and LTV are vulnerable to.** That's why CMBS pool composition + rating agency criteria heavily weight debt yield.

Debt Yield vs Cap Rate

Different denominators, different uses.

**Cap Rate** = NOI ÷ Property Value - Measures property valuation - Used by buyers/sellers in transaction underwriting - Lower cap rate = higher property valuation per dollar of NOI - Multifamily 4.5-5.5%, industrial 5.5-6.5%, retail 6.0-7.5%, office 6.5-8.0%, hotel 7-9%

**Debt Yield** = NOI ÷ Loan Amount - Measures lender leverage - Used by CMBS conduits + life cos in loan sizing - Higher debt yield = more cash flow per dollar of debt = lower lender risk

**Conversion math:** Debt Yield = Cap Rate ÷ LTV. On a 6.0% cap rate property at 70% LTV: implied debt yield = 6.0% ÷ 0.70 = 8.57%. On a 4.5% cap rate at 70% LTV: implied debt yield = 4.5% ÷ 0.70 = 6.43% — fails 7.5% multifamily floor, deal sizes lower than LTV cap.

**Why this matters:** at low cap rates, CMBS deals get sized by debt yield NOT by LTV. Multifamily acquisitions at 5.0% cap with 70% LTV target generate deals that get sized 5-15% smaller than the appraisal-cap math suggests.