LTV (Loan-to-Value) — Definition & CRE Underwriting Guide

Definition

**LTV (Loan-to-Value)** is the ratio of the loan amount to the property's appraised value, expressed as a percentage.

**Formula:** LTV = Loan Amount ÷ Appraised Value × 100

The appraised value is established by **full-narrative MAI appraisal** (not desktop or restricted). MAI = Member of the Appraisal Institute, the industry-standard credential. Restricted or drive-by appraisals are not eligible for institutional CRE financing.

LTV is the primary leverage metric in CRE underwriting and **one of the three binding constraints in CMBS conduit lending** (alongside DSCR and Debt Yield).

How LTV Caps Vary by Property Type (May 2026 CMBS Conduit)

| Property Type | Max LTV (Rate-and-Term) | Max LTV (Cash-Out) | |---|---|---| | Multifamily | 75% | 75% | | Industrial / Logistics | 70% | 70% | | Anchored Retail | 70% | 70% | | Self-Storage | 70% | 70% | | Hotel | 65% | 65% | | Office (Class A) | 65% | 60% |

Hotel + office tighter LTV reflects operating-business volatility (hotel) + valuation uncertainty (office). Trophy assets with strong sponsorship may stretch to top of band.

Low-Leverage Pricing Benefit (~25 bps spread reduction)

Borrowers willing to lever at 50-60% LTV (vs the 65-70% standard) typically receive **approximately 25 bps spread reduction**.

**Worked example:** $20M multifamily CMBS - At 65% LTV: prices 6.21–6.46% - At 55% LTV: prices 5.96–6.21%

The pricing benefit reflects bondholders' preference for lower-leverage paper in the CMBS pool — lower LTV = lower loss-given-default exposure to bond classes. The benefit is consistent across property types and tenors.

LTV vs LTC vs LTSV

Three related leverage metrics, each used in different contexts:

**LTV (Loan-to-Value):** Uses appraised value of the as-is property. Primary metric for CMBS, agency, life-co, and bank portfolio CRE financing.

**LTC (Loan-to-Cost):** Uses total project cost including land + acquisition + renovation + soft costs. Bridge debt typically uses LTC (70-80% common) on value-add deals where as-completed value is uncertain.

**LTSV (Loan-to-Stabilized-Value):** Uses the projected stabilized value post-renovation. Construction loans use LTC during construction + LTSV for the take-out sizing.

**Cash-out LTV:** (existing senior debt + cash to borrower) ÷ appraised value. CMBS caps cash-out at 75% LTV vs 80% rate-and-term.

How LTV Binds the Deal

Of the three CMBS constraints (DSCR, LTV, Debt Yield), LTV often binds first on:

**Office deals at conservative cap rates** — high cap rate compresses appraised value relative to NOI, but the LTV cap is fixed at 65%. The deal sizes by appraisal × 65%, not by cash flow.

**Hotel deals on Tier-2 brand-flag assets** — hotel CMBS LTV caps at 60-65%, materially below other property types. Even strong-NOI hotel deals get sized by LTV first.

**Cash-out scenarios** — cash-out cap is tighter (60-75%) than rate-and-term cap (70-80%). On portfolio-recap deals, cash-out LTV becomes the binding constraint.

CMBS underwriting tests all three constraints simultaneously. The smallest result is the maximum loan. PeerSense pre-runs all three tests before formal submission to size the deal correctly.