Loan Sizing · Nationwide · Updated October 2026
Your loan passed the leverage test and the coverage test, and the lender still cut it. The reason is usually a third number. Here is what debt yield measures, how to compute your maximum loan from it, and when it is the test that decides.
By Michael McGovern, Founder | 25+ Years in Commercial LendingCommercial Mortgage Connection · Yonkers, NY The short answer
Debt yield is net operating income divided by the loan amount, and on a debt yield commercial loan the lender sets a minimum, so the loan can never exceed NOI divided by that minimum. The honest part first: debt yield is the one test a lower interest rate cannot fix, and no broker can negotiate it away; it moves only when income rises or the loan shrinks. What can be done is knowing it before you ask, and placing the file with a lender whose minimum fits the property.
- The formula: debt yield = NOI ÷ loan. Maximum loan = NOI ÷ minimum debt yield. At a 9% minimum, $900,000 of NOI supports at most $10,000,000, whatever the value or the rate.
- The market: recently originated CMBS loans underwrote a weighted average 10.3% debt yield, from 8.87% on multifamily to 15.75% on office, per a CRED iQ analysis of about 3,700 loans published in April 2026.
- The trap: debt yield equals the cap rate divided by LTV, so on a property valued at a 5.5% cap rate, a 9% minimum caps the loan near 61% of value, even when the lender advertises 75%.
- Related read: the other two tests are explained in our guide to the loan-to-value ratio and DSCR.
Data points checked 1 October 2026 against CRED iQ data reported by Commercial Observer, the Federal Reserve and FRED. Lender minimums vary by property type and change with the market; every figure here is dated or an example.
What this page covers
- Debt yield commercial loan math: the anatomy of the third test
- What recent CMBS loans actually underwrote
- What a debt yield cut actually costs in dollars
- Why debt yield ignores the interest rate
- Cap rates: the invisible third channel
- What borrowers can actually control: 4 levers
- What this page will not tell you: three honest limits
- Does this apply in your state?
- What is debt yield, and why can it shrink a commercial loan after LTV and DSCR pass: FAQ
Debt yield commercial loan math: the anatomy of the third test
Most borrowers know the first two sizing tests. Loan-to-value caps the loan against the appraisal; debt service coverage caps it against the payment the income can carry. Our guide to the loan-to-value ratio covers both, and calls coverage the second cap on every apartment loan. Debt yield is the third cap, and it is built differently from the other two.
The formula is net operating income divided by the loan amount. Altus Group describes it as the return a lender would earn if it had to take possession of the property on day one. That framing explains why lenders like it: it uses no appraised value, no interest rate and no amortization schedule, so it cannot be flattered by a low cap rate, a temporary rate dip or a long interest-only period. A $10,000,000 loan on a property earning $900,000 of NOI has a 9% debt yield, full stop. If the lender's minimum is 9%, that is the largest loan the property supports, even if the other two tests would allow more.
Underwriters run all three tests on the same net operating income, and the smallest answer becomes the loan.
What recent CMBS loans actually underwrote
Debt yield is a staple of commercial mortgage-backed securities underwriting, and the market's own numbers show how much it varies by property type. A CRED iQ analysis of about 3,700 recently originated CMBS loans totaling $94.7 billion, published by Commercial Observer on 27 April 2026, found a balance-weighted average debt yield of 10.3%. By property type: office 15.75%, hotel 14.3%, retail 12.51%, industrial 12.01%, self-storage 11.88% and multifamily 8.87%.
Read those as the income cushion lenders actually demanded, not as published minimums. A 15.75% office debt yield means lenders lent about $6.35 for every $1 of office NOI; an 8.87% multifamily debt yield means about $11.27. The same dataset shows implied cap rates averaging 5.27% on multifamily and 5.57% across all loans, with negative leverage, where the loan rate exceeds the cap rate, on multifamily, retail, industrial and self-storage. That combination, low cap rates with loan rates above them, is exactly the environment in which debt yield starts deciding loan size.
What a debt yield cut actually costs in dollars
Here is the title scenario in numbers. An example stabilized property produces $900,000 of NOI and appraises at $16,363,636, a 5.5% cap rate. The borrower requests $11,500,000, interest-only at an example 5.85%, close to the multifamily coupon in the CRED iQ data. The lender's tests are 75% maximum LTV, 1.25x minimum coverage and a 9% minimum debt yield. These are illustrations of the math, not quotes or approvals.
| Test | Lender minimum | Result on the $11,500,000 request | Largest loan this test allows |
|---|---|---|---|
| Loan-to-value | 75% maximum | 70.3%: passes | $12,272,727 |
| Debt service coverage | 1.25x minimum | 1.34x: passes | $12,307,692 |
| Debt yield | 9.0% minimum | 7.83%: fails | $10,000,000 |
| Final loan | Smallest of the three | Cut by $1,500,000 | $10,000,000 |
Two tests passed with room and the loan still shrank by $1,500,000, because the request implied a 7.83% debt yield against a 9% floor. At a 10% floor the same property supports only $9,000,000, a $2,500,000 cut. The $10,000,000 loan that survives sits at 61.1% of value with 1.54x coverage, which is why borrowers are often told they are "well inside" the lender's limits and still receive less than they asked for. To clear 9% at $11,500,000, the property would need $1,035,000 of NOI, $135,000 more than it earns. Run your own property through the free loan calculator, then divide your NOI by 0.09 and 0.10 to see where debt yield lands.
Two questions
How is the loan structured?
What cap rate is the property valued at?
Why debt yield ignores the interest rate
Coverage and debt yield look similar, since both start from NOI, but they answer to different inputs. Coverage divides NOI by the annual payment, so it improves when the rate falls, when amortization stretches, or when the loan goes interest-only. In the example, cutting the rate by a full point to 4.85% interest-only would lift the coverage-based maximum from $12,307,692 to $14,845,361. The debt yield maximum would not move by a dollar: it stays $10,000,000 because NOI and the 9% floor did not change.
That is the whole point of the test. A debt yield floor guarantees a minimum income return on the loan balance regardless of what rates do later, which protects the lender if a loan that only covered at a low rate, or only during an interest-only period, has to be refinanced at a higher one. For a borrower, the practical consequence is blunt: an interest-only period, a rate buydown or a lower spread can rescue a coverage shortfall, but none of them helps a debt yield shortfall. Choosing between fixed and floating structures affects coverage, not debt yield, as our guide to fixed versus variable rate commercial mortgages explains.
A retail center earning steady rent can pass leverage and coverage easily and still be debt yield constrained if it trades at a low cap rate.
Cap rates: the invisible third channel
The relationship that makes debt yield bite is simple algebra: debt yield equals the cap rate divided by the loan-to-value ratio. Turn it around and the highest LTV a debt yield minimum allows is the cap rate divided by that minimum. When cap rates are high, the debt yield floor sits far above the lender's LTV limit and never binds. When cap rates compress, the floor drops below the advertised LTV limit and quietly becomes the real one.
| Cap rate | At an 8% minimum | At a 9% minimum | At a 10% minimum |
|---|---|---|---|
| 5.0% | 62.5% | 55.6% | 50.0% |
| 5.27% | 65.9% | 58.6% | 52.7% |
| 5.5% | 68.8% | 61.1% | 55.0% |
| 6.0% | 75.0% | 66.7% | 60.0% |
| 7.0% | 87.5% | 77.8% | 70.0% |
| 8.0% | 100% | 88.9% | 80.0% |
Read the 5.27% row against any lender's headline leverage. A multifamily property valued at that cap rate, sized against a 9% debt yield, cannot borrow more than 58.6% of value, so a "75% LTV" program is really a 59% program for that asset.
This is also why lender appetite and lender minimums matter as much as rates: the Federal Reserve's July 2026 loan officer survey shows banks easing standards for most commercial real estate on net while still describing them as near the tighter end of their range since 2005. The benchmark side moved too, with the 10-year Treasury at 5.26% on 29 September 2026 per FRED; how rates feed the rest of a quote is covered in our guide to commercial mortgage rates.
What borrowers can actually control: 4 levers
1. Ask for all three numbers. Before you accept a quote, ask each lender for the loan amount under leverage, coverage and debt yield separately, plus the minimum it uses for each. Knowing which test binds tells you which lever is worth pulling.
2. Document the income. Debt yield moves only with NOI. At a 9% floor, every $1 of NOI the lender accepts supports about $11.11 of loan. Signed leases, a clean trailing twelve months and expense evidence that removes one-time items all move the number the lender will use.
3. Choose the lender whose floor fits. Not every lender applies a debt yield test, and those that do set different minimums by property type, as the spread between 8.87% multifamily and 15.75% office debt yields shows. A file that is debt-yield bound at one lender can be coverage-bound, and larger, at another. If a bank has already declined it, see what to do after a bank denial.
4. Matching, and filling the gap honestly. If the senior loan is debt yield constrained everywhere, the gap is filled with equity, preferred equity or mezzanine capital, each priced above the senior loan. Commercial Mortgage Connection works a 750+ lender network with 500K+ programs across all 50 states, with $1B+ originated, every engagement led personally by founder Michael McGovern, and a loan review response within 4 hours.
What this page will not tell you: three honest limits
It will not give you one universal minimum. Debt yield floors differ by lender, property type, market and month. The CRED iQ averages above describe what recent CMBS loans actually carried; they are not any lender's published requirement.
It will not make a debt yield shortfall disappear. Rate buydowns, interest-only periods and longer amortization fix coverage problems, not debt yield problems. If the income does not support the loan you want, the honest answers are more income, a smaller loan or more equity.
It is written by a brokerage. Commercial Mortgage Connection is paid when loans close, which is exactly why this page tells you that negotiation cannot move this test and that a "75% LTV" headline can mean far less in practice. If your own lender's quote already clears all three tests at the amount you need, that quote deserves to win.
Does this apply in your state?
Commercial Mortgage Connection is headquartered in Yonkers, NY and places loans through its 750+ lender network in all 50 states. Debt yield is a national underwriting convention; the formula is the same everywhere, and lenders apply their own minimums regardless of the state the property sits in.
What varies by state is the income the test runs on. Property taxes, insurance and operating rules change NOI, and therefore debt yield, from one state and county to the next; our guide to commercial refinancing in Chicago shows how a single expense line moves loan size. Confirm the taxes, insurance and lender requirements that apply to your property before you sign a term sheet.
What is debt yield, and why can it shrink a commercial loan after LTV and DSCR pass: FAQ
What is debt yield on a commercial loan?
Debt yield is the property's net operating income divided by the loan amount, expressed as a percentage. It measures the income return a lender would earn on its money if it took the property back on day one. Because it uses no appraised value, interest rate or amortization, lenders use it as a third sizing test alongside loan-to-value and debt service coverage, and the smallest of the three results becomes the loan.
What is a good debt yield for a commercial loan?
There is no single standard; it depends on the lender and the property type. As a market reference, recently originated CMBS loans in a CRED iQ analysis published in April 2026 carried a weighted average debt yield of 10.3%, ranging from 8.87% on multifamily to 15.75% on office. A higher debt yield means a smaller loan relative to income, so lenders demand more on riskier property types.
Why does debt yield shrink my loan when LTV and DSCR pass?
Because the lender applies all three tests and lends the smallest result. Leverage depends on the appraisal and coverage depends on the interest rate, so a low cap rate or an interest-only structure can make both look comfortable. Debt yield ignores both. In the example on this page, an $11,500,000 request passes leverage at 70.3% and coverage at 1.34x but fails a 9% debt yield, so the loan is cut to $10,000,000.
Does a lower interest rate improve debt yield?
No. Debt yield is NOI divided by the loan amount, with no interest rate in the formula. A lower rate, a rate buydown or an interest-only period can improve debt service coverage, but the debt yield maximum stays exactly where it was. The only ways to raise it are higher documented net operating income or a smaller loan.
How do I calculate the maximum loan from debt yield?
Divide net operating income by the lender's minimum debt yield. With $900,000 of NOI and a 9% minimum, the maximum loan is $900,000 divided by 0.09, or $10,000,000; at a 10% minimum it is $9,000,000. Compare that number with the loan allowed by the leverage and coverage tests; the smallest of the three is the loan you should expect.
Sources
- Commercial Observer, Debt Yields Rebound as Negative Leverage Persists Across CMBS. 27 April 2026; CRED iQ analysis of about 3,700 loans totaling $94.7 billion; average debt yield 10.3%; debt yields, cap rates and coupons by property type. Checked 1 October 2026.
- Altus Group, How to Calculate Debt Yield to Underwrite Loans for CRE. Debt yield formula and the lender's day-one return framing. Checked 1 October 2026.
- Federal Reserve Board, July 2026 Senior Loan Officer Opinion Survey on Bank Lending Practices. CRE standards eased on net; levels still near the tighter end of the range since 2005. Checked 1 October 2026.
- FRED, Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity (DGS10). 29 September 2026 observation, 5.26%. Checked 1 October 2026.
Michael McGovernFounder, Commercial Mortgage Connection. Michael wrote this guide drawing on a career that began at Bear Stearns & Co. in 1997, ran through structuring billions of dollars in CMBS and MBS in Bear's F.A.S.T. group and selling mortgage product at Lehman Brothers, and now spans more than $1 billion in originated mortgages.
Stop guessing which test cut your loan. See all three before you sign.
A senior banker runs your property through leverage, coverage and debt yield against the lenders actually quoting your property type this quarter, with a response within 4 hours. If your current quote is already the best answer, we will say so. Call 888-656-9812, live operator 24/7.
Facts on this page were verified against the cited Commercial Observer and CRED iQ, Altus Group, Federal Reserve and FRED sources on 1 October 2026. Debt yield minimums, cap rates and lending terms change, and every figure shown above is a dated observation or an example, never an offer or a forecast.
Nothing on this page is a loan offer, a rate quote, a prediction, or personalized financial advice; all financing is subject to lender approval, credit review and property underwriting, and no approval is guaranteed. Terms depend on the asset, the leverage, the sponsor profile and the lender program on the day you apply. Broker licensing and closing rules vary by state. Commercial Mortgage Connection is a commercial mortgage brokerage, is paid when loans close, and sells the service described on this page. Equal Housing Opportunity. Call 888-656-9812 to discuss your scenario.
