DSCR vs. LTV vs. Debt Yield: How Lenders Size Your CRE Loan

Rate snapshot

Fed funds target	3.75% to 4.00%	Raised 25 bps on Sep 16, 2026, unanimous vote
2-year Treasury	4.74%	Sep 16, 2026; up 31 bps from 4.43% on Sep 9
5-year Treasury	4.86%	Sep 16, 2026; up 25 bps from 4.61% on Sep 9
10-year Treasury	5.01%	Sep 16, 2026; up 18 bps from 4.83% on Sep 9
SOFR	3.64%	Sep 15, 2026, before the new range took effect on Sep 17
Bank CRE lending standards	Modest easing	July 2026 SLOOS: net shares of banks eased standards on nonfarm nonresidential and multifamily loans in Q2

The Fed raised its target range to 3.75% to 4.00% on September 16, and the 10-year Treasury closed at 5.01% the same day. Banks had been easing commercial real estate standards at the margin, according to the Fed’s July survey of senior loan officers. Loan pricing is now moving the other way.

When rates climb, a sponsor often learns that the loan amount in the LOI was never really about LTV. Three tests set every commercial loan: loan-to-value, debt service coverage, and debt yield. The lender runs all three and lends the smallest answer.

Which test binds depends on the lender type, the rate, and how the lender rewrites your NOI. Below we take one industrial acquisition and size it three ways, then show which inputs move proceeds and which do not.

Three tests, three formulas

Test	Maximum loan	What it protects the lender against	Moves with interest rates?
Loan-to-value (LTV)	Value x maximum LTV	Loss of collateral value on a sale or foreclosure	No, except through appraised cap rates
Debt service coverage (DSCR)	NOI / minimum DSCR / annual loan constant	Cash flow falling short of the mortgage payment	Yes, through the note rate and amortization
Debt yield	NOI / minimum debt yield	A loan too large relative to income, regardless of rate or amortization	No

The loan constant is the annual payment per dollar of loan. It rises with the note rate and falls with longer amortization, which is why a 30-year amortization or an interest-only period can add proceeds on a DSCR-constrained deal. Debt yield ignores both, which is why lenders that worry about rate volatility or exit risk use it.

Value is not always the appraisal. For bank loans to purchase an existing property, the federal Interagency Guidelines for Real Estate Lending define value as the lesser of actual acquisition cost or the estimate of value. Those same guidelines set a supervisory LTV limit of 85% for improved property, but most lenders’ internal policies sit well below it. Published agency programs illustrate the pairing: Fannie Mae’s conventional multifamily term sheet lists a maximum LTV of 80% and a minimum DSCR of 1.25x.

The deal: a $14.25M small-bay industrial acquisition

A sponsor is buying a 118,000 SF multi-tenant industrial property at $14,250,000. Leases are triple net with base rent averaging $9.40 per SF. The broker package shows a 7.03% cap rate on in-place NOI.

Step 1: the lender rewrites the NOI

No lender sizes on broker NOI. Underwriters apply a market vacancy factor, charge a management fee even if the sponsor self-manages, and deduct reserves for roof, paving, tenant improvements, and leasing commissions.

Line item	Broker package	Lender underwriting
Base rent (118,000 SF x $9.40)	$1,109,200	$1,109,200
Expense reimbursements	$285,000	$285,000
Potential gross income	$1,394,200	$1,394,200
Vacancy and credit loss (3% vs. 6%)	-$41,826	-$83,652
Effective gross income	$1,352,374	$1,310,548
Operating expenses	-$350,000	-$350,000
Management fee (2.5% of EGI)	$0	-$32,764
Replacement reserves ($0.15/SF)	$0	-$17,700
TI and leasing commission reserves ($0.30/SF)	$0	-$35,400
Net operating income	$1,002,374	$874,684
Cap rate on purchase price	7.03%	6.14%

Underwritten NOI is 12.7% below the broker number. That haircut flows straight into the DSCR and debt yield tests. It does not touch the LTV test, which uses the price.

Step 2: size the same deal with three lender profiles

The lender terms below are illustrative profiles built for this example, not quotes. Each index is the rate published for this week: the 5-year and 10-year Treasury on September 16 and SOFR on September 15.

Sizing line	Regional bank	Life company	Debt fund
Structure	5-year fixed	10-year fixed	Floating, interest-only
Index + spread	4.86% + 2.10%	5.01% + 1.45%	3.64% + 3.25%
Note rate	6.96%	6.46%	6.89%
Amortization	25 years	30 years	None
Loan constant	8.45%	7.55%	6.89%
Limits (LTV / DSCR / debt yield)	70% / 1.25x / none	55% / 1.30x / 10.0%	70% / 1.15x / 9.5%
LTV test	$9,975,000	$7,837,500	$9,975,000
DSCR test	$8,280,296	$8,907,844	$11,039,115
Debt yield test	n/a	$8,746,843	$9,207,203
Loan amount	$8,280,296	$7,837,500	$9,207,203
Binding test	DSCR	LTV	Debt yield
Resulting LTV	58.1%	55.0%	64.6%
Resulting DSCR	1.25x	1.48x	1.38x
Resulting debt yield	10.56%	11.16%	9.50%
Annual debt service	$699,747	$591,988	$634,376
Equity before closing costs	$5,969,704	$6,412,500	$5,042,797

Same building, same NOI, and the proceeds range spans $1,369,703. Each lender is capped by a different test. The bank quote advertised at 70% LTV lands at 58.1% because coverage binds first at a 6.96% note rate. The life company is limited by its own conservative LTV and has coverage to spare. The debt fund offers the most proceeds, but its debt yield floor caps the loan well short of 70%.

Step 3: what happens when rates move

Index move	Regional bank	Life company	Debt fund
Down 100 bps	$9,084,913	$7,837,500	$9,207,203
Down 50 bps	$8,668,267	$7,837,500	$9,207,203
Base case	$8,280,296	$7,837,500	$9,207,203
Up 50 bps	$7,918,655	$7,837,500	$9,207,203
Up 100 bps	$7,581,213	$7,837,500	$9,207,203

Only the DSCR-bound loan responds. A 50 bp rise costs the bank execution $361,641 of proceeds. The other two do not change within a 100 bp band because their binding tests ignore the rate.

That stability has limits. The bank loan would shift to LTV-bound only if its note rate fell to about 5.00%. The life company loan becomes DSCR-bound above a 7.74% note rate. The debt fund’s 1.15x coverage test would bind above an 8.26% underwriting rate, and floating-rate lenders often underwrite coverage at a higher rate than the day-one coupon, which pulls that crossover closer.

Step 4: what happens when NOI moves

Underwritten NOI	Regional bank	Life company	Debt fund
90% ($787,216)	$7,452,266	$7,837,500	$8,286,483
95% ($830,950)	$7,866,281	$7,837,500	$8,746,843
100% ($874,684)	$8,280,296	$7,837,500	$9,207,203
105% ($918,419)	$8,694,310	$7,837,500	$9,667,563

Here the pattern reverses. The debt fund and bank loans move almost dollar for dollar with NOI, and a 10% NOI miss cuts the debt fund loan by $920,720. The LTV-bound life company loan does not move until underwritten NOI falls below $783,750, where its 10% debt yield floor takes over.

Had each lender sized on the broker’s $1,002,374 NOI, the bank loan would have been $9,489,084 and the debt fund loan $9,975,000. Those are gaps of $1,208,789 and $767,797 that appear late in underwriting if the sponsor models on the broker number.

Simplifications: lender profiles, spreads, NOI adjustments, and reserves are illustrative, not quotes or QuadBlock terms. Payments are monthly; the bank and life company loans amortize fully over the stated schedule, and the debt fund loan is sized at its day-one rate with no rate cap cost. SOFR is shown as of September 15, before the rate hike took effect. Closing costs, lender fees, and required reserves are excluded from equity.

Match the lever to the binding test

If this test binds	Levers that add proceeds	Levers that do nothing
LTV	A lender with a higher LTV limit; an appraisal above price on a refinance	Lower rate, longer amortization, interest-only
DSCR	Lower rate or a rate buydown, longer amortization, interest-only period, better-supported NOI	Higher appraisal
Debt yield	Higher underwritten NOI, or a smaller senior loan paired with preferred equity or mezzanine debt	Rate, amortization, appraisal

Before you send the deal: a sizing checklist

Rebuild NOI the way a lender will: market vacancy, a management fee, replacement reserves, and TI/LC reserves on multi-tenant assets.
Run all three tests yourself for each lender quote and circle the smallest number.
Ask each lender for its full sizing grid: LTV, DSCR, debt yield, amortization, and the rate used to test coverage.
For floating-rate debt, confirm whether coverage is tested at the current coupon, the cap strike, or a stressed rate.
On acquisitions, assume value is the purchase price unless the lender confirms otherwise in writing.
Run a 50 bp rate move and a 10% NOI haircut before signing a purchase agreement with a hard deposit.
Compare quotes on equity required and debt service, not on the headline LTV.

Red flags in a loan quote

A maximum LTV with no DSCR or debt yield limit disclosed.
Proceeds quoted before the lender has seen the rent roll and operating statements.
Coverage tested on interest-only payments with no disclosure of the amortizing constant.
An underwriting rate or index floor buried in the term sheet footnotes.
Loan amount language such as “up to,” with no stated sizing basis.

How QuadBlock can help

QuadBlock Capital provides bridge, transitional, and permanent financing from $250K to $30M on industrial, multifamily, retail, self-storage, and specialty assets. We size deals on all three tests up front so sponsors know the real number before they go hard. Send your deal at quadblockcapital.com.

This article is for general educational purposes and is not tax, legal, or investment advice. Loan sizing depends on each lender’s policies, the property, and the borrower; figures in the worked example are illustrative and do not represent a quote or commitment from QuadBlock Capital or any other lender.