Debt Service Coverage Ratio (DSCR) in Relation to CMBS Loans

DSCR Requirements for CMBS Loans

Debt Service Coverage Ratio, or DSCR, is one of the key metrics that lenders use when determining a borrower’s eligibility for a CMBS loan. DSCR can be calculated by dividing a property’s net operating income (NOI), with its annual debt service (including principal, interest, taxes, and related costs). While a property with a 1.0x DSCR is just breaking even, a property with a 1.30x or 1.50x DSCR is usually turning a healthy profit. For example, a property with an NOI of $1 million and a debt service of $700,000 would have a DSCR of:

$1 million/$700,000 = 1.42x DSCR

For CMBS loans, most properties must have a minimum DSCR of at least 1.25x, though some lenders may permit as low as 1.20x for certain property types. Risker property classes, such as hotels, typically have higher DSCR requirements; most lenders require at least a 1.40x to 1.50x DSCR for hotel properties to be eligible for CMBS financing.