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.