DEBT GUIDE
How to Size Real Estate Debt
Real estate debt is normally constrained by the lowest capacity under leverage and cash-flow tests.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Calculate LTV capacity from value and LTC capacity from eligible cost. Use the same date and correct debt definition for each test.
Calculation framework
Calculate DSCR capacity from cash available and the loan constant, and debt-yield capacity from NOI divided by the lender’s minimum yield.
Underwriting review
Apply lender reserves, minimum equity, fees, concentration limits and existing debt after the headline tests. Commitment and available proceeds may differ.
How to use the result
Use the tightest capacity and show the binding constraint. Stress value, NOI and interest rate to understand proceeds risk before closing.