Debt Yield

Debt Yield: Debt yield is a risk assessment measure used in commercial real estate to evaluate a property's investment risk or financial health by comparing its net operating income (NOI) to the property's outstanding debt.

It is calculated as the property's NOI divided by the total debt associated with the property. The higher the debt yield, the less risky the loan is perceived to be, as it indicates that the property is generating more income relative to its level of debt.

For example, if a property has an NOI of $500,000 and a total debt of $5,000,000, the debt yield would be 10% ($500,000 / $5,000,000).

Lenders often use debt yield as an alternative or complementary metric to the loan-to-value (LTV) ratio and debt service coverage ratio (DSCR) when assessing the risk profile of a loan. This is because the debt yield is not affected by interest rates or loan amortization terms, making it useful for comparing the relative risk of different investment opportunities.