A loan can clear its DSCR covenant and still fail a lender's debt yield test, and the two numbers can disagree for a specific, structural reason: DSCR moves with the amortization schedule and the interest rate, debt yield does not. Lenders started underwriting both after enough deals showed up with a comfortable DSCR sitting on top of a loan that was, by any absolute measure, thin.
Debt yield is NOI over loan amount, nothing else
Take the same NOI from NOI, cap rate, IRR and DSCR explained, 80,000 EUR, against a loan of 1,000,000 EUR. Debt yield is 80,000 / 1,000,000, or 8 percent. No value estimate, no amortization period, no interest rate. It answers one question: if the lender had to take the property back today and sell it at a fire-sale multiple, how much cash does the income alone represent against what is owed.
Why DSCR alone can be gamed, and debt yield can't
Stretch the amortization on that same 1,000,000 EUR loan from 20 years to 30, and annual debt service drops, which lifts DSCR, on a loan that is not one euro safer than it was before. Debt yield does not move, because it never looked at the amortization schedule in the first place. A lower interest rate does the same thing to DSCR: it improves the coverage ratio without changing how exposed the lender actually is if the market turns. Debt yield became a standard second test in commercial lending largely to close that gap, and it is now common to see both metrics in the same term sheet rather than either one alone.
What a lender is actually looking for
Minimum debt yields on stabilised commercial assets are commonly quoted in the 8 to 10 percent range, tighter for prime, wider for secondary or transitional assets. DSCR floors for stabilised income property typically sit around 1.20x to 1.25x, the same range noted in the NOI piece. A deal can pass one and fail the other, and when it does, the debt yield failure is usually the one worth taking seriously, because it is the metric that does not improve just by restructuring the loan.
When a covenant trips
Most facility agreements do not go straight to default. A breached DSCR or debt yield covenant typically triggers a cash sweep first, trapping excess cash flow that would otherwise go to the sponsor, followed by cure rights: an equity injection, a partial loan paydown, or both, sized to bring the ratio back over the line. Only a sustained or uncured breach escalates further. The mechanics vary by facility, but the sequence, sweep before cure before default, is standard enough to plan around.
Why this sits next to DSCR on the same record
Debt yield needs exactly two numbers a lender already asks for: NOI and the outstanding loan balance. Both already live on the asset record alongside cap rate, DSCR and IRR, the same numbers a GP/LP waterfall reads from at distribution time. Adding debt yield to that roll-up is a second view of numbers already there, not a separate model to maintain.
Check both against a real loan. Start a free REPM Lite trial at app.repm.cloud and see debt yield and DSCR sit next to each other on the same asset.
FAQ
What counts as a good debt yield?
There is no fixed threshold, but stabilised commercial assets commonly clear lender minimums in the 8 to 10 percent range, with prime assets at the lower end and secondary or transitional assets underwritten higher. It varies by lender, asset class and market.
Why do lenders check debt yield if they already have DSCR?
Because DSCR depends on the amortization schedule and the interest rate, both of which a loan structure can adjust without the underlying asset getting any less risky. Debt yield strips financing structure out entirely, so it catches thin deals that a favourable amortization schedule can otherwise hide inside an acceptable DSCR.
Can a loan pass DSCR and still fail debt yield?
Yes, and it is a common enough pattern that both metrics are checked together. A long amortization period or a low interest rate can produce a comfortable DSCR on a loan that is thin by debt yield, since debt yield never factors in either variable.
Does refinancing at a lower rate improve debt yield?
No. Debt yield is NOI divided by loan amount and does not include the interest rate at all. A lower rate improves DSCR by reducing debt service, but it leaves debt yield exactly where it was unless the loan amount itself changes.