Debt Yield Explained
Debt yield is a lender’s basis check. Interviews use it to test whether you can size to downside and connect the dots to refinance risk.
Interview-ready explanation (20 seconds)
Use this 5-step structure
- Define it: NOI / Loan Amount
- State which NOI you’re using (in-place vs haircut-stabilized)
- Use it for sizing (minimum downside DY)
- Cross-check DSCR at stressed rates
- Confirm exit with stressed cap + realistic takeout rate
1) Definition: what it is (and isn’t)
What they’re testing
That you can define debt yield in one sentence and explain why it matters without mixing it up with DSCR or LTV.
Clean definition
Debt yield = NOI / Loan Amount. It’s an “income on basis” check: if the business plan stalls, what income does the asset generate relative to the lender’s basis?
What it captures
- Downside protection and lender basis
- Less sensitive to rate swings than DSCR
- A quick asset-quality check in bridge lending
What it doesn’t capture
- Actual debt service coverage (that’s DSCR)
- Capex/leasing timing risk by itself
- Exit proceeds (you still need exit underwriting)
2) How lenders actually use it for sizing
What they’re testing
That you pick a conservative NOI (in-place or haircut-stabilized), size to a minimum DY, then cross-check DSCR and exit.
Sizing example
Conservative NOI$2.4mm
Target debt yield8.0%
Max loan (NOI / DY)$30.0mm
Then say: ‘I’ll cross-check DSCR at stressed rates and confirm takeout clears at a realistic cap/rate.’
Senior-sounding line
“Debt yield tells me the basis. DSCR tells me survivability. In bridge, I want both — but I size to the metric that protects me if execution is delayed.”
3) The NOI definition trap (in-place vs stabilized)
What they’re testing
That you’re disciplined about the NOI definition. Strong candidates explicitly quote both downside and business plan versions.
Say this out loud
“Debt yield depends on the NOI definition. I’ll quote in-place DY for downside and stabilized DY for the business plan — and make sure the loan is still ‘money-good’ on the downside case.”
In-place NOI
- Today’s reality; best for downside sizing
Haircut-stabilized NOI
- Underwritten; conservative view of stabilization
Stabilized NOI
- Business plan outcome; not the basis for downside
4) How debt yield connects to exit risk (the real point)
What they’re testing
That you connect thin debt yield to reliance on a perfect exit environment — and you underwrite takeout at stressed assumptions.
Simple connection (powerful in interviews)
“A thin debt yield means I’m tight on basis. If NOI misses or cap rates widen, exit proceeds compress — which is why I underwrite takeout at a stressed capand a realistic takeout rate.”
Quick exit sanity check
Stabilized NOI$3.2mm
Exit cap (stressed)6.50%
Implied value~$49.2mm
Then compare value vs loan basis + costs to describe refinance margin.