The Debt Service Coverage Ratio (DSCR)

The Debt Service Coverage Ratio (DSCR) is one of the most important ratios that a lender or investor will look at when analyzing the performance of commercial property. It is a ratio that measures the property's income against its operating expenses and mortgage payments. It is computed by taking the property's annual net operating income (NOI) and dividing it by its annual debt service (mortgage principal and interest payments).

While the residential market focuses a lot more on the loan to value (LTV), in commercial real estate the DSCR is the more important ratio. Most commercial lenders will not consider to lend to a commercial property unless the DSCR is 1.1 or greater. A DSCR of 1.1 means that the property is producing $1.10 of net operating income for every $1.00 in mortgage payments.