In today’s lending environment, few numbers matter more than your Debt Service Coverage Ratio (DSCR). For commercial real estate (CRE) operators, DSCR isn’t just a loan requirement — it’s a key measure of financial health, portfolio resilience, and long-term growth potential.
What is DSCR?
The formula is simple:
DSCR = Net Operating Income (NOI) ÷ Total Annual Debt Service
- A DSCR of 1.25x means the property generates $1.25 in NOI for every $1.00 of debt service.
- This buffer gives lenders confidence and protects operators against vacancies, rising rates, or unexpected expenses.
Why Lenders Care
DSCR directly reflects repayment ability. Typical requirements by property type:
- Multifamily: 1.20x – 1.25x
- Office/Retail: 1.30x – 1.40x
- Hotels/Self-Storage: 1.40x+
- Credit Tenant Leases: 1.05x – 1.15x
When rates rise, lenders often raise DSCR thresholds, making accurate calculations even more important.
How to Improve Your DSCR
- Grow Revenue: Align rents with market, reduce vacancies, add ancillary income (parking, storage, amenities).
- Manage Expenses: Rebid insurance, appeal taxes, optimize utilities, and renegotiate vendor contracts.
- Restructure Debt: Extend amortization, refinance at better terms, or consider temporary interest-only periods.
Key Take Away
A strong DSCR doesn’t just help you qualify for financing — it improves terms, lowers risk, and strengthens your position with lenders. For CRE operators, tracking and optimizing DSCR should be part of every investment strategy.
At Nvestor Funding, we design financing solutions that support healthy coverage ratios and long-term success.
