Debt Yield (DY)
Debt yield is calculated as annual net operating income divided by the loan amount, expressed as a percentage. It is used as a leverage and asset-risk yardstick that is structurally independent of interest rate and amortization assumptions, and is often applied at origination and sometimes at extension tests.
- Where it applies
- Generally, not specific to New York
- When it comes up
- Underwriting; extension/renewal decisioning
- Property types
- Commercial and multifamily lending (especially institutional underwriting)
In practice
Because DY hinges on NOI definition (and sometimes "underwritten NOI"), documentation should specify the NOI calculation method to prevent drift between underwriting and covenant testing. Because DY is not directly rate-driven, it is often used to compare leverage across loans with different rate structures.
Related terms
Underwriting and Risk Modeling
General information, not legal, tax or financial advice.