DSCR in real estate: what the ratio tells you

The debt service coverage ratio (DSCR) compares a property's net operating income with its debt payments over the same period:

DSCR = net operating income ÷ debt service

A ratio of 1.25x means $1.25 of NOI for each $1 of debt service. At 1.00x, those amounts are equal. Below 1.00x, the income in that calculation falls short of the payments. None of these figures, by itself, tells you whether the borrower has missed a payment or can refinance at maturity.

Calculate DSCR for a property

For commercial real estate, NOI starts with property revenue and deducts operating expenses such as taxes, insurance, management and maintenance. Debt service, depreciation and income taxes are outside that operating calculation. Debt service includes scheduled interest and principal payments. The OCC's commercial real estate lending handbook explains how lenders use these measures in underwriting.

Here is a hypothetical 100-unit apartment building. All amounts cover one year.

The $220,000 remaining after debt service is not necessarily distributable cash. Roof replacements, tenant improvements, reserves and other cash needs may still have to be funded.

Use the definition in the loan documents. A ratio based on net cash flow after reserves is different from one based on NOI. A projected ratio based on future leasing is also different from a ratio calculated from collected rents. Label the basis before comparing two properties.

What DSCR do lenders require?

There is no universal approval threshold. A lender sets its requirement for the property, transaction and loan terms. The OCC handbook discusses why acceptable coverage varies with cash-flow stability and amortization. A 1.25x requirement is a useful assumption for an example; it is not a promise of financing.

The ratio is sensitive to both sides of the fraction. In the example above, a 10% NOI decline takes coverage from 1.25x to 1.125x if debt service stays at $880,000. A floating-rate loan can lose coverage even when property income holds steady.

A refinance can fail while payments remain current

Suppose the building has a $16 million balance due at maturity. A prospective lender requires 1.25x coverage on $1.1 million of annual NOI:

Maximum annual debt service = $1,100,000 ÷ 1.25 = $880,000.

For an interest-only refinance, divide that payment capacity by the annual interest rate to estimate the debt supported by DSCR alone.

These are illustrative rates, not market quotes. The calculation assumes unchanged NOI, no scheduled principal amortization, and no fees. An LTV limit, debt-yield requirement or reserve deposit could reduce usable proceeds further. For an amortizing loan, divide payment capacity by the annual mortgage constant, which includes principal repayment, rather than by the interest rate alone.

This is the distinction between payment coverage and refinancing capacity. A loan can be current today and still require new equity to repay its balloon. A maturity date is not a delinquency status. See refinancing a commercial mortgage for the surrounding transaction questions.

Check the financial period behind a reported DSCR

A recent filing does not necessarily contain recent property financials. In the October 30, 2026 ABS-EE filing for Benchmark 2020-B16 Mortgage Trust, the property record for 1633 Broadway, asset 7, reports an NOI-based DSCR of 2.8684x. Its financial window is January 1 through June 30, 2026; the tape's reporting-period end is October 13, 2026.

Those are three different dates. The ratio is a filed property observation, not a November appraisal or a new lender's underwriting decision. You can inspect the source filing, accession 0001888524-26-020262.

Cairn can retrieve covered CMBS property observations with their source references. Availability and reporting dates vary. Copy the question into your conversation; a reported ratio should stay attached to its period and calculation basis.