California Cap Rates (2026): CRE Benchmarks & Sizing
Benchmark 2026 California commercial cap rates across Los Angeles, Bay Area, and San Diego. Master Prop 13 tax recasting and debt yield constraints.
Debt Yield Calculation
Debt yield is calculated by dividing annual Net Operating Income (NOI) by the total loan amount: Debt Yield = NOI ÷ Loan Amount. Calculate commercial real estate debt yield in seconds, solve for maximum loan amount, and size proceeds across debt yield, DSCR, and LTV constraints.
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Workflow
How it works
Follow the underwriting path lenders use: input the deal, apply constraints, then read the result.
Step 1
Determine underwritten NOI
Input your property's annual Net Operating Income (gross revenues minus operating expenses and vacancy, before debt service). Lenders evaluate this after standard replacement reserve deductions.
Debt Yield Calculation: Formula and Worked Example
Debt yield is net operating income divided by the loan amount, expressed as a percentage. The debt yield ratio — the two terms mean the same thing — is the figure lenders use to gauge how quickly they would recover their money in a default. Lenders prefer it over loan-to-value and debt service coverage because it is independent of the interest rate, the amortization period, and the appraised value. A borrower cannot engineer a better debt yield by stretching amortization or shopping for a higher appraisal — only real income or a smaller loan moves it. The formula also runs in reverse: maximum loan equals NOI divided by the minimum debt yield. A lender requiring a 10% debt yield on a property generating $800,000 of NOI will cap the loan at $8,000,000 regardless of what the appraisal says the building is worth. That single line of arithmetic is why debt yield so often surprises borrowers who sized their deal on LTV alone. Full loan sizing applies all three constraints simultaneously — debt yield, LTV, and DSCR — and the binding constraint is whichever produces the lowest maximum loan. To convert rate and amortization into annual debt service for the DSCR test, you can calculate the loan constant. The lowest of the three tests is the modeled ceiling. Other underwriting requirements, fees and holdbacks can further reduce proceeds. For an in-depth tutorial on how lenders adjust NOI and underwrite reserves, see our guide on how to calculate debt yield.
Read the calculation methodology and limitations.
Debt Yield = NOI ÷ Loan Amount
Max Loan = NOI ÷ Minimum Debt Yield
Binding Loan = MIN(Max by DY, Max by LTV, Max by DSCR)Example
A property with $1,200,000 NOI and a $12,000,000 loan has a debt yield of 1,200,000 ÷ 12,000,000 = 10.0%. Run in reverse at an 8% minimum, the same NOI supports a maximum loan of 1,200,000 ÷ 0.08 = $15,000,000. If that property is worth $16,000,000 at 75% max LTV ($12,000,000) and DSCR caps the loan at $13,500,000, the binding constraint is LTV — the modeled ceiling is $12,000,000, the lowest of the three, before other constraints.
⚡ UNDERWRITING BENCHMARKS
See This Calculator in Action
Explore institutional underwriting examples. Load any scenario into the live calculator with one click to customize rates, amortization, and property valuation.
Hypothetical sizing assumption
Assumed 10% debt yield
Net Operating Income (NOI)
$1,200,000Annual in-place net cash flow
Requested Senior Debt
$12,000,000Proposed loan financing balance
Lender Debt Yield Hurdle
10%Underwriting floor requirement
SIZING OUTCOMEUnderwriting Benchmark
10.00% Debt Yield
Calculated In-Place Debt YieldUnderwriting Math Formula
NOI ÷ Loan Amount = Debt YieldStep: $1,200,000 ÷ $12,000,000 = 10.00%
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Institutional Takeaway
The request meets the assumed 10% target. DSCR, LTV and other requirements still need separate checks.
LENDER REFERENCE MATRIX
Underwriting Metric Comparison & Lender Sizing Standards
Compare debt yield against DSCR and LTV constraints, and review typical sizing assumptions across lender types.
Debt Yield vs DSCR vs LTV
3 Core Sizing TestsDebt Yield
NOI / Loan AmountIncome cushion against the loan balance
DSCR
NOI / Annual Debt ServicePayment coverage based on rate and amortization
LTV
Loan Amount / Property ValueCollateral leverage against value
| Metric | Formula | What It Tests |
|---|---|---|
| Debt Yield | NOI / Loan Amount | Income cushion against the loan balance |
| DSCR | NOI / Annual Debt Service | Payment coverage based on rate and amortization |
| LTV | Loan Amount / Property Value | Collateral leverage against value |
Choosing Your Debt-Yield Assumption
3 Lender CategoriesBank or debt fund
Quoted floor and income definitionUse the specific lender quote
Agency multifamily
Program DSCR, LTV and income rulesDo not infer eligibility from a DY target
CMBS
Originator's quoted floorSeparate screening from rating analysis
| Context | Input to confirm | Supporting guide |
|---|---|---|
| Bank or debt fund | Quoted floor and income definition | Use the specific lender quote |
| Agency multifamily | Program DSCR, LTV and income rules | Do not infer eligibility from a DY target |
| CMBS | Originator's quoted floor | Separate screening from rating analysis |
Worked examples
| Scenario | Calculation | Result |
|---|---|---|
| Property A — hypothetical 10% target | NOI $1,200,000 ÷ Loan $11,000,000 | 10.91% debt yield — exceeds the assumed 10% target |
| Deal B — Retail (fails minimum) | NOI $640,000 ÷ Loan $9,000,000 | 7.11% debt yield — below the assumed 8% target |
| Property C — Office (LTV binds) | NOI $2,000,000; Value $25,000,000 @ 70% LTV; 6.5% / 30yr | Max by DY $20.0M, DSCR $21.1M, LTV $17.5M → LTV binds at $17,500,000 |
| Property D — Industrial (DSCR binds) | NOI $900,000; Value $11,000,000 @ 75% LTV; 8.0% / 25yr; 1.25x | Max by DY $10.0M, LTV $8.25M, DSCR $7.77M → DSCR binds at ~$7,775,000 |
| Deal E — High-NOI (maximizing proceeds) | NOI $5,000,000 ÷ 9% minimum debt yield | $55,555,556 maximum loan at a 9% debt yield |
Conversion reference
| Assumed target | Income | DY-only loan limit |
|---|---|---|
| 8% | $1,000,000 | $12,500,000 |
| 9% | $1,000,000 | $11,111,111 |
| 10% | $1,000,000 | $10,000,000 |
| 11% | $1,000,000 | $9,090,909 |
Quick facts
- Debt yield is annual property income divided by the loan balance.
- Changing rate or amortization leaves debt yield unchanged when income and balance stay fixed.
- A lower assumed debt-yield target increases the loan supported by that test alone.
- Use the lender's required income definition, including any reserve adjustment, consistently.
- Passing a calculated target does not establish loan approval or agency eligibility.
Edwin Toe
Principal Underwriter & CRE Debt Advisor
- Former Vice President of Commercial Mortgage Underwriting at a Tier-1 CMBS origination bank
- Over 12 years of institutional experience sizing, structuring, and closing over $1.5B in CRE debt
- Calculations verified against standard CRE underwriting methodology used by institutional lenders and CMBS originators
- Methodology reviewed for debt yield, DSCR, LTV, cap rate, and loan sizing consistency
Edwin Toe is an institutional commercial real estate underwriting veteran who has spent over a decade sizing, structuring, and executing senior debt, mezzanine financing, and agency loans. He reviews each calculator and guide on this site to ensure they precisely reflect the criteria, formulas, and stress hurdles used by credit committees and CMBS securitization pools. Outputs are educational screening estimates, not formal financial advice.
Methodology: formulas are calculated from borrower-entered inputs using standard CRE underwriting relationships for NOI, debt yield, DSCR, LTV, cap rate, loan constant, and maximum loan proceeds.
Reviewer note: pages are reviewed for formula accuracy and updated when lender benchmarks or site methodology changes.
Disclaimer: results are educational estimates only and are not financial, legal, tax, valuation, or lending advice.
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Frequently asked questions
To calculate debt yield, divide the property's annual Net Operating Income (NOI) by the total loan amount, then multiply by 100: **Debt Yield = (NOI ÷ Loan Amount) × 100**. For example, a property generating $1,200,000 in NOI with a $12,000,000 commercial mortgage has a debt yield of 10.0% ($1,200,000 ÷ $12,000,000 = 0.10 or 10%).
A typical benchmark for commercial real estate debt yield ranges between 8.0% and 11.0%. Low-volatility multifamily and prime industrial properties often clear at 8.0%–9.0%, whereas retail and office assets typically require 10.0%–11.0%+ to offset lease rollover risk. Actual requirements vary by lender type (CMBS vs bank vs life company).
For lenders, a higher debt yield is always safer because it represents a greater income cushion relative to loan principal. For borrowers, a higher debt yield requires either higher NOI or a smaller loan amount, meaning lower leverage and more equity required at closing.
Debt yield is a property's net operating income divided by the loan amount, expressed as a percentage. It tells a lender how quickly it would recover its money from the property's income alone if it had to foreclose, independent of the interest rate, amortization, or appraised value.
Debt Service Coverage Ratio (DSCR) divides NOI by annual debt service (principal and interest), which fluctuates with interest rates and amortization periods. Debt yield divides NOI by the total loan balance, completely independent of interest rates, loan terms, and appraised values. Lenders use debt yield as an unalterable backstop against interest-rate manipulation.
Lenders prefer debt yield over cap rate because debt yield measures the lender's direct unlevered cash-on-cash return against actual loan dollars (NOI ÷ Loan Amount), completely independent of volatile market cap rates, subjective property valuations, or third-party appraisals. While cap rate measures asset pricing relative to property value (NOI ÷ Value), debt yield indicates the exact percentage return the lender would realize from property cash flow if forced to foreclose and take title to the collateral.
Debt yield measures annual property income against the loan balance without changing with the interest rate or amortization. DSCR measures payment coverage. The two tests reveal different risks; passing one does not establish that the other passes.
Cap rate divides NOI by the property's value or purchase price; debt yield divides NOI by the loan amount. Cap rate measures the asset's return, while debt yield measures the lender's protection. Two deals with the same cap rate can have very different debt yields depending on how much is borrowed.
CMBS conduit loans typically require a minimum debt yield between 9.5% and 11.0% depending on asset class and market tier. Rating agencies (Moody's, Fitch, S&P) evaluate debt yield when rating CMBS bond tranches. Obtain the originator's quoted floor and income definition to verify loan sizing.
Divide NOI by the minimum debt yield (as a decimal): **Max Loan = NOI ÷ Minimum Debt Yield**. For example, $800,000 of NOI at a 10% minimum debt yield supports a maximum loan of 800,000 ÷ 0.10 = $8,000,000. This caps the loan regardless of appraised value.
Among the modeled debt-yield, LTV and DSCR tests, the binding constraint produces the lowest loan limit. Actual proceeds may be lower because of additional requirements, fees, reserves or holdbacks.
Only by borrowing less. Because debt yield is NOI divided by the loan amount, reducing the loan request raises the ratio. Unlike DSCR or LTV, it cannot be improved by negotiating a lower rate, extending amortization, or obtaining a higher appraisal — the only levers are more income or a smaller loan.
The lender will usually reduce the loan amount until the debt yield clears its minimum, ask for more equity, or decline the deal. Sizing your loan on debt yield first — before LTV or DSCR — avoids being surprised by a lower number at the term-sheet stage.
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Using a debt yield ratio calculator is the fastest way to size a commercial real estate loan. You simply input your Net Operating Income (NOI) and the requested loan amount, and the tool instantly computes the unlevered return for the lender. You can also leave loan amount blank to solve for the maximum loan supported by your required debt yield.
To calculate the debt yield ratio, divide your property's Net Operating Income (NOI) by the total Loan Amount, then multiply by 100 to get a percentage. Unlike DSCR, the debt yield ratio formula completely ignores interest rates and amortization periods, giving lenders a pure measure of their income cushion.