Cap rate values the property (cap rate equals NOI divided by value); debt yield sizes the loan (debt yield equals NOI divided by loan amount). When debt yield equals the cap rate, LTV is 100 percent. A higher debt-yield floor than the cap rate produces an LTV below 100 percent. LTV equals the cap rate divided by the debt yield.
How do lenders use the relationship?
An asset valued at a 6 percent cap with $1 million NOI is worth roughly $16.67 million. A lender with an 8 percent debt yield floor will size the loan to NOI divided by 8 percent, $12.5 million, or 75 percent LTV. The cap rate sets the value; the debt-yield floor sets the loan as a function of NOI.
Why does this matter to sponsors?
When cap rates compress (values rise), debt yield floors keep loan proceeds in check, preventing lenders from over-lending against inflated valuations. When cap rates expand (values fall), debt yield can constrain proceeds even if the LTV ratio looks acceptable. Always model both metrics in pro forma.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1