Mezz lenders typically test combined senior plus mezz debt yield at origination (8.0 to 9.5 percent on multifamily, 9.0 to 11.0 percent on hotel and retail) and again at extension. Failing the test at extension typically forces a partial paydown to bring debt yield back to the threshold, or denies the extension.
How is the test calculated?
Underwritten net operating income divided by combined senior plus mezz outstanding principal. Lenders use trailing-twelve-month or trailing-three-annualized NOI at extension; underwriting NOI at origination. Adjustments often include market-rate management fees, full property tax accruals, and stabilized vacancy.
Why is debt yield used instead of DSCR?
Debt yield removes interest-rate sensitivity and amortization assumptions, providing a clean measure of property cash flow against debt. It is especially useful on floating-rate mezz where DSCR fluctuates with the index. CMBS-style senior lenders almost always layer debt yield on top of DSCR.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1