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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Debt yield

What is debt yield in property lending, and how is it different from a cap rate?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Debt yield is a property's net operating income divided by the loan secured on it: a building earning US$1.2m a year with a US$15m loan has a debt yield of 8%. Because neither the interest rate, the repayment profile nor a valuer's capitalisation rate enters the sum, it shows how much income stands behind each dollar of debt, roughly the return the lender would earn if it had to take the property over. It is most established in US commercial property lending; elsewhere interest cover and loan to value usually lead, with debt yield as a cross-check.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

A capitalisation rate divides a property's income by its value, and is set by the market; debt yield divides the same income by the loan.

// WORKED IN

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PROPERTY AND DEVELOPMENT

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