![]() Most apartment finance lenders have adapted to the importance of a good DCR, by setting DCR requirements, with the most common DCR requirement at 1.25x for most apartment loans. If the DCR is below the preferred criteria for the loan product, lenders will automatically assume that the borrower will have difficulty paying back their loan on time. DCR is a key factor in how a lender determines the risk of issuing a loan. DCR in Apartment FinanceĪdjacent to Loan to Value and Loan to Cost ratios, a property’s DCR (more often called DSCR) is a crucial part of the loan decision-making process. In most apartment loan transactions, this would be considered a good DCR by the lender. In that case, it would have a DCR/DSCR of: The following example shows how the DCR formula is used in practice:Ī multifamily property has an NOI of $3,500,000, and annual debt obligations of $2,700,000. This means that taxes, interest, or other costs from the NOI calculation should NOT be deducted before entering it into the DCR formula. In regards to getting an accurate DCR metric, Net Operating Income/NOI is typically calculated using earnings before interest, taxes, depreciation, and amortization ( EBITDA). To properly calculate DCR, despite the simplicity of the formula, an investor will need to make sure they are using the correct figures in order to get an accurate debt coverage ratio for a property. DCR = Net Operating Income (NOI)/Debt Obligations.
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