Debt yield is a ratio used by commercial real estate lenders to judge how much they can safely lend against an income-producing property. It is the property's annual net operating income divided by the loan amount: . A property earning 1,000,000 a year that secures a loan of 10,000,000 has a debt yield of 10%.
The appeal of the measure is that it ignores things that can flatter other tests. The loan-to-value ratio depends on an appraised value, which moves with the market capitalisation rate, and the debt service coverage ratio improves when interest rates are low or repayments are interest-only. Debt yield depends only on income and loan size. It became widespread in commercial mortgage-backed securities lending after 2008, and lenders set minimum levels that vary by property type and market.