Debt yield

Debt yield is a lender's underwriting ratio that divides a property's net operating income (NOI) by the loan amount, expressed as a percentage. It shows how quickly a lender could recover its principal from in-place income alone if it had to foreclose and sell at a distressed price. Unlike loan-to-value, debt yield ignores appraised value and cap-rate assumptions entirely, which lenders favor because it cannot be inflated by an optimistic valuation in a market where comparable sales are scarce — a recurring issue for data centers given how few large facilities trade each year. Data center construction and stabilized-asset lenders typically require minimum debt yields in the 8-12% range, tightening toward the higher end for single-tenant hyperscale buildings with significant lease rollover risk and loosening for diversified, multi-tenant retail colocation with long weighted-average lease terms. A facility with $20 million of NOI against a $200 million loan carries a 10% debt yield; falling below a lender's covenant threshold after a lease expires or a tenant defaults can trigger a cash sweep or technical default even if payments are current.