DSCR is NOI divided by annual debt service. Most commercial multifamily lenders require a DSCR of 1.20 to 1.30 — meaning NOI covers 120–130% of the debt payments.
A DSCR of 1.25 means the building generates 25% more income than the debt costs. Below 1.0 means the building isn't self-supporting on debt service. Lenders use DSCR to size maximum loan amounts — the building must comfortably cover debt plus margin.
For a building with $280,000 NOI, a 1.25 DSCR means $224,000 maximum annual debt service. At current rates, that supports roughly $3–3.5 million of debt.
LA commercial multifamily DSCR requirements tightened meaningfully in 2024-2026 vs. the looser 2021 environment. Lenders stress-test DSCR at rates above the current market. Many refinances that worked in 2021 don't pencil at 2026 underwriting because DSCR falls short.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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