Use the lender’s actual definitions and thresholds, then test them against the buyer’s downside case. Do not substitute a generic hotel DSCR or leverage percentage for a written lending proposal.
DSCR compares eligible cash flow with debt service; debt yield divides eligible NOI by the loan amount; LTV compares the loan with the applicable property value. OCC guidance identifies these as distinct credit measures and notes that volatile cash flows, including hotels, may warrant stronger coverage. (occ.gov)
How can different constraints change loan proceeds?
Hypothetical assumptions—not current lending terms:
- Lender-eligible NOI: $960,000.
- Appraised value: $12 million.
- Maximum LTV: 65%.
- Minimum debt yield: 10%.
- Minimum DSCR: 1.35x.
- Annual debt-service constant: 9%, incorporating the assumed financing structure.
| Constraint | Simplified maximum loan |
|---|---|
| LTV: $12m × 65% | $7.80m |
| Debt yield: $960,000 ÷ 10% | $9.60m |
| DSCR: $960,000 ÷ 1.35 ÷ 9% | Approximately $7.90m |
In this example, LTV is the binding constraint, before other lender adjustments.
Our recommended term-sheet comparison also records reserves, recourse, amortization, extension conditions, cash-management triggers, prepayment costs and permitted capital works. The lowest advertised interest rate is not necessarily the financing structure that leaves the owner with the most usable cash.