The constraint that binds

Ask a commercial lender how much you can borrow and you will get a percentage. Ask which test produced it and the conversation changes, because the three tests move in different directions and only one of them is holding you back.

The three tests

Loan-to-value caps the loan at a share of what the property is worth. Debt service coverage caps it at what the income can pay for. Debt yield caps it at a multiple of the income alone, ignoring both the rate and the appraisal. The loan is the smallest of the three, every time.

Why it matters which one binds

If loan-to-value binds, a higher appraisal helps you. If coverage binds, a lower rate helps you and a higher appraisal does nothing at all. If debt yield binds, neither helps — only more income does. Sponsors routinely spend money on the wrong lever because nobody told them which test was actually stopping the deal.

• LTV binds: chase value. A second appraisal, a better comparable set, a corrected rentable area.
• DSCR binds: chase the constant. A longer amortisation, a lower rate, an interest-only period if the lender will size on it.
• Debt yield binds: chase income. Nothing else moves the number, and no amount of negotiation on rate will.

The pattern by asset class

Stabilised multifamily at moderate leverage is usually bound by coverage. Retail and office are usually bound by debt yield, and by a wide margin — a 12% floor on office is the single reason office leverage sits where it does. Long-leased industrial is one of the few places loan-to-value gets to be the binding test.