Sizing — 5 min read
Why office leverage is where it is
It is not sentiment. It is one number, and you can watch it do the work.
June 30, 2026
Sponsors often read low office leverage as a mood — lenders being cautious, capital being scarce. It is more mechanical than that. Change one input and the leverage falls out of the arithmetic without anybody having an opinion.
The number is the debt yield floor
A property with one million dollars of net operating income supports $12.5M of debt at an 8% debt yield floor. The same property supports $8.3M at 12%. That is a 34% reduction in proceeds produced by a single underwriting parameter, with no change to the rate, the appraisal or the sponsor.
Why the floor is higher for office
Debt yield is the test that survives a wrong appraisal, and office values have been the least stable. It is also the test that survives rollover: a floor set at 12% assumes the income might not all be there, which on a building with concentrated near-term expiry is not pessimism but arithmetic.
What moves it back
Lease term. A building with a weighted-average lease term running past the loan maturity is a different asset from one with half its area expiring in year three, and it is underwritten as one. The rest — capital plans, amenity spend, a strong sponsor — is real but second order next to term.
Written for a demonstration site. Chordline Commercial Capital is fictional and every figure quoted above is illustrative rather than observed.Full disclosures.
More notes
SizingThe constraint that bindsThree tests decide the size of a commercial loan. Knowing which one is stopping you is worth more than knowing all three.
StructureThe balloon nobody mentionsA thirty-year amortisation with a ten-year term repays about a fifth of the principal. The rest is due on a Tuesday.
UnderwritingReading a T-12 the way an underwriter doesThe operating statement you send and the operating statement a credit committee reads are not the same document.