Commercial real estate DSCR loans provide professional investors access to office buildings, retail centers, warehouse facilities, and mixed-use developments. These loans require sophisticated underwriting approaches that analyze net operating income, lease structures, and market fundamentals.

Commercial DSCR vs Residential DSCR

Commercial DSCR loans focus on Net Operating Income (NOI) rather than simple rental income. This approach considers property-level expenses, lease structures, tenant creditworthiness, and market fundamentals in a comprehensive analysis.

Net Operating Income Calculation

NOI = Gross Rental Income - Operating Expenses (excluding debt service). Operating expenses include property taxes, insurance, utilities, maintenance, management, and reserves but exclude mortgage payments, depreciation, and capital improvements.

Property Type Considerations

Office Buildings: Analyze lease terms, tenant creditworthiness, and market absorption rates. Consider work-from-home impact on office demand and adjust projections accordingly.

Retail Properties: Focus on foot traffic, anchor tenant stability, and e-commerce impact. Location and accessibility remain critical factors for retail property performance.

Industrial/Warehouse: E-commerce growth drives strong demand for warehouse and distribution facilities. Analyze proximity to transportation networks and population centers.

Lease Analysis Framework

Commercial DSCR underwriting requires detailed lease analysis including term remaining, escalation clauses, expense responsibilities, and tenant improvement allowances. Triple-net leases provide most predictable income streams.

Tenant Creditworthiness

Lenders analyze tenant financial strength, business stability, and lease guarantee structures. National credit tenants command lower cap rates and support higher leverage ratios.

Market Analysis Requirements

Commercial loans require comprehensive market analysis including comparable sales, rental rates, absorption periods, and economic fundamentals. Local market knowledge becomes crucial for accurate projections.

Environmental Considerations

Phase I Environmental Site Assessments are standard for commercial properties. Some properties may require Phase II studies if contamination risks exist.

Loan Structure Options

Commercial DSCR loans offer various structures including recourse/non-recourse, interest-only periods, and balloon payment options. Experienced borrowers may qualify for non-recourse financing with acceptable DSCR ratios.

Amortization and Terms

Commercial loans typically feature 20-25 year amortization with 5-10 year balloon payments. This structure balances cash flow with lender risk management while providing borrower flexibility.