The lender's math.

Every building loan begins with the same calculation. The lender takes the building's net operating income — the NOI described in the first page of this library — and divides it by the annual cost of the mortgage being requested: twelve months of principal and interest, added up. The result is the debt service coverage ratio, DSCR, and it is the closest thing commercial lending has to a single deciding number. A ratio of one means the building earns exactly its mortgage. Above one, there is room. Below one, the owner is feeding the building from their own pocket, and the lender wants no part of the arrangement.

Why lenders live by it is not mysterious. A house loan is underwritten against a salary; a building loan is underwritten against the building. The lender's protection is not the borrower's optimism — it is the margin between what the property earns and what it owes, room for a bad winter, a roof that fails early, two vacancies that land in the same quarter. A lender that requires coverage some distance above one is saying, in effect: the building must carry its own mortgage with enough left over that ordinary bad luck does not become our problem.

The floor turns into a maximum loan by simple algebra. If the building's NOI is fixed — and in the lender's file it is, because they underwrite the income they can verify — then a coverage floor caps the annual debt service the property is allowed to carry. Divide NOI by the floor and you have the largest mortgage payment the lender will accept; work backward from that payment through the rate and the amortization and you have the largest loan. Notice what happens as conditions move. The same NOI supports less debt when rates rise, because each borrowed dollar costs more to carry. It supports less debt when the amortization shortens, because the principal comes back faster. Nothing about the building changed — only the arithmetic around it — and yet the maximum loan fell. This is why the constraint usually arrives before the equity conversation does: buyers discover the lender's ceiling first and their own budget second.

A second number travels with coverage: breakeven occupancy. Take the building's operating costs, add the annual mortgage, subtract whatever income arrives from sources other than rent, and divide by gross potential rent. The result is the occupancy at which the building exactly pays for itself — every point above it is margin, every point below it is a cheque the owner writes. A building that breaks even at seventy-five per cent occupancy can absorb real trouble; one that breaks even at ninety-six per cent is running without a net.

The distance between breakeven and actual occupancy is what keeps owners awake, or lets them sleep. Two buildings can show the same cash flow today and carry entirely different risk, because one sits fifteen points above its breakeven and the other sits three. Debt is what moves the number: the heavier the mortgage, the higher the occupancy the building must hold just to stand still. Lenders compute this too — it is the same information as DSCR, read from a different angle.

All of this bears directly on price. Two identical buyers looking at the same building with two different lenders can rationally pay two different prices — not because either is wrong about the building, but because one lender's floor, rate, and amortization support a larger loan than the other's, and the size of the loan sets how far each dollar of equity stretches. The disciplined version of the question how much can I pay therefore starts from coverage, not from wanting the building: given verifiable NOI, given my lender's floor, given today's rate and the amortization on offer, here is the debt the building supports — my equity and my own required margin decide the rest. Buyers who start from the building's appeal and work backward tend to discover the lender's answer late, at the worst possible moment in a negotiation.

The lender applies the same division to your building that it applies to every other, with no attachment to the outcome. The widget below runs that division on the library's twelve-plex. The income line is fixed; the loan, the rate, the amortization, and the floor you test against are yours.