How the calculation works
The maximum LTV amount equals property value times the maximum LTV. The DSCR amount equals annual NOI divided by the minimum DSCR and annual debt-service constant. The debt-yield amount equals NOI divided by the minimum debt yield. The smallest amount is the sizing limit. Subtract payoff and closing costs to identify a shortfall or potential surplus.
Worked example
With a $20 million value, $1.4 million NOI, 65% LTV, 1.25x DSCR, 9% debt yield and an 8% interest-only rate, the limits are $13 million, $14 million and approximately $15.56 million. LTV is the binding constraint. A $14 million payoff plus $300,000 costs leaves a $1.3 million shortfall. These inputs are illustrative and are not H Equities lending criteria.
Test a downside case
Reduce NOI or value and increase the rate to see which constraint binds. If additional capital is needed, compare a lower payoff, sponsor equity, an extension, a sale or a different structure. Junior capital also needs senior lender consent and adequate repayment capacity.
What the result leaves out
The tool assumes level monthly amortization or interest-only payments. It excludes reserve holdbacks, fees not entered, covenants, minimum loan amounts, legal restrictions and underwriting adjustments. A calculated surplus is not approval for cash-out.