How do you benchmark and compare DSCR sensitivity across different CRE portfolios and strategies?
If you invest in commercial real estate (CRE), you need to understand how your debt service coverage ratio (DSCR) affects your risk and return. DSCR is the ratio of your net operating income (NOI) to your debt service (principal and interest payments). It measures your ability to repay your loan and maintain positive cash flow. A higher DSCR means more cushion and less default risk, while a lower DSCR means more leverage and higher returns. But how do you benchmark and compare DSCR sensitivity across different CRE portfolios and strategies? Here are some tips to help you.
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Run tailored stress tests:Choose relevant scenarios like interest rate changes or economic downturns. This allows you to compare how each portfolio performs under the same conditions, revealing their DSCR sensitivity.### *Benchmark against industry standards:Use data from market reports and financial statements to compare your DSCR sensitivity. This helps you understand where your portfolio stands relative to peers and make informed adjustments.