CRE Glossary
Every metric and term used in Yield Desk, defined at the level an institutional analyst would expect.
Net Operating Income (NOI)
The annual income a property generates after operating expenses but before debt service and taxes. NOI is the foundation of CRE valuation. Yield Desk calculates it as Gross Monthly Rent x 12 x (1 - Vacancy Rate) x (1 - Expense Ratio), or accepts a direct input. Stabilized multifamily expense ratios typically run 38-50% of effective gross income.
Cap Rate (Capitalization Rate)
NOI divided by Purchase Price. The unlevered yield on an all-cash purchase. A 7% cap rate means you would earn 7% on your money with zero debt. Cap rate is a valuation metric, not a return on equity. Mathematically, Cap Rate = r - g, where r is the required total return and g is expected perpetual NOI growth. Lower cap rates mean the market is paying more per dollar of income.
DSCR (Debt Service Coverage Ratio)
NOI divided by Annual Debt Service. Measures how many times over a property's income covers its annual loan payments. A DSCR of 1.25x means 25% more income than needed for debt service. The institutional floor of 1.25x is derived from decades of lender default-rate data. Properties below 1.20x show meaningfully higher defaults, especially in downturns.
Cash-on-Cash Return
Annual Cash Flow (NOI minus Debt Service) divided by Total Equity Invested. Unlike cap rate, this accounts for leverage. A deal can have a strong cap rate but poor cash-on-cash if debt terms are unfavorable. In the 2023-2026 rate environment, many multifamily deals produced cash-on-cash of 2-4%, below the unlevered cap rate, indicating negative leverage.
IRR (Internal Rate of Return)
The annualized compound return on equity over the hold period, accounting for the timing of every cash flow. IRR is the universal deal-level return metric in institutional CRE. It captures leverage effects and is timing-sensitive: early cash flows are worth more than late ones. Always pair with equity multiple to assess absolute value creation. Yield Desk free tier computes IRR with a locked 5-year hold and exit cap equal to the in-place cap rate.
Debt Yield
NOI divided by Loan Amount. The lender's effective yield if they foreclosed and operated the property tomorrow. Unlike DSCR, debt yield is independent of interest rates and amortization. It emerged post-GFC as lenders needed a metric that evaluated loan risk without depending on rate assumptions. Typical CMBS conduit floor: 8-10%.
Breakeven Occupancy
The minimum occupancy needed to cover all fixed obligations: (Annual Debt Service + Operating Expenses) / Gross Potential Rent. A margin-of-safety metric. Lower is safer. A breakeven above 85% leaves little room for vacancy increases. Above 90% is a red flag. Only computed when gross rent is provided directly.
Leverage Indicator
Compares the property's cap rate to the loan constant (annual debt service / loan amount) to determine whether borrowing amplifies or destroys equity returns. Positive leverage: cap rate exceeds loan constant, every borrowed dollar earns more than it costs. Negative leverage: the reverse. The correct comparator is the loan constant, not the stated interest rate, because amortization is a real cost of debt.
Spread to 10yr Treasury
Cap Rate minus the 10-year Treasury yield. The risk premium CRE investors receive above the risk-free rate. Historical average since 1990 is approximately 200 basis points. When the spread compresses below 100 bps, Treasuries may offer better risk-adjusted returns. A thin spread means you are being poorly compensated for CRE-specific risks: illiquidity, vacancy, management, and capex.
Loan Constant
Annual Debt Service divided by Loan Amount. The true cost of amortizing debt expressed as a percentage. For an interest-only loan, the loan constant equals the interest rate. For an amortizing loan, it is always higher than the interest rate because it includes principal repayment. The loan constant is the correct denominator for leverage analysis, not the nominal interest rate.
Gross Potential Rent (GPR)
The total annual rent a property would generate at 100% occupancy at current market rents. GPR is the top line of the proforma cascade: GPR minus vacancy loss minus operating expenses equals NOI. All vacancy and expense assumptions are applied against this baseline.
Expense Ratio
Operating expenses as a percentage of effective gross income. Covers taxes, insurance, maintenance, management, and common area costs. Does not include debt service or capital expenditures. Stabilized multifamily typically runs 38-50%. An expense ratio below 35% likely understates costs and should be flagged for review.
Vacancy Rate
The percentage of a property's leasable space that is unoccupied. Structural vacancy (frictional turnover, typically 3-5%) differs from cyclical vacancy (demand shortfall). When vacancy falls below the natural vacancy rate, rents rise and new development is triggered. When it rises above, rents fall and construction stops. Underwriting below market vacancy is a common amateur error.
LTV (Loan-to-Value)
Loan Amount divided by Property Value (or Purchase Price). The primary practitioner leverage measure. A 70% LTV means $700K debt on a $1M property. For risk analysis, convert LTV to Leverage Ratio: LR = 1 / (1 - LTV). At 70% LTV, LR = 3.33x, meaning a 10% decline in property value wipes out 33% of equity.
Equity Multiple
Total Distributions divided by Total Equity Invested. Measures absolute value creation over the hold period, independent of timing. A 2.0x equity multiple means you doubled your money. Always pair with IRR: a 25% IRR with a 1.3x equity multiple on a 3-year hold means you only made 30% total. The IRR looks great only because of the short duration.
T-12 (Trailing Twelve Months)
The most recent 12 months of actual property operating performance. A T-12 statement is the primary source document for verifying NOI in acquisitions. It shows real collected revenue and real incurred expenses, unlike a proforma which projects future performance. Always underwrite from T-12 actuals, not seller proformas.
Definitions sourced from REFAI curriculum, MIT coursework, and Geltner et al. (2007). This is educational content, not investment advice.