The ratio of a property's net operating income (NOI) to its total annual debt service (principal + interest). A DSCR above 1.0 means the property generates enough income to cover its loan payments. Lenders typically require a minimum DSCR of 1.20–1.35 for commercial real estate loans.
DSCR = Net Operating Income ÷ Annual Debt Service. NOI is gross income minus operating expenses (excluding debt service and capital expenditures). If a property's NOI is $500,000 and annual debt service is $400,000, the DSCR is 1.25. A DSCR below 1.0 means the property cannot cover its debt obligations from income alone, triggering default risk. Lenders monitor DSCR throughout the loan term; a declining DSCR may trigger loan covenants, motivating landlords to increase revenue or reduce costs. Since CAM reimbursements are counted as revenue that offsets expenses in the NOI calculation, aggressive CAM pass-throughs improve DSCR without requiring higher base rents.
A landlord approaching a loan covenant threshold needed to increase NOI by $80,000. Rather than raising base rents (which required tenant consent), the landlord reclassified $80,000 of previously landlord-borne administrative costs as tenant-reimbursable CAM charges. This increased NOI dollar-for-dollar and maintained DSCR compliance, while tenants absorbed costs that were never previously billed.
If your landlord recently refinanced, is facing a maturity date, or is selling the building, watch for new or expanded CAM line items. These are pressure points where landlords may expand CAM pass-throughs to improve DSCR. Compare year-over-year reconciliation line items and challenge any newly appearing charges not previously billed.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
