Commercial Real Estate Debt Refinancing: 2026 DSCR Hurdle Rates and SOFR Floor Benchmarks

## Capital Architecture of Commercial Debt Refinancing

With trillions in commercial real estate debt originated during ultra-low rate regimes reaching maturity, borrowers face significant equity gap requirements upon refinancing into elevated SOFR environments.

### 1. Dual Hurdle Underwriting: DSCR vs. Debt Yield

Commercial balance-sheet lenders and CMBS originators size senior mortgage loans using the tighter of two constraints:

1. **Debt Service Coverage Ratio (DSCR)**:
$$\text{DSCR} = \frac{\text{Net Operating Income (NOI)}}{\text{Annual Debt Service (P+I)}}$$
2. **Debt Yield**:
$$\text{Debt Yield} = \frac{\text{Net Operating Income (NOI)}}{\text{Total Loan Amount}} \times 100\%$$

| Property Class | Minimum DSCR Hurdle | Minimum Debt Yield | Maximum Permitted LTV |
|:---------------|:-------------------:|:------------------:|:---------------------:|
| Multifamily A | 1.25x | 8.5% | 65% |
| Industrial Log | 1.30x | 9.0% | 60% |
| Grocery Retail | 1.35x | 9.75% | 55% |
| Medical Office | 1.40x | 10.25% | 55% |

### 2. SOFR Floors and Mandatory Interest Rate Caps

Floating-rate bridge loans require borrowers to escrow replacement reserves for 2-year or 3-year SOFR interest rate caps with strike prices tied to the underwritten debt service ceiling. When SOFR forward curves exceed strike levels, cap providers fund the differential directly to the servicer.