How Buyers Finance Your Building: DSCR, Rates, and What Kills a Deal at the Lender

Most escrows that fall apart on an industrial sale don’t die over price. They die three weeks in, when the buyer’s lender runs your rent roll through a formula you never saw and comes back with a smaller loan than the buyer planned on. The buyer either finds more equity, asks you for a price cut, or walks.

You can’t control the buyer’s lender. But you can run the same math before you list, price to it, and screen buyers against it. Here’s what the lender is actually testing.

DSCR: the number that sizes the loan

Debt-service coverage ratio is your building’s net operating income divided by the annual loan payment. A lender wants that ratio comfortably above 1.0 — in 2026, most banks and life companies are underwriting industrial to a 1.25x minimum, and some property types and lenders push it to 1.30x or 1.40x. A loan that pencils at 1.10x doesn’t get a worse rate; on most permanent debt, it gets a no.

The part sellers miss is that the lender isn’t using your NOI. They rebuild it: a vacancy factor of 5–10% even if you’re full, a management fee of 3–5% of revenue even if you self-manage, replacement reserves on the order of $0.15–$0.25 per square foot, and real-world expenses on any suite that isn’t true NNN. That underwritten NOI is routinely 8–12% below what’s on your operating statement, and the loan is sized off the lower number.

The arithmetic on a $3 million Concord building

Say your multi-tenant building in Concord is under contract at $3.0 million on $195,000 of NOI — a 6.5% cap rate, in line with the mechanics in what your industrial building is worth in 2026. The buyer planned on a 70% loan, $2.1 million, at 7.0% fixed with a 25-year amortization. (Illustrative rate: published starting rates on 5-year fixed industrial loans sat around 6.9–7.2% in early September 2026, with the 10-year Treasury near 4.6% and the Fed holding at 3.50–3.75%. Actual quotes depend on the deal.)

• Debt service on $2.1M at 7.0% / 25 years: roughly $178,000 a year.
• DSCR on your NOI: $195,000 ÷ $178,000 = 1.09x. Declined.
• Maximum loan at 1.25x: the lender caps annual debt service at $156,000, which supports a loan of about $1.84 million — 61% of price, not 70%.
• The gap: the buyer now needs roughly $1.16 million of equity instead of $900,000. If they haircut NOI another 10% first, the loan drops toward $1.65 million.

Nothing about your building changed. The rate did the work. At a 7% cost of debt against a 6.5% cap rate, leverage is negative — every dollar borrowed earns less than it costs — and DSCR, not LTV, is the binding constraint on nearly every East Bay industrial loan today. This is the same reason a maturing loan forces the refinance-or-sell decision for current owners.

Debt yield and the appraisal: the second and third gates

Two more checks run alongside DSCR. Debt yield is NOI divided by the loan amount; many lenders want 8–10% on industrial, and in the example above $195,000 on $1.84 million is 10.6% — it passes. The appraisal is the third gate: the lender lends against the lower of price or appraised value. If your buyer paid a premium for your location and the appraiser’s comps don’t support it, the loan shrinks again and you’re negotiating a price reduction in week five.

What actually kills a deal at the lender

• Rollover inside the loan term. If 40% of your rent roll expires in the next 24 months, the lender underwrites those suites at market rent with downtime and re-leasing costs — or holds back a reserve. Staggered, longer-dated leases lend better.
• Gross leases masquerading as NNN. A lender re-prices every expense you’re quietly absorbing. The structure matters more than the face rent; the lease-structure guide walks through why.
• Environmental. A Phase I is standard on every industrial loan. A recognized environmental condition — an old clarifier, a former auto-shop tenant, a neighbor’s plume — triggers a Phase II and weeks of delay, or a decline.
• Deferred maintenance. A roof past its life or an aging electrical service becomes a lender holdback or a buyer credit. The property condition report finds it whether you disclosed it or not.
• The borrower, not the building. Thin liquidity, a first-time investor, or an entity that hasn’t closed a commercial loan before. Strong buildings get declined for weak sponsors.

What this means for your price

The financeable price of your building is the number where a buyer’s loan at 1.25x plus a reasonable equity check adds up to what you’re asking. Above that line you’re selling only to all-cash buyers and 1031 exchangers with big equity — a real pool in the East Bay, but a smaller one. Price inside the line and every qualified buyer in the market can close. Run the DSCR math on your own rent roll before you list; if it says the loan is smaller than the market expects, fix what you can — convert a gross lease at renewal, extend a strong tenant, clear the roof issue — and let the numbers carry the price rather than the story.