In this article, you'll learn:

• Why checking a landlord's Debt Service Coverage Ratio (DSCR) is crucial.
• How to calculate DSCR by Net Operating Income (NOI) and annual debt service.
• The risks of a low DSCR, including potential service disruptions.

In the wake of the Office Apocalypse, there's been a shift in the office landlord-tenant dynamic. When leasing new space, tenants are now asking to see proof of healthy finances from landlords, rather than the other way around.
Because amidst a minefield of defaulting office buildings, no tenant wants to get caught up with a landlord on the brink of collapse. Sufficient cash flow is essential to the success of a commercial property because complications arise when financial obligations must be prioritized.
Therefore, many tenants are even refusing to negotiate with landlords until they have hard evidence that the property owner or their lender has the capability to carry out a long-term lease. And the premier metric used to gauge a commercial property’s financial stability is the Debt Service Coverage Ratio (DSCR). So read on to learn why you should absolutely check your landlord's DSCR before signing that new lease.