Full Definition
In hotel underwriting, DSCR = Annual NOI ÷ Annual Debt Service. Hotels are high-operating-expense businesses (55–65% expense ratio vs. 30–40% for NNN), so NOI is sensitive to occupancy swings. A hotel with 75% occupancy may have positive DSCR; the same hotel at 60% occupancy may have negative DSCR (NOI can't cover the mortgage). Lenders typically require DSCR ≥ 1.25x at a stabilized occupancy assumption.
Example
Hotel NOI: $180,000. Annual debt service on $1.5M loan at 6.75%: $126,000. DSCR = $180,000 ÷ $126,000 = 1.43x — lender will approve. If occupancy drops 15%, NOI falls to $135,000. DSCR = 1.07x — lender stress test fails.
Why It Matters
Hotel DSCR is more volatile than NNN DSCR because income isn't lease-guaranteed. Always model DSCR at 70% occupancy and your actual borrowing rate — not OM assumptions.
Related Terms
Cap Rate (Capitalization Rate)
The ratio of a property's Net Operating Income to its purchase price, expressed as a percentage. The primary metric for comparing commercial real estate investments.
Occupancy Rate (Hotels)
The percentage of available hotel rooms that are occupied during a given period. Key demand metric for hotel underwriting.
NOI (Net Operating Income)
Annual income from a property after deducting operating expenses — before debt service, taxes, and capital expenditures.