Question on LTV and DSCR Calculations - space vs property
I am working / analyzing a deal for an office space leasing. I have a few questions (using hypotheticals):

For context, it's multi-tenant office property, about 140,000 sq.ft, market value $70m. How do I calculate the LTV and DSCR at space level? i.e Financing information is at Property level and building is financed. However, my calculations are for the unit / space within the building.

What's the typical approach here? Thx.
[{"id": "h1zpv9g", "text": "Are you tenant or landlord?\n\nIs the deal to lease a space within the property or to buy it? How can you buy it unless it is a condominium?", "replies": [{"id": "h1zv8r5", "text": "Analyst, helping with deal analysis. It's for lease.", "replies": [{"id": "h20ytvg", "text": "Walk out and quit, this landlord doesn\u2019t know nothing.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h1zq24x", "text": "LTV = debt/$70m\n\n LTV / unit or SF\n\nThen for DSCR..\n\nTake the EBITDA and divide by sum of interest and principal. Divide by units or SF", "replies": [{"id": "h20qhfh", "text": "This is incorrect. The math just doesn't work that way. LTV and DSCR are ratios so they can't just be divided across unit count or SF.", "replies": [{"id": "h21cby6", "text": "No, they are correct. To find DSC, take ebit and divide by annual payments.", "replies": [{"id": "h21upro", "text": "Yes, that is how you get DSCR, but you would not divide by the unit count nor the SF to get a unit DSCR. I explained why in a few other replies.", "replies": [{"id": "h22wwxe", "text": "Ah yes good point, my b", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "h21ckbp", "text": "Well unit counts I agree entirely because a \u201cunit\u201d is or can be an entirely distinct/amorphous thing.\n\nBut /sf? I could sorta kinda see that.\n\nNot that it\u2019s really done to my knowledge, BUT if all sf in the property are equivalent (which\u2026..) then maybe as a thought exercise.", "replies": [{"id": "h21u5oa", "text": "If all the leases or units in a property were equivalent, the LTV and DSCR would be the same on a per unit, per square foot, and total property basis. It still wouldn't make sense to divide the property LTV/DSCR by the SF or the Unit count.\n\nThink of it this way, you have a chain of 10 ice cream parlors (assume all corporate over head is allocated to each property). The Company's profit margin is 20%, what is the profit margin of each store or per square foot? It doesn't make sense to divide the company profit margin by 10 stores (2%) or by their total SF. You need to know the sales volume and total expenses for each location, and they could be different for each location. The company's profit margin is essentially a weighted average of all the stores. (In this example, you could actually swap out profit margin for LTV or DSCR.)\n\nIt's essentially the same in determining the LTV and DSCR for individual units. However, the LTV and DSCR psf would be the same as the total property since each SF of space is weighted equally.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h1zttg8", "text": "What is the proposed deal?\n\nThis post is so unclear that you won\u2019t be able to get any good responses.", "replies": [], "depth": 1}, {"id": "h205top", "text": "I don\u2019t think I\u2019ve ever seen anyone approach LTV or DSCR on the tenant level. I don\u2019t really know why or how that would be useful since the entire property is collateral for the loan, unless you\u2019re getting into chattel loans for condos / MHC POH which isn\u2019t where this is going?", "replies": [{"id": "h21ahnw", "text": "Yeah the fee simple condos is the only way this would work in my mind. Purchasing multiple units as an assemblage, but that would be on a per unit and not per tenant basis, right?", "replies": [{"id": "h21e4v0", "text": "I guess it would be per unit. The only way I\u2019d imagine someone buying condos though (other than like as individual rentals... I don\u2019t think there\u2019s much market for like office or retail condos as investments other than for users) would be a developer refinancing with a chattel loan or investor coming in to buy a bunch of condos at a property but in that instance you\u2019re just looking at overall LTV / LTC since you\u2019re not generating income except through sales and sinking your basis.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h20sipm", "text": "Not sure why you would want to do this but here's how you would (assuming you're analyzing the leased fee/landlord side):\n\nFor LTV, you would divide the share of the loan of a given unit/leased space by the value of it's lease. Determining the share of the loan for each unit could be done on a per unit or per SF basis, or really any method that makes sense given the terms of the lease, loan, and market (which probably don't give any guidance). If going with SF, you would probably not include common areas (ie: you would want to use GRA or GUA depending on what your market is most likely to use). Then for the value of the lease it's just lease EBITDA divided by a cap rate. It would would make sense to allocate expenses on a psf or mix of psf and per unit basis except when the lease indicates otherwise. Unless there's market for leased fee interests in single leases, you could probably just use the same cap rate as the building.\n\nFor DSCR, it would be a lease's EBITDA divided by its share of the debt service (allocated same as loan).", "replies": [], "depth": 1}, {"id": "h20yo44", "text": "Why are you doing ltv at the tenant level?", "replies": [], "depth": 1}, {"id": "h20zaz6", "text": "Normally you'd do it at a property level since the loan is secured against the value of the property and its associated cash-flow. As such, you typically model your 5y (or more) business plan or loan term and see how the property is doing during the various leasing events (breaks, defaults, void, rent free, TIs/capex). You model out the DSCR across the cash-flow and check whether or not you're breaching covenants. If you are, you'll have cure rights which should all be defined in the loan agreement. \n\nDoing it floor by floor is unusual and there's no \"right\" approach as no one actually does this. As suggested in some comments, you can allocate value differently across floors depending on whether some floors are better/worse. Asign different cap rates or capital values however you feel is right, but you're solving for a value of 70m. Slap on your xx% LTV to each floor and calculate your DSCR as above.\n\nDoing it by floor is only telling you in more detail something you should already know: which floor is causing the DSCR to drop at a point in time in your cash flow. But that should already be evident if your model is set up correctly.", "replies": [], "depth": 1}]