DSCR Targets for Our First Property
Lender Relations | Algonquian Real Estate, LLC
Debt Service Coverage Ratio (DSCR) is one of the primary metrics guiding our acquisition decisions. For Algonquian Real Estate, LLC, DSCR is not a secondary calculation—it is a gating requirement.
Our first property must demonstrate durable coverage under conservative assumptions.
Baseline Target
For our initial acquisition, we apply the following standard:
- Minimum DSCR: 1.25x under stabilized assumptions
- Preferred range: 1.25x–1.35x, depending on leverage and asset profile
These thresholds are consistent with prudent community bank underwriting practices.
If a property does not meet minimum coverage requirements without aggressive rent projections or expense compression, we decline.
How We Calculate DSCR
We underwrite DSCR using:
- In-place or supportable market rents
- Realistic vacancy assumptions
- Market-consistent expense ratios
- Fully loaded annual debt service
We do not calculate coverage based on ideal scenarios or speculative improvements.
Stress Testing Before Commitment
Before proceeding to offer, we evaluate:
- Sensitivity to a 5–10% vacancy scenario
- Potential expense overruns
- Interest rate variance (if applicable)
- Deferred maintenance impact
If coverage deteriorates materially under reasonable stress conditions, the transaction does not move forward.
Leverage and Coverage Relationship
Higher leverage reduces coverage and increases fragility.
For Property One, we prioritize:
- Strong coverage over maximum leverage
- Liquidity reserves alongside debt service capacity
- Clean operating margins
The objective is resilience—not optimization.
Why This Matters for Lenders
A disciplined DSCR policy:
- Protects lender capital
- Protects company reserves
- Supports stable cash flow
- Reduces refinance pressure
Our intent is to build long-term banking relationships rooted in performance and predictability.
Conclusion
Our first acquisition must meet measurable financial thresholds.
We will not pursue transactions that require optimistic underwriting to reach minimum coverage standards.
If you are a broker, seller, or lender with a stabilized three-family property in Connecticut that supports conservative DSCR thresholds, we welcome professional discussion.
Algonquian Real Estate, LLC
📞 203-996-5533
📧 algonquianre@gmail.com
Disciplined small multifamily investment in Connecticut.
