What Is Loan-to-Value (LTV) in Commercial Real Estate?

Loan-to-Value (LTV) is the ratio of a loan amount to the appraised value of the property being financed, expressed as a percentage. A $7.5 million loan on a $10 million property equals a 75% LTV. In commercial real estate lending, LTV is one of the primary metrics lenders use to determine how much they are willing to lend and at what terms. The lower the LTV, the more equity the borrower has in the deal, and the less risk the lender carries.

The LTV Formula

The calculation itself is simple. The complexity comes from what drives each number.

Appraised Value

For purchases, lenders typically use the lower of the appraised value or the purchase price. For refinances, the appraised value stands alone. The appraisal is ordered by the lender and conducted by a licensed commercial appraiser using one or more valuation approaches: the income approach (most common for income-producing commercial properties), the sales comparison approach, and the cost approach.

Disagreements about value are common. If the appraisal comes in below the purchase price, the effective LTV based on value increases, which may push the deal beyond the lender's maximum. This is one of the most frequent deal complications brokers face.

Loan Amount

The loan amount is not always set by the borrower's request. Lenders size loans based on the most restrictive of several constraints: maximum LTV, minimum DSCR, minimum debt yield, and maximum loan amount limits. A property might support a 75% LTV loan based on value alone, but if the resulting debt service pushes the DSCR below the lender's minimum, the loan gets sized down.

Worked Example

A multifamily property appraises at $12 million. The borrower requests an $8.4 million loan.

At 70% LTV, this deal falls within the acceptable range for most lender types, including CMBS, agency, and bank lenders. The borrower contributes 30% equity ($3.6 million). Use the LTV calculator to run your own numbers.

Why LTV Matters in Commercial Real Estate Lending

LTV serves two purposes for lenders: it measures risk and it determines loan size.

From a risk perspective, LTV represents the lender's exposure relative to the collateral. A 65% LTV loan means the property's value would need to drop more than 35% before the lender's position is underwater. A 90% LTV loan only has a 10% cushion. That difference in protection is why lower-LTV loans get better rates.

From a sizing perspective, every lender has a maximum LTV threshold. Once a deal hits that ceiling, the lender will not go higher regardless of how strong the borrower or property looks. This makes LTV one of the hard constraints in loan structuring, along with DSCR and debt yield requirements.

Maximum LTV by Loan Type

Different loan programs have different LTV ceilings. These ranges reflect typical maximums. Actual limits vary by lender, property type, location, and borrower strength.

LTV vs Other Key Metrics

LTV does not exist in a vacuum. Lenders evaluate it alongside several other ratios, and the most restrictive metric determines the final loan amount.

A common scenario: a property appraises at $10 million and the borrower wants 75% LTV ($7.5 million). But the property's DSCR at that loan amount is only 1.10x, below the lender's 1.25x minimum. The lender sizes the loan down to where DSCR hits 1.25x, which might be $6.2 million (62% LTV). The borrower gets less than the LTV limit would allow because DSCR was the binding constraint.

LTV in Different Deal Types

Acquisitions

For purchases, lenders use the lower of appraised value or purchase price. If a buyer pays $8 million for a property that appraises at $9 million, the lender bases LTV on the $8 million purchase price. The extra $1 million in "instant equity" does not increase borrowing capacity at closing, though it may help with future refinancing.

Refinances

Refinance LTV is based on the current appraised value. Rate-and-term refinances (replacing an existing loan without taking cash out) typically qualify for higher LTV than cash-out refinances. Fannie Mae, for example, may allow 80% LTV on a rate-and-term refi but cap cash-out refinances at 75%.

Construction and Value-Add

For projects where significant capital is being invested beyond the acquisition price, lenders often look at Loan-to-Cost (LTC) instead of, or in addition to, LTV. LTC compares the loan to the total project budget (purchase price plus renovation or construction costs). Some lenders also evaluate "as-stabilized LTV," which uses the projected value after the project is complete and leased up.

Bridge Loans

Bridge lenders may underwrite to both as-is LTV and as-stabilized LTV. A property worth $5 million today but projected to be worth $8 million after renovation might qualify for a bridge loan at 80% of as-is value ($4 million) or 65% of as-stabilized value ($5.2 million), whichever is lower.

How to Improve LTV on a Deal

Sometimes the LTV on a deal comes in higher than the target lender will accept. There are several ways to bring it down.

The most direct approach is increasing the equity contribution. More cash in the deal means a smaller loan relative to value. If the borrower cannot contribute more equity, mezzanine financing or preferred equity can fill the gap, though these add complexity and cost to the capital stack.

Another approach is getting a higher appraisal. If the initial appraisal used conservative assumptions, there may be room to challenge it with better comparable sales data, more accurate income projections, or by addressing deferred maintenance that dragged down the value estimate.

For acquisitions, negotiating a lower purchase price directly reduces LTV. For refinances, increasing NOI through rent increases, expense reductions, or improved occupancy can support a higher appraised value, which lowers LTV at the same loan amount.

How Brokers Should Think About LTV

For commercial mortgage brokers, LTV is the starting point of every deal conversation. Before you start shopping a deal to lenders, know the LTV and how it compares to each lender type's limits.

If a deal needs 80% LTV, your lender options narrow significantly. SBA 504 and HUD programs can go higher, but conventional bank, CMBS, and life company lenders likely cannot. Matching the deal's leverage needs to the right lender program is one of the core skills of effective brokerage.

When presenting a deal to lenders, always include the LTV calculation in your deal package. Show the appraised value (or anticipated purchase price), the requested loan amount, and the resulting LTV. If you have already identified which constraint is binding (LTV, DSCR, or debt yield), say so. It tells the lender you have done your homework.

When advising borrowers, use LTV to set realistic leverage expectations. A borrower who wants 85% leverage on a conventional commercial deal needs to understand why that is not available from most lenders, and what alternatives exist if they need higher leverage. Use Janover Pro to quickly identify which lenders are active in the right LTV range for your deal.

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