Loan-to-value expresses a loan amount as a percentage of a property's appraised or market value. It is the most widely recognized leverage metric in commercial real estate lending, applied to acquisitions, refinances, and stabilized assets where an appraisal or reliable valuation already exists, in contrast to loan-to-cost, which is used for ground-up construction.
Lenders set maximum loan-to-value thresholds based on property type, market conditions, and borrower strength, with figures commonly ranging from 55 to 75 percent for conventional commercial mortgages. A lower loan-to-value means more borrower equity supports the deal, which generally translates into better loan pricing and terms, since the lender's exposure relative to collateral value is smaller. Investors evaluating a sponsor's capital stack often look at loan-to-value alongside debt yield and debt service coverage ratio to get a fuller picture of how conservatively a deal is financed.
Further reading: How Mark-to-Market Strategies Influence Tenant Retention
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