Commercial Real Estate Dictionary
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D    Debt service    >>    Due diligence
Debt serviceDebt service is the monetary amount of the periodic payment made to reimburse the principal and interest on a loan. Annual Debt Service (ADS) is the sum of the payments made to pay back a loan over the period of one year. Debt service coverage ratioThe debt service coverage ratio, DSCR, is the ratio of annual net operating income (NOI) to the annual debt service (ADS). The debt service coverage ratio measures whether or not there is enough income to pay for the loan payments

The debt service coverage ratio formula:


DSCR = NOI / ADS


A DSCR greater than 1.0 indicates an amount of annual income that can cover the amount of the annual loan payments, which implies a sufficient amount of available cash flow for debt service.

DemographicsDemographics are data that describe the characteristics of a population. Demographic characteristics include age, ethnicity, and income. DensityIn land use planning, density is the ratio of a particular type of land use per given area of land. Density measures the intensity of a given land use and it is subject to zoning regulations. Density ZoningDensity zoning is zoning restrictions upon land use intensity. Density zoning can be used to limit or encourage development in alignment with planning objectives according to the needs and objectives of the community. DeveloperA real estate developer is an entity or person who improves raw land. Real estate developers undertake an entrepreneurial role in creating the built environment in response to the needs of the community and the market.

Development feeA "development fee," also referred to as "developer fee," is money earned by a person or entity for managing the development process for another principal. A commercial real estate developer may charge a client to manage the real estate development process as a service. The fee may be calculated as a percentage of the total development cost. The developer may be referred to as a "fee developer." Discounted cash flowDiscounted cash flow is a method of valuing an income producing asset. The discounted cash flow method discounts future cash flows at an appropriate percentage rate to calculate the present value of an asset. DownzoningDownzoning is a zoning regulation change of an area from a more intense or dense land use to a less intense land use. Due diligenceDue diligence is the use of reasonable care in an investigation of the relevant facts, assumptions, parties, conditions and subject matter pertinent to a transaction.

In a real estate transaction, due diligence would include an investigation into the ability of the parties involved to conclude the transaction, a confirmation of the market and financial assumptions underwriting the property, an investigation into the condition of the subject property, and the fitness or regulatory restrictions applicable to the subject property's intended use.
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1. Debt service >> Due diligence
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