A commercial borrower, 'Maple Leaf Logistics Inc.', is seeking a $5,000,000 mortgage to acquire an industrial warehouse in Burnaby, BC. The property generates an annual Net Operating Income (NOI) of $450,000. Their lender requires a minimum Debt Service Coverage Ratio (DSCR) of 1.25. Assuming an interest-only payment structure for the initial term with an interest rate of 6% annually, what is the maximum principal amount Maple Leaf Logistics Inc. could borrow based solely on the DSCR requirement?

Question: A commercial borrower, 'Maple Leaf Logistics Inc.', is seeking a $5,000,000 mortgage to acquire an industrial warehouse in Burnaby, BC. The property generates an annual Net Operating Income (NOI) of $450,000. Their lender requires a minimum Debt Service Coverage Ratio (DSCR) of 1.25. Assuming an interest-only payment structure for the initial term with an interest rate of 6% annually, what is the maximum principal amount Maple Leaf Logistics Inc. could borrow based solely on the DSCR requirement?

Answer options: ✅ $6,000,000

• $5,400,000
• $5,000,000
• $4,800,000

Correct answer: $6,000,000

Explanation: To find the maximum principal amount, first calculate the maximum allowable annual debt service (DS = NOI / DSCR = $450,000 / 1.25 = $360,000). Then, with an interest-only payment, the maximum principal is DS / interest rate = $360,000 / 0.06 = $6,000,000. This is a common method for DSCR underwriting in commercial lending.