A mortgage broker, Jamie, is assessing a commercial mortgage application for a 10-unit apartment building in downtown Montreal. The borrower, "Maple Leaf Developments Inc.", has an established track record and strong financial statements. Jamie calculates the Debt Service Coverage Ratio (DSCR) based on the building's net operating income and the proposed debt payments. Which of the following best describes the primary risk Jamie is assessing through the DSCR calculation?

Question: A mortgage broker, Jamie, is assessing a commercial mortgage application for a 10-unit apartment building in downtown Montreal. The borrower, "Maple Leaf Developments Inc.", has an established track record and strong financial statements. Jamie calculates the Debt Service Coverage Ratio (DSCR) based on the building's net operating income and the proposed debt payments. Which of the following best describes the primary risk Jamie is assessing through the DSCR calculation?

Answer options: ✅ Borrower's capacity to service the debt from property operations.

• The marketability and liquidity of the commercial real estate.
• The potential for environmental contamination on the property.
• The impact of interest rate fluctuations on the loan terms.

Correct answer: Borrower's capacity to service the debt from property operations.

Explanation: The Debt Service Coverage Ratio (DSCR) is a key underwriting metric used to assess a commercial property's ability to generate sufficient income to cover its mortgage debt payments, directly reflecting borrower capacity for that specific asset.