Usually, in the real estate world, when the debt servicecoverage ratio is up, the loan to value ratio is down, and that'sconsidered a good thing. Lately, however, many lenders andborrowers are confronted with mortgage loans that have both highDSCRs and LTVs. The property is cash-flowing but, at least onpaper, the owner has little or no equity. Understanding thisconundrum is not difficult. Figuring out what it means depends onthe circumstances of each situation.

High DSCRs are likely to occur when properties are fully leasedand considered stabilized, and if the interest rates are relativelylow. It helps, of course, if the LTV is low, because that impliesthat a reasonable amount of money was borrowed compared to theproperty's ability to pay debt service.

Despite the doom-and-gloom atmosphere surrounding real estateinvestments, many properties are, in fact, well-leased andstabilized. Interest rates are at a historically low, borrowerfriendly level. This is particularly true for floating rate loanstied to indices such as LIBOR, especially if the rates have nofloors. In this market, even if debt levels are so high that LTVsapproach or exceed 100%, interest rates are so low that they canlead to reasonable or even high DSCRs.