Evaluate combinations of adverse changes rather than isolated sensitivities.
A financing plan can survive each isolated downside and still fail when several changes occur together. Lower income reduces debt-service capacity and may reduce collateral value. A higher required debt constant reduces proceeds again. If those variables arise from the same operating or market event, a combined scenario is more informative than three unrelated sensitivity tables.
The 2023 interagency CRE workout statement’s repayment analysis considers repayment resources and market conditions. The grid here is an original hypothetical model, not a regulatory stress test, market forecast or estimate of event probabilities.
Define the model before choosing shocks
Assume base annual lender cash flow of $600,000, a 6% capitalization rate, 65% maximum LTV, 1.25 minimum DSCR and an 8% annual debt constant. Value is modeled as cash flow divided by cap rate. Gross capacity is the lesser of the DSCR and LTV results. Refinancing costs equal 2% of gross proceeds, and the payoff is $5.5 million.
The annual debt constant is a payment factor, not necessarily the note interest rate. It must be recalculated from the applicable amortization and interest assumptions in an actual model. The simplified grid changes it directly so the interaction is visible.
| Scenario | Cash flow | Cap rate | Debt constant | DSCR limit | LTV limit | Binding gross proceeds |
|---|---|---|---|---|---|---|
| Base | $600,000 | 6.0% | 8.0% | $6,000,000 | $6,500,000 | $6,000,000 |
| Income down 10% only | $540,000 | 6.0% | 8.0% | $5,400,000 | $5,850,000 | $5,400,000 |
| Payment factor up only | $600,000 | 6.0% | 9.0% | $5,333,333 | $6,500,000 | $5,333,333 |
| Cap rate up only | $600,000 | 7.5% | 8.0% | $6,000,000 | $5,200,000 | $5,200,000 |
| All three together | $540,000 | 7.5% | 9.0% | $4,800,000 | $4,680,000 | $4,680,000 |
The income-only case also changes modeled value because the income-to-value relationship is explicit. It is not a fixed-value scenario. If an actual appraisal uses different income, that bridge must be modeled separately.
Translate capacity into a funding decision
Base net proceeds are $5.88 million, leaving $380,000 above the $5.5 million payoff. Income-only net proceeds are $5.292 million, creating a $208,000 gap. Payment-factor-only proceeds are approximately $5.226667 million, creating a $273,333 gap. Cap-rate-only proceeds are $5.096 million, creating a $404,000 gap.
The combined case produces $4.5864 million net and requires $913,600 of borrower cash. Adding the three isolated gaps would produce $885,333, which is not the combined result. Binding constraints, base cushion and interacting value changes make simple addition unreliable.
Show a signed cash gap, or separately label excess and deficit. A spreadsheet that clips all negative outcomes to zero can hide the amount of available cushion and make two very different scenarios appear identical.
Connect shocks to an observable event
Suppose a major tenant’s weakening demand causes lower collections and slower replacement leasing. That can plausibly affect income and the valuation assumptions for this property at the same time. A broader financing repricing may affect the payment factor as well. This narrative explains why the variables are stressed together; it does not establish their probability or exact correlation.
Avoid combining every imaginable worst case without a decision purpose. A severe scenario can be useful, but its assumptions should be internally consistent. For example, do not reduce income for a vacancy and then deduct the same lost rent again as a separate cap-rate adjustment described as an income loss.
Use dated evidence for the base and an explicit rationale for each change. Sources may include executed leases, collections, renewal quotations, actual lender indications and an independent valuation. Keep judgmental stresses visibly separate from observed facts.
Reverse-solve a manageable response
If the sponsor has $600,000 available for refinancing, the combined case still needs $313,600 more. To fit that cash budget, net proceeds must be $4.9 million and gross proceeds $5 million. With the stressed 7.5% cap rate and 65% LTV, required income is $576,923.08. With the stressed 9% debt constant and 1.25 DSCR, required income is $562,500. The larger value-driven requirement controls.
The gap between $540,000 and $576,923.08 is $36,923.08 annually. Test whether that operating improvement is achievable before maturity; do not count it merely because the reverse calculation identifies it. Alternatively, examine additional equity, a smaller payoff or a different financing structure as separately supported scenarios.
The finished grid should identify the binding test, net proceeds, required cash, cash availability date and action owner for each scenario. Its value lies in showing which combination breaks the financing plan and which specific change could restore feasibility under the stated assumptions.
Sources and evidence
- Federal Reserve — Prudent CRE Loan Accommodations and WorkoutsSection IV Long-Term Loan Workout Arrangements; A Supervisory Assessment of Repayment Ability of Commercial Borrowers; B Supervisory Assessment of Guarantees and Sponsorships · Checked 2026-10-21 · Supervisory analysis of accommodations and workouts; examples and supervisory classifications are not borrower rights or guaranteed loan outcomes.
Source dates and applicability matter. Report an error or a changed source.