​A seasoned real estate finance executive based in Wilmette, IL, John Hofmann holds an MBA in finance and management from Northwestern University. With over two decades of industry experience, he serves as the senior vice president of KeyBank Real Estate Capital in Chicago. In this position, Wilmette resident John Hofmann leverages his comprehensive knowledge of market trends, financial analysis, and risk assessment to originate commercial real estate loans.

One of the major terminologies in the commercial real estate sector is debt service coverage ratio (DSCR). DSCR is very similar to debt-to-income (DTI) in residential mortgages, which is based on a percentage of a mortgagee's income that is poised to service their home loan. The main difference between DTI and DSCR is that the latter is associated with commercial real estate and is a percentage of the income the commercial property generates.

DSCR is a critical element of commercial real estate loan contracts. Lenders use DSCR to evaluate a borrower's ability to repay a loan based on the performance of the asset. DSCR is a percentage of a property's income excluding the cost equivalent of operating expenses and other financial obligations.

For instance, consider a scenario where the annual debt to service for a commercial property mortgage is $200,000 and the lender requires a DSCR of 1.2. In this case, the lender would expect the property to generate $240,000 after deducting expenses such as utilities, insurance, and taxes. This ensures that the property generates sufficient cash to cover its expenses and mortgage payments, with an additional cash buffer for unexpected expenses.

Properties with a DSCR above 1.0 can hypothetically repay the mortgage in full from the income generated. A higher DSCR also points to a lower risk of defaulting on the mortgage.

​Wilmette, IL resident John Hofmann holds an MBA in finance and management from Northwestern University and a BS in finance from Miami University. He is the senior vice president of KeyBank Real Estate Capital in Chicago. Recently, John Hofmann discussed how the real estate industry has remained resilient despite the economic downturn caused by the COVID-19 pandemic.

The pandemic initially hit the commercial real estate sector hard, particularly properties held for investment. But since late 2020, the market has been rebounding, with industrial and residential properties seeing a global price surge, while retail and office properties, which were hit the hardest, are starting to stabilize. This recovery demonstrates the sector's resilience in different areas.

Brick-and-mortar stores in the retail sector have demonstrated an impressive rebound, proving their viability to lenders. Although there was uncertainty initially, some retailers restructured their balance sheets by reducing their debt burden and improving liquidity, enabling them to successfully weather the pandemic. Their survival has bolstered banks' confidence in underwriting retail spaces.

Like other sectors, real estate companies have ramped up their digital innovation efforts, redefined their business processes and models, and embraced predictive analytics to inform their decision-making. By leveraging these tools, they have gained а deeper understanding of market trends and consumer behavior, enabling them to make data-driven decisions and quickly adjust their strategies in response to the pandemic's impact.