The loan to value ratio in commercial real estate, which compares a property's debt with its market value, has moved back to the centre of U.S. property news. The 10-year Treasury rate, the benchmark behind most U.S. property loans, closed at 5.24% on 9 October 2026 and at 5.10% on 15 October, according to Federal Reserve interest rate data. That follows the Federal Reserve's decision on 16 September 2026 to raise its target range for the federal funds rate to 3.75 to 4%, and a Bureau of Labor Statistics report on 14 October that put U.S. consumer price inflation at 3.7% for the year to September.
The ratio matters more for Indian investors than it first appears. Under the Liberalised Remittance Scheme, the RBI does not envisage banks lending to resident individuals for capital account remittances, so most Indian investors put their own cash into U.S. property. The borrowing still happens, but it sits inside the deal, at the level of the building, where the investor rarely sees it. Understanding how U.S. property types and markets behave is one half of judging a deal, and the loan behind the property is the other.
What the Loan to Value Ratio in Commercial Real Estate Measures
The loan to value ratio, often shortened to LTV, divides the outstanding loan on a property by its appraised market value. A building worth US$10 million that carries a US$6 million loan has borrowed against three fifths of its value. The lender is repaid first from that value, and the owners, who supplied the equity, hold whatever remains.
The ratio can change even when nobody signs a new document. The loan balance falls slowly as principal is repaid, or not at all if the loan pays interest only. The value, by contrast, is re-estimated by appraisers and can move quickly when rents, vacancy or interest rates change. As a result, a loan that looked modest at purchase can become large relative to the building a few years later.
Lenders read LTV alongside two other measures. Loan to cost compares the loan with the total cost of buying and improving a property, which matters most for renovation and development. The debt service coverage ratio compares the property's net operating income, meaning rent left after running costs, with the yearly loan payments, and shows whether the building earns enough to pay its lender.
Why Higher Rates Put Pressure on Leverage
Higher interest rates affect a borrowed-against property in two ways at once. They raise the cost of new or floating-rate debt, which leaves less income for owners after the lender is paid. They also tend to lower what buyers will pay for a given stream of rent, because buyers compare property income with what safer assets such as Treasury bonds now pay.
The second effect is the one that moves the loan to value ratio. When values fall and the loan stays the same, the ratio rises. If the building above were revalued at a fifth less, the same US$6 million loan would cover three quarters of what it is worth, and the owners' share would shrink far faster than the building's value.
This is why the ratio at purchase tells only part of the story. A deal bought with moderate borrowing at a high price can carry heavy borrowing today, without the sponsor, the real estate deal sponsor who runs the property, having borrowed a single extra dollar. For that reason, an investor reads a deal's LTV as something that changes with the market, not as a fixed number.
What Happens When a Property Loan Matures
Many U.S. commercial property loans are not repaid gradually over their life. They end with most of the balance still owing, which the owner clears by refinancing with a new lender or by selling the building. The maturity date is therefore the moment when the market tests the property's capital structure.
Refinancing is where the loan to value ratio becomes decisive. A new lender sizes its loan against today's value and today's income, not the figures from the original purchase. If value has fallen or rates have risen, the new loan may be smaller than the old one, and the owners must add equity, sell or negotiate an extension with the existing lender.
Recent data shows where this pressure appears. Trepp, which tracks loans packaged into commercial mortgage-backed securities, said the delinquency rate on those loans reached 8.02% in September 2026, its highest level since late 2020, Scotsman Guide reported on 6 October. Office loans stood at 12.16% and multifamily loans at 8.04%, and Trepp said four of the five large loans behind the rise had earlier missed their maturity payoff dates. The figures cover one segment of the market rather than every property, but they show that stress tends to surface when a loan must be repaid.
Lending has not stopped. MSCI data reported by CRE Daily on 1 October 2026 put the average loan to value ratio on U.S. commercial property loans at 65.9% in the first half of 2026, higher than a year earlier, as banks and debt funds competed for deals. In practice, credit remains available for properties with steady income, while weaker buildings face tougher terms.
Where the Debt Sits for an Indian Investor
The structure explains why Indian investors rarely see the loan directly. Indian investors and other offshore investors invest through a U.S. corporation, known as a blocker, that holds the property interest, and they typically receive Form 1042-S for their distributions. The way this blocker structure is taxed in both countries is a separate subject, but the mortgage itself is normally taken by the entity that owns the building, below the blocker.
That arrangement means an investor's name does not appear on the loan, and the loss is usually limited to the capital invested. Limited liability is not the same as limited risk, however. Because the lender is paid first, a fall in value or a failed refinancing reaches the equity before it reaches the lender, and the equity is where the investor's money sits. Some lenders also ask the sponsor for guarantees on parts of a loan, which changes the sponsor's incentives but does not shield investors, as personal and corporate guarantees in real estate shows in more detail.
The LRS rule adds a second layer. Because the scheme does not envisage bank credit for capital account remittances, according to the RBI's frequently asked questions on LRS, an investor cannot easily borrow to support a struggling deal. If a sponsor asks investors for more capital to close a refinancing gap, any new contribution must come from the investor's own funds and fit within the US$250,000 limit for the financial year.
Risks and Limits of Borrowing in U.S. Property
Borrowing magnifies whatever happens to the property, and the risks below apply to any loan on a private U.S. building. Each one deserves a direct answer in the offering documents before money leaves India.
- Loss of capital. A fall in value hits the equity first, and a heavily indebted property can lose all of its equity before the lender loses anything.
- Refinancing risk. A loan that comes due when values or credit conditions are weak may not be replaced in full, which can force a sale, a capital call or a handover to the lender.
- Distributions not being paid. Loan payments rank ahead of distributions, so higher interest costs or lower rent can leave nothing for investors.
- Illiquidity. Private property interests are hard to sell before the property is sold, so an investor cannot easily step away when debt pressure builds.
- Currency movements. The loan and the rent are both in dollars, but the investor measures the outcome in rupees, and movements between the rupee and the dollar can widen or narrow any gain or loss.
A lower ratio does not make these risks disappear. Moderate borrowing gives a property more room to absorb bad news, but a building with no debt can still lose value, lose tenants or stop paying distributions.
Reading the Loan Before the Building
Higher U.S. rates have not changed what makes a property sound, but they have raised the cost of a weak capital structure. For an Indian investor, the loan to value ratio is the simplest window into that structure, because the investor's own money carries no debt while the deal it funds often does.
The useful checks are concrete. They are the current ratio based on a recent valuation rather than the purchase price, the date the loan matures, whether its rate is fixed, floating or capped, and what refinancing at today's rates would mean for distributions and for the equity. How these checks differ across property types and cities is set out in the U.S. real estate market guide. Eligible investors can review how investing in U.S. real estate from India works on Raveum, including the property, sponsor, ownership structure, fees, risks and offering documents for each opportunity.
Frequently Asked Questions
How Is the Loan to Value Ratio Calculated?
The loan to value ratio is the outstanding loan balance divided by the property's current appraised value. A US$6 million loan on a building valued at US$10 million means the loan covers three fifths of the value. The ratio changes whenever the loan is repaid or the property is revalued, so investors should ask which valuation date it uses.
What Is a Good Loan to Value Ratio for Commercial Real Estate?
There is no single right level, because it depends on the property, its income and the loan terms. As market context, MSCI data reported by CRE Daily put the average on U.S. commercial property loans at 65.9% in the first half of 2026. A lower ratio leaves more room for values to fall before the owners' equity is lost.
What Happens If a Property Is Worth Less Than Its Loan?
When a property is worth less than its loan, the owners' equity has no value on paper and refinancing usually becomes very hard. The owners may add capital, negotiate with the lender, sell at a loss or hand the property to the lender. Investors who hold the equity can lose their entire investment in that property.
Can Indian Residents Borrow to Invest in U.S. Real Estate Under LRS?
According to the RBI's LRS FAQs, the scheme does not envisage banks extending fund or non-fund based facilities to resident individuals for capital account remittances. Investments in U.S. property are therefore usually funded from the investor's own money, within the US$250,000 limit per financial year, while any borrowing happens inside the deal itself.
Is an Indian Investor Personally Liable for the Loan on a U.S. Property?
In a typical private structure, the loan is taken by the entity that owns the building, and investors hold shares in a U.S. corporation above it, so their names are not on the loan. Their exposure is usually limited to the capital invested, although the offering documents and loan terms should be read to confirm this.
What Is the Difference Between Loan to Value and Loan to Cost?
Loan to value compares the loan with what the property is worth today. Loan to cost compares it with the total spent buying and improving the property, including renovation or construction. Lenders use loan to cost mainly for development and renovation projects, and loan to value for completed buildings with steady tenants and an established rent roll.
This article is for general education only and is not investment, tax or legal advice. Rules change and depend on individual circumstances. Investing in private real estate involves risk, including loss of capital, illiquidity, falling property values, distributions not being paid and currency movements. Participation is limited to non-U.S. persons under SEC Regulation S and verified U.S. accredited investors under Regulation D Rule 506(c), and offerings on Raveum are not open to the general public.
