Question 1

Why are Miami commercial properties in DSCR breach when the market is performing well?

Accepted Answer

Miami's DSCR breach phenomenon is one of the most counterintuitive situations in commercial real estate in 2026. Properties are running at 85-90% office occupancy or strong hotel RevPAR - but the debt service on 2021-2022 floating-rate loans has increased so dramatically that even solid operations cannot cover the interest load. A property with $3M annual NOI at a 4.5% cap rate was underwritten with $6M of debt service on a $10M note at 3.5% rates - that property now pays $7.5M in annual debt service at 7.5% rates. NOI has not changed; debt service has increased 25%.

Question 2

Are Miami hotel DSCR breaches different from office DSCR breaches?

Accepted Answer

Hotel DSCR breaches in Miami have a dual character: some are pure capital structure issues (good RevPAR, too much debt), while others are operational issues (RevPAR recovery incomplete, operating cost inflation, renovation deferred maintenance). Hotels with purely capital structure DSCR breaches are better acquisitions - you are buying a sound operating business at a forced-seller price. Hotels with operational DSCR breaches require more careful due diligence - you need to assess whether the RevPAR shortfall is cyclical or structural and whether the operator can be replaced.

Question 3

What documents should I request for a Miami commercial DSCR breach acquisition?

Accepted Answer

Request the most recent 12-month trailing operating statement, the current rent roll (for office/retail) or STR report and channel mix data (for hotel), the original loan documents with cash trap trigger definitions, all loan modification agreements and forbearance letters, the most recent DSCR calculation prepared by the master servicer (for CMBS loans), and the current lender-held reserve account balance. The reserve balance is critical: properties that have been in cash trap are accumulating reserves - understanding where that cash sits and what it can be used for affects acquisition price and capitalization planning.