What is loan-to-value?

The loan stays the same when the value moves, so the owner’s stake takes the whole change. Lenders set a maximum ratio when they lend, and many loans include tests of it during their life. If the value falls below the loan balance, the loan is larger than the asset behind it.

Say a $100 million building carries a $60 million loan, a 60% LTV. If the value falls to $80 million, the LTV is 75% and the owner’s $40 million stake is now $20 million.

The higher the ratio, the riskier the loan and the less room the owner has if values fall.