Publications

- July 1, 2017: Vol. 11, Number 07

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A balancing act: Leverage, a dirty word no more, is at “appropriate” levels

by Sheila Hopkins

Finding the right level of leverage for a property or portfolio is a question tackled by investors and managers every time a property is acquired. Some investors come down on the side of “no leverage is good leverage” while others are happy to load on as much debt as banks and debt funds will give them. Most, though, look for that perfect sweet spot — enough leverage to boost returns, yet not so much to increase risk. Finding that elusive balance has been the Holy Grail for investors and the theme of research papers going back at least 20 years. The late Nick Tyrrell published several papers that outlined his attempts to find equations and algorithms that would provide an objective way to determine the optimal level of leverage for any asset or portfolio. In one of those papers, Leverage in real estate investments: an optimisation approach, written when he was head of research and strategy at J.P. Morgan Asset Management – Global Real Assets, Tyrrell not

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