Since the financial crisis in 2008, interest rates have been low and borrowing costs for commercial property similarly low. With such low rates, relatively high yields and seemingly ever-increasing values, many have chosen to use “prudent” leverage (usually combined with “conservative underwriting assumptions”). For some, prudence has meant no leverage at all and for others it has meant taking on debt “only” up to 60% LTV or so. For some, as values have detached more and more from underlying value, leverage levels have been decreased. For others, as historic values have risen, debt has been increased to ensure that the L keeps up with the V. Sometimes that has been done by adopting a debt policy using the concept of “target leverage”, the idea that a particular leverage level should be maintained, seemingly regardless of circumstances, prices or the prospects for individual assets.
Prudent?
Investor's Notebook
