I was speaking with a client just the other day.  He had a multifamily deal that required about $20M of equity.  His plan was to get about $40M of debt (i.e., 2/3rds leverage).  The target IRR return for the deal was in the mid-teens.  Sound straightforward enough?
However, right now, there are not that many investors that want to do that deal.  Part of the reason is that the cost of the debt is just too high.  It could be over 6% and even hit 7%, so it is hard to get the capital for a deal like this to make sense.
Then I asked him, “What would the total projected return on the deal – i.e., the IRR -- be with no leverage at all?”  He said about 10%-ish, and then it hit me….kind of obviously…..why are we seeking leverage if it is so expensive?
I mean, if you asked me personally to write a check that had a 15% target IRR with two-thirds leverage or a 10% target IRR with zero leverage, it would be a no-brainer for me.  I would take the latter deal any day.  There is close to zero risk – as long we aren’t overpaying.  Plus, the odds are that someday interest rates will drop – and the cost of leverage will drop, and we can get financing when financing is less overpriced.
Another way to look at it is to think that for any deal – just as you analyze the cost of bricks and things – you also analyze the cost of leverage.  If the cost is too high, you try to find a way to avoid it or minimize it.  Right now, leverage costs a ton, so maybe go all-cash till the cost drops. 
So – my point here – is to consider this option if you haven’t already.  This is super obvious, I guess, but I don’t see it happening that much in the market.  Actually, I don’t see it happening at all, so maybe it isn't that obvious after all.  And maybe the reason is that people think their investors are spoiled to demand 15% IRR when they might jump at 10% without leverage risk.   
By the way, the counterargument is that if interest rates keep rising, then cap rates will fall, and you could still lose money; however, I am confident no one has a crystal ball on interest rates, and the loss with no leverage would be a lot less than the loss with leverage in percentage terms.
And here is a kicker additional idea if you are considering this the no-leverage concept. Consider a PACE Loan! 
If you are not familiar with PACE, I suggest that you should learn about it and put it in your arsenal. Here is a quick primer on PACE if you are not familiar with it, and here is a super-quick summary: 
Notably, PACE (property-assessed clean energy) financing provides property owners with loans to finance (or refinance in retroactive PACE) 100% of the cost of energy-saving/carbon-reducing improvements (think solar, energy-efficient windows, etc.).  Unlike “regular” loans, PACE financing is very long-term (i.e. 25-years-ish) and self-liquidating, plus it is like your property taxes and upon a default, is not accelerated (a default is cured by paying the then outstanding assessments plus any applicable penalty or late interest).  The big impediment to PACE is that it primes first mortgages.  Therefore, lenders often aren’t in love with it.  However….drum roll… if, as aforesaid, you aren’t getting a first mortgage, then this concern drops away.  The other impediment is that the amount of a PACE loan is limited by the amount of “green” improvements which exist at the property that will qualify for  PACE financing.
My law firm – Adler & Stachenfeld LLP – is doing a ton of work in this Pace Space, so to speak – and dare I say, we are one of the legal industry leaders for PACE.  And PACE is not small potatoes either, as some of the loans we are handling for clients are over $200M.  And yes, we can introduce you to PACE lenders if you like. 
So these are two ideas that may help deals get done in this tricky market.


Bruce Stachenfeld aka The Real Estate Philosopher®