Leverage cuts both ways
Borrowing lets an owner control a larger asset with less equity. When values and rents rise, debt magnifies the return on that equity. When they fall, it magnifies the decrease in returns. The more of a building that is financed, the more sharply returns can fall when values or rents soften.
Debt also has to be paid every month, whether a building is full or half empty. That fixed cost is what turns a soft patch into a crisis for highly leveraged owners.
Our view is simple: leverage is a useful tool in multifamily real estate, whether you are developing or acquiring, but it should be used with prudence and sized to withstand downside scenarios, not just the best case.
Building: a little more leverage, for a defined period
Development has a beginning and an end. During construction, a building earns no rent, and the cost of capital matters a great deal. Construction debt is typically cheaper than equity, so carrying slightly more of it helps us get through the development period at a lower overall cost.
For our development projects, we aim for around 80% loan-to-cost. That is well below what the market will offer. CMHC’s MLI Select program can finance qualifying rental projects at up to 95% of cost. We choose not to stretch that far.
Once a building is complete and leased up, we aim to bring leverage down to around 60% loan-to-value. Much of that happens naturally: a completed, leased building is worth more than it cost to build, reflecting the development and lease-up risk taken on to create it. The same loan becomes a smaller share of a larger value. The higher leverage is a bridge through construction, not a permanent feature of the asset.
Buying: lower leverage for the long hold
When we acquire an income-producing building, the job is different. The building already earns rent, and our goal is to hold it for the long term and pay steady distributions. Here, we aim for 40% to 55% loan-to-value.
Today’s rate environment makes that discipline more important. In many markets, apartment buildings are trading at yields at or below the cost of borrowing, a situation known as negative leverage. A 2026 CRED iQ review of newly issued U.S. commercial mortgages found multifamily loans carrying interest rates slightly above the yields of the buildings they financed, and Canadian markets face similar pressure. When that happens, every extra dollar borrowed reduces the investor’s return rather than adding to it.
Stronger debt coverage, more room for error
Lenders measure safety with the debt service coverage ratio: a building’s net operating income divided by its annual mortgage payments. A ratio of 1.0 means the building earns just enough to pay its lender. Anything above that is cushion.
A smaller loan means a smaller payment and a bigger cushion. That cushion is what lets a building absorb a rise in vacancy, a jump in insurance premiums or property taxes, or an unexpected repair, without putting the loan at risk. It also leaves more cash available for distributions.
Less exposure to interest rates
Most commercial mortgages are not fixed for the life of the loan. They are renewed every five to ten years at whatever rates prevail at the time. An owner who borrows heavily when rates are low can face a much larger payment at renewal.
Lower leverage limits that exposure. A smaller balance means a rate increase changes the payment by less, and a larger equity cushion means lenders are willing to renew even if values have dipped. Highly leveraged owners in that position may be forced to inject new capital or sell at the wrong time. We take the long view: we build and buy to hold for decades, and conservative debt means the timing of a sale is always our choice, never the market’s.
The trade-off
More leverage can lift returns in a rising market, and some investors will always chase that. We accept a little less upside in good years in exchange for much more resilience in difficult ones. We think that is the right trade-off, because we invest with the long view in mind.