...Not only is debt historically expensive, it's also exceedingly difficult to obtain. Dysfunctional capital markets are currently so debilitating to certain deals that some developers and operators are opting to forego using debt altogether. In industry parlance, we refer to this strategy as “unlevered” and it is something we haven’t particularly seen deployed for anything other than core real estate since the Great Financial Crisis (“GFC”).
The resulting market behavior is significant because when buyers who would normally utilize debt begin to transact without it, it can often signal the bottom of a real estate cycle. To the extent I see more unlevered transactions occur in 2023 the more conviction I will have that true market clearing price discovery is occurring and that a floor is forming under asset prices.
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