The term “unlevered” or “unleveraged” refers the state of a real estate investment, cash flow, or financial metric without (or before) the use of debt. The term unlevered (or unleveraged) is often used in conjunction with certain financial and return metrics, such as unlevered IRR or unlevered Equity Multiple. Likewise, unlevered cash flow refers to cash flow without (or before) debt.

Putting ‘Unlevered’ in Context

Imagine Puget Green Residences, a (hypothetical) newly built market-rate apartment complex located in the bustling heart of Seattle, WA. This property, featuring 200 modern units, amenities such as a fitness center, rooftop terrace, and underground parking, represents a typical core investment targeted by GreenSpruce Core Fund, an open-end diversified core equity fund (ODCE fund).

The Investment

GreenSpruce Core Fund specializes in acquiring stable, high-quality assets in prime locations with minimal risk. Puget Green Residences, with its high occupancy rates and consistent rental income, fits perfectly into their investment strategy. The fund decides to purchase this property for approximately $80.98 million, aiming to maintain a stable cash flow from rents which average $2,500 per unit per month.

Financial Overview without Leverage

In an “unlevered” scenario, the purchase of Puget Green Residences is made without the use of debt. This approach provides a clear picture of the property’s intrinsic financial performance, eliminating the risk and return distortion created by leverage.

Unlevered Cash Flows

  • Annual Rental Income: $6 million (200 units x $2,500/month x 12 months)
  • Other Income (e.g., parking, pet fees, cable income): $200,000 annually
  • Vacancy Rate: 5% of potential rental income ($300,000)
  • Effective Gross Revenue: $5.9 million ($6 million + $200,000 – $300,000)
  • Operating Expenses: $1.77 million (30% of Effective Gross Revenue)
  • Net Operating Income (NOI): $4.13 million per year (Effective Gross Revenue – Operating Expenses)

Unlevered Returns

Unlevered Yield (Cap Rate): 5.10% (NOI of $4.13 million / Purchase Price of approximately $80.98 million)

Unlevered IRR: The fund targets to achieve a minimum 6.5% unlevered IRR, calculated based on operating income and the appreciation of the property value over the expected 10-year hold period.

Investment Strategy

GreenSpruce Core Fund aims to hold Puget Green Residences unlevered given the low risk (core) nature of their investment strategy. This strategy aligns with the fund’s preference for lower-risk, lower leverage (~30% across the portfolio), stable return, and simplifies financial analysis of the property.


Investing unlevered allows GreenSpruce Core Fund to assess the pure performance of Puget Green Residences without the complexity of financing. This simplifies the investment analysis and risk assessment, providing transparency for fund investors looking for stable, low-risk returns.

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