Abstract
The availability and market cost of debt and the debt-to-equity financing decision affect real property values. Depending on the extent to which required market returns move together, a change in interest rates on debt may change the required return to equity used in capitalizing operating cash flows. The clustering of debt-to-equity ratios suggests that there are benefits to debt. The major benefit for corporate investors is the interest tax shield. As for the individual investor, deviations from the investor's optimal debt-to-equity ratio will adversely affect the cash flow during the period of ownership. There may be adverse effects on future transaction prices attributable to the sub-optimal decision.