When considering how much leverage to use with a real estate portfolio, a good risk measure is needed to evaluate the risk-reward trade-off. The Sharpe ratio, which is not very sensitive to changes in leverage, masks the very different risk/return combinations created by various levels of debt. The authors argue that Value at Risk (VaR) is a far better and more intuitive risk measure to use when making leverage decisions. VaR shows portfolio managers a concrete amount they stand to lose over a specified time horizon and within a pre-determined confidence interval. As such, it can be used to set an upper limit on the amount of risk that a portfolio manager is willing to take on when applying leverage. The authors explain that the VaR technique is particularly well suited to institutional real estate portfolios because it captures the full extent of risk for investors less willing to exercise the borrower9s put-option and it incorporates information about correlations across property types and regional economies.