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The most outrageous leveraged deal in recent years was the buyout of the quoted company Green Property in 2002. The equity portion of the “take private” was a mere €34m. After delisting, the buyout vehicle carried an astonishing debt of €1.5 billion, and the business was paying €110m a year in interest.

A massive asset disposal programme, masterminded by Stephen Vernon, the chief executive, halved debt levels. At a secondary buyout last September, the backer Merrill Lynch cashed out, reaping a 125% return on its €17m equity investment. That’s leverage.

“About 20 years ago, the market was dominated by institutions who bought entirely through equity,” said Vernon. “In the last 10 years a new model has emerged — the highly leveraged model. Even the institutions themselves are highly leveraged now.”

The principle of leverage is simple. An Irish builder buys an office block in London for €100m. He borrows €90m and invests €10m of his “own” money. The rent from the office building covers the interest on his loans. In two years, the Irish builder sells the office block for €105m. The value of the asset has only risen 5%. Yet the builder has made €5m on a €10m investment or a return of 50%. This is, in the simplest of terms, the beauty of leverage.

“For a professional investor interested in commercial property investment, the level of debt taken, is really a reflection of his wealth and the degree of risk profile that he is willing to take on,” said John Kevill, a London property adviser with Lancer Asset Management. “The higher the levels of debt are, the higher the risk to the investor’s equity.”

The flip side of the huge rewards associated with leverage is risk. If the value of our notional builder’s London office block were to fall to €90m, for example, he will lose all his money.

The danger for any leveraged deal, more than rising interest rates, is to overpay.

THE London commercial property market, home to a very large chunk of Irish investors’ leveraged bets, is looking choppy. Office rental values in the City of London, the touchstone of the capital’s market, have fallen 50% in the last four years and vacancy levels have pushed up to 15%.

Yet prices have continued to rise, pushed higher by a “wall of money”. Institutional investors are back in the market, jostling with Irish and German investors.

The movement of the market against such blatant fundamentals has given rise to talk reminiscent of the tech bubble.

“Perhaps this time the mould has been broken and the market is better able to ignore bad news,” wrote Paul Leonard, Bank of Ireland’s London property finance director, recently.

“Commercial property yields were about 6.6% in the UK at the end of April, which is the lowest we have on records that go back as far as 1981,” said Mark Callendar, a research director at Investment Property Databank (IPD). “Based on anecdotal evidence, yields are at their lowest levels since the 1960s.”