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a lot of public REITs essentially fund their deals all cash and don't get construction financing since their cost of capital is so much lower than what the banks charge. not the purest form of an all cash investment but they basically just borrow off their corporate line of credit.
increasingly prevalent though as construction financing is getting tougher with a lot of deals maxed out at 50 or 55% LTC and rates/spreads that are pushing well over 5 or 6% all-in. when your cost of equity is only a few % higher it becomes palatable at a certain point.
Interning in a brokerage firm I saw tons of 20MM+ deals paid in straight cash.
This was probably either 1031s or just all cash deals. Often to win the deal it's not just the best offer($), but the best terms. Very few sellers in major markets want to risk the sale on a financing contingency clause and have the buyer not get the financing.
Often all cash buyers will refi out their proceeds after the purchase. Either straight refi or perhaps an earn out if they have to make minor renovations to increase the value..
You know that is one thing I learned at a brokerage shop. The best deal for the client isn't always the highest, but making sure they understand that is the hard part.
I don't have a model for an all cash deal but it would be incredibly simple to recreate.
All cash for a $500mm cap is an odd strategy though. Do you know if it has a case study or write up as to why?
I know the equity was funded by one billionaire and they decided to purchase land and develop all cash. The Miami river is a highly speculative area and it is especially risky to build ultra lux condos there. I'm assuming they would have never secured debt financing and this was the only way to do the deal.
refuturemogul is 100% correct.
With a 4.5% cap rate and a 4.5+% interest rate, your leverage is negative (that is, it produces negative cash flow after debt service), so yeah, cash flow investors could definitely prefer all-cash. The organization I work for averages only about 20% leverage on deals because we (well, they) hate the negative leverage of debt.
A good point, but you would hope you could lock in cheaper LT financing on the type of asset that's trading at a 4.5 cap though
Even a 3.75% interest rate carries a 6.17% loan constant on a 25-year am schedule, so it is usually going to be negative leverage, at least early on. Of course, most investors hope to grow into positive leverage plus they measure their returns by ROE. Nevertheless, the math shows why there may be a market for cash-only investing.
Many Chinese and Middle eastern funds we did business with were all cash buyers. They had too much money and no idea what to do with it, they definitely did not need debt.
I'll assume this was for a 1031 exchange. Massive size but I have seen bigger; especially if this was a buy after dumping a large portfolio.
Cash is the best way for the real state that buyer easily works start of construction.But cash is big income that has pay every person and is giving some discount offer of cash Payment for real estate and builders.
^ this
Cash is big income!
I mean cash has a pretty low cost of capital, so why not?
Well debt should be way cheaper if we're talking about real estate investments
Cash is enormous income for real estate top builders in Mumbai.
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