Just wondering about this, does it ever make sense to not use any debt for a real estate project? Say for example, you're having a difficult time deploying capital because cap rates are super low, but you've found a decent investment. So you want to deploy as much of your equity as possible, you're not worried about being able to invest in another project because other projects are not offering good returns.
Lets assume you have a $500M equity portfolio, and this project is $20M in value.
Does diversification concerns stop you from going all equity?
Do the tax benefits of debt make it worthwhile in this situation?
I just threw out some numbers as an example, I'm interested in the theory behind this
I think it makes sense in the following cases (most of which have been explicitly/implicitly explained, but in summation:
-You use the ability to close all-cash as a differentiation/way to expedite closing. Most of these groups will then tack on debt post close at the portfolio level (have a relationship with a lender or a revolving credit line/debt pool).
-You are at a large family office that has enough money to close all-cash and would rather own outright than deal with the risk/head trauma of the debt.
-You like the deal but the returns on the project vs. the debt are upside down (i.e., the debt would be dilutive to the deal). Seeing this a lot in industrial and multifamily right now since the cap rate compression has approached ludicrous speed.