Lenders love cash flow

By Ricky Lyons in : Champion Culture, Culture Thoughts, News, Ricky@Champion // Aug 16 2010

In today’s real estate world we are in juxtaposition for loans and equity between cash flow and replacement costs.

Lenders love cash flow and investors love replacement costs.

These two concepts can work well together. When looking for value-added projects, Champion looks for projects that carry debt service with the existing cash. Our investors, however, focus on percentage of replacement costs.

The juxtaposition can be a good place to be. If we achieve projects at a lower than replacement cost basis acceptable to the investor, which in turn has cash flow acceptable to the lender, then we may well have a partnership between the lender, the investor and ourselves. This is ideal and what we strive to achieve.

Much activity exists in the marketplace. Very few good deals exist. In many ways we all hope that the opportunity for value-added projects leaves the marketplace as early as possible so that the rents return to the level existing prior to 2006 – 2007. In the meantime, locationally sustainable projects are available if properly weeded out.

The trick is threefold.

First, is the project locationally sustainable? Second, does it have cash flow – real cash flow from tenants who are able to continue to pay? Lastly, is it being bought at a cost well below replacement cost to get the investor comfortable?

Find a project with these three assets and you find yourself a gem. And then call us – we’d like to take a look as well!

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