What Beyoncé and These Billionaires Have in Common: Massive Mortgages



Photo by Mark Davis/CBS via Getty Images



Entertainers Beyoncé and Jay-Z and billionaire hedge-fund executive Ken Griffin have something in common: They are among a small but growing number of ultraluxury home buyers who are borrowing tens of millions of dollars for home purchases.

The trend bucks the tradition of the ultrawealthy paying cash for their super-pricey homes. Mortgage experts attribute the shift toward so-called “superjumbo loans” over the past couple of years to rising real-estate prices across the country and the historically low interest rate environment, which encourages wealthy buyers to borrow against their real estate to free up cash to invest elsewhere.

Beyoncé and Jay-Z financed their $88 million purchase of a sprawling contemporary mansion in Bel-Air last year with a $52.8 million mortgage from Goldman Sachs, public records show. The initial fixed rate interest payment is 3.4%, but the rate becomes adjustable starting in 2022, meaning the couple will likely have monthly payments of more than $200,000 from the outset, a mortgage expert estimated. Mr. Griffin has taken out more; through a limited liability company he took out two mortgages which combined total approximately $114 million for the construction of his Palm Beach home in 2016, public records show. JP Morgan Chase issued the debt.

When Daryl Katz, the billionaire owner of the Edmonton Oilers hockey franchise, paid $85 million for a Malibu, Calif., compound earlier this year, he took on a $47.45 million, 30-year mortgage from UBS Bank USA, property records show. Mr. Katz is likely making monthly payments of over $200,000 a month on the loan, if it follows typical guidelines, mortgage experts said. The borrowers and banks involved in the transactions involving Beyoncé and Jay-Z, Mr. Griffin and Mr. Katz declined to comment.

While the total number of these mega-loan borrowers remains small in comparison with the overall market—senior banking executives said the big banks only do a handful each year—the number is inching up.

Of the 233 mega-loans priced between $10 million and $20 million with balances currently outstanding across the country, almost 23% were originated in 2017, and nearly 16% were originated this year, according to data from real-estate research firm CoreLogic. A disproportionately large number of the loans—123—originated in California, according to Frank Nothaft, CoreLogic’s chief economist. In comparison, 40 of the loans were originated in Florida, and 31 were originated in New York.

Real-estate agents familiar with eight-figure home sales said financing rarely plays a role when it comes to negotiating the deal. Rather, the debt is often added after the closing.

“They might get financing privately or later, to take advantage of the lower rates, but the deal is never contingent upon financing, and I’ve never seen the financing discussed as part of the deal,” said Vanessa Kitchen of Pacific Union International in San Francisco. “I do think that plenty of buyers who are in the financial sector believe that with the lower rates, especially a few years ago, it would be silly not to finance as much as possible of a large deal.”

In the cases of prominent high net-worth individuals, these loans are often issued by traditional banks, such as Goldman Sachs and JPMorgan Chase, industry executives said. For the banks, these loans are a means of keeping valuable customers, some of whom may have tens of millions invested with the bank, happy, said Jon Maddux, CEO of FundLoans, a San Diego, Calif.-based lender that issues more than 20 large loans each year.

“If you have a client who has $50 million with your bank, you would do everything you can to keep them from taking that money out,” he said.

“If you have a client who has $50 million with your bank, you would do everything you can to keep them from taking that money out,” he said.


There are risks associated with issuing so much debt on one single-family property. Several people at one major bank said the largest institutions require low loan to value ratios and multiple appraisals before lending on a property. They also monitor real-estate markets across the country to determine where prices are moving.

For borrowers who don’t have a strong relationship with a traditional bank, a small network of lenders like private-equity funds and hedge funds are willing to issue debt on megamansions, albeit for a higher interest rate. One instance of a private-equity firm lending on a private mansion is Fortress Investment Group’s loan on Michael Jackson’s Neverland Ranch in the mid-2000s. Mr. Maddux said interest rates on such loans today can be 6% or more if a borrower is considered risky.

Robert Cohan of Carlyle Financial, a mortgage bank based in San Francisco, said private funds evaluate these opportunities on a case-by-case basis, and will often be willing to work with unique situation borrowers like athletes, entrepreneurs and the self-employed.

Big Loans

While the total number of these mega-loan borrowers remains small in comparison with the overall market, the number is inching up.

  1. 233 mega-loans are priced between $10 million and $20 million with balances currently outstanding across the country, almost 23% were originated in 2017 and nearly 16% were originated this year, according to data from real estate research firm CoreLogic.

  2. 123 of those loans originated in California, according to Frank Nothaft, CoreLogic’s chief economist.

  3. 40 of the loans, by comparison were originated in Florida.

  4. 31 of the loans originated in New York. Many states registered no loans in excess of $10 million.

The post What Beyoncé and These Billionaires Have in Common: Massive Mortgages appeared first on Real Estate News & Insights | realtor.com®.

Source: Housing Trends Feed

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