Why Have An $88 Million Mortgage…And Then Buy A $200 Million Property In Cash?

Recently, billionaire popstar couple Shawn Carter and Beyoncé Knowles (better known as Jay-Z and Beyoncé) hit the headlines for their $88 million Bel Air property purchase, despite having purchased the property back in 2017. So, why has a property purchase made six years ago (financed in part with a $52 million Goldman Sachs mortgage) hit the headlines again in 2023 – in the world of celebrity news, isn’t this an old story?

200 Million Dollar House

The answer is the couple’s newest property purchase, a $200 million beachfront property in Malibu. The brutalist concrete property has multiple pools, a private beach, coastal views and is one of the most expensive properties ever sold in America…and the couple bought it in cash.

So, why buy one of the most expensive properties in America in cash, when the couple can clearly get a mortgage?

One thing’s for sure: Jay-Z and Beyonce have absolute star power. Beyonce is currently on a 57-date world tour which is expected to generate anything between $500 and $1 billion in revenue – making it one of the highest grossing tours of all-time. Jay-Z is a rapper, music producer, investor and art collector…and the couple would almost certainly be able to get a mortgage. They also have significant enough wealth that they’d probably be able to play around with options for deposits and assets under management to get an exceptionally good deal to buy an ultra-high-value property. So, why might they not have decided to get a mortgage on their new purchase, and given we know they do purchase properties using finance, why might they have decided to purchase the cheaper property in cash but not the more expensive one, which on the face of it, would make more sense.

Beyoncé and Jay-Z, while best-known for their work in the music industry (Beyoncé as an artist and Jay-Z as a rapper and producer), are also investors and entrepreneurs. Jay-Z has interests in two drinks businesses D'ussé (jointly owned with Bacardi, although he recently sold a share after a legal wrangle) and Armand de Brignac champagne, as well as other companies. Carter was reportedly an early angel investor in Uber, and is also a collector of contemporary art, owning pieces by Basquiat and David Hammons. The couple’s new Malibu home was previously home to art collectors, and the house’s space for hanging art may have been one of the draws of the property.   

The couple’s $52 million mortgage on the $88 million Bel Air property was offered by Goldman Sachs. The couple are thought to have opted for a variable 5-year rate, so the deal may well have been refinanced at some point in 2022. They may also have chosen to pay off the mortgage as it was an interest-only package. Given interest rates in 2017 were much lower than they are currently, and the couple are exceptionally high-quality borrowers with a net worth of more than a billion dollars, they are likely to have access to an exceptionally competitive rate – around 3.4% or less is very possible.

Why Not Get A Mortgage For The $200 Million Property?

Much is being made of mortgage rates in the current market – and rightly so – rates are on the rise and for many homeowners, a significant jump in what they will pay for their mortgage will mean many are feeling the pinch. At the very top of the market, however, interest rates are a consideration, but they’re unlikely to be the difference between taking a mortgage or not. Mortgage rates in the US are averaging around 6%, but to be able to purchase a $200 million home, you can easily absorb these kinds of rates, especially as loan-to-value ratio will sit at around 50%, meaning it would only be possible to borrow around $100 million. On this basis, it’s unlikely that the rate alone would have been the reason why the couple didn’t opt for a mortgage.

Ultimately, we don’t know why Knowles and Carter didn’t partially finance the 2023 purchase of their new Malibu home, but one thing is for certain: it will be a strategic move and they’ll have a plan, carefully assessed and delivered by a group of financial, fiscal and legal advisers. In other words, if the property really was purchased in cash, there will be a reason for it and an net advantage for doing so. The transaction will have taken months to professionally negotiate. A number of specialist advisors for the couple will have had to look at how to optimise the transaction, creation of liquidity and transfer of funds from Carter-Knowles to the sellers, given the couple will have almost certainly needed to liquidate investments or assets to cover the purchase price – they won’t have had this capital sitting in the bank.

Beyoncé is expected to generate revenue (although not profit in exclusivity) of anywhere from $500 million to $1 billion from her current Renaissance world tour, and as a result, the couple may have used income generated from this to purchase the Malibu property as she’ll have had a huge ‘liquidity event’ in the form of a payday from her tour. Jay-Z’s settlement of his D'ussé/Bacardi lawsuit which reportedly netted him some $750 million, may also have financed a some or all of the purchase.

It’s also possible that the couple didn’t take a mortgage for their new property purchase because they have significant (but strategic) debt that they have used to grow other high ROI ventures. The couple have multiple businesses, they invest heavily in securities and startups – both in and outside the music industry - have an interest in art – all of which comes at a significant cost. It’s possible that finance used to support some of these ventures meant that debt-to-income ratio meant that a further big-ticket mortgage on top of the $88 million Bel Air mansion wasn’t an option. Corporate debt, securities-backed lending and private debt are all possibilities for the couple to have used to raise capital to invest in growing their wealth outside of their real estate portfolio.