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Liquidity is a critical source of flexibility for commercial real estate investors, helping them stay ready to seize opportunities or overcome challenges.
“It gives them the power of choice, and that’s what a lot of clients are looking for,” said Witness Yi, Treasury Services Manager for Commercial Term Lending.
Having too much idle liquidity comes with opportunity costs. But approaching liquidity management strategically helps put those dollars to work, gaining value otherwise left on the table. Here are three ways real estate investors can make the most of their liquidity.
1. Managing liquidity through payments
Lengthening the time commercial real estate investors have access to operating funds gives them more flexibility to use those funds or leverage deposits’ earning potential. That means choosing payment methods that get revenue to their accounts faster and not making outgoing payments earlier than necessary.
“Making funds available for one extra day might sound small, but it’s a change that can add up, especially for real estate investors operating on a large scale,” Yi said.
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Accelerating receivables
One of real estate investors’ most common incoming payments is monthly rent. Online payment methods, such as ACH and credit card payments, typically fund property owners’ accounts more quickly than cash or checks. Offering renters options is good, but it’s worth considering how their preferred payment methods affect liquidity, Yi said.
“As a business owner, you should have a say in how you get paid,” he said.
How investors deposit funds matters, too. For instance, checks deposited with services such as remote capture and lockbox are typically processed more quickly than checks dropped off at a bank branch. Those services have fees but can create value by providing faster funds availability and saving staff time.
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Extending payables
Much like a personal credit card, a business or corporate card program lengthens the time between a purchase and when payment is due.
Beyond helping investors hold on to cash longer, card programs’ liquidity management benefits include:
- Rebate potential: Opportunities to earn rebates or rewards on spending can create additional value.
- Oversight: Cards can include restrictions on transaction types and amounts, helping prevent misuse.
When it comes to outgoing ACH payments, some real estate investors may be able to hold on to funds for an extra day using an ACH credit facility. With a credit facility, the account sending payments must have adequate funds before transactions settle—not when they’re initiated.
“Depending on the client and how closely they manage their dollars, it can help them take further advantage of those dollars,” Yi said.
2. Creating value with liquidity in real estate
Commercial real estate investors often segment cash based on how quickly they expect to need it. Cash positioning and forecasting can help investors understand and manage liquidity needs.
- Operating cash: Cash used for day-to-day operating needs that must be accessible the same day
- Reserve cash: Medium-term cash that could be invested within a year
- Strategic cash: Cash with no expected short-term need that can be invested over a longer term
Operating cash can be challenging to invest because it must remain highly liquid, but it can still create value. Certain operating accounts offer liquidity management solutions that let real estate investors earn interest or credit on balances, including:
- Interest bearing: Funds deposited earn interest.
- Earnings credit rate: Balances earn a credit used to offset fees.
- Hybrid: Up to a certain dollar amount—chosen by the account holder—funds earn credits to use against fees. Any funds above that amount earn interest. Hybrid accounts can be attractive to investors earning a credit that exceeds monthly fees, since unused credit doesn’t carry over to future months.
- Sweep accounts: A sweep automatically transfers amounts exceeding a set level to a higher-earning account at the end of the day. Funds can be invested overnight, then transferred back.
Which option is ideal depends on a real estate investor’s individual situation, including their short- and long-term goals, typical account balances and the interest rate environment, Yi said. For accounts holding renters’ security deposits, it’s also important to consider any local regulations concerning interest earned on those deposits.
3. Update liquidity management plans regularly
Creating a plan to maximize liquidity isn’t a one-time event. Working with a financial institution’s treasury services team to review liquidity management at least annually can help real estate investors ensure their approach meets their needs.
“It should be an ongoing conversation that evolves with market conditions,” Yi says. “The landscape changes quickly, so it’s best to be with a financial institution that has a pulse on what’s happening on a holistic level.”
From cash forecasting to liquidity management, find out how AI can transform treasury management practices.
JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/cb-disclaimer for disclosures and disclaimers related to this content.
