Cash Sweeps

Cash Sweep: In the context of real estate and finance, a cash sweep is a clause that is typically included in loan agreements or investment agreements where any excess cash flows from the property or investment are used to prepay the outstanding loan or return capital to the investors, rather than being distributed as dividends or reinvested in the business.

The purpose of a cash sweep is to accelerate the repayment of the loan or the return of capital to investors, thereby reducing the risk to the lender or enhancing the return to the investor. The specific terms of the cash sweep, such as the trigger events or thresholds that initiate the sweep and the percentage of excess cash flows that are swept, can vary widely and are subject to negotiation between the parties.

In a financial model for a real estate investment, the cash sweep mechanism can have a significant impact on the projected cash flows to the equity investors and the calculated returns on investment. Therefore, accurately modeling the cash sweep is an important aspect of real estate financial modeling.