Not even huge PPP loans have relieved the 76-year-old actor’s sudden COVID cash crunch. Lifestyle and leverage are killers.
Robert De Niro keeps working hard in Hollywood because he’s enough of a draw to command big paychecks.
That’s a great thing when Hollywood is humming along. But until his real estate ventures mature, he needs those big paychecks to fund his lifestyle.
After all, when you’ve got an estranged wife and kids to support, the bills can stack up so fast that any glitch in the cash flow becomes catastrophic.
De Niro’s lawyers now claim he can’t pay more than $600,000 a year in support because at best he’s only got $7.5 million coming in this year – and more realistically, the net income to split will hit a third of that level.
If $2.5 million a year isn’t enough to survive a pandemic, you’re probably in over your head, no matter how much you’re worth on paper.
Keep the cash flowing
Admittedly, the lawyers are doing De Niro a favor by talking up his financial stress. They’re trying to make sure spousal support is capped at $50,000 a month.
But the fact that they’re making this argument at all reveals just how far De Niro, who claims he’s worth $500 million, has fallen.
The separation documents originally mandated a $100,000 a month spousal budget, but it was keyed to De Niro earning at least $15 million a year.
That was the level that all parties felt was the baseline a few years ago. Now the lawyers are recalibrating the math from a $7.5 million theoretical ceiling and seeing a steeper cash crunch down the road.
It looks bad. And it is bad. Most of De Niro’s money is tied up in restaurants and hotels in New York City and other hard-hit coronavirus zones.
When those ZIP Codes were booming, he did well. Nobu alone was on track to become a $1 billion brand.
But Nobu lost $2.4 million a month this spring and the other properties haven’t done much better.
That’s bad. While they took PPP money to pay the rent and help employees, there’s nothing for the investors.
Without that cash coming in, De Niro has had to borrow from business partners to make payments elsewhere.
And there are a lot of payments to make. His consortium closed on a $56 million loan to start building their Queens movie studio in February, right before the virus shut everything down.
De Niro isn’t on the hook for all of that money, but his working properties probably played a big role in securing his piece of the loan.
Before the virus, those properties were spinning out enough cash to cover the interest. Now they aren’t.
Ares Commercial Real Estate, the financing company in question, charges an average rate of 6.7% a year on its loan portfolio. Income is down and the stock has cratered.
Very few underwriters would be inclined to be lenient under these circumstances. De Niro and his partners need to stay current.
And to make sure that happens, sacrifices need to be made.
Where the money goes
Back in the golden age of 2018 when De Niro could confidently expect to bring in $15 million a year through his Hollywood activities as well as the real estate, the math was pretty simple.
Figure around $6 million went to tax since we’re looking at New York. Another $1 million went to pay the wife’s credit cards.
That’s at least $8 million to fund his personal lifestyle as well as his investment activities. These are comfortable numbers by almost any standard.
But these aren’t liquid investments. Although the working properties contribute to cash flow, the sprawling movie studio project is unlikely to get up and running for years to come.
Getting to that payoff will take hard work and a whole lot of money. I don’t know if it’s the kind of thing De Niro should have at the center of his financial universe.
Put together some kind of pass-through structure and let the kids call the shots for the generation to come. Pour as much disposable cash as you like into it in the good years.
But make sure you keep outside sources of cash flowing to support you through any conceivable bad year.
With De Niro, hospitality is the equivalent of his job. When business is good, he prospers.
It’s a nice diversifier from whatever is going on in Hollywood at any given moment. Unfortunately, it means he can’t “retire” without selling out, just like any other entrepreneur.
And when those businesses falter, he’s like any other entrepreneur his age who has to tread water for as long as it takes . . . or worse, roll it up and start over.
He doesn’t want to start over. He’s still extremely ambitious. It’s just that his ambitions led him to take on too much leverage.
Evidently he needs at least $2 million left over after he pays his wife every year to make his accounting structure work. That’s extremely reasonable if you have $500 million in Treasury bonds, but real estate doesn’t work that way.
Even at today’s rates, a long-term bond portfolio would net him and his wife a higher standard of living in perpetuity, risk free. With minimal effort, dividend stocks would deliver that $15 million a year while conserving capital for his heirs.
That’s not the kind of person Robert De Niro is. But it means putting up with a lot of drama in the meantime and the very real risk that the ending won’t be happy.
