Who passes on a 7% unlevered deal?


We just cancelled escrow on a deal that I thought was pretty likely to end up a 7% unlevered return.

How do you pass up a deal like that, particularly in this market?

I know this is going to sound crazy to long-time readers, but, sometimes, it’s not about the numbers.

On this particular deal, the following factors came into play:

  • The physical layout of the structure, which would have made for decent-but-not-spectacular units
  • The very narrow width of the driveway
  • The fact that we’ve never done a deal in this particular neighborhood, so felt less confident than usual re the rents
  • The fact that, as a 4plex, we would be looking at a subpar (low LTV) refinance which would have required us to take recourse

Any of the above, in isolation, would probably have been fine. We could even have lived with 2-3 of them.

And I still believe we would have hit our numbers.

But the combination of the four issues gave Jon and me the creeps, and sometimes you have to go with your gut.