Walking away from a potential homerun

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Just walked away from a really nice deal and I’m still in mourning.

Last week, we were offered the opportunity to buy a group of smaller buildings in a single portfolio, off market, through a broker with whom we’ve done business before.

The numbers looked good and even got a little better after inspection.

I was excited, because I was planning to use this portfolio as the cornerstone investment for the fund we’re going to start raising shortly.

However, during our diligence, we discovered an obscure issue which I feared might make it extremely difficult to refinance or sell one of the three properties.

This is an issue that not many people know to even look for (including, presumably, the seller). So, I think many in our position would have been tempted to move forward with the deal, rolling the dice that the issue would never emerge.

In fact, I was tempted. But, the more I spoke to experts and considered the issues, the more certain I became that this was a show-stopper for us. So, we walked away from what looked on the surface to be an opportunity to put out about $7MM at around a 7% unlevered yield… which is a homerun in LA in this part of the cycle.

And today, while I’m sad not to be doing the deal, I’m 100% at peace with the decision. Before everything else, our obligation is to look out for the best interests of the people who trust us with their precious capital.

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