I got a call about an interesting building in Highland Park a few weeks ago.
Ordinarily, these are the types of calls I love… an interesting deal, a broker with whom I’ve done plenty of business, etc.
But this one is almost definitely not happening, and here’s why: Because it’s a bankruptcy sale conducted under the auspices of the court, there is no “inside edge” available.
It’s a straight auction, in which whomever is willing to pay the most wins, with no regard for actual ability / willingness to close, etc.
So, we’re bidding against everyone who ever read an article touting Highland Park as the next Silver Lake. And, because there are plenty of dentists who can come up with a few million bucks, it’s very unlikely we’ve going to get the deal.
There are three reasons main someone might outbid me on a deal like this:
- Underestimating the costs of the rehab;
- Over-estimating the rents (or, the rents achievable at a specific renovation level); or
- Willingness to accept a lower return.
I’m obviously fine with #3. The other two irritate me, because, while it’s always nice to see a competitor screw up, there’s no way for me or my investors to profit from it.