The deal I passed on last week (and why)

Last week I walked away from a deal I'd been chasing for two months.

A little over 130 units in a fast-growing metro with all the right fundamentals, priced around $24 million. I built the full model, walked the property, and found something I rarely see. The owner had renovated about two thirds of the units over the years and never repriced them. Renovated two-bedrooms were sitting $256 a month under market. Even the brand-new leases they signed in the last 60 days were flat to what existing tenants pay. The capital was already spent. Somebody just forgot to charge for it.

That's the deal you want. The risky part of a value-add, the construction, was already done and paid for by the seller. All that was left was pricing the product correctly. My model underwrote it to a projected 18% IRR for investors with average cash flow north of 8% a year, and that's without leaning on rent growth. The return came from charging market price for renovations somebody else already paid for.

So why did I pass?

The deal needed about $8 million of equity, and best and final came down to a window measured in days, not months. I had real investor interest. I did not have committed dollars. And I have a rule I don't bend: don't put a building under contract you can't fund. Tying it up and hoping would've risked earnest money, my reputation with the seller, and the broker relationship that brought me the deal in the first place. Walking cost me nothing but pride.

Here's what I keep chewing on. I underwrite a lot of deals, and finding them was supposed to be the hard part. It isn't. The constraint is having capital assembled before the opportunity shows up, because the good ones don't wait for you to go raise.

If you've built a business, you already know this pattern. The bottleneck is almost never the opportunity. It's the readiness.

So that's the project now. The next deal gets funded before it gets found.

Also this week

Three lenders read the same 2024 tax return this week. The lender that declined me in June read it cold and saw a loss. This time a two-page memo telling the story behind the one-time item arrives before the return does. Completely different conversations.

Before wiring a $25,000 loan application fee on another deal, I asked the lender to put two things in writing: that the coverage test sizes on interest-only debt service, and their full NOI assumptions. Property-tax reassessment is where loans quietly shrink between quote and close.

A banker proposed funding our renovation budget as draws instead of all at close. Same commitment, but you don't pay interest on money sitting idle. Smart structure. I'm taking it.

I'm building the committed-capital list before the next deal instead of scrambling after it. If you want to be on the short list I call first, email me directly at [email protected] and tell me a bit about your situation. No pitch, just a conversation.

Thanks,
Brent