My decision making that made me lose $1,000,000.00
Titles have to have fifty characters.  Hence  the $.00  


This is a follow up to my post about my bigger failures, yesterday was industrial real estate.  This time is about the decision to hold.  


Year is 2007.  I had a private for profit college tenant that I had done two previous deals with.  I had flipped them and done pretty well with them.  They came to me and said we want a new building in a very small city in Pennsylvania.  Eventually I sign a 50,000 square feet lease with them but they only occupy 30,000 square feet initially.  After 2 years they start paying for 40,000 and after 4 years they start paying for 50,000 square feet.  They occupy, all goes well.  Cost was $4.5M.    


Then Obama gets elected and his war on for profit colleges begin.  I can start to see the writing on the wall.  2009 comes and they are supposed to start occupying the 40,000 square feet.  They pay us for the 40,000 but don't occupy it.  Then 2011 comes and 50,000 square feet.  Same result.  They pay for 50k but occupy 30k.  Our lease doesn't say we get their financials annually.  Private company so we need this to see how they are doing.  Another huge problem.  


We put the building up for sale.  We get an offer of $7M (I own about 1/3 of the Company).  I am outvoted in the sale, my partners think it is worth $8M.    


I fight with my partners.  I am partners with them on multiple projects.  They offer to buy me out of my shares at the $7M valuation.  I would net before taxes just under $1M.  Silly me, because I am partners with them in multiple projects I decide to ride it out with them.    


Very predictably, we do great cash flow for 2-3 more years, then in less than 30 days they go dark across the country.  They disconnect the answering machine in the corporate headquarters.  There is simply no one to talk to.    


Today the building is worth about the mortgage, about $3M.  That folks, is how I had made a $1M then lost it.  Kind of like the GME folks who bought at $30-$50 in early January and held LOL.  Today I am much more of a capitalist and would take the million and run.
[{"id": "gomy5kp", "text": "Again, great story!  Thanks for sharing!\n\nSide note:  The GME debacle is heating up again!!  I finally exited today in the AH for an ok profit.", "replies": [], "depth": 1}, {"id": "gomzfbi", "text": "Question for you:  \n\nYou seem to have the 20/20 hindsight on these deals, where if you did X, instead of Y, things would have been better.  \n\nAre you able to make better decisions with your experience?  Or do you sometimes find yourself making the same mistakes?", "replies": [{"id": "gopct3e", "text": "&gt;Not sure why they removed my thread.  I'd like to think my decision making is better now, with the mistakes behind me.  \n&gt;  \n&gt;It's very rare I make the same mistakes.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gon0j60", "text": "GME is at $155 right now!", "replies": [], "depth": 1}, {"id": "gon1n99", "text": "Did you see Simon mailed the lender keys today on a 175 million mortgage.", "replies": [{"id": "gon7g5s", "text": "Do you have a link to an article on this?", "replies": [{"id": "gon8a7s", "text": "It\u2019s mind boggling especially after they just took $2 billion in new debt and merged and bought JCP out of bankruptcy. \n\nhttps://wolfstreet.com/2021/02/04/deutsche-bank-got-jingle-mail-from-1-us-mall-reit-simon-property-group-foreclosed-on-mall-got-no-bids/", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gon3j0h", "text": "The GME Connie t didn\u2019t age well, but perhaps it\u2019s an indication for your property.  It\u2019ll go back up eventually!", "replies": [{"id": "gopdij0", "text": "I like your thinking!", "replies": [], "depth": 2}], "depth": 1}, {"id": "gon3yiz", "text": "My flirtation with a private college tenant:\n\nYear is 2014.  I buy a 50Kish vacant office building with a partner as my first ever office purchase.  Seemed like a good deal - distressed short sale and Seller's lender wrote down the loan and did a new loan for us.  Fine so far.\n\nIt's a long story, but let's just stipulate that I had and maintain a materially different view of my partner's contribution than he did and he was responsible for operations/leasing.  He gets us to about 10% leased which is, of course, actually backwards financially from being vacant.  So, I push to use a larger broker for leaseup.\n\nThey call and say they have a lease prospect and want to take us to lunch.  We get to this place I haven't eaten before and I say to my partner - this is going to be a $300 lunch, we're about to be f--ked.\n\nSo, the proposal is a private college.  They want IIRC about 35K SF.  They want $2M in TI and they won't physically occupy for a year.  The broker wants to get paid up front so $400K in commission.  Remember, this is also my first ever office (historically a bulk SFR/multifamily/debt guy).  So, I say \"Let me get this straight.  You guys want me to be $2.5M out of pocket and I won't see the tenant for a year??  When do you think I break even?\"  Them: \"Oh, about year 4.\"  Then we look up financials on the company and it's revenue is declining.  No thanks.\n\nI'm not unhappy we didn't do that deal.  That said, finally muscled my partner out and sold in 2017.  Sub 10% IRR on that one, I think, but I got out with my skin and learned some about the asset class (and got even more experience with partnerships).", "replies": [{"id": "gopdhal", "text": "Great story.  Your partner might be might partner.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gon45j2", "text": "Crazy that your partners wouldn\u2019t take $140/sf on a deal in middle of nowhere, I would\u2019ve taken the cash and ran... lucky you\u2019re at $60 PSF now, I\u2019ve been DCH on some trusts that have liquidated stuff in these markets for like less than $10 PSF. All time winner was a deal I sold in a shitty city in CT for $0.50 PSF, woof", "replies": [], "depth": 1}, {"id": "gon4sad", "text": "Great story :)\n\n(Love to know why this post was removed by moderators.  It was fascinating.", "replies": [], "depth": 1}, {"id": "gon6rii", "text": "Great story. At the end you really didn't lose 1mm, you stop gaining 1mm. Losing money is being a Capitalist too.", "replies": [{"id": "gopdk74", "text": "100% true.  I'm getting there.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gon6sy8", "text": "\"Then Obama gets elected and his war on for profit colleges begin \"  \n\n\nObama didn't start the war, a bunch of huxters were promising the moon to young people and putting them in debt by selling them the rocket fuel.  \n\n\n[https://www.consumer.ftc.gov/blog/2019/12/ftc-settlement-against-university-phoenix](https://www.consumer.ftc.gov/blog/2019/12/ftc-settlement-against-university-phoenix)", "replies": [{"id": "gopda0u", "text": "Not really any different from not-for-profit colleges.  Plenty of friends in their 40's still paying off college debt cause their income is too low.    \n\n\nThis was more of a local school, not Phoenix/ITT.  I had hired their graduates in the past and they were generally respected in the community but definitely lower tier than the 4 year public schools.", "replies": [{"id": "gopldkx", "text": "I think the point is that your Obama comment is needlessly political for the context of your post or this sub.", "replies": [{"id": "goppw5x", "text": "For profit colleges was a growth industry until Obama\u2019s regulations killed the industry.  That\u2019s facts, not politics.  Had those regulations not been put in place, this story most likely has a happy ending.\n\nPolitics is whether the regulations are warranted.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gopejly", "text": "Moderators, can you tell me why this was removed?", "replies": [], "depth": 1}, {"id": "goq7os8", "text": "Ouch, interesting story though.  \n\nTiming your exit is something that should be on everyone's mind now.  In many sectors the light at the end of the COVID tunnel is visible, so there's temptation to hold now and ride a wave as people return to shops, offices, etc.  But money is getting more expensive (10yr UST almost breaching 1.5% today), stimulus is going to subside and I believe companies are going to rethink their space needs when leases come up for renewal.  \n\nIf you have a strong rent roll now it's worth thinking about a sale while cap rates are low and financing is mostly available.", "replies": [], "depth": 1}, {"id": "gpwhuri", "text": "\"his war on for profit colleges\"\n\nSomebody tried to stop fraudulent degree mills and I am upset.", "replies": [], "depth": 1}, {"id": "gq65mmd", "text": "Get rid of those partners!", "replies": [{"id": "gq6c38f", "text": "Lol yes I am!", "replies": [], "depth": 2}], "depth": 1}, {"id": "gsdsiiv", "text": "Like someone told me not long time ago, a good loser is someone who accepts to quit gracefully while having an OK amount of profit or acceptable loss.", "replies": [], "depth": 1}, {"id": "gt7ttcv", "text": "don't sleep on GME", "replies": [], "depth": 1}]