2 Deals we passed on and why [Behind The Scenes]

Our group regularly analyzes between 30 - 60 deals every single month. Through this process, we typically bring 2 - 4 deals to our investors per year. Here’s a behind-the-scenes look at some recent deals we reviewed and why we passed on them.

Deal 1: Rescue Capital Debt Fund

Overview

Rescue capital funds are gaining popularity. They inject cash into properties to prevent foreclosure, especially as rising interest rates make refinancing challenging.

Pros

• High demand due to market conditions.

• Strong returns and relatively safe position in the capital stack.

Cons

• Biggest risk lies in the strategy.

• Banks avoid these properties due to high risk.

• Cash injections might still fail to save the property, leading to total investment loss.

• Alternative, cheaper financing options exist for profitable properties.

Conclusion

The strategy behind rescue capital funds seems unsound given the risks and better financing alternatives available for viable properties.

Deal 2: Nashville Value-Add Apartment Building

Overview

The plan was straightforward: buy an outdated apartment in Nashville, renovate it, raise rents, and sell for a profit.

Pros

• Proven successful strategy in the past.

Cons

• Nashville faces significant supply and demand challenges.

• Market research indicates:

• 16,000 vacant apartment units.

• 9,000 units under construction this year.

• 8,000 units to be completed by 2025.

• Existing 11% vacancy rate.

• Growth in Nashville isn't projected to outpace new construction and current vacancies.

• Downward pressure on rents due to competition with new constructions.

Conclusion

Despite Nashville's growth, the oversupply and high vacancy rates pose significant risks. Competing with new constructions on price and amenities is not a favorable position.

Final Thoughts

These two deals might turn out to be successful, and we could miss out on potential returns. However, both deals had significant gaps that failed our due diligence checks. We’ll continue to search for the next opportunity that meets all our criteria.