What Happens When a Real Estate Syndication Goes Bad?

All right, can you talk about one of your deals that didn't go well, why that happened and what you learned from it? Sure. So I think, you know, the value add deals that we've done in general have gone really well and we're really pleased with them and we've had a great response. We had a ground up construction deal that we did during COVID or we started Pre Covid in 2018. It was a Manhattan based project where it was a ground up construction, but it was a condominium project for sale. And we, we bought the asset I think in 2018, early 18. And we were ready for market in February or January or February of 2020. And the market in Midtown west at the time was about 16 to $1,800 a foot for per square foot for a condominium in that area. We had brokers team on board that we had, we had hired at the beginning and we kind of designed the project with them. The construction project was built on time, on schedule, budget for the most part was on time or met its metrics. You know, we always carry about at least a 10 contingency. So that was in place. But the valuation disappeared, the exit was delayed because we couldn't get sign offs at the end because 2020, for half of the year we were locked up where nothing could happen. The city like everywhere else to shut down. And then as the smoke cleared, we had to extend our loan because the loan term expired. It was a construction loan, so it was a higher rate. And then as a result we had an inventory loan. And valuations ultimately dropped from 16 to 1800 dollars a foot to about 1300 in Midtown West. So that negatively affected capital. And that was kind of the hardest one we had to deal with at that time, you know, and one of those things that you build out, you want you, you know, to what you learn out of it is you try to model going forward for a lot of the downside. You put in larger contingencies and you also build in a bigger threshold for price fluctuations. If prices go down, how much can we absorb before it affects capital and equity? So that's kind of the keys that we try to do. What do we have to do to protect as best we can? You can't account for everything. Any project, I think you start in 2020, 2021, there's no way you would have known that deal would be at 10% or 11% interest at that time. You can't really model that into a project. So those are the kind of things, you know, you try to account for everything. But there's always, there's always something that can happen and ground up construction. That's why it's the most risk prone deals. But when they go well and you and the timing is on your side, the IRR surpass any other offering but that's always kind of the allure. But I think at this point with the market being where it is sticking to value, add smaller deals or smaller or portfolios of smaller deals that you can put together into a group where you can spread risk, I think it's kind of been the best thing for our investor group that they've found most attractive, especially right now and for us because it allows us to do good deals and just kind of continue to do what we do well.

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