My worst ever property deals, pt 2

Posted by

Whether you want to believe it or not, it’s a very harsh reality that property investment has the potential to completely destroy lives.

It would be easy to only focus on success, but it’s important to balance things out and show people that when it comes to real estate and property development, things can (and do) go wrong.

Last week I shared the story of one of my worst deals, where I ended up with an albatross of a property around my neck for 12 years, after being blinded by potential profits and rushing into things.

This week I want to tell you about the deal that was supposed to earn me tens of millions, but, as you’ll see, didn’t.

Deal No. 2 – Spain

I’m going to take you to back to Spain in 2006.

I had a lovely holiday apartment and would travel on a regular basis. It was a great apartment in a posh area, down on the marina with a lovely garden and its own pool. Behind my apartment building was a huge big piece of land with works going on.

I was wondering what would eventually be built there, because of course it would affect the view from my rear window, so I made some inquiries and it turned out that it was a going to be a big promenade, with residential and retail units.

Retail was an area I felt I really knew my way around, so I walked the land with the person selling it and had this incredible vision of what it could be: a long, beautiful promenade of shops on one side, yachts moored on the other side – the most spectacular luxury fashion location.

I told the developers what I thought would work, and they weren’t really into it. They planned to sell off units one by one, which I though was a bad idea: what if something cheap or tacky came along? I was envisioning fashion houses, not pound shops! Whilst they thought it was a fantastic concept, it just wasn’t on their agenda, and told me that if I wanted to create something like that myself, they were happy to give me an option to do it.

My idea was to take the concept and promote it, which took me off on a big international roadshow, meeting with major brands like Ralph Lauren, Gucci and Louis Vuitton. I felt like a big deal, walking into huge meetings and talking up this amazing concept, which I had completely fallen head over heels in love with. I got emotionally tied up in the success of this deal, and if I’m honest, my own ego was tied up in it too. I could see myself as some kind of local celebrity, the guy with the big shopping centre who’d had an amazing vision and created it from scratch.

Now we all know that retrospect is a great thing, but this was pushing me outside of my comfort zone in a big way. In order to take the option and scope out the feasibility of the whole thing I had to pay €600k, and if all that checked out, I was would need to raise total project funds of €42 million. The way I structured the funding was 12 million of equity capital from investors and myself, and 30 million of debt from the Royal Bank of Scotland.

After a few hiccups with potential investors, I ended up putting in three million myself for a 25% stake, and nine million from investors.

The domino effect

In the week that the actual agreement to buy the place was signed, to purchase a centre that was still under construction, Lehman Brothers collapsed. Financial markets around the world started to implode.  

It was like a domino effect: all of those luxury brands I was in talks with started to fall over, and once one pulled out another would follow shortly afterwards. They had agreed to move into the development on the basis of other companies doing the same, and so once one went, the others did too.

Within four months, every one of the tenants I’d spent months assembling had pulled out, leaving me with an amazing 500m long waterfront retail centre with 42 units… and not a single tenant for any one of them.

To make matters worse, I had moved my entire family to Spain, so that I could put all my attention into pulling this deal together. I didn’t want manage everything from Dublin, and as a result all my projects back in Ireland also began to suffer. Put simply, I just didn’t have the bandwidth to deal with this kind of crisis, which was further compounded when the Royal Bank of Scotland withdrew their funding facility due to the banking crisis.

I needed to find alternative funding, so I started looking in Dubai: at the time most of the traditional banks were out of business, but there was a perception that you’d be able to find other wealthy investors. I started spending weeks at a time abroad, trying to recruit them.

What this meant though, was that I was spending months and months away from my young family. It was tough on everyone: not only did my own health begin to suffer, but my wife went from living overseas with her husband and kids to being there on her own whilst I was off trying to save the day.

Combined with the extreme stress of having multiple deals all starting to tumble over, with buyers starting to pull out of deals and banks starting to pull the funding they’d already agreed, other banks chasing me to repay existing loans, and investors calling for updates every day, it all became too much.

Then the bank pulled their loan on my home back in Dublin. The move to Spain was always supposed to be temporary, because the kids were going to be going to senior school back in Ireland, but the bank used our move to Spain to suggest that the house in Dublin was now a second home. In the end they forced the sale of what was always intended to remain our family home.

Now, if your wife is angry at you for being away a lot, try adding the loss of your beautiful family home into the mix: it was the end of our marriage.

To say that that this this deal in Spain almost broke me is an understatement – I cannot overstate how stressful this period of time was, not just for me, and I know a number of people that didn’t survive it. Some had heart attacks, whilst many, sadly, took their own lives.

The end of an error

In the end, I spent about a decade trying to salvage the deal. Eventually, the Spanish commercial courts made a judgment that the property was to be handed back to the original developer, with a 100% loss of the 12m capital that we put in (3m of it my own). Obviously I feel bad about my investors losing money, but I think that actually the worst thing was the collateral damage. The collapse of my marriage, time away from my children, other missed opportunities: all of that sacrifice had been for nothing, which is particularly painful.  

But just like with the Dublin deal, I was at least able to take several lessons away from the whole thing.

Lesson 1 – Keep your ego in check

Never allow your ego and your emotion to rule your decision making. You have to remain rational: remove the emotion and any kind ego stroking. I was picturing myself as a big deal, a local celebrity, and that kind of thinking has no place in any kind of deal.

Lesson 2 – Avoid getting spread too thin

Don’t spread yourself too thin across deals and jurisdictions – in this case I had so many projects back home in Ireland alongside this major project in Spain at the time. It’s hard enough to manage one big deal in a crisis, but having multiple deals and needing to jump on a plane every time a problem cropped up just made it impossible.

Lesson 3 – Don’t go all-in on a deal

Never paint yourself into a corner. Do not get yourself into a commitment that requires everything to work for you to survive. Avoid deals with a binary outcome – either a total loss or a win – with no in between. If this deal had gone well, I would have made millions, but I never really looked at the downside, a 100% loss.

Lesson 4 – Know your own capabilities

Understand and know your skills and talents. In this case, I completely overestimated my own ability, and completely underestimated the complexity of the project. I was jumping from deals that were much much smaller to this huge deal, but instead of it being a huge deal in a jurisdiction I was familiar with, it was a huge deal in a completely different jurisdiction. I was way out of my depth, I had too much confidence, and cost me dearly

15 years on and I’ve lived to tell this tale which I think makes for a pretty good story. I still love the real estate industry, despite all that stress, and I would recommend people get into it but just be cautious!

With that in mind, it feels like an excellent time to mention my new course Foundations, which kicks off on 1st June. It’s an entry-level training course, carefully crafted for novice investors or indeed anyone simply looking buy their first home, and is designed to mentor and guide you through the process, and basics of investing in the property market.

We know that entering the property market for the first time can be a daunting experience and this course will take you through the fundamentals in simple, jargon-free language. It explains how the market functions, what you need to watch out for, and steps to help you avoid costly mistakes.

We’ve got a special offer for Early Birds so don’t miss out – book your place today!