Sometimes no deal is the best deal — although it can be difficult to accept, given all the time and investment you made with nothing fully accomplished.
Here are five keys to help determine if it is time to “walk away” from a deal:
Intuition is everything
Market studies and financial pro formas are important, but ultimately your instincts can be very powerful.
Sometimes you just don’t feel it’s a good deal because it is too tough or it’s so easy to get done that it seems too good to be true. These could also be good times to consider “walking away” from the deal.
Development changes from beginning
Sometimes you can have so much invested in a deal, while unexpected and assumed multiple costs go up throughout your planning process. The deal might’ve been good on paper in the beginning, but the rate of return has lowered the longer it has taken to start.
It could be best to just write off your costs instead of moving forward with a deal that will lose more.
Adversarial conditions
In most cases in our industry, meetings are held upfront with the municipalities and neighbors before going through the zoning process. It’s always important to analyze all of the issues upfront and diligently respond to them in a positive manner. We have had a great track record of getting approvals on every development where we have had public meetings, in particular, because of our solid reputation and being proactive with figuring out solutions to upfront opposition.
There are instances though where you have too many obstacles hindering an approval and it’s best to stop moving forward on a deal. It is important to make that decision before you are too far along with costs and wasted time.
Enjoy the grind
There is a great feeling in accomplishing something you have been working on for a long and challenging period. I enjoy challenging deals, but they also have to be reasonably obtainable. You can’t be working on a project where there is no finish line and your time is being taken away from another one that has a better chance for success. This is considered a loss of opportunity cost.
Learn from your decisions
I have learned more from the few deals we have walked away from early in the process compared to the many developments we have completed. This allows me to move a deal along better in the future or something else might come our way as a result of a previous experience.
I believe everything happens for a reason. So, always try and stay positive and give your best efforts in pursuing and obtaining successful development in your business.
Brian Schottenstein is the president of Schottenstein Real Estate Group, one of the largest developer/builders in the Midwest, focusing on residential and mixed-use developments throughout the Midwest and Southeast. It also is the only three-time Developer of the Year by the Building Industry Association.
