Hold on Loosely

But Don't Let Go

You hope your buddies will win so you don't have to loan them any money.

- Chris LeDoux, on rodeo life

Real estateurs hunt property. Finding a suitable victim - a good deal - fills us with riveting greed. With one in our sights we iterate on spreadsheets, making detailed assumptions and calculating in exacting detail how we’ll move closer to fabulous riches.

Eighteen years ago we found what we figured would be a good deal and put together a partnership to buy it. It was an unremarkable property, a brick and beige stucco shopping center indistinguishable from the rest of those littering the Sunbelt.

“A conservative investment”, we told ourselves. “Long term leases with creditworthy tenants”, we said. We nodded at each other: “we’re prudent with our use of debt”. And to cap it off, to our projections we added a 7.5% vacancy allowance - a catch-all safety net to dampen bumps in the road if things didn’t go as planned.

And with that, and a vague sense of unease, we signed documents to borrow millions of dollars and bought the property.

Our projections, in aggregate, haven’t been too far off. What we didn’t appreciate then was how sliding those signed documents across the conference room table was allowing those lawyers to pull the gate, unleashing the ornery bull we’ve held on to for almost two decades.

Less than a year into our ownership we got an education on how little we understood - and how much we should’ve cared - about sub-prime residential mortgages. We learned about Lehman Brothers and AIG and how we’d top-ticked the market and paid too much for something unremarkable. But lacking much of a choice, and having a bit of a cushion, we held on.

Over the years other excitement ensued. A water line failed and a 300-foot section required replacement for $180,000. A median was installed on the primary road closing left-turn access into the property. We refinanced once lowering our debt service cost by 15%. We refinanced again lowering it by another 10%. We got sued by a slip and fall hustler. Twice. We renegotiated one anchor lease at a 20% rent decrease. Another anchor tenant claimed they overpaid their share of water bill for the past 20 years and wanted a reimbursement.

A partner died. Two household name tenants filed for bankruptcy. We bought a new roof. A billion dollar new development was constructed nearby. We bought a new parking lot. All tenants closed for a while in response to a global pandemic. The State used eminent domain to take a portion of the property. A new municipal ordinance prevented tree trimming making the property invisible from the road.

A private equity company bought one of the anchors and destroyed its balance sheet and brand. A local tenant grew from a single location to fifty and doubled their size and tripled their rent. A major tenant flirted with bankruptcy; we renegotiated their lease as a percentage of sales and now the tenant is flourishing and rent is 2.5x higher than before. The market-dominant center next door went to hell and is now back and better than before.

One of our property managers lost a battle with alcoholism. We moved offices five times.

All of our outparcels, originally on long-term ground leases, have changed hands and have new tenants. Wars broke out around the world, American cities were burned, four different presidents held office.

Rodeo bull riders hope to hold on for eight seconds. With ours, eighteen years later we’re still holding on. Albeit loosely.