The $23M Real Estate Timing Disaster

Led a real estate investment fund focused on commercial properties in secondary markets. By 2017, we had a strong track record with 18% annual returns over 5 years.

In early 2017, we had raised a $60M fund. Warning signs were everywhere—rising default rates, tightening credit, overvalued properties—but I dismissed them as temporary corrections. We had $23M to deploy and a 2-year deployment deadline. Three properties came available at what seemed like good prices. The team was split: two analysts flagged concerns about leverage ratios and market conditions. I overruled them, arguing we had a fiduciary duty to deploy capital. We closed on all three properties between March and August 2017, using aggressive 80% leverage.

By January 2018, occupancy rates started dropping. By September 2018, credit market stress accelerated, and we couldn't refinance. Property values dropped 40%. We tried to sell but there were no buyers. Monthly cash flow went negative as tenants defaulted. Banks called loans. We negotiated extensions but eventually had to hand over two properties to lenders in 2020. The third we sold in 2021 at a 60% loss. Total loss: $23M of the $60M fund. Fund returned 0.35x after fees.

• Never override unanimous team concern—if everyone sees red flags, they're real
• Build "circuit breaker" rules: pause all deployments if 2+ macro indicators turn negative
• Never feel obligated to deploy capital on a schedule—return it if conditions are wrong
• Reduce leverage in late-cycle environments (max 60% instead of 80%)
• Keep 20% of fund as dry powder for distressed opportunities
• Create "deployment pause" committee with external advisors