Why we said no to 6 out of 7 deals last month

Last month we reviewed seven investment opportunities.

We accepted one.

That ratio is not unusual for us. In fact, it is close to our long-term average. We review a significant number of opportunities every month - from developers, brokers, introducers, and direct approaches - and we say no to the vast majority of them.

This article is about why.

Not because we want to appear selective. But because the criteria we apply, and the reasons we walk away, tell you more about how we think about investor capital than anything else we could write.

The deal that looked perfect on paper.

One of the six deals we declined this month had everything a developer brochure is supposed to have.

Strong location. Experienced team. A project type we know well. A return profile that looked compelling against current market benchmarks. Professional documentation, well presented, with references available on request.

We passed.

The reason was the exit strategy.

The developer's primary exit was a sale of the completed units at a price that assumed strong buyer demand in a specific postcode over an 18-month horizon. Their secondary exit was a refinance, but the refinance assumptions were based on valuations that had not been stress-tested against a market correction.

In isolation, neither of these was disqualifying. Together, they meant that if the primary exit slowed - which in the current market is a realistic scenario, not an edge case - the secondary exit was not as robust as it appeared.

We asked the developer to revisit the stress-test assumptions. They came back with a revised model that was more conservative but still, in our view, optimistic about refinancing conditions.

We walked away.

The brochure was excellent. The underlying risk was not reflected in it.

The deal where the security structure was not what it appeared.

A second deal this month used language we see increasingly often in the market - "fully secured," "asset-backed," "independent oversight."

When we dug into the structure, the security trustee was a recently incorporated entity with no institutional track record and a directorship that overlapped with the fund manager's own corporate structure.

This is not independent oversight. It is the appearance of independent oversight, which is a different thing entirely, and in our view more dangerous, because it gives investors false confidence.

We declined immediately.

We did not ask for further information. We did not request a revised structure. When the independence of the security arrangement is compromised, there is no version of that deal we would bring to our investors.

The deal where the numbers did not survive scrutiny.

A third opportunity this month presented a development in a market we know well, with a return profile that was attractive on the surface.

The underlying financial model assumed a construction cost per square foot that was, in our assessment, approximately 15 to 20 percent below what comparable projects in that area are currently delivering. The developer had used figures from a tender completed eighteen months ago, before material and labour cost increases had fully worked through the market.

When we remodelled using current cost benchmarks, the projected return to investors compressed significantly, and the margin of safety in the deal became, in our view, insufficient to justify the term and the illiquidity.

We shared our analysis with the developer. They disagreed with our cost assumptions. We wished them well.

The three deals we declined without detailed review.

The remaining three opportunities we declined did not make it past our initial screening.

One was a development in a geography we do not cover, outside our underwriting expertise and too far from our on-the-ground knowledge to assess with confidence.

One had a loan-to-value ratio that exceeded our maximum threshold at the point of initial drawdown, before any development risk had been absorbed.

One was introduced by a broker we have worked with previously whose due diligence standards, in our experience, do not meet the threshold we require from introducers.

These decisions took minutes, not weeks. Having clear criteria means most deals reveal their disqualifying characteristics quickly.

What the deal we accepted looked like.

The transaction we moved forward with this month met every criterion we apply.

The underlying asset is a residential development in a market with demonstrable supply constraints and strong buyer demand across multiple price points, not dependent on a single buyer profile or a single exit route.

The security structure is held by an established, genuinely independent institution with a long track record in this specific role and no commercial relationship with us beyond their mandate as trustee.

The developer has completed multiple projects of comparable scale and complexity, with a verifiable track record of delivery on time and within budget. We have spoken to investors from their previous transactions.

The financial model survives a significant stress test on both costs and exit values and still produces a return that justifies the term and the illiquidity for our investors.

We co-invest our own capital in this deal. As we do in every deal we bring to investors.

Why we write about this.

We are aware that describing the deals we decline is unusual. Most investment managers prefer to focus on what they have done rather than what they have chosen not to do.

We think that is the wrong approach.

The deals we say no to are at least as important as the deals we say yes to. They are where our criteria are tested. They are where the pressure to perform - to show deal flow, to maintain momentum, to give investors something new to look at - is greatest.

And they are where, in our view, the character of an investment manager is most clearly revealed.

We said no six times last month. We will say no many more times this year.

That is not a constraint on what we do. It is the foundation of it.

This article is for informational purposes only and does not constitute investment advice. Capital is at risk. Please seek independent financial advice before making any investment decision.