What is the most clever, profitable RE deal you've witnessed?

The Wang Computer building in Lowell MA. In the early 90's Wang went bk and left the building which was over 1MM sf. A group of Boston guys bought it for something like $500k, got the city of Lowell to give it tax breaks and the city signed for a few million dollar line of credit to rehab it. They leased it up and sold it a few years later for ~$100MM.

A piece of property in Ocean City, MD adjacent to the water had a deed restriction placed on it in the 1960s that restricted the property’s use to a squash club. The then-current owner (this is 2012) put the property up for sale, a hotel developer went under contract for the property for something like $1 million, tracked down the last living relative of the individual who placed the deed restriction on the property, paid the guy, like, $500,000 to remove the restriction, which was accomplished within the 90 day settlement period, and the then-unrestricted land appraised for something like $8 or $10 million. Immediately upon settlement, the new owners put the land up for re-sale. I pretty much wanted to kill myself when I saw how easy this was for them.

Uhhhh... Why did someone throw monkey crap at me? What's wrong with my suggestion?!

Anyway... I remembered a couple of stories:

1. Creative financing deal: a developer in the Los Angeles area wanted to purchase a property with a certain price in mind to take to lenders. The seller wouldn't come down on his price at all, and just seemed too expensive. However, after crunching the numbers, the developer realized that if he gave the seller the price he wanted, but did seller financing and negotiated a very LOW interest rate ( that's the key here), the total cost would actually be lower than if he had purhased the property at a lower price and put a traditional loan on the property with a higher interest rate. Pretty clever.

2. Another one that I heard about was the acquisition and repositioning of a struggling mall during the recession. At the time, most malls took a huge hit, but the Hispanic population in this particular area was growing rapidly ( the mall is located in Texas). So, basically, the landlord shifted his target market and turned it into this huge Hispanic mall and supermarket. He subdivided the space into smaller units, so that space was more affordable for the tenants leasing out space, but because the target market was so big and their were so many merchants, the significantly increased occupancy, and they ended up making more money than they would have leasing bigger units of space out to other types of tenants. The mall thrived. I thought this was a particularly clever strategy because it's a prime example that sometimes you don't even have to change the property itself if you just change your market audience.

A group of small-time developers in my area noticed that one of the area public school districts was stretched severely thin on classroom space--a lot of schools in the area using portable classrooms, larger class sizes to try and manage the number of students without spending a lot of money on new construction. These guys bought what most investors consider functionally obsolete office buildings at incredibly low valuations reflecting high vacancy and weak demand in these areas for office tenants. Think 1970s-construction suburban office product with poor public transportation accessibility that a lot of investors would think had higher land value with no improvements. The group got a construction lender to fund improvements to build out very basic classroom infrastructure. They then leased the buildings and sold them stabilized for a ridiculous profit. Thought it was a really creative way to think about adaptive reuse.

I worked for a guy who owned a roughly 15K sf property in a partnership (vacant grocery store in now one of the hottest neighborhoods in San Francisco). During the Great Recession, the other partners bailed and my boss and I tried to save the property. It was entitled for roughly 50 condo units, but there was a prolonged capital crunch on a non-cash flowing asset. The lender did some "extend and pretend" with us until someone came along and bought the note for roughly $3M, and then commenced foreclosure on us. We lawyered up and declared chapter 11.

In the 6 month CH 11 fight, I was able to fully tenant the building; however, there were some issues with getting permits and completing TI which would take another 6 months. Judge ruled in favor of the plaintiff and took over the property. In the end, the tenants I signed became wildly successful when they took occupancy 6 months later. The market improved. San Francisco per unit land prices went from $60K/door to over $150K/door in the span of 4 years (2010-2014). We pretty much gift wrapped this deal, and this reminds me how fortunes are made and lost. The opportunity costs of a downturn can be life changing. Also, having big money comes with big responsibilities. Easy come, easy go. And asset rich, cash poor can be very bad. There can be a euphoria of becoming rich that clouds your judgement.

One guy told me a very interesting piece of advice. Have one or two of your best located, highest rated assets completely debt-free. When the next credit crisis hits, you have the option of refi'ing you're best asset and getting cash, because there will be a flight to quality and some financing activity.