S.E.C. Real Estate Observer

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As entrepreneurs and risk takers we admit that occasionally great projections and optimism fades into reality. This investment isn’t working. It is a bad deal. What should we do? How should we handle this situation? How do we save face? Save our assets? Can we save important relationships?

As many who lived through the real estate collapse of the 1980’s, I witnessed and felt pain from investments gone sour. During those dark days, I observed and counseled clients in numerous stressed financial situations. Times like that aren’t as unique as we would like to think.

It is really hard for anyone to keep their head in these situations. As the old saying goes “When you are up to your rear in alligators it is hard to remember that the original intent was to drain the swamp!”

Have you wondered how some people can get into a bad investment, but work their way through it without a disaster? There are some who are soon investing with the same partners. They are borrowing again from the same banks. While others, in similar situations, seem to crash and burn completely. Their personal finances go down in flames. Their bankers have them in court. Their partners hate their guts and their reputation is shot.

What can one do to improve a bad situation? The goal should always be to keep your personal and professional life in tact. You hope that your friends, associates, family, and bankers can still stay on your side. It may not always be possible, but we have all seen the high costs of doing otherwise.

I believe that you must evaluate the legal and moral aspects of your responsibility in the investment. A lawyer once pointed out to me that your legal options are not the same as your moral options. From purely a legal point of view you can get out of a lot of things without financial damage. You may legally save assets and minimize your financial bath, but if it is done at the expense of lenders, friends, partners, and associates, then what is the true loss? A short-term decision to place personal financial costs above others may linger throughout your career.

I don’t believe there are moral questions with good asset protection strategies. However, these protections should be planned for going into the investment. If risk of loss is different for each partner, then that variation in risk should be agreed upon while structuring the investment. It is acceptable for risks to vary. However, efforts to divide losses based on blame or legal technicalities pretty much terminates the relationship forever.

I think one of the main actions of people who successfully negotiate their way through failed investments is their willingness to treat everyone in the transaction as it had originally been structured. They wait until it is totally behind them before analyzing or worrying about mistakes made. These are just filed in the experience memory bank to hopefully not be repeated.

Another positive action taken by the business survivors is timely communication with partners, lenders, associates, note holders, and everyone involved. People would much rather know the truth than deal with uncertainty. If you keep people informed and talk through all of the options, then you can become part of the solution, rather than the person they blame for the problem. Even lenders, note holders, and partners can be agreeable to giving you another chance in most cases. But, if lack of communication allows the pressure to build and the distrust to breed, then that that high level of trust can never be recovered.

A third action that I observed is that the people who are successful in disaster management are those who seem to just take problems in stride. In the mid-1980’s, farmers were declaring bankruptcy regularly. Most were deeply depressed, stressed, and overcome with grief for their plight. However, we had one client who filed Chapter 12, but showed up to our meetings with a smile on his face. He told jokes, asked about our kids, and seemed much too happy for the situation. This puzzled me until I learned that three years earlier he had lost a leg to cancer. He had put his situation in the proper perspective. He had been through worse. Yes, it was a bad time, but he just needed to work through it. He communicated well with bankers and his creditors and, as a result, he is still in business today. The successful ones look ahead to beyond the current situation. To partners and associates, lenders, and creditors they project an air of confidence that today’s challenge is a learning process, we learn from our mistakes, and the same mistakes will not be repeated. They work with all involved to put the bad times behind them and move forward.

A lot of our success in life is measured by how we handle ourselves in bad situations. The Society of Exchange Counselors emphasizes the people side of the business. We have the counseling skills. We have the integrity. We have a great SEC family willing to help. We have the tools to overcome challenges, work our way through tough situations and come out on the other side with our reputations, partners, friends, and associates still in tact. We must just remember not to overlook our skills and strengths in times of stress.