WHEN IT DOESN’T MAKE SENSE, THERE’S CENTS
TO BE MADE
Students often ask me whether Black Swans are specific
kinds of information or any kind that helps. I always answer
that they are anything that you don’t know that changes
things.
To drive this home, here’s the story of one of my MBA
students who was interning for a private equity real estate
firm in Washington. Faced with actions from his counterpart
that didn’t pass the sense test, he innocently turned up one
of the greatest Black Swans I’ve seen in years by using a
label.
My student had been performing due diligence on
potential targets when a principal at the firm asked him to
look into a mixed-use property in the heart of Charleston,
South Carolina. He had no experience in the Charleston
market, so he called the broker selling the property and
requested the marketing package.
After discussing the deal and the market, my student and
his boss decided that the asking price of $4.3 million was
about $450,000 too high. At that point, my student called
the broker again to discuss pricing and next steps.
After initial pleasantries, the broker asked my student
what he thought of the property.
“It looks like an interesting property,” he said.
“Unfortunately, we don’t know the market fundamentals.
We like downtown and King Street in particular, but we
have a lot of questions.”