The Deal Is Won or Lost After Closing

WRITTEN by Haydn Zeis

September 2026

For tax purposes, the IRS classifies rental real estate income as passive. But the type of real estate we buy, where the objective is to actively create value, is about as far from passive as you can get.

We purchase properties that need work. Sometimes that means repositioning the marketing, filling significant vacancy, redeveloping a single tenant building into a multi tenant property, dealing with a distressed asset coming out of receivership, or finding an entirely new use for part of a property.

Whatever the business plan, the real work starts after we purchase the asset.

Our repositioning efforts usually begin before we even close. Once a property is under contract, our team starts working through the decisions that will ultimately determine whether we achieve the returns we projected when we made the investment. *Spoiler, it never happens the way we thought!

Consider one property we recently purchased through a distressed receivership sale. It had historically been occupied by a single tenant, and one of our first major decisions was whether to keep it that way or spend additional capital to divide the building for multiple tenants. Shortly after the acquisition, a prospective tenant wanted approximately half of the building and was willing to sign a 10 year lease.

That sounds like an easy decision. But it's really not.

Dividing the property meant additional architectural and construction costs. Electrical and gas service had to be rerouted. Separate spaces had to be created. We had to review the prospective tenant's financials, estimate the additional capital required, analyze the rent we could achieve on the remaining space, and determine whether the increased cost would ultimately improve the property's risk adjusted return.

Every one of those decisions affects our investors.

We ultimately decided to divide the building. The first tenant justified the additional investment, and we believed having two tenants instead of one reduced the property's long term leasing risk. Then another opportunity emerged. The second tenant had a retail component and is well known in the local market. That introduced another consideration, because the quality and type of this tenant can influence how a future buyer might perceive the property and retail is more favorable to buyers than pure industrial use, which is what this building was.

Neither tenant needed approximately an acre of land behind the building. Rather than leave that land unused, we began evaluating whether it could be converted to IOS (industrial outdoor storage), which was the word of the month from our August newsletter; it can and will create another income stream from an area of the property that previously generated nothing.

Every time we buy an asset, a decision tree comes with it.

Take the decision to divide a single tenant building into two spaces. If we do it, what will it cost? If we spend that money, does the new tenant justify the investment? If they do, what does that mean for the remaining space?

Can we lease it independently, and at what rent? If we now have two tenants instead of one, how does that change our risk? If neither tenant needs the excess land, can we turn that land into another income stream?

Each answer leads to another question. Our Asset Manager and Financial Analyst work through those branches together, looking at both the operational and financial impact before we make a decision.

This is one example, but over the life of an investment we will make hundreds of decisions like these.

Some are large. Many seem small. But collectively they determine the outcome of the investment.

You can't simply buy an asset and walk away. You have to continually evaluate the property, run risk and reward scenarios, anticipate what could go wrong, and look for opportunities that weren't obvious when you originally purchased it.

That's why, in value-add real estate, the deal isn't won at closing. It's won or lost in the years that follow.