The Smith brothers' real estate investment and management failures

¶ … Construction Project

Harry and Eric Smith performed a through market study before going through with the investment and most information seemed to confirm that the investment would be profitable. Even with this, the two also chose to use speculation as a primary means to fuel the business deal, taking into account that they focused on potential competition on the market and considered that new developments and new vacancies in the area did not pose a threat. The two believed that the condition of these respective buildings would make it imperative for their owners to charge prices that were in accordance with this respective state.

The Smiths acknowledged the numerous risks associated with the project, but decided that the magnitude of the business deal outweighed them and that it would have been in their best interest to try and make this one of the most important developments in their lives. Harry and Eric loaned money at a much higher interest than they did in the past, accepted a series of divisive conditions from the lending company, and even pledged their homes in order to gain access to the sum of money needed to start the project.

The financial aspect of this project should have been addressed with more rationality than it has been. Eric and Harry were probably blinded by their interest in making one of the greatest deals of their careers and thus ignored all of the risks that they took at the time. With a great deal of investors being reluctant to finance the project and with the lending company having a rate of interest that significantly undermined the nature of the project, developers dealing with a similar situation should simply walk away from the plan. The risks and the relatively low profits associated with the project were enough to discourage them, but they seemed to be more concerned in simply working on a large project.