Your market needs to be a HIGHLY appreciating market to rationalize a negative cash flow like that.

In my opinion, thinking it out and presenting the rational to the seller should get you somewhere.

At the time I rationalized that I could not pursue real estate because that would mean commissions.

Hey Bill - he does understand his options, as he is an experienced developer for many, many years...my gut tells me he was simply being stubborn, as now at the 11th hour, he's more willing to talk rationally and consider all offers...we're going to try and negotiate with the bank on the deficiency, hopefully getting them to agree to eliminate.Thank you for the input.

Now off my soap box but let me see if I can relate to you on a much more rational approach, not the emotional.  

I often have difficulty act to fully rational when I am out in the field making decisions.

The cash flow and debt coverage ration are the important metrics on this deal.

The reason why investors will buy properties that have little hope of being profitable, but rationalize that they are good deals still, is because they are chasing the property instead of the deal.I have/can buy properties over the AP and make more money now and in the future than another investor looking to buy that same property by buying lower than the AP. 

What you have to do (and it's a form of rationalization) is work out if you're trading off $3K/month in rent for $1K/month in negative cash-flow.  

(A building can fall down on yourself, not not on other people, is the rational.)