Loaning money to friends is never a good idea, regardless of the dynamics of this individual situation. The exception would be that the amount is so trivial to you that if it completely vanishes you will not care, and it will not effect your feelings toward the person at all. I speak from experience in this area, although it was not an RE transaction.
As to the merits of the transaction itself, it is my feeling that this is no time to try and make money in RE. Buying into something that is declining, which also has poor fundamentals, is not a good backdrop for a profitable investment.
