Investing in development deals

[Rob Cee]

If you were going to be an investor in a spec home building project (either one or a few SFR's or townhomes) what types of due diligence would you do? What are the top questions you would be asking the sponsors to mitigate your risk? I have never done development myself and therefore do not know a lot about it, but I have some opportunities to invest in some projects. I have been doing as much reading as I can to learn more, but wanted to get responses from BP. Thanks

[Ellis San Jose]

Great questions Rob,

Depending on the percentage you are investing into a project usually dictates how much control you can secure.  

Here are a few to start:

1) Where are they in the process/timeline of getting approval to build (zoning, permits etc.)

2) What measures of control are available to the investor(s) if the sponsors don't meet the milestones needed to complete construction and arrive at a marketable project.

3) If there are delays, cost overruns etc., anything affecting the profitability of the project, Will there be an adjustment made to the profit participation of the investors?

4) If the project is a failure what can I hope to recoup from my investment & what is the process?  How long would it take?

5) If the project is a success, how will I receive my distribution & how is it calculated?