Guam development project - Ray next steps please - Posted by bhagan

Posted by ray@lcorn on June 21, 2006 at 10:22:15:

bhagan,

Good to hear from you, and thanks for once more stretching my horizons!

Anytime you’re considering putting money into someone else’s deal, you automatically have two levels of due diligence. Those are to thoroughly investigate the promoter’s bona fides, and then verification that the actual market conditions support the projections.

As for how to go about the due diligence on the promoter, ask for evidence of past successful developments, bank references, escrow account requirements (specifically, under what conditions may the funds be accessed), and have an attorney review every word of the partnership documents.

For the project itself, every development project is driven by market demographics and timing. If the Japanese gov’t money is committed or already in place, that’s bankable. If not, or if there are significant strings attached, then you may want to consider whether you want your funds at risk depending on political caprice.

In your case you have an added level of issues with partnership liability within Guam’s legal system, which while modeled on the US, certainly has local issues which can only be answered by a competent professional located in the venue. Any guess I would hazard would be irrelevant since I have zero experience in the jurisdiction.

Finally, a question I always ask myself when presented a partnership deal is, “If this deal is so good, why does the developer need me?” The answer often comes down to the financial strength and liquidity of the promoter. Partners are the most expensive source of capital there is. The attraction is due to equity capital being known as “patient money”, meaning it doesn’t have to be serviced until there are revenues to distribute, unlike debt which requires servicing from the beginning. But there is a fine line between mitigating risk with a prudent capital structure on the one hand, and chasing rainbows on the other. Hence the importance of through promoter due diligence.

ray

Guam development project - Ray next steps please - Posted by bhagan

Posted by bhagan on June 18, 2006 at 22:02:16:

While searching for properties in Guam I came across a development and then the developer. He has offered a chance at a 20% stake in a Limited Liability Partnership to develop 42 acres. Possibly 71 home sites or 50 sites (times shares) and a resort. This has yet to be determined. He has other successful developments and says he has done 28 profitable LLPs over 42 years. He wants 300K for the 20% stake and says it could return 3million in 5 years. He gave me a prospectus which I am reviewing. The Japanese government is getting ready to pump Billions into the island to relocate Marines from Okinawa.
My questions are: What are the 1st steps I should to take to see if this is a viable investment and determine my liability under an LLP? Other than losing all my money what are the potential downfalls or red flags I should look for? suggestions for ‘next steps’ would be much appreciated.