JV with a developer with approved land for 44 units

[Rao Mu]

I am talking to a developer who has an approved development apartment project for 44 units. Land cost is around 1.6 million. He already spent time and money for approvals. However, he only has 1 million to close and he is looking for someone to fund the remaining 600k. This is in South eastern connecticut with 3 blocks to train station. Construction cost is around 5 million. He tells me that he has a lender who promised financing for upto 5.5 million (to cover holding cost), but the land has to be brought clear of any lien. If I pursue this deal, I will become an equity partner and he completes the development/construction. I am trying to understand the pros and cons of this... What are the potential questions I should ask to protect my interest in the deal? He seems well known in the town who has done a lot of development. 

[Peter Vekselman]

@Rao Mu there is nothing about your post that would make me think this is a good deal for you.

why would an established developer go to someone that has never done these types of deals?  by now he should have plenty of money people  on his list.  this in itself tells me he has probably already shopped the deal to various people and been turned, down.

how solid is his bank loan?  it does not sound like you have verified it.  I would venture to say it is not solid at all.  I would ask to speak to his bank directly.

if you are going to be an equity partner then it probably means your investment will not be secured.  even if it is it will have to be behind the bank.  both of these options are not very favorable to you.

have you even checked out the validity of the whole deal?  development costs, construction costs, sales prices, how long the bank will finance the deal for, etc.....

again, this one sounds like its over your head.  sounds like something you will ultimately lose a tremendous amount of sleep over.  be smart....

let me know if I can help any further with this.  you can PM directly.

peter