Joint venture with a seasoned Houston developer

[Rao Mu]

I am talking with a developer in Houston who is building 200 units in a nice suburb of Houston. Construction has already started and all ground work completed and framing started too. However, out of 10 million equity developer holds 3 million and construction company owns 3 million and 4 million with private equity. Exit strategy is to sell apartments after stabilizing. However, developer wants to sell some of his equity out for 9 % preferred return while stabilizing and 24% final internal rate of return when all the apartments are sold. Exit will happen 2-3 years from now. Can someone tell me what are the risks involved in this? Developer has 20+ mil construction loan and the builder is big time California builder. Developer wants to use some of this money to a project he is doing in Austin area. What am I missing? Apartments should be ready by next summer.

[Shanequa J.]

Have you done research pertaining to Houston apartments or visited the area? There are apartments popping up everywhere in Houston and the suburbs. I really think they are overbuilding apartments. These new apartments are nice with parking garages; but compared to houses, they are smaller and just as expensive to rent. Why rent an apartment when you can rent a bigger house for the same price? I would stay away. Shoot if your money is burning a hole in your pocket, became a private money lender to people on here. 

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