You can have an executive mba from a prestigious school and a chartered accountant designation and claim to have 25 years of business experience. I wouldn’t claim any of those titles and accolades, because if I did, that wouldn’t be true. You also don’t need those titles, because none of that helps you be a successful developer of inner city projects. Skill at the ‘financialization’ of everything is dangerous, it can lead to a flawed self belief in your own superpower and harms your judgement. We have learned from people that have the real qualifications and (feigned) experience, that they can lose their aborted project to foreclosure despite the rosy projections and gala product launch. Even worse than this self harm, the guys in suits tend to take dozens of innocent people down with them. I guess that mba program didn’t teach much about ethical operation or how to forecast the success of a development venture!

here are some red flags

1. optimistic forecasting - you need realistic forecasting that accounts for the hardships any project will encounter and you must predict what the sale revenue will be with some certainty

2. extreme leverage - avoid a deal where the principals don’t have skin in and instead leverage themselves in a way that is impossible to unwind without wiping out the investor. The developer needs to lose first so he can make whole those who invest in him if the project fails

3. ignoring advice from those who’ve got it - there is someone operating in that market right now that could poke holes in your business case, speak to them and listen to what they say

4. inflated track record - lack of specific project success by the deal principals. This is easy to find out in a connected world. Titles don’t matter much, track record is a better predictor of success

5. marketing - the marketing hides the lack of substance. Large expenditure on a marketing campaign can hide a project that is in disarray and will never be viable to build.

6. ambitious growth - how can a builder be marketing a second project before the first is started (or better yet, complete and successful).

7. top heavy structure - those who believe they can outsource everything also think they can outsource the responsibility of the project being successfully managed. This is one area where the people who run the business fail because they don’t want to actually build projects they want to be seen as executives. These types value the trappings and appearance of success, but when the going gets tough they flee. To this type of person, investor money is a plaything to squander after they’ve taken a cut. Run from these people

I think this gets back to qualification of the developer vs his/her desire to shortcut right to the top of the field without paying any dues. Would I show up at a dental clinic and expect to do the work of a Doctor of Dentistry during my first day on the job? Or arrive at the airport and take the first officer chair on a passenger jet? An aspiring developer should consider training a little before taking the reins of complex project, otherwise will likely crash and burn. And my advice for investors? Just find a quality REIT and possibly loan money to builders at fair rates.