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EB-5 Sanctioned Private Placement Offerings - Initial Due Diligence Review

The initial review is of your due diligence documentation package.  The purposes of this review are:

To allow us to calculate a budget of the likely outlays that stand between where the project and sponsor currently stand and the close of escrow for a completed private placement; and

To allow us to calculate a likely key milestone schedule of the activities the sponsor must complete in order for the private placement offering to close escrow; and

To allow us to assess the proposed project's compatibility to the goals and requirements of the EB-5 program regarding project's location relative to rural markets and/or markets having high unemployment; and

To allow us to create the transaction joint-venture agreement that will define all fees, costs and ownership requirements of the resulting transaction for the sponsor to make a final decision upon regarding acceptance of the transaction terms.

From a practical standpoint, the initial due diligence review covers the following areas:

  1. Site Documentation.  This includes a review of the site control documentation and entitlements documentation.  Specifically, the review includes:

    1. Site Control Agreement, Deed or Ground Rent Contract.

    2. Title Report w/All Schedules.

    3. Property Tax Statement.

    4. Zoning Letter.

    5. Zoning Map.

    6. Utility Will-Serve Letters.

    7. Evidence of Building Permit Availability.

  2. Civil Engineering Documentation.  This includes a review of the site plan, plot plan, approved development plat, surveys and grading plans.  Specifically, the review includes:

    1. Metes & Bounds Survey.

    2. Site Plan.

    3. Development Plat.

    4. Grading Plan.

    5. Civil Engineering Firm Profile.

    6. Civil Engineering Firm Contract.

    7. Surveyor Firm Profile (if separate from civil engineer).

    8. Surveyor Firm Contract.

  3. Structural, MEP & Environmental Engineering Documentation.  This includes a review of the environmental studies, soils test reports, MEP system report, structural engineering report and related documentation.  Specifically, this review includes:

    1. Structural Engineering Firm Profile.

    2. Structural Engineering Firm Contract.

    3. MEP Engineering Firm Profile (if not part of design/build agreement for sub-contractors).

    4. MEP Engineering Firm Contract.

    5. Environmental Engineering Firm Profile.

    6. Environmental Firm Contract(s).

    7. Environmental Phase I Report.

    8. Wetlands & Endangered Species Report (if separate from Phase I).

    9. Soils Test Report.

    10. Structural Engineering Report & Outline Construction Specifications.

    11. MEP Engineering Report & Outline Construction Specifications.

  4. Architectural Design Documentation.  This includes a review of the architectural design documentation.  The usual standard is the completion of the Schematic Phase Architectural Design Documents and the Schematic Phase Outline Construction Specifications.  The review includes:

    1. Architectural Firm Profile.

    2. Architectural Firm Sub-Contract (part of Design/Build Contract).

    3. Interior Design Firm Profile.

    4. Interior Design Firm Sub-Contract.

    5. Schematic Phase Designs.

    6. Schematic Phase Outline Construction Specifications.

  5. Construction Documentation.  This includes a review of the construction contract and supporting documentation.  As stated previously, those project sponsors and developers seeking non-recourse financing have to use the design/build approach to shield the investor group from losses due to claims that change order costs are in fact losses due to second-dollar change orders (i.e.: change order costs due to errors and omissions in the design or construction processes themselves that require additional construction, reconstruction and additional design activity costs).  The review includes:

    1. Design/Builder Firm Profile.

    2. Design/Builder Financial Statements.

    3. Design/Builder Bonding Letters (Payment, Performance & Completion).

    4. Design/Build Agreement.

    5. Design/Build General Conditions Agreement (if using the DBIA forms).

    6. Value Engineering Firm Profile.

    7. Value Engineering Firm Contract.

    8. Value Engineering Report.

  6. Project Feasibility Documentation.  These are the critical documents the control the owner's program and include the feasibility studies, business plans, capital funding proposals and related reports.  The review includes:

    1. Market Feasibility Consultant Firm Profile.

    2. Market Feasibility Study Services Agreement.

    3. Market Feasibility Study.

    4. Financial Feasibility Consultant Firm Profile.

    5. Financial Feasibility Report Services Agreement.

    6. Financial Feasibility Study.

    7. Project Business Plan.

    8. Business Plan of Operations.

    9. Capital Funding Proposal.

    10. Project Marketing & Advertising Plan.

    11. Project Property Manager's Firm Profile.

    12. Project Property Manager's Contract.

    13. Project Developer Firm Profile.

    14. Project Development Contract.

    15. Developer/Sponsor Financial Statements.

These documents provide a basis for gauging the proposed project's status relative to the funding process.  Projects are not required to have all documentation completed in order to undertake the initial due diligence review, but the due diligence review will provide comments and direction as to the outstanding requirements necessary to lock in the proposed project financing requirements.  The key is understanding the private placement offering process is a one-shot deal and not a mini-max funding approach, so a high degree of accuracy is required in estimating the total project budget.

 

Do You Know The Secret?

When it comes to commercial real estate development finance, it doesn't matter whether you need to raise $5 million or $50 million, the out-of-pocket costs, advance fees and project due diligence costs will always require the same relative investment dollars the promoters have to fund.  Do you know what that amount is?  Do you know the Secret?

Rainmaker Marketing Corporation can trace its history back all the way to 1989.  Incorporated in 1993, Rainmaker Marketing Corporation has evolved over time into a full-service business to business consulting firm.  Rainmaker Marketing Corporation’s initial specialization was in issues and documentation needs corresponding to the capital funding cycle for commercial real estate development projects with a primary focus on senior housing and health care related properties.  Today, Rainmaker Marketing Corporation serves all types of commercial income-producing property development program financing requests with a combination of feasibility studies, due diligence services, structured finance consulting and a focus on commercial real estate syndication services.  Rainmaker Marketing Corporation’s service area includes all of the continental United States, Canada, Mexico and the Caribbean Basin.

281.537.1200

Email: consultants@rainmakermarketing.com

Commercial Real Estate Development Finance, Due Diligence Documentation, Syndication & Project Management Consulting

15519 Dawnbrook Drive, Houston, Texas 77068.

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