Infrastructure Investment Red Flags

Writing to share our experiences with all who have been in our shoes concerning investment opportunities that have raised our eyebrows and have made us want to raise the Red Flag of caution…

Over the past 40-years of international finance and development, we have seen and heard just about every concept of project development and finance that can be thought up, however, we have been around the block a few times in our careers, and we realize that creativity in project concepts can be taken to levels of completely unrealistic proportions, and are presented in such a fashion that make them quite preposterous and absurd!

Terry L. Smith

Among the many cautionary tales we have seen are outrageous ROI numbers and the very short periods of time that these amounts of investments can be returned.   As my dad taught me, “if it sounds to good to be true, it usually is”!   Quality projects take time to design and develop, and risk factors are many, and all need to be discussed in advance and need to be kept in check at all times…

Another major factor in decision making, is the lack of quality “Hands On” experience of the members of the borrowing entity, to be involved with projects they have in mind to develop…  Investment decisions are made using what is known as “Acceptable Risk”.  Without the actual experience in the project, the risk is far to great for all involved, and the lack of interest from the developers is quick to surface!

The most outrageous concept is 100% financing, or 100% investment!!!

Without any funds being brought to the table by the project developers, it is known as a “Non-Starter”!!  These types of projects have been around since Noah parked the Arc, and 99.99% have failed, and the minute projects that have seen success this type of investment are made from people with more money than intelligence and outrageous good luck!  Working in reality delivers much better results!!

When venturing into a new marketplace, the greatest mistake is not enough time to assess the actual costs of the development itself.  Most get caught up in the limelight of the marketing and do not realize the costs of material and equipment shipping to the site, lack of skilled workforce, site security, weather delays in shipments and so on…  These factors are critical in the analysis of the new marketplace, and should be discussed and reviewed at great length, prior to venturing into a new market.

From our experience, projects are not approved for investment due to lack of strategic planning..  The time necessary for quality design, site location, weather conditions for construction, availability of materials and equipment among may other factors lead to the end of what may have been an amazing project!  Projects are often rushed to market by many factors, such as media hype, overdeveloped egos, unqualified research and many other factors…

We have also seen on countless occasions, potential developers taking far to many shortcuts in using quality service providers in making a formal presentation. Quality speaks for itself, and we try to inform all that good quality is never cheap and cheap quality is never good!

Architects, engineers, site planning, project presentation materials and other vital project information takes time to create and develop, and poor work stands out like a sore thumb..  When we see poorly developed materials and presentation documents, we are left with the impression that if this is their way of business in the beginning, the end will be even worse!  You get exactly what you pay for in life!!

Showboating is another way of having your project declined in short order!  On countless occasions, we have seen the use and marketing of professional sport figures, actors and actresses, models and others who are being used as a marketing tool for the project, and actually have no real funds of their own into the project itself!  Research always determines who is actually an investor and who is not!! And usually, these people are compensated in one form or another, and this is also a cost to the project that is truly unnecessary!  A quality project will always speak for itself!

Smoke blowing and name dropping are poor presentations, and usually bring the project to a non-productive result!

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