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$14 Million Return on Investment - Mexical Real Estate
Situation:
A partner-managed development company was purchased for $2 million and funded with an additional $7 million but was unable to show a profit.
Solution:
The HK Turnaround team advised the remaining partner to sell the land, and this resulted in a profit.
Details:
Wanting to take advantage of the boom in Mexican resort real estate, a company of 40 investors and a management team of two principals was formed to acquire 10 acres of prime beachfront in the fastest growing of Mexican resort communities. This project hinged on the idea of using non-refundable deposits from the prospective buyers to finance the build out of the project. This is a common practice in the Mexican resort market and was executed successfully by other developers concurrent with this operation.
The two principals divided duties. Partner A, an investment broker, was tasked with raising necessary capital and had solely executed the entire initial raise. Partner B, a realtor with two decades of experience, was charged with the development phase of the project. However, after six years, an additional $5 million dollars had been raised by Partner A even though no construction had taken place; the monies had been spent by Partner B to no apparent effect. Still, Partner B vehemently opposed any assistance and would not relent to allow more experienced hands to take over.
Given the status of the project, Partner A was reluctant to take the additional funds $5 million since it could cause the loss of the entire project.
Realizing that he’d reached a critical point in the project; Partner A retained the HK Turnaround team for help. After reviewing the partnership agreement and seeking legal counsel, Partner B was removed at a shareholder meeting by means of an investor vote. Partner B initiated a lawsuit against Partner A and the investors which he lost in the course of multiple appeals. Throughout this process, HK Turnaround calmed investor concerns allowing the process to develop.
HK Turnaround also did a complete financial review including a check by check review of all expenditures as former Partner B had essentially kept poor or no records. They performed a detailed reconciliation of the company’s books, produced a budget and timeline as well as a complete market analysis. In this process the core team brought in Mexico specialists in the fields of accounting and law. Market research was also conducted, and based on the results, the advice of the team was to halt development based on real estate market conditions, decline the additional financing, and sell the land. They made these recommendations based upon the results of their budget and timeline demonstrating that the project would run out of money, even with the new financing, in less than six months.
These recommendations were accepted. HK Turnaround then employed real estate experts in Mexico to market the property to suitable US and foreign buyers. This resulted in the land being sold to a Spanish hotel group for $14 million, fully seven times the original purchase price, and the investors made a substantial profit. All other moneys raised were paid back with interest and all creditors were reimbursed and satisfied.