THIS OFFERING SEEKS TO RAISE A TOTAL OF $4,000,000. IF A MINIMUM OF $1,200,000 IN SUBSCRIPTIONS IS RECEIVED THE COMPANY CAN ACCEPT THAT MINIMUM LEVEL OF SUBSCRIPTIONS AND COMMENCE OPERATIONS WHILE CONTINUING TO SEEK TO RAISE THE MAXIMUM $4,000,000. SUBSCRIPTIONS TENDERED AFTER RECEIPT OF THE MINIMUM LEVEL MAY BE ACCEPTED AS AND WHEN TENDERED.
PERSONS INTERESTED IN INVESTING MUST COMPLETE AND RETURN THE INDICATION OF INTEREST FORM ATTACHED AS AN EXHIBIT HERETO. UPON RECEIPT, PROSPECTIVE INVESTORS WILL THEN RECEIVE A SUBSCRIPTION AGREEMENT AND A COPY OF THE OPERATING AGREEMENT THAT WILL GOVERN BOTH THE COMPANY AND INVESTORS' RIGHTS, WHICH MUST BE SIGNED BY BOTH THE SUBSCRIBER AND THE COMPANY TO BE EFFECTIVE.
THIS OFFERING CIRCULAR AND ITS CONTENTS ARE HIGHLY CONFIDENTIAL. RECIPIENTS AGREE NOT TO SHARE THIS OR USE ITS CONTENTS FOR ANY PURPOSE OTHER THAN EVALUATING THE INVESTMENT OPPORTUNITY
Recent Texas transplant Elon Musk is predicting that Austin will be a modern-day "boomtown" for the United States. In an appearance on "The Joe Rogan Experience" podcast, the billionaire CEO of Tesla and SpaceX said he thinks Austin had the potential to see a "megaboom." "It's going to be the biggest boomtown that America has seen in 50 years," Musk said. In July, Musk chose the Austin area as the site of a $1.1 billion Tesla manufacturing factory. The southeastern Travis County facility will produce Tesla's Cybertruck, Semi, Model 3 company sedan, and other vehicles. Musk has said the plant could start rolling out vehicles as early as this year. The Austin factory will likely allow tours and could eventually allow people to drive vehicles they've purchased right off the property, Musk said on the podcast. Musk told Rogan that Austin is "a bit like mini-California" and said his team in California chose the city as the top place they would want to spend time outside of California for a new factory. He said that when he asked for a second choice, the room was silent.
In December, Musk confirmed to the Wall Street Journal that he had moved to Texas. He did not say where in the state he now calls home. Musk, who became the richest man in the world in January according to calculations from various news outlets, could potentially save millions of dollars in income tax. Texas has no state income tax, while California has the highest tax in the nation. Musk cautioned that people moving from California to Texas should be careful to not "inadvertently recreate the issues that caused them to move in the first place." Musk has had spats with California lawmakers amid the pandemic over restrictions and threatened to move his company's headquarters out of the state. Rogan also recently moved to Texas, which he confirmed on a previous show. On Thursday he said that he's exploring opening a comedy venue in the Austin area. The pair were spotted in Austin, along with comedian Dave Chappelle and musician Grimes in social media posts last month. Chapelle later tested positive for COVID-19 and had to cancel an Austin show.
Before moving to Texas, Musk already spent significant time in the state, with Tesla and SpaceX both having significant operations. His aerospace company has a facility near Boca Chica on the coast of South Texas. "The two biggest things that I've got going on right now are the starship development here in South Texas, which was set in motion five years ago, and then the big new factory development for Tesla... just by Austin. Those necessarily drive the use of my time here," Musk told the Wall Street Journal in December. In addition to the Tesla and SpaceX operations in Texas, the Boring Company, Musk’s tunneling and infrastructure transportation company, is renovating a commercial space in Pflugerville. Neurolink, Musk's neurotechnology company, also had job postings for Austin in recent months. It's not clear the company's exact plans. Currently, the California-based company has open postings for a head of construction and a general application for Austin. Musk also relocated his private foundation, the Musk Foundation, which is focused on renewable energy, advocacy, space exploration, pediatric research, science and engineering education, and research and development around artificial intelligence. Bloomberg reported that over the summer the foundation created an entity in Austin. It then merged with the California-based foundation, with the resulting entity based in Central Texas.
The Company
Campbell Community Homes, LLC will also do business under various d/b/a's including "Campbell Houses and Homes." It will be a Texas limited liability company. We will sometimes refer to it herein as “CCH” or the “Company.” The Company is a manager managed limited liability company in formation. It will have a life of seven years, after which it will go into liquidation, making distributions of cash, holding in reserve any cash necessary to allow orderly liquidation of any remaining inventory of unsold housing units and the wrapping up of the business and affairs of the Company.
Securities Offered
Purchase Price
$50,000 per Membership Unit. This is the minimum amount of investment we will accept per investor, although investors can purchase more than one Membership Unit
Minimum Investment
Distributions
Subscription Procedures
Closing
Management
CCH is managed by Co-Managers, Campbell Construction, LLC, a Texas limited liability company (which is controlled by Patrick Campbell) and Broocks International Group.
Due Diligence Fees on Closing
Allocations
The Company does not anticipate using a broker or dealer to sell the Membership Units herein offered. At Closing a Due Diligence Fee of $100,000 is payable to the Co-Managers for their time and expenses incurred in preparing this offering including market review, business analysis, construction evaluation, due diligence and other services. However, upon receipt of $1.2mm of subscriptions, the Co-Managers will only take $60,000 in Due Diligence fees the remaining $40,000 being paid if the Company receives a total of $3mm or more in subscriptions.
Subject to certain special allocations that may be required by Section 704 of the Internal Revenue Code and Treasury regulations thereunder, the Company will generally allocate net income or net loss for each fiscal year or period of the Company to the Members in an amount equal to the amount that would be distributed to the Member upon liquidation of the Company if, on the last day of such fiscal year or period, all Company assets had been sold for cash equal to the amounts at which the assets were carried on the books of the Company, all Company liabilities had been satisfied in cash, and the balance, if any, had been distributed to the Members.
Class B Membership Units will not be assignable or transferable, except to certain affiliates, without the prior written consent of the Co-Managers, which consent may be given or withheld in the Co-Managers' sole discretion and will be subject to certain additional restrictions on transfer set forth in the Company Agreement. All certificates evidencing ownership of the Class B Membership Units will bear a corresponding legend to this effect. If a subscriber is an entity, these restrictions on transfer will also apply to transfers of interests in the subscribing entity.
Restrictions on Transfer
Risks and Conflicts of Interest
Investment in the Company entails a high degree of risk and the Co-Managers and their affiliates have conflicts of interest. See “RISK FACTORS, CONFLICTS OF INTEREST AND IMPORTANT DISCLOSURES.”
THE BASIC CAMPBELL HOUSING UNIT - AN OVERVIEW OF
WHAT WILL MAKE OUR CAMPBELL HOUSING UNITS UNIQUE
Other Building and Community Designs. While we intend to focus on the ""PILLARS AND PORCHES" style, we will explore other styles that we believe will provide enjoyment and fulfillment to consumers, such as the "NEW ORLEANS STYLE" of housing, as well as other styles of "communities." The following pictures give an indication of some of the "NEW ORLEANS STYLE" variations we may pursue:
Gas Powered. We intend to build our housing units with energy safety and efficiency in mind. We are going to endeavor to build each unit with natural gas-powered fireplaces, kitchen equipment and water heaters. Being less tied to electricity will provide more protection from electric grid shortages.
Gas Generators. We intend to equip our housing units with generators, operated by natural gas, where feasible. With the addition of these, if there is a failure in the electrical grid, then the natural gas-powered generators will be able to operate many of the electrical appliances.
Solar Paneling. We intend to endeavor to include solar paneling on roof tops, which will allow for not only lower utility costs, but also provide protection in times of energy shortage as well.
Ceramic Coatings. We are currently studying the use of ceramic materials for use in connection with our housing units. We have relations with ceramic applicators that present exciting opportunities for creativity. We believe ceramics are an underutilized resource that may provide yet another unique benefit to the housing units. Ceramic coatings can provide unique insulation features, working to keep a housing unit cool in the hot summer with minimal air conditioning, and warm in the winter with minimal heat. We have verified that among other things, ceramic coatings have been applied to corrugated steel buildings in West Texas where the inner ambient temperature reached as high as 120 degrees before ceramic treatment and after ceramic treatment and without air conditioning, the temperature was no higher than 79 degrees:
Pier and Beam Foundational Settings. We envision using a form of pier and beam foundation support. This will enable several things, including (a) easier repair of water and utility lines; (b) better protection of such lines to prevent freeze; and (c) easier physical movement of housing units to a different location should that be necessary or desirable.
CURRENT CAPITAL STRUCTURE, OWNERSHIP AND MANAGEMENT OF CCH
INTRODUCTION
Given the influx of individuals and families to the Austin area, quality housing is and for the foreseeable future will be in short supply. Reasonably priced quality housing will be in even shorter supply. Housing that maintains a quality of life will be in the shortest supply of all. This creates a window of opportunity for Campbell Community Homes, LLC (referred to herein as the "Company" or just "CCH"), which CCH intends to seize. We are going to build Duplexes. And we are going to build groupings of Duplexes that enjoy a common green area in the center – a Campbell Community – where the green space can be enjoyed by all the members of the community. Acting as a "mini-gated community," the green common areas, will limit access for only residents of the Community. The business plan of CCH will focus primarily in the Travis County area in and around Austin with a building style that accentuates "PILLARS and PORCHES" merging timeless designs with modern convenience.
The construction side of CCH – is headed by Campbell Construction, LLC, a company controlled by Patrick Campbell ("Campbell Construction"). Patrick, with his degree in finance from Baylor, has spent almost a decade heading up a working group of structural engineers, architects and construction workers across Texas. Two individuals in particular – Paul Franklin (registered architect) and Greg Davis (registered engineer) – have worked with Patrick in these partnerships in the past and will continue to do so in the future and are members of Campbell Construction as well. Through Patrick and Campbell Construction, CCH will be able to call on and use its relations with at least 6 structural engineers and 6 architects, as well as with construction teams of over 20 various working trades, based in San Antonio, Texas. See below at "CURRENT CAPITAL STRUCTURE, OWNERSHIP AND MANAGEMENT OF CCH – Construction Management." The administrative side of CCH will be overseen by Broocks International Group ("BIG"). BIG is an affiliate of Broocks Law Firm, a Texas-based law firm, the members and staff of which will provide administrative services for CCH. The primary persons filling these roles for BIG will be Ben C. Broocks (M.Ed. & JD); William A. Broocks (JD); Ben Broocks, Jr. (MS) [Physics]; and Richard Dale, CPA. The biographies of these persons can be accessed at broockslawfirm.com. See below at "CURRENT CAPITAL STRUCTURE, OWNERSHIP AND MANAGEMENT OF CCH – Administrative Management."
SUMMARY OF THIS OFFERING
The following is a summary only and is qualified in its entirety by the more detailed information in this Memorandum.
The current owners of 100% of CCH are Campbell Construction, LLC (previously defined as "Campbell Construction") and Broocks International Group (previously defined as "BIG"). Campbell Construction and BIG are also now and will remain Co-Managers. Campbell Construction and BIG hold Class A Membership interests in CCH. Subscribers to this offering will receive non-voting Class B membership interests. As Co-Managers, each of Campbell Construction and BIG will be required to jointly approve actions of CCH. However, the Co-Managers have agreed to a division of time and labor as between themselves to facilitate CCH's operations.
This offering involves a high degree of risk and is only intended for investors who are able to bear the economic risk of loss of their entire investment and who are “accredited investors” as such term is defined in Securities and Exchange Commission Regulation D. We are seeking to raise a total of $4,000,000. We reserve the right to have interim closings, while continuing to offer interests, if we raise at least $1,200,000. If we do that, we will take the $1,200,000 and continue to seek to raise the balance. As fundraising to the full $4,000,000 continues after the initial $1.2mm is raised and closed, we can accept and close on any additional contributions made thereafter. We reserve the right to continue offering Class B Membership Units on the same terms and price as herein offered, even though additional value may have been added, although we also reserve the right to increase the price of Membership Units.
The construction side of CCH is headed by Campbell Construction, LLC, a company controlled by Patrick Campbell ("Campbell Construction"). Patrick, with his degree in finance from Baylor, has spent almost a decade heading up a working group of structural engineers, architects and construction workers across Texas. Two individuals in particular – Paul Franklin (registered architect) and Greg Davis (registered engineer) – have worked with Patrick in these partnerships in the past and will continue to do so in the future and are members of Campbell Construction as well. Through Patrick and Campbell Construction, CCH will be able to call on and use its relations with at least 6 structural engineers and 6 architects, as well as with construction teams of over 20 various working trades, based in San Antonio, Texas. See below at "CURRENT CAPITAL STRUCTURE, OWNERSHIP AND MANAGEMENT OF CCH – Construction Management." The administrative side of CCH will be overseen by Broocks International Group ("BIG"). BIG is an affiliate of Broocks Law Firm, a Texas law firm, the members and staff of which will provide administrative services for CCH. The primary persons filling these roles for BIG will be Ben C. Broocks (M.Ed. & JD); William A. Broocks (JD); Ben Broocks, Jr. (MS) [Physics]; and Richard Dale, CPA. The biographies of these persons can be accessed at broockslawfirm.com. See below at "CURRENT CAPITAL STRUCTURE, OWNERSHIP AND MANAGEMENT OF CCH – Administrative Management."
CCH knows the style of housing it will develop – PILLLARS and PORCHES. While we intend to focus on the PILLLARS and PORCHES concept, we reserve the absolute right to change that design focus as we determine in our sole discretion. We will begin operational focus in Austin, Texas. While CCH has begun looking for available real estate, we are not tied to any parcel as of yet and will not commit to any land purchase until we have raised at least the minimum $1.2 mm referenced herein. While we intend to start with our focus on the greater Austin area, we reserve the
right to acquire land and build anywhere in the state of Texas we choose. That could be Dripping Springs, Georgetown, Houston, Conroe, or South Texas.
We may choose to deploy funds for small tracts on which one Duplex can be built. Or we may choose to acquire larger tracts for a Campbell Community, which will consist of several Duplexes. We intend to be extremely market-driven in terms of the choices we make for projects and project locations.
Whether we build one or more Duplexes or a Campbell Community consisting of several Duplexes, we will then be faced with the decision of whether to sell those housing units or rent them out to tenants receiving lease payments from tenants. Our preference will be to sell the housing units, which will generate proceeds that we will deploy back into CCH. In fact, we will endeavor to pre-sell Duplexes where possible. If we are unable to sell a housing unit immediately, such that we have to lease them out, then we will incur lease management duties and corresponding lease management expenses. We have not factored the expenses those activities would require into our financial projections. Even if we can sell housing units, it could be that we determine that it makes more sense at the time a decision must be made, that we should hold onto the housing units and lease them out even if we could sell them then and there. That decision will be made by CCH based on how we view the economics at the time. Other matters addressed in this Memorandum are summarized as follows:
$4,000,000 in 80 Membership Units, each Membership Unit consisting of a Class B non-voting membership interest in Campbell Community Homes, LLC, a Texas limited liability company. We reserve the right to conduct an initial closing if we receive subscriptions totaling $1,200,000 for 24 Membership Units. If we do, we will continue marketing the balance of the offering herein sought and will not be required to revalue the issuance price for subsequently purchased Membership Units, although we have the right to do so. Membership Units purchased will be evidenced by certificates with legends noting restrictions on transfer.
One (1) Membership Units, Class B non-voting membership interest.
The Co-Managers will determine if, as, and when any distributions of profits or funds will be made by the Company, but in all events distributions will be made at the end of the seven-year term of the life of this venture. Distributions will be made in the following order:
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Distribution Level One: First to the Class B Membership Unit holders proportionately to the extent of their initial capital contributions until they receive 100% of their capital contributions.
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Distribution Level Two: Thereafter, distributions will be made on a 50-50 basis as between the Class B Membership Unit holders and Class A Membership Unit holders until such time as the Class B Membership Unit holders have received an amount equal to two times their capital contribution. Thus, for example, to the extent that the Company raises $1.2 million from Class B subscribers, in the second level of distributions, they will be entitled to receive an additional 50% of the profits until they have received an additional $2.4 million. Simultaneously with the 50% distribution to the Class B Membership Unit holders, Class A Membership Unit holders will also receive 50% of the profits.
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Distribution Level Three: After the Class B Membership Unit holders have received a return of their initial capital contributions (distribution level one) as well as twice their initial capital contributions (distribution level two), the profits will be distributed 75% to the Class A Membership Unit holders and 25% to the Class B Membership Unit holders.
The Company does have the right, but not the obligation, to make annual federal income tax distributions, in the amount of 30% of the estimated profits of the venture.
Only “accredited investors” may subscribe. We will discuss this later herein, but “accredited investor” is a term used by the SEC to apply to investors the SEC deems sophisticated enough to fend for themselves, generally tied to an investor's annual income or net worth. We likely will require an investor's status as an accredited investor to be independently verified by their CPA or another of their advisors. Investors who wish to purchase Membership Units must complete, execute and deliver to the Company a Subscription Agreement and any other required documents, prior to the expiration of this Offering. Subscriptions are not valid unless and until accepted in writing by a duly authorized officer of the Company.paragraphs & more.
All subscription funds will be held in a segregated account pending the closing (the “Closing”) of the Offering, which can occur in one or more stages, as extended by the Co-Managers in their sole discretion. The first Closing is conditioned upon receipt of subscriptions for $1,200,000 pursuant to this Offering, following receipt of which we will close that portion of the offering and continue to raise the balance while commencing operations. An additional $2,800,000 may be raised through subsequent Closings pursuant to this Offering.
The Company does not anticipate using a broker or dealer to sell the Membership Units herein offered. At Closing a Due Diligence Fee of $100,000 is payable to the Co-Managers for their time and expenses incurred in preparing this offering including market review, business analysis, construction evaluation, due diligence and other services. However, upon receipt of $1.2mm of subscriptions, the Co-Managers will only take $60,000 in Due Diligence fees the remaining $40,000 being paid if the Company receives a total of $3mm or more in subscriptions.
Duplexes. Primarily, we are going to build Duplexes, which are two joined housing units each of which can accommodate a separate individual or family. Both housing units that comprise a Duplex will typically share a common foundation (or slab). The two housing units that comprise a Duplex can be arranged side by side, back-to-back or two story with one dwelling on top of the other. While this is our current construction intent, we will be opportunistic as opportunities arise. Each of the two housing units in a Duplex will be designed to provide roughly 2500 square feet of living space. And since a Duplex will consist of two housing units, that means each Duplex will be 5,000 square feet. We will strive to make our Duplexes unique in a number of ways.
Pillars and Porches. We intend to design and build what we call the "PILLARS and PORCHES" style, which is a Southern style found in southern states and also in ranch settings. Most obviously, employing the "PILLARS and PORCHES" style of construction creates a sense of style and charm, differentiating our housing from the utilitarian styles that seems to only focus on basic functional shelter, depriving people of a sense of living. We will endeavor to include PILLARS and PORCHES on each housing unit. The pillars create a uniquely southern look and feel. While many if not most duplexes have no outside exposure or living space, our porches will allow for outside living, whether relaxing at the end of each day, or enjoying an evening barbeque with family or friends. While this is what we intend, we reserve the right to build using any styles that we determine. For example, some parcels of real estate may not lend themselves to this style of building. Or we may conclude that the market for duplexes does not value the "PILLARS AND PORCHES" style, and thus we may simply want to change. We reserve the right to do that.
Campbell Communities. In addition to the above, we are going to endeavor to build groupings of Duplexes that enjoy a common green area in the center – a Campbell Community – where the green space can be enjoyed by all the members of the community. Acting as a "mini-gated community," the green common areas, will endeavor to limit access for only residents of the Community. They may look something like this:
CCH is a Texas limited liability company in formation. It has no prior history, operations or assets, other than rights to the concepts and ideas herein set forth. As a Texas limited liability company, it will be manager managed, not member managed. It will have a term (life) of seven years, after which it will go into liquidation and distribute its cash and assets to its Members.
The current owners of 100% of CCH are Campbell Construction, LLC (previously defined as "Campbell Construction") and Broocks International Group (previously defined as "BIG"). Campbell Construction and BIG are also now and will remain Co-Managers. Campbell Construction and BIG hold Class A Membership interests in CCH. Subscribers to this offering will receive non-voting Class B membership interests. As Co-Managers, each of Campbell Construction and BIG will be required to jointly approve actions of CCH. However, the Co-Managers have agreed to a division of time and labor as between themselves to facilitate CCH's operations.
Campbell Construction
Construction Management
Campbell Construction holds 50% of the Class A membership interests in CCH and is a Co-Manager. As a Co-Manager, it will be primarily responsible for construction management, which will be a crucial part of this team. And the head of Campbell Construction will be Patrick Campbell. While Patrick is the president and CEO of Campbell Construction, joining him in the ownership of Campbell Construction will be Paul Franklin, president and owner of Franklin Architect, LLC, and Greg Davis, of DCD Architects. Paul is a licensed architect, having practiced as an architect for over 26 years. Greg is a licensed structural engineer, having practiced engineering for 46 years. Patrick graduated with his degree in finance from Baylor University in 2013. Patrick has an extensive background in construction and construction related activities that put him in constant interface with engineers, architects, and various trades associated with construction (e.g., mechanical, electrical, plumbing – or MEP – to name a few). This near-constant work with and overseeing architects, engineers, and construction trades caused Patrick to co-form HPC Engineers, a group of architects and engineers and also an affiliated group called Archi-Techniques, LLC, with which groups Messers. Franklin and Davis are affiliated. While neither HPC Engineers nor Archi-Techniques will have any ownership of Campbell Construction or CCH, Patrick will draw on those groups as well as the experience of Messers. Franklin and Davis – who are minority members of Campbell Construction – to provide services to CCH. This will allow CCH to enjoy relations with at least 6 structural engineers and 6 architects, as well as with construction teams of over 20 various working trades. The resumes of Patrick, Paul Franklin and Greg Davis are found as Exhibit 1 to this Memorandum at the very end.
Broocks International Group (Administrative Management)
Broocks International Group (or "BIG") holds 50% of the Class A membership interests in CCH and is a Co-Manager. As a Co-Manager, it will be primarily responsible for administrative work. BIG is an affiliate of Broocks Law Firm, a Texas law firm, the members and staff of which will provide administrative services for CCH. The primary persons filling these roles for BIG will be Ben C. Broocks (M.Ed. & JD); William A. Broocks (JD); Ben Broocks, Jr. (MS) [Physics]; and Richard Dale, CPA. The biographies of these persons can be accessed at broockslawfirm.com. These members of the BIG team will add value to the undertakings of CCH. William Broocks is an attorney. While he was in law school, William interned at San Antonio Water Systems (SAWS), where he assisted in re-writing water consumption provisions of San Antonio’s Development Code. He also clerked for a commercial development law firm. After graduation, William joined a law firm where he, with others, represented several Texas municipalities particularly in terms of the development of commercial real estate and construction permitting. William's understanding and involvement with municipal construction laws and permitting requirements will be valuable to CCH. Ben C Broocks, Jr. (or "BJ”) brings a host of valuable skills to CCH. After high school, BJ served in the U.S. Navy, where reaching the rank of Petty Officer 2nd Class, he served in the sonar division primarily on the USS Roosevelt, a Navy destroyer. Because of his skills and awards, he was honorably discharged early to allow BJ to attend university, which he did graduating from Texas State University with a BS in Physics and a minor in Applied Mathematics. After his Bachelor of Science degree, BJ continued his education, earning his Masters of Science (Physics), where his studies and research focused on the development of experimental thin-film solar technology. In addition to his research, BJ worked as a graduate assistant and lab instructor for Senior and Graduate level physics classes such as Semiconductor Device Fabrication and Computational Physics. BJ's scientific background will be of great value to CCH particularly as CCH explores solar and other alternative energy sources and uses as well as ceramic applications for heat control. Ben Broocks, Sr. is a seasoned attorney having practiced for over 40 years, during which time he has represented such notable clients as Omni Hotels and Neiman Marcus. He has had significant experience in construction and construction-related issues (primarily from a litigation standpoint), including construction quality disputes, change orders, and community-related issues. Richard Dale is a certified public accountant and has worked in public accounting in tax and audit and as a controller and principal financial officer of a publicly traded company. Richard's financial and accounting expertise will be important for the Company to draw from.
Joint Management
As stated, Campbell Construction and BIG will be Co-Managers, making all material decisions jointly. In particular, all major financial decisions will be jointly made. This will be particularly important regarding choices of the location and aesthetics of the housing units and Campbell Communities. Specifically, land selection/acquisition for location of projects will be joint decisions of both Co-Managers. While the Co-Managers have looked at scores of potential sites for new developments in the Austin area, none have been definitively selected and none will be selected until this offering has achieved the minimum subscription level required to close. The decision as to which tract or tracts will be selected will be jointly made by the Co-Managers. We are making the assumption from a budgeting perspective, that from the time funding occurs, it will take us two months to find our first property. We expect later-acquired properties to occur more quickly.
Once a property has been identified and acquired, demolition may have to occur, depending on whether the land is raw or has existing structures. Then the permitting process will begin with governmental agencies. Permitting can take unexpected turns. While in theory, the City of Austin has required turn-around time limits for the commenting processes, many things can create delays, from too many permit applications to institutional resistance. For budgeting and planning purposes, we have assumed that the permitting process will take around two months for our first property but that thereafter, it will be quicker.
Patrick will work with other members of the team to create approved designs for housing units that embody the "PILLARS and PORCHES" concept the Co-Managers, who are aligned in their design tastes and ideas, have agreed on that is most location appropriate. The pictures we have used herein do not belong to CCH but are used for illustration purposes only. Housing designs can be subject to copyright protections and this means that CCH may or may not be able to use the designs of others. All designs created are and will be the work of a joint collaboration of Campbell Construction and BIG and will be jointly owned by these Co-Managers. While all housing designs whenever created will belong exclusively to the Co-Managers, they may be used by the Company during its life. See, "RISK FACTORS, IMPORTANT DISCLOSURES AND CONFLICTS OF INTEREST – Copyright Issues."
Once a property is properly permitted, construction will begin, headed by Patrick. He, through Campbell Construction, will select and supervise the construction team that will build housing units, coordinating with various trades and talents for construction, utilities, and disposals depending on variations in locations. Once built, the Co-Managers will work to sell housing units, endeavoring to sell them even before construction has commenced, where possible.
As to offices and staff, we are starting a business here and like any other company, our business will incur direct and indirect costs associated with all facets of this business. The costs and expenses of running such business, direct and indirect, will include everything, like office space, administrative support, legal services, employees, accountants, and all facets associated with running a business of the type we contemplate. These expenses will be borne by the Company itself, not the Co-Managers. As to physical offices, each of the Co-Managers has other business activities and offices associated therewith. For the first year, the Co-Managers will allow the Company to use their facilities to a degree without charge, so long as that use is not disruptive to the Co-Managers' other activities. Thus rent, telephone, and minimal copy services that can be handled from the Co-Manager's physical offices, will be handled there without charge, so long as those activities are not disruptive to the Co-Manager's other activities. After the first year, however, the Company will be required to secure its own offices and office equipment and do so at its own expense. The Co-Managers reserve the right to cause the Company to sublease a portion of their space at market rates as determined by the Co-Managers in their sole discretion. Alternatively, the Co-Managers reserve the right to use their own space and simply allocate a portion of the office rent and services charges they believe to allocable to the Company. If the Company raises more than $1.2mm, however, the Co-Manager's commitment to allow the rent-free use of their offices and equipment in the first year will automatically terminate and the provisions herein stated requiring Company reimbursement will begin immediately thereupon.
FORWARD LOOKING STATEMENTS
In this Memorandum, you are going to see a lot of references to finances and numbers, including for example, estimates of land costs, construction costs, sales prices, and possible Company revenue, to name only a few. None of these are facts. Rather they are estimates of things the Company may incur or receive in the future. No one knows what the future may bring, so these are only estimates and you cannot interpret them as guarantees or promises. As such, all statements other than statements of historical fact contained in this Memorandum are considered forward-looking statements. Thus, when used herein, predictive words such as "estimate" or “anticipate" or "project" or “expect,” or “believe,” or “seek,” or “goal,” or “intend” and similar expressions are intended to identify forward-looking statements. It is important to note that the Company’s actual results could and very likely will, differ materially from those projected by such forward-looking statements found herein. Factors that could cause the Company’s actual results to differ materially from the results discussed in such forward-looking statements include the risks described under “RISK FACTORS, CONFLICTS OF INTEREST AND IMPORTANT DISCLOSURES.” All forward-looking statements in this Memorandum are expressly qualified in their entirety by the cautionary statements in this paragraph.
SUMMARY OF CERTAIN FINANCIAL INFORMATION
As we said, we intend to raise $4,000,000, but reserve the right to accept subscriptions for and commence operations with, $1,200,000 while we continue to raise the balance of $2,800,000. We encourage you to read the “RISK FACTORS, CONFLICTS OF INTEREST AND IMPORTANT DISCLOSURES” section hereof very carefully. Among other things, you will see that we reserve the right to be opportunistic in terms of what we build, where we build, and who we build with. Nevertheless, CCH has an initial plan to construct housing units and Campbell Communities with the money we raise from this Offering. Here, we would like to give you some very basic facts, factors and assumptions we are using just to give you an idea of the costs and potential revenues that we think can be generated from the activities we are contemplating herein. We will begin with some basic assumptions we are using. Please understand that all numbers (whether dimensions or prices) are approximations, and they are forward looking statements.
Certain Construction Assumptions
This is a summary of important assumptions we have made on land acquisition and construction costs.
The Basic Housing Unit. We envision our basic housing unit to be a two story, 2500 square foot dwelling. The downstairs – 1250 square feet -- will be the general living room/kitchen living area and the upstairs – also 1250 square feet --will be bedrooms.
Duplex Our basic housing units will be duplexes, consisting of two housing units. These two housing units comprising our basic duplex model will share a common "slab" of 5000 square feet.
.13 acres Based on current Austin, Texas building codes and residential permitting, we estimate that our basic duplex will require a minimum of 5800 square feet of land. That translates into .13 acres.
Campbell Community A Campbell Community will be a collection of 4 Duplexes – all on one common plot of land, typically facing one another, all facing a common community "green" area.
.6 acres Based on current Austin, Texas building codes and residential permitting, and our current design concepts, we believe a Campbell Community will require about .6 acres of land
$66 per square foot construction Based on our current design we estimate direct construction costs (which does not include indirect costs or overhead) will be about $66 per square foot, whether for a basic housing unit, a duplex or a Campbell Community. Economies of scale should come into play reducing this estimate, but we have not taken those economies of scale into account in presenting the numbers that follow.
$2mm per acre land Based on our review of residential real estate sales in Austin, Texas, excluding certain outliers that skew the results on the high side, we estimate that residential real estate will cost about $2,000,000 per acre. See, "RISK FACTORS, IMPORTANT DISCLOSURES AND CONFLICTS OF INTEREST – No Property Has Yet Been Located And There Is Fierce Competition For Land." Based on this estimated cost per acre, we have assumed: (a) the real estate for a duplex of 5800 square feet will cost approximately $268,000 and (b) the real estate for a Campbell Community on .6 acres will cost approximately $1.2mm
Estimated Construction Costs
Based on the above, and other assumptions, here is a summary of these and other projected costs for one Duplex:
Estimates Concerning Sales and Sales Process
As to sales we project that our housing units can be sold as follows and those proceeds will be redeployed as follows
$300 per square foot estimated sales price
Based on our review of the market and market conditions, we estimate a sales price of $300 per square foot per Duplex. From everything we have seen, we believe this is conservative. Therefore,
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A sale of one Duplex (5000 square feet), is projected to result in gross revenues of $1,500,000
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A sale of a Campbell Community (4 duplexes; 20,000 square feet in total) is projected to result in gross revenues of $6,000,000
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These numbers DO NOT include a commission on sales, which may be 6%
Estimated construction/sales cycle
For the first Duplex we are estimating a twelve-month cycle where, beginning at closing of the first $1.2mm, we will take twelve months to find and acquire the first tract of real estate, obtain permitting, complete construction and sell the first Duplex.
Thereafter, we are estimating that from the time land is acquired, construction complete, and housing units sold, will be roughly 7 months. Of course, a myriad of factors, some of which we cannot even anticipate, will occur that may shorten or lengthen that time. The shorter the time, the greater ability the Company will have to recycle sales proceeds to construct and sell additional housing units.
Member Profit Sharing and Profits Distributions
As projected, the Company has the chance of being very profitable. Profits of the Company will be distributed to the Members but only at the conclusion of the Term of the Company. The Co-Managers will determine if, as, and when any distributions of profits or funds will be made by the Company on an interim basis, but distributions other than "tax distributions," will most likely be made at the end of the seven-year term of the life of this venture, allowing us to ploy profits back into the business. When distributions occur, other than tax distributions, profits distributions will be made in the following order:
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Distribution Level One: Profits distributions will be made first to the Class B Membership Unit holders proportionately to the extent of their initial capital contributions until they receive 100% of their initial capital contributions. So, if only the minimum number of units is sold, or $1.2mm, then that amount will be returned first. If the full $4mm is raised, then that capital will be returned first in Distribution Level One distributions.
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Distribution Level Two: Thereafter, profits distributions will be made on a 50-50 basis as between the Class B Membership Unit holders and Class A Membership Unit holders until such time as the Class B Membership Unitholders have received an additional amount equal to two times their capital contribution. Thus, for example, to the extent that the Company raises $1.2 million from Class B subscribers, in the second level of profits distributions, or Distribution Level Two, the Class B Membership Unit holders will be entitled to receive an additional 50% of the profits until they received an additional $2.4 million. Simultaneously with the 50% distribution to the Class B Membership Unit holders, unit holders of Class A Membership Unit holders will also receive 50% of the profits.
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Distribution Level Three: After the Class B Membership Unit holders have received a return of their initial capital (Distribution Level One) as well as twice their initial capital contributions (Distribution Level Two), the profits will be distributed 75% to the Class A Membership Unit holders and 25% to the Class B Membership Unit holders.
Member Tax Distributions
The Company will be a "pass through" entity from a standpoint of federal income taxes. This means that profits and losses of the Company will be allocated to the Members who will receive K-1's with their respective allocable income or loss for federal income tax purposes. As more fully set forth in the Company Agreement which will be supplied along with the Subscription Agreement, taxable income will be allocated generally in accordance with proposed distributions. The Co-Managers have the right to make a 30% "tax distribution" which will equal 30% of the allocated income, such tax distribution to be made to those to whom income has been allocated in proportion with the allocated income.
Management Fee and Management Payments
For their management oversight services, the Co-Managers will receive a management fee of 10% of the Company's profits, determined and payable annually. Throughout the life of the Company, however, the Co-Managers will receive a $20,000 monthly draw as a non-recourse, noninterest-bearing advance on future management fees. These monthly payments and their recapture shall work as follows. At the end of each year, (a) the Co-Managers will cause the Company's profits to be determined, 10% of which shall be payable as the management fee; (b) from that sum shall be deducted any past monthly management fee advances not theretofore recaptured; (c) after recapture from profits, any remaining deficit shall be carried over to the next computation period; and (d) in any period, after recapture of all past management fee advances, all excess sums shall be immediately distributed to the Co-Managers. Throughout the process, the $20,000 monthly draw shall continue unabated, unless suspended by the Co-Managers in their sole discretion. The Co-Managers shall have no obligation to repay any accrued and unrecaptured management fee deficit that may exist at the end of the venture's term.
The management fee is payment for managing and giving oversight to the venture, not for performing services as an officer, employee or contractor would. Should either of the Co-Managers perform services that they in their joint sole discretion determine constitute more than those of oversight, they will be able to bill the Company for those services at rates no less favorable to the Company than if those services had been performed by an officer, employee, contractor or independent third party. The distinction between when activities are "oversight" in character (thus compensable from the management fee) versus the performance of services (thus compensable by the Company apart from the management fee) will be made by the Co-Managers in their sole discretion and is not subject to review or challenge by the other Members. See, "RISK FACTORS, IMPORTANT DISCLOSURES AND CONFLICTS OF INTEREST – Oversight Versus Services Especially in Relation to Management Fee."
Land For Subscription Of Membership Units
The Company is seeking to raise cash by this Offering and will not accept subscriptions unless it receives a minimum of $1.2mm in subscriptions for cash. If that minimum is reached, the Company intends to accept those subscriptions and commence operations while continuing this offering up to a maximum of $4mm. It is possible that the Company may be able to acquire land or real estate in consideration for the issuance of Membership Units. If the Co-Managers decide to do that – which they may do in their sole discretion – they may assess whatever value on such real estate as they determine, which they may do without appraisals or independent evaluations. The only exception to this is if the person offering the real estate is an affiliate of a Co-Manager, in which case an independent valuation of such real estate will be undertaken. The Co-Managers also reserve the right to acquire land by issuance of other economic interests in the Company, such as Class C Membership Units. Those units which the Co-Managers may issue, would be in addition to the $4mm herein sought to be raised, and may be on terms that are even superior to those of the Class B Membership units herein offered.
Joint Ventures
The Co-Managers also reserve the right to cause the Company to enter into joint ventures with others for development purposes. Those joint ventures, if entered, would be on terms as the Co-Managers determine in their sole discretion.
Estimated and Projected Financial Projections on a Year-by-Year Basis
Based on the foregoing, the following table sets forth a projected use of funds for the seven-year period of the Company. As a prospective subscriber reviews this information several things must be borne in mind. First, these projections are merely estimates or forward looking statements of events that may occur. The number of circumstances and contingencies that could occur that would prevent these events from occurring or prevent them from occurring in the time frames herein set forth are too numerous to list. Thus, they cannot under any circumstances be read as guarantees or covenants that these events will occur in the time frames projected or that they will even occur at all. Second, prospective subscribers must read these projections in connection with the indicated, numbered notes that follow the entries.
As can be seen, if the minimum subscriptions of $1.2mm are raised and successfully deployed, based on the numbers we are about to show we project that the Company would generate over a seven-year period cash profits of over $47,000,000 for distribution, after distributions of 30% of the profits in connection with anticipated federal income taxes. Were these profits achieved, based on capital contributions of $1.2mm, Class B Membership Units would receive roughly over $24,000,000 in returns, including 30% additional tax distributions.
The projected seven-year profits based on a raise of $4mm are even higher as we project seven-year period cash profits of over $106,000,000 for distribution, after distributions of 30% of the profits in connection with anticipated federal income taxes. Were these profits achieved, based on capital contributions of $4mm, Class B Membership Units would receive roughly over $56,000,000 in returns, including 30% additional tax distributions.
With these caveats in mind, below are our year-by-year financial projections assuming first that the minimum subscription level of $1.2mm is raised followed by our year-by-year financial projections assuming $4mm is raised.