In this short conversational transcript, three participants discuss the concept and financing of a luxury speculative (spec) residence. They clarify that a "spec" house is built with the intention to sell it, and outline the project's hard and soft construction costs at roughly $2.5 million. To fund the development, they plan to raise about $1.1 million, requiring a minimum investment of $100,000 from accredited investors under a Rule 506 exemption. The proposed profit arrangement is a 50/50 split between the developers and investors. Legal and structural considerations lead them to favor a single‑asset syndication rather than a multi‑deal allocation within a 1023 structure, prompting a brief explanation of what syndication entails. The dialogue is informal, with participants asking each other for definitions and confirming key financial and regulatory details.
Chapters
Speculation is that I'm going to build this house and I speculate that I'm going to sell it.
So it's build and sell a luxury spec residence. What that means, Katia, a spec residence?
No, I'm not sure what that is.
So they can ask Deal Hunter, but—
What is the full word? What is the full word? Spec is short for specifications, speculation. So spec is speculation.
Okay.
Speculation is that I'm going to build this house and I speculate that I'm going to sell it. Gonna guess. So I'm guessing I'm going to sell it.
I speculate I'm going to sell it. So the hard and soft construction costs $2.5 million. So the capital raised $1.1 million. Minimum investments $100,000. Accredited investors only. It's a 506. And then we're doing a 50/50 split with the investors.
Well, it analyzed her— what it did was it analyzed her documents and said that based on what we're looking at, They didn't want us to structure it inside of 1023 as a customizable multi-deal allocation. So they wanted us to structure it just as a single asset syndication. Who knows what a syndication is?
I don't know what it is, but I have like a list of words that I write down that I need to look up for later.
So a syndication is a group that are all on the same plan to get together and do things, right?
So, so that's a syndication. It's a group of people, they're just getting together to do a deal. Recommended capital stack. So capital stack just means like the loan, the equity, what the sponsor's bringing in, the total cost of the project. It's how the money is being brought in. And then how to structure the investor equity. So there's two strong options, and I love that it gives us options. Those straight equity membership units. So Sponsor A, Sponsor B, and then option two, preferred equity structure. So we could give a preferred return. So preferred means that no matter what they're going to get 12% ROI on their money. Remember those deal cards that we were playing with when we played Cash Flow? It said, what's the ROI? That's where this comes in. And then they get the return of capital, and then we also split the profits as well. So again, that's the unknown, because until we sell, until we've gone through the full construction build and have— excuse me— all the final costs of that, and then the other side of the number is what we actually sell it for minus all the fees and costs and everything, that's when we know what the final profit is. But we won't know until the closing table. So, but we can speculate, right? So your current documents already support the securities compliance, which is super important, all about accredited investors, all that, about the risks, the liquidity. There's no guarantee on returns, and our past performance doesn't predict the future. Subscription agreement, again, all the things that— all the legalese. And then the operating agreement, again, more legalese.
