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Comstock Holding Companies, Inc. – IPO: ‘S-1/A’ on 10/28/04

On:  Thursday, 10/28/04, at 9:51pm ET   ·   As of:  10/29/04   ·   Private-to-Public:  Document/Exhibit ¶  –  Release Delayed   ·   Accession #:  1047469-4-32445   ·   File #:  333-118193

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/29/04  Comstock Holding Companies, Inc.  S-1/A¶                 3:1.3M                                   Merrill Corp/New/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Pre-Effective Amendment to Registration Statement   HTML   1.24M 
                          (General Form)                                         
 3: COVER     ¶ Comment-Response or Cover Letter to the SEC         HTML     22K 
 2: EX-23.1     Consent of Experts or Counsel                       HTML      8K 

As filed with the Securities and Exchange Commission on October 29, 2004

Registration No. 333-118193

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933

COMSTOCK HOMEBUILDING COMPANIES, INC.
(Exact Name of Registrant as Specified in its Charter)

11465 Sunset Hills Road, Suite 510
Reston, Virginia 20190
(703) 883-1700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Christopher Clemente
Chief Executive Officer
Comstock Homebuilding Companies, Inc.
11465 Sunset Hills Road, Suite 510
Reston, Virginia 20190
(703) 883-1700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

        Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this Registration Statement.

        If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. o

        The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated            , 2004.

                        Shares

[LOGO]

Comstock Homebuilding Companies, Inc.

Class A Common Stock

        This is an initial public offering of shares of our Class A common stock. All of the    shares of Class A common stock to be sold are being sold by us.

        Each share of our Class A common stock has one vote and each share of our Class B common stock has 10 votes. Following this offering, Christopher Clemente, our Chairman and Chief Executive Officer, and Gregory Benson, our President and Chief Operating Officer, will hold Class A and Class B common stock representing    % of the combined voting power of our Class A and Class B common stock. Prior to this offering, no public market existed for our Class A common stock. We estimate that the initial public offering price per share will be between $    and $    . We have applied for quotation of our Class A common stock on the Nasdaq National Market under the symbol "CHCI" upon completion of this offering.

        Investing in our common stock involves risks. See "Risk Factors" beginning on page 8 to read about factors you should consider before buying shares of our common stock.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

        To the extent that the underwriters sell more than    shares of Class A common stock, the underwriters have the option to purchase up to an additional     shares from us at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares on or about                        , 2004.

BB&T Capital Markets

Prospectus dated                        , 2004.

[COVER GATEFOLD: COVER ART]

[Outside of gatefold:

        The top three quarters of the page is occupied by a collage of pictures of Comstock's developments. At the center of the collage is the slogan "Building on a Solid Foundation Since 1985." Centered on the bottom quarter of the page is Comstock's logo with the slogan "Worthy of the Investment."

Inside of gatefold:

        Across the top three quarters of the gatefold is a collage of pictures of Comstock's developments. At the center of the left page of the gatefold is the slogan "Diversified Products for Diverse Markets." Centered across the bottom quarter of the gatefold is Comstock's logo with the slogan "Worthy of the Investment."]

PROSPECTUS SUMMARY

        This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that may be important to you. You should read the following summary together with the more detailed information regarding us, the common stock being sold in this offering and our combined consolidated financial statements, including the notes to those statements, appearing elsewhere in this prospectus. In this summary and elsewhere in this prospectus, the narrative description of our business and our pro forma financial information incorporates the business and operations of Comstock Service Corp., Inc., also referred to in this prospectus as Comstock Service, which has not been otherwise combined and consolidated in our financial statements and related notes. Discussion of our historical financial statements and results of operations does not include Comstock Service unless otherwise indicated. As part of this offering, we intend to substantially restructure our current corporate organization. We refer to this restructuring as the "Consolidation." This restructuring will include the merger of Comstock Service with and into one of our subsidiaries, which will be accounted for as an acquisition. See "Corporate Consolidation" on page 25. For information on how we derive our pro forma information, please see "Unaudited Pro Forma Combined Consolidated Financial Information" on page 30.

When we refer to

•

the "Company," "we," "us" or "our," for periods prior to the completion of the Consolidation, we are referring to Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc., and as of the completion of the Consolidation and thereafter, we are referring to Comstock Homebuilding Companies, Inc., together in each case with our subsidiaries and any predecessor entities unless the context suggests otherwise;



•

"The Comstock Companies," we are referring to Comstock Holding Company, Inc., Comstock Homes, Inc. and Sunset Investment Corp., Inc., in each case together with their respective subsidiaries;



•

"homes," we are referring to single-family homes, townhouses and condominium units;



•

the "Washington, D.C. market," we are referring to the Washington, D.C. Primary Metropolitan Statistical Area, as defined by the U.S. Census Bureau, which includes the District of Columbia, 17 counties and cities in northern Virginia, five counties in Maryland and Berkeley and Jefferson counties in the eastern panhandle of West Virginia;



•

the "Raleigh, North Carolina market," we are referring to the six counties included in the Raleigh-Durham-Chapel Hill, North Carolina Metropolitan Statistical Area, as defined by the U.S. Census Bureau;



•

"orders" or "sales," we are referring to fully executed contracts with buyers of our homes, excluding contracts that were executed and cancelled;



•

"settlements" or "deliveries," we are referring to the transfer of title of a home to a buyer; and



•

"backlog," we are referring to orders for homes for which there has not yet been a settlement. Our backlog equals total orders less total deliveries.

Our Business

        We are a production home builder that develops, builds and markets single-family homes, townhouses and condominiums. We focus on geographic areas, products and price points where we believe there is significant demand and high profit potential. We currently operate in the Washington, D.C. and Raleigh, North Carolina markets where we target a diverse range of buyers, including first-time, early move-up, secondary move-up, empty nester move-down and active adult home buyers. We believe that these demographics represent a significant and stable segment of home buyers in our

1

markets. Since our founding in 1985, we have built and delivered over 2,500 homes valued at over $500 million.

        Over the past several years we have expanded our business model to include the development of land for our home building operations as a complement to the purchase of finished building lots developed by others. We are currently experiencing the benefits of this expansion. For the year ended December 31, 2003, our revenue and operating income increased over 2002 by 59.7% and 91.4%, respectively. For the six months ended June 30, 2004, our revenue and operating income increased by $38.3 million and $7.5 million, respectively, to $48.8 million and $7.6 million, respectively, as compared to the six months ended June 30, 2003. The book value of our real estate held for development increased by $55.7 million from $20.2 million at December 31, 2002 to $75.9 million at June 30, 2004. On September 30, 2004 our backlog, including Comstock Service, was $142.4 million.

Our Markets

        We operate in the Washington, D.C. and Raleigh, North Carolina markets. We believe that in the home building industry, local economic trends and influences have a more significant impact on supply and demand, and therefore on profitability, than national economic trends and influences. While national economic indicators are influential, they may not show a direct correlation to the performance of a home builder in a particular market. According to the National Association of Home Builders, the Washington, D.C. and Raleigh, North Carolina metropolitan areas are both ranked in the top 20 housing markets in the country, based upon total residential building permits issued in 2003.

        Greater Washington, D.C. Metropolitan Market. Our current and anticipated projects for the Washington, D.C. market are in Arlington, Culpeper, Fairfax, Fauquier, Loudoun, Prince William and Stafford counties in Virginia, and Anne Arundel, Frederick, Howard, Montgomery and Prince Georges counties in Maryland and in the District of Columbia. The Washington, D.C. metropolitan area has typically experienced strong population and economic growth. The strength of this employment market and the stability and resilience of the local economy result in part from the size of the federal government workforce. The presence of the federal government historically has served as a buffer for the local economy against market downturns in the private sector. According to the Bureau of Labor Statistics, the Washington, D.C. market is also characterized by a large professional and business services sector, such as legal, consulting and lobbying services, that employs about 21% of the metropolitan workforce. According to the U.S. Department of Commerce, the Washington, D.C. market enjoyed the fourth highest per capita income among metropolitan areas in the country in 2002—138% of the national per capita income.

        Raleigh, North Carolina Market. Our current and anticipated projects for the Raleigh, North Carolina market are in Durham, Franklin, Johnston and Wake counties, which includes the city of Raleigh. From 1990 to 2000, the Raleigh, North Carolina market was the 12th fastest growing metropolitan area in the United States and was the second fastest growing area in the Southeast in terms of population growth, according to the U.S. Census Bureau. The area experienced population growth of 38.9% during that period, according to the U.S. Census Bureau. Similar to the Washington, D.C. market, the local economy in the Raleigh, North Carolina market is relatively stable and less sensitive to national economic trends because of large public sector employment. Raleigh is the state capital of North Carolina. According to the Bureau of Labor Statistics, the state and local governments constitute 18.7% of the area's aggregate employment. The area is home to Research Triangle Park, a public/private, planned research park containing over nine million square feet of office space, and the headquarters of many technology and research companies. Duke University, the University of North Carolina-Chapel Hill and North Carolina State University are also located in the Raleigh, North Carolina market. According to the U.S. Department of Commerce, the Raleigh, North Carolina market ranked 41st among 361 metropolitan areas in 2002 in terms of per capita income, or 108% of the national per capita income.

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Our Strategy

        Our business strategy is to focus on geographic areas, products and price points where we believe there is significant demand for new housing and high profit potential. Our strategy has the following key elements:

        Build in and expand within the strong growth markets in which we currently operate. We plan to maintain and expand our business in the Washington, D.C. and Raleigh, North Carolina markets to capitalize on their robust economies and continued population growth.

        Expand into selected new geographic markets within our region. We intend to expand into selected new geographic markets in the eastern United States through both start-up operations and acquisitions of other home builders that have strategic land positions, strong local management teams and sound operating principles.

        Acquire and develop a high-margin land inventory. We believe that our market knowledge and experience in land entitlement and development enable us to successfully identify attractive land acquisition opportunities, efficiently manage the process of obtaining development rights and maximize land value.

        Create opportunities in areas overlooked by our competitors. We believe that our townhouse and condominium products, along with our substantial experience in dealing with both the market and regulatory requirements of urban mixed-use developments, enable us to identify and create value in land parcels often overlooked by larger production home builders.

        Focus on a broad segment of the home buying market. Our single-family homes, townhouses and condominiums are designed and priced to appeal to a wide segment of the home buying market, including first-time, early move-up, secondary move-up, empty nester move-down and active adult home buyers.

        Expand into the growing active adult market. We expect the large and aging baby boom population in the United States to fuel growth in the active adult market of the home building industry, and we believe that we are well positioned to take advantage of this growing market.

        Maximize our economies of scale. As a production home builder, we are able to realize economies of scale in the purchase of raw materials, supplies, manufactured inputs and labor.

Our Company

        We were incorporated in May 2004. Our business was started in 1985 by Christopher Clemente, our Chief Executive Officer, as a residential land developer and home builder focused on the upscale home market in the northern Virginia suburbs of Washington, D.C. Immediately prior to this offering, we operated our business through four primary holding companies. As part of this offering, we intend to substantially consolidate our current corporate structure. Please see "Corporate Consolidation" on page 25.

        Our principal executive offices are located at 11465 Sunset Hills Road, Suite 510, Reston, Virginia 20190, and our telephone number is (703) 883-1700. Our Web site is www.comstockhomebuilding.com. Information contained on our Web site does not constitute a part of this prospectus.

3

The Offering

Except as otherwise noted, the number of shares to be outstanding after this offering excludes:

•

        shares of Class A common stock reserved for future issuance under our equity incentive plan; and



•

        shares of Class A common stock reserved for future issuance under our employee stock purchase plan.

Except as otherwise noted, all information in this prospectus is based on the following assumptions:

•

the underwriters do not exercise their over-allotment option; and



•

the completion of our Consolidation immediately prior to the closing of this offering.

4

SUMMARY HISTORICAL AND PRO FORMA
FINANCIAL AND OTHER DATA

        We derived the selected historical financial data shown below for 1999, 2000, 2001, 2002 and 2003 and for the interim periods in 2003 and 2004 from our audited and unaudited financial statements. You should read the following financial information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and our combined consolidated financial statements and the related notes, included elsewhere in this prospectus.

        We have derived the summary pro forma financial data shown below from our unaudited pro forma combined consolidated financial information included elsewhere in this prospectus. The summary unaudited pro forma combined consolidated financial data is not necessarily indicative of either future results of operations or the results that would have occurred if the events we describe had occurred on the indicated dates. You should read the summary historical and pro forma financial data in conjunction with our audited combined consolidated financial statements, the unaudited pro forma combined consolidated financial information and, in each case, the related notes included elsewhere in this prospectus.

        The unaudited pro forma combined consolidated financial statements as adjusted give pro forma effect to a number of factors, including the following:

•

the Consolidation;



•

the deemed acquisition of Comstock Service;



•

the acquisition of certain minority membership interests in certain of our subsidiaries;



•

the repayment of certain indebtedness;



•

funding of the payment of certain S corporation distributions owed to our current stockholders by our four primary holding companies in conjunction with our Consolidation; and



•

this offering.

The unaudited pro forma combined consolidated statements of operations as adjusted were prepared as if the foregoing transactions had occurred on January 1, 2003. The unaudited pro forma combined consolidated balance sheet as adjusted was prepared as if the foregoing transactions had occurred on June 30, 2004.

5

6

(a)

Historical data does not reflect any provision for income taxes. The Comstock Companies were S corporations during the periods indicated and therefore were not subject to income tax. See "Corporate Consolidation."

(b)

Pro forma net income and earnings per share reflect the application of statutory corporate income tax rates to net income as if the termination of the S corporation status of The Comstock Companies had occurred on January 1, 2003 (excluding the deemed acquisition of Comstock Service). The effective derived income tax rates for the year ended December 31, 2003 and the six months ended June 30, 2004 were 40.0% and 38.4%, respectively.

(c)

The historical shares outstanding have been adjusted to reflect the additional number of shares, on an equivalent basis, which are necessary to pay the $    million S corporation distributions.

(d)

Gives effect to (i) the Consolidation, (ii) the deemed acquisition of Comstock Service, (iii) the acquisition of certain minority membership interests in certain of our subsidiaries, (iv) the repayment of certain indebtedness, (v) funding of the payment of certain S corporation distributions and other amounts owed to our current stockholders by certain of our subsidiaries in conjunction with the Consolidation and (vi) this offering. See "Unaudited Pro Forma Combined Consolidated Financial Information."

(e)

Represents the number of (i) shares of Class A common stock to be issued to existing shareholders in connection with the Consolidation, (ii) shares of Class B common stock to be issued to certain existing shareholders and (iii) shares of Class A common stock to be issued in connection with this offering to the extent the proceeds from which will be used to acquire certain minority membership interests of certain of our subsidiaries, repay certain indebtedness existing as of June 30, 2004 and pay certain S corporation distributions and other amounts in conjunction with our Consolidation. See "Unaudited Pro Forma Combined Consolidated Financial Information."

(f)

Includes both The Comstock Companies and Comstock Service.

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RISK FACTORS

        This offering and an investment in our Class A common stock involve a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus before purchasing our Class A common stock. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected, the value of our stock could decline, and you may lose all or part of your investment. The risks and uncertainties described below are those that we currently believe may materially affect us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Relating to Our Business

We engage in construction and real estate activities which are speculative and involve a high degree of risk.

        The home building industry is speculative and is significantly affected by changes in economic and other conditions, such as:

•

employment levels;



•

availability of financing;



•

interest rates; and



•

consumer confidence.

These factors can negatively affect the demand for and pricing of our homes and our margin on sale. We are also subject to a number of risks, many of which are beyond our control, including:

•

delays in construction schedules;



•

costs overruns;



•

changes in governmental regulations (such as slow- or no-growth initiatives);



•

increases in real estate taxes and other local government fees;



•

labor strikes;



•

transportation costs for delivery of materials; and



•

increases and/or shortages in raw materials and labor costs.

Fluctuations in market conditions may affect our ability to sell our land and home inventories at expected prices, if at all, which could adversely affect our revenues and earnings.

        We are subject to the potential for significant fluctuations in the market value of our land and home inventories. We must constantly locate and acquire new tracts of undeveloped and developed land to support our home building operations. There is a lag between the time we acquire control of undeveloped land or developed home sites and the time that we can bring the communities built on that land to market and deliver our homes. This lag time varies from site to site as it is impossible to determine in advance the length of time it will take to obtain governmental approvals and building permits. The risk of owning undeveloped land, developed land and homes can be substantial. The market value of undeveloped land, buildable lots and housing inventories can fluctuate significantly as a result of changing economic and market conditions. Inventory carrying costs can be significant and can result in losses in a poorly performing development or market. Material write-downs of the estimated value of our land and home inventories could occur if market conditions deteriorate or if we purchase land or build home inventories at higher prices during stronger economic periods and the value of those land or home inventories subsequently declines during weaker economic periods. We could also

8

be forced to sell homes, land or lots for prices that generate lower profit than we anticipate, or at a loss, and may not be able to dispose of an investment in a timely manner when we find dispositions advantageous or necessary. Furthermore, a decline in the market value of our land or home inventories may give rise to a breach of financial covenants contained in one or more of our credit facilities, which could cause a default under those credit facilities.

Because our business depends on the acquisition of new land, the potential limitations on the supply of land could reduce our revenues or negatively impact our results of operations.

        Due to increased demand for new homes, we have experienced an increase in competition for available land and developed home sites in the Washington, D.C. and Raleigh, North Carolina markets. In these markets, we have experienced competition for home sites from other, sometimes better capitalized, home builders. In the Raleigh, North Carolina market, we have recently experienced competition from large, national home builders entering the market. Our ability to continue our home building activities over the long term depends upon our ability to locate and acquire suitable parcels of land or developed home sites to support our home building operations. As competition for land increases, the cost of acquiring it may rise, and the availability of suitable parcels at acceptable prices may decline. The increased cost of land requires us to increase the prices of our homes. This increased pricing could reduce demand for our homes and, consequently, reduce the number of homes we sell and lead to a decrease in our revenues and earnings.

Our business is subject to governmental regulations that may delay, increase the cost of, prohibit or severely restrict our development and home building projects and reduce our revenues and growth.

        We are subject to extensive and complex laws and regulations that affect the land development and home building process, including laws and regulations related to zoning, permitted land uses, levels of density (number of dwelling units per acre), building design, access to water and other utilities, water and waste disposal and use of open spaces. In addition, we and our subcontractors are subject to laws and regulations relating to worker health and safety. We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment. In some of our markets, we are required to pay environmental impact fees, use energy saving construction materials and give commitments to provide certain infrastructure such as roads and sewage systems. We must also obtain permits and approvals from local authorities to complete residential development or home construction. The laws and regulations under which we and our subcontractors operate, and our and their obligations to comply with them, may result in delays in construction and development, cause us to incur substantial compliance and other increased costs, and prohibit or severely restrict development and home building activity in certain areas in which we operate. If we are unable to continue to develop communities and build and deliver homes as a result of these restrictions or if our compliance costs increase substantially, our revenues and earnings may be reduced and we may not be able to continue our current level of growth.

Cities and counties in which we operate have adopted, or may adopt, slow or no-growth initiatives that would reduce our ability to build and sell homes in these areas and could adversely affect our revenues and earnings.

        From time to time, certain cities and counties in which we operate have approved, and others in which we operate may approve, various "slow-growth" or "no-growth" initiatives and other similar ballot measures. Such initiatives restrict development within localities by, for example, limiting the number of building permits available in a given year. Approval of slow- or no-growth measures could reduce our ability to acquire land, obtain building permits and build and sell homes in the affected markets and could create additional costs and administration requirements, which in turn could have an adverse effect on our revenues and earnings.

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        Increased regulation in the housing industry increases the time required to obtain the necessary approvals to begin construction and has prolonged the time between the initial acquisition of land or land options and the commencement and completion of construction. These delays increase our costs, decrease our profitability and increase the risks associated with the land inventories we maintain.

        Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. If municipalities in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to build in those municipalities. This, in turn, could reduce the number of homes we sell and decrease our revenues and earnings.

Our ability to sell homes, and, accordingly, our results of operations, will be affected by the availability of financing to potential home buyers.

        Most home buyers finance their purchases through third-party mortgage financing. Real estate demand is generally adversely affected by:

•

increases in interest rates and/or related fees;



•

increases in real estate transaction closing costs;



•

decreases in the availability of mortgage financing;



•

increasing housing costs;



•

unemployment; and



•

changes in federally sponsored financing programs.

Increases in interest rates or decreases in the availability of mortgage financing could depress the market for new homes because of the increased monthly mortgage costs or the unavailability of financing to potential home buyers. Even if potential home buyers do not need financing, increases in interest rates and decreased mortgage availability could make it harder for them to sell their homes. This could adversely affect our operating results and financial condition.

The competitive conditions in the home building industry could increase our costs, reduce our revenues and earnings and otherwise adversely affect our results of operations or limit our growth.

        The home building industry is highly competitive and fragmented. We compete in each of our markets with a number of national, regional and local builders for customers, undeveloped land and home sites, raw materials and labor. In the Washington, D.C. market, we compete against approximately 15 to 20 publicly-traded national home builders, approximately 10 to 15 privately-owned regional home builders, and many local home builders, some of whom are very small and may build as few as five to 25 homes per year. In the Raleigh, North Carolina market, we compete against approximately 10 to 15 publicly-traded national home builders, approximately 10 to 15 privately-owned regional home builders, and a large number of small, local home builders. We do not compete against all of the builders in our geographic markets in all of our product types or submarkets, as some builders focus on particular types of projects within those markets, such as large estate homes, that are not in competition with our projects.

        We compete primarily on the basis of price, location, design, quality, service and reputation. Some of our competitors have greater financial resources, more established market positions and better opportunities for land and home site acquisitions than we do and have lower costs of capital, labor and material than us. The competitive conditions in the home building industry could, among other things:

•

make it difficult for us to acquire suitable land or home sites in desirable locations at acceptable prices and terms, which could adversely affect our ability to build homes;

10

•

require us to increase selling commissions and other incentives, which could reduce our profit margins;



•

result in delays in construction if we experience delays in procuring materials or hiring trades people or laborers;



•

result in lower sales volume and revenues; and



•

increase our costs and reduce our earnings.

        We also compete with resales of existing homes and condominiums and available rental housing. An oversupply of competitively priced resale or rental homes in our markets could adversely affect our ability to sell homes profitably.

Our business is concentrated in two geographic areas which increases our exposure to localized risks.

        We currently develop and sell homes principally in the Washington, D.C. and Raleigh, North Carolina markets. Our limited geographic diversity means that adverse general economic, weather or other conditions in either of these markets could adversely affect our results of operations or our ability to grow our business.

Our growth strategy to expand into new geographic areas poses risks.

        We may expand our business to new geographic areas outside of the Washington, D.C. and Raleigh-Durham, North Carolina metropolitan areas. We will face additional risks if we develop communities in geographic areas or climates in which we do not have experience or if we develop a different size or style of community than those currently being developed, including:

•

adjusting our construction methods to different geographies and climates;



•

obtaining the necessary construction materials and labor in sufficient amounts and on acceptable terms;



•

obtaining necessary entitlements and permits under unfamiliar regulatory regimes;



•

attracting potential customers in a market in which we do not have significant experience; and



•

the cost of hiring new employees and increased infrastructure costs.

        We may not be able to successfully manage the risks of such an expansion, which could have a material adverse effect on our revenues, earnings and financial condition.

We may not be able to successfully identify, complete or integrate acquisitions.

        As part of our business strategy, we expect to review acquisition prospects in our existing markets and in new markets in the Mid-Atlantic region or elsewhere that would complement our existing business, or that might otherwise offer growth opportunities. We have not currently identified any acquisition targets, and we may not be successful in identifying suitable acquisition targets or in completing acquisitions. Further, to the extent we complete acquisitions, we may be unable to realize the anticipated benefits because of operational factors or difficulties in integrating the acquisitions with our existing business. Acquisitions entail numerous risks, including, but not limited to:

•

difficulties in assimilating acquired management and operations;



•

risks associated with investing the necessary resources in order to achieve profitability;



•

the incurrence of significant due diligence expenses relating to acquisitions that are not completed;

11

•

unforeseen expenses and liabilities;



•

risks associated with entering new markets or sub-markets in which we have limited or no prior experience;



•

the diversion of our management's attention from our current business;



•

the potential loss of key employees of acquired organizations; and



•

risks associated with transferred assets and liabilities.

        We may not be able to acquire or manage profitably additional businesses, or to integrate successfully any acquired businesses, properties or personnel into our business, without substantial costs, delays or other operational or financial difficulties. Our failure to do so could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on the services of certain key employees and the loss of their services could harm our business.

        Our success largely depends on the continuing services of certain key employees, including our Chairman and Chief Executive Officer, Christopher Clemente, Gregory Benson, our President and Chief Operating Officer, and Bruce Labovitz, our Chief Financial Officer. Our continued success also depends on our ability to attract and retain qualified personnel. We believe that Messrs. Clemente, Benson and Labovitz each possesses valuable industry knowledge, experience and leadership abilities that would be difficult in the short term to replicate. The loss of these or other key employees could harm our operations and business plans.

Our significant level of debt could adversely affect our financial condition and prevent us from fulfilling our debt service obligations.

        We currently have a significant amount of debt, and our ability to meet our debt service obligations will depend on our future performance. Numerous factors outside of our control, including changes in economic or other business conditions generally, such as employment levels, population growth and consumer confidence, or in the markets or industry in which we do business, may adversely affect our operating results and cash flows, which in turn may affect our ability to meet our debt service obligations. As of June 30, 2004, on an unaudited pro forma combined consolidated as adjusted basis, we had $74.6 million aggregate principal amount of total debt outstanding, or 13.8% of our total shareholders' equity as of that date. We may incur additional debt to fund our operations.

        For the six months ended June 30, 2004, our interest payments on account of outstanding indebtedness totaled $1.9 million or 3.9% of our total revenues for that period. Our total anticipated interest payment obligations for the 12 months beginning January 1, 2004 are $4.0 million on a pro forma basis, after giving effect to the consummation of this offering, including the anticipated repayment of approximately $7.0 million of indebtedness from the net proceeds of this offering. If we are unable to meet our debt service obligations, we may need to restructure or refinance our debt, seek additional equity financing or sell assets. We may be unable to restructure or refinance our debt, obtain additional equity financing or sell assets on satisfactory terms or at all. In addition, a substantial portion of our cash flow from operations must be dedicated to the repayment of debt, including interest, thereby reducing the funds available to us for other purposes. Our level of debt may limit our flexibility to adjust to changing economic or market conditions, reduce our ability to withstand competitive pressures and make us more vulnerable to a downturn in general economic conditions.

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Our growth requires additional capital, which may not be available.

        The real estate development industry is capital intensive and requires significant expenditures for land purchases, land development and construction. We intend to pursue a strategy of continued investment in additional real estate related projects. We anticipate that we will need to obtain additional financing as we expand our operations. These funds may be obtained through public or private debt or equity financings, additional bank borrowings or from strategic alliances or joint ventures. We may not be successful in obtaining additional funds in a timely manner, on favorable terms or at all. Moreover, certain of our bank financing agreements contain provisions that limit the type and amount of debt we may incur in the future without our lenders' consent. In addition, the availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced, and lenders may require us to invest increased amounts of equity in a project in connection with both new loans and the extension of existing loans. If we do not have access to additional capital, we may be required to delay, scale back or abandon some or all of our acquisition plans or growth strategies or reduce capital expenditures and the size of our operations.

Our growth depends on the availability of construction, acquisition and development loans.

        Currently, we have multiple construction, acquisition and development loans. We plan to replace these credit facilities with one or more larger facilities, which is expected to reduce our aggregate debt financing costs. If we are unable to obtain a larger facility, we will need to continue to rely on our smaller credit facilities. These smaller credit facilities generally have higher costs and require significant management time to administer them. Additionally, if financial institutions decide to discontinue providing these facilities to us, we would lose our primary source of financing our operations or the cost of retaining or replacing these credit facilities could increase dramatically. Further, this type of financing is typically characterized by short-term loans which are subject to call. If our primary financing becomes unavailable or accelerated repayment is demanded, we may not be able to meet our obligations.

Our bank credit facilities impose restrictions on our operations, which, if violated, could result in our indebtedness being immediately due and payable and the loss of our assets.

        Our bank credit facilities impose restrictions on our operations and activities. The most significant restrictions relate to debt incurrence, lien incurrence, sales of significant assets and cash distributions and require us to comply with certain financial covenants. If we fail to comply with any of these restrictions or covenants, the banks could cause our debt to become payable immediately. In addition, some of our debt instruments contain cross-default provisions, which could cause a default under a number of debt instruments if we default on only one debt instrument. Most of our credit facilities are secured by the land, improvements and fixtures owned by the entity that is party to the facility. If we were unable to repay indebtedness owed to our secured creditors, they could foreclose on the collateral securing that indebtedness.

A significant portion of our business plan involves construction of mixed-use developments and high-rise projects with which we have less experience.

        We expect to increase our construction and development of mixed-use and high-rise residential projects. Our experience is largely based on smaller wood-framed structures that are less complex than high-rise construction or the development of mixed-use projects. A mixed-use project is one that integrates residential and non-residential uses in the same structure or in close proximity to each other, on the same land. As we expand into these new product types, we expect to encounter operating, marketing, customer service, warranty and management challenges with which we have less familiarity. Although we have expanded our management team to include individuals with significant experience in this type of real estate development, we have not completed any projects managed by these persons. If

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we are unable to successfully manage the challenges of this portion of our business, we may incur additional costs and our results of operations could be adversely affected.

If we experience shortages of labor or supplies or other circumstances beyond our control, there could be delays or increased costs in developing our projects, which would adversely affect our operating results.

        We and the home building industry from time to time may be affected by circumstances beyond our control, including:

•

work stoppages, labor disputes and shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers;



•

lack of availability of adequate utility infrastructure and services;



•

transportation cost increases;



•

our need to rely on local subcontractors who may not be adequately capitalized or insured; and



•

shortages or fluctuations in prices of building materials.

        These difficulties have caused and likely will cause unexpected construction delays and short-term increases in construction costs. In an attempt to protect the margins on our projects, we often purchase certain building materials with commitments that lock in the prices of these materials for 90 to 120 days or more. However, once the supply of building materials subject to these commitments is exhausted, we are again subject to market fluctuations and shortages. We may not be able to recover unexpected increases in construction or materials costs by raising our home prices because, typically, the price of each home is established at the time a customer executes a home sale contract. Furthermore, sustained increases in construction costs may, over time, erode our profit margins.

We depend on the availability and skill of subcontractors.

        Substantially all of our construction work is done by subcontractors with us acting as the general contractor or by subcontractors working for a general contractor we select for a particular project. Accordingly, the timing and quality of our construction depends on the availability and skill of those subcontractors. We do not have long-term contractual commitments with subcontractors or suppliers. Although we believe that our relationships with our suppliers and subcontractors are good, we cannot assure you that skilled subcontractors will continue to be available at reasonable rates and in the areas in which we conduct our operations. The inability to contract with skilled subcontractors or general contractors at reasonable costs on a timely basis could limit our ability to build and deliver homes and could erode our profit margins.

Product liability litigation and claims that arise in the ordinary course of business may be costly or negatively impact sales, which could adversely affect our results of operations.

        Our home building business is subject to construction defect and product liability claims arising in the ordinary course of business. These claims are common in the home building industry and can be costly. Among the claims for which developers and builders have financial exposure are property damage, environmental claims and bodily injury claims. Damages awarded under these suits may include the costs of remediation, loss of property and health-related bodily injury. In response to increased litigation, insurance underwriters have attempted to limit their risk by excluding coverage for certain claims associated with environmental conditions, pollution and product and workmanship defects. As a developer and a home builder, we may be at risk of loss for mold-related property, bodily injury and other claims in amounts that exceed available limits on our comprehensive general liability policies. In addition, the costs of insuring against construction defect and product liability claims are

14

high and the amount of coverage offered by insurance companies is limited. Uninsured product liability and similar claims, claims in excess of the limits under our insurance policies and the costs of obtaining insurance to cover such claims could have a material adverse effect on our revenues and earnings.

Increased insurance risk could negatively affect our business.

        Insurance and surety companies have reassessed many aspects of their business and, as a result, may take actions that could negatively affect our business. These actions could include increasing insurance premiums, requiring higher self-insured retentions and deductibles, requiring additional collateral on surety bonds, reducing limits, restricting coverages, imposing exclusions, and refusing to underwrite certain risks and classes of business. Any of these actions may adversely affect our ability to obtain appropriate insurance coverage at reasonable costs, which could have a material adverse effect on our business. Additionally, coverage for certain types of claims, such as claims relating to mold, is generally unavailable. Further, we rely on surety bonds, typically provided by insurance companies, as a means of limiting the amount of capital utilized in connection with the public improvement sureties that we are required to post with governmental authorities in connection with land development and construction activities. The cost of obtaining these surety bonds is, from time to time, unpredictable and on occasion these surety bonds are unavailable. These factors can delay commencement of development projects and adversely affect revenue and earnings.

We are subject to warranty claims arising in the ordinary course of business that could be costly.

        We provide service warranties on our homes for a period of one year or more post closing and a structural warranty for five years post closing. We self-insure all of our warranties and reserve an amount we believe will be sufficient to satisfy any warranty claims on homes we sell. We also attempt to pass much of the risk associated with potential defects in materials and workmanship on to the subcontractors performing the work and the suppliers and manufacturers of the materials. In such cases, we still may incur unanticipated costs if a subcontractor, supplier or manufacturer fails to honor its obligations regarding the work or materials it supplies to our projects. If the amount of actual claims materially exceeds our aggregate warranty reserves and/or the amounts we can recover from our subcontractors and suppliers, our operating results would be adversely affected.

Our business, revenues and earnings may be adversely affected by adverse weather conditions or natural disasters.

        Adverse weather conditions, such as extended periods of rain, snow or cold temperatures, and natural disasters, such as hurricanes, tornadoes, floods and fires, can delay completion and sale of homes, damage partially complete or other unsold homes in our inventory and/or decrease the demand for homes or increase the cost of building homes. To the extent that natural disasters or adverse weather events occur, our business and results may be adversely affected. To the extent our insurance is not adequate to cover business interruption losses or repair costs resulting from these events, our revenues and earnings may be adversely affected.

We are subject to certain environmental laws and the cost of compliance could adversely affect our business.

        As a current or previous owner or operator of real property, we may be liable under federal, state, and local environmental laws, ordinances and regulations for the costs of removal or remediation of hazardous or toxic substances on, under or in the properties or in the proximity of the properties we develop. These laws often impose liability whether or not we knew of, or were responsible for, the presence of such hazardous or toxic substances. The cost of investigating, remediating or removing such hazardous or toxic substances may be substantial. The presence of any such substance, or the failure promptly to remediate any such substance, may adversely affect our ability to sell the property, to use

15

the property for our intended purpose, or to borrow funds using the property as collateral. In addition, the construction process involves the use of hazardous and toxic materials. We could be held liable under environmental laws for the costs of removal or remediation of such materials. In addition, our existing credit facilities also restrict our access to the loan proceeds if the properties that are used to collateralize the loans are contaminated by hazardous substances and require us to indemnify the bank against losses resulting from such occurrence for significant periods of time, even after the loan is fully repaid.

        Our Eclipse project is part of a larger development located at Potomac Yard in northern Virginia. Potomac Yard was formerly part of a railroad switching yard contaminated by rail-related activities. Remediation of the property was conducted under supervision of the U.S. Environmental Protection Agency, or EPA, in coordination with state and local authorities. In 1998, federal, state and local government agencies authorized redevelopment of the property. Our plans for development of our portion of the project are consistent with those authorizations. Although concentrations of contaminants remain on the property under the EPA-approved remediation work plan, the EPA has determined that they do not present an unacceptable risk to human health or the environment. However, it is possible that we could incur some costs to defend against any claims that might be brought in the future relating to any such contaminants.

If we are not able to develop our communities successfully, our earnings could be diminished.

        Before a community generates any revenues, material expenditures are required to acquire land, to obtain development approvals and to construct significant portions of project infrastructure, amenities, model homes and sales facilities. It can take a year or more for a community development to achieve cumulative positive cash flow. Our inability to develop and market our communities successfully and to generate positive cash flows from these operations in a timely manner would have a material adverse effect on our ability to service our debt and to meet our working capital requirements.

Our operating results may vary.

        We expect to experience variability in our revenues and net income. Factors expected to contribute to this variability include, among other things:

•

the uncertain timing of real estate closings;



•

our ability to continue to acquire additional land or options thereon on acceptable terms and the timing of all necessary regulatory approvals required for development;



•

the condition of the real estate market and the general economy in the Washington D.C. and Raleigh, North Carolina markets, and other markets we may enter;



•

the cyclical nature of the home building industry;



•

the changing regulatory environment concerning real estate development and home building;



•

changes in prevailing interests rates and the availability of mortgage financing; and



•

costs of material and labor and delays in construction schedules.

        The volume of sales contracts and closings typically varies from month to month and from quarter to quarter depending on several factors, including the stages of development of our projects, weather and other factors beyond our control. In the early stages of a project's development, we incur significant start-up costs associated with, among other things, project design, land acquisition and development, construction and marketing expenses. Since revenues from sales of properties are generally recognized only upon the transfer of title at the closing of a sale, no revenue is recognized during the early stages of a project unless land parcels or residential homesites are sold to other

16

developers. Periodic sales of properties may be insufficient to fund operating expenses. Further, if sales and other revenues are not adequate to cover operating expenses, we will be required to seek sources of additional operating funds. Accordingly, our financial results will vary from community to community and from time to time.

Acts of war or terrorism may seriously harm our business.

        Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power or acts of terrorism, may cause disruption to the U.S. economy, or the local economies of either the Washington, D.C. or Raleigh, North Carolina market, cause shortages of building materials, increase costs associated with obtaining building materials, result in building code changes that could increase costs of construction, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate, all of which could reduce demand for our homes and adversely impact our revenues and earnings.

Being a public company will increase our administrative costs.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies. In addition to final rules and rule proposals already made by the Securities and Exchange Commission, the National Association of Securities Dealers, or NASD, has adopted revisions to its requirements for companies that are listed on the Nasdaq National Market. We expect these new rules and regulations to increase our legal and financial compliance costs, and to make some activities more time consuming and/or costly. For example, in anticipation of becoming a public company we will add personnel, particularly accounting staff, add independent directors, create board committees, adopt additional internal controls and disclosure controls and procedures, retain a transfer agent and a financial printer, adopt an insider trading policy and other corporate governance policies, and will have all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

Being a public company will require us to significantly enhance our controls over the preparation of financial statements in order to ensure the detection, in a timely manner, of misstatements that could occur in our financial statements in amounts that may be material.

        Our independent auditors have reported material weaknesses in our internal controls that, if not remedied, could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our stock. In connection with the audit of the combined consolidated financial statements of our three holding companies for the three years ended December 31, 2003, in July 2004 our independent auditors reported to our Board of Directors several matters that are "reportable conditions" and "material weaknesses" in our internal controls as defined in standards established by the American Institute of Certified Public Accountants. In general, the reportable conditions are significant deficiencies in our internal controls that, if not addressed, could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. A material weakness is a reportable condition in which internal controls do not reduce to a low level the risk that undetected misstatements caused by error or fraud may occur in amounts that are material to audited financial statements.

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        The conditions resulting in the material weaknesses gave rise to a number of adjustments under generally acceptable accounting principles, and adjustments relating to the completeness and accuracy of certain underlying data, which materially changed our financial statements between initial presentation and issued audit. The material weaknesses reported in July 2004 to our Board of Directors in connection with their audit of our financial statements for the three years ended December 31, 2003, are summarized below:

•

Our accounting software system had significant limitations with respect to the process of preparing combined consolidated financial statements.



•

Our policies and procedures with respect to record retention were deemed inadequate. In addition, we needed to enhance our policies and procedures with respect to the formal review and documentation by management of business performance.



•

We needed to improve our in-house accounting staff in preparation for the requirements of financial reporting as a public company.



•

Our policies and procedures with respect to the capitalization of selling, general and administrative costs as real estate held for development and sale and released into cost of sales at settlement were deemed to be inaccurate. The result of the inaccurate capitalization of selling, general and administrative expenses was that accurate reporting of expenses was delayed. This change in policy affected the timing of reported profits, not cumulative project profits. Since the three-year audit presented herein is the first combined consolidated audit of the Comstock Companies there was no restatement associated with this change in policy and procedure.



•

Our policies and procedures for period end cut-off were deemed to be insufficient to properly present the financial position of the company with respect to accrued expenses. The result of the inaccurate accrual and release of completion expenses was that accurate reporting of profits was delayed. This change in policy affected the timing of reported profits, not cumulative project profits. Since the three-year audit presented herein is the first combined consolidated audit of the Comstock Companies there was no restatement associated with this change in policy and procedure.



•

Our policies and procedures with respect to the approval and documentation of related party transactions needed to be formalized so that we could ensure the fairness of these transactions and proper disclosure of these transactions in our financial statements.

        As described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control over Financial Reporting," we have employed additional qualified personnel and adopted and implemented policies and procedures to address the material weaknesses which include the promotion of our Vice President of Finance to the position of Chief Financial Officer and the hiring of a Chief Accounting Officer. However, the process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

        Upon completion of this offering, we will have had only limited operating experience with the remedial measures we have made to date and we cannot be certain that the measures we have taken to date or any future measures will adequately remediate the material weaknesses reported by our independent auditors or that the measures we implement will enable us to maintain adequate controls over our financial processes and reporting in the future. Our independent auditors have not formally evaluated the measures we have taken to address the material weaknesses described above. In addition, we cannot be certain that additional material weaknesses or significant deficiencies in our internal

18

controls will not be discovered in the future. Any failure to remediate the material weaknesses reported by our independent auditors or to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations subject us to increased risk of errors and fraud related to our financial statements or result in material misstatements in our financial statements. Any such failure also could adversely affect the results of the periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our "internal control over financial reporting" that will be required when the Securities and Exchange Commission's rules under Section 404 of the Sarbanes-Oxley Act of 2002 become applicable to us beginning with our Annual Report on Form 10-K for the year ending December 31, 2005 to be filed in early 2006. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

Risks Related to this Offering

There has been no public market, and it is possible that no trading market will develop or be maintained, for our Class A common stock, and you may not be able to resell shares of our Class A common stock for an amount equal to or more than your purchase price.

        Prior to this offering there has not been a public market for our Class A common stock. Although it is anticipated that the Class A common stock will be approved for quotation on the Nasdaq National Market, there can be no assurance that a trading market will develop or, if such a market does develop, how liquid that market might become, or whether it will be maintained. The initial public offering price will be determined by negotiation between the representatives of the underwriters and us and may not be indicative of prices that will prevail in the trading market. If an active trading market fails to develop or be maintained you may be unable to sell the shares of Class A common stock purchased in this offering at an acceptable price or at all.

Volatility of our stock price could adversely affect stockholders.

        The market price of our Class A common stock could fluctuate significantly as a result of:

•

quarterly variations in our operating results;



•

general conditions in the home building industry;



•

interest rate changes;



•

changes in the market's expectations about our operating results;



•

our operating results failing to meet the expectation of securities analysts or investors in a particular period;



•

changes in financial estimates and recommendations by securities analysts concerning our company or the home building industry in general;



•

operating and stock price performance of other companies that investors deem comparable to us;



•

news reports relating to trends in our markets;



•

changes in laws and regulations affecting our business;



•

material announcements by us or our competitors;



•

material announcements by our construction lenders or the manufacturers and suppliers we use;

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•

sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and



•

general economic and political conditions such as recessions and acts of war or terrorism.

        Fluctuations in the price of our Class A common stock could contribute to the loss of all or part of your investment. Furthermore, any of the factors listed above could have a material adverse effect on your investment in our Class A common stock and our Class A common stock may trade at prices significantly below the offering price.

You will experience immediate and significant dilution in the book value per share and will experience further dilution with the future exercise of stock options and the grant of restricted stock.

        If you purchase Class A common stock in this offering, you will incur immediate dilution, which means that:

•

you will pay a price per share that exceeds by $        the per share net tangible book value of our assets immediately following the offering (on a pro forma basis as of                        , 2004); and



•

the investors in the offering will have contributed    % of the total amount to fund us (before deducting the estimated underwriting discounts and commissions and offering expenses) but will own only    % of our outstanding shares of our common stock.

        From time to time, we may issue stock options or restricted stock grants to employees and non-employee directors pursuant to our equity incentive plan. We expect that these options or restricted stock grants will generally vest commencing one year from the date of grant and continue vesting over a three-year period. You will experience further dilution as the options vest and are exercised by their holders and the restrictions lapse on the restricted stock grants.

Future sales, or the availability for sale, of our common stock may cause our stock price to decline.

        In connection with this offering, we, along with our officers, directors and stockholders, will have agreed prior to the commencement of this offering, subject to limited exceptions, not to sell or transfer any shares of common stock for 180 days after the date of this prospectus without the underwriters' consent. However, the underwriters may release these shares from these restrictions at any time. In evaluating whether to grant such a request, the underwriters may consider a number of factors with a view toward maintaining an orderly market for, and minimizing volatility in the market price of, our Class A common stock. These factors include, among others, the number of shares involved, recent trading volume and prices of the stock, the length of time before the lock-up expires and the reasons for, and the timing of, the request. We cannot predict what effect, if any, market sales of shares held by any stockholder or the availability of these shares for future sale will have on the market price of our Class A common stock.

        Based on shares outstanding as of                        , 2004, a total of        shares of common stock may be sold in the public market by existing stockholders 181 days after the date of this prospectus, subject to applicable volume and other limitations imposed under federal securities laws. Sales of substantial amounts of our Class A common stock in the public market after the completion of this offering, or the perception that such sales could occur, could adversely affect the market price of our Class A common stock and could materially impair our future ability to raise capital through offerings of our common stock. See "Shares Eligible for Future Sale" on page 96 for a more detailed description of the restrictions on selling shares of our common stock after this offering.

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There may be conflicts of interest arising out of relationships and transactions between us and third-party entities in which certain of our directors and officers have interests.

        We have entered into a number of transactions with related parties, including with entities in which certain of our directors and executive officers have interests. For example, we lease our corporate headquarters facility from an entity in which Christopher Clemente, our Chairman and Chief Executive Officer, owns a 45% interest, Gregory Benson, our President, Chief Operating Officer and a member of our board of directors, owns a 5% interest, and others own a 50% interest. We have also entered into other transactions with related parties. These related party transactions could cause conflicts of interest between us and the other parties to the transaction, which could lead to less favorable results than if the transactions had been with unrelated parties. See "Certain Transactions."

The holders of our Class B common stock will continue to control us after this offering, which will limit your ability to influence corporate matters.

        After this offering, Messrs. Clemente and Benson will own 100% of our outstanding Class B common stock, which will represent    % of the combined voting power of all classes of our voting stock, or    % of the combined voting power of all classes of our voting stock if the underwriters exercise their over-allotment option in full. As a result, Messrs. Clemente and Benson, acting together, will have control over us, the election of our board of directors and our management and policies. Messrs. Clemente and Benson, acting together, will also have control over all matters requiring stockholder approval, including the amendment of certain provisions of our certificate of incorporation and bylaws, the approval of any equity-based employee compensation plans and the approval of fundamental corporate transactions, including mergers. In light of this control, other companies could be discouraged from initiating a potential merger, takeover or any other transaction resulting in a change of control. Such a transaction potentially could be beneficial to our business or to our stockholders. This may in turn reduce the price that investors are willing to pay in the future for shares of our Class A common stock.

The limited voting rights of our Class A common stock could impact its attractiveness to investors and its liquidity and, as a result, its market value.

        The holders of our Class A and Class B common stock generally have identical rights, except that holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to 10 votes per share on all matters to be voted on by stockholders. We will be selling our Class A common stock in this offering. The difference in the voting rights of the Class A and Class B common stock could diminish the value of the Class A common stock to the extent that investors or any potential future purchasers of our Class A common stock ascribe value to the superior voting rights of the Class B common stock.

It may be difficult for a third party to acquire us, which could inhibit stockholders from realizing a premium on their stock price.

        We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in business combinations with any stockholder, including all affiliates and employees of the stockholder, who owns 15% or more of the corporation's outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation's voting stock unless specified conditions are met, as further described in "Description of Capital Stock."

        Our amended and restated certificate of incorporation and bylaws will contain provisions that could have the effect of delaying, deferring or preventing a change in control of us that stockholders may consider favorable or beneficial. These provisions could discourage proxy contests and make it

21

more difficult for you and other stockholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:

•

a staggered board of directors, so that it would take three successive annual meetings to replace all directors;



•

a prohibition of stockholder action by written consent; and



•

advance notice requirements for the submission by stockholders of nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting.

Our issuance of shares of preferred stock could delay or prevent a change of control of us.

        Our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to    shares of preferred stock, par value $.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders, even where stockholders are offered a premium for their shares. The issuance of shares of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of Class A common stock, including the loss of voting control. We have no present plans to issue any shares of preferred stock.

We have broad discretion in how we use the net proceeds from this offering and ultimately may not use them effectively.

        We expect to use the net proceeds received from this offering to acquire minority membership interests in certain of our subsidiaries, to repay certain indebtedness, to fund the payment of all or a portion of certain S corporation distributions and other amounts owed to our current stockholders by certain of our subsidiaries in conjunction with our Consolidation, to fund future acquisitions and for general corporate purposes. We could use these proceeds in ways which our stockholders may not desire and the failure of our management to use such funds effectively could result in unfavorable returns. This could have a material adverse effect on our financial condition, results of operations and stock price.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        Some of the statements contained in this prospectus include forward-looking statements. These forward-looking statements can be identified by the use of words such as "anticipate," "believe," "estimate," "may," "intend," "expect," "will," "should," "seeks" or other similar expressions. Forward-looking statements are based largely on our expectations and involve inherent risks and uncertainties including certain risks described in this prospectus. When considering those forward-looking statements, you should keep in mind the risks, uncertainties and other cautionary statements made in this prospectus. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. Some factors which may affect the accuracy of the forward-looking statements apply generally to the real estate industry, while other factors apply directly to us. Any number of important factors which could cause actual results to differ materially from those in the forward-looking statements include:

•

general economic and market conditions, including interest rate levels;



•

our ability to service our substantial debt;



•

inherent risks in investment in real estate;



•

our ability to compete in the Washington, D.C. and Raleigh, North Carolina real estate and home building markets;



•

regulatory actions;



•

fluctuations in operating results;



•

our anticipated growth strategies;



•

shortages and increased costs of labor or building materials;



•

the availability and cost of land in desirable areas;



•

natural disasters;



•

our ability to raise debt and equity capital and grow our operations on a profitable basis;



•

our continuing relationship with affiliates; and



•

the other risks described under the heading "Risk Factors."

        Many of these factors are beyond our control. For a discussion of factors that could cause actual results to differ, please see the discussion in the section of this prospectus entitled "Risk Factors."

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USE OF PROCEEDS

        We expect to receive approximately $     million in net proceeds from the sale of the    shares of Class A common stock in this offering, assuming that the initial public offering price is $     per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We expect to receive approximately $     million in net proceeds if the underwriters' over-allotment option is exercised in full.

        We intend to use the net proceeds of this offering as follows:

•

approximately $8.5 million to purchase certain outstanding minority membership interests of certain of our subsidiaries, of which approximately $150,000 will be paid to Gary Martin, one of our director-nominees, approximately $120,000 will be paid to the mother-in-law of Christopher Clemente, our Chairman and Chief Executive Officer, and approximately $60,000 will be paid to Lawrence Golub, one of our four current shareholders;



•

approximately $14.6 million to fund payment of all or a portion of certain S corporation distributions and other amounts owed to our current shareholders by our four primary holding companies in conjunction with our Consolidation, as more fully discussed under "S Corporation Distributions" on page 27;



•

approximately $7.0 million to repay indebtedness to our mezzanine debtholders consisting of (1) a $5.0 million loan incurred on April 30, 2004 for the purpose of providing us working capital, accruing interest at 12% per annum and due upon the earlier of April 30, 2007 or the closing of our Consolidation with a 10% early payment premium, or $500,000, if our Consolidation occurs within 12 months of the date of the loan, (2) $528,000 pursuant to loans incurred on August 19, 2003, accruing interest at 14% per annum and due February 19, 2007, of which $300,000 of the principal amount is payable to the parents of Bruce Labovitz, our Chief Financial Officer, and (3) a $1.0 million loan incurred on December 15, 2003, accruing interest at 18% per annum and due on October 15, 2004;



•

to fund existing projects and to acquire new land for development and home building purposes; and



•

general corporate purposes, including working capital, and capital expenditures made in the ordinary course of business.

        We may also use a portion of the net proceeds of this offering to acquire companies or to establish joint ventures that we believe will complement our current or future business. However, we have no specific plans, agreements or commitments, oral or written, to do so. We are not currently engaged in any substantive negotiations for any acquisition or joint venture. The amounts that we actually expend for working capital purposes will vary significantly depending on a number of factors, including future revenue growth, if any, and the amount of cash we generate from operations. As a result, we will retain broad discretion in the allocation of the net proceeds of this offering.

        Pending the uses described above, we will invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

        We are a recently organized entity and have never paid cash dividends on our Class A common stock. We intend to retain any future earnings to fund the development and growth of our business, and we do not anticipate paying any cash dividends in the future.

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CORPORATE CONSOLIDATION

        Current operations. Immediately prior to this offering, we operated our business through four primary holding companies, each of which has been taxed as a Subchapter S corporation since its formation. Each of these companies is owned by our four current stockholders in unequal percentages that are substantially similar in the case of each of the four companies. Our primary holding companies immediately prior to this offering were:

•

Comstock Holding Company, Inc.,



•

Comstock Homes, Inc.,



•

Sunset Investment Corp., Inc., and



•

Comstock Service Corp., Inc.

        Each of these primary holding companies is a Virginia corporation. As of March 31, 2004, these companies owned, directly or indirectly, either all or a majority of the outstanding membership interests in 18 active project level limited liability companies (LLCs) which in turn operated one or more projects. Immediately prior to this offering, seven of these LLCs were wholly owned by one of our primary holding companies and 11 were majority owned by one of our primary holding companies. The owners of the minority interests, directly or indirectly, in the applicable LLCs are individuals or financial institutions that have invested in one or more of our real estate projects. Proceeds raised from these investors have represented an important part of our working capital funding to date. Pursuant to the terms of the operating agreements of the parent entities of the applicable LLCs, we intend to purchase all of the minority interests in four of the eleven majority-owned LLCs at purchase prices set forth in the operating agreements. We intend to use approximately $8.5 million of the net proceeds of this offering to fund the purchases of the minority interests. Of this amount, approximately $150,000 will be paid to Gary Martin, one of our director-nominees, approximately $120,000 will be paid to Christopher Clemente's mother-in-law, and approximately $60,000 will be paid to Lawrence Golub, one of our four current shareholders.

        Consolidation. Prior to the closing of this offering, Comstock Homebuilding Companies, Inc., a Delaware corporation, which is selling shares of Class A common stock to the public in this offering, will acquire Comstock Holding Company, Inc. by merger following the Consolidation. The Consolidation will be effected through the mergers of Comstock Service Corp., Inc., Sunset Investment Corp., Inc. and Comstock Homes, Inc. with and into Comstock Holding Company, Inc. As a result of the Consolidation, the number of our primary holding companies will be reduced from four to one. The Consolidation will not materially affect our operations, which we will continue to conduct through LLCs and holding companies, as applicable, wholly owned by us. In connection with the Consolidation, each of the four primary holding companies will distribute promissory notes to its shareholders in an amount equal to its S corporation accumulated adjustments account and undistributed tax basis in affiliated entities, if any, as of the date on which the notes are issued and certain other amounts advanced by the shareholders to these companies relating to costs incurred by the companies in connection with this offering. We intend to use a portion of the net proceeds of this offering to fund distributions to the shareholders of the primary holding companies in payment of all or a portion of the amounts that are due and payable under the promissory notes. If we were to pay the entire outstanding balance of the promissory notes, the aggregate payment would be approximately $14.6 million. See "S Corporation Distributions." The Subchapter S tax elections of the four primary holding companies will automatically be terminated as a result of the Consolidation.

        Accounting. Statement of Financial Accounting Standards No. 141, "Business Combinations," or SFAS No. 141, and common practice exclude transfers of net assets or exchanges of shares between entities under common control and situations where transfers lack substance. Comstock Holding Company, Inc., Comstock Homes, Inc., and Sunset Investment Corp., Inc. are wholly owned by our common stockholders with identical ownership interests and accordingly, we will account for the net assets received at the historical carrying amounts at the date of transfer.

25

        Although Comstock Service is also wholly owned by our common stockholders, the individual ownership percentages are different from those in Comstock Holding Company, Inc., Comstock Homes, Inc. and Sunset Investment Corp., Inc., as follows:

Because of the disparity between the individual ownership percentages, we believe the merger of Comstock Service Corp., Inc. to be a substantive exchange, which would be more appropriately accounted for as a purchase under SFAS No. 141, rather than at historical carrying amounts.

        The following charts illustrate our organizational structure immediately before and after the Consolidation:

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S CORPORATION DISTRIBUTIONS

        Our four primary holding companies prior to this offering have elected to be treated for U.S. federal and certain state income tax purposes as S corporations under Subchapter S of the Internal Revenue Code of 1986 and comparable state laws. As a result, our earnings have been taxed for U.S. federal and, in the case of certain states, state income tax purposes directly to the shareholders of these companies rather than to the companies, leaving the shareholders responsible for paying income taxes on these earnings.

        In connection with the Consolidation, the four primary holding companies expect to make distributions to their current shareholders representing payment of undistributed S corporation accumulated adjustment accounts and undistributed tax basis in affiliated entities, if any, and certain amounts advanced by the shareholders to the four primary holding companies relating to costs incurred by those companies in connection with this offering. The distributions will be in the form of promissory notes issued by the four primary holding companies to their current shareholders. The notes will be due and payable 12 months from the date of issuance and will accrue interest at the applicable federal rate, as computed for federal income tax purposes. We estimate that the distribution will be approximately $14.6 million. The actual amount of the distribution will depend on the amount of our earnings through the promissory note issuance date. We intend to use a portion of the net proceeds of this offering to fund distributions to the shareholders of the primary holding companies in payment of all or a portion of the amounts that are due and payable under the promissory notes. If we were to pay the entire outstanding balance of the promissory notes, the aggregate payment would be approximately $14.6 million.

        We will also enter into a tax indemnification agreement with the shareholders of the four primary operating subsidiaries, the form of which will be filed as an exhibit to the registration statement of which this prospectus forms a part. Although we believe that the four primary operating subsidiaries have met the requirements for S corporation status, the agreement will provide for, among other things, the shareholders of the four primary operating subsidiaries to indemnify us for any additional U.S. federal and state income taxes, including interest and penalties, incurred by us if for any reason any of the primary operating subsidiaries are deemed to have been a C corporation during any period in which they reported taxable income as an S corporation. The tax indemnification obligation of the shareholders of the four primary operating subsidiaries will be limited to the aggregate amount of all distributions made to them by any of the primary operating subsidiaries to pay taxes during any time that they were reporting taxable income as an S corporation but are deemed to have been a C corporation. The agreement will also provide for payment by the shareholders of the four primary operating subsidiaries to any of the primary operating subsidiaries and by any of the primary operating subsidiaries to the shareholders of the four primary operating subsidiaries to adjust for any increases or decreases in tax liability arising from a tax audit that affects our tax liability and results in a corresponding adjustment to the tax liability of the shareholders of the four primary operating subsidiaries. The amount of any payment cannot exceed the amount of refund received by any of the primary operating subsidiaries or the shareholders of the four primary operating subsidiaries attributable to the adjustment in tax liability. If we are required to make substantial payments under this tax indemnification agreement, it could adversely affect our financial condition.

27

CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2004. We present capitalization:

•

On an actual basis;



•

On a pro forma basis reflecting adjustments to our historical financial data to give effect to the Consolidation, the deemed acquisition of Comstock Service and recognition of a liability for the estimated amount of previously recognized and undistributed S corporation income accumulated through June 30, 2004 to be paid from the proceeds of the offering, but without giving effect to the offering proceeds, as if each had occurred on June 30, 2004;



•

On a pro forma as adjusted basis reflecting additional pro forma adjustments to give effect to the acquisition of certain minority interests, repayment of certain indebtedness, payment of certain S corporation distributions and the consummation of the offering as if each had occurred on June 30, 2004. See "Unaudited Pro Forma Combined Consolidated Financial Information."

        Our capitalization information represented above excludes:

•

shares of Class A common stock available for issuance pursuant to our equity incentive plan, of which no shares are subject to outstanding options as of            , 2004; and



•

shares of Class A common stock reserved for future issuances under our employee stock purchase plan.

28

DILUTION

        If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of Class A common stock after giving effect to this offering.

        As of June 30, 2004, our net tangible book value was approximately $7.9 million or $2,229 per share of common stock. "Net tangible book value" per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the number of shares of common stock outstanding. As of June 30, 2004, our net tangible book value, on a pro forma as adjusted basis for the sale of    shares of our Class A common stock, based on an assumed initial public offering price of $    per share and after deducting the underwriting discounts and commissions and other estimated offering expenses, would have been approximately $    per share. This represents an immediate increase of $     per share to existing stockholders and an immediate dilution of $    per share to new investors. The following table illustrates this per share dilution:

        The following summarizes on a pro forma basis as of June 30, 2004, the differences between the total consideration paid and the average price per share paid by the existing stockholders and the new investors with respect to the number of shares of Class A common stock purchased from us based on an assumed initial public offering price of $    per share.

        The preceding table excludes:

•

shares of Class A common stock available for issuance pursuant to our equity incentive plan, none of which are subject to outstanding options as of                         , 2004; and



•

shares of Class A common stock reserved for future issuances under our employee stock purchase plan.

29

UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION

        We have derived the unaudited pro forma combined consolidated financial information from the audited and unaudited combined consolidated financial statements of Comstock Holding Company, Inc. and Subsidiaries ("Comstock Holdings"), Comstock Homes, Inc. and Subsidiary ("Comstock Homes") and Sunset Investment Corporation, Inc. and Subsidiary ("Sunset") (collectively, "The Comstock Companies"), and the audited and unaudited consolidated financial statements of Comstock Service Corp., Inc. and Subsidiary ("Comstock Service"). You should read the unaudited pro forma combined consolidated financial information and accompanying notes in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements described above, all appearing elsewhere in this prospectus.

        As described more fully in "Corporate Consolidation," we will consolidate with The Comstock Companies and Comstock Service immediately prior to the closing of this offering. SFAS No. 141 excludes transfers of net assets or exchanges of shares between entities under common control. Comstock Holdings, Comstock Homes and Sunset are all wholly owned by our common stockholders with identical ownership interests and accordingly, we will account for the net assets received at the carrying amounts of The Comstock Companies at the date of transfer.

        Although Comstock Service is also wholly owned by our four common stockholders, the individual ownership percentages are different from those in The Comstock Companies, as follows:

        Because of the disparity between the individual ownership percentages of The Comstock Companies and Comstock Service, we believe the merger of Comstock Service to be a substantive exchange, which would be more appropriately accounted for as a purchase under SFAS No. 141, rather than at the historical carrying amounts.

        The unaudited pro forma combined consolidated financial statements as adjusted give pro forma effect to a number of events, including the following:

•

the Consolidation;



•

the deemed acquisition of Comstock Service;



•

the acquisition of certain minority membership interests of certain of our subsidiaries;



•

the repayment of certain indebtedness;



•

funding of the payment of certain S corporation distributions and other amounts owed to our current stockholders by our four primary holding companies in conjunction with our Consolidation; and



•

this offering.

The unaudited pro forma combined consolidated statements of operations as adjusted were prepared as if the foregoing transactions had occurred on January 1, 2003. The unaudited pro forma combined

30

consolidated balance sheet as adjusted was prepared as if the foregoing transactions had occurred on June 30, 2004.

        We have based the unaudited pro forma adjustments upon available information and assumptions that we consider reasonable. The unaudited pro forma combined consolidated financial information is illustrative only and not indicative of, nor does it purport to present, either future results of operations or the results that might have been achieved if these transactions had been consummated on the indicated dates.

        We have used the purchase method of accounting to account for acquisitions. Under the purchase method, the aggregate purchase price of the acquisition is allocated to the tangible and intangible assets and liabilities acquired based upon their respective fair values. The allocation of the aggregate purchase price reflected in the unaudited pro forma combined consolidated financial information is preliminary for transactions to be closed subsequent to June 30, 2004. The final allocation of the purchase price is contingent upon finalization of estimates including receipt of appraisals; however, we do not expect the final allocation to differ materially from the preliminary allocation.

31

COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES

Unaudited Pro Forma Combined Consolidated Balance Sheet
as of June 30, 2004

(in thousands)

See Notes to the Unaudited Pro Forma Combined Consolidated Financial Information.

32

COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES

Unaudited Pro Forma Combined Consolidated Statement of Operations
For the Year Ended December 31, 2003

(in thousands, except per share amounts)