NEW ISSUE - BOOK ENTRY ONLY NOT RATED In the opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel, subject however, to certain qualifications described in this Official Statement, under existing law, interest on the 2017 Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as -amended, but such interest is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. In the further opinion of Bond Counsel, interest on the 2017 Bonds is exempt from personal income taxation imposed by the State of California. See "TAX MATTERS." $42,815,000 TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 16-01 (RORIPAUGH RANCH PHASE 2) 2017 SPECIAL TAX BONDS Dated: Date of Issuance Due: September 1, as shown on inside cover The Temecula Public Financing Authority (the "Authority"), for and on behalf of the Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) (the "District"), is issuing the above -captioned bonds (the "2017 Bonds") to (i) prepay a special tax obligation with respect to property in the District, (ii) provide funds to finance public improvements authorized to be funded by the District, (iii) fund a reserve fund for the 2017 Bonds, (iv) pay a portion of the interest due on the 2017 Bonds on September 1, 2017, (v) provide funds for the administration of the District, and (vi) pay costs of issuing the 2017 Bonds. See "PLAN OF FINANCING." The 2017 Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of March 1, 2017 (the "Fiscal Agent Agreement"), by and between the Authority, for and on behalf of the District, and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent"). The 2017 Bonds are payable from the proceeds of an annual Special Tax (as defined in the Fiscal Agent Agreement) to be levied on property located within the District (see "THE DISTRICT") and from certain funds pledged under the Fiscal Agent Agreement. The Special Tax is being levied according to a rate and method of apportionment of Special Taxes approved by the qualified electors of the District. See "SECURITY FOR THE 2017 BONDS-Special Taxes" and Appendix B - "Rate and Method."
Interest on the 2017 Bonds is payable on March 1 and September 1 of each year, commencing on September 1, 2017. The 2017 Bonds will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the 2017 Bonds. Individual purchases of the 2017 Bonds will be made in book -entry form only. Purchasers of the 2017 Bonds will not receive physical certificates representing their ownership interests in the 2017 Bonds purchased. The 2017 Bonds will be issued in the principal amount of $100,000 and any integral multiple of $5,000 in excess thereof. Principal of and interest on the 2017 Bonds are payable directly to DTC by the Fiscal Agent. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to the beneficial owners of the 2017 Bonds. See "THE 2017 BONDS" and Appendix G - "DTC and the Book -Entry Only System." The 2017 Bonds are subject to optional redemption, mandatory sinking payment redemption and redemption from Special Tax Prepayments prior to their respective maturities. See "THE 2017 BONDS-Redemption." The Authority may issue additional bonded indebtedness that is secured by a lien on the Special Tax Revenues (as defined in the Fiscal Agent Agreement) and by funds pledged under the Fiscal Agent Agreement for the payment of the 2017 Bonds on a parity with the 2017 Bonds. See "SECURITY FOR THE 2017 BONDS-Issuance of Additional Bonds." THIS OFFICIAL STATEMENT IS FURNISHED SOLELY FOR THE PURPOSE OF CONSIDERATION OF AN INVESTMENT IN THE 2017 BONDS BY QUALIFIED INSTITUTIONAL BUYERS WITH THE EXPERIENCE AND FINANCIAL EXPERTISE TO UNDERSTAND AND EVALUATE THE HIGH DEGREE OF RISK INHERENT IN THE INVESTMENT. PURCHASE OF THE 2017 BONDS WILL CONSTITUTE AN INVESTMENT SUBJECT TO A HIGH DEGREE OF RISK, INCLUDING THE RISK OF NONPAYMENT OF PRINCIPAL AND INTEREST AND THE LOSS OF ALL OR PART OF THE INVESTMENT. THE DEBT SERVICE ON THE 2017 BONDS IS PAYABLE FROM SPECIAL TAX LEVIES ON PROPERTY IN THE DISTRICT WITH AN APPRAISED VALUE ONLY APPROXIMATELY FIVE PERCENT* IN EXCESS OF THE INITIAL PRINCIPAL AMOUNT OF THE 2017 BONDS. THERE CAN BE NO ASSURANCE THAT THE PROPERTY OWNERS IN THE DISTRICT WILL PAY THE SPECIAL TAXES LEVIED ON SUCH PROPERTY WHEN DUE. SEE "SECURITY FOR THE 2017 BONDS" and "SPECIAL RISK FACTORS" herein. NONE OF THE FAITH AND CREDIT OF THE DISTRICT, THE AUTHORITY OR THE STATE OF CALIFORNIA OR OF ANY OF ITS POLITICAL SUBDIVISIONS IS PLEDGED TO THE PAYMENT OF THE 2017 BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE 2017 BONDS. THE 2017 BONDS ARE NEITHER GENERAL NOR SPECIAL OBLIGATIONS OF THE AUTHORITY, NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE AUTHORITY FOR THE DISTRICT, PAYABLE SOLELY FROM CERTAIN AMOUNTS PLEDGED THEREFOR UNDER THE FISCAL AGENT AGREEMENT, AS MORE FULLY DESCRIBED IN THIS OFFICIAL STATEMENT. This cover page contains certain information for quick reference only. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision with respect to the 2017 Bonds. The 2017 Bonds are offered when, as and if issued, subject to approval as to their legality by Quint & Thimmig LLP, Larkspur, California, Bond Counsel, and certain other conditions. Certain legal matters with respect to the 2017 Bonds will be passed upon for the Authority by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, in its capacity as general counsel to the Authority, and by Quint & Thimmig LLP, Larkspur, California, acting as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California. It is anticipated that the 2017 Bonds in definitive form will be available for delivery to DTC on or about March 16, 2017.
STIFEL The date of this Official Statement is February 24, 2017. $42,815,000 TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 16-01 (RORIPAUGH RANCH PHASE 2) 2017 SPECIAL TAX BONDS
MATURITY SCHEDULE
$7,280,000 5.500% Term Bonds due September 1, 2027; Yield 5.500%; Price 100.000%; CUSIP 87972Y FX9t $5,410,000 5.750% Term Bonds due September 1, 2032; Yield 5.900%; Price 98.489%; CUSIP 87972Y FY71 $7,215,000 6.125% Term Bonds due September 1, 2037; Yield 6.125%; Price 100.000%; CUSIP 87972Y FZ4t $22,910,000 6.250% Term Bonds due September 1, 2047; Yield 6.250%; Price 100.000%; CUSIP 87972Y GA8I
1- Copyright American Bankers Association. CUSIP data is provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. Neither the Authority nor the Underwriter assumes any responsibility for the accuracy of the CUSIP data. GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
The information contained in this Official Statement has been obtained from sources that are believed to be reliable. No representation, warranty or guarantee, however, is made by the Underwriter as to the accuracy or completeness of any information in this Official Statement, including, without limitation, the information contained in the Appendices, and nothing contained in this Official Statement should be relied upon as a promise or representation by the Underwriter.
Neither the Authority nor the Underwriter has authorized any dealer, broker, salesperson or other person to give any information or make any representations with respect to the offer or sale of the 2017 Bonds other than as contained in this Official Statement. If given or made, any such information or representations must not be relied upon as having been authorized by the Authority or the Underwriter. The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the 2017 Bonds shall under any circumstances create any implication that there has been no change in the affairs of any party described in this Official Statement, or in the status of any property described in this Official Statement, subsequent to the date as of which such information is presented.
This Official Statement and the information contained in this Official Statement are subject to amendment without notice. The 2017 Bonds may not be sold, and no offer to buy the 2017 Bonds may be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the 2017 Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
When used in this Official Statement, in any continuing disclosure by the Authority, in any press release, or in any oral statement made with the approval of an authorized officer of the Authority or any other entity described or referenced in this Official Statement, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend" and similar expressions identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward -looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized, and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.
All summaries of the documents referred to in this Official Statement are qualified by the provisions of the respective documents summarized and do not purport to be complete statements of any or all of such provisions.
The Underwriter has provided the following sentence for inclusion in this Official Statement: "The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or the completeness of such information."
In connection with the offering of the 2017 Bonds, the Underwriter may overallot or effect transactions that stabilize or maintain the market prices of the 2017 Bonds at levels above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.
The 2017 Bonds have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption from the registration requirements contained in the Securities Act. The 2017 Bonds have not been registered or qualified under the securities laws of any state.
The City of Temecula maintains an Internet website, but the information on the website is not incorporated in this Official Statement. TEMECULA PUBLIC FINANCING AUTHORITY
Board of Directors
Maryann Edwards, Chairperson Michael S. Naggar, Member Jeff Comerchero, Member Matt Rahn, Member James Stewart, Member
Authority/City of Temecula Officials
Aaron Adams, Executive Director and City Manager Greg Butler, Assistant City Manager Jennifer Hennessy, Authority Treasurer and City Director of Finance Patrick Thomas, Interim Director of Public Works and Interim City Engineer Randi Johl, Authority Secretary and City Clerk
PROFESSIONAL SERVICES Authority General Counsel and City Attorney Richards, Watson & Gershon, A Professional Corporation Los Angeles, California Municipal Advisor Fieldman, Rolapp & Associates Irvine, California
Bond Counsel and Disclosure Counsel Quint & Thimmig LLP Larkspur, California Special Tax Consultant and Dissemination Agent Albert A. Webb Associates Riverside, California Appraiser Stephen G. White, MAI Fullerton, California Market Absorption Consultant Empire Economics, Inc. Capistrano Beach, California Fiscal Agent U.S. Bank National Association Los Angeles, California TABLE OF CONTENTS
-to INTRODUCTION 1 Value -District Lien Ratios 46 General 1 Direct and Overlapping Governmental Obligations.. 47 Authority for Issuance 1 THE AUTHORITY 49 The 2017 Bonds 2 SPECIAL RISK FACTORS 50 Security for the 2017 Bonds 2 No General Obligation of the City or the District 50 Reserve Fund 3 Property Value 50 The Authority 3 Concentration of Ownership 51 The District 4 Failure to Complete Development 51 Land Valuation 5 Failure to Achieve Market Absorption Projections .... 52 Limited Obligation 6 Government Approvals 52 Issuance of Parity Bonds; Revenue Capacity 6 Payment of the Special Tax is not a Personal Bondowners' Risks 6 Obligation 52 Continuing Disclosure 7 FDIC/Federal Government Interests in Properties.... 52 Other Information 7 Exempt Properties 54 PLAN OF FINANCING 7 Parity Taxes and Special Assessments 55 Overview 7 Insufficiency of Special Taxes 55 Estimated Sources and Uses of Funds 10 Tax Delinquencies 56 THE 2017 BONDS 10 Bankruptcy Delays 56 Authority for Issuance 10 Proceeds of Foreclosure Sales 57 58 General Provisions 11 Natural Disasters Redemption 11 Hazardous Substances 58 Transfer or Exchange of 2017 Bonds 14 Disclosure to Future Purchasers 58 Discontinuance of DTC Services 16 No Acceleration Provision 59 Scheduled Debt Service 17 Taxability Risk 59 Enforceability of Remedies 59 SECURITY FOR THE 2017 BONDS 17 No Secondary Market 59 General 17 Proposition 218 60 Limited Obligation 18 Ballot Initiatives 61 Special Taxes 18 IRS Audit of Tax Exempt Bond Issues 61 Special Tax Fund 19 Summary of Rate and Method 21 TAX MATTERS 61 Reserve Fund 25 LEGAL MATTERS 64 Covenant for Superior Court Foreclosure 26 NO RATING 64 No Teeter Plan 27 Investment of Moneys 27 NO LITIGATION 64 Issuance of Additional Bonds 27 MUNICIPAL ADVISOR 64 THE DISTRICT 29 UNDERWRITING 65 Location and General Description of the District 29 CONTINUING DISCLOSURE 65 History of the District 32 The Authority 65 The Improvements 33 The Primary Landowner 65 The Roripaugh Ranch Development 36 Remedies for Failures to Comply 66 The Current Landowners 40 MISCELLANEOUS 67 Land Use Distribution 43 Property Values 44
APPENDIX A GENERAL INFORMATION ABOUT THE CITY OF TEMECULA APPENDIX B RATE AND METHOD APPENDIX C SUMMARY OF THE FISCAL AGENT AGREEMENT APPENDIX D FORM OF OPINION OF BOND COUNSEL APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT OF THE AUTHORITY APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT OF THE PRIMARY LANDOWNER APPENDIX G DTC AND THE BOOK -ENTRY ONLY SYSTEM APPENDIX H BOUNDARY MAP OF THE DISTRICT APPENDIX I APPRAISAL REPORT APPENDIX J MARKET ABSORPTION STUDY NOTICE TO PURCHASERS
The Temecula Public Financing Authority and the Underwriter intend that the 2017 Bonds are to be offered and sold only to persons reasonably believed to qualify as Qualified Institutional Buyers that are purchasing the 2017 Bonds for their own account for investment purposes and not with a view to distributing the 2017 Bonds. Purchasers Must Be Qualified Institutional Buyers. As defined in the Fiscal Agent Agreement for the 2017 Bonds described in this Official Statement, "Qualified Institutional Buyer" means a "qualified institutional buyer" within the meaning of Rule 144A promulgated under the Securities Act of 1933, as amended. Agreement of Each Purchaser. Each purchaser of any of the 2017 Bonds prior to the 2017 Bond Transfer Restriction Release Date, by its acceptance of a 2017 Bond or of any interest therein, acknowledges and agrees with the Authority and the Underwriter that:
1. The Purchaser (a) is a Qualified Institutional Buyer and (b) is acquiring the 2017 Bonds for its own account or for the account of an Qualified Institutional Buyer;
2. The Purchaser has sufficient knowledge and experience in financial and business matters with respect to the evaluation of the risk and merits of the investment represented by the 2017 Bonds and is able to bear the economic risks of such investment; 3. The Purchaser agrees to and shall indemnify, hold harmless and defend the Authority and its officers, members, directors, officials and employees, and each of them, against all loss, costs, damages, expenses, suits, judgments, actions and liabilities of whatever nature (including, without limitation, attorneys' fees, litigation and court costs, amounts paid in settlement, and amounts paid to discharge judgments) directly or indirectly resulting from or arising out of or related to its transfer of the 2017 Bonds in violation of the transfer restrictions set forth in the Fiscal Agent Agreement described below; and 4. The Purchaser understands that the 2017 Bonds are limited obligations of the Authority secured only by a pledge of Special Tax Revenues and amounts in certain funds and accounts established under, and all to the extent and as provided in, the Fiscal Agent Agreement. Resale Restrictions and Limits on Transferability. Prior to the 2017 Bond Transfer Restriction Release Date (defined below), no transfer, sale or other disposition of any 2017 Bond, or any beneficial interest therein, may be made except to transferees that the transferor reasonably believes is a Qualified Institutional Buyer that is purchasing for its own account for investment purposes and not with a view to distributing the Series 2017 Bond. Prior to the 2017 Bond Transfer Restriction Release Date, each transferee of a 2017 Bond, or any beneficial interest therein, by its purchase thereof, will be deemed to have represented that such transferee is a Qualified Institutional Buyer that is purchasing such 2017 Bond for its own account for investment purposes and not with a view to distributing the 2017 Bond.
Each entity which is or which becomes a Beneficial Owner of a 2017 Bond prior to the 2017 Bond Transfer Restriction Release Date will be deemed by the acceptance or acquisition of such beneficial ownership interest to have agreed to be bound by the aforementioned transfer restriction provisions of the Fiscal Agent Agreement. The transferor of a 2017 Bond transferred prior to the 2017 Bond Transfer Restriction Release Date will be deemed to have agreed to provide notice to any proposed assignee of a beneficial ownership interest in the purchased 2017 Bond of the restrictions on transfer described herein. Any Owner or Beneficial Owner effecting a transfer, sale or other disposition of a 2017 Bond, or beneficial interest therein, will be deemed to have agreed to indemnify the Authority and the Fiscal Agent against any liability that may result if such transfer, sale or other disposition is not made in accordance with the Fiscal Agent Agreement. The restrictions on transfer of the 2017 Bonds described above will no longer be applicable to transfers of the 2017 Bonds or any beneficial interest therein following the date (the "2017 Bond Transfer Restriction Release Date") which is five business days after the date the Authority posts on the Municipal Securities Rulemaking Board's EMMA website a continuing disclosure notice pursuant to the Continuing Disclosure Agreement for the 2017 Bonds to the effect that (a) at least twenty-five percent (25%) of the Special Tax levied on property in the District in the then current Fiscal Year was levied on assessor parcels that are Developed Property; and (b) the then value of the Undeveloped Property in the District, excluding the value of any Undeveloped Property that is then delinquent in the payment of any Special Taxes previously levied, is at least three times the principal amount of the Bonds then outstanding allocable to such property. The terms "Developed Property" and "Undeveloped Property" are as defined in the Rate and Method of Apportionment of Special Taxes for the District. See "THE 2017 BONDS- Transfer or Exchange of 2017 Bonds - Transfers Prior to 2017 Bond Transfer Restriction Release Date" in this Official Statement. The 2017 Bonds will bear a legend describing the restrictions on transferability prior to the 2017 Bond Transfer Restriction Release Date mentioned above, and as required by the Fiscal Agent Agreement.
-iv- CITY OF TEMECULA (Riverside County, California) Regional Location Map
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-V- THIS PAGE INTENTIONALLY LEFT BLANK OFFICIAL STATEMENT
$42,815,000 TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 16-01 (RORIPAUGH RANCH PHASE 2) 2017 SPECIAL TAX BONDS
INTRODUCTION
This introduction is not a summary of this Official Statement and is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement by those interested in purchasing the 2017 Bonds. The sale and delivery of 2017 Bonds to potential investors is made only by means of the entire Official Statement. Certain capitalized terms used in this Official Statement and not defined herein have the meanings set forth in Appendix C - "Summary of the Fiscal Agent Agreement-Definitions" or in Appendix B - "Rate and Method." General
The purpose of this Official Statement, which includes the cover page, the inside cover page, the table of contents and the attached appendices (the "Official Statement"), is to provide certain information concerning the issuance of the above -captioned bonds (the "2017 Bonds"). The 2017 Bonds are being issued by the Temecula Public Financing Authority (the "Authority"), for and on behalf of the Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) (the "District"), to (i) prepay a special tax obligation with respect to property in the District, (ii) provide funds to finance public improvements authorized to be funded by the District, (iii) fund a reserve fund for the 2017 Bonds, (iv) pay a portion of the interest on the 2017 Bonds due on September 1, 2017, (v) provide funds for the administration of the District, and (vi) pay costs of issuing the 2017 Bonds. See "PLAN OF FINANCING." The public improvements being financed include various public infrastructure improvements (the "Improvements") necessitated by development occurring in the Roripaugh Ranch area of the City of Temecula, California (the "City"). When used in this Official Statement, the term "Bonds" means the 2017 Bonds, and any Parity Bonds that may be issued by the Authority for the District in the future. See "SECURITY FOR THE 2017 BONDS- Issuance of Additional Bonds." Authority for Issuance
General. The District was formed on April 26, 2016 under the authority of the Mello - Roos Community Facilities Act of 1982, as amended, commencing at Section 53311, et seq., of the California Government Code (the "Act"), which was enacted by the California Legislature to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State. The Act authorizes local governmental entities to establish community facilities districts as legally constituted governmental entities within defined boundaries, with the legislative body of the local applicable governmental entity acting on behalf of the district. Subject to approval by at least a two-thirds vote of the votes cast by the qualified electors within a district and compliance with the provisions of the Act, the legislative body may issue bonds for the community facilities district established by it and may levy and collect a special tax within such district to repay such bonds.
-1- Bond Authority. The 2017 Bonds are authorized to be issued pursuant to the Act, Resolution No. 17-01 adopted on January 24, 2017 by the Board of Directors of the Authority (the "Board of Directors") acting as the legislative body of the District, and the Fiscal Agent Agreement dated as of March 1, 2017 (the "Fiscal Agent Agreement"), between the Authority, for and on behalf of the District, and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent").
For more detailed information about the formation of the District and the authority for issuance of the 2017 Bonds, see "THE DISTRICT-History of the District."
The 2017 Bonds
General. The 2017 Bonds will be issued only as fully registered bonds, in Authorized Denominations (initially $100,000 and integral multiples of $5,000 in excess thereof), and will bear interest at the rates per annum and will mature on the dates and in the principal amounts set forth on the inside cover page of this Official Statement. The 2017 Bonds will be dated the date of their issuance and interest on the 2017 Bonds, will be payable on March 1 and September 1 of each year (individually an "Interest Payment Date"), commencing September 1, 2017. See "THE 2017 BONDS." The 2017 Bonds will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the 2017 Bonds. See "THE 2017 BONDS-General Provisions."
Redemption Prior to Maturity. The 2017 Bonds are subject to optional redemption, mandatory sinking payment redemption and mandatory redemption from Special Tax prepayments prior to their respective maturities. See "THE 2017 BONDS-Redemption."
Restrictions on Transfer of 2017 Bonds. As described on page -iv- entitled "Notice to Purchasers," until the 2017 Bond Transfer Restriction Release Date, the 2017 Bonds and any beneficial interests therein may only be transferred in denominations of $100,000 and integral multiples of $5,000 in excess thereof, and only to a transferee that the transferor reasonably believes is a Qualified Institutional Buyer that is purchasing for its own account for investment purposes and not with a view to distributing the 2017 Bond. The Fiscal Agent Agreement provides that, until the 2017 Bond Transfer Restriction Release Date, each transferee of a 2017 Bond, or any beneficial interest therein, by its purchase thereof, will be deemed to have represented that such transferee is a Qualified Institutional Buyer that is purchasing such 2017 Bond for its own account for investment purposes and not with a view to distributing the 2017 Bond. For a more complete description of the 2017 Bond transfer restrictions, and the definitions of the terms "2017 Bond Transfer Restrictions Release Date" and "Qualified Institutional Buyer", see page -iv- entitled "Notice to Purchasers," and "THE 2017 BONDS- General Provisions," and "-Transfer or Exchange of 2017 Bonds."
Security for the 2017 Bonds
Pledge Under the Fiscal Agent Agreement. Pursuant to the Fiscal Agent Agreement, the 2017 Bonds are secured by a first pledge of all of the Special Tax Revenues (other than, in each Fiscal Year, up to the first $50,000 of Special Tax Revenues that may be deposited into the Administrative Expense Fund) and all moneys deposited in the Bond Fund, the Reserve Fund and, until disbursed in accordance with the Fiscal Agent Agreement, in the Special Tax Fund. "Special Tax Revenues," as defined in the Fiscal Agent Agreement, means the proceeds of the Special Taxes (as defined under the subheading "Special Taxes; Rate and Method" below) received by the Authority, including any scheduled payments and any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien, but does not
-2- include interest and penalties, if any, collected with the Special Taxes that are in excess of the rate of interest payable on the Bonds. The Special Tax Revenues and all moneys deposited into said funds (except as otherwise provided in the Fiscal Agent Agreement) are dedicated to the payment of the principal of, and interest and any premium on, the 2017 Bonds in accordance with the Fiscal Agent Agreement until all of the 2017 Bonds have been paid or defeased. See "SECURITY FOR THE 2017 BONDS-Special Taxes" and Appendix B - "Rate and Method."
Amounts in the Administrative Expense Fund, the Improvement Fund and the Costs of Issuance Fund, each of which is established under the Fiscal Agent Agreement, are neither pledged to nor available for the repayment of the 2017 Bonds.
Special Taxes; Rate and Method. The Special Taxes to be used to pay debt service on the 2017 Bonds will be levied in accordance with the Rate and Method of Apportionment of Special Tax, as described under the heading "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method" (the "Rate and Method"). The term "Special Taxes", when used in this Official Statement, means the Special Tax A levied on the Taxable Property within the District pursuant to the Rate and Method and the Fiscal Agent Agreement to fund the "Special Tax A Requirement," which includes amounts needed to pay the debt service on the 2017 Bonds. The Rate and Method also allows for the levy of a Special Tax B to pay for certain municipal services authorized to be funded by the District, but the Special Tax B is not in any way pledged, and will not be used, to pay debt service on the 2017 Bonds. See "SECURITY FOR ,; THE 2017 BONDS-Special Taxes," and "-Summary of Rate and Method." Limitations. Amounts in the Administrative Expense Fund, the Improvement Fund and the Costs of Issuance Fund, each of which is established under the Fiscal Agent Agreement, are not pledged to the repayment of the 2017 Bonds. A portion of the Special Taxes collected annually and to be deposited on a priority basis to the Administrative Expense Fund (see clause (i) of the second paragraph under "SECURITY FOR THE 2017 BONDS-Special Tax Fund") is not pledged to the repayment of the 2017 Bonds. The Improvements are not pledged as collateral for the 2017 Bonds. The Special Tax B and the proceeds of condemnation or destruction of any of the Improvements are not pledged to pay the debt service on the 2017 Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to repay the 2017 Bonds are amounts held by the Fiscal Agent under the Fiscal Agent Agreement in the Bond Fund and the Reserve Fund, amounts held by the Authority under the Fiscal Agent Agreement in the Special Tax Fund, and the proceeds, if any, from foreclosure sales of parcels with delinquent Special Taxes. See "SECURITY FOR THE 2017 BONDS - General." Reserve Fund
The Fiscal Agent Agreement establishes a Reserve Fund to be held by the Fiscal Agent as a reserve for the payment of principal of and interest on the 2017 Bonds. The Reserve Fund is required to be funded in an amount equal to the lesser of (i) Maximum Annual Debt Service, (ii) 125% of average Annual Debt Service, or (iii) 10% of the initial principal amount of the Bonds (the "Reserve Requirement"). The Reserve Fund will be available to pay debt service on the 2017 Bonds and any Parity Bonds (as defined below), in the event that there is a shortfall in the amount in the Bond Fund to pay such debt service. The Reserve Requirement as of the date of issuance of the 2017 Bonds will be $3,153,043.76. See "SECURITY FOR THE 2017 BONDS- Reserve Fund." The Authority
The Authority was formed on April 10, 2001, pursuant to a Joint Exercise of Powers Agreement (the "JPA Agreement") between the City and the former Redevelopment Agency of
-3- the City of Temecula (the "Agency"), in accordance with Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California. The JPA Agreement was amended in May of 2016, to provide for the withdrawal of the Successor Agency to the Agency as a member of the Authority, and to add the Temecula Community Services District and the Temecula Housing Authority as members of the Authority. See "THE AUTHORITY." The District
The District was formed by the Board of Directors pursuant to proceedings conducted under the Act on April 26, 2016 and an election held on that date wherein the two owners of the property in the District voted in favor of the formation of the District, the levy of the Special Tax A and the Special Tax B on the property in the District and the issuance of up to $60,000,000 principal amount of special tax bonds payable from the Special Tax A. See "THE DISTRICT- History of the District." The proceeds of the Special Tax B, which will not be available to pay the debt service on the 2017 Bonds, will be used to pay costs of services eligible to be funded by the District, which include a panoply of municipal services ranging from public safety services, to maintenance of landscaping in public areas, maintenance of sidewalks and roadways, signage, storm drains, and street lighting and traffic signals, all related to the property in the District.
The District is located in the far northern portion of the City, and includes approximately 645 gross acres of undeveloped property in an area of the City known as "Roripaugh Ranch." Roripaugh Ranch is a master planned community that at build out is expected to include approximately 1,735 single family detached homes, a neighborhood retail center, recreation centers, parks, schools, a fire station and open space areas. Roripaugh Ranch is shaped approximately like the State of Oklahoma. The Roripaugh Ranch development is located in the Authority's Community Facilities District No. 03-02 (Roripaugh Ranch) ("CFD 03- 02"), for which the Authority issued $51,250,000 of special tax bonds in 2006 to finance various infrastructure improvements necessitated by development occurring in Roripaugh Ranch. See "THE DISTRICT-The Roripaugh Ranch Development." The District includes the property in the "Pan Area" of Roripaugh Ranch. See APPENDIX H - "Boundary Map of the District" for a map showing the boundaries of the District. Roripaugh Ranch also includes a "Panhandle Area" which includes 509 Riverside County Assessor's parcels on approximately 160 acres, which area is substantially built -out with single family homes and which is not in the District. See "THE DISTRICT-Location and General Description of the District" and "-The Roripaugh Ranch Development."
The Special Taxes heretofore levied by the Authority for CFD 03-02 on the Pan Area are being prepaid in full on the date of issuance of the 2017 Bonds with a portion of the proceeds of the 2017 Bonds, so that the Pan Area (and, hence, the property in the District) will no longer be subject to special tax levies for CFD 03-02. See "PLAN OF FINANCING-Overview - Prepayment of CFD 03-02 Special Taxes." Proceeds of the 2017 Bonds will also be deposited in an Improvement Fund established under the Fiscal Agent Agreement to be used to finance costs of the Improvements, some of which must be completed in order for building permits to be issued by the City for parcels in the District. See "PLAN OF FINANCING-Overview - Funding for Improvements" and "THE DISTRICT-The Improvements."
The land in the District is entitled to include a total of 1,500 separate County Assessor's parcels to be developed with single family residences in sixteen different planning areas, plus a 15.19 acre commercial site in a seventeenth planning area. However, the plans of the two current property owners are for a total of 1,226 single family residences, with a 10.7 net acre commercial site. See "THE DISTRICT-The Roripaugh Ranch Development." For a map
-4- showing the planning areas within the District, see "THE DISTRICT-The Roripaugh Ranch Development - Current Status."
While the property in the District was mass graded 9 to 10 years ago, it is currently largely undeveloped, with significant backbone infrastructure needed for the development of the parcels in the District yet to be constructed. The land in twelve of the planning areas is currently owned by Roripaugh Valley Restoration, LLC (the "Primary Landowner"), and the land in the other five planning areas (one of which includes the site for commercial development) is currently owned by Wingsweep Corporation. While the City and the Primary Landowner have been conducting activities to design, permit and construct necessary infrastructure improvements, the land owned by the Primary Landowner may be sold to another entity, and no assurance can be given that infrastructure development, including construction of the Improvements needed for the issuance of building permits for the property in the District, will continue as expected and as assumed in the Appraisal Report and the Absorption Study referred to under the heading "INTRODUCTION-Land Valuation" below. See "THE DISTRICT-Location and General Description of the District," "-The Roripaugh Ranch Development," and "-The Current Landowners." Land Valuation
Stephen G. White, MAI (the "Appraiser") has prepared an Appraisal Report dated December 15, 2016 (the "Appraisal Report") with a valuation date of December 1, 2016, estimating the market value of the parcels within the District that are subject to the Special Tax securing the 2017 Bonds. In providing the Appraisal Report, the Appraiser relied on and utilized the Market Absorption Study (the "Absorption Study") dated December 2, 2016, by Empire Economics. The Appraiser concluded in the Appraisal Report that the market value of the property in the District as of December 1, 2016 was $46,735,000, subject to the extraordinary assumptions, among other assumptions, in the Appraisal Report. The extraordinary assumptions include that 2017 Bond proceeds and other bond funds totaling $22,000,000 will be available to fund the Improvements required to support the residential and commercial development of the property in the District as planned and that the current or future property owners will complete the approval/permit process for the Nicolaus Road construction project as necessary to allow adequate building permits to be issued in a timely manner as specified in the Development Agreement (described under the heading "THE DISTRICT-The Improvements"), so as to support the absorption projections in the Absorption Study. See also "SPECIAL RISK FACTORS-Failure to Achieve Market Absorption Projections." The appraised value of the land in the District, as reflected in the Appraisal Report, is approximately 1.09 times the $42,815,000 initial principal amount of the 2017 Bonds.
The Appraisal Report and the Absorption Study, the complete texts of which are set forth in Appendices I and J, respectively, to this Official Statement are subject to various assumptions and limiting conditions, and should be read in their entirety by prospective purchasers of the 2017 Bonds. See "THE DISTRICT-Property Values" and "SPECIAL RISK FACTORS-Property Value."
The value of individual parcels of the Taxable Property varies significantly, and no assurance can be given that should Special Taxes levied on one or more of the parcels become delinquent, and should the delinquent parcels be offered for sale at a judicial foreclosure sale, that any bid would be received for the property or, if a bid is received, that such bid would be sufficient to pay such parcel's delinquent Special Taxes. See "THE DISTRICT-Value-to-District Lien Ratio - Value to District Lien Ratio Distribution," "SPECIAL RISK FACTORS-Property Value" and "SPECIAL RISK FACTORS-Insufficiency of Special Taxes."
-5- Limited Obligation
Although the unpaid Special Taxes constitute liens on parcels within the District on which they are levied, they do not constitute a personal indebtedness of the property owners. There is no assurance that the current two owners of the property in the District or subsequent owners of the property will be financially able to pay the Special Taxes levied on their property in the District, or that they will pay the Special Taxes even though financially able to do so.
NONE OF THE FAITH AND CREDIT OF THE DISTRICT, THE AUTHORITY OR THE STATE OF CALIFORNIA OR OF ANY OF ITS POLITICAL SUBDIVISIONS IS PLEDGED TO THE PAYMENT OF THE 2017 BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE 2017 BONDS. THE 2017 BONDS ARE NEITHER GENERAL NOR SPECIAL OBLIGATIONS OF THE AUTHORITY, NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE AUTHORITY FOR THE DISTRICT PAYABLE SOLELY FROM CERTAIN AMOUNTS PLEDGED THEREFOR UNDER THE FISCAL AGENT AGREEMENT, AS MORE FULLY DESCRIBED IN THIS OFFICIAL STATEMENT.
Issuance of Additional Bonds; Revenue Capacity
The Fiscal Agent Agreement allows for the issuance of additional bonded indebtedness for the District which additional bonds, when and if issued, would be secured by a lien on the Special Tax Revenues and on the funds pledged under the Fiscal Agent Agreement for the payment of the 2017 Bonds on a parity with the 2017 Bonds ("Parity Bonds"). Parity Bonds may be issued as "Refunding Bonds," the net proceeds of which are used solely to refund outstanding Bonds for debt service savings, and as Bonds ("New Money Parity Bonds") the net proceeds of which would be deposited to the Improvement Fund under the Fiscal Agent Agreement to be applied to finance costs of the Improvements.
One of the requirements for the issuance of New Money Parity Bonds is a "Special Tax Coverage" test, which specifies that the annual Maximum Special Tax A on nondelinquent Taxable Property in the District, less an amount for annual Administrative Expenses, be at least one hundred ten percent (110%) of the Annual Debt Service for each Fiscal Year on the then outstanding Bonds and the proposed Parity Bonds. See "SECURITY FOR THE 2017 BONDS- Issuance of Additional Bonds." Because the principal of the 2017 Bonds was determined in part by the anticipated Assigned Special Tax A that may be levied annually in the District at eventual buildout of the Taxable Property in the District (see "PLAN OF FINANCING- General," and "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method - Maximum Special Taxes"), it is unlikely that additional New Money Parity Bonds will ever be issued for the District unless either there is an unexpected increase in the number of homes constructed in the District over the currently expected 1,226 homes, larger homes are constructed than currently anticipated by the current property owners, or Refunding Bonds have been issued to refund all or a portion of the 2017 Bonds resulting in lower annual debt service payments than those with respect to the 2017 Bonds. There is no such Special Tax Coverage Requirement for the issuance of Refunding Bonds. See "SECURITY FOR THE 2017 BONDS-Issuance of Additional Bonds." Bondowners' Risks
Certain events could affect the ability of the Authority to pay the principal of and interest on the 2017 Bonds when due. Except for the Special Taxes, no other taxes are pledged to the payment of the 2017 Bonds. See "SPECIAL RISK FACTORS" for a discussion of certain factors that should be considered in evaluating an investment in the 2017 Bonds. The purchase of the 2017 Bonds involves significant risk, and until the 2017 Bond Transfer Restriction Release
-6- Date the 2017 Bonds and any beneficial interests therein may only be transferred in denominations of $100,000 and integral multiples of $5,000 in excess thereof, and only to a transferee that the transferor reasonably believes is a Qualified Institutional Buyer that is purchasing for its own account for investment purposes and not with a view to distributing the 2017 Bond. See "INTRODUCTION-The 2017 Bonds - Restrictions on Transfer of 2017 Bonds." Continuing Disclosure
For purposes of complying with Rule 15c2 -12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended (the "Rule"), the Authority and the Primary Landowner have agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board (the "MSRB") certain annual financial information and other information. The Authority and the Primary Landowner each have further agreed to provide notice of certain enumerated events, and the Primary Landowner has agreed to provide mid -year reports with certain limited information. The Primary Landowner's annual, mid -year and enumerated event reporting obligations will terminate if and when the Primary Landowner and any affiliate thereof, or successor thereto, owns parcels in the District that are subject to less than twenty percent (20%) of the annual Special Tax levy. These covenants have been made in order to assist the Underwriter in complying with the Rule. See "CONTINUING DISCLOSURE," and Appendices E and F for a description of the specific nature of the annual reports and notices of significant events, as well as the terms of the Continuing Disclosure Agreements of the Authority and the Primary Landowner, respectively, pursuant to which such reports and notices are to be made. Other Information
This Official Statement speaks only as of its date, and the information contained in this Official Statement is subject to change without notice. Except where otherwise indicated, all information contained in this Official Statement has been provided by the Authority on behalf of the District.
Copies of the Fiscal Agent Agreement and certain other documents referenced in this Official Statement are available for inspection at the office of, and (upon written request and payment to the Authority of a charge for copying, mailing and handling) are available for r. delivery from, the Director of Finance, City of Temecula, 41000 Main Street, Temecula, California 92590.
PLAN OF FINANCING Overview
General. The primary purposes of the 2017 Bonds are to fund the prepayment in full of the special taxes levied by the Authority for CFD 03-02 on property in the District, so that the property is no longer subject to special tax levies for CFD 03-02 (see "INTRODUCTION-The District"), and to provide funds to pay costs of Improvements authorized to be funded by the District. Proceeds of the 2017 Bonds will also be used to fund a Reserve Fund for the 2017 Bonds, to pay a portion of the interest due on the 2017 Bonds on September 1, 2017, to pay costs of issuance of the 2017 Bonds, and to pay costs of administration of the District until Special Taxes are collected from properties in the District. As an additional source of funds to pay the interest due on the 2017 Bonds on September 1, 2017, Special Taxes received from the property owners in the District prior to the issuance of the 2017 Bonds, as a result of an initial Special Tax levy in the District, will be deposited to the Capitalized Interest Account held by the Fiscal Agent under the Fiscal Agent Agreement. Such amount, together with the portion of the
-7- proceeds of the 2017 Bonds to be deposited to the Capitalized Interest Account, will be equal to the interest due on the 2017 Bonds on September 1, 2017.
As mentioned under the heading "INTRODUCTION-Issuance of Additional Bonds; Revenue Capacity," the principal of the 2017 Bonds was based in part on the anticipated Assigned Special Tax A that may be levied annually in the District at eventual buildout of the Taxable Property in the District, based on the plans of the current property owners with respect to the number, size and expected sales prices of the 1,226 homes to be constructed in the District, and the desire of the property owners to have annual property taxes (including the Special Taxes and overlapping tax obligations) not exceed one and nine tenths percent (1.9%) of expected home sale prices. Based on the current development plans, the Assigned Special Tax A is projected at buildout, less anticipated Administrative Expenses, to be at least 110% of the corresponding annual debt service on the 2017 Bonds. See "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method - Maximum Special Taxes." However, no assurance can be given with respect to future home sale prices and the annual property tax obligations of the homeowners. The Rate and Method provides for a Backup Annual Special Tax A (see "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method - Maximum Special Taxes"), so that if less or smaller homes than currently anticipated are constructed in the District there will still be the capacity to levy maximum annual Special Taxes in an amount equal to at least 110% of the amount needed to pay debt service on the Bonds. However, unless more or larger homes than currently expected are built in the District, or Refunding Bonds are eventually issued to refund all or a portion of the outstanding 2017 Bonds, the Authority will be unable to issue New Money Parity Bonds. See "SECURITY FOR THE 2017 BONDS-Issuance of Additional Bonds."
Prepayment of CFD 03-02 Special Taxes. Proceeds of the 2017 Bonds being used to prepay CFD 03-02 special taxes authorized to be levied on property in the District, along with the proceeds of refunding bonds being issued by the Authority for CFD 03-02 (the "CFD 03-02 Refunding Bonds") concurrently with the issuance of the 2017 Bonds, will be deposited to a refunding fund established under an Escrow Agreement, dated as of March 1, 2017, between the Authority and U.S. Bank, National Association, as escrow bank. Amounts in the refunding fund will be used to redeem in full on March 16, 2017 the bonds issued in 2006 by the Authority for CFD 03-02 (the "CFD 03-02 2006 Bonds"). Funds in the refunding fund are not available to be used for payments on the 2017 Bonds. Following the prepayment of CFD 03-02 special taxes to occur on the date of issuance of the 2017 Bonds, the property in the District will no longer be subject to any lien or other obligation with respect to CFD 03-02, and the CFD 03- 02 Refunding Bonds will be payable solely from property in the Panhandle Area of Roripaugh Ranch.
Funding for Improvements. The Authority, for and on behalf of the District, has entered into an Acquisition Agreement with the Primary Landowner, dated as of March 1, 2017 (the "Acquisition Agreement"), pursuant to which the Authority has agreed to use amounts in an improvement fund for CFD 03-02 (estimated to total $16,232,483.38), as well as proceeds of the 2017 Bonds and of any new -money Parity Bonds (collectively, the "Improvement Funds"), to pay the costs of specified public infrastructure improvements (referred to in this Official Statement as the "Improvements") the construction of which is necessitated by development occurring in the District. While the Acquisition Agreement provides for the Primary Landowner or its successor to construct most of the Improvements, under a Development Agreement between the Primary Landowner and the City governing the development of the property in Roripaugh Ranch, the owners of the land in the District are obligated to complete the Improvements in order to develop the land they own in the District (see "THE DISTRICT- The Roripaugh Ranch Development"). In addition to the Improvements subject to the Acquisition Agreement, some of the Improvements are being constructed by the City and are to be paid for from the Improvement Funds. See "THE DISTRICT - The Improvements."
-8- Some of the Improvements have been completed; however additional Improvements need to be completed in order to obtain building permits from the City in respect of the property in the District. See "THE DISTRICT-The Improvements." The costs of Improvements completed to date have been paid for with proceeds of the CFD 03-02 2006 Bonds or with funds advanced by the owners of land in Roripaugh Ranch. See "THE DISTRICT-The Roripaugh Ranch Development."
In accordance with the Acquisition Agreement, some of the proceeds of the Improvement Funds will be used to make payments to the Primary Landowner or its successor under the Acquisition Agreement for costs of those Improvements constructed by the Primary Landowner or its successor, and some of the Improvement Funds will be used by the City to pay for Improvements being constructed by the City. See "PLAN OF FINANCING - Sources and Uses of Funds" and "THE DISTRICT-The Improvements." While the Fiscal Agent Agreement allows for the issuance of Parity Bonds secured on a parity with the 2017 Bonds (see "SECURITY FOR THE 2017 BONDS-Issuance of Additional Bonds," unless current expectations regarding the number and expected sizes of homes to be constructed in the District are lower than the actual number of homes and home sizes, or Refunding Bonds are eventually issued to refund all or a portion of the 2017 Bonds, it is unlikely that any New Money Parity Bonds will be issued. See "SECURITY FOR THE 2017 BONDS-Issuance of Additional Bonds." In any event, the aggregate principal amount of any Parity Bonds (other than Parity Bonds that are Refunding Bonds, to which no principal limit applies), plus the initial principal amount of the 2017 Bonds cannot exceed the bonded indebtedness limit of $60,000,000 for the District. No assurance can be given that any such Parity Bonds will be issued. Any costs of Improvements in excess of the Improvement Funds and any net proceeds of Parity Bonds are the responsibility of the property owners under the provisions of the Development Agreement. See "THE DISTRICT-The Roripaugh Ranch Development." The Improvement Funds are not available to make payments on the 2017 Bonds.
-9- Estimated Sources and Uses of Funds
The sources and uses of funds in connection with the 2017 Bonds are expected to be as follows:
Principal amount of 2017 Bonds $ 42,815,000.00 Less: Original Issue Discount (81,745.10) Less: Underwriter's Discount (839,262.50) Plus: Transfer of Funds on Hando) 1,537,010.04 Total Sources $ 43,431,002.44
Prepayment of CFD 03-02 Special Taxes(2) $ 32,273,543.02 Deposit to Reserve Fund(3) 3,153,043.76 Deposit to Costs of Issuance Fund(4) 375,000.00 Deposit to Improvement Fund( 6,409,500.82 Deposit to the Capitalized Interest Accounto) 1,184,914.84 Deposit to Administrative Expense Fund(7) 35,000.00 Total Uses $ 43,431,002.44
(1) "PLAN OF FINANCING-Overview - General." (2) See "PLAN OF FINANCING-Overview - Prepayment of CFD 03-02 Special Taxes." (3) Equal to the initial Reserve Requirement. See "SECURITY FOR THE 2017 BONDS-Reserve Fund." (4) Costs of issuance include, without limitation, Fiscal Agent fees and expenses; Municipal Advisor fees and expenses; the fees and expenses of Bond Counsel, Disclosure Counsel, and the City Attorney; printing costs and other costs related to the issuance of the 2017 Bonds. (5) To be used, along with certain funds held in an improvement fund under a fiscal agent agreement for the CFD 03-02 Refunding Bonds, to pay costs of the Improvements. See "PLAN OF FINANCING-Overview - Funds for Improvements" and "THE DISTRICT-The Improvements." (6) To be used to pay interest on the 2017 Bonds due on September 1, 2017. To be funded in part with proceeds of the 2017 Bonds and in part from Special Taxes collected prior to the issuance of the 2017 Bonds. See "PLAN OF FINANCING-Overview - General." (7) To be used to pay costs of administering the District.
THE 2017 BONDS Authority for Issuance
Pursuant to the Act, on April 26, 2016, the Board of Directors adopted Resolution No. TPFA 16-04 establishing the District ("Resolution of Formation"). Also on April 26, 2016, the Board of Directors adopted Resolution No. TPFA 16-06 calling an election to authorize the issuance of bonds and the levying of a special tax within the District. On April 26, 2016, the election was held and the then two owners of property in the District, constituting the qualified electors of the District, cast votes in the election in favor of the issuance of up to $60,000,000 of bonded indebtedness to finance the Improvements, and approved the Rate and Method, a copy of which is attached to this Official Statement as Appendix B. See "THE DISTRICT-History of the District."
The 2017 Bonds are authorized to be issued pursuant to the Act, Resolution No. TPFA 17-01 adopted on January 24, 2017, by the Board of Directors, acting as the legislative body of the District, and the Fiscal Agent Agreement. See "THE DISTRICT-History of the District" for information in respect of the adoption by the Board of Directors of such Resolution. The Special Taxes to be used to pay debt service on the 2017 Bonds are being levied in accordance with the Rate and Method.
-10- General Provisions
The 2017 Bonds will be issued only as fully registered bonds, in Authorized Denominations, and will bear interest at the rates per annum and will mature on the dates set forth on the inside cover page of this Official Statement. The Fiscal Agent Agreement defines "Authorized Denominations" as (i) prior to the 2017 Bond Transfer Restriction Release Date (see "THE 2017 BONDS-Transfer or Exchange of 2017 Bonds"), $100,000 and integral multiples of $5,000 in excess of $100,000, provided however that one 2017 Bond may be in a denomination less than $100,000 as a result of any partial redemption of 2017 Bonds prior to the 2017 Bond Transfer Restriction Release Date, and (ii) on and after the 2017 Bond Transfer Restriction Release Date, $5,000 and integral multiples thereof. See page iv entitled "Notice to Purchasers," and "THE 2017 BONDS-Transfer or Exchange of 2017 Bonds." The 2017 Bonds will be dated the date of their issuance and interest will be payable on each Interest Payment Date, commencing September 1, 2017.
Each 2017 Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated on an Interest Payment Date, in which event it will bear interest from such date of authentication, or (b) it is authenticated prior to an Interest Payment Date and after the close of business on the Record Date preceding such Interest Payment Date, in which event it will bear interest from such Interest Payment Date, or (c) it is authenticated on or before August 15, 2017, in which event it will bear interest from the date of issuance of the 2017 Bonds; provided, however, that if, as of the date of authentication of any 2017 Bond interest thereon is in default, such 2017 Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. "Record Date" is defined in the Fiscal Agent Agreement as the fifteenth day of the month next preceding the month of the applicable Interest Payment Date, whether Or not such fifteenth (15th) day is a Business Day.
The 2017 Bonds will be payable both as to principal and interest, and as to any -premium upon the redemption thereof, in lawful money of the United States of America. The principal of the 2017 Bonds and any premium due upon the redemption thereof will be payable upon presentation and surrender at the principal corporate trust office of the Fiscal Agent. Interest on each 2017 Bond will be computed using a year of 360 days comprised of twelve 30 -day months.
The 2017 Bonds will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of DTC, which will act as securities depository for the 2017 Bonds. Individual purchases of the 2017 Bonds will be made in Authorized Denominations in book -entry form only. Purchasers of the 2017 Bonds will not receive physical certificates representing their ownership interests in the 2017 Bonds purchased. Principal and interest payments represented by the 2017 Bonds are payable directly to DTC by the Fiscal Agent. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to the beneficial owners of the 2017 Bonds. See Appendix F - "DTC and the Book -Entry Only System." So long as the 2017 Bonds are registered in the name of Cede & Co., as nominee of DTC, references in this Official Statement to the owners shall mean Cede & Co., and shall not mean the purchasers or Beneficial Owners of the 2017 Bonds. Redemption
Optional Redemption. The 2017 Bonds maturing on or after September 1, 2028 are subject to optional redemption prior to their stated maturities on any Interest Payment Date occurring on or after September 1, 2027, as a whole or in part in an amount equal to $5,000 or any integral multiple thereof, upon payment from any source of funds available for that purpose, at a redemption price equal to the principal amount of the 2017 Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium.
-11- Mandatory Sinking Payment Redemption. The 2017 Bonds maturing on September 1, 2027, are subject to mandatory sinking payment redemption in part on September 1, 2018, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, without premium, from sinking payments as follows: Redemption Date (September 1) Sinking Payments 2018 $565,000 2019 595,000 2020 630,000 2021 665,000 2022 700,000 2023 740,000 2024 780,000 2025 820,000 2026 870,000 2027 (maturity) 915,000
The 2017 Bonds maturing on September 1, 2032, are subject to mandatory sinking payment redemption in part on September 1, 2028, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, without premium, from sinking payments as follows: Redemption Date (September 1) Sinking Payments 2028 $ 965,000 2029 1,020,000 2030 1,080,000 2031 1,140,000 2032 (maturity) 1,205,000
The 2017 Bonds maturing on September 1, 2037, are subject to mandatory sinking payment redemption in part on September 1, 2033, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, without premium, from sinking payments as follows: Redemption Date (September 1) Sinking Payments 2033 $1,275,000 2034 1,355,000 2035 1,440,000 2036 1,525,000 2037 (maturity) 1,620,000
The 2017 Bonds maturing on September 1, 2047, are subject to mandatory sinking payment redemption in part on September 1, 2038, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, without premium, from sinking payments as follows:
-12- Redemption Date (September 1) Sinking Payments 2038 $1,720,000 2039 1,825,000 2040 1,940,000 2041 2,060,000 2042 2,190,000 2043 2,325,000 2044 2,470,000 2045 2,625,000 2046 2,790,000 2047 (maturity) 2,965,000
The amounts in the foregoing tables will be reduced as a result of any prior partial redemption of the 2017 Bonds pursuant to the optional redemption or redemption from special tax prepayments provisions of the Fiscal Agent Agreement, as specified in writing by the Authority's Treasurer to the Fiscal Agent.
Mandatory Redemption From Special Tax Prepayments. The 2017 Bonds are subject to mandatory redemption prior to their stated maturity on any Interest Payment Date, from the proceeds of Special Tax Prepayments and corresponding transfers of funds from the Reserve Fund (as described below under "SECURITY FOR THE 2017 BONDS-Reserve Fund"), as a whole or in part in an amount equal to $5,000 or any integral multiple thereof, at a redemption price (expressed as a percentage of the principal amount of the 2017 Bonds to be redeemed), as set forth below, together with accrued interest thereon to the date fixed for redemption:
Redemption Dates Redemption Prices any Interest Payment Date from September 1, 2017 to and including March 1, 2025 103% September 1, 2025 and March 1, 2026 102 September 1, 2026 and March 1, 2027 101 September 1, 2027 and any Interest Payment 100 Date thereafter
No assurance can be given that prepayments of Special Taxes levied on the Taxable Property will not occur in the future, which would result in a redemption to 2017 Bonds prior to their maturity. See "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method - Prepayment in Full," and "-Prepayment in Part."
Purchase of 2017 Bonds In Lieu of Redemption. In lieu of redemption as described above, moneys in the Bond Fund may be used and withdrawn by the Fiscal Agent for purchase of Outstanding 2017 Bonds, upon the filing with the Fiscal Agent of an Officer's Certificate requesting such purchase prior to the selection of 2017 Bonds for redemption, at public or private sale as and when, and at such prices (including brokerage and other charges) as such Officer's Certificate may provide, but in no event may 2017 Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of purchase and any premium which would otherwise be due if such 2017 Bonds were redeemed in accordance with the Fiscal Agent Agreement.
Selection of 2017 Bonds for Redemption. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the 2017 Bonds (other than pursuant to the mandatory sinking payment redemption provisions of the Fiscal Agent Agreement), the Fiscal Agent will select the 2017 Bonds to be redeemed from among the maturities of the 2017 Bonds or such given portion thereof not previously redeemed as directed by the Treasurer (who
-13- shall specify 2017 Bonds to be redeemed so as to maintain substantially level debt service on the Bonds) and within a maturity by lot in any manner which the Fiscal Agent deems appropriate.
Notice of Redemption. The Fiscal Agent will cause notice of any redemption to be mailed by first class mail, postage prepaid, or by such other means as is acceptable to the recipient thereof, at least 30 days but not more than 60 days prior to the date fixed for redemption, to the Securities Depositories and to one or more Information Services, and to the respective registered Owners of any 2017 Bonds designated for redemption, at their addresses appearing on the Bond registration books maintained by the Fiscal Agent; but such mailing is not a condition precedent to redemption and failure to mail or to receive any such notice, or any defect therein, will not affect the validity of the proceedings for the redemption of such 2017 Bonds. The redemption notice will state the redemption date and the redemption price and, if less than all of the then Outstanding 2017 Bonds are to be called for redemption, will designate the CUSIP numbers and, if applicable, Bond numbers of the 2017 Bonds to be redeemed by giving the individual CUSIP number and, if applicable, Bond number of each Bond to be redeemed or if Bond numbers have been assigned by the Fiscal Agent to the 2017 Bonds will state that all 2017 Bonds between two stated Bond numbers, both inclusive, are to be redeemed or that all of the 2017 Bonds of one or more maturities have been called for redemption, will state as to any Bond called in part the principal amount thereof to be redeemed, and will require that such 2017 Bonds be then surrendered at the Principal Office of the Fiscal Agent for redemption at the said redemption price, and will state that further interest on such 2017 Bonds will not accrue from and after the redemption date.
Notwithstanding the foregoing, in the case of any redemption of the 2017 Bonds pursuant to the redemption provisions described above under "- Optional Redemption" the notice of redemption may state that the redemption is conditioned upon receipt by the Fiscal Agent of sufficient moneys to redeem the 2017 Bonds on the anticipated redemption date, and that the redemption will not occur if by no later than the scheduled redemption date sufficient moneys to redeem the 2017 Bonds have not been deposited with the Fiscal Agent. In the event that the Fiscal Agent does not receive sufficient funds by the scheduled redemption date to so redeem the 2017 Bonds to be redeemed, the Fiscal Agent will send written notice to the owners of the 2017 Bonds, to the Securities Depositories and to one or more of the Information Services to the effect that the redemption did not occur as anticipated, and the 2017 Bonds for which notice of redemption was given will remain Outstanding for all purposes of the Fiscal Agent Agreement.
Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the 2017 Bonds so called for redemption have been deposited in the Bond Fund, such 2017 Bonds so called will cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and no interest will accrue thereon on or after the redemption date specified in such notice.
Tender of 2017 Bonds in Payment of Special Taxes. The Authority has covenanted in the Fiscal Agent Agreement not to permit the tender of 2017 Bonds in payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the Authority having insufficient Special Tax Revenues to pay the principal of and interest on the 2017 Bonds that will remain Outstanding following such tender.
Transfer or Exchange of 2017 Bonds
General. So long as the 2017 Bonds are registered in the name of Cede & Co., as nominee of DTC, transfers and exchanges of 2017 Bonds shall be made in accordance with DTC procedures. See Appendix G - "DTC and the Book -Entry Only System." If the book -entry only
-14- system for the 2017 Bonds is ever discontinued, 2017 Bonds may, in accordance with its terms, be transferred or exchanged in Authorized Denominations by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such 2017 Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form acceptable to the Fiscal Agent. Whenever any 2017 Bond or 2017 Bonds are surrendered for transfer or exchange, the Authority will execute and the Fiscal Agent will authenticate and deliver a new 2017 Bond or 2017 Bonds, for a like aggregate principal amount of 2017 Bonds of authorized denominations and of the same maturity. The Fiscal Agent will collect from the Owner requesting such transfer any tax or other governmental charge required to be paid with respect to such transfer or exchange.
No transfers or exchanges of 2017 Bonds will be required to be made (i) within the 15 days prior to the date designated by the Fiscal Agent as the date for selecting 2017 Bonds for redemption, (ii) with respect to any 2017 Bond after such 2017 Bond has been selected for redemption, or (iii) between a Record Date and the succeeding Interest Payment Date.
Transfers Prior to 2017 Bond Transfer Restriction Release Date. The Fiscal Agent Agreement provides that, prior to the 2017 Bond Transfer Restriction Release Date, no transfer, sale or other disposition of any 2017 Bond, or any beneficial interest therein, may be made except to a transferee that the transferor reasonably believes is a Qualified Institutional Buyer that is purchasing such 2017 Bond for its own account for investment purposes and not with a view to distributing such 2017 Bond. Each transferee of a 2017 Bond, or any beneficial interest therein, transferred prior to the 2017 Bond Transfer Restriction Release Date, by its purchase thereof, will be deemed to have represented that such transferee is a Qualified Institutional Buyer that is purchasing such 2017 Bond for its own account for investment purposes and not with a view to distributing such 2017 Bond. Each 2017 Bond delivered prior to the 2017 Bond Transfer Restriction Release Date will bear a legend describing or referencing the foregoing restriction on transferability. The term "Qualified Institutional Buyer" is defined in the Fiscal Agent Agreement as a "qualified institutional buyer" within the meaning of Rule 144A promulgated under the Securities Act of 1933, as amended.
Each entity that is or that becomes a Beneficial Owner of a 2017 Bond prior to the 2017 Bond Transfer Restriction Release Date is deemed by the acceptance or acquisition of such beneficial ownership interest to have agreed to be bound by the above -described provisions of the Fiscal Agent Agreement. The transferor of a 2017 Bond transferred prior to the 2017 Bond Transfer Restriction Release Date agrees to provide notice to any proposed assignee of a beneficial ownership interest in the purchased 2017 Bond of the restriction on transfer described above. The Fiscal Agent Agreement provides that any Owner or Beneficial Owner effecting a transfer, sale or other disposition of a 2017 Bond, or beneficial interest therein, prior to the 2017 Bond Transfer Restriction Release Date shall, and does agree to, indemnify the Authority and the Fiscal Agent against any liability that may result if such transfer, sale or other disposition is not made in accordance with the requirements of the Fiscal Agent Agreement.
The term "2017 Bond Transfer Restriction Release Date" is defined in the Fiscal Agent Agreement as the date which is five (5) Business Days after the date the Authority posts on the Municipal Securities Rulemaking Board's EMMA website a continuing disclosure notice pursuant to the Continuing Disclosure Agreement to the effect that (a) at least twenty-five percent (25%) of the Special Tax levied in the then current Fiscal Year was levied on assessor parcels that are classified as Developed Property under the Rate and Method; and (b) the then value of Undeveloped Property (as defined in the Rate and Method) in the District, excluding the value of any Undeveloped Property that is then delinquent in the payment of any Special Taxes previously levied, is at least three times the portion of the principal amount of the Bonds then outstanding allocable to the Undeveloped Property. The principal of the Bonds then outstanding is to be allocated to the Undeveloped Property based on a percentage applied to
-15- such principal the numerator of which is the amount of Special Taxes levied on Undeveloped Property in the most recent Fiscal Year and the denominator of which is the aggregate Special Tax levy on all Taxable Property in such Fiscal Year. For purposes of the preceding clause (b), the value of the applicable parcels of Undeveloped Property shall be determined either by reference to the assessed value of the property on the most recent County real property tax roll or by reference to an appraisal performed within six (6) months of the 2017 Bond Transfer Restriction Release Date by an MAI appraiser selected by the Authority.
From and after the 2017 Bond Transfer Restriction Release Date, the restrictions on transfer of the 2017 Bonds described above will no longer apply; and, from and after such date, 2017 Bonds may be transferred to any person in accordance with, and upon compliance with the requirements of, the provisions of the Fiscal Agent Agreement described under the subheading "General" above. Also, following the 2017 Bonds Transfer Restriction Release Date, the 2017 Bonds may be transferred or exchanged in denominations of $5,000 or integral multiples thereof.
Discontinuance of DTC Services
DTC may determine to discontinue providing its services with respect to the 2017 Bonds by giving written notice to the Fiscal Agent during any time that the 2017 Bonds are Outstanding, and discharging its responsibilities with respect to the 2017 Bonds under applicable law. The Authority may terminate the services of DTC with respect to the 2017 Bonds if it determines that DTC is unable to discharge its responsibilities with respect to the 2017 Bonds or that continuation of the system of book -entry transfers through DTC is not in the best interest of the Beneficial Owners. The Authority will mail any such notice of termination to the Fiscal Agent.
Upon the termination of the services of DTC as provided in the previous paragraph, and if no substitute Depository willing to undertake the functions can be found which is willing and able to undertake such functions upon reasonable or customary terms, or if the Authority determines that it is in the best interest of the Beneficial Owners of the 2017 Bonds that they obtain certificated Bonds, the 2017 Bonds will no longer be restricted to being registered in the Registration Books of the Fiscal Agent in the name of Cede & Co., as nominee of DTC, but may be registered in whatever name or names the Owners designate at that time, in accordance with the Fiscal Agent Agreement. To the extent that the Beneficial Owners are designated as the transferees by the Owners, the 2017 Bonds will be delivered to such Beneficial Owners as soon as practicable in accordance with the Fiscal Agent Agreement.
-16- Scheduled Debt Service
The following table shows the annual scheduled debt service on the 2017 Bonds, assuming no optional redemption of the 2017 Bonds and no redemption of the 2017 Bonds from Special Tax Prepayments:
Bond Year ending Annual Debt September 1 Principal(') Interest Service 2017 $0.00 $ 1,184,914.84(2) $ 1,184,914.84 2018 565,000.00 2,585,268.76 3,150,268.76 2019 595,000.00 2,554,193.76 3,149,193.76 2020 630,000.00 2,521,468.76 3,151,468.76 2021 665,000.00 2,486,818.76 3,151,818.76 2022 700,000.00 2,450,243.76 3,150,243.76 2023 740,000.00 2,411,743.76 3,151,743.76 2024 780,000.00 2,371,043.76 3,151,043.76 2025 820,000.00 2,328,143.76 3,148,143.76 2026 870,000.00 2,283,043.76 3,153,043.76 2027 915,000.00 2,235,193.76 3,150,193.76 2028 965,000.00 2,184,868.76 3,149,868.76 2029 1,020,000.00 2,129,381.26 3,149,381.26 2030 1,080,000.00 2,070,731.26 3,150,731.26 2031 1,140,000.00 2,008,631.26 3,148,631.26 2032 1,205,000.00 1,943,081.26 3,148,081.26 2033 1,275,000.00 1,873,793.76 3,148,793.76 2034 1,355,000.00 1,795,700.00 3,150,700.00 2035 1,440,000.00 1,712,706.26 3,152,706.26 2036 1,525,000.00 1,624,506.26 3,149,506.26 2037 1,620,000.00 1,531,100.00 3,151,100.00 2038 1,720,000.00 1,431,875.00 3,151,875.00 2039 1,825,000.00 1,324,375.00 3,149,375.00 2040 1,940,000.00 1,210,312.50 3,150,312.50 2041 2,060,000.00 1,089,062.50 3,149,062.50 2042 2,190,000.00 960,312.50 3,150,312.50 2043 2,325,000.00 823,437.50 3,148,437.50 2044 2,470,000.00 678,125.00 3,148,125.00 2045 2,625,000.00 523,750.00 3,148,750.00 2046 2,790,000.00 359,687.50 3,149,687.50 2047 2,965,000.00 185,312.50 3,150,312.50 Totals $42,815,000.00 $52,872,827.52 $95,687,827.52
(1) All are mandatory sinking fund payments. (2) To be paid from amounts in the Capitalized Interest Account. See "PLAN OF FINANCING-Sources and Uses of Funds."
SECURITY FOR THE 2017 BONDS General
Pursuant to the Fiscal Agent Agreement, the 2017 Bonds are secured by a first pledge of all of the Special Tax Revenues (other than, each Fiscal Year, a maximum of $50,000 of Special Tax Revenues that may be deposited to the Administrative Expense Fund on a priority basis), and all moneys deposited in the Bond Fund (including the Capitalized Interest Account and the Special Tax Prepayments Account therein), the Reserve Fund and, until disbursed in accordance with the Fiscal Agent Agreement, the Special Tax Fund. Special Tax Revenues do not include penalties, if any, collected in respect of delinquent Special Taxes. The Special Tax Revenues and
-17- all moneys deposited into said funds (except as otherwise provided in the Fiscal Agent Agreement) are dedicated to the payment of the principal of, and interest and any premium on, the 2017 Bonds in accordance with the Fiscal Agent Agreement until all of the 2017 Bonds have been paid or defeased.
Amounts in the Administrative Expense Fund, the Improvement Fund, the Costs of Issuance Fund and the Refunding Fund, and up to $50,000 of the first Special Tax Revenues collected in any Fiscal Year that may be deposited to the Administrative Expense Fund on a priority basis, are not pledged to the repayment of the 2017 Bonds. The Improvements are not pledged as collateral for the 2017 Bonds. The proceeds of condemnation or destruction of any of the Improvements are not pledged to pay the Debt Service on the 2017 Bonds. Limited Obligation
The 2017 Bonds are limited obligations of the Authority on behalf of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund (including the Capitalized Interest Account and the Special Tax Prepayments Account therein), the Reserve Fund and the Special Tax Fund created pursuant to the Fiscal Agent Agreement. In the event that the Special Taxes are not paid when due, the only sources of funds available to repay the 2017 Bonds are amounts held by the Fiscal Agent under the Fiscal Agent Agreement in the Bond Fund, the Reserve Fund and the Special Tax Fund, and the proceeds, if any, from foreclosure sales of parcels with delinquent Special Tax levies.
Special Taxes
In accordance with the provisions of the Act, the Rate and Method was approved in 2016 by the two then owners of the property in the District. The Rate and Method is set forth in its entirety in Appendix B. The Rate and Method provides for the levy of a "Special Tax A" in order to fund the annual "Special Tax A Requirement," which includes amounts needed to pay the debt service on the Bonds, to pay costs of administering the Bonds and the District, to replenish any draws on the Reserve Fund and to pay directly for costs of the Improvements; and the levy of a "Special Tax B" in order to fund the annual "Special Tax B Requirement," which includes amounts needed to pay costs of services authorized to be funded by the District, and to pay related administrative expenses. See "INTRODUCTION-The District" and "SECURITY FOR THE 2017 BONDS - Summary of Rate and Method." The Special Tax B to be levied on Taxable Property in the District to satisfy the annual Special Tax B Requirement is not pledged, and will not be used, to pay debt service on the 2017 Bonds; and the term "Special Taxes" when used in this Official Statement includes only the Special Tax A levied to satisfy the annual Special Tax A Requirement.
Under the Fiscal Agent Agreement, the Authority is obligated to fix and levy the amount of Special Taxes within the District required for the timely payment of principal of and interest on the outstanding 2017 Bonds becoming due and payable, including any necessary replenishment of the Reserve Fund and an amount estimated to be sufficient to pay the Administrative Expenses, taking into account any prepayments of Special Taxes previously received by the Authority. The Special Taxes levied on any parcel of Taxable Property may not in any event exceed the maximum amount as provided in the Rate and Method and the Act.
The Special Taxes are payable and are to be collected in the same manner, at the same time and in the same installment as County ad valorem taxes on property levied on the secured tax roll are payable, and pursuant to the Act have the same priority, become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the taxes levied on the County secured tax roll. Notwithstanding the foregoing, (i) the two property owners will have paid, prior to the
-18- issuance of the 2017 Bonds, a Special Tax levy sufficient, together with proceeds of the 2017 Bonds to be deposited to the Capitalized Interest Account under the Fiscal Agent Agreement, to pay the interest due on the 2017 Bonds on September 1, 2017 (see "PLAN OF FINANCING- Overview - General"); and (ii) in any event, the Special Taxes may be collected in certain circumstances by means of direct billing of the owners of Taxable Property.
Although the Special Taxes will constitute a lien on taxed parcels within the District, they do not constitute a personal indebtedness of the owners of the property within the District. Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of the Special Tax on a parcel of Taxable Property, the Authority may order the institution of a superior court action to foreclose the lien on the parcel of Taxable Property within specified time limits. In such an action, the real property subject to the unpaid amount of the Special Tax lien may be sold at judicial foreclosure sale. The Act provides that the Special Taxes are secured by a continuing lien that is subject to the same lien priority in the case of delinquency as ad valorem property taxes. See "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method," and "-Covenant for Superior Court Foreclosure" and "SPECIAL RISK FACTORS- Parity Taxes and Special Assessments."
The property located within the District is subject to other liens for taxes and assessments, and other such liens could come into existence in the future. See "SPECIAL RISK FACTORS-Parity Taxes and Special Assessments." There is no assurance that any owner of a parcel subject to the Special Tax levy will be financially able to pay the annual Special Taxes or that it will pay such taxes even if financially able to do so. See "SPECIAL RISK FACTORS."
While no assurance can be given that the owners of the Taxable Property in the District will pay the Special Taxes levied by the Authority on such property, it should be noted that both of the current owners of the Taxable Property have consistently paid the special taxes levied for CFD 03-02 on their property. As discussed under "PLAN OF FINANCING- Overview - Prepayment of CFD 03-02 Special Taxes," proceeds of the 2017 Bonds will be used to prepay the remaining CFD 03-02 special tax obligation of the property in the District, so no future levies of special taxes for CFD 03-02 will be made on the property in the District. The two property owners in the District will have paid, prior to the issuance of the 2017 Bonds, a Special Tax levy to be used to pay a portion of the debt service due on the 2017 Bonds on September 1, 2017 (see "PLAN OF FINANCING-Overview - General"); however, first annual levy of the Special Tax A for the District will be for fiscal year 2017-18, with one-half of such Special Tax levy delinquent if not paid by December 10, 2017 and one-half delinquent if not paid by April 10, 2018. The first levy of Special Tax B will occur when there is Developed Property (as defined in the Rate and Method) in the District.
Special Tax Fund
Deposit of Special Tax Revenues. The Fiscal Agent Agreement establishes a Special Tax Fund to be held by the Fiscal Agent. Under the Fiscal Agent Agreement, the Authority is obligated to transfer or cause to be transferred to the Fiscal Agent, for deposit by the Fiscal Agent in the Special Tax Fund, as soon as practicable following receipt, all Special Tax Revenues received by the Authority. Notwithstanding the foregoing,
(i) the first Special Tax Revenues collected by the Authority in any Fiscal Year, in an amount equal to the portion of such Fiscal Year's Special Tax levy for Administrative Expenses (but not to exceed, in any Fiscal Year, $50,000) will be deposited by the Treasurer in the Administrative Expense Fund;
-19- (ii) any Special Tax Revenues constituting the collection of delinquencies in payment of Special Taxes will be separately identified by the Treasurer and will be disposed of by the Fiscal Agent first, by transfer to the Bond Fund to pay any past due debt service on the Bonds; second, by transfer to the Reserve Fund to the extent needed to increase the amount then on deposit in the Reserve Fund to the then Reserve Requirement; third, by transfer to the Administrative Expense Fund to the extent that amounts in such fund were used to pay costs related to the collection of such delinquencies; and fourth, to be held in the Special Tax Fund and used for its purposes;
(iii) any proceeds of Special Tax Prepayments will be remitted by the Treasurer to the Fiscal Agent for deposit by the Fiscal Agent in the Special Tax Prepayments Account and used to redeem Bonds; and
(iv) any Special Tax Revenues constituting the portion, if any, of the Special Tax A Requirement that is to pay directly for the acquisition or construction of any portion of the Improvements shall be separately identified by the Authority and shall be deposited by the Fiscal Agent in the Improvement Fund established under the Fiscal Agent Agreement so long as the Improvement Fund has not theretofore been closed, and if the Improvement Fund has been closed, then such amount shall be retained by the Authority to be used to pay Improvement costs.
Moneys in the Special Tax Fund will be held by the Fiscal Agent for the benefit of the Authority and the Owners of the Bonds, will be disbursed as provided below and, pending any disbursement, will be subject to a lien in favor of the Owners of the Bonds and the Authority.
Disbursements. On each Interest Payment Date, the Fiscal Agent will withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority:
(i) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers under the Fiscal Agent Agreement from the Capitalized Interest Account, the Improvement Fund, the Reserve Fund and the Special Tax Prepayments Account to the Bond Fund, such that the amount in the Bond Fund equals the principal (including any sinking payment), premium, if any, and interest due on the Bonds on such Interest Payment Date; and
(ii) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund is equal to the Reserve Requirement.
In addition to the foregoing, if in any Fiscal Year there are sufficient funds in the Special Tax Fund to make the foregoing transfers to the Bond Fund and the Reserve Fund in respect of the Interest Payment Dates occurring in the Bond Year that commences in such Fiscal Year, the Treasurer may transfer any amount in the Special Tax Fund in excess of the amount needed to make such transfers to the Bond Fund and the Reserve Fund (i) to the Administrative Expense Fund, from time to time, if monies are needed to pay Administrative Expenses in excess of the amount then on deposit in the Administrative Expense Fund; (ii) to such other fund or account established to pay debt service on or administrative expenses with respect to any bonds or other debt secured by a pledge of Special Tax Revenues subordinate to the pledge thereof under the Fiscal Agent Agreement; or (iii) to such other fund or account established by the Authority to be used for any lawful purpose under the Act and otherwise in accordance with the provisions of the Rate and Method.
-20- Summary of Rate and Method
Special Tax Formula - Calculation of Annual Special Taxes. The Rate and Method is used to allocate the amount of the Special Tax A and the Special Tax B that is needed to be collected each fiscal year among the Taxable Properties within the District, based upon the development status of the Taxable Property and its size, subject to a maximum tax rate that may be levied against each class of Taxable Property, and depending upon the "Zone" in which the property is located. The Rate and Method is set forth in full in Appendix B, and the following is a summary of the Rate and Method. Capitalized terms used, but not otherwise defined, in this section have the meanings given to them in the Rate and Method.
The annual Special Tax A will first be levied on property in the District in Fiscal Year 2017-18 (although the property owners will pay a Special Tax levy prior to the issuance of the 2017 Bonds as described under the heading "PLAN OF FINANCING-Overview - General"). The Rate and Method provides that the Annual Special Tax A may be levied only so long as any Bonds are outstanding, provided that levies may continue if there are any delinquent Special Taxes in order to collect those delinquent amounts but not in any event later than Fiscal Year 2061-62. The Annual Special Tax B may only be levied on Developed Property, as described below, and may be levied in perpetuity on Developed Property.
Special Tax Requirements. Annually, at the time of levying the Special Tax, the Authority, with the assistance of a special tax administrator (currently Albert A. Webb Associates), determines the amount of money to be collected from Taxable Property in the District (the "Special Tax A Requirement"), which will be the amount required in any Fiscal Year to pay the following: (i) the debt service or the periodic costs on all outstanding Bonds due in the Calendar Year that commences in such Fiscal Year, (ii) Administrative Expenses (apportioned between Special Tax A and Special Tax B), (iii) any amount required to establish or replenish any reserve funds established in association with the Bonds, and (iv) the collection or accumulation of funds for the acquisition or construction of Improvements or payment of fees authorized by the District by the levy on Developed Property of the Assigned- Annual Special Tax A provided that the inclusion of such amount does not cause an increase in the levy of Special Tax A on Approved Property or Undeveloped Property as set forth in Step Two and Three described under the subheading "Method of Apportionment" below, less (v) any amount available to pay debt service or other periodic costs on the Bonds pursuant to the Fiscal Agent Agreement. The Authority, with the assistance of the special tax administrator, will also determine the amount of money to be collected from Taxable Property in the District (the "Special Tax B Requirement"), which will be the amount required in any Fiscal Year to pay for the municipal services the District is authorized to fund, as well as a share of the costs of administration of the District. See "INTRODUCTION-The District."
Classification of Property. The Rate and Method provides that for each Fiscal Year, all Assessor's Parcels of Taxable Property within the District be classified as either Taxable Property or Exempt Property. Taxable Property is further classified as Developed Property, Approved Property, Undeveloped Property, or Provisional Exempt Property. In addition, each Assessor's Parcel of Developed Property, Approved Property, Undeveloped Property and Provisional Exempt Property is classified as being within Zone 1, Zone 2, Zone 3 or Zone 4 of the District, as such "Zones" are identified on the boundary map of the District, a copy of which is included in Appendix H. If an Assessor's Parcel of Developed Property, Approved Property, Undeveloped Property or Provisional Exempt Property is located within more than one Zone, it is deemed to be entirely within the Zone in which the largest portion of its Acreage is located. In addition, each Assessor's Parcel of Developed Property is further classified as Residential Property, Multifamily Residential Property or Non -Residential Property. Assessor's Parcels of Residential Property are further categorized based on the Building Square Footage of each such Assessor's Parcel.
-21- Under the Rate and Method, "Developed Property" includes all Assessor's Parcels of Taxable Property for which a Final Map was recorded as of the January 1 preceding the Fiscal Year for which the Special Tax levy is being made and a building permit for new construction was issued as of the April 1 preceding the Fiscal Year for which the Special Tax A and Special Tax B are being levied. "Undeveloped Property" includes all Taxable Property not classified as Developed Property, Approved Property or Provisional Exempt Property. "Approved Property" includes all Assessor's Parcels of Taxable Property other than Provisional Exempt Property: (i) that are included in a Final Map that was recorded prior to the January 1st immediately preceding the Fiscal Year for which the Special Tax A is being levied, and (ii) that have not been issued a building permit on or before the April 1st immediately preceding the Fiscal Year for which the Special Tax A is being levied. "Provisional Exempt Property" includes all Assessor's Parcels of Taxable Property subject to Special Tax A that would otherwise be classified as Exempt Property pursuant to the provisions of the Rate and Method, but cannot be classified as Exempt Property because to do so would reduce the Acreage of all Taxable Property within the applicable Zone below the required minimum Acreage for that Zone set forth in the Exempt Property section (Section M) of the Rate and Method.
Maximum Special Taxes. The Maximum Special Tax A for each Assessor's Parcel that is Residential Property, Multifamily Residential Property or Non -Residential Property in any Fiscal Year is the greater of (i) the Assigned Annual Special Tax A, or (ii) the Backup Annual Special Tax A. The Maximum Special Tax A for each Assessor's Parcel of Approved Property, Undeveloped Property or Provisional Exempt Property is the Assigned Annual Special Tax A. The Assigned Annual Special Tax A rates for the four Zones of the District and for the various categories of Taxable Property are set forth in Section D of the Rate and Method in Appendix B, and range from $2,110 annually per dwelling unit to $5,455 annually per dwelling unit depending upon the size of the home, and from $7,783 annually per acre for Multifamily Residential Property to $32,894 annually per acre depending upon the Zone in which such property is located. The Maximum Special Tax B for Fiscal Year 2016-17 for each Assessor's Parcel of Residential Property is $432 per Unit, and for each Assessor's Parcel of Multifamily Residential Property and of Non -Residential Property is $2,766 per Acre.
The Maximum Special Tax A rates were established by reference to expected home sale prices for the homes to be built in the District as provided by the two property owners in the District and described in the Absorption Study (see Appendix J - "Market Absorption Study" and "THE DISTRICT-Property Values - Absorption Study"), and a total annual tax rate (inclusive of Special Taxes and ad valorem taxes) of less than one and nine tenths percent (1.9%) of such estimated sales prices. The Special Tax A is not subject to annual increases; however the Maximum Special Tax B is subject to annual increases, commencing July 1, 2017, by an amount equal to increases in the Consumer Price Index or two percent (2%), whichever is greater, of the amount in effect for the previous Fiscal Year.
The following Table 1 sets forth the anticipated aggregate annual Assigned Special Tax A revenues that would be realized at buildout of the 1,226 homes expected to be constructed in the District, based on the sizes of the homes that the two property owners have advised that they expect will be built. The Maximum Assigned Special Tax A in the Rate and Method, as previously mentioned, have been established such that the annual total tax rate (inclusive of the Special Taxes and ad valorem taxes) will not exceed one and nine tenths percent (1.9%) of the currently expected sales prices of the homes.
-22- Table 1 Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) Anticipated Assigned Special Tax A
Assigned Anticipated No. of Special Tax A Aggregate Tax Anticipated Per Anticipated Assigned Land Use Class(l) Residential Floor Area Units Unit Special Tax A Residential Z1 -D1 Less than 1,900 sq. ft. 89 $2,110 $ 187,790 Residential Z1 -D2 1,900 sq. ft. to 2,199 sq. ft. 174 2,320 403,680 Residential Z1 -D3 2,200 sq. ft. to 2,499 sq. ft. 283 2,670 755,610 Residential Z1 -D4 2,500 sq. ft. to 2,799 sq. ft. 63 2,860 180,180 Residential Z1 -D5 2,800 sq. ft. to 3,099 sq. ft. 154 2,975 458,150 Residential Z1 -D6 3,100 sq. ft. to 3,399 sq. ft. 130 3,115 404,950 Residential Z1 -D7 Greater than 3,399 sq. ft. 89 3,235 287,915 Residential Z2 -D1 Less than 4,000 sq. ft. 26 4,920 127,920 Residential Z2 -D2 4,000 sq. ft. to 4,299 sq. ft. 27 5,185 139,995 Residential Z2 -D3 Greater than 4,299 sq. ft. 26 5,455 141,830 Residential Z3 -D1 Less than 1,900 sq. ft. 0 2,110 0 Residential Z3 -D2 1,900 sq. ft. to 2,199 sq. ft. 136 2,335 317,560 Residential Z3 -D3 Greater than 2,199 sq. ft. 0 2,665 0 Residential Z4 -D1 Less than 4,000 sq. ft. 0 3,235 0 Residential Z4 -D2 4,000 sq. ft. or Greater 29 3,890 112,810 Totals 1,226 $3,518,390
(1) See Appendix B - "Rate and Method of Apportionment of Special Tax." Source: Albert A. Webb Associates.
As described under the heading "PLAN OF FINANCING -General," the principal amount of the 2017 Bonds was determined, in part, based on the anticipated annual Special Tax levy at buildout of the 1,226 homes, as set forth in the Table above. If less or smaller homes are eventually constructed, the Backup Annual Special Tax A may be levied to obtain sufficient Special Tax Revenues to repay the 2017 Bonds and annual Administrative Expenses see "- Method of Apportionment" below); however in such event no additional New Money Parity Bonds may be issued. If more or larger homes than currently anticipated are eventually constructed, there may be sufficient annual Special Tax Revenues to allow for the issuance of New Money Parity Bonds. See "SECURITY FOR THE 2017 BONDS -Issuance of Additional Bonds."
Method of Apportionment. The Rate and Method provides that for each Fiscal Year, the Board of Directors of the Authority will levy the Annual Special Tax A on all Taxable Property to fund the Special Tax A Requirement as follows:
First: The Annual Special Tax A shall be levied Proportionately on each Assessor's Parcel of Developed Property, up to 100% of the applicable Assigned Annual Special Tax A rates in Tables 1, 2, 3 and 4 of Section D of the Rate and Method (which Section sets forth the Assigned Annual Special Tax rates for the four Zones within the District) to satisfy the Special Tax A Requirement;
Second: If additional moneys are needed to satisfy the Special Tax A Requirement after the first step, the Annual Special Tax A shall be levied Proportionately on each Assessor's Parcel of Approved Property at up to 100% of the applicable Assigned Annual Special Tax A to satisfy the Special Tax A Requirement;
Third: If additional moneys are needed to satisfy the Special Tax A Requirement after the first two steps have been completed, the Annual Special Tax A shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property up to 100% of the
-23- Assigned Annual Special Tax A for Undeveloped Property applicable to each such Assessor's Parcel as needed to satisfy the Special Tax A Requirement;
Fourth: If additional moneys are needed to satisfy the Special Tax A Requirement after the first three steps have been completed, the Annual Special Tax A on each Assessor's Parcel of Developed Property for which the Maximum Special Tax A is the Backup Annual Special Tax A (the Backup Annual Special Tax A is computed pursuant to Section E of the Rate and Method) shall be increased Proportionately from the Assigned Annual Special Tax A up to 100% of the Backup Annual Special Tax A as needed to satisfy the Special Tax A Requirement; and
Fifth: If additional moneys are needed to satisfy the Special Tax A Requirement after the first four steps have been completed, the Annual Special Tax A shall be levied Proportionately on each Assessor's Parcel of Provisional Exempt Property up to 100% of the Assigned Annual Special Tax A applicable to each such Assessor's Parcel as needed to satisfy the Special Tax A Requirement.
The Rate and Method provides that for each Fiscal Year, commencing with Fiscal Year 2016-17, the Authority shall levy the Special Tax B at up to 100% of the applicable Maximum Special Tax B Proportionately on each Assessor's Parcel of Developed Property until the amount of Special Tax B equals the Special Tax B Requirement.
Notwithstanding the above, the Act effectively provides that under no circumstances will the Special Tax A and the Special Tax B levied against any Assessor's Parcel used as a private residence be increased as a consequence of delinquency or default by the owner of any other Assessor's Parcel or Assessor's Parcels within the District by more than ten percent (10%) per Fiscal Year.
Prepayment in Full. The Maximum Special A Tax obligation applicable to an Assessor's Parcel of Developed Property, Approved Property or Undeveloped Property for which a Building Permit has been issued, or Approved or Undeveloped Property for which a Building Permit has not been issued, and Assessor's Parcels of Provisional Exempt Property that are not Exempt Property may be fully prepaid and the obligation of the Assessor's Parcel to pay the Special Tax A permanently satisfied as described in Section G of the Rate and Method, provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to the Assessor's Parcel. The Prepayment Amount for Special Tax A for an applicable Assessor's Parcel is calculated based on Bond Redemption Amounts, the Future Facilities Amounts and other costs, all as specified in Section G of the Rate and Method. Any such prepayment will result in a redemption of Bonds prior to maturity. See "THE 2017 BONDS-Redemption - Mandatory Redemption From Special Tax Prepayments." In addition, the Act authorizes a public agency which acquires property subject to the Special Tax A to prepay the Special Tax A so long as the Authority determines the prepayment arrangement will fully protect the interests of the owners of the Bonds. The Special Tax B is not subject to prepayment.
Prepayment in Part. The Maximum Special A Tax on an Assessor's Parcel of Developed Property, Approved Property or Undeveloped Property may be partially prepaid. The amount of any such partial prepayment will be calculated pursuant to Section H of the Rate and Method. The Maximum Special Tax B is not subject to partial prepayment.
-24- Projected Fiscal Year 2017-18 Special Tax A Levy. Table 2 below sets forth the property owner by Planning Areas of the property in the District and their respective portion of projected Special Tax A levy for Fiscal Year 2017-18. Table 2 also shows the aggregate Maximum Special Tax A that may be levied under the Rate and Method based on the parcels in each Planning Area, and the projected Fiscal Year 2017-18 Special Tax A levy as a percentage of the Fiscal Year 2017-18 Maximum Special Tax A.
Table 2 Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) Planning Areas and Projected Fiscal Year 2017-18 Special Tax Levy for Taxable Property by Planning Area
Projected FY 2017-18 Expected FY 2017-18 % of Total Special Tax as Current No of Projected Projected FY Maximum Percentage of Planning No of Units at Special 2017-18 Special Maximum Property Owner Area Parcels Buildout Acreage Tax A(1) Special Tax A Tax A(2) Tax Roripaugh Valley Restoration 14 1 77 13.59 $ 166,643 5 21% $ 311,768 53.45% Roripaugh Valley Restoration 15 1 104 14.09 172,774 5 40 323,239 53.45 Roripaugh Valley Restoration 16 1 121 26 42 323,966 10 12 606,101 53.45 Roripaugh Valley Restoration 17 1 147 41 08 503,729 15.74 942,416 53.45 Roripaugh Valley Restoration 18 1 121 30 58 374,977 11.72 701,536 53.45 Roripaugh Valley Restoration 19 1 26 29 98 124,719 3.90 233,334 53 45 Roripaugh Valley Restoration 20 1 29 33 71 140,236 4 38 262,365 53 45 Roripaugh Valley Restoration 21 1 24 23 61 98,219 3 07 183,757 53 45 Roripaugh Valley Restoration 22 1 126 20.99 257,383 8 04 481,532 53.45 Roripaugh Valley Restoration 23 1 51 10.02 122,867 384 229,869 53.45 Roripaugh Valley Restoration 24 1 71 12.28 150,579 4 71 281,715 53.45 Roripaugh Valley Restoration 31 1 164 25.19 308,884 9 65 577,884 53.45 Wingsweep Corporation 10 1 14 8 12 39,587 1.24 74,063 53 45 Wingsweep Corporation 11(3) 1 N/A 15 19 74,055 2.31 138,548 53.45 Wingsweep Corporation 12 1 136 16 01 281,490 8 80 526,633 53.45 Wingsweep Corporation 33A 2 12 10 26 50,020 1 56 93,581 53 45 Wingsweep Corporation 33B 1 3 2.08 10,141 0.32 18,972 53.45 18 1,226 333.20 $3,200,269 100 00% $5,987,312 53.45%
(1) Fiscal Year 2017-18 Projected Special Tax A is based upon the initial principal amount of the 2017 Bonds. Amount includes debt service for the 2017 Bonds and $50,000 in District administrative costs. (2) See "SECURITY FOR THE 2017 BONDS -Summary of Rate and Method -Maximum Special Taxes." (3) This Planning Area contains the parcel for neighborhood commercial uses. Source: Albert A. Webb Associates. Reserve Fund
The Fiscal Agent Agreement establishes a debt service reserve fund (the "Reserve Fund") as a separate fund to be held by the Fiscal Agent for the benefit of the Owners of the Bonds, as a reserve for the payment of principal of, and interest and any premium on, the Bonds. Moneys in the Reserve Fund are subject to a lien in favor of the Owners of the Bonds. The Reserve Fund is required by the Fiscal Agent Agreement to be maintained in an amount equal to the Reserve Requirement, which is defined in the Fiscal Agent Agreement, as of any date of calculation, as an amount equal to the least of (i) the then Maximum Annual Debt Service, (ii) 125% of the then average Annual Debt Service, or (iii) 10% of the initial principal amount of the Bonds issued under the Fiscal Agent Agreement. The Reserve Requirement as of the date of issuance of the 2017 Bonds will be $3,153,043.76.
Except as otherwise provided in the Fiscal Agent Agreement (with respect to the use of moneys in the Reserve Fund in connection with prepayments of Special Taxes, for the payment of any rebate liability due to the federal government, and the use of moneys in excess of the Reserve Requirement to pay debt service on the Bonds), all amounts deposited in the Reserve Fund will be used and withdrawn by the Fiscal Agent solely for the purpose of making
-25- transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest and any premium on, the Bonds. See Appendix C - "Summary of Fiscal Agent Agreement - Reserve Fund."
Whenever the balance in the Reserve Fund equals or exceeds the amount required to redeem or pay all of the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent will transfer the amount in the Reserve Fund to the Bond Fund to be used for the payment and redemption of all of the Outstanding Bonds. In the event that the amount transferred from the Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund will be retained by the Authority, free of any encumbrance by the Fiscal Agent Agreement, to be used for any lawful purpose under the Act. Notwithstanding the foregoing, no amounts will be transferred from the Reserve Fund until after (i) amounts in the Reserve Fund are withdrawn for purposes of making a rebate payment to the federal government in accordance with the Fiscal Agent Agreement, and (ii) payment of any fees and expenses due to the Fiscal Agent. See Appendix C - "Summary of Fiscal Agent Agreement - Reserve Fund." Covenant for Superior Court Foreclosure
Foreclosure Under the Act. Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of the Special Tax on the taxed parcel, the Authority may order the institution of a superior court action to foreclose the lien on the taxed parcel within specified time limits. In such an action, the real property subject to the unpaid amount of the Special Tax lien may be sold at judicial foreclosure sale.
Authority Foreclosure Covenant. The Authority has covenanted for the benefit of the Bondowners that the Treasurer will determine on or about June 15 of each year whether or not all Special Taxes theretofore levied in the District have been received by the Authority and, consequently, whether any deficiencies in payment of Special Taxes exist. The Fiscal Agent Agreement provides that, following such determination: (A) if, as of any June 15, the Treasurer determines that any single parcel subject to the Special Tax in the District is delinquent in the payment of Special Taxes in the aggregate amount of $7,500 or more, the Treasurer will send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner, and if the delinquency remains uncured foreclosure proceedings will be commenced by the Authority against the delinquent parcel within 90 days of the sending of such notice; and (B) if the Treasurer determines that, as of any June 15, the total amount of delinquent Special Tax for the then current Fiscal Year for the entire District (including the total of delinquencies under subsection (A) above), exceeds 5% of the total Special Tax due and payable for the then current Fiscal Year, the Treasurer shall promptly notify or cause to be notified property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency), and the Authority shall commence foreclosure proceedings within 90 days after the notices of delinquency have been sent.
Notwithstanding the foregoing, the Treasurer may defer any mailing of notices of delinquency or foreclosure action if (i) the amount in the Reserve Fund is at least equal to the Reserve Requirement, and (ii) the amounts then on deposit in the Special Tax Fund and the Bond Fund are sufficient to pay the scheduled debt service due on the Bonds on the succeeding September 1 and March 1 without the need for any draw on the Reserve Fund. See Appendix C - "Summary of the Fiscal Agent Agreement."
No assurance can be given as to the time necessary to complete any foreclosure sale or that any foreclosure sale will be successful. The Authority is not required to be a bidder at any foreclosure sale and does not intend to be such a bidder.
-26- Sufficiency of Foreclosure Sale Proceeds; Foreclosure Limitations and Delays. No assurances can be given that the real property subject to a judicial foreclosure sale will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. Subject to the maximum rates, the Rate and Method is designed to generate from all non-exempt property within the District the current year's debt service, administrative expenses, and replenishment of the Reserve Fund to the Reserve Requirement, including an amount reflecting the prior year's delinquencies. However, if foreclosure proceedings are necessary, and the Reserve Fund has been depleted, there could be a delay in payments to owners of the 2017 Bonds pending prosecution of the foreclosure proceedings and receipt by the Authority of the proceeds of the foreclosure sale. See "SPECIAL RISK FACTORS- Bankruptcy Delays" and "-Proceeds of Foreclosure Sales." No assurance can be given that a foreclosure action in respect of delinquent Special Taxes will result in the collection of the Special Taxes, especially given the current appraised values of the parcels of Taxable Property in the District. See "SPECIAL RISK FACTORS-Property Values."
Section 53356.6 of the Act requires that property sold pursuant to foreclosure under the Act be sold for not less than the amount of judgment in the foreclosure action, plus post - judgment interest and authorized costs, unless the consent of the owners of 75% of the outstanding Bonds is obtained. However, under Section 53356.6 of the Act, the Authority, as judgment creditor, is entitled to purchase any property sold at foreclosure using a "credit bid," where the Authority could submit a bid crediting all or part of the amount required to satisfy the judgment for the delinquent amount of the Special Tax. If the Authority becomes the purchaser under a credit bid, the Authority must pay the amount of its credit bid into the redemption fund established for the 2017 Bonds, but this payment may be made up to 24 months after the date of the foreclosure sale. Neither the Act nor the Fiscal Agent Agreement requires the Authority to purchase or otherwise acquire any lot or parcel of property foreclosed upon if there is no other purchaser at such sale, and the Authority has no intent to be such a purchaser. No Teeter Plan
Collection of the Special Taxes is not subject to the "Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds," as provided for in Section 4701 et seq. of the California Revenue and Taxation Code (known as the "Teeter Plan"). Accordingly, collections of Special Taxes will reflect actual delinquencies, if any. Investment of Moneys
Except as otherwise provided in the Fiscal Agent Agreement, all moneys in any of the funds or accounts established pursuant to the Fiscal Agent Agreement will be invested by the Fiscal Agent solely in Permitted Investments, as directed by the Authority. See Appendix C - "Summary of the Fiscal Agent Agreement" for a definition of "Permitted Investments" and for additional provisions regarding the investment of funds held under the Fiscal Agent Agreement. Issuance of Additional Bonds
General. The Fiscal Agent Agreement authorizes the Authority to issue one or more series of "Parity Bonds" secured and payable on a parity under the Fiscal Agent Agreement with the 2017 Bonds. Subject to meeting the conditions summarized below, the Parity Bonds will be secured by a lien on the Special Tax Revenues and funds pledged for the payment of the Bonds under the Fiscal Agent Agreement on a parity with all other Bonds Outstanding under
-27- the Fiscal Agent Agreement (the Fiscal Agent Agreement defines "Bonds" as the 2017 Bonds and any future Parity Bonds).
The Authority may issue the Parity Bonds subject to the following specific conditions precedent, as set forth in the Fiscal Agent Agreement:
(A) Current Compliance. The Authority must be in compliance in all material respects on the date of issuance of the Parity Bonds with all covenants set forth in the Fiscal Agent Agreement and all Supplemental Agreements, and the principal amount of the Parity Bonds must not cause the Authority to exceed the maximum authorized indebtedness of the District under the provisions of the Act.
(B) Payment Dates. The interest on the Parity Bonds must be payable on March 1 and September 1, and principal of the Parity Bonds must be payable on September 1 in any year in which principal is payable (provided that there is no requirement that any Parity Bonds pay interest on a current basis).
(C) Funds and Accounts; Reserve Fund Deposit. The Supplemental Agreement providing for the issuance of such Parity Bonds may provide for the establishment of separate funds and accounts, and shall provide for a deposit to the Reserve Fund (or to a separate account created for such purpose) in an amount necessary so that the amount on deposit in the Reserve Fund (together with the amount in any such separate account), following the issuance of such Parity Bonds, is at least equal to the Reserve Requirement.
(D) Property Development and Value Requirement. The 2017 Bond Transfer Restriction Release Date shall have occurred, including satisfaction of the requirements that (i) at least twenty-five percent (25%) of the Special Tax levied in the then current Fiscal Year was levied on assessor parcels that are classified as Developed Property under the Rate and Method; and (ii) the then value of Undeveloped Property (as defined in the Rate and Method) in the District, excluding the value of any Undeveloped Property that is then delinquent in the payment of any Special Taxes previously levied, is at least three times the portion of the principal amount of the Bonds then outstanding allocable to the Undeveloped Property. The principal of the Bonds then outstanding (including any outstanding 2017 Bonds and any outstanding Parity Bonds) is to be allocated to the Undeveloped Property based on a percentage applied to such principal the numerator of which is the amount of Special Taxes levied on Undeveloped Property in the most recent Fiscal Year and the denominator of which is the aggregate Special Tax levy on all Taxable Property in such Fiscal Year. See "THE 2017 BONDS-Transfer or Exchange of 2017 Bonds - Transfers Prior to 2017 Bond Transfer Restriction Release Date" for the definition of 2017 Bond Transfer Restriction Release Date.
(E) The Special Tax Coverage. The Authority shall obtain a certificate of a Tax Consultant to the effect that the amount of the Maximum Special Tax A that may be levied in each Fiscal Year during the term of the Bonds and the proposed Parity Bonds on Taxable Property (as defined in the Rate and Method of Apportionment of Special Taxes) not then delinquent in the payment of Special Taxes theretofore levied on such property, based upon the status of the land in the District as of the date of issuance of the Parity Bonds, less an amount sufficient to pay annual Administrative Expenses (as determined by the Treasurer), shall be at least one hundred ten percent (110%) of the total Annual Debt Service for each such Fiscal Year on the Bonds and the proposed Parity Bonds.
(F) Officer's Certificate. The Authority shall deliver to the Fiscal Agent an Officer's Certificate certifying that the conditions precedent to the issuance of such
-28- Parity Bonds set forth in paragraphs (A), (B), (C), (D) and (E) above have been satisfied. In delivering such Officer's Certificate, the Authorized Officer that executes the same may conclusively rely upon such certificates of the Fiscal Agent, the Tax Consultant and others selected with due care, without the need for independent inquiry or certification.
The maximum principal amount of "New Money" Parity Bonds that may be issued is limited to $17,185,000. Notwithstanding the foregoing, the Authority may issue Refunding Bonds as Parity Bonds without the need to satisfy the requirements of the foregoing paragraphs (D) and (E) above, and without limitation on the number of series of such Refunding Bonds; and, in connection therewith, the Officer's Certificate referred to in paragraph (F) above need not make reference to the foregoing paragraphs (D) and (E). The term "Refunding Bonds" is defined in the Fiscal Agent Agreement as bonds issued by the Authority for the District the net proceeds of which are used to refund all or a portion of the then Outstanding Bonds; provided that the debt service on the Refunding Bonds in any Bond Year is not in excess of the debt service on the Bonds being refunded and the final maturity of the Refunding Bonds is not later than the final maturity of the Bonds being refunded.
Revenue Capacity. As described under the heading "INTRODUCTION-Issuance of Additional Bonds; Revenue Capacity" and "PLAN OF FINANCING-General," the principal of the 2017 Bonds was determined in part on the expected annual Assigned Special Tax A that may be levied on Taxable Property in the District (see also "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method - Maximum Special Taxes"). Given the foregoing, unless more or larger homes are constructed in the District than currently anticipated by the two owners of property in the District, or Refunding Bonds are issued to refund all or a portion of the 2017 Bonds, it is not expected that there will be sufficient annual Special Tax A revenues to satisfy the Special Tax Coverage requirement for New Money Parity Bonds described above, and no New Money Parity Bonds will be issued. The Special Tax Coverage requirement does not apply to Parity Bonds that are Refunding Bonds. Subordinate Bonds. Nothing in the provisions described above will prohibit the Authority from issuing bonds or otherwise incurring debt secured by a pledge of Special Tax Revenues subordinate to the pledge of the Special Tax Revenues under the Fiscal Agent Agreement.
THE DISTRICT
Location and General Description of the District
The District is located in the northern portion of the City, and includes approximately 645 gross acres of land located in the Pan Area of the Roripaugh Ranch development. The City of Murrieta is about one mile to the west, and unincorporated area of Riverside County is located to the north, east and southeast. The French Valley airport is located about a mile northwest of the District, and the Lake Skinner Recreation Area is located within two miles to the northeast. In the area to the north is a relatively new approximately 800 acre master planned community known as Rancho Bella Vista, planned for just over 1,800 dwelling units.
Roripaugh Ranch is a master -planned community expected to include up to 1,735 single family detached homes, a neighborhood retail center, two private recreation centers, parks, an elementary school and a middle school, a fire station and 263 acres of open space. See "THE DISTRICT-The Roripaugh Ranch Development." Roripaugh Ranch is shaped approximately like the State of Oklahoma.
-29- As discussed under the heading "THE DISTRICT-History of the District," when CFD 03-02 was formed in 2006, it included all of the property then in Roripaugh Ranch, which included the Pan Area of the development (which is primarily undeveloped), but the Special Taxes levied on the Pan Area are being fully prepaid on the date of issuance of the 2017 Bonds, so that the property in the Pan Area will not be subject to future levies of special taxes for CFD 03-02. See "PLAN OF FINANCING-Overview - Prepayment of CFD 03-02 Special Taxes." The portion of the Roripaugh Ranch located in the Panhandle Area is fully entitled for development, but the Pan Area requires the completion of additional infrastructure improvements before homes can be constructed in that portion of Roripaugh Ranch. See "THE DISTRICT-The Improvements" and "-The Roripaugh Ranch Development."
The following page contains an aerial photo which shows the location of the District. See "THE DISTRICT-The Roripaugh Ranch Development - Current Status" for a map showing the several Planning Areas of the land within the District.
-30- TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 16-01 (RORIPAUGH RANCH PHASE 2)
us III ablirlellio-iv I
LOCATION MAP CFD 16-01 ALBERT A. 0 4,000 8,000 WEBB , I i 1 I Feet e ASSOCIATES -31- History of the District
The land in the District is located within the boundaries of CFD 03-02, which was formed under the provisions of the Act by the Board of Directors of the Authority, acting as the legislative body of CFD 03-02, on January 11, 2005, in order to finance public infrastructure improvements necessitated by the Roripaugh Ranch development. On April 27, 2006, the Authority issued, for CFD 03-02, $51,250,000 initial principal amount of the CFD 03-02 2006 Bonds. In connection with the issuance of the CFD 03-02 2006 Bonds, the Authority, for and on behalf of the District, entered into on Acquisition Agreement, dated as of March 1, 2006 (the "Ashby Acquisition Agreement") with Ashby USA, LLC ("Ashby"), the then owner of the majority of the property in CFD 03-02, pursuant to which Ashby was to construct the improvements authorized to be funded by CFD 03-02.
Shortly after the issuance of the CFD 03-02 2006 Bonds, Ashby encountered financial difficulties. Between June 1, 2006 and May 10, 2011, the Authority posted 41 separate event notices on the Municipal Securities Rulemaking Board's EMMA website setting forth information regarding the status of various matters related to CFD 03-02. During that time period all of Ashby's interests in the property in CFD 03-02 it had not yet sold were transferred to various parties, some of which were subject to bank foreclosures and, ultimately, acquisition by the Federal Deposit Insurance Corporation following bank failures. See "THE DISTRICT- The Roripaugh Ranch Development - History of Roripaugh Ranch."
The parcels in the Panhandle portion of Roripaugh Ranch which is also included in CFD 03-02, a total of 509 separate Riverside County Assessor's parcels, were subsequently developed by Standard Pacific Corp. (now CalAtlantic), KB Home Costal and Roripaugh Temecula 113. 480 of those parcels now have completed single family homes, 416 of which have been sold to homeowners. All but 29 of the remaining parcels have completed homes for sale or homes under construction. The Panhandle portion of Roripaugh Ranch is not included in the District.
The land in the District, constituting the Pan portion of Roripaugh Ranch, is currently owned by Roripaugh Valley Restoration, LLC (referred to in this Official Statement as the "Primary Landowner") as a consequence of receivership by the Federal Deposit Insurance Corporation, and by Wingsweep Corporation, and remains undeveloped. See "THE DISTRICT-The Current Landowners" and "-The Roripaugh Ranch Development - History of Roripaugh Ranch."
In order to raise additional funds to finance the Improvements needed for the development of the Pan area, the two landowners petitioned the Authority in March of 2016 to form the District. Following the adoption by the Board of Directors of the Authority of resolutions of intention for the District on March 22, 2016, the Authority held a public hearing regarding the formation of, and the issuance of bonds for, the District on April 26, 2016. Following the public hearing, also on April 26, 2016, the Board of Directors of the Authority adopted Resolution No. TPFA 16-04 forming the District, Resolution No. TPFA 16-05 determining the necessity to issue up to $60,000,000 of special tax bonds for the District, and Resolution No. 16-06 calling a special election regarding the formation of the District and the issuance of the special tax bonds for the District.
The election was held on April 26, 2016 at which the Primary Landowner and Wingsweep Corporation voted in favor of the formation of the District, the levy of Special Tax A and Special Tax B on property in the District, and the issuance by the Authority of special tax bonds for the District. On May 4, 2016, a Notice of Special Tax Lien was recorded in the Riverside County Recorder's Office against the property in the District, and on May 10, 2016 the Board of Directors of the Authority adopted Ordinance No. TPFA 16-01 levying Special Tax A and Special Tax B on the property in the District.
-32- Two of the Boardmembers of the Authority have interests in business entities related to the owners of certain land adjacent to the District. This land is dependent in part on the widening of Butterfield Stage Road (one of the Improvements) for the last twenty percent (20%) of the lots in such other development to obtain building permits. This interest has resulted in the appearance of a potential conflict of interest of such Boardmembers in voting for the Authority Approving Resolution referenced below. In light of the need for a 4/5th vote of the Board of Directors to adopt the Authority Approving Resolution, as described in the next paragraph, the Board of Directors at its regular public meeting of January 10, 2017 followed procedures authorized under Section 18705 of the Regulations of the California Fair Political Practices Commission to randomly select one of the two Boardmembers to achieve a quorum of four Boardmembers and be eligible to vote on the adoption of the Authority Approving Resolution despite the possible conflict of interest. The Authority Secretary randomly selected one of the two Boardmembers by means of a drawing of the name of one of the two Boardmembers from a clear bowl during the January 10th Board of Directors meeting, as authorized by said Section 18705.
On January 24, 2017, the City Council held a public hearing regarding the issuance by the Authority of the 2017 Bonds. Following the public hearing, the City Council adopted Resolution No. 17-09 pursuant to which it found that significant public benefits will arise from the use of the proceeds of the 2017 Bonds to finance costs of the Improvements and it approved the issuance of the 2017 Bonds by the Authority. Also on January 24, 2017, the Authority adopted Resolution No. TPFA 17-01 authorizing the issuance of the 2017 Bonds and approving related documents (the "Authority Approving Resolution"). The Act required that the Authority Resolution be approved by a 4/5ths vote of the Board of Directors of the Authority because the value of the Taxable Property in the District estimated in the Appraisal Report is not at least three times the initial principal amount of the 2017 Bonds. The Authority Approving Resolution was approved by the required 4 /5ths vote, and the Board of Directors found in the Authority Approving Resolution that the issuance of the 2017 Bonds should proceed for public policy reasons, including that the issuance of the 2017 Bonds as currently contemplated is expected to result in lower interest rates on the 2017 Bonds than if they were issued at a later time, and the issuance of the 2017 Bonds will allow for infrastructure development to continue in the District on a coordinated basis, to the benefit of the future residents of homes to be built in the District. See, however, "SPECIAL RISK FACTORS- Property Value."
A portion of the proceeds of the 2017 Bonds will be used to prepay, on the closing date for the 2017 Bonds, the special taxes authorized to be levied by the Authority for CFD 03-02 on the land in the District. See "PLAN OF FINANCING-Overview - Prepayment of CFD 03-02 Special Taxes." As a consequence of the prepayment, the property in the District will no longer be subject to any future special tax levies for CFD 03-02. However, the land in the District is subject to certain overlapping indebtedness and governmental levies. See "THE DISTRICT - Direct and Overlapping Government Obligations." The Improvements
As previously mentioned under the heading "PLAN OF FINANCING - Overview - Funding for Improvements," the Authority has entered into the Acquisition Agreement with the Primary Landowner pursuant to which the Authority has agreed to use amounts in an improvement fund for CFD 03-02 (estimated to be $16,232,483.38), as well as proceeds of the 2017 Bonds and proceeds of any future Parity Bonds, to finance costs of Improvements to be constructed by the Primary Landowner or its successor and costs of the Improvements being constructed by the City. The Acquisition Agreement supersedes and replaces an Amended and Restated Acquisition Agreement mentioned under the heading "THE DISTRICT-The
-33- Roripaugh Ranch Development - History of Roripaugh Ranch." The City and the Authority are parties to joint community facilities agreements for both the District and CFD 03-02, and the Authority is a party to Joint Community Facilities Agreements with the County of Riverside (two such agreements, one related to street improvements and one related to flood control improvements), the Temecula Community Services District and the Eastern Municipal Water District for CFD 03-02, such that the Authority can expend the available funds for Improvements that will ultimately be owned by those entities.
Following the formation of CFD 03-02 and the issuance of the CFD 03-02 2006 Bonds, proceeds of those bonds were used to finance the following Improvements eligible to be financed by CFD 03-02, all of which have been completed: (i) in 2006, the construction of a fire station and the acquisition of fire apparatus; (ii) in 2011, construction of certain improvements related to State Route 79; (iii) in 2012, the construction of phase 1 of Butterfield Stage Road between Murrieta Hot Springs Road and Calle Chapos, the construction of Murrieta Hot Springs Road from the westerly boundary of the District to Butterfield Stage Road, the construction of Calle Chapos from Butterfield Stage Road to Walcott Lane, and the construction of a sewer pipeline along Nicolas Road between Liefer Road and Joseph Road; and (iv) in 2014, the construction of phase 2 of Butterfield Stage Road between Calle Chapos and 700' south of La Serena Road.
The following Improvements are required to be completed in order to fully develop the property in the District. In addition to a description of each Improvement, the following sets forth the current estimated cost of the respective Improvement (as provided by the Primary Landowner and reviewed by the City), the estimated construction schedule for the Improvement, and any constraint on the issuance of building permits for the property in the District prior to the completion of the Improvement.
1. Improvement: Phase III of Butterfield Stage Road between 700' south of La Serena Road and Rancho California Road, together with intersection/transition improvements and traffic signal modifications at Rancho California Road.
Estimated Cost and Expected Source of Funds: $8,458,032; CFD 03-02 funds, except that the property owners will be responsible for funding costs of certain center median and parkway landscaping improvements.
Construction Schedule: It is expected that the City will commence construction in the first quarter of 2018 and complete this Improvement in the first quarter of 2019, except for certain center median landscaping improvements mentioned below.
Building Permit Constraints: This Improvement must be completed prior to the first building permit for the property in the District, other than certain center median and parkway landscaping that must be completed prior to the issuance of the 500th building permit.
2. Improvement: Nicolas Road, with a portion to be constructed in the District and a portion to be constructed outside of the District.
Estimated Cost and Expected Source of Funds: $1,228,678, for the portion in the District and $7,403,070 for the portion outside of the District; proceeds of the 2017 Bonds, property owner contributions and, while not currently anticipated to be issued (see "SECURITY FOR THE 2017 BONDS-Issuance of Additional Bonds"), proceeds of New Money Parity Bonds.
-34- Construction Schedule: It is expected that the Primary Landowner or its successor will commence construction of the portion of Nicolas Road within the District in the second quarter of 2018 and complete the construction in the first quarter of 2019. It is expected that the City will commence construction of the portion of Nicolas Road outside of the District in the first quarter of 2019 if certain resource agency permits required for such construction are obtained by then and will complete the construction in the third quarter of 2020.
Building Permit Constraints: The property owners must complete engineering design plans for the roadway prior to the issuance of the first building permit for the property in the District, must make good faith efforts to obtain regulatory agency permits/approvals for the roadway construction prior to the issuance of the 200th building permit and can petition the City's Director of Public Works for up to a total of 522 building permits in order to allow orderly development if progress is being made to obtain such regulatory agency permits/approvals.
3. Improvement: Nicolas Road and Winchester Road intersection widening and signal modification improvements.
Estimated Cost and Expected Source of Funds: $3,419,584; CFD 03-02 funds.
Construction Schedule: It is expected that the Primary Landowner or its successor will commence construction in the fourth quarter of 2017 and complete this Improvement in the first quarter of 2019.
Building Permit Constraints: The Improvements must be operational prior to the issuance of the 26th building permit.
4. Improvement: Portions of Santa Gertrudis Creek to be stabilized by means ,.)f improvements to the lining of sides of the Creek, and the construction of detention basin flood control improvements.
Estimated Cost and Expected Source of Funds: $3,921,430; CFD 03-02 funds.
Construction Schedule: It is expected that the Primary Landowner or its successor will commence construction of this Improvement in the fourth quarter of 2017 and complete the construction in the second quarter of 2018.
Building Permit Constraints: Same as for Improvement #2, Nicolas Road, above.
5. Improvement: Community Sports Park at the Southeast corner of the intersection of north section of the Loop Road and Butterfield Stage Road.
Estimated Cost and Expected Source of Funds: $7,934,444; 2017 Bond proceeds, property owner contributions and, while not currently anticipated to be issued (see "SECURITY FOR THE 2017 BONDS-Issuance of Additional Bonds"), proceeds of New Money Parity Bonds.
Construction Schedule: It is expected that the Primary Landowner or its successor will commence construction of the Community Sports Park in the second quarter of 2019 and complete the construction in the third quarter of 2020.
-35- Building Permit Constraints: The design of the Sports Park must be updated prior to the first building permit for the property in the District, and the Sports Park must be completed prior to the issuance of the 1200th building permit.
6. Improvement: Loop Road within the District.
Estimated Cost and Expected Source of Funds: $9,233,598 of 2017 Bond proceeds, property owner contributions and, while not currently anticipated to be issued, proceeds of New Money Parity Bonds.
Construction Schedule: It is expected that the Primary Landowner or its successor will commence construction of the Loop Road in the second quarter of 2018 and complete construction in the second quarter of 2020.
Building Permit Constraints: Engineering design and a phasing plan for the roadway, and a landscape architectural design, must be submitted to the City prior to the issuance of the first building permit for the property in the District, and the roadway must be completed in the various Planning Areas as construction occurs therein.
In addition to the foregoing, the Development Agreement requires that improvements to the Long Valley Wash Channel in the District be constructed prior to the issuance of building permits for planning areas 17 through 31, and that roadway, sidewalk, median landscaping, a landscaping master plan, and certain other improvements in a planning area be completed before a building permit can be issued for each adjacent planning area.
No assurance can be given that construction of the Improvements will commence and be completed as currently expected, or that the costs of the Improvements will be as currently estimated. Reference is made to the Third Amendment to the Development Agreement among the City, the Primary Landowner and Wingsweep Corporation, a copy of which may be obtained from the Authority, for more detailed information regarding the building permit thresholds, See "INTRODUCTION-Other Information." The Roripaugh Ranch Development
General. The District includes approximately 645 gross acres of undeveloped property in an area of the City known as "Roripaugh Ranch." Roripaugh Ranch is a master planned community that at buildout is currently expected to include approximately 1,735 single family detached homes, a neighborhood retail center, parks, schools, a fire station, and open space areas. The District includes the property in the Pan Area of the Roripaugh Ranch development, which development also includes a Panhandle Area. The Panhandle Area includes 509 Riverside County Assessor's parcels on approximately 160 acres, which area is substantially built -out with single family homes, and which property is not in the District. See "INTRODUCTION-The District."
History of Roripaugh Ranch. In November of 2002, the City adopted the Roripaugh Ranch Specific Plan (the "Specific Plan"). The Specific Plan provides for a mixed -use development of residential, commercial, and public facilities within the framework of a comprehensive master -planned community. In connection with the Specific Plan, the City certified an Environmental Impact Report (the "EIR") for the property encompassed by the Specific Plan. In December of 2002, Ashby USA, LLC, the original expected master developer of Roripaugh Ranch, entered into a Preannexation and Development Agreement (the "Development Agreement") with the City regarding the development of Roripaugh Ranch. The Development Agreement allows for the proposed improvement of the Roripaugh Ranch development site in a manner consistent with the Specific Plan. Under applicable provisions of
-36- the California Government Code, the Development Agreement granted Ashby USA, LLC and its successors under the Development Agreement a vested right to develop the property consistent with the provisions of the Development Agreement.
Subsequent to the execution of the Development Agreement, Ashby USA, LLC undertook activities to obtain various approvals needed from public agencies other than the City for the development of Roripaugh Ranch, as well as to satisfy certain required mitigation measures incident to the proposed development. These activities included transferring certain land to the City for wildlife mitigation, habitat area grading and planting and the payment of funds for habitat land management, the obtaining of a necessary permit from the U.S. Army Corps of Engineers related to creek and flood wash improvements and maintenance, a permit from the California Department of Fish and Game related to marsh habitat, as well as approval of a Storm Water Pollution Prevention Plan by the California Regional Water Quality Control Board related to the proposed construction activity. During the period between 2003 and 2006, the City and Ashby USA, LLC entered into three operating memorandum with respect to provisions of the Development Agreement and a first amendment to the Development Agreement, as well as a Deferral Agreement related to the proposed development, with the Deferral Agreement allowing for Ashby USA, LLC to record a final map for the Panhandle Area prior to the fulfillment of various requirements of the Development Agreement.
In 2004, the Authority commenced proceedings for the formation of CFD 03-02 which includes all of the area within Roripaugh Ranch, including both the Panhandle Area and the Pan Area. In connection with the formation of CFD 03-02, the Authority entered into several joint community facilities agreements related to some of the Improvements, including such agreements with the City, the Temecula Community Services District, the County of Riverside (two such agreements, one related to street improvements and one related to flood control improvements), and the Eastern Municipal Water District. Those agreements generally provide that the respective public agency counterparties to the agreements will accept public improvements funded by CFD 03-02 upon their completion in accordance with plans and specifications approved by the applicable public agency. On April 27, 2006, the Authority issued $51,250,000 principal amount of the CFD 03-02 2006 Bonds and entered into an acquisition agreement with Ashby USA, LLC whereby proceeds of the CFD 03-02 2006 Bonds would be used to finance various public infrastructure improvements upon their completion by Ashby USA, LLC.
Shortly after the issuance of the CFD 03-02 2006 Bonds, Ashby USA, LLC encountered financial difficulties. While it continued to sell property in Roripaugh Ranch, Ashby USA, LLC eventually defaulted on a construction loan made to it by Ohio Savings Bank, as described below. The Authority and Ashby USA, LLC entered into a fourth Operating Memorandum in 2007. During the period from June 1, 2006 through May 10, 2011, the Authority filed forty-one informational releases regarding Roripaugh Ranch and the CFD 03-02 2006 Bonds with the Municipal Securities Rulemaking Board's Electronic Municipal Market Access ("EMMA") repository website, which are included with the Official Statement for the CFD 03-02 2006 Bonds and various annual and semiannual reports filed for the Authority and Ashby USA, LLC and its successors. The EMMA website and can be accessed at the following web address: emma.msrb.org, using CUSIP Number 879724 CN4. The Authority and Ashby USA, LLC subsequently entered into an Amended and Restated Acquisition Agreement, dated as of July 21, 2009, with respect to the use of the then remaining undistributed CFD 03-02 2006 Bond proceeds, allowing for the City to construct and complete some of the infrastructure improvements with CFD 03-02 2006 Bond proceeds that were previously to be constructed by Ashby USA, LLC.
In connection with its development activities in Roripaugh Ranch, in 2006 Ashby USA, LLC obtained a loan from Ohio Savings Bank, which was subsequently named AmTrust Bank.
-37- In December of 2009, the federal Office of Thrift Supervision closed AmTrust Bank and appointed the Federal Deposit Insurance Corporation (the "FDIC") as receiver for the failed institution. In July of 2010, the FDIC, in its capacity as receiver for AmTrust Bank, formed AMT CADC Venture, LLC ("AMT CADC"), and assigned the Ashby USA, LLC loan to AMT CADC, which subsequently declared the loan to be in default and sought to foreclose on Ashby USA, LLC's then remaining interest in the Roripaugh Ranch development, including the majority of the property in the Pan Area, the balance of which had previously been sold to Wingsweep Corporation in 2008. In May of 2011, AMT CADC, Ashby USA, LLC and certain other parties entered into a Deed -in -Lieu Settlement Agreement whereby Ashby USA, LLC's remaining interests in the Roripaugh Ranch property and related land use entitlements and agreements (including the Development Agreement and the Amended and Restated Acquisition Agreement) were conveyed to the Primary Landowner, and the City subsequently consented to the assignment.
Current Status. The following page contains a map showing the land use plan for Roripaugh Ranch, with the Planning Areas identified as 1A, 2, 3, 4A, 4B, 5, 6, 7A, 7B, 7C, 8, and 9A being in the Panhandle Area that is not within the District. While the land use plan remains essentially the same as originally contemplated in 2003, the Development Agreement and the Specific Plan have been amended several times, most recently in the Spring of 2016, and in connection therewith an Addendum No. 2 to the EIR was approved by the City's Planning Commission on February 17, 2016 and subsequently by the City on March 8, 2016. The City Council adopted an Ordinance on March 22, 2016 approving a third amendment to the Development Agreement which modified the schedule and building permit thresholds for the commencement and completion of various public improvements related to the development of the Planning Areas in the Pan Area, which constitutes the property in the District. Those thresholds pertain to improvements needed before building permits may be issued by the City for the various Planning Areas are described in more detail under the heading "THE DISTRICT-The Improvements."
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-38- At this time, water, sewer and electric and gas utilities are available to the land in the Pan Area from the Eastern Municipal Water District (with some of the parcels in the District to be served by the Rancho California Water District), the Southern California Edison Company and the Southern California Gas Company, respectively, and are expected to be installed in the roadways in the Pan Area as a part of the land development process. There are two recorded "A" tract maps for the Planning Areas within the Pan Area, and while tentative tract maps have been prepared for most of the Planning Areas, only one that was previously filed with the City remains in effect. Further development will require the filing of additional tentative and final tract maps, as well as design approval by the City of homes and commercial structures to be built, and a development plan for the commercial site in the Pan Area.
As described under the heading "THE DISTRICT - The Improvements," the City has completed certain priority roadway improvements necessary for the development of the Pan Area, including improvements to Butterfield Stage Road and Murrieta Hot Springs Road. In connection with the issuance of the 2017 Bonds, the Authority and the Primary Landowner are entering into an Acquisition Agreement, as described under the heading "PLAN OF FINANCING-Overview - Funding for Improvements" related to the use of certain funds held in an improvement fund for CFD 03-02 and a portion of the proceeds of the 2017 Bonds to be deposited to the Improvement Fund established under the Fiscal Agent Agreement, pursuant to which such funds will be used to finance costs of the Improvements, most of which are to be constructed by the Primary Landowner or its successor and some of which are to be constructed by the City. The owners of the land in the Pan Area, currently the Primary Landowner and Wingsweep Corporation, are obligated to fund the construction of the public improvements required by the Development Agreement as amended that are not financed with such CFD 03- 02 and 2017 Bond proceeds. See "THE DISTRICT-The Current Landowners."
The Primary Landowner reports that it has engaged various consultants in connection with overall site engineering, submittal of updated tentative tract maps and other planning tasks, updated infrastructure design, updated grading plans, and other site develdpment activities. The Primary Landowner has advised that it is engaged in peer review of proposed flood control and drainage improvements, as well as activities related to the landscape architecture and master maintenance plan, plans for a sports park, the master plan for community trails, the homeowners' association recreation center, open space and revegetation plans, and certain roadway intersection landscaping. The Primary Landowner has further advised that it has engaged a biological consultant to assist with the construction of mitigation measures, has done engineering and plans for a necessary roadway intersection, as well as storm water design and street construction. The Primary Landowner has stated that work is being finished on certain flood control and creek channel improvements as well as certain offsite improvements. The Primary Landowner has advised that it plans to continue its efforts in respect of the development of the land in the District; however it is expected that the Primary Landowner will dispose of its interest in the property in the District in the near future, and it is unknown what entity will ultimately acquire such interest and such entity's financial and managerial abilities to continue to construct the necessary public infrastructure improvements needed for vertical construction, as well as the eventual construction of homes on the subject property. See "THE DISTRICT-The Current Landowners - The Primary Landowner."
Wingsweep Corporation has advised that the parcels that it owns in the District have been rough graded, with the land in one of the Planning Areas owned by it rough graded to near blue -topped condition and the commercial site it owns rough graded to near superpad condition.
-39- The Absorption Study, the complete text of which is included in Appendix J, depends upon an assumption that various infrastructure requirements of the Development Agreement are completed in a timely fashion, including, most significantly, the approval of plans and permitting for Nicolas Road improvements (see page 53 of the Absorption Study in Appendix J). If construction of necessary improvements can be undertaken and completed, model home construction in the District and sales are expected to occur in mid to late 2019. The Appraisal Report explicitly assumes the timely construction of Nicolas Road as described in the Absorption Study. The current construction schedule for Nicolas Road, as provided by the Primary Landowner, is as follows: obtain necessary permits by the third quarter of 2018, commence construction in the first quarter of 2019, and complete construction in the third quarter of 2020. See "THE DISTRICT-The Improvements." No assurance can be given as to the commencement or completion of any of the Improvements not yet under construction. See "THE DISTRICT-Property Values."
The Primary Landowner and Wingsweep Corporation have entered into a Joint Development Agreement (Roripaugh Ranch Specific Plan) (the "Joint Development Agreement") whereby the Primary Landowner and its successors will be responsible for ninety percent (90%) of the costs of the construction of the improvements required by the Development Agreement for development of the Pan Area, and Wingsweep Corporation will be responsible for ten percent (10%) of such costs. The Joint Development Agreement identifies the costs of the Improvements in the amount of $43,300,000 that are eligible to be funded under the Acquisition Agreement, with an estimated $20,250,000 of such costs not expected to be funded under that agreement (but which may be funded from proceeds of future Parity Bonds, when and if any such Parity Bonds are issued as described under the heading "SECURITY FOR THE 2017 BONDS - Issuance of Additional Bonds"). The Joint Development Agreement further identifies the costs of improvements required by the Development Agreement but not eligible for funding under the Acquisition Agreement totaling $25,388,500. The property owners have also advised that they (or other entities that may eventually construct homes in the District) will be required to pay school district impact fees applicable to home construction, but with an expected credit for the value of two sites in Roripaugh Ranch to be conveyed to the School District, unless alternatives are agreed upon by the School District. No assurance can be given that the Primary Landowner or its successor or Wingsweep Corporation will have the funds necessary to pay their respective share of the costs to complete the required improvements, and that homebuilders will have the funds needed to pay building permit fees and School District impact fees when needed. See "THE DISTRICT-The Current Landowners."
Both the Primary Landowner and Wingsweep Corporation have expended significant funds in respect of their acquisition and development activities for the property in the District, and they both continue to advance funds for development activities. Both landowners have effectively self -financed their activities to date. See "THE DISTRICT-The Current Landowners." The Current Landowners
General. All of the property within the District is currently owned by Roripaugh Valley Restoration, LLC (referred to in this Official Statement as the "Primary Landowner"), and by Wingsweep Corporation. The Primary Landowner owns 281.54 acres of Taxable Property in twelve of the Planning Areas in the District on which currently planned 1,061 separate single family homes are expected to be constructed each on their own lot, and Wingsweep Corporation owns 36.47 acres of Taxable Property in four of the Planning Areas in the District on which up to 165 separate single family homes are expected to be constructed each on their own lot, and a 15.19 acre site of Taxable Property (10.7 net acres) in a fifth planning area for commercial development. See "THE DISTRICT-Land Use Distribution." As described below, the Primary Landowner has advised that it may sell its interests in the property it owns in the
-40- District later this year, and Wingsweep Corporation has advised that it may sell the property it owns in the District for residential home construction to one or more merchant builders but it expects to develop the site for neighborhood commercial uses itself.
The Primary Landowner. Description. The Primary Landowner is a California limited liability company whose sole asset is its interests in the property it owns in the District and in related agreements. The sole member of the Primary Landowner is AMT CADC Venture, LLC, a Delaware limited liability company (referred to in this Official Statement as "AMT CADC"). AMT CADC is owned sixty percent (60%) by the Federal Deposit Insurance Corporation (referred to in this Official Statement as the "FDIC"), and forty percent (40%) by PMO Loan Acquisition Venture, LLC, a Delaware limited liability company ("PMO"). The ownership of PMO is comprised of (i) various funds managed by Oaktree Capital Management, (ii) an entity of Gibraltar Capital & Asset Management (a Toll Brothers subsidiary), and (iii) another entity comprised of stakeholders with a small ownership percentage. PMO is the manager of the AMT CADC entity.
AMT CADC owns a portfolio of assets that was contributed by the FDIC in July of 2010 including a total of 279 assets with a nominal value of approximately $1,703,000,000, which included its interests in the loan by AmTrust Bank to Ashby USA, LLC that was secured by property Ashby USA, LLC owned in the District as well as interests in other loans and real estate. See "THE DISTRICT-The Roripaugh Ranch Development - History of Roripaugh Ranch."
Sabal Financial Group, L.P. is the servicer and asset manager of the portfolio of. assets owned by AMT CADC, and pursuant to a written action by AMT CADC on April 25, 2011, Ken Kraemer, an employee of Sabal Financial Group, L.P., was designated to serve as the operating manager of the Primary Landowner. Sabal Financial Group, L.P. is an international diversified financial services firm specializing in real estate, banking and lending, and reports that it has acquired nearly $8.2 billion in assets on behalf of its clients and investors. Sabal Financial Group, L.P. maintains a website at sabalfin.com, but the Authority has no responsibility for the information on such website and the information thereon is not incorporated into this Official Statement.
Disposition of Property in the District. The documents related to the formation of AMT CADC provide for the management and orderly disposition of its assets over a contemplated seven-year timetable. That seven-year period ends in July of 2017. Monthly reports are submitted by the Primary Landowner to the FDIC, and the FDIC could send a notice to RVR following its August, 2017 monthly submittal (or any subsequent monthly submittal) requiring that RVR dispose of its assets within a 150 -day "clean-up" period. Following that period, the FDIC could provide more time for the orderly disposition of assets, or could engage an advisor to sell the remaining AMT CADC assets (including RVR) in a portfolio sale. Any such sale is unlikely to occur before the end of June, 2018. Any sale of RVR's interests in the property in the District is expected to be in whole to a single buyer.
The Primary Landowner did offer its interests in the property in the District for sale in the summer of 2016. No acceptable offers to purchase the property were received. No assurance can be given as to when the Primary Landowner will ultimately dispose of its interests in the property in the District.
In light of the possible disposition by the Primary Landowner of its interests in the property it owns in the District, and in related agreements including the Development Agreement, the Joint Development Agreement and the Acquisition Agreement, it is unknown at this time what entity may ultimately develop the property currently owned by the Primary
-41- Landowner in the District and such entity's ability to finance the needed public infrastructure improvements required to be constructed in order to obtain building permits for such property.
Expenditures to Date. The Primary Landowner finances its ongoing activities from advances made from time to time by AMT CADC, which AMT CADC derives from activities related to its portfolio of assets (sales and dispositions of assets, ongoing payments with respect to other assets, etc.). The Primary Landowner has advised that as of January 27, 2017 it had expended over $40,678,000 on its interests in the property in the District, including acquisition and related costs, $14,734,634; payment of property taxes inclusive of CFD 03-02 special tax levies, $16,195,330; engineering, planning and consultants, $3,320,664; mitigation plans and resource agency permits, $1,272,848; construction of infrastructure, $1,063,055; costs to stabilize and maintain the property and to comply with a storm water runoff permit, $3,278,508; and various other costs, $813,343.
Expected 2017 Activities and Expenditures. The Primary Landowner has advised that it expects to work on the following activities relative to the development of the property in the District in 2017:
Continued maintenance of the site and compliance with the Storm Water Pollution Prevention Plan and California State Water Resources Control Board regulations applicable to the property. Work with the City to design and obtain approvals for the construction of Butterfield Stage Road Phase III. Completion of the engineering and design for the Long Valley Wash Channel improvements. Completion of the engineering and design for the Winchester /Nicolas Road intersection improvements. Completion of the engineering and design for the Santa Gertrudis Creek Channel improvements. Substantial progress on the design, engineering, and regulatory permits needed for the Nicolas Road improvements. Finalize mitigation master plans as required by resource agency perMits. Substantial completion of overall site engineering and planning, to include: finalizing of planning for the individual planning areas, Loop Road plans, Water Quality Management Plan, master trail system, landscape maintenance master plan, Sports Park, and facility to be owned by a homeowners' association. The Primary Landowner expects that construction will begin on the following facilities during 2017: Long Valley Wash, Winchester /Nicolas intersection, Santa Gertrudis Creek Channel, Loop Road, and work in mitigation areas. See "THE DISTRICT-The Improvements." No assurance can be given with respect to the actual activities that will be completed by the Primary Landowner in 2017.
The Primary Landowner has advised that it expects to expend in 2017 up to $7,817,025 in furtherance of the above -described activities, including an additional $2,253,380 for property taxes (inclusive of Special Taxes levied in the District), $1,511,530 for engineering, planning and consultants, $296,000 for a final mitigation plan and resource agency permits, $2,817,115 for construction of infrastructure, $689,000 to maintain the property and comply with the storm
-42- water runoff plan, and $250,000 for other costs. Ten percent of the costs of engineering, planning and consultants, final mitigation plan and resource agency permits and construction of infrastructure are expected to be paid by Wingsweep Corporation under the terms of the Joint Development Agreement. See "THE DISTRICT-The Roripaugh Ranch Development - Current Status."
Continuing Disclosure. The Primary Landowner will enter into a Continuing Disclosure Agreement (see "CONTINUING DISCLOSURE") whereby it is obligated to provide semiannual reports and notices of certain events, including sales by it of its property in the District. See Appendix F - "Form of Continuing Disclosure Agreement of the Primary Landowner."
Wingsweep Corporation. Description. Wingsweep Corporation is a California corporation wholly owned by UNICOM Global, Inc., a real estate holding company. UNICOM Global, Inc. is privately held, and is part of an affiliated group that consists of more than 40 corporate entities worldwide, and works in collaboration with its shareholders' mergers and acquisition business, financial services business and information technology business. UNICOM Global, Inc. maintains a website at unicomglobal.com, with a link to eden.com with regard to its real estate holdings, but the Authority has no responsibility for the information on such websites and the information thereon is not incorporated into this Official Statement.
Expenditures to Date. Wingsweep Corporation, which acquired the property it owns in the Development in March of 2008, funds its activities through advances by UNICOM Global, Inc. or other affiliated companies under common ownership, and has advised that it expects to eventually sell the property it owns in the District for residential home development to a nationally -recognized residential builder or builders prior to the commencement of vertical construction on the property (expected in early 2019), or may also partner with one or more such builders to complete the development of the property. Wingsweep Corporation may itself develop the neighborhood commercial site in the District.
Wingsweep Corporation has advised that as of January 30, 2017 it had expended over $16,500,000 in respect of the property it owns in the District. Expenditures include (i) $10,500,000 in 2008 to acquire the property (a portion of which is attributable to property it acquired in the Panhandle area and subsequently sold to KB Home Costal, Inc.), (ii) over $4,000,000 in property taxes (including CFD 03-02 special taxes), (iii) approximately $1,000,000 for consultants and professional services related to planning efforts, and (iv) approximately $1,000,000 to maintain the property and in other costs. Pursuant to the terms of the Joint Development Agreement between the Primary Landowner and Wingsweep Corporation, Wingsweep Corporation is responsible for ten percent (10%) of the costs of construction of the improvements required by the Development Agreement for development of the Pan Area. See "THE DISTRICT-The Roripaugh Ranch Development - History of Roripaugh Ranch."
Disposition of Property. Wingsweep Corporation is under no obligation to maintain its ownership of property in the District, and could sell or dispose of all or any portion of the property at any time without any requirement for notice to or the consent of the owners of the 2017 Bonds. Land Use Distribution
All of the property in the District is currently owned by the Primary Landowner and Wingsweep Corporation. The following table shows the distribution of ownership of the land in the District among the 17 Planning Areas within the District, the expected number of homes (units) for each Planning Area, the values of the parcels in each Planning Area as derived from the Appraisal Report, the allocation of the principal of the 2017 Bonds to each Planning Area, estimated Special Tax levy for fiscal year 2017-18 for the parcel in each Planning Area, as well as
-43- the Maximum Special Tax A that could be levied on parcels in each land use class under the Rate and Method and the projected Fiscal Year 2017-18 Special Tax levy as a percentage of the Maximum Special Tax A.
Table 3 Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) Allocation of Appraised Values and Projected Fiscal Year 2017-18 Special Tax A Levy by Planning Area
Projected FY 2017- FY 2017-18 Expected 18 % of Special Tax as No of Allocation of Allocation Value -to- Maximum Projected Projected Percentage of Planning No of Units at Appraised of 2017 2017 Bond Special Special Special Maximum Property Owner Area Parcels Buildout Acreage Value(1) Bonds((2) Prtncipal(4) Tax Tax(3) Tax Tax
Ronpaugh Valley Restoration 14 1 77 13 59 $ 2,350,952 $ 2,229,440 1.05 1 $ 311,768 $166,643 5 21% 53 45% Ronpaugh Valley Restoration 15 1 104 14.09 2,747,057 2,311,465 1 19.1 323,239 172,774 5 40 53.45 Ronpaugh Valley Restoration 16 1 121 26 42 4,301,671 4,334,202 0 991 606,101 323,966 10 12 53 45 Ronpaugh Valley Restoration 17 1 147 41 08 5,285,328 6,739,176 0.78 1 942,416 503,729 15 74 53 45 Ronpaugh Valley Restoration 18 1 121 30 58 4,350,508 5,016,651 0.87 1 701,536 374,977 11.72 53 45 Ronpaugh Valley Restoration 19 1 26 29 98 1,556,214 1,668,563 0.93 1 233,334 124,719 3.90 53 45 Ronpaugh Valley Restoration 20 1 29 33 71 1,735,778 1,876,160 0 93 1 262,365 140,236 4.38 53 45 Ronpaugh Valley Restoration 21 1 24 23 61 1,436,506 1,314,035 1.09 1 183,757 98,219 3.07 53 45 Roripaugh Valley Restoration 22 1 126 20 99 3,847,012 3,443,411 1 12 1 481,532 257,383 8.04 53 45 Roripaugh Valley Restoration 23 1 51 10 02 1,557,124 1,643,782 0 95 1 229,869 122,867 3 84 53 45 Ronpaugh Valley Restoration 24 1 71 12 28 2,334,953 2,014,535 1 16 1 281,715 150,579 4 71 53 45 Roripaugh Valley Restoration 31 1 164 25 19 4,331,897 4,132,421 1 05 1 577,884 308,884 9 65 53.45 Wingsweep Corporation 10 1 14 8.12 1,238,264 529,618 2 34 1 74,063 39,587 1 24 53.45 Wingsweep Corporation 11(4) 1 N/A 15 19 2,700,993 990,750 2 73 1 138,548 74,055 2 31 53 45 Wmgsweep Corporation 12 1 136 16 01 5,597,858 3,765,928 1 49 1 526,633 281,490 8 80 53 45 Wingsweep Corporation 33A 2 12 10 26 1,090,308 669,197 1 63 1 93,581 50,020 1 56 53.45 Wingsweep Corporation 335 1 3 2 08 272,577 135,666 2 01:1 18,972 10,141 0 32 53 45 18 1,226 333 20 $46,735,000 $42,815,000 1 09:1 $5,987,312 $3,200,269 100 00% 53 45%
(1) Appraised Value per Planning Area is not provided in the Appraisal. The Appraised Value for each Planning Area has been allocated based upon what is referred to in the Appraisal Report as a theoretical "blue topped condition" value of the respective Planning Area, meaning that the land in the Planning Area has been assumed to be graded to allow for individual lots to be developed. See page 36 of the Appraisal Report. Date of value is December 1, 2016. (2) 2017 Bond Allocation based on Fiscal Year 2017-18 Projected Special Tax Levy. (3) Projected Fiscal Year 2017-18 Special Tax Requirement based upon the initial principal amount of the 2017 Bonds. Amount includes scheduled debt service for the 2017 Bonds and $50,000 in District administrative costs. (4) Includes the site for development of neighborhood commercial uses. Source: Albert A. Webb Associates. Property Values
The value of the property in the District is an important factor in determining the investment quality of the 2017 Bonds. If a property owner defaults in the payment of the Special Tax, the Authority's primary remedy is to foreclose on the delinquent property in an attempt to obtain funds with which to pay the delinquent Special Tax. The Special Tax is not a personal obligation of the owners of the property. A variety of economic, political, and natural occurrences incapable of being accurately predicted can affect property values. See "SPECIAL RISK FACTORS - Property Value."
To determine the value of the property in the District subject to the levy of the Special Taxes, the Authority obtained the Absorption Study estimating the expected dates for future sales of homes and commercial property in the District, and the Appraisal Report, which relied upon the Absorption Study. Both the Appraisal Report and the Absorption Study should be read in their entirety for an explanation of the methodology and the assumptions underlying and the conditions limiting the valuation conclusions contained in the Appraisal Report. Neither the Authority nor the Underwriter makes any representation as to the accuracy or completeness of the Appraisal Report or the Absorption Study.
-44- Absorption Study. The purpose of the Absorption Study, a complete copy of which is included as Appendix J to this Official Statement, is to provide an estimate of the probable absorption schedules for the proposed residential and commercial land within the District. Empire Economics (the "Market Consultant"), which provided the Absorption Study, took into consideration a variety of factors in producing the Absorption Study, both external and internal to the proposed development and sale of the property in the District. These factors included, but were not limited to, (a) the proposed product mix, which the Market Consultant notes as diverse with homes ranging in size from 2,000 square feet of living area to 4,250 square feet of living area on lot sizes that range from 3,150 square feet to 20,000 and over square feet, and with a broad price range between $340,000 and $807,500; (b) the timing of progress on various infrastructure requirements that allow for building permits to be pulled on property in the District; (c) a variety of macroeconomic influences such as employment changes, mortgage rates, housing price appreciation and homeownership trends; and (d) a variety of microeconomic considerations such as regional development patterns, school quality, neighborhood safety and competitive products in the vicinity.
The Market Consultant identified eight currently active projects in planned communities in the City, the neighboring City of Murrieta and the general vicinity. The eight currently active products had a total of 826 planned homes, 497 of which had already been sold to homeowners as of the date of the Absorption Study. The Absorption Study indicates that the products offered at the currently active projects are comparable to the products planned to be offered on smaller and medium sized lots in the District. The District also has several products with larger size lots ranging from 10,000 to 20,000 square feet. While not in the eight currently active planned communities, the Market Consultant did identify that the City has had a significant level of activity with respect to sales of homes on larger lot sizes.
The Market Consultant notes that a key assumption in its projected absorption schedule is the ability of the residential and commercial products to respond to demand in the Market. To that end, the Market Consultant assumed in the Absorption Study that the infrastfucture improvements described under the heading "THE DISTRICT-The Improvements" are completed in a manner and time frame to prevent delay in the issuance of building permits for property in the District. Additionally, the Absorption Study presumes that the two owners of the property in the District will market their parcels to builders to allow for closings of home sales to homeowners by July 2019. With these assumptions, the Absorption Study estimates that (i) absorption of homes on smaller sized lots (expected 729 homes) will average 122 per year between July 2019 and December 2024, (ii) absorption of homes on medium sized lots (expected 389 homes) will average 65 homes per year between July 2019 and December 2024, and (iii) absorption of homes on larger sized lots (expected 108 homes) will average 18 per year between July 2019 and December 2024. Absorption of the commercial -retail project is projected to occur during 2023. The Authority makes no representation as to the actual absorption rate for homes to be constructed on the property in the District, or the actual sales prices of the homes.
Appraisal Report. The Authority has commissioned the Appraisal Report for the property in the District. The Appraisal Report estimates the market value of the property as of December 1, 2016, based upon a hypothetical condition, and the assumptions and limiting conditions, described in the Appraisal Report. The Appraiser relied on the Absorption Study (a copy of which is included in Appendix J to this Official Statement) in determining the value of the property in the District. As previously stated, the Appraisal Report is included in Appendix I to this Official Statement.
The Appraiser concluded in the Appraisal Report that the market value of the property in the District as of December 1, 2016 was $46,735,000, subject to the extraordinary assumptions, among other assumptions, in the Appraisal Report. The extraordinary assumptions include that
-45- 2017 Bond proceeds and other bond funds totaling $22,000,000 will be available to fund the Improvements required to support the residential and commercial development of the property in the District as planned and that the current or future property owners will complete the approval/permit process for the Nicolas Road construction project as necessary to allow adequate building permits to be issued in a timely manner as specified in the Development Agreement (described under the heading "THE DISTRICT-The Roripaugh Ranch Development - History of Roripaugh Ranch"), so as to support the absorption projections in the Absorption Study. The appraised value of the land in the District, as reflected in the Appraisal Report, is approximately 1.09 times the $42,815,000 initial principal amount of the 2017 Bonds.
The Appraisal Report does not take into account possible future liens or indebtedness which may be imposed by the City or by other public entities. As described under the heading "SECURITY FOR THE 2017 BONDS - Issuance of Additional Bonds," if certain requirements for the issuance of Parity Bonds are met (which include a Special Tax Coverage and Value -to - Lien Ratio requirements), the Authority might be able to issue Parity Bonds to finance some of the costs of the Improvements not funded with proceeds of the 2017 Bonds. However, the issuance of New Money Parity Bonds is unlikely. See "SECURITY FOR THE 2017 BONDS - Issuance of Additional Bonds." The Authority has not covenanted, and in many instances does not have the legal ability, to restrict other entities from imposing indebtedness, which may be secured by a lien on the Taxable Property in the District which is on a parity with the Special Tax. See "THE DISTRICT - Direct and Overlapping Governmental Obligations" and "SPECIAL RISK FACTORS - Parity Taxes and Special Assessments." A number of economic, political, and natural occurrences may adversely affect the value of the property as expressed in the Appraisal Report. See "SPECIAL RISK FACTORS."
Appraised Value -to -District Lien Ratios
General Information Regarding Value -to -District Lien Ratios. The value -to -lien ratio on bonds secured by special taxes will generally vary over the life of those bonds as a result of changes in the value of the property that is security for the special taxes and the principal amount of the bonds.
In comparing the appraised value of the real property within the District and the principal amount of the 2017 Bonds, it should be noted that an individual parcel may only be foreclosed upon to pay delinquent installments of the Special Taxes attributable to that parcel. The principal amount of the 2017 Bonds is not allocated among the parcels within the District based on their appraised values; rather, the total Special Taxes will be allocated among the parcels within the District according to the Rate and Method.
Economic and other factors beyond the property owners' control, such as economic recession, deflation of land values, financial difficulty or bankruptcy by one or more property owners, or the complete or partial destruction of Taxable Property caused by, among other possibilities, earthquake, flood, fire or other natural disaster, could cause a reduction in the assessed value within the District. See "SPECIAL RISK FACTORS-Property Value" and "Bankruptcy Delays."
-46- Appraised Value -to -District Lien Ratio Distribution. The Appraiser estimated in the Appraisal Report that the value of the property in the District owned by the Primary Landowner as of December 1, 2016 was $35,835,000, and that the value of the property in the District owned by Wingsweep Corporation as of December 1, 2016 was $10,900,000. The table below shows the projected fiscal year 2017-18 Special Tax levy, an allocation of the aggregate appraised value of the property to each Planning Area based on a theoretical blue topped condition (see page 36 of the Appraisal Report in Appendix I), the allocation of the principal amount of the 2017 Bonds, and the estimated debt to allocated appraised value ratios for the parcels in the District. See "THE DISTRICT-Major Land Owners" for more information regarding the status of ownership of Parcels in the District.
Table 4 Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) Estimated Value to Lien by Planning Area and Property Owner
Expected Value -to - No. of Allocation of 2017 Bond Planning No. of Units at Appraised Allocation of Principal Property Owner Area Parcels Buildout Acreage Value(1) 2017 Bonds(2) Ratio(3) Roripaugh Valley Restoration 14 1 77 13 59 $ 2,350,952 $ 2,229,440 1 05:1 Roripaugh Valley Restoration 15 1 104 14 09 2,747,057 2,311,465 1.19:1 Roripaugh Valley Restoration 16 1 121 26 42 4,301,671 4,334,202 0 99:1 Roripaugh Valley Restoration 17 1 147 41 08 5,285,328 6,739,176 0.78:1 Roripaugh Valley Restoration 18 1 121 30.58 4,350,508 5,016,651 0.87:1 Roripaugh Valley Restoration 19 1 26 29.98 1,556,214 1,668,563 0 93:1 Roripaugh Valley Restoration 20 1 29 33.71 1,735,778 1,876,160 0 93:1 Roripaugh Valley Restoration 21 1 24 23 61 1,436,506 1,314,035 1 09:1 Roripaugh Valley Restoration 22 1 126 20 99 3,847,012 3,443,411 1 12:1 Roripaugh Valley Restoration 23 1 51 10 02 1,557,124 1,643,782 0 95:1 Roripaugh Valley Restoration 24 1 71 12 28 2,334,953 2,014,535 1.16:1 Roripaugh Valley Restoration 31 1 164 25.19 4,331,897 4,132,421 1.05:1 Wingsweep Corporation 10 1 14 8.12 1,238,264 529,618 2.34;1 Wingsweep Corporation 110) 1 N/A 15.19 2,700,993 990,750 2 73:1 Wingsweep Corporation 12 1 136 16 01 5,597,858 3,765,928 1 49:1 Wingsweep Corporation 33A 2 12 10 26 1,090,308 669,197 1 63:1 Wingsweep Corporation 33B 1 3 2 08 272,577 135,666 2.01:1 18 1,226 333 20 $46,735,000 $42,815,000 1.09:1
(1) Appraised Value per Planning Area is not provided in the Appraisal. The Appraised Value for each Planning Area has been allocated based upon each Planning Area's blue-topped condition value (as described in the Appraisal) in relation to the total blue -topped condition value. Date of value is December 1, 2016. (2) Allocation of 2017 Bonds based on Fiscal Year 2017-18 Projected Special Tax Levy. (3) As described under the heading "PLAN OF FINANCING-General," the principal of the 2017 Bonds was determined in part by the expected Assigned Special Tax A applicable to Taxable Property at buildout of the District with the number and size of homes currently anticipated being, after deduction of an amount for Administrative Expenses, approximately 110% of the annual debt service on the 2017 Bonds. (4) Includes the site for development of neighborhood commercial uses. Source: Albert A. Webb Associates. Direct and Overlapping Governmental Obligations
Taxes, Charges and Assessments. The base ad valorem secured property tax rate on property in the District is 1.00% (including ad valorem tax overrides). Property in the District is also subject, or will be subject, to certain annual charges and assessments (which are billed to property owners on a semi-annual basis). See "THE DISTRICT-Sample Tax Bill" below for a list of public agencies that currently levy annual charges and assessments on property in the District.
Overlapping Public Debt. The District is located within the boundaries of certain local agencies, other than the Authority, that provide public services and assess property taxes,
-47- assessments, special taxes and other charges on the property in the District. Some of these local agencies have outstanding debt.
The current and estimated direct and overlapping obligations affecting the property in the District are shown in the following table. The table was prepared by the Special Tax Consultant and is included for general information purposes only. The Authority has not reviewed this report for completeness or accuracy and makes no representation in connection therewith.
-48- Table 5 Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) Direct and Overlapping Bonded Debt
I. APPRAISED VALUE Appraised Valued) $46,735,000
II. LAND SECURED BOND INDEBTEDNESS
Total Parcels Amount Outstanding Direct and Overlapping Bonded Debt Type Levied Issued Outstanding % Applicable Applicable TEMECULA CFD 16-01 RORIPAUGH RANCH PHASE 2 CFD 18 $42,815,000 $42,815,000P) 100 000% $42,815,000 TOTAL OUTSTANDING LAND SECURED BONDED DEBT $42,815,000
Total Parcels Amount Authorized and Unissued Direct and Overlapping Bonded Debt Type Levied Authorized Unissued %, Applicable Applicable TEMECULA CFD 16-01 RORIPAUGH RANCH PHASE 2 CFD 18 $60,000,000 517,185,000(3) 100 000% $17,185,000 TOTAL UNISSUED LAND SECURED INDEBTEDNESS $17,185,000
TOTAL OUTSTANDING AND UNISSUED LAND SECURED $60,000,000 INDEBTEDNESS(4)
III. GENERAL OBLIGATION BOND INDEBTEDNESS Total Parcels Amount Outstanding Direct and Overlapping Bonded Debt Type Levied Issued Outstanding % Applicable Applicable Temecula Valley Unified School B & I (0.03164%) GO 18 $137,412,035 $82,432,035 0.078592% $64,785 MT San Jacinto Comm (0.0132%) GO 18 $70,000,000 $63,950,000 0.020188% $12,910 Metropolitan Water East (0 00350%) GO 18 $850,000,000 $92,865,000 0.000611% $567 Rancho Water Rancho Division (0 30000%)t5) REV 2 $168,743,865 $119,025,286 0 024219% $28,827 TOTAL OUTSTANDING GENERAL OBLIGATION $107,089 BONDED DEBT
Total Parcels Amount Authorized and Unissued Direct and Overlapping Indebtedness Type Levied Authorized Unissued % Applicable Applicable
Temecula Valley Unified School B & I (0 03164%) GO 18 $230,000,000 $92,587,965 0.078592%, $72,767 MT San Jacinto Comm (0.0132%) GO 18 $295,000,000 $225,000,000 0 020188% $45,423 Metropolitan Water East (0.00350%) GO 18 $850,000,000 $0 0 000611% $0 Rancho Water Rancho Division (0.30000%)(s) REV 2 $168,743,865 $0 0 024219% $0 TOTAL UNISSUED GENERAL OBLIGATION $118,190 INDEBTEDNESS
TOTAL OUTSTANDING AND UNISSUED GENERAL $225,279 OBLIGATION INDEBTEDNESS(4)
TOTAL OF ALL OUTSTANDING DIRECT AND OVERLAPPING $42,922,089 BONDED DEBT TOTAL OF ALL OUTSTANDING AND UNISSUED DIRECT AND $60,225,279 OVERLAPPING INDEBTEDNESS IV. RATIOS TO APPRAISED VALUATION Outstanding Land Secured Bonded Debt 1.09:1 Outstanding Direct and Overlapping Bonded Debt 1.09:1
(1) Reflects appraised value from the Appraisal Report with a date of value of December 1, 2016. (2) Amount outstanding is equal to the initial principal amount of the 2017 Bonds. (3) Additional Parity Bonds may be issued with respect to the remaining $17,185,000 in Bond authorization. (4) Additional bonded debt or available bond authorization may exist but is not shown because a tax was not levied for Fiscal Year 2016-17. (5) Rancho Water Rancho Division is assessed at 0.30000% of Land Assessed Value only. Source: Albert A. Webb Associates
THE AUTHORITY
The Temecula Public Financing Authority was established pursuant to a Joint Exercise of Powers Agreement, dated April 10, 2001 (the "JPA Agreement"), by and between the City and the Agency. The JPA was entered into pursuant to the provisions of Articles 1 through 4
-49- (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California. The Authority was formed for the primary purpose of assisting in the financing and refinancing of public capital improvements in the City. As of May 1, 2016, the JPA Agreement was amended to provide for the withdrawal of the Successor Agency to the Agency as a member of the Authority, and to add the Temecula Community Services District and the Temecula Housing Authority as members of the Authority.
The Authority is administered by a five -member Board of Directors, which currently consists of the members of the City Council of the City. The Authority has no independent staff. The Executive Director of the Authority is the City Manager of the City, and the Treasurer of the Authority is the City's Chief Financial Officer. The Executive Director administers the day-to- day affairs of the Authority, and the Treasurer has custody of all money of the Authority from whatever source.
SPECIAL RISK FACTORS
The following is a description of certain risk factors affecting the District, the property owners in the District, the parcels subject to the levy of Special Taxes and the payment of and security for the 2017 Bonds. The following discussion of risks is not meant to be a complete list of the risks associated with the purchase of the 2017 Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following factors along with all other information in this Official Statement in evaluating the investment quality of the 2017 Bonds. There can be no assurance that other risk factors will not become material in the future.
No General Obligation of the Authority or the District
The Authority's obligations under the 2017 Bonds and under the Fiscal Agent Agreement are limited obligations of the Authority on behalf of the District and are payable solely from and secured solely by the Special Tax Revenues and amounts in the Special Tax Fund, the Bond Fund and the Reserve Fund. The 2017 Bonds are neither general or special obligations of the Authority nor general obligations of the District, but are limited obligations of the Authority for the District payable solely from the revenues and funds pledged therefor and under the Fiscal Agent Agreement. None of the faith and credit of the District, the Authority or the State of California or of any of their respective political subdivisions is pledged to the payment of the 2017 Bonds. Property Value
The value of land within the District is a critical factor in determining the investment quality of the 2017 Bonds. If a landowner defaults in the payment of the Special Tax, the only legal remedy is the institution of a superior court action to foreclose on the delinquent Taxable Property in an attempt to obtain funds with which to pay the Special Tax.
The value of the taxable parcels in the District could be adversely affected by economic factors beyond the Authority's control, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area, and the market value of residential property in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, wildfire, earthquakes and floods), which may result in uninsured losses. See "SPECIAL TAX FACTORS-Natural Disasters."
-50- No assurances can be given that the real property subject to a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay the delinquent Special Tax installment. Although the Act authorizes the Authority to cause such an action to be commenced and diligently pursued to completion, the Act does not specify any obligation of the Authority with regard to purchasing or otherwise acquiring any lot or parcel of property sold at the foreclosure sale in any such action if there is no other purchaser at such sale. The Authority is not obligated and does not expect to be a bidder at any such foreclosure sale. See "SPECIAL TAX FACTORS-Proceeds of Foreclosure Sale."
The current appraised value of the property in the District is approximately nine percent (9%) more than the initial principal of the 2017 Bonds. See "THE DISTRICT- Appraised Property Values." Provisions of the Act required that the Board of Directors of the Authority make findings in the Authority Approving Resolution and to adopt the Authority Approving Resolution by a 4/5th vote of the Board of Directors because the value of the Taxable Property in the District as estimated in the Appraisal Report is not at least three times the initial principal amount of the 2017 Bonds. See "THE DISTRICT-History of the District." The District currently includes one parcel in each Planning Area, each of which is expected to be subdivided into multiple parcels on which homes will be constructed and, with respect to one Planning Area, on which commercial development will occur. The current values of the parcels, and their interpreted appraised values, vary significantly (see "THE DISTRICT- Appraised Value -to -District Lien Ratios"), with some of the values being less than their respective allocation of 2017 Bond principal. Moreover, as a consequence of the expected subdivision of the land, the values of individual parcels in the District may vary even more in the future. If an owner of a parcel defaults in the payment of Special Taxes levied in the District, the Authority may commence foreclosure proceedings to collect the delinquent Special Taxes, but any such action may not be successful if the value of the delinquent parcel is less than its allocable share of the 2017 Bond debt. See "SPECIAL RISK FACTORS-Payment of the Special Tax is not a Personal Obligation," "-Tax Delinquencies," and "-Proceeds of Foreclosure Sales." Concentration of Ownership
The Primary Landowner and Wingsweep Corporation currently own all of the land- in the District. See "THE DISTRICT-The Current Landowners," and "-Land Use Distribution." Moreover, it is expected that the Primary Landowner will dispose of its interests in the land in the District later this year. See "THE DISTRICT-The Current Landowners - The Primary Landowners." The lack of diversity in the obligation to pay the Special Tax represents a significant risk to the owners of the 2017 Bonds in that the two landowners ability to pay the Special Tax will be dependent on the success of the development of the land in the District. Failure of any owner of a significant portion of the land in the District to pay the annual Special Tax when due could result in a default in payments of the principal of, and interest on, the 2017 Bonds. See "SPECIAL RISK FACTORS-Insufficiency of Special Tax Revenues" below. It should be noted, however, that neither the Primary Landowner nor Wingsweep Corporation failed to remit special taxes levied by the Authority for CFD 03-02 on property they own in the District.
Failure to Complete Development
The development of the property in the District includes the construction of public infrastructure, public facilities and other site work. While construction of some of the needed public infrastructure has been completed, the remainder of the infrastructure is expected to be completed over a multiple year period. Any event that significantly impacts the ability to complete the development of the property in the District on a timely basis (such as strikes or other work stoppages, loan defaults, adverse weather conditions, catastrophic events such as
-51- earthquakes or other natural events, or other similar events) could cause the value of the land within the District to be less than that estimated by the Appraiser and could affect the willingness and ability of the landowners in the District to pay the Special Taxes when due. See "THE DISTRICT-The Roripaugh Ranch Development" for information regarding the status of development in the District.
Failure to Achieve Market Absorption Projections
The Appraisal Report took into consideration the Absorption Study, which assumes construction and absorption schedule for the homes and commercial development for the property in the District to be constructed and sold. See Appendix J - "Market Absorption Study." There can be no assurance that such level of dwelling unit and commercial property absorption can be obtained. Failure to achieve the estimated absorption projections could adversely affect the Appraiser's estimated value of the property in the District, could impair the economic viability of the proposed development and could reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the 2017 Bonds. Prospective purchasers of the 2017 Bonds should not assume that the absorption of dwelling units will occur as estimated and should review the Absorption Study in its entirety in order to make an informed decision whether to purchase the 2017 Bonds. Government Approvals
Development within the District is contingent upon the completion, and acceptance by various public agencies, of infrastructure improvements, as well as the issuance by the City of building and other ministerial permits for homes and commercial structures to be constructed in the District. The failure to commence and complete the required infrastructure improvements and to obtain any such permits in a timely manner could adversely affect land development within the District.
Payment of the Special Tax is not a Personal Obligation
The owners of the parcels in the District are not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation that is secured only by a lien against the parcels on which it is levied. If the value of the taxable parcels is not sufficient to secure fully the payment of the Special Tax, the Authority has no recourse against the property owners. FDIC/Federal Government Interests in Properties
General. The ability of the District to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the "FDIC"), the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest.
Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest.
The supremacy clause of the United States Constitution reads as follows: "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding."
-52- This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes within the District but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government's mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association ("FNMA") is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States.
FDIC. In the event that any financial institution making any loan which is secured by real property within the District is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the District to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited.
The FDIC's policy statement regarding the payment of state and local real property taxes (the "Policy Statement") provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly. as is consistent with sound business practice and the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC -owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent.
The Policy Statement states that the FDIC generally will not pay non -ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Act and a rate and method of apportionment which determines the special tax due each year are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC's federal immunity. The Ninth Circuit has issued a ruling on August 28, 2001 in which it determined that the FDIC, as a federal agency, is exempt from special taxes levied pursuant to the Act.
The Authority is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within the District in which the FDIC has or obtains an ownership interest, although prohibiting the lien of
-53- the Special Taxes to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the 2017 Bonds.
FDIC Ownership Interest Relative to the Primary Landowner. As described under the heading "THE DISTRICT-The Current Landowners - The Primary Landowner," the Primary Landowner is a limited liability company the sole member of which is AMT CADC Venture, LLC, a Delaware limited liability company in which the FDIC has a sixty percent ownership interest. However, the FDIC does not directly own any of the property in the District, and it is only a partial owner of the sole member of the Primary Landowner.
The Policy Statement, in addition to the matters described above, states that: "It generally applies to the [Federal Deposit Insurance] Corporation when it is liquidating assets of an insured depository institution in its corporate or receivership capacities. It applies to any tax, penalty, interest, or other related charge imposed or sought to be imposed on property to whose ownership the FDIC succeeds in such capacities." The Policy Statement is replete with language suggesting that it only applies to property that is owned by the FDIC. None of the language in the Policy Statement suggests that it applies to properties in which the FDIC may have a financial interest but does not own the property directly, such as the property in the District owned by the Primary Landowner. Moreover, the Primary Landowner has paid the special taxes levied by the Authority for CFD 03-02 on the property in the District owned by it ever since it was conveyed to the Primary Landowner in May of 2011. The Primary Landowner submitted a petition to the Authority requesting the issuance of the 2017 Bonds, one of the primary purposes of which is the prepayment of CFD 03-02 special tax levies on the property in the District. The Primary Landowner and Wingsweep Corporation have entered into a Joint Development Agreement pursuant to which each of them has agreed to pay the Special Taxes levied on their respective property in the District during their ownership of such property (see "THE DISTRICT-The Roripaugh Ranch Development - Current Status"). Also, as discussed under the heading "THE DISTRICT-The Current Landowners - The Primary Landowner," it is expected that the Primary Landowner will attempt to dispose of all of its interests in the property it owns in the District and related agreements later this year. Notwithstanding the foregoing, the Authority cannot provide any assurance that the FDIC, or a court of competent jurisdiction, may in the future interpret the Policy Statement to apply to property in which the FDIC has a financial interest but not a direct ownership interest. The FDIC is obligated to maximize recoveries from the disposition of financial institutions and their assets, and the property owned by the Primary Landowner was acquired in connection with the FDIC's takeover of AmTrust Bank. However, given the activities of the Primary Landowner to date with respect to the property it owns in the District, including the consistent payment of special taxes levied for CFD 03-02 since May of 2011 and its petition to request formation of the District to prepay such special taxes, it is not expected that the FDIC will take the position that the Policy Statement applies to such property. Exempt Properties
Certain properties are exempt from the Special Tax in accordance with the Rate and Method. In addition, the Act provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property within the District acquired by a public entity through a negotiated transaction, or by gift or devise, that is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. It is possible that property acquired by a public entity following a tax sale or foreclosure based upon failure to pay taxes could become exempt from the Special Tax. In addition, the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain
-54- proceedings, the obligation to pay the Special Tax with respect to that property, for outstanding Bonds only, is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Act have not been tested.
In particular, insofar as the Act requires payment of the Special Tax by a federal entity acquiring property within the District, it may be unconstitutional (see "SPECIAL RISK FACTORS-FDIC/Federal Government Interests in Properties"). If for any reason property within the District becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitation of the Maximum Rate, the Special Tax will be reallocated to the remaining taxable properties within the District. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the timely payment of the Special Tax. Moreover, if a substantial portion of land within the District becomes exempt from the Special Tax because of public ownership, or otherwise, the maximum rate that could be levied upon the remaining acreage might not be sufficient to pay principal of and interest on the Series Prior Bonds when due and a default would occur with respect to the payment of such principal and interest.
Parity Taxes and Special Assessments
The Special Taxes and any penalties thereon will constitute liens against the. taxable parcels in the District until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is coequal to and independent of the lien for general property taxes regardless of when they are imposed upon the taxable parcel. The Special Tax B, not pledged to the payment of the 2017 Bonds, is collected with, and secured by the same lien that secures the payment of, the Special Tax A. The Special Taxes have priority over all existing and future private liens imposed on the property. The Authority, however, has no control over the ability of other entities and districts to issue indebtedness secured by special taxes or assessments payable from all or a portion of the taxable parcels within the -District subject to the levy of Special Taxes. In addition, the landowners within the Distri-ct may, without the consent or knowledge of the District, petition other public agencies to issue public indebtedness secured by special taxes or assessments, and any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes. The imposition of additional indebtedness could reduce the willingness and the ability of the property owners within the District to pay the Special Taxes when due. See "THE DISTRICT-Direct and Overlapping Governmental Obligations."
Insufficiency of Special Taxes
In order to pay debt service on the 2017 Bonds, it is necessary that the Special Taxes levied against taxable parcels within the District be paid in a timely manner. The Authority has established the Reserve Fund in an amount equal to the Reserve Requirement to pay debt service on the 2017 Bonds and any Parity Bonds to the extent Special Taxes are not paid on time and other funds are not available. See "SECURITY FOR THE 2017 BONDS-Reserve Fund" and Appendix C - "Summary of the Fiscal Agent Agreement-Reserve Fund." Under the Fiscal Agent Agreement, the Authority has covenanted to maintain in the Reserve Fund an amount equal to the Reserve Requirement; subject, however, to the limitations that (i) the Authority may not levy the Special Tax in any fiscal year at a rate in excess of the Maximum Special Tax rates permitted under the Rate and Method and (ii) per the Act, under no circumstances will the Special Tax levied against any Assessor's Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent as a consequence of delinquency or default by the owner of any other Assessor's Parcel within the District. See "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method Special Tax Formula - Calculation of Annual Special Tax." Consequently, if a delinquency occurs, the
-55- Authority may be unable to replenish the Reserve Fund to the Reserve Requirement due to the limitation of the Maximum Special Tax rates. If such defaults were to continue in successive years, the Reserve Fund could be depleted and a default on the 2017 Bonds would occur if proceeds of a foreclosure sale did not yield a sufficient amount to pay the delinquent Special Taxes.
The Authority has made certain covenants regarding the institution of foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the 2017 Bonds. See "SECURITY FOR THE 2017 BONDS-Covenant for Superior Court Foreclosure." If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of delinquent Special Taxes to protect its security interest.
Tax Delinquencies
Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the 2017 Bonds are derived, are being billed to the taxable parcels within the District on the regular property tax bills sent to owners of the parcels. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and Special Tax installment payments in the future. See "SECURITY FOR THE 2017 BONDS- Reserve Fund" and "-Covenant for Superior Court Foreclosure" for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquency in the payment of Special Tax installments. See also "THE DISTRICT-Special Tax Delinquencies" for historical Special Tax delinquency history.
Also, as noted under "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method," the Act provides that under no circumstances will the Special Taxes levied against any Parcel used as a private residence be increased as a consequence of delinquency or default by the owner of any other Parcel or Parcels within the District by more than ten percent (10%) per Fiscal Year. In addition, the Rate and Method provides that under no circumstances will the Acreage Special Tax be levied against Parcels of Developed Residential Property if the Special Taxes which may be levied pursuant to the first and second steps described under the subheading "Method of Apportionment" in the section entitled "SECURITY FOR THE 2017 BONDS-Summary of Rate and Method," are equal to or greater than the sum of estimated Administrative Expenses and one hundred ten percent (110%) of the then maximum annual debt service for outstanding Bonds.
While no assurance can be given that the owners of the Taxable Property in the District will pay the Special Taxes levied by the Authority on such property, it should be noted that both of the current owners of the Taxable Property have consistently paid the special taxes levied on their property for CFD 03-02. As discussed under "PLAN OF FINANCING- Overview - Prepayment of CFD 03-02 Special Taxes, proceeds of the 2017 Bonds will be used to prepay the remaining CFD 03-02 special tax obligation of the property in the District, so no future levies of special taxes for CFD 03-02 will be made on the property in the District. Bankruptcy Delays
The payment of the Special Tax and the ability of the Authority to commence a superior court action to foreclose the lien of a delinquent unpaid Special Tax, as discussed in "SECURITY
-56- FOR THE 2017 BONDS-Covenant for Superior Court Foreclosure," may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State of California relating to judicial foreclosure. Legal opinions to be delivered concurrently with the delivery of the 2017 Bonds (including Bond Counsel's approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner or any other person claiming an interest in the property could result in a delay in superior court foreclosure proceedings and could result in the possibility of Special Tax installments not being paid in part or in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the 2017 Bonds.
Proceeds of Foreclosure Sales
Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of any Special Tax, the Board of Directors, as the legislative body of the District, may order that the Special Taxes be collected by a superior court action to foreclose the lien within specified time limits. The Authority has covenanted in the Fiscal Agent Agreement that it will, under certain circumstances, commence such a foreclosure action. See "SECURITY FOR THE 2017 BONDS- Covenant for Superior Court Foreclosure."
No assurances can be given that a taxable parcel in the District that would be subject to a judicial foreclosure sale for delinquent Special Taxes will be sold or, if sold, that the proceeds of such sale will be sufficient to pay the delinquent Special Tax installment. Although the Act authorizes the Authority to cause such an action to be commenced and diligently pursued to completion, the Act does not specify any obligation of the Authority with regard to purchasing or otherwise acquiring any lot or parcel of property sold at the foreclosure sale in any such action if there is no other purchaser at such sale and the Authority has not in any way agreed nor does it expect to be such a bidder.
In a foreclosure proceeding, a judgment debtor (i.e., the property owner) has 140 days from the date of service of the notice of levy in which to redeem the property to be sold and may have other redemption rights afforded by law. If a judgment debtor fails to so redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale if the purchaser at the sale was the judgment creditor. If a foreclosure sale is thereby set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made.
If foreclosure proceedings were ever instituted, any holder of a mortgage or deed of trust on the affected property could, but would not be required to, advance the amount of the delinquent Special Tax installment to protect its security interest.
In the event such superior court foreclosure or foreclosures are necessary, there could be a delay in principal and interest payments to the owners of the 2017 Bonds pending prosecution of the foreclosure proceedings and receipt by the District of the proceeds of the foreclosure sale, if any. Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions and other factors beyond the control of the Authority, including delay due to crowded local court calendars or legal tactics and, in any event could take several years to complete. In particular, bankruptcy proceedings involving the Landowner or any other owner of a taxable parcel in the District could cause a delay, reduction
-57- or elimination in the flow of Special Tax Revenues to the Fiscal Agent. See "SPECIAL RISK FACTORS-Bankruptcy Delays." Natural Disasters
The value of the Taxable Property in the future can be adversely affected by a variety of natural occurrences, particularly those that may affect infrastructure and other public improvements and private improvements on the Taxable Property and the continued habitability and enjoyment of such private improvements. Such occurrences include, without limitation, wildfire, earthquakes and floods. One or more of such natural disasters could occur and could result in damage to improvements of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the Taxable Property may well depreciate or disappear. Hazardous Substances
The presence of hazardous substances on a parcel may result in a reduction in the value of a parcel. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.
The Authority has not independently verified, but is not aware of, the presence of any hazardous substances within the District.
Disclosure to Future Purchasers
The willingness or ability of an owner of a parcel to pay the Special Tax, even if the value of the property is sufficient to justify payment, may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The Authority has caused a notice of the Special Tax to be recorded in the Office of the Riverside County Recorder against the parcels in the District. Although title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation when purchasing a property within the District or lending money thereon, as applicable.
California Civil Code Section 1102.6b requires that, in the case of transfers, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.
-58- No Acceleration Provision
The 2017 Bonds and the Fiscal Agent Agreement do not contain a provision allowing for the acceleration of the 2017 Bonds in the event of a payment default or other default under the terms of the 2017 Bonds or the Fiscal Agent Agreement or in the event interest on the 2017 Bonds becomes included in gross income for federal income tax purposes. Taxability Risk
As discussed herein under the caption "TAX MATTERS," interest on the 2017 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2017 Bonds were issued, as a result of future acts or omissions of the Authority in violation of its covenants in the Fiscal Agent Agreement. There is no provision in the 2017 Bonds or the Fiscal Agent Agreement for special redemption or acceleration or for the payment of additional interest should such an event of taxability occur, and the 2017 Bonds will remain outstanding until maturity or until redeemed under one of the other redemption provisions contained in the Fiscal Agent Agreement.
In addition, as discussed under the caption "TAX MATTERS," Congress has considered in the past, is currently considering and may consider in the future, legislative proposals, including some that carry retroactive effective dates, that, if enacted, would alter or eliminate the exclusion from gross income for federal income tax purposes of interest on municipal bonds, such as the 2017 Bonds. Prospective purchasers of the 2017 Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. The Authority can provide no assurance that federal tax law will not change while the 2017 Bonds are outstanding or that any such changes will not adversely affect the exclusion of interest on the 2017 Bonds from gross income for federal income tax purposes. If the exclusion of interest on the 2017 Bonds from gross income for federal income tax purposes were amended or eliminated, it is likely that the market price for the 2017 Bonds would be adversely impacted.
Enforceability of Remedies
The remedies available to the Fiscal Agent and the registered owners of the 2017 Bonds upon a default under the Fiscal Agent Agreement or any other document described in this Official Statement are in many respects dependent upon regulatory and judicial actions that are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. Any legal opinions to be delivered concurrently with the issuance of the 2017 Bonds will be qualified to the extent that the enforceability of the legal documents with respect to the 2017 Bonds is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.
Judicial remedies, such as foreclosure and enforcement of covenants, are subject to exercise of judicial discretion. A California court may not strictly apply certain remedies or enforce certain covenants if it concludes that application or enforcement would be unreasonable under the circumstances and it may delay the application of such remedies and enforcement.
No Secondary Market
No representation is made concerning any secondary market for the 2017 Bonds. There can be no assurance that any secondary market will develop for the 2017 Bonds. Investors should understand the long-term and economic aspects of an investment in the 2017 Bonds and should assume that they will have to bear the economic risks of their investment to maturity.
-59- An investment in the 2017 Bonds may be unsuitable for any investor not able to hold the 2017 Bonds to maturity.
Proposition 218
An initiative measure entitled the "Right to Vote on Taxes Act" (the "Initiative") was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the "Title and Summary" of the Initiative prepared by the California Attorney General, the Initiative limits "the authority of local governments to impose taxes and property -related assessments, fees and charges." Provisions of the Initiative have been and will continue to be interpreted by the courts. The Initiative could potentially impact the Special Taxes otherwise available to the District to pay the principal of and interest on the 2017 Bonds as described below.
Among other things, Section 3 of Article XIIIC states, "...the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge." The Act provides for a procedure, which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, the Governor of the State signed a bill into law enacting Government Code Section 5854, which states that:
Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution.
Accordingly, although the matter is not free from doubt, it is likely that Article XIIIC has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the 2017 Bonds.
It may be possible, however, for voters or the District or the Board of Directors of the Authority acting as the legislative body of the District to reduce the Special Taxes in a manner that does not interfere with the timely repayment of the 2017 Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the 2017 Bonds. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses (as defined in the Fiscal Agent Agreement). Nevertheless, the Authority has covenanted that it will not consent to, or conduct proceedings with respect to, a reduction in the maximum Special Taxes that may be levied in the District on Developed Property below an amount, for any Bond Year, equal to 110% of the aggregate of the debt service due on the 2017 Bonds in such Bond Year, plus a reasonable estimate of Administrative Expenses for each such Bond Year. However, no assurance can be given as to the enforceability of the foregoing covenant.
-60- The interpretation and application of Article XIIIC and Article XIIID will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts. See "-Enforceability of Remedies." Ballot Initiatives
Articles XIIIC and XIIID of the California Constitution were adopted pursuant to measures qualified for the ballot pursuant to California's constitutional initiative process, and the State Legislature has in the past enacted legislation that has altered the spending limitations or established minimum funding provisions for particular activities. On March 6, 1995 in the case of Rossi v. Brown, the State Supreme Court held that an initiative can repeal a tax ordinance and prohibit the imposition of further such taxes and that the exemption from the referendum requirements does not apply to initiatives. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the Authority, or local districts to increase revenues or to increase appropriations.
IRS Audit of Tax -Exempt Bond Issues
The Internal Revenue Service has initiated an expanded program for the auditing of tax- exempt bond issues, including both random and targeted audits. It is possible that the 2017 Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the 2017 Bonds might be affected as a result of such an audit of the 2017 Bonds (or by an audit of similar bonds). See "TAX MATTERS."
TAX MATTERS
Federal tax law contains a number of requirements and restrictions which apply to the 2017 Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Authority has covenanted in the Fiscal Agent Agreement to comply with all requirements that must be satisfied in order for the interest on the 2017 Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the 2017 Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the 2017 Bonds.
Subject to the Authority's compliance with the above -referenced covenants, under present law, in the opinion of Quint & Thimmig LLP, Bond Counsel, interest on the 2017 Bonds (i) is excludable from the gross income of the owners thereof for federal income tax purposes, and (ii) is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but interest on the 2017 Bonds is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations.
In rendering its opinion, Bond Counsel will rely upon certifications of the Authority with respect to certain material facts within the Authority's knowledge. Bond Counsel's opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result.
The Internal Revenue Code of 1986, as amended (the "Code"), includes provisions for an alternative minimum tax ("AMT") for corporations in addition to the corporate regular tax in
-61- certain cases. The AMT, if any, depends upon the corporation's alternative minimum taxable income ("AMTI"), which is the corporation's taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation's "adjusted current earnings" over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). "Adjusted current earnings" would include certain tax-exempt interest, including interest on the 2017 Bonds.
Ownership of the 2017 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax exempt obligations. Prospective purchasers of the 2017 Bonds should consult their tax advisors as to applicability of any such collateral consequences.
The issue price (the "Issue Price") for each maturity of the 2017 Bonds is the price at which a substantial amount of such maturity of the 2017 Bonds is first sold to the public. The Issue Price of a maturity of the 2017 Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the inside cover page of this Official Statement.
If the Issue Price of a maturity of the 2017 Bonds is less than the principal amount payable at maturity, the difference between the Issue Price of each such maturity, if any, of the 2017 Bonds (the "OID 2017 Bonds") and the principal amount payable at maturity is original issue discount.
For an investor who purchases an OID 2017 Bond in the initial public offering at the Issue Price for such maturity and who holds such OID 2017 Bond to its stated maturity, subject to the condition that the Authority comply with the covenants discussed above, (a) the full amount of original issue discount with respect to such OID 2017 Bond constitutes interest which is excludable from the gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gain or market discount upon payment of such OID 2017 Bond at its stated maturity; (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code, as described above; and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. Owners of OID 2017 Bonds should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such OID 2017 Bonds.
Owners of 2017 Bonds who dispose of 2017 Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase 2017 Bonds in the initial public offering, but at a price different from the Issue Price or purchase 2017 Bonds subsequent to the initial public offering should consult their own tax advisors.
If a 2017 Bond is purchased at any time for a price that is less than the 2017 Bond's stated redemption price at maturity or, in the case of an OID 2017 Bond, its Issue Price plus accreted original issue discount reduced by payments of interest included in the computation of original issue discount and previously paid (the "Revised Issue Price"), the purchaser will be treated as having purchased a 2017 Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a 2017 Bond is disposed of (to the extent such accrued
-62- discount does not exceed gain realized) or, at the purchaser's election, as it accrues. Such treatment would apply to any purchaser who purchases an OID 2017 Bond for a price that is less than its Revised Issue Price even if the purchase price exceeds par. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such 2017 Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the 2017 Bonds.
An investor may purchase a 2017 Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as "bond premium" and must be amortized by an investor on a constant yield basis over the remaining term of the 2017 Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor's basis in the 2017 Bond. Investors who purchase a 2017 Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the 2017 Bond's basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the 2017 Bond.
There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the 2017 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the 2017 Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation.
The Internal Revenue Service (the "Service") has an ongoing program of auditing tax- exempt obligations to determine whether, in the view of the Service, interest on such tax- exempt obligations is includable in the gross income of the owners thereof for federal -income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the 2017 Bonds. If an audit is commenced, under current procedures the Service may treat the Authority as a taxpayer and the 2017 Bondholders may have no right to participate: in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the 2017 Bonds until the audit is concluded, regardless of the ultimate outcome.
Payments of interest on, and proceeds of the sale, redemption or maturity of, tax exempt obligations, including the 2017 Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any 2017 Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any 2017 Bond owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes.
In the further opinion of Bond Counsel, interest on the 2017 Bonds is exempt from California personal income taxes.
Ownership of the 2017 Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the 2017 Bonds. Prospective purchasers of the 2017 Bonds should consult their tax advisors regarding the applicability of any such state and local taxes.
-63- The complete text of the final opinion that Bond Counsel expects to deliver upon issuance of the 2017 Bonds is set forth in Appendix D.
LEGAL MATTERS
Concurrent with the issuance of the 2017 Bonds, Quint & Thimmig LLP, Larkspur, California, Bond Counsel, will render its opinion substantially in the form set forth in Appendix D to this Official Statement. Certain legal matters with respect to the 2017 Bonds will be passed upon for the Authority and the District by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, in their capacity as attorneys for the Authority, and for the Authority by Quint & Thimmig LLP, Larkspur, California, acting as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California. Payment of the fees and expenses of Underwriter's Counsel is contingent on the issuance of the 2017 Bonds. At times Quint & Thimmig LLP represents Stifel, Nicolaus & Company, Inc., the Underwriter for the 2017 Bonds, in matters unrelated to the 2017 Bonds.
NO RATING
The Authority has not made, and does not intend to make, any application to any rating agency for the assignment of a rating to the 2017 Bonds.
NO LITIGATION
The Authority is not aware of any pending or threatened litigation challenging the validity of the 2017 Bonds, the Special Taxes securing the 2017 Bonds, or any action taken by the Authority in connection with the formation of the District, the levying of the Special Taxes or the issuance of the 2017 Bonds.
The Bond Purchase Agreement between the Authority and the Underwriter requires that each of the Primary Landowner and Wingsweep Corporation deliver a certificate on the date of issuance of the 2017 Bonds to the effect that no action, suit, proceeding, inquiry or investigation, at law or in equity, before any court, regulatory agency, public board or body, is pending, or to its actual knowledge is overtly threatened, in any way seeking to restrain such entity's development of the property it owns in the District or in any way seeking to invalidate or set aside any approval or permit relating to the development of such property.
MUNICIPAL ADVISOR
The Authority has retained Fieldman, Rolapp & Associates, Irvine, California, as its Municipal Advisor (the "Municipal Advisor") in connection with the authorization and delivery of the 2017 Bonds. The Municipal Advisor has assisted in various matters relating to the planning, structuring and sale of the 2017 Bonds. The Municipal Advisor has not independently verified any of the data contained in the Official Statement or conducted a detailed investigation of the affairs of the Authority or the District to determine the accuracy or completely of this Official Statement.
-64- UNDERWRITING
The 2017 Bonds are being purchased through negotiation by Stifel, Nicolaus & Company, Incorporated (the "Underwriter"). The Underwriter agreed to purchase the 2017 Bonds at a price of $41,893,992.40 (which is equal to the par amount of the 2017 Bonds, less an original issue discount of $81,745.10, and less an underwriter's discount of $839,262.50). The initial public offering prices set forth on the inside cover page may be changed by the Underwriter. The Underwriter may offer and sell the 2017 Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof.
CONTINUING DISCLOSURE The Authority
The Authority will covenant in a Continuing Disclosure Agreement for the benefit of the Owners of the 2017 Bonds to provide Annual Reports that include certain annual financial information and operating data, and to provide notices of the occurrence of certain enumerated events. The Authority has retained Albert A. Webb Associates to act as the Dissemination Agent under the Continuing Disclosure Agreement. The Authority or the Dissemination Agent, on behalf of the Authority, will file the Annual Reports and notices as required by the Continuing Disclosure Agreement with the Municipal Securities Rulemaking Board. See Appendix E - "Form of Continuing Disclosure Agreement of the Authority" for the complete text of the Authority's Continuing Disclosure Agreement. The covenants of the Authority in the Continuing Disclosure Agreement have been made in order to assist the Underwriter in complying with Rule 15c2 -12(b)(5) (the "Rule") promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
During the last five Fiscal Years, the Authority has complied in all material respects with its obligations under several continuing disclosure agreements entered into in connection with various community facilities district special tax bonds that it has issued, except for an annual filing in 2011 for a series of special tax bonds that was filed 105 days after it was required to be filed under the respective continuing disclosure agreement and for which no notice of late filing was provided. The Primary Landowner
The Primary Landowner will agree for the benefit of the owners of the 2017 Bonds in a Continuing Disclosure Agreement of the Primary Landowner to provide certain information on an annual and a semiannual basis, and notice of the occurrence of certain events with respect to it and the property it owns in the District. Nevertheless, the Underwriter does not consider the Primary Landowner to be an "obligated person" for purposes of the Rule. The complete text of the Continuing Disclosure Agreement of the Primary Landowner is set forth in Appendix F. The Primary Landowner's obligation to provide continuing annual, semiannual and event disclosure will terminate if and when the Primary Landowner no longer owns property in the District that is subject to twenty percent (20%) or more of the Special Tax levy for the then current fiscal year.
There was a continuing disclosure agreement that was entered into by Ashby USA, LLC in connection with the issuance of the CFD 03-02 2006 Bonds. The Primary Landowner assumed that agreement in connection with the Deed -in -Lieu Settlement Agreement executed in May of 2011 (see "THE DISTRICT-The Roripaugh Ranch Development - History of Roripaugh Ranch"). The Primary Landowner has advised that, since it assumed the obligations under such
-65- continuing disclosure agreement, it has not failed to timely comply with its obligations thereunder, and that it is not subject to any other similar continuing disclosure obligation.
Remedies for Failures to Comply
A failure by the Authority or the Primary Landowner to comply with the provisions of its respective Continuing Disclosure Agreement is not an event of default under the Fiscal Agent Agreement (although the holders and beneficial owners of the 2017 Bonds do have remedies at law and in equity). However, a failure by the Authority to comply with the provisions of its Continuing Disclosure Agreement must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the 2017 Bonds. Therefore, a failure by the Authority to comply with the provisions of its Continuing Disclosure Agreement may adversely affect the marketability of the 2017 Bonds on the secondary market.
-66- MISCELLANEOUS
Included herein are brief summaries of certain documents, which summaries do not purport to be complete or definitive, and reference is made to such documents for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority or the District and the purchasers or Owners of any of the 2017 Bonds.
The execution and delivery of this Official Statement has been duly authorized by the Board of Directors of the Authority, acting as the legislative body of the District.
TEMECULA PUBLIC FINANCING AUTHORITY, for and on behalf of the TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT 16-01 (RO PAUGH RANCH PHASE 2)
By: /s/ Aaron Adams Executive Director
-67- MISCELLANEOUS
Included herein are brief summaries of certain documents, which summaries do not purport to be complete or definitive, and reference is made to such documents for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority or the District and the purchasers or Owners of any of the 2017 Bonds.
The execution and delivery of this Official Statement has been duly authorized by the Board of Directors of the Authority, acting as the legislative body of the District.
TEMECULA PUBLIC FINANCING AUTHORITY, for and on behalf of the TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 16-01 (RORIPAUGH RANCH PHASE 2)
By: /s/ Aaron Adams Executive Director
-67- THIS PAGE INTENTIONALLY LEFT BLANK
110 APPENDIX A
GENERAL, ECONOMIC, AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY OF TEMECULA
The following information is provided for background purposes only. The City of Temecula has no liability or responsibility whatsoever with respect to the 2017 Bonds or the Fiscal Agent Agreement. Introduction
The City. The City of Temecula (the "City") is located in southwestern Riverside County, California. The City was incorporated on December 1, 1989. Temecula is bordered by the City of Murrieta to the north and the Pechanga Indian Reservation and San Diego County to the south. The City of Temecula forms the southwestern anchor of the Inland Empire region.
Temecula is an affluent community. The City is supported by high median and mean income levels as well as the city's favorable tourism and resort industries. The city is a prominent tourist destination, with the Temecula Valley Wine Country, Old Town Temecula, the Temecula Valley Polo Club, the Temecula Valley Balloon & Wine Festival, championship golf courses, and resort accommodations attracting a significant amount of tourists.
The City is a general law city, which operates under a council-manager form of government. The City Council consists of five members elected at -large to staggered four-year terms. Each year, the City Council elects a Mayor and a Mayor Pro Tem amongst themselves to serve for one calendar year. The Mayor, who has equal legislative power with fellow members of the City Council, serves as the ceremonial leader of the city and as the presiding officer of the bi-weekly City Council meetings.
The County. Riverside County, California (the "County") is the 4th -most populous county in California and the 11th -most populous in the United States. The County name was taken from the City of Riverside, which is the county seat.
Roughly rectangle -shaped, Riverside County covers 7,208 square miles (18,670 km2) in Southern California, spanning from the Greater Los Angeles area to the Arizona border. Geographically, the county is mostly desert in the central and eastern portions of the county and is a Mediterranean climate in the western portion of the county. Most of Joshua Tree National Park is located in the county.
The resort cities of Palm Springs, Palm Desert, Indian Wells, La Quinta, Rancho Mirage, and Desert Hot Springs are all located in the Coachella Valley region of Riverside County. Large numbers of Los Angeles area workers have moved to the county to take advantage of its relatively affordable housing. Alongside neighboring San Bernardino County, it was one of the fastest growing regions in the state prior to the recent changes in the regional economy. In addition, smaller, but significant, numbers of people have been moving into Southwest Riverside County from the San Diego -Tijuana metropolitan area.
A-1 Population
The following table contains the population of the City, the County and the State of California for the last five years.
CITY OF TEMECULA, RIVERSIDE COUNTY AND STATE OF CALIFORNIA Population Data
City of Riverside State of Year Temecula County California 2012 103,133 2,239,715 37,881,357 2013 104,145 2,266,549 38,239,207 2014 105,368 2,291,093 38,567,459 2015 107,794 2,317,924 38,907,642 2016 109,064 2,347,828 39,255,883
Source: California Department of Finance E-4 Population Estimates for Cities, Counties and State, 2012-2016 with 2010 Benchmark. Employment
The County is part of the Riverside -San Bernardino -Ontario MSA, which covers the City and Riverside and San Bernardino Counties. The following table summarizes the historical numbers of workers by industry in the Riverside -San Bernardino-Ontario MSA for the last five years:
RIVERSIDE -SAN BERNARDINO-ONTARIO MSA (RIVERSIDE AND SAN BERNARDINO COUNTIES) Labor Force and Industry Employment Annual Averages by Industry
2011 2012 2013 2014 2015u1 Total, All Industries 1,169,400 1,200,200 1,247,800 1,303,700 1,362,400
Total Farm 14,900 15,000 14,500 14,400 15,100 Mining, Logging, and Construction 60,100 63,800 71,200 78,900 86,600 Manufacturing 85,100 86,700 87,300 91,300 95,600 Wholesale Trade 49,200 52,200 56,400 58,900 61,700 Retail Trade 158,500 162,400 164,800 169,400 173,500 Transportation, Warehousing & Utilities 67,900 73,000 78,400 86,600 97,300 Information 12,200 11,700 11,500 11,300 11,300 Financial Activities 39,500 40,200 41,300 42,300 43,200 Professional & Business Services 126,000 127,500 132,400 139,300 144,400 Educational & Health Services 165,400 173,600 187,600 194,800 205,000 Leisure & Hospitality 124,000 129,400 135,900 144,800 151,500 Other Services 39,100 40,100 41,100 43,000 44,000 Government 227,500 224,600 225,200 228,800 233,400
Source: California Employment Development Department, based on March 2015 benchmark. Note: Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households, and persons involved in labor/management trade disputes. Employment reported by place of work Items may not add to totals due to independent rounding. (1) Last available full year data.
A-2 The following tables summarize historical employment and unemployment for the County, the State of California and the United States:
RIVERSIDE COUNTY, CALIFORNIA, and UNITED STATES Civilian Labor Force, Employment, and Unemployment (Annual Averages) 2011-2015 Unemployment Year Area Labor Force Employment Unemployment Rate (1) 2011 Riverside County 978,500 849,600 128,900 13.2% California 18,419,500 16,260,100 2,159,400 11.7 United States 153,617,000 139,869,000 13,747,000 8.9
2012 Riverside County 988,600 873,600 115,100 11.6 California 18,554,800 16,630,100 1,924,700 10.4 United States 154,975,000 142,469,000 12,506,000 8.1
2013 Riverside County 998,800 899,900 98,900 9.9 California 18,671,600 17,002,900 1,668,700 8.9 United States 155,389,000 143,929,000 11,460,000 7.4
2014 Riverside County 1,017,000 933,800 83,200 8.2 California 18,811,400 17,397,100 1,414,300 7.5 United States 155,922,000 146,305,000 9,617,000 6.2
2015(2) Riverside County 1,035,200 965,500 69,600 6.7 California 18,981,800 17,798,600 1,183,200 6.2 United States 157,130,000 148,834,000 146,411,000 5.3
Source: California Employment Development Department, Monthly Labor Force Data for Counties, Annual Average 2010-2015, and US Department of Labor. (1) The unemployment rate is computed from unrounded data, therefore, it may differ from rates computed from rounded figures available in this table (2) Latest available full -year data. Major Employers
The table below sets forth the ten principal employers of the County in 2015. RIVERSIDE COUNTY 2015 Major Employers
% of Total Number County Employer Name of Employees Employment County of Riverside 20,684 2.17% March Air Reserve Base 8,500 .89 Starter Brothers Market 6,900 .72 Wal-Mart 6,550 .69 University of California Riverside 5,768 .60 Kaiser Permanente 5,300 .56 Corona -Norco Unified School District 4,932 .52 Temecula Valley Unified School District 4,000 .42 Riverside Unified School District 3,871 .41 Hemet Unified School District 3,400 .36 Total Top 10 69,905 7.32
Source: Riverside County CAFR for the Fiscal Year Ended June 30, 2015.
A-3 Construction Activity
The following table reflects the five-year history of building permit valuation for the City and the County:
CITY OF TEMECULA Building Permits and Valuation (Dollars in Thousands)
2011 2012 2013 2014 2015 Permit Valuation: New Single-family 54,753 58,645 62,540 54,295 34,493 New Multi-family 878 5,901 27,523 38,445 4,527 Res. Alterations/Additions 6,949 4,254 5,638 6,346 5,936 Total Residential 62,581 68,802 95,702 99,087 44,957 Total Nonresidential 15,777 36,241 117,203 34,094 18,206 Total All Building 78,359 105,043 212,906 133,182 63,163 New Dwelling Units: Single Family 280 329 316 234 135 Multiple Family 8 70 348 596 38 Total 288 399 664 830 173
Source: Construction Industry Research Board: "Building Permit Summary." Note Totals may not add due to independent rounding.
RIVERSIDE COUNTY Building Permits and Valuation (Dollars in Thousands)
2011 2012 2013 2014 2015 Permit Valuation: New Single-family 647,070 904,156 1,138,738 1,296,552 1,313,084 New Multi -family 113,170 87,878 138,636 178,116 110,458 Res. Alterations/Additions 188,468 87,370 98,219 147,081 113,199 Total Residential 878,710 1,079,405 1,375,593 1,621,750 1,536,742 Total Nonresidential 490,647 657,595 2,249,570 814,990 911,464 Total All Building 1,369,357 1,737,000 3,625,163 2,436,740 2,448,207
New Dwelling Units: Single Family 2,659 3,720 4,716 5,007 5,007 Multiple Family 1,061 909 1,427 1,931 1,189 Total 3,720 4,629 6,143 6,938 6,196
Source: Construction Industry Research Board: "Building Permit Summary." Note: Totals may not add due to independent rounding.
A-4 Commercial Activity
Taxable sales in the City and County are shown below. Beginning in 2009, reports summarize taxable sales and permits using the NAICS codes. As a result of the coding change, however, industry -level data for 2009 are not comparable to that of prior years.
CITY OF TEMECULA Taxable Sales, 2009-2013 (dollars in thousands)
2009 2010 2011 2012 2013°) Retail and Food Services Motor Vehicles and Parts Dealers 309,649 322,715 385,044 478,293 523,274 Home Furnishings and Appliance Stores 67,336 67,526 72,180 73,234 77,797 Bldg. Matrl. and Garden Equip. and Supplies 97,877 99,657 105,793 106,644 125,463 Food and Beverage Stores 72,796 71,194 74,169 76,374 82,678 Gasoline Stations 173,696 196,542 243,563 250,453 236,279 Clothing and Clothing Accessories Stores 112,400 119,186 133,350 155,124 161,228 General Merchandise Stores 339,035 362,572 378,732 388,833 396,128 Food Services and Drinking Places 225,760 237,997 249,781 261,777 274,558 Other Retail Group 145,770 149,402 156,640 170,559 179,521 Total Retail and Food Services 1,544,319 1,626,792 1,799,253 1,961,289 2,056,926 All Other Outlets 511,527 553,511 565,543 574,091 553,361 Total All Outlets 2,055,847 2,180,304 2,364,795 2,535,380 2,610,286
Source: California Board of Equalization, Taxable Sales in California (Sales & Use Tax). Note: Totals may not add up due to independent rounding (1) Last available full year data. RIVERSIDE COUNTY Taxable Sales, 2009-2013 (dollars in thousands)
2009 2010 2011 2012 2013° Retail and Food Services Motor Vehicles and Parts Dealers 2,449,747 2,620,568 3,010,487 3,493,098 3,965,201 Furniture and Home Furnishings Stores 381,643 412,325 436,482 441,649 486,061 Electronics and Appliance Stores 476,455 470,784 478,406 488,419 510,423 Bldg Mtrl. and Garden Equip. and Supplies 1,237,518 1,232,145 1,303,073 1,364,513 1,535,178 Food and Beverage Stores 1,251,220 1,267,758 1,304,731 1,356,148 1,421,590 Health and Personal Care Stores 389,620 400,207 454,268 490,238 523,724 Gasoline Stations 2,300,247 2,685,840 3,300,785 3,516,040 3,456,322 Clothing and Clothing Accessories Stores 1,293,271 1,391,174 1,505,821 1,672,482 1,771,603 Sporting Goods, Hobby, Book and Music Stores 411,301 428,121 454,971 467,536 499,366 General Merchandise Stores 2,855,733 2,947,905 3,051,709 3,174,022 3,298,920 Miscellaneous Store Retailers 641,954 652,273 700,338 742,118 758,664 Nonstore Retailers 101,925 92,916 101,876 142,081 243,334 Food Services and Drinking Places 2,266,853 2,317,486 2,473,339 2,668,324 2,836,388 Total Retail and Food Services 16,057,488 16,919,500 18,576,285 20,016,668 21,306,774 All Other Outlets 6,170,390 6,233,280 7,065,212 8,079,341 8,758,693 Totals All Outlets 22,227,877 23,152,780 25,641,497 28,096,009 30,065,467
Source: California Board of Equalization, Taxable Sales in California (Sales & Use Tax). Note: Totals may not add up due to independent rounding. (1) Last available full year data.
A-5 Personal Income
The following table sets forth the yearly total effective buying income and the median household effective buying income for the City, the County and the State for the prior five years:
CITY OF TEMECULA, RIVERSIDE COUNTY AND STATE OF CALIFORNIA Effective Buying Income
Total Effective Median Household Buying Income Effective Year Area (000's Omitted) Buying Income 2011 City of Temecula Riverside County 39,981,683 44,116 California 814,578,457 47,062 United States 6,438,704,663 41,253
2012 City of Temecula 2,222,443 56,305 Riverside County 40,157,310 43,860 California 864,088,827 47,307 United States 6,737,867,730 41,358
2013 City of Temecula 2,170,910 55,508 Riverside County 40,293,518 44,784 California 858,676,636 48,340 United States 6,982,757,379 43,715
2014 City of Temecula 2,336,785 60,496 Riverside County 41,199,300 45,576 California 901,189,699 50,072 United States 7,357,153,421 45,448
2015 City of Temecula 2,608,500 66,028 Riverside County 45,407,058 48,674 California 981,231,666 53,589 United States 7,757,960,399 46,738
Source: Nielsen Claritas, Inc.
A-6 APPENDIX B
TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 16-01 (RORIPAUGH RANCH PHASE 2)
RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX
The following sets forth the Rate and Method of Apportionment for the levy and collection of an Annual Special Tax A and an Annual Special Tax B in the Temecula Public Financing Authority ("PFA") Community Facilities District No. 16-01 ("CFD No. 16-01"). An Annual Special Tax A and an Annual Special Tax B shall be levied on and collected in CFD No. 16-01 each Fiscal Year, in an amount determined through the application of the Rate and Method of Apportionment described below. All of the real property within CFD No. 16-01, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent, and in the manner herein provided.
SECTION A DEFINITIONS
The terms hereinafter set forth have the following meanings:
"Acre" or "Acreage" means the land area of an Assessor's Parcel as shown on an Assessor's Parcel Map, or if the land area is not shown on the Assessor's Parcel Map, the land area as shown on the applicable Final Map, or if the land area is not shown on the applicable Final Map, the land area as calculated by the CFD Administrator or City Engineer.
"Act" means the Mello -Roos Community Facilities Act of 1982 as amended, being Chapter 2.5, Division 2 of Title 5 of the Government Code of the State of California.
"Administrative Expenses" means the actual or reasonably estimated costs directly related to the administration of CFD No. 16-01, including but not limited to the following: (i) the costs of computing Special Tax A and Special Tax B (the "Special Taxes") and of preparing the annual Special Tax A and Special Tax B collection schedules (whether by the CFD Administrator or designee thereof, or both); (ii) the costs of collecting the Special Taxes (whether by the Authority, County, City, or otherwise); (iii) the costs of remitting the Special Taxes to the fiscal agent or trustee for any Bonds; (iv) the costs of commencing and pursuing to completion any foreclosure action arising from delinquent Special Tax A; (v) the costs of the fiscal agent or trustee (including its legal counsel) in the discharge of the duties required of it under any Indenture; (vi) the costs of the Authority, City, or designee of complying with arbitrage rebate, mandated reporting and disclosure requirements of applicable federal and State of California laws, and responding to property owner or Bond owner inquiries regarding the Special Taxes; (vii) the costs associated with the release of funds from any escrow account; (viii) the costs of the Authority, City, or designee related to any appeal of a Special Tax; and (ix) an allocable share of the salaries of the City staff and City overhead expense directly relating to the foregoing. Administrative Expenses shall also include amounts advanced by the City or the Authority for any administrative purposes of CFD No. 16-01.
"Annual Special Tax A" means for each Assessor's Parcel, the Special Tax A actually levied in a given Fiscal Year on any Assessor's Parcel.
"Annual Special Tax B" means for each Assessor's Parcel, the Special Tax B actually levied in a given Fiscal Year on any Assessor's Parcel.
"Approved Property" means all Assessor's Parcels of Taxable Property other than Provisional Exempt Property: (i) that are included in a Final Map that was recorded prior to the January 1st immediately preceding the Fiscal Year in which the Special Tax A is being levied, and (ii) that have
B-1 not been issued a building permit on or before the April 1st immediately preceding the Fiscal Year in which the Special Tax A is being levied.
"Assessor" means the County Assessor of the County.
"Assessor's Parcel" means a lot or parcel of land designated on an Assessor's Parcel Map with an assigned Assessor's Parcel Number within the boundaries of CFD No. 16-01.
"Assessor's Parcel Map" means an official map of the Assessor designating parcels by Assessor's Parcel Number.
"Assessor's Parcel Number" means that number assigned to a lot or parcel of land by the Assessor for purposes of identification.
"Assigned Annual Special Tax A" means the Special Tax A as described in Section D below.
"Backup Annual Special Tax A" means the Special Tax A as described in Section E below.
"Board of Directors" means the Board of Directors of the Temecula Public Financing Authority, acting as the legislative body of CFD No. 16-01, or its designee.
"Bonds" means any bonds or other indebtedness (as defined in the Act), whether in one or more series, the repayment of which is secured by the levy of Special Tax A on Assessor's Parcels within CFD No. 16-01.
"Boundary Map" means a recorded map of the CFD No. 16-01 which indicates the boundaries of CFD No. 16-01.
"Building Permit" means the first legal document issued by the City giving official permission for new construction. For purposes of this definition, "Building Permit" may or may not include any subsequent building permits issued or changed after the first issuance, as determined by the CFD Administrator.
"Building Square Footage" or "BSF" means the square footage of assessable internal living space, exclusive of garages or other structures not used as living space, as determined by reference to the building permit application for such Assessor's Parcel and subject to verification by the CFD Administrator.
"Calendar Year" means the period commencing January 1 of any year and ending the following December 31.
"CFD No. 16-01" or "CFD" means Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) established by the Authority under the Act.
"CFD Administrator" means the Finance Director of the City, or designee thereof, responsible for, among other things, determining the Special Tax A Requirement for Special Tax A and the Special Tax B Requirement for Special Tax B and providing for the levy and collection of said Special Tax A and Special Tax B.
"City" means the City of Temecula, California.
"Consumer Price Index" or "CPI" means, for each Fiscal Year, the Consumer Price Index published by the U.S. Bureau of Labor Statistics for "All Urban Consumers: in the Los Angeles - Anaheim - Riverside Area", measured as of the month of December in the calendar year which ends in the previous Fiscal Year. In the event this index ceases to be published, the Consumer Price Index shall
B-2 be another index as determined by the CFD Administrator that is reasonably comparable to the Consumer Price Index for the City of Los Angeles.
"County" means the County of Riverside.
"Developed Property" means all Assessor's Parcels of Taxable Property that: (i) are included in a Final Map that was recorded prior to January 1st preceding the Fiscal Year in which Special Tax A and Special Tax B are being levied, and (ii) a building permit was issued on or before April 1st preceding the Fiscal Year in which either or both of the Special Taxes are being levied.
"Exempt Property" means all Assessor's Parcels designated as being exempt from the Special Taxes provided for in Section M.
"Final Map" means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pursuant to California Civil Code 4285 that creates individual lots that do not need, and are not expected, to be further subdivided prior to the issue of a building permit.
"Fiscal Year" means the period commencing July 1 of any year and ending the following June 30.
"Indenture" means the bond indenture, fiscal agent agreement, trust agreement, resolutibh or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing the same.
"Land Use Type" means Residential Property, Multifamily Residential Property, or Non -Residential Property.
"Maximum Special Tax A" means for each Assessor's Parcel of Taxable Property, the maximum Special Tax A, determined in accordance with Section C that can be levied in any Fiscal Year on such Assessor's Parcel.
"Maximum Special Tax B" means for each Assessor's Parcel of Taxable Property, the maximum Special Tax B, determined in accordance with Section I that can be levied in any Fiscal Year on such Assessor's Parcel.
"Multifamily Residential Property" means all Assessor's Parcels of Developed Property for which a building permit has been issued for the purpose of constructing a building or buildings comprised of attached Units available for rental by the general public, not for sale to an end user, and under common management, as determined by the CFD Administrator.
"Non -Residential Property" means all Assessor's Parcels of Developed Property for which a building permit was issued for any type of non-residential use.
"Partial Prepayment Amount" means the amount required to prepay a portion of the Special Tax A obligation for an Assessor's Parcel, as described in Section H.
"Prepayment Amount" means the amount required to prepay the Special Tax A obligation in full for an Assessor's Parcel, as described in Section G.
"Proportionately" means for Special Tax A that the ratio of the Annual Special Tax A levy to the applicable Assigned Annual Special Tax A is equal for all applicable Assessor's Parcels. In the case of Special Tax B, "Proportionately" means that the ratio of the Annual Special Tax B levy to the applicable Maximum Special Tax B is equal for all applicable Assessor's Parcels. In the case of Developed Property subject to the apportionment of the Annual Special Tax A under Step Four of Section F, "Proportionately" means that the quotient of (a) Annual Special Tax A less the Assigned
B-3 Annual Special Tax A divided by (b) the Backup Annual Special Tax A less the Assigned Annual Special Tax A, is equal for all applicable Assessor's Parcels.
"Provisional Exempt Property" means all Assessor's Parcels of Taxable Property subject to Special Tax A that would otherwise be classified as Exempt Property pursuant to the provisions of Section M, but cannot be classified as Exempt Property because to do so would reduce the Acreage of all Taxable Property within the applicable Zone below the required minimum Acreage set forth in Section M.
"Residential Property" means all Assessor's Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units, which are not Multifamily Residential Property.
"Services" means services authorized to be funded by CFD No. 16-01.
"Special Tax A" means any of the Special Taxes authorized to be levied on Taxable Property within and by CFD No. 16-01 pursuant to the Act to fund the Special Tax A Requirement.
"Special Tax B" means any of the Special Taxes authorized to be levied on Taxable Property within and by CFD No. 16-01 pursuant to the Act to fund the Special Tax B Requirement.
"Special Tax A Requirement" means, subject to the Maximum Special Tax A, the amount required in any Fiscal Year to pay: (i) the debt service or the periodic costs on all outstanding Bonds due in the Calendar Year that commences in such Fiscal Year, (ii) Administrative Expenses (apportioned between Special Tax A and Special Tax B), (iii) any amount required to establish or replenish any reserve funds established in association with the Bonds, and (iv) the collection or accumulation of funds for the acquisition or construction of facilities or payment of fees authorized by CFD No. 16-01 by the levy on Developed Property of the Assigned Annual Special Tax A provided that the inclusion of such amount does not cause an increase in the levy of Special Tax A on Approved Property or Undeveloped Property as set forth in Step Two and Three of Section F., less (v) any amount available to pay debt service or other periodic costs on the Bonds pursuant to any applicable fiscal agent agreement, or trust agreement.
"Special Tax B Requirement" means, subject to the Maximum Special Tax B, that amount to be collected in any Fiscal Year to pay for certain Services as required to meet the needs of CFD No. 16- 01. The costs of Services to be covered shall be the direct costs for (i) Services, and (ii) Administrative Expenses (apportioned between Special tax A and Special Tax B); less (iii) a credit for funds available to reduce the Annual Special Tax B levy, if any, as determined by the CFD Administrator. Under no circumstances shall the Special Tax B Requirement include funds for Bonds.
"Taxable Property" means all Assessor's Parcels within CFD No. 16-01, which are not Exempt Property.
"Temecula Public Financing Authority" or "PFA" or "Authority" means the Temecula Public Financing Authority, or its designee.
"Undeveloped Property" means all Assessor's Parcels of Taxable Property which are not Developed Property, Approved Property or Provisional Exempt Property.
"Unit" means any residential structure.
"Zone(s)" means Zone 1, Zone 2, Zone 3 or Zone 4 as geographically identified on the Boundary Map of CFD No. 16-01.
"Zone 1" means the specific area identified on the Boundary Map as Zone 1 of CFD 16-01.
B-4 "Zone 2" means the specific area identified on the Boundary Map as Zone 2 of CFD 16-01.
"Zone 3" means the specific area identified on the Boundary Map as Zone 3 of CFD 16-01.
"Zone 4" means the specific area identified on the Boundary Map as Zone 4 of CFD 16-01.
SECTION B CLASSIFICATION OF ASSESSOR'S PARCELS
Each Fiscal Year, beginning with Fiscal Year 2016-17, each Assessor's Parcel within CFD No. 16-01 shall be classified as Taxable Property or Exempt Property. In addition, each Assessor's Parcel of Taxable Property shall be further classified as Developed Property, Approved Property, Undeveloped Property, or Provisional Exempt Property. In addition, each Assessor's Parcel of Developed Property, Approved Property, Undeveloped Property and Provisional Exempt Property shall be classified as being within Zone 1, Zone 2, Zone 3 or Zone 4. If an Assessor's Parcel of Developed Property, Approved Property, Undeveloped Property or Provisional Exempt Property is located within more than one Zone, it shall be deemed to be entirely within the Zone in which the largest portion of its Acreage is located. In addition, each Assessor's Parcel of Developed Property shall further be classified as Residential Property, Multifamily Residential Property or Non - Residential Property. Assessor's Parcels of Residential Property shall be further categorized based on the Building Square Footage of each such Assessor's Parcel.
SECTION C MAXIMUM SPECIAL TAX A
1. Developed Property
The Maximum Special Tax A for each Assessor's Parcel of Residential Property, Multifamily Residential Property or Non -Residential Property in any Fiscal Year shall be the greater of (i) the Assigned Annual Special Tax A or (ii) the Backup Annual Special Tax A.
2. Approved Property, Undeveloped Property, and Provisional Exempt Property
The Maximum Special Tax A for each Assessor's Parcel classified as Approved Property, Undeveloped Property, or Provisional Exempt Property in any Fiscal Year shall be the 27 Assigned Annual Special Tax A.
SECTION D ASSIGNED ANNUAL SPECIAL TAX A
1. Developed Property
Each Fiscal Year, each Assessor's Parcel of Residential Property, Multifamily Residential Property or Non -Residential Property shall be subject to an Assigned Annual Special Tax A.
The Assigned Annual Special Tax A applicable to an Assessor's Parcel of Developed Property shall be determined using the Tables below.
B-5 TABLE 1 ASSIGNED ANNUAL SPECIAL TAX A RATES FOR DEVELOPED PROPERTY WITHIN ZONE 1
Land Use Type Building Square Footage Rate Residential Property Less than 1,900 $2,110 per Unit
Residential Property 1,900 - 2,199 $2,320 per Unit Residential Property 2,200 - 2,499 $2,670 per Unit Residential Property 2,500 - 2,799 $2,860 per Unit Residential Property 2,800 - 3,099 $2,975 per Unit Residential Property 3,100 - 3,399 $3,115 per Unit Residential Property Greater than 3,399 $3,235 per Unit Multifamily Residential Property N/A $22,941 per Acre Non -Residential Property N/A $22,941 per Acre
TABLE 2 ASSIGNED ANNUAL SPECIAL TAX A RATES FOR DEVELOPED PROPERTY WITHIN ZONE 2
Land Use Type Building Square Footage Rate Residential Property Less than 4,000 $4,920 per Unit Residential Property 4,000 - 4,299 $5,185 per Unit Residential Property Greater than 4,299 $5,455 per Unit Multifamily Residential Property N/A $7,783 per Acre Non -Residential Property N/A $7,783 per Acre
TABLE 3 ASSIGNED ANNUAL SPECIAL TAX A RATES FOR DEVELOPED PROPERTY WITHIN ZONE 3
Land Use Type Building Square Footage Rate Residential Property Less than 1,900 $2,110 per Unit Residential Property 1,900 - 2,199 $2,335 per Unit Residential Property Greater than 2,199 $2,665 per Unit Multifamily Residential Property N/A $32,894 per Acre Non -Residential Property N/A $32,894 per Acre
TABLE 4 ASSIGNED ANNUAL SPECIAL TAX A RATES FOR DEVELOPED PROPERTY WITHIN ZONE 4
Land Use Type Building Square Footage Rate Residential Property Less than 4,000 $3,235 per Unit Residential Property 4,000 or Greater $3,890 per Unit Multifamily Residential Property N/A $9,121 per Acre Non -Residential Property N/A $9,121 per Acre
2. Approved Property, Undeveloped Property and Provisional Exempt Property
Each Fiscal Year, each Assessor's Parcel of Approved Property, Undeveloped Property and Provisional Exempt Property shall be subject to an Assigned Annual Special Tax A. The Assigned Annual Special Tax A rate for an Assessor's Parcel classified as Approved Property, Undeveloped Property or Provisional Exempt Property shall be determined pursuant to Table 5 below:
B-6 TABLE 5 ASSIGNED ANNUAL SPECIAL TAX RATES FOR APPROVED PROPERTY, UNDEVELOPED PROPERTY, AND PROVISIONAL EXEMPT PROPERTY
Zone Rate Zone 1 $22,941 per Acre Zone 2 $7,783 per Acre Zone 3 $32,894 per Acre Zone 4 $9,121 per Acre
SECTION E BACKUP ANNUAL SPECIAL TAX A
At the time a Final Map is recorded, the CFD Administrator shall determine which Zone the Final Map area lies within and the Backup Annual Special Tax A for all Assessor's Parcels classified or reasonably expected to be classified as Residential Property within such Final Map area shall be determined by multiplying the Maximum Special Tax A rate for Undeveloped Property for the applicable Zone by the total Acreage of Taxable Property, excluding the Provisional Exempt Property Acreage, Non -Residential Property Acreage or Multifamily Residential Property Acreage if any, in such Final Map area and any Acreage reasonably expected to be classified as Exempt Property, and dividing such amount by the total number of such Assessor's Parcels of Residential Property.
If the Final Map area described in the preceding paragraph lies within more than one Zone, the Backup Annual Special Tax A for Assessor's Parcels of Residential Property or Assessor's Parcels expected to be classified as Residential Property shall be determined by calculating a Backup Special Tax A rate based upon the weighted average of the Maximum Special Tax A rate for Undeveloped Property for the Zones which the Assessor's Parcel overlaps using the acreage of the Assessor's Parcel that lies within each overlapping Zone and multiplying that weighted average Maximum Special Tax A rate by the total Acreage of the subject Assessor's Parcel.
The Backup Annual Special Tax A rate for Multifamily Residential Property or Non -Residential Property shall be its Annual Assigned Special Tax A rate.
Notwithstanding the foregoing, if Assessor's Parcels which are classified or to be classified as Residential Property, Non -Residential Property or Multifamily Property are subsequently changed by recordation of a lot line adjustment, Final Map amendment, new Final Map or similar instrument, then the Backup Annual Special Tax A shall be recalculated within the area that has been changed to equal the amount of Backup Annual Special Tax A that would have been generated if such change did not take place.
SECTION F METHOD OF APPORTIONMENT OF THE ANNUAL SPECIAL TAX A
Commencing Fiscal Year 2016-17 and for each subsequent Fiscal Year, the Board of Directors shall levy Annual Special Tax A in accordance with the following steps:
Step One: The Annual Special Tax A shall be levied Proportionately on each Assessor's Parcel of Developed Property at up to 100% of the applicable Assigned Annual Special Tax A rates in Tables 1, 2, 3 and 4 to satisfy the Special Tax A Requirement.
Step Two: If additional moneys are needed to satisfy the Special Tax A Requirement after the first step has been completed, the Annual Special Tax A shall be levied
B-7 Proportionately on each Assessor's Parcel of Approved Property at up to 100% of the applicable Assigned Annual Special Tax A to satisfy the Special Tax A Requirement.
Step Three: If additional moneys are needed to satisfy the Special Tax A Requirement after the first two steps have been completed, the Annual Special Tax A shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property up to 100% of the Assigned Annual Special Tax A for Undeveloped Property applicable to each such Assessor's Parcel as needed to satisfy the Special Tax A Requirement.
Step Four: If additional moneys are needed to satisfy the Special Tax A Requirement after the first three steps have been completed, the Annual Special Tax A on each Assessor's Parcel of Developed Property for which the Maximum Special Tax A is the Backup Annual Special Tax A shall be increased Proportionately from the Assigned Annual Special Tax A up to 100% of the Backup Annual Special Tax A as needed to satisfy the Special Tax A Requirement.
Step Five: If additional moneys are needed to satisfy the Special Tax A Requirement after the first four steps have been completed, the Annual Special Tax A shall be levied Proportionately on each Assessor's Parcel of Provisional Exempt Property up to 100% of the Assigned Annual Special Tax A applicable to each such Assessor's Parcel as needed to satisfy the Special Tax A Requirement.
SECTION G PREPAYMENT OF ANNUAL SPECIAL TAX A
The following definitions apply to this Section G:
"CFD Public Facilities Amount" means $13,000,000 expressed in 2016 dollars, which shall increase by the Construction Inflation Index on July 1, 2017, and on each July 1 thereafter, or such lower number as (i) shall be determined by the CFD Administrator as sufficient to provide the public facilities under the authorized bonding program, or (ii) shall be determined by the Board of Directors concurrently with a covenant that the CFD will not issue any more Bonds.
"Construction Inflation Index" means the annual percentage change in the Engineering News - Record Building Cost Index for the City of Los Angeles, measured as of the calendar year which ends in the previous Fiscal Year. In the event this index ceases to be published, the Construction Inflation Index shall be another index as determined by the CFD Administrator that is reasonably comparable to the Engineering News -Record Building Cost Index for the City of Los Angeles.
"Future Facilities Costs" means the CFD Public Facilities Amount minus (i) Bond proceeds deposited in Improvement Funds and accounts and (ii) other amounts (special taxes, interest earnings, etc.) allocated to Improvement Funds and accounts that were available to fund such CFD Public Facilities Amount prior to the date of prepayment.
"Improvement Fund" means, collectively, an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct public facilities eligible under the Act and any account established prior to the issuance of Bonds for such purpose.
"Outstanding Bonds" means all previously issued Bonds, which will remain outstanding after the payment of principal from the amount of Special Tax A that have been levied, excluding Bonds to be redeemed at a later date with the proceeds of prior prepayments of Maximum Special Tax A. Prepayment in Full
The Maximum Special Tax A obligation may be prepaid and permanently satisfied for (i) Assessor's Parcels of Developed Property, (ii) Assessor's Parcels of Approved Property or Undeveloped
B-8 Property for which a Building Permit has been issued, (iii) Approved or Undeveloped Property for which a Building Permit has not been issued, and (iv) Assessor's Parcels of Provisional Exempt Property that are not Exempt Property pursuant to Section M. The Maximum Special Tax A obligation applicable to a Assessor's Parcel may be fully prepaid and the obligation to pay the Special Tax A for such Assessor's Parcel permanently satisfied as described herein; provided that a prepayment may be made only if there are no delinquent Special Tax A with respect to such Assessor's Parcel at the time of prepayment. An owner of an Assessor's Parcel intending to prepay the Maximum Special Tax A obligation for such Assessor's Parcel shall provide the CFD Administrator with written notice of intent to prepay, and within 5 business days of receipt of such notice, the CFD Administrator shall notify such owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by the CFD in calculating the Prepayment Amount (as defined below) for the Assessor's Parcel. Within 15 business days of receipt of such non-refundable deposit, the CFD Administrator shall notify such owner of the Prepayment Amount for the Assessor's Parcel. Prepayment must be made not less than 60 days prior to the redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes.
The Prepayment Amount (defined below) shall be calculated as follows (capitalized terms are defined below): Bond Redemption Amount plus Redemption Premium plus Future Facilities Amount plus Defeasance Amount plus Administrative Fees and Expenses less Reserve Fund Credit Equals: Prepayment Amount
The Prepayment Amount shall be determined as of the proposed prepayment date as follows:
1. Confirm that no Special Tax A delinquencies apply to such Assessor's Parcel.
2. For an Assessor's Parcel of Developed Property, compute the Maximum Special Tax A for the Assessor's Parcel. For an Assessor's Parcel of Approved Property or Undeveloped Property for which a Building Permit has been issued, compute the Maximum Special Tax A for the Assessor's Parcel as though it was already designated as Developed Property, based upon the Building Permit which has been issued for the Assessor's Parcel. For an Assessor's Parcel of Approved Property or Undeveloped Property for which a Building Permit has not been issued, Provisional Exempt Property, to be prepaid, compute the Maximum Special Tax A for the Assessor's Parcel.
3. Divide the Maximum Special Tax A derived pursuant to paragraph 2 by the total amount of Special Tax A that could be levied at the Maximum Special Tax A for all Assessor's Parcels of Taxable Property based on the applicable Maximum Special Tax A, including for Assessor's Parcels of Approved Property or Undeveloped Property for which a Building Permit has been issued, the Maximum Special Tax A for the Assessor's Parcel as though it was already designated as Developed Property, not including any Assessor's Parcels for which the Special Tax A obligation has been previously prepaid.
4. Multiply the quotient derived pursuant to paragraph 3 by the principal amount of the Outstanding Bonds to determine the amount of Outstanding Bonds to be redeemed with the Prepayment Amount (the "Bond Redemption Amount").
5. Multiply the Bond Redemption Amount by the applicable redemption premium, if any, on the Outstanding Bonds to be redeemed (the "Redemption Premium").
B-9 6. Determine the Future Facilities Costs.
7. Multiply the quotient derived pursuant to paragraph 3 by the amount determined pursuant to paragraph 6 to determine the amount of Future Facilities Costs for the Assessor's Parcel (the "Future Facilities Amount").
8. Determine the amount needed to pay interest on the Bond Redemption Amount from the first bond interest and/or principal payment date following the current Fiscal Year until the earliest redemption date for the Outstanding Bonds on which Bonds can be redeemed from Special Tax prepayments.
9. Determine the Special Tax A levied on the Assessor's Parcel in the current Fiscal Year which have not yet been paid.
10. Determine the amount the CFD Administrator reasonably expects to derive from the investment of the Bond Redemption Amount and the Redemption Premium from the date of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the Prepayment Amount.
11. Add the amounts derived pursuant to paragraphs 8 and 9 and subtract the amount derived pursuant to paragraph 10 (the "Defeasance Amount").
12. Verify the administrative fees and expenses of the CFD, including the cost of computation of the Prepayment Amount, the cost to invest the Prepayment Amount, the cost of redeeming the Outstanding Bonds, and the cost of recording notices to evidence the prepayment of the Maximum Special Tax obligation for the Assessor's Parcel and the redemption of Outstanding Bonds (the "Administrative Fees and Expenses").
13. The reserve fund credit (the "Reserve Fund Credit") shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds as a result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero.
14. The Prepayment Amount is equal to the sum of the Bond Redemption Amount, the Redemption Premium, the Future Facilities Amount, the Defeasance Amount and the Administrative Fees and Expenses, less the Reserve Fund Credit.
15. From the Prepayment Amount, the Bond Redemption Amount, the Redemption Premium, and Defeasance Amount shall be deposited into the appropriate fund as established under the Indenture and be used to redeem Outstanding Bonds or make debt service payments. The Future Facilities Amount shall be deposited into the Improvement Fund. The Administrative Fees and Expenses shall be retained by the CFD.
The Prepayment Amount may be sufficient to redeem other than a $5,000 increment of Bonds. In such event, the increment above $5,000 or an integral multiple thereof will be retained in the appropriate fund established under the Indenture to be used with the next redemption from other Special Tax A prepayments of Outstanding Bonds or to make debt service payments.
As a result of the payment of the current Fiscal Year's Special Tax A levy as determined pursuant to paragraph 9 above, if applicable, the CFD Administrator shall remove the current Fiscal Year's
B-10 Special Tax A levy for the Assessor's Parcel from the County tax roll. With respect to any Assessor's Parcel for which the Maximum Special Tax A obligation is prepaid, the Board shall cause a suitable notice to be recorded in compliance with the Act, to indicate the prepayment of Maximum Special Tax A obligation and the release of the Special Tax A lien for the Assessor's Parcel, and the obligation to pay the Special Tax A for such Assessor's Parcel shall cease.
Notwithstanding the foregoing, no Special Tax A prepayment shall be allowed unless the amount of Maximum Special Tax A that may be levied on all Assessor's Parcels of Taxable Property, excluding all Provisional Exempt Property and all Assessor's Parcels with delinquent Special Taxes, after the proposed prepayment will be at least 1.1 times maximum annual debt service on the Bonds that will remain outstanding after the prepayment plus the estimated annual Administrative Expenses.
Tenders of Bonds in prepayment of the Maximum Special Tax A obligation may be accepted upon the terms and conditions established by the Board pursuant to the Act. However, the use of Bond tenders shall only be allowed on a case -by -case basis as specifically approved by the Board.
SECTION H PARTIAL PREPAYMENT OF ANNUAL SPECIAL TAX A
The Maximum Special Tax A obligation for an Assessor's Parcel of Developed Property, Approved Property or Undeveloped Property may be partially prepaid. For purposes of determining the partial prepayment amount, the provisions of Section G shall be modified as provided by the following formula:
PP = ((PE -A) x F) +A
These terms have the following meaning:
PP = Partial Prepayment PE = the Prepayment Amount calculated according to Section G F = the percent by which the owner of the Assessor's Parcel(s) is partially prepaying the Maximum Special Tax A obligation A = the Administrative Fees and Expenses determined pursuant to Section G
The owner of an Assessor's Parcel who desires to partially prepay the Maximum Special Tax A obligation for the Assessor's Parcel shall notify the CFD Administrator of (i) such owner's intent to partially prepay the Maximum Special Tax A obligation, (ii) the percentage of the Maximum Special Tax A obligation such owner wishes to prepay, and (iii) the company or agency that will be acting as the escrow agent, if any. Within 5 business days of receipt of such notice, the CFD Administrator shall notify such property owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by the CFD in calculating the amount of a partial prepayment. Within 15 business days of receipt of such non-refundable deposit, the CFD Administrator shall notify such owner of the amount of the Partial Prepayment for the Assessor's Parcel. A Partial Prepayment must be made not less than 60 days prior to the redemption date for the Outstanding Bonds to be redeemed with the proceeds of the Partial Prepayment.
With respect to any Assessor's Parcel for which the Maximum Special Tax A obligation is partially prepaid, the CFD Administrator shall (i) distribute the Partial Prepayment as provided in Paragraph 15 of Section G and (ii) indicate in the records of the CFD that there has been a Partial Prepayment for the Assessor's Parcel and that a portion of the Special Tax A obligation equal to the remaining percentage (1.00 - F) of Special Tax A obligation will continue on the Assessor's Parcel pursuant to Section F.
B-11 SECTION I MAXIMUM SPECIAL TAX B
1. Developed Property
1) Maximum Special Tax B
Each Fiscal Year, each Assessor's Parcel of Residential Property or Multifamily Residential Property shall be subject to a Maximum Annual Special Tax B.
The Maximum Annual Special Tax B applicable to an Assessor's Parcel of Developed Property shall be determined using the Table 6 below.
TABLE 6 MAXIMUM SPECIAL TAX B RATES FOR DEVELOPED PROPERTY
Land Use Type Rate Residential Property $432 per Unit Non -Residential Property $2,766 per Acre Multifamily Residential $2,766 per Acre Property
2. Approved Property, Undeveloped Property and Provisional Exempt Property
No Special Tax B shall be levied on Approved Property, Undeveloped Property and Provisional Exempt Property.
3. Increase in the Maximum Special Tax B
On each July 1, commencing July 1, 2017, the Maximum Special Tax B shall be increased by an amount equal to CPI or two percent (2%), whichever is greater, of the amount in effect for the previous Fiscal Year.
SECTION J METHOD OF APPORTIONMENT OF THE ANNUAL SPECIAL TAX B
Commencing with Fiscal Year 2016-17 and for each following Fiscal Year, the City shall levy the Special Tax B at up to 100% of the applicable Maximum Special Tax B, Proportionately on each Assessor's Parcel of Developed Property until the amount of Special Tax B equals the Special Tax B Requirement.
SECTION K PREPAYMENT OF ANNUAL SPECIAL TAX B
No prepayments of Annual Special Tax B are permitted.
SECTION L TERM OF THE SPECIAL TAX A AND SPECIAL TAX B
For each Fiscal Year that any Bonds are outstanding the Annual Special Tax A shall be levied on all Assessor's Parcels subject to the Annual Special Tax A. If any delinquent Annual Special Tax A amounts remain uncollected prior to or after all Bonds are retired, the Annual Special Tax A may be levied to the extent necessary to reimburse CFD 16-01 for uncollected Annual Special Tax A amounts associated with the levy of such Annual Special Tax A amounts, but not later than the 2061-62 Fiscal Year.
B-12 For each Fiscal Year, Special Tax B shall be levied in perpetuity as long as the Services are being provided.
SECTION M EXEMPT PROPERTY
The CFD Administrator shall classify as Exempt Property within the applicable Zone, (i) Assessor's Parcels which are owned by, irrevocably offered for dedication, encumbered by or restricted in use by the State of California, Federal or other local governments, including school districts, (ii) Assessor's Parcels which are used as places of worship and are exempt from ad valorem property taxes because they are owned by a religious organization, (iii) Assessor's Parcels which are owned by, irrevocably offered for dedication, encumbered by or restricted in use by a homeowners' association, (iv) Assessor's Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement, (v) Assessor's Parcels which are privately owned and are encumbered by or restricted solely for public uses, or (vi) other types of public uses determined by the CFD Administrator. The CFD Administrator shall classify such Assessor's Parcels as Exempt Property in the chronological order in which property becomes Exempt.
Notwithstanding the foregoing, the CFD Administrator for purposes of levying the Special Tax shall not classify an Assessor's Parcel as Exempt Property if such classification would reduce the sum of all Taxable Property within the applicable Zone to less than the Acreage amounts listed in Table 7 below. Assessor's Parcels which cannot be classified as Exempt Property because such classification would reduce the Acreage of all Taxable Property within the applicable Zone to less than the Acreage amounts listed in Table 7 will be classified as Provisional Exempt Property, and will be subject to the levy of Special Tax pursuant to Step Five in Section F.
TABLE 7 MINIMUM TAXABLE ACRES
Zone Acres Zone 1 116.64 Zone 2 52.65 Zone 3 9.65 Zone 4 22.54
SECTION N APPEALS AND INTERPRETATIONS
Any property owner claiming that the amount or application of the Annual Special Tax A or Annual Special Tax B is not correct may file a written notice of appeal with the CFD Administrator not later than twelve months after having paid the first installment of the Special Tax A or Annual Special Tax B that is disputed. The CFD Administrator of CFD No. 16-01 shall promptly review the appeal, and if necessary, meet with the property owner, consider written and oral evidence regarding the amount of the Annual Special Tax A or Annual Special Tax B, and rule on the appeal. If the CFD Administrator's decision requires that the Annual Special Tax A or Annual Special Tax B for an Assessor's Parcel be modified or changed in favor of the property owner, a cash refund shall not be made (except for the last year of levy in the case of the Annual Special Tax A), but an adjustment shall be made to the Annual Special Tax A or Annual Special Tax B on that Assessor's Parcel in the subsequent Fiscal Year(s).
The Board of Directors may interpret this Rate and Method of Apportionment of Annual Special Tax A and Annual Special Tax B for purposes of clarifying any ambiguity and make determinations relative to the amount of Administrative Expenses.
B-13 SECTION 0 MANNER OF COLLECTION
The Annual Special Tax A and Annual Special Tax B shall be collected in the same manner and at the same time as ordinary ad valorem property taxes, provided, however, that CFD 16-01 may collect the Annual Special Tax A and Annual Special Tax B at a different time or in a different manner if necessary to meet its financial obligations.
B-14 APPENDIX C
SUMMARY OF THE FISCAL AGENT AGREEMENT
The following is a summary of certain provisions of the Fiscal Agent Agreement not otherwise described in the text of this Official Statement. This summary does not purport to be comprehensive or definitive and is subject to the complete terms and provisions of the Fiscal Agent Agreement, to which reference is hereby made.
Definitions
Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. In addition, the following terms have the following meanings when used in this summary:
"Act" means the Mello -Roos Community Facilities Act of 1982, as amended, being Sections 53311 et seq. of the California Government Code.
"Administrative Expenses" means costs directly related to the administration of the District consisting of the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the Treasurer or designee thereof or both) and the costs of collecting the Special Taxes (whether by the County or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; fees and costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under this Agreement; the costs of the Authority, the City or any designee of either the Authority or the City of complying with the disclosure provisions of the Act, the Continuing Disclosure Agreement and this Agreement, including those related to public inquiries regarding the Special Tax and disclosures to Bondowners and the Original Purchaser; the costs of the Authority, the City or any designee of either the Authority or the City related to an appeal of the Special Tax; any amounts required to be rebated to the federal government in order for the Authority to comply with the Fiscal Agent Agreement; an allocable share of the salaries of the City staff directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto. Administrative Expenses will also include amounts advanced by the Authority or the City for any administrative purpose of the District, including costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, amounts advanced to ensure compliance with the federal rebate provisions of the Fiscal Agent Agreement, administrative costs related to the administration of any joint community facilities agreement regarding the District, and the costs of commencing and pursuing foreclosure of delinquent Special Taxes. Administrative Expenses will include any such expenses incurred in prior years but not yet paid. "Administrative Expense Fund" means the fund by that name established by the Fiscal Agent Agreement.
"Annual Debt Service" means, for each Bond Year, the sum of (i) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of the provisions of the Fiscal Agent Agreement providing for mandatory sinking payments), and (ii) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking payment due in such Bond Year pursuant to the Fiscal Agent Agreement).
"Auditor" means the auditor/controller of the County, or such other official at the County who is responsible for preparing property tax bills.
"Authority Attorney" means any attorney or firm of attorneys employed by the Authority or the City in the capacity of general counsel to the Authority.
C-1 "Authorized Denominations" means with respect to the 2017 Bonds (i) prior to the 2017 Bond Transfer Restriction Release Date, $100,000 and integral multiples of $5,000 in excess of $100,000, provided however that one 2017 Bond may be in a denomination less than $100,000 as a result of any partial redemption of 2017 Bonds prior to the 2017 Bond Transfer Restriction Release Date pursuant to the Fiscal Agent Agreement, and (ii) on and after the 2017 Bond Transfer Restriction Release Date, $5,000 and integral multiples thereof.
"Authorized Officer" means the Chairperson, Executive Director, Treasurer or Secretary of the Authority or any other officer or employee of the Authority or the City authorized by the Board of Directors of the Authority or by an Authorized Officer to undertake the action referenced in the Fiscal Agent Agreement as required to be undertaken by an Authorized Officer.
"Beneficial Owner" has the meaning given to such term in the Fiscal Agent Agreement.
"Bond Counsel" means (i) Quint & Thimmig LLP, or (ii) any other attorney or firm of attorneys acceptable to the Authority and nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities.
"Bond Fund" means the fund by that name established by the Fiscal Agent Agreement.
"Bond Register" means the books for the registration and transfer of Bonds maintained by the Fiscal Agent under the Fiscal Agent Agreement.
"Bond Year" means the one-year period beginning September 2nd in each year and ending on September 1st in the following year, except that the first Bond Year will begin on the Closing Date and end on September 1, 2017.
"Bonds" means the 2017 Bonds, and, if the context requires, any Parity Bonds, at any time Outstanding under the Fiscal Agent Agreement or any Supplemental Agreement.
"Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the state in which the Fiscal Agent has its principal corporate trust office are authorized or obligated by law or executive order to be closed.
"CDIAC" means the California Debt and Investment Advisory Commission of the office of the State Treasurer of the State of California or any successor agency or bureau thereto.
"Capitalized Interest Account" means the account by that name established within the Bond Fund by the Fiscal Agent Agreement.
"Closing Date" means the date upon which there is a physical delivery of the 2017 Bonds in exchange for the amount representing the purchase price of the 2017 Bonds by the Original Purchaser.
"Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the 2017 Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the 2017 Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code. "Continuing Disclosure Agreement" means that certain Continuing Disclosure Agreement pertaining to the 2017 Bonds, dated as of March 1, 2017, between the Authority and Albert A. Webb Associates as dissemination agent, as originally executed and as it may be amended from time to time in accordance with the terms thereof.
C-2 "Costs of Issuance" means items of expense payable or reimbursable directly or indirectly by the Authority or the City and related to the authorization, sale and issuance of the 2017 Bonds, which items of expense will include, but not be limited to, printing costs, costs of reproducing and binding documents, closing costs, filing and recording fees, initial fees and charges of the Fiscal Agent including its first annual administration fee, fees and expenses of Fiscal Agent's counsel, expenses incurred by the City or the Authority in connection with the issuance of the 2017 Bonds, special tax consultant fees and expenses, Bond (underwriter's) discount, legal fees and charges, including bond counsel and disclosure, financial consultants' fees, charges for execution, transportation and safekeeping of the 2017 Bonds, and other costs, charges and fees in connection with the foregoing.
"Costs of Issuance Fund" means the fund by that name established by the Fiscal Agent Agreement.
"County" means the County of Riverside, California.
"DTC" means The Depository Trust Company, New York, New York, and its successors and assigns.
"Debt Service" means the scheduled amount of interest and amortization of principal (including principal payable by reason of the Fiscal Agent Agreement) payable on the Bonds and the scheduled amount of interest and amortization of principal payable on any Parity Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period.
"Depository" means (i) initially, DTC, and (ii) any other Securities Depository acting as Depository pursuant to the Fiscal Agent Agreement.
"District" means the Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2), formed by the Authority under the Act and the Resolution of Formation.
"Escrow Agreement" means the Escrow Agreement, dated as of March 1, 2017, by and between the Authority and the Escrow Bank.
"Escrow Bank" means U.S. Bank National Association, in its capacity as escrow bank under the Escrow Agreement.
"Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security --State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State of California but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States.
"Federal Securities" means any of the following which are non -callable and which at the time of investment are legal investments under the laws of the State of California for funds held by
C-3 the Fiscal Agent: (i) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of the Treasury) and obligations, the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred to as "stripped" obligations and coupons; or (ii) any of the following obligations of the following agencies of the United States of America: (a) direct obligations of the Export -Import Bank, (b) certificates of beneficial ownership issued by the Farmers Home Administration, (c) participation certificates issued by the General Services Administration, (d) mortgage -backed bonds or pass -through obligations issued and guaranteed by the Government National Mortgage Association, (e) project notes issued by the United States Department of Housing and Urban Development, and (f) public housing notes and bonds guaranteed by the United States of America.
"Fiscal Agent" means the Fiscal Agent appointed by the Authority and acting as an independent fiscal agent with the duties and powers provided in the Fiscal Agent Agreement, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in the Fiscal Agent Agreement.
"Fiscal Agent Agreement" means the Fiscal Agent Agreement dated as of March 1, 2017, as it may be amended or supplemented from time to time by any Supplemental Agreement adopted pursuant to the provisions of the Fiscal Agent Agreement.
"Fiscal Year" means the twelve-month period extending from July 1 in a calendar year to June 30 of the succeeding year, both dates inclusive.
"Improvement Fund" means the fund by that name established by the Fiscal Agent Agreement.
"Independent Financial Consultant" means any consultant or firm of such consultants appointed by the Authority, the City or the Treasurer, and who, or each of whom: (i) is judged by the person or entity that approved them to have experience in matters relating to the issuance and/or administration of bonds under the Act; (ii) is in fact independent and not under the domination of the Authority; (iii) does not have any substantial interest, direct or indirect, with or in the Authority, or any owner of real property in the District, or any real property in the District; and (iv) is not connected with the City or the Authority as an officer or employee of the City or the Authority, but who may be regularly retained to make reports to the City or the Authority.
"Information Services" means the Electronic Municipal Market Access System (referred to as "EMMA"), a facility of the Municipal Securities Rulemaking Board (at http:/ /emma.msrb.org); and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the Authority may designate in an Officer's Certificate delivered to the Fiscal Agent.
"Interest Payment Dates" means March 1 and September 1 of each year, commencing September 1, 2017.
"Maximum Annual Debt Service" means the largest Annual Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Bonds.
"Moody's" means Moody's Investors Service, and any successor thereto.
"Officer's Certificate" means a written certificate of the Authority signed by an Authorized Officer of the Authority.
"Ordinance" means any ordinance of the Authority levying the Special Taxes.
C-4 "Original Purchaser" means Stifel, Nicolaus & Company, Incorporated, the first purchaser of the 2017 Bonds from the Authority.
"Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of the Fiscal Agent Agreement regarding disqualified Bonds) all Bonds except: (i) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (ii) Bonds paid or deemed to have been paid within the meaning of the Fiscal Agent Agreement; and (iii) Bonds in lieu of or in substitution for which other Bonds will have been authorized, executed, issued and delivered by the Authority pursuant to the Fiscal Agent Agreement or any Supplemental Agreement.
"Owner" or "Bondowner" means any person who is the registered owner of any particular Outstanding Bond.
"Parity Bonds" means bonds issued by the Authority for the District and secured on a parity with any then Outstanding Bonds pursuant to the applicable provisions of the Fiscal Agent Agreement.
"Participating Underwriter" has the meaning ascribed thereto in the Continuing Disclosure Agreement.
"Permitted Investments" means any of the following, but only to the extent that the same are acquired at Fair Market Value:
(a) Federal Securities.
(b) Registered state warrants or treasury notes or bonds of the State of California (the "State"), including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the State or by a department, board, agency, or authority of the State, which are rated in one of the two highest short-term or long-term rating categories by either Moody's or Standard and Poor's, and which have a maximum term to maturity not to exceed three years.
(c) Unsecured certificates of deposit, time deposits and bankers' acceptance of any bank the short-term obligations of which are rated on the date of purchase "A-1+" or better by S&P and "P-1" by Moody's and or certificates of deposit (including those of the Fiscal Agent, its parent and its affiliates) secured at all times by collateral that may be used by a national bank for purposes of satisfying its obligations to collateralize pursuant to federal law which are issued by commercial banks, savings and loan associations or mutual savings bank whose short-term obligations are rated on the date of purchase A-1 or better by S&P, Moody's and Fitch.
(d) Commercial paper which at the time of purchase is of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by either Moody's or S&P, which commercial paper is limited to issuing corporations that are organized and operating within the United States of America and that have total assets in excess of five hundred million dollars ($500,000,000) and that have an "A" or higher rating for the issuer's debentures, other than commercial paper, by either Moody's or S&P, provided that purchases of eligible commercial paper may not exceed 180 days' maturity nor represent more than 10 percent of the outstanding commercial paper of an issuing corporation. Purchases of commercial paper may not exceed 20 percent of the total amount invested pursuant to this definition of Permitted Investments.
(e) A repurchase agreement with a state or nationally charted bank or trust company or a national banking association or government bond dealer reporting to, trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York, provided that all
C-5 of the following conditions are satisfied: (1) the agreement is secured by any one or more of the securities described in subdivision (a) of this definition of Permitted Investments, (2) the underlying securities are required by the repurchase agreement to be held by a bank, trust company, or primary dealer having a combined capital and surplus of at least one hundred million dollars ($100,000,000) and which is independent of the issuer of the repurchase agreement, and (3) the underlying securities are maintained at a market value, as determined on a marked -to -market basis calculated at least weekly, of not less than 103 percent of the amount so invested.
(f) An investment agreement or guaranteed investment contract with, or guaranteed by, a financial institution the long-term unsecured obligations of which are rated Aa2 and "AA" or better, respectively, by Moody's and S&P at the time of initial investment. The investment agreement shall be subject to a downgrade provision with at least the following requirements: (1) the agreement shall provide that within five business days after the financial institution's long-term unsecured credit rating has been withdrawn, suspended, other than because of general withdrawal or suspension by Moody's or S&P from the practice of rating that debt, or reduced below "AA-" by S&P or below "Aa3" by Moody's (these events are called "rating downgrades") the financial institution shall give notice to the Authority and, within the five-day period, and for as long as the rating downgrade is in effect, shall deliver in the name of the Authority or the Fiscal Agent to the Authority or the Fiscal Agent Federal Securities allowed as investments under subdivision (a) of this definition of Permitted Investments with aggregate current market value equal to at least 105 percent of the principal amount of the investment agreement invested with the financial institution at that time, and shall deliver additional allowed federal securities as needed to maintain an aggregate current market value equal to at least 105 percent of the principal amount of the investment agreement within three days after each evaluation date, which shall be at least weekly, and (2) the agreement shall provide that, if the financial institution's long-term unsecured credit rating is reduced below "A3" by Moody's or below "A-" by S&P, the Fiscal Agent or the Authority may, upon not more than five business days' written notice to the financial institution, withdraw the investment agreement, with accrued but unpaid interest thereon to the date, and terminate the agreement.
(g) The Local Agency Investment Fund of the State of California.
(h) Investments in a money market fund (including any funds of the Fiscal Agent or its affiliates and including any funds for which the Fiscal Agent or its affiliates provides investment advisory or other management services) rated in the highest rating category (without regard to plus (+) or minus (-) designations) by Moody's or S&P.
(i) Any other lawful investment for City funds.
"Principal Office" means the corporate trust office of the Fiscal Agent set forth in the Fiscal Agent Agreement, except for the purpose of maintenance of the registration books and presentation of Bonds for payment, transfer or exchange, such term will mean the office at which the Fiscal Agent conducts its corporate agency business, or such other or additional offices as may be designated by the Fiscal Agent.
"Project" means the facilities eligible to be funded by the District, as more particularly described in the Resolution of Formation.
"Qualified Institutional Buyer" means a "qualified institutional buyer" within the meaning of Rule 144A promulgated under the Securities Act of 1933, as amended.
"Rate and Method of Apportionment of Special Taxes" means the rate and method of apportionment of special taxes for the District, as approved pursuant to the Resolution of Formation, and as it may be modified from time to time in accordance with the Act.
C-6 "Record Date" means the fifteenth day of the month next preceding the month of the applicable Interest Payment Date, whether or not such day is a Business Day.
"Refunding Bonds" means bonds issued by the Authority for the District the net proceeds of which are used to refund all or a portion of the then Outstanding Bonds; provided that the debt service on the Refunding Bonds in any Bond Year is not in excess of the debt service on the Bonds being refunded and the final maturity of the Refunding Bonds is not later than the final maturity of the Bonds being refunded.
"Reserve Fund" means the fund by that name established by the Fiscal Agent Agreement.
"Reserve Requirement" means, as of any date of calculation, an amount equal to the least of (i) the then Maximum Annual Debt Service, (ii) one hundred twenty-five percent (125%) of the then average Annual Debt Service, or (iii) ten percent (10%) of the then Outstanding principal amount of the Bonds.
"Resolution" means Resolution No. TPFA 17-01, adopted by the Board of Directors of the Authority on January 24, 2017.
"Resolution of Formation" means Resolution No. TPFA 16-04, adopted by the Board of Directors of the Authority on April 26, 2016.
"S&P" means S&P Global Ratings, and any successor thereto.
"Securities Depositories" means The Depository Trust Company, 55 Water Street, New York, New York 10041-0099, Fax (212) 855-7232; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in an Officer's Certificate delivered to the Fiscal Agent.
"Special Tax A" has the meaning given such term in the Rate and Method of Apportionment of Special Taxes.
"Special Tax B" has the meaning given such term in the Rate and Method of Apportionment of Special Taxes.
"Special Tax Fund" means the fund by that name established by the Fiscal Agent Agreement.
"Special Tax Prepayments" means the proceeds of any prepayments of Special Tax received by the Authority, as calculated pursuant to the Rate and Method of Apportionment of the Special Taxes, less any administrative fees or penalties collected as part of any such prepayment.
"Special Tax Prepayments Account" means the account by that name established within the Bond Fund under the Fiscal Agent Agreement.
"Special Tax Revenues" means the proceeds of the Special Taxes received by the Authority, including any scheduled payments and any prepayments thereof, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon. "Special Tax Revenues" does not include any penalties collected in connection with delinquent Special Taxes, which amounts may be deposited to the Administrative Expense Fund or otherwise disposed of as determined by the Treasurer consistent with any applicable provisions of the Act.
C-7 "Special Taxes" means the Special Tax A levied within the District pursuant to the Act, the Ordinance, the Rate and Method of Apportionment of Special Taxes, and the Fiscal Agent Agreement.
"Supplemental Agreement" means an agreement the execution of which is authorized by a resolution which has been duly adopted by the Authority under the Act and which agreement is amendatory of or supplemental to the Fiscal Agent Agreement, but only if and to the extent that such agreement is specifically authorized under the Fiscal Agent Agreement.
"Tax Consultant" means any independent financial or tax consultant retained by the Authority or the City for the purpose of computing the Special Taxes.
"Treasurer" means the Treasurer of the Authority or such other officer or employee of the Authority performing the functions of the chief financial officer of the Authority.
"2017 Bond Transfer Restriction Release Date" means the date which is five (5) Business Days after the date the Authority posts on the Municipal Securities Rulemaking Board's EMMA website a continuing disclosure notice pursuant to the Continuing Disclosure Agreement to the effect that (a) at least twenty-five percent (25%) of the Special Tax levied in the then current Fiscal Year was levied on assessor parcels that are classified as Developed Property under the Rate and Method of Apportionment of Special Taxes; and (b) the then value of Undeveloped Property (as defined in the Rate and Method of Apportionment of Special Taxes) in the District, excluding the value of any Undeveloped Property that is then delinquent in the payment of any Special Taxes previously levied, is at least three times the portion of the principal amount of the Bonds then outstanding allocable to the Undeveloped Property. The principal of the Bonds then outstanding is to be allocated to the Undeveloped Property based on a percentage applied to such principal the numerator of which is the amount of Special Taxes levied on Undeveloped Property in the most recent Fiscal Year and the denominator of which is the aggregate Special Tax levy on all Taxable Property in such Fiscal Year. For purposes of the preceding clause (b), the value of the applicable parcels of Undeveloped Property shall be determined either by reference to the assessed value of the property on the most recent County real property tax roll or by reference to an appraisal performed within six (6) months of the 2017 Bond Transfer Restriction Release Date by an MAI appraiser selected by the Authority. Funds and Accounts
The Fiscal Agent Agreement provides for the following funds, in addition to the Special Tax Fund and the Reserve Fund described in the text of this Official Statement:
Bond Fund. There is established under the Fiscal Agent Agreement a separate fund to be held by the Fiscal Agent, the Bond Fund. Deposits will be made as required by the Fiscal Agent Agreement. There are also created under the Fiscal Agent Agreement in the Bond Fund separate accounts held by the Fiscal Agent, the Special Tax Prepayments Account and the Capitalized Interest Account, to the credit of which accounts deposits shall be made as provided in the Fiscal Agent Agreement.
Moneys in the Bond Fund and the accounts therein will be held by the Fiscal Agent for the benefit of the Owners of the Bonds, will be disbursed for the payment of the principal of, and interest and any premium on, the Bonds as described below, and, pending such disbursement, shall be subject to a lien in favor of the Owners of the Bonds.
On each Interest Payment Date, the Fiscal Agent will withdraw from the Bond Fund and pay to the Owners of the Bonds the principal, and interest and any premium, then due and payable on the Bonds, including any amounts due on the Bonds by reason of a redemption of the Bonds required by the Fiscal Agent Agreement, such payments to be made in the priority listed in the second succeeding paragraph.
C-8 In the event that amounts in the Bond Fund are insufficient for the purposes set forth in the preceding paragraph, the Fiscal Agent shall withdraw from the Reserve Fund to the extent of any funds therein amounts to cover the amount of such Bond Fund insufficiency. Amounts so withdrawn from the Reserve Fund shall be deposited in the Bond Fund.
If, after the transfer provided for in the preceding paragraph, there are insufficient funds in the Bond Fund to make the payments described in the second preceding paragraph, the Fiscal Agent shall apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of sinking payments, and then to payment of principal due on the Bonds by reason of sinking payments. Each such payment shall be made ratably to the Owners of the Bonds based on the then Outstanding principal amount of the Bonds, if there are insufficient funds to make the corresponding payment for all of the then Outstanding Bonds. Any sinking payment not made as scheduled shall be added to the sinking payment to be made on the next sinking payment date.
Moneys in the Special Tax Prepayments Account will be transferred by the Fiscal Agent to the Bond Fund on the next date for which notice of redemption of Bonds can timely be given under the Fiscal Agent Agreement, and will be used (together with any amounts transferred from the Reserve Fund in connection with a Special Tax Prepayment) to redeem Bonds on the redemption date selected in accordance with the Fiscal Agent Agreement.
Moneys in the Capitalized Interest Account will be transferred to the Bond Fund on the ri Business Day prior to September 1, 2017.
Moneys in the Bond Fund and the Special Tax Prepayments Account shall be invested and ti deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from the investment and deposit of amounts in the Bond Fund and the Special Tax Prepayments Account will be retained in the Bond Fund and the Special Tax Prepayments Account, respectively, to be used for purposes of such fund and account.
Improvement Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Improvement Fund. Deposits will be made to the Improvement Fund on the Closing Date as required by the Fiscal Agent Agreement. Moneys in the Improvement Fund will be held by the Fiscal Agent for the benefit of the Authority, and will be disbursed for the payment or reimbursement of costs of the Project. Amounts in the Improvement Fund are not pledged as security for the Bonds.
Disbursements from the Improvement Fund will be made by the Fiscal Agent upon receipt of an Officer's Certificate, which will: (a) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made (which will be for a Project cost), that the disbursement is a proper expenditure from the Improvement Fund, and the person to which the disbursement is to be paid; and (b) certify that no portion of the amount then being requested to be disbursed was set forth in any Officer's Certificate previously filed requesting a disbursement. In making disbursements from the Improvement Fund, the Fiscal Agent will use amounts deposited thereto pursuant to the Fiscal Agent Agreement and any proceeds of any Parity Bonds deposited thereto, and any investment earnings on such amounts, before using any amounts deposited to the Improvement Fund pursuant to the Special Tax Fund section of the Fiscal Agent Agreement and any investment earnings thereon.
Each such Officer's Certificate or other certificate submitted to the Fiscal Agent as described in the Fiscal Agent Agreement will be sufficient evidence to the Fiscal Agent of the facts stated therein, and the Fiscal Agent will have no duty to confirm the accuracy of such facts.
Moneys in the Improvement Fund will be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits from the investment and deposit of amounts
C-9 in the Improvement Fund will be retained in the Improvement Fund, to be used for the purposes of the Improvement Fund.
Upon receipt by the Fiscal Agent of an Officer's Certificate stating that the Project has been completed and that all costs of the Project have been paid, or that any such costs are not required to be paid from the Improvement Fund, the Fiscal Agent will transfer the amount, if any, remaining in the Improvement Fund to the Bond Fund to be used to pay Debt Service on the Bonds on the next Interest Payment Date, and when no amounts remain on deposit in the Improvement Fund, the Improvement Fund will be closed.
Costs of Issuance Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Costs of Issuance Fund, to the credit of which a deposit will be made as required by the Fiscal Agent Agreement. Moneys in the Costs of Issuance Fund will be held by the Fiscal Agent, will be disbursed as described below for the payment or reimbursement of Costs of Issuance, and are not pledged as security for the Bonds.
Amounts in the Costs of Issuance Fund will be disbursed from time to time to pay Costs of Issuance, as set forth in a requisition containing respective amounts to be paid to the designated payees, signed by the Treasurer and delivered to the Fiscal Agent on the Closing Date, or otherwise in an Officer's Certificate delivered to the Fiscal Agent after the Closing Date. The Fiscal Agent will pay all Costs of Issuance after receipt of an invoice from any such payee which requests payment in an amount which is less than or equal to the amount set forth with respect to such payee pursuant to an Officer's Certificate requesting payment of Costs of Issuance. The Fiscal Agent will maintain the Costs of Issuance Fund for a period of 90 days from the date of delivery of the 2017 Bonds and then will transfer any moneys remaining therein, including any investment earnings thereon, to the Treasurer for deposit by the Treasurer in the Administrative Expense Fund.
Moneys in the Costs of Issuance Fund will be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from said investment will be retained by the Fiscal Agent in the Costs of Issuance Fund to be used for the purposes of such fund.
Administrative Expense Fund. There is established under the Fiscal Agent Agreement a separate fund to be held by the Treasurer, the Administrative Expense Fund, to the credit of which deposits shall be made as required by the Fiscal Agent Agreement. Amounts in the Administrative Expense Fund are not pledged as security for the Bonds. Moneys in the Administrative Expense Fund will be held in trust by the Treasurer for the benefit of the Authority, and shall be disbursed as provided below. Amounts in the Administrative Expense Fund will be withdrawn by the Treasurer and paid to the Authority or its order upon receipt by the Treasurer of an Officer's Certificate stating the amount to be withdrawn, that such amount is to be used to pay an Administrative Expense or Costs of Issuance, and the nature of such Administrative Expense or Costs of Issuance. Annually, on the last day of each Fiscal Year, the Treasurer will withdraw any amounts then remaining in the Administrative Expense Fund in excess of $30,000.00 that have not otherwise been allocated to pay Administrative Expenses incurred but not yet paid, and which are not otherwise encumbered, and transfer such amounts to the Fiscal Agent for deposit by the Fiscal Agent in the Special Tax Fund.
Moneys in the Administrative Expense Fund will be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from said investment shall be retained by the Treasurer in the Administrative Expense Fund to be used for the purposes thereof.
Covenants of the Authority
The Authority will punctually pay or cause to be paid the principal of, and interest and any premium on, the Bonds when and as due in strict conformity with the terms of the Fiscal Agent
C-10 Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Agreements and of the Bonds.
The Bonds are limited obligations of the Authority on behalf of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund (including the Capitalized Interest Account and the Special Tax Prepayments Account therein), the Reserve Fund and, until disbursed as provided in the Fiscal Agent Agreement, the Special Tax Fund.
In order to prevent any accumulation of claims for interest after maturity, the Authority may not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and may not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest will be extended or funded, whether or not with the consent of the Authority, such claim for interest so extended or funded will not be entitled, in case of default under the Fiscal Agent Agreement, to the benefits of the Fiscal Agent Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which will not have been so extended or funded.
The Authority will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien under the Fiscal Agent Agreement for the benefit of the Bonds, except as permitted by the Fiscal Agent Agreement.
The Authority will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Authority, in which complete and correct entries are made of all transactions relating to the expenditure of amounts disbursed from the Administrative Expense Fund and to the Special Tax Revenues. Such books of record and accounts will at all times during business hours be subject to the inspection of the Fiscal Agent and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.
The Authority will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons. From and after the delivery of any of the Bonds by the Authority, the Bonds will be incontestable by the Authority.
The Authority will comply with all applicable provisions of the Act and law in administering the District.
The Authority will comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes. On or within five (5) Business Days of each June 1, the Fiscal Agent is required provide the Treasurer with a notice stating the amount then on deposit in the Bond Fund and the Reserve Fund, and informing the Authority that the Special Taxes may need to be levied pursuant to the Ordinance as necessary to provide for the debt service to become due on the Bonds in the calendar year that commences in the Fiscal Year for which the levy is to be made, and Administrative Expenses and replenishment (if necessary) of the Reserve Fund so that the balance therein equals the Reserve Requirement. The receipt of or failure to receive such notice by the Treasurer will in no way affect the obligations of the Treasurer under the following two paragraphs. Upon receipt of such notice, the Treasurer will communicate with the Auditor to ascertain the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year.
The Treasurer will effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each July 15 that the Bonds are outstanding, or otherwise such that the computation of
C-11 the levy is complete before the final date on which the Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the Treasurer will prepare or cause to be prepared, and will transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll.
The Treasurer will fix and levy the amount of Special Taxes within the District required for the payment of principal of and interest on any outstanding Bonds of the District becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds and an amount estimated to be sufficient to pay the Administrative Expenses (including amounts necessary to discharge any rebate obligation under the Fiscal Agent Agreement) during such year, taking into account the balances in such funds and in the Special Tax Fund. The Special Taxes so levied will not exceed the maximum amounts as provided in the Rate and Method of Apportionment of Special Taxes.
The Special Taxes, when levied, will be payable and be collected in the same manner and at the same time and in the same installments as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property; provided that, pursuant to and in accordance with the Ordinance, the Special Taxes may be collected by means of direct billing of the property owners within the District, in which event the Special Taxes will become delinquent if not paid when due pursuant to said billing.
Pursuant to Section 53356.1 of the Act, the Authority covenants with and for the benefit of the Owners of the Bonds that it will order, and cause to be commenced as described below, and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the superior court to foreclose the lien of any Special Tax or installment thereof not paid when due as provided in the following paragraph. The Treasurer will notify the Authority Attorney of any such delinquency of which the Treasurer is aware, and the Authority Attorney will commence, or cause to be commenced, such proceedings.
On or about June 15 of each Fiscal Year, the Treasurer will compare the amount of Special Taxes theretofore levied in the District to the amount of Special Tax Revenues theretofore received by the Authority. If, as of any June 15, the Treasurer determines that any single parcel subject to the Special Tax in the District is delinquent in the payment of Special Taxes in the aggregate amount of $7,500 or more, then the Treasurer will promptly send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner, and (if the delinquency remains uncured) foreclosure proceedings will be commenced by the Authority within 90 days after the notice of delinquency has been sent. If the Treasurer determines that, as of any June 15, the total amount of delinquent Special Tax for the then current Fiscal Year for the entire District (including the total of delinquencies described in the preceding sentence), exceeds 5% of the total Special Tax due and payable for the then current Fiscal Year, the Treasurer will promptly notify or cause to be notified property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency), and the Authority will commence foreclosure proceedings within 90 days after the notices of delinquency have been sent. Notwithstanding the foregoing, the Treasurer may defer any mailing of notices of delinquency or foreclosure action if (i) the amount in the Reserve Fund is at least equal to the Reserve Requirement, and (ii) the amounts then on deposit in the Special Tax Fund and the Bond Fund are sufficient to pay the scheduled debt service due on the Bonds on the succeeding September 1 and March 1 without the need for any draw on the Reserve Fund.
The Authority will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Fiscal Agent Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Fiscal Agent Agreement.
C-12 The Authority will assure that the proceeds of the 2017 Bonds are not so used as to cause the 2017 Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code. The Authority will not take any action or permit or suffer any action to be taken if the result of the same would be to cause the 2017 Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code.
The Authority will take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the 2017 Bonds. If necessary, the Authority may use amounts in the Reserve Fund, amounts on deposit in the Administrative Expense Fund, and any other funds available to the District, including amounts advanced by the Authority or the City, in its respective sole discretion, to be repaid by the District as soon as practicable from amounts described in the preceding clauses, to satisfy its obligations described in this paragraph.
In order to provide for the administration of the provisions of the preceding paragraph, the Treasurer may provide for the employment of independent attorneys, accountants and consultants compensated on such reasonable basis as the Treasurer may deem appropriate and in addition, and without limitation of the provisions of the Fiscal Agent Agreement, the Treasurer may rely conclusively upon and be fully protected from all liability in relying upon the opinions, determinations, calculations and advice of such agents, attorneys and consultants employed under the Fiscal Agent Agreement. Any fees or expenses incurred by the Authority or the City under or pursuant to the foregoing provisions of the Fiscal Agent Agreement will be Administrative Expenses.
The Fiscal Agent may rely conclusively upon the Authority's determinations, calculations and certifications described in the second preceding paragraph. The Fiscal Agent will have no responsibility to independently make any calculation or determination or to review the Authority's calculations under the Fiscal Agent Agreement.
The Authority will not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the 2017 Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the 2017 Bonds would have caused the 2017 Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code.
In determining the yield of the 2017 Bonds to comply with the no arbitrage and rebate covenants of the Fiscal Agent Agreement, the Authority will take into account redemption (including premium, if any) in advance of maturity based on the reasonable expectations of the Authority, as of the Closing Date, regarding prepayments of Special Taxes and use of prepayments for redemption of the Bonds, without regard to whether or not prepayments are received or 2017 Bonds redeemed.
The Authority will take all actions necessary to assure the exclusion of interest on the 2017 Bonds from the gross income of the Owners of the 2017 Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the 2017 Bonds.
The Authority covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Fiscal Agent Agreement, failure of the Authority to comply with the Continuing Disclosure Agreement will not be considered a default under the Fiscal Agent Agreement; however, any Participating Underwriter or any holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the Authority of its obligations thereunder, including seeking mandate or specific performance by court order.
C-13 The Authority covenants and agrees to not consent or conduct proceedings with respect to a reduction in the maximum Special Taxes that may be levied in the District below an amount, for any Fiscal Year, equal to 110% of the aggregate of the Debt Service due on the Bonds in such Fiscal Year, plus a reasonable estimate of Administrative Expenses for such Fiscal Year. It is acknowledged in the Fiscal Agent Agreement that Bondowners are purchasing the Bonds in reliance on the foregoing covenant, and that said covenant is necessary to assure the full and timely payment of the Bonds.
The Authority covenants not to exercise its rights under the Act to waive delinquency and redemption penalties related to the Special Taxes or to declare Special Tax penalties amnesty program if to do so would materially and adversely affect the interests of the owners of the Bonds and further covenants not to permit the tender of Bonds in payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the Authority having insufficient Special Tax Revenues to pay the principal of and interest on the Bonds remaining Outstanding following such tender.
Except as expressly permitted by the Fiscal Agent Agreement, the Authority will not issue any additional bonds secured by (A) a pledge of Special Taxes on a parity with or senior to the pledge thereof under the Fiscal Agent Agreement; or (B) any amounts in any funds or accounts established under the Fiscal Agent Agreement.
The Authority will not bid at a foreclosure sale of property in respect of delinquent Special Taxes unless it expressly agrees to take the property subject to the lien for Special Taxes imposed by the District and that the Special Taxes levied on the property are payable while the Authority owns the property. Investments
Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent is required to be invested by the Fiscal Agent in Permitted Investments, as directed pursuant to an Officer's Certificate filed with the Fiscal Agent at least two (2) Business Days in advance of the making of such investments. In the absence of any such Officer's Certificate, the Fiscal Agent will invest to the extent reasonably practicable any such moneys in the Permitted Investments described in clause (h) of the definition thereof in the Fiscal Agent Agreement; provided, however, that any such investment will be made by the Fiscal Agent only if, prior to the date on which such investment is to be made, the Fiscal Agent will have received an Officer's Certificate specifying a specific money market fund into which the funds will be invested and, if no such Officer's Certificate is so received, the Fiscal Agent will hold such moneys uninvested.
Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Treasurer will be invested by the Treasurer in any Permitted Investment, which in any event by its terms matures prior to the date on which such moneys are required to be paid out. Obligations purchased as an investment of moneys in any fund will be deemed to be part of such fund or account, subject, however, to the requirements of the Fiscal Agent Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts. Whenever in the Fiscal Agent Agreement any moneys are required to be transferred by the Authority to the Fiscal Agent, such transfer may be accomplished by transferring a like amount of Permitted Investments.
The Fiscal Agent and its affiliates or the Treasurer may act as sponsor, advisor, depository, principal or agent in the acquisition or disposition of any investment. Neither the Fiscal Agent nor the Treasurer will incur any liability for losses arising from any investments made pursuant to the Fiscal Agent Agreement. The Fiscal Agent will not be required to determine the legality of any investments.
Except as otherwise provided in the next sentence, all investments of amounts deposited in any fund or account created by or pursuant to the Fiscal Agent Agreement, or otherwise containing
C-14 gross proceeds of the Bonds (within the meaning of Section 148 of the Code) will be acquired, disposed of, and valued (as of the date that valuation is required by the Fiscal Agent Agreement or the Code) at Fair Market Value. The Fiscal Agent will have no duty in connection with the determination of Fair Market Value other than to follow the investment direction of an Authorized Officer in any written direction of any Authorized Officer. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under the applicable provisions of the Code and (unless valuation is undertaken at least annually) investments in the subaccounts within the Reserve Fund will be valued at their present value (within the meaning of section 148 of the Code). The Fiscal Agent will not be liable for verification of the application of such sections of the Code.
Investments in any and all funds and accounts may be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions in the Fiscal Agent Agreement for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Fiscal Agent or the Treasurer under the Fiscal Agent Agreement, provided that the Fiscal Agent or the Treasurer, as applicable, will at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in the Fiscal Agent Agreement. The Fiscal Agent or the Treasurer, as applicable, will sell at Fair Market Value, or present for redemption, any investment security whenever it will be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited and neither the Fiscal Agent nor the Treasurer will be liable or responsible for any loss resulting from the acquisition or disposition of such investment security in accordance with the Fiscal Agent Agreement.
Liability of Authority
The Authority will not incur any responsibility in respect of the Bonds or the Fiscal Agent Agreement other than in connection with the duties or obligations explicitly therein or in the Bonds assigned to or imposed upon it. The Authority will not be liable in connection with the performance of its duties under the Fiscal Agent Agreement, except for its own negligence or willful default. The Authority will not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements of the Fiscal Agent in the Fiscal Agent Agreement or of any of the documents executed by the Fiscal Agent in connection with the Bonds, or as to the existence of a default or event of default thereunder.
In the absence of bad faith, the Authority, including the Treasurer, may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Authority and conforming to the requirements of the Fiscal Agent Agreement. The Authority, including the Treasurer, will not be liable for any error of judgment made in good faith unless it will be proved that it was negligent in ascertaining the pertinent facts.
No provision of the Fiscal Agent Agreement will require the Authority to expend or risk its own general funds or otherwise incur any financial liability (other than with respect to the Special Tax Revenues) in the performance of any of its obligations under the Fiscal Agent Agreement, or in the exercise of any of its rights or powers, if it will have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
The Authority and the Treasurer may rely and will be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Authority may consult with counsel, who may be the Authority Attorney, with regard to legal questions, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it under the Fiscal Agent Agreement in good faith and in accordance therewith.
C-15 The Authority will not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactory established, if disputed.
Whenever in the administration of its duties under the Fiscal Agent Agreement the Authority or the Treasurer will deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be specifically prescribed in the Fiscal Agent Agreement) may, in the absence of willful misconduct on the part of the Authority, be deemed to be conclusively proved and established by a certificate of the Fiscal Agent, an Independent Financial Consultant or a Tax Consultant, and such certificate will be full warrant to the Authority and the Treasurer for any action taken or suffered under the provisions of the Fiscal Agent Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the Authority or the Treasurer may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.
In order to perform its duties and obligations under the Fiscal Agent Agreement, the Authority and/or the Treasurer may employ such persons or entities as it deems necessary or advisable. The Authority will not be liable for any of the acts or omissions of such persons or entities employed by it in good faith under the Fiscal Agent Agreement, and will be entitled to rely, and will be fully protected in doing so, upon the opinions, calculations, determinations and directions of such persons or entities.
The Fiscal Agent
The Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set forth in the Fiscal Agent Agreement, and no implied covenants or obligations will be read into the Fiscal Agent Agreement against the Fiscal Agent.
Any company into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it will be a party or any company to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, provided such company will be eligible under the following paragraph, will be the successor to such Fiscal Agent without the execution or filing of any paper or any further act, anything to the contrary in the Fiscal Agent Agreement notwithstanding. The Fiscal Agent will give the Treasurer written notice of any such succession under the Fiscal Agent Agreement.
The Authority may at any time remove the Fiscal Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor will be a bank, corporation or trust company having a combined capital (exclusive of borrowed capital) and surplus of at least Fifty Million Dollars ($50,000,000), and be subject to supervision or examination by federal or state authority. If such bank, corporation or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then the combined capital and surplus of such bank or trust company will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
The Fiscal Agent may at any time resign by giving written notice to the Authority and by giving to the Owners notice by mail of such resignation. Upon receiving notice of such resignation, the Authority will promptly appoint a successor Fiscal Agent by an instrument in writing. Any resignation or removal of the Fiscal Agent will become effective upon acceptance of appointment by the successor Fiscal Agent. Upon such acceptance, the successor Fiscal Agent will be vested with all rights and powers of its predecessor under the Fiscal Agent Agreement without any further act.
C-16 If no appointment of a successor Fiscal Agent will be made within forty-five (45) days after the Fiscal Agent will have given to the Authority written notice or after a vacancy in the office of the Fiscal Agent will have occurred by reason of its inability to act, the Fiscal Agent or any Owner may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent.
If, by reason of the judgment of any court, or reasonable agency, the Fiscal Agent is rendered unable to perform its duties under the Fiscal Agent Agreement, all such duties and all of the rights and powers of the Fiscal Agent thereunder will be assumed by and vest in the Treasurer of the Authority in trust for the benefit of the Owners. The Authority covenants for the direct benefit of the Owners that its Treasurer in such case will be vested with all of the rights and powers of the Fiscal Agent under the Fiscal Agent Agreement, and will assume all of the responsibilities and perform all of the duties of the Fiscal Agent thereunder, in trust for the benefit of the Owners of the Bonds. In such event, the Treasurer may designate a successor Fiscal Agent qualified to act as Fiscal Agent thereunder.
The recitals of facts, covenants and agreements in the Fiscal Agent Agreement and in the Bonds contained will be taken as statements, covenants and agreements of the Authority, and the Fiscal Agent assumes no responsibility for the correctness of the same, or makes any representations as to the validity or sufficiency of the Fiscal Agent Agreement or of the Bonds, or will incur any responsibility in respect thereof, other than in connection with the duties or obligations in the Fiscal Agent Agreement or in the Bonds assigned to or imposed upon it. The Fiscal Agent will not be liable in connection with the performance of its duties under the Fiscal Agent Agreement, except for its own negligence or willful default. The Fiscal Agent assumes no responsibility or liability for any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds.
In the absence of bad faith, the Fiscal Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Fiscal Agent and conforming to the requirements of the Fiscal Agent Agreement; but in the case of any such certificates or opinions by which any provision of the Fiscal Agent Agreement are specifically required to be furnished to the Fiscal Agent, the Fiscal Agent will be under a duty to examine the same to determine whether or not they conform to the requirements of the Fiscal Agent Agreement. Except as provided above in this paragraph, Fiscal Agent will be protected and will incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith, reasonably and in accordance with the terms of the Fiscal Agent Agreement, upon any resolution, order, notice, request, consent or waiver, certificate, statement, affidavit, or other paper or document which it will in good faith reasonably believe to be genuine and to have been adopted or signed by the proper person or to have been prepared and furnished pursuant to any provision of the Fiscal Agent Agreement, and the Fiscal Agent will not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument.
The Fiscal Agent will not be liable for any error of judgment made in good faith unless it will be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts. No provision of the Fiscal Agent Agreement will require the Fiscal Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Fiscal Agent Agreement, or in the exercise of any of its rights or powers.
The Fiscal Agent will be under no obligation to exercise any of the rights or powers vested in it by the Fiscal Agent Agreement at the request or direction of any of the Owners pursuant to the Fiscal Agent Agreement unless such Owners will have offered to the Fiscal Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.
C-17 The Fiscal Agent may become the owner of the Bonds with the same rights it would have if it were not the Fiscal Agent.
The Fiscal Agent will have no duty or obligation whatsoever to enforce the collection of Special Taxes or other funds to be deposited with it under the Fiscal Agent Agreement, or as to the correctness of any amounts received, and its liability will be limited to the proper accounting for such funds as it will actually receive.
The Fiscal Agent may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it under the Fiscal Agent Agreement in good faith and in accordance therewith.
In order to perform its duties and obligations under the Fiscal Agent Agreement, the Fiscal Agent may employ such persons or entities as it deems necessary or advisable. The Fiscal Agent will not be liable for any of the acts or omissions of such persons or entities employed by it in good faith under the Fiscal Agent Agreement, and will be entitled to rely, and will be fully protected in doing so, upon the opinions, calculations, determinations and directions of such persons or entities.
The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries will be made of all transactions relating to the expenditure of amounts disbursed from the Bond Fund (including the Capitalized Interest Account and the Special Tax Prepayments Account therein), the Reserve Fund, the Special Tax Fund, the Improvement Fund and the Costs of Issuance Fund. Such books of record and accounts will at all times during business hours be subject to the inspection of the Authority and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing upon reasonable prior notice.
The Fiscal Agent may rely and will be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed in good faith by it to be genuine and to have been signed or presented by the proper party or proper parties.
The Fiscal Agent will not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.
Whenever in the administration of its duties under the Fiscal Agent Agreement the Fiscal Agent will deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be in the Fiscal Agent Agreement specifically prescribed) may, in the absence of willful misconduct on the part of the Fiscal Agent, be deemed to be conclusively proved and established by an Officer's Certificate, and such certificate will be full warrant to the Fiscal Agent for any action taken or suffered under the provisions of the Fiscal Agent Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.
Amendment of the Fiscal Agent Agreement
The Fiscal Agent Agreement and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Fiscal Agent Agreement. No
C-18 such modification or amendment will (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the Authority to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the Authority of any pledge or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Owners of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or the Fiscal Agent Agreement), or (iii) reduce the percentage of Bonds required for the amendment of the Fiscal Agent Agreement. Any such amendment may not modify any of the rights or obligations of the Fiscal Agent without its written consent.
The Fiscal Agent Agreement and the rights and obligations of the Authority and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:
(A) to add to the covenants and agreements of the Authority in the Fiscal Agent Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power in the Fiscal Agent Agreement reserved to or conferred upon the Authority;
(B) to make modifications not adversely affecting any Outstanding series of Bonds of the Authority in any material respect;
(C) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Fiscal Agent Agreement, or in regard to questions arising under the Fiscal Agent Agreement, as the Authority or the Fiscal Agent may deem necessary or desirable and not inconsistent with the Fiscal Agent Agreement, and which will not adversely affect the rights of the Owners of the Bonds;
(D) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from gross federal income taxation of interest on the Bonds; and
(E) in connection with the issuance of Parity Bonds under and pursuant to the Fiscal' Agent Agreement.
The Fiscal Agent may in its discretion, but will not be obligated to, enter into any such Supplemental Agreement authorized by the Fiscal Agent Agreement which materially adversely affects the Fiscal Agent's own rights, duties or immunities under this Fiscal Agent Agreement or otherwise with respect to the Bonds or any agreements related thereto.
Discharge of the Bonds and the Fiscal Agent Agreement
The Authority will have the option to pay and discharge the entire indebtedness on all or any portion of the Bonds Outstanding in any one or more of the following ways:
(A) by well and truly paying or causing to be paid the principal of, and interest and any premium on, such Bonds Outstanding, as and when the same become due and payable;
(B) by depositing with the Fiscal Agent, at or before maturity, money which, together with the amounts then on deposit in the funds and accounts provided for in the Fiscal Agent Agreement is fully sufficient to pay such Bonds Outstanding, including all principal, interest and redemption premiums; or
C-19 (C) by irrevocably depositing with the Fiscal Agent cash and Federal Securities in such amount as the Authority will determine as confirmed by Bond Counsel or an independent certified public accountant will, together with the interest to accrue thereon and moneys then on deposit in the fund and accounts provided for in the Fiscal Agent Agreement, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates.
If the Authority will have taken any of the actions specified in (A), (B) or (C) above, and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption will have been given as in the Fiscal Agent Agreement provided or provision satisfactory to the Fiscal Agent will have been made for the giving of such notice, then, at the election of the Authority, and notwithstanding that any Bonds will not have been surrendered for payment, the pledge of the Special Taxes and other funds provided for in the Fiscal Agent Agreement and all other obligations of the Authority under the Fiscal Agent Agreement with respect to such Bonds Outstanding will cease and terminate. Notice of such election will be filed with the Fiscal Agent. Notwithstanding the foregoing, the obligation of the Authority to pay or cause to be paid to the Owners of the Bonds not so surrendered and paid all sums due thereon, to pay all amounts owing to the Fiscal Agent pursuant to the Fiscal Agent Agreement, and otherwise to assure that no action is taken or failed to be taken if such action or failure adversely affects the exclusion of interest on the Bonds from gross income for federal income tax purposes, will continue in any event.
Upon compliance by the Authority with the foregoing with respect to all Bonds Outstanding, any funds held by the Fiscal Agent after payment of all fees and expenses of the Fiscal Agent, which are not required for the purposes of the preceding paragraph, will be paid over to the Authority and any Special Taxes thereafter received by the Authority will not be remitted to the Fiscal Agent but will be retained by the Authority to be used for any purpose permitted under the Act.
C-20 APPENDIX D
FORM OF OPINION OF BOND COUNSEL
March 16, 2017
Board of Directors Temecula Public Financing Authority 41000 Main Street Temecula, California 92589-9033
OPINION: $42,815,000 Temecula Public Financing Authority Community Facilities District 16-01 (Roripaugh Ranch Phase 2) 2017 Special Tax Bonds
Members of the Board of Directors:
We have acted as bond counsel in connection with the issuance by the Temecula Public Financing Authority (the "Authority"), for and on behalf of the Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) (the "District"), of its $42,815,000 Temecula Public Financing Authority Community Facilities District 16-01 (Roripaugh Ranch Phase 2) 2017 Special Tax Bonds (the "Bonds") pursuant to the Mello -Roos Community Facilities Act of 1982, as amended (Section 53311 et seq., of the California Government Code) (the "Act"), a Fiscal Agent Agreement, dated as of March 1, 2017 (the "Fiscal Agent Agreement"), by and between the Authority, for and on behalf of the District, and U.S. Bank National Association, as fiscal agent, and Resolution No. TPFA 17-01 adopted by the Board of Directors of the Authority on January 24, 2017 (the "Resolution").
In connection with this opinion, we have examined the law and such certified proceedings and other documents as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Authority contained in the Resolution and in the Fiscal Agent Agreement, and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.
Based upon the foregoing, we are of the opinion, under existing law, as follows:
1. The Authority is duly created and validly existing as a joint exercise of powers authority, with the power to adopt the Resolution, enter into the Fiscal Agent Agreement and perform the agreements on its part contained therein and issue the Bonds.
2. The Fiscal Agent Agreement has been duly entered into by the Authority and constitutes a valid and binding obligation of the Authority enforceable upon the Authority.
3. Pursuant to the Act, the Fiscal Agent Agreement creates a valid lien on the funds pledged by the Fiscal Agent Agreement for the security of the Bonds, on a parity with the pledge thereof for the security of any Parity Bonds that may be issued under, and as such term is defined in, the Fiscal Agent Agreement.
4. The Bonds have been duly authorized, executed and delivered by the Authority and are valid and binding limited obligations of the Authority for the District, payable solely from the sources provided therefor in the Fiscal Agent Agreement, on a parity with any Parity Bonds that may be issued under and as such term is defined in the Fiscal Agent Agreement.
D-1 5. Subject to the Authority's compliance with certain covenants, interest on the Bonds (i) is excludable from gross income of the owners thereof for federal income tax purposes, and (ii) is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended, but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Failure by the Authority to comply with certain of such covenants could cause interest on the Bonds to be includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.
6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.
Ownership of the Bonds may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds.
The rights of the owners of the Bonds and the enforceability of the Bonds, the Resolution and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.
In rendering this opinion, we have relied upon certifications of the Authority and others with respect to certain material facts. Our opinion represents our legal judgment based upon such review of the law and facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Respectfully submitted,
D-2 APPENDIX E
FORM OF CONTINUING DISCLOSURE AGREEMENT OF THE AUTHORITY
THIS CONTINUING DISCLOSURE AGREEMENT (the "Disclosure Agreement"), dated as of March 1, 2017, is by and between ALBERT A. WEBB ASSOCIATES, as dissemination agent (the "Dissemination Agent"), and the TEMECULA PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority"). RECITALS:
WHEREAS, the Authority has issued, for and on behalf of the Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) (the "District"), its Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2), 2017 Special Tax Bonds (the "Bonds") in the initial principal amount of $42,815,000; and
WHEREAS, the Bonds have been issued pursuant to a Fiscal Agent Agreement, dated as of March 1, 2017 (the "Fiscal Agent Agreement"), by and between U.S. Bank National Association, as fiscal agent (the "Fiscal Agent"), and the Authority, for and on behalf of the District; and
WHEREAS, this Disclosure Agreement is being executed and delivered by the Authority and the Dissemination Agent for the benefit of the owners and beneficial owners of the Bonds and in order to assist the underwriter of the Bonds in complying with S.E.C. Rule 15c2 -12(b)(5). AGREEMENT:
NOW, THEREFORE, for and in consideration of the premises and mutual covenants herein contained, and for other consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. In addition to the definitions of capitalized terms set forth in Section 1.03 of the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section or in the Recitals above, the following terms shall have the following meanings when used in this Disclosure Agreement:
"Annual Report" means any Annual Report provided by the Authority pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
"Beneficial Owner" shall mean any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including persons holding any Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bond for federal income tax purposes.
"Disclosure Representative" means the Treasurer, or such person's designee, or such other officer or employee of the Authority as the Authority shall designate as the Disclosure Representative hereunder in writing to the Dissemination Agent from time to time.
"Dissemination Agent" means Albert A. Webb Associates, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Authority and which has filed with the Authority a written acceptance of such designation.
E-1 "EMMA" or "Electronic Municipal Market Access" means the centralized on-line repository for documents to be filed with the MSRB, such as official statements and disclosure information relating to municipal bonds, notes and other securities as issued by state and local governments.
"Listed Events" means any of the events listed in Section 5(a) or 5(b) of this Disclosure Agreement.
"MSRB" means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.
"Official Statement" means the Official Statement, dated February 24, 2017, relating to the Bonds.
"Participating Underwriter" means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.
"Rule" means Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
Section 2. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Authority and the Dissemination Agent for the benefit of the owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.
Section 3. Provision of Annual Reports.
(a) Delivery of Annual Report. The Authority shall, or shall cause the Dissemination Agent to, not later than the March 1 occurring after the end of each fiscal year of the Authority, commencing with the report for the 2016-17 fiscal year, which is due not later than March 1, 2018, file with EMMA, in a readable PDF or other electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that any audited financial statements of the Authority may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date.
(b) Change of Fiscal Year. If the Authority's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c), and subsequent Annual Report filings shall be made no later than six months after the end of such new fiscal year end.
(c) Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) (or, if applicable, subsection (b) of this Section 3 for providing the Annual Report to EMMA), the Authority shall provide the Annual Report to the Dissemination Agent (if other than the Authority). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the Authority.
(d) Report of Non -Compliance. If the Authority is the Dissemination Agent and is unable to file an Annual Report by the date required in subsection (a) (or, if applicable, subsection (b)) of this Section 3, the Authority shall in a timely manner send a notice to EMMA substantially in the form attached hereto as Exhibit A. If the Authority is not the Dissemination Agent and is unable to
E-2 provide an Annual Report to the Dissemination Agent by the date required in subsection (c) of this Section 3, the Dissemination Agent shall send a notice to EMMA in substantially the form attached hereto as Exhibit A in a timely manner.
(e) Annual Compliance Certification. The Dissemination Agent shall, if the Dissemination Agent is other than the Authority, file a report with the Authority certifying that the Annual Report has been filed with EMMA pursuant to Section 3 of this Disclosure Agreement, stating the date it was so provided and filed.
Section 4. Content of Annual Reports. The Annual Report for each fiscal year shall contain or incorporate by reference the following:
(a) Financial Statements. Audited financial statements of the Authority for the most recently completed fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Authority's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the audited financial statements shall be filed in the same manner as the Annual Report when they become available.
(b) Other Annual Information. The Annual Report for each fiscal year shall also include the following information:
(i) The principal amount of Bonds Outstanding as of the September 30 next preceding the date of the Annual Report.
(ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the September 30 next preceding the date of the Annual Report.
(iii) The unspent Improvement Funds (as defined in the Official Statement), if any, as of the September 30 next preceding the date of the Annual Report, including amounts in the Improvement Fund and amounts in the Improvement Fund for CFD 03-02 (as defined and referred to in the Official Statement).
(iv) A description of the status of the construction by the City of Butterfield Stage Road Phase III and the portion of Nicolas Road outside of the District, as those improvements are described in the Official Statement under the heading "THE DISTRICT-The Improvements."
(v) A table showing, for each owner of property in the District, the respective Planning Areas in which the property owned by such property owner is located, and the current fiscal year Assigned Special Tax A for such property, except that the Authority may aggregate any parcel of property responsible for less than 2% of such Assigned Special Tax A.
(vi) A table similar to Table 4 in the Official Statement (which shows Value - to -Lien by Planning Area and property owner) substituting the most recent County Assessed Values (if an appraisal not less than 120 days old is not available), except that the Authority may aggregate property owners that individually own property allocated less than two percent (2%) of the outstanding principal of the 2017 Bonds.
(vii) A table setting forth the annual aggregate Special Tax levy in the District for the most recent five Fiscal Years (or, if shorter, for the Fiscal Years commencing with Fiscal Year 2017-18), and the number of parcels with delinquent Special Taxes, and the amount and percentage of the overall Special Tax levy for the delinquent
E-3 parcels, and an update of prior years' delinquencies as of a date not more than ninety (90) days prior to the date of the Annual Report.
(viii) The number of building permits issued by the City for property in the District since April 1 of the prior Fiscal Year (if the first Annual Report, since April 1, 2017).
(ix) A table summarizing the Special Tax levy on Developed Property and on Undeveloped Property (as such terms are defined in the rate and method of apportionment of special tax for the District) for the then current Fiscal Year and the value -to -lien ratio of those two categories of property using the most recently available County assessed values.
(x) The status of foreclosure proceedings for any parcels within the District on which the Special Taxes are levied and a summary or the results of any foreclosure sales, or other collection efforts with respect to delinquent Special Taxes, as of the September 30 next preceding the date of the Annual Report.
(xi) The identity of any property owner representing more than five percent (5%) of the annual Special Tax levy who is delinquent in payment of such Special Taxes, as shown on the assessment roll of the City Assessor last equalized prior to the September 30 next preceding the date of the Annual Report, the number of parcels so delinquent, and the total dollar amount of all such delinquencies.
(xii) The most recent annual information required to be provided to the California Debt and Investment Advisory Commission pursuant to Section 9.07(A) of the Fiscal Agent Agreement.
(c) Cross References. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Authority or related public entities, which are available to the public on EMMA. The Authority shall clearly identify each such other document so included by reference.
If the document included by reference is a final official statement, it must be available from EMMA.
(d) Further Information. In addition to any of the information expressly required to be provided under paragraph (b) of this Section 4, the Authority shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
Section 5. Reporting of Listed Events.
(a) Reportable Events. The Authority shall, or shall cause the Dissemination Agent (if not the Authority) to, give notice of the occurrence of any of the following events with respect to the Bonds:
(1) Principal and interest payment delinquencies.
(2) Unscheduled draws on debt service reserves reflecting financial difficulties.
(3) Unscheduled draws on credit enhancements reflecting financial difficulties.
(4) Substitution of credit or liquidity providers, or their failure to perform.
(5) Defeasances.
E-4 (6) Rating changes.
(7) Tender offers.
(8) Bankruptcy, insolvency, receivership or similar event of the obligated person.
(9) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security.
Note: For the purposes of the event identified in subparagraph (8), the event is considered to occur when any of the following occur: the appointment of a receiver, trustee or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.
(b) Material Reportable Events. The Authority shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:
(1) Non-payment related defaults.
(2) Modifications to rights of security holders.
(3) Bond calls.
(4) The release, substitution, or sale of property securing repayment of the securities.
(5) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms.
(6) Appointment of a successor or additional trustee, or the change of name of a trustee.
(c) Time to Disclose. The Authority shall, or shall cause the Dissemination Agent (if not the Authority) to, file a notice of such occurrence with EMMA, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of any Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(5) and (b)(3) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of affected Bonds under the Fiscal Agent Agreement.
Section 6. Identifying Information for Filings with EMMA. All documents provided to EMMA under this Disclosure Agreement shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation. The Authority's obligations under this Disclosure Agreement shall terminate upon the defeasance, prior redemption or payment in full of
E-5 all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Authority shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).
Section 8. Dissemination Agent.
(a) Appointment of Dissemination Agent. The Authority may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement and may discharge any such agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Albert A. Webb Associates.
If the Dissemination Agent is not the Authority, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Authority pursuant to this Disclosure Agreement. It is understood and agreed that any information that the Dissemination Agent may be instructed to file with EMMA shall be prepared and provided to it by the Authority. The Dissemination Agent has undertaken no responsibility with respect to the content of any reports, notices or disclosures provided to it under this Disclosure Agreement and has no liability to any person, including any Bond owner, with respect to any such reports, notices or disclosures. The fact that the Dissemination Agent or any affiliate thereof may have any fiduciary or banking relationship with the Authority shall not be construed to mean that the Dissemination Agent has actual knowledge of any event or condition, except as may be provided by written notice from the Authority.
(b) Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the Authority for its services provided hereunder as agreed to between the Dissemination Agent and the Authority from time to time and all expenses, legal fees and expenses and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder, with payment to be made from any lawful funds of the District. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Authority, the owners of the Bonds, the Beneficial Owners, or any other party. The Dissemination Agent may rely, and shall be protected in acting or refraining from acting, upon any written direction from the Authority or a written opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the Authority. The Dissemination Agent shall not be liable hereunder except for its negligence or willful misconduct.
(c) Responsibilities of Dissemination Agent. In addition of the filing obligations of the Dissemination Agent set forth in Sections 3(e) and 5, the Dissemination Agent shall be obligated, and hereby agrees, to provide a request to the Authority to compile the information required for its Annual Report at least 30 days prior to the date such information is to be provided to the Dissemination Agent pursuant to subsection (c) of Section 3. The failure to provide or receive any such request shall not affect the obligations of the Authority under Section 3.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Authority may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the Authority that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Agreement may be waived, provided that all of the following conditions are satisfied:
(a) Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a) or (b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or the type of business conducted.
(b) Compliance as of Issue Date. The undertaking, as amended or taking into account such waiver, would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after
E-6 taking into account any amendments or interpretations of the Rule, as well as any change in circumstances.
(c) Consent of Holders; Non -impairment Opinion. The amendment or waiver either (i) is approved by the Bond owners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Bond owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bond owners or Beneficial Owners.
If this Disclosure Agreement is amended or any provision of this Disclosure Agreement is waived, the Authority shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Authority. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.
Section 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Authority from disseminating any other information, using the 'means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Authority chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Authority shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or future notice of occurrence of a Listed Event.
Section 11. Default. In the event of a failure of the Authority to comply with any provision of this Disclosure Agreement, any Bond owner, any Beneficial Owner, the Fiscal Agent or the Participating Underwriter may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Authority to comply with its , obligations under this Disclosure Agreement. The sole remedy under this Disclosure Agreement in the event of any failure of the Authority to comply with this Disclosure Agreement shall be an action to compel performance.
Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and the owners and the Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Section 13. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
E-7 IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written.
TEMECULA PUBLIC FINANCING AUTHORITY
By: Aaron Adams, Executive Director
ALBERT A. WEBB ASSOCIATES, as Dissemination Agent
By: Its:
E-8 EXHIBIT A
NOTICE OF FAILURE TO FILE ANNUAL REPORT
Name of Obligor: Temecula Public Financing Authority
Name of Bond Issue: $42,815,000 Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2), 2017 Special Tax Bonds
Date of Issuance: March 16, 2017
NOTICE IS HEREBY GIVEN that the Obligor has not provided an Annual Report with respect to the above -named Bonds as required by Section 5.17 of the Fiscal Agent Agreement, dated as of March 1, 2017, between the Obligor and U.S. Bank National Association, as fiscal agent. The Obligor anticipates that the Annual Report will be filed by
Date:
By: Albert A. Webb Associates, as Dissemination Agent
E-9 THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX F
FORM OF CONTINUING DISCLOSURE AGREEMENT OF THE PRIMARY LANDOWNER
This Continuing Disclosure Agreement - Primary Landowner (the "Disclosure Agreement") dated as of March 1, 2017, is by and between ALBERT A. WEBB ASSOCIATES, as dissemination agent (the "Dissemination Agent"), and RORIPAUGH VALLEY RESTORATION, LLC, a Delaware limited liability company (the "Developer"). RECITALS:
WHEREAS, the Temecula Public Financing Authority (the "Authority") has issued, for and on behalf of the Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2) (the "District"), its Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2), 2017 Special Tax Bonds (the "Bonds") in the initial principal amount of $42,815,000; and
WHEREAS, the Bonds have been issued pursuant to a Fiscal Agent Agreement, dated as of March 1, 2017 (the "Fiscal Agent Agreement"), by and between U.S. Bank National Association, as fiscal agent (the "Fiscal Agent"), and the Authority, for and on behalf of the District; and
WHEREAS, as of the date of this Disclosure Agreement, the Developer owns a majority of the property in the District. AGREEMENT:
NOW, THEREFORE, for and in consideration of the premises and mutual covenants herein contained, and for other consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. In addition to the definitions of capitalized terms set forth in Section 1.03 of the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section or in the Recitals above, the following terms shall have the following meanings when used in this Disclosure Agreement:
"Affiliate" means, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially or as an agent, guardian or other fiduciary, twenty-five percent (25%) or more of any class of Equity Securities of such Person, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (c) each of such Person's executive officers, directors, joint venturers and general partners; provided, however, that in no case shall the Authority be deemed to be an Affiliate of the Developer for purposes of this Disclosure Agreement. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.
"Annual Report" means any Annual Report provided by the Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
"Beneficial Owner" means any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including persons holding any Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bond for federal income tax purposes.
F-1 "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day which is a federal or State of California holiday.
"Disclosure Representative" means the principal and manager of Sabal Financial Group, L.P., acting for the Developer, or his or her designee, or such other person as the Developer shall designate in writing to the Dissemination Agent from time to time.
"Dissemination Agent" means Albert A. Webb Associates, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Developer and which has filed with the Developer and the Authority a written acceptance of such designation.
"EMMA" or "Electronic Municipal Market Access" means the centralized on-line repository for documents to be filed with the MSRB, such as official statements and disclosure information relating to municipal bonds, notes and other securities as issued by state and local governments.
"Equity Securities" of any Person means (a) all common stock, preferred stock, participations, shares, general partnership interests or other equity interests in and of such person (regardless of how designated and whether or not voting or nonvoting) and (b) all warrants, options and other rights to acquire any of the foregoing.
"Fiscal Year" means the period beginning on July 1 of each year and ending on the next succeeding June 30.
"Government Authority" means any national, state or local government, any political subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
"Listed Events" means any of the events listed in Section 5(a) of this Disclosure Agreement.
"MSRB" means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.
"Official Statement" means the Official Statement, dated February 24, 2017, relating to the Bonds.
"Participating Underwriter" means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.
"Person" means any natural person, corporation, partnership, firm, association, Government Authority or any other Person whether acting in an individual fiduciary, or other capacity.
"Rule" means Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"Semiannual Report" means any report to be provided by the Developer on or prior to December 15 of each year pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
F-2 "State" means the State of California.
"Undeveloped Property" has the meaning given to such term in the Rate and Method of Apportionment of Special Tax for the District.
Section 2. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Developer and the Dissemination Agent for the benefit of the owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule
Section 3. Provision of Annual Reports and Semiannual Reports.
(a) The Developer shall, or shall cause the Dissemination Agent to, not later than June 15 of each year, commencing June 15, 2017, provide to EMMA an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. If, in any year, June 15 does not fall on a Business Day, then such deadline shall be extended to the following Business Day. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement, provided that the audited financial statements, if any, of the Developer may be submitted separately from the balance of the Annual Report and later than the date required for the filing of the Annual Report if they are not available by that date.
In addition, the Developer shall, or shall cause the Dissemination Agent to, not later than December 15 of each year, commencing December 15, 2017, provide to EMMA a Semiannual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. If, in any year, December 15 does not fall on a Business Day, then such deadline shall be extended to the following Business Day.
(b) Not later than fifteen (15) calendar days prior to the date specified in subsection (a) for providing the Annual Report and Semiannual Report to EMMA, the Developer shall provide the Annual Report or the Semiannual Report, as applicable, to the Dissemination Agent or shall provide notification to the Dissemination Agent that the Developer is preparing, or causing to be prepared, the Annual Report or the Semiannual Report, as applicable, and the date which the Annual Report or the Semiannual Report, as applicable, is .., expected to be available. If by such date, the Dissemination Agent has not received a copy of the Annual Report or the Semiannual Report, as applicable, or notification as described in the preceding sentence, the Dissemination Agent shall notify the Developer of such failure to receive the report.
(c) If the Dissemination Agent is unable to provide an Annual Report or Semiannual Report to EMMA by the date required in subsection (a) or to verify that an Annual Report or Semiannual Report has been provided to EMMA by the date required in subsection (a), the Dissemination Agent shall send in a timely manner a notice to EMMA in a form that is accepted by EMMA.
(d) The Developer shall, or shall cause the Dissemination Agent to:
(i) determine each year prior to the date for providing the Annual Report and the Semiannual Report the name and address of EMMA; and
(ii) promptly file a report with the Developer and the City certifying that the Annual Report or the Semiannual Report, as applicable, has been provided pursuant to this Disclosure Agreement, stating the date it was provided to EMMA.
F-3 (e) Notwithstanding any other provision of this Disclosure Agreement, any of the required filings hereunder shall be made in accordance with the MSRB's EMMA system or in another manner approved under the Rule.
Section 4. Content of Annual Report and Semiannual Report.
(a) The Developer's Annual Report and Semiannual Report shall contain or include by reference the information which is available as of the date of the filing of the Annual Report or the Semiannual Report, as applicable, relating to the following:
I. To the extent not previously disclosed in the Official Statement or in a prior Annual Report or Semiannual Report, a discussion of the sources of funds to finance development of property owned by the Developer or any Affiliate of the Developer within the District, and if such sources of funds involve one or more loan agreements whether any material defaults exist under any such loan arrangement related to such financing.
2. A summary of development activity conducted by the Developer or any Affiliate within the District, including the number of parcels for which building permits have been issued, and as to property owned by the Developer or any Affiliate of the Developer, the number of parcels for which sales to homebuyers have closed, all since the most recent Annual Report or Semiannual Report.
3. Any sale by the Developer or any Affiliate of the Developer of property in the District to another Person, other than to buyers of completed homes, including a description of the property sold (acreage, number of lots, etc.) and the identity of the Person that so purchased the property, all since the most recent Annual Report or Semiannual Report.
4. Status of completion of the development being undertaken by the Developer or any Affiliate of the Developer with respect to the Undeveloped Property, and any major legislative, administrative and judicial challenges known to the Developer to or affecting the construction of the development or the time for construction of any public or private improvements to be made by the Developer or any Affiliate of the Developer within the District, including but not limited to those improvements required by the Development Agreement (as defined in the Official Statement) in order to obtain the issuance of building permits for property in the District (the "Developer Improvements").
5. Information regarding any failure by the Developer or any of its Affiliates to pay any real property taxes (including Special Taxes) levied on a parcel of property in the District which is owned by the Developer or any of its Affiliates.
6. For the Annual Reports only, any audited financial statements of the Developer, if such audited financial statements are prepared for the Developer in the ordinary course of business. The Annual Reports shall contain the following statement:
"The Financial Statements of Roripaugh Valley Restoration, LLC included with, or referred to in, this Annual Report are for informational purposes only. In the event of a failure to pay an installment of Special Taxes, and after depletion of the Reserve Fund, the real property in the District is the sole security for the Bonds."
7. At the time of execution of this Disclosure Agreement, the Developer does not prepare audited financial statements. However, if in the future the Developer has audited financial statements prepared and the audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements for the preceding year (if available), and the audited financial statements shall be filed in a timely manner in the same manner as the Annual Report when they become available.
F-4 (b) In addition to any of the information expressly required to be provided under paragraph (a) above, the Developer shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
(c) Any and all of the items listed above may be included by specific reference to other documents, including official statements of debt issues which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Developer shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the Developer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material under clauses (b) and (c) in a timely manner within 10 Business Days after the occurrence of any of the following events:
1. Failure to pay any real property taxes, special taxes or assessments levied within the District on a parcel owned by the Developer or any Affiliate of the Developer.
2. Damage to or destruction of any of the Developer Improvements which has a material adverse effect on the value of the parcels owned by the Developer or any Affiliate of the Developer within the District.
3. Material default by the Developer or any Affiliate of the Developer on any loan with respect to the construction or permanent financing of the Developer Improvements.
4. Material default by the Developer or any Affiliate of the Developer on any loan secured by property within the District owned by the Developer or any Affiliate of the Developer.
5. Material payment default by the Developer on any loan of the Developer (whether or not such loan is secured by property within the District) which is beyond any applicable cure period in such loan.
6. The filing of any proceedings with respect to the Developer, in which the Developer may be adjudicated as bankrupt or discharged from any or all of their respective debts or obligations or granted an extension of time to pay debts or a reorganization or readjustment of debts.
7. The filing of any proceedings with respect to an Affiliate of the Developer, in which such Affiliate of the Developer may be adjudicated as bankrupt or discharged from any or all of its respective debts or obligations or granted an extension of time to pay debts or a reorganization or readjustment of debts if such adjudication could materially adversely affect the completion of the Developer Improvements or the development of parcels owned by the Developer or its Affiliates within the District (including the payment of special taxes of the District).
8. The filing of any lawsuit against the Developer or any of its Affiliates with service of process on the Developer or its Affiliates having occurred) which, in the reasonable judgment of the Developer, will materially adversely affect the completion of the Developer Improvements or the development of parcels owned by the Developer or its Affiliates within the District, or litigation which if decided against the Developer, or any of its Affiliates, in the reasonable judgment of the Developer, would materially adversely affect the financial
F-5 condition of the Developer or its Affiliates in a manner that would materially adversely affect the completion of the Developer Improvements or the development of parcels owned by the Developer or its Affiliates within the District.
9. A sale or transfer of all or substantially all of the Developer's assets or a sale of a majority of the partnership interests, membership interests or outstanding stock of the Developer.
(b) If a Significant Event occurs under Section 5(a), subsection (2), (3), (4), (5), (7) or (8), the Developer shall as soon as possible determine if such event would be material under applicable federal securities laws. The Dissemination Agent shall have no responsibility to determine the materiality of any of the Significant Events.
(c) If an event described in Section 5(a), subsection (1), (6) or (9) occurs, or if the Developer determines that knowledge of the occurrence of an event described in Section 5(a), subsection (2), (3), (4), (5), (7) or (8) would be material under applicable federal securities laws, the Developer shall file in a timely manner within 10 Business Days after the occurrence of the respective event a notice of such occurrence with EMMA or with the Dissemination Agent which shall then distribute such notice to EMMA in a timely manner within 10 Business Days after the occurrence of the respective event, with a copy to the Authority. The Developer shall give notice of the occurrence of any event described in Section 5(a) in any event in a timely fashion by filing a notice thereof with EMMA or with the Dissemination Agent which shall then distribute such notice to EMMA in a timely manner, with a copy to the Authority.
Section 6. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Agreement must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB.
Section 7. Termination of Reporting Obligation. The Developer's obligations under this Disclosure Agreement shall terminate upon the following events:
(a) the legal defeasance, prior redemption or payment in full of all of the Bonds,
(b) if on any date the Developer and its Affiliates in the aggregate own less than twenty percent (20%) of the property within the District, or
(c) upon the delivery by the Developer to the Authority of an opinion of nationally recognized bond counsel to the effect that the information required by this Disclosure Agreement is no longer required. Such opinion shall be based on information publicly provided by the Securities and Exchange Commission or a private letter ruling obtained by the Developer or a private letter ruling obtained by a similar entity to the Developer.
If such termination occurs prior to the final maturity of the Bonds, the Developer shall give notice of such termination in the same manner as for an Annual Report hereunder.
Section 8. Dissemination Agent.
(a) Appointment of Dissemination Agent. The Developer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement and may discharge any such agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Albert A. Webb Associates.
If the Dissemination Agent is not the Developer, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Developer pursuant to this Disclosure Agreement. It is understood and agreed that any information that the Dissemination Agent may be instructed to file with EMMA shall be prepared and provided to it by
F-6 the Developer. The Dissemination Agent has undertaken no responsibility with respect to the content of any reports, notices or disclosures provided to it under this Disclosure Agreement and has no liability to any person, including any Bond owner, with respect to any such reports, notices or disclosures. The fact that the Dissemination Agent or any affiliate thereof may have any fiduciary or banking relationship with the Developer shall not be construed to mean that the Dissemination Agent has actual knowledge of any event or condition, except as may be provided by written notice from the Developer.
(b) Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the Developer for its services provided hereunder as agreed to between the Dissemination Agent and the Developer from time to time and all expenses, legal fees and expenses and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Developer, the owners of the Bonds, the Beneficial Owners, or any other party. The Dissemination Agent may rely, and shall be protected in acting or refraining from acting, upon any written direction from the Developer or a written opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the Developer, with a copy to the Authority. The Dissemination Agent shall not be liable hereunder except for its negligence or willful misconduct.
(c) Responsibilities of Dissemination Agent. In addition of the filing obligations of the Dissemination Agent set forth in Sections 3 and 5, the Dissemination Agent shall be obligated, and hereby agrees, to provide a request to the Developer to compile the information required for its Annual Report at least 30 days prior to the date such information is to be provided to the Dissemination Agent pursuant to subsection (c) of Section 3. The failure to provide or receive any such request shall not affect the obligations of the Developer under Section 3.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Developer may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;
(b) The amendment or waiver either (i) is approved by the Bondowners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel addressed to the Authority and the Fiscal Agent, materially impair the interests of the Bondowners or Beneficial Owners of the Bonds; and
(c) The Developer, or the Dissemination Agent, shall have delivered copies of the amendment and any opinions delivered under (b) and (c) above.
In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Developer shall describe such amendment in the next Annual Report or Semiannual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Developer. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given to EMMA, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison of financial data described in clause (ii) of the preceding
F-7 sentence shall be provided at the time financial statements, if any, are filed under Section 4(a)(7) hereof.
Section 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Developer from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report, Semiannual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Developer chooses to include any information in any Annual Report, Semiannual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Developer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Semiannual Report or notice of occurrence of a Listed Event. The Developer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Developer, and that under some circumstances compliance with this Disclosure Agreement, without additional disclosures or other action, may not fully discharge all duties and obligations of the Developer under such laws.
Section 11. Default. In the event of a failure of the Developer to comply with any provision of this Disclosure Agreement, the Participating Underwriter or any Bondowner or Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer or the Dissemination Agent to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Developer to comply with this Disclosure Agreement shall be an action to compel performance.
Section 12. Reporting Obligation of Developer's Transferees. The Developer shall, in connection with any sale or transfer of ownership of land within the District to a transferee that is not an Affiliate of the Developer which will result in the transferee (which term shall include any successors and assigns of the Developer) becoming responsible for the payment of more than twenty (20) percent of the Special Taxes levied on property within the District in the Fiscal Year following such transfer, cause such transferee to enter into a disclosure agreement with terms substantially similar to the terms of this Disclosure Agreement, whereby such transferee agrees to provide its audited financial statements, if any, and the information of the type described in Sections 4 and 5 of this Disclosure Agreement; provided that such transferee's obligations under such disclosure agreement shall terminate upon the sold or transferred land being improved with structures, or the land owned by the transferee becoming responsible for the payment of less than twenty (20) percent of the annual Special Taxes.
Section 13. Developer as Independent Contractor. In performing under this Disclosure Agreement, it is understood that the Developer is an independent contractor and not an agent of the Authority or the District.
Section 14. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing.
Developer and Disclosure Roripaugh Valley Restoration Representative: c/o Sabal Financial Group, L.P. 4675 MacArthur Court, 15th Floor Newport Beach, CA 92660 Attention: Kenneth J. Kraemer, Principal and Manager
F-8 Dissemination Agent: Albert A. Webb Associates 3788 McCray Street Riverside, CA 92506-3927 Attention: Heidi Schoeppe, Senior Finance Manager Fiscal Agent: U.S. Bank National Association 633 West Fifth Street, 24th Floor LM-CA-T24T Los Angeles, CA 90071 Attention: Corporate Trust Services Reference: Temecula CFD 16-01 (Roripaugh Ranch Phase 2) Participating Underwriter: Stifel, Nicolaus & Company, Inc. One Montgomery Street, 35th Floor San Francisco, CA 94104 Attention: Sara Brown Authority or District: Temecula Public Financing Authority c/o City of Temecula 41000 Main Street Temecula, CA 92589-9033 Attention: Finance Director
Section 15. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Developer, the Authority, the Dissemination Agent, the Fiscal Agent, the Participating Underwriter and Bondowners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Section 16. Assignability. The Developer shall not assign this Disclosure Agreement or any right or obligation hereunder except to the extent permitted to do so under the provisions of Section 12 hereof. The Dissemination Agent may, with prior written notice to the Developer and the Authority, assign this Disclosure Agreement and the Dissemination Agent's rights and obligations hereunder to a successor Dissemination Agent.
Section 17. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof.
Section 18. Governing Law. The validity, interpretation and performance of this Disclosure Agreement shall be governed by the laws of the State of California applicable to contracts made and performed in California.
F-9 Section 19. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
RORIPAUGH VALLEY RESTORATION, LLC, a Delaware limited liability company
By: Name: Title:
ALBERT A. WEBB ASSOCIATES, as Dissemination Agent
By: Its:
F-10 APPENDIX G
DTC AND THE BOOK -ENTRY ONLY SYSTEM
The information in this Appendix F has been provided by The Depository Trust Company ("DTC"), New York, NY, for use in securities offering documents, and the Authority does not take responsibility for the accuracy or completeness thereof. The Authority cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute the Beneficial Owners either (a) payments of interest, principal or premium, if any, with respect to the 2017 Bonds or (b) certificates representing ownership interest in or other confirmation of ownership interest in the 2017 Bonds, or that they will so do on a timely basis or that DTC, DTC Direct Participants or DTC Indirect Participants mill act in the manner described in this Official Statement.
The following description of DTC, the procedures and record keeping with respect to beneficial ownership interests in the 2017 Bonds, payment of principal, interest and other payments on the 2017 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the 2017 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the Authority as the issuer of the 2017 Bonds (the "Issuer") nor the fiscal agent or paying agent appointed with respect to the 2017 Bonds (the "Agent") take any responsibility for the information contained in this Appendix.
No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the 2017 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the 2017 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the 2017 Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC.
1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the 2017 Bonds (the "Securities"). The Securities will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.
2. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include
G-1 both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). On August 8, 2011, Standard & Poor's downgraded its rating of DTC from AAA to AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information contained on this Internet site is not incorporated herein by reference.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
G-2 8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
10. The Issuer may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.
11. The information in this section concerning DTC and DTC's book -entry system has been a. obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
G-3 THIS PAGE INTENTIONALLY LEFT BLANK ...... "
PROPOSED BOUNDARY MAP',, TEMECOLA:EUSLic'FiNANON6AOTHOR Orum ri4 ,Tni3OFFICE OF THE skcArrAirr OF THE .TEMEg1,I, LA PUBLIC FINANCING N.mroitrrY THIS COMMUNITY FACILITIES DMTRICT NO. 1641' 22's" DAY cr ' Illeirh, 2016. ._ . (RCRIPAUGH RANCH PHASE 2), ,COUNT*OF RIVERSIDE, STATE,Cf CALIFOFOIY ,SECRET TEMECULA'PUNIC FINANCINGAUTHORITY' ZONE ZONE APP IMIA 3 I HlkireCERTIFY THAT Rift WITHIN MAP SMOKING' 1964180404: 964460-009 PROPOSED TEMECULA PUBLIC 'FINANCING AUTHORITY '984-180405! COMMUNITY"COZIES DISTRICT NO. 26-01 _ 964-180-017 (RORIPAUGH RANCH PHASE.2) MUNN OF RIVERSIDE ,010,_NE 4 APN' STATE OF CALIFORNIA; WAS APPROVED BY THE BOARD 964-180418 OF DIRECTORS OF THE TEMSCULA PUBLIC FINANCING 964-180-020 984-460403 AUTHORITY AT AaiREGULAR T4,240 THEREOF, 9.4-180-022 964-480005 HELD ONTHE 72 OAT OF 'IT Inv h 964180-023 984-4130-007" zoiff,"*ri No, 1I %-O7. rrs Assournorr 984.180-024 984480-008' 964-180-028 084410-017 SECRETARY 904-480-018i TEMECULA PUBLIC FINANCING AUTHORITY jONE 2 APWg 904460-019
RECORDEOTHiS'31_141%.DAY-OF J1WN 20.1_14, 984-180419 AT, THE !FOUR OFL,' ,511_ O'CLOCK LM IN 11000C 5964.180-028 PAGE .5, OF MAPS OFASSESSMENT 'AND commuNnT 964-180427 FACILITIES DISTRICTS IN THEnOFFICE OF THE COUNTY RECORDERIN THE COUNTY:OR.RIVERSIDE,A STATE_ ,OF CALIFORNIA
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\\\71 V' A ZONEs'i LI ZONE 4 THIS BOUNCHRY MAP,CORTNIDTLY,SHOWS THE LC* ,OR PARCEL A. or um 17CWDED WITHIN nit _WINDOM OF THE cowwrory DISTRICT FOR ormastoricuottora .THE LINES AND NOT TO SCAI:E. BwarnsDIARS6STONS*:Of 4015, CR FARCES REFER, 70 TNE ' WtfiTY ASSESSORS, NAPS RIB F& 2OIS2016. W.O. 25-wor THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX I
APPRAISAL REPORT THIS PAGE INTENTIONALLY LEFT BLANK APPRAISAL REPORT
COVERING
Temecula Public Financing Authority Community Facilities district No. 16-01 (Roripaugh Ranch Phase 2)
DATE OF VALUE: SUBMITTED TO:
December 1, 2016 Temecula Public Financing Authority 41000 Main St. Temecula, CA 92590
Attn: Aaron Adams Executive Director
DATE OF REPORT: SUBMITTED BY:
December 15, 2016 Stephen G. White, MAI 1370 N. Brea Blvd., Suite 255 Fullerton, CA 92835 THIS PAGE INTENTIONALLY LEFT BLANK Stephen G. White, MAI
ROO!$it(410::APPtOlqer
1370.N:,,111.13 (7141.738 1595
December 15, 2016
Temecula Public Financing Authority Re: Community Facilities District No. 41000 Main St. 16-01 (Roripaugh Ranch Phase 2) Temecula, CA 92590
Attn: Aaron Adams Executive Director
Dear Mr. Adams:
In accordance with your request and authorization, I have completed an appraisal of the pertinent taxable properties within the above -referenced Community Facilities District (CFD). The taxable properties consist of vacant land within the "Pan" area of Roripaugh Ranch that is currently planned for a total of 1,226 single-family residential lots within 15 Planning Areas and a 10.7 -acre (usable) commercial site. The residential lots within the Planning Areas will include minimum sizes of 3,000 s.f., 3,150 s.f., 4,000 s.f., 5,000 s.f., 6,000 01, 10,000 s.f. and 20,000 s.f. The land for 12 of the Planning Areas is owned by Roripaugh Valley Restoration, LLC ("RVR") and the land for the other three planning areas and the commercial site is owned by Wingsweep Corporation ("Wingsweep").
The purpose of this appraisal is to estimate the separate market values of the as is condition of the land by each ownership. This reflects the status of the land being entitled for the planned development and in rough graded condition, but still needing final mapping, completion of grading and construction of backbone or major infrastructure as well as in - tract streets and utilities. In addition, the appraised values reflect the proposed CFD bond financing, as well as the projected effective tax rates at a maximum of 1.8% based on the estimated home pricing and including special taxes for this CFD and other overlapping debt.
Based on the inspections of the properties and analysis of matters pertinent to value, the following conclusions of market value for each ownership have been arrived at, subject to the Assumptions and Limiting Conditions, and as of December 1, 2016:
Roripaugh Valley Restoration, LLC: $35,835,000
Wingsweep Corporation: $10 900 000
$46,735,000
(FORTY-SIX MILLION SEVEN HUNDRED THIRTY-FIVE THOUSAND DOLLARS) MR. AARON ADAMS DECEMBER 15, 2016 PAGE 2
The following is the balance of this 59 -page Appraisal Report which includes the Certification, Assumptions and Limiting Conditions, definitions, property data, exhibits, valuation and market data from which the value conclusions were derived.
Sincerely,
XI PAP Stephen G. White, MAI (State Certified General Real Estate Appraiser No. AG013311)
SGW:sw Ref: 16008 TABLE OF CONTENTS PAGES
Certification, Assumptions and Limiting Conditions, Purpose and Intended Use/User of the Appraisal, Scope of the Appraisal, Date of Value, Property Rights Appraised, Definitions, Exposure Time 5-9
GENERAL PROPERTY DATA
Location Map, Location, General Area Description, Map of Roripaugh Ranch, Description of Roripaugh Ranch, Aerial
Photo, Residential Market Overview, Highest & Best Use . . 10-21
RORIPAUGH VALLEY RESTORATION, LLC OWNERSHIP 22-42
WINGSWEEP CORPORATION OWNERSHIP 43-55
ADDENDA
Estimated Absorption Schedules (Empire Economics) 56 Qualifications of Appraiser 57-59 CERTIFICATION
I certify that, to the best of my knowledge and belief:
The statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions.
I have no present or prospective interest in the properties that are the subject of this report, and no personal interest with respect to the parties involved.
I have no bias with respect to the properties that are the subject of this report or to the parties involved with this assignment.
My engagement in this assignment was not contingent upon developing or reporting predetermined results.
My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of the appraisal.
I have made a general inspection of the properties that are the subject of this report.
No one provided significant real property appraisal assistance to the person signing this Certification, other than data research by my associate, Kirsten Patterson.
I have performed an appraisal of the subject properties within the three-year period prior to accepting this assignment.
The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.
The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.
As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute.
Stephen G. White, MAI (State Certified General Real Estate Appraiser No. AG013311)
5 ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal has been based upon the following assumptions and limiting conditions:
1. No responsibility is assumed for the legal descriptions provided or for matters pertaining to legal or title considerations. Title to the properties is assumed to be good and marketable unless otherwise stated.
2. The properties are appraised free and clear of any or all liens or encumbrances unless otherwise stated.
3. Responsible ownership and competent property management are assumed.
4. The information furnished by others is believed to be reliable, but no warranty is given for its accuracy.
5. All engineering studies, if applicable, are assumed to be correct. Any plot plans or other illustrative material in this report are included only to help the reader visualize the property.
6. It is assumed that there are no hidden or unapparent conditions of the properties, subsoil, or structures that render them more or less valuable. No responsibility is assumed for such conditions or for obtaining the engineering studies that may be required to discover them.
7. It is assumed that the properties are in full compliance with all applicable federal, state and local environmental regulations and laws unless the lack of compliance is stated, described and considered in the appraisal report.
8. It is assumed that the properties conform to all applicable zoning and use regulations and restrictions unless a nonconformity has been identified, described and considered in the appraisal report.
9. It is assumed that all required licenses, certificates of occupancy, consents and other legislative or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in the report are based.
10. It is assumed that the use of the land and improvements is confined within the boundaries or property lines of the properties described and that there are no encroachments or trespasses unless noted in the report.
11. Unless otherwise stated in this report, the existence of hazardous materials, which may or may not be present on the properties, was not observed by the appraiser. However, the appraiser is not qualified to detect such substances. The presence of such substances may affect the value of the property, but the values estimated in this
6 ASSUMPTIONS AND LIMITING CONDITIONS, Continuing
appraisal are based on the assumption that there is no such material on or in the properties that would cause a loss in value. No responsibility is assumed for such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field, if desired.
12. Possession of this report, or a copy thereof, does not carry with it the right of publication, unless otherwise authorized. It is understood and agreed that this report will be utilized in the Official Statement, as required for the CFD bond issuance.
13. The appraiser, by reason of this appraisal, is not required to give further consultation or testimony or to be in attendance in court with reference to the properties in question unless arrangements have previously been made.
EXTRAORDINARY ASSUMPTIONS
1. Estimates of the remaining land development costs and impact fees to get the subject land from as is condition to "finished lot" condition have been obtained from the property owners; these costs are integral to the analysis of the value of the as is condition of the land, and have been relied upon in this appraisal as being reasonably accurate.
2. The Market Absorption Study dated December 2, 2016 by Empire Economics, Inc. has been relied upon and utilized in this appraisal.
3. The valuation has assumed that the CFD bond proceeds will be available to fund the public facilities and infrastructure that is required to support the residential and commercial development of the subject properties as planned.
4. The valuation has assumed that the current or future property owners will complete the approval/permit process for the Nicolas Rd. construction project as necessary, in order to allow adequate building permits to be issued in a timely manner as specified in the Development Agreement, so as to support the absorption projections by Empire Economics, Inc.
7 PURPOSE AND INTENDED USE/USER OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of the as is condition of the pertinent taxable properties located within Temecula Public Financing Authority Community Facilities District No. 16-01 (Roripaugh Ranch Phase 2), reflecting the proposed CFD bond financing. It is intended that this Appraisal Report is to be used by the client and other appropriate parties as part of the CFD bond issuance.
SCOPE OF THE APPRAISAL
It is the intent of this appraisal that all appropriate data considered pertinent in the valuation of the subject properties be collected, confirmed and reported in an Appraisal Report, in conformance with the Uniform Standards of Professional Appraisal Practice and the guidelines of the California Debt and Investment Advisory Commission. This has included a general inspection of the subject properties and their surroundings; obtaining of pertinent property data on the subject properties, including review of various maps and documents relating to the properties and the planned development; obtaining of comparable residential and commercial land sales from a variety of sources; analysis of all of the data to the value conclusions; and completion of the appraisal report.
DATE OF VALUE
The date of value for this appraisal is December 1, 2016.
PROPERTY RIGHTS APPRAISED
This appraisal is of the fee simple interest in the subject properties, subject to the CFD special tax and assessment liens.
DEFINITION OF MARKET VALUE
The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress. (The Dictionary of Real Estate Appraisal, 6th Edition)
DEFINITION OF FEE SIMPLE INTEREST
The absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. (The Dictionary of Real Estate Appraisal, 6th Edition)
8 DEFINITION OF MASS APPRAISAL
The process of valuing a universe of properties as of a given date using standard methodology, employing common data, and allowing for statistical testing. (The Dictionary of Real Estate Appraisal, 6th Edition)
DEFINITION OF FINISHED LOT
This term describes the condition of residential lots in a single-family subdivision for detached homes in which the lots are fully improved and ready for homes to be built. This reflects that the lots have all development entitlements, infrastructure improvements completed, finish grading completed, all in -tract utilities extended to the property line of each lot, street improvements completed, common area improvements/landscaping (associated with the tract) completed, resource agency permits (if necessary), and all development fees paid, exclusive of building permit fees, in accordance with the conditions of approval of the specific tract map.
DEFINITION OF BLUE -TOPPED LOT
This term describes residential lots in a single-family subdivision for detached homes in which the lots and streets have been rough graded, and the offsite infrastructure of streets and utilities are completed to the tract, but not within the tract.
DEFINITION OF MASS GRADED SUPERPAD
Also referred to as a sheet graded site or a superpad, it is a parcel of land for detached or attached residential development or commercial development which has been rough graded to a fairly flat condition, with the infrastructure of streets and utilities completed to and along the site. This is similar to a blue -top lot but it typically refers to a larger acreage parcel.
DEFINITION OF EXTRAORDINARY ASSUMPTIONS
An assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser's opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property, or about conditions external to the property. (The Dictionary of Real Estate Appraisal, 6th Edition)
EXPOSURE TIME
This is defined as the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date or date of value of the appraisal. Assuming a reasonable marketing effort and at or reasonably near market value, I have concluded that the exposure time for the subject ownerships would have been within 6 months for a sale to be negotiated.
9 LOCATION MAP
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10 GENERAL PROPERTY DATA
LOCATION
The master -planned community of Roripaugh Ranch, outlined in red on the map on the previous page, is located along Murrieta Hot Springs Rd. westerly from Butterfield Stage Rd., and along Butterfield Stage Rd. southerly from Murrieta Hot Springs Rd., in the City of Temecula. The "Pan" area of Roripaugh Ranch comprises the easterly area of the community which is along and to the east of Butterfield Stage Rd., and the "Panhandle" area comprises the westerly five planning areas along the south side of Murrieta Hot Springs Rd.
GENERAL AREA DESCRIPTION
Roripaugh Ranch is located at the far north end of the current Temecula City Limits, with the east central part of the City of Murrieta being about a mile to the west and just beyond Winchester Rd., and unincorporated Riverside County area to the north, east and southeast. In addition, the French Valley Airport is located about a mile to the northwest, and the Lake Skinner Recreation Area is located within two miles to the northeast. It is noted that the area to the north and northeast is within the Sphere of Influence Boundary of Temecula, though the area to the north is generally referred to as French Valley and homes just to the north of Murrieta Hot Springs Rd. currently have a Murrieta address.
In the area to the north of the "Panhandle" is the relatively new master -planned community of Rancho Bella Vista. This overall community comprises ±800 acres, and was planned for just over 1,800 dwelling units, with large open space/preserve areas at the southwest and southeast portions of the community nearest Roripaugh Ranch. Construction of homes in Rancho Bella Vista began in the early 2000's with the tracts along Murrieta Hot Springs Rd. and up into the center of the community, with many homes and two schools completed by 2006. Development then stalled during the Great Recession until Lennar Homes acquired the remaining land in the central and northerly portions of the community in 2010. Three product types of homes were completed on 249 lots in the west central part of the community from February 2012 to April 2014. Then, grading in the northerly portion of the community began in late 2012, with construction of three product types of homes beginning in mid -2013 and nearing build -out in 2016.
To the north and northeast of the "Pan" area is a large area of undeveloped land which is primarily habitat/open space/preserve. This area incorporates the southeast part of the Rancho Bella Vista community and also the 179 -acre portion of Roripaugh Ranch at the north end of the "Pan" area. To the east, southeast and south of the "Pan" area is a semi -rural residential area, also within unincorporated County area, and mostly subdivided into lots of ±2 to 20 acres in size. Some of the lots are improved with custom homes and many of the lots are still vacant. In addition, the Long Valley Creek flows southeasterly through this area.
11 GENERAL AREA DESCRIPTION, Continuing
To the southwest and west of the "Pan" area, extending north to just south of the "Panhandle" area is more of the low density, semi -rural residential area that is within the City of Temecula. This area also consists of custom homes on large lots, and much undeveloped land, and also includes the Santa Gertrudis Creek flowing southwesterly through the area. To the west of the "Panhandle" area is a relatively newer 79 -lot neighborhood of homes called Valdemosa that were built by KB Home in the mid -2000's. Farther to the west are various neighborhoods of homes that were built in the late 1990's and early 2000's.
The nearest commercial and shopping facilities to Roripaugh Ranch are currently located at the intersection of Murrieta Hot Springs Rd. and Winchester Rd. and along Winchester Rd. Winchester Square is a neighborhood retail center at the southeast corner of the intersection that includes Albertsons/Sav-On, Bank of America, McDonalds, a gas station and many other stores and fast food restaurants. The Plaza at Silverhawk is a neighborhood retail center at the northeast corner of the intersection that includes Vons, Walgreens, Wells Fargo Bank, a gas station and many other stores and fast food restaurants.
In summary, the community of Roripaugh Ranch is located in a relatively newer and still developing area at the north end of Temecula, near Murrieta and the French Valley area, and adjacent to much semi -rural low density residential and open space areas.
12 Proposed kand Use Plan DESCRIPTION OF RORIPAUGH RANCH
Overview
Roripaugh Ranch is a master planned community that originally comprised about 805 acres and was planned to be developed with up to 1,743 single-family detached homes and a neighborhood retail center on a 10.7 -acre (usable) commercial -retail site. In addition, there were to be two private recreation centers, a neighborhood park, a sports park, an elementary school, a middle school, a fire station, and 263 acres of open space. The open space includes 21 acres of landscaped slope along the west and south edges of the "Panhandle" area; 203 acres of habitat area comprising the north part of the "Pan" area and the northeast part of the "Panhandle" area; 39 acres within Long Valley Channel; and a small area within Santa Gertrudis Creek.
Phase 1 or the "Panhandle" area of Roripaugh Ranch consists of a total of 509 single-family lots that are 15,000 s.f. minimum size and were segregated into five separate Planning Areas. Construction of homes by multiple builders commenced in 2013 and there are still three active projects. The five different product types of homes range in size from about 2,100 s.f. to 4,200 s.f., with current pricing ranging from the low $400,000's to the low $500,000's. A summary of these projects is as follows:
Plan. No. Product Current Status of Area Lots Builder Name Construction
IA & 2 197 KB Home Pinnacle/Pinnacle II Active; +70% built -out 3 99 CalAtlantic Homes Montego Active; +75% built-out 4A 100 CalAtlantic Homes Cambridge Active; +75% built-out 4B 113 Van Daele Homes Verona & Sorrento Built -out
This overall area is gated at various entrances from Murrieta Hot Springs Rd. In the center area is a 4.7 -acre recreation center with clubhouse including full kitchen and fitness facility, large swimming pool, spa, tennis courts, basketball courts, children's play area, walking trails and large open grass areas. There will also be a 5 -acre public neighborhood park on the south side of Murrieta Hot Springs Rd. at the east end of the "Panhandle" area. Construction is currently underway to complete the park improvements which had been partially completed about 9 or 10 years ago.
Phase 2 or the "Pan" area of Roripaugh Ranch is planned to comprise a total of 1,225 single-family lots allocated into 15 Planning Areas, plus a 10.7 -acre (usable) commercial site. The land had been rough or mass graded about 9 to 10 years ago, and is still currently vacant with much backbone infrastructure of streets, utilities and drainage facilities yet to be constructed. The currently planned residential product ranges from 2,000 s.f. (average) homes on 3,000 01 minimum lots to 4,250 s.f. (average) homes on 20,000 s.f. minimum lots. In between there will be varying product types of homes on 3,150 s.f., 4,000 s.f., 5,000 s.f., 6,000 s.f. and 10,000 s.f. minimum lots.
14 AERIAL PHOTO
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. 4: "11 n
15 DESCRIPTION OF RORIPAUGH RANCH, Continuing
The 20 -acre sports park site is at the southeast corner of Butterfield Stage Rd. and North Loop Rd. East of that is the 20 -acre middle school site, then the 12 -acre elementary school site, and then the 4 -acre recreation center site. The fire station has been constructed at the southeast corner of Butterfield Stage Rd. and South Loop Rd. The Long Valley Channel is an open flood control channel that runs east -west between North Loop Rd. and South Loop Rd. and beyond to the east, and the Santa Gertrudis Creek runs southerly from the habitat area at the north to the center of the "Pan" area at the west side, and then westerly.
Streets and Access
The primary access to Roripaugh Ranch is by Murrieta Hot Springs Rd. and Butterfield Stage Rd., with future secondary access to be by Nicolas Rd.
Murrieta Hot Springs Rd. extends to this area from the west, along the north side of the "Panhandle" area and terminating at Butterfield Stage Rd. It is designated as a major arterial in this area, and has been constructed as a four -lane divided street with raised/landscaped center median and left turn lanes. Along both sides are wide landscaped parkways with sidewalks.
Butterfield Stage Rd. currently extends only to the south from Murrieta Hot Springs Rd., but is planned for future extension to the north. It is also designated as a major arterial, and has been constructed as a four -lane divided street with raised median and left turn lanes. The westerly side includes sidewalk but no landscaped parkways and the easterly side is not yet improved with sidewalks or landscaped parkways.
Nicolas Rd. is planned to be extended from its current terminus at Calle Girasol to Butterfield Stage Rd., opposite future North Loop Road. The existing portion of Nicolas Rd. from Calle Girasol westerly to Winchester Rd. is designated as a major arterial, and the future easterly extension is designated as a limited secondary arterial (two lanes divided). The extension is currently an unimproved dirt roadway.
In addition, Roripaugh Valley Rd. has been constructed south from Murrieta Hot Springs Rd. and curving easterly to Butterfield Stage Rd. around Planning Area 11, and Fiesta Ranch Rd. has been constructed south from Roripaugh Valley Rd. to its future intersection with the extension of Nicolas Rd. However, both of these streets are not yet open to the public.
Lastly, there will be a loop road that will extend east from Butterfield Stage Rd. and through the southeasterly part of the "Pan" area. North Loop Road will be opposite of Nicolas Rd. and South Loop Road will be opposite of Calle Chapos. This loop road will provide access to all of the residential planning areas in the "Pan" area, as well as to the park site, the school sites and the recreation center site. This loop road
16 DESCRIPTION OF RORIPAUGH RANCH, Continuing
was cut in and rough graded 9 to 10 years ago but only the short segment of South Loop Rd. along the frontage of the fire station has been constructed.
Utilities
All utilities are available to the community, and have been or will be installed in the major streets and in -tract streets as part of the land development and construction of the infrastructure. The utilities are provided as follows:
Water: Eastern Municipal Water District Sewer: Eastern Municipal Water District Electric: Southern California Edison Company Gas: Southern California Gas Company
Zoning/General Plan/Approvals
The overall community of Roripaugh Ranch has specific plan approval by SP -11. For the subject land, the zoning and general plan designations are per the Land Use designations on the Specific Plan, and include Low Density Residential (L), Low Medium Density Residential (LM), Medium Density Residential (M1 & M2), and Neighborhood Commercial (NC). These designations within the Specific Plan also permit a maximum number of dwelling units on each of the Planning Areas.
The more specific approvals for the "Pan" area are by the two recorded "A" tract maps. Tract No. 29353-2 recorded in September 2003 and covers Planning Areas 10, 12, 14, 15 and 33, and Tract No. 29353 recorded in May 2006 and covers Planning Areas 16, 17, 18, 19, 20, 21, 22, 23, 24 and 31. Tentative Tract Maps ("B" Maps) had been prepared on most of the Planning Areas, some of which were submitted to the City a number of years ago for approval, though most have expired or are no longer active. These are discussed later in greater detail under the two separate ownerships.
Thus, the Planning Areas in the "Pan" area have entitlements by the Specific Plan as well as the Development Agreement. However, prior to development, further approvals that will be required include Tentative Tract Maps, Final Tract Maps, a Home Product Review for single-family residential projects and a Development Plan for commercial projects.
Drainage/Flood Hazard
Drainage is and will be within master -planned facilities throughout the community, and within each of the individual planning areas. The "Pan" area generally slopes and terraces down from the north and south ends to the Long Valley Channel in the center area, and with a gradual slope down from the east to west. Drainage is ultimately into Long Valley Channel and Santa Gertrudis Creek.
17 DESCRIPTION OF RORIPAUGH RANCH, Continuing
Per FEMA Flood Insurance Rate Map Nos. 060742 - 06065C2740G and 060245 dated 8/28/08, all of the "Pan" area is located in Zone X, which is outside of the 100 -year floodplain and out of the Special Flood Hazard Area. Furthermore, all of the developable area is above the Santa Gertrudis Creek and Long Valley channels, and improvements to these channels as well as construction of various detention basins throughout the community will handle the projected storm flows.
Soil/Geologic Conditions
This appraisal has assumed that all necessary grading and compacting has been properly completed thus far; that there are no abnormal soil or geologic conditions that would affect the development of the land as planned; and that all necessary costs to complete the grading and any required mitigation have been spent or are properly reflected in the remaining land development costs as discussed later. It is also noted that prior tentative tract maps for portions of the "Pan" area indicate that special hazard areas (earthquake, subsidence and liquefaction) do not exist on the subject properties.
Environmental Conditions
It has been assumed that all necessary environmental permits and approvals have been obtained for development of the land as planned; that all costs to complete any necessary mitigation have been spent or are properly reflected in the remaining land development costs, as discussed later; and that there are no other environmental conditions, including endangered species or significant habitat, watercourses or wetlands that would have a negative effect on the planned development.
Timing of Development
Release of building permits by the City for the "Pan" area is contingent upon various items, including funding of the CFD and completion of certain infrastructure. A significant part of the infrastructure is construction of Nicolas Rd., of which the approximate $8 million cost is to be funded by the CFD bond proceeds, but the subject property owners are responsible to pursue approved plans and permitting for this road.
As discussed in the Market Absorption Study by Empire Economics, assuming that the infrastructure requirements are met, it is projected that escrow closings to homeowners could commence in July 2019. This reflects a prior period of 20 to 22 months for grading and construction of infrastructure to be completed, with building permits issued by November 2018, and the first potential move -ins about 6 to 8 months later, or by July 2019. This is indicated in the Market Absorption Study with the first closed sales of completed homes being in the July -December 2019 period.
18 DESCRIPTION OF RORIPAUGH RANCH, Continuing
Regarding the commercial site, the Market Absorption Study indicates that its absorption is based upon the occupancy of most of the homes in the "Pan" area along with threshold levels required to support commercial centers. Thus, its absorption (occupancy of completed building space) is expected to occur during 2023.
It is again noted that the estimated absorption in the Market Absorption Study is based on the assumption that the property owners will complete the necessary infrastructure items in a timely manner so as to be able to pull the building permits as needed and as permitted by the Development Agreement with the City.
Current Condition of Land
All of the developable land is vacant, and had been rough or mass graded about 9 to 10 years ago. In addition, some of the backbone infrastructure was completed, including installation of portions of the storm drain, wet utilities and dry utility conduit. However, the land is currently overgrown with native vegetation and will require clearing/grubbing and remedial grading, as well as completion of all backbone and in -tract infrastructure.
RESIDENTIAL MARKET OVERVIEW
Home prices across Southern California continue to rise, with a year over year increase of 7.0% in October 2016, as competition over limited inventory drives up prices. According to CoreLogic, the median price in the six -county region was $465,000 in October, up from $449,000 in March. The number of home sales, however, increased by only .3% from a year earlier reflecting tight inventory and competition among homebuyers for a smaller supply of homes.
Employment gains have increased at a faster pace than housing supply in the past few years, but affordability and loan qualifying still remain as significant hurdles for new home buyers. It is hoped that increased conforming maximum loan limits set by the Federal Housing Finance Agency (up from $356,500 to $379,000 in the Inland Empire) will provide some relief.
Home sales data provided by CoreLogic for October 2016 indicates that the gradual upward momentum experienced throughout the Southern California region is mirrored both in Riverside County and the City of Temecula. According to CoreLogic, there were a total of 3,274 home sales in October across the County, including both single family homes and condos, and reflecting new home sales as well as resales. The median price County -wide was $335,000, up from $310,000 the prior year which represents an 8.1% increase. In Temecula, there were a total of 175 sales, with a reported median price of $417,000 which was unchanged from the prior year. Resales (excluding new home sales) within the subject Roripaugh Ranch
19 RESIDENTIAL MARKET OVERVIEW, Continuing
community zip code of 92591 in October 2016 indicated a median price of $410,000, up 1.9% from a year prior.
The City of Temecula continues to see significant new home construction and sales, with currently active communities including three product types in Roripaugh Ranch by CalAtlantic and KB Home and The Groves by Fleming Communities. Three new communities celebrated grand openings in April including Renaissance at Redhawk by Beazer Homes and Toscana and Marbella at Terracina by CalAtlantic and Lennar Homes. In addition, Cornerstone Communities has recently begun home sales on their first product line, Calistoga, in the master -planned community called The Promontory nearby in Murrieta, with two additional product lines to come.
Lastly, per the Market Absorption Study by Empire Economics, pertinent items are noted as follows:
Riverside County's economy has recovered from the Great Recession, and its housing market is in a recovery mode, although the rate of recovery is only moderate. Employment in Riverside County recovered to hit a new peak in 2015, and it is expected to continue to grow during the foreseeable future. The City of Temecula has one of the lowest unemployment rates of any city in Riverside County at 4.6%. While mortgage rates have been at historically low rates of below 5%, rates are expected to increase somewhat in the near future. Home price appreciation is expected to continue to be low -to -moderate in the near term. Sales of new and existing homes have remained at relatively low levels since the Housing Bubble, but are expected to increase through 2020. New building permits have increased only moderately in recent years, for both single-family and multi-family/apartments, but the recovery is expected to strengthen (hiring the foreseeable future. The Temecula-Murrieta Market Area is regarded as being a strong local economy within Riverside County, based upon its relatively low unemployment rate; additionally, the area benefits from households in San Diego County that seek more moderately priced single- family housing. Due to its strong economic base and the spillover of demand from the San Diego County Core, the Temecula-Murrieta housing market will strengthen its recovery as employment gains generate a stronger demand for new homes, thereby providing support for the residential projects in CFD No. 16-01.
HIGHEST AND BEST USE
The term highest and best use is defined as the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. Furthermore, the highest and best use of land or a site as though vacant is defined as among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination.
20 HIGHEST AND BEST USE, Continuing
The planned development of the "Pan" area of Roripaugh Ranch, as discussed on previous and following pages, is physically possible with the completion of the grading and infrastructure; it is legally permissible based on the approved Specific Plan and Development Agreement; it is financially feasible as supported by the Market Absorption Study by Empire Economics, Inc., dated December 2, 2016; and the planned homes represent the maximum productivity.
Based also on my investigation of recent residential and commercial land sales in the general Temecula and Murrieta areas, there would be good demand for available residential and commercial land in the subject community if it was in buildable condition. This is due to the limited supply of available and buildable land in desirable areas; due to the continuing demand for new homes in this area; and due to the desirability of the subject community by reason of its location and amenities.
Thus, I have concluded that the planned development for the subject land is representative of the highest and best use.
(Note: The conclusion of highest and best use reflects the assumption that the property owners will complete the necessary infrastructure in a timely manner such that building permits will be available for development to occur as previously discussed and as projected in the Market Absorption Study by Empire Economics, Inc.)
21 Roripaugh Valley Restoration, LLC
rk po!no...wiffinicc ao, RORIPAUGH VALLEY RESTORATION, LLC OWNERSHIP
PROPERTY DATA
Location
As indicated by the map on the previous page, this ownership comprises the southeasterly part of the "Pan" area, lying easterly of Butterfield Stage Rd. and around North Loop Rd. and South Loop Rd.
Record Owner/Ownership History
The current owner of record is Roripaugh Valley Restoration, LLC (later referred to as "RVR"). This entity acquired the property from Ashby USA, LLC by Warranty Deed recorded May 25, 2011. It is noted that this ownership was marketed for sale in May/June 2016, but a sale did not take place. (Note: The overall ownership comprises parcels that are not included in this appraisal, including the two school sites, plus sites for park, recreation center, roads, flood control and open space.)
Legal Description
The parcels that are included in this appraisal are legally described as follows:
Lots 7 & 8 of Tract 29353-2, in the City of Temecula, County of Riverside, State of California, as per map recorded in Book 342 of Maps, Pages 73 through 85, inclusive, Records of said County.
Lots 1, 2, 3, 4, 6, 7, 8, 9, 10 & 11 of Tract 29353, in the City of Temecula, County of Riverside, State of California, as per map recorded in Book 401 of Maps, Pages 89 through 96, inclusive, Records of said County.
The above -referenced tract maps are the "A" maps, and as previously indicated there were Tentative Tract Maps or "B" maps that had originally been prepared on all but one of the Planning Areas by Ashby USA, LLC a number of years ago. The following table indicates by Planning Area the "A" map description, the Tentative Tract Map (TTM) description with the indicated number of lots at that time, and the current status of the TTM per the City Planning Department:
Planning No. Area 11,41p TTM Lots TTM Status
14 & 15 Lots 7 & 8/Tr. 29353-2 32356 181 No application 16, 17 & 18 Lots 1, 2 & 4/Tr. 29353 29368 389 Submitted; file closed 19 Lot 3/Tr. 29353 29367 26 Submitted; file closed 20 & 21 Lots 10 & 11/Tr. 29353 29366 53 Submitted; file closed 22 Lot 7/Tr. 29353 32358 126 No application 23 & 24 Lots 8 & 9/Tr. 29353 30768 122 Submitted; active file
23 ASSESSOR MAP
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24 PROPERTY DATA, Continuing
Assessor Data -2016/17
The taxable parcels comprising this ownership are Assessor Parcel Nos. 964-180- 004, 005, 017, 018, 019, 020, 022, 023, 024, 025, 026 & 027. The assessed values total $10,664,448 for land and $0 for improvements. The tax rate area is 13-116 with an indicated tax rate of 1.04834%, but the total or effective tax rate to future homeowners, including special taxes for this CFD and other overlapping debt, is projected to be a maximum of 1.8% based on current estimated home pricing.
No. of Lots/Lot Sizes/Planned Product
The following table correlates the Planning Area with the Assessor Parcel No. and provides the total acreage; and also indicates the planned number of lots, the indicated density, the minimum lot size and the typical lot dimensions based upon information that was provided by the property owner and is also consistent with the data presented in the Market Absorption Study by Empire Economics, Inc.:
Planning No. MM. Lot Typ. Lot Area APN Acres Lots Density Size (sf) Dimensions
14 964-180-004 13.59 77 5.7 3,150 50 x 63 15 964-180-005 14.09 104 7.4 3,150 45 x 70 16 964-180-017 26.42 121 4.6 5,000 50 x 100 17 964-180-018 41.08 147 3.6 6,000 60 x 100 18 964-180-020 30.58 121 4.0 6,000 60 x 100 19 964-180-019 29.98 26 .9 20,000 100 x 200 20 964-180-027 33.71 29 .9 20,000 100 x 200 21 964-180-026 23.61 24 1.0 20,000 100 x 200 22 964-180-023 20.99 126 6.0 3,150 50 x 63 23 964-180-024 10.02 51 5.1 3,150 50 x 63 24 964-180-025 12.28 71 5.8 4,000 40 x 100 31 964-180-022 25.19 164 6.5 3,150 45 x 70
1,061
Then, the expected home sizes and pricing for the six product types on the various lot sizes and Planning Areas are shown in the following table:
Product Planning Min. Lot Type Area Size (sf) Expected Home Sizes (sf) Expected Home Pricing
1A 14,22,23 3,150 1,980 to 2,420; 2,200 avg $366,300 to $423,500; $407,000 avg 1B 15,31 3,150 1,800 to 2,200; 2,000 avg $342,000 to $407,000; $370,000 avg 2 24 4,000 2,340 to 2,800; 2,600 avg $409,500 to $443,300; $429,000 avg 3 16 5,000 2,700 to 3,300; 3,000 avg $432,000 to $463,650; $456,000 avg 4 17,18 6,000 2,880 to 3,520; 3,200 avg $446,400 to $473,440; $459,200 avg 5 19,20,21 20,000 3,750 to 4,750; 4,250 avg $675,000 to $807,500; $743,750 avg
25 PROPERTY DATA, Continuing
Current Condition of Land
As previously indicated, all of the land is currently vacant and had been rough or mass graded about 9 to 10 years ago. This includes grading of some of the individual lots in Planning Areas 16, 17, 18 and 19 to a near blue -topped condition. In addition, some backbone infrastructure was completed, including installation of portions of the storm drain, wet utilities and dry utility conduit. However, the land is currently overgrown with native vegetation and will require clearing/grubbing and remedial grading, as well as construction of all remaining backbone infrastructure and in -tract streets and utilities.
Title Report
An Interim Binder issued by First American Title Insurance Company and dated May 25, 2011 has been reviewed. Exceptions to title included liens for delinquent property taxes; the lien of special tax for Community Facilities District (CFD) No. 03-02; easements for public utilities; effects of documents including Resolution 92- 169 recorded April 17, 1992, Subdivision Improvement Agreement recorded October 3, 2003, and Development Agreement recorded January 9, 2003 and modified in September 2005, March 2006 and October 2006; and miscellaneous items.
It is assumed that all delinquent property taxes and judgments pertaining to the property have been settled, and it is noted that CFD No. 03-02 is to be refunded by the current pending CFD No. 16-01 (Roripaugh Ranch Phase 2). All of the other items are fairly typical in the development of a large master -planned property such as Roripaugh Ranch, and it is assumed that there are no other exceptions to title which would have a negative effect on the planned use and development of the properties.
VALUATION
Method of Analysis
Due to the size of this ownership at 1,061 lots, and since it is estimated later that the lots by Planning Area could be sold off from the second quarter of 2018 to the second quarter of 2021, I have concluded that the appropriate method of analysis is a discounted cash flow analysis. This involves the discounting of the projected net proceeds from assumed sales of the land over the appropriate period of time to a present value indication.
The initial step is to estimate the finished lot values for each of the different size categories of lots. The next step is to deduct the estimated costs to get the lots from blue -topped condition to finished lot condition, since it is assumed that the property owner/master developer would sell and deliver the lots in a blue -topped condition.
26 VALUATION, Continuing
The bulk values are calculated and allocated to each of the 12 Planning Areas based on the appropriate number of lots and lot size category.
The next step is to estimate the timing in which the sales of the Planning Areas would be projected to occur. The following step is to estimate the appropriate expenses to be deducted over time for the remaining land development/infrastructure costs to get the land from as is condition to the deliverable condition, together with overhead and marketing costs, holding costs, and profit. The last step is to estimate an appropriate discount rate or internal rate of return at which to discount the projected net cash flows into a present value indication. This present value indication represents the as is condition of the land as of the date of value for this appraisal.
Analysis of Finished Lot Values
The Sales Comparison Approach is used to estimate the value of the subject lots, as if in a finished lot condition. This approach considers recent sales of residential land or bulk single-family residential lots from the general area in comparison to each of the subject Planning Areas with different minimum lot sizes. As a result of the widespread search for pertinent land/lot sales, the pertinent data includes four pending escrows and 12 closed sales that have occurred since September 2014, and is shown in the table on the following page.
It is noted that the closed sales took place from September 2014 through October 2016, plus the four current escrows. However, it is also noted that the market for residential lots in this area has been fairly stable/flat for the past several years, thus no adjustments for time or date of sale are considered to be necessary. In terms of location, it is concluded that the Temecula and Murrieta locations are fairly similar to the subject other than the benefit of the subject parcels having the desirability and amenities due to being within a master -planned community. The locations in French Valley, Wildomar and Lake Elsinore are considered to be inferior.
In terms of the lot sizes, it is evident that the larger lots are generally superior due to the potential for larger and higher -priced homes. Lastly, it is noted that most of the data items have existing CFD's which is a similar factor to the subject properties, but several of the data items do not have CFD's which is a superior factor to the subject properties in terms of the higher indications on a finished lot basis and the lower effective tax rates to homebuyers.
The tabulation of the sales data follows:
27 VALUATION, Continuing
Rec. No. Lots Price/Lot No. Location (Project Name)/APN Date Min Size Price/Fin Lot Remarks
1 NEC Mitchell Rd. & Sierra Ln. Escrow 80 n/a Vacant land; to be delivered in superpad condition with Murricta (Mitchell Crossing) (paired) $125,000 approved TTM; will be in gated community; to be CFD 392-230-034
2 NE/S Washington Ave., opposite Fullerton Rd. Escrow 64 n/a Vacant; rough graded; recorded final map & approved Murricta (Murricta 64) 3,200 $145,000 development plan; homes to be 1,545 s.f. to 2,008 s f.; 906-040-096 no CFD
3 SEC Pourray Rd. & Thompson Rd. Escrow 51 n/a Vacant; raw/flat & slightly sloping, will be delivered French Valley (Turtle Ranch) 7,200 $160,000 with a final tract map; buyer plans smaller product of 964-010-001 +2,000 s.f. homes; no CFD
4 SE'ly comer Nicolas Rd. & Via Lobo Rd., Escrow 83 n/a Vacant; rough graded, approved TTM with final engine- Temecula (Arbor Vista) 8,400 $210,000 cering; 39 ac. of open space, to be gated; approved for 919-350-017 to 020 (avg.) 2,318-3,717 s.f. homes; CFD formed
5 Both sides Whitewood Rd. S/0 Keller Rd., 10/4/16 207 $100,606 Lots to be delivered m near finished condition with Murrieta (Golden City) 6,000 $152,000 recorded tract map; existing CFD 384-260-020, 042 & 049
6 NEC Leon Rd. & Benton Rd. 9/22/16 84 $35,714 Vacant, fairly flat & partially graded; approved TTM; French Valley (Tierra Dcl Rey) 5,000 $146,000 was projected for +2,500 s f homes with recommended 963-100-003 & 004 pricing from high $300's to low $400's, existing CFD
7 SE'ly corner Winchester Rd. & Skyview Rd , 2/16/16 97 $55,155 Semi -finished condition; needed complex re -mapping; French Valley (BellaSol) 2,500 $100,000 buyer plans +1,650-2,550 s.f. small -lot detached homes 480-621 to 623 -various w/ avg. pricing of $350,000; existing CFD
8 W/S Diamond Dr., Summerly Pl. to Hidden 1/8/16 59 $54,814 Blue -topped lots; approved TTM, master-planned Trail, Lake Elsinore (Summerly) 5,500 $117,000 community; buyer plans +2,200-2,700 s.f. homes, 371-040-011 existing CFD
9 NE/S Briggs Rd. NW/0 Leon Rd., 12/10/15 55 $90,909 Blue -topped lots, rec. tract map, buyer plans 2,800-3,460 French Valley (Spencer's Crossing) 5,000 $146,000 s.f. homes priced from low $400,000's; master planned Ptn of 480-090-043&080 community; existing CFD
10 Adj N/O Data No 7, 11/13/15 92 $96,082 Blue -topped lots; rec tract map; buyer plans 2,4104,199 French Valley (Spencer's Crossing) 4,000 $153,000 s.f. homes priced from high $300,000's; master planned Ptn of 480-090-043,047&049 community; existing CFD
11 W/S Alberhill Ranch Rd at Alderwood Cr & 11/3/15 43 $67,384 Lots in semi -finished condition, rec. tract map; master - Cypress Cr., Lake Elsinore (Alberhill Ranch) 5,000 $122,000 planned community; buyer planned +1,850-2,900 s.f. 389-730-ptn/389-731-all Homes, ±$350,000 avg pricing; existing CFD
12 SW/S Palomar St., +140' NW/0 Meadow 7/16/15 157 $66,879 Land in raw condition with final tract maps ready to Ridge Ln., Wildomar (The Ranch) 7,200 $160,000 record, grading permit pulled, buyer planned 2,490- 380-080-008,009,014,015 & 380-140-001 3,810 s.f. homes; CFD in place
13 E/S Whitewood Rd. N/O Baxter Rd , 5/26/15 90 $96,683 Blue -topped lots; rec. tract map; buyer planned 2,806- Murricta (Alderwood/Golden City) 6,000 $147,700 3,929 s.f. homes; current pncing from low to high Ptn of 384-260-047 $400,000's; existing CFD
14 SE/S Whitewood Rd SW/0 Murrieta Hot 5/15/15 84 $63,690 Rough graded fairly flat land; approved TTM; buyer Springs Rd , Murrieta (Crceksidc Terrace) 3,000 $123,000 planned +1,800-2,200 s.f. homes and $350,000 average 916-010-026 pricing, existing CFD
15 S/S Murricta Hot Springs Rd. W/O Ronpaugh 10/2/14 99 $130,480 Nearly finished lots in "Panhandle" area; rec. tract map; Meadows Rd , Temecula (Ronpaugh Ranch) 5,000 $168,000 buyer planned continuation of Pinnacle product; existing 957-71 & 72 various CFD
16 E'ly corner Deer Hollow Way & Peachtree St., 9/25/14 74 $86,486 Rough graded fairly flat land, approved TTM; buyer Temecula (Renaissance at Redhawk) 2,500 $167,000 plans 2,282-2,554 s.f. homes, pricing from $430,000 to 962-020-018 $485,000, 30 lots with golf course frontage; no CFD
28 VALUATION, Continuing
Data No. 1 is located nearby to the north of Clinton Keith Rd. and about 'A mile west of the 215 Freeway in Murrieta, in a mostly residential area with remaining undeveloped and hilly land. It consists of a 5.99 -acre site that is to be delivered in superpad condition with an approved tentative tract map for 80 paired homes on a small -lot configuration. This project is to be within a gated community and there is to be a CFD with a tax rate of ±1.8%. These lots are currently in escrow at a price reflecting $125,000 per finished lot, and tentatively due to close by year end.
Data No. 2 is located at the westerly side of Murrieta, just over V2 mile to the southeast of the 15 Freeway. It consists of 5.75 acres with a recorded tract map and approved development plan for 64 lots, 3,200 s.f. minimum, in a condominium plan, and with no CFD. The approved plans are for homes to range in size from 1,545 s.f. to 2,008 s.f. This property is currently in escrow and due to close in the first quarter of 2017 at a price reflecting $145,000 per finished lot.
Data No. 3 is located in the unincorporated French Valley area, about a mile to the east of Highway 79 and about 3 miles to the north of Roripaugh Ranch. It consists of 19.34 acres of vacant land that ranges from flat to slightly sloping, and that will be delivered by the seller with an approved final tract map for 51 lots, 7,200 s.f. minimum size and averaging about 10,000 s.f. There is no existing CFD. The property is currently in escrow at a price reflecting $160,000 per finished lot, due to close in about 6 months, and the buyer reportedly plans a smaller product size of about 2,000 s.f. homes.
Data No. 4 is located in the northeasterly part of Temecula, just over a mile westerly of the "Pan" area of Roripaugh Ranch. It consists of about 68 acres of vacant land that has been rough graded, and that has final engineering and an approved tentative tract map for 83 lots, 8,400 s.f. average size, including about 39 acres of open space. This is to be a gated neighborhood, and is approved for homes ranging from 2,318 s.f. to 3,717 s.f. There is a CFD that has been formed but not yet funded, with a projected tax rate of ±1.8%. The lots are in escrow at a price reflecting $210,000 per finished lot, and the sale is due to close by the end of the year.
Data No. 5 is located along both sides of future Whitewood Rd., ±'/4 mile south of Keller Rd. in the north part of Murrieta. It is part of the Golden City masterplan, and consists of 207 lots, 6,000 s.f. minimum size that have recorded tract maps and will be delivered in near finished condition. The sale to RSI closed in October 2016 at the price of $100,606 per lot, reflecting $152,000 per finished lot.
Data No. 6 is located in the unincorporated French Valley area, about 'A mile to the east of Highway 79 and about 21/2 miles northerly of Roripaugh Ranch. It consisted of vacant land that was fairly flat and partially graded, with an approved tentative tract map for 84 lots, 5,000 s.f. minimum size. The sale to Pardee Homes closed in September 2016 at the price of $35,714 per lot, with finished lots estimated at
29 VALUATION, Continuing
$146,000 per lot, and with an existing CFD. A study that had been completed on this site recommended an average home size of ±2,500 s.f. with pricing from the high $300,000's to the low $400,000's, and this reflects a finished lot ratio of 37%.
Data No. 7 is located in the unincorporated French Valley area, about 3'/2 miles northerly of Roripaugh Ranch. It consisted of 97 lots in semi -finished condition, 2,500 s.f. minimum size, that were part of a larger project of attached and small -lot detached product of which 10 homes were previously built and sold. The 97 lots required some complicated re -mapping to be accomplished by the buyer. The sale closed in February 2016 at the price of $55,155 per lot, with finished lots at $100,000 per lot and reflecting the existing CFD. Earlier negotiations were at a price reflecting $120,000 per finished lot, but the price was reduced due to the difficulty of the re -mapping process which limited buyer interest. The buyer, Meritage Homes, planned homes of 1,650 s.f. to 2,550 s.f. and average pricing of $350,000, which reflects a finished lot ratio of 29%.
Data No. 8 is located in the master -planned community of Summerly in the south part of the City of Lake Elsinore, referred to as Neighborhood 9. It consisted of 59 lots in blue -topped condition, 5,500 s.f. minimum size, with a recorded "A" map and an approved tentative tract map. The sale to Woodside Homes closed in January 2016 at the price of $54,814 per lot, with finished lots at $117,000 per lot, reflecting the existing CFD. The lots were targeted for homes in the size range of 2,200 s.f. to 2,700 s.f., and the probable average pricing of $340,000 to $350,000 reflects a finished lot ratio of 33-34%.
Data No. 9 is located in the unincorporated French Valley area, nearby to the north of Murrieta, and within the master -planned community of Spencer's Crossing. It consisted of 55 lots, 5,000 s.f. minimum size, that were in blue -topped condition and with a recorded tract map. The sale to Richmond American Homes closed in December 2015 at the price of $90,909 per lot, with finished lots at $146,000 per lot, reflecting the existing CFD. The buyer planned a neighborhood of homes called Sycamore that were to range in size from about 2,800 s.f. to 3,460 s.f., with pricing from the low $400,000's. This reflects a finished lot ratio of about 34%.
Data No. 10 is located adjacent to the north of Data No. 9, also in Spencer's Crossing. It consisted of 92 lots, 4,000 s.f. minimum size, that were in blue -topped condition and with a recorded tract map. The sale to Woodside Homes closed in November 2015 at the price of $96,082 per lot, with finished lots at $153,000 per lot, reflecting the existing CFD. The buyer planned a neighborhood of homes called Laurel that were to range in size from 2,410 s.f. to 3,199 s.f., with pricing from the high $300,000's. This reflects a finished lot ratio of about 38%.
Data No. 11 is located in the master -planned community of Alberhill Ranch in the northerly part of Lake Elsinore. It consisted of 43 lots, 5,000 s.f. minimum size, that
30 VALUATION, Continuing
were in semi -finished condition and with a recorded tract map. The sale to KB Home closed in November 2015 at the price of $67,384 per lot, with finished lots at $122,000 per lot, reflecting the existing CFD. The buyer was targeting an extension of The Terraces product which ranged in size from approximately 1,850 s.f. to 2,900 s.f. and priced from about $330,000 to $365,000, and this reflects a finished lot ratio of about 35%.
Data No. 12 is located at the south end of Wildomar, and is an in -fill site nearby to the west of the 15 Freeway. It consisted of vacant land in raw condition with final tract maps ready to record for 157 lots, 7,200 s.f minimum size. The sale to Richmond American Homes closed in July 2015 at a price of $66,879 per lot, with finished lots at $160,000 per lot, but including costs that will be CFD bond -financed. The buyer planned two product types to be called Chapparal and Creekside at The Ranch, with homes ranging in size from 2,490 s.f. to 3,810 s.f., and pricing to be from the high $300,000's and from the low $400,000's. This reflects a finished lot ratio of 40%, though this would be lower if deducting the CFD bond -financed costs.
Data No. 13 is located in the north part of Murrieta and part of a larger project known as Alderwood, also part of the Golden City masterplan. It consisted of 90 lots, 6,000 s.f. minimum size, that were in blue -topped condition and with a recorded tract map. The sale to D.R. Horton (took title as Western Pacific Housing, Inc.) closed in May 2015 at the price of $96,683 per lot, with finished lots at $147,700 per lot, and reflecting the existing CFD. The buyer planned a neighborhood of homes called Dakota that range in size from 2,806 s.f. to 3,929 s.f. and with pricing from the low to high $400,000's. This reflects a finished lot ratio of about 33%.
Data No. 14 is located in the central part of Murrieta, nearby to the east of the 215 Freeway. This is an infill site consisting of 10.7 acres of vacant land in rough graded and fairly flat condition, with an approved tentative tract map for 84 lots, 3,000 s.f. minimum size. The sale to Woodside Homes closed in May 2015 at the price of $63,690 per lot, with finished lots at $123,000 per lot, reflecting the existing CFD. The buyer planned homes of about 1,800 s.f. to 2,200 s.f., with average pricing of about $350,000. This indicates a finished lot ratio of 35%.
Data No. 15 is located toward the westerly end of the "Panhandle" area of Roripaugh Ranch. It consisted of 99 lots, 5,000 s.f. minimum size, that were in nearly finished condition and with a recorded tract map. The sale to KB Home closed in October 2014 at the price of $130,480 per lot, with finished lots at $168,000 per lot, reflecting the existing CFD. The buyer planned a continuation of the Pinnacle neighborhood of homes which range in size from 2,060 s.f. to 4,180 s.f. and current pricing of about $425,000 to $529,000. Considering the average pricing of about $445,000 closer in time to the date of this land sale, the indicated finished lot ratio is about 38%.
31 VALUATION, Continuing
Data No. 16 is located in the area known as Redhawk at the south end of Temecula. It consisted of 7.7 acres of rough graded and fairly flat land that had an approved tentative tract map for 74 lots, 2,500 s.f. minimum size, of which 30 lots have frontage on the Redhawk Golf Course. The sale to Beazer Homes closed in September 2014 at the price of $86,486 per lot, with finished lots at $167,000 per lot, reflecting no CFD. The buyer planned the neighborhood of homes called Renaissance at Redhawk, with the homes ranging in size from 2,282 s.f. to 2,554 s.f., and pricing from about 6 months ago at $430,000 to $485,000. This indicates a finished lot ratio of about 37%.
3,150 s.f. Minimum Lots/Product Type 1A: Planning Areas 14, 22 & 23 are to be subdivided into 3,150 s.f. minimum lots and developed with homes averaging 2,200 s.f. in size and with average pricing of $407,000.
Data No. 1 is a similar location but a far inferior paired -home product on likely smaller lots, and supports a far lower limit indication at $125,000 per finished lot. Data No. 2 is a similar minimum lot size at 3,200 s.f., but a slightly inferior location lacking the desirability and amenities of being in a master -planned community, greater risk due to the rough graded condition, and planned for much smaller homes, thus supporting a firm lower limit indication at $145,000 per finished lot. Data No. 7 supports a far lower limit indication at $100,000 per finished lot due to the smaller lots at 2,500 s.£ minimum, the inferior French Valley location, and due to the price discount for the complicated re -mapping that was required of the buyer.
Data No. 10 supports a close indication at $153,000 per finished lot with the larger lot sizes of 4,000 s.f. minimum being offset by the inferior French Valley location, and as reflected by the similar projected home pricing. Data No. 14 supports a far lower limit indication at $123,000 per finished lot due to the slightly smaller lots at 3,000 s.f. minimum, and the lack of being in a master -planned community. Lastly, Data No. 16 supports a firm upper limit indication at $167,000 per finished lot due to the superior location with golf course frontage to 41% of the lots and the lack of a CFD, both of which are more than offsetting to the smaller lot sizes of 2,500 s.f. minimum.
In summary, on a finished lot basis the data supports far lower limit indications of value from $100,000 to $125,000, a closer but still firm lower limit indication at $145,000, a close indication at $153,000 and a firm upper limit indication at $167,000.
Lastly, it is noted that the data indicated finished lot ratios (ratio of finished lot price to average home price) ranging from 29% to 40%, but mostly 33% to 38%. The low end at 29% is from Data No. 7 which reflected a discounted price due to re -mapping complications. Considering the original negotiated price reflecting $120,000 per finished lot, the finished lot ratio would be 34%. The high end of the range at 40% is
32 VALUATION, Continuing
indicated by Data No. 12, and the ratio would be lower if deducting the CFD bond - financed costs. It is also noted that for many of the data items, the projected home pricing at the time of the land purchase could not be obtained, but rather is at a point later in time. Thus, the home pricing indication is likely higher than what the original projected or proforma pricing would have been, which results in a lower finished lot ratio indication.
The most supportable indication for the subject property, reflecting that this is based on original projected home pricing, is concluded to be the range of 37% to 38%. Applied to the projected average home pricing of $407,000, the following indication results:
$407,000 avg home pricing x .37-.38 finished lot ratio = $150,590 to $154,660/finished lot
The conclusion for these lots is $154,000 per finished lot.
3,150 s.f. Minimum Lots/Product Type 1B: Planning Areas 15 & 31 are to be subdivided into 3,150 s.f. minimum lots and developed with homes averaging 2,000 s.f. in size and with average pricing of $370,000. The analysis is similar to that for Product Type 1A, though reflecting that these lots are to be developed with slightly
smaller and lower priced homes. Thus, the conclusion for Product Type 1 A at $154,000 per finished lot supports a firm upper limit for Product Type 1B, and a close indication is by the finished lot ratio of 37-38%, as follows:
$370,000 avg home pricing x .37-.38 finished lot ratio = $136,900 to $140,600/finished lot
The conclusion for these lots is $140,000 per finished lot.
44000 s.f. Minimum Lots/Product Type 2: Planning Area 24 is to be subdivided into 4,000 s.f. minimum lots and developed with homes averaging 2,600 s.f. in size and with average pricing of $429,000. The previous analysis and conclusion for Product Type 1 A supports a firm lower limit indication for these lots at $154,000 per finished lot.
Data No. 3 consists of much larger lots at 7,200 s.f. minimum and with no CFD, but offset or more by the inferior location and the plan for the lots to be developed with much smaller and likely much lower -priced homes, thus supporting a close indication to close lower limit indication at $160,000 per finished lot. Data No. 5 supports a firm lower limit indication at $152,000 per finished lot due to the location lacking desirability of a master -planned community and also due to the much larger bulk size of 207 lots as more than offsetting to the larger lots at 6,000 s.f. Data Nos. 6 and 9 support firm lower limit indications at $146,000 per finished lot due to the inferior location in French Valley being more than offsetting to the larger lot sizes at 5,000 s.f. minimum.
33 VALUATION, Continuing
Data No. 10 supports a firm lower limit indication at $153,000 per finished lot also due to the inferior location in French Valley, and with these lots being similar at 4,000 s.f. minimum. Data No. 12 supports a close indication at $160,000 per finished lot due to the far inferior location in Wildomar and the greater development risk of the land in raw condition being approximately offsetting to the much larger lots sizes of 7,200 s.f. minimum. Data No. 15 supports a firm upper limit indication at $168,000 per finished lot due to being larger lots at 5,000 s.f. minimum, and with a similar location in the "Panhandle" area of Roripaugh Ranch.
In summary, on a finished lot basis the data supports firm lower limit indications from $146,000 to $153,000, close indications to close lower limit indication at $160,000, and a firm upper limit indication at $168,000. Considering a finished lot ratio of 37-38% and the projected average home pricing of $429,000, the following indication results:
$429,000 avg home pricing x .37-.38 finished lot ratio = $158,730 to $163,020/finished lot
The conclusion for these lots is $163,000 per finished lot.
5,000 s.f. Minimum Lots/Product Type 3: Planning Area 16 is to be subdivided into 5,000 s.f. minimum lots and developed with homes averaging 3,000 s.f. in size and with average pricing of $456,000. The previous analysis and conclusion for Product Type 2 supports a firm lower limit indication for these lots at $163,000 per finished lot. In addition, the data supports a firm lower limit indication at $160,000 per finished lot, a close indication at $168,000 per finished lot, and a far upper limit indication at $210,000 per finished lot. Considering a finished lot ratio of 37-38% and the projected average home pricing of $456,000, the following indication results:
$456,000 avg home pricing x .37-.38 finished lot ratio = $168,720 to $173,280/finished lot
The conclusion for these lots is $173,000 per finished lot.
6,000 s.f. Minimum Lots/Product Type 4: Planning Areas 17 & 18 are to be subdivided into 6,000 s.f. minimum lots and developed with homes averaging 3,200 in size and with average pricing of $459,200. The previous analysis and conclusion for Product Type 3 supports a firm lower limit indication for these lots at $173,000 per finished lot. In addition, the data support firm lower limit indications at $160,000 and $168,000 per finished lot and a far upper limit indication at $210,000 per finished lot. Considering a finished lot ratio of 37-38% and the projected average home pricing of $459,200, the following indication results:
$459,200 avg home pricing x .37-.38 finished lot ratio = $169,904 to $174,496/finished lot
The conclusion for these lots is $175,000 per finished lot.
34 VALUATION, Continuing
20,000 s.f. Minimum Lots/Product Type 5: Planning Areas 19, 20 & 21 are to be subdivided into 20,000 s.f. minimum lots and developed with homes averaging 4,250 s.f. in size and with average pricing of $743,750. Considering the significantly larger lots that are planned for much larger and higher -priced homes, the previous analysis and conclusion for Product Type 4 supports a far lower limit indication for these lots at $175,000 per finished lot.
It is noted that no recent sales of similar large lots were found. Thus, Data No. 4 supports a far lower limit indication at $210,000 per finished lot due to being much smaller lots and planned for much smaller and lower -priced homes. In addition, input from several knowledgeable brokers is that the range of $250,000 to $300,000 per finished lot could be supportable, though this product is not active in the current market.
In terms of a finished lot ratio, the significantly larger and higher -priced product is typically considered as having greater risk, and thus a lower finished lot ratio is concluded to be supportable. Based on the projected average home pricing of $743,750 and a finished lot ratio of 34-35%, the following indication results:
$743,750 avg home pricing x .34-.35 finished lot ratio = $252,875 to $260,313/finished lot
The conclusion for these lots is $255,000 per finished lot.
Deduction from Finished Lot Condition to Blue -Topped Condition
Next, a deduction is made to reflect that the residential lots are assumed to be delivered by the property owner/master developer in a blue -topped condition, and the previous analyses were of the land as if in finished lot condition. Thus, the deduction is for the costs to get from blue -topped condition to finished lots, since the revenues in the discounted cash flow analysis are of the blue -topped condition.
The estimated cost deductions were provided by the property owner and are based on an average cost per lot of $32,500 for all Planning Areas/product types that would include items such as construction of streets, utilities, etc. In addition, there are fees that vary with the product type and include items such as school, development impact, water and sewer. The total of the costs and fees are shown as follows:
35 VALUATION, Continuing
Product Planning Type Areas Costs/Lot Fees/Lot Total
1A 14,22,23 $32,500 $22,857 $55,357
1B 15,31 $32,500 $22,161 $54,661
2 24 $32,500 $24,249 $56,749
3 16 $32,500 $25,641 $58,141
4 17,18 $32,500 $26,337 $58,837
5 19,20,21 $32,500 $29,121 $61,621
The resulting value of the lots in a blue -topped condition and the total value by each Planning Area are shown in the following table:
Total Value Plan. Est. Value/ Deduct./ Value/Blue- No. Blue -Topped Area Fin. Lot Lot Topped Lot Lots Condition
14 $154,000 $55,357 $98,643 77 $7,595,511
15 $140,000 $54,661 $85,339 104 $8,875,256
16 $173,000 $58,141 $114,859 121 $13,897,939
17 $175,000 $58,837 $116,163 147 $17,075,961
18 $175,000 $58,837 $116,163 121 $14,055,723
19 $255,000 $61,621 $193,379 26 $5,027,854
20 $255,000 $61,621 $193,379 29 $5,607,991
21 $255,000 $61,621 $193,379 24 $4,641,096
22 $154,000 $55,357 $98,643 126 $12,429,018
23 $154,000 $55,357 $98,643 51 $5,030,793
24 $163,000 $56,749 $106,251 71 $7,543,821
31 $140,000 $54,661 $85,339 164 $13,995,596
Absorption/Rate of Land Sales
For purposes of this valuation, the discounted cash flow analysis considers land sales as they would be projected to occur over time, on a quarterly basis. The projected
36 VALUATION, Continuing
timing of the land sales is based on the estimated absorption by Empire Economics which reflects closed home sales, and these are projected to start in July 2019 for each product type in the "Pan" area. This is shown on the "Estimated Absorption Schedules for CFD No. 16-01 (Roripaugh Ranch - Pan Area)" from the Empire Economics report, a copy of which is in the Addenda section of this report. As previously discussed, this is based on the assumption that building permits could not be pulled in the "Pan" area until about November 2018.
Then, there is a significant period of time from the closing of the land sale to a builder until the first closed sales of production homes by the builder. At a minimum, this reflects the time necessary to develop the lots from blue -topped to finished condition and complete construction of first the model homes and then the production homes. There usually is also some lag time from when the builder closes on the land sale until the land development work commences. We have researched many sales to builders in recent years in this general area which indicate a period of time of 7.5 months to 32 months or an average of about 13.5 months from closing of the land sale to first closing of home sales. Deleting the high end of the range at 32 months as an anomaly, the average time is closer to 13 months.
I have projected that the land sale to a builder would occur just over 12 months prior to the projected first closed sale of a production home based on the Empire Economics report, or in the fifth quarter prior to the home sales. Thus, it is estimated that the first land sales for each product type would close in the second quarter of 2018 in order for the first home sales to close at the beginning of the third quarter of 2019. For the product types that are within multiple Planning Areas, the projected sales of the second or more Planning Area for the product type is spread over time, based on demand for the land resulting from the projected absorption of the homes by Empire Economics. Due to the relatively smaller sizes, Planning Areas 14 and 23 have been combined and Planning Areas 19, 20 & 21 have been combined.
Based on the foregoing, the projected absorption or land sale by quarter for each of the Planning Areas is shown as follows:
37 VALUATION, Continuing
Plan. No. Timing of Area Lots Land Sale
14 77 2Q-2018 15 104 2Q-2018 16 121 2Q-2018 17 147 2Q-2018 18 121 2Q-2021 19 26 2Q-2018 20 29 2Q-2018 21 24 2Q-2018 22 126 2Q-2021 23 51 2Q-2018 24 71 2Q-2018 31 164 3Q-2020
1,061
Deductions for Costs to get to Blue -Topped Condition
A deduction is made for the remaining costs to the property owner/master developer to get the land from as is condition to blue -topped lot condition for the various Planning Areas. These costs include items of entitlements/planning/mapping, grading, construction of backbone improvements such as streets, utilities and flood control channels, and construction of facilities such as the sports park and the private recreation center.
The remaining estimated costs to complete, as provided by the property owner, are a total of $53,355,720 that are spread over the time period from the first quarter of 2017 through the fourth quarter of 2020. It is noted that these costs do not include or are net of items that are to be CFD bond -financed in a total amount of $22,000,000. These items include Butterfield Stage road Phase III; Rancho California Road Intersection & Transitions; Nicolas Road from Butterfield Stage Road to Phase 2 Boundary; Nicolas Road from Phase 2 Boundary to Westerly End of Improvement; Nicolas/Calle Girasol Culvert and Channel Improvements (portion); Winchester Road/Nicolas Road Intersection Improvements; and Santa Gertrudis Creek Channel Improvements.
It is also noted that the $53,355,720 costs do not include the 10% portion of certain costs that are the responsibility of Wingsweep Corporation.
These estimated costs together with the projected timing of the costs as provided by the property owner are shown in the following table:
38 VALUATION, Continuing
Quarter Cost Amount
1Q-2017 $2,706,764 2Q-2017 $587,877 3Q-2017 $786,147 4Q-2017 $2,095,851 1Q-2018 $2,371,597 2Q-2018 $2,614,677 3Q-2018 $5,293,984 4Q-2018 $6,818,148 1Q-2019 $6,818,148 2Q -20I9 $7,098,678 3Q-2019 $4,115,453 4Q-2019 $3,291,921 1Q-2020 $3,179,421 2Q-2020 $2,390,166 3Q-2020 $2,390,166 4Q-2020 $796,722
Total $53,355,720
A second cost factor in the discounted cash flow analysis is for the estimated property taxes and special taxes. The property taxes are based on the current amounts for the various Planning Areas, and then reduced as the land is sold off. The approximate estimates for the special taxes for this CFD were provided by Albert A. Webb Associates.
Lastly, a deduction is made for Sales Costs which includes marketing, legal and closing costs for the sell-off of the land. This cost factor is based on 2.5% of the gross sales revenues.
Discount Rate/Internal Rate of Return
This rate is inclusive of developer's profit, and also reflects the factors of the time value of money, and the risk of the projected cash flows inherent in this type of overall project. In my experience, this rate can range from near 10% to near 30%, depending on factors such as the size and status of the project, the length of the projected build -out, the location, the perceived risk and market conditions.
The PwC (formerly Korpacz) Real Estate Investor Survey for the second quarter of 2016 indicates a range of rates from 10.0% to 20.0% or an average of 15.5%, on an unleveraged basis and inclusive of developer's profit. It is noted that this average is unchanged from the fourth quarter of 2015, slightly lower than the average of 15.9% from a year prior (second quarter 2015) and well below the average of 16.75% as of the fourth quarter of 2014.
Additional information obtained from brokers and appraisers familiar with this type of property and analysis indicates supportable rates in the 15% to 22% range.
39 VALUATION, Continuing
The subject property, comprising the bulk of the "Pan" area, has the positive factors of the Temecula location, with much nearby recent and ongoing successful development in the "Panhandle" area and in Rancho Bella Vista. There are also the desirable factors of the recreational amenities and open space within Roripaugh Ranch, the potential for gated neighborhoods, the parks and schools within the community, and the significant amount of surrounding and nearby open space/preserve. The desirability of the Temecula location is discussed in the Market Absorption Study by Empire Economics in terms of its strong economic base, the benefit from the spillover of demand from the San Diego County Core, the low crime rate, and the desirable Temecula Valley Unified School District.
However, there are also the risk factors that the land development is not yet complete, though a large part of the grading operation was previously completed and part of the infrastructure was completed. There is also the risk factor that timing of building permits being available is tied to completion of certain infrastructure items. However, this has already been reflected by the conservative projection that building permits will not be available until the latter part of 2018. In addition, the property is fairly sizable at 1,061 residential lots, and the length of the absorption for the land sales is a total of 18 quarters or 4'/2 years.
Lastly, it is noted that the land values are based on current market values, and are not appreciated or adjusted up for time over the 4'A -year cash flow period. While residential land values have been fairly stable over the past year or two, the Empire Economics study indicates that home price appreciation is expected to continue to be low -to -moderate in the near term. Thus, a lower discount rate could be appropriate to reflect the potential for increasing land values that have not been specifically calculated into the future cash flows.
Based on the foregoing, I have concluded on a supportable discount rate at the upper mid -portion of the range of 15-22%, or a concluded discount rate of 20.0%.
Conclusion of Value
The discounted cash flow analysis is shown on the following pages, which incorporates the foregoing factors. As indicated, this analysis results in a present value indication of $35,835,120 which is rounded to a value conclusion of $35,835,000.
40 Quarterly 1Q-2017 20-2017 3Q-2017 40-2017 1Q-2018 2Q-2018 3Q-2018 4Q-2018 1Q-2019 2Q-2019
REVENUES (Land Sales) Planning Area 14 $0 $0 $0 $0 $0 $7,595,511 $0 $0 $0 $0 Planning Area 15 $0 $0 $0 $0 $0 $8,875,256 $0 $0 $0 $0 Planning Area 16 $0 $0 $0 $0 $0 $13,897,939 $0 $0 $0 $0 Planning Area 17 $0 $0 $0 $0 $0 $17,075,961 $0 $0 $0 $0 Planning Area 18 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Planning Area 19 $0 $0 $0 $0 $0 $5,027,854 $0 $0 $0 $0 $0 Planning Area 20 $0 , $0 $0 $0 $0 $5,607,991 $0 $0 $0 Planning Area 21 $0 $0 $0 $0 $0 $4,641,096 $0 $0 $0 $0 Planning Area 22 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Planning Area 23 $0 $0 $0 $0 $0 $5,030,793 $0 $0 $0 $0 Planning Area 24 $0 $0 $0 $0 $0 $7,543,821 $0 $0 $0 $0 Planning Area 31 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total $0 $0 $0 $0 $0 $75,296,222 $0 $0 $0 $0
PROJECT COSTS Land Development $2,706,764 $587,877 $786,147 $2,095,851 $2,371,597 $2,614,677 $5,293,984 $6,818,148 $6,818,148 $7,098,678 Property/Special Taxes $0 $1,404,220 $0 $1,404,220 $0 $709,730 $0 $477,580 $0 $477,580 Sales Costs 2.5% $0 $0 $0 $0 $0 $1,882,406 $0 $0 $0 $0
Total $2,706,764 $1,992,097 $786,147 $3,500,071 $2,371,597 $5,206,813 $5,293,984 $7,295,728 $6,818,148 $7,576,258
NET CASH FLOWS -$2,706,764 -$1,992,097 -$786,147 -$3,500,071 -$2,371,597 $70,089,409 -$5,293,984 -$7,295,728 $6,818,148 -$7,576,258
DISCOUNT FACTOR 20% 0.952381 0.909091 0.869565 0.833333 0.800000 0.769231 0 740741 0.714286 0.689655 0.666667
PV OF CASH FLOWS -$2,577,870 -$1,810,997 -$683,606 -$2,916,726 -$1,897,278 $53,914,930 -$3,921,470 -$5,211,234 -$4,702,171 -$5,050,839
PRESENT VALUE $35,835,120 30-2019 40-2019 1Q-2020 20-2020 3Q-2020 40-2020 1Q-2021 20-2021 Total
$0 $0 $0 $0 $0 $0 $0 $0 $7,595,511 $0 $0 $0 $0 $0 $0 $0 $0 $8,875,256 $0 $0 $0 $0 $0 $0 $0 $0 $13,897,939 $0 $0 $0 $0 $0 $0 $0 $0 $17,075,961 $0 $0 $0 $0 $0 $0 $0 $14,055,723 $14,055,723 $0 $0 $0 $0 $0 $0 $0 $0 $5,027,854 $0 $0 $0 $0 $0 $0 $0 $0 $5,607,991 $0 $0 $0 $0 $0 $0 $0 $0 $4,641,096 $0 $0 $0 $0 $0 $0 $0 $12,429,018 $12,429,018 $0 $0 $0 $0 $0 $0 $0 $0 $5,030,793 $0 $0 $0 $0 $0 $0 $0 $0 $7,543,821 $0 $0 $0 $0 $13,995,596 $0 $0 $0 $13,995,596
$0 $0 $0 $0 $13,995,596 $0 $0 $26,484,741 $115,776,559
$4,115,453 $3,291,921 $3,179,421 $2,390,166 $2,390,166 $796,722 $0 $0 $53,355,720 $0 $477,580 $0 $477,580 $0 $320,850 $0 $160,430 $5,909,770 $0 $0 $0 $0 $349,890 $0 $0 $662,119 $2,894,414
$4,115,453 $3,769,501 $3,179,421 $2,867,746 $2,740,056 $1,117,572 $0 $822,549 $62,159,904
-$4,115,453 -$3,769,501 -$3,179,421 -$2,867,746 $11,255,540 -$1,117,572 $0 $25,662,192 $53,616,655
0.645161 0 625000 0.606061 0.588235 0.571429 0 555556 0.540541 0.526316
-$2,655,131 -$2,355,938 -$1,926,922 -$1,686,909 $6,431,737 -$620,873 $0 $13,506,417 osedL Lard.se:Plan WINGSWEEP CORPORATION OWNERSHIP
PROPERTY DATA
Location
As indicated by the map on the previous page, this ownership comprises the northwesterly part of the "Pan" area, lying westerly of Butterfield Stage Rd. and on both sides of Murrieta Hot Springs Rd.
Record Owner/Ownership History
The current owner of record is Wingsweep Corporation. This entity acquired the property from Financial Title Company by Trustee's Deed Upon Sale recorded March 5, 2008 at an indicated amount paid by the grantee at the trustee sale of $10,500,000. (Note: The ownership includes several parcels that are not included in this appraisal that are designated for open space or flood control.)
Legal Description
The parcels that are included in this appraisal are legally described as follows:
Lots 1, 3, 4, 5 & 6 of Tract No. 29353-2, in the City of Temecula, County of Riverside, State of California, as per map recorded in Book 342 of Maps, Pages 73 through 85, inclusive, Records of said County.
The above -referenced tract map is the "A" map, and as previously indicated there were Tentative Tract Maps or "B" maps that had originally been prepared on all three residential Planning Areas by Ashby USA, LLC a number of years ago. The following table indicates by Planning Area the "A" map description, the Tentative Tract Map (TTM) description with the indicated number of lots at that time, and the current status of the TTM per the City Planning Department:
Planning No. Area Map TTM Lots TTM Status
10 Lot 1/Tr. 29353-2 30766 14 No application 12 Lot 4/Tr. 29353-2 32355 112 No application 33 Lots 5 & 6/Tr. 29353-2 30767 14 Submitted; active file
Assessor Data -2016/17
This ownership comprises Assessor Parcel Nos. 964-460-003, 007, 008, 009, 017 & 018. The assessed values total $5,126,229 for land and $0 for improvements. The tax rate area is 13-116 with an indicated tax rate of 1.04834%, but the total or effective tax rate to future homeowners, including special taxes for this CFD and other overlapping debt, is projected to be a maximum of 1.8% based on current estimated home pricing.
44 THIS PAGE INTENTIONALLY LEFT BLANK ASSESSOR MAP
.3
70'ffirl7d. a
I' 400' Ant 90
45 PROPERTY DATA, Continuing
No. of Lots/Lot Sizes/Planned Product
The following table correlates the Planning Area with the Assessor Parcel No. and provides the total acreage; and also indicates the planned number of lots, the indicated density and the minimum lot size based upon information that was provided by the property owner and is also consistent with the data presented in the Market Absorption Study by Empire Economics, Inc.:
Planning No. MM. Lot Area APN Acres Lots Density Size (sf)
10 964-460-007 8.12 14 1.7 10,000 12 964-460-009 16.01 136 8.5 3,000 33 964-460-003,017,018 12.34 15 1.2 20,000
165
Then, the expected home sizes and pricing for the three product types on the various lot sizes and Planning Areas are shown in the following table:
Product Planning Min. Lot Type Area Size (sfl Expected Home Sizes (sf) Expected Home Pricing
A 12 3,000 1,800 to 2,200; 2,000 avg $340,000 to $405,000; $368,000 avg B 10 10,000 3,500 to 4,500; 4,000 avg $651,000 to $784,000; $720,000 avg C 33 20,000 3,500 to 4,500; 4,000 avg $651,000 to $784,000; $720,000 avg
In addition, the commercial site (Planning Area 11) contains an area of 15.188 acres net per the Tract Map. However, prior information as well as confirmation by the current property owner indicates that the usable area is 10.7 acres, excluding the significant slope areas around most of the perimeter of the site. This includes a significant slope down from Murrieta Hot Springs Rd. along most of the frontage though closer to grade at the easterly end; a significant slope down from Roripaugh Valley Rd. along the westerly side; and slopes up from Butterfield Stage Rd. along the easterly side and Roripaugh Valley Rd. along the southerly side.
Current Condition of Land
As previously indicated, all of the land is currently vacant and had been rough or mass graded about 9 to 10 years ago. This includes grading of the in -tract streets in Planning Area 10 and grading of some of the individual lots in Planning Area 12 to a near blue -topped condition. The commercial site (Planning Area 11) was also rough graded to a superpad condition. In addition, some backbone infrastructure was completed as previously discussed for the RVR ownership. However, the land is currently overgrown with native vegetation and will require clearing/grubbing and remedial grading, as well as construction of all remaining backbone infrastructure and in -tract streets and utilities.
46 PROPERTY DATA, Continuing
Title Report
Preliminary reports by Orange Coast Title Builder Services dated in September 2004 had previously been reviewed. In general, the exceptions to title included various easements for utilities and documents including a development agreement and subdivision agreement. Similar to the discussion for the previous RVR ownership, it has been assumed that these exceptions are fairly typical in the development of a large master -planned property such as Roripaugh Ranch, and it is assumed that there are no other exceptions to title which would have a negative effect on the planned use and development of the properties.
VALUATION
Method of Analysis
This is similar to the analysis of the previous RVR ownership. While this subject ownership is much smaller at 165 residential lots in three Planning Areas plus the commercial site, there is still the similar time factor for required infrastructure to be completed before development could occur, resulting in a period of time before land sales to builders would be contemplated. Thus, the appropriate method of analysis for this ownership is also concluded to be a discounted cash flow analysis with similar steps as in the analysis of the RVR ownership.
Analysis of Finished Lot Values
3,000 s.f. Minimum Lots/Product Type A: Planning Area 12 is to be subdivided into 3,000 s.f. minimum lots and developed with homes averaging 2,000 s.f. in size and with average pricing of $368,000. This is very similar to Product Type 1B in the previous analysis of the RVR ownership, which is also an average home size of 2,000 s.f. and average pricing of $370,000 on 3,150 s.f. minimum lots. Thus, the conclusion is the same as for Product Type 1B, or $140,000 per finished lot.
10,000 s.f. Minimum Lots/Product Type B: Planning Area 10 is to be subdivided into 10,000 s.f minimum lots and developed with homes averaging 4,000 s.f. in size and with average pricing of $720,000. The previous analysis of Product Type 4 in the RVR ownership supports a firm lower limit indication at the concluded value of $175,000 per finished lot due to the much smaller lots at 6,000 s.f. minimum and targeted for much smaller and lower -priced homes. However, the previous analysis of Product Type 5 in the RVR ownership supports a close upper limit indication at the concluded value of $255,000 per finished lot due to the larger lots at 20,000 s.f. minimum and targeted for slightly larger and higher -priced homes. Considering a finished lot ratio of 34-35%, the following indication results:
$720,000 avg home pricing x .34-.35 finished lot ratio = $244,800 to $252,000/finished lot
47 VALUATION, Continuing
The conclusion is a value of $245,000 per finished lot.
20,000 s.f. Minimum Lots/Product Type C: Planning Area 33 is to be subdivided into 20,000 s.f. minimum lots and developed with homes averaging 4,000 s.f. in size and with average pricing of $720,000. It is noted that this is the same as Product Type B, and with the same projected average pricing though these are much larger lots at 20,000 s.f. minimum. The conclusion is a value that is slightly higher than for Product Type B but slightly lower than Product Type 5 in the RVR analysis, or a conclusion of $250,000 per finished lot.
Deduction from Finished Lot Condition to Blue -Topped Condition
Similar to the analysis of the RVR ownership, a deduction is made for the costs to get from blue -topped condition to finished lot condition, with the cost estimates based on the information provided for the RVR ownership. This results in the following:
Total Value Plan. Est. Value/ Deduct./ Value/Blue- No. Blue -Topped Area Fin. Lot Lot Topped Lot Lots Condition
10 $245,000 $61,621 $183,379 14 $2,567,306
12 $140,000 $54,661 $85,339 136 $11,606,104
33 $250,000 $61,621 $188,379 15 $2,825,685
Analysis of Commercial Land Value
A search was made in the general area for recent sales of reasonably similar commercial land. The pertinent data is shown in the following table, with discussion and analysis of the sales data following thereafter:
48 VALUATION, Continuing
Sale Size No. Location/APN Date (Acres) Price/S.F. Remarks
1 N'ly & W'ly corners Winchester Rd. Listing/ .79- $13.00- Vacant, fairly flat land; outlying arca, retail pads from & Pourroy Rd., French Valley area Offers 7.70 $20.00 .79 ac. to 7.70 ac. or 20.25 ac. total, offers at $20/s.f. 476-010-017, 054 & 055 for smaller corner parcels; limited interest in larger pcls
2 NE/S Clinton Keith Rd. (future), NW/O 1/8/16 11.47 $10.01 Vacant, rough graded site; had been site for Target Winchester Rd., Mumeta store; buyer assembled with No 3 for devel. of large 963-450-001 retail center; street construction burden
3 N'ly corner Winchester Rd & Clinton 1/7/16 32 56 $9 40 Vacant, rough graded land; assembled with No. 2 for Keith Rd (future), Mumeta (usable) development of large retail center; street construction 963 -450 -various Burden
4 W'ly corner Winchester Rd. & Clinton 10/28/15 6.53 $12.74 Vacant, fairly flat land; buyer is same as Nos. 2 & 3; Keith Rd. (future), Murrieta prior entitlements for retail center and auto service 963-060-053
5 NWC Winchester Rd. & La Alba Dr. Offers 9.28 ±$10.00- Vacant, fairly flat, rough graded land, prior approvals Mumeta $1 1.00 for 72,409 s.f. retail center now expired, interest mostly 900-440-002 to 008 from investors
6 S/S Rancho California Rd., 2nd parcel 8/5/16 1.75 $13.45 Vacant, fairly flat site, separate commercial parcel not W/O Moraga Rd , Temecula part of larger center; buyer plans Aldi supermarket, 944-290-027 signal entrance at Rancho California Rd
7 N/S Rancho California Rd., 2nd parcel 11/2/16 2.66 $13.81 Vacant, fairly flat finished site; business park arca; E/O Business Park Dr., Temecula buyer plans 120 -room hotel 921-020-041
8 SW/S Jackson Ave., SE/O Elm St., 2/5/16 10 58 $11 93 Vacant, rough graded land; 3 parcels; prior plans for Mumeta 3 office buildings; 15 Freeway visibility, buyer's plans 910-100-022 to 024 unknown
9 NW/S Guava St., 236' NE/O Madison 9/11/15 38 605 $10.76 Mostly vacant, gently undulating raw land; assembly of Ave., along 1-15 Fwy., Mumeta 5 ownerships, buyer plans CarMax Auto Superstore, 910-020-007 & 910 -140 -various much street construction burden
Subject 10.7 (usable)
Data No. 1 is located at the northerly and westerly corners of Winchester Rd. and Pourroy Rd., in the northerly part of the French Valley area. This is vacant and gently undulating land that is to be a retail site called Pinnacle Plaza. It consists of a total of 20.25 acres that is mapped into parcels ranging from .79 acre to 7.70 acres. The asking prices are $13.00 per s.f. for the 3.81 -acre, 5.10 -acre and 7.70 -acre parcels that are identified for a large single -tenant building, large multi -tenant building or multiple free-standing buildings, and $20.00 per s.f. for the smaller hard corner parcels. There has been limited interest in the larger parcels, but there have been multiple offers at full price for the hard corners for gas station use. The indication at $13.00 per s.f. is a closer upper limit for the subject due to being only an asking price but for an inferior far outlying location, and the indication at $20.00 per s.f. is a far upper limit due to the much smaller and superior hard corner parcels.
Data Nos. 2 and 3 are located at the northerly corner of Winchester Rd. and future Clinton Keith Rd. in the northeasterly part of Murrieta. This was an assembly of two ownerships by the same buyer of a total of 44.03 acres (usable) of vacant land that
49 VALUATION, Continuing
had been rough graded some years ago. Data No. 2 was a site that had been planned for a Target store and Data No. 3 comprised the land for the balance of the large retail center. The sales of the two sites closed in January 2016 at the combined price of $18,336,000 or $9.56 per s.f. The buyer plans a large retail center, and this includes the cost burden of constructing the full width of Clinton Keith Rd. from Winchester Rd. and beyond this property frontage. This sale supports a firm lower limit indication for the subject at $9.56 per s.f. due to the much larger size and street construction burden being far more than offsetting to the superior location.
Data No. 4 is located at the westerly corner of Winchester Rd. and future Clinton Keith Rd., just to the southwest of Data No. 2. It consisted of 6.53 acres of vacant and fairly flat land that had prior entitlements for a retail center and auto service facility. The sale closed in October 2015 at the price of $3,625,000 or $12.74 per s.f., and the buyer (same entity as for Data Nos. 2 and 3) plans retail development on the site. This sale supports a close upper limit indication for the subject at $12.74 per 01 due to the slightly smaller size and superior location but inferior shape and with some street construction cost burden.
Data No. 5 is located at the northwest corner of Winchester Rd. and La Alba Dr. in Murrieta, surrounded by residential neighborhoods to the north, west and south, but with much open space and the French Valley Airport across Winchester Rd. to the east. It consists of a 9.28 -acre site that is vacant, rough graded land which had previously been approved for a 72,409 s.f. retail center to be called Airport Village. The site is being marketed at an asking price of $5,225,078 or $12.93 per s.f., and the interest has been in the $4,000,000 to $4,500,000 range or +$10.00 to $11.00 per s.f. However, most interest has been from speculative investors who would entitle the site and not from near -term developers. The indication at $10.00 to $11.00 per s.f. supports a close but firm lower limit indication for the subject due to the slightly inferior location in terms of readiness/demand at this location for large commercial development at current date.
Data No. 6 is located on the south side of Rancho California Rd., the second parcel west of Moraga Rd. and backing to Via Las Colinas Rd., in the central part of Temecula. The signal at Lyndie Ln. is opposite this site. This is an individual 1.75 - acre commercial parcel that is not part of a larger center, and is vacant and mostly flat, rough graded land. The sale closed in August 2016 at the price of $1,025,000 or $13.45 per s.f., and the buyer plans an 18,000 s.f. Aldi supermarket. This sale supports a firm upper limit indication for the subject at $13.45 per s.f. due to being much smaller, though lacking being part of a larger center and being a use that is similar to what would be on a larger parcel within the subject site.
Data No. 7 is located on the north side of Rancho California Rd., the second parcel east of Business Park Dr. at the west side of Temecula and in a mostly business park type of area. It is a 2.66 -acre parcel consisting of vacant and fairly flat, rough graded
50 VALUATION, Continuing
land. The sale closed in November 2016 at the price of $1,600,000 or $13.81 per s.f., and the buyer plans a 120 -room hotel. This sale supports a firm upper limit indication for the subject at $13.81 per s.f. due to the much smaller size being more than offsetting to the inferior location and more limited development potential.
Data No. 8 is located on the southwest side of Jackson Ave. (becomes Ynez Rd. in Temecula), nearby to the southeast of Elm St. in Murrieta, and with some frontage along the 15 Freeway. This site is adjacent to the northwest of the Temecula city limits and in that area is much vacant land other than the Mercedes-Benz dealership. The sale consists of 10.58 acres of vacant and rough graded land comprising three contiguous parcels in an irregular shape that had previously been planned for three office buildings. The sale closed in February 2016 at the price of $5,500,000 or $11.93 per s.f., and the buyer's plans are not known. This sale supports a close indication for the subject at $11.93 per s.f. due to the similar size, and similar location with inferior street exposure offset by the limited freeway visibility.
Data No. 9 is located on the northwest side of Guava St., nearby to the northeast of Madison Ave. and with partial frontage along the 15 Freeway, in Murrieta. This is a still -developing commercial area but with a Wal-Mart store adjacent to the northwest. This was an assembly of five ownerships comprising a total of 38.605 acres of vacant and gently undulating land in raw condition, and development will require much street construction. The sales closed in September 2015 at the combined price of $18,100,000 or $10.76 per s.f., and the buyer plans a CarMax Auto Superstore. This sale supports a close but firm lower limit indication for the subject at $10.76 per s.f. due to the much larger size, the need to assemble five ownerships, and the raw condition requiring grading and street construction but partially offset by the superior freeway visibility.
In summary, the sales support a firm lower limit indication at $9.56 per s.f., close but firm lower limit indications from $10.00 to $11.00 per s.f., a close indication at $11.93 per s.f., close upper limit indications at $12.74 and $13.00 per s.f., firm upper limit indications at $13.45 and $13.81 per s.f., and a far upper limit indication at $20.00 per 01 Considering the subject site as being rough graded with perimeter streets and utilities mostly completed, and considering the desirable location with the future development of over 1,200 dwelling units in the nearby "Pan" areas, the conclusion for the subject site is $12.00 per s.f. which results in the following:
10.7 usable acres or 466,092 s.f. @ $12.00/s.f. = $5,593,104
Rd. $5,600,000
Absorption/Rate of Land Sales
This is similar to the analysis of the RVR ownership. It is noted that the Market Absorption Study by Empire Economics projects that the first closed homes sales for
51 VALUATION, Continuing
each of the three product types would be at the beginning of the second half of 2019 or in July 2019. Thus, it is estimated that the land sales for each of the three product types would close in the second quarter of 2018.
Regarding the commercial site, the Empire Economics report estimates that its absorption is based upon the occupancy of most of the homes in the "Pan" area along with threshold levels required to support commercial centers, and its absorption is expected to occur during 2023. It is noted that this absorption reflects occupancy of completed building space.
Considering the relatively large size of this potential commercial development, the sale of the commercial land would take place well before the completed space was available for occupancy. There is typically a long lag time after the land purchase for plans to be prepared and permits to be obtained, and then construction would likely take at least a year or more before occupancy could occur. In addition, this would likely be a desirable commercial site by that point in time due to the significant amount of new nearby development, which could result in an earlier acquisition of the site. Thus, I have concluded that the land sale would occur at the end of 2020 for occupancy to begin in early 2023.
Deductions for Costs to get to Blue-Topped/Mass-Graded Condition
Similar to the analysis of the RVR ownership, a deduction is made for the remaining costs to the property owner/master developer to get the land from as is condition to blue -topped lot condition for the residential Planning Areas, with the commercial site in its existing mass graded superpad condition.
As previously indicated in the analysis of the RVR ownership, the Wingsweep ownership is responsible for 10% of certain of the land development costs. In addition, based on the indicated costs for the RVR ownership for items including entitlement/planning/mapping, grading, etc., I have included estimated cost amounts. The total estimated costs together with the projected timing of the costs are shown in the following table:
Quarter Cost Amount
1Q-2017 $386,552 2Q-2017 $107,730 3Q-2017 $139,784 4Q-2017 $465,078 1Q-2018 $451,799 2Q-2018 $434,205 3Q-2018 $423,074 4Q-2018 $573,120 1Q-2019 $573,120 2Q-2019 $625,124
52 VALUATION, Continuing
Quarter Cost Amount
3Q-2019 $330,083 4Q-2019 $278,075 1Q-2020 $265,575 2Q-2020 $265,575 3Q-2020 $265,575 4Q-2020 $88,525
Total $5,672,994
Similar to the analysis of the RVR ownership, deductions are made for the estimated property taxes and special taxes, and lastly the deduction is made for the sales costs based on 2.5% of the gross sales revenues.
Discount Rate/Internal Rate of Return
The conclusion is the same as in the analysis of the RVR ownership, or a discount rate of 20%.
Conclusion of Value
The discounted cash flow analysis is shown on the following page, which incorporates the foregoing factors. As indicated, this analysis results in a present value indication of $10,898,404, which is rounded to $10,900,000.
53 Quarterly 1Q-2017 2Q-2017 3Q-2017 4Q-2017 1Q-2018 2Q-2018 30-2018 4Q-2018 1Q-2019 2Q-2019 30-2019
REVENUES (Land Sales) Planning Area 10 $0 $0 $0 $0 $0 $2,567,306 $0 $0 $0 $0 $0 Planning Area 12 $0 $0 $0 $0 $0 $11,606,104 $0 $0 $0 $0 $0 Planning Area 33 $0 $0 $0 $0 $0 $2,825,685 $0 $0 $0 $0 $0 Commercial Site $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total $0 $0 $0 $0 $0 $16,999,095 $0 $0 $0 $0 $0
PROJECT COSTS Land Development $386,552 $107,730 $139,784 $465,078 $451,799 $434,205 $423,074 $573,120 $573,120 $625,124 $330,083 Property/Special Taxes $0 $253,550 $0 $253,550 $0 $130,730 $0 $80,650 $0 $80,650 $0 Sales Costs 2.5% $0 $0 $0 $0 $0 $424,977 $0 $0 $0 $0 $0
Total $386,552 $361,280 $139,784 $718,628 $451,799 $989,912 $423,074 $653,770 $573,120 $705,774 $330,083
NET CASH FLOWS -$386,552 -$361,280 -$139,784 -$718,628 -$451,799 $16,009,183 -$423,074 -$653,770 -$573,120 -$705,774 -$330,083
DISCOUNT FACTOR 20% 0 952381 0.909091 0.869565 0.833333 0.800000 0 769231 0.740741 0.714286 0.689655 0.666667 0.645161
PV OF CASH FLOWS -$368,145 -$328,436 -$121,551 -$598,857 -$361,439 $12,314,756 -$313,388 -$466,979 -$395,255 -$470,516 -$212,957
PRESENT VALUE $10,898,404 4Q-2019 1Q-2020 2Q-2020 3Q-2020 4Q-2020 Total
$0 $0 $0 $0 $0 $2,567,306 $0 $0 $0 $0 $0 $11,606,104 $0 $0 $0 $0 $0 $2,825,685 $0 $0 $0 $0 $5,600,000 $5,600,000
$0 $0 $0 $0 $5,600,000 $22,599,095
$278,075 $265,575 $265,575 $265,575 $88,525 $5,672,994 $80,650 $0 $80,650 $0 $40,330 $1,000,760 $0 $0 $0 $0 $140,000 $564,977
$358,725 $265,575 $346,225 $265,575 $268,855 $7,238,731
-$358,725 -$265,575 -$346,225 -$265,575 $5,331,145 $15,360,364
0.6250000 0.606061 0 588235 0.571429 0.555556
-$224,203 -$160,955 -$203,662 -$151,757 $2,961,747 ADDENDA THIS PAGE INTENTIONALLY LEFT BLANK ESTIMATED ABSORPTION SCHEDULES.FOR.CFD, NO.,16-01 (RORIPAUGH RANCH - PAN AREA) ..... ,, -t f L = '- i i
' EMPIRE ECONOMICS , .:SUBJECT TO REVISION ,
CRITICAL:ASSUMPTIONS: SALEOF PROPERTIES,TO BUILDERS AND COMPLETION OP,THECONDITIONS OF DEVELOPMENT IN A TIMELY MANNER, I - ,
1 1
1 ' Iiiiected Mousing Prices; 994040 UitipAreari: ' :4c,P - . ilenting Area Esilitilted ,RoPerly Lot else Source: Pro10115 04903%8.000. Pr.eoriOsmv, - ., 2016 2020 2021 2022 2423 2034
Unite Own.i 13163m165 Loki AWN** Upper Lower Averispi Upper " c;;K: Annuatly. 2010 4515004 J40,04e. 410,040. :3101.4344: '440000 J80.43114.
50%. ! tegraent 11 1: 'Impair 6154 Lies: , 3,1504,000
254 , , : P44141P1311, iiriaiuiti 1/sift liesieritiOn ''illo-,', i269360 :$601,030, sinkal) 1080 2.201:1" itiir: 19 40 41 , 41 "ao 66',
Pret7041141 2543 11010i0011 Voloy Re4ter04irPi, .3102, isizacio 5370 000 5407020 i;foco z000' Ziod 40. 20 44 48 62 66 40' 1
, , , ,,, - , , , , , - Procluti 2 71, 'lloripeudi V4347 9411crit124 4,003 $400,600 . $429,006 5443309 2340 2,000 ' .2000 : 3A, '7 37 17' '0 0 6
F..wiuct A 136 Wepopmep '3003, $345.003 4 $ , 1400003 1.ti00 '-2..ko 2200 ,,,. , ,,,, - 40' '20 44 40 24* 0 0
Segment 4 2: luli-uni e134.0 1:;0e1 00194,500
P60950/3. 12.1 fiiPap'sii Vaieri'Pectorellen, 0030' iaszaoo i46e,00tl. 2,100 i:Ooo'- ;3,300 '22i le 36 38 32 0 0 144e20 ,
Oiiiact'i ici ii0*i:Jiti4.3,4 R:stergior;- ciace, siiiioo ufsi:illa" 1473440 insa '3200 "3.620 1.- . 40' 46 44 411 . 62, 60 40 pgs,.4.1, ,154, Roe. I
, lemma 3: Larger eked 1.00 10,005e , . .
Product 6 79 Pa ' 44 ' 000,0104 '600 197. 000 374 750. SOO 600 3 760 4200 760 12 4 tj 14 16 17 13 , , Prodiset 6 '11 Wiricpmp 19000 3351.000 8729000 9794000 3,500 4000 4.000 ' :6 3, 6 5 0 ci 0 i
Product C 16 'V31444P 29000 1861,000 0720,000 1794,001 2,640 4,000 ,4.500 ' 4 1 2 4 6 '4 0 5 1
. . statakIcal &annum .
) iliament II 1: knalltr Sri Ltes:^ 91604,000 728 695% 3364,460 5393900 $419700 ' 1990 2.200 2406 ,,,,,Pk0,$,,':::', 76 '166 166 123 100 ' 104 1
54irtterii92: hiediiiii e6d t.:oi*: s,oro:inoiii 3419 3010 8436.200 4497000, '5449645 2,750 3:100, .3.410 24 71 163 94 '50 413 .
, , """"""" , Segineni 3: Urger Steed Lois 'moo 109 ', ' 9 VA 303%000 3727914 1701,600 3653 4,090 , 4:6133 .':,:::::!1C;', It ,23 24 ii' 17 13
010160' 1 1,220 1 3479244 1619,217 956,696 2,694 '3,929, 3.364 *,..'*:-...;-'1 112 2E7 206 227 179' 106
Si QUALIFICATIONS OF STEPHEN G. WHITE, MAI
PROFESSIONAL EXPERIENCE
Real Estate Appraiser since 1976.
1983 through current date: Self-employed; office located at 1370 N. Brea Blvd., Suite 255, Fullerton, CA 92835 (Phone: 714-738-1595)
1976-1982: Employed by Cedric A. White, Jr., MAI, independent appraiser located in Anaheim. Real estate appraisals have been completed on most types of properties for purposes of fair market value, leased fee value, leasehold value, easement value, partial acquisitions and severance damages.
PROFESSIONAL ORGANIZATIONS
Member, Appraisal Institute; MAI designation obtained 1985 Affiliate Member, Pacific West Association of Realtors LICENSES
Licensed by the State of California as a Certified General Real Estate Appraiser; BREA ID No:. AG013311; valid through September 22, 2018.
EDUCATION
B.A. Economics & Business, Westmont College, Santa Barbara (1976) Appraisal Institute Courses: Basic Appraisal Principles, Methods and Techniques Capitalization Theory and Techniques Urban Properties Litigation Valuation Standards of Professional Appraisal Practice Numerous seminars and continuing education on various appraisal subjects, including valuation of easements and leased fee interests, litigation, the money market and its impact on real estate, and standards of professional appraisal practice. COURT/TESTIMONY EXPERIENCE
Qualified as an expert witness in the Superior Courts of Orange, Los Angeles, Riverside and San Bernardino Counties; also for the Assessment Appeals Board of Orange and Los Angeles Counties.
TYPES OF PROPERTY APPRAISED
Residential: vacant lots, acreage and subdivisions; single family residences, condominiums, townhomes and apartment complexes. Commercial: vacant lots/acreage; office buildings, retail/shopping centers, restaurants, hotels/motels. Industrial: vacant lots and acreage; warehouses, manufacturing buildings, R&D buildings, industrial parks, mini -warehouses. Special Purpose: mobilehome parks, churches, automobile agencies, medical buildings, convalescent hospitals, easements, leased fee and leasehold interests.
57 QUALIFICATIONS, Page 2
CLIENT LIST
Corporations: Aera Energy MCP Foods British Pacific Properties Merrill Lynch Relocation BSI Consultants Orangeland RV Park Crown Central Petroleum Pacific Scientific Firestone Building Materials Penhall International Foodmaker Realty Corp. Pic 'N Save Stores Greyhound Lines Sargent -Fletcher Co. Holiday Rambler Corp. Shell -Western E&P International Baking Co. Southern Distributors Corp. Johnson Controls Southern California Edison Kampgrounds of America The Home Depot Knowlwood Restaurants Tooley and Company La Habra Products, Inc. Wastewater Disposal Co.
Developers: Brighton Homes Mark Taylor, Inc. Brookfield Mission Viejo Co. Citation Builders Premier Homes Davison -Ferguson Investment Devel. Presley Homes D.T. Smith Homes Rockefeller & Associates Irvine Company Taylor Woodrow Homes Kathryn Thompson Developers Unocal Land & Development
Law Firms: Baldikoski, Klotz & Dragonette Oliver, Barr & Vose Best, Best & Krieger LLP 011estad, Freedman & Taylor Bowie, Arneson, Wiles & Giannone Palmieri, Tyler, Wiener, Wilhelm & Bradshaw, John Waldron LLP Bye, Hatcher & Piggott Paul, Hastings, Jonofsky & Callahan, McCune & Willis Walker LLP Cooksey, Coleman & Howard Piggott, George B. Hamilton & Samuels Pothier, Rose Horgan, Rosen, Beckham & Coren Rosenthal & Zimmerman Kent, John Rutan & Tucker, LLP Kirkland & Ellis Sikora & Price, Inc. Latham & Watkins LLP Smith & Politiski McKee, Charles C. Williams, Gerold G. Mosich, Nicholas J. Woodruff, Spradlin & Smart, P.C. Long, David M. Yates, Sealy M. Nossaman, Gutlmer, Knox & Elliott, LLP
Financial Institutions: Ahmanson Trust Company NorthMarq Barclays Bank Pacific Western Bank Chino Valley Bank San Clemente Savings & Loan Continental Bank Security Pacific Bank First Interstate Mortgage Sunwest Bank First Niagara Bank United Calif. Savings Bank First Wisconsin Bank Washington Square Capital
58 QUALIFICATIONS, Page 3
Cities: Anaheim La Habra San Diego Baldwin Park Laguna Beach San Marino Buena Park Long Beach Santa Ana City of Industry Mission Viejo Santa Fe Springs Cypress Orange Stanton Dana Point Placentia Temecula Duarte Riverside Tustin Fontana Seal Beach Yorba Linda Fullerton San Clemente
Counties:
County of Orange County of Riverside
Other Governmental: Agua Mansa Industrial Growth Association Metropolitan Water District El Toro Water District Orange County Water District Federal Deposit Insurance Corporation (FDIC) Trabuco Canyon Water District Kern County Employees Retirement Association U.S. Postal Service Lee Lake Water Dist.
School Districts: Alvord Unified School Dist. Newhall School Dist. Anaheim Union High School Dist. Newport -Mesa Unified School Dist. Anaheim City School Dist. Orange Unified School Dist. Banning Unified School Dist. Palm Springs Unified School Dist. Beaumont Unified School Dist. Placentia-Yorba Linda Unified Dist. Capistrano Unified School Dist. Poway Unified School Dist. Castaic Union School Dist. Rialto Unified School Dist. Cypress School Dist. Romoland School Dist. Etiwanda School Dist. Saddleback Valley Unif. School Dist. Fullerton College San Jacinto Unified School Dist. Fullerton Joint Union High School Dist. Santa Ana Unified School Dist. Fullerton School Dist. Saugus Union School Dist. Garden Grove Unified School Dist. So. Orange Cnty. Comm. College Dist. Irvine Unified School Dist. Westside Union School Dist. Lake Elsinore Unified School Dist. William S. Hart Union High Schl. Dist. Moreno Valley Unified School Dist. Victor Elementary School Dist.
Churches/Church Organizations: Calvary Church, Santa Ana Lutheran Church, Missouri Synod Central Baptist Church, Pomona Presbytery of Los Rancho Christian & Missionary Alliance Church, Santa Ana St. Mark's Lutheran Church, Hac. Hts. Christian Church Foundation United Methodist Church Congregational Church, Fullerton Vineyard Christian Fellowship First Church of the Nazarene Yorba Linda United Methodist Church
Other: Biola University Garden Grove Boys' Club Cedars -Sinai Medical Center The Sheepfold
59 THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX J
MARKET ABSORPTION STUDY THIS PAGE INTENTIONALLY LEFT BLANK MARKET ABSORPTION STUDY
COMMUNITY FACILITIES DISTRICT NO. 16-01 (RORIPAUGH RANCH - PAN AREA)
PREPARED FOR: CITY OF TEMECULA RIVERSIDE COUNTY, CALIFORNIA
PREPARED BY: EMPIRE ECONOMICS, INC. JOSEPH T JANCZYK Ph.D.
DECEMBER 2, 2016 THIS PAGE INTENTIONALLY LEFT BLANK CERTIFICATION OF INDEPENDENCE
EMPIRE ECONOMICS PROVIDES CONSULTING SERVICES ONLY FOR PUBLIC ENTITIES
The Securities & Exchange Commission has taken action against firms that have utilized their research analysts to promote companies with whom they conduct business, citing this as a potential conflict of interest. Accordingly, Empire Economics (Empire), in order to ensure that its clients, including the City of Temecula are not placed in a situation that could cause such conflicts of interest, provides a Certification of Independence. This Certificate states that Empire performs consulting services only for public entities such as the City of Temecula, in order to avoid potential conflicts of interest that could occur if it also provided consulting services for developers/builders. For example, if a research firm for a specific Community Facilities District were to provide consulting services to both the public entity as. well as the property owner/developer/builder, then a potential conflict of interest could be created, given the different objectives of the public entity versus the property owner/developer.
Accordingly, Empire Economics certifies that the Market Absorption Study for CFD No. 16-01 of the City of Temecula was performed in an independent professional manner, as represented by the following statements:
Empire was retained to perform the Market Absorption Study by the City of Temecula, not the District's property owners, Roripaugh Valley Restoration or Wingsweep Corporation.
Empire has not performed any consulting services for the District's property owners during the past twenty years.
Empire will not perform any consulting services for the District's property owners nor the property owners/builders during at least the next five years.
Empire's compensation for performing the Market Absorption Study for the District is not contingent upon the issuance of Bonds; Empire's fees are paid on a non -contingency basis.
Therefore, based upon the statements set-forth above, Empire hereby certifies that the Market Absorption Study for CFD No. 16-01 of the City of Temecula was performed in an independent professional manner.
Ooserk T. 0o,tAcz_1(
Empire Economics, Inc. Joseph T. Janczyk, President
1 TABLE OF CONTENTS (Revised January 30, 2017; Grammatical Changes Only - No Substantive Changes)
INTRODUCTION
A. Introduction to the Bond Financing Program 3 B. Southern California Market Region 4 C. CFD No. 16-01 Competitive Market Area 5 D. Role of the Market Study in the Bond Financing 6 E. Methodology Underlying the Market Study 7
SECTION I: EXPECTED PRODUCT MIX CHARACTERISTICS
A. Characteristics of the Expected Product Mix for the Projects/Products in CFD No. 16-01 8
SECTION II: MACROECONOMIC ANALYSIS DESIGNATED ECONOMIC AND REAL ESTATE FORECASTING SCENARIO
A. Methodology Underlying the Macroeconomic Analysis for Forthcoming Homes in CFD No. 16-01 11 B. Summary of the Market Conditions in Riverside County and the City of Temecula 12 C. Overview of the Recent/Expected Housing Market Conditions for Riverside County and Temecula. 13 D. Critical Components of the Economic and Real Estate Forecasting Model 14 E. Economic and Real Estate Conditions in California, Southern California, and Riverside County 18 F. Employment by Firms Located in the City of Temecula 29 G. Conclusions on Recent/Future Housing Market Conditions for Riverside County and the Temecula Market Area 31
SECTION III: MICROECONOMIC ANALYSIS
A. Methodology Underlying the Microeconomic Analysis of the Residential Projects in CFD No. 16-01 32 B. Competitiveness of CFD No.16-01 from a Regional Perspective .33 C. Recent Construction Activity Trends/Patterns in the City of Temecula 36 D. Socioeconomic Characteristics: Crime Levels and Quality of Schools 37 E. Competitive Market Analysis of the Projects in CFD No. 16-01 Competitive Housing Market Area 39 Comparison of Prices and Sales Rates: November 2016 vs. April 2016 44 F. Competitive Market Analysis for Homes with Large Lot Sizes .46
SECTION IV: ESTIMATED ABSORPTION SCHEDULES FOR THE PROJECTS IN CFD NO. 16-01
A. Estimated Absorption Schedules for the Projects/Products in CFD No.16-01 50
SECTION V: SENSITIVITY ANALYSIS: HIGHER MORTGAGE RATES
A. Analysis of Employment Changes and Mortgage Rate Levels on Housing Demand 54
SECTION VI: ASSUMPTIONS AND LIMITING CONDITIONS
Assumptions and Limiting Conditions 56 Appendix A: Credentials/Qualifications of Empire Economics 59
2 INTRODUCTION
A. INTRODUCTION TO THE BOND FINANCING PROGRAM
Community Facilities District (CFD) 16-01, also referred to as the Roripaugh Ranch Pan Area, encompasses a Planned Community of single-family homes and also a commercial -retail center that is being developed by Roripaugh Valley Restoration and Wingsweep Corporation.
CFD No. 16-01 is located in the northeasterly portion of the City of Temecula, southerly of Murrieta Hot Springs Road and easterly as well as westerly of Butterfield Stage Road.
Specifically, CFD No. 16-01 is expected to have some 1,226 single-family detached homes; this consists of 1,061 homes by Roripaugh Valley Restoration and another 165 homes in by Wingsweep Corporation area.
CFD No. 16-01 is also expected to have some 15.4 acres for commercial -retail projects that are expected to be oriented primarily towards the households in its vicinity, the Roripaugh Ranch Pan Area.
The City of Temecula along with the Property Owners, Roripaugh Valley Restoration (RVR) and Wingsweep Corporation, have formed Community Facilities District No. 16-01 to assist with the financing of the infrastructure that is required to support the development of the forthcoming residential and commercial -retail products in the District.
Specifically, the Bond Issue would be utilized to provide funds for various items, including roadways, drainage and park improvements, among others. The specific size of the Bond Issue and the particular improvements included will depend upon various factors which will be finalized when these bbnds are sold.
The purpose of the Market Absorption Study for the City of Temecula's Bond Financing for CFD No. 16-01 is to provide an estimate of the probable absorption schedules for the forthcoming residential and commercial properties.
The absorption schedules for CFD No. 16-01 take into consideration the expected time for Roripaugh Valley Restoration and Wingsweep Corp. to accomplish the following:
First, the property owners' expected time schedules for marketing the parcels to builders.
Secondly, the property owners' expected time schedules for fulfilling various development conditions so that the builders can secure building permits.
Accordingly, these factors will influence the absorption schedules for the forthcoming residential and commercial -retail projects in CFD No. 16-01. B. SOUTHERN CALIFORNIA MARKET REGION
APPROXIMATE LOCATION OF CFD NO. 16-01 "STAR"
Ur tdin-v r. Lucerne Valley Mira -1:)11 1-,Verde,t7gb Hesperia . t, Thorn a,,' antaPaul imphreys ootl Three --J4410.414..
nn1: en an FernandoSprig _ *.t all Mount 19 Be 14tb-.4/1:4- 419_ "';t41.1 Canada Flint 'Big'Bestr,,Lake : 2: a sade ijA'eGlelider '2 ghi°an d -ArlgelUSIOak$r ./ Forest Falls edlands a Lb o,t 4 4P.,4`,3 Irorn 1 614 60 iverside r Mali Ingl ; Iasi' '4,nrcalPa V Richera ino - I ii:F4. a t . .43annin ., Moreno Ha ,40.006 r 4! f rt.. cln Gabszc _Valz,,,,,,,,,Verd le'I1° a an R.11 lin Si uev peril an Jacinto Lornita° '*--... Rornol nd d Portu tiro rraeo emet h ne "Orilr eta et Jo Begh . Hot' Bagel , Ania kri I ' u ./ . - 4riviUrriera T la._ tic, hi San. uant':21),. guirly9 arbors , r 4 ,,./ r. Dan olnt arnbow a Oak Gni be at F all V 014 :ji17 :Staii()4 "a LuriPS' ,"\'ilala'iraly',.,,x:i:7-1,94-, an R 76 '14 I C?r jrnafge) P elf c Ocea Oceansi his . tEsco, cos' sabti
Encinita Tana B RosemonS
T.e.400NP l tt ' 'akesiciP7;c land e
Cojo 2.Pholno
4 C. CFD NO. 16-01: COMPETITIVE HOUSING MARKET AREA
APPROXIMATE LOCATION OF CFD NO. 16-01 "STAR"
8 f
, .4,I,vciEkR I i?!1:3 ,1, , +4"w'Murri eta' at ,,, '...:*.:4701 ...,;;;;#4'''.:2Y4:*) v,,,,14 Mar,: . ..,,,i,:.. at , ... r1+4 la " ---Spnngs i:-...*.Hl:::::
. . _r 0 ," vmt,- - ) +4 i,..,,.:,,,. l;e- / m v.,htrii +4. . +;4, v
: , ¼ 1 4 "
5
A," D. ROLE OF THE MARKET STUDY IN THE BOND FINANCING
The Market Absorption Study for CFD No. 16-01 has a multiplicity of roles with regards to the Bond Financing; accordingly, these are now discussed.
Marketing Prospects for the Residential and Commercial -Retail Product Types
Market Study included in Official Statement for Prospective Bond Purchasers
Aggregate Levels of Special Tax Revenues
Maximum Special Taxes for the Residential Products Conforming to the Issuer's Policies
Share of Payments: Developers/Builders vs. Final -Users Determined by the Absorption Schedule
Appraisal of Property
Discounted Cash Flow - Present Value Absorption Schedules
The Issuing Agency for the Bond Issue, the City of Temecula, along with the Municipal Advisor can utilize the Market Absorption Study, Appraisal, and Special Tax Revenue to structure the Bond Issue for CFD No. 16-01.
6 E. METHODOLOGY UNDERLYING THE MARKET STUDY
To perform a comprehensive analysis of the macroeconomic and microeconomic factors that are expected to influence the absorption of the residential single-family detached and commercial -retail products in CFD No. 16-01, Empire's Market Absorption Study conducts a systematic analysis of the following factors: MACROECONOMIC FACTORS FOR CFD NO. 16-01
Critical: Employment Changes and Mortgage Rates
Other Significant: Expected Housing Price Appreciation Gas Prices and Notices of Default
Secondary: Home Ownership Trends, Housing Resales
Extraordinary: Shifts in Geographical Development Patterns for Single -Family and Apartment Products
MICROECONOMIC FACTORS FOR CFD NO. 16-01
Regional Development Patterns Socioeconomic: School Quality and Neighborhood Safety Competitive Market Analysis *Location *Product Type *Housing Prices *Living Areas *Special Taxes *Features/Amenities
ABSORPTION SCHEDULES Product Types *Residential Single -Family Detached Commercial -Retail Center *Market Entry to Build -Out
Therefore, the Market Absorption Study systematically proceeds from the macroeconomic analysis of the Market Region's future housing, industrial and commercial growth to the microeconomic analysis of the estimated absorption schedules for the residential single-family detached and commercial -retail products in CFD No. 16-01.
7 SECTION I: EXPECTED PRODUCT MIX CHARACTERISTICS
A. CHARACTERISTICS OF THE EXPECTED PRODUCT MIX FOR THE PROJECTS/PRODUCTS IN CFD NO. 16-01
For purposes of the Market Absorption Study for the CFD No. 16-01 Mello -Roos Bond Financing, Empire Economics has compiled information on the planning approvals that Roripaugh Ranch - Pan Area has received as well as the development strategy of the property owners, Roripaugh Valley Restoration and Wingsweep Corporation.
Roripaugh Valley Restoration Sabal Financial Group, L.P. 1,061 Homes (Source: Mr. Kenneth Kramer, Principal and Manager)
Product 1A: 254 Single-family Detached Homes: Lot Size: 3,150 sq.ft. o Developer estimates: Prices of $407,000 and living areas of 2,200 sq.ft., on the average. Product 1B: 268 Single-family Detached Homes: Lot Size: 3,150 sq.ft. o Developer estimates: Prices of $370,000 and living areas of 2,000 sq.ft., on the average.
Product 2: 71 Single-family Detached Homes: Lot Size: 4,000 sq.ft. o Developer estimates: Prices of $429,000 and living areas of 2,600 sq.ft., on the average. Product 3: 121 Single-family Detached Homes: Lot Size: 5,000 sq.ft. o Developer estimates: Prices of $456,000 and living areas of 3,000 sq.ft., on the average.
Product 4: 268 Single-family Detached Homes: Lot Size: 6,000 sq.ft. o Developer estimates: Prices of $459,200 and living areas of 3,200 sq.ft., on the average. Product 5: 79 Single-family Detached Homes: Large Lots: 20,000 sq.ft. o Developer estimates: Prices of $743,750 and living areas of 4,250 sq.ft., on the average.
Wingsweep Corporation: 165 Homes (Source: Mr. Corry Hong, President and CEO; provided by Mr. Joseph Gauthier, legal counsel)
Product A: 136 Single-family Detached Homes: Lot Size: 3,000 sq.ft. o Developer estimates: Prices of $368,000 and living areas of 2,000 sq.ft., on the average.
Product B: 14 Single-family Detached Homes: Large Lots: 10,000 sq.ft. o Developer estimates: Prices of $720,000 and living areas of 4,000 sq.ft., on the average. Product C: 15 Single-family Detached Homes: Large Lots: 20,000 sq.ft. o Developer estimates: Prices of $720,000 and living areas of 4,000 sq.ft., on the average.
Therefore, CFD No. 16-01 is expected to have 1,226 single-family detached homes with a broad price range, from $340,000 to $807,500 and so the product mix is regarded as being diversified. CFD No. 16-01 is also expected to have some 15.4 acres for commercial -retail projects that are expected to be oriented primarily towards the households in its vicinity.
For additional information on the expected characteristics of the forthcoming residential products in CFD No. 16-01, please refer to the following graphs and table.
8 Aitr',WT CFDA:4011 14RPRIPR GH RAIdCtl PAN1AR oMES 1410PE aY 0)114E S ANDP-CibUCT
xy 'h _sue;' , > 44, ,6 DINP4 ;01 (KC! Aucw pm. 4:Ak1qA ' -oxtfomEsliV 9p.FR: . wi+111,:sr"., P SAVE GV 8001000 1 $743,750 $720,000$720,00) ti,1,4$706;000.. if 'x$600,000;li
5 c $456,000$459,200 $429,000 $407,000 r''$400 000 $370,000 $368,000
'
$300 r:''.:$200,000.j.,
lioq4000,:'
1,,i,Iv . , ., s
,,. NRonpaugh Vey Restoration 'VVingsweep ,,,, .0:,t 44t:A i
9 CFD NO. 16-01 EXPECTED RESIDENTIAL PRODUCT MIX CHARACTERISTICS BY PROPERTY OWNERS AND MARKET SEGMENTS
Expected Housing Prices; Expected Living Areas; Planning Area Estimated Property Lot Size Source: Property Owners Source: Property Owners
Units Owner Minimum Lower Average Upper Lower Average Upper
Segment # 1: Smaller Size Lots: 3,150-4,000
Product I -A 254 Ronpaugh Valley Restoration 3,150 $366,300 $407,000 $423,500 1,980 2,200 2,420
Product i-B 268 Ronpaugh Valley Restoration 3,150 $342,000 $370,000 $407,000 1,800 2,000 2,200
Product 2 71 Ronpaugh Valley Restoration 4,000 $409,500 $429,000 $443,300 2,340 2,600 2,800
Product A 136 Wingsweep 3,000 $340,000 $368,000 $405,000 1,800 2,000 2,200
Segment # 2: Medium Sized Lots: 5,000-6,000
Product 3 121 Roripaugh Valley Restoration 5,000 $432,000 $456,000 $463,650 2,700 3,000 3,300
Product 4 268 Ronpaugh Valley Restoration 6,000 $446,400 $459,200 $473,440 2,880 3,200 3,520
Segment # 3: Larger Sized Lots 10,000+
Product 5 79 Roripaugh Valley Restoration 20,000 $675,000 $743,750 $807,500 3,750 4,250 4,750
Product B 14 Wingsweep 10,000 $651,000 $720,000 $784,000 3,500 4,000 4,500
Product C 15 Wingsweep 20,000 $651,000 $720,000 $784,000 3,500 4,000 4,500
Statsitical Summary:
Segment # 1: Smaller Size Lots 3,150-4,0001 729 59 5% $364,450 $393,500 $419,700 1,980 2,200 2,405
Segment # 2: Medium Sized Lots: 5,000-6,000 389 I 31 7% $439,200 $457,600 $468,545 2,790 3,100 3,410
Segment # 3: Larger Sized Lots 10,000+ 108 88% $659,000 $727,917 $791,833 3,583 4,083 4,583
Overall 1,226 $479,244 $519,217 $554,599 2,694 3,028 3,354
10 SECTION II: MACROECONOMIC ANALYSIS DESIGNATED ECONOMIC AND REAL ESTATE FORECASTING SCENARIO
A. METHODOLOGY UNDERLYING THE MACROECONOMIC ANALYSIS FOR FORTHCOMING HOMES IN CFD NO. 16-01
This section describes the Economic and Real Estate Model underlying the forecasts for the absorption of the forthcoming residential projects in CFD No. 16-01 during the foreseeable future; according this involves a systematic analysis of the following:
B. Summary of the Market Conditions in Riverside County and the City of Temecula
C. Overview of the Recent/Expected Housing Market Conditions for Riverside County and the Temecula Market Area
D. Critical Components of the Economic and Real Estate Forecasting Model:
Critical Drivers: Employment as the Primary Economic Driver Mortgage Rates as a Secondary Economic Driver
Other Related Drivers Price Appreciation Expectations Recent Gas Prices Notices of Default
E. Economic and Real Estate Conditions in California, Southern California and Riverside County
Secondary Factors: Homeownership Rates and Shadow Inventory Sales of New and Existing Homes New Building Permits Unemployment Rates by Cities in Riverside County
Extraordinary Market Factors: Typical Geographical Development Patterns Characteristics of Millennials New Building Permits by Area - Urbanized vs. Rural Areas New Building Permits by Types - Single -Family vs. Apartment Recent Shifts in Development Patterns
F. Employment by Firms Located in the City of Temecula
G. Conclusions on Recent/Future Housing Market Conditions for Riverside County and the Temecula-Murrieta Market Area
II B. SUMMARY OF THE MARKET CONDITIONS IN RIVERSIDE COUNTY AND THE CITY OF TEMECULA
Based upon a comprehensive of the macroeconomic factors underling the recent/future demand for housing in and around Riverside County and the City of Temecula; the primary findings are as follows:
1. Riverside County's economy has recovered from the Great Recession, and its housing market is in a recovery mode, although the rate of recovery is only moderate. (see page 13)
2. Due to the Great Recession, Riverside County employment in 2010 fell to its lowest level since 2003 but it recovered to hit a new peak in 2015; employment is expected to continue to grow during the foreseeable future. (see page 14)
3. Since 2009, mortgage rates have been at historically low levels of below 5% but rates are expected to increase somewhat in the near future. (see page 15)
4. While some higher price appreciation occurred in Riverside County in 2013-2014, price appreciation is expected to continue to be low -to -moderate in the near term. (see page 15)
5. Notices of Default peaked during 2007-12 but their foreclosures/short sales created a significant shadow inventory: renter -occupied single-family homes in Riverside County rose by 58,000. (see page 16)
6. Gas prices in California peaked in 2012 and have since declined, thereby reducing commuting costs. (see page 17)
7. Since the peak of the Housing Bubble, California homeownership rates have declined from -60% to -54%; Riverside County rates have also declined, resulting in a shadow inventory. (see page 18)
8. Sales of new homes and existing homes have remained at relatively low levels since the end of the Housing Bubble, but are expected to increase through 2020. (see page 19)
9. New building permits have increased only moderately in recent years, for both single-family and multi-family/apartments, but the recovery is expected to strengthen during the foreseeable future (see page 20)
10. The City of Temecula has one of the lowest unemployment rates of any city in Riverside County, less than 5%. (see page 21)
11. Extraordinary special factors are causing market product type shifts towards apartments and geographical shifts to urbanized areas. (see page 22-26)
12. New single-family homes in the Inland Areas had a much higher peak level during the Housing Bubble but are now recovering at a slower pace than in the Urbanized Areas (see page 27-28)
13. New apartments in the Inland Areas peaked in 2004 and have lagged since while recently apartments in the Urbanized Areas have recently attained a new peak levels (see pages 27-28)
14. Firms in Temecula have about 50,362 employees; sectors with the highest shares of employees are public administration, retail trade and accommodation/food. Firms in Temecula have an average payroll per employee that amounts to $38,000, for full and part-time employees. (see pages 29 & 30)
Please refer to the following pages for additional information, followed by a synopsis (see page 31).
12 C. OVERVIEW OF THE RECENT/EXPECTED HOUSING MARKET CONDITIONS FOR RIVERSIDE COUNTY AND TEMECULA
RECENT/EXPECTED REAL ESTATE MARKET TRENDS/PATTERNS IN RIVERSIDE COUNTY AND TEMECULA
IMPACT OF IMPACT OF EMPLOYMENT: MORTGAGE PRIMARY RATES: DRIVER SECONDARY
STRONGER THAN DRIVER ANTICIPATED EMPLOYMENT LOWER THAN GROWTH ANTICIPATED ACCELERATES THE MORTGAGE RATES REAL ESTATE ACCELERATE THE REAL RECOVERY ESTATE RECOVERY Aft EMPLOYMENT THE LEVEL OF CHANGES, WHICH MORTGAGE RATES, DEPEND UPON THE WHICH DEPEND OVERALL ECONOMY, UPON THE RATE OF MAY SHIFT THIS INFLATION, MAY PARADIGM SHIFT THIS
PHASE3 OUSIWG A W Efige r'2013117 PARADIGM
LOWER THAN STRONG EMPLOYMENT GROWTH DR ES HaUSINGDEMAND/PRICES7INCREASES jjr ANTICIPATED *Itt_ 14; HIGHER THAN EW DEvEL TIENT IN E -ULAS EMPLOYMENT ANTICIPATED PeANNE 4MgliTt S ND ALSO OSItIESI P GROWTH ELONGATES OA MORTGAGE RATES THE REAL ESTATE PO NT1AVMACRO eriALLENG : FEDERAL EFICIT Ragget#111 ELONGATE THE REAL RECOVERY TH FEDERAL BOARD LANCING !TS FINANCI ACCOUNTS ESTATE RECOVERY OM. ifgamehem -MOM 'arrAS1 , Afle
13 D. CRITICAL COMPONENTS OF THE ECONOMIC AND REAL ESTATE FORECASTING MODEL
wgzsio MtAoiy4:AGGREGA7 EmptciiiniENT AINS.A.NEWITAK LEVEL IN 2015 - OSSESTRONFTHE RECENT RECESSION.171AVEBEEN:RECOUPED4,
Due to the Great Recession, in 2010, Employment recovered and employment fell to its lowest level since 2003 then set a new peak in 2015
From 2003-2007, employment increased to new highs
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, ... --. NJ. , l's.) - 1.661. Z66:1- I, .1 ,C66 ' t7661 -A 966i rr 466i1- 4 - 661 1166 666141,!: A,144 opoz zooz ,tooz 170QZ *17r 900Z Ppp Lo 800Z. 1.1 6,,(10Z 0 V. OZ) t! OZ Vge Z ' C'YOZ '--4fgr- co tiz, ?ken a, E ECONOMIC AND REAL ESTATE CONDITIONS IN CALIFORNIA, SOUTHERN CALIFORNIA AND RIVERSIDE COUNTY Homeownership reached a peak level during the recent 2005-2007 housing price bubble. Then the implosion of housing prices resulted in numerous foreclosures and short sales. Many of these single-family homes became rentals, resulting in a significant "shadow" inventory. . '41"1"ItE" , ...... ;ACA HOMEOWNERSHIP. RATES FOR ALL HOME.TYPES SOUTNERN,CALIFiii . 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',9,-.1, --1.--V -t.:. .gi ,,,,, . *PRICE CHANGES:ANNUALIZED_ SINGLE-FAMILY.+10MES4-t... ATITAICHEIYAP6RJ-MENT -41 ',Si - ,x...,:, 441,,p -f-q- - l' -VI ti. - ' .k-li 1 10.1:,..1 5-4'' -, , N,4.i.,4 -,r d ,./at, - -_,..,u- N tr ' I Beaunfonki 1 .k . .444444.4,4.4-. -40.0 i La Quinta.crty4 -. 4 1., trgrpa arm. 4 on.4$ I Calimesa0 EastValegity city,, 'Palm Disert city lit"' emecula city T4 116311.1111MEMMIM 61-44 lndiap Wells City, resm. rte...,...tr t 1.1.0.M.3141 canyon La kexity, a",.. lat n airOtt ,o4 110 Idyllwild Pine CoveCDP" An' --Corona city, Cathedra 1,City,cityi "Att-c1Y-- Murrieta city Norco,cityq Palms CDR t 4, I Winchester CDP- 4 trr,IV. PIIMISpringecibr *4.4 AMR .44,4 uancno Mirage city rrkrrssc Home,Gardens Cul? Banning,city.1 Nuevo coE., Cheri -Malley c,,DP 71, Riversidelcity, - tvm ay.* 4 WoodcrestiCDp rn .441,Nr 1.01, Jam', XHighgroveCDP ',autos' 4 Mane Vista DPi- .ur= %WO: -; * :Wildomar CDP ,SINunes,CDPAO',fiii Bermuda D 1. er.,,.50,,,, j,::.J 1 :.gam-i-IVIVIAT't.,4LayElsincifireitiii: 4.414.r. .4.1.Moreno Valley,,citw -510- rs,,,t111.11, ,4,1111....44%.11,11.WIE, 31Era .41/11.,966 jZi 1 Indiocityi. R ,., Blheyt cityi J. Eatt.Hemet,CDP .4.4414. .-tera-t1 Lic4- .4 44.14,1 Me 4'',L! 1,,,, viva,r15, DesertNut Springs city; araYmt MEM, 0 -c"-.4:-..4.1Mligf ... ,1,-IE1 Cerrito COPY .. -4';=:4* , .1*- --:-,.: Jurupa Valleymbe; 1,44..41441 19' Mr .1t ;Bom o land CDPJ - AlVir.et .11111£1. .49. .1.1.1 -;", 'Hem city .4 ate. tat. JA*441 pSaPernstiN I .k..skar ..444 i,,,,,n Jacinto,citY1 LakelandAhllage GDP r,tr',etRrt-fic,, . .-,,Coachella-cityl 45411440.4. - 1,-2:4-- Ilicupeland,.10CDO., 9,1. .11114.-.4 I 44....4.4 34-. <16,11,1W ',Lakeview COP- 'March AFB,,,..CDP mlyr. CillitRarM .41.4.4,001.114 .frru r .-mr 4.11.1 'f.,Catiazun CDR:' -- moo ..4-, -,44MeuP=Mecca CD "41-411111.144 '44-- ALTHOUGH EMPLOYMENT GROWTH IS STRONG, EXTRAORDINARY SPECIAL FACTORS ARE CAUSING MAJOR MARKET SHIFTS .= ita o If o ;an eel aunhm- Mean.* 'El Mliiga Ceaei O,R N I V code t. PRIOR Hesperia CarpIrtarla LUn !Vu ti evarypr ump14 ' Ssitas S pn nits ? Sett ;atx,r, eats Piulal Vlr117.'k `"; Clarita C a )orJon rg4;e014,...a!?_,,km El , * tirri'r!1t /' marts. 23 Valley item r cr 1a ienadi tai housallti 11101 _ 2;lotiornak , r East Los 7 Aiworail Cehrnesa - CherrV.Valley ; I f -Banning, ,,4; spB ep ed.n , Sprog H t eit: man Ho nnps' yilaPar cooky," CURRENTL .4711a Ssn.alc;nto ,( Albschtll *M;r.I1 Ve7-411, Rei1 n Vote., " ttelokt,. Sklnnel Sipe a Hkil antioan Hot Paurrie\ilk Mur;1eta Hal Springs\ CA' 3 t IClev;ieloH an Juan apistrane San Clemente 'or .C7K" oak° ..-'04$04; '-Pala Mesa aP pain INN; 22 MILLENNIALS' PREFERENCES AND FINANCES 4 HIGHER -DENSITY / URBANIZED HOUSING PARENTS: GENERATION X (AGES 35-54) IMPACTED BY IMPLOSION OF HOUSING PRICE BUBBLE CULTURAL PREFERENCES D PROXIMITY TO COMMUNITY AND URBAN ACTIVITIES )=. PROXIMITY TO OFFICE - MINIMIZES COMMUTING TIME > RESORT -LIKE AMENITY PACKAGES: CONCIERGE SERVICE, GYM AND SWIMMING POOL )=. CONVENIENCE: NO YARD WORK OR MAINTENANCE OR REPAIRS > WAITING LONGER TO GET MARRIED AND STARTING A FAMILY FINANCIAL FACTORS > SIGNIFICANT STUDENT DEBT: ADVERSELY IMPACTS DOWN PAYMENT AND MORTGAGE QUALIFICATION > RENTING PROVIDES MORE JOB FLEXIBILITY (CHANGE JOBS/FIRMS MORE FREQUENTLY) > SOME EVEN PAY VERY HIGH RENTS, RATHER THAN PURCHASE A HOME 23 OTHER FACTORS POTENTIALLY RESTRAINING THE DEMAND FOR SINGLE-FAMILY HOMES 1. HOMEOWNERSHIP HAS DECLINED FROM REDUCED DEMAND FOR NEW SINGLE- 60%-2005 TO 54%-2014 FAMILY HOMES 2. INCREASES IN SINGLE FAMILY RENTALS REFLECT A TRANSFORMATION OF THE EXCESS HOUSING MARKET BUBBLE SINGLE-FAMILY OWNERSHIP TO RENTALS 3. MODERATE FUTURE PRICE RESTRAINED BUYER CONFIDENCE EXPECTATIONS WILL CONTINUE TO PROVIDE COMPETITIVE ALTERNATIVE TO HOME OWNERSHIP 4. SIGNIFICANT SUPPLY OF NEW APARTMENT PROJECTS IN THE PIPELINE 24 RELATIVE LEVELS OF NEW SINGLE FAMILY HOES, 2013,/016' RELATIVE LEVELS OF, NEW APARTMENT UNITS 2013-2016 THE SUBURBANIRURAL AREAS THAT HAD; DEPRESSED LEVELS OF ACTIVITY THE URBAN AREAS HAVE HAD VERY HIGH LEVELS OF,NENy APARTMENT DURING 2008-2012 'CONTINUED TO BE DEPRESSED DURING 20137-2016 UNiTS DURING 201320 16, D2m:fLLENNIAT.,§ PREFERRING !TO RESIDEIN URBANIZED AREA, PRIMARILY IN THE SAN FRANCISCO AND LOS ANGELES COASTAL REGIONS 4 ,-, .1.:* ''3:414=1 htf;11-m-n, meant: jou r amta:96";d4ht-,0 `,..4 L MT n a Bar 25 RELATIVE LEVELS OF -NEW §INGLE=FAMIL3;7 14-0.14§.1060-60 itELATIVE LEVELS OF NEW SINGLE-FAMILY HOMES 2668-2612 SPILLOVER 'FROM THE SAN FRANCISCO AND LOS ANGELES AS SPILLOVER FROM URBANIZED AREAS DIMINISHES, REGIONS TO tiffsLIBLTRBAN/RiIRAL AREAS .ACTIVITY SUBURBAN/RURAL AREAS BECOMES DEPRESSED 4 - 31 73' a I. 11 r". et \ - I Dia,,,t3(V CO S '04; 123'Dwt4. 13? - 11. miRati4 00 7 100 A. 1 , 1 01' 6.? ,wins+day u/siiiCALIFORti 2 26 SOUTHERN CALIFORNIA - TYPES OF NEW HOUSING PRODUCTS BY GEOGRAPHIC AREAS NEW FOR-SALE APARTMENT NEW FOR -SALE HOME ACTIVITY RECOVERY: NEW APARTMENT ACTIVITY RECOVERY: * MODERATE PACE IN THE URBANIZED AREAS * STRONG PACE IN THE URBANIZED AREAS, * BUT AT A SLOW PACE IN THE INLAND AREAS * BUT MINIMAL LEVELS IN THE INLAND AREAS SO uffitiiN CALIFOR NLA.'';.,111tVit'SINGLEIFAMILY. HOMES %0441,,C44 "40 '''44+ 4, 4 I+("va44. 4. .7: 4 ,59U.THE RN: CALIFORNIA5N ePARTI)q NT).- GEgGRAPVICARMS 0007 4,YAGEOGRAPWAREAS 50,900 '1'410001, --- the Inland Areashad a much higher peak level during the 45,000 Housing Bubble 40 000 t2,5000 New apartmentsun the Coastal Area have attained :30,000 a new peak level ,:30,000 New single-family homes 25;000e, are recovering at a faster 2 000 pace in the coastal vs. the inland areas 000 - C15,000- New apartmentsin the ;15,000, Inland Area peaked in 2004 0,000 5;00(V, thr a?4,31, ....!Urbanized/Coastal ." Urbanized/Coast-a r- "' 4.4 27 THE CURRENT HOUSING MARKET RECOVERY DIFFERS SIGNIFICANTLY FROM PRIOR RECOVERIES: MUCH HIGHER LEVELS OF APARTMENTS IN URBANIZED AREAS MUCH LOWER LEVELS OF SINGLE-FAMILY HOMES IN THE INLAND AREAS .HI yldit' Wilson.; aninr I t o Ofbrort lll e lidsPrro .6Inip &crock CALIFORNI.A &Mime natbloaca not H Pr r Or Luc itnn Sulha! . Rug Valy Valley pr rton pare ^ : 14a Monte Rhona', Lenp1iihn wits."P!*17.2. 6ak View Bar ;Tv: 'sent ' tailte " itop.0:401744 .1 San flemidlno Nanettegar ast4 A qraixtri tAowlt 13444tkro4Yilt17:6'.. r'"44::::8ear.E1; Valmont ,r014 rtuntga lattOn Pitit 'aron&or .tntn411. inJain'H trinotA en Ratio San Juan for apish -an en Ca* fad*oak' 130i Pala '? F. EMPLOYMENT BY FIRMS LOCATED IN THE CITY OF TEMECULA Information was compiled from the Employment Development Department (EDD) specifically for firms located in the City of Temecula, including the number of employees and the payroll amounts. Note: Employment represents personnel on the payroll, and as such includes both full-time as well as part-time employees. Composition of Employment by Sectors: The firms in Temecula have about 51,960 employees as compared to 50,362 employees in the prior year, an increase of some 1,597 or +3.2%; the sectors with the highest shares of employees are as follows: Public administration: 19.2% Retail trade: 16.3% Accommodation and Food: 14.0% Administrative and Support: 8.3% . '9,...A , e It,. -; r on47: a LAnsraa -rx 14,Hosk,-,-ti z".:,:1,2vv.., CITY OF TEMECULA-''LEVELS,- OF EMPEOYMM BY ECONOMIC SECTORS --- IINCLUDES'EULL-11MEANOPARTTWEIPOSITIONS 4..a: i ,f? ; . 04, 4 t- , '.,..,;..4110 -gi-fiA ? 15% 6""**.k, Public Administration 1 9.2% Retail Trade 16.3% o u Accommodation.and Food Services 14. 0% AdnMstrative and Simpor 8 3% 71 -ealthCnd4Socal41"areaV 8 0% Manufacturing!, 44;0,-1 6 7% ,Construction 6 7% 'W Trade 5 0% ";holesale Professional, Scientific, Technical 4 % " - oiheFServices 14 'Finance and Insurance ' Information EducationayServices 'Real Estate, Rentatteasingi -,AgritculturiYforestry Transportation & Warehousing tr,V; Arts, Entertainment ;management; 0.1% 29 Payroll by Employment Sectors: For the firms in the City of Temecula, the average payroll per employee amounts to some $39,002, an increase from the prior year of $38,000, on the average, for full and part-time employees. This represents an increase of some $1,000 or 2.62%. The sectors with the highest payrolls per employee (full & part-time), according to EDD, are as follows: Management: $72,184 Professional: $69,131 Finance & Insurance: $63,857 CITy,OF TEMECULA::AVERAGE;PAYROIILPO'EMPLOYEE BY. ECONOMIC -SECTORS --- - ,*6,0'.1.,-ff,,,,,t,47, -c- t ',eth:.0.,e-4,...-,. o- 49..kx , i,.,*1 ,g--- ].51::-.4-- L, _: '(SALARIES REFLECT FULL' ND;PARTTLIVIEiNOSITIPOSITIONS)". 14 i.-:_i_F 4 -i, , .-,,-,-1, ':_J :::! ', ' ' , t: k - --:. $10;000`,t,S20,000 39g00 '$40'000 o,tiolo $`60;000 70 cico, $80 000 1110:7 014: .t Public Ad rnr istrtiO:n 48,510 $33,035 ccomnodaiion. and Food,Servi6e-sie 18,876 H e a ItHt a re and Social 77 $42,179 ,Adtipis-traiye and Support 28,730 a ritificttlii $41,527 Consiruction $48,043 *54 , Wholesale Tradel $51,564 Professional;Scientific, Technical $69,131 16, OtheiSermce4g $29,653 Fthance,ind.Insurance $63,85 7 -46tormailori $31,460 rts, Interta- knment 4 7,952 Real ,Estate, kental:LeaSine $ 48,345 EducatIonaltSefrces $30,364 -7:14, 6culture4rprestry=4-4 $35 687 - - Transportation,&06Jare0ousing $43,42 5 Management $72,18 30 G. CONCLUSIONS ON RECENT / FUTURE HOUSING MARKET CONDITIONS FOR RIVERSIDE COUNTY AND THE TEMECULA MARKET AREA The recent trends/patterns for the economy and housing market in Riverside County and the CFD No. 16- 01 Temecula-Murrieta Market Area, along with Empire's forecast for economic growth and housing demand based upon its Designated Economic and Real Estate Scenario, are now discussed. Price Appreciation: Starting in 2002, housing prices began to appreciate as mortgage rates declined, and then the rate of appreciation accelerated during 2004 to 2006 due to the pervasive use of non -conventional (creative) financing structures. During this time period, these financing structures and related financing factors, rather than employment growth, were the primary driving forces underlying the extraordinary rate of housing price appreciation for California, and also for Riverside County. Price Declines - Negative Equity: During 2007 to 2009, housing prices decreased significantly, pushing a substantial proportion of homeowners who purchased their homes during the price bubble into a position of negative equity, especially those that had high loan to value ratios. The enormous number of homeowners under duress caused an over -supply of homes which, in turn, severely depressed new development activity. Foundation for Recovery: Starting in 2010, and continuing through 2012, housing prices were relatively stable, and this enabled the housing market to go through a consolidation phase: Many homeowners with negative equity went through the foreclosure and short sales process. These homes, in turn, were purchased by new bona -fide homeowners as well as investors that benefited from lower prices. Although mortgage rates were very favorable, mortgage lending criteria were tighter for households and many investors were cash buyers. Market Recovery During 2013-2014: The housing market moved into a recovery phase, with the return of employment growth, and housing prices increased by some 20% during 2013. Normal Market Conditions During 2015-2016+: Employment, the traditional driver of housing price appreciation, has reached a new peak level, thereby recovering the jobs that were lost during the Great Recession. During the foreseeable future, employment is expected to increase at a moderate rate, and this will enable the housing market to return to its "historical" rate of price appreciation. However, the near - term recovery is not expected to be as robust as the typical recovery, due to the following macroeconomic conditions: Millennials have a preference to reside in urbanized areas and rent apartments, rather than commute to the suburban/rural areas to purchase moderately priced single-family homes. Reducing the Federal Deficit through higher tax rates, reduced deductions and lower spending. Federal Reserve Board re -balancing its accounts by selling recently purchased securities. Economic Strength of the CFD Market Area - Cities of Temecula and Murrieta: The Temecula- Murrieta Market Area is regarded as being a strong local economy within Riverside County (firms in Temecula have 50,000 employees), based upon its relatively low unemployment rate. Additionally, the area also benefits from some households in San Diego County that seek more moderately priced single- family housing (40,000 commuters into Riverside County from San Diego County). Due to its strong economic base and the spillover of demand from the San Diego County Core, the Temecula-Murrieta housing market will strengthen its recovery as employment gains generate a stronger demand for new homes, thereby providing support for the residential projects in CFD No. 16-01. 31 SECTION III: MICROECONOMIC ANALYSIS A. METHODOLOGY UNDERLYING THE MICROECONOMIC ANALYSIS OF THE RESIDENTIAL PROJECTS IN CFD NO. 16-01 The microeconomic analysis focuses upon the competitiveness of the forthcoming residential projects in CFD No. 16-01 with regards to the regional geographic development patterns within Riverside County and also the currently active comparable projects within the Temecula/Murrieta Market Area. B. Competitiveness from a Geographical Regional Perspective * Location of CFD No. 16-01: - Relative to Employment Centers, and Business Parks - Commuting Patterns: Employment Centers to Residential Areas - Location Relative to Urbanized, Suburban, and Rural Areas C. Recent Construction Activity/Trends in the City of Temecula - Residential: Single-family and Multiple -family - Industrial, Office and Retail D. Socioeconomic Characteristics - Crime Levels and Safety in the Market Area - Quality of Schools and Education E. Competitive Market Analysis of Projects in CFD No. 16-01 - Identification of the Currently Active Residential Projects in the Temecula-Murrieta Market Area and Selection of the Comparable Projects - Approximate Locations of CFD No.16-01 and Market Comparables - Recent Housing Sale Trends and Price Patterns for Homes in the Competitive Housing Market Area - Competitive Market Analysis of the Projects in the CFD: Statistical Analysis of the Prices, Living Area and Special Taxes F. Competitive Market Analysis for Products with Large Lot Sizes Price Premiums for Homes on Large Lots Recent Sales Trends for Homes on Large Lots 32 B. COMPETITIVENESS OF CFD NO. 16-01 FROM A REGIONAL PERSPECTIVE From a regional perspective, the competitiveness of CFD No. 16-01's forthcoming residential and commercial -retail projects/products are influenced by the development patterns for employment and housing within the Southern California Market Region (MR), and their interrelationships with the CFD No. 16-01 Market Area. Specifically, Business Parks generate industrial -office development while Planned Communities generate residential and commercial -retail development; additionally, the flow of traffic between them is facilitated by the freeways and highways. Expansion of Employment Centers and Business Parks The currently established major employment centers are Orange, San Diego and Los Angeles (OC/SD/LA) counties as well as the western portions of Riverside and San Bernardino counties. Furthermore, there has been some expansion from these into various Business Parks located in the CFD No. 16-01 Market Area, the southwestern portion of Riverside County. Specifically, these Business Parks are situated primarily along Interstates 15 and 215, major north -south freeways that link the western portions of Riverside and San Bernardino counties. The potential for the future expansion of Business Parks depends, to a significant degree, upon their freeway accessibility. Commuting Patterns: Employment Centers to Residential Areas Some of the households employed in the OC/SD/LA and western Riverside County employment centers reside in the CFD No. 16-01 Market Area, since it offers moderately priced housing; these commuting patterns are based upon the freeways/highways that link the employment centers to the Market Area. The expansion of the residential centers depends upon accessibility, whether by freeway or secondary roads. * There is strong spillover of housing demand from San Diego County into southwestern Riverside County along Interstates 15 and 215, major north -south freeways that link Riverside and San Diego counties. 33 RIVERSIDE COUNTY COMMUTING PATTERNS HOUSEHOLDS RESIDING IN RIVERSIDE COUNTY BUT EMPLOYED IN OTHER COUNTIES During 2006-2010, over 35,000 workers, on average, commuted into each of the four major nearby counties. Specifically, during this time period, some 38,830 people that resided in Riverside County, on average, commuted from their homes in Riverside County to their employers in San Diego County. This reflects the strong spillover in demand from San Diego County into southwestern Riverside County and the Temecula-Murrieta Market Area. 2006-2010 County -to -County Commuting Flows Santa Balm 210 Workers Commuting From- , :RiversideTo'Ottier Counties ,. sboei ime Riverside 50,001 VP.,709 I Itersidt... t_ No :69-nyiiiiiirs To fhis'C,ouni Yuma "..;1 Total Workers That Live And Work in Riverside: 586,265 Additionally, for each major neighboring county, the number of people commuting from Riverside County into that county exceeds the number of people commuting into Riverside County. So, although Riverside has seen employment growth and has a substantial employment base, many residents commute to other counties for work. tir RIVERSIDE COUNTY: COMMUTING LEVELS FR 0 MANS INTO COUtiTY.(2608-20i0) : 100,000 89,709 90 67 160 65 136 60,00 50,901 50,000- 40,000 38,630 30,000 ,,L,2,060 15242 15, 8 rP Opoo .. 8 636 5036 .-, .co 4 . . 'It-,1491 --`41 -- '3 ,5*-, errimubn0 from Riverside Ca od&iimilbng Into Riverside Couilty . . -,. ,..- r..., , , , 4, - - 34 CFD NO. 16-01 - AN "INFILL" DEVELOPMENT: THE CFD IS SITUATED WELL WITHIN THE RESIDENTIAL DEVELOPMENT AREA 79 a 35 C. RECENT CONSTRUCTION ACTIVITY TRENDS/PATTERNS IN THE CITY OF TEMECULA SINCE 2009 ONLY MODERATE LEVELS OF NEW SINGLE-FAMILY DEVELOPMENT BUT HIGH LEVELS OF APARTMENTS ACTIVITY IN 2013-2014 rtyvRESIpENTIAL HOMES ROBUST/BUBBLE RECESSION/DEPRESSION RECENT RECOVERY 1,200 ea emecuta Ingle Familyferfruts einecul Attache SINCE 2009, MINIMAL INDUSTRIAL -OFFICE -RETAIL DEVELOPMENT ACTIVITY TR OF TEMECULA: NEWANDUSTRI - OFFICE - R 120;000,000; tWilifethl 100,000 000 $8o,00 000 $60,!':00,000 ":" ;CP 1... Temecula ;Ind strial. Temecula Offices , . -R.Tenitctifa eta ,111714 . . 36 D. SOCIOECONOMIC CHARACTERISTICS: CRIME LEVELS AND THE QUALITY OF SCHOOLS When households consider the purchase of a home, the primary factors are the location of the residence relative to their place of employment and also the prices that they can afford; furthermore, secondary socioeconomic factors that are significant include neighborhood/personal safety as well as the quality of the schools; accordingly, these are now discussed. 1. Crime Levels and Safety in the Market Area To gauge the safety of the CFD No. 16-01 Market Area, information on crime levels was obtained utilizing the most recent data available from the Federal Bureau of Investigation (FBI) Index which covers 2014, with a focus on "Violent Crimes". California - Statewide: The violent crime rate is 3.93 per 1,000 people per year. County of Riverside: The violent crime rate is somewhat lower, about 2.73 per 1,000 people per year. City of Temecula: The violent crime rate is significantly lower, approximately 0.93 per 1,000 people per year. So the City of Temecula has a relatively low crime rate, as compared to California and Riverside County, and so this is beneficial to the demand for homes in CFD No. 16-01. 37 2. Quality of Schools and Education To gauge the quality of schools in the CFD No. 16-01 Market Area and its vicinity, information was compiled on educational achievement, utilizing the Academic Performance Index Scores (API), published by the California Department of Education, reflecting the most recent report available. IC CHA OTERI cii-EDueAtioN (WA :RECENT-AP SCORES 852 853 790 792 v o nia yersi Gotinty Temecu a Valley urr Valley Mem e Uni ed ed Elementary. Accordingly, the Temecula Valley Unified School District has an API of 866, as a whole, much higher than that of California which is 790 and also higher than Riverside County, as a whole, which is 792. Furthermore, the Temecula Valley Unified School District has a higher API than the nearby school districts of Murrieta Valley Unified, 852, and also Menifee Union Elementary, 853. Conclusions From a socioeconomic perspective, the City of Temecula has a significantly lower crime rate than Riverside County and the Temecula Valley Unified School District has a significantly higher educational achievement level than Riverside County. Accordingly, these positive socioeconomic factors are favorable to the demand for homes in CFD No. 16-01. 38 E. COMPETITIVE MARKET ANALYSIS OF THE PROJECTS IN THE CFD NO. 16-01 COMPETITIVE HOUSING MARKET AREA The purpose of this section is to provide an overview of the currently active Planned Communities (PCs') and other residential projects in the CFD No. 16-01 Competitive Housing Market Area, and then to compare these to the expected characteristics of the forthcoming residential projects/products in CFD No. 16-01. The CFD No. 16-01 Competitive Housing Market Area currently has several Major Planned Communities or project groupings with single-family detached homes that are located in the cities of Temecula and Murrieta and their vicinity. The eight currently active projects, along with the estimated nine forthcoming projects in CFD No. 16- 01, have a total of 2,052 housing units 1,226 forthcoming homes in CFD No. 16-01 and 826 homes in the currently active projects. Of the 826 homes in the currently active projects, 497 have closed their escrow and so they are considered to be occupied. CFD No. 16-01: expected to have 9 forthcoming projects with 1,226 homes. Roripaugh Ranch -Panhandle: 3 active projects with 396 homes of which 285 have closed escrow. Temecula-Redhawk: 1 active project with 74 homes of which 15 have closed escrow. Murrieta Area -Various Projects: 4 active projects with 356 homes of which 197 have closed escrow. Of these three are in Planned Communities (Rancho Bella Vista -2 and Promotory-1), and the other is stand-alone project. CFL111S1S1:1620,1,COnETFIly H HARACTERISTICS OF AC SHEVELOPIVIg ag sbo -it ' ''t 100 1 Alt r /14 16-01 CFD 16-01:' anPaugh Ternecuta Smaller -Area- Sue'Lo s ,SizedLotsi; Panhandle,Redhawk N211 t.a 1,111411.10 plat - cgse4114 o,i, SAE olb `i Ait 41101; Ar1971j,..' Filituirtittla 129 ativiloois 4,niskftv; fp' 59 b 159 w 111k, ' -Valk ''1irtKORMs4 39 CFD NO.16-01 AND THE MARKET COMPARABLES: APPROXIMATE LOCATIONS City of Temecula CFD. No.16-01 Roripaugh Ranch - Panhandle Pinnacle II Cambridge II Montego Temecula Renaissance Murrieta Area Calistoga Alicante Cambria Seneca 40 The prices of homes in these projects, including the currently active comparable projects and also the forthcoming projects in the CFD, are some $477,287 for some 2,776 sq.ft., on the average, and the prices for the projects in the various categories are as follows: CFD No. 16-01: $393,500 to $727,917 for some 2,200 to 4,083 sq.ft. of living area. Roripaugh Ranch -Panhandle: $465,480 for some 2,929 sq.ft. of living area. Temecula-Redhawk: $444,990 for some 2,418 sq.ft. of living area. Murrieta Area -Various Projects: $399,875 for some 2,186 sq.ft. of living area. anger r5 Vinous Biojelt 544 T 13,41,,S W33f$O91 $45716 *74It7 1$46,40,' $4.14r99' als3991725U tr,g, 92_ *:18 ilt12,441r 4drvraki,,t 41 To compare the prices of the homes in these projects, their value ratios are utilized, the price per sq. ft. of living area, since this effectively makes adjustments for differences in their sizes of living areas. Accordingly, the value ratios for all of the projects amount to $174 per sq. ft. of living area and their Special Taxes/Assessments amount to some $3,711/yr. (0.76% as a ratio to the housing prices); accordingly, the value ratios and Special Tax/Assessment characteristics for the forthcoming product types in CFD No. 16-01 and the currently active comparable projects are as follows: CFD No. 16-01 has an expected value ratios of $148-$180, similar to the overall average and the expected Special Taxes amount to $3,581/yr. (0.91%) to $6,624 (0.91%), significantly above the overall average/ratio. Roripaugh Ranch -Panhandle has a value ratio of $159, significantly below the overall average and their Special Taxes/Assessments amount to $3,165/yr. (0.68%), somewhat below the overall average/ratio. Temecula-Redhawk has a value ratio of $184, somewhat above the overall average and their Special Taxes/Assessments amount to $1,780/yr. (0.40%), significantly below the overall average/ratio. Murrieta Area - Various Projects have a value ratio of $187, somewhat above the overall average and their Special Taxes/Assessments amount to $2,322/yr. (0.58%), significantly below the overall ratio. -AV , *n OFD NO 164), CONIRETTFIVE: 0 g,ING. w105,AND PEC - JANES $184 $187 $178 $159 $148 S6;000 - $5;000,t5:000: 0, :0001 3 , $2;000 cartiliV ' Mgieta Ronpaugh 60-54r, .sRauch- Medium , Vanoui Panhandle r. Projects 41k$180.ak it.;,s178;;11 s'g9 $6,624 $4K5 $1;780 42 The currently active residential projects have experienced sales rates of some 256 homes per year, for an average of some 32 units per project per year; the distribution of these sales is as follows: The three projects in Roripaugh Ranch -Panhandle have an overall sales rate of 101 homes annually, some 34 per project, on the average. The project in Temecula-Redhawk has an overall sales rate of 30 homes annually. The four projects Murrieta Area - Various Projects have an overall sales rate of 125 homes annually, some 31 per project, on the average. Furthermore, projects that have prices that are similar/below the recent/prior FHANA mortgage loan limit of $356,500 for Riverside County have more favorable sales rates as compared to the projects with relatively higher prices. The recent increase of the FHA/VA mortgage loan limit to $424,100 for Riverside County will be beneficial to the forthcoming projects in CFD No. 16-01. 43 The culmination of the Competitive Market Analysis involves a statistical comparison of the currently active project in CFD No. 16-01, using their total housing prices (base price less incentives plus special tax liens), and their sizes of living area. The blue line in the graph represents the best fit for the currently active comparable projects between total housing prices (base prices less incentives and the special tax lien) and size of living area; each comparable project is represented by a blue dot. The forthcoming projects in CFD No. 16-01 are represented by a green triangles. For the smaller to medium sized lots, the CFD 16-01 projects are similar to the currently active comparable projects. Since the forthcoming projects in CFD No. 06-1 (green triangles) are similar to the trendline (based on the blue dots), they are regarded as being competitively prices in the marketplace. While for the CFD 16-01 large lot projects, they are above the trendline of the market comparables, since they have premiums for their large lot sizes; these are discussed further in the next section. Aaj I*11{#,A.TITIVELK4RWE.ANALySIS TOTA.UPRICE4= 0131,NG,PAICEIT:PlEi T VALUE 0 SPE 1400,000 P300,000 A 800,000 PROJECTS WITH LARGE SIZED LOTS PRICE PREMIUMS 704300 $400,0 300 $2110,0,, 100,000 ,500 ,4,000 Comparables Comparison of Prices and Sales Rates: November 2016 vs. April 2016 (Seven projects were on the market during this entire time period) Since Empire previously surveyed the comparable projects in April 2016, they prices and sales rates can be compared to the November 2016 surveys, to identify the changes that have occurred, and these are as follows: D Housing prices increased at an annualized rate of 4.0% which is similar to the general housing prices trends for Southern California, as a whole. However, there were significant variation among the various projects, from a decline of -4.1% to an increase of +10.8%. D Sales rates for these projects increased slightly, but not significantly, from April 2016 to November 2016. Therefore, based upon an analysis of the comparable projects, the market has experienced a moderate increase in prices and somewhat higher sales rates. 44 --CHARACTERISTICS OF THE COMPARABLE" ACTIVE PROJECTS IN THE COMPETITIVE HOUSING MARKET AREA BY GEOGRAPHICAL LOCATIONS ... . . I. 1 I Special Project Project Budder Product Type Project Size and Sale. Housing Price. Sic. of Living Area Value Assessments/Taxes ...... - Builder Locations Total Escrows Future Sales Lower Average Upper Lower Average Upper Ratio Amount/ Ratio/ Incentives _ ...... _ . . .. . _ .. ' Cloned Rate/Yr. Year Price CFD 16-01 Smaller Size Lots Product I -A Ronpaugh Valley Restoration Single-family Detached 254 0 254 N/A $366,300 $407,000 $423,500 N/A 1,980 2,200 2,420 $185 $3,704 097% CFO 16-01 Smaller Size Lots Product I -B Ronpaugh Valley Restoration Single-family Detached 268 0 268 N/A $342,000 $370,000 $407,000 N/A 1,800 2,000 2,200 $185 $3,367 091% CFD 16-01 Smaller Size Lots Product 2 Ronpaugh Valley Restoration Single-family Detached 71 0 71 N/A $409,500 $429,000 $443,300 N/A 2,340 2,600 2,800 $165 $3,904 091% CFD 16-01 Smaller Size Lots Product A Wingsweep Single-family Detached 136 0 136 N/A $340,000 $368,000 $405,000 N/A 1,800 2,000 2,200 $184 $3,349 091% CFD 16-01 Medium Sized Lots Product 3 Roripaugh Valley Restoration Single-family Detached 121 0 121 N/A $432,000 $456,000 $463,650 N/A 2,700 3,000 3,300 $152 $4,150 091% CFD 16-01 Medium Sized Lots Product 5 Ronpaugh Valley Restoration Single-family Detached 268 0 268 N/A $446,400 $459,200 $473,440 N/A 2,880 3,200 3,520 $144 $4,179 0 91% CFD 16-01 Larger Sized Lots Product 5 Ronpaugh Valley Restoration Single-family Detached 79 0 79 N/A $675,000 $743,750 $807,500 N/A 3,750 4,250 4,750 $175 $6,768 0 91% CFD 16-01 Larger Sized Lots Product B Wingsweep Single-family Detached 14 0 14 N/A $651,000 $720,000 $784,000 N/A 3,500 4,000 4,500 $180 $6,552 091% CFD 16-01 Larger Sized Lots Product C Wingsweep Single-family Detached 15 0 15 N/A $651,000 $720,000 $784,000 N/A 3,500 4,000 4,500 $180 $6,552 091% Ronpaugh Ranch - Panhandle Pinnacle I & II KB Home Single-family Detached 197 135 62 47 $424,990 $476,990 $528,990 $0 2,060 3,120 4,180 $153 $3,244 068% Ronpaugh Ranch - Panhandle Cambridge CalAtlantic Homes Single-family Detached 100 76 24 27 $456,412 $461,049 $465,685 $5,000 2,399 2,729 3,059 $169 $3,181 0 69% Ronpaugh Ranch - Panhandle Montego CalAtlantic Homes Single-family Detached 99 74 25 27 $439,900 $458,400 $476,900 $5,000 2,399 2,939 3,479 $156 $3,071 067% Temecula - Redhawk Renaissance Beazer Homes Single-family Detached 74 15 59 30 $442,990 $444,990 $446,990 $0 2,282 2,418 2,554 $184 $1,780 0 40% Mumeta - Rancho Bella Vista Alicante Lennar Single-family Detached 161 149 12 50 $383,290 $405,769 $428,247 $0 1,672 1,975 2,277 $206 $2,313 057% Mumeta - Rancho Bella Vista Cambria Lennar Single-family Detached 77 35 42 34 $403,206 $441,751 $480,295 $0 1,940 2,882 3,823 $153 $2,518 057% Murrieta - Promotory Calrstoga Cornerstone Communities Single-family Detached 64 0 64 30 $379,990 $393,490 $406,990 $0 1,771 1,902 2,032 $207 $2,164 055% Mumeta - Stand Alone Seneca KB Home Single-family Detached 54 13 41 11 $337,990 $358,490 $378,990 $0 1,649 1,985 2,321 $181 $2,294 064% Statistical Summery Sales / Year CFD 16-01 Smaller Size Lots N/A 4 729 0 729 N/A $364,450 $393,500 $419,700 N/A 1,980 2,200 2,405 $180 $3,581 091% CFD 16-01 Medium Sized Lots N/A 2 389 0 389 N/A 0439,200 0457,600 0468,545 N/A 2,790 3,100 3,410 $148 $4,164 091% CFD 16-01 Larger Sized Lots N/A 3 108 0 108 N/A $659,000 0727,917 $791,833 N/A 3,583 4,083 4,583 $178 $6,624 001% Ronpaugh Ranch - Panhandle 34 3 396 285 111 101 $440,434 $465,480 $490,525 $3,333 2,266 2,929 3,573 $159 $3,165 060% Temecula - Redhswk 30 1 r 74 r 15 59 r 30 r $442,990 $444,990 $446,990 SO r 2,282 2,418 r 2,554 $184 $1,780 r 040% Murneta Area - Vanous Projects 31 4 356 197 159 125 $376,119 $399,875 5423,631 SO 1,758 2,186 2,613 5187 $2,322 058% Totals/Averages 32 17 2,052 497 1,555 256 $445,998 $477,287 $506,146 $1,250 2,378 2,776 3,171 $174 $3,711 0 76% . . 45 F. COMPETITIVE MARKET ANALYSIS FOR HOMES WITH LARGE LOTS The Competitive Market Analysis revealed that the currently active projects in the market area generally have smaller to medium size lots and so they are directly comparable to similar size lot products for this CFD No. 16-01, those homes that are on lots that range between 3,150 to 6,000 sq.ft. However, the CFD No. 16-01 also has several housing products which have significantly larger lot sizes, ranging from 10,000 to 20,000+ sq.ft.; the specific projects are as follows Roripaugh Valley Restoration: Product Five: 79 homes Wingsweep: 29 homes Price Premiums for Homes on Large Lots: (Sample of Sales: Six Months) To identify the premium for larger size lots in the City of Temecula, Empire conducted market research on the price differentials for homes on typical size lots versus large lots, using the following information: Sales of single-family homes during a recent six month period 312 such homes with sufficient data. The sales prices of these homes: median of $460,000, with the range of $285,000 to $2,100,000. The square footages of living areas of these homes: median of 3,001 sq.ft. with the range of 2,004 to 6,750 sq.ft. The lot sizes of these homes: median of 7,405 sq.ft. with the range of 4,356 to 225,641 sq.ft. Based upon a statistical regression/correlation analysis, all of these metrics were statistically significant factors that influence the sales prices of the homes. Specifically, for a home with a similar size of living area, such a home on a larger sized lot (vs. a smaller sized lot) had the following price premiums: Home Price Premium for 10,000 sq.ft. Lots: +11.0% above typical size lots Home Price Premium for 20,000 sq.ft. Lots: +38.5% above typical size lots The Competitive Market Analysis of the products with relatively large lot sizes revealed that once the appropriate adjustment was made for the larger lot sizes, the housing prices for these projects were found to still be somewhat above the competitively priced homes in the marketplace: Roripaugh Valley Restoration by about +5% and Wingsweep by about +14%. 46 Sales Trends/Price Patterns for Homes on Large Lots: (Refer to the graphs on the following pages) (Sample of Sales: Past Twelve Months) Empire compiled information on the sale of EXISTING homes that had lot sizes of 10,000+ square feet in the City of Temecula during a recent twelve month time period; the findings are as follows: There were a total of 442 such housing sales; this represents a substantial number of sales of homes with large lot sizes; approximately 37 home sales per month, on the average. The square footage of living area of the homes amounted to 3,723, on the average; the sizes of homes sold varies monthly, and has a range of 3,278 to 3,960 sq.ft. The prices of the homes sold amounted to some $636,418 on the average; the sale prices vary monthly, from $593,724 to $713,151. A more accurate/reliable gauge of housing price trends would be the value ratio which represents the price per square foot of living area. The value ratio amounted to $211, on the average; this has a range of $203 to $242. Therefore, the City of Temecula has had a significant level of activity for a homes on larger lot sizes, as reflected by the level of sales as well as the slightly increasing trends for housing prices, living areas and value ratios. However, since the expected property owners/developers' prices for the large lot products are somewhat above the current competitive market prices, their absorption schedules take this into consideration. 47 $713,151 1-670-,2 S623,550 A >50 YEAR, 49 SECTION IV: ESTIMATED ABSORPTION SCHEDULES FOR THE PROJECTS IN CFD NO. 16-01 The purpose of this section is to estimate the absorption schedules for the forthcoming residential and commercial retail projects/products in CFD No. 16-01; accordingly, this is based upon a consideration of the following: First, the potential demand schedules for the residential and commercial -retail projects/products for CFD No. 16-01 were derived, based upon a consideration of the following: The growth prospects for the Southern California Market Region, in general, and Riverside County as well as the Temecula-Murrieta Market Area, in particular. The proportion of the Market Area demand that is expected to be captured by the projects/products in CFD No. 16-01, based upon an evaluation of their competitiveness in the marketplace. Thus, the result of this analysis is the POTENTIAL demand for the residential and commercial -retail projects/products in CFD No. 16-01. Next, the ability of the residential and commercial -retail projects/products in CFD No. 16-01 to respond to this demand is estimated. Specifically, this represents, from a time perspective, when the products will have the infrastructure in place that is required to support their development. So, the result of this analysis is the INFRASTRUCTURE DEVELOPMENT of the projects/products in CFD No. 16-01, and this reflects their ability to respond to the demand in the marketplace. The following absorption schedules are based upon the critical assumption that the property owners, Roripaugh Valley Restoration (RVR) and Wingsweep Corporation, will be able to fulfill the following requirements: 1. Complete various infrastructure requirements related to the development of the parcels, with the most significant being the approved plans and permitting for Nicolas Road. The Development Agreement allows for 200 permits to be issued, as long as the Phase II property owners make good faith efforts to secure any regulatory agency permits/approvals. If progress is made in securing Nicolas Road approvals/permits, another 322 permits may be issued, for a total of 522 permits. (Note: However, if despite good faith efforts by the property owners such regulatory permits/approvals are not secured in a timely manner, then the Director of Public Works may allow the issuance of permits in phases of 100, up to 522.) For any additional permits beyond the 522, the approval/permitting process for Nicolas Road needs to be in place. Finally, the City of Temecula will construct Nicolas Road using proceeds from the CFD No. 16-01 bond issue. 2. Current Property Owners market their parcels to builders in a timely manner: RVR expects that builder(s) would start construction of the models about 20 to 22 months after the completion of the sale of the property. Wingsweep Corp. is expected to follow a similar pattern, with escrow closings to homeowners by July 2019. 50 Considering the factors discussed above, Empire's absorption schedules are based upon the ASSUMPTION that escrows will commence closings to homeowners by July 2019 for Roripaugh Valley Restoration and Wingsweep. However, to the extent that delivery of the parcels to the various builders does not occur according to the schedules set -forth by Roripaugh Valley Restoration and Wingsweep Corporation OR the development conditions for Nicolas Road are not fulfilled in a timely manner, then the estimated absorption for the forthcoming projects in CFD No. 16-01 could be substantially delayed. Therefore, based upon a consideration of the POTENTIAL demand and the ASSUMED MARKET - ENTRY OF THE PROJECTS, the absorption rate for the residential projects/products in the various market segments are calculated, from the year in which the projects/products are expected to enter the marketplace and commence escrow closings and continuing thereafter on an annualized basis, until all of the units are occupied. Accordingly, based upon an analysis of the economic and real estate conditions along with the characteristics of the forthcoming residential product types/projects in CFD No. 16-01, the estimated absorption schedules are as follows: Segment #1: Homes on Smaller Sized Lots: Expected 729 homes July -2019 to 2024: about 122 homes per year, on the average, with the projects closing out by December 2024. Roripaugh Valley Restoration: 592 homes Wingsweep Corp: 136 homes Segment #2: Homes on Medium Sized Lots: Expected 389 homes July -2019 to 2024: about 65 homes per year, on the average, with the projects closing out by December 2024. Roripaugh Valley Restoration: 389 homes Wingsweep Corp: no homes * Segment #3: Homes on Larger Sized Lots: Expected 108 homes (Note: As discussed above, absorption rates consider relatively high prices.) July 2019 to 2024: about 18 homes per year, on the average with the projects closing out by December 2024. Roripaugh Valley Restoration: 79 homes Wingsweep Corp: 29 homes Based upon Empire's estimated absorption schedules for the forthcoming projects in CFD No. 16-01, the projects are expected to attain a level of around 522 escrow closings around June 2021. As discussed above, the approval/permitting of Nicolas Road needs to be completed for additional building permits beyond the 522 threshold level. With regards to the various commercial -retail project, 15.4 acres, its absorption is based upon the occupancy of most of the homes in CFD No. 16-01 along with threshold levels required to support commercial centers, and its absorption is expected to occur during 2023. For additional information on the estimated absorption schedules for the residential products in the CFD No. 16-01, please refer to the following table and graphs. 51 RANCH - PAN AREA) ESTIMATED ABSORPTION SCHEDULES FOR CFD NO. 16-01 (RORIPAUGH . . I 1 1 1 1 . 1 i I . 1 - - EMPIRE ECONOMICS - SUBJECT TO REVISION ------CRITICAL ASSUMPTIONS: SALE OF PROPERTIES TO BUILDERS AND COMPLETION OF THE CONDITIONS OF DEVELOPMENT IN A TIMELY MANNER I i Expected Housing Prices; Expected Living Areas, Planning Area Estimated Property Lot Size Source. Property Omura Dource Property Owners Sale Rates 2019 2020 2021. 2022 _ 2023 2024 Units Owner Minimum Lower Average Upper Lower Average Upper Annually- 2019 .July -Dec Jan. -Dec. Jan. -Dec. Jan. -Dec. Jan -Dec Jan -Dec. 50% 1 I . Segment/ 1 Smeller Size Lots: 3,150-4,000 Product I -A 254 Roripeugh Valley Restoration 3,150 0365300 $407,000 0423500 1,980 2,260 2,420 36 18 40 43 47 50 56 Product I -B 268 Ronpaugh Valley Restoration 3,150 $342,000 $370,000 $407,000 1,800 2,060 2,200 40 20 44 48 52 56 48 Product 2 71 Rorlpaugh Valley Restoration 4,000 $409,500 0429,000 $443,300 2,340 2,600 2,800 34 17 37 17 0 0 0 1 Product A 138 Wingsweep 3000 1340,000 5368,000 6405000 1,800 2,000 2,200 40 20 44 48 24 0 0 SegmeM 4 2: Medium Sized Lots 5,0004,000 Product 3 121 Roripaugh Valley Restoration 5000 6432,003 $455000 6463650 2,700 3,000 3300 32 16 35 38 32 0 0 Product 4 268 Ronpaugh Valley Restoration 6,000 $446,400 $459,200 $473,440 2,880 3,200 3,520 40 20 44 48 52 58 48 Two Projects Segment # 3 Larger Sized Lots 10,000+ 1 1 Product 5 79 Ronpaugh Valley Restoration 20,000 $675000 0743750 6807,500 3750 4,250 4,750 12 6 13 14 16 17 13 Product B 14 Wingsweep 10000 $651,000 $720,000 $784600 3500 4,000 4,500 5 3 6 5 0 0 0 Product C 15 Wingsweep 20,000 5651,000 0720,000 $784,000 3,500 4,000 4,500 4 2 4 5 4 0 0 vi w StatsMcal Summary. Segment It: Smaller Size Lots: 3,1504,000 729 595% 5364,450 $393,500 $419,700 1,980 2,200 2,405 75 165 156 123 106 104 Segment 0 2. Medium Sized Lots: 5,0004,000 389 31 7% 5439,200 5457,600 0466545 2,790 3100 3410 36 79 86 84 56 48 Segment / 3. Larger Sized Lots 10,000+ 108 88% 5659,000 $727,917 $791,833 3,583 4,083 4,583 11 23 24 20 17 13 122 267 266 227 179 165 Overall 1 1,226 0479,244 $519,217 $554,599 2,694 3,028 3354 52 eITY OPTEMECU 'Wcfatlbi61.641-(14:074,RFAUGH4'RAN AIVAREA TIMA D RESIDENT( Alks0,0101 ED116ES Absorption for first 522 homes projected for June 2021. Absorption after first 522 homes is contingent on plans and permits for Nicolas Road being in place 2019 Jul Dec 2020 2021 iO22- 023 __;:2024 .Segmeht #::3*Larger Sized ot 10,000+ e ment # edP m Si ed Lots 5-000-6 000- men atler ize 53 , , , % ' , 4 -, ' ' , ITY 'OF ILEM EC ULA CFDt, -Of MORI PA -PAK-ARE ) N. ..,,,,,0400, -.4.046,...,-,,mo. !, .--,4 ,. o.,..,,,,,4:,.....4.,., E4911111VIAVEME$1 TIAL ABSORP-41,0N :, 'LIES . . 4,.) 300 I Absorption for first 522 homes projected for June 2021. I ...... ------Absorption after first 522 homes is contingent on plans and permits for Nicolas Road being in place 250 1 i 1 Y/ ,,, , 150"-' - re. . o re, 100 , . , , , , ;.,,,,.. 209. J9.,y,-Qeq, 2020 202 4% 2:22 .2023 _ 202,4 . , . d ,7 4,, , t 1.* ' .. . Roripugh,-/arey Restoration_ . - . Vhigsyepp:Cprp. v - .. ., .. . 54 SECTION V: SENSITIVITY ANALYSIS: RELATIONSHIP OF RECENT HOUSING SALES TO EMPLOYMENT CHANGES AND LEVELS OF MORTGAGE RATES The purpose of this section is to perform an analysis of the impacts that employment changes and levels of mortgage rates had on sales for homes. To analyze this, he Planned Community of The Villages of Valencia in the Santa Clarita area is utilized, since this has a significant amount of data on market conditions during the 2007-2015 time period. )=. Sales of homes for the projects in The Villages of Valencia were relatively low during 2007 to 2011, but then increased dramatically during 2012 through 2015. Employment changes were negative/minimal during 2007 to 2011, ranging from -5.6% to +0.8%. But then starting in 2012 and continuing thereafter, employment rose by 1.8% to 3.0% per year. )=. Mortgage rates started at a level of 6.4% in 2007 and declined to 4.5% in 2011, a decrease of -1.9%. By comparison, from 2011 to 2015, mortgage rates declined from 4.5% to 3.9%, a change of -0.6%. Therefore, the increases in home sales during 2012 and 2015 was driven primarily by strong employment growth; additionally, mortgage rates were favorable as well, resulting in lower monthly paymentlevels. Conversely, during 2007 to 2011, when mortgage rates declined to low levels but employment was decreasing, housing sales did not rise substantially, and so mortgage rates are regarded as a secondary factor. MORTGAGE VErt ANALYSIS - e . 'An LEVEL OF. HOME SALESVS. EMPLOYMENT CHANGES'ANOMORTGAGE RATES 1,- - - .... ,- . i'21X : 1 64% 1 61% . 48% 45% 7, 4 1% 42% 37% 39% llg .0 25 23 1 06 -10% HOME SALES V -15% II EMPLOYMENT -CHANGE II MORTGAGE RATES 411 405 354 -56% 77R I 152 111 125 123 94 2908" 20094:42010t 2013 IA 2015 -Est This relationship has parallels to what occurred in Los Angeles County during 1988 and 1989: housing prices rose by about 20% per year, despite mortgage rate levels of some 10.5% because employment was increasing at a strong rate of more than 5% per year. 55 SECTION VI: ASSUMPTIONS AND LIMITING CONDITIONS The Market Absorption Study for CFD No.16-01 is based upon various assumptions and limiting conditions; accordingly, these are as follows: Title to Property No opinion as to title is rendered. Data related to ownership and legal description, obtained from governmental records related to the formation of the District that forms the basis for identifying the boundaries of CFD No.16-01 are considered reliable. Title is assumed to be marketable and free and clear of all liens, encumbrances, easements and restrictions except those specifically discussed in the report. The property is evaluated assuming to be under responsible ownership and competent management and available for development to highest and best use. Property Boundaries No survey or engineering analysis of CFD No.16-01 property has been made by the market analyst; the District Engineer's report utilized for the Bond is deemed to be reliable. The market analyst assumes the existing boundaries to be correct, that no encroachments exist and assumes no responsibility for any condition not readily observable from customary investigation and inspection of the premises, which might affect the valuation, excepting those items which were specifically mentioned in the report. Accuracy of Information from Others In preparing this report, the market analyst was required to rely on information furnished by other individuals or found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either expressed or implied, is given by the market analyst for the accuracy of such information and the market analyst assumes no responsibility for information relied upon and later found to have been inaccurate. The market analyst reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. Date of Study The date to which the conclusions and opinions expressed in this report apply as set forth in the study. Furthermore, the dollar amount of any price/value opinion rendered was based upon the purchasing power of the American dollar existing on that date. Hidden or Unapparent Conditions The market analyst assumes no responsibility for hidden or unapparent conditions of the property, subsoil, groundwater or structures that render the subject property more or less valuable. No responsibility is assumed for arranging for engineering, geologic or environmental studies that may be required to discover such hidden or unapparent conditions. Opinions of a Legal/Specialized Nature No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by the market analyst. Right of Publication of Report Possession of this report, or a copy of it, does not carry with it the right of publication except for the party to whom it is addressed. Without the written consent of the market analyst, this report may not be used for any purpose by any person other than the party to whom it is addressed. In any event, this report may be used only with properly written qualification and only in its entirety for its stated purpose. Soil and Geological Studies No detailed soil studies or geological studies or reports were made available to the market analyst. Assumptions employed in this report regarding soils and geologic qualities of the subject property have been provided to the client. However, such assumptions are not conclusive and the market analyst assumes no responsibility for soils or geologic conditions discovered to be different from the conditions assumed unless otherwise stated in this report. 56 Earthquakes and Seismic Hazards The property which is the subject of this market analysis is within a geographic area prone to earthquakes and seismic disturbances. Except as specifically indicated in the report, no seismic or geologic studies have been provided to the market analyst concerning the geologic and/or seismic condition of the subject property. The market analyst assumes no responsibility for the possible effect on the subject property of seismic activity and/or earthquakes. Testimony or Court Attendance Testimony or attendance in court or at any other hearing is not required by reason of rendering this market analysis, unless such arrangements are made a reasonable time in advance of said hearing. Separate arrangements would need to be made concerning compensation for the market analyst's time to prepare for and attend any such hearing. Maps and Exhibits Maps, plat and exhibits included in this report are for illustration only as an aid in visualizing matters discussed within the report. They should not be considered as surveys, or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from the report. Environmental and Other Regulations The property is evaluated assuming it to be in full compliance with all applicable federal, state and local environmental regulations and laws, unless otherwise stated. Required Permits and Other Governmental Authority Unless otherwise stated, the property evaluated is assumed to have all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national government or prk4te entity or organization that have been or can be obtained or renewed for any use on which the evaluation analysis 'contained in this report is based upon. Liability of Market Analyst The liability of Empire Economics, the market analyst responsible for this report, is limited to the client only and to the fee actually received by the market analyst. Further, there is no accountability, obligation or liability to any third party. If this report is placed in the hands of anyone other than the client, the client shall make such party aware of all limiting conditions and assumptions of the assignment and related discussion. The market analyst is in no way to be responsible for any costs incurred to discover or correct any deficiencies or any type present in the property --physical, financial, and/or legal. Presence and Impact of Hazardous Material Unless otherwise stated in the report, the market analyst did not become aware of the presence of any hazardous material or substance during the market analyst's general inspection of the subject property. However, the market analyst is not qualified to investigate or test for the presence of such materials or substances. The presence of such materials or substances may adversely affect the evaluation of the subject property. The evaluation in this report is predicated on the assumption that no such material or substance is present on or in the subject property or in such proximity thereto that it would cause a change in the evaluation analysis. The market analyst assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or engineering knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes that subject property is in compliance with all federal, state and local environmental laws, regulations and rules. Structural Deficiencies of Improvements The market analyst has not performed a thorough inspection of the subject property, and except as noted in this report has not found obvious evidence of structural deficiencies in any improvements located on the subject property. Consequently, the market analyst assumes no responsibility for hidden defects or nonconformity with specific governmental requirements, such as fire, building and safety, earthquake or occupancy codes, unless inspections by qualified independent professions or governmental agencies were provided to the market analyst. Further, the market analyst is not a licensed engineer or architect and assumes no responsibility for structural deficiencies not apparent to the market analyst at the time of their inspection. 57 Presence of Asbestos The market analyst is not aware of the existence of asbestos in any existing improvements on the subject property. However, the market analyst is not trained to discover the presence of asbestos and assumes no responsibility should asbestos be found in or at the subject property. For the purposes of this report, the market analyst assumes the subject property is free of asbestos and the subject property meets all federal, state and local laws regarding asbestos abatement. Acreage of Property The acreage has been abstracted from the documents relating to the District which is assumed to be accurate. If the Assessor's map or legal description is subsequently found to be in error, we reserve the right to amend the market analysis. Designated Economic Scenario The Market Absorption Study focuses upon the expected absorption schedules for the products in CFD No.16-01 according to the designated economic scenario. Specifically, this scenario represents the economic and real estate conditions for the Market Region and also the Market Area during the foreseeable future according to the most probable conditions, and this is regarded as being appropriate for the Bond Financing. However, the economic and market conditions which actually materialize on a year by year basis may differ from those presented according to the designated economic scenario, as a result of exogenous factors which are difficult to forecast/quantify. Accordingly, the designated scenario should be utilized as an economic framework for evaluating the marketing prospects of the properties within CFD No.16-01 rather than a "literal" representation of what is expected to occur on a year/year basis during the foreseeable future. Provision of the Infrastructure; Role of Coordinator The Market Absorption Study assumes that the governmental agencies that supply public facilities and services, including water, provide these in a timely manner so that the proposed projects/products in CFD No.16-01 can respond to the expected market demand for their products. Otherwise, if the required infrastructure is not available in a timely manner, then the absorption of the projects/products could be adversely impacted. Property Owners/Builders Responsiveness to Market Conditions The Market Absorption Study assumes that the property owners/builders in CFD No.16-01 respond to the market conditions with products that are competitively priced and have the features/amenities that are desired by the purchasers. This is an especially critical assumption since the projects/products in CFD No.16-01 have not yet entered the marketplace, and so the specific characteristics of their product types cannot be identified until they actually offer products on the marketplace. Consequently, to the extent that future projects/products have prices/features that differ from the competitive market standards, then their absorption schedules would need to be modified from those presented according to the designated economic scenario. Financial Strength of the Project Property OwnersBuilders The Market Absorption Study assumes that Project property owners/builders in CFD No.16-01 (and also their lenders) have sufficient financial strength to adequately fund their projects, including paying their Special Taxes/Assessments, and that they have sufficient financial reserves which could be utilized to supplement their cash flow positions, in the event that adverse economic or market conditions occur. Market Absorption Study Timeliness of Results The Market Absorption Study performs a comprehensive analysis of the relevant land -use, economic and residential market conditions that are expected to influence the marketing success of the projects/products in CFD No.16-01. Nevertheless, the Study should be updated on a six-month basis, or even sooner, should these land -use and/or economic market conditions change significantly. 58 APPENDIX A CREDENTIALS/QUALIFICATIONS OF EMPIRE ECONOMICS RESUME: JOSEPH T. JANCZYK, Ph.D. Education: University of California, Riverside, Ph.D. in Economics, Completed in 1976 Specializations in Urban Economics, Mathematical Modeling and Econometric Analysis State University of New York at Buffalo, Bachelors, Completed in 1970 Dual Majors: Economics and Psychology Prior Employment: California State University, Tenured Economics Professor: 1976-1985 Courses Taught: Microeconomics, Macroeconomics, Urban Economics, Computer Modeling, Econometrics, among others Empire Economics: Chairman and President: 1986 -Present Perform Independent Real Estate Consulting Services Primarily for Land Secured Financings Work for Public Entities including Counties, Cities, School Districts and Water Districts Long-term Relationships with Many Clients, Including Orange and Riverside Counties, 25+ years Well Established Relationships with Numerous Professionals in the Municipal Finance Industry Performed 500+ Studies on behalf of Public Entities for approximately $14B in municipal financing o Land Secured Financings for Planned Communities, Business Parks and Retail Centers for 400+ CFDs/ADs for $8.5B+ bonds Price Point Studies - Establish special taxes that conform to public entities' policies Market Absorption Studies: Provide timelines for phasing infrastructure Homeowner Equity Studies: Current Equity levels for homeowners o Economic Forecasting Studies: Forecast Employment and Housing Demand Socioeconomic Studies Orange County Transportation Corridors: 2 studies $2.75B bonds o Designated as Municipal Bond Issue of the Year for 1999 o Rating Agency and Bond Insurer Presentations - Trips to New York City Mortgage Revenue Bond Issues: Lower Mortgage Rates 50+ studies for $1.7B bonds Other Municipal Bond Issues: 35+ studies $2B+ bonds; Certificates of Participation, others Forthcoming Bond Issues: 20+ studies for $500M+ future bond sales Industry Contributions - Regular Speaker/Panelist at Following Events: California Treasurer Mr. John Chiang, Council of Economic Advisors; Since Jan. 2015 UCLA/CDIAC Municipal Bond Financing Seminars (10+ times, as Featured Speaker) Bond Buyer Conference League of Cities Municipal Bond Industry Association Best Practices for Continuing Disclosure Appraisal Standards for Land Secured Financing by CDIAC Meetings with Municipal Bond Funds California State Treasurer, Mr. John Chiang - Council of Economic Advisors Dedicated to Public Sector: Certifications Provided in each Study: Empire has not performed any consulting services for CFD/AD property owners nor developers/builders, during the past twenty years. Empire will not perform any consulting services for CFD/AD property owners nor developers/builders, during the next five years. 59 EMPIRE'S CONFORMANCE WITH CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION RECOMMENDATIONS The California Debt and Investment Advisory Commission (CDIAC), of which the State Treasurer serves as chair, published the Appraisal Standards for Land -Secured Financings (CDIAC Standards), with the input of municipal finance professionals. Many California issuers have recognized the CDIAC Standards as a basis for appraisals under the Mello -Roos Act, as well as providing standards for market absorption studies. Empire Economics surpasses the minimum recommended qualifications as proposed by CDIAC for market absorption studies, with respect to independence as well as qualifications and experience. CDIAC Recommendations Empire Economics Independence 1. Avoid Conflicts of Interest: Knowing that 1. Empire Economics conducts market absorption studies only developers and builders may influence the for governmental entities, and this has provided numerous outcome of a market absorption study, market public entities with a high level of comfort. By comparison, absorption analysts should describe their other firms that provide services to developers/builders may business relations with developers and builders encounter "conflicts of interest" in trying to represent both the during the past three years in the market private and public sectors. study. absorption 2. Empire Economics, as part of the Market Study, signs a Certification of Independence which includes the following: * Empire Economics has not performed any consulting services for the District's property owners nor the developers /builders during at least the past twenty+ years. * Empire Economics will not perform any consulting services for the District's property owners nor developers/builders during at least the next five years. Qualifications and Experience 1. Educational Qualifications: The market 1. Dr. Janczyk received his Doctorate in Economics from the absorption analysts should possess at least a University of California. As a tenured Economics Professor at Bachelor's degree but preferably an advanced California State University, he taught courses in microeconomics, degree with courses in real estate and macroeconomics, regional economics, and computer modeling. Dr. economics. Janczyk has been a featured speaker at numerous seminars including the California Debt Advisory Commission, Bond Buyer 2. Experience with Land -Secured Financings: Conference, League of Cities, Municipal Bond Analysts, California The market absorption analysts should possess Association of Realtors, and Moody's Investor Services, among a minimum of five years of experience in performing market studies for land -secured others. financings. Additionally, they should be well versed in analyzing economic and real estate 2. During the past thirty years, Dr. Joseph T. Janczyk, president of data that relates to the pricing and absorption Empire Economics, has prepared market absorption studies for of properties contained within a CFD and more than five hundred land -secured Bond Issues, providing the through this experience be capable of comfort level required for numerous California counties, cities, addressing issues unique to land -secured school districts, water districts and other special districts to finance financing, including the use of Price Points in approximately $14 billion worth of capital improvement projects. the Rate and Method of Apportionment. 60 Empire Economics has participated in numerous land secured financings throughout Southern California counties; the distribution of these by counties has been as follows: EMPIRE ECONOMICS: LAND -SECURED FINANCINGS SAN BERNARDINO COUNTY 49 ISSUES FOR $787M LOS ANGELES COUNTY RIVERSIDE COUNTY 38 ISSUES FOR $650M 225 ISSUES FOR $3,323M SAN DIEGO COUNTY 38 ISSUES FOR $1,076M The following graph provides an overview of the number of land secured financings that Empire has been involved with (the left axis) and also the value of these land secured financings (right axis, in $Millions), during 1983 to 2015. 4,04 affl#0).: : ' t, joh, EMPIRE -ECONOMICS LAND -SECURED FINANCINGS g(NEIN,BONO'ISSUESANDALSCEREFUNDINGS) : rA 35 28 29 $tiro 18 18- $iosqo 04 ill 13 13$ 2 10 ^: 3 2 e 1n!1l m =,'143:1211; m=mpm poG 8f:8k:34868 8f46' ?-1.74417.tir" 71?4 IN TV N'esi N NAN. E31 VALUE OF LAND SECURED FINANCINGS 0 NUMBER OF LAND SECURED FINANCINGS 61 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK Mixed Sources tin4 Product gaup torn well managed * fort.. controltd sources and Printed by: ImageMaster, LLC veveN imagemaster corn