VGFOA Fall Conference 2008 Roanoke, Virginia October 31, 2008
CDAs: The Good, The Bad and The Opportunity
Ken Powell Managing Director CDA Overview
Page 1 “One of the biggest regrets of my career was not using CDAs to rebuild Europe’s infrastructure after World War II”
-Harry S. Truman (Or Somebody Else)
Page 2 What is a Virginia Community Development Authority (CDA)?
• A CDA is a public instrumentality authorized by the City Council or County Board of Supervisors (upon petition by a majority of property owners or those owning a majority of the assessed value, within the proposed CDA boundaries) for the purpose of providing public infrastructure. • CDAs are granted the power to finance, fund, establish, acquire, construct, equip, operate and maintain infrastructure improvements enumerated in the ordinance or resolution establishing the district, as necessary to meet the increase demands placed upon the locality as a result of development within the district, including, but not limited to: Roads, bridges, parking facilities, curbs, gutters, sidewalks, traffic signals, storm water management and retention systems, gas and electric lines, street lights; Parks and facilities for indoor and outdoor recreational, cultural and educational uses, entrance areas, security facilities, fencing and landscaping; Fire prevention systems and rescue vehicles; School buildings and related structures, when authorized by the locality and the school board; and Infrastructure and recreational facilities for certain age-restricted active adult communities. • CDAs are authorized to provide special services including: Garbage and trash removal and disposal Street cleaning Snow removal Extra security personnel and equipment Recreational management Grounds keeping
Page 3 How is a CDA Bond Repaid?
There are basically three ways a CDA bond is repaid: 1. Assessments • Bonds issued by the CDA can be repaid through assessments levied upon the property owners within the boundaries of the CDA district. • Assessments can be levied in two ways: A. Ad valorem assessments limited to 25 cents per $100 of taxable market value unless all property owners agree to a higher rate. B. Special Assessments based on use and benefit from the improvements. • The CDA may use contributions from the City or County to pay debt service if the ordinance creating the CDA provides for such contributions.
2. TIF (Tax Increment Financing) • City or County can agree to pay over all or a portion of tax incremental revenues. • The incremental taxes can include all or a portion of the following: Real Estate Taxes Personal Property Tax BPOL Tax Sales Tax (Local Portion) Transient Occupancy Tax Meals Tax Any other tax 3. Combination • CDA with underlying special assessment and TIF overlay.
Page 4 Is the City or County Liable for CDA Bonds?
• Under a CDA, the incurred debt or obligation of the CDA is not the debt or obligation of the City or County.
• Bonds issued under a CDA are not indebtedness within the constitutional meaning of any debt limitation or restriction of the City or County
• If used properly CDAs are likely to be viewed as a positive credit factor in rating the obligations of the City or County.
• The City or County is basically prohibited from using government funds for repayment unless an agreement between City or County and CDA is entered into before the sale of the bonds.
• In the event of a CDA default, Bondholders’ ultimate remedy is against the non- governmental real estate in the CDA.
Page 5 Comparison of General Obligation Bond Ratings of Virginia Localities 1 (Pre-Community Development Authority Bond Rating versus Current Bond Rating)
General Obligation Bond Ratings of Locality Dated Par Amount Rating Community Date of of CDA Bonds Moody's Ratings S&P's Ratings Change Locality Development Authority CDA Bonds at Issuance Pre-CDA2 Current Pre-CDA2 Current Summary3 Loudoun County Dulles Town Center 5/1/1998 $36,560,000 Aaa Aaa AA- AAA 1 Upgrade Prince William County Virginia Gateway 2/18/1999 6,663,000 Aa2 Aa1 AA AA+ 2 Upgrades Prince William County Heritage Hunt Commercial 12/1/1999 10,715,000 Aa2 Aa1 AA AA+ 2 Upgrades Hanover County Bell Creek 1/15/2003 15,980,000 Aa1 Aa1 AA AA+ 1 Upgrade City of Richmond Broad Street 5/15/2003 66,740,000 Aa3 Aa3 AA AA No Changes Henrico County Short Pump Town Center 9/1/2003 25,495,000 Aaa Aaa AAA AAA No Changes Stafford County Celebrate Virginia North 12/11/2003 31,000,000 Aa3 Aa3 A+ AA- 1 Upgrade Prince William County Virginia Gateway 12/16/2003 7,040,000 Aa1 Aa1 AA AA+ 1 Upgrade City of Portsmouth New Port 5/24/2006 16,240,000 A1 A1 AA- AA- No Changes City of Fredericksburg Celebrate Virginia South 6/21/2006 25,000,000 Aa3 Aa3 AA- AA- No Changes New Kent County The Farms of New Kent 9/19/2006 85,666,000 None None None None N/A City of Hampton H20 4/25/2007 9,440,000 Aa2 Aa2 AA AA No Changes City of Manassas Park Park Center 5/11/2007 12,350,000 A2 A2 A+ A+ No Changes Henrico County Reynolds Crossing 6/19/2007 14,594,000 Aaa Aaa AAA AAA No Changes Frederick County Russell 150 7/30/2007 21,155,000 None None None None N/A City of Hampton Peninsula Town Center 9/6/2007 92,850,000 Aa2 Aa2 AA AA No Changes Henrico County The Shops at White Oak Village 10/2/2007 23,870,000 Aaa Aaa AAA AAA No Changes Hanover County Lewistown 10/11/2007 37,675,000 Aa1 Aa1 AA+ AA+ No Changes Chesterfield County Watkins Centre 10/24/2007 20,000,000 Aaa Aaa AAA AAA No Changes York County Marquis 11/15/2007 32,860,000 Aa2 Aa2 AA AA No Changes
Notes: 1 This list may not include all CDA Bond financings and the information contained herein has been obtained from various sources and may contain inaccuracies. 2 The "Pre-CDA" general obligation bond ratings were the last ratings released by the respective rating agencies prior to the issuance of CDA Bonds. The ratings may have been released at different points in time by Moody's, S&P and Fitch which may explain the disparity in ratings between the rating agencies. For example, Moody's "Pre-CDA" rating for Loudoun County was "Aaa" while S&P's "Pre-CDA" rating for Loudoun County was "AA-". 3 A change or lack of a change in a locality's underlying general obligation bond rating is not meant to imply that the issuance of CDA Bonds within a given Page 6 locality was or was not a factor in the change or lack of a change in a rating. At what rates were Virginia CDA transactions brought to market in 2007?
Selected 2007 Virginia Community Development Authority Transactions
State: Virginia Virginia Virginia Virginia Virginia Virginia Virginia Issuer: H20 Reynolds Crossing Peninsula Town Center The Shops at White Oak Village Lewistown Commerce Center Watkins Centre Marquis Community Development Authority Community Development Authority Community Development Authority Community Development Authority Community Development Authority Community Development Authority Community Development Authority Series: Series 2007 Series 2007 Series 2007 Series 2007 Series 2007 Series 2007 Series 2007 Pricing Date: 4/25/2007 6/6/2007 8/28/2007 10/2/2007 10/11/2007 10/24/2007 11/15/2007 Par Amount: $9,440,000 $14,594,000 $92,850,000 $23,870,000 $37,675,000 $20,000,000 $32,860,000 Type: Special Assessment Special Assessment Tax Increment/Special Assessment Tax Increment/Special Assessment Tax Increment/Special Assessment Tax Increment/Special Assessment Tax Increment/Special Assessment Underwriter: Banc of America Stone & YoungbergSpread to Stone & Youngberg Stone & Youngberg Wells Fargo/Banc of America Stone & Youngberg Morgan Keegan Spread to "AAA" Spread to Spread to Spread to Spread to Spread to Yield to "AAA" MMD Yield to MMD (basis Yield to "AAA" MMD Yield to "AAA" MMD Yield to "AAA" MMD Yield to "AAA" MMD Yield to "AAA" MMD Coupon Worst (basis points) Coupon Worst points) Coupon Worst (basis points) Coupon Worst (basis points) Coupon Worst (basis points) Coupon Worst (basis points) Coupon Worst (basis points) 2013 5.100% 5.100% 159
2017 5.800% 5.800% 169 5.300% 5.300% 151 5.750% 5.750% 191 2018 5.625% 5.625% 171
2020 5.400% 5.430% 154 2021 5.100% 5.100% 95
2024 6.250% 6.250% 173
2027 6.050% 6.050% 177 2028 6.350% 6.350% 171
2037 5.200% 5.200% 111 6.450% 6.450% 168
Page 7 Case Studies
Page 8 Dulles Town Center (Loudoun County, Virginia) May 1998 Bond Issue: $36,560,000 Dulles Town Center Community Development Authority Special Assessment Bonds, Series 1998 Location: Loudoun County, VA - Northern Virginia, 25 miles west of Washington, D.C. and five miles north of Washington Dulles International Airport Development: 1,400,000 square feet mixed-use development Anchored by J.C. Penney, Macy's, Lord & Taylor, Nordstrom and Sears Also, restaurants, office, and specialty stores
Developers: Lerner Enterprises Limited Partnership Use of Proceeds: Public infrastructure improvements include roads (bridges, curbs, gutters, sidewalks, and traffic signals) and public water and sewer lines and facilities. Primary Security: Special Assessment Revenues Special Features: ▪ First Community Development Authority established in Virginia. ▪ Allowed for creation of Algonkian Parkway / Route 7 Interchange.
Page 9 Dulles Town Center (Loudoun County, Virginia) May 1998
Page 10 Bell Creek (Hanover County, Virginia) January 2003
Bond Issue: $15,980,000 Bell Creek Community Development Authority Special Assessment Bonds, Series 2003A, B Location: Hanover County, VA - Central Virginia, 10 miles north of City of Richmond’s central business district Development: 325 acre mixed-use development 535 residential units 200,000 square feet of commercial retail 157 acre light industrial development
Developers: The Shield Company Use of Proceeds: Public infrastructure improvements including acquisition and construction of roads and road improvements, water and sanitary sewer improvements, storm water management improvements and certain other infrastructure improvements
Primary Security: Special Assessment Revenues Special Features: ▪ Expansion of Hanover County’s tax base. ▪ Provided utility service for 260 contiguous acres planned for business development. ▪ Increased employment opportunities while preserving property with unique ties to Colonial, Revolutionary, and Civil War history
Page 11 Bell Creek (Hanover County, Virginia) January 2003
Page 12 Broad Street (Richmond, Virginia) May 2003 Bond Issue: $66,740,000 Broad Street Community Development Authority Revenue Bonds, Series 2003 Location: Richmond, VA - Central Virginia’s “Central Business District” Development: 5 city blocks of mixed-use commercial and retail properties in the center of a planned revitalization of the former retail center of downtown Richmond 630,000 sq. ft. Richmond Convention Center Miller & Rhoads Hotel 290,000 sq. ft. new Federal Courthouse Carpenter Center
Developers: ECI Investment Advisors, Inc. Use of Proceeds: Public infrastructure improvements including the acquisition, construction and improvement of certain parking, streetscape, public utility and other improvements. Primary Security: Special Assessment Revenues Special Features: ▪ Bonds secured by parking revenues special assessments, per ticket surcharges from Performing Arts Center Complex, and annual contribution from City. ▪ Multiple land owners subject to numerous agreements.
Page 13 Broad Street (Richmond, Virginia) May 2003
Page 14 Broad Street (Richmond, Virginia) May 2003 Philip Morris USA Center for Research and Technology (2007)
National Theatre (February 2008)
Broadway Apartments and Retail (Already Open) Richmond CenterStage Hilton Gardens Hotel (September 2009) (January 2009) Federal Courthouse (September 2008)
Berry Burk Building Luxury Apartments Apts. and Retail (2009) and Retail Under Development (2-3 yrs) Page 15 The Farms of New Kent (New Kent County, Virginia) September 2006
Bond Issue: $85,666,000 The Farms of New Kent Community Development Authority Special Assessment Bonds, Series 2006A, B, & C Location: New Kent County, VA - Approximately 30 miles east of Richmond on I-64
Development: 1,450 age-restricted units 300 estate lots 450 single family homes 100 resort cottages 830,000 sq. ft. of commercial space 18-hole Rees Jones Golf Course Winery, vineyards, polo complex, farmer’s market Developers: Boddie-Noell Enterprises, Republic Land and K. Hovnanian Use of Proceeds: Public infrastructure improvements including road, water and wastewater improvements.
Primary Security: Special Assessment Revenues Special Features: ▪ Second largest non-rated special district financing in Virginia. ▪ Unique bond structure in which prepayments used first to call Series A Bonds, then the Series B Bonds and finally the Series C Bonds. ▪ Alleviated County’s problem of limited existing wastewater treatment capacity restraining development in County Page 16 The Farms of New Kent (New Kent County, Virginia) September 2006
Page 17 The Farms of New Kent (New Kent County, Virginia) September 2006
Page 18 Reynolds Crossing (Henrico County, VA) June 2007
Bond Issue: $14,594,000 Reynolds Crossing Community Development Authority Special Assessment Revenue Bonds, Series 2007 Location: Henrico County, VA - 5 miles northwest of downtown Richmond, Virginia. Borders I-64 and is 3 miles West of I-95. Development: 71 acre mixed-use development 250-room Westin hotel 480,000 sq. ft. of new office space 170,000 sq. ft. of restaurants and retail tenants 230,000 sq. ft. seven-story office building 64,000 sq. ft. Bon Secours medical office building Developers: Reynolds Holdings, LLC Use of Proceeds: Public infrastructure improvements including road improvements (curb, gutters, paving, striping, sidewalks and traffic signals), a storm water drainage system, public water and sanitary sewer lines and facilities, development signage and landscaping. Primary Security: Special Assessment Revenues Special Features: ▪ Public improvements enhanced existing development to attract national tenants such as Westin hotel. ▪ Former site of Reynolds Metals Company headquarters.
Page 19 Reynolds Crossing (Henrico County, VA) June 2007
Page 20 Reynolds Crossing (Henrico County, VA) June 2007
Page 21 The Shops at White Oak Village (Henrico County, Virginia) October 2007 Bond Issue: $23,870,000 The Shops at White Oak Village Community Development Authority Special Assessment Revenue Bonds, Series 2007 Location: Henrico County, VA - 6 miles east of City of Richmond’s central business district. Adjacent to I-64, 4 miles from I-295 and 5 miles from I-95. Development: Grand Opening on October 13, 2008 136 acre open-air regional retail center and outparcel development totaling 900,000 sq. ft. Anchored by Circuit City, Lowe’s, Sam’s Club, Target, Office Max and J.C. Penney 150-room Hyatt Place hotel
Developers: Forest City Enterprises, Inc. Use of Proceeds: Public infrastructure transportation improvements including mass earthwork, roads, off- ramps, general landscaping, public plaza landscaping, lighting, parking facilities, retaining walls, traffic lights, turn lanes, sanitary sewers, pavers and sidewalks, storm sewers, utilities, and water lines. Primary Security: Incremental real property tax revenues and back-up special assessment Special Features: ▪ Alleviates previously underserved retail market in Eastern Henrico County. ▪ Second time that Forest City and Henrico County have collaborated on a CDA.
Page 22 The Shops at White Oak Village (Henrico County, Virginia) October 2007
Page 23 The Shops at White Oak Village (Henrico County, Virginia) October 2007
Page 24 Watkins Centre (Chesterfield County, Virginia) November 2007 Bond Issue: $20,000,000 Watkins Centre Community Development Authority Revenue Bonds, Series 2007 Location: Chesterfield County, VA - Intersection of State Route 288 and State Route 60. 20 miles southwest of the City of Richmond’s downtown business district. Development: 504 acre mixed-use development Retail, commercial, office, and hotel components SunTrust Bank BB&T
Developers: Zaremba Metropolitan Midlothian, LLC, Watkins Land, LLC, Westchester Office Partners, LLC, Gray Land and Development Company, LLC, BEP LP, and Village Bank & Trust Financial Company, LLC Use of Proceeds: Public infrastructure improvements including a portion of the transportation infrastructure necessary to meet the increased demands placed upon Chesterfield County as a result of the development.
Primary Security: Incremental real property tax revenues and back-up special assessment Special Features: ▪ Alleviates growing and previously underserved retail market in Western Chesterfield County. ▪ Strategically located at the interchange of Route 288 and Midlothian Turnpike. Page 25 Watkins Centre (Chesterfield County, Virginia) November 2007
Page 26 Watkins Centre (Chesterfield County, Virginia) November 2007
Page 27 Peninsula Town Center (Hampton, VA) September 2007
Bond Issue: $92,850,000 Peninsula Town Center Community Development Authority Special Obligation Bonds, Series 2007 Location: Hampton, VA - Southeast Virginia, near Norfolk, located off I-64 Development: 1,154,000 square feet mixed-use development Anchored by J.C. Penney, Macy's, and likely Target Also, restaurants, office, specialty stores and residential 2,250 parking spaces Developers: Mall Properties, Inc. and Steiner + Associates Use of Proceeds: Public infrastructure improvements including roads, water and wastewater improvements, landscaping, parking structure, sidewalks, parks and acquisition of land. Primary Security: Incremental tax revenues (including real property, sales, meals and amusement taxes), special retail assessment, special property tax and back-up special assessment Special Features: ▪ Saved City of Hampton’s largest taxpayer. ▪ Largest non-rated special district financing in Virginia. ▪ First special retail assessment (sales tax within district) in Virginia. ▪ Unique blend of pledged revenues.
Page 28 Peninsula Town Center (Hampton, VA) September 2007
Page 29 Page 30 Page 31 Q&A?
Page 32 THE Solution!
Page 33 THE Solution! 1. Form CDA with TIF Overlay.
Page 34 THE Solution! 1. Form CDA with TIF Overlay.
2. Assemble Five Member Board.
Page 35 THE Solution! 1. Form CDA with TIF Overlay.
2. Assemble Five Member Board. 3. Issue $700,000,000,000 (+ or -) in tax- exempt bonds and buy “bad assets.”
Page 36 THE Solution! 1. Form CDA with TIF Overlay.
2. Assemble Five Member Board. 3. Issue $700,000,000,000 (+ or -) in tax- exempt bonds and buy “bad assets.” 4. Identify Incremental Taxes for repayment.
Page 37 THE Solution! 1. Form CDA with TIF Overlay.
2. Assemble Five Member Board. 3. Issue $700,000,000,000 (+ or -) in tax- exempt bonds and buy “bad assets.” 4. Identify Incremental Taxes for repayment. 5. Sell “bad” assets.
Page 38 Q&A?
Page 39 Disclaimer The information contained herein is based on sources that Stone & Youngberg LLC (“S&Y”) believes to be reliable, but it is neither all-inclusive nor guaranteed by S&Y, and it may be incomplete or condensed. The information and opinions herein, if any, are subject to change without notice, and S&Y does not undertake to advise the reader of changes in opinion or information. This presentation is for informational purposes, and under no circumstances is it to be construed as a recommendation, an offer, or the solicitation of an offer to buy or sell any particular debt security in any amount or at all. The structures discussed in this presentation are historical in nature and do not represent any offer to engage in a banking transaction nor represent terms that will be available at the time of a transaction.
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