G-2
4870-1603-0597v5/200812-0002
& 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 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds 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.
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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds 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.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the Bonds 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 the City or the Fiscal 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, the Fiscal Agent, or the City, 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 the City or the Fiscal 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.
A Bond Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Fiscal Agent, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant’s interest in the Bonds, on DTC’s records, to the Fiscal Agent. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Bonds to the Fiscal Agent’s DTC account.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered.
The City may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, bonds will be printed and delivered to DTC.
Item Number: 5.
G-3
4870-1603-0597v5/200812-0002
THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY
FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO
NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT
AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE
REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
Item Number: 5.
1 $_________
CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023
BOND PURCHASE AGREEMENT
December ___, 2023
City of Desert Hot Springs
Community Facilities District No. 2006-1
11999 Palm Drive
Desert Hot Springs, CA 92240
Ladies and Gentlemen:
Stifel, Nicolaus & Company, Incorporated, as underwriter (the “Underwriter”), acting not as a fiduciary or agent for you, but on behalf of itself, offers to enter into this Bond Purchase Agreement (this “Purchase Agreement”) with the City of Desert Hot Springs (the “City”) for its Community Facilities District No. 2006-1 (the “Community Facilities District”), which upon acceptance will be binding upon the Underwriter and the City. The agreement of the Underwriter to purchase the Bonds (as hereinafter defined) is contingent upon the City satisfying all of the obligations imposed upon them under this Purchase Agreement. This offer is made subject to the City’s acceptance by the execution of this Purchase Agreement and its delivery to the Underwriter at or before 11:59 P.M., local time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the City at any time prior to the acceptance hereof by the City.
All capitalized terms used herein, which are not otherwise defined, shall have the meaning provided for such terms in that certain Fiscal Agent Agreement dated as of February 1, 2020 (the “Original Fiscal Agent Agreement”), as supplemented and amended by the First Supplement to Fiscal Agent Agreement, dated as of December 1, 2023 (the “First Supplement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), each by and between the City and Wilmington Trust, National Association, as fiscal agent (the “Fiscal Agent”).
1. Purchase, Sale and Delivery of the Bonds.
Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein: (i) the Underwriter hereby agrees to purchase from the City and the City hereby agrees to sell to the Underwriter all (but not less than all) of the $_______ aggregate principal amount of the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Bonds, Series 2023 (the “Bonds”), dated the Closing Date (as hereinafter defined), bearing interest at the rates and maturing on the dates and in the principal amounts set forth in Exhibit A hereto. The purchase price for the Bonds shall be $______ (being 100% of the aggregate principal amount thereof, plus an original issue premium of $_______ and less an Underwriter’s discount of $_______).
The Underwriter agrees to make a bona fide public offering of all of the Bonds initially at the public offering prices (or yields) set forth in Exhibit A attached hereto and incorporated herein by Item Number: 5.
2 reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds subject to Section 2 hereof, provided that the Underwriter shall not change the interest rates set forth in Exhibit A. The Bonds may be offered and sold to certain dealers at prices lower than such initial offering prices.
The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable from the Special Tax Revenues as provided in the Fiscal Agent Agreement, the Preliminary Official Statement (as hereinafter defined), and the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Community Facilities District Act”). The issuance of the Bonds has been duly authorized by the City Council of the City, as the legislative body for the City, pursuant to a resolution (the “Community Facilities District Resolution of Issuance”) adopted on _______, 20__.
The proceeds of the Bonds will be used to (i) finance certain public improvements to be owned by the City; (ii) fund a reserve account for the Bonds; and (iii) pay costs of issuance for the Bonds. The Bonds are secured by the Special Tax Revenues on a parity with the City of Desert Hot Springs Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Refunding Bonds, Series 2020 (the “2020 Bonds”) outstanding in the principal amount of $1,687,857, which were issued on a private placement basis.
The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable from special taxes as provided in the Fiscal Agent Agreement (the “Special Taxes”).
A. The City hereby acknowledges that the Underwriter is entering into this Purchase Agreement in reliance on the representations, warranties and agreements made by the City on behalf of itself and on behalf of the Community Facilities District herein, and the City shall take all action necessary to enforce its rights hereunder for the benefit of the Underwriter and shall immediately notify the Underwriter if it becomes aware that any representation, warranty or agreement made by the City, on behalf of itself or on behalf of the Community Facilities District, herein is incorrect in any material respect.
The City acknowledges and agrees that (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm’s-length commercial transaction between the City and the Underwriter, (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as principal and not as the agent or fiduciary of the City, (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the City with respect to (a) the offering of the Bonds or the process leading thereto (whether or not the Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the City on other matters) or (b) any other obligations to the City with respect to the offering contemplated hereby, except the obligations expressly set forth in this Purchase Agreement or otherwise imposed by law, (iv) the Underwriter has financial interests that differ from those of the City and (v) the City has consulted with their own legal, financial and other advisors to the extent they have deemed appropriate in connection with this transaction. The City acknowledges that it has previously provided the Underwriter with an acknowledgement of receipt of the required Underwriter disclosure under Rule G-17 of the Municipal Securities Rulemaking Board (“MSRB”). The City acknowledges and represents that it has engaged Urban Futures, Inc. as its Item Number: 5.
3 municipal advisor (the “Municipal Advisor”) (as defined in Securities and Exchange Commission Rule 15Ba1) and will rely solely on the financial advice of Urban Futures, Inc. with respect to the Bonds.
B. Pursuant to the authorization of the City, the Underwriter has distributed copies of the Preliminary Official Statement dated December __, 2023, relating to the Bonds, which, together with the cover page, inside cover page and appendices thereto is herein called the “Preliminary Official Statement.” By its acceptance of this Purchase Agreement, the City hereby ratifies the use by the Underwriter of the Preliminary Official Statement, and the City agrees to execute a final official statement relating to the Bonds (including any supplements and/or amendments thereto, the “Official Statement”) which will consist of the Preliminary Official Statement with such changes as may be made thereto, with the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel (“Bond Counsel”), Stradling Yocca Carlson & Rauth, a Professional Corporation, Disclosure Counsel (“Disclosure Counsel”), and the Underwriter, and to provide copies thereof to the Underwriter as set forth herein. The City hereby authorizes and requires the Underwriter to use and promptly distribute, in connection with the offer and sale of the Bonds, the Preliminary Official Statement, the Official Statement and any supplement or amendment thereto. The City further authorizes the Underwriter to use and distribute, in connection with the offer and sale of the Bonds, the Fiscal Agent Agreement, the Continuing Disclosure Certificate executed by the City in connection with the Bonds (the “Continuing Disclosure Certificate”), this Purchase Agreement and all information contained herein, and all other documents, certificates and statements furnished by or on behalf of the City to the Underwriter in connection with the transactions contemplated by this Purchase Agreement.
C. To assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”), the City will undertake pursuant to the Continuing Disclosure Certificate, in the form attached to the Official Statement as Appendix F, to provide annual reports and notices of certain enumerated events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement.
D. Except as the Underwriter and the City may otherwise agree, the City will deliver to the Underwriter, at the offices of Bond Counsel in Newport Beach, California, or at such other location as may be mutually agreed upon by the Underwriter and the City, the documents hereinafter mentioned; and the City will deliver to the Underwriter through the facilities of The Depository Trust Company (“DTC”), the Bonds, in definitive form (all Bonds bearing CUSIP numbers), duly executed by the City and authenticated by the Fiscal Agent in the manner provided for in the Fiscal Agent Agreement and the Community Facilities District Act at 8:00 a.m. California time, on _______, 2023 (the “Closing Date”), and the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in paragraph (A) of this Section by wire transfer, payable in federal or other immediately available funds (such delivery and payment being herein referred to as the “Closing”). The Bonds shall be in fully registered book-entry form (which may be typewritten) and shall be registered in the name of Cede & Co., as nominee of DTC.
2. Establishment of Issue Price.
A. The Underwriter agrees to assist the City in establishing the issue price of the Bonds and shall execute and deliver to the City at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit C, with such modifications as may be appropriate or necessary, in the Item Number: 5.
4 reasonable judgment of the Underwriter, the City and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds.
B. Except as otherwise set forth in Exhibit A attached hereto, the City will treat the first price at which 10% of each maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase Agreement, the Underwriter shall report to the City the price or prices at which it has sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the City the prices at which it sells the unsold Bonds of that maturity to the public. That reporting obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been satisfied as to the Bonds of that maturity or until all Bonds of that maturity have been sold to the public.
C. The Underwriter confirms that it has offered the Bonds to the public on or before the date of this Purchase Agreement at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Exhibit A attached hereto. Exhibit A also sets forth, as of the date of this Purchase Agreement, the maturities, if any, of the Bonds for which the Underwriter represents that (i) the 10% test has been satisfied (assuming orders are confirmed by the close of the business day immediately following the date of this Purchase Agreement) and (ii) the 10% test has not been satisfied and for which the City and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the City to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-theoffering-price rule”). So long as the hold-the-offering-price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following:
1. the close of the fifth (5th) business day after the sale date; or
2. the date on which the Underwriter has sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public.
The Underwriter shall promptly advise the City when it has sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public, if that occurs prior to the close of the fifth (5th) business day after the sale date.
D. The Underwriter confirms that:
(i) any selling group agreement and any third-party distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a member of the selling group and each broker-dealer that is a party to such third-party distribution agreement, as applicable:
(A)(i) to report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter and (ii) to Item Number: 5.
5 comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter,
(B) to promptly notify the Underwriter of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below), and (C) to acknowledge that, unless otherwise advised by the dealer or broker-dealer, the Underwriter shall assume that each order submitted by the dealer or broker-dealer is a sale to the public.
(ii) any selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer that is a party to a third-party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such third-party distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter or the dealer that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter or the dealer, and (B) comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter or the dealer and as set forth in the related pricing wires.
E. The City acknowledges that, in making the representation set forth in this section, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing the issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a third-party distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the requirements for establishing the issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in the third-party distribution agreement and the related pricing wires.
F. The Underwriter acknowledges that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section.
Further, for purposes of this section:
1. “public” means any person other than an underwriter or a related party;
2. “underwriter” means (A) any person that agrees pursuant to a written contract with the City (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the public);
Item Number: 5.
6 3. a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (A) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (B) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (C) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and
4. “sale date” means the date of execution of this Purchase Agreement by all parties.
3. Representations, Warranties and Covenants of the City. The City represents, warrants and covenants to the Underwriter, on behalf of itself and the Community Facilities District, as the case may be, that:
A. The City is duly organized and validly existing as a general law city under the Constitution and laws of the State of California and has duly authorized the formation of the Community Facilities District pursuant to resolutions duly adopted by the City Council (the “Community Facilities District Formation Resolution” and, together with the City Resolution of Issuance, the “Community Facilities District Resolutions”) and the Community Facilities District Act. The City Council, as the legislative body of the Community Facilities District, has duly adopted the City Formation Resolution, and has caused to be recorded in the real property records of the County of Riverside, notice of special tax lien, and any required amendments thereof (collectively, the “Notice of Special Tax Lien”) (the City Formation Resolution and Notice of Special Tax Lien being collectively referred to herein as the “Formation Documents”), and has duly adopted the City Resolution of Issuance. Each of its Formation Documents remains in full force and effect as of the date hereof and has not been amended. The Community Facilities District is duly organized and validly existing as a community facilities district under the laws of the State of California. The City has, and at the Closing Date will have, as the case may be, full legal right, power and authority: (i) to execute, deliver and perform its obligations under this Purchase Agreement, the Continuing Disclosure Certificate and the Fiscal Agent Agreement, and to carry out all transactions contemplated by each of such agreements; (ii) to issue, sell and deliver the Bonds as provided herein; and (iii) to carry out, give effect to and consummate the transactions contemplated by the Formation Documents, the Fiscal Agent Agreement, the Bonds, the Continuing Disclosure Certificate, this Purchase Agreement and the Official Statement.
This Purchase Agreement, the Fiscal Agent Agreement, the Bonds and the Continuing Disclosure Certificate are collectively referred to herein as the “City Documents.” B. The City and the Community Facilities District, as applicable, have each complied, and will at the Closing Date be in compliance in all material respects, with the Formation Documents and the City Documents, and any immaterial noncompliance by the City and the Community Facilities District, if any, will not impair the ability of the City and the Community Facilities District, as applicable, to carry out, give effect to or consummate the transactions contemplated by the foregoing. From and after the date of issuance of the Bonds, the City will Item Number: 5.
7 continue to comply with the covenants of the City and the Community Facilities District contained in the City Documents.
C. By all necessary official action of the City, the City has duly authorized and approved the execution and delivery by the City of, and the performance by City of, the obligations on its part contained in, the City Documents and has approved the use and distribution by the Underwriter of the Preliminary Official Statement and the execution, use and distribution by the Underwriter of the Official Statement, and, as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered by the parties thereto, the City Documents will constitute the legally valid and binding obligations of the City, on its own behalf and on behalf of the Community Facilities District, enforceable upon the City and the Community Facilities District in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally. To the best of the City’s knowledge, the City has complied, and will at the Closing Date be in compliance in all respects, with the terms of the City Documents that are applicable to the City, and the Community Facilities District has complied, and will at the Closing Date be in compliance in all respects, with the terms of the City Documents that are applicable to the Community Facilities District.
D. The information in the Preliminary Official Statement and in the Official Statement relating to the City and the Bonds (other than information under the captions “PROPERTY OWNERSHIP AND THE DEVELOPMENT,” and “UNDERWRITING,” Appendices D and G, information provided by Lennar Homes of California, LLC (the “Developer”), the Appraiser and the Special Tax Consultant (as such terms are defined herein) and statements pertaining to the book entry system, as to which no view is expressed), is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and, upon delivery and up to and including 25 days after the End of the Underwriting Period (as defined in paragraph (D) below), the Official Statement will be amended and supplemented so as to contain no misstatement of any material fact or omission of any statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading.
E. Up to and including 25 days after the End of the Underwriting Period (as defined below), the City will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The City will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise materially affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. As used herein, the term “End of the Underwriting Period” means the later of such time as: (i) the Bonds are delivered to the Underwriter; or (ii) the Underwriter does not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless the Underwriter gives notice to the contrary, the End of the Underwriting Period shall be deemed to be the Closing Date. Any notice delivered pursuant to this provision shall be written notice delivered to the City at or prior to the Closing Date and shall specify a date (other than the Closing Date) to be deemed the “End of the Underwriting Period.” If in the opinion of the Underwriter any such event or proceedings requires the preparation and distribution of a supplement or amendment to the Official Statement, the City shall prepare and furnish to the Underwriter, at the City’s expense, such number of copies of the Item Number: 5.
8 supplement or amendment to the Official Statement, in (i) a “designated electronic format” consistent with the requirements of the MSRB’s Rule G-32 and (ii) a printed format form in substance mutually agreed upon by the City and the Underwriter as the Underwriter may reasonably request. If such amendment or supplement to the Official Statement shall be made subsequent to the Closing Date, the City also shall furnish, or cause to be furnished, such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably deem necessary to evidence the truth and accuracy of any such supplement or amendment to the Official Statement.
F. Except as described in the Preliminary Official Statement, neither the City nor the Community Facilities District is, and as of the Closing Date, neither will be, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the Community Facilities District, as the case may be, is a party or is otherwise subject or bound; and, to the City’s knowledge, no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or event of default under any such instrument which breach, default or event could have an adverse effect on the City’s ability or the Community Facilities District’s ability to perform their respective obligations under the City Documents; and as of such times, except as disclosed in the Official Statement, the authorization, execution and delivery of the City Documents and compliance with the provisions of each thereof, or the performance of the conditions precedent to be performed by the City pursuant to this Purchase Agreement, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the City or the Community Facilities District of their respective obligations under the City Documents or the performance of the conditions precedent to be performed by the City pursuant to this Purchase Agreement. The City has received all licenses, permits or other regulatory approvals required, if any, for the pledge, collection and/or application by the Community Facilities District of the Special Taxes (as defined in the Fiscal Agent Agreement) and other moneys pledged to the payment of the principal of and interest on the Bonds under the Fiscal Agent Agreement.
G. Except as may be required under the “blue sky” or other securities laws of any jurisdiction, all approvals, consents, authorizations, elections and orders of, or filings or registrations with, any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the City or the Community Facilities District of their respective obligations under the City Documents, and the performance of the conditions precedent to be performed by the City pursuant to this Purchase Agreement, have been or will be obtained at the Closing Date and are or will be in full force and effect at the Closing Date.
H. The City Documents conform as to form and tenor to the descriptions thereof contained in the Official Statement.
I. The Bonds are payable from the Special Taxes of Improvement Area 1 of the Community Facilities District, as set forth in the Fiscal Agent Agreement, the levy of which has been Item Number: 5.
9 duly and validly authorized pursuant to the Community Facilities District Act and the City will covenant in the Fiscal Agent Agreement to levy the Special Taxes within Improvement Area 1 of the Community Facilities District in an amount which, together with other available funds, is required for the payment of the principal of, and interest on, the Bonds when due and payable, all as provided in the Fiscal Agent Agreement.
J. The Fiscal Agent Agreement creates a valid pledge of, first lien upon and security interest in, the Special Tax Revenues, and in the moneys in the Bond Fund and Special Tax Fund established pursuant to the Fiscal Agent Agreement, on the terms and conditions set forth in the Fiscal Agent Agreement.
K. Except as disclosed in the Preliminary Official Statement, there are, to the best of the City’s knowledge, no entities with outstanding assessment liens against any of the properties within Improvement Area 1 of the Community Facilities District or which are senior to or on a parity with the Special Taxes.
L. The Preliminary Official Statement was deemed final by a duly authorized officer of the City prior to its delivery to the Underwriter, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(1) of the Rule. The City hereby covenants and agrees that, within seven (7) business days from the date hereof, or upon reasonable written notice from the Underwriter within sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, the City shall cause a final electronic form of the Official Statement to be delivered to the Underwriter in sufficient quantity to comply with paragraph (b)(4) of the Rule and Rules G-12, G-15, G-32 and G-36 of the Municipal Securities Rulemaking Board.
M. At the time of acceptance hereof there is and as of the Closing there will be no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body (collectively and individually, an “Action”) pending (notice of which has been served on the City or the Community Facilities District) or to the best knowledge of the City or the Community Facilities District threatened, in which any such Action: (i) in any way questions the powers of the City Council or the existence of the Community Facilities District or the titles of the officers of the City and/or the Community Facilities District to their respective offices; (ii) affects, contests or seeks to prohibit, restrain or enjoin the issuance or delivery of the Bonds or the payment or collection of Special Taxes or any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contests or affects the validity of the City Documents or the consummation of the transactions on the part of the City or the Community Facilities District contemplated thereby; (iii) contests the exclusion of interest on the Bonds from federal or State income taxation or contests the powers of the City or the Community Facilities District which may result in any material adverse change relating to the financial condition of the City or the Community Facilities District; (iv) except as disclosed in the Official Statement, wherein an unfavorable decision, ruling or finding would materially adversely affect the financial position or condition of the City or the Community Facilities District or would result in any material adverse change in the ability of the City to pledge or apply the Special Taxes (as defined in the Fiscal Agent Agreement) or to pay debt service on the Bonds; or (v) contests the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserts that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were Item Number: 5.
10 made, not misleading; and as of the time of acceptance hereof there is and, as of the Closing Date, there will be no known basis for any Action of the nature described in clauses (i) through (v) of this sentence.
N. Any certificate signed on behalf of the Community Facilities District by any officer or employee of the City authorized to do so and delivered to the Underwriter in connection with the issuance and sale of the Bonds shall be deemed to be a representation and covenant by the Community Facilities District to the Underwriter as to the statements made therein.
O. At or prior to the Closing the City will have duly authorized, executed and delivered the Continuing Disclosure Certificate in substantially the form attached as Appendix F to the Official Statement. The City has not been subject to any previous undertakings with regard to the Rule to provide annual reports or notices of enumerated events in the last five years.
P. The City will apply the proceeds of the Bonds in accordance with the Fiscal Agent Agreement and as described in the Official Statement.
Q. Until such time as moneys have been set aside in an amount sufficient to pay all then outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior to maturity, the City will faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Fiscal Agent Agreement.
R. Between the date of this Purchase Agreement and the date of Closing, the City will not offer or issue any bonds, notes or other obligations for borrowed money not previously disclosed to the Underwriter and the City shall not create, assume or guarantee any indebtedness payable from, or pledge or otherwise encumber, the Special Taxes or other assets, properties, funds or interests that will be pledged as security for the Bonds pursuant to the City Documents.
The City hereby approves the preparation and distribution of the Official Statement, consisting of the Preliminary Official Statement with such changes as are noted thereon and as may be made thereto, with the approval of Bond Counsel, Disclosure Counsel and the Underwriter, from time to time prior to the Closing Date.
The execution and delivery of this Purchase Agreement by the City shall constitute a representation by the City to the Underwriter that the representations and warranties contained in this Section 3 with respect to the City and the Community Facilities District are true as of the date hereof.
4. Conditions to the Obligations of the Underwriter. The obligation of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations and warranties on the part of the City, on its own behalf and on behalf of the Community Facilities District, contained herein, to the accuracy in all material respects of the statements of the officers and other officials of the City and the Community Facilities District made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the City and the Community Facilities District of their obligations to be performed hereunder at or prior to the Closing Date and, to the following additional conditions:
Item Number: 5.
11 A. At the Closing Date, the Community Facilities District Resolutions, the Formation Documents, and the City Documents shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds, and with the transactions contemplated thereby, and by this Purchase Agreement, all such actions as, in the opinion of Bond Counsel, shall be necessary and appropriate.
B. At the Closing Date, except as was described in the Preliminary Official Statement, neither the City nor the Community Facilities District shall be, in any respect material to the Bonds, the City Documents or the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the Community Facilities District, respectively, is a party or is otherwise subject or bound, and the performance by the City or the Community Facilities District, respectively, of its obligations under the Bonds, the City Documents, the Community Facilities District Resolutions, this Purchase Agreement and any other instruments contemplated by any of such documents, and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State, the United States of America or of any department, division, agency or instrumentality of either thereof or under any applicable court or administrative decree or order or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the Community Facilities District, respectively, is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the City or the Community Facilities District, respectively, of its obligations under the City Documents, the Bonds or the Community Facilities District Resolutions.
C. At the Closing Date, except as described in the Official Statement, neither the City nor the Community Facilities District shall be, in any respect material to the Bonds, the City Documents or the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the Community Facilities District, respectively, is a party or is otherwise subject or bound, and the performance by the City or the Community Facilities District, respectively, of its obligations under the Bonds, the City Documents, the Community Facilities District Resolutions, this Purchase Agreement and any other instruments contemplated by any of such documents, and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State, the United States of America or of any department, division, agency or instrumentality of either thereof or under any applicable court or administrative decree or order or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the Community Facilities District, respectively, is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the City or the Community Facilities District, respectively, of its obligations under the City Documents, the Bonds or the Community Facilities District Resolutions.
D. The information contained in the Official Statement is, as of the Closing Date and as of the date of any supplement or amendment thereto pursuant hereto, will be true and correct Item Number: 5.
12 in all material respects and does not, as of the Closing Date or as of the date of any supplement or amendment thereto, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
E. Between the date hereof and the Closing Date, the market price or marketability, at the initial offering prices set forth on the inside cover page of the Official Statement, of the Bonds or the ability of the Underwriter to enforce contracts for the sale of the Bonds, shall not have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice to the City terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds), by reason of any of the following:
1. Legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America or recommended to the Congress by the President of the United States, the Department of the Treasury, the Internal Revenue Service, or any member of Congress, or favorably reported for passage to either House of Congress by any committee of such House to which such legislation had been referred for consideration, or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department of the United States of America or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon such interest as would be received by any owners of the Bonds beyond the extent to which such interest is subject to taxation as of the date hereof; or
2. Legislation introduced in or enacted (or resolution passed) by the Congress, or shall have been favorably reported out of committee or be pending in committee, or shall have been recommended to the Congress for passage by the President of the United States of America or a member of the President’s Cabinet, or an order, decree, injunction or decision issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release, statement or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, the Resolution or the City Documents, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended, or that the Fiscal Agent Agreement is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character of the Bonds, as contemplated hereby or by the Official Statement or otherwise is or would be in violation of the federal securities laws as amended and then in effect; or
3. A general suspension of trading on the New York Stock Exchange or other major exchange shall be in force, or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on any such exchange, whether by virtue of determination by that exchange or by order of the SEC or any other governmental authority having jurisdiction; or
4. The introduction, proposal or enactment of any amendment to the Federal or California Constitution or any action by any Federal or California court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the City, its Item Number: 5.
13 property, income, securities (or interest thereon), the validity or enforceability of Special Taxes, or the ability of the City to issue the Bonds as contemplated by the Fiscal Agent Agreement and the Official Statement; or
5. Any event occurring, or information becoming known which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Preliminary Official Statement or in the Official Statement, or has the effect that the Preliminary Official Statement or the Official Statement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; or
6. Any national securities exchange, the Comptroller of the Currency, or any other governmental authority, shall impose as to the Bonds, or obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, the Underwriter; or
7. There shall have occurred (1) an outbreak or escalation of hostilities or the declaration by the United States of a national emergency or war or (2) any other calamity or crisis in the financial markets of the United States or elsewhere or the escalation of such calamity or crisis; or
8. Except as disclosed in or contemplated by the Official Statement, any material adverse change in the affairs of the City or Community Facilities District shall have occurred; or
9. Any event or circumstance shall exist that either makes untrue or incorrect in any material respect any statement or information in the Official Statement (other than any statement provided by the Underwriter) or is not reflected in the Official Statement but should be reflected therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and, in either such event, the City refuses to permit the Official Statement to be supplemented to supply such statement or information, or the effect of the Official Statement as so supplemented is to materially adversely affect the market price or marketability of the Bonds or the ability of the Underwriter to enforce contracts for the sale of the Bonds; or
10. A general banking moratorium shall have been declared by federal or State authorities having jurisdiction and be in force; or
11. A material disruption in securities settlement, payment or clearance services affecting the Bonds shall have occurred; or
12. Any new restriction on transactions in securities materially affecting the market for securities (including the imposition of any limitation on interest rates) or the extension of credit by, or a charge to the net capital requirements of, underwriters shall have been established by the New York Stock Exchange, the SEC, any other federal or State agency or the Congress of the United States, or by Executive Order; or
13. A decision by a court of the United States shall be rendered, or a stop order, release, regulation or no-action letter by or on behalf of the SEC or any other governmental Item Number: 5.
14 agency having jurisdiction of the subject matter shall have been issued or made, to the effect that the issuance, offering or sale of the Bonds, including the underlying obligations as contemplated by this Purchase Agreement or by the Official Statement, or any document relating to the issuance, offering or sale of the Bonds, is or would be in violation of any provision of the federal securities laws at the Closing Date, including the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended and the Trust Indenture Act of 1939, as amended; or
14. Any proceeding shall have been commenced or be threatened in writing by the Securities and Exchange Commission against the City or the Community Facilities District; or
15. The commencement of any Action.
F. At or prior to the Closing Date, the Underwriter shall have received a counterpart original or certified copy of the following documents, in each case satisfactory in form and substance to the Underwriter:
1. The Official Statement and each supplement or amendment, if any thereto, executed by an authorized officer of the City;
2. The Fiscal Agent Agreement, duly executed and delivered by the City and the Fiscal Agent;
3. Certifications by the City Clerk with respect to each resolution and ordinance of the City Council, for the City or as the legislative body of the Community Facilities District, relating to the City Documents, the transactions contemplated thereby, formation of the Community Facilities District and issuance of the Bonds;
4. The Continuing Disclosure Certificate executed and delivered by an authorized officer the City;
5. An unqualified approving opinion for the Bonds, dated the Closing Date and addressed to the City, of Bond Counsel, to the effect that the Bonds are the valid, legal and binding obligations of the City and that the interest thereon is excluded from gross income for federal income tax purposes and exempt from personal income taxes of the State of California, in substantially the form included as Appendix C to the Official Statement, together with a letter of Bond Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the City may be relied upon by the Underwriter to the same extent as if such opinion was addressed to it;
6. A supplemental opinion or opinions, dated the Closing Date and addressed to the Underwriter, of Bond Counsel, to the effect that:
(i) this Purchase Agreement and the Continuing Disclosure Certificate have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties thereto, as applicable, constitutes the legal, valid and binding obligations of the City and are enforceable in accordance with their terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting creditors’ rights generally or by the exercise of judicial Item Number: 5.
15 discretion in accordance with general principles of equity or otherwise in appropriate cases and by limitations on legal remedies against public agencies in the State; (ii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Fiscal Agent Agreement is exempt from qualification under the Trust Indenture Act of 1939, as amended;
(iii) the information contained in the Official Statement on the cover and under the captions “THE BONDS” (other than the caption “Debt Service Schedule”), “SOURCES OF PAYMENT FOR THE BONDS,” “TAX EXEMPTION” and “LEGAL OPINION” and in Appendices C and E to the Official Statement, are accurate insofar as such statements purport to summarize certain provisions of the Bonds, the Fiscal Agent Agreement, Bond Counsel’s final approving opinion, and the Community Facilities District Act.
7. The letter of Disclosure Counsel, dated the Closing Date and addressed to the City and to the Underwriter, to the effect that, without having undertaken to determine independently the accuracy or completeness of the statements contained in the Official Statement, but on the basis of their participation in conferences with representatives of the City, the Special Tax Consultant and others, and their examination of certain documents, nothing has come to their attention which has led them to believe that the Preliminary Official Statement as of its date and the Official Statement as of its date and as of the Closing Date contained or contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that no opinion or belief need be expressed as to any financial statements or other financial, statistical or engineering data or forecasts, numbers, charts, estimates, projections, assumptions, or expressions of opinion, any information about valuation, appraisals, absorption, archeological or environmental matters, or any information with respect to the City or about DTC or the book-entry-only system);
8. A certificate dated the Closing Date and signed by an authorized representative of the City or an authorized designee, on behalf of the City to the effect that: (i) the representations, warranties and covenants of the City contained in the Bond Purchase Agreement, made on behalf of the City and the Community Facilities District, are true and correct in all material respects on and as of the Closing Date as if made on the Closing Date; (ii) to the best knowledge of such officer, no event has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; and (iii) the City has complied with all the agreements and satisfied all the conditions on its part to be satisfied under this Purchase Agreement, the Community Facilities District Resolutions, and the City Documents at or prior to the Closing Date;
9. An opinion of the City Attorney dated the date of Closing and addressed to the Underwriter and the City, to the effect that:
(i) The City is a municipal corporation and general law city, duly organized and existing under the Constitution and laws of the State of California; (ii) The Community Facilities District Resolutions have been duly adopted at meetings of the City Council, which were called and held pursuant to law and with all Item Number: 5.
16 public notice required by law and at which a quorum was present and acting throughout, and the Community Facilities District Resolutions are in full force and effect and have not been modified, amended, rescinded or repealed since the respective dates of their adoption; (iii) The City Documents and the Official Statement have been duly authorized, executed and delivered by the City and the City Documents constitute the legal, valid and binding obligations of the City enforceable against the City in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights, to the application of equitable principles where equitable remedies are sought and to the exercise of judicial discretion in appropriate cases; (iv) Except as may be stated in the Official Statement, there is no action, suit, proceeding or investigation before or by any court, public board or body pending (notice of which has been served on the City or the Community Facilities District) or, to such counsel’s knowledge, threatened wherein an unfavorable decision, ruling or finding would: (a) affect the creation, organization, existence or powers of the City, or the titles of its members and officers to their respective offices; or (b) affect the validity of the City Documents or restrain or enjoin the repayment of the Bonds or in any way contest or affect the validity of the City Documents or contest the authority of the City to enter into or perform its obligations under any of the City Documents, questions the right of the City to use Special Taxes levied within Improvement Area 1 of the Community Facilities District for the repayment of the Bonds or affects in any manner the right or ability of the City to collect the Special Taxes or pledge the Special Tax Revenues levied within Improvement Area 1 of the Community Facilities District for the repayment of the Bonds;
10. A certificate dated the Closing Date from Integra Realty Resources (the “Appraiser”) to the effect that: (i) the statements in the Official Statement provided by the Appraiser and all information supplied by it for use in the Official Statement were as of the date of the Official Statement and are as of the Closing Date true and correct, and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) no events or occurrences have been ascertained by the Appraiser or have come to the Appraiser’s attention since [September 15, 2023] that would materially change the opinion set forth in the Appraisal;
11. A certificate dated the Closing Date from Webb Municipal Finance, LLC to the effect that: (i) the Special Tax if collected in the maximum amounts permitted pursuant to the Rate and Method of Apportionment of Special Taxes of Improvement Area 1 of the Community Facilities District as of the Closing Date would generate at least 110% of the annual debt service payable with respect to the Bonds and the 2020 Bonds plus Administrative Expenses in each year, based on such assumptions and qualifications as shall be acceptable to the Underwriter; and (ii) the statements in the Official Statement provided by Webb Municipal Finance, LLC concerning Special Taxes in Improvement Area 1 of the Community Facilities District and all information supplied by it for use in the Official Statement were as of the date of the Official Statement and are as of the Closing Date true and correct, and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;
12. Certified copies of the general resolution of the Fiscal Agent authorizing the execution and delivery of certain documents by certain officers of the Fiscal Agent, Item Number: 5.
17 which resolution authorizes the execution of the Fiscal Agent Agreement and the authentication of the Bonds;
13. A certificate of the Fiscal Agent, dated the Closing Date, to the effect that: (i) the Fiscal Agent is authorized to carry out corporate trust powers, and has full power and authority to perform its duties under the Fiscal Agent Agreement; (ii) the Fiscal Agent is duly authorized to execute and deliver the Fiscal Agent Agreement, to accept the obligations created by the Fiscal Agent Agreement and to authenticate the Bonds pursuant to the terms of the Fiscal Agent Agreement; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Fiscal Agent that has not been obtained is or will be required for the authentication of the Bonds or the consummation by the Fiscal Agent of the other transactions contemplated to be performed by the Fiscal Agent in connection with the authentication of the Bonds and the acceptance and performance of the obligations created by the Fiscal Agent Agreement; and (iv) to the best of its knowledge, compliance with the terms of the Fiscal Agent Agreement will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Fiscal Agent is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Fiscal Agent or any of its activities or properties;
14. An opinion of counsel to the Fiscal Agent dated the Closing Date, addressed to the Underwriter, and the City to the effect that the Fiscal Agent is a national banking association duly organized and validly existing under the laws of the United States having full power and being qualified to enter into, accept and agree to the provisions of the Fiscal Agent Agreement, and that such documents has been duly authorized, executed and delivered by the Fiscal Agent, and, assuming due execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligation of the Fiscal Agent, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors’ rights in general and except as such enforceability may be limited by the application of equitable principles if equitable remedies are sought;
15. A certificate of the City dated the Closing Date, in a form acceptable to Bond Counsel and the Underwriter, that the Bonds are not arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended;
16. A negative assurance letter of counsel to the Developer, dated the date of the Closing, addressed to the Underwriter and the City, in form and substance acceptable to the Underwriter and Bond Counsel;
17. A Letter of Representations from the Developer, dated the date of the Preliminary Official Statement, substantially in the form attached hereto as Exhibit B;
18. A Closing Certificate of the Developer, dated the date of the Closing, substantially in the form attached hereto as Exhibit A to the Letter of Representations from the Developer or as such Closing Certificate may be modified with the approval of the Underwriter and Disclosure Counsel;
Item Number: 5.
18 19. An opinion of Kutak Rock LLP, counsel to the Underwriter (“Underwriter’s Counsel”), dated the date of Closing and addressed to the Underwriter in form and substance acceptable to the Underwriter; and
20. Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the material representations and warranties of the City, on its own behalf and on behalf of the Community Facilities District, contained herein, and of the statements and information contained in the Official Statement and the due performance or satisfaction by the City at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the City and the Community Facilities District in connection with the transactions contemplated hereby and by the Fiscal Agent Agreement and the Official Statement.
If the City shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds contained in this Purchase Agreement, or if the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement shall terminate and neither the City nor the Underwriter shall be under any further obligation hereunder, except that the respective obligations of the Underwriter and the City set forth in Section 6 hereof shall continue in full force and effect.
5. Expenses. Whether or not the transactions contemplated by this Purchase Agreement are consummated, the Underwriter shall be under no obligation to pay, and the City shall pay only from the proceeds of the Bonds, or any other legally available funds of the City, or the City, but only as the City and such other party providing such services may agree, all expenses and costs of the City incident to the performance of its obligations in connection with the authorization, execution, sale and delivery of the Bonds to the Underwriter, including, without limitation, printing costs, rating agency fees and charges, initial fees of the Fiscal Agent, including fees and disbursements of its counsel, if any, fees and disbursements of Bond Counsel, Disclosure Counsel and other professional advisors employed by the City, costs of preparation, printing, signing, transportation, delivery and safekeeping of the Bonds and for expenses (included in the expense component of the Underwriter’s discount) incurred by the Underwriter on behalf of the City’s employees which are incidental to implementing this Purchase Agreement, including, but not limited to, meals, transportation, lodging, and entertainment of those employees. The Underwriter shall pay all out-of-pocket expenses of the Underwriter, including, without limitation, advertising expenses, the California Debt and Investment Advisory Commission fee, CUSIP Services Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds, including fees and disbursements of Underwriter’s Counsel. Any meals in connection with or adjacent to meetings, rating agency presentations, pricing activities or other transaction-related activities shall be considered an expense of the transaction and included in the expense component of the Underwriter’s discount.
6. Notices. Any notice of other communication to be given to the City under this Purchase Agreement may be given by delivering the same in writing to the City of Desert Hot Springs, 65950 Pierson Blvd., Desert Hot Springs, California 92240, Attention: City Manager; any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to Stifel, Nicolaus & Company, Incorporated, 2121 Avenue of the Stars, Suite 2150, Los Angeles, California 90067, Attention: Public Finance Department.
Item Number: 5.
19 7. Parties In Interest. This Purchase Agreement is made solely for the benefit of the City and Underwriter (including any successors or assignees of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof.
8. Survival of Representations and Warranties. The representations and warranties of the City under this Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the City or the Community Facilities District and regardless of delivery of and payment for the Bonds..
9. Execution in Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.
10. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understanding among the parties hereto in relation to the sale of the Bonds by the City.
11. Severability. If any provision of this Purchase Agreement is, or is held or deemed to be, invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, because it conflicts with any provisions of any constitution, statute, rule of public policy or for any other reason, such circumstances shall not make the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or make any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatsoever.
12. Governing Law. This Purchase Agreement shall be governed by the laws of the State of California.
Item Number: 5.
S-1
13. Effective Date. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the City and shall be valid and enforceable as of the time of such acceptance.
Very truly yours,
STIFEL, NICOLAUS & COMPANY,
INCORPORATED
By:
Its: Authorized Officer
The foregoing is hereby agreed to and accepted as of the date first above written:
CITY OF DESERT HOT SPRINGS
By:
Authorized Officer
Time of Execution: _____________ p.m. California time
Item Number: 5.
A-1
EXHIBIT A
CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023
MATURITY SCHEDULE
Maturity
(September 1)
Principal
Amount
Interest
Rate Yield Price
10% Test
Satisfied*
10% Test
Not
Satisfied
Subject to
Hold-TheOfferingPrice Rule
(marked if
used)
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
20__(T)
20__(T)
20__(T)
20__(T)
_________________
(T) Term Bond.
(C) Priced to optional call at [par] on September 1, 20__. * At the time of execution of this Purchase Agreement and assuming orders are confirmed by the close of the business day immediately following the date of this Purchase Agreement.
Item Number: 5.
B-1
EXHIBIT B
CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023
LETTER OF REPRESENTATIONS OF LENNAR HOMES OF CALIFORNIA, LLC [POS Date]
City of Desert Hot Springs
Community Facilities District No. 2006-1
11999 Palm Drive.
Desert Hot Springs, CA 92240
Stifel, Nicolaus & Company, Incorporated
2121 Avenue of the Stars, Suite 2150
Los Angeles, California 90067
Ladies and Gentlemen:
The undersigned certifies and represents that he or she is duly authorized on behalf of Lennar Homes of California, LLC, a California limited liability company (the “Developer”), to execute and deliver this Letter of Representations of Lennar Homes of California, LLC (this “Letter of Representations”) in connection with the issuance, sale and delivery by the City of Desert Hot Springs (the “City”) of its Community Facilities District No. 2006-1 Improvement Area 1 Special Tax Bonds, Series 2023 (the “Bonds”).
Capitalized terms used but not defined in this Letter of Representations have the same meanings as are set forth in the Bond Purchase Agreement with respect to the Bonds between Stifel, Nicolaus & Company, Incorporated, as underwriter (the “Underwriter”), and the City (the “Bond Purchase Agreement”).
This Letter of Representations is delivered pursuant to and in satisfaction of Section 4(F)(17) of the Bond Purchase Agreement.
As used in this Letter of Representations, the phrase “Actual Knowledge of the Undersigned” means, as of the date of this Letter of Representations, the actual (as opposed to constructive) knowledge that the undersigned currently has or has obtained through (i) interviews with such current officers and responsible employees of the Developer as the undersigned has reasonably determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth in this Letter of Representations, and/or (ii) review of documents reasonably available to the undersigned and which the undersigned reasonably deemed necessary for the undersigned to obtain knowledge of the matters set forth in this Letter of Representations. The undersigned has not conducted any extraordinary inspection or inquiry other than such inspections or inquiries as are prudent and customary in connection with the ordinary course of the Developer’s Item Number: 5.
B-2
current business and operations. The undersigned has not contacted individuals who are no longer employed by the Developer or its Affiliates. The Developer further notes that Lennar Corporation, a Delaware corporation (“Lennar Corporation”), completed a merger with CalAtlantic Group, Inc., a Delaware corporation (now CalAtlantic Group, LLC, herein “CalAtlantic”) in February, 2018, pursuant to which CalAtlantic merged with and into a subsidiary of Lennar Corporation, with the subsidiary of Lennar Corporation being the surviving entity. Separate and apart from Lennar Corporation’s due diligence efforts for purposes of completing the acquisition of CalAtlantic, for purposes of this Letter of Representations, individuals who were employees and officers of CalAtlantic and its subsidiaries prior to the merger have not been consulted or contacted and documents entered into by CalAtlantic and its subsidiaries or related to their properties and projects have not been reviewed.
As used in this Letter of Representations, the term “Affiliate” of the Developer means any other Person (i) who presently directly, or indirectly through one or more intermediaries, is currently controlling, controlled by or under common control with the Developer, and (ii) for whom information, including financial information or operating data concerning such Person is material to potential investors in their evaluation of the City and investment decision regarding the Bonds (i.e., information regarding such Person’s assets or funds that would materially affect the Developer’s ability to develop the Property as described in the Preliminary Official Statement or to pay its Special Tax (as defined herein) on the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency). “Person” means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization, or a government or political subdivision thereof. For purposes hereof, the term “control” (including the terms “controlling,” “controlled by,” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. For purposes of this Letter of Representations, CalAtlantic, and its direct and indirect subsidiaries, shall not be considered an “Affiliate” of the Developer.
As used in this Letter of Representations, the term “Property” means the property currently owned by the Developer within Improvement Area 1 of the City of Desert Hot Springs Community Facilities District No. 2006-1 (the “Community Facilities District”), as further described in the Preliminary Official Statement.
The undersigned certifies that he or she is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of the Developer, and the undersigned, on behalf of the Developer, further certifies as follows:
1. The Developer is duly organized and validly existing under the laws of the State of California and in good standing under the laws of the State of California, and has all requisite limited liability company right, power and authority: (i) to execute and deliver this Letter of Representations; and (ii) to undertake all of the transactions on its part described in the Preliminary Official Statement.
2. As set forth in the Preliminary Official Statement, title to the Property is held in the name of the Developer. The undersigned, on behalf of the Developer, makes the representations herein with respect to all such Property. Except as otherwise described in the Preliminary Official Statement, the Developer is and the Developer’s current expectations are that the Developer shall remain the party responsible for the development of the Property. The Developer has not entered Item Number: 5.
B-3
into an agreement for development or management of the Property by any other entity, except such subcontracts, consultant agreements, and similar agreements for land development activities associated with the Developer’s development plan as are entered into in the ordinary course of business.
3. Except as set forth in the Preliminary Official Statement, no action, suit, proceeding, inquiry, or investigation at law or in equity, before or by any court, regulatory agency, or public board, or body is pending against the Developer (with proper service of process to the Developer having been accomplished) or, to the Actual Knowledge of the Undersigned, is pending against any current Affiliate (with proper service of process to such Affiliate having been accomplished) or to the Actual Knowledge of the Undersigned is threatened in writing against the Developer or any such Affiliate (a) to restrain or enjoin the collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds (e.g., a reserve account established under the Fiscal Agent Agreement), (b) to restrain or enjoin the development of the Property as described in the Preliminary Official Statement, (c) in any way contesting or affecting the validity of the Special Taxes, or (d) which, if successful, is reasonably likely to materially and adversely affect the Developer’s ability to develop and sell the Property as described in the Preliminary Official Statement or to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency or which challenges or questions the validity or enforceability of the Bonds.
4. As of the date of the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the information contained therein solely with respect to the Developer, its Affiliates, ownership of the Property, the Developer’s development plan, the Developer’s financing plan, the Developer’s lenders, if any, and contractual arrangements of the Developer or any Affiliates (including, if material to the Developer’s development plan or the Developer’s financing plan, other loans of such Affiliates) as set forth under the sections of the Preliminary Official Statement captioned “PROPERTY OWNERSHIP AND THE DEVELOPMENT” (other than the first, second, and fourth paragraphs of “—The District and Improvement Area 1” for which no certification is provided) (excluding therefrom in all cases information regarding the Appraisal Report (as defined herein), market value ratios and annual special tax ratios, and information which is identified as having been provided by a source other than the Developer), is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
5. Except as described in the Preliminary Official Statement, there are no material loans outstanding and unpaid and no material lines of credit of the Developer or its Affiliates, that are secured by an interest in the Property. Neither the Developer nor, to the Actual Knowledge of the Undersigned, any of its Affiliates is currently in material default on any loans, lines of credit, or other obligation to repay borrowed money related to the development of the Property or any other project which default is reasonably likely to materially and adversely affect the Developer’s ability to develop the Property as described in the Preliminary Official Statement or to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency.
6. To the Actual Knowledge of the Undersigned, the Developer is not aware that any of the Property has a current liability with respect to the presence of a substance presently classified Item Number: 5.
B-4
as hazardous under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 or applicable California law or is adversely affected by the presence of endangered or threatened species or habitat for endangered or threatened species.
7. The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer and its Affiliates which it controls will not bring any action, suit, proceeding, inquiry, or investigation at law or in equity, before any court, regulatory agency, public board, or body, that in any way seeks to challenge or overturn the formation of the City, to challenge the adoption of the ordinance of the City levying Special Taxes within Improvement Area 1 of the Community Facilities District, to invalidate the Community Facilities District or any of the Bonds or any refunding bonds related thereto, or to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notices of special tax lien relating thereto. The foregoing covenant shall not prevent the Developer and its Affiliates in any way from bringing any other action, proceeding, inquiry, or investigation at law or in equity, before any court, regulatory agency, public board, or body including, without limitation, (a) an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the Rate and Method of Apportionment of Special Taxes pursuant to which Special Taxes are levied, (b) an action or suit with respect to the application or use of the Special Taxes levied and collected, or (c) an action or suit to enforce the obligations of the City and/or the City under the Community Facilities District Resolution of Issuance, the Fiscal Agent Agreement, or any other agreements among the Developer or its Affiliates, the City and/or the Community Facilities District or to which the Developer or its Affiliates is a party or beneficiary.
8. The Developer consents to the issuance of the Bonds. The Developer expects that the proceeds of the Bonds will be used as described in the Preliminary Official Statement.
9. The Developer intends to comply with the provision of the Mello-Roos Community Facilities District Act of 1982, as amended relating to the Notice of Special Tax described in Government Code Section 53341.5 in connection with the sale of the Property, or portions thereof.
10. To the Actual Knowledge of the Undersigned, the Developer is able to pay its bills as they become due and no legal proceedings are pending against the Developer (with proper service of process having been accomplished) or, to the Actual Knowledge of the Undersigned, threatened in writing in which the Developer may be adjudicated as bankrupt or discharged from any and all of its debts or obligations, or granted an extension of time to pay its debts or obligations, or be allowed to reorganize or readjust its debts, or be subject to control or supervision of the Federal Deposit Insurance Corporation.
11. To the Actual Knowledge of the Undersigned, Affiliates of the Developer are able to pay their bills as they become due and no legal proceedings are pending against any Affiliate of the Developer (with proper service of process having been accomplished) or to the Actual Knowledge of the Undersigned, threatened in writing in which the Affiliates of the Developer may be adjudicated as bankrupt or discharged from any or all of their debts or obligations, or granted an extension of time to pay their debt or obligations, or be allowed to reorganize or readjust their debts or obligations, or be subject to control or supervision of the Federal Deposit Insurance Corporation, which is reasonably likely to materially and adversely affect the Developer’s ability to develop the Property as described in the Preliminary Official Statement or Item Number: 5.
B-5
to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency.
12. The Developer has been developing or has been involved in the development of numerous projects over an extended period of time. It is likely that the Developer has been delinquent at one time or another in the payment of ad valorem property taxes, special taxes, or special assessments. However, to the Actual Knowledge of the Undersigned, during the last five years, neither the Developer nor any current Affiliate has, during the period of its ownership, been delinquent to any material extent in the payment of any ad valorem property tax, special assessment, or special tax on property in California owned by the Developer or any such Affiliate (during the period of their ownership) included within the boundaries of a community facilities district or an assessment district in California that (a) caused a draw on a reserve fund relating to such assessment district or community facilities district financing or (b) resulted in a foreclosure action being commenced against the delinquent Developer or Affiliate by a court filing.
13. The Developer has not filed for the reassessment of the assessed value of portions of the Property, other than in connection with the sale of homes to individual homebuyers.
14. To the Actual Knowledge of the Undersigned, there are no claims, disputes, suits, actions or contingent liabilities by and among the Developer, its Affiliates, or any contractors working on the development of the Property which is reasonably likely to materially and adversely affect the Developer’s ability to develop the Property as described in the Preliminary Official Statement or to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency.
15. Based upon the current development plans, including, without limitation, the current budget and subject to economic conditions and risks generally inherent in the development of real property, including, but not limited to, the risks described in the Preliminary Official Statement under the section entitled “SPECIAL RISK FACTORS,” to the Actual Knowledge of the Undersigned, the Developer presently anticipates that it will have sufficient funds to complete the development of the Property as described in the Preliminary Official Statement and to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency and does not anticipate that the City or the Community Facilities District will be required to resort to a draw on the Reserve Account of the Special Tax Fund for payment of principal of or interest on the Bonds due to the Developer’s nonpayment of Special Taxes. However, neither the Developer nor any of its Affiliates are obligated to pay the Special Taxes or to make any additional capital contribution or loan to the Developer at any time, and the Developer reserves the right to change its respective development plan and financing plan for the Property at any time without notice, and there is no recourse against the Developer for the failure to pay the Special Taxes other than the filing of a foreclosure action.
16. An appraisal of the taxable properties within Improvement Area 1 of the Community Facilities District, dated ______, 2023 (the “Appraisal Report”), with a date of value of September 15, 2023 (the “Date of Value”), was prepared by Integra Realty Resources (the “Appraiser”). The Appraisal Report estimates the market value of the appraised taxable properties within Improvement Area 1 of the Community Facilities District as of the Date of Value. To Actual Knowledge of the Undersigned, all information submitted by, or on behalf of and authorized by, the Developer to the Appraiser and contained in the sections of the Appraisal Item Number: 5.
B-6
Report highlighted in yellow or circled in Exhibit B attached hereto, was true and correct in all material respects as of the Date of Value.
17. If between the date hereof and the Closing Date any event relating to or affecting the Developer, its Affiliates, ownership of the Property, the Developer’s development plan, the Developer’s financing plan, the Developer’s lenders, if any, and contractual arrangements of the Developer or any Affiliates (including, if material to the Developer’s development plan or the Developer’s financing plan, other loans of such Affiliates) shall occur of which the Developer has actual knowledge which would cause the information under the sections of the Preliminary Official Statement indicated in paragraph 4 hereof (and subject to the limitations and exclusions contained in paragraph 4 hereof), to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the City and the Underwriter and if in the opinion of counsel to the City or the Underwriter such event requires the preparation and publication of a supplement or amendment to the information described in the section of the Preliminary Official Statement referenced in paragraph 4 hereof (and subject to the limitations and exclusions contained in paragraph 4 hereof), the Developer shall reasonably cooperate with the City and the Underwriter in the preparation of an amendment or supplement to the Preliminary Official Statement in form and substance satisfactory to counsel to the City and to the Underwriter.
18. The Developer agrees to deliver a Closing Certificate dated the date of issuance of the Bonds at the time of issuance of the Bonds in substantially the form attached as Exhibit A.
19. On behalf of the Developer, the undersigned has reviewed the contents of this Letter of Representations and has consulted with counsel to the Developer regarding the meaning of its contents. The undersigned acknowledges and understands that a variety of state and federal securities 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 certification as to the matters set forth in this Letter of Representations, without additional disclosures or other action, may not fully discharge all duties and obligations of the Developer under such securities laws.
Item Number: 5.
B-7
The undersigned has executed this Letter of Representations solely in his or her capacity as an authorized officer or representative of the Developer and he or she will have no personal liability arising from or relating to this Letter of Representations. Any liability arising from or relating to this Letter of Representations may only be asserted against the Developer.
LENNAR HOMES OF CALIFORNIA, LLC,
a California limited liability company
By:
Name:
Title:
Item Number: 5.
B-8
EXHIBIT A
$_________
CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023
CLOSING CERTIFICATE OF LENNAR HOMES OF CALIFORNIA, LLC
December __, 2023
City of Desert Hot Springs
Community Facilities District No. 2006-1
11999 Palm Drive
Desert Hot Springs, CA 92240
Stifel, Nicolaus & Company, Incorporated
2121 Avenue of the Stars, Suite 2150
Los Angeles, California 90067
Ladies and Gentlemen:
Reference is made to the above-captioned bonds (the “Bonds”) and to the Bond Purchase Agreement, dated December __, 2023 (the “Bond Purchase Agreement”), entered into in connection therewith. This Closing Certificate of Lennar Homes of California, LLC (the “Closing Certificate”) is delivered pursuant to and in satisfaction of Section 4(F)(18) of the Bond Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Letter of Representations of Lennar Homes of California, LLC (the “Letter of Representations”), dated December ___, 2023, delivered by Lennar Homes of California, LLC, a California limited liability company (the “Developer”).
The undersigned certifies that he or she is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of the Developer, and the undersigned, on behalf of the Developer, further certifies as follows:
1. The Developer has received the final Official Statement relating to the Bonds, dated December ___, 2023 (the “Official Statement”). To the Actual Knowledge of the Undersigned, each statement, representation and warranty made in the Letter of Representations is true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, except that all references therein to the Preliminary Official Statement shall be deemed to be references to the final Official Statement.
2. To the Actual Knowledge of the Undersigned, no event has occurred since the date of the Preliminary Official Statement affecting the statements and information described in paragraph 4 of the Letter of Representations (and subject to the limitations and exclusions contained in paragraph Item Number: 5.
B-9
4 of the Letter of Representations) relating to the Developer, its Affiliates, ownership of the Property, the Developer’s development plan, the Developer’s financing plan, the Developer’s lenders, if any, and contractual arrangements of the Developer or any Affiliates (including, if material to the Developer’s development plan or the Developer’s financing plan, other loans of such Affiliates), which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make such statements and information contained in the Official Statement not misleading in any material respect.
3. For the period through 25 days after the “end of the underwriting period” as defined in the Bond Purchase Agreement to mean the Closing Date unless the Underwriter gives notice to the contrary, if any event relating to or affecting the Developer, its Affiliates, the proposed development of the Property, ownership of the Property, the Developer’s development plan, the Developer’s financing plan, the Developer’s lenders, if any, and contractual arrangements of the Developer or any Affiliates (including, if material to the Developer’s development plan or the Developer’s financing plan, other loans of such Affiliates) shall occur as a result of which it is necessary, in the opinion of the Underwriter or counsel to the City, to amend or supplement the Official Statement in order to make the information under the sections of the Official Statement indicated in paragraph 4 of the Letter of Representations (and subject to the limitations and exclusions contained in paragraph 4 of the Letter of Representations) not misleading in the light of the circumstances under which they were made, the Developer shall reasonably cooperate with the City and the Underwriter in the preparation and publication of a supplement or amendment to the information described in the section of the Official Statement referenced in paragraph 4 of the Letter of Representations (and subject to the limitations and exclusions contained in paragraph 4 of the Letter of Representations), in form and substance satisfactory to the Underwriter and counsel to the City which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
The undersigned has executed this Closing Certificate solely in his or her capacity as an authorized officer or representative of the Developer and he or she will have no personal liability arising from or relating to this Closing Certificate. Any liability arising from or relating to this Closing Certificate may only be asserted against the Developer.
LENNAR HOMES OF CALIFORNIA, LLC,
a California limited liability company
By:
Name:
Title:
Item Number: 5.
B-10
EXHIBIT B
CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023
DEVELOPER PROVIDED INFORMATION IN APPRAISAL REPORT
See attached.
Item Number: 5.
C-1
EXHIBIT C
$_______
CITY OF DESERT HOT SPRINGS
COMMUNITY FACILITIES DISTRICT NO. 2006-1
IMPROVEMENT AREA 1 SPECIAL TAX BONDS, SERIES 2023
FORM OF ISSUE PRICE CERTIFICATE
The undersigned, on behalf of Stifel, Nicolaus & Company, Incorporated (“Stifel”) hereby certifies as set forth below with respect to the sale and issuance of the above-captioned bonds (the “Bonds”).
1. Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Schedule A.
2. Defined Terms.
(a) General Rule Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “General Rule Maturities.”
(b) Issuer means the City of Desert Hot Springs.
(c) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities.
(d) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter.
The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (e) Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public).
The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Stifel’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder.
The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Stradling Yocca Carlson & Rauth, a Professional Corporation in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Item Number: 5.
C-2
Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds.
STIFEL, NICOLAUS & COMPANY,
INCORPORATED
By:
Name:
By:
Name:
Dated: ______, 2023
Item Number: 5.
C-3
SCHEDULE A
SALE PRICES OF THE GENERAL RULE MATURITIES
(To be attached)
Item Number: 5.
Integra Realty Resources
Sacramento
Appraisal of Real Property
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Residential Subdivision
62718 N. Crescent St.
Desert Hot Springs, Riverside County, California 92240
Prepared For:
City of Desert Hot Springs
Date of the Report:
November 28, 2023
Report Format:
Appraisal Report
IRR ‐ Sacramento
File Number: 193‐2023‐0412
Item Number: 5.
Subject Photographs
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) 62718 N. Crescent St.
Desert Hot Springs, California
Item Number: 5.
Aerial Photograph
Item Number: 5.
Integra Realty Resources 3825 Atherton Road T 916.435.3883 Sacramento Suite 500 F 916.435.4774
Rocklin, CA 95765 www.irr.com
November 28, 2023
Daniel Porras PE
Interim Deputy City Manager
City of Desert Hot Springs
65950 Pierson Boulevard
Desert Hot Springs, CA 92240
SUBJECT: Market Value Appraisal
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) 62718 N. Crescent St.
Desert Hot Springs, Riverside County, California 92240
IRR ‐ Sacramento File No. 193‐2023‐0412
Dear Mr. Porras:
Integra Realty Resources – Sacramento is pleased to submit the accompanying appraisal of the referenced property. The purpose of the appraisal is to develop an opinion of the market value subject to a hypothetical condition, pertaining to the fee simple interest in the property. The client for the assignment is City of Desert Hot Springs and the intended use of the report is for bond underwriting purposes.
The subject property represents Improvement Area 1 of Community Facilities District No. 2006‐1 located within the city of Desert Hot Springs. Improvement Area 1 of CFD No. 2006‐1 is comprised of Villages I and II of the Skyborne community; these two Villages include a total of 394 lots in varying stages of development. Village I includes 154 lots, all of which have completed homes that have transferred to individual homeowners. Village II includes 240 lots which have been developed by three different homebuilders over the history of the project. In Village II, 53 lots reflect completed homes previously constructed by DR Horton and Gallery Homes, all of which have transferred to individual homeowners. The remaining 187 lots are actively being developed by Lennar Homes in a project known as Vega. Of these lots, 144 have transferred to individual homeowners (90 assessed homes and 54 appraised homes), 8 are completed homes (builder inventory), 21 are homes under construction, and 14 are improved lots. Lennar is offering four floor plans ranging in size from 1,547 to 2,091 square feet; the typical lot size is 6,400 square feet. According to the 2023/2024 Tax Roll, 297 of the homes within Improvement Area 1 owned by individuals have been reassessed Item Number: 5.
Daniel Porras PE
City of Desert Hot Springs
November 28, 2023
(all 154 homes in Village I and 143 homes within Village II). Therefore, assessed values, rather than appraised values, will be assigned to these homes. As of the effective appraisal date, minimal site development work remains for Village II; remaining site development and permit/impact fee costs are considered in the body of this report.
We have been requested to provide a market value of the appraised properties by ownership, as well as the cumulative, or aggregate, value of the appraised properties, as of the date of value. The estimate of market value accounts for the impact of the lien of the Special Taxes securing the Bonds.
The appraisal conforms to the Uniform Standards of Professional Appraisal Practice (USPAP), the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute, and applicable state appraisal regulations. The Appraisal Report is also prepared in accordance with the Appraisal Standards for Land Secured Financing published by the California Debt and Investment Advisory Commission (CDIAC) (2004).
Standards Rule 2‐2 (Content of a Real Property Appraisal Report) contained in the Uniform Standards of Professional Appraisal Practice (USPAP) requires each written real property appraisal report to be prepared as either an Appraisal Report or a Restricted Appraisal Report. This report is prepared as an Appraisal Report as defined by USPAP under Standards Rule 2‐2(a), and incorporates practical explanation of the data, reasoning, and analysis that were used to develop the opinion of value.
Based on the valuation analysis in the accompanying report, and subject to the definitions, assumptions, and limiting conditions expressed in the report, the concluded opinions of value are as follows:
Value by Ownership, September 15, 2023
Component
Lots/Homes/
Parcels
Lot/Home
Value
Permits and
Fees
Remaining Site
Development Costs
Value per
Component Market Value (Rd.)
Lennar Homes of CA1
Completed Homes 8 $393,750 ‐‐ $393,750 $3,150,000
Under Construction Homes 3 $105,000 ($16,532) ($18,446) $70,022 $210,066 Improved Lots 2 $105,000 ($16,532) ($18,446) $70,022 $140,044 Total 13 $3,500,110
AG Essential Housing CA 2, LP 2
Completed Homes 0 $393,750 ‐‐ $393,750 $0
Under Construction Homes 18 $105,000 ($16,532) ($18,446) $70,022 $1,260,396 Improved Lots 12 $105,000 ($16,532) ($18,446) $70,022 $840,264 Total 30 $2,100,660
Individual Homeowners3
Completed Homes 54 ‐‐ ‐ $21,640,000
Total 54 $21,640,000
Aggregate, or Cumulative, Appraised Values 97 $27,240,770 Aggregate, or Cumulative, Assessed Values4 297 $94,248,523 394 $121,489,293
1 Lennar Homes of CA, LLC and Lennar Homes of CA, Inc
2 Land banking entity associated with Lennar
3 Homes within Vega without Assessed Values
Total Aggregate, or Cumulative, Value of CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area 1)
4 Includes 154 homes within Village 1 and 143 Homes within Village 2 (including 24 homes constructed by DR Horton, 29 homes constructed by Gallery, and 90 homes constructed by Lennar within Vega) Item Number: 5.
Daniel Porras PE
City of Desert Hot Springs
November 28, 2023
Extraordinary Assumptions and Hypothetical Conditions
None
1. The value derived herein is based on the hypothetical condition that bond proceeds from CFD No. 2006‐1 are available for reimbursement of eligible impact fees and public improvements.
The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition, directly related to a speci fic assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modify our value conclusions.
If you have any questions or comments, please contact the undersigned. Thank you for the opportunity to be of service.
Respectfully submitted,
Integra Realty Resources ‐ Sacramento
Kevin Ziegenmeyer, MAI
California Certified General Real Estate
Appraiser #AG013567
Telephone: 916.435.3883, ext. 224
Email: [email protected]
Laura Diaz, MAI
California Certified General Real Estate
Appraiser #3005037
Telephone: 408.299.0444
Email: [email protected]
Item Number: 5.
Table of Contents
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Executive Summary 1
Identification of the Appraisal Problem 2
Subject Description 2
History of Project 3
Sale History 4
Pending Transactions 5
Appraisal Purpose 5
Value Type Definitions 5
Property Rights Definitions 6
Client and Intended User(s) 6
Intended Use 6
Applicable Requirements 6
Report Format 6
Prior Services 6
Appraiser Competency 7
Scope of Work 8
Economic Analysis 10
Area Analysis – Riverside County 10
Introduction 10
Population 10
Employment & Economy 11
Household Income 12
Transportation 13
Recreation & Culture 13
Conclusion 14
Surrounding Area Analysis 16
Residential Market Analysis 21
Property Analysis 27
Land Description and Analysis 27
Proposed Improvements Description 36
Real Estate Taxes 48
Highest and Best Use 49
Valuation 52
Valuation Methodology 52
Market Valuation – Floor Plans 54
Sales Comparison Approach ‐ Lot Valuation 65
Extraction Analysis 73
Final Opinion of Value 77
Exposure Time 77
Marketing Time 78
Certification 79
Assumptions and Limiting Conditions 81
Addenda
A. Appraiser Qualifications
B. Definitions
C. Property Information
D. Comparable Data
Item Number: 5.
Executive Summary 1
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Executive Summary
Property Name
Address
Property Type
Owner of Record
Tax ID
Land Area 60.31 acres; 2,627,104 SF
Zoning Designation
Highest and Best Use
Exposure Time; Marketing Period 6 ‐ 9 months; 6 ‐ 9 months Effective Date of the Appraisal September 15, 2023
Date of the Report November 28, 2023
Property Interest Appraised
The values reported above are subject to the definitions, assumptions, and limiting conditions set forth in the accompanying report of which this summary is a part. No party other than City ofDesert Hot Springs and its associated finance team may use or rely on the information, opinions, and conclusions contained in the report. It is assumed that the users ofthe report have read the entire report, including all ofthe definitions, assumptions, and limiting conditions contained therein.
R‐L (Residential Low Density)
Single family residential development
Fee Simple
Lennar Homes of CA, LLC, Lennar Homes of CA, Inc, AG
Essential Housing CA 2, LP, Individual Homeowners
667‐240‐001 to 038; 667‐250‐001 to 038; 667‐260‐001
to 078; 667‐270‐001to 079; 667‐280‐001 to 095; 667‐
290‐001 to 076
CFD No. 2006‐1 of the City of Desert Hot Springs
62718 N. Crescent St.
Desert Hot Springs, Riverside County, California 92240 Residential Subdivision
Extraordinary Assumptions and Hypothetical Conditions
None
1. The value derived herein is based on the hypothetical condition that bond proceeds from CFD No. 2006‐1 are available for reimbursement of eligible impact fees and public improvements.
The value conclusions are based on the following hypothetical conditions that may affect the assignment resul ts. A hypothetical condition is a condition, directly related to a speci fic assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment resul ts, but is used for the purpose of analysis.
The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modi fy our value conclusions.
Item Number: 5.
Identification of the Appraisal Problem 2
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Identification of the Appraisal Problem
Subject Description
The subject property represents Improvement Area 1 of Community Facilities District No. 2006‐1 located within the city of Desert Hot Springs. Improvement Area 1 of CFD No. 2006‐1 is comprised of Villages I and II of the Skyborne community; these two Villages include a total of 394 lots in varying stages of development. Village I includes 154 lots, all of which have completed homes that have transferred to individual homeowners. Village II includes 240 lots which have been developed by three different homebuilders over the history of the project. In Village II, 53 lots reflect completed homes previously constructed by DR Horton and Gallery Homes, all of which have transferred to individual homeowners. The remaining 187 lots are actively being developed by Lennar Homes in a project known as Vega. Of these lots, 144 have transferred to individual homeowners (90 assessed homes and 54 appraised homes), 8 are completed homes (builder inventory), 21 are homes under construction, and 14 are improved lots. Lennar is offering four floor plans ranging in size from 1,547 to 2,091 square feet; the typical lot size is 6,400 square feet. According to the 2023/2024 Tax Roll, 297 of the homes within Improvement Area 1 owned by individuals have been reassessed (all 154 homes in Village I and 143 homes within Village II). Therefore, assessed values, rather than appraised values, will be assigned to these homes. As of the effective appraisal date, minimal site development work remains for Village II; remaining site development and permit/impact fee costs are considered in the body of this report.
A legal description of the property is provided in the addenda.
Property Identification
Property Name CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Address 62718 N. Crescent St.
Desert Hot Springs, California 92240
Tax ID 667‐240‐001 to 038; 667‐250‐001 to 038; 667‐260‐001 to 078; 667‐270‐001to 079; 667‐280‐001 to 095; 667‐290‐001 to 076
Owner of Record Lennar Homes of CA, LLC, Lennar Homes of CA, Inc, AG Essential Housing CA 2, LP, Individual Homeowners
As of the effective appraisal date, the subject property includes multiple owners of record. In addition to individual homeowners, certain parcels are also held by entities associated with Lennar Homes; this includes AG Essential Housing CA 2, LP, which is a land banking entity associated with Lennar. Further discussion of the relationship between Lennar and AG Essential Housing CA 2, LP is provided in the upcoming Sale History section. Please note, subsequent to the effective appraisal date, but prior to the date of the report, all of the subject lots previously owned by land banking entity AG Essential Housing CA 2, LP, have transferred to homebuilder Lennar Homes; AG Essential Housing CA 2, LP no longer has ownership of any of the subject lots.
A preliminary title report was not provided for review. The following table summarizes the appraised properties by ownership, as of the effective appraisal date, based upon a review of available public records.
Item Number: 5.
Identification of the Appraisal Problem 3
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Appraised Property Summary by Ownership
Owner Improved Lots
Under Construction
Homes Completed Homes1 Total
Individual Homeowners ‐‐ ‐‐ 54 54
Lennar Homes of CA2 238 13
AG Essential Housing CA 2, LP3 12 18 0 30
TOTAL 14 21 62 97
2 Lennar Homes of CA, LLC and Lennar
3 Land banking entity associated with
1 Completed homes without a complete assessment for structural improvements by County Assessor The above information is relied upon in the upcoming valuation and is assumed to be accurate; however, if additional information regarding ownership of individual lots is provided, the appraisal report may be modified.
History of Project
The subject reflects Villages I and II within the Skyborne at Desert Hot Springs master planned community, which includes ten villages. Construction of Skyborne commenced in 2006/2007 under Developer DR Horton, who completed 178 homes in Villages I and II and some infrastructure work in the remaining villages. During the economic downturn in 2008, DR Horton sold the Skyborne project to land developer Skyborne Ventures, LLC.
The table on the following page summarizes the current construction status of the Villages I and II, which comprise Improvement Area No. 1 of CFD No. 2006‐1.
Construction Status ‐ Improvement Area 1
No. of Lots
Village I 154
DR Horton Project
Completed Homes 154
Village II 240
Vega Project (Lennar)
Completed Homes 152
Under Construction Homes 21
Improved Lots 14
Gallery Project (Gallery Homes)
Completed Homes 29
DR Horton Project
Completed Homes 24
90 on assessor's roll; 54 homes owned by individuals without AV; 8 homes owned by Lennar all homes complete and owned by individual homeowners; all on assessor's roll all homes complete and owned by individual homeowners; all on assessor's roll all homes complete and owned by individual homeowners; all on assessor's roll Village I includes 154 completed homes developed by DR Horton, which have transferred to individual homeowners and are on the current tax assessor’s roll. Assessed values for these homes are reported in the appraisal.
Village II includes homes constructed by multiple builders. DR Horton constructed 24 homes and Builder Gallery Homes purchased 29 lots from Skyborne Ventures, LLC and subsequently constructed Item Number: 5.
Identification of the Appraisal Problem 4
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) and sold 29 homes; all of these are also on the current tax assessor’s roll and the assessed values are recorded in the appraisal. The only active project within Improvement Area No. 1 is Lennar’s Vega community. As will be discussed, Lennar purchased 187 lots over two takedowns. As of the effective appraisal date, the Vega project includes 152 completed homes, 144 of which have transferred to individual homeowners. Ninety of these homes have been reassessed on the current assessor’s roll.
Lennar owns eight completed homes; three of these reflect model homes, three are in‐contract to individuals, and two are standing inventory available for purchase. Vega also includes 21 under‐ construction homes and 14 improved lots.
Sale History
In addition to individual homeowners, the current owners of record for the subject property include Lennar Homes of CA, LLC, Lennar Homes of CA, Inc, and AG Essential Housing CA 2, LP. The subject’s 394 lots have not transferred in bulk within the three‐year period preceding the effective appraisal date.
Portions of Improvement Area 1 have transferred in arm’s length transactions to homebuilders Gallery Homes and Lennar Homes within the past three years; these transactions are summarized in the following table. The last column provides the estimate of finished lot value that was used in negotiations to arrive at the final sale prices. Further discussion of the two Lennar takedowns will be provided later in this appraisal report. Our conclusions of market value for the subject differ from the following sale prices due to strengthening market conditions and substantial site development and vertical construction that has been completed at the subject property as of the effective appraisal date.
Sale History Summary ‐ Village II
Neighborhood
No. of
Units Builder Sale Date Sale Price
Price per
Unit
Estimate of Finished
Lot Value
Gallery 29 Gallery Homes Jan‐20 $1,832,104 $63,176 $82,000 Vega (First Take) 79 Lennar Homes Feb‐21 $5,537,347 $70,093 $87,500 Vega (Second Take) 108 Lennar Homes Dec‐21 $8,380,044 $77,593 $95,000 In addition, on February 19, 2021, Lennar Homes of California, Inc. sold lots to AG Essential Housing CA 2, LP, a Delaware limited partnership, which is serving as the owner and landbank of the Vega lots.
Lennar has the option to acquire these lots over time pursuant to a takedown schedule. This transfer of lots serves as a financing mechanism, which is relatively commonplace for transactions involving national homebuilders, especially within master planned communities such as the subject. Over the past two years, there have been multiple transfers of lots from AG Essential Housing CA 2, LP to Lennar Homes of California, LLC. Transfers between Lennar Homes of California Inc, Lennar Homes of California, LLC, and AG Essential Housing CA 2, LP are not considered arm’s length transactions; thus, no further consideration is warranted.
Item Number: 5.
Identification of the Appraisal Problem 5
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Based on a review of available information, no other sale or transfer of ownership has taken place within a three‐year period prior to the effective appraisal date.
As noted, subsequent to the effective appraisal date, but prior to the date of the report, all of the subject lots previously owned by land banking entity AG Essential Housing CA 2, LP, have transferred to homebuilder Lennar Homes; AG Essential Housing CA 2, LP no longer has ownership of any of the subject lots.
Pending Transactions
Based on discussions with the appropriate contacts, the property is not subject to an agreement of sale or an option to buy, nor is it listed for sale, as of the effective appraisal date. However, individual homes that are under construction are in contract from homebuilders to individual homeowners. In addition, Skyborne Ventures, LLC is reportedly in discussions with homebuilders for the purchase of other Villages within the Skyborne project; however, details regarding these negotiations were not disclosed.
Appraisal Purpose
The purpose of the appraisal is to develop an opinion of the market value subject to a hypothetical condition of the fee simple interest in the property as of the effective date of the appraisal, September 15, 2023. The date of the report is September 19, 2023. The appraisal is valid only as of the stated effective date. As a condition of this assignment, we have been asked to exclude any contributory value of unfinished homes.
Value Type Definitions
The definitions of the value types applicable to this assignment are summarized below.
Market Value
The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. 1 1 Code of Federal Regulations, Title 12, Chapter I, Part 34.42[h]; also, Interagency Appraisal and Evaluation Guidelines, Federal Register, 75 FR 77449, December 10, 2010, page 77472 Item Number: 5.
Identification of the Appraisal Problem 6
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Property Rights Definitions
The property rights appraised which are applicable to this assignment are defined as follows.
Fee Simple Estate
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.2 Client and Intended User(s)
The client is the California Municipal Finance Authority. The intended users are the California Municipal Finance Authority and its associated finance team. No party or parties beyond the clients associated finance team may use or rely on the information, opinions, and conclusions contained in this report; however, this appraisal report may be included in the offering document provided in connection with the issuance and sale of the Bonds.
Intended Use
The intended use of the appraisal is for bond underwriting purposes. The appraisal is not intended for any other use.
Applicable Requirements
This appraisal report conforms to the following requirements and regulations:
Uniform Standards of Professional Appraisal Practice (USPAP); Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute; Applicable state appraisal regulations;
Interagency Appraisal and Evaluation Guidelines issued December 10, 2010; Appraisal Standards for Land Secured Financing published by the California Debt and Investment Advisory Commission (CDIAC) (2004).
Report Format
Standards Rule 2‐2 (Content of a Real Property Appraisal Report) contained in the Uniform Standards of Professional Appraisal Practice (USPAP) requires each written real property appraisal report to be prepared as either an Appraisal Report or a Restricted Appraisal Report. This report is prepared as an Appraisal Report as defined by USPAP under Standards Rule 2‐2(a), and incorporates practical explanation of the data, reasoning, and analysis used to develop the opinion of value.
Prior Services
USPAP requires appraisers to disclose to the client any other services they have provided in connection with the subject property in the prior three years, including valuation, consulting, property management, brokerage, or any other services. We have not performed any services, as an appraiser 2 Appraisal Institute, The Dictionary of Real Estate Appraisal, 7th ed. (Chicago: Appraisal Institute, 2022) Item Number: 5.
Identification of the Appraisal Problem 7
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) or in any other capacity, regarding the property that is the subject of this report within the three‐year period immediately preceding acceptance of this assignment.
Appraiser Competency
No steps were necessary to meet the competency provisions established under USPAP. The assignment participants have appraised several properties similar to the subject in physical, locational, and economic characteristics, and are familiar with market conditions and trends; therefore, appraiser competency provisions are satisfied for this assignment. Appraiser qualifications and state credentials are included in the addenda of this report.
Item Number: 5.
Scope of Work 8
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Scope of Work
Introduction
The appraisal development and reporting processes require gathering and analyzing information about the assignment elements necessary to properly identify the appraisal problem. The scope of work decision includes the research and analyses necessary to develop credible assignment results, given the intended use of the appraisal. Sufficient information includes disclosure of research and analyses performed and might also include disclosure of research and analyses not performed.
To determine the appropriate scope of work for the assignment, we considered the intended use of the appraisal, the needs of the user, the complexity of the property, and other pertinent factors. Our concluded scope of work is described below.
Research and Analysis
The type and extent of the research and analysis conducted are detailed in individual sections of the report. Although effort has been made to confirm the arms‐length nature of each sale with a party to the transaction, it is sometimes necessary to rely on secondary verification from sources deemed reliable.
Subject Property Data Sources
The legal and physical features of the subject property, including size of the site, flood plain data, seismic zone designation, property zoning, existing easements and encumbrances, access and exposure, and condition of the improvements (as applicable) were confirmed and analyzed.
Inspection
Kevin Ziegenmeyer, MAI, conducted an on‐site inspection of the property on August 17, 2023.
Valuation Methodology
Three approaches to value are typically considered when developing a market value opinion for real property. These are the cost approach, the sales comparison approach, and the income capitalization approach. Use of the approaches in this assignment is summarized as follows:
Approachesto Value
Approach Applicability to Subject Use in Assignment
Cost Approach Not Applicable Not Utilized
Sales Comparison Approach Applicable Utilized
Income Capitalization Approach Not Applicable Not Utilized The market value of the appraised properties was estimated by employing a several methodologies.
Item Number: 5.
Scope of Work 9
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) First, the sales comparison approach is utilized to estimate the market value of the completed single‐ family homes within the subject boundaries.
The market value, in bulk, of the remaining Builder‐owned lots is estimated by employing the sales comparison approach to value and extraction technique. In the sales comparison approach to value, the underlying land is compared to transactions of similarly zoned single‐family residential land throughout the subject’s region. Then, to support the reasonableness of the sales comparison approach conclusions, we utilize an extraction analysis, a form of the cost approach. The lot values indicated by each approach are then reconciled into an opinion of market value, subject to the hypothetical condition noted. At the end of the analysis, remaining site development costs and impact fees are deducted from the reconciled improved lot value.
Our analysis excludes a typical cost approach since the subject property represents land. However, a cost analysis is completed for both the horizontal and vertical improvements and market supported costs are employed as part of the extraction analysis and determination of financial feasibility. Given the limited income producing potential of the land, an income approach is not utilized.
Item Number: 5.
Area Analysis – Riverside County 10
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Economic Analysis
Area Analysis – Riverside County
Introduction
Riverside County is part of a region known as the Inland Empire of southern California, southeast of Los Angeles. The county is bordered by San Bernardino County to the north, Orange County to the west, San Diego and Imperial counties to the south, and the state of Arizona to the east. Major cities in the county include Riverside, Moreno Valley, Corona, Murrieta and Temecula. In general, Riverside County is one of California’s fastest growing metropolitan areas. Many new residents locate here from the more expensive metropolitan areas of Los Angeles and San Diego.
Population
The county has a population of 2.44 million and has grown at an average rate of 0.5% per year for the past five years. The following table illustrates recent population trends for Riverside County.
Population Trends
City 2018 2019 2020 2021 2022 2023 %/Yr (5‐year)
Banning 31,014 31,068 30,621 30,592 30,856 31,250 0.2% Beaumont 48,013 49,913 53,318 53,945 54,349 56,590 3.6% Blythe 19,772 19,530 18,586 17,376 17,417 17,265 ‐2.5% Calimesa 8,959 9,015 10,028 10,588 10,950 10,962 4.5% Canyon Lake 10,990 11,021 11,069 11,082 11,003 10,949 ‐0.1% Cathedral City 53,148 53,308 51,356 51,599 51,621 51,433 ‐0.6% Coachella 46,697 47,318 41,900 41,931 41,935 42,462 ‐1.8% Corona 166,299 166,937 156,637 157,182 157,139 157,005 ‐1.1% Desert Hot Springs 29,823 30,019 32,415 32,351 32,389 32,608 1.9% Eastvale 65,509 65,735 69,742 70,457 69,978 69,514 1.2% Hemet 84,126 84,354 89,325 89,302 89,170 89,918 1.4% Indian Wells 5,314 5,351 4,759 4,791 4,785 4,774 ‐2.0% Indio 88,984 90,112 88,795 89,422 89,789 90,837 0.4% Jurupa Valley 104,645 106,056 104,828 105,131 105,154 104,983 0.1% Lake Elsinore 62,622 63,270 70,572 71,225 71,989 71,973 3.0% La Quinta 40,563 40,663 37,504 37,727 37,562 37,979 ‐1.3% Menifee 92,110 94,710 102,466 104,323 107,411 110,034 3.9% Moreno Valley 205,450 207,190 208,237 208,387 208,302 208,289 0.3% Murrieta 112,352 113,207 110,702 111,024 110,592 109,998 ‐0.4% Norco 26,593 26,473 26,659 24,680 25,035 25,037 ‐1.2% Palm Desert 53,554 53,695 50,696 50,683 50,626 50,615 ‐1.1% Palm Springs 47,253 47,410 44,206 44,312 44,165 44,092 ‐1.3% Perris 77,649 78,095 78,614 78,867 78,474 78,948 0.3% Rancho Mirage 18,257 18,397 16,588 16,692 16,854 17,012 ‐1.4% Riverside 325,916 327,076 316,307 309,598 314,818 313,676 ‐0.8% San Jacinto 48,536 49,655 53,835 54,186 54,303 54,103 2.3% Temecula 112,243 112,561 109,820 109,881 109,468 108,899 ‐0.6% Wildomar 36,436 36,878 36,720 36,713 36,438 36,336 ‐0.1% Unincorporated 374,835 380,040 391,880 394,680 398,404 401,693 1.4% Total 2,397,662 2,419,057 2,418,185 2,418,727 2,430,976 2,439,234 0.3% Source: California Department of Finance
Item Number: 5.
Area Analysis – Riverside County 11
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Riverside is the fourth most populous county in California, following Los Angeles, San Diego and Orange Counties. The majority of residents live within incorporated areas, the largest of which is the city of Riverside, with a population of just over 313,000.
Employment & Economy
The California Employment Development Department (EDD) has reported the following employment data for Riverside County over the past five years.
Riverside County saw declining unemployment rates in 2004‐2006, increases from 2007 to 2010, declines between 2011 and 2019, a significant increase in 2020 due to the pandemic and improvement in 2021 and 2022. The California Employment Development Department reported an unemployment rate of 4.4% in Riverside County in May 2023, up from 3.4% a year ago and compared to 4.5% for California and 3.4% for the nation.
As of May 2023, it was reported 16,600 non‐farm jobs were gained in the Riverside‐San Bernardino‐ Ontario MSA year‐over‐year. Annual job growth has slowed in recent quarters. The greatest job growth was in the Educational/Health Services sector with 12,400 jobs gained, followed by the Government sector with 7,700 jobs gained. The following chart indicates the percentage of total employment for each sector in the metro as of May 2023.
Employment Trends
2017 2018 2019 2020 2021 2022
Labor Force 1,070,900 1,090,100 1,108,100 1,121,100 1,133,000 1,152,100 Employment 1,014,200 1,041,700 1,061,500 1,008,000 1,050,000 1,104,100 Annual Employment Change 27,000 27,500 19,800 ‐53,500 42,000 54,100 Unemployment Rate 5.3% 4.4% 4.2% 10.1% 7.3% 4.2%
Source: California Employment Development Department
Item Number: 5.
Area Analysis – Riverside County 12
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) The region’s largest employment sector, accounting for roughly 26% of total employment, is Trade/Transportation/Utilities, which includes wholesale and retail trade; followed by Education/Health Services and Government.
The region’s largest employers are listed in the following table.
Household Income
Median household income represents a broad statistical measure of well‐being or standard of living in a community. The median income level divides households into two equal segments with one half of households earning less than the median and the other half earning more. The median income is considered to be a better indicator than the average household income as it is not dramatically affected by unusually high or low values. According to Claritas Spotlight data reporting service, the Top Employers ‐ Riverside County
Employer Location Description No. of Employees
County of Riverside Countywide County Government 23,772 Amazon Countywide E‐Commerce 14,500
March Air Reserve Base March ARB Military Reserve Base 9,600 University of California, Riverside Riverside University 8,593 Moreno Valley Unified School District Moreno Valley School District 6,020 Kaiser Permanente Riverside Medical Center Riverside Hospital 5,817 Corona‐Norco Unified School District Corona School District 5,478 Riverside Unified School District Riverside School District 5,431 Stater Bros Countywide Retail Grocery 4,699
Mt. San Jacinto College San Jacinto Community College District 4,638 Marie Callender Wholesalers, Inc. Corona Wholesale Trade 4,454 313 Acquisitions LLC Riverside Other Services 4,208
Temecula Valley Unified School District Temecula School District 4,022 Eisenhower Medical Center Rancho Mirage Hospital 4,001
Pechanga Resort & Casino Temecula Resort/Casino 4,000
Hemet Unified School District Hemet School District 3,960 Home Depot Countywide Retail 3,576
Murrieta Valley Unified School District Murrieta School District 3,552 Starcrest of California Perris E‐Commerce 3,450
McDonalds Countywide Restaurant 3,375
Palm Springs Unified School District Palm Springs School District 3,328 Lake Elsinore Unified School District Lake Elsinore School District 3,267 Jurupa Unified School District Jurupa Valley School District 2,749 City of Riverside Riverside City Government 2,700
Target Countywide Retail 2,631
Coachella Valley Unified School District Thermal School District 2,581 Walmart Countywide Retail 1,561
Albertsons/Sav‐On Countywide Retail Grocery 2,231
Riverside Community College District Riverside Community College District 2,228 Hemet Valley Medical Center Hemet Hospital 2,214
Desert Regional Medical Center Palm Springs Hospital 2,200 Agua Caliente Band of Cahuilla Indians Rancho Mirage Tribal Government / Casinos 2,200 Spa Resort & Casino Palm Springs Resort & Spa 2,120
Beaumont Unified School District Beaumont School District 2,053 Kroger (Ralphs & Vons) Countywide Retail Grocery 2,035
Abbott Vascular, Inc. Temecula Medical Device Manufacturing 2,008 Alvord Unified School District Corona School District 1,936 Lowe's Home Improvement Countywide Retail 1,928
United Parcel Service Countywide Delivery Services 1,678 MSR Desert Resort, LP La Quinta Resort / Restaurant 1,500 Source: Riverside County Economic Development Agency, with source cited as "Employers Listed, Websites, and Public Records, 2022" Item Number: 5.
Area Analysis – Riverside County 13
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) median household income estimated for Riverside County in 2023 is $81,520, which is lower than the state of California’s median income of $89,113.
Transportation
Access to and through Riverside County is provided by several major routes, including Interstates 10, 15 and 215, as well as State Routes 60, 62, 74, 79, 86, 91, 111 and 243. Interstate 10 is the primary east‐west connector while Interstates 15 and 215 are the primary north‐south highways. The 91 Freeway provides travel from the Inland Empire to Orange County via the 55 Freeway.
Interstate 10 is a major east‐west route in Southern California, connecting the Pacific coast (Santa Monica) with the Arizona state line before traveling further east through the southern portion of Arizona, New Mexico, Texas, Louisiana, Mississippi, Alabama, and terminating in Jacksonville, Florida.
Interstate 10 links the major California cities of Santa Monica, Los Angeles, Ontario, Beaumont, Palm Springs, Indio and Blythe.
As a primary east‐west connector, Interstate 15 connects the counties of San Bernardino, Riverside and San Diego. The route extends north through Nevada, Arizona, Utah, Idaho and Montana to the Canadian border. Interstate 15 is a major thoroughfare for traffic between San Diego and the Inland Empire, as well as between Southern California and Las Vegas, Nevada. Interstate 215 comprises approximately 55 miles of interstate highway in the Inland Empire. The southern terminus of Interstate 215 is at the junction of Interstate 15 in Murrieta in south Riverside County and travels through Perris before joining the 60 Freeway in Moreno Valley. This interstate provides an alternative to Interstate 15 for travel between Phoenix, Las Vegas, San Bernardino and the San Diego area.
Public transportation is provided by various agencies. Riverside Transit Agency serves the western third of Riverside County, SunLine Transit Agency serves Palm Springs and the Coachella Valley area, Palo Verde Valley Transit Agency serves Blythe near the Arizona border, Pass Transit serves the San Gorgonio Pass communities, and Corona Cruiser serves the community of Corona. In addition, Riverside County is also served by Greyhound buses and Amtrak passenger trains.
The county’s main airport is the Palm Springs International Airport. This two‐runway airport is located about two miles east of downtown Palm Springs and is highly seasonal, with most flights operating during the winter.
Recreation & Culture
Riverside County offers innumerable recreational and cultural opportunities, including many public parks, schools, golf courses, museums and performing arts venues. Popular attractions include the Botanical Gardens at the University of California, Riverside; the historic Mission Inn in downtown Riverside; March Field Air Museum, an aviation museum near Moreno Valley and Riverside, adjacent to the March Air Reserve Base; Temecula Valley, a tourist destination in the southern part of the county with numerous wineries, wine tasting rooms, bed and breakfast inns and wedding venues; and Castle Park, an amusement park. Annual events in the county include the Festival of Lights in Riverside, known for its display of nearly three million Christmas lights; Ghost Walk Riverside; Temecula Valley Balloon and Wine Festival; and Harvest Wine Celebration.
Item Number: 5.
Area Analysis – Riverside County 14
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Riverside County is home to multiple higher education institutions including, but not limited to, the University of California Riverside, California Baptist University, California Southern Law School, California State University San Bernardino and Mt. San Jacinto College.
Conclusion
In general, Riverside County is one of the fastest growing areas in the state. Many new residents are relocating here from the more expensive metropolitan areas of Los Angeles and San Diego. The region offers diverse employment opportunities, numerous colleges and universities, extensive transportation routes, shopping centers, public services and recreational activities.
In recent years, market and economic conditions were strong, with unemployment rates falling to historical lows. Employment conditions declined sharply in 2020 after the onset of the pandemic and though market and economic conditions have since improved, current macroeconomic factors, specifically high inflation and rising interest rates, have reintroduced uncertainty in the market.
Recovery in the market is expected to be gradual and the long‐term outlook for the region is good.
Item Number: 5.
Area Analysis – Riverside County 15
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Area Map
Item Number: 5.
Surrounding Area Analysis 16
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Surrounding Area Analysis
Location
The subject is located in the city of Desert Hot Springs, in the central part of Riverside County. It is the westernmost city of the Coachella Valley, which also includes Cathedral City, Coachella, Indian Wells, Indio, La Quinta, Palm Desert, Palm Springs and Rancho Mirage. Desert Hot Springs lies to the north of Interstate 10, while the other cities/communities lie to the south.
Access and Linkages
The subject neighborhood benefits from very good freeway access. Interstate 10 is a major interstate highway spanning across the nation, from Santa Monica, California on the west coast to Jacksonville, Florida on the east coast. In the subject’s neighborhood, Interstate 10 provides access to the neighboring San Bernardino County to the northwest and into Los Angeles County further west. To the east, it travels through Riverside County into the state of Arizona.
The subject is also proximate to State Route 62, which intersects Interstate 10 to the south of the city limits. State Route 62 travels north through the city and then east across the Little San Bernardino Mountains, along the northern boundary of the Joshua Tree National Park and into the state of Arizona.
Just south of Desert Hot Springs and south of Interstate 10 is State Highway 111, the primary route through the Coachella Valley. It begins at Interstate 10 in the community of White Water, just east of Cabazon and extends southeast through Palm Springs, Rancho Mirage, Palm Desert, La Quinta, and Indio. It continues through the Imperial Valley and along the eastern portion of the Salton Sea, terminating south at the Mexico border. Secondary highways also south of Interstate 10 include Highway 74 which provides access to other cities and communities in Riverside County to the west, and Highway 86, providing southbound access extending near the border of Mexico.
Area thoroughfares include N. Indian Canyon Drive, which extends to the north and south of Interstate 10; Palm Drive, a north‐south arterial stretching from Interstate 10 through the Desert Hot Springs downtown district; and Dillon Road, Two Bunch Palms Trail, Hacienda Avenue, Pierson Blvd, and Mission Lakes Blvd, which travel in an east‐west direction.
Public transportation in the neighborhood is provided by SunLine Transit Agency. Three routes, Routes 14, 15 and 21, service the Desert Hot Springs area, with connections available to other destinations throughout the Coachella Valley, as well as to a Commuter Link route, which offers service throughout Southern California.
The nearest airport for commercial air travel is Palm Springs International Airport, located approximately fourteen miles to the south. Five additional international airports are located within an approximate two‐hour drive of the subject’s neighborhood. In addition, there are five Amtrak stations within 30 miles of the city center.
Item Number: 5.
Surrounding Area Analysis 17
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Demographic Factors
A demographic profile of the surrounding area, including population, households, and income data, is presented in the following table.
As shown above, the current population within a 10‐minute drive time of the subject is 2,734, and the average household size is 9.0. Population in the area has grown since the 2020 census, and this trend is projected to continue over the next five years. Compared to Riverside County overall, the population within a 10‐minute drive time is projected to grow at a slower rate.
Median household income is $49,384, which is lower than the household income for Riverside County.
Residents within a 10‐minute drive time have a similar level of educational attainment to those of Riverside County, while median owner occupied home values are considerably lower.
Land Use
Desert Hot Springs was named for the naturally‐occurring hot mineral waters discovered here. The city is situated between the San Bernardino Mountains and the San Jacinto Mountains. The Mission Creek fault line, a branch of the San Andreas Fault, runs between the two mountain ranges and separates two underground aquifers into hot water to the northeast and cold water to the southwest. The hot Surrounding Area Demographics
2023 Estimates
5‐Minute Drive
Time
10‐Minute Drive
Time
15‐Minute Drive
Time Riverside County
Population 2020 515 2,709 29,902 2,418,185
Population 2023 505 2,734 30,802 2,488,669
Population 2028 491 2,769 32,068 2,586,031
Compound % Change 2020‐2023 ‐0.7% 0.3% 1.0% 1.0%
Compound % Change 2023‐2028 ‐0.6% 0.3% 0.8% 0.8%
Households 2020 162 908 10,031 763,283
Households 2023 161 923 10,321 786,429
Households 2028 159 943 10,744 818,630
Compound % Change 2020‐2023 ‐0.2% 0.5% 1.0% 1.0%
Compound % Change 2023‐2028 ‐0.2% 0.4% 0.8% 0.8%
Median Household Income 2023 $41,844 $49,384 $45,085 $81,520 Average Household Size 9.6 9.0 9.0 3.1
College Graduate % 19% 22% 16% 23%
Median Age 40 40 36 37
Owner Occupied % 58% 62% 51% 67%
Renter Occupied % 42% 38% 49% 33%
Median Owner Occupied Housing Value $182,839 $285,497 $295,589 $511,440 Median Year Structure Built 1985 1988 1986 1989
Average Travel Time to Work in Minutes 102 102 91 37
Source: Claritas
Item Number: 5.
Surrounding Area Analysis 18
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) water springs contain a variety of minerals at varying degrees of heat and are accessible at numerous hotels, resorts and spas throughout the city. The cold water aquifer provides fresh water to the city.
The city of Desert Hot Springs has a mix of land uses. A large part of the city within the western and central portions, remains unimproved, while the majority of improvement lies in the eastern part of the city. Land uses here are devoted primarily to low and medium density single family residential, and commercial uses along the main thoroughfares. Resorts and spas that offer hot springs are also located in this portion of the city.
Most commercial uses are concentrated within the region north of Two Bunch Palms Trail and south of Mission Lakes Boulevard. Some of the larger concentrations of commercial uses include the area near Two Bunch Palms Trail and Palm Drive, improved with a Vons‐anchored center, Walgreens, several restaurants and cafes, and a US Post Office; the intersection of Palm Drive and Hacienda Drive is improved with the Hacienda Palms Shopping Center, anchored by Stater Bros grocery, and offering various neighborhood retail and dining services; most municipal offices and services are found along Pierson Blvd at West Drive; and a large concentration of hot springs resorts and spas are found near Miracle Hill and Mountain View Roads in the far eastern part of the city.
The subject is located on the northwest end of Desert Hot Springs, northwest of the majority of the development in the neighborhood. Immediately adjacent uses to the subject include vacant land.
There are various cultural and recreational opportunities in the city. Cabot’s Pueblo Museum is the adobe‐style structure built by Cabot Yerxa, one of the earliest homestead settlers in Desert Hot Springs, over a period of 20 years, which is now a designated historical site and museum. The city became popular as a tourist destination in the 1940s and 50s when small spa and boutique hotels were plentiful and the city was known as the spa capital of the world. Currently, there are roughly 30 natural mineral springs lodgings and spas in Desert Hot Springs.
The cannabis industry has also become a significant source of revenue in the local economy. The city was among the first to provide structure for the legal operation of cannabis. During the 2018‐2019 fiscal year, the cannabis industry provided $3.2 million, the second highest revenue stream in the city.
In addition, cannatourism, which involves traveling somewhere to consume or participate in cannabis‐ related activities, has been introduced in the city’s cannabis strategic plan, with reports that city officials have begun drafting proposals to allow cannabis sales and use at hotels and entertainment venues.
The Coachella Valley is known for its numerous country/golf clubs, with over 100 private and semi‐ private courses throughout the area. Desert Dunes Golf Club and Hidden Springs Golf Course are the nearest, located to the south of the city limits. Big Morongo Canyon Preserve and Joshua Tree National Park are located to the north and east of Desert Hot Springs, offering hiking, camping, and wildlife preserve.
Along the north side of Interstate 10 are industrial areas, improved primarily with windmill farms and related uses. These windmill farms are located in the San Gorgonio pass, a gap created by the San Andreas fault between the San Bernardino and San Jacinto mountains. The windmills, combined with Item Number: 5.
Surrounding Area Analysis 19
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) growing use of solar power, provide ample renewable energy for the city, as well as for the Southern California energy grid.
Desert Hot Springs is served by the Palm Springs Unified School District, with five elementary schools, two middle schools, one high school and one alternative school located in Desert Hot Springs. There are several vocational schools, community colleges and four‐year universities within approximately 10‐20 miles of the subject, including California State University San Bernardino – Palm Desert Campus; University of California Riverside, Loma Linda University – Dental Hygiene; various campuses of the College of the Desert; Mayfield College; SBB College, Brandman University and National University.
The nearest hospitals are Desert Regional Medical Center, approximately 14 miles south in Palm Springs; Eisenhower Medical Center Hospital located 20 miles southeast of the subject in Rancho Mirage, and JFK Memorial Hospital, located approximately 29 miles southeast in Indio.
Outlook and Conclusions
The subject property is located in an established neighborhood characterized by single‐family residential development with supporting community uses. The area is considered to be a middle‐ income neighborhood with adequate support facilities. The overall condition and quality of the neighborhood is rated as average to good. The composition of residential elements and commercial related support facilities generally provides stable conditions for the neighborhood.
Item Number: 5.
Surrounding Area Analysis 20
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Surrounding Area Map
Item Number: 5.
Residential Market Analysis 21
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Residential Market Analysis
Given prevailing land use patterns and the subject’s zoning, a likely use of the property is for residential development. In the following paragraphs, we examine supply and demand indicators for residential development in the subject’s area.
Submarket Overview
The subject is located in the city of Desert Hot Springs. The subject is adjacent to mature home construction and is considered to have good transportation linkages. Based on existing surrounding homes and new projects under development, the subject characteristics best support a project designed for a combination of entry‐level and/or first‐time move‐up home buyers.
Single‐Family Building Permits
Single‐family building permits for the city of Desert Hot Springs, as well as Riverside County totals are shown in the following table.
Single‐Family Building Permits
Year
City of Desert Hot
Springs County of Riverside
2013 9 4,432
2014 0 5,074
2015 26 4,934
2016 29 5,987
2017 35 6,703
2018 39 7,676
2019 22 7,002
2020 77 8,895
2021 180 7,835
2022 143 8,211
Source: SOCDS Building Permits Monthly Request
The bulk of the single‐family building permits within Riverside County are in unincorporated areas of the county, as well as the cities of Menifee and Beaumont.
New Home Pricing and Sales
According to the Riverside County Real Estate Market Update for August 2023, within Riverside County, the median sales price has increased 1.7% year‐over‐year and is now at $600,097.
According to The Ryness Report for the week ending September 10, 2023 (Week 36 of a calendar year), the Desert Riverside submarket has 25 active projects out of 251 for the entire Inland Empire (Riverside and San Bernardino Counties). The following chart and table are from the latest Ryness Report showing average sales for the Inland Empire.
Item Number: 5.
Residential Market Analysis 22
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Item Number: 5.
Residential Market Analysis 23
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) The following tables include active projects in the Desert Riverside submarket. Overall, projects in the area are averaging 0.69 sales per week (2.77 sales per month) with an average home size of 2,404 square feet and an average home price of $759,080. However, it is noted the subject is exceeding this pace of sales with an absorption rate of 5.52 sales per month and a price point at the lower end of the range of $415,274.
Active Projects (as of 1Q 2023)
Project Name Community Developer Average Price
Avg. Home
Size (SF)
Average
Price/SF
Units
Planned
Units
Sold
Units
Unsold
Avg Sales
per Week
Avg Sales
per Month
Cantera at Coral Mountain La Quinta Beazer $697,490 2,547 $273.85 85 44 41 0.56 2.24 Bellissima Coachella Centex $505,323 2,396 $210.93 109 57 52 1.20 4.80 Crestwood at Diamante La Quinta Crestwood $976,657 3,077 $317.44 47 7 40 0.24 0.96 Crestwood at Villa Portofino Palm Desert Crestwood $585,490 2,103 $278.47 69 55 14 0.54 2.16 Enclave at Capistrano La Quinta DR Horton $643,985 2,701 $238.40 115 30 85 0.45 1.80 Mariposa Pointe Coachella DR Horton $514,990 2,167 $237.71 131 86 45 1.34 5.36 Monte Vina Indio DR Horton $523,864 2,239 $233.97 300 227 73 1.59 6.36 Elan Palm Springs Far West Industries $1,364,900 2,399 $569.06 81 13 68 0.36 1.44 Gallery at Miralon Palm Springs Gallery Homes $1,187,900 2,773 $428.46 50 30 20 0.37 1.48 Aguila at Terra Lago Indio K Hovanian $561,490 2,145 $261.74 123 29 94 0.59 2.36 Dolce Ventana Palm Desert Lennar $530,898 1,871 $283.80 74 50 24 0.64 2.56 The Province Indian Wells Lennar $1,894,113 2,928 $646.90 54 52 2 0.67 2.68 Siena at Paradiso Indio Lennar $612,452 2,535 $241.60 139 136 3 1.32 5.28 University Park Centre Palm Desert Lennar $500,702 1,728 $289.81 64 49 15 0.73 2.92 University Park District Palm Desert Lennar $636,463 2,206 $288.56 48 48 0 0.71 2.84 University Park Village Palm Desert Lennar $500,130 1,853 $269.90 84 63 21 0.94 3.76 Vega at Skyborne Desert Hot Springs Lennar $415,274 1,845 $225.08 187 151 36 1.38 5.52 Sage Palm Desert Palm Desert Ponderosa ‐ 2,183 ‐ 111 50 61 0.26 1.04 Sevilla Coachella Pulte $532,990 2,396 $222.48 107 101 6 0.98 3.92 Bella at Piazza Serena La Quinta Richmond American $730,966 2,635 $277.41 60 10 50 0.23 0.92 Campanile Cathedral City Williams $589,283 2,276 $258.91 141 20 121 0.51 2.04 Palo Verde La Quinta Williams $1,094,000 3,310 $330.48 37 1 36 0.06 0.24 Point Happy La Quinta Williams $1,100,400 2,984 $368.83 29 10 19 0.25 1.00 Minimum $415,274 1,728 $210.93
Maximum $1,894,113 3,310 $646.90
Average $759,080 2,404 $306.99
Source: The Gregory Group
The subject is the only active new home project in Desert Hot Springs. As noted, Improvement Area 1 of CFD No. 2006‐01 reflects Villages I and II of the Skyborne community, with Lennar’s Vega being the only active portion of the master planned community. Community amenities include a resort‐style pool and spa, as well as parks/green spaces.
Resale Pricing
The following table shows historical resale data for more recently built homes (2015 and newer) in the city of Desert Hot Springs.
Item Number: 5.
Residential Market Analysis 24
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Resales
Address Sale Date
Living Area
(SF) Sale Price
Last List
Price
Sales
Price/SF Sale/List Year Built
Days on
Market
Lot Size
(SF)
65267 Rolling Hills Dr 9/14/2023 2,125 $555,000 $539,950 $261 102.79% 2021 73 9,148 66211 8th St 9/7/2023 780 $249,000 $249,000 $319 100.00% 2012 79 6,098 65483 Via Del Sol 9/1/2023 1,811 $449,000 $449,000 $248 100.00% 2017 58 9,148 9280 Vista Del Valle 8/30/2023 1,515 $399,000 $399,000 $263 100.00% 2017 43 6,098 64623 Pinehurst Cir 8/28/2023 3,093 $620,000 $625,000 $200 99.20% 2020 136 8,276 66053 2nd St 8/18/2023 1,400 $375,000 $375,000 $268 100.00% 2020 63 6,534 65209 Rolling Hills Dr 8/18/2023 2,155 $685,000 $699,990 $318 97.86% 2020 31 9,148 9690 Puesta Del Sol Pl 8/10/2023 2,155 $533,000 $539,000 $247 98.89% 2021 41 9,148 15780 Via Quedo 7/28/2023 1,635 $440,000 $450,000 $269 97.78% 2018 6 7,405 65478 Via Del Sol 6/19/2023 2,619 $660,000 $599,000 $252 110.18% 2017 19 9,148 66061 2nd St 6/13/2023 1,400 $375,000 $375,000 $268 100.00% 2020 10 6,534 65377 Salida Del Sol Pl 6/13/2023 1,314 $408,000 $415,000 $311 98.31% 2016 39 9,583 13625 Quinta Waay 6/12/2023 1,356 $393,500 $399,900 $290 98.40% 2021 54 9,360 18555 Sagebrush Trl 5/31/2023 1,860 $700,000 $739,000 $376 94.72% 2021 65 9,583 62341 S Starcross Dr 5/4/2023 1,679 $403,500 $394,990 $240 102.15% 2020 2 8,276 67740 Broken Arrow Ln 3/31/2023 1,659 $689,000 $689,000 $415 100.00% 2021 49 10,019 66295 Lantana Ln 3/24/2023 2,022 $480,000 $480,000 $237 100.00% 2021 14 7,405 Total Sales 17 1,799 $494,941 $495,166 $281 100.02% 2019 46 8,289 (avg.) (avg.) (avg.) (avg.) (avg.) (avg.) (avg.) (avg.) Source: Local Multiple Listing Service (MLS)
Home prices have averaged $281 per square foot with an average days on market of 46.
Ability to Pay
The developer of the only active project at the subject property (Lennar Homes) is constructing four floor plans ranging in size from 1,547 to 2,091 square feet. In this section, we will examine the ability to pay among prospective buyers for a representative price point of $400,000 based on the indicators from the competing projects. First, we will estimate the required annual household income based on typical mortgage parameters in the subject’s market area. Specifically, we will employ a loan‐to‐value ratio of 80% (down payment of 20%), mortgage interest rate of 7.0%, 360 monthly payments, and a 40% ratio for the housing costs as a percent of monthly income (inclusive of principal, interest, all taxes and insurance).Property tax payments are accounted for in the analysis as well as homeowner’s insurance. The following table shows the estimate of the annual household income that would be required to afford homes priced at the representative price point.
Item Number: 5.
Residential Market Analysis 25
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Income Required
Home Price $400,000
Loan % of Price (Loan to Value) 80%
Loan Amount $320,000
Interest Rate 7.00%
Mortgage Payment $2,129
Property Taxes $531 Based on 1.291370% and direct charges of $1,209 CFD No. 2006‐1 $104
Property Insurance $83
Total Monthly Obligation $2,847
Mortgage Payment % of Income 40%
Monthly Income $7,118
Annual Income $85,420
Generally, interest rates have an inverse relationship on the affordability of a home. In short, all else being equal, higher interest rates lower the price point for buyers based on income. Over the past several years, interest rates have remained historically low, often at or below 3.0%. Current mortgage interest rates more closely resemble historic rates and for the most part the home buyer pool appears to recognize that the 3% mortgage rate environment was the anomaly and rates around the 7% level are most likely into the foreseeable future.
Conversations with sales agents in multiple new home projects noted there was a slowing in demand for new residential homes in the second half of 2022 and early 2023. The combination of historically high new home prices and rising interest rates priced some buyers out of entry‐level (lower‐priced) homes. While some projects were affected more than others, coastal locations and limited supply submarkets fared better than emerging submarkets with a concentration of competing projects, predominately due to inventory levels. Continued high inflation forced prospective homeowners to account for other costs (like groceries, gas, etc.) over buying a new home at a higher interest rate.
Homebuilders reported turmoil from pending buyers dropping out of contract because of rising interest rates. Most homebuilders noted pace of sales slowed from the historic highs. Further, homebuilders began offering concessions in the form of buying down interest rates and discounted options, instead of decreasing their base prices. In some markets, there was enough downward pressure on the market for homebuilders to offer concessions as well as drop their base prices.
Prior to mid‐2022, homebuilders were able to sell homes faster than they were able to construct them, but with the rising interest rates this has since moderated pace of sales to a level more in line with builders’ ability to deliver. The recent increases in interest rates impacted the pace of sales as well as pricing in most markets. However, there are signs the residential market is beginning to stabilize. Markets in Spring 2023 have generally been stronger than expected. Homebuyers that previously were waiting on the sidelines either in anticipation of decreasing home prices, or due to interest rate volatility, are beginning to adjust their budgets to the new higher interest rates as home pricing stabilizes. In addition, low inventory and a tight resale market make new construction more attractive. According to market participants in the spring, absorption rates have remained steady or increased slightly with some homebuilders having small increases in base prices from the First Quarter 2023.
Item Number: 5.
Residential Market Analysis 26
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) We have obtained income data from Claritas Spotlight by Environics Analytics, for a 10‐mile radius surrounding the subject property, which is considered representative of typical buyers for the subject property. In the following table we show the income brackets within the noted area, along with estimates of the percentage of households able to afford homes priced at the representative price point within each income bracket.
Household Ability
Household Income Households
Percent of
Households
Percent Able to
Pay Households
Households
Able to Pay
< $15,000 13,236 11.4% 0.0% 0 0.0%
$15,000 ‐ $24,999 11,672 10.0% 0.0% 0 0.0%
$25,000 ‐ $34,999 10,837 9.3% 0.0% 0 0.0%
$35,000 ‐ $49,999 14,036 12.1% 0.0% 0 0.0%
$50,000 ‐ $74,999 17,945 15.4% 0.0% 0 0.0%
$75,000 ‐ $99,999 12,503 10.8% 73.0% 9,127 7.9%
$100,000 ‐ $124,999 9,994 8.6% 100.0% 9,994 8.6%
$125,000 ‐ $149,999 7,600 6.5% 100.0% 7,600 6.5%
$150,000 ‐ $199,999 7,428 6.4% 100.0% 7,428 6.4%
$200,000 ‐ $249,999 4,034 3.5% 100.0% 4,034 3.5%
$250,000 ‐ $499,999 4,369 3.8% 100.0% 4,369 3.8%
$500,000+ 2,547 2.2% 100.0% 2,547 2.2%
116,201 100.0% 45,099 38.8%
Conclusions
Demand for homes in the subject’s market area is considered to be moderate to strong at the current time as indicated by the overall trend of building permit activity, new home sales prices and activity in recent quarters as well as the absorption rate within new home projects in the subject’s area.
Item Number: 5.
Land Description and Analysis 27
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Property Analysis
Land Description and Analysis
Location
The property is located on the north side of Pierson Boulevard, west of Karen Avenue.
Land Area
The following table summarizes the subject’s land area.
Land Area Summary
Tax ID SF Acres
667‐240‐001 to 038; 667‐250‐001 to 038; 667‐
260‐001 to 078; 667‐270‐001to 079; 667‐280‐
001 to 095; 667‐290‐001 to 076
2,627,104 60.31
Total 2,627,104 60.31
Shape and Dimensions
The site is irregular in shape; however, the proposed and completed individual single‐family lots are generally rectangular in shape. Site utility based on shape and dimensions is average.
Topography
The site is generally level and at street grade. The topography does not result in any particular development limitations.
Off‐site Improvements
Off‐site improvements currently consist of concrete curb, gutters, and sidewalks.
On‐site Improvements
Site development work is nearly complete at the subject, and vertical construction is well‐underway.
As of the effective appraisal date, Builder‐owned lots consist of eight completed homes, twenty homes under construction, and fifteen improved lots. Remaining site development costs are estimated at $23,057 per lot (divided over the 35‐Builder‐owned lots without completed homes), based on the budget provided.
Drainage
No particular drainage problems were observed or disclosed at the time of field inspection. This appraisal assumes that surface water collection, both on‐site and in public streets adjacent to the subject, is adequate.
Item Number: 5.
Land Description and Analysis 28
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Flood Hazard Status
The following table provides flood hazard information.
Flood Hazard Status
Community Panel Number 06065C0880G
Date August 28, 2008
Zone X
Description Outside the 500‐year flood plain
Insurance Required? No
Seismic Hazards
All properties in California are subject to some degree of seismic risk. The Alquist‐Priolo Earthquake Fault Zoning Act was enacted by the State of California in 1972 to regulate development near active earthquake faults. The Act required the State Geologist to delineate “Earthquake Fault Zones” (formerly known as “Special Studies Zones”) along known active faults in California. Cities and counties affected by the identified zones must limit certain development projects within the zones unless geologic investigations demonstrate that the sites are not threatened by surface displacement from future faulting. According to information from the California Geological Survey (formerly known as the Division of Mines and Geology), the subject is not located within an Alquist‐Priolo Special Studies Zone.
Fire Hazard Risk
The City of Desert Hot Springs is subject to both wildland and urban fires. The natural vegetation in the area is highly prone to fire and urbanized portions of the city are subject to structural fires. The vegetation and geographical landscape consist of rolling hills covered in annual grasses and chaparral.
Desert Hot Springs is not immune to numerous types of grass and brush fires and any one of them may accelerate into a large urban interface wildfire. Such a situation could lead to evacuation of large portions of the population and the potential for significant loss of personal property, structures, and rangeland. However, it is ultimately each homeowner’s responsibility to establish and maintain the physical characteristics of a fire‐safe interface property and the City Desert Hot Springs also has a responsibility to ensure that future planning and zoning decisions for development adjacent to open space areas include sufficient provisions for the clearance required to protect new and future structures. The subject property is not located within a very high fire hazard severity zone.
Environmental Hazards
An environmental assessment report was not provided for review, and during our inspection, we did not observe any obvious signs of contamination on or near the subject. However, environmental issues are beyond our scope of expertise. It is assumed that the property is not adversely affected by environmental hazards.
Item Number: 5.
Land Description and Analysis 29
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Ground Stability
A soils report was not provided for our review. Based on our inspection of the subject and observation of development on nearby sites, there are no apparent ground stability problems. However, we are not experts in soils analysis. We assume that the subject’s soil bearing capacity is sufficient to support the existing improvements.
Utilities
The availability of utilities to the subject is summarized in the following table.
Utilities
Service Provider
Water Mission Springs Water District
Sewer Mission Springs Water District
Electricity Southern California Edison
Natural Gas SoCal Gas
Local Phone Various Providers
Zoning
The subject is zoned R‐L, Residential Low Density, by City of Desert Hot Springs. The following table summarizes our understanding and interpretation of the zoning requirements that affect the subject.
Zoning Summary
Zoning Jurisdiction City of Desert Hot Springs
Zoning Designation R‐L
Description Residential Low Density
Legally Conforming? Appears to be legally conforming
Zoning Change Likely? No
Permitted Uses Residential uses
Category Zoning Requirement
Minimum Lot Area 5,500 SF
Minimum Lot Width (Feet) 50 ft
Minimum Lot Depth (Feet) 105 ft
Minimum Setbacks (Feet) Front ‐ 20f ft / Side ‐ 5 ft
Maximum Building Height 28 ft
Parking Requirement 2 spaces per unit
Source: Desert Hot Springs Zoning Code
According to the local planning department, there are no pending or prospective zoning changes. It appears that the current use of the site is a legally conforming use.
We are not experts in the interpretation of zoning ordinances. An appropriately qualified land use attorney should be engaged if a determination of compliance is required.
Item Number: 5.
Land Description and Analysis 30
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Other Land Use Regulations
We are not aware of any other land use regulations that would affect the property.
Easements, Encroachments and Restrictions
We were not provided a current title report to review. We are not aware of any easements, encroachments, or restrictions that would adversely affect value. Our valuation assumes no adverse impacts from easements, encroachments, or restrictions, and further assumes that the subject has clear and marketable title.
Permits and Fees
Based on information provided by the Builder, permits and impact fees for Vega (the only active project within Improvement Area 1 of CFD 2006‐1) average $25,422 per lot, while building permits average $4,265 per lot. As of the effective appraisal date, approximately $16,532 per lot in impact fees remain for the 35 Builder‐owned lots without completed homes.
Bond proceeds will be used to reimburse for eligible impact fees already incurred, as well as for costs already incurred for the nearby fire station adjacent to the project.
It is important to note which fees the local market includes in the definition of an improved lot. The local market recognizes water fees, school fees, and impact fees as part of an improved lot value.
Building permits are excluded from the improved lot value.
In the upcoming extraction analysis, only building permits will be deducted from the home revenue, as the remaining impact fees are included in the definition of an improved lot.
Site Development Costs
Site development at the subject is nearly complete. Per the cost budget provided, remaining site development costs are estimated at $645,604, or approximately $18,446 per lot when divided over the remaining 35 Builder‐owned lots that do not yet have completed homes on them.
Conclusion of Site Analysis
Overall, the physical characteristics of the site and the availability of utilities result in functional utility suitable for a variety of uses including those permitted by zoning. Uses permitted by zoning include residential uses. We are not aware of any other particular restrictions on development.
Item Number: 5.
Land Description and Analysis 31
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Skyborne Village Map
The subject includes Villages I and II, which are located within Improvement Area 1 of CFD No. 2006‐1.
Item Number: 5.
Land Description and Analysis 32
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) CFD Boundary Map
Item Number: 5.
Land Description and Analysis 33
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Final Map – Village 2
Item Number: 5.
Land Description and Analysis 34
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Assessor Aerial
Item Number: 5.
Land Description and Analysis 35
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Aerial with Improvement Area Boundary
Item Number: 5.
Proposed Improvements Description 36
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Proposed Improvements Description
Overview
The subject properties are being developed with four floor plans, the details of which are presented in the following table.
Floor Plan Summary
Floor Plan
Living
Area (SF) Bedroom Bathroom Stories Garage
Typical Lot
Size (SF)
Developer's Base
Price
Plan 1 1,547 3 2.0 One 2‐Car 6,400 $404,055
Plan 2 1,792 3 2.0 One 2‐Car 6,400 $411,355
Plan 3 1,950 3 2.0 One 2‐Car 6,400 $417,715
Plan 4 2,091 4 2.0 One 2‐Car 6,400 $427,970
A complete interior finish profile was not provided and is assumed to be of a typical quality for the area, which generally average to good overall quality. Community amenities include a swimming pool, dog park, playground, and green spaces.
It is noted that the subject property will have a Homeowner’s Association (HOA) that will be responsible for common area maintenance and community amenities/landscaping. The Developer estimates that dues will be approximately $150 per home per month, to be paid by the future homeowners.
For the reader’s reference, the subject’s floor plans are shown on the following pages.
Item Number: 5.
Proposed Improvements Description 37
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Floor Plan 1
Item Number: 5.
Proposed Improvements Description 38
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1)
Item Number: 5.
Proposed Improvements Description 39
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Floor Plan 2
Item Number: 5.
Proposed Improvements Description 40
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Item Number: 5.
Proposed Improvements Description 41
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Floor Plan 3
Item Number: 5.
Proposed Improvements Description 42
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Item Number: 5.
Proposed Improvements Description 43
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Floor Plan 4
Item Number: 5.
Proposed Improvements Description 44
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Item Number: 5.
Proposed Improvements Description 45
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1)
Item Number: 5.
Proposed Improvements Description 46
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1)
Item Number: 5.
Proposed Improvements Description 47
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1)
Item Number: 5.
Real Estate Taxes 48
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Real Estate Taxes
The property tax system in California was amended in 1978 by Article XIII to the State Constitution, commonly referred to as Proposition 13. It provides for a limitation on property taxes and for a procedure to establish the current taxable value of real property by reference to a base year value, which is then modified annually to reflect inflation (if any). Annual increases cannot exceed 2% per year.
The base year was set at 1975‐76 or any year thereafter in which the property is substantially improved or changes ownership. When either of these two conditions occurs, the property is to be re‐ appraised at market value, which becomes the new base year assessed value. Proposition 13 also limits the maximum tax rate to 1% of the value of the property, exclusive of bonds and direct charges.
Bonded indebtedness approved prior to 1978, and any bonds subsequently approved by a two‐thirds vote of the district in which the property is located, can be added to the 1% tax rate.
According to the Riverside County Tax Collector’s Office, the subject has a tax rate of 1.291370%.
Based on comparable projects in the area, direct charges are estimated at $1,209 per lot. The existing ad valorem taxes are of nominal consequence in this appraisal, primarily due to the fact these taxes will be adjusted as the infrastructure and property improvements are completed and the property is sold off to individual homeowners.
As noted, the subject is encumbered by CFD No. 2006‐1. Special taxes for the current tax year are summarized in the following table, based upon the Rate and Method of Apportionment.
Item Number: 5.
Highest and Best Use 49
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Highest and Best Use
Process
Before a property can be valued, an opinion of highest and best use must be developed for the subject site, both as if vacant, and as improved or proposed. By definition, the highest and best use must be:
Legally permissible under the zoning regulations and other restrictions that apply to the site. Physically possible.
Financially feasible.
Maximally productive, i.e., capable of producing the highest value from among the permissible, possible, and financially feasible uses.
Highest and Best Use As If Vacant
Legally Permissible
The site is zoned R‐L, Residential Low Density. Permitted uses include single family residential uses. To our knowledge, there are no legal restrictions such as easements or deed restrictions that would effectively limit the use of the property. The subject property has an approved final map for 394 single‐family homes on individual lots and associated improvements (154 lots in Village I and 240 in Village II). The subject's present entitlements are the result of significant planning and review, and any rezone or land use different than currently approved is unlikely. Given prevailing land use patterns in the area, only single family residential development is given further consideration in determining highest and best use of the site, as though vacant.
Physically Possible
The physical characteristics of a site that affect its possible use(s) include, but are not limited to, location, street frontage, visibility, access, size, shape, topography, availability of utilities, off‐site improvements, easements and soil and subsoil conditions. The physical characteristics are examined to see if they are suited for the legally permissible use.
Locational considerations include the compatibility and position of the subject property with respect to surrounding uses. Based on our physical inspection of the subject property, we know of no reason why the property would not support development. The size, shape and topography of the subject property appear adequate for development, similar to other projects currently developing in the immediate area.
The subject is not located within a floodplain. In addition, the property is not located within a Fault‐ Rupture Hazard Zone. All utility services are available to the parcels, and evidence of development in the immediate area provides additional support for the possibility of development.
Based on the physical characteristics of the subject property, residential development is considered physically possible and most appropriate.
Financially Feasible
Financial feasibility depends on supply and demand influences. With respect to financial feasibility of single‐family residential development, consideration to the current state of the residential housing Item Number: 5.
Highest and Best Use 50
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) market and its impact on the residential land market is necessary. As previously discussed in the Residential Market Analysis section, the significant rise in mortgage interest rates had an inverse relationship on the affordability of a home. Prior to the second half of 2022, interest rates remained historically low, often at or below 3.0%. Conversations with sales agents in multiple new home projects noted there was a slowing in demand for new residential homes in the second half of 2022, with some buyers priced out of entry‐level (lower‐priced) homes. Current mortgage interest rates more closely resemble historic rates and for the most part the home buyer pool appears to recognize that the 3% mortgage rate environment was the anomaly and rates around the 7% level are most likely into the foreseeable future.
Prior to mid‐2022, homebuilders were able to sell homes faster than they were able to construct the homes, but with moderating demand due to rising interest rates and inflation factors, construction delivery is no longer a project challenge. The downward shifts in home prices in the second half of 2022 had a significant impact on underlying land/lot values, and land brokers indicated an abrupt drop in builder demand for developable lots and challenges in selling lots presently available during that time period. Recent market conditions for new homes, constraints on new home inventory, appears to have reversed this trend and early indications are builders are once again looking to increase buildable lot inventories. Lot pricing remains lower than recent peaks achieved, but the return of builder interest in bulk lot acquisitions appears to be signaling a return to steady‐to‐increasing demand for new homes across many submarkets, if not all.
Current market conditions once again appear to support development of partially improved and unimproved residential lots. With new, lower lot prices, land development to residential lots is again financially feasible (if the vacant land is acquired at prices commensurate with current new home pricing). This return to feasibility is driven by new home buyers beginning to adjust their budgets to the new interest rates and making purchases. Due to depleting lot inventories for many builders, additional land and lot acquisitions may be the maximally productive use of vacant land (discussed below).
Maximally Productive
Legal, physical and market conditions have been analyzed to evaluate the highest and best use of the subject property as vacant. The analysis is presented to evaluate the type of use(s) that will generate the greatest level of future benefits possible to the property. Based on the factors previously discussed, the maximally productive use of the subject (as vacant) is for near term single‐family residential development. Specifically, construction of production single‐family residential homes (as opposed to custom homes).
Conclusion
Development of the site for single‐family residential use is the only use that meets the four tests of highest and best use. Therefore, it is concluded to be the highest and best use of the property as if vacant.
As Improved (Proposed)
As with the highest and best use as though vacant, the four tests of highest and best use must also be applied to the subject property considering the proposed improvements. Consideration must be given Item Number: 5.
Highest and Best Use 51
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) to the continued as‐is use of the subject, as well as alternative uses for the property. The potential alternative uses consist of demolition, expansion, conversion, or renovation.
As of the date of inspection the subject consists of subdivision land with site development and vertical construction of homes nearly complete; vertical construction is either underway or complete on all but 14 lots within Improvement Area 1. Currently, it is considered reasonable to complete construction of homes as dictated by demand. The proposed and completed improvements provide contributory value and are necessary to complete the subdivision project. Conversion is not currently possible given the planned land uses. Renovation is not warranted, as the improvements are new. The highest and best use of the subject property, as improved, is for continuation of construction of homes, as dictated by demand.
Most Probable Buyer
Taking into account the functional utility of the site and area development trends, the probable buyer of the Builder‐owned lots is a regional home builder. The probable buyers of the completed homes are individual homebuyers.
Item Number: 5.
Valuation Methodology 52
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Valuation
Valuation Methodology
Appraisers usually consider three approaches to estimating the market value of real property. These are the cost approach, sales comparison approach and the income capitalization approach.
The cost approach assumes that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility. This approach is particularly applicable when the improvements being appraised are relatively new and represent the highest and best use of the land or when the property has unique or specialized improvements for which there is little or no sales data from comparable properties.
The sales comparison approach assumes that an informed purchaser would pay no more for a property than the cost of acquiring another existing property with the same utility. This approach is especially appropriate when an active market provides sufficient reliable data. The sales comparison approach is less reliable in an inactive market or when estimating the value of properties for which no directly comparable sales data is available. The sales comparison approach is often relied upon for owner‐user properties.
The income capitalization approach reflects the market’s perception of a relationship between a property’s potential income and its market value. This approach converts the anticipated net income from ownership of a property into a value indication through capitalization. The primary methods are direct capitalization and discounted cash flow analysis, with one or both methods applied, as appropriate. This approach is widely used in appraising income‐producing properties.
Additional analyses often undertaken in the valuation of subdivisions include extraction, land residual analysis, and the subdivision development method.
Reconciliation of the various indications into a conclusion of value is based on an evaluation of the quantity and quality of available data in each approach and the applicability of each approach to the property type.
The methodology employed in this assignment is summarized as follows:
Approachesto Value
Approach Applicability to Subject Use in Assignment
Cost Approach Not Applicable Not Utilized
Sales Comparison Approach Applicable Utilized
Income Capitalization Approach Not Applicable Not Utilized The market value of the appraised properties is estimated by employing a several methodologies.
Item Number: 5.
Valuation Methodology 53
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) First, the sales comparison approach is utilized to estimate the market value of the completed single‐ family homes within the subject boundaries.
The market value, in bulk, of the remaining Builder‐owned lots is estimated by employing the sales comparison approach to value and extraction technique. In the sales comparison approach to value, the underlying land is compared to transactions of similarly zoned single‐family residential land throughout the subject’s region. Then, to support the reasonableness of the sales comparison approach conclusions, we utilize an extraction analysis, a form of the cost approach. The lot values indicated by each approach are then reconciled into an opinion of market value, subject to the hypothetical condition noted. At the end of the analysis, remaining site development costs and impact fees are deducted from the reconciled improved lot value.
Item Number: 5.
Market Valuation – Floor Plans 54
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Market Valuation – Floor Plans
As of the effective appraisal date, there are 144 homes within Lennar’s Vega community in Village II that have transferred to individual homeowners. Of these, 54 do not have assessed values on the current tax assessor roll. In addition, there are eight completed homes owned by homebuilder Lennar (three of these are pending sales).
The market values of the floor plans for the subject’s closed homes are estimated in this section. The objective of the analyses is to estimate the base price per floor plan, net of incentives, upgrades, and lot premiums. Incentives can take the form of direct price reductions or non‐price incentives such as upgrades or non‐recurring closing costs. The base price pertains to the typical lot size within each product line. The sales comparison approach to value is employed in order to establish the market value for each floor plan.
This approach is based on the economic principle of substitution. According to The Appraisal of Real Estate, 15th Edition (Chicago: Appraisal Institute, 2020), “The principle of substitution holds that the value of property tends to be set by the cost of acquiring a substitute or alternative property of similar utility and desirability within a reasonable amount of time.” The sales comparison approach is applicable when there are sufficient recent, reliable transactions to indicate value patterns or trends in the market.
The proper application of this approach requires obtaining recent sales data for comparison with the appraised properties. In order to assemble the comparable sales, we searched public records and other data sources for leads, then confirmed the raw data obtained with parties directly related to the transactions.
A summary of the floor plans valued within this section is provided below. A benchmark lot size of 6,400 square feet is utilized.
Floor Plan Summary
Floor Plan
Living
Area (SF) Bedroom Bathroom Stories Garage
Typical Lot
Size (SF)
Developer's Base
Price
Plan 1 1,547 3 2.0 One 2‐Car 6,400 $404,055
Plan 2 1,792 3 2.0 One 2‐Car 6,400 $411,355
Plan 3 1,950 3 2.0 One 2‐Car 6,400 $417,715
Plan 4 2,091 4 2.0 One 2‐Car 6,400 $427,970
There are multiple recent transactions and pending sales within Lennar’s Vega, which reflect the best comparables for the subject. The following table summarizes the comparables utilized in the upcoming analyses. The following analysis includes a mix of closed sales and pending/in‐contract sales that have not yet closed escrow.
Item Number: 5.
Market Valuation – Floor Plans 55
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Comparable Home Sale Summary
No. Address
Contract
Date Sale Price
Close of
Escrow
Living Area
(SF) Bedroom Bathroom Garage Year Built
Lot Size
(SF)
1 Lot 72 5/31/2023 $386,270 8/11/2023 1,547 3 2.0 2‐Car 2023 6,098 2 Lot 63 4/2/2023 $410,270 6/5/2023 1,547 3 2.0 2‐Car 2023 5,663 3 Lot 56 12/4/2022 $367,275 2/24/2023 1,547 3 2.0 2‐Car 2022 10,454 4 Lot 146 11/13/2022 $400,835 11/30/2022 1,547 3 2.0 2‐Car 2022 7,405 5 Lot 28 9/13/2023 $411,355 Pending 1,792 3 2.0 2‐Car 2023 5,663 6 Lot 33 8/27/2023 $418,281 Pending 1,792 3 2.0 2‐Car 2023 5,663 7 Lot 76 6/24/2023 $380,736 9/6/2023 1,792 3 2.0 2‐Car 2023 5,663 8 Lot 31 8/6/2023 $383,322 8/31/2023 1,792 3 2.0 2‐Car 2023 5,663 9 Lot 27 9/3/2023 $417,715 Pending 1,950 3 2.0 2‐Car 2023 6,098 10 Lot 75 8/16/2023 $427,536 8/31/2023 1,950 3 2.0 2‐Car 2023 5,663 11 Lot 68 7/2/2023 $412,440 8/25/2023 1,950 3 2.0 2‐Car 2023 5,663 12 Lot 37 7/16/2023 $418,760 8/17/2023 1,950 3 2.0 2‐Car 2023 5,663 13 Lot 79 9/5/2023 $427,970 Pending 2,091 4 2.0 2‐Car 2023 5,663 14 Lot 30 6/22/2023 $437,420 9/14/2023 2,091 4 2.0 2‐Car 2023 5,663 15 Lot 77 8/3/2023 $439,270 8/31/2023 2,091 4 2.0 2‐Car 2023 5,663 16 Lot 32 7/10/2023 $439,420 8/30/2023 2,091 4 2.0 2‐Car 2023 5,663 Item Number: 5.
Market Valuation – Floor Plans 56
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Discussion of Adjustments
The sales are compared to the subject and adjusted to account for material differences that affect value. Adjustments are considered for the following factors, in the sequence shown below.
Adjustment Factor Accounts For Comments
Total Consideration The appraised properties are
analyzed based on the total
consideration of home price and
the assumption of bonds, if any.
Bond debt has a direct impact on
the amount for which the end
product will sell.
All of the comparables are
encumbered by bonds within
Skyborne. Therefore, no
adjustments are necessary.
Upgrades and
Incentives
The objective of the analysis is to
estimate the base value per floor
plan, net of incentives. Incentives
can take the form of direct price
reductions or non‐price incentives
such as upgrades or non‐recurring
closing costs.
Incentives and upgrades included in
the sales have been considered and
adjusted for in this analysis.
Real Property Rights Fee simple, leased fee, leasehold, partial interest, etc.
All the comparables represent fee
simple estate transactions.
Therefore, adjustments for property
rights are not necessary.
Financing Terms Seller financing, or assumption of
existing financing, at non‐market
terms.
The comparable sales were cash to
the seller transactions and do not
require adjustments.
Conditions of Sale Extraordinary motivation of buyer
or seller, assemblage, forced sale.
The comparables did not involve
any non‐market or atypical
conditions of sale. Adjustments for
this factor do not apply.
Item Number: 5.
Market Valuation – Floor Plans 57
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Market Conditions
(Date of Sale, Phase
Adjustment)
The market conditions vary over
time, but the date of this appraisal
is for a specific point in time. In a
dynamic economy – one that is
undergoing changes in the value of
the dollar, interest rates and
economic growth or decline – extra
attention needs to be paid to assess
changing market conditions.
Significant monthly changes in price
levels can occur in several areas of a
neighborhood, while prices in other
areas remain relatively stable.
Although the adjustment for market
conditions is often referred to as a
time adjustment, time is not the
cause of the adjustment.
The comparable sales went into
contract between November 2022
through September 2023. Base
pricing at the subject has been
consistent over this time, and
paired sales analysis does not
support an adjustment for market
conditions.
Location Location is a very important factor
to consider when making
comparisons. The comparables
need not be in the same
neighborhood but should be in
neighborhoods that offer the same
advantage and have, in general, the
same overall desirability to the
most probable buyer or user.
All of the comparables are located
within Desert Hot Springs and no
adjustments are warranted.
Community Appeal In addition to market location
adjustments, we consider
community appeal adjustments.
Even within a specific market
location, often specific community
characteristics influence sale prices.
Often, prices on one street may be
significantly higher or lower than
the next, despite similar home
characteristics. Community
characteristics that may influence
sale prices include a gated amenity
or the condition of surrounding
development.
All of the comparables are located
within Vega at Skyborne; no
adjustments are required.
Item Number: 5.
Market Valuation – Floor Plans 58
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Lot Size The lot size adjustment pertains to
the differences between the
subject’s average lot size and
comparables with either larger or
smaller lots. It does not include any
lot premium adjustments, which are
adjusted for separately. The amount
of the adjustment used in the
comparison of the base lot sizes
comes from a survey of premiums
paid for larger lots.
Considering the average lot size
adjustment factors indicated by the
comparable sales utilized in this
analysis, a lot size adjustment factor
of $7.00/SF is considered reasonable
for the subject’s residential lots. This
figure is supported by our
observations of sales in the subject’s
market area.
Lot Premiums/
Discounts
Properties sometimes achieve
premiums for corner or cul‐de‐sac
positioning, or proximity to open
space or views. Adjustments for lot
position premiums would be in
addition to lot size adjustments
previously considered.
Sales with lot premiums beyond lot
size, which has already been
considered, are adjusted as
necessary.
Design and Appeal Design and appeal of a floor plan is
consumer specific. One exterior may
appeal to one buyer, while another
appeals to a different buyer. These
types of features for new homes
with similar functional utility are not
typically noted in the base sales
prices.
All of the comparables are similar to
the subject in regard to design and
appeal. Thus, no adjustments are
warranted for this element of
comparison.
Quality of
Construction
Construction quality can differ from
slightly to substantially between
projects and is noted in the exterior
and interior materials and design
features of a standard unit. In terms
of quality of construction, the
subject represents good
construction quality.
The comparable sales feature similar
construction quality and do not
require adjustments.
Age/Condition When comparing resale to resale,
the market generally reflects a
difference of 1% per year of
difference in effective age.
All of the comparables represent
new construction and adjustments
for this element of comparison do
not apply.
Functional Utility Ability to adequately provide for its intended purpose.
The subject and comparables reflect
single family detached homes. No
adjustments are necessary.
Item Number: 5.
Market Valuation – Floor Plans 59
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Room Count For similar size units the differences
between room count is a buyer
preference. One buyer might prefer
two bedrooms and a den versus a
three‐bedroom unit. Extra rooms
typically result in additional building
area and are accounted for in the
size adjustment. Therefore, no
adjustments are made for number
of total rooms or bedrooms.
Because bathrooms are a functional
item for each floor plan and add
substantial cost due to the number
of plumbing fixtures, adjustments
are necessary for the differences in
the number of fixtures between the
subject and the comparable sales.
However, the comparables and
subject floor plans include the same
number of bathrooms, so no
adjustments have been made.
Unit Size/Living Area Units similar (in the same
development), except for size, were
compared to derive the applicable
adjustment for unit size. Those used
for comparison purposes are units
within similar projects. Units within
the same project were used since
they have a high degree of similarity
in quality, workmanship, design and
appeal. Other items such as a single
level or two‐story designs, number
of bathrooms and number of garage
spaces were generally similar in
these comparisons, in order to avoid
other influences in price per square
foot. Where differences exist, they
are minor and do not impact the
overall range or average concluded.
Based on a paired sale analysis, a
factor of $90 per square foot is
concluded to be reasonable for the
differences in living area.
Number of Stories For similar size units, the differences between the number of stories is a
buyer preference. One buyer might
prefer a single‐story versus a two‐
story unit.
In current market conditions, single
story floor plans typically demand a
slight premium. However, all of the
comparables reflect single story
plans and no adjustments are
necessary.
Parking/Garage Number of garage spaces The subject’s floor plans and all of the comparables offer two‐car
garages.
Landscaping Included landscaping The subject and all of the comparables include similar
landscaping; as such, no
adjustments are warranted.
Item Number: 5.
Market Valuation – Floor Plans 60
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Adjustment Grids
The following grids reflect the aforementioned adjustments.
Plan 1
Project Information Subject Property
Project Name Skyborne Vega Vega Vega Vega
Plan Plan 1 Plan 1 Plan 1 Plan 1 Plan 1
Address/Lot Number Lot 72 Lot 63 Lot 56 Lot 146
Ci ty/Area Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Price N/Ap $386,270 $410,270 $367,275 $400,835
Price Per SF N/Ap $249.69 $265.20 $237.41 $259.10
Special Taxes (7‐year hold at 7.0%) $5,853 $5,853 $5,853 $5,853 $5,853 Adjustment $0 $0 $0 $0
Adjusted Price (Including Bonds) $386,270 $410,270 $367,275 $400,835 Total Consideration per SF $249.69 $265.20 $237.41 $259.10 Data Source Project sales agent Project sales agent Project sales agent Project sales agent Incentives N/Ap Yes ($24,963) Yes ($18,580) Yes ($29,500) Yes ($61,973) Upgrades Base No $0 Yes ($8,000) Yes ($2,000) No $0
Effective Base Sales Price $361,307 $383,690 $335,775 $338,862 Adjustments: Factor Description +/(‐) Description +/(‐) Description +/(‐) Description +/(‐) Property Rights Fee Simple Similar Similar Similar Similar Financing Terms Cash Equivalent Similar Similar Similar Similar Conditions of Sale Market Market Market Market Market
Market Conditions
Contract Date 9/15/2023 5/31/2023 4/2/2023 12/4/2022 11/13/2022 Project Location Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Communi ty Appeal Average Similar Similar Similar Similar Lot Size $7.00 6,400 6,098 $2,114 5,663 $5,159 10,454 ($28,378) 7,405 ($7,035) Lot Premium N/Ap Similar Similar Similar Similar
Design and Appeal Average Similar Similar Similar Similar Quality of Construction Good Similar Similar Similar Similar Age (Total/Effective) New Similar Similar Similar Similar Condition Good/New Similar Similar Similar Similar
Functional Utility Average Similar Similar Similar Similar Room Count
Bedrooms 3 3 3 3 3
Baths $25,000 2.0 2.0 $0 2.0 $0 2.0 $0 2.0 $0
Living Area (SF) $85.00 1,547 1,547 $0 1,547 $0 1,547 $0 1,547 $0 Number of Stories One One One One One
Heating/Cooling Central/Forced Similar Similar Similar Similar Garage $15,000 2‐Car 2‐Car 2‐Car 2‐Car 2‐Car
Landscaping Front Similar Similar Similar Similar
Pool/Spa None Similar Similar Similar Similar
Patios/Decks Patio Similar Similar Similar Similar
Fencing Rear Similar Similar Similar Similar
Fireplace(s) $8,000 None None None None None
Ki tchen Equipment Average Similar Similar Similar Similar Other None Similar Similar Similar Similar
Gross Adjustments $2,114 $5,159 $28,378 $7,035
Net Adjustments $2,114 $5,159 ($28,378) ($7,035)
Adjusted Retail Value $363,421 $388,849 $307,397 $331,827 Concluded Retail Value $370,000
Indicated Value Per SF $239.17
Comparable 1 Comparable 2 Comparable 3 Comparable 4
Item Number: 5.
Market Valuation – Floor Plans 61
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Plan 2
Project Information Subject Property
Project Name Skyborne Vega Vega Vega Vega
Plan Plan 2 Plan 2 Plan 2 Plan 2 Plan 2
Address/Lot Number Lot 28 Lot 33 Lot 76 Lot 31
City/Area Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Price N/Ap $411,355 $418,281 $380,736 $383,322
Price Per SF N/Ap $229.55 $233.42 $212.46 $213.91
Special Taxes (7‐year hold at 7.0%) $5,950 $5,950 $5,950 $5,950 $5,950 Adjustment $0 $0 $0 $0
Adjusted Price (Including Bonds) $411,355 $418,281 $380,736 $383,322 Total Consideration per SF $229.55 $233.42 $212.46 $213.91 Data Source Project sales agent Project sales agent Projectsales agent Project sales agent Incentives N/Ap Yes ($26,738) Yes ($51,803) Yes ($23,364) Yes ($33,758) Upgrades Base Yes ($3,000) Yes ($8,201) Yes ($3,000) Yes ($7,000) Effective Base Sales Price $381,617 $358,277 $354,372 $342,564 Adjustments: Factor Description +/(‐) Description +/ (‐) Description +/(‐) Description +/(‐) Property Rights Fee Simple Similar Similar Similar Similar Financing Terms Cash Equivalent Similar Similar Similar Similar Condi tions of Sale Market Market Market Market Market
Market Conditions
Contract Date 9/15/2023 9/13/2023 8/27/2023 6/24/2023 8/6/2023 Project Location Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Community Appeal Average Similar Similar Similar Similar Lot Size $7.00 6,400 5,663 $5,159 5,663 $5,159 5,663 $5,159 5,663 $5,159 Lot Premium N/Ap Similar Similar Similar Similar
Design and Appeal Average Similar Similar Similar Similar Quality of Construction Good Similar Similar Similar Similar Age (Total/Effective) New Similar Similar Similar Similar Condi tion Good/New Similar Similar Similar Similar
Functional Utility Average Similar Similar Similar Similar Room Count
Bedrooms 3 3 3 3 3
Baths $25,000 2.0 2.0 $0 2.0 $0 2.0 $0 2.0 $0
Living Area (SF) $85.00 1,792 1,792 $0 1,792 $0 1,792 $0 1,792 $0 Number of Stories One One One One One
Heating/Cooling Central/Forced Similar Similar Similar Similar Garage $15,000 2‐Car 2‐Car 2‐Car 2‐Car 2‐Car
Landscaping Front Similar Similar Similar Similar
Pool/Spa None Similar Similar Similar Similar
Patios/Decks Patio Similar Similar Similar Similar
Fencing Rear Similar Similar Similar Similar
Fireplace(s) $8,000 None None None None None
Kitchen Equipment Average Similar Similar Similar Similar Other None Similar Similar Similar Similar
Gross Adjustments $5,159 $5,159 $5,159 $5,159
Net Adjustments $5,159 $5,159 $5,159 $5,159
Adjusted Retail Value $386,776 $363,436 $359,531 $347,723 Concluded Retail Value $385,000
Indicated Value Per SF $214.84
Comparable 5 Comparable 6 Comparable 7 Comparable 8
Item Number: 5.
Market Valuation – Floor Plans 62
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Plan 3
Project Information Subject Property
Project Name Skyborne Vega Vega Vega Vega
Plan Plan 3 Plan 3 Plan 3 Plan 3 Plan 3
Address/Lot Number Lot 27 Lot 75 Lot 68 Lot 37
Ci ty/Area Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Price N/Ap $417,715 $427,536 $412,440 $418,760
Price Per SF N/Ap $214.21 $219.25 $211.51 $214.75
Special Taxes (7‐year hold at 7.0%) $6,715 $6,715 $6,715 $6,715 $6,715 Adjustment $0 $0 $0 $0
Adjusted Price (Including Bonds) $417,715 $427,536 $412,440 $418,760 Total Consideration per SF $214.21 $219.25 $211.51 $214.75 Data Source Project sales agent Project sales agent Project sales agent Project sales agent Incentives N/Ap Yes ($35,505) Yes ($14,687) Yes ($13,920) Yes ($28,916) Upgrades Base No $0 Yes ($17,586) Yes ($3,000) No $0
Effective Base Sales Price $382,210 $395,263 $395,520 $389,844 Adjustments: Factor Description +/(‐) Description +/(‐) Description +/(‐) Description +/(‐) Property Rights Fee Simple Similar Similar Similar Similar Financing Terms Cash Equivalent Similar Similar Similar Similar Conditions of Sale Market Market Market Market Market
Market Conditions
Contract Date 9/15/2023 9/3/2023 8/16/2023 7/2/2023 7/16/2023 Project Location Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Communi ty Appeal Average Similar Similar Similar Similar Lot Size $7.00 6,400 6,098 $2,114 5,663 $5,159 5,663 $5,159 5,663 $5,159 Lot Premium N/Ap Similar Similar Similar Similar
Design and Appeal Average Similar Similar Similar Similar Quality of Construction Good Similar Similar Similar Similar Age (Total/Effective) New Similar Similar Similar Similar Condition Good/New Similar Similar Similar Similar
Functional Utility Average Similar Similar Similar Similar Room Count
Bedrooms 3 3 3 3 3
Baths $25,000 2.0 2.0 $0 2.0 $0 2.0 $0 2.0 $0
Living Area (SF) $85.00 1,950 1,950 $0 1,950 $0 1,950 $0 1,950 $0 Number of Stories One One One One One
Heating/Cooling Central/Forced Similar Similar Similar Similar Garage $15,000 2‐Car 2‐Car 2‐Car 2‐Car 2‐Car
Landscaping Front Similar Similar Similar Similar
Pool/Spa None Similar Similar Similar Similar
Patios/Decks Patio Similar Similar Similar Similar
Fencing Rear Similar Similar Similar Similar
Fireplace(s) $8,000 None None None None None
Ki tchen Equipment Average Similar Similar Similar Similar Other None Similar Similar Similar Similar
Gross Adjustments $2,114 $5,159 $5,159 $5,159
Net Adjustments $2,114 $5,159 $5,159 $5,159
Adjusted Retail Value $384,324 $400,422 $400,679 $395,003 Concluded Retail Value $400,000
Indicated Value Per SF $205.13
Comparable 9 Comparable 10 Comparable 11 Comparable 12
Item Number: 5.
Market Valuation – Floor Plans 63
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Plan 4
Project Information Subject Property
Project Name Skyborne Vega Vega Vega Vega
Plan Plan 4 Plan 4 Plan 4 Plan 4 Plan 4
Address/Lot Number Lot 79 Lot 30 Lot 77 Lot 32
City/Area Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Price N/Ap $427,970 $437,420 $439,270 $439,420
Price Per SF N/Ap $204.67 $209.19 $210.08 $210.15
Special Taxes (7‐year hold at 7.0%) $7,604 $7,604 $7,604 $7,604 $7,604 Adjustment $0 $0 $0 $0
Adjusted Price (Including Bonds) $427,970 $437,420 $439,270 $439,420 Total Consideration per SF $204.67 $209.19 $210.08 $210.15 Data Source Project sales agent Project sales agent Projectsales agent Project sales agent Incentives N/Ap Yes ($36,412) Yes ($6,839) Yes ($36,779) Yes ($30,310) Upgrades Base Yes ($2,000) No $0 Yes ($11,000) Yes ($2,000) Effective Base Sales Price $389,558 $430,581 $391,491 $407,110 Adjustments: Factor Description +/(‐) Description +/ (‐) Description +/ (‐) Description +/(‐) Property Rights Fee Simple Similar Similar Similar Similar Financing Terms Cash Equivalent Similar Similar Similar Similar Conditions of Sale Market Market Market Market Market
Market Conditions
Contract Date 9/15/2023 9/5/2023 6/22/2023 8/3/2023 7/10/2023 Project Location Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Desert Hot Springs Communi ty Appeal Average Similar Similar Similar Similar Lot Size $7.00 6,400 5,663 $5,159 5,663 $5,159 5,663 $5,159 5,663 $5,159 Lot Premium N/Ap Similar Similar Similar Similar
Design and Appeal Average Similar Similar Similar Similar Quality of Construction Good Similar Similar Similar Similar Age (Total/Effective) New Similar Similar Similar Similar Condition Good/New Similar Similar Similar Similar
Functional Utility Average Similar Similar Similar Similar Room Count
Bedrooms 4 4 4 4 4
Baths $25,000 2.0 2.0 $0 2.0 $0 2.0 $0 2.0 $0
Living Area (SF) $85.00 2,091 2,091 $0 2,091 $0 2,091 $0 2,091 $0 Number of Stories One One One One One
Heating/Cooling Central/Forced Similar Similar Similar Similar Garage $15,000 2‐Car 2‐Car 2‐Car 2‐Car 2‐Car
Landscaping Front Similar Similar Similar Similar
Pool/Spa None Similar Similar Similar Similar
Patios/Decks Patio Similar Similar Similar Similar
Fencing Rear Similar Similar Similar Similar
Fireplace(s ) $8,000 None None None None None
Kitchen Equipment Average Similar Similar Similar Similar Other None Similar Similar Similar Similar
Gross Adjustments $5,159 $5,159 $5,159 $5,159
Net Adjustments $5,159 $5,159 $5,159 $5,159
Adjusted Retail Value $394,717 $435,740 $396,650 $412,269 Concluded Retail Value $410,000
Indicated Value Per SF $196.08
Comparable 13 Comparable 14 Comparable 15 Comparable 16 Item Number: 5.
Market Valuation – Floor Plans 64
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Conclusion of Home Values
Based on the analysis herein, the market value conclusions for the subject’s completed homes are summarized in the following table.
Floor Plan Value Conclusions
Floor Plan
Living
Area (SF) Bedroom Bathroom Stories Garage
Typical Lot
Size (SF)
Concluded Base
Retail Value
Plan 1 1,547 3 2.0 One 2‐Car 6,400 $370,000
Plan 2 1,792 3 2.0 One 2‐Car 6,400 $385,000
Plan 3 1,950 3 2.0 One 2‐Car 6,400 $400,000
Plan 4 2,091 4 2.0 One 2‐Car 6,400 $410,000
Our floor plan value conclusions are slightly lower(between 4% and 6%) than the Builder’s proposed pricing; however, the Builder is routinely offering incentives for homes and our value conclusions are generally consistent with the Builder’s pricing after considering incentives.
The table on the following page provides the aggregate retail proceeds for each of the subject’s completed homes (without assessed values), by ownership.
Aggregate Retail Value of Completed Homes
Developer Owned
No. of
Units
Concluded Base
Retail Value Extension
Plan 1 0 $370,000 $0
Plan 2 4 $385,000 $1,540,000
Plan 3 3 $400,000 $1,200,000
Plan 4 1 $410,000 $410,000
8 $3,150,000
Homeowner Owned
No. of
Units
Concluded Base
Retail Value Extension
Plan 1 3 $370,000 $1,110,000
Plan 2 8 $385,000 $3,080,000
Plan 3 18 $400,000 $7,200,000
Plan 4 25 $410,000 $10,250,000
54 $21,640,000
Item Number: 5.
Sales Comparison Approach ‐ Lot Valuation 65
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Sales Comparison Approach ‐ Lot Valuation
In this section of the report, we will utilize the sales comparison approach to estimate the market value of the subject lots. This value estimate assumes the subject property would sell on a bulk, or wholesale, basis. That is, it would transfer in one transaction to a single buyer. This approach develops an indication of value by researching, verifying, and analyzing sales of similar properties. Our sales research focused on transactions within the following parameters:
Location: Desert Hot Springs and surrounding communities Typical Lot Size: 3,000 square feet or greater
Number of Lots: 200 lots or less
Transaction Date: 2021 or later
The sales are analyzed on an improved lot basis (sometimes known as a finished lot, or loaded lot, depending on the market) which is the equivalent of underlying land, any remaining site development costs, and impact fees. It excludes building fees due at building permit.
The most relevant sales are summarized in table on the following page; Sales 3 and 5 reflect the 2021 sales of Skyborne Village II lots to Lennar. A benchmark lot size of 6,400 square feet will be utilized in this analysis.
Item Number: 5.
Sales Comparison Approach ‐ Lot Valuation 66
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Summary of Comparable Land Sales
No. Name/Address
Sale
Date;
Status
Sale Price;
PV of Spec.
Tax/Lot
Typical Lot
Size Number of Lots $/Lot
Remaining Finishing
Costs
1 Rena ta at Domani Jun‐22 $3,586,500 4,500 132 $27,170 $87,830 39906 Felicita Pky. Closed $0
Palm Desert
Grantor: Encore Homes, LLC
Grantee: Pulte
2 Bellissima May‐22 $2,382,500 6,000 111 $21,464 $98,536 53‐039 Modena Ter. Closed $0
Coachella
Grantor: Coachella Investments, LLC
Grantee: Pulte
3 Skyborne ‐ Village 2 (Second Take) Dec‐21 $8,380,044 6,400 108 $77,593 $17,407 Crescent St. Closed $2,191
Desert Hot Springs
Grantor: Skyborne Ventures, LLC
Grantee: Lennar Homes
4 Palari Villas Aug‐21 $1,800,000 9,000 77 $23,377 $76,116 Sky Ridge Way Closed $0
Desert Hot Springs
Grantor: Hacienda Ventures LLC
Grantee: Palari Villas DHS LLC
5 Skyborne ‐ Village 2 (First Take) Feb‐21 $5,537,347 6,400 79 $70,093 $17,407 Crescent St. Closed $2,191
Desert Hot Springs
Grantor: Skyborne Ventures, LLC
Grantee: Lennar Homes
Subject Property 6,400 35
Skyborne
Desert Hot Springs, CA
Comments: Sale of 132 lots to Pulte, who is developing a 55+ age‐restricted community known as Renata at Domani. The typical lot size is 4,500 SF and homes range in size from 1,579 to 1,865 SF with prices starting at $428,990. The lots were final mapped at the time of sale and finishing costs are estimated at $87,830 per lot.
Comments: Sale of 111 tentatively mapped lots to Pulte, who is developing a project known as Bellissima. Floor plans range from 1,959 to 2,824 SF with sale prices between $471,990 and $541,990. The typical lot size is 6,000 SF. Finishing costs are estimated at $98,536 per lot.
Comments: Takedown of 108 lots within Village 2 of the Skyborne at Desert Hot Springs subdivision. Remaining site development costs were $8,539 per lot and permits and fees were $20,737 per lot. The property was encumbered with a CFD at the time of sale, and net permits and fees after bond proceeds were $8,868 per lot. Special taxes are approximately $1,212 per lot and the typical lot size is 6,400 SF. This takedown completes Lennar's purchase of 187 lots for the remainder of Village 2; the project is known at Vega.
Comments: The property encompasses a total of 17.23 acres of developable, residentially zoned land. It is proposed and entitled for the development of a 77‐lot subdivision (9,000 square foot lots). A final map was recorded in December 2005. Site development commenced in April 2022 and was anticipated to be completed in March 2023. The project will feature a 1,176 square foot modular homes (2‐bedroom/2‐bathroom), each with a 667 square foot ADU (2‐bedroom/1‐bath, accessory dwelling unit). Permits and fees are $24,500 per lot;site development costs are $51,616 per lot.
Comments: Takedown of 79 lots within Village 2 of the Skyborne at Desert Hot Springs subdivision. Remaining site development costs were $8,539 per lot and permits and fees were $20,737 per lot. The property was encumbered with a CFD at the time of sale, and net permits and fees after bond proceeds were $8,868 per lot. Special taxes are approximately $1,212 per lot and the typical lot size is 6,400 SF. Homebuilder Lennar plans to purchase a total of 187 lots over two takedowns for the Vega project.
Item Number: 5.
Sales Comparison Approach ‐ Lot Valuation 67
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Comparable Land Sales Map
Item Number: 5.
Sales Comparison Approach ‐ Lot Valuation 68
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Sale 1
Renata at Domani
Sale 2
Bellissima
Sale 3
Skyborne ‐ Village 2 (Second Take)
Sale 4
Palari Villas
Sale 5
Skyborne ‐ Village 2 (First Take)
Item Number: 5.
Sales Comparison Approach ‐ Lot Valuation 69
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Loaded Lot Analysis
Prior to the application of adjustments, the following items are added to the per lot sale price.
Improved Lot Analysis
Remaining Site Dev. Cost We apply adjustments for remaining site development costs (if any).
Permits and Fees Permits and fees due are included on a dollar‐for‐dollar basis. Building permits are excluded, as the local market does not include them in the definition of an improved (loaded) lot.
Bond Encumbrance If applicable, we consider the annual special tax and typical holding time for a developer (2 years) with a market supported rate to estimate the present bond amount for each comparable (if bond debt exists).
Loaded Lot Adjustments
Comparable 1 Compa rable 2 Comparable 3 Comparable 4 Comparable 5 Lot Price $27,170 $21,464 $77,593 $23,377 $70,093
Remaining Finishing Costs $87,830 $98,536 $17,407 $76,116 $17,407 Special Taxes/Assessment Lien $0 $0 $1,212 $0 $1,212
Years (Approx) 00202
Present Value $0 $0 $2,191 $0 $2,191
Special Taxes/Assessment Lien ‐$2,191 ‐$2,191 $0 ‐$2,191 $0 The above table includes remaining site development costs and permits/impact fees; bond encumbrances are handled as a separate line item in the upcoming analysis.
Adjustment Factors
The sales are compared to the subject and adjusted to account for material differences that affect value. Adjustments are considered for the following factors, in the sequence shown below.
Adjustment Factor Accounts For Comments
Real Property Rights Fee simple, leased fee, leasehold, partial interest, etc.
All the comparables represent fee
simple estate transactions.
Therefore, adjustments for property
rights are not necessary.
Financing Terms Seller financing, or assumption of
existing financing, at non‐market
terms.
All of the remaining comparables
are all cash or cash to seller
transactions and do not warrant an
adjustment.
Item Number: 5.
Sales Comparison Approach ‐ Lot Valuation 70
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Adjustment Factor Accounts For Comments
Conditions of Sale Extraordinary motivation of buyer
or seller, assemblage, forced sale.
All of the comparables are market
transactions and do not warrant an
adjustment for conditions of sale.
Market Conditions Changes in the economic
environment over time that affect
the appreciation and depreciation
of real estate.
Home values increased significantly
from the first quarter of 2020 to the
first quarter of 2022; though, some
price appreciation was offset by
rising construction costs (materials)
and labor shortages during the
pandemic. Construction costs have
since moderated. Market
participants have noted they believe
that peak land values occurred in
the first quarter of 2022 and have
since moderated. However, there
are some early signs bulk lot prices
may be increasing again. Sales 3
through 5, which transacted in
2021, are adjusted upward.
Location/Community
Appeal
Market or submarket area
influences on sale price;
surrounding land use influences.
The subject is located within the
community of Desert Hot Springs.
Comparables 1 and 2 are located in
Palm Desert and Coachella,
respectively, and are adjusted
downward.
Number of Lots Generally, there is an inverse
relationship between the number of
lots and price per lot such that
larger projects (with a greater
number of lots) achieve a lower
price per lot.
Typically, variances in per lot prices,
all else being equal, are not
observed in transactions between
40 and 250 lots. The subject
property currently has 35 improved
lots remaining (21 with homes
under construction and 14 for which
vertical construction has not yet
commenced). Because the
comparables range from 77 to 132
lots, all are adjusted upward
slightly.
Lot Size Adjustments for differences in lot
size between the comparables and
subject are considered.
The subject has a typical lot size of
6,400 square feet. Sale 1 has a
typical lot size of 4,500 square feet
and is adjusted upward, while Sale 4
Item Number: 5.
Sales Comparison Approach ‐ Lot Valuation 71
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Adjustment Factor Accounts For Comments
has a typical lot size of 9,000 square
feet and is adjusted downward.
Site Utility Primary physical factors that affect
desirability of lots.
The subject property is considered
to have average utility. Each of the
comparables are considered to offer
similar site utility as the subject and
no additional adjustment for this
characteristic are required.
Lot Premiums/
Discounts
Primary physical factors that affect
desirability of lots.
The comparables offer similar lot
premiums and no adjustments are
necessary.
The table below summarizes the adjustments we make to the comparable sales.
Land Sales Adjustment Grid
Subject Comparable 1 Comparable 2 Comparable 3 Comparable 4 Comparable 5 Name Skyborne Renata at Domani Bellissima Skyborne ‐ Village 2 (Second Take)
Palari Villas Skyborne ‐ Village
2 (First Take)
City Desert Hot Springs Palm Desert Coachella Desert Hot Springs Desert Hot Springs Desert Hot Springs Sale Date Jun‐22 May‐22 Dec‐21 Aug‐21 Feb‐21
Sale Status Closed Closed Closed Closed Closed
Sale Price $3,586,500 $2,382,500 $8,380,044 $1,800,000 $5,537,347 Other Adjustment $0 $0 $0 $0 $0
Description of Adjustment
Effective Sale Price $3,586,500 $2,382,500 $8,380,044 $1,800,000 $5,537,347 Number of Lots 15 132 111 108 77 79
Price per Lot – $27,170 $21,464 $77,593 $23,377 $70,093 Expenditures after Purchase – $87,830 $98,536 $17,407 $76,116 $17,407 Bond Consideration $2,191 ‐$2,191 ‐$2,191 $0 ‐$2,191 $0 $112,809 $117,809 $95,000 $97,301 $87,500
Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple
=====
Cash to seller Cash to seller Cash to seller Cash to seller Cash to seller =====
Market Market Market Market Market
=====
Market Conditions 9/15/2023 Jun‐22 May‐22 Dec‐21 Aug‐21 Feb‐21 Adj us tment = = + + +
Location/Community Desert Hot Springs Palm Desert Coachella Desert Hot Springs Desert Hot Springs Desert Hot Springs ‐‐ ‐‐ ===
Number of Lots 35 132 111 108 77 79
+++++
Lot Size (Typical ) 6,400 4,500 6,000 6,400 9,000 6,400 +== ‐ =
Site Utility Average Average Average Average Average Average =====
Lot Premiums/Discounts Average Average Average Average Average Average =====
Overall Adjustment = ‐ ++ + ++
Adjustment
Adjustment
Adjustment
Adjustment
Price per Lot
Property Rights
Financing Terms
Conditions of Sale
Adjustment
Adjustment
Adjustment
Adjustment
Item Number: 5.
Sales Comparison Approach ‐ Lot Valuation 72
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Land Value Conclusion
The comparables reflect a range of sales prices of $21,464 to $77,593 per lot. The wide disparity in the unadjusted range is largely attributable to lot condition at time of sale (unimproved lots, partially improved lots and improved lots), as well as differences in permits and fees, remaining site costs and bonds encumbrances. After accounting for remaining site development costs, permits and fees and bond encumbrances, the comparables exhibit a loaded lot range of $87,500 ‐ $117,809 per lot per improved (or loaded) lot. The following table summarizes the improved lot values (unadjusted) and our conclusion of improved lot value for the subject property.
Bulk Lot Ranking Summary
Property Sale Date
$/ Loaded Lot
(Unadjusted) Net Adjustment
Comparable 2 May‐22 $117,809 ‐
Comparable 1 Jun‐22 $112,809 =
Subject Property $110,000
Comparable 4 Aug‐21 $97,301 +
Comparable 3 Dec‐21 $95,000 ++
Comparable 5 Feb‐21 $87,500 ++
As shown, the improved lot value indicator for the subject property is estimated to be lower than Comparables 1 and 2 and higher than the balance of the data set. Sales 3 and 5 reflect the 2021 transactions of the subject property; as noted, market conditions have strengthened since this time.
An improved lot indicator of $110,000 per lot appears reasonable. Building permits are also deducted from the improved lot value. Our conclusion of lot value is as follows.
Lot Value Conclusion ‐ Representative Lot
Concluded Improved Lot Value $110,000
Less: Permits & Fees ($4,265)
Indicated Value $105,735
(Rd.) $106,000
Item Number: 5.
Extraction Analysis 73
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Extraction Analysis
As support for the estimate of lot value concluded in the sales comparison approach, we utilize an extraction (residual) analysis that takes into account home prices, direct and indirect construction costs, accrued depreciation and developer’s incentive in order to arrive at an estimate of improved lot value. The elements of the extraction technique are discussed below.
Revenue
Based on the Residential Market section of this report, and considering the developer’s home sizes and pricing, as well as typical home prices of nearby projects, we will utilize a typical home size of 1,950 square feet (consistent with the subject’s Plan 3) and corresponding base price of $400,000.
Expense Projections
As part of an ongoing effort to assemble market information, the table below reflects survey responses and developer budget information for numerous single‐family residential subdivisions throughout the California.
Information from the survey above will contribute to the estimate of development expenses classified as follows.
Developer Classification
Budget
Date
No. of
Units Quality
Avg. Home
Size (SF)
Typical Lot
Size
G & A % of
Revenue
Mkt & Sales % of
Revenue
Direct
Costs/SF
Indirect
Costs/SF
Indirect % of
Direct Costs
Site
Costs/Lot
Permits &
Fees/Unit
Profit % of
Revenue
National 2023 85 Average 1,844 3,000 N/Av N/Av $96.00 N/Av N/Av $65,855 $48,588 N/Av National 2023 202 Average 2,342 7,250 N/Av N/Av $72.06 $11.06 15.3% $76,242 $73,000 N/Av National 2023 276 Average 2,220 7,200 N/Av N/Av $74.96 $11.09 14.8% $83,185 $32,800 N/Av Regional 2023 52 Average 2,607 6,200 N/Av 5.8% $101.86 $6.86 6.7% $164,076 $73,595 10.06% National 2023 177 Average 2,112 7,200 N/Av N/Av $77.91 $9.73 12.5% $110,669 $61,700 N/Av National 2023 85 Average 2,118 4,800 2.3% 2.3% $96.79 $9.92 10.2% N/Av $88,700 N/Av National 2023 573 Average 2,327 5,232 N/Av N/Av $99.86 N/Av 2.5% $126,003 $98,422 20.00% National 2022 150 Average 2,092 5,500 N/Av N/Av $92.11 N/Av N/Av $72,875 $51,700 20.5% National 2022 96 Average 2,346 7,350 N/Av N/Av $79.46 N/Av N/Av $124,544 $68,647 N/Av Regional 2022 27 Good 3,179 10,100 3.0% 1.1% $115.00 $13.13 11.0% $200,111 $70,470 15.7% Local 2022 91 Average 2,160 5,475 5.0% 1.0% $117.00 N/Av N/Av N/Av $52,790 10.0% National 2022 159 Average 1,575 2,275 N/Av N/Av $145.64 N/Av N/Av $41,811 $54,100 28.0% National 2022 65 Average 3,447 5,200 N/Av N/Av $110.00 N/Av N/Av N/Av $71,290 N/Av National 2022 862 Average 2,176 5,306 N/Av N/Av $112.00 N/Av N/Av $161,203 $52,801 N/Av National 2022 387 Average 1,771 5,000 6.0% 3.0% $105.39 N/Av N/Av N/Av $43,000 28.0% Regional 2022 30 Average 2,090 5,200 3.0% 2.0% $150.00 $9.00 6.0% $103,967 $55,800 16.4% National 2022 187 Average 2,420 6,698 N/Av N/Av $95.00 N/Av N/Av $255,045 $77,870 N/Av Regional 2021 87 Average 1,978 6,500 N/Av N/Av $98.00 N/Av N/Av $96,759 $63,947 N/Av Regional 2021 145 Average 2,109 5,775 4.2% 4.3% $79.86 $13.01 16.4% $94,951 $37,659 6.8% Regional 2021 128 Average 2,009 2,565 3.0% 3.5% $87.42 $16.63 19.0% N/Av $54,371 14.0% Local 2021 36 Good 2,533 3,450 5.5% 6.6% $112.26 $5.53 4.9% N/Av $55,497 15.0% National 2021 124 Average 1,753 6,723 N/Av N/Av $102.12 N/Av N/Av $41,505 $51,458 N/Av Local 2021 21 Average 2,010 6,050 N/Av N/Av $102.50 N/Av N/Av $78,415 $44,500 N/Av Regional 2021 147 Average 2,200 3,825 N/Av N/Av $76.00 N/Av 7.0% $43,972 $48,197 N/Av Regional 2021 99 Average 2,187 8,005 4.4% 5.7% $72.68 $6.35 9.0% $89,461 $35,931 9.6% Regional 2020 233 Good 2,300 7,500 3.0% 4.2% $91.00 N/Av 11.0% $100,000 $40,600 10.0% Regional 2020 81 Average 1,974 5,775 N/Av 2.5% $80.00 $16.00 20.0% $83,788 $81,336 N/Av Regional 2020 112 Average 2,060 6,300 4.6% 4.1% $80.23 N/Av 9.9% $86,830 $63,400 13.20% Local 2020 27 Average 1,834 9,148 N/Av N/Av $80.00 N/Av 16.0% N/Av $24,627 N/Av National 2020 70 Average 1,948 7,817 N/Av N/Av $87.02 N/Av 12.0% N/Av $38,080 N/Av Regional 2020 30 Average 2,672 5,000 9.8% 6.3% $88.79 N/Av 10.0% $91,600 $62,730 12.2% Regional 2020 145 Average 1,834 5,500 N/Av N/Av $60.00 N/Av N/Av N/Av $62,500 8.0% National 2020 148 Average 2,253 7,000 N/Av N/Av $57.21 N/Av N/Av $39,000 $40,000 N/Av Regional 2020 46 Average 2,289 6,600 N/Av N/Av $66.49 N/Av N/Av N/Av $31,200 N/Av Minimum 21 1,575 2,275 2.3% 1.0% $57.21 $5.53 2.5% $39,000 $24,627 6.8% Maximum 862 3,447 10,100 9.8% 6.6% $150.00 $16.63 20.0% $255,045 $98,422 28.0% Average 152 2,199 5,956 4.5% 3.7% $93.02 $10.69 11.3% $101,328 $56,215 14.8% Item Number: 5.
Extraction Analysis 74
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) General and Administrative
These expenses consist of management fees, liability and fire insurance, inspection fees, appraisal fees, legal and accounting fees and copying or publication costs. This expense category typically ranges from 2.5% to 4.0%, depending on length of project and if all of the categories are included in a builder’s budget. We have used 3.0% for general and administrative expenses.
Marketing and Sale
These expenses typically consist of advertising and promotion, closing costs, sales operations, and sales commissions. The expenses are expressed as a percentage of the gross sales revenue. The range of marketing and sales expenses typically found in projects within the subject’s market area is 5.0% to
6.5%. A figure of 5.0%, 2.5% for marketing and 2.5% for sales, is estimated in the marketing and sales expense category.
Direct and Indirect Construction Costs
Construction costs are generally classified into direct and indirect costs. Direct costs reflect the cost of labor and materials to build the project. Direct costs generally are lower per square foot for larger floor plans, all else being equal, due to economies of scale. Indirect items are the carrying costs and fees incurred in developing the project and during the construction cycle. Construction quality and market‐segment are significant factors that affect direct construction costs. In addition, national/public builders, which are able to achieve lower costs due to the larger scale in which orders are placed, routinely achieve lower direct costs.
Based on the cost comparables, and considering the product line under development, a direct cost estimate of $95 per square foot is applied for the subject’s benchmark home.
Regarding indirect costs, the following list itemizes some of the typical components that generally comprise indirect costs:
• Architectural and engineering fees for plans, plan checks, surveys and environmental studies • Appraisal, consulting, accounting and legal fees
• The cost of carrying the investment in land and contract payments during construction. If the property is financed, the points, fees or service charges and interest on construction loans are considered
• All‐risk insurance
• The cost of carrying the investment in the property after construction is complete, but before sell‐out is achieved
• Developer fee earned by the project coordinator
• Interest reserve
Conversations with homebuilders indicate the indirect costs generally range anywhere from 10% to 15% of the direct costs (excluding marketing, sales, general and administrative expenses, taxes, which are accounted for separately). Because we are utilizing a static extraction analysis, we estimate Item Number: 5.
Extraction Analysis 75
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) indirect costs at 18% for the subject in order to also consider the additional holding costs referenced above (property taxes, including special taxes).
Permits and Fees
As noted, building permits are approximately $4,265 per lot. Building permits are deducted in the upcoming analysis to arrive at an improved lot value. As noted, the local market recognizes impact fees and other (non‐building) permits as part of an improved lot value. Therefore, these fees are not deducted in the upcoming extraction.
Accrued Depreciation
For new construction on the subject, an allocation for depreciation (physical, functional, or economic) is not applicable.
Developer’s Incentive
According to industry sources, developer’s incentive (profit) historically has ranged anywhere from 5% to 25%, with a predominate range of 5% to 15%. This is consistent with our survey presented earlier in this section, which ranged from 8.0% to 16.6%. Profit is based on the perceived risk associated with the development. Low profit expectations are typical for projects focused on more affordable product with faster sales rates. Higher profit expectations are common in projects with more risk such as developments where sales rates are slower, project size produces an extended holding period or the product type is considered weak or untested.
Elements affecting profit include location, supply/demand, anticipated risk, construction time frame and project type. Another element considered in profit expectations is for the development stage of a project. First phases typically generate a lower profit margin due to cautious or conservative pricing, as new subdivisions in competitive areas must become established to generate a fair market share.
Additionally, up front development costs on first phases can produce lower profit margins.
Positive attributes of the subject property include:
Approved entitlements
Construction of horizontal improvements are nearly complete, with minimal site development work remaining
Steady pricing and steady absorption in the area, and in the Vega at Skyborne project in particular.
There are generally few “negative” attributes associated with the subject property, other than the potential for deterioration in market conditions in the residential sector that would result from a change in macroeconomic factors (e.g., unemployment rates, interest rates, etc.). The prior table at the beginning of the Expense Projections discussion includes survey results for profit expectations of active home builders in the region.
Based on the preceding discussion and developer surveys, and considering the amount of remaining development costs yet to be completed, we have concluded an estimate of 10% for developer’s incentive.
Item Number: 5.
Extraction Analysis 76
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Conclusion
Our estimates of finished lot value for the subject’s lots via the extraction analysis is presented on the as follows:
Extraction
Revenue
Average Floor Plan Size 1,950 SF
Typical Home Price $400,000
Expense Projections
G & A Cost @ 3.0% of Retail Value $12,000
Marketing/Sales @ 5.0% of Retail Value $20,000
Average Direct Costs @ $95.00 /SF $185,250
Indirect Cost @ 18.0% of Direct Cost $33,345
Permits and Fees Due at BP $4,265 /Lot $4,265
Developer's Incentive 10% of Home Price $40,000
$294,860
Residual Lot Value: $105,140
Rounded: $105,000
Reconciliation of Lot Value
For a benchmark lot of 6,400 square feet, the sales comparison approach indicated $106,000 per improved lot, while the extraction technique yielded an indicator of $105,000 per lot, a difference of less than 1.0%. In our opinion the extraction analysis is primarily a supportive indicator for the results of sales comparison approach. We have concluded to $105,000 per lot for a benchmark improved lot.
Reconciliation of Improved Lot Value
Sales Comparison Approach $106,000 per finished lot
Extraction Analysis $105,000 per finished lot
% Difference 0.95%
Average $105,500
Concluded Improved Lot Value $105,000 per finished lot
Item Number: 5.
Valuation 77
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Final Opinion of Value
Based on the preceding valuation analysis and subject to the definitions, assumptions, and limiting conditions expressed in the report, our opinion of value is provided in the following table. Remaining impact fees and site development costs are deducted from the improved lot value for the 35 Builder‐ owned lots. In addition, the appraised value conclusions for the 54 completed homes owned by individual homeowners in Village II, as well as the assessed values for the 297 homes in Villages I and II, are reported.
Value by Ownership, September 15, 2023
Component
Lots/Homes/
Parcels
Lot/Home
Value
Permits and
Fees
Remaining Site
Development Costs
Value per
Component Market Value (Rd.)
Lennar Homes of CA1
Completed Homes 8 $393,750 ‐‐ $393,750 $3,150,000
Under Construction Homes 3 $105,000 ($16,532) ($18,446) $70,022 $210,066 Improved Lots 2 $105,000 ($16,532) ($18,446) $70,022 $140,044 Total 13 $3,500,110
AG Essential Housing CA 2, LP 2
Completed Homes 0 $393,750 ‐‐ $393,750 $0
Under Construction Homes 18 $105,000 ($16,532) ($18,446) $70,022 $1,260,396 Improved Lots 12 $105,000 ($16,532) ($18,446) $70,022 $840,264 Total 30 $2,100,660
Individual Homeowners3
Completed Homes 54 ‐‐ ‐ $21,640,000
Total 54 $21,640,000
Aggregate, or Cumulative, Appraised Values 97 $27,240,770 Aggregate, or Cumulative, Assessed Values4 297 $94,248,523 394 $121,489,293
1 Lennar Homes of CA, LLC and Lennar Homes of CA, Inc
2 Land banking entity associated with Lennar
3 Homes within Vega without Assessed Values
Total Aggregate, or Cumulative, Value of CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area 1)
4 Includes 154 homes within Village 1 and 143 Homes within Village 2 (including 24 homes constructed by DR Horton, 29 homes constructed by Gallery, and 90 homes constructed by Lennar within Vega) Extraordinary Assumptions and Hypothetical Conditions
None
1. The value derived herein is based on the hypothetical condition that bond proceeds from CFD No. 2006‐1 are available for reimbursement of eligible impact fees and public improvements.
The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition, directly related to a speci fic assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modi fy our value conclusions.
Exposure Time
Exposure time is the length of time the subject property would have been exposed for sale in the market had it sold on the effective valuation date at the concluded market value. Exposure time is always presumed to precede the effective date of the appraisal. Based on our review of recent sales transactions for similar properties and our analysis of supply and demand in the local residential Item Number: 5.
Valuation 78
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) subdivision market, it is our opinion that the probable exposure time for the subject at the concluded market values stated previously is 6 ‐ 9 months.
Marketing Time
Marketing time is an estimate of the amount of time it might take to sell a property at the concluded market value immediately following the effective date of value. As we foresee no significant changes in market conditions in the near term, it is our opinion that a reasonable marketing period for the subject in bulk is likely to be the same as the exposure time. Accordingly, we estimate the subject’s marketing period at 6 ‐ 9 months.
Item Number: 5.
Certification 79
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Certification
We certify that, to the best of our knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved.
4. We have not performed any services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three‐year period immediately preceding acceptance of this assignment.
5. We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.
6. Our engagement in this assignment was not contingent upon developing or reporting predetermined results.
7. Our 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 this appraisal.
8. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice as well as applicable state appraisal regulations.
9. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute.
10. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.
11. Kevin Ziegenmeyer, MAI, made a personal inspection of the property that is the subject of this report. Laura Diaz, MAI, has not personally inspected the subject.
12. No one provided significant real property appraisal assistance to the person(s) signing this certification.
13. We have experience in appraising properties similar to the subject and are in compliance with the Competency Rule of USPAP.
14. As of the date of this report, Kevin Ziegenmeyer, MAI, and Laura Diaz, MAI, have completed the continuing education program for Designated Members of the Appraisal Institute.
Item Number: 5.
Certification 80
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1)
15. Kevin Ziegenmeyer, MAI
Certified General Real Estate Appraiser
California Certificate # AG013567
Laura Diaz, MAI
Certified General Real Estate Appraiser
California Certificate # 3005037
Item Number: 5.
Assumptions and Limiting Conditions 81
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Assumptions and Limiting Conditions
This appraisal and any other work product related to this engagement are limited by the following standard assumptions, except as otherwise noted in the report:
1. The title is marketable and free and clear of all liens, encumbrances, encroachments, easements and restrictions. The property is under responsible ownership and competent management and is available for its highest and best use.
2. There are no existing judgments or pending or threatened litigation that could affect the value of the property.
3. There are no hidden or undisclosed conditions of the land or of the improvements that would render the property more or less valuable. Furthermore, there is no asbestos in the property.
4. The revenue stamps placed on any deed referenced herein to indicate the sale price are in correct relation to the actual dollar amount of the transaction.
5. The property is in compliance with all applicable building, environmental, zoning, and other federal, state and local laws, regulations and codes.
6. The information furnished by others is believed to be reliable, but no warranty is given for its accuracy.
This appraisal and any other work product related to this engagement are subject to the following limiting conditions, except as otherwise noted in the report:
1. An appraisal is inherently subjective and represents our opinion as to the value of the property appraised.
2. The conclusions stated in our appraisal apply only as of the effective date of the appraisal, and no representation is made as to the effect of subsequent events.
3. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated.
4. No environmental impact studies were either requested or made in conjunction with this appraisal, and we reserve the right to revise or rescind any of the value opinions based upon any subsequent environmental impact studies. If any environmental impact statement is required by law, the appraisal assumes that such statement will be favorable and will be approved by the appropriate regulatory bodies.
5. Unless otherwise agreed to in writing, we are not required to give testimony, respond to any subpoena or attend any court, governmental or other hearing with reference to the property without compensation relative to such additional employment.
6. We have made no survey of the property and assume no responsibility in connection with such matters. Any sketch or survey of the property included in this report is for illustrative purposes only and should not be considered to be scaled accurately for size. The appraisal Item Number: 5.
Assumptions and Limiting Conditions 82
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) covers the property as described in this report, and the areas and dimensions set forth are assumed to be correct.
7. No opinion is expressed as to the value of subsurface oil, gas or mineral rights, if any, and we have assumed that the property is not subject to surface entry for the exploration or removal of such materials, unless otherwise noted in our appraisal.
8. We accept no responsibility for considerations requiring expertise in other fields. Such considerations include, but are not limited to, legal descriptions and other legal matters such as legal title, geologic considerations such as soils and seismic stability; and civil, mechanical, electrical, structural and other engineering and environmental matters. Such considerations may also include determinations of compliance with zoning and other federal, state, and local laws, regulations and codes.
9. The distribution of the total valuation in the report between land and improvements applies only under the reported highest and best use of the property. The allocations of value for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. The appraisal report shall be considered only in its entirety. No part of the appraisal report shall be utilized separately or out of context.
10. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or any reference to the Appraisal Institute) shall be disseminated through advertising media, public relations media, news media or any other means of communication (including without limitation prospectuses, private offering memoranda and other offering material provided to prospective investors) without the prior written consent of the persons signing the report.
11. Information, estimates and opinions contained in the report and obtained from third‐party sources are assumed to be reliable and have not been independently verified.
12. Any income and expense estimates contained in the appraisal report are used only for the purpose of estimating value and do not constitute predictions of future operating results.
13. If the property is subject to one or more leases, any estimate of residual value contained in the appraisal may be particularly affected by significant changes in the condition of the economy, of the real estate industry, or of the appraised property at the time these leases expire or otherwise terminate.
14. Unless otherwise stated in the report, no consideration has been given to personal property located on the premises or to the cost of moving or relocating such personal property; only the real property has been considered.
15. The current purchasing power of the dollar is the basis for the values stated in the appraisal; we have assumed that no extreme fluctuations in economic cycles will occur.
16. The values found herein are subject to these and to any other assumptions or conditions set forth in the body of this report but which may have been omitted from this list of Assumptions and Limiting Conditions.
17. The analyses contained in the report necessarily incorporate numerous estimates and assumptions regarding property performance, general and local business and economic Item Number: 5.
Assumptions and Limiting Conditions 83
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) conditions, the absence of material changes in the competitive environment and other matters. Some estimates or assumptions, however, inevitably will not materialize, and unanticipated events and circumstances may occur; therefore, actual results achieved during the period covered by our analysis will vary from our estimates, and the variations may be material.
18. The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific survey or analysis of the property to determine whether the physical aspects of the improvements meet the ADA accessibility guidelines. We claim no expertise in ADA issues, and render no opinion regarding compliance of the subject with ADA regulations.
Inasmuch as compliance matches each owner’s financial ability with the cost to cure the non‐ conforming physical characteristics of a property, a specific study of both the owner’s financial ability and the cost to cure any deficiencies would be needed for the Department of Justice to determine compliance.
19. The appraisal report is prepared for the exclusive benefit of the Client, its subsidiaries and/or affiliates. It may not be used or relied upon by any other party. All parties who use or rely upon any information in the report without our written consent do so at their own risk.
20. No studies have been provided to us indicating the presence or absence of hazardous materials on the subject property or in the improvements, and our valuation is predicated upon the assumption that the subject property is free and clear of any environment hazards including, without limitation, hazardous wastes, toxic substances and mold. No representations or warranties are made regarding the environmental condition of the subject property. Integra Realty Resources – Sacramento, Integra Realty Resources, Inc., Integra Strategic Ventures, Inc. and/or any of their respective officers, owners, managers, directors, agents, subcontractors or employees (the “Integra Parties”), shall not be responsible for any such environmental conditions that do exist or for any engineering or testing that might be required to discover whether such conditions exist. Because we are not experts in the field of environmental conditions, the appraisal report cannot be considered as an environmental assessment of the subject property.
21. The persons signing the report may have reviewed available flood maps and may have noted in the appraisal report whether the subject property is located in an identified Special Flood Hazard Area. We are not qualified to detect such areas and therefore do not guarantee such determinations. The presence of flood plain areas and/or wetlands may affect the value of the property, and the value conclusion is predicated on the assumption that wetlands are non‐ existent or minimal.
22. Integra Realty Resources – Sacramento is not a building or environmental inspector. Integra Sacramento does not guarantee that the subject property is free of defects or environmental problems. Mold may be present in the subject property and a professional inspection is recommended.
23. The appraisal report and value conclusions for an appraisal assume the satisfactory completion of construction, repairs or alterations in a workmanlike manner.
24. It is expressly acknowledged that in any action which may be brought against any of the Integra Parties, arising out of, relating to, or in any way pertaining to this engagement, the Item Number: 5.
Assumptions and Limiting Conditions 84
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) appraisal reports, and/or any other related work product, the Integra Parties shall not be responsible or liable for any incidental or consequential damages or losses, unless the appraisal was fraudulent or prepared with intentional misconduct. It is further acknowledged that the collective liability of the Integra Parties in any such action shall not exceed the fees paid for the preparation of the appraisal report unless the appraisal was fraudulent or prepared with intentional misconduct. Finally, it is acknowledged that the fees charged herein are in reliance upon the foregoing limitations of liability.
25. Integra Realty Resources – Sacramento, an independently owned and operated company, has prepared the appraisal for the specific intended use stated elsewhere in the report. The use of the appraisal report by anyone other than the Client is prohibited except as otherwise provided. Accordingly, the appraisal report is addressed to and shall be solely for the Client’s use and benefit unless we provide our prior written consent. We expressly reserve the unrestricted right to withhold our consent to your disclosure of the appraisal report or any other work product related to the engagement (or any part thereof including, without limitation, conclusions of value and our identity), to any third parties. Stated again for clarification, unless our prior written consent is obtained, no third party may rely on the appraisal report (even if their reliance was foreseeable).
26. The conclusions of this report are estimates based on known current trends and reasonably foreseeable future occurrences. These estimates are based partly on property information, data obtained in public records, interviews, existing trends, buyer‐seller decision criteria in the current market, and research conducted by third parties, and such data are not always completely reliable. The Integra Parties are not responsible for these and other future occurrences that could not have reasonably been foreseen on the effective date of this assignment. Furthermore, it is inevitable that some assumptions will not materialize and that unanticipated events may occur that will likely affect actual performance. While we are of the opinion that our findings are reasonable based on current market conditions, we do not represent that these estimates will actually be achieved, as they are subject to considerable risk and uncertainty. Moreover, we assume competent and effective management and marketing for the duration of the projected holding period of this property.
27. All prospective value opinions presented in this report are estimates and forecasts which are prospective in nature and are subject to considerable risk and uncertainty. In addition to the contingencies noted in the preceding paragraph, several events may occur that could substantially alter the outcome of our estimates such as, but not limited to changes in the economy, interest rates, and capitalization rates, behavior of consumers, investors and lenders, fire and other physical destruction, changes in title or conveyances of easements and deed restrictions, etc. It is assumed that conditions reasonably foreseeable at the present time are consistent or similar with the future.
28. The appraisal is also subject to the following:
Item Number: 5.
Assumptions and Limiting Conditions 85
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Extraordinary Assumptions and Hypothetical Conditions
None
1. The value derived herein is based on the hypothetical condition that bond proceeds from CFD No. 2006‐1 are available for reimbursement of eligible impact fees and public improvements.
The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition, directly related to a speci fic assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modi fy our value conclusions.
Item Number: 5.
Addenda
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Addendum A
Appraiser Qualifications
Item Number: 5.
Integra Realty Resources
San Francisco
555 Meridian Avenue
Suite C
San Jose, CA 95126
T 408.299.0444
F 408.299.0449
irr.com
Laura Diaz, MAI
Experience
Ms. Diaz is a licensed certified general real estate appraiser. She began her career in real estate in 2013 as a research analyst with Integra - Kentucky-Southern Indiana as she pursued her Master of Urban Planning degree. In 2017, Ms. Diaz relocated to the San Francisco Bay Area and joined the Integra - San Francisco office. She has experience writing narrative appraisal reports for a variety of property types, including office, retail, industrial, multifamily housing, and commercial and agricultural land. She has also worked with special-purpose properties, including self-storage facilities, religious facilities, student housing projects, data centers, hotels, and airport properties. In addition, Ms. Diaz has experience in multifamily market analysis, including development and analysis of survey techniques and models of demand for proposed multifamily projects. She specializes in the appraisal of residential subdivisions and master planned communities, as well as Mello Roos and Assessment Districts for land-secured municipal financings.
Licenses
California, Certified General Real Estate Appraiser, 3005037, Expires January 2024 Kentucky, Certified General Real Estate Appraiser, 5233, Expires June 2023 Education
Academic:
Bachelor of Arts in English, University of Louisville
Master of Urban Planning, University of Louisville
Graduate Certificate in Real Estate Development, University of Louisville Appraisal and Real Estate Courses:
Uniform Standards of Professional Appraisal Practice
Basic Appraisal Principles
Basic Appraisal Procedures
Real Estate Finance Statistics and Valuation Modeling
Site Valuation and Cost Approach
General Market Analysis and Highest and Best Use
Sales Comparison Approach
Basics Income Capitalization
General Appraiser Report Writing and Case Studies
Expert Witness for Commercial Appraisers
Quantitative Analysis
Advanced Market Analysis and Highest and Best Use
Advanced Income Capitalization
Advanced Concepts and Case Studies
Business Practice and Ethics
[email protected] - 408.299.0444
Item Number: 5.
Item Number: 5.
Integra Realty Resources -
Sacramento
590 Menlo Drive
Suite 1
Rocklin, CA 95765
irr.com
F 916.435.4774
T 916.435.3883
Kevin Ziegenmeyer, MAI
Experience
Mr. Ziegenmeyer is a Certified General real estate appraiser and holds the Appraisal Institute's MAI designation. In 1989, Mr. Ziegenmeyer began his career in real estate as a controller for a commercial and residential real estate development corporation. In 1991 he began appraising and continued to be involved in appraisal assignments covering a wide variety of properties, including office, retail, industrial, residential income and subdivisions throughout the state of California, and Northern Nevada. Mr. Ziegenmeyer handles many of the firm’s master-planned property appraisals and over the past two decades has developed expertise in the valuation of Community Facilities Districts and Assessment Districts.In fact, Mr. Ziegenmeyer was one of five appraisers to collaborate with other professionals in developing the appraisal guidelines for the California Debt and Investment Advisory Commission (Recommended Practices in the Appraisal of Real Estate for Land-Secured Financing - 2004). He has developed the experience and background necessary to deal with complex assignments covering an array of property types, with a particular focus on urban redevelopment in the cities and counties of San Francisco, Dublin, Monterey, Newport Beach, Alameda, Napa and San Mateo. In early 2015, Mr. Ziegenmeyer obtained the Appraisal Institute's MAI designation.
Licenses
California, California Certified General Real Estate Appraiser, AG013567, Expires June 2025
Education
Academic:
Bachelor of Science in Accounting, Azusa Pacific University, California Appraisal and Real Estate Courses:
Standards of Professional Practice, Parts A, B & C
Basic Valuation Procedures
Real Estate Appraisal Principles
Capitalization Theory and Techniques, Part A
Advanced Income Capitalization
Report Writing and Valuation Analysis
Advanced Applications
IRS Valuation Summit I & II
2008, 2009, 2010 & 2011 Economic Forecast
Business Practices and Ethics
Contemporary Appraisal Issues with Small Business Administration Financing General Demonstration Appraisal Report Writing Seminar
7-Hour National USPAP Update Course
Valuation of Easements and Other Partial Interests
2009 Summer Conference
Uniform Appraisal Standards for Federal Land Acquisitions (Yellowbook) 2008 Economic Update
Valuation of Conservation Easements
Subdivision Valuation
2005 Annual Fall Conference
General Comprehensive Exam Module I, II, III & IV
Advanced Income Capitalization
[email protected] - 916.435.3883 x224
Item Number: 5.
Integra Realty Resources -
Sacramento
590 Menlo Drive
Suite 1
Rocklin, CA 95765
irr.com
F 916.435.4774
T 916.435.3883
Kevin Ziegenmeyer, MAI
Education (Cont'd)
Advanced Sales Comparison & Cost Approaches
2004 Central CA Market Update
Computer-Enhanced Cash Flow Modeling
Forecast 2000, 2001, 2002, 2003 & 2004
Land Valuation Assignments
Land Valuation Adjustment Procedures
Highest & Best Use and Market Analysis
Entitlements, Land Subdivision & Valuation
Real Estate Value Cycles
El Dorado Hills Housing Symposium
Federal Land Exchanges
M & S Computer Cost-Estimating, Nonresidential
[email protected] - 916.435.3883 x224
Item Number: 5.
Item Number: 5.
About IRR
Integra Realty Resources, Inc. (IRR) provides world‐class commercial real estate valuation, counseling, and advisory services. Routinely ranked among leading property valuation and consulting firms, we are now the largest independent firm in our industry in the United States, with local offices coast to coast and in the Caribbean.
IRR offices are led by MAI‐designated Senior Managing Directors, industry leaders who have over 25 years, on average, of commercial real estate experience in their local markets. This experience, coupled with our understanding of how national trends affect the local markets, empowers our clients with the unique knowledge, access, and historical perspective they need to make the most informed decisions.
Many of the nation's top financial institutions, developers, corporations, law firms, and government agencies rely on our professional real estate opinions to best understand the value, use, and feasibility of real estate in their market.
Local Expertise...Nationally!
irr.com
Item Number: 5.
Addenda
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Addendum B
Definitions
Item Number: 5.
Addenda
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Definitions
The source of the following definitions is the Appraisal Institute, The Dictionary of Real Estate Appraisal, 7th ed. (Chicago: Appraisal Institute, 2022), unless otherwise noted.
As Is Market Value
The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date.
Disposition Value
The most probable price that a specified interest in property should bring under the following conditions:
1. Consummation of a sale within a specified time, which is shorter than the typical exposure time for such a property in that market.
2. The property is subjected to market conditions prevailing as of the date of valuation.
3. Both the buyer and seller are acting prudently and knowledgeably.
4. The seller is under compulsion to sell.
5. The buyer is typically motivated.
6. Both parties are acting in what they consider to be their best interests.
7. An adequate marketing effort will be made during the exposure time.
8. Payment will be made in cash in U.S. dollars (or the local currency) or in terms of financial arrangements comparable thereto.
9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
This definition can also be modified to provide for valuation with specified financing terms.
Effective Date
1. The date on which the appraisal opinion applies. (SVP)
2. The date to which an appraiser’s analysis, opinions, and conclusions apply; also referred to as date of value. (USPAP, 2020‐2021 ed.)
3. The date that a lease goes into effect.
Entitlement
In the context of ownership, use, or development of real estate, governmental approval for annexation, zoning, utility extensions, number of lots, total floor area, construction permits, and occupancy or use permits.
Item Number: 5.
Addenda
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Entrepreneurial Incentive
The amount an entrepreneur expects or wants to receive as compensation for providing coordination and expertise and assuming the risks associated with the development of a project. Entrepreneurial incentive is the expectation of future reward as opposed to the profit actually earned on the project.
Entrepreneurial Profit
1. A market‐derived figure that represents the amount an entrepreneur receives for his or her contribution to a past project to compensate for his or her time, effort, knowledge, and risk; the difference between the total cost of a property (cost of development) and its market value (property value after completion), which represents the entrepreneur’s compensation for the risk and expertise associated with development. An entrepreneur is motived by the prospect of future value enhancement (i.e., the entrepreneurial incentive). An entrepreneur who successfully creates value through new development, expansion, renovation, or an innovation change of use is rewarded by entrepreneurial profit. Entrepreneurs may also fail and suffer losses.
2. In economics, the actual return on successful management practices, often identified with coordination, the fourth factor of production following land, labor, and capital; also called entrepreneurial return or entrepreneurial reward.
Exposure Time
1. The time a property remains on the market.
2. An opinion, based on supporting market data, of the length of time that 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 of the appraisal.
Fee Simple Estate
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.
Floor Area Ratio (FAR)
The relationship between the above‐ground floor area of a building, as described by the zoning or building code, and the area of the plot on which it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible floor area of a building is twice the total land area.
Highest and Best Use
1. The reasonably probable use of property that results in the highest value. The four criteria that the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity.
2. The use of an asset that maximizes its potential and that is possible, legally permissible, and financially feasible. The highest and best use may be for continuation of an asset’s existing use or for some alternative use. This is determined by the use that a market participant would have in mind for the asset when formulating the price that it would be willing to bid. (ISV) Item Number: 5.
Addenda
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1)
3. [The] highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future. (Uniform Appraisal Standards for Federal Land Acquisitions)
Investment Value
1. The value of a property to a particular investor or class of investors based on the investor’s specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market.
2. The value of an asset to the owner or a prospective owner given individual investment or operational objectives (may also be known as worth). (IVS) Lease
A contract in which rights to use and occupy land, space, or structures are transferred by the owner to another for a specified period of time in return for a specified rent.
Leased Fee Interest
The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.
Leasehold Estate
The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease.
Liquidation Value
The most probable price that a specified interest in real property should bring under the following conditions:
1. Consummation of a sale within a short time period.
2. The property is subjected to market conditions prevailing as of the date of valuation.
3. Both the buyer and seller are acting prudently and knowledgeably.
4. The seller is under extreme compulsion to sell.
5. The buyer is typically motivated.
6. Both parties are acting in what they consider to be their best interests.
7. A normal marketing effort is not possible due to the brief exposure time.
8. Payment will be made in cash in U.S. dollars (or the local currency) or in terms of financial arrangements comparable thereto.
9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
This definition can also be modified to provide for valuation with specified financing terms.
Item Number: 5.
Addenda
CFD No. 2006‐1 of the City of Desert Hot Springs (Improvement Area No. 1) Marketing Time
An opinion of the amount of time to sell a property interest at the concluded market value or at a benchmark price during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which precedes the effective date of an appraisal.
Market Value
The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
buyer and seller are typically motivated;
both parties are well informed or well advised, and acting in what they consider their own best interests;
a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (Source: Code of Federal Regulations, Title 12, Chapter I, Part 34.42[h]; also Interagency Appraisal and Evaluation Guidelines, Federal Register, 75 FR 77449, December 10, 2010, page 77472) Prospective Opinion of Value
A value opinion effective as of a specified future date. The term does not define a type of value.
Instead, it identifies a value opinion as being effective at some specific future date. An opinion of value as of a prospective date is frequently sought in connection with projects that are proposed, under construction, or under conversion to a new use, or those that have not yet achieved sellout or a stabilized level of long‐term occupancy.
Retrospective Value Opinion
A value opinion effective as of a specified historical date. The term retrospective does not define a type of value. Instead, it identifies a value opinion as being effective at some specific prior date. Value as of a historical date is frequently sought in connection with property tax appeals, damage models, lease renegotiation, deficiency judgments, estate tax, and condemnation. Inclusion of the type of value with this term is appropriate, e.g., “retrospective market value opinion.” Item Number: 5.