13. An opinion of counsel to the Trustee dated the Closing Date, addressed to the Underwriter, and the Community Facilities District to the effect that the Trustee 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, acce pt and agree to the provisions of the Indenture and the Continuing Disclosure Agreement, and that such documents have been duly authorized, executed and delivered by the Trustee, and, assuming due execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligation of the Trustee, 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 suc h enforceability may be limited by the application of equitable principles if equitable remedies are sought;
14. A certificate of the Community Facilities District dated the Closing Date, in a form acceptable to Bond Counsel, that the Bonds are not arbitrage b onds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended;
15. A Letter of Representations of Lennar Homes of California, LLC (the “Developer”) in connection with the printing of the Preliminary Official Statement dated the date o f the Preliminary Official Statement, substantially in the form attached as part of Exhibit D hereto or as such Letter of Representations may be modified with the approval of the Underwriter and Bond Counsel, and a Bring-Down Certificate of the Developer d ated the Closing Date, substantially in the form attached as part of Exhibit E hereto;
16. The Continuing Disclosure Agreement of the Developer, substantially in the form attached as an appendix to the Official Statement; 328
14 17. An opinion or opinions of counsel to t he Developer, dated the date of the Closing addressed to the Community Facilities District and the Underwriter, in form and substance acceptable to the Underwriter and Bond Counsel.
18. 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
19. A certificate in form and substance as set forth in Exhibit C hereto of Kitty Siino &Associates, Inc., Tustin, California, the appraiser of the property within the Community Facilities District, dated as of the Closing Date.
20. Such additional legal opinions, certificates, instruments and other documents as the Underwriter and Bond Counsel may reasonably request to evidence the truth an d accuracy, as of the date hereof and as of the Closing Date, of the material representations and warranties of the Community Facilities District contained herein, and of the statements and information contained in the Official Statement and the due perfor mance or satisfaction by the Community Facilities District at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the Community Facilities District in connection with the transactions contemplated hereby and by the Indenture and the Official Statement.
If the Community Facilities District 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 Community Facilities District nor the Underwriter shall be under any further obligation hereunder, except that the respective obligations of the Underwriter and the Community Facilities District set forth in Section 5 hereof shall continue in full force and effect.
4. Establishment of Issue Price.
(a) The Underwriter agrees to assist the Community Facilities District in establishing the issue price of the Bonds and shall execute and deliver to the Community Facilities District 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 B, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the Community Facilities District and Bond Co unsel, 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 Community Facilities District will treat the first p rice at which 10% of each maturity of the Bonds (the “ 10% test”), identified under the column “10% Test Satisfied” in Exhibit A, is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate C USIP 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 Community Facilities District 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 Community Facilities District 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 329
15 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 confir ms 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, identified under the column “Hold the Offering Price Rule Used,” 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 Community Facilities District and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the Community Facilities District 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-the-offering-price rule”). So lon g 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 Community Facilities District when i t 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 g roup 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 occurr ed, 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 rea sonable periodic intervals or otherwise upon request of the Underwriter and (ii) to 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 Bond s 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 330
16 (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 pri cing 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 Community Facilities District ackn owledges 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 memb er of the selling group to comply with the requirements for establishing 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 agr eement 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 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 consti tute sales to the public for purposes of this section.
Further, for purposes of this section:
(i.) “public” means any person other than an underwriter or a related party;
(ii.) “underwriter” means (A) any person that agrees pursuant to a written contract with the Community Facilities District (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 d escribed 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);
(iii.) 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 331
17 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 (iv.) “sale date” means the date of execution of this Purchase Agreement by all parties.
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 Community Facilities District shall pay all expenses and costs of the Community Facilities District incident to the performance of its obligations in connection with the authorizatio n, execution, sale and delivery of the Bonds to the Underwriter, including, without limitation, printing costs, initial fees of the Trustee, including fees and disbursements of their counsel, if any, fees and disbursements of Bond Counsel, Disclosure Couns el and other professional advisors employed by the City, costs of preparation, printing, signing, transportation, delivery and safekeeping of the Bonds. 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 of fering and distribution of the Bonds, including fees and disbursements of Underwriter’s Counsel. Any m eals 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 Community Facilities District under this Purchase Agreement may be given by delivering the same in writing to the City of Fontana, 8353 Sierra Avenue, Fontana, California 92335, 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 Piper Sandler & Co., 120 Vantis Drive, Suite 330, Aliso Viejo, California 92656, Attention: Public Finance.
7. Parties In Interest . This Purchase Agreement is made solely for the benefit of the Community Facilities District and Underwriter (including any su ccessors 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 Community Facilities District under this Pur chase Agreement shall remain operative and in full force and effect, regardless of any investigations made by or on behalf of the Underwriter and shall survive the delivery and payment for the Bonds and the Closing.
9. Execution in Counterparts . This Purchas e 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. Effective. This Purchase Ag reement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the Community Facilities District and shall be valid and enforceable as of the time of such acceptance. 332
18 11. 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 Community Facilities District.
12. Governing Law . This Purchase Agreement shall be governed by the laws of the State of California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; EXECUTION PAGE FOLLOWS]
333
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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 Community Facilities District and shall be valid and enforceable as of the time of such acceptance.
Very truly yours,
PIPER SANDLER & CO., as Underwriter
By:
Managing Director
The foregoing is hereby agreed to and
accepted as of the date first above written:
CITY OF FONTANA COMMUNITY
FACILITIES DISTRICT NO. 95
(SUMMIT AT ROSENA PHASE TWO)
By:
Authorized Officer
Time of Execution: _____________ p.m. California time
[EXECUTION PAGE OF BOND PURCHASE AGREEMENT]
334
A-1
EXHIBIT A
$______
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
Maturity
(September 1)
Principal
Amount
Interest
Rate Yield Price
10% Test
Satisfied*
10% Test
Not
Satisfied
Subject to
Hold-The-
Offering-
Price Rule
(marked if
used)
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
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.
335
A-2
Redemption Provisions
Optional Redemption. The Bonds maturing on or after September 1, 20__ shall be subject to optional redemption, in whole, or in part in Authorized Denominations, on any date on or after September 1, 20__, from any source of available funds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Price
September 1, 20__ through August 31, 20__ 103%
September 1, 20__ through August 31, 20__ 102
September 1, 20__ through August 31, 20__ 101
September 1, 20__ and any date thereafter 100
Mandatory Redemption from Special Tax Prepayments . The Bonds are subject to mandatory redemption, in whole, or in part in Authorized Denominations, on any Interest Payment Date, from and to the extent of prepaid Special Taxes required to be applied theret o and any related proportional amounts in the Reserve Fund required to be applied thereto pursuant to the Indenture at the following respective Redemption Prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Price
Any Interest Payment Date through March 1, 20__ 103%
September 1, 20__ and March 1, 20__ 102
September 1, 20__ and March 1, 20__ 101
September 1, 20__ and any Interest Payment Date
thereafter
100
Mandatory Sinking Fund Redemption . The Bonds maturing September 1, 20 __ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20 __, at a Redemption Price equal to the principal amount of the Bonds maturing September 1, 20 __ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund
Redemption Date
(September 1)
Principal Amount
to be
Redeemed
336
A-3
Mandatory Sinking Fund Redemption . The Bonds maturing September 1, 20 __ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20 __, at a Redemption Price equal to the principal amount of the Bonds maturing September 1, 20 __ to be redeemed, without premium, plus ac crued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund
Redemption Date
(September 1)
Principal Amount
to be
Redeemed
Mandatory Sinking Fund Redemption. The Bonds maturing September 1, 20 __ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20 __, at a Redemption Price equal to the principal amount of the Bonds maturing September 1, 20 __ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund
Redemption Date
(September 1)
Principal Amount
to be
Redeemed
337
B-1
EXHIBIT B
$_______
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
FORM OF ISSUE PRICE CERTIFICATE
The undersigned, Piper Sandler & Co. (the “Underwriter”), hereby certifies as set forth below with respect to the sale and issuance of the above-captioned obligations (the “Bonds”).
1. Bond Purchase Agreement . On ______, 202 2 (the “Sale Date”), the Underwriter and the Issuer executed a Bond Purchase Agreement (the “Purchase Agreement”) in connection with the sale of the Bonds. The Underwriter has not modified the Purchase Agreement since its execution on the Sale Date.
2. Price.
(a) As of the date of this Certificate, for each Maturity of the Bonds, the first price at which at least 10% of such Maturity of the Bonds was sold to the Public (the “10% Test”) was the respective price for such Maturity listed in Schedule A attached hereto.
3. Defined Terms.
(a) “Issuer” means the City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two).
(b) “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.
(c) “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. (d) “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).
4. Reserve Fund . The funding of the Reserve Fund under the Indenture, and as provided in the Tax Certificate, is reasonably required, was a vital factor in marketing the Bonds, facilitated the marketing of the Bonds at an interest rate comparable to that of bonds and oth er tax- exempt obligations of a similar type, and is not in excess of the amount necessary for such purpose. 338
B-2
The representations set forth in this certificate are limited to factual matters only.
Nothing in this certificate represents the Underwriter’s int erpretation 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 wi th respect to certain of the representations set forth in the Tax Certificate of the Issuer dated ______, 2022 and with respect to compliance with the federal income tax rules affecting the Bonds, and by Bond Counsel, in connection with rendering its opini on that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal 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.
PIPER SANDLER & CO.
By:
Dated: ______, 2022
339
B-3
SCHEDULE A
TO
ISSUE PRICE CERTIFICATE
[TO BE ATTACHED]
340
C-1
EXHIBIT C
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
CERTIFICATE OF APPRAISER
The undersigned hereby states and certifies:
1. That he or she is an authorized principal of Kitty Siino &Associates, Inc. , Tustin, California (the “Appraiser”) and as such is familiar with the facts herein certified and is authorized and qualified to certify the same.
2. That the Appraiser has prepared an appraisal report dated ______, 2022, with a date of value as of February 15, 2022 (the “Appraisal Report”), on behalf the City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two) (the “Community Facilities District”) and in connection with the Official Statement dated [OS Date] (“Official Statement”), concerning the City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two) Special Tax Bonds, Series 2022 (the “Bonds”).
3. That the Appraiser hereby consents to the reproduction and use of the Appraisal Report appended to the Preliminary Official Statement and the Official Statement. The Appraiser also consents to the references to the Appraiser and the Appraisal made in the Preliminary Official Statement and the Official Statement.
4. In the opinion of the Apprais er the assumptions made in the Appraisal Report are reasonable.
5. That the Official Statement has been reviewed on behalf of the Appraiser and to the best knowledge of the Appraiser the statements concerning the Appraisal Report and the value of the property contained under the captions “INTRODUCTION – Appraisal Report,” “THE COMMUNITY FACILITIES DISTRICT – Property Values - Appraisal,” and “APPENDIX B – APPRAISAL REPORT” are true, correct and complete in all material respects 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 the light of the circumstances under which they were made, not misleading.
6. Each of the parcels appraised by the Appraiser is encompassed within the Community Facilities District as set forth in the boundary map of the Community Facilities District and the Appraisal Report fairly and accurately described, as of the stated date of value, the market values of the properties in the Community Facilities District that are subject to the special taxes.
7. That, as of the date of the Official Statement and as of the date hereof, the Appraisal Report appended to the Official Statement, to the best of my knowledge and belief, and subject to all of th e Limiting Conditions and Major Assumptions set forth in the Appraisal Report, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, and no events or occurrences have been ascertained by us or have come to our 341
C-2
attention that would materially and adversely affect the conclusions as to the market value of the appraised property stated in the Appraisal Report. However, we have not performed any procedures since the date of the Appraisal Report to obtain knowledge of such events or occurrences nor are we obligated to do so in the future.
8. The Appraisal Report complies with the Appraisal Standards for Land -Secured Financings issued by the California Debt and Investment Advisory Commission dated July, 2004.
The Community Facilities District and Piper Sandler & Co., as underwriter, are entitled to rely on the Certificate.
Dated: [Closing Date]
KITTY SIINO &ASSOCIATES, INC.
By:
342
D-1
EXHIBIT D
FORM OF LETTER OF REPRESENTATIONS OF DEVELOPER
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
LETTER OF REPRESENTATIONS OF LENNAR HOMES OF CALIFORNIA, LLC [POS Date]
City of Fontana
Community Facilities District No. 95 (Summit at Rosena Phase Two) 8353 Sierra Avenue
Fontana, CA 92335
Piper Sandler & Co.
120 Vantis Drive, Suite 330
Aliso Viejo, CA 92656
Ladies and Gentlemen:
Reference is made to the City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two ) Special Tax Bonds, Series 2022 (the “ Bonds”) and to the Bond Purchase Agreement to be entered into in connection therewith (the “ Purchase Agreement”). This Letter of Representations of Lennar Homes of California, LLC (the “Letter of Representations”) is delivered pursuant to and in satisfaction of Secti on 3(E)(15) of the Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Agreement.
The undersigned certifies and represents that he is duly authorized on behalf of Lennar Homes of C alifornia, LLC, a California corporation (the “ Developer”), to execute and deliver this Letter of Representations in connection with the issuance, sale and delivery by the City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two) (the “Community Facilities District”) of the Bonds. The Bonds are described in the Preliminary Official Statement dated [POS Date] relating to the Bonds (the “Preliminary Official Statement”).
Except as otherwise described in the Preliminary Official Statem ent, the Developer’s current expectations are that the Developer shall remain the party responsible for the construction and sale of homes within the Property. Except as disclosed in the Preliminary Official Statement, the Developer has not entered into an agreement for development or management of the Property by any other 343
D-2
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.
As used in this Letter of Representations, the term “Actual Knowledge of the Undersigned” means the actual knowledge that the undersigned currently has as of the date of this Letter of Representations or has obtained through (i) interviews with such officers and responsible employees of the Developer as the undersigned has reasonably determined are likely, in t he ordinary course of his or her respective duties, to have knowledge of the matters set forth in this Letter of Representations, and (ii) reviews of documents reasonably available to the undersigned and which the undersigned reasonably deemed necessary fo r the undersigned to execute 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 Devel oper’s current business and operations. The undersigned has not contacted any individuals who are no longer employed by, or associated with, the Developer. The Developer further notes that Lennar Corporation, a Delaware corporation (“ Lennar Corporation ”), completed a merger with CalAtlantic Group, Inc., a Delaware corporation (" 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 subsidi aries 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 “ Relevant Entity” of the Developer means any person presently directly or indirectly through one or more intermediaries controlling, controlled by or under common control with the Developer, and about whom information could be material to potential investors in thei r investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the property owned by the Developer in the Community Facilities District, or to the Developer’s ability to pay the special taxes lev ied by the Community Facilities District on property owned by the Developer (“ Special Taxes”) prior to delinquency). Due to the merger, and for purposes hereof, the term “Relevant Entity” shall exclude CalAtlantic and its direct and indirect subsidiaries.
As used in this Letter of Representations, the term “ Property” means the property currently owned by the Developer within the Community Facilities District as described in the Preliminary Official Statement.
The undersigned certifies that he or she is familiar with the facts set forth in this Letter of Representations, and further hereby certifies to the Actual Knowledge of the Undersigned as follows on behalf of the Developer:
(1) The Developer has been duly organized and validly exists in good standing under the laws of the State of California and has or will have prior to the Closing, as required, all requisite corporate right, power and authority:
(i) to execute and deliver this Letter of Representations and to execute and deliver at Closing the Continuin g Disclosure Agreement of the Developer 344
D-3
substantially in the form attached as Appendix H to the Preliminary Official Statement, with such additional changes as may be agreed to by the Developer (the “Developer Continuing Disclosure Agreement”),
(ii) to ow n, develop and sell the Property, as described in the Preliminary Official Statement,
(iii) to carry on its business as described in the Preliminary Official Statement, and
(iv) to perform its obligations under the Developer Continuing Disclosure Agreement.
(2) The Developer agrees to execute at Closing the Developer Continuing Disclosure Agreement.
(3) Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the Developer is not aware of any material failures by it o r any entity under managerial control of the Developer to comply in all material respects with previous continuing disclosure undertakings in a written certificate or agreement executed by it or an entity under the managerial control of the Developer to pr ovide periodic continuing disclosure reports or notices of material events respecting securities offerings in California within the past five years.
(4) To the Actual Knowledge of the Undersigned, execution and delivery of the Developer Continuing Disclosure Agreement, and the performance by the Developer of its obligations under the Developer Continuing Disclosure Agreement , will not conflict with or constitute a breach of or default under any loans, lines of credit, agreements, or other contractual or financ ial obligations of the Developer, or any applicable law, regulation, judgment or decree.
(5) To the Actual Knowledge of the Undersigned, neither the Developer nor any of its Relevant Entities is currently in material default on any loans, lines of credit, agreements, or other contractual or financial obligations, or in breach of any applicable law, regulation, judgment or decree, and no event has occurred and is continuing that would constitute such a default or breach, the result of which could materially adv ersely affect the ability of the Developer:
(i) to own, develop and sell the Property, as described in the Preliminary Official Statement,
(ii) to pay Special Taxes on the Property (to the extent the responsibility of the Developer) prior to delinquency,
(iii) to carry on its business as described in the Preliminary Official Statement, or
(iv) to perform its obligations under the Developer Continuing Disclosure Agreement.
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(6) Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the Developer has not assumed any obligations under any loans, lines of credit, agreements, or other contractual or financial arrangements, or any applicable judgment or decree, which could materially adversely affect the ability of the Developer:
(i) to own, develop and sell the Property, as described in the Preliminary Official Statement,
(ii) to pay Special Taxes on the Property (to the extent the responsibility of the Developer) prior to delinquency,
(iii) to carry on its business as described in the Preliminary Official Statement, or
(iv) to perform its obligations under the Developer Continuing Disclosure Agreement.
(7) Except as described in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the Developer has no loans outstanding and unpaid and no lines of credit that are secured by the Property.
(8) 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
(9) To the Actual Knowledge of the Undersigned, Relevant Entities of the Developer are able to pay their bills as they become due and no legal proceedings are pending against any Relevant Entity (with proper service of process having been accomplished) or to the Actual Knowledge of the Undersigned, threatened in writing in which the Relevant Entity 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 could have a mater ially adverse impact on the ability of the Developer to develop its Property as described in the Preliminary Official Statement, or to pay the Special Taxes or ad valorem tax obligations with respect to the portion of the Property then owned by the Develop er (to the extent the responsibility of the Developer) prior to delinquency.
(10) 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 assessments or special taxes. However, except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, neither the Developer nor any of its Relevant Entities is currently in default in, or, in the last five years, has ever defaulted to any 346
D-5
material extent in, the payment of special taxes or assessments in connection with the Community Facilities District or any other community facilities dist ricts or assessment districts in California that was not cured prior to the institution of any enforcement action with a court of law.
(11) Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, there is no liti gation, inquiry, investigation or administrative proceeding of any nature pending against the Developer (with service of process to the Developer having been accomplished), or to the Actual Knowledge of the Undersigned, overtly threatened in writing agains t the Developer, or to the Actual Knowledge of the Undersigned, pending or overtly threatened in writing against any Relevant Entity of the Developer, in each case which, if successful, could:
(i) materially adversely affect the ability of the Developer t o own, develop and sell the Property, as described in the Preliminary Official Statement, (ii) materially adversely affect the ability of the Developer to pay Special Taxes on the Property (to the extent the responsibility of the Developer) prior to delinquency,
(iii) materially adversely affect the ability of the Developer to carry on its business as described in the Preliminary Official Statement, (iv) materially adversely affect the ability of the Developer to perform its obligations under the Developer Continuing Disclosure Agreement, (v) challenge, question the validity or enforceability of, or restrain or enjoin the performance of, the Special Taxes, the Bonds, the Community Facilities District Resolution of Issuance, the Indenture, the Developer Con tinuing Disclosure Agreement or the Bond Purchase Agreement, or
(vi) restrain or enjoin collection of Special Taxes or other sums to be pledged to pay the principal of and interest on the Bonds.
(12) Except as disclosed in the Preliminary Official Statement:
(i) to the Actual Knowledge of the Undersigned, the Developer and its Relevant Entities are solvent;
(ii) except as set forth in this paragraph, neither the Developer nor, to the Actual Knowledge of the Undersigned, any of its Relevant Entities, has file d for bankruptcy or been declared bankrupt in the last 10 years; provided, that Lennar Mare Island, LLC, an affiliate of the Developer, was one of the twenty -two debtors in the June 2008 Landsource bankruptcy case, which has subsequently been discharged; and
(iii) to the Actual Knowledge of the Undersigned, there are no proceedings pending (with service of process to the Developer having been accomplished) or overtly threatened in writing in which the Developer or any of its Relevant Entities 347
D-6
may be adjud icated as bankrupt, become the debtor in a bankruptcy proceeding, be discharged from any or all of its respective debts or obligations, be granted an extension of time to pay its respective debts or obligations, or be granted a reorganization or readjustment of its respective debts or obligations. (13) As of the date hereof, the information in the sections of the Preliminary Official Statement entitled “INTRODUCTION – The District (first two paragraphs only)” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT” and “CONTINUING DISCLOSURE – Lennar Homes” concerning the Developer and its Relevant Entities, the Property, the Developer’s development and financing plans, and the Developer’s contractual arrangements (but excluding any information cited as coming from a source other than the Developer) is true and correct in all material respects, and contains no untrue statement of a material fact and does not omit any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(14) Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the Developer has not submitted an application for, nor received actual notice of,
(i) the format ion or authorization of any other assessment district or community facilities district that would include any portion of the property within the Community Facilities District, or
(ii) the authorization or issuance of any debt secured by an assessment or another special tax to be levied on any portion of the property within the Community Facilities District, other than the Special Tax.
(15) Except as set forth in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, there are no claims , disputes, lawsuits, actions or contingent liabilities of or against the Developer or its Relevant Entities, or among, by or between the Developer and any contractors working on the development of the Property in the Community Facilities District, which may materially and adversely affect:
(i) the ability of the Developer to own, develop and sell the Property, as described in the Preliminary Official Statement,
(ii) the ability of the Developer to pay Special Taxes on the Property (to the extent the responsibility of the Developer) prior to delinquency, (iii) the ability of the Developer to carry on its business as described in the Preliminary Official Statement, or
(iv) the ability of the Developer to perform its obligations under the Developer Continuing Disclosure Agreement.
(16) The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer and the Relevant Entities which it controls will not bring any action, suit, proceeding, inquiry or investig ation at law or in equity, before any court, regulatory agency, public board or body, that in any way:
348
D-7
(i) seeks to challenge or overturn the formation of the Community Facilities District,
(ii) seeks to challenge the adoption of the ordinance levying Sp ecial Taxes within the Community Facilities District,
(iii) seeks to invalidate the Community Facilities District or any of the Bonds or any refunding obligations, or
(iv) seeks 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 in any way from bringing any other action, suit, proceeding, inquiry or investigation at law or in equit y before any court, regulatory agency, public board or body relating to the following:
(a) a claim that the Special Tax has not been levied in accordance with the Rate and Method of Apportionment,
(b) the application or use of the Special Taxes levied and collected, or (c) the enforcement of the obligations of the Community Facilities District under the Indenture or any agreements between the Developer or a Relevant Entity and the City or the Community Facilities District or under which the Developer or Relevant Entity is a party or beneficiary.
(17) The Developer has received a copy of the Rate and Method of Apportionment containing the prepayment formula. The Developer acknowledges that any prepayment of the Special Taxes may only be made in accordance with the Rate and Method of Apportionment.
(18) The Developer shall comply with the provision of the Mello -Roos Community Facilities Act of 1982, as amended, relating to the Notice of Special Tax described in California Government Code Section 53341.5 in connection with the sale of any part of the Property.
(19) Based upon its current development plans, including, without limitation, its current budget and subject to economic conditions and risks generally inherent in the development of real property, to the A ctual Knowledge of the Undersigned, the Developer anticipates that it will have sufficient funds to (i) carry on its business as described in the Preliminary Official Statement, (ii) own, develop and sell the Property as described in the Preliminary Official Statement, and (iii) pay Special Taxes on the Property (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 Fund for payment of principal of or interest on the Bonds due to the Developer’s nonpayment of Special Taxes.
However, no assurance can be given that sources of financing available to the Developer will be sufficient to complete the property developmen t and home construction as 349
D-8
currently anticipated and as described in the Preliminary Official Statement. While the Developer has made such internal financing available in the past, there can be no assurance whatsoever of its willingness or ability to do s o in the future. Neither the Developer nor any of its Relevant Entities has any legal obligation of any kind to make any such funds available or to obtain loans. Other than pointing out the willingness of the Developer to provide internal financing in the past, the Developer has not represented in any way that it will do so in the future. If and to the extent that internal financing and home sales revenues are inadequate to pay the costs to complete the Developer’s planned development in the Community Fa cilities District and other financing by the Developer is not put into place, there could be a shortfall in the funds required to complete the proposed development by the Developer and portions of the Property may not be developed. (20) The Developer consents to the issuance of the Bonds. The Developer acknowledges and agrees that the proceeds of such Bonds will be used for the acquisition and construction of the improvements described in the Preliminary Official Statement. The Developer acknowledges that the costs to acquire and construct such improvements are estimates, and that any increase in costs in excess of the estimated costs relating to improvements will reduce the improvements which may be financed by the Community Facilities District, and neither th e City nor the Community Facilities District has any obligation to provide moneys to pay for any such costs.
(21) During the period between the date of this Letter of Representations and the Closing Date, if the Developer has actual knowledge of any event rela ting to or affecting the Developer and its Relevant Entities, the Property, the Developer’s development and financing plans, and the Developer’s contractual arrangements (but excluding any information cited as coming from a source other than the Developer) which could cause the information under the captions of the Preliminary Official Statement indicated in Paragraph 13 of this Letter of Representations (and subject to the limitations and exclusions contained in Paragraph 13 of this Letter of Representations) 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, the Commu nity Facilities District 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 Preliminary Official Statement, the Developer shall reaso nably cooperate with the Community Facilities District in the preparation of an amendment or supplement to the Preliminary Official Statement in form and substance satisfactory to counsel to the City, the Community Facilities District and to the Underwriter.
(22) As a condition to the issuance of the Bonds, the Developer agrees to deliver a bring-down certificate, dated the Closing Date, in substantially the form attached as Exhibit E to the Purchase Agreement, to affirm and restate the Developer’s certificatio ns, representations and covenants made in this Letter of Representations. If any event related to or affecting the Developer, its Relevant Entities or the ownership, development or sale of the Property occurs, as a result of which it is necessary to modif y the bring-down certificate, the Developer agrees to deliver a new bring-down certificate revised to reflect such event.
(23) The Developer acknowledges and agrees that:
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(i) in connection with the purchase and sale of the Bonds under the Purchase Agreement, and with the discussions, undertakings and procedures leading up to the consummation of the purchase and sale of the Bonds under the Purchase Agreement, the Underwriter is and has been acting solely as principal and is not acting as the agent or fiduciary of the Developer,
(ii) the Underwriter has not assumed a fiduciary responsibility in favor of the Developer with respect to (a) the offering of the Bonds contemplated hereby or the process leading thereto (whether or not the Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the Developer on other matters), or (b) any other obligation to the Developer with respect to the offering contemplated by the Purchase Agreement, and
(iii) the Developer has consulted its own legal , financial and other advisors to the extent it has deemed appropriate in connection with the offering contemplated by the Purchase Agreement.
On behalf of the Developer, the undersigned has reviewed the contents of this Letter of Representations and the Developer has consulted with counsel regarding the meaning of its contents.
The Developer acknowledges and understands that a variety of state and federal laws, including but not limited to the Securities Act of 1933, as amended, and Rule 10b -5 promulgated under the Securities Exchange Act of 1934, as amended, 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 laws.
351
D-10
The undersigned has executed this Letter of Representations solely in his or her capacity as an authorized representative of 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:
[EXECUTION PAGE OF LETTER OF REPRESENTATIONS –
LENNAR HOMES OF CALIFORNIA, LLC]
352
E-1
EXHIBIT E
FORM OF BRING-DOWN CERTIFICATE OF THE DEVELOPER
$_______
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
BRING-DOWN CERTIFICATE OF LENNAR HOMES OF CALIFORNIA, LLC The undersigned certifies and represents that he or she is duly authorized on behalf of Lennar Homes of California, LLC , a California corporation (the “ Developer”), to execute and deliver this Bring-Down Certificate of Lennar Homes of California, LLC (this “Bring-Down Certificate”) in connection with the issuance, sale and delivery by the City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two ) (the “ Community Facilities District ”) of the bonds captioned above (the “Bonds”).
This B ring-Down Certificate is delivered pursuant to the Bond Purchase Agreement with respect to the Bonds dated [BPA Date] , between Piper Sandler & Co., as underwriter, and the Community Facilities District (the “Purchase Agreement”).
In connection with the di stribution of the Preliminary Official Statement relating to the Bonds, the Developer executed a Letter of Representations of Lennar Homes of California, LLC , dated [POS Date] (the “Letter of Representations”).
Capitalized terms used but not defined in t his Bring -Down Certificate have the same meanings as set forth in the Letter of Representations.
The undersigned, on behalf of the Developer, further certifies as follows:
(1) The undersigned is familiar with the facts certified in the Letter of Representa tions and this Bring-Down Certificate and is authorized and qualified to certify the same as an authorized representative of the Developer.
(2) Each statement made in the Letter of Representations is affirmed and restated as if made on the date hereof; provided that each statement made in the Letter of Representations referring to the Preliminary Official Statement is affirmed as it relates to the Official Statement dated [OS Date] relating to the Bonds (the “Final Official Statement”). (3) To the Actual Kn owledge of the Undersigned (as defined in the Letter of Representations), no event has occurred since the date of the Preliminary Official Statement that has, in any material way, adversely affected the statements and information described in Paragraph 13 of the Letter of Representations (subject to the limitations and exclusions contained in Paragraph 13 of the Letter of Representations) relating to:
(i) the business, properties, operations, prospects or financial condition of the Developer, or any Relevant Entities,
353
E-2
(ii) the Developer’s ability to own, develop and sell the Property, or (iii) the Developer’s ability to pay Special Taxes on the Property (to the extent the responsibility of the Developer) prior to delinquency,
which should be disclosed in the Final Official Statement for purposes for which it is to be used in order to make such statements and information contained in the Final Official Statement not misleading in any material respect.
(4) The Developer has duly executed and delivered the Developer Continuing Disclosure Agreement, and the Developer Continuing Disclosure Agr eement constitutes the legal, valid and binding obligation of the Developer, enforceable against the Developer in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulen t conveyance, and other similar laws relating to or affecting the rights of creditors and certain equitable, legal, or statutory principles affecting the enforcement of contractual rights generally, regardless of whether such enforcement is considered in a proceeding in equity or at law.
(5) For a period of 90 days after the Closing Date, if the Developer has actual knowledge of any event relating to or affecting the Developer, its Relevant Entities, or the acquisition, ownership development or sale of the Property which could cause the information under the captions of the Final Official Statement indicated in Paragraph 13 of the Letter of Representations (and subject to the limitations and exclusions contained in Paragraph 13 of the Letter of Representatio ns) 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 Community Facil ities District and the Underwriter and if, in the opinion of counsel to the Community Facilities District or the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Final Official Statement, the Developer sh all reasonably cooperate with the City and the Community Facilities District in the preparation of an amendment or supplement to the Final Official Statement in form and substance satisfactory to counsel to the City, the Community Facilities District and to the Underwriter.
The undersigned has executed this Bring -Down Certificate solely in his or her capacity as an authorized representative of Developer and he or she will have no personal liability arising from or relating to this Bring -Down Certificate. Any liability arising from or relating to this Bring -Down Certificate may only be asserted against the Developer.
Dated: [Closing Date]
LENNAR HOMES OF CALIFORNIA, LLC,
a California limited liability company
By:
Name:
Title:
354
F-1
EXHIBIT F
$_____
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
COMMUNITY FACILITIES DISTRICT CLOSING CERTIFICATE
I, the undersigned, hereby certify that I am the ___________________ of the City of Fontana (the “ City”), the City Council of which is the legislative body for City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two) (the “ Community Facilities District”), a community facilities district duly organized and existing under the laws of the State of California (the “State”) and that as such, I am authorized to execute this Certificate on behalf of the Community Facilities District in connection with the issuance of the above -referenced bonds (the “Bonds”).
I hereby further certify on behalf of the Community Facilities District that:
(A) to my best knowledge, after reasonable inquiry, no litigation is pending with respect to which the Community Facilities District has been served with process or threatened (1) to restrain or enjoin the iss uance of any of the Bonds or the collection of Net Special Tax Revenues pledged under the Indenture; (2) in any way contesting or affecting the authority for the issuance of the Bonds or the validity or enforceability of the Bonds or the Community Facilities District Documents; or (3) in any way contesting the existence or powers of the Community Facilities District;
(B) the representations and warranties made by the Community Facilities District in the Bond Purchase Agreement dated [BPA Date], between the Community Facilities District and Piper Sandler & Co. (the “ Agreement”) are true and correct in all material respects on the Closing Date, with the same effect as if made on the Closing Date; (C) no event affecting the Community Facilities District has occ urred since the date of the Final Official Statement that, as of the Closing Date, would cause any statement or information contained in the Final Official Statement under the caption “ABSENCE OF LITIGATION” to be incorrect or incomplete in any material re spect or would cause the information contained under such caption in the Final Official Statement to contain an untrue statement of a material fact or omit to state a material fact necessary in order to make such statements therein, in the light of the cir cumstances under which they were made, not misleading;
(D) as of the date hereof, the Community Facilities District Documents are in full force and effect in accordance with their terms and have not been amended, modified or supplemented except in such case as may have been agreed to by the Underwriter; and (E) the Community Facilities District has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied under the Community Facilities District Documents prior to issuance of the Bonds.
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Capitalized terms not defined herein shall have the same meaning set forth in the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date herein below set forth.
Dated: [Closing Date]
CITY OF FONTANA COMMUNITY
FACILITIES DISTRICT NO. 95
(SUMMIT AT ROSENA PHASE TWO)
By: __________________________________
Name:
Title:
356
Stradling Yocca Carlson & Rauth
Draft of April 12, 2022
4861-5258-6515v5/022777-0037
PRELIMINARY OFFICIAL STATEMENT DATED APRIL __, 2022
NEW ISSUE – BOOK-ENTRY-ONLY NO RATING
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of t he Inte rnal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, i nterest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expr esses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bond s. See “TAX MATTERS” herein.
$9,300,000*
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
Dated: Date of Delivery Due: September 1, as shown on the inside cover page The City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two ) Special Tax Bonds , Series 2022 (the “Bonds”) are being issued and delivered by City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two ) (the “District”) to (i) provide financing for certain public facilities and costs with respect thereto related to the development within the District, (ii) fund a reserve fund with respect to the Bonds , and (iii) pay the costs of issuance with respect to the Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” herein. The District has been formed by and is located in the City of Fontana, California (the “City”).
The Bonds are authorized to be issued pursuant to the Mello -Roos Community Facilities Ac t of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California), and pursuant to an Indenture, dated as of _______ 1, 2022 , by and between the District and U.S. Bank Trust Company, National Association , as Trustee. The Bonds are special obligations of the District a nd are payable solely from Net Special Tax Revenues (as defined herein), and the other assets pledged therefor under the Indenture, all as f urther described herein. Special Taxes (as defined herein) are to be levied according to the rate and method of app ortionment approved by the City Council of the City and the qualified electors within the District. The City Council is the legislative body of the District.
The Bonds are issuable in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( “DTC”). Individual purchases of Bonds may be made in principal amounts of $5,000 and integral multiples thereof. Purchasers of Bonds will not receive certificates representing t heir beneficial ownership of the Bonds but will receive credit balances on the books of their respective nominees. Interest on the Bonds will be payable on each September 1 and March 1, commencing September 1, 2022. Principal of and interest on the Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are expected to remit such payments to the beneficial owners of the Bonds. See “THE BONDS — General Provisions” and Appendix I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK -ENTRY SYSTEM ” herein.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED
EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLE DGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL
OR SPECIAL OBLIGATIONS OF THE CITY BUT ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY
FROM NET SPECIAL TAX REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN.
The purchase of the Bonds involves certain risks. See the section of this Official Statement entitled “SPECIAL RISK FACTORS” for a discuss ion of certain risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Bonds.
This cover page contains certain information for general reference only. It is not a summary of th is issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision.
The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Orrick Herrington & Sutcliffe, LLP, Los Angeles, California, as Bond Counsel, and subject to certain other conditions. Certain lega l matters will be passed on for the City and the District by Best Best & Krieger LLP, Riverside, Californ ia, in its capacity as City Attorney, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel. Certain legal matters w ill be passed upon for the Underwriter by its counsel, Kutak Rock LLP, Irvine, California, and for Lennar Homes of California, Inc. by its counsel, Holland & Knight LLP, San Francisco, California. It is anticipated that the Bonds will be available for delivery to DTC or its agent in book -entry form on or about May __, 2022.
[PIPER SANDLER LOGO]
Dated: May __, 2022
* Preliminary, subject to change.
357
4861-5258-6515v5/022777-0037
$9,300,000*
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
MATURITY SCHEDULE
Maturity Date
(September 1)
Principal
Amount
Interest
Rate Yield Price CUSIP† No.
$________ _____% Term Bonds Due September 1, 20__ Yield: _____% Price: ______ CUSIP No. __________†
* Preliminary, subject to change.
† CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright© 2022 CUSIP Global Services. All rights reserved. CUSIP® d ata herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database.
CUSIP® numbers are provided for convenience of reference only. None of the District, the City, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers.
358
4861-5258-6515v5/022777-0037
CITY OF FONTANA
CITY COUNCIL
Acquanetta Warren, Mayor
Peter Garcia, Mayor Pro Tem
Phillip Cothran, Council Member
John Roberts, Council Member
Jesus “Jesse” Sandoval, Council Member
STAFF
Matt Ballantyne, City Manager
Jessica Brown, Chief Financial Officer, Management Services Janet Koehler-Brooks, City Treasurer
Germaine McClellan Key, City Clerk
Best Best & Krieger LLP, City Attorney
BOND COUNSEL
Orrick Herrington & Sutcliffe LLP
Los Angeles, California
MUNICIPAL ADVISOR
CSG Advisors Incorporated
San Francisco, California
DISCLOSURE COUNSEL
Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California
TRUSTEE
U.S. Bank Trust Company, National Association
Los Angeles, California
SPECIAL TAX CONSULTANT
DTA, Inc.
Newport Beach, California
APPRAISER
Kitty Siino &Associates, Inc.
Tustin, California
PRICE POINT CONSULTANT
Empire Economics, Inc.
Capistrano Beach, California
359
4861-5258-6515v5/022777-0037
Except where otherwise indicated, all information contained in this Official Statement has been provided by the City and the District. No dealer, broker, salesperson or other person has been authorized by the City, the District, the Trustee or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds ot her than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District, the Trustee or the Underwriter. This Official Statement does not constitute an of fer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers or owners of the Bonds.
Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.
The Underwriter has provided the following sentence for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsib ilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or any other parties d escribed herein since the date hereof.
All summaries of the Indenture or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the District for further information in connection therewith.
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United S tates Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by th e terminology used such as a “plan,” “expect,” “estimate,” “project,” “budget” or similar words. Such forward -looking statements include, but are not limited to certain statements contained in the information under the captions “THE COMMUNITY FACILITIES DISTRICT” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT.”
The achievement of certain results or other expectations contained in such forward -looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Except as set forth in the District’s Continuing Disclosure Agreement, a form of w hich is attached hereto as Appendix G, neither the District nor the City plans to issue any updates or revisions to the forward - looking statements set forth in this Official Statement . Lennar Homes of California, Inc., a California corporation, the developer of the property in the District, has also agreed to provide certain continuing disclosure information concerning itself and its development within the District in the form attached hereto as Appendix H. See “CONTINUING DISCLOSURE.”
A wide variety of o ther information, including financial information, concerning the City, is available from publications and websites of the City and others. No such information is a part of or incorporated into this Official Statement.
IN CONNECTION WITH THE OFFERING OF T HE BONDS, THE UNDERWRITER MAY
OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. 360
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INTRODUCTION ................................................................................................................................................ 1 The District .................................................................................................................................................... 1 Security and Sources of Payment for the Bonds ............................................................................................ 3 Description of the Bonds ................................................................................................................................ 3 Appraisal Report ............................................................................................................................................ 4 Price Point Study ............................................................................................................................................ 4 Professionals Involved in the Offering .......................................................................................................... 4 Continuing Disclosure .................................................................................................................................... 5 Bond Owners’ Risks ...................................................................................................................................... 5 Other Information .......................................................................................................................................... 5 ESTIMATED SOURCES AND USES OF FUNDS ............................................................................................ 6 THE BONDS ........................................................................................................................................................ 6 General Provisions ......................................................................................................................................... 6 Redemption .................................................................................................................................................... 7 Debt Service Schedule ................................................................................................................................. 11 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS .................................................................. 11 General ......................................................................................................................................................... 11 Special Taxes ............................................................................................................................................... 12 Rate and Method of Apportionment ............................................................................................................ 13 Collection and Application of Special Taxes ............................................................................................... 18 Covenant for Superior Court Foreclosure .................................................................................................... 19 Special Tax Fund ......................................................................................................................................... 20 Reserve Fund ............................................................................................................................................... 20 Investment of Moneys .................................................................................................................................. 21 No Additional Bonds Except for Refunding Bonds ..................................................................................... 21 THE COMMUNITY FACILITIES DISTRICT ................................................................................................. 22 General Information Regarding the District................................................................................................. 22 The Facilities ................................................................................................................................................ 23 Assigned Special Taxes and Development Summary .................................................................................. 24 Direct and Overlapping Debt ....................................................................................................................... 24 Property Values ............................................................................................................................................ 26 Value-to-Lien Ratios .................................................................................................................................... 27 Delinquency History .................................................................................................................................... 30 PROPERTY OWNERSHIP AND THE DEVELOPMENT ............................................................................... 31 The Developer .............................................................................................................................................. 31 The Development Plan ................................................................................................................................. 32 Lennar Homes Financing Plan ..................................................................................................................... 36 SPECIAL RISK FACTORS ............................................................................................................................... 36 Risks of Real Estate Secured Investments Generally – Declines in Value .................................................. 37 Levy of the Special Tax ............................................................................................................................... 37 Collection of the Special Tax ....................................................................................................................... 38 Failure to Develop Properties ...................................................................................................................... 38 Concentration of Property Ownership ......................................................................................................... 39 Exempt Properties ........................................................................................................................................ 40 Constitutional Limitations on Taxation and Appropriations ........................................................................ 40 Maximum Special Tax ................................................................................................................................. 43 Payment of the Special Tax is Not a Personal Obligation of the Owners .................................................... 43 Disclosures to Future Purchasers ................................................................................................................. 44 Parity Taxes and Special Assessments ......................................................................................................... 44 Depletion of Reserve Fund .......................................................................................................................... 44 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Bankruptcy and Legal Delays ...................................................................................................................... 45 FDIC/Federal Government Interests In Properties ....................................................................................... 45 Geologic, Topographic and Climatic Conditions ......................................................................................... 46 Wildfires ...................................................................................................................................................... 46 Hazardous Substances .................................................................................................................................. 47 No Acceleration Provision ........................................................................................................................... 47 Bonds Are Limited Obligations ................................................................................................................... 47 Loss of Tax Exemption ................................................................................................................................ 48 Potential Early Redemption of Bonds from Special Tax Prepayments ........................................................ 48 Cybersecurity ............................................................................................................................................... 48 COVID-19 (Coronavirus) Pandemic ............................................................................................................ 48 CONTINUING DISCLOSURE .......................................................................................................................... 49 Community Facilities District ...................................................................................................................... 49 Lennar Homes .............................................................................................................................................. 49 TAX MATTERS................................................................................................................................................. 50 ABSENCE OF LITIGATION ............................................................................................................................ 52 ABSENCE OF RATINGS .................................................................................................................................. 52 CERTAIN LEGAL MATTERS ......................................................................................................................... 53 UNDERWRITING ............................................................................................................................................. 53 FINANCIAL INTERESTS ................................................................................................................................. 53 MUNICIPAL ADVISOR ................................................................................................................................... 53 ADDITIONAL INFORMATION ....................................................................................................................... 54
APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX ............................ A-1 APPENDIX B APPRAISAL REPORT...................................................................................................... B-1 APPENDIX C UPDATED PRICE POINT STUDY .................................................................................. C-1 APPENDIX D FORM OF OPINION OF BOND COUNSEL ................................................................... D-1 APPENDIX E GENERAL INFORMATION CONCERNING THE CITY OF FONTANA .................... E-1 APPENDIX F SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ................................. F-1 APPENDIX G FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT .......................... G-1 APPENDIX H FORM OF DEVELOPER CONTINUING DISCLOSURE AGREEMENT ..................... H-1
APPENDIX I INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM ................................................................................. I-1
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$9,300,000*
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) SPECIAL TAX BONDS, SERIES 2022
INTRODUCTION
This introduction is not a summary of this Official Statement. It is only a brief d escription of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be m ade of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement.
The purpose of this Official Statement, which includes the cover page, the table of contents and the attached ap pendices, is to provide certain information concerning the issuance of the City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two ) Special Tax Bonds, Series 2022 (the “Bonds”) by the City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two ) (the “District”), in the aggregate principal amount set forth on the front cover page. The proceeds of the Bonds will be used to finance certain public facilities and costs with respect thereto related to the development within the District, to fund a reserve fund for the Bonds (the “Reserve Fund”), and to pay costs of issuance of the Bonds.
The Bonds are being issued pursuant to the Mello -Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”), and pursuant to the Indenture, dated as of June 1, 2021 (the “Indenture”), by and between the District and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The Bonds are secured under the Indenture by a pledge of, constituting a lien on and security interest in, the Net Special Tax Revenues (as defined herein) and any other amounts held in the Special Tax Fund , the Bond Fund and the Reserve Fund established pursuant to the Indenture.
This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of the Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not defin ed shall have the meaning set forth in Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ⎯ Definitions” herein.
The District
The District includes approximately 44.4 gross acres and is located east of I -15 freeway in the northern portion of the City of Fontana (the “City”) in the second phase of a master planned development called Gabion Ranch (formerly known as “Summit at Rosena”) which is being developed by Lennar Homes of California, Inc., a California corporation (“Lennar Homes” or the “Deve loper”). The District is located at the northwest corner of Summit Avenue and Sierra Avenue, and represents the second phase of Gabion Ranch.
Gabion Ranch encompasses 179.8 acres and was approved for up to 89 5 residential units. The District is generally bounded by Cypress Avenue to the west, Casa Grande Avenue to the north, Sierra Avenue to the east, and Summit Avenue to the south. The District is planned for a total of 280 single family residential units at buildou t in five communities known as “Iron Walk ,” “Mountainside,” “Ridgeview,” “Stonegate” and “Woodridge.” The District generally conforms to Tract Map No. 20214 recorded on August 4, 2020, Tract
* Preliminary, subject to change.
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Map No. 20214-2 recorded on December 19, 2019, Tract Map No. 20214-3 recorded on April 15, 2020 and Tract Map No. 20214-5 recorded on June 23, 2020.
As of February 15, 2022 , the date of value of the Appraisal (defined herein), within the District, 181 single family residential units had been completed and conveyed to individual homeowners, 27 units had been completed (26 of which were in escrow) and were owned by Lennar Homes, 24 production units were in various stages of construction (21 of which were in escrow) and owned by Lennar Homes and the remaining 48 lots were in a finished lot or finished townhome pad condition and owned by Lennar Homes. As of April 1, 2022, within the District, 207 single family residential units had been completed and conveyed to individual homeowners, one unit had been completed ( which was in escrow) and w as owned by Lennar Homes, 36 production units were in various stages of construction ( 29 of which were in escrow) and owned by Lennar Homes and the remaining 36 lots were in a finished lot or finished townhome pad condition and owned by Lennar Homes. Of the 48 parcels identified in the Appraisal as finished lots/pads, all of such parcels have obtained a building permit as of May 1, 2022 and will be classified as Developed Property for Fiscal Year 2022-23. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” The District was formed to finance certain public facilities and costs with respect thereto related to the development within the District. A portion of the proceeds of the Bonds will be used to pay the costs of eligible facilities under the Act to be constructed by the City and to reimburse the Developer for permit fees paid in connection with its development within the District and for the Acquisition Facilities described under the caption “THE COMMUNITY FACILITIES DISTRICT — The Facilities.” The Act was enacted by the California legislature to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State of California (the “State”). Any local agency (as defined in the Act) may establish a community facilities district to provide for and finance the cost of eligible public facilities and services. The legislative body of the local agency which forms a community facilities district acts on behalf of such district as its legislative body. Subject to approval by two -thirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district and may levy and collect a special tax within such district to repay such indebtedness.
Pursuant to the Act, the City Council adopted the necessary resolu tions stating its intent to establish the District, to authorize the levy of special taxes on taxable property within the boundaries of the District, and to have the District incur bonded indebtedness for the purpose of financing authorized facilities (the “Facilities”). Following public hearings conducted pursuant to the provisions of the Act, the City Council adopted resolutions establishing the District and calling special elections to submit the levy of the special taxes and the incurring of bonded ind ebtedness to the qualified voters of the District. On April 23, 2019 , at an election held pursuant to the Act, the landowner who comprised the qualified voters of the District (Lennar Homes), authorized the District to incur bonded indebtedness in the agg regate principal amount of not to exceed $11,000,000 to be secured by the levy of Special Taxes (as defined below) on taxable property within the District for the purpose of financing the Facilities, and approved the rate and method of apportionment of the special taxes for the District (the “Rate and Method”).
The Rate and Method provides for a Facilities Special Tax (as defined in the Rate and Method) (the “Facilities Special Tax”) to be levied for the Special Tax Requirement for Facilities (as defined in the Rate and Method) and a Services Special Tax (as defined in the Rate and Method) (the “Services Special Tax”) to be levied for services described in the Rate and Method. As used in this Official Statement, the terms “Special Tax” or “Special Taxes” refer only to the Facilities Special Tax and does not include the Services Special Tax.
The Services Special Tax is not pledged under the Indenture nor is the Services Special Tax available to pay debt service on the Bonds. The Special Tax will be levied a gainst certain property within the District pursuant to the Act, the Ordinance approving the levy of Special Taxes and the Indenture and in accordance with the Rate and Method. The lien of the Special Tax will be co-equal with the lien of the Services Special Tax. 366
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Security and Sources of Payment for the Bonds
Under the Indenture, the City has pledged to repay the Bonds and any additional bonds issued under the Indenture (the “Additional Bonds”) from Net Special Tax Revenues and any other amounts held in th e Special Tax Fund, the Bond Fund and the Reserve Fund. P roceeds of any Additional Bonds may only be applied to refund the Bonds or Additional Bonds previously issued under the Indenture . See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — No Additional Bonds Except for Refunding Bonds.” The Indenture defines “Net Special Tax Revenues” to mean Special Tax Revenues less amounts required to pay Administrative Expenses. The term “Special T ax Revenues” is defined in the Indenture to mean the proceeds of the Special Taxes received by or on behalf of the District, including any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a resu lt of foreclosure of the lien of the Special Taxes, which will be limited to the amount of said lien and interest and penalties thereon. “Administrative Expenses” is defined in the Indenture to mean costs directly related to the administration of the Dist rict, including, but not limited to: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Trustee, the fees and cos ts of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture, the costs incurred by the District in complying with the disclosure provisions of any continuing disclosure undertaking and the Indenture, in cluding those related to public inquiries regarding the Special Taxes and disclosures to Owners, the costs of the District related to an appeal of the Special Taxes, any amounts required to be rebated to the federal government in order for the District to comply with the tax covenants in the Indenture, an allocable share of the salaries of the City staff providing services on behalf of the District directly related to the foregoing and a proportionate amount of City general administrative overhead related t hereto, and the costs of foreclosure of delinquent Special Taxes.
Net Special Tax Revenues are the primary security for the repayment of the Bonds and any Additional Bonds. In the event that Net Special Tax Revenues are not paid when due, the only sources of funds available to pay the debt service on the Bonds and any Additional Bonds will be the amounts held by the Trustee for such purpose in the Special Tax Fund, the Bond Fund and the Reserve Fund. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE
STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE SPECIAL OB LIGATIONS OF THE DISTRICT PAYABLE
SOLELY FROM NET SPECIAL TAX REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN.
Description of the Bonds
The Bonds will be issued and delivered as fully registered bonds, regi stered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to actual purchasers of the Bonds (the “Beneficial Owners”) in the denominations of $5,000 and any integral multiples thereof under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. In the event that the book -entry only system described herein is no longer used with respect to the Bonds, the Bonds will be registered and transferred in accordance with the Indenture. See Appendix I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein.
Principal of, premium, if any, and interest on the Bonds is payable by the Trustee to DTC.
Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. In the event that the book -entry 367
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only system is no longer used with respect to the Bonds, the Beneficial Owners will become the registered owners of the Bonds and will be paid principal and interest by the Trustee, all as described here in. See Appendix I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein.
The Bonds are subject to optional redemption, mandatory redemption from Special Tax prepayments and mandatory sinking fund redemption as described herein. For a more complete description of the Bonds and the basic documentation pursuant to which they are being sold and delivered, see “THE BONDS” and Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE” herein.
Appraisal Report
The District has obtained an appraisal of the Taxable Property (as defined herein) included in the District with a date of value as of February 15, 2022 (the “Appraisal”). The Appraisal was prepared for the District by Kitty Siino &Associates, Inc., Tustin, California (the “Appraiser”). Subject to the limitations set forth in the Appraisal, the Appraiser is of the opinion that, as of February 15, 2022, the minimum market value of the Taxable Property within the District was not less than $ 142,116,374 (the “Appraised V alue”). See “THE COMMUNITY FACILITIES DISTRICT — Property Values” and “ — Value-to-Lien Ratios.” A copy of the Appraisal is included as Appendix B to this Official Statement. It is a condition precedent to the issuance of the Bonds that the Appraiser del iver a certificate stating that nothing has come to the attention of the Appraiser subsequent to the date of the Appraisal that would lead the Appraiser to believe that the value of the Taxable Property (as defined in the Rate and Method) in the District is less than the minimum market value of such property reported in the Appraisal.
Price Point Study
In connection with the formation of the District, the City hired Empire Economics, Inc., Capistrano Beach, California (the “ Price Point Consultant ”) to prepa re a price point study of the prices of the residential units planned within the District, dated November 27, 2018 (the “Original Price Point Study”). The Special Tax rates set forth in the Rate and Method were based in part on the prices set forth in the Original Price Point Study. In connection with and in preparation for the issuance of the Bonds, the City hired the Price Point Consultant to conduct an update to the Original Price Point Study within the District, dated February 23, 2022 (the “Updated P rice Point Study”). Pursuant to Section C of the Rate and Method, prior to the issuance of Bonds, the City is required to amend the Assigned Facilities Special Tax (as defined in the Rate and Method) to the extent necessary to cause the Total Tax Burden ( as defined in the Rate and Method) for residential property in the District to not exceed 1.95% of the Minimum Sales Prices (as defined in the Rate and Method) set forth in the Updated Price Point Study. A copy of the Updated Price Point Study is included as Appendix C to this Official Statement. Based on the conclusions of the Updated Price Point Study, as well as the principal amount of the Bonds and all direct and overlapping debt, the City does not expect to amend the Assigned Facilities Special Tax b ecause effective tax rates are not projected to exceed 1.95% for any parcel.
See “THE COMMUNITY FACILITIES DISTRICT — Direct and Overlapping Debt — Table 3 — Projected Fiscal Year 2022-23 Total Effective Tax Rates for Individually Owned Residential Proper ty.” See also “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Rate and Method of Apportionment.” Professionals Involved in the Offering
U.S. Bank Trust Company, National Association , Los Angeles, California, will act as Trustee under the Indenture and as the initial Dissemination Agent under the District Continuing Disclosure Agreement.
Piper Sandler & Co. is the Underwriter of the Bonds. The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick Herrington & Sutcliffe LLP, Bond Counsel to the District. CSG Advisors Incorporated, San Francisco, California, is acting as Municipal Advisor for the City in connection with the Bonds. Kitty Siino &Associates, Inc., Tustin, California, is acting as the Appraiser t o the District.
DTA, Inc. (“DTA”) is acting as the Special Tax Consultant to the District. Empire Economics, Inc. is acting as 368
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the Price Point Consultant to the District. Certain legal matters will be passed on for the City and the District by Best Best & Krieger LLP, Ontario, California, in its capacity as City Attorney, and Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Kutak Rock LLP, Irvine, California, and for Lennar Homes by its counsel, Holland & Knight LLP, San Francisco, California.
For information concerning respects in which certain of the above -mentioned professionals, advisors, counsel and agents may h ave a financial or other interest in the offering of the Bonds, see “FINANCIAL INTERESTS” herein.
Continuing Disclosure
The District will agree to provide, or cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system available on the Internet at http://emma.msrb.org (“EMMA”) certain annual financial information and operating data. The District will further agree to provide notice of certain listed events. These covenants will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2 -12(b)(5) (the “Rule”). See “CONTINUING DISCLOSURE” herein. See the form of District Continuing Disclosure Agreement attached as Appendix G hereto (the “District Continuing Dis closure Agreement”) for a description of the specific nature of the annual reports to be filed by the District and notices of listed events to be provided by the District. See the form of Developer Disclosure Agreement attached as Appendix H hereto (the “ Developer Continuing Disclosure Agreement”) for a description of the specific nature of the semi -annual reports to be filed by Lennar Homes and notices of listed events to be provided by Lennar Homes. See “CONTINUING DISCLOSURE.” Bond Owners’ Risks
Certain events could affect the ability of the District to pay the principal of and interest on the Bonds when due. See the section of this Official Statement entitled “SPECIAL RISK FACTORS” for a discussion of certain factors which should be considered, in add ition to other matters set forth herein, in evaluating an investment in the Bonds.
Other Information
This Official Statement speaks only as of its date, and the information contained herein is subject to change.
Brief descriptions of the Bonds and the Indenture are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture, the Bonds and the constitution and laws of the State as well as the proceedings of the City Council, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the Bonds, by reference to the Indenture.
Copies of the Indenture, the District Continuing Disclosure Agreement and other documents and information referred to herein are available for inspection and (upon request and payment to the City of a charge for copying, mailing and handling) for delivery from the City at 8353 Sierra Avenue, F ontana, California 92335, Attention: Jessica Brown.
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ESTIMATED SOURCES AND USES OF FUNDS
The following table sets forth the expected sources and uses of Bond proceeds and certain other amounts.
Sources:
Principal Amount of the Bonds $
Plus Original Issue Premium
Less Underwriter’s Discount
Total $
Uses:
Acquisition Account of the Improvement Fund(1) $
Construction Account of the Improvement Fund(2)
Reserve Fund(3)
Costs of Issuance Fund
Total $
(1) To finance the acquisition of the Acquisition Facilities described under the caption “THE COMMUNITY FACILITIES DISTRICT — The Facilities.”
(2) To reimburse Lennar Homes for certain Acquisition Facilities pursuant to the Acquisition Agreement, as described under the caption “THE COMMUNITY FACILITIES DISTRICT — The Facilities.” Includes a portion of the Special Taxes collected for Fiscal Year 2021-22 in the amount of $__________, which will be deposited into the Construction Account of the Improvement Fund on the Closing Date.
(3) Equal to the initial Reserve Requirement.
THE BONDS
General Provisions
The Bonds will be issued in fully registered form without coupons in denominations of $5,000 and any integral multiple thereof (“Authorized Denominatio ns”). The Bonds will be dated the date of issuance thereof. The Bonds are scheduled to mature on September 1, in the years and in the principal amounts, and will bear interest at the rates per annum, shown on the inside front cover page of this Official Statement.
Interest on the Bonds will be computed on the basis of a 360 -day year consisting of twelve 30-day months and will be payable on March 1 and September 1 of each year, commencing September 1, 2022 (each an “Interest Payment Date”). Interest on e ach Bond will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) such Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day (the “Record Date”) in which event interest thereon will be payable from such Interest Payment Date, (ii) such Bond is authenticated on or before the first Record Date, in whi ch event interest thereon will be payable from the Closing Date or (iii) interest on such Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been previously paid or duly provided for.
The interest on, and principal of and redemption premiums, if any, on the Bonds are payable in lawful money of the United States of America. Interest is payable by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date (except that interest on any Bond which is not punctually paid or duly provided for on any Interest Payme nt Date will, if and to the extent that amounts subsequently become available therefor, be payable on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee pursuant to the Indenture). Payment of principal of any Bond will be made only upon presentation and surrender thereof at maturity or upon earlier redemption at the Office of the Trustee.
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The Bonds will initially be issued in book -entry form, and DTC will act as securities depository. So long as the Bonds are held in book -entry form, principal of, premium, if any, and interest on the Bonds will be paid by the Trustee directly to DTC for dis tribution to the Beneficial Owners of the Bonds in accordance with procedures adopted by DTC. See Appendix I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM.”
The Bonds are not general obligations of the District but are s pecial obligations of the District payable solely from Net Special Tax Revenues and the other amounts held under the Indenture in the Special Tax Fund, the Bond Fund and the Reserve Fund. Neither the faith and credit nor the taxing power of the District (except to the limited extent set forth in the Indenture), the City, the State, or any political subdivision thereof, is pledged to the payment of the Bonds. See “SPECIAL RISK FACTORS — Bonds Are Limited Obligations.”
Redemption
Optional Redemption. * The Bonds maturing on or after September 1, 20 __ shall be subject to optional redemption, in whole, or in part in Authorized Denominations, on any date on or after September 1, 20__, from any source of available funds, at the following respective Redemption P rices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Price
September 1, 20__ through August 31, 20__ 103%
September 1, 20__ through August 31, 20__ 102
September 1, 20__ through August 31, 20__ 101
September 1, 20__ and any date thereafter 100
Mandatory Redemption from Special Tax Prepayments .* The Bonds are subject to mandatory redemption, in whole, or in part in Authori zed Denominations, on any Interest Payment Date, from and to the extent of prepaid Special Taxes required to be applied thereto and any related proportional amounts in the Reserve Fund required to be applied thereto pursuant to the Indenture (see “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Reserve Fund ” and “ — Special Tax Fund” ) at the following respective Redemption Prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Price
Any Interest Payment Date through March 1, 20__ 103%
September 1, 20__ and March 1, 20__ 102
September 1, 20__ and March 1, 20__ 101
September 1, 20__ and any Interest Payment Date thereafter 100
See the caption “SPECIAL RISK FACTORS — Potential Early Redemption of Bonds from Special Tax Prepayments” for a discussion of the potential for a lower than expected yield on the Bonds as a result of a special mandatory redemption from prepayment of Special Taxes.
* Preliminary, subject to change.
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Mandatory Sinking Fund Redemption .* The Bonds maturing September 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20__, at a Redemption Price equal to the principal amount of the Bonds maturing September 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund
Redemption Date
(September 1)
Principal Amount
to be
Redeemed
$
(maturity)
If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the optional redemption provisions of the Indenture described above, the principal amount of the Bonds maturing on September 1, 20 __ to be redeemed by mandatory sinking fund redemption as described above on any subsequent Septembe r 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Bonds maturing on September 1, 20__ so optionally redeemed. If some but not all of the Bonds maturing on September 1, 20 __ are redeemed pursuant to the mandatory redemption from Special Tax prepayments provisions of the Indenture, the princip al amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced by the aggregate principal amount of the Bonds maturing on September 1, 20__ so redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the District.
The Bonds maturing September 1, 20 __ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20 __, at a Redemption Price equal to the principal amount of the Bonds maturing September 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund
Redemption Date
(September 1)
Principal Amount
to be
Redeemed
(maturity)
If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the optional redemption provisions of the Indenture described above, the principal amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent Septembe r 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Bonds maturing on September 1, 20__
* Preliminary, subject to change.
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so optionally redeemed. If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the mandatory redemption from Special Tax prepayments provisions of the Indenture, the princip al amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced by the aggregate principal amount of the Bonds maturing on September 1, 20__ so redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the District.
The Bonds maturing September 1, 2 0__ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20 __, at a Redemption Price equal to the principal amount of the Bonds maturing September 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund
Redemption Date
(September 1)
Principal Amount
to be
Redeemed
(maturity)
If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the optional redemption provisions of the Indenture described above, the principal amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent Septembe r 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Bonds maturing on September 1, 20__ so optionally redeemed. If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the mandatory redemption from Special Tax prepayments provisions of the Indenture, the princip al amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced by the aggregate principal amount of the Bonds maturing on September 1, 20__ so redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the District.
Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee will select the Bonds to be redeemed from all Bonds not previously called for redemption (i) with respect to any optional redemption of Bonds, among maturities of the Bonds as directed in a Written Request of the District, and (ii) with respect to any redemption of Bonds from prepayments of Special Taxes, among maturities of all Series of Bonds and any Additio nal Bonds on a pro rata basis as nearly as practicable. The Trustee shall select for redemption the Bonds and any Additional Bonds of the same Series with the same maturity by lot in any manner in which the Trustee, in its sole discretion, shall deem appropriate. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations, and such separate denominations shall be treated as separate Bonds that may be separately redeemed.
Notice of Redemption. If the Bonds are held in book-entry form, notice of redemption will be mailed to DTC and not to the Beneficial Owners of the Bonds under the DTC book -entry system. Neither the District nor the Trustee is responsible for giving notice of redemption to the Beneficial Owne rs. See Appendix I — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK -ENTRY SYSTEM” herein.
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The Indenture provides that the Trustee on behalf and at the expense of the District will give notice of any redemption by first class mail to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice of redemption will state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such maturity or maturities in whole). The notice of redemption will require that the Bonds to be redeemed be surrendered at the Office of the Trustee for redemption at the Redemption Price, and give notice that further interest on such Bonds will not acc rue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest there on from and after the date fixed for redemption.
If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, is held by the Trustee so as to be available therefor on such date , and, if notice of redemption thereof will have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption o f Bonds will be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. With respect to any notice of any optional redemption of Bonds, unless at the time such notice is given the B onds to be redeemed shall be deemed to have been paid within the meaning of the Indenture, such notice will state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together w ith other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the D istrict will not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption will not be made an d the Trustee will, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. 374
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Debt Service Schedule
Year Ending
September 1 Principal Interest Total
$ $ $
Total:
Source: The Underwriter.
SECURITY AND SOURCES OF PAYMENT FOR THE BONDS
General
The Bonds are special obligations of the District, and, except as otherwise provided in the Indenture, they are payable solely from Net Special Tax Revenues. The Indenture defines “Net Special Tax Revenues” to mean Special Tax Revenues less amounts required to pay Administrative Expenses. The term “Special Tax Revenues” is defined in the Indenture to mean the proc eeds of the Special Taxes received by or on behalf of the District, including any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes (which shall be limited to the amount of said lien and interest and penalties thereon). The Indenture defines the term “Special Taxes” as the special taxes described and defined in the Rate and Method as the “Facilities Special Tax” approved by the qualified electors of the District. “Administrative Expenses” is defined in the Indenture to mean costs directly related to the administration of the District, including, but not limited to: the costs of computing the Special 375
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Taxes and preparing the annual Special T ax collection schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Trustee, the fees and costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indentur e, the costs incurred by the District in complying with the disclosure provisions of any continuing disclosure undertaking and the Indenture, including those related to public inquiries regarding the Special Taxes and disclosures to Owners, the costs of the District related to an appeal of the Special Taxes, any amounts required to be rebated to the federal government in order for the District to comply with the tax covenants in the Indenture, an allocable share of the salaries of the City staff providing s ervices on behalf of the District directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto, and the costs of foreclosure of delinquent Special Taxes.
Under the Rate and Method, parcels of Taxable Property, exclusive of Taxable Public Property and Taxable Property Owner Association Property, are classified as Developed Property if a building permit has been obtained for such parcel by May 1 of the fiscal year preceding the Special Tax levy. For the Fiscal Year 2021-22 Special Tax levy, based on the development status within the District as of April 1, 2022, 280 parcels of Taxable Property will be classified as Developed Property for the Fiscal Year 2022-23 Special Tax levy .
See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” Under no circumstances may the amount of Special Taxes levied by the District in any year exceed the maximum rates approved by the qualified electors within the District, as set forth in the Rate and Method. A copy of the Rate and M ethod is attached to this Official Statement as Appendix A.
In addition to the Net Special Tax Revenues, any other amounts held by the Trustee in the Special Tax Fund, the Bond Fund and the Reserve Fund are pledged pursuant to the Indenture to secure the payment of the principal of, premium, if any, and interest on the Bonds and any Additional Bonds in accordance with their respective terms, the Indenture and the Act. However, those amounts are pledged subject to the provisions of the Indenture permit ting the application thereof for the purposes set forth in the Indenture. Amounts on deposit in the Improvement Fund, the Costs of Issuance Fund, the Redemption Fund, the Administrative Expense Fund and the Rebate Fund are not pledged to the payment of an y of the Bonds or any Additional Bonds.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE
STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR
SPECIAL OBLIGATIONS OF THE CITY BUT ARE SPECIAL OBLIGATIONS OF THE DISTRICT
PAYABLE SOLELY FROM NET SPECIAL TAX REVENU ES AND OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN.
Special Taxes
Pursuant to the Act, the City Council adopted a resolution on March 12, 2019 stating its intention to establish the District and to levy a special tax within the District. In accordance with the provisions of the Act, the City Council established the District on April 23, 2019 for the purpose of, among other things, financing certain public infrastructure improvements necessary for the proposed developmen t within the District. At a special election held on April 23, 2019, the then sole owner of the property within the District , CalAtlantic Group, Inc., a Delaware corporation (the “Original Landowner”) authorized the District to incur indebtedness in an amount not to exceed $11,000,000 and approved the Rate and Method. The Rate and Method is set forth in Appendix A hereto.
Pursuant to Section C of the Rate and Method, prior to the issuance of the Bonds, if necessary, the City would be required to amend the Assigned Facilities Special Tax (as defined in the Rate and Method) to the extent necessary to cause the Total Tax Burden (as defined in the Rate and Method) for one or more land 376
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use classes of residential property in the District to not exceed 1.95% of t he Minimum Sales Prices (as defined in the Rate and Method) set forth in the Updated Price Point Study. A copy of the Updated Price Point Study is included as Appendix C to this Official Statement. Based on the conclusions of the Updated Price Point Study, the City does not expect to amend the Rate and Method. See “ — Rate and Method of Apportionment” below. See also “THE COMMUNITY FACILITIES DISTRICT — Direct and Overlapping Debt — Table 3 — Projected Fiscal Year 2022-23 Total Effective Tax Rates for Individually Owned Residential Property.” Pursuant to the Indenture, the District has covenanted that it will fix and levy the amount of Special Taxes in each Fiscal Year in accordance with the Rate and Method in an amount sufficient (subject to the limitations contained in the Rate and Method as to the maximum Special Taxes that may be levied) to yield Special Tax Revenues in the amount required for (i) the payment of principal of and interest on any Outstanding Bonds and Additional Bonds becoming due and pa yable during the Corresponding Bond Year, (ii) any necessary replenishment of the Reserve Fund, and (iii) the payment of Administrative Expenses estimated to be paid from such Special Tax Revenues, taking into account the balances in the funds and accounts established under the Indenture. See Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Certain Covenants Under the Indenture.” Notwithstanding this covenant, the amount of Special Taxes actually collected each year may be less than the amou nt described for a variety of different reasons. See “SPECIAL RISK FACTORS — Levy of the Special Tax.” The Bonds have been structured so that Assigned Facilities Special Tax rates set forth in the Rate and Method that may be levied within the District, based on the expected buildout of the District, are at least 110% of debt service on the Bonds in each Bond Year net of estimated Administrative Expenses of $ 40,000 escalating 2% each fiscal year beginning July 1, 2023. The Special Taxes levied in any fisca l year may not exceed the maximum rates authorized pursuant to the Rate and Method. See Appendix A ⎯ “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” There is no assurance that the Special Tax proceeds will, in all circumstances, be adequate to pay the principal of and interest on the Bonds when due. Pursuant to the Act, the Special Taxes levied in any Fiscal Year against any parcel of residential property in the District may not be increased as a consequence of delinquency or default by the owners of any other parcels within the District by more than 10% above the amount that would have been levied in that Fiscal Year had there never been any such delinquencies or defaults. See “SPECIAL RISK FACTORS ⎯ Levy of the Special Tax” and “⎯ Exempt Properties.”
Rate and Method of Apportionment
General. The Rate and Method is to be applied by the District each year for the purpose of determining the amount of the Special Tax to be levied against each Assessor’s Parcel of Taxable Property within the District. For purposes of the discussion of the Rate a nd Method only, terms with initial capital letters that are not otherwise defined in this Official Statement shall have the respective meanings assigned to them in the Rate and Method, a copy of which appears in Appendix A.
Under the terms of the Indenture , prior to August 1 of each year, the District will ascertain from the County of San Bernardino Assessor the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year. The District will levy the Special Taxes by August 10 of each Fiscal Year that the Bonds are Outstanding, or otherwise such that the computation of the levy is complete before the final date on which the auditor of the County (the “Auditor”) will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the District will prepare, or cause to be prepared, and shall t ransmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll.
The Special Taxes levied in any Fiscal Year may not exceed the maximum rates authorized pursuant to the Rate and Method. See Appendix A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX” hereto. Although the Bonds have been structured so that the Assigned Facilities Special Tax rates set 377
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forth in the Rate and Method that may be levied based on expected build out of the Di strict are at least 110% of debt service on the Bonds net of estimated Administrative Expenses of $40,000 escalating 2% each fiscal year beginning July 1, 20 23, there is no assurance that the proceeds of the Special Taxes will, in all circumstances, be adequate to pay the principal of and interest on the Bonds when due. See “SPECIAL RISK FACTORS — Levy of the Special Tax” herein.
Rate and Method of Apportionment of Special Tax . The District is legally authorized and has covenanted to cause the levy of the Special Taxes in an amount determined according to a methodology, i.e., the Rate and Method, which the City Council and the qualified elector within the District have approved. The Rate and Method apportions the total amount of the Facilities Special Tax and Services Special Tax to be collected among the Taxable Property in the District as more particularly described below. The Facilities Special Tax is referred to herein as the “Special Taxes.” The Services Special Tax is not pledged to the repayment of the Bonds and is not available to pay debt service on the Bonds.
The following is a synopsis of the provisions of the Rate and Method, which should be read in conjunction with the complete text of the Rate and Method which is attached as Appendix A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” The meaning of the defined terms used in this section are as set forth in Appendix A. This section provides only a summary of the Rate and Method, and is qualified by more complete and detailed information contained in the Rate and Method attached as Appendix A. As used in the Rate and Method, “Bonds” means the Bonds and any Additional Bonds. “Attached Residential Property” means Assessor’s Parcels of Developed Property for which building permits have been issued for a residential dwelling unit that shares, or will share, an inside wall with another residential dwelling unit.
“CFD Administrator” means an official of the City, or designee thereof, responsible for determining the Special Tax Requirement for F acilities and the Special Tax Requirement for Services, providing for the levy and collection of the Special Taxes, and performing other duties as set forth in the Rate and Method. “Detached Residential Property” means Assessor’s Parcels of Developed Prope rty for which building permits have been issued for a residential dwelling unit that is or is expected to be surrounded by freestanding walls and that does not share an inside wall with any other residential dwelling unit. “Developed Property” means, for each Fiscal Year, (i) with respect to the Facilities Special Tax, all Taxable Property, exclusive of Taxable Public Property and Taxable Property Owner Association Property, for which a building permit for new construction, other than the construction of a garage, parking lot, or parking structure, was issued after January 1, 2019 and on or before May 1 of the Fiscal Year preceding the Fiscal Year for which the Facilities Special Taxes are being levied, and (ii) with respect to the Services Special Tax, all Taxable Property, exclusive of Taxable Public Property and Taxable Property Owner Association Property, (a) for which the Final Residential Subdivision was recorded prior to the Fiscal Year for which the Services Special Taxes are being levied, or (b) for which a building permit has been issued with respect to Non - Residential Property on or before May 1 of the Fiscal Year preceding the Fiscal Year for which the Services Special Taxes are being levied.
“Facilities Special Tax ” means the special tax to be le vied in each Fiscal Year on each Assessor’s Parcel of Taxable Property within the District to fund the Special Tax Requirement for Facilities. “Planning Area” means an area designated with the letters “P.A.” as shown in the Rate and Method. “Residential Fl oor Area ” means all of the square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similar area. The determination of Residential Floor Area for an Asse ssor’s Parcel shall be as set forth in the building permit(s) issued for such Assessor’s Parcel and/or as set forth in the appropriate records kept by the Building 378
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and Safety Department of the City, or other applicable City department, as determined by the CFD Administrator.
“Services Special Tax ” means the special tax to be levied in each Fiscal Year on each Assessor’s Parcel of Developed Property within the District to fund the Special Tax Requirement for Services. The Services Special Tax is not pledged to the repayment of the Bonds and is not available to pay debt service on the Bonds.
“Special Tax Requirement for Facilities ” means, for any Fiscal Year, that amount required, after taking into account available amounts held in the funds and accounts unde r the Indenture, for the following items: (i) debt service on all Outstanding Bonds due in the calendar year commencing in such Fiscal Year; (ii) periodic costs with respect to the Bonds, including but not limited to, costs of credit enhancement and federal rebate payments due in the calendar year commencing in such Fiscal Year; (iii) pay all or a portion of Administrative Expenses; (iv) any amounts required to establish or replenish any reserve funds for all Outstanding Bonds; (v) without duplicating any amounts described in clause (iv) above, reasonably anticipated Facilities Special Tax delinquencies based on the delinquency rate for the Facilities Special Tax in the previous Fiscal Year, as said levy for delinquencies shall be limited by the Act; and (v i) pay directly for the acquisition or construction of Authorized Facilities, provided that the inclusion of such amount does not increase the Facilities Special Tax levy beyond the first step in Section D.1 – “Method of Apportionment of the Special Tax – Facilities Special Tax” in the Rate and Method.
“Taxable Property” means all of the Assessor’s Parcels within the boundaries of the District which are not exempt from the Special Tax pursuant to law or described below under the subheading “ — Exempt Property.” Each Fiscal Year, all Taxable Property within the District will be classified as Developed Property, Undeveloped Property, Taxable Property Owner Association Property, or Taxable Public Property, and will be subject to Special Taxes in accordance with the Rate and Method described below under the subheading “Maximum Special Tax, Assigned Special Tax and Backup Special Tax.” “Taxable Property Owner Association Property ” means all Assessor’s Parcels of Property Owner Association Property that are not exe mpt from the Special Tax described below under the subheading “— Exempt Property ,” and further described in Section E of the Rate and Method attached hereto as Appendix A.
“Taxable Public Property ” means all Assessor’s Parcels of Public Property that are n ot exempt from the Special Tax described below under the subheading “ — Exempt Property ,” and further described in Section E of the Rate and Method attached hereto as Appendix A. “Undeveloped Property ” means, for each Fiscal Year, all Taxable Property not c lassified as Developed Property, Taxable Public Property or Taxable Property Owner Association Property.
Exempt Property. No Facilities Special Tax will be levied on up to the applicable Acreage limit of Public Property and/or Property Owner Association P roperty established for each Planning Area in the District. However, should an Assessor’s Parcel no longer be classified as Public Property or Property Owner Association Property, it will, from that point forward, be subject to the Facilities Special Tax. Public Property or Property Owner Association Property that is not exempt from the Facilities Special Tax as described above will be subject to the levy of the Facilities Special Tax and will be taxed Proportionately as part of the fourth step described under the heading “Method of Apportionment of Special Tax ” below. The District will not levy a Services Special Tax on Undeveloped Property, Taxable Public Property, Taxable Property Owner Association Property, Public Property or Property Owner Associatio n Property described below under the subheading “— Exempt Property,” and further described in Section E of the Rate and Method attached hereto as Appendix A.
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Maximum Special Tax, Assigned Special Tax and Backup Special Tax. The Maximum Special Tax, Assigned Special Tax and Backup Special Tax for the Facilities Special Tax provided for in the Rate and Method are as follows:
Facilities Special Tax.
Developed Property. The Maximum Facilities Special Tax for each Assessor’s Parcel classified as Developed Property will be the greater of (i) the amount derived by application of the Assigned Facilities Special Tax or (ii) the amount derived by application of the Backup Facilities Special Tax. • Assigned Facilities Special Tax. Residential Property will be as signed to Land Use Classes 1 through 21 as listed in Table 1 in Section C of the Rate and Method. T he Assigned Facilities Special Tax applicable to an Assessor ’s Parcel classified as Residential Property within the District ranges from $ 2,163 per unit for units with a Detached Residential Floor Area less than 1,401 square feet, to $3,791 per unit for units with a Detached Residential Floor Area greater than or equal to 4,001 square feet and from $1,506 per unit for units with a n Attached Residential Floor Area less than 1,001 square feet , to $ 2,320 per unit for units with a n Attached Residential Floor Area greater than or equal to 1,801 square feet. The Assigned Facilities Special Tax applicable to an Assessor ’s Parcel classified as Non -Residential Prope rty is $ 24,510 per acre.
Based on the Updated Price Point Study provided by the Price Point Consultant, the City does not expect the Assigned Facilities Special Tax rates set forth in Section C of the Rate and Method to be reduced, as the Total Tax Burden (as defined in the Rate and Method) applicable to each land use class of residential property to be constructed within the Distric t will not exceed 1.95% of the Minimum Sale P rices (as defined in the Rate and Method) set forth in the Updated Price Point Study. A copy of the Updated Price Point Study is included as Appendix C to this Official Statement.
• Backup Facilities Special Tax . The Backup Facilities Special Tax for an Assessor’s Parcel of Developed Property upon adoption of the Rate and Method equal ed the lesser of (a) the Backup Facilities Special Tax applicable for each Planning Area as follows: Planning Area 1 2 is $23,850 per Acre, Planning Area 15 is $17,080 per Acre, Planning Areas 17 and 18 is $51,010 per Acre and Planning Area 1 9 is $35,230 per Acre, or (b) in connection with any reduction in the Assigned Facilities Special Tax as set forth in Section C.1 of the Rate and Method, the reduced amount per Acre calculated for each Planning Area pursuant to Section C.1.a.(3) of the Rate and Method. Pursuant to the Updated Price Point Study provided by the Price Point Consultant , no reduction of the Assigned Facilities Special Tax will be required under the Rate and Method; accordingly, no reduction of the Backup Facilities Special Tax will be required. • Multiple Land Uses. In some instances an Assessor’s Parcel may contain both Developed Property and Undeveloped Property. In such cases, the Acreage of the Assessor’s Parcel shall be allocated between Developed Property and Undeveloped Propert y based on the portion of the Assessor’s Parcel for which building permits had been issued prior to May 1 of the prior Fiscal Year and the portion of the Assessor’s Parcel for which building permits had not been issued prior to May 1 of the prior Fiscal Ye ar. Furthermore, Developed Property may contain more than one Land Use Class. In such cases, the Acreage that is considered Developed Property shall be allocated between Residential Property and Non -Residential Property based on the amount of Acreage des ignated for each land use as determined by reference to the site plan approved for such Assessor’s Parcel. The Maximum Facilities Special Tax that can be levied on such Assessor’s Parcel shall be the sum of the Maximum Facilities Special Tax that can be l evied on each type of property located on that Assessor’s Parcel. • The Assigned Facilities Special Tax and Backup Facilities Special Tax are not subject to escalation.
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Undeveloped Property, Taxable Public Property and Taxable Property Owner Association Prop erty.
The Maximum Facilities Special Tax for each Assessor’s Parcel of Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property shall be the applicable amount for each Planning Area: Planning Area 12 is $23,850 per Ac re, Planning Area 15 is $17,080 per Acre, Planning Areas 17 and 18 is $51,010 per Acre and Planning Area 19 is $35,230 per Acre. The Maximum Facilities Special Tax for Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association P roperty are not subject to escalation.
Method of Apportionment of Special Tax . Commencing with Fiscal Year 2019 -20, and for each following Fiscal Year, the CFD Administrator will determine the Special Tax Requirement for Facilities and, subject to the Max imum Facilities Special Tax rates described above, will provide for the levy the Facilities Special Tax as follows:
First: The Facilities Special Tax shall be levied on each Assessor’s Parcel of Developed Property in an amount equal to 100% of the applicable Assigned Facilities Special Tax; Second: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first step has been completed, the Facilities Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property at up to 100% of the Maximum Facilities Special Tax for Undeveloped Property;
Third: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first two steps have been completed, then the lev y of the Facilities Special Tax on each Assessor’s Parcel of Developed Property whose Maximum Facilities Special Tax is determined through the application of the Backup Facilities Special Tax shall be increased in equal percentages from the Assigned Facilities Special Tax up to the Maximum Facilities Special Tax for each such Assessor’s Parcel;
Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first three steps have been completed, then the Facilities S pecial Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Public Property and Taxable Property Owner Association Property at up to 100% of the Maximum Facilities Special Tax for Taxable Public Property and Taxable Property Owner Assoc iation Property, as needed to satisfy the Special Tax Requirement for Facilities.
Notwithstanding the above, the CFD Administrator will, in any Fiscal Year, calculate a levy Proportionately less than 100% of the Assigned Facilities Special Tax in step one above, when (i) the CFD Administrator is no longer required to provide for the levy of the Facilities Special Tax pursuant to steps two through four above in order to meet the Special Tax Requirement for Facilities; and (ii) all authorized Bonds for the District have already been issued or the City Council has covenanted that it will not issue any additional District bonds (except refunding bonds) to be supported by the Facilities Special Tax. The District has covenanted in the Indenture not to issue any A dditional Bonds except to refund the Bonds or outstanding Additional Bonds. See “— No Additional Bonds Except For Refunding Bonds” below.
Further, notwithstanding the above, under no circumstances shall the Facilities Special Tax levied in any Fiscal Year against any Assessor’s Parcel of Residential Property for which an occupancy permit for private residential use has been issued (in accordance with Section 53321(d)(3) of the California Government Code), be increased as a consequence of delinquency or def ault by the owner of any other Assessor’s Parcel within the District by more than 10% above the amount that would have been levied in that Fiscal Year had there never been any such delinquencies or defaults. To the extent that the levy of the Facilities Special Tax on Residential Property is limited by the provision in the previous sentence, the levy of the Facilities Special Tax on each Assessor’s Parcel of Non-Residential Property (if any; neither the District nor the Developer anticipate 381
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that there woul d ever be Non -Residential Property in the District) shall continue in equal percentages up to 100% of the applicable Maximum Facilities Special Tax.
Prepayment of Special Taxes . The Facilities Special Tax obligation for an Assessor’s Parcel of Developed Property or Undeveloped Property for which a building permit has been issued, may be prepaid in full, or in part, and only if there are no delinquent Special Taxes with respect to such Assessor’s Parcel at the time of prepayment, provided that the terms set forth under Section H of the Rate and Method are satisfied.
The Prepayment Amount is calculated based on the Bond Redemption Amount plus Redemption Premium plus the Future Facilities Amount plus the Defeasance Amount plus the Administrative Fees and Expe nses, less a credit for the resulting reduction in the Reserve Requirement for the Bonds (if any) and less an allocable share of capitalized interest (if any), all as specified in Appendix A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX — Section H.”
Mandatory redemption of Bonds from Special Tax prepayments may result in the reduction in the otherwise expected yield on such Bonds if the Bonds were purchased at a price greater than par. See “SPECIAL RISK FACTORS — Potential Early Redemption of Bonds from Special Tax Prepayments.” Term of Special Taxes. Pursuant to the Rate and Method, the Facilities Special Tax levy is authorized to be levied for forty-five years commencing with Fiscal Year 2019-20.
Estimated Debt Service Coverage . The principal amount of the Bonds has been established to produce debt service coverage on the Bonds from Facilities Special Taxes of at least 110%, net of estimated Administrative Expenses. The District may levy up to the Maximum Facilities Special Ta x rates on Taxable Property within the District. See “ — Rate and Method of Apportionment — Maximum Special Tax, Assigned Special Tax and Backup Special Tax” and “— Rate and Method of Apportionment — Exempt Property.” Pursuant to the Rate and Method, the status of Developed Property is based on building permits issued as of May 1 of the Fiscal Year preceding the Fiscal Year for which the Facilities Special Tax is levied . As of April 1, 2022 , building permits had been issued for 280 anticipated residential parcels within the District; accordingly, 280 taxable parcels within the District will be classified as Developed Property for the Fiscal Year 2022-23 Special Tax levy. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” Collection and Application of Special Taxes
The Special Taxes are levied and collected by the Treasurer -Tax Collector of the County in the same manner and at the same time as ad valorem property taxes; provided, however, that the District may directly bill the Special Taxes, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on delinquent Assessor’s Parcels as permitted by the Act.
The District has made certain covenants in the Indenture for the purpose of ensuring that the current maximum rates and method of collection of the Special Taxes are not altered in a manner that would impair the District’s ability to collect sufficient Special Taxes to pay debt service on the Bonds and Administrative Expenses when due. First, the District has covenanted that, to the extent it is legally permitted to do so, it will not initiate proceedings under the Act to modify the Rate and Method if such modification would adversely affect the security for the Bonds and any Additional Bonds and if an initiative is adopted that purports to modify the Rate and Method in a manner that would adversely affect the security for the Bonds and any Additional Bonds, the District shall, to the e xtent permitted by law, commence and pursue reasonable legal actions to prevent the modification of the Rate and Method in a manner that would adversely affect the security for the Bonds and any Additional Bonds. Second, the District has covenanted not to authorize owners of taxable parcels within the District to satisfy Special Tax obligations by the tender of Bonds and any Additional Bonds unless the District shall have first obtained a report of an Independent Consultant certifying 382
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that doing so would n ot result in the District having insufficient Special Tax Revenues to pay the principal of and interest on all Outstanding Bonds and any Additional Bonds when due.
Although the Special Taxes constitute liens on Taxable Property within the District, they do not constitute a personal indebtedness of the owners of such property within the District. Moreover, other overlapping general obligation debt already exists on the property located within the District and other future special tax and assessment liens an d overlapping general obligation debt could come into existence in the future in certain situations without the consent or knowledge of the City or the landowners therein. See “SPECIAL RISK FACTORS — Parity Taxes and Special Assessments” herein. There is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described in the section of this Official Statement entitled “SPECIAL RISK FACTORS.”
Under the terms of the Indenture, the Trustee shall establish and maintain a separate fund designated the “Special Tax Fund.” As soon as practicable after the receipt by the District of any Special Tax Revenues, but in any event no later than the d ate ten Business Days prior to the Interest Payment Date after such receipt, the District shall transfer such Special Tax Revenues to the Trustee for deposit in the Special Tax Fund; provided, however, that any portion of any such Special Tax Revenues that represents prepaid Special Taxes that are to be applied to the payment of the redemption price of Bonds and any Additional Bonds in accordance with the provisions of the Indenture shall be identified to the Trustee as such by the District and shall be deposited in the Redemption Fund. See “ — Special Tax Fund” below, “THE BONDS — Redemption — Mandatory Redemption from Special Tax Prepayments ” and Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
Covenant for Superior Court Foreclosure
Pursuant to Section 53356.1 of the Act, the District has covenanted in the Indenture that it will determine or cause to be determined, no later than September 15 of each year, whether or not any owners of property within the District are delinquent in the payment of Special Taxes and that, if such delinquencies exist, the District will order and cause to be commenced no later than November 1, and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installme nt thereof not paid when due. Notwithstanding the foregoing, the District is not required under the Indenture to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the District for such Fiscal Year is less than 5 % of the total Special Taxes levied in such Fiscal Year, and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the District determines that any single property owner is delinquent in excess of $5,000 in the payment of the Special Taxes, then the District will diligently institute, prosecute and pursue foreclosure proceedings against such property owner.
The mere commencement of foreclosure proceedings will not assure a prompt and favor able resolution of Special Tax delinquencies. The ability of the District to foreclose the lien of delinquent unpaid Special Taxes may be limited. See “SPECIAL RISK FACTORS — Bankruptcy and Legal Delays” and “— FDIC/Federal Government Interests in Proper ties.” Moreover, even if a judgment of foreclosure and order of sale is obtained, the District must cause a notice of levy to be issued. Under current law, the property owner has 120 days from the date of service of the notice of levy in which to redeem the subject property. If the property owner fails to redeem the property and it is sold, the property owner’s only remedy is an action to set aside the sale, which action must be brought within 90 days of the date of sale. If such an action results in the setting aside of the foreclosure sale, the judgment is revived, and the District would be entitled to receive interest on the revived judgment as if the sale had not been made. Under former law a property owner had a period of one year within which to r edeem property to be sold, and the constitutionality of the legislation that eliminated the one year redemption period has not been tested. 383
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There can be no assurance that, even if the subject property is sold, the proceeds from such sale will be sufficient to pay the delinquent installments of the Special Tax. The Act does not require the District or any other governmental agency to purchase or otherwise acquire any Assessor’s Parcel being sold if there is no other purchaser at such sale. The Act does req uire that property being sold pursuant to foreclosure under the Act must be sold for not less than the judgment amount (which must include reasonable attorneys’ fees, together with interest, penalties, and other authorized charges and costs) plus post judg ment interest and authorized costs, unless a lower bid price is authorized by the Owners of not less than 75% by value of the Bonds and any Additional Bonds Outstanding.
Special Tax Fund
The Indenture provides that the Trustee will establish and maintain a separate fund designated the “Special Tax Fund.” The Indenture requires that the District transfer Special Tax Revenues (other than prepaid Special Taxes) to the Trustee for deposit into the Special Tax Fund as soon as practicable after the District’s receipt thereof, but in any event no later than ten Business Days prior to the Interest Payment Date after such receipt. No later than the Business Day immediately preceding each Interest Payment Date, after having made any requested transfers to the Admini strative Expense Fund, as requested by the District, to have sufficient amounts available therein to pay Administrative Expenses, the Trustee is required by the Indenture to make transfers from the Special Tax Fund to the Interest Account in the Bond Fund, the Principal Account in the Bond Fund and the Reserve Fund in the amounts and in the priority specified in the Indenture. See Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” As soon as practicable after the District’s receipt of prepaid S pecial Taxes, but in any event no later than ten Business Days prior to the Interest Payment Date after such receipt, the District is required to transfer any prepaid Special Taxes to the Trustee and, in connection therewith, deliver to the Trustee a Writt en Certificate identifying such amounts as prepaid Special Taxes, identifying the portion of such prepaid Special Taxes so transferred that is to be applied to the Redemption Price of the Bonds and any Additional Bonds and identifying the portion of such p repaid Special Taxes that is to be applied to the payment of interest on the Bonds and any Additional Bonds to be so redeemed. The portion of such prepaid Special Taxes that is to be applied to the Redemption Price will be deposited by the Trustee in the Redemption Fund and will be applied to the redemption of the Bonds and any Additional Bonds pursuant to the Indenture. The portion of such prepaid Special Taxes that is to be applied to the payment of interest on the Bonds and any Additional Bonds to be so redeemed will be deposited by the Trustee in the Interest Account and will be applied to the payment of such interest.
Reserve Fund
The Indenture provides that the Trustee will establish and maintain a special fund designated the “Reserve Fund.” On the Closing Date, the Trustee will deposit in the Reserve Fund the amount specified under the caption “ESTIMATED SOURCES AND USES OF FUNDS.” The Trustee is also required, not later than the Business Day immediately preceding each Interest Payment Date, to tra nsfer from the Special Tax Fund (after the requisite transfers to the Administrative Expense Fund, the Interest Account and the Principal Account) the amount, if any, necessary to cause the amount on deposit in the Reserve Fund to be equal to the Reserve R equirement. The Indenture defines “Reserve Requirement” to mean, as of the date of any calculation, the least of (i) “10% of the proceeds of the issue,” within the meaning of Section 148 of the Code (excluding Bonds refunded with the proceeds of additional bonds secured by Special Taxes on a parity with the Bonds), (ii) Maximum Annual Debt Service and (iii) 125% of Average Annual Debt Service.
Except as otherwise provided in the Indenture, all amounts deposited in the Reserve Fund are to be used and withdr awn by the Trustee solely for the purpose of (i) making transfers to the Interest Account in accordance with the Indenture in the event that, on the Business Day prior to an Interest Payment Date, amounts in the Interest Account are insufficient to pay the interest on the Bonds and any Additional Bonds due and payable on such Interest Payment Date, (ii) making transfers to the Principal Account in accordance with 384
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the Indenture in the event that, on the Business Day prior to a September 1 on which principal of the Bonds and any Additional Bonds is due and payable (including principal due and payable by reason of mandatory sinking fund redemption of the Bonds and any Additional Bonds), amounts in the Principal Account are insufficient to pay such principal, an d (iii) redeeming Bonds and any Additional Bonds in accordance with the Indenture as described in the following paragraph.
Whenever Bonds or any Additional Bonds are to be optionally redeemed or redeemed from Special Tax prepayments, a proportionate share (determined as provided below) of the amount on deposit in the Reserve Fund will, on the date on which amounts to redeem such Bonds and any Additional Bonds are deposited in the Redemption Fund or otherwise deposited with the Trustee, be transferred by the Trustee from the Reserve Fund to the Redemption Fund or to such deposit held by the Trustee and will be applied to the redemption of said Bonds and any Additional Bonds; provided that, such amount will be so transferred only if and to the extent that the amount remaining on deposit in the Reserve Fund will be at least equal to the Reserve Requirement (excluding from the calculation thereof said Bonds and any Additional Bonds to be redeemed).
Such proportionate share will be equal to the largest integral m ultiple of the minimum Authorized Denomination for said Bonds and any Additional Bonds that is not larger than the amount equal to the product of (i) the amount on deposit in the Reserve Fund on the date of such transfer, times (ii) a fraction, the numerator of which is the principal amount of Bonds and any Additional Bonds to be so redeemed and the denominator of which is the principal amount of Bonds and any Additional Bonds to be Outstanding on the day prior to the date on which such Bonds and any Additional Bonds are to be so redeemed.
Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay Outstanding Bonds and any Additional Bonds , including interest accrued to the date of payment or redemption and premium, if any, d ue upon redemption, the Trustee will, upon receipt of a Written Request of the Community Facilities District, transfer the amount in the Reserve Fund to the Interest Account, Principal Account and/or Redemption Fund, as applicable, to be applied, on the ne xt succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds and any Additional Bonds . If, as a result of the scheduled payment of principal of or interest on the Bonds and any Additional Bonds , the Reserve Requirement is reduced, the Trustee will transfer an amount equal to the amount of such reduction to the Interest Account.
Investment of Moneys
All moneys held by the Trustee in any of the funds or accounts established pursuant to the Indenture are required to be inv ested by the Trustee solely in Permitted Investments, as directed in writing by the District. As used in the Indenture, the phrase “Permitted Investments” includes a variety of investments, some of which may not be rated by a national rating service. See Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Definitions.”
No Additional Bonds Except for Refunding Bonds
So long as any of the Bonds remain Outstanding, the District will not issue any obligations payable from Net Special Tax Revenues s enior to the Bonds. The District may issue Additional Bonds or obligations payable on a parity with the Bonds, if, among other things: (i) upon the issuance of such Additional Bonds, no Event of Default will occur or be continuing under the Indenture; (ii) the proceeds of the Additional Bonds will be applied to refund the Bonds or Additional Bonds previously issued under the Indenture, pay Costs of Issuance incurred in connection with the issuance of such Additional Bonds, and/or make any requisite deposi t to the Reserve Fund; and (iii) the Annual Debt Service in each Bond Year, calculated for all Bonds and any Additional Bonds that will be Outstanding after the issuance of such Additional Bonds, will be less than or equal to Annual Debt Service in such Bo nd Year, calculated for all Bonds and any Additional Bonds that are Outstanding immediately prior to the issuance of such Additional Bonds.
The District may issue obligations payable from Net Special Tax Revenues on a basis subordinate to the Bonds.
385
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THE COMMUNITY FACILITIES DISTRICT
General Information Regarding the District
The District was organized by the City Council under the Act to provide for the financing of public improvements to meet the needs of new development related to the District. The qua lified elector within the boundaries of the District, being the then owner of all property in the District, authorized the District to incur bonded indebtedness to finance certain public facilities to meet the needs of new development within the District and approved the Rate and Method for and authorized the levy of the Special Tax.
The District includes approximately 44.4 gross acres and is located east of I -15 freeway in the northern portion of the City of Fontana (the “City”) in the second phase of a ma ster planned development called Gabion Ranch (formerly known as “Summit at Rosena”) which is being developed by Lennar Homes of California, Inc., a California corporation (“Lennar Homes” or the “Developer”). The District is located at the northwest corner of Summit Avenue and Sierra Avenue, and represents the second phase of Gabion Ranch.
Gabion Ranch encompasses 179.8 acres and was approved for up to 89 5 residential units. The District is generally bounded by Cypress Avenue to the west, Casa Grande Aven ue to the north, Sierra Avenue to the east, and Summit Avenue to the south . The District is planned for a total of 280 single family residential units at buildout in five communities known as “Iron Walk,” “Mountainside,” “Ridgeview,” “Stonegate” and “Woodridge.” The District generally conforms to Tract Map No. 20214 recorded on August 4, 2020, Tract Map No. 20214-2 recorded on December 19, 2019, Tract Map No. 20214 -3 recorded on April 15, 2020 and Tract Map No. 20214-5 recorded on June 23, 2020.
As of Feb ruary 15, 2022, the date of value of the Appraisal, within the District, 181 single family residential units had been completed and conveyed to individual homeowners, 27 units had been completed (26 of which were in escrow) and were owned by Lennar Homes, 24 production units were in various stages of construction (21 of which were in escrow) and owned by Lennar Homes and the remaining 48 lots were in a finished lot or finished townhome pad condition and owned by Lennar Homes. As of April 1, 2022, within the District, 207 single family residential units had been completed and conveyed to individual homeowners, one unit had been completed (which was in escrow) and was owned by Lennar Homes, 36 production units were in various stages of construction ( 29 of which were in escrow) and owned by Lennar Homes and the remaining 36 lots were in a finished lot or finished townhome pad condition and owned by Lennar Homes . Of the 48 parcels identified in the Appraisal as finished lots/pads, all of such parcels have obtai ned a building permit as of May 1, 2022 and will be classified as Developed Property for Fiscal Year 2022 -23. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” A detailed description of the status of the construction as of the date of the Appraisal is included in Appendix B — “APPRAISAL REPORT.” The District is zoned R -PC (Residential Planned Community) by the City allowing for single-family detached lots ranging from 4,000 to 10,000 square feet, garden courts, which include detached housing in a courtyard configuration, with a density of up to 10 dwelling units per acre, and attached townhomes with a density of up to 16 dwelling units per acre.
Water service and sewer service to the property within the District will be supplied by the City.
Electricity will be supplied by Southern California Edison, gas by Southern California Gas Company, and schools by the Fontana Unified School District.
Like all of Southern California, the land within the District is subject to seismic activity. The District is not located in a designated Earthquake Study Zone. However, the District is located approximately one mile from the Cucamonga Fault Zone and approximately one mile from the San Jacinto Fault Zone. Additionally, the San Andreas Fault is located approximately six miles north of the District. See “SPECIAL RISK FACTORS — Geologic, Topographic and Climatic Conditions.” 386
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In recent years, wildfires have caused extensive damage throughout the State. The last major wildfire in the vicinity of the City was the Grand Prix Fire in October 2003. There have been smaller fires, such as the 147-acre Sierra Fire that burned in November 2018 and the 277 -acre Karen Fire in July of 2020 . While the District is not aware of any particular risk of w ildfire within the District, there can be no assurances that wildfires won’t occur within the District. See “SPECIAL RISK FACTORS — Wildfires.” The Federal Emergency Management Agency has determined that the District is located in a Zone “X” flood area (a n area of minimal flooding, outside the 500 -year flood plain), and flood insurance will not be required.
An aerial photo showing the taxable property within the District and a map showing the general location of the District and the surrounding area appear s on the pages before page 1. More detailed information about the property therein is contained in Appendix B — “APPRAISAL REPORT,” and information about the ownership of such property is set forth under the caption “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” General information about the City is set forth in Appendix E.
The Facilities
The City, the District , CFD No. 9 0 and the Original Landowner entered into an Acquisition and Funding Agreement, dated as of April 1, 2019, as amended (the “Acquisition Agree ment”), providing for, among other things, the means by which certain public facilities will be financed in connection with the development within the District, consisting of various street, storm drain and sewer system improvements (the “Acquisition Facilities”). All of the right, title and interest of the Original Landowner under the Acquisition Agreement have been assigned to, and all of the obligations of the Original Landowner under the Acquisition Agreement have been assumed by, the Developer.
Pursuant to the Acquisition Agreement, the Developer has agreed to construct, and the City agreed to accept, certain Facilities to be acquired with the proceeds of the Bonds and available Special Taxes deposited into the Acquisition Account of the Improvement Fu nd under the Indenture pursuant to certain requirements contained in the Acquisition Agreement and the Indenture. The Acquisition Agreement also provides guidelines pursuant to which the City may acquire completed segments of the Facilities with the proce eds of the Bonds and available Special Taxes deposited into the Acquisition Account of the Improvement Fund.
Pursuant to the Acquisition Agreement, the Developer has agreed to pay all costs of the Facilities that it constructs pursuant to the Acquisition A greement in excess of the moneys available therefor in the Acquisition Account of the Improvement Fund. Further, any lack of availability of amounts in the Acquisition Account of the Improvement Fund to pay the acquisition costs of the Facilities shall in no way diminish any obligation of the Developer with respect to the construction of or contributions for public facilities and mitigation measures required by the conditions of approval or any subdivision, development, or other agreement to which the Developer is a party, or any governmental approval to which the Developer or any land within the District is subject, except to the extent expressly set forth in such agreement or approval.
In addition to the Facilities constructed by the Developer under the Acquisition Agreement, proceeds of the Bonds may be deposited into the Construction Account of the Improvement Fund under the Indenture to finance the costs of certain facilities to be constructed by the City, for which the Developer will receive a credit for permit fees, or be reimbursed for permit fees previously paid.
Following the issuance of the Bonds, after the payment of the costs of issuance of the Bonds and the funding of the Reserve Fund, a portion of the proceeds of the Bonds shall be deposited in the Acquisition Account of the Improvement Fund in the amount of $ __________ to finance the acquisition of the Acquisition Facilities and $ __________ (which amount includes a portion of the Special Taxes collected for Fiscal Year 2021-22 in the amount of $_________) shall be transferred to the Developer to reimburse the Developer for certain Acquisition Facilities pursuant to the Acquisition Agreement. 387
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Assigned Special Taxes and Development Summary
The following table sets forth the Assigned Special Taxes that are projected to be levied on the property within the District at buildout of the development.
TABLE 1
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO)
PROJECTED SPECIAL TAX AND DEVELOPMENT SUMMARY
Rate and Method Land Use Classes
Number of
Permitted Units
as of
May 1, 2022(1)
Assigned
Facilities
Special Tax
Assigned
Facilities Special
Taxes at
Build-Out
Developed Property
Detached Residential Property (4,001 sq. ft. or greater) 14 $ 3,791 $ 53,074 Detached Residential Property (3,801 to less than 4,001 sq. ft.) 0 3,577 0 Detached Residential Property (3,601 to less than 3,801 sq. ft.) 0 3,467 0 Detached Residential Property (3,401 to less than 3,601 sq. ft.) 7 3,416 23,912 Detached Residential Property (3,201 to less than 3,401 sq. ft.) 23 3,108 71,484 Detached Residential Property (3,001 to less than 3,201 sq. ft.) 12 3,080 36,960 Detached Residential Property (2,801 to less than 3,001 sq. ft.) 12 3,035 36,420 Detached Residential Property (2,601 to less than 2,801 sq. ft.) 12 2,880 34,560 Detached Residential Property (2,401 to less than 2,601 sq. ft.) 0 2,758 0 Detached Residential Property (2,201 to less than 2,401 sq. ft.) 0 2,669 0 Detached Residential Property (2,001 to less than 2,201 sq. ft.) 12 2,661 31,932 Detached Residential Property (1,801 to less than 2,001 sq. ft.) 22 2,446 53,812 Detached Residential Property (1,601 to less than 1,801 sq. ft.) 30 2,327 69,810 Detached Residential Property (1,401 to less than 1,601 sq. ft.) 16 2,185 34,960 Detached Residential Property (less than 1,401 sq. ft.) 0 2,163 0 Attached Residential Property (1,801 sq. ft. or greater) 20 2,320 46,400 Attached Residential Property (1,601 to less than 1,801 sq. ft.) 20 2,193 43,860 Attached Residential Property (1,401 to less than 1,601 sq. ft.) 0 2,059 0 Attached Residential Property (1,201 to less than 1,401 sq. ft.) 60 1,759 105,540 Attached Residential Property (1,001 to less than 1,201 sq. ft.) 0 1,609 0 Attached Residential Property (less than 1,001 sq. ft.) 20 1,506 30,120 Non-Residential Property 0.00 24,510 0
TOTAL 280 NA $ 672,844
(1) Represents the classification of 280 parcels of Taxable Property as Developed Property for Fiscal Year 2022-23, comprised of approximately 27.5 acres, based upon the building permits that have been obtained for such properties as of May 1, 2022.
Source: DTA, Inc.
Direct and Overlapping Debt
The District is included within the boundaries of numerous overlapping local agencies providing governmental services. Some of these local agencies have outstanding bonds, and/or the authority to issue bonds, payable from taxes or assessments. The exist ing indebtedness payable from taxes and assessments that may be levied upon the property within the District is shown in Table 2 below. In addition to current debt, new community facilities districts and/or special assessment districts could be formed in the future encompassing all or a portion of the property within the District; and such districts or the agencies that formed them could issue more bonds and levy additional special taxes or assessments. 388
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TABLE 2
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO)
DIRECT AND OVERLAPPING DEBT SUMMARY (TAXABLE PROPERTY)
Overlapping District
Percent of Levy
on Taxable
Parcels in the
District(1)
Total Debt
Outstanding(2)
District Share
of Total Debt
Outstanding
Fontana Unified School District G.O. Bonds 0.20239% $267,379,840 $ 541,160 Chaffey Community College District G.O. Bonds 0.02997 315,490,000 94,560 San Bernardino Valley Municipal Water District G.O. Bonds(3) 0.09654 2,005,000 1,940 Estimated Share of Overlapping Debt Allocable to District $ 637,660 Plus: The Bonds 9,300,000*
Estimated Share of Direct and Overlapping Debt Allocable to District $ 9,937,660*
* Preliminary, subject to change.
(1) Based on the District’s estimated share of the Fiscal Year 2021-22 levy for each applicable overlapping district. (2) Based on overlapping tax and assessment debt as of March 1, 2022. Excludes debt secured by any tax or assessment established and levied on an individual Assess or’s Parcel pursuant to a contractual agreement or other voluntary consent by the owner thereof.
(3) Based on the long term general obligation bond outstanding debt allocable to the San Bernardino Valley Municipal Water District, as provided by the Department of Water Resources.
Source: DTA, Inc., San Bernardino County, San Bernardino Valley Municipal Water District, Department of Water Resources.
As shown in Table 3, the projected total effective tax rate for Fiscal Year 2022-23 for completed single family homes conveyed to individual homeowners as of February 15, 2022 in the District ranges from approximately 1.645% to approximately 1.743% of the sales prices identified in the Appraisal. Such estimate assumes that the Rate and Method is not amended in accordance with Section C thereof. 389
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TABLE 3
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) PROJECTED FISCAL YEAR 2022-23 TOTAL EFFECTIVE TAX RATES FOR
INDIVIDUALLY OWNED RESIDENTIAL PROPERTY
DESCRIPTION Iron Walk Mountainside Ridgeview Stonegate Woodridge Number of Units Sold(1) 38 35 42 33 33
Average Unit Size(1) 2,583 2,898 1,696 3,521 1,410
Average Base Sales Price(1) $ 734,645 $ 775,753 $ 570,121 $ 856,327 $ 468,801 Less: Homeowner Exemption (7,000) (7,000) (7,000) (7,000) (7,000) Equals: Assumed Taxable Value(2) $ 727,645 $ 768,753 $ 563,121 $ 849,327 $ 461,801 AD VALOREM PROPERTY TAXES(2)(3)
Property
Tax Rate
Projected
Amount
Projected
Amount
Projected
Amount
Projected
Amount
Projected
Amount
Base Property Tax 1.0000% $ 7,276 $ 7,688 $ 5,631 $ 8,493 $ 4,618 Fontana Unified School District G.O. Bonds 0.0520 378 400 293 442 240 Chaffey Community College District G.O. Bonds 0.0177 129 136 100 150 82 San Bernardino Valley Municipal Water District 0.1300 946 999 732 1,104 600 Subtotal Ad Valorem Property Tax Rate/Taxes 1.1997% $ 8,729 $ 9,223 $ 6,756 $ 10,189 $ 5,540 PARCEL CHARGES, ASSESSMENTS AND SPECIAL TAXES(4)
Projected
Amount
Projected
Amount
Projected
Amount
Projected
Amount
Projected
Amount
Fontana Vector Control Charge $ 6 $ 6 $ 6 $ 6 $ 6
City of Fontana Sewer User Fee(5) NA NA NA NA NA
District Services Special Tax(6) 590 590 590 590 565
District Facilities Special Tax(7) 2,758 3,035 2,327 3,416 2,059 Subtotal Parcel Charges, Assessments And Special Taxes $ 3,354 $ 3,631 $ 2,923 $ 4,012 $ 2,630
Projected Total Property Taxes $ 12,083 $ 12,854 $ 9,679 $ 14,201 $ 8,170
PROJECTED EFFECTIVE TAX RATE (% OF SALES PRICE) 1.645% 1.657% 1.698% 1.658% 1.743%
(1) Number of units sold, average unit sizes, and average base price value for units that have closed to individual homeowners ba sed on the Appraisal.
(2) Assumed Taxable Value and ad valorem taxes incorporate owner-occupied homeowner exemption of $7,000. (3) Based on the Fiscal Year 2021-22 ad valorem rates for the tax rate area(s) within the District. Rates subject to change in future years. (4) Based on the Fiscal Year 2021-22 charges identified on the San Bernardino County issued property tax bills. Charges subject to change in future years.
(5) Excluded from the effective tax rate determination pursuant to the City of Fontana Community Facilities and Assessment Distric t Policy Guidelines.
(6) Based on the levy of the assigned services Special Tax. (7) Based on the levy of the assigned facilities Special Tax.
Source: DTA, Inc., Kitty Siino &Associates, Inc., City of Fontana, County of San Bernardino.
Property Values
Appraisal. In order to provide information with respect to the value of the land within the District, the District engaged Kitty Siin o &Associates, Inc. to prepare the Appraisal. The principal of the Appraiser, who was actively involved in the preparation of the Appraisal, has an “MAI” designation from the Appraisal Institute and has prepared numerous appraisals for the sale of land se cured municipal bonds. The Appraiser was selected by the District and has no material relationships with the City, the District or the owners of the land within the District other than the relationship represented by the engagement to prepare the Appraisa l and other similar engagements for the City. The City instructed the Appraiser to prepare its analysis and report in conformity with City-approved guidelines and the Appraisal Standards for Land Secured Financings published in 1994 and revised in 2004 by the commission now known as California Debt and Investment Advisory Commission. A copy of the Appraisal is included as Appendix B to this Official Statement.
The purpose of the Appraisal was to estimate the minimum market value of the fee simple estate, subject to special tax and special assessment liens, of the property within the District in its current condition .
Subject to the contingencies, assumptions and limiting conditions set forth in the Appraisal, the Appraiser concluded that, as of February 15, 2022, the minimum market value of the Taxable Property within the District 390
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was not less than $ 142,116,374, consisting of $ 122,742,170 for the 181 completed residential units conveyed to individual homeowners, and $ 19,374,204 for the 27 completed production units , 24 production units in various stages of construction , and 48 finished pads owned by Lennar Homes. See Appendix B — “APPRAISAL REPORT.”
Reference is made to A ppendix B for a complete list and full discussion of the applicable contingencies, assumptions and limiting conditions and the methodology employed by the Appraiser. In the event that any of the contingencies, assumptions and limiting conditions are not a ctually realized, the value of the property within the District may be less than the amount reported in the Appraisal. In any case, there can be no assurance that any portion of the property within the District would actually sell for the amount indicated by the Appraisal.
The Appraisal merely indicates the Appraiser’s opinion as to the minimum market value of the property referred to therein as of the date and under the conditions specified therein. The Appraiser’s opinion reflects conditions prevailing in the applicable market as of the date of value. The Appraiser’s opinion does not predict the future value of the subject property, and there can be no assurance that market conditions will not adversely change in the future.
The Appraiser has specifical ly consented to the inclusion of the Appraisal in this Official Statement.
Nevertheless, the Appraisal contains the following statement:
The acceptance of and/or use of this appraisal report by the client or any third party constitutes acceptance of the following conditions:
The liability of Kitty Siino &Associates, Inc. and the appraisers responsible for this report is limited to the client only and to the fee actually received by the appraisers. Further, there is no accountability, obligation or liabili ty to any third -party. If the appraisal report is placed in the hands of anyone other than the client for whom this report was prepared, the client shall make such party and/or parties aware of all limiting conditions and assumptions of this assignment an d related discussions. Any party who uses or relies upon any information in this report, without the preparer’s written consent, does so at his own risk.
If the client or any third party brings legal action against Kitty Siino &Associates, Inc. or the sig ner of the Appraisal and the appraisers prevail, the party initiating such legal action shall reimburse Kitty Siino &Associates, Inc. and/or the appraisers for any and all costs of any nature, including attorneys’ fees, incurred in their defense.
It is a condition precedent to the issuance of the Bonds that the Appraiser deliver to the District a certification to the effect that nothing has come to the attention of the Appraiser subsequent to the date of the Appraisal that would cause the Appraiser to believe that the value of property in the District is less than the minimum value reported in the Appraisal.
Value-to-Lien Ratios
The value of the property within the District is significant because, in the event of a delinquency in the payment of Spec ial Taxes, the District may foreclose only against delinquent parcels. Likewise, the ratio of the value of a parcel to its “share” of the Bonds is important because it provides an indication of the extent of the relative burden imposed on each parcel by t he applicable Special Tax. As indicated above, the minimum appraised value of the property within the District is not less than $ 142,116,374. The ratio of that value to the $9,300,000* total principal amount of the Bonds is approximately 15.28*-to-1. T his ratio does not include other overlapping general obligation debt within the District. At this time there is no other overlapping land secured special tax or assessment debt within the District. See “ — Direct and Overlapping Debt.” Taking the $9,300,000* principal amount of the Bonds and other overlapping general obligation debt within the District into account, the ratio of the minimum apprais ed value to the total amount of bonded debt for the District of
* Preliminary, subject to change.
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$9,937,660* is approximately 14.30*-to-1. Table 4 sets forth the appraised value -to-lien ratios of all the taxable property within the District by development status as of February 15, 2022, based on a projected Fiscal Year 2022-23 Special Tax levy.
Each of the aforesaid value -to-lien ratios is fo r the entire District, however, the ratios of the value of individual lots within the District to their respective shares of the principal amount of the Bonds can be expected to vary substantially depending upon the selling price thereof. The following Ta ble 5 sets forth the value-to-lien ratios within the District by land use class under the Rate and Method using the principal amount of the Bonds allocated based on the projected Fiscal Year 2022-23 Special Tax levy.
Additionally, the following Table 6 sets forth the stratification of value -to-liens of the parcels within the District, based on the appraised value of such parcels set forth in the Appraisal and such parcels’ respective shares of the principal amount of the Bonds (allocated to each parcel base d upon its respective share of the total projected Fiscal Year 2022-23 Special Tax levy) and the ratio of the appraised value to its share of the Bonds. Taxable property within the District is classified as “Developed Property” for purposes of the Fiscal Year 2022-23 Special Tax levy if a building permit for such property is obtained by May 1, 2022. Based on the development status within the District as of May 1, 2022 , 280 parcels of Taxable Property within the District will be classified as Developed Property for purposes of the Fiscal Year 2022-23 Special Tax levy.
TABLE 4
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO)
ESTIMATED MINIMUM MARKET VALUE-TO-LIEN RATIOS BASED ON BONDS ONLY
ALLOCATED BY PROPERTY OWNER/DEVELOPMENT STATUS
(Projected Fiscal Year 2022-23 Special Tax Levy)
Property Owner/
Development Status(1)
Number
of
Taxable
Parcels
Projected
Fiscal Year
2022-23
Facilities
Special Tax(2)
Percent of
Projected
Fiscal Year
2022-23
Facilities
Special Tax
Pro Rata Share
of Bonds(3)*
Minimum
Market Value(1)
Estimated
Minimum
Market
Value-to-
Lien
Ratios(4)*
Lennar Homes
95%+ Completed Units 27 $ 51,023 8.31% $ 773,139 $ 10,002,914 12.94 Units Under Construction 24 41,216 6.72 624,536 3,123,763 5.00 Finished Pads /
(Developed Property) (5) 48 82,431 13.43 1,249,056 6,247,527 5.00 Subtotal 99 $ 174,670 28.46% $ 2,646,731 $ 19,374,204 7.32
Individual Homeowners 181 $ 439,080 71.54% $ 6,653,269 $ 122,742,170 18.45 TOTAL 280 $ 613,750 100.00% $ 9,300,000 $ 142,116,374 15.28
* Preliminary, subject to change.
(1) Based on the Appraisal with a date of value as of February 15, 2022. (2) Based on the levy to fund administrative expenses and debt service on the Bonds, and the development status as of May 1, 2022.
(3) There are currently no overlapping assessment districts and/or other community facilities districts encumbering the District (excluding debt secured by any tax or assessment estab lished and levied on an individual Assessor’s Parcel pursuant to a contractual agreement or other voluntary consent by the owner thereof). The Bonds are allocated based on a proportionate share of the projected Fiscal Year 2022-23 Facilities Special Tax. (4) Calculated by dividing the Minimum Market Value column by the Pro Rata Share of Bonds column. (5) Under the Rate and Method, parcels of Taxable Property are classified as Developed Property if a building permit has been obtained for such parcel by May 1 of the fiscal year preceding the Special Tax levy. Furthermore, since the 48 parcels identified in the Appraisal as finished pads have obtained building permits prior to May 1, 2022, all such lots will be classified as Developed Property for Fiscal Year 2022-23.
Source: DTA, Inc.
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TABLE 5
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO)
ESTIMATED MINIMUM MARKET VALUE-TO-LIEN RATIOS BASED ON BONDS ONLY
ALLOCATED BY LAND USE CLASSES
(Projected Fiscal Year 2022-23 Special Tax Levy)
Rate and Method Land Use Classes
Number of
Units/
Acres(1)
Fiscal Year 2022-23
Assigned/ Maximum
Facilities Special
Tax(2)
Projected Fiscal
Year 2022-2e
Facilities Special
Tax(3)
Pro Rata Share of
Bonds(4)*
Minimum
Market Value(5)
Estimated
Minimum Market
Value-to-Lien
Ratios(6)*
Developed Property
Detached Residential Property (4,001 sq. ft. or greater) 14 $ 53,074 $ 48,413 $ 733,585 $ 12,695,760 17.31 Detached Residential Property (3,801 to less than 4,001 sq. ft.) 0 0 0 0 0 NA Detached Residential Property (3,601 to less than 3,801 sq. ft.) 0 0 0 0 0 NA Detached Residential Property (3,401 to less than 3,601 sq. ft.) 7 23,912 21,812 330,510 5,918,640 17.91 Detached Residential Property (3,201 to less than 3,401 sq. ft.) 23 71,484 65,206 988,047 18,933,750 19.16 Detached Residential Property (3,001 to less than 3,201 sq. ft.) 12 36,960 33,714 510,858 9,921,600 19.42 Detached Residential Property (2,801 to less than 3,001 sq. ft.) 12 36,420 33,221 503,394 9,644,400 19.16 Detached Residential Property (2,601 to less than 2,801 sq. ft.) 12 34,560 31,525 477,686 8,985,900 18.81 Detached Residential Property (2,401 to less than 2,601 sq. ft.) 0 0 0 0 0 NA Detached Residential Property (2,201 to less than 2,401 sq. ft.) 0 0 0 0 0 NA Detached Residential Property (2,001 to less than 2,201 sq. ft.) 12 31,932 29,127 441,362 8,217,600 18.62 Detached Residential Property (1,801 to less than 2,001 sq. ft.) 22 53,812 49,086 743,785 13,526,952 18.19 Detached Residential Property (1,601 to less than 1,801 sq. ft.) 30 69,810 63,679 964,909 15,901,693 16.48 Detached Residential Property (1,401 to less than 1,601 sq. ft.) 16 34,960 31,889 483,215 8,573,554 17.74 Detached Residential Property (less than 1,401 sq. ft.) 0 0 0 0 0 NA Attached Residential Property (1,801 sq. ft. or greater) 20 46,400 42,325 641,337 5,200,540 8.11 Attached Residential Property (1,601 to less than 1,801 sq. ft.) 20 43,860 40,008 606,230 5,344,800 8.82 Attached Residential Property (1,401 to less than 1,601 sq. ft.) 0 0 0 0 0 NA Attached Residential Property (1,201 to less than 1,401 sq. ft.) 60 105,540 96,271 1,458,766 14,830,545 10.17 Attached Residential Property (1,001 to less than 1,201 sq. ft.) 0 0 0 0 0 NA Attached Residential Property (less than 1,001 sq. ft.) 20 30,120 27,474 416,316 4,420,640 10.62 Non-Residential Property 0.0 0 0 0 0 NA
Subtotal 280 $ 672,844 $ 613,750 $ 9,300,000 $ 142,116,374 15.28
Undeveloped Property 0.0 $ 0 $ 0 $ 0 $ 0 N/A
TOTAL NA $ 672,844 $ 613,750 $ 9,300,000 $ 142,116,374 15.28
* Preliminary, subject to change.
(1) Based on the development status as of May 1, 2022. Under the Rate and Method, parcels of Taxable Property are classified as Developed Property if a building permit ha s been obtained for such parcel by May 1 of the fiscal year preceding the Special Tax levy. (2) Based on the Assigned Facilities Special Tax revenues generated by residential dwelling units for which building permits have been issued as of May 1, 2022. (3) Based on the levy to fund Administrative Expenses and debt service on the Bonds, and the development status as of May 1, 2022. (4) There are currently no overlapping assessment districts and/or other community facilities districts encumbering the District (excluding debt secured by any tax or assessmen t established and levied on an individual Assessor’s Parcel pursuant to a contractual agreement or other voluntary consent by the owner thereof). The Bonds are allocated based on a proportionate share of the projected Fiscal Year 2022-23 Facilities Special Tax.
(5) Based on the Appraisal with a date of value as of February 15, 2022. (6) Calculated by dividing the Minimum Market Value column by the Pro Rata Share of Bonds column.
Source: DTA, Inc.
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TABLE 6
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO)
ESTIMATED MINIMUM MARKET VALUE-TO-LIEN STRATIFICATION
BASED ON BONDS ONLY
(Projected Fiscal Year 2022-23 Special Tax Levy)
Estimated
Minimum Market
Value-to-Lien Ratio
Category
Number
of
Taxable
Parcels
Projected
Fiscal Year
2022-23
Facilities
Special Tax(1)
Percent of
Projected Fiscal
Year 2022-23
Facilities
Special Tax
Pro Rata
Share of
Bonds(2)*
Minimum
Market Value(3)
Estimated
Minimum
Market
Value-to-Lien
Ratios(4)*
15.00:1 and above 184 $ 443,201 72.21% $ 6,715,715 $ 123,733,128 18.42
13.00:1 to 14.99:1 18 34,321 5.59 520,064 6,939,682 13.34
11.00:1 to 12.99:1 1 2,231 0.36 33,808 420,677 12.44
9.00:1 to 10.99:1 5 10,350 1.69 156,823 1,651,597 10.53
7.00:1 to 8.99:1 0 0 0.00 0 0 NA
5.00:1 to 6.99:1 48 74,247 12.10 1,125,050 6,247,527 5.55
3.00:1 to 4.99:1 24 49,400 8.05 748,540 3,123,763 4.17
Less than 3.00:1 0 0 0.00 0 0 NA
TOTAL 280 $ 613,750 100.00% $ 9,300,000 $ 142,116,374 15.28
* Preliminary, subject to change.
(1) Based on the levy to fund Administrative Expenses and debt service on the Bonds, and the development status as of May 1, 2022.
(2) There are currently no overlapping assessment districts and/or other community facilities districts encumbering the District (excluding debt secured by any tax or assessment established and levied on an individual Assessor’s Parcel pursuant to a contractual agreement or other voluntary consent by the owner thereof). The Bonds are allocated based on a proportionate share of the projected Fiscal Year 2022-23 Facilities Special Tax. (3) Based on the Appraisal with a date of value as of February 15, 2022. (4) Calculated by dividing the Minimum Market Value column by the Pro Rata Share of Bonds column.
Source: DTA, Inc.
Delinquency History
Fiscal Year 2019 -20 was the first year in which Services Special Taxes were levied in the District.
For Fiscal Year 2019 -20, Services Special Taxes totaling $162,200 were levied on 10 parcels classified as Developed Property with respe ct to the Services Special Taxes that were within final residential subdivision maps upon which 280 residential dwelling units are ultimately expected to be built. As of March 1, 2022, no parcels were delinquent in payment of such Services Special Taxes. For Fiscal Year 2019 -20, no Facilities Special Taxes were levied in the District . For Fiscal Year 2020 -21, Services Special Taxes totaling $162,200 were levied on 162 parcels classified as Developed Property with respect to the Services Special Taxes that were within final residential subdivision maps upon which 280 residential dwelling units are ultimately expected to be built. As of March 1, 2022, 3 parcels were delinquent in payment of such Services Special Taxes. For Fiscal Year 2020-21, no Facilities Special Taxes were levied in the District.
Fiscal Year 2021 -22 was the first year in which Facilities Special Taxes were levied in the District.
For Fiscal Year 2021 -22, Facilities Special Taxes totaling $415,265 were levied on 148 parcels classified as Developed Property with respect to the Facilities Special Taxes. For Fiscal Year 2021 -22, Services Special Taxes totaling $162,200 were levied on 280 parcels classified as Developed Property with respect to the Services Special Taxes that were within fin al residential subdivision maps. As of March 1, 2022, 3 parcels were delinquent in their first installment payments of Facilities Special Taxes totaling $4,154 for a first installment delinquency rate of 2.0% and 3 parcels were delinquent in their first i nstallment payments of Services Special Taxes totaling $885 for a first installment delinquency rate of 1.1%. 394
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PROPERTY OWNERSHIP AND THE DEVELOPMENT
Representatives of Lennar Homes have provided the information in this section regarding Lennar Homes and its development in the District. Neither the Underwriter nor the City has independently confirmed or verified the information in this section of the Official Statement nor does any such party make any representation as to accuracy or adequacy of this inform ation. Further, there may be material adverse changes in this information after the date of this Official Statement.
The information in this section of the Official Statement regarding ownership of certain taxable property in the District has been include d because it is considered relevant to an informed evaluation of the Bonds. The inclusion in this Official Statement of information related to Lennar Homes should not be construed to suggest that the Bonds, or the Special Taxes that will be used to pay th e Bonds, are recourse obligations of Lennar Homes or any other property owner in the District . A property owner may sell or otherwise dispose of land within the District or a development or any interest therein at any time.
No assurance can be given that the proposed development within the District will occur as described below. As the proposed land development progresses and parcels are sold, it is expected that the ownership of the land within the District will become more diversified . No assurance can be given that development of the land within the District will occur in a timely manner or in the configuration or intensity described herein, or that any landowner described herein will obtain or retain ownership of any of the land within the District.
The Bonds and the Special Taxes are not personal obligations of Lennar Homes or any other current or subsequent property owners and, in the event that Lennar Homes or any other current or subsequent property owner defaults in the payment of the Special Taxes, the City may proceed with judicial foreclosure but has no direct recourse to the assets of Lennar Homes or any other current or subsequent property owner .
As a result, other than as provided in the Official Statement, no financial statements or in formation is, or will be, provided about Lennar Homes or any other current or subsequent property owner. The Bonds are secured solely by the Net Special Tax Revenues and other amounts pledged under the Indenture . See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” and “SPECIAL RISK FACTORS.” The Developer
General. The property in the District is being developed by Lennar Homes of California, Inc., a California corporation (previously defined as “Lennar Homes” or the “Developer”). Lennar Homes is based in Irvine, California, and has been in the business of developing residential real estate communities in California since 1995 . Lennar Homes is wholly -owned by U.S . Home Corporation, a Delaware corporation (“U.S. Home”). U.S. Home is wholly -owned by Lenna r Corporation, a Delaware corporation ( “Lennar Corporation”).
Lennar Corporation, founded in 1954 and publicly traded under the symbol “LEN” since 1971, is one of the nation ’s largest home builders, operating under a number of brand names, including Lennar and U.S. Home. The company primarily develops residential communities both within the Lennar Corporation family of builders and through consolidated and unconsolidated partnerships in which the company maintains an interest.
Lennar Corporation is subject to the informational requir ements of the Exchange Act and in accordance therewith files reports, proxy statements and other information with the SEC . Such filings, particularly the Annual Report on Form 10 -K and its most recent Quarterly Report on Form 10 -Q, may be inspected and co pied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates . Such files can also be accessed over the internet at the SEC ’s website at www.sec.gov . This internet address is included for reference only and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official 395
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Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on the internet site.
Copies of Lennar Corporation ’s Annual Report on Form 10 -K and related financial statements are available from Lennar Corporation’s website at www.lennar.com . This internet address is included for reference o nly and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement . No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on the internet site.
The Development Plan
General Description of the District. The District is located in the City of Fontana and is bordered by Cypress Avenue on the west, Sierra Avenue on the east, Summit Avenue on the south and Casa Grande Avenue on the north. The District is planned for a total of 280 single family residential units at buildout. The residential projects in the District are part of a master planned development called Gabion Ranch. Gabion Ranch is being ma rketed in five product lines known as Stonegate (33 units), Iron Walk (38 units), Mountainside (35 units), Ridgeview (54 units), and Woodridge (120 units).
As of February 15, 2022, the date of value of the Appraisal, within the District, 181 single family residential units had been completed and conveyed to individual homeowners, 27 units had been completed (26 of which were in escrow) and were owned by Lennar Homes, 24 production units were in various stages of construction (21 of which were in escr ow) and owned by Lennar Homes and the remaining 48 lots were in a finished lot or finished townhome pad condition and owned by Lennar Homes. As of April 1, 2022, within the District, 207 single family residential units had been completed and conveyed to i ndividual homeowners, one unit had been completed (which was in escrow) and was owned by Lennar Homes, 36 production units were in various stages of construction ( 29 of which were in escrow) and owned by Lennar Homes and the remaining 36 lots were in a finished lot or finished townhome pad condition and owned by Lennar Homes . As of May 1, 2022, building permits had been obtained for all 280 lots within the District. See “— Summary of Lennar Homes’ Development Plans” below.
COVID-19 (Coronavirus) Pandemi c. The development of Lennar Homes’ planned development within the District is subject to disruption due to the COVID -19 pandemic and related public health and governmental authorities ’ orders and actions . With housing construction considered an essential function, Lennar Homes has largely continued, with certain modifications, its home construction and sales activities in the District to date . That is, Lennar Homes has been able to sell, complete, obtain inspections for and close homes during such period, and intends to continue its operations to the extent permitted. See “SPECIAL RISK FACTORS — COVID-19 (Coronavirus) Pandemic” herein.
During the early days of the COVID -19 pandemic, Lennar Homes closed its on -site sales office and established a virtual appointment only program for homebuyers. However, Lennar Homes’ on-site sales office for its development within the District was reopened and now customers have the option of an in -person tour or a virtual tour. While Lennar Homes is no longer appointment-only in many of its new home galleries, in the event that Lennar Homes believes it is advisable to re -implement such measures in all or some of its markets (including within the District) in response to a resurgence of COVID -19 or orders by applicable governmental authorities, Lennar Homes may experience negative impacts on its business and operations . As of the date of this Official Statement, Lennar Homes has not experienced any material increases in costs, delays in home construction resulting from decisions to reduce financing for the project, work stoppages, reduced attendance of workers, lack of or delays in the delivery of building materials or the ability to obtain necessary inspections and approvals attributable to the COVID-19 pandemic.
Lennar Homes cannot predict the ultimate effects of the COVID-19 outbreak and related public health and governmental authorities’ orders and actions (including, without limitation, the scope of restrictions under the current or any amended shelter in place orders), on their ability to continue to sell and close units within the 396
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District. Such effects, if and as they arise, could have a material adverse effect on the ability to develop the District as planned, and no assurance can be provided that Lennar Homes will be able to (a) complete in whole or in any part, or within any particular time, their planned development within the District; (b ) avoid material increases in development costs or delays resulting from work stoppages, reduced attendance of workers, shortages or delays in the delivery of bui lding materials, and/or delays in obtaining necessary inspections and approvals; or (c) close any additional units or not experience additional purchase contract cancellations, due to in each case public health or governmental restrictions, further spread of COVID-19, an economic downturn driven by the pandemic, or otherwise.
Summary of Lennar Homes ’ Development Plans . The table below details the proposed and completed development by Lennar Homes of its property within the District.
TABLE 7
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO) (AS OF APRIL 1, 2022)
Neighborhood /
Project Name
Estimated
Number
of Units
Completed
Units
(Not
Closed)
Units Under
Construction
Finished
Lots
Units
Under
Contract
to be Sold
Units With
Closed
Escrows to
Individual
Homeowners
Stonegate 38 0 0 0 0 38
Iron Walk 35 0 0 0 0 35
Mountainside 54 0 0 0 0 54
Ridgeview 33 0 0 0 0 33
Woodridge 120 1 36 36 30 47
Total 280 1 36 36 30 207
Source: Lennar Homes.
The following table details the plans and base sales prices of the remaining development to be completed by Lennar Homes within the District.
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TABLE 8
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO)
DEVELOPMENT PLANS BY NEIGHBORHOOD AND PLAN
Community Plan Square Feet No. of Lots
Closed to
Individual
Homeowner as of
February 15, 2022
Closed to
Individual
Homeowner as of
April 1, 2022
Base Sales
Price
Stonegate
1 2,470 0 0 0 $786,323
2 2,820 12 12 12 $781,323
3 3,523 7 7 7 $851,990
4 4,122 14 14 14 $923,323
Subtotal Copper Ridge 33 33 33
Iron Walk
1 1,950 14 14 14 $709,823
2 2,723 12 12 12 $757,240
3 3,180 12 12 12 $806,157
Subtotal Iron Walk 38 38 38
Mountainside
1 2,140 12 12 12 $703,733
2 3,251 10 10 10 $784,400
3 3,325 13 13 13 $871,567
Subtotal Mountainside 35 35 35
Ridgeview
1 1,578 15 14 15 $556,900
2 1,715 19 14 19 $575,900
3 1,790 11 7 11 $586,567
4 1,801 9 7 9 $587,833
Subtotal Ridgeview 54 42 54
Woodridge
1 849 20 5 8 $399,000
2 1,391 40 11 15 $478,500
3 1,324 20 6 8 $499,500
4 1,652 20 6 8 $542,000
5 1,826 20 5 8 $548,500
Subtotal Woodridge 120 33 47
Total 280 181
Source: Lennar Homes.
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The table below details Lennar Homes’ projected construction timeline within the District as of April 1, 2022.
TABLE 9
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO)
PROJECTED CONSTRUCTION TIMELINE BY NEIGHBORHOOD
(AS OF APRIL 1, 2022)
Construction Stonegate Iron Walk Mountainside Ridgeview Woodridge Total Starts Phase Units Phase Units Phase Units Phase Units Phase Units Through February 15, 2022 Build Out 33 Build Out 38 Build Out 35 Build Out 54 Phase 8 to Phase 11 48 208 March 2022 - - - - - - - - Phase 12 12 12
May 2022* - - - - - - - - Phase 13 12 12
July 2022* - - - - - - - - Phase 14 12 12
September2022* - - - - - - - - Phase15 12 12
November 2022* - - - - - - - - Phase 16 12 12
January 2022* - - - - - - - - Phase 17 12 12
Total Units 33 38 35 54 120 280
* Estimated.
Source: Lennar Homes.
Required Infrastructure . As of April 1, 2022 , the remaining intract infrastructure to be completed includes final paving and common area landscaping. The remaining backbone infrastructure to be completed includes a traffic signal at Sierra Avenue and Cas a Grande as well as paving, median, and landscaping improvements on Sierra Avenue. The remaining intract and backbone infrastructure are anticipated to be completed by the first quarter of 2023.
Entitlement Status. All discretionary entitlements required to complete the development and sales of residential units in the District have been received.
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Lennar Homes Financing Plan
To date, Lennar Homes has financed its land acquisition and various site development costs related to its property in the District through internally generated funds and home sales revenues . Lennar Homes estimates that as of April 1, 2022 it remains to in cur approximately $2.9 million for intract and backbone infrastructure/development costs and approximately $ 10.2 million in homebuilding, marketing, and sales costs for the District. Lennar Homes expe cts to use home sales revenues and internal funding to complete its development in the District. Lennar Homes believes that it will have sufficient funds available to complete its planned development in the District in accordance with the development schedule described in this Official Statement.
Although Lennar Homes expects to have sufficient funds available to complete its development in the District in accordance with the development schedule described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining dev elopment costs will be available from Lennar Homes or any other source when needed . Neither Lennar Homes, nor any of its related entities are under any legal obligation of any kind to expend funds for the development of and construction of homes on its pr operty in the District. Any contributions by Lennar Homes to fund the costs of such development are entirely voluntary.
If and to the extent that internal funding, including but not limited to home sales revenues, are inadequate to pay the costs to comple te the planned development by Lennar Homes within the District and other financing by Lennar Homes is not put into place, there could be a shortfall in the funds required to complete the planned development by Lennar Homes in the District.
SPECIAL RISK FACTORS
The principal source of payment of debt service on the Bonds will be payments of the Special Tax made with respect to the Taxable Property. As discussed under “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Special Taxes,” the Special Tax is to be l evied annually against all such Taxable Property either at the maximum rate authorized by the Rate and Method or at such lower rates as are determined by the District Administrator to raise sufficient funds to comply with the agreements, conditions, covenants and terms contained in the Indenture, and in accordance with the Act . The Special Tax is to be collected on the tax roll of the District at the same time and in the same manner as general ad valorem real property taxes are collected. The Special Tax cannot be levied at a tax rate higher than the maximum tax rate even if the maximum tax rate will not produce sufficient Net Special Tax Revenues to pay the principal and interest then payable with respect to the Bonds. See discussions below under “ — Levy of the Special Tax” and “— Collection of the Special Tax.”
Payment of the Special Tax levied on a parcel is secured by a continuing lien against such parcel. In the event an installment of the Special Tax included in the tax bill for a parcel of Taxable Property is not paid when due, the District has covenanted to institute foreclosure proceedings in court to cause the parcel to be sold in order to attempt to recover the delinquent amount from the sale proceeds. Foreclosure and sale may not always result in the recovery of the full amount of delinquent installments of the Special Tax.
See “ — Collection of the Special Tax.” The sufficiency of the foreclosure sale proceeds to cover the delinquent amount depends in part upon the market for and the value of the parcel at the time of the sale.
Sufficiency of the foreclosure sale proceeds to cover a delinquency may also depend upon the value of prior or parity liens and similar claims. Further, other governmental claims, such as hazardous substance claims, may affect the realizable value even though such claims may not rise to the status of liens. See “ — Hazardous Substances.”
Timely foreclosure and sale proceedings with respect to a parcel of Taxable Property may be forestalled or delayed by a stay in the eve nt the owner of the parcel becomes the subject of bankruptcy proceedings. Not only may foreclosure and sale proceedings be forestalled or delayed, but the sale of a parcel 400
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may also be similarly affected by a bankruptcy stay. Further, should the stay not be lifted, payment of the Special Tax may be subordinated to bankruptcy law priorities. See “— Bankruptcy and Legal Delays.” Although bankruptcy proceedings may forestall or delay a foreclosure and sale or a tax sale of a delinquent parcel of Taxable Property, the Special Tax is secured by a lien which, assuming proper procedures are followed, may be enforced against the parcel. There may not be any recourse against a bankrupt property owner since the owner is not personally obligated to pay the Special T ax. Further, if proper disclosure of the authorization of the Special Tax is not made to the owner, the willingness or ability of an owner to pay the Special Tax may be adversely affected. See “ — Payment of the Special Tax is Not a Personal Obligation of the Owners.”
The District is not obligated to advance funds to pay such debt service except from moneys on deposit in the Reserve Fund. See “— Bonds Are Limited Obligations.” Even if debt service is timely paid, interest on the Bonds may have to be inclu ded in the gross income of the owner of the Bonds by reason of some circumstance occurring subsequent to issuance of the Bonds, thereby reducing the after-tax yield. See “— Loss of Tax Exemption.” Risks of Real Estate Secured Investments Generally – Declines in Value Purchasers of the Bonds will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area, and the market value of property in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes, wildfires and floods), which may result in uninsured losses.
No assurance can be given that the individual property owners within the District will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See the caption “— Bankruptcy and Legal Delays” for a discussion of certain limitations on the District ’s ability to pursue judicial proceedings with respect to delinquent parcels within the District.
Levy of the Special Tax
The principal source of money with which to pay debt service on the Bonds is the proceeds derived from the annual levy and collection of the Special Tax applicable to the Taxable Property in the D istrict. The amount of the Special Tax that can be levied is limited to the maximum tax rates authorized pursuant to the Rate and Method. Additionally, pursuant to Section 53321(d) of the Government Code, the Special Tax levied against any Assessor’s par cel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other Assessor’s parcel within the District by more than ten percent above the amount that w ould have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result, it is possible that the District may not be able to increase the tax levy to the Assigned Facilities Special Tax on residential parcels in all years. The levies cannot be made at higher rates even if the failure to do so would result in insufficient Net Special Tax Revenues to pay the principal of and interest on the Bonds as the same become due and payable.
The levy of the Special Tax will rare ly, if ever, result in a uniform relationship between the value of a particular parcel and the amount of the levy of the Special Tax against such parcel. Thus, there will rarely, if ever, be a uniform relationship between the value of a parcel and its pro portionate share of the debt service on the Bonds. The Special Tax levied in any particular Fiscal Year on a parcel is based upon the revenue needs of the District and the application of the Rate and Method. The application of the Rate and Method will, i n turn, be dependent upon certain development factors with respect to each parcel by comparison with similar development factors with respect to the other parcels in the District. Thus, in addition to annual variations in 401
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the revenue needs of the District that must be met from the Special Tax, the following are some of the factors which might cause the levy of the Special Tax on any particular parcel to vary from the Special Tax that might otherwise be expected:
Reduction in the number of parcels of Taxabl e Property, for reasons such as acquisition of such parcels by a governmental entity and failure of the governmental entity to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property; and
Failure of the owners of certain parcels of Taxable Property to pay the applicable Special Tax and delays in the collection of or inability to collect such Special Tax by tax sale or foreclosure and sale of the delinquent parcels, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property.
Collection of the Special Tax
The timely payment of the principal of and interest on the Bonds is ultimately dependent upon the timely payment of all Special Taxes. Any money on deposit in the Reserve Fund can be used to make such payment in the event of delinquencies, but the replenishment of the Reserve Fund will be dependent on the recovery of such delinquencies. The Indenture provides that the Special Tax is to be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable (or in such other manner as the City Council shall determine, including direct billing of the affected property owners) and, except as provided in the special covenant for foreclosure described under the caption “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Covenant for Superior Court Foreclosure” and in the Act, is to be subject to the same proportionate penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ad valorem taxes on real property.
Pursuant to the Act, in the event of any delinquency in the p ayment of the Special Tax, the District may order the institution of a superior court action to foreclose the lien therefor within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at judicial foreclosure sale. Such judicial foreclosure action is not mandatory. However, the District has covenanted for the benefit of the owners of the Bonds that it will institute foreclosure proceedings as authorized by the Act in order to enforce the lien of the delinquent installments of the Special Tax under certain circumstances. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Covenant for Superior Court Foreclosure.” In the event that foreclosure proceedings are commenced, such foreclosure proceedings could be stayed by the commencement of bankruptcy proceedings by or against the owner of the property being foreclosed. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to Owners of the Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the District of the proceeds of sale if the Reserve Fund is depleted.
The District may be unable to make full or timely payment of debt service on the Bonds if property owners in the District fai l to pay installments of the Special Tax when due, if the Reserve Fund is depleted, or if the District is unable to sell foreclosed parcels for amounts sufficient to cover the delinquent installments of the Special Tax.
Failure to Develop Properties
Development of property within the District may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of Lennar Homes, or any other property owner to pay the Special Taxes prior to delinquency. Land developm ent is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, scho ol and 402
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health requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such go vernmental requirements would adversely affect planned land development.
Development of land in the District is also subject to the availability of water. Finally, development of land is subject to economic considerations.
As of February 15, 2022, 181 si ngle family residential units had been completed and conveyed to individual homeowners, 27 units had been completed (26 of which were in escrow) and were owned by Lennar Homes, 24 production units were in various stages of construction (21 of which were in escrow) and owned by Lennar Homes and the remaining 48 lots were in a finished lot or finished townhome pad condition and owned by Lennar Homes. As of February 15, 2022, all of the property within the District had been mass -graded and virtually all sewer, water, storm drains, streets, curbs and gutters were complete for all 280 lots within the District. As of April 1, 2022, within the District, 207 single family residen tial units had been completed and conveyed to individual homeowners, one unit had been completed (which was in escrow) and w as owned by Lennar Homes, 36 production units were in various stages of construction ( 29 of which were in escrow) and owned by Lennar Homes and the remaining 36 lots were in a finished lot or finished townhome pad condition and owned by Lennar Homes. A total of 280 building permits had been obtained within the District as of April 1, 2022. See “THE COMMUNITY FACILITIES DISTRICT” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” However, no assurance can be given that the remaining proposed residential development will be partially or fully completed; and for purposes of evaluating the investment quality of the Bonds, prospective purchasers should consider the possibility that such parcels will remain vacant and unimproved.
Undeveloped or partially developed land is inherently less valuable than developed land and provides less security to the Bond Owners should it be necessary for the Dis trict to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development in the District as planned, or substantial delays in the completion of the development may reduce the value of the property within the District and increase the length of time during which Special Taxes will be payable from undeveloped property, and may affect the willingness and ability of the owners of property within the District to pay the Special Taxes prior to delinquency.
There can be no as surance that land development operations within the District will not be adversely affected by a future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate develop ment, an increase in mortgage interest rates, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire o f the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Bonds when due.
Bond Owners should assume that any event that significantly impacts the ability to develop land in the District would cause the property values within the District to decrease substantially from those estimated by the Appraiser and could affect the willingness and ability of the owners of land within the District to pay the Special Taxes prior to delinquency.
Concentration of Property Ownership
Based on the Appraisal with a date of value as of February 15, 2022 and the development status as of April 1, 2022 , Lennar Homes is expected to be responsible for approximately 26.1% of the projected Fisca l Year 2022-23 Special Tax levied within the District. While the District includes 207 completed single family units owned by individual homeowners as of April 1, 2022, the inability or refusal of Lennar Homes to pay the Special Tax applicable to its prop erty when due could result in the depletion of the Reserve Fund prior to reimbursement thereof from sale or foreclosure proceedings, and/or insufficient money with which to pay the principal of and interest on the Bonds as the same became due. Additionall y, pursuant to the Act, the Special Taxes levied in any fiscal year against any parcel of residential property in the District may not be increased as 403
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a consequence of delinquency or default by the owners of any other parcels within the District by more th an 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or default. As a result, while the Maximum Special Taxes pursuant to the Rate and Method may be higher, Maximum Special Taxes on parcels of residential parcels cannot be greater than 110% of the projected actual Special Tax levy on such parcels.
Exempt Properties
Certain properties are exempt from the Special Tax in accordance with the Rate and Method. In addition, the Act provides that prop erties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property in the District acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. In addition, the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Act have not been tested.
In particular, insofar as the Act requires payment of the Special Tax by a federal entity acquiring property in the District, it may be unconstitutional. If for any reason property in the District becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitation of the maximum authorized rates, the Special Tax will be reallocated to the remaining Taxable Properties in the District. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impa ct upon the timely payment of the Special Tax.
Moreover, if a substantial portion of property in the District becomes exempt from the Special Tax because of public ownership, or otherwise, the Maximum Annual Special Tax which could be levied upon the rema ining acreage might not be sufficient to pay principal of and interest on the Bonds when due and a default would occur with respect to the payment of such principal and interest.
Constitutional Limitations on Taxation and Appropriations Articles XIIIA and XIIIB of the California Constitution . On June 6, 1978, California voters approved an amendment to the California Constitution, commonly known as Proposition 13 (the Jarvis/Gann Initiative), which added Article XIIIA to the California Constitution. The ef fect of Article XIIIA is to significantly limit the imposition of new ad valorem taxes, special taxes, transaction taxes, and sales taxes. On November 7, 1978, California voters approved Proposition 8, which made certain clarifications to Article XIIIA.
Article XIIIA of the California Constitution limits the amount of ad valorem taxes on real property to 1% of “full cash value” as determined by the county assessor. Article XIIIA defines “full cash value” to mean “the county assessor ’s valuation of real property as shown on the 1975 -76 tax bill under ‘full cash value ’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. ” The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors.
Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and allows local governments to raise their property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation debt issued for the acquisition or improvement of real property and approved by two -thirds of the votes cast by the qualified electorate. Article XIIIA requires a vote of two -thirds of the qualified electorate to impose spe cial taxes on real property, while otherwise generally precluding the imposition of any additional ad valorem taxes, special taxes, transaction taxes, and sales taxes. In addition, Article XIIIA requires the approval of two -thirds of all members of the California Legislature to change any State laws resulting in increased tax revenues. 404
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Enactment of Article XIIIA has reduced the amount of general property tax revenues received by the City. This reduction in such revenues makes it less likely that the City or the District will have surplus funds, other than the Reserve Fund for the Bonds, with which to advance funds to make any payments or to cure any deficiency in the Interest Account or Principal Account of the Special Tax Fund, should the City or the District, as applicable, in the exercise of its discretion, choose to do so. If there are additional delinquencies after exhaustion of funds in the Reserve Fund for the Bonds, none of the City or the District has any obligation to transfer into the Interest A ccount or Principal Account of the Special Tax Fund the amount of any such delinquencies out of any surplus moneys of the City.
On July 2, 1979, the Fifth District Court of Appeal rendered a 3 -0 decision in the case of County of Fresno v. Malmstrom (94 Cal .App.3d 974), that determined that special assessments are not subject to the limitations of Article XIIIA (Proposition 13). The Court held the one percent tax limitation imposed by California Constitution Article XIIIA on ad valorem taxes does not apply to special assessments levied pursuant to the Improvement Act of 1911 (Streets and Highways Code, Section 5000 et seq ., the relevant portions of which are incorporated in the 1915 Act) and the 1913 Act. The Court further held that because special assessments pursuant to such acts are not within the definition of “special taxes” in Article XIIIA, the Constitution does not require the levy of assessments and the issuance of bonds to be approved by a two -thirds vote of the qualified electors in an assessment district. On September 12, 1979, the California Supreme Court refused to hear an appeal of the lower court’s decision.
At the November 6, 1979, general election, Proposition 4 (the Gann Initiative) was approved by the voters of California. Such proposition added Article XIIIB to the California Constitution.
Article XIIIB of the California Constitution limits the annual appropriations of the State and of any city, county, school district, authority, or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. The “base year ” for establishing such appropriation limit is the fiscal year 1978 -79 and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies.
Appropriations subject to Article XIIIB generally include the p roceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance, and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity ’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be allocated to fund schools or be returned by revising tax rates or fee schedules over the subsequent two years.
On December 17, 1980, the Third District Court of Appeal rendered a 3 -0 decision in the case County of Placer v. Corin (113 Cal. App. 3d 443) that determined that special assessments are not subject to the limitation of Article XIIIB (Proposition 4). The Court held that the definition of “proceeds of taxes” imposed by California Constitution Article XIIIB does not apply to special assessments and improvement bonds issued pursuant to the 1915 Act and the 1913 Act. The decision of the Court was not appealed.
The enactment of Article XIIIA of the California Constitution (Proposition 13) and subsequent legislative enactments effectively repeal the otherwise mandatory duty on the part of the City, under the 1915 Act, to levy and collect a special tax (in an amount necessary to meet delinquencies, but not to exceed ten cents on each $100 of assessable property within the City in any one year) if other funds are not available to cover delinquencies.
In early 1990, the U.S. Supreme Court stru ck down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar 405
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properties. Since Article XIIIA provides that property may only be assessed up to 2%, per year, except upon change of ownership or new construction, recent purchasers may pay substantially higher property taxes than long-time owners of comparable property in a community. The Supreme Court in the West Virginia case expressly declined to comment in any way on the constitutionality of Article XIIIA.
Based on this decision, however, property owners in California brought three suits challenging the acquisition value assessment provisions of Article XIIIA. Two cases involve residential property and one case involves commercial property. In all three cases, State trial and appellate courts have upheld the constitutionality of Article XIIIA ’s assessment rules and concluded that the West Virginia case did not apply to California ’s laws. On June 3, 199 1, the U.S. Supreme Court agreed to hear the appeal in the challenge relating to commercial property, but the plaintiff subsequently decided to drop the case.
On October 7, 1991, the U.S. Supreme Court granted the plaintiff’s petition for a writ of certiorari and agreed to hear the Nordlinger v. Lynch case. On June 18, 1992, the U.S. Supreme Court affirmed the Nordlinger decision (112 U.S. 2326) of the California Court of Appeal, Second Appellate District, which previously held that Article XIIIA does not violate the U.S. Constitution.
The City cannot predict whether any other pending or future challenges to the State ’s present system of property tax assessment will be successful, when the ultimate resolution of any challenge will occur, or the ultimate effect any decision regarding the State ’s present system of property tax assessment will have on the City’s revenues or on the State’s financial obligations to local governments.
Articles XIIIC and XIIID of the California Constitution . Proposition 218, a state ballot initiative known as the “Right to Vote on Taxes Act, ” was approved by California voters on November 6, 1996.
Proposition 218 added Articles XIIIC and XIIID to the State Constitution, and, with the exception of certain provisions, Articles XIIIC and XIIID became effective on November 6, 1996.
Among other things, Proposition 218 imposed certain voting requirements and other limitations on the imposition of new or increased taxes, assessments, and property -related fees and c harges. Under Proposition 218 (i) all taxes imposed by local governments are deemed to be either general taxes, or special taxes, (ii) no local government may impose, extend, or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote, and (iii) no local government may impose, extend, or increase any special tax unless and until such tax is submitted to the electorate and approved by a two -thirds vote. Special purpose districts, including community facilities districts and assessment districts, have no power to levy general taxes. The City believes that the issuance of the Bonds does not require the conduct of further proceedings under the Refunding Act, the 1915 Act, the 1913 Act, the Mello -Roos Ac t, or Proposition 218, as applicable, other than as described herein.
Proposition 218 provides that the initiative power shall “not be prohibited or otherwise limited in matters reducing or repealing any local tax, assessment, fee or charge... ” Thus, Prop osition 218 removes limitations on the initiative power in matters of, among other things, the Special Taxes. Consequently, it is conceivable that the voters of the City or the District could, by future initiative, repeal, reduce, or prohibit the future imposition or increase of any Special Tax, subject to overriding federal constitutional principles relating to impairment of contracts.
Although the provisions of Article XIIIC have not been interpreted by the courts, the City believes that the initiative p ower cannot be used to reduce or repeal the unpaid Special Taxes that are pledged as security for payment of the Bonds or to otherwise interfere with the mandatory, statutory duty of the City and the County Auditor with respect to the unpaid Special Taxes that are pledged as security for payment of the Bonds.
The Appellate District, Division One, issued its opinion in 2014 in City of San Diego v. Melvin Shapiro, et al . (228 Cal. App. 4th 756) (the “San Diego Decision ”). The case involved a Convention Cente r 406
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Facilities District (the “CCFD”) established by the City of San Diego . The CCFD is a financing district much like a community facilities district established under the provisions of the Act. The CCFD is comprised of all of the real property in the entire City of San Diego. However, the special tax to be levied within the CCFD was to be levied only on hotel properties located within the CCFD.
The election authorizing the special tax was limited to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was modeled after Section 53326(c) of the Act, which g enerally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special tax election was invalid under the California Constitution because Article XIIIA, Section 4 thereof and Article XIIIC, Section 2 thereof require that the electors in such an election be the registered voters within the district.
The facts of the San Diego Decision show that there were hundreds of thousands of registered voters within the CCFD (viz., all of the registered voters in the City of San Diego). There were no registered voters in the District at the time of fo rmation. In the San Diego Decision, the Court expressly stated that it was not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where there are fewer than 12 registered voters. Thus, by its terms, the Court’s holding does not apply to the Special Tax elections in the District. Moreover, Section 53341 of the Act provides that any “action or proceeding to attack, review, set aside, void or annul the levy of a special tax…shall be commenced within 30 days after the special tax is approved by the voters. ” Similarly, Section 53359 of the Act provides that any action to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving the issuance of such bonds. Voters in the District approved the Special Tax and the issuance of bonds on April 23, 2019. Based on Sections 53341 and 53359 of the Act and analysis of existing laws, regulations, rulings and court decisions, the City believes the Special Tax is being lev ied in accordance with the Rate and Method and the Act.
The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predic t with certainty the outcome of such determination.
Maximum Special Tax
Within the limits of the Special Tax, the District may adjust the Special Tax levied on all property in the District to provide an amount required to pay interest on and principal of t he Bonds, and the amount, if any, necessary to cure delinquencies and replenish the Reserve Fund to an amount equal to the Reserve Requirement for the respective Bonds and to pay Administrative Expenses. However, the amount of the Special Tax that may be levied against any property in the District is subject to the Maximum Special Tax applicable to it. There is no assurance that the Maximum Special Tax on the property in the District will be sufficient to pay the amounts required to be paid by the Indentu re at all times. Additionally, p ursuant to the Act, the Special Taxes levied in any fiscal year against any parcel of residential property in the District may not be increased as a consequence of delinquency or default by the owners of any other parcels w ithin the District by more than 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or defaults . See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Special Taxes.”
Payment of the Special Tax is Not a Personal Obligation of the Owners An owner of a parcel of Taxable Property is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation only against the parcel of Taxable Property. If the value of a parcel is not 407
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sufficient, taking into account other obligations also payable thereby, to fully secure the Special Tax, the District has no recourse against the owner.
Disclosures to Future Purchasers
The District has recorded a notice of the Special Tax Lien in the Offic e of the County Recorder.
While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a parcel of land, a home or a commercial or industrial facility in the District or the lending of money thereon. The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long -term lessor of any lot, parcel, or unit subject to a Mello –Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than th ose covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.
Parity Taxes and Special Assessments
The ability or willingness of a property owner in the District to pay the Special Tax could be affected by the existence of other taxes and assessments imposed upon the property. The Special Tax and any penalties thereon will constitute a lien against t he lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special tax and special assessments levied by other agencies and is co-equal to and independent of the lien for general property taxe s, other special taxes, and certain special assessments regardless of when they are imposed upon the same property. The Special Tax has priority over all existing and future private liens imposed on the property. In addition, other public agencies whose boundaries overlap those of the District could, with or in some circumstances without the consent of the owners of the land in the District, impose additional taxes or assessment liens on the property in the District in order to finance public improvements to be located inside or outside of the District.
The District has no control over the ability of other entities and districts to issue indebtedness secured by special tax or assessments payable from all or a portion of the property in the District. In ad dition, the City is not prohibited itself from establishing assessment districts, community facilities districts or other districts which might impose assessments or taxes against property in the District. In the event any additional improvements are fina nced pursuant to the establishment of an assessment district, community facilities district or other district, any taxes or assessments levied to finance such improvements will have a lien on a parity with the lien of the Special Tax. The imposition of ad ditional liens on a parity with the Special Tax could reduce the ability or willingness of the property owners to pay the Special Tax and increase the possibility that foreclosure proceeds will not be adequate to pay delinquent Special Tax or the principal of and interest on the Bonds when due.
Depletion of Reserve Fund
The Reserve Fund is to be maintained at an amount equal to the Reserve Requirement. Money in said fund may be used to pay debt service on the Bonds in the event the proceeds of the levy and collection of the Special Tax against property in the District are insufficient. If funds in the Reserve Fund are used to pay debt service on the Bonds, the funds can be replenished from the proceeds of the levy and collection of the Special Tax that are in excess of the amount required to pay all amounts to be paid pursuant to the Indenture.
However, no replenishment from the proceeds of a levy of the Special Tax can occur as long as the proceeds that are collected from the levy of the Special Tax at th e maximum tax rates, together with other available funds, remain insufficient to pay all such amounts. Thus it is possible that the Reserve Fund will be depleted 408
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by its use to pay such amounts and will not be replenished by the levy of the Special Tax. T here is no assurance that the amount in the Reserve Fund will, at any particular time, be sufficient to pay all such amounts or that any amounts of the Reserve Requirement used for debt service on the Bonds will be fully replenished from the proceeds of the levy and collection of the Special Tax.
Bankruptcy and Legal Delays
The payment of the Special Tax and the ability of the District to foreclose the lien of a delinquent unpaid tax, as discussed in “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS,” may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State of California relating to judicial foreclosure. In addition, the prosecution of a foreclosure action could be delayed due to crowded local cou rt calendars or delays in the legal process. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instrume nts by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the obligation to pay the Special Tax to become extinguished, the bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings because federal bankruptcy laws may provide for an automatic stay of fo reclosure and sale of tax sale proceedings. Any such delays could increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds and the possibility of delinquent tax installments not being paid in full. Moreover, if the value of the subject property is less than the lien of the Special Tax, such excess could be treated as an unsecured claim by the bankruptcy court. Further, should remedies be exercised under the federal bankruptcy laws against Taxable Property, pa yment of the Special Tax may be subordinated to bankruptcy law priorities. Thus, certain claims may have priority over the Special Tax in a bankruptcy proceeding even though they would not outside of a bankruptcy proceeding.
FDIC/Federal Government Interests In Properties
The ability of the District to collect interest and penalties specified by the Act and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to parcels in which the Federal Deposit Insurance Corp oration (the “FDIC”), or other federal government entities such as Fannie Mae or Freddie Mac, has or obtains an interest.
In the case of the FDIC, in the event that any financial institution making a loan which is secured by parcels is taken over by the FD IC and the applicable Special Tax is not paid, the remedies available to the District may be constrained. The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that taxes other than ad valorem taxes which are secured by a valid lien in effect before the FDIC acquired an interest in a property will be paid unless the FDIC determines that abandonment of its interests is appropriate. The Policy Statement provides that the FDIC generally wil l not pay installments of non-ad valorem taxes which are levied after the time the FDIC acquires its fee interest, nor will the FDIC recognize the validity of any lien to secure payment except in certain cases where the Resolution Trust Corporation had an interest in property on or prior to December 31, 1995. Moreover, the Policy Statement provides that, with respect to parcels on which the FDIC holds a mortgage lien, the FDIC will not permit its lien to be foreclosed out by a taxing authority without its specific consent, nor will the FDIC pay or recognize liens for any penalties, fines or similar claims imposed for the non-payment of taxes.
The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings brought against Orange County, California, in United States Bankruptcy Court and in Federal District Court.
The Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that ruling, and the FDIC cross -appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a 409
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ruling favorable to the FDIC except with respect to the payment of pre -receivership liens based upon delinquent property tax.
The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to parcels in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale would prevent or delay the foreclosure sale.
In the case of Fannie Mae and Freddie Mac, in the event a parcel of Taxable Property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or in the event a private deed of trust secured by a parcel of Taxable Property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited. Federa l courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impai r the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of Taxable Property but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applica ble state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to for eclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the feder al government’s mortgage interest.
The District’s remedies may also be limited in the case of delinquent Special Taxes with respect to parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement Administration) have or obtain an interest.
Geologic, Topographic and Climatic Conditions
The value of the property within the District can be adversely affected by a variety of additional factors, particularly those which may affect infrastructure and other public improvem ents and private improvements to property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes, topographic conditions such as earth movements, landslides and floods and climatic conditions such as droughts. One or more of such conditions could occur and could result in damage to improvements of varying seriousness. Such damage could entail significant repair or replacement costs and such re pair or replacement might never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the val ue of the Taxable Parcels may well be reduced.
Wildfires
In recent years, wildfires have caused extensive damage throughout the State. In some instances, entire neighborhoods have been destroyed. Several of the fires that occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. The last major wildfire in the vicinity of the City was the Grand Prix Fire in October 2003. There have been smaller fires, such as the 147 -acre Sierra Fire that burned in November 2018 and the 277 -acre Karen Fire in July of 2020 .
While the District is n ot aware of any particular risk of wildfire within the District, there can be no assurances that wildfires won’t occur within the District. Some commentators believe that climate change will lead to even more frequent and more damaging wildfires in the future. Property damage due to wildfire could result in 410
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a significant decrease in the market value of property in the District and in the ability or willingness of property owners to pay Special Taxes.
Hazardous Substances
While governmental taxes, assessments, and charges are a common claim against the value of a parcel of Taxable Property, other less common claims may be relevant. One example is a claim with regard to a hazardous substance.
In general, the owners and operators of a parcel of Taxable Pro perty may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well -known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazard ous substance condition of property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Property be affected by a hazardous substance is to reduce th e marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. Further, such liabilities may arise not simply from the exist ence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of the property that is realizable upon a delinquency and foreclosure.
While the District is not aware that the owner (or ope rator) of any of Taxable Property has such a current liability with respect to any of the Taxable Property, it is possible that such liabilities do currently exist and that the District is not aware of them. Lennar Homes has also represented to the Distri ct that it is not aware of any substances currently classified as hazardous by the federal government or the State located on its property within the District.
Further, it is possible that liabilities may arise in the future with respect to any of the Taxa ble Property resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel of Taxable Property that is realizable upon a delinquency.
No Acceleration Provision
The Indenture does not contain a provision allowing for the acceleration of the Bonds in the ev ent of a payment default or other default under the terms of the Bonds or the Indenture.
Bonds Are Limited Obligations
Neither the faith and credit nor the taxing power of the District (except to the limited extent set forth in the Indenture), the City, th e State or any political subdivision thereof is pledged to the payment of the Bonds. The Bonds are limited obligations of the District; and, except as provided in the Indenture, they are payable solely from Net Special Tax Revenues and the other assets pl edged therefore under the Indenture. Net Special Tax Revenues could be insufficient to pay debt service on the Bonds as a result of delinquencies in the payment of Special Taxes or the insufficiency of proceeds derived from the sale of land within the Dis trict following a delinquency in the payment of the applicable Special Tax. The District has no obligation to pay debt service on the Bonds in the event of insufficient Net Special Tax Revenues, except to the extent that money is available for such purpos e in the Reserve Fund. The District’s only obligation with respect to 411
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delinquent Special Taxes is to pursue judicial foreclosure proceedings under the circumstances described in the Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Covenant for Superior Court Foreclosure.”
Loss of Tax Exemption
As discussed under “TAX MATTERS,” interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance, as a result of acts or omissions of the District subsequent to the issuance of the Bonds in violation of the District’s covenants with respect to the Bonds. Should interest become includable in gross income, the Bonds are not subject to redemption by reason thereof and will remain outstanding until maturity or unless earlier redeemed pursuant to optional or mandatory redemption or redemption upon prepayment of the Special Tax.
Potential Early Redemption of Bonds from Special Tax Prepayments Property owners within the District are pe rmitted to prepay their Special Taxes at any time. Such payments will result in a mandatory redemption of Bonds from Special Tax prepayments on the Interest Payment Date for which timely notice may be given under the Indenture following the receipt of suc h Special Tax prepayment. The resulting redemption of Bonds purchased at a price greater than par could reduce the otherwise expected yield on such Bonds. See “THE BONDS — Redemption — Mandatory Redemption from Special Tax Prepayments.”
Cybersecurity
The City, like many other public and private entities, relies on a large and complex technology environment to conduct its operations. As a recipient and provider of personal, private, or sensitive information, the City is subject to multiple cyber threats i ncluding, but not limited to, hacking, viruses, malware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City’s digital systems for the purposes of misappropriating assets or information or causing operational disruption and damage. To date, the City has not experienced an attack on its computer operating systems which resulted in a breach of its cybersecurity systems that are in place. However, no assura nces can be given that the City’s efforts to manage cyber threats and attacks will be successful or that any such attack will not materially impact the operations or finances of the City.
COVID-19 (Coronavirus) Pandemic
The spread of the novel strain of coronavirus called COVID -19 (“COVID-19”) is having significant negative impacts throughout the world, including in the District. The World Health Organization has declared the COVID-19 outbreak to be a pandemic, and state s of emergency have been declared by the County, State and the United States. The purpose behind these declarations are to coordinate and formalize emergency actions across federal, state and local governmental agencies, and to proactively prepare for a wi der spread of the virus.
The COVID-19 pandemic is ongoing, and the ultimate geographic spread of the virus, the duration and severity of the outbreak, and the economic and other actions that may be taken by governmental authorities to contain the outbreak or to treat its impacts are uncertain. However, the impact of the COVID -19 outbreak could adversely impact development within the District, including, but not limited to, one or more of the following ways: (i) potential supply chain slowdowns or shutdown s resulting from the unavailability of workers in locations producing construction materials; (ii) slowdowns or shutdowns by local governmental agencies in providing governmental permits, inspections, title and document recordation, and other services and activities associated with real estate development; (iii) delays in construction where one or more members of the workforce becomes infected with COVID -19; (iv) continued extreme fluctuations in financial markets 412
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and contraction in available liquidity; (v) extensive job losses and declines in business activity across important sectors of the economy; (vi) declines in business and consumer confidence that negatively impact economic conditions or cause an economic recession; (vii) the failure of government me asures to stabilize the financial sector and introduce fiscal stimulus to counteract the economic impact of the pandemic; (viii) delays in sales or fewer sales due to lower traffic at model home complexes and real estate offices; and (ix) delays in sales, or cancellations, due to mortgage lending issues. The ultimate adverse impact of COVID -19 on the District, Lennar Homes’ operations, finances and ability to complete their development within the District as planned, homebuyers’ willingness and ability to pay Special Taxes when due, and the real estate market in general is unknown.
CONTINUING DISCLOSURE
Community Facilities District
Pursuant to a Continuing Disclosure Agreement (the “District Continuing Disclosure Agreement”) with U.S. Bank Trust Company, National Association , in its capacity as Trustee and in its capacity as dissemination agent, the District has agreed to provide, or cause to be provided, to the Electronic Municipal Market Access System of the Municipal Securities Rulemakin g Board, which can be found on the Internet at www.emma.msrb.org (“EMMA”), on an annual basis certain financial information and operating data concerning the District. The District has further agreed to provide notice to EMMA of certain listed events.
The District’s covenants have been made in order to assist the Underwriter in complying with the Rule.
The District has not previously entered into any undertaking with respect to the Rule. However, the City, as well as the Fontana Public Financing Authority (the “Authority”), the Successor Agency to the Fontana Redevelopment Agency (the “Successor Agency”) and various community facilities districts within the City (each, a “CFD”), entities with the City Council as the legislative body, have entered into numerous continuing disclosure undertakings.
Within the last five y ears, the City and the Authority have timely filed all regular annual reports pursuant to such undertakings. However, the Successor Agency, as successor to the undertakings of the former Fontana Redevelopment Agency (the “Former Agency”), failed to file o ne annual report for one issue of the Former Agency’s bonds and failed to link one annual report to the relevant CUSIPs for one issue of the Former Agency’s bonds. Additionally, a CFD failed to file one annual report for one issue of bonds for which the official statement relating to such bonds contained all of the information required to be contained in such report. Further, the District is aware that not all of the required information was included with respect to a number of annual report filings by th e City, the Authority, the Successor Agency and several CFDs, including required tabular information. Additionally, the City, the Authority, the Successor Agency and two CFDs failed to timely file certain notices of ratings changes. The City has since ma de filings on behalf of itself and its related entities to correct material omissions with respect to the filings that were required to have been made within the past five years, and has adopted written procedures to ensure future compliance with the City’ s disclosure undertakings and those of its related entities.
Except as disclosed in this Official Statement, within the last five years, the City, the Successor Agency and the Authority have not failed to timely comply with their respective prior continuin g disclosure obligations under the Rule in all material respects. The full text of the form of the District Continuing Disclosure Agreement is set forth in Appendix G.
Lennar Homes
Although the Underwriter has concluded that Lennar Homes is not an obligat ed person under Rule 15c2-12, pursuant to the Developer Continuing Disclosure Agreement, Lennar Homes has agreed to provide, or cause to be provided, to EMMA, on a semi -annual basis certain information concerning Lennar Homes and its property ownership and development within the District. Lennar Homes has further agreed to 413
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provide notice to EMMA of certain listed events. The obligations of Lennar Homes under its Developer Continuing Disclosure Agreement will terminate upon the earliest to occur of certain events, including at such time that its property within the District is responsible for less than 20% of the annual Special Tax levy.
Lennar Homes may require buyers of property within the District, other than individual homeowners, to assume such obligation if the buyer will be responsible for over 20% of the Special Taxes. A default under the Developer Continuing Disclosure Agreement will not, in itself, constitute an Event of Default under the Indenture, and the sole remedy under the Developer Continu ing Disclosure Agreement in the event of any failure of Lennar Homes or the dissemination agent, as applicable, to comply with the Developer Continuing Disclosure Agreement will be an action to compel performance. See APPENDIX H — “FORM OF DEVELOPER CONTINUING DISCLOSURE AGREEMENT” for a description of the specific nature of the semi-annual reports to be filed by Lennar Homes and notices of listed events to be provided by Lennar Homes.
Neither the District nor the City has considered, or reached any conclu sion as to, whether or not Lennar Homes is an obligated person under Rule 15c2 -12 and takes no responsibility for any such conclusion.
Additionally, neither the District nor the City has participated in the preparation, negotiation or implementation of the Developer Continuing Disclosure Agreement or in discussions regarding the form or content thereof.
The District and the City take no responsibility for such form or content or for the adequacy of the Developer Continuing Disclosure Agreement for its intended purpose.
Neither the District nor the City is a party to the Developer Continuing Disclosure Agreement, and neither the District nor the City has any obligation or responsibility to monitor, nor any right or obligation to enforce, compliance by Lenna r Homes with its undertaking pursuant to the Developer Continuing Disclosure Agreement, and neither the District nor the City will be so monitoring or enforcing such compliance.
To the Actual Knowledge of Lennar Homes, other than as disclosed in this Offic ial Statement, in the last five years, Lennar Homes has not failed to comply in any material respects with its previous continuing disclosure undertakings, specifically regarding its requirement to provide developer periodic reports or to provide notice of occurrence of enumerated events. However, (i) in connection with a continuing disclosure obligation entered into with respect to the $12,850,000 County of El Dorado District No. 2014 -1 (Carson Creek) Special Tax Bonds Series 2016, Lennar Homes was late i n filing the periodic reports due on April 1, 2017 and October 1, 2017; the oversight was discovered in late January, 2018, and Lennar Homes promptly filed a curative report on February 1, 2018; and (ii) in connection with the $16,780,000 California Munici pal Finance Authority Special Tax Revenue Bonds BOLD Program Series 2020B, Lennar Homes inadvertently failed to file the initial semi -annual report by the due date of May 1, 2021 , but filed a curative report on May 21, 2021.
TAX MATTERS
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or th e amount, accrual or receipt of interest on, the Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix D hereto.
To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner t hereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this 414
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purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight -line interpolations between compounding dates). The accruing original issu e discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respec t to the tax consequences of ownership of Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public.
Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax -exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.
The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants.
Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Cou nsel’s attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds.
Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.
Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or th e accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benef it of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospecti ve purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
The opinion of Bond Couns el is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the Internal Re venue Service (“IRS”) or the courts. 415
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Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpret ation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code.
Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged , Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax -exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, Beneficial Owners would have little, if any, right to p articipate in the audit examination process.
Moreover, because achieving judicial review in connection with an audit examination of tax -exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagr ees, may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketabil ity of, the Bonds, and may cause the District or the Beneficial Owners to incur significant expense.
Payments on the Bonds generally will be subject to U.S. information reporting and possibly to “backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate Beneficial Owner of Bonds may be subject to backup withholding with respect to “reportable payments,” which include interest paid on the Bonds and the gross proceeds of a sale, exchang e, redemption, retirement or other disposition of the Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number (“TIN”) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against a Beneficial Owner’s federal income tax liability, if any, provided that the required information is ti mely furnished to the IRS. Certain Beneficial Owners (including among others, corporations and certain tax -exempt organizations) are not subject to backup withholding. The failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS.
ABSENCE OF LITIGATION
In connection with the issuance of the Bonds, the City Attorney of the City will deliver a certificate to the effect that, to the City Attorney’s actual knowledge, after due inquiry and investigation, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body, pending or threatened, or any unfavorable decision, ruling or finding, against or affecting the City or the District, which would adversely impac t the ability of the City or the District to complete the transactions described in, or contemplated by, the Indenture or this Official Statement, restrain or enjoin the collection of the Special Taxes, or in any way contest or affect the validity of the B onds, the Indenture, the Special Taxes, or the transactions described herein.
ABSENCE OF RATINGS
The District has not made, and does not contemplate making, application to any rating organization for a rating on the Bonds.
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CERTAIN LEGAL MATTERS
Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, will render an opinion with respect to the validity and enforceability of the Indenture and as to the validity of the Bonds. A copy of the form of such approving opinion is attached hereto as Appendix D. Copies of such approving opinion will accompany each Bond. Bond Counsel has not undertaken any responsibility for the accuracy, completeness or fairness of the Official Statement or other offering materials relating to the Bonds and expresses no opin ion relating thereto. Certain legal matters will be passed upon for the City by the City Attorney and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Kutak Rock LLP, Irvine, California.
Although it is serving as Bond Counsel to the District in connection with the issuance and sale of the Bonds, Bond Counsel represents the Underwriter in connection with other finan cings and matters unrelated to the Bonds. Disclosure Counsel and the City Attorney also represent the Underwriter in connection with other financings and matters unrelated to the Bonds.
UNDERWRITING
The Bonds are being purchased by Piper Sandler & Co. (th e “Underwriter”). The Underwriter has agreed to purchase the Bonds at a price of $ __________ ($_________ principal amount, plus an original issue premium of $_________ and less an Underwriter’s discount of $ _________). The Bond Purchase Agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Bond Purchase Agreement, the approval of certain legal mat ters by counsel and certain other conditions. The Underwriter’s compensation is contingent upon the successful issuance of the Bonds.
Under certain circumstances, the Underwriter may offer and sell Bonds to certain dealers and others at prices lower than the offering prices stated on the inside front cover page hereof. The offering prices may be changed from time to time by the Underwriter.
FINANCIAL INTERESTS
The fees being paid to the Municipal Advisor, Bond Counsel, Disclosure Counsel, Underwriter, and Underwriter’s Counsel are contingent upon the issuance and delivery of the Bonds.
MUNICIPAL ADVISOR
The District has retained CSG Advisors Incorporated, San Francisco, California, as municipal advisor (the “Municipal Advisor”) for the sale of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.
CSG Advisor s Incorporated is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. 417
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ADDITIONAL INFORMATION
The purpose of this Official Statement is to supply information to prosp ective buyers of the Bonds.
Quotations and summaries and explanations of the Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements and their provisions.
The execution and delivery of this Official Statement by the City Manager of the City has been duly authorized by the City Council of the City of Fontana acting in its capacity as the legislative body of the District.
CITY OF FONTANA COMMUNITY FACILITIES
DISTRICT NO. 95 (SUMMIT AT ROSENA PHASE TWO)
By:
City Manager
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APPENDIX A
RATE AND METHOD OF APPORTIONMENT FOR
CITY OF FONTANA COMMUNITY FACILITIES DISTRICT NO. 95
(SUMMIT AT ROSENA PHASE TWO)
A Special Tax as hereinafter defined shall be levied on all Assessor’s Parcels of Taxable Property in City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two) (“CFD No. 95”) and collected each Fiscal Year, in an amount determined by the City Council of the City of Fontana, thr ough the application of the Rate and Method of Apportionment as described below. All of the real property in CFD No. 95, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided.
A. DEFINITIONS
The terms hereinafter set forth have the following meanings:
“Acre” or “Acreage” means the land area expressed in acres of an Assessor’s Parcel as shown on an Assessor’s Parcel Map, or if the land area is not shown on an Assessor’s Parcel Map, the land area shown on the applicable final map, parcel map, condominium plan, or other recorded County map or the land area calculated to the reasonable satisfaction of the CFD Administrator using the boundaries set forth on such map or plan. For residential dwelling units within a condominium plan, the Acres applicable to each residential dwelling unit shall be determined by dividing (i ) the Acres of the underlying lot or parcel on which the residential dwelling unit is constructed or to be c onstructed, by (ii ) the total number of residential dwelling units constructed or to be constructed on such lot or parcel. The square footage of an Assessor’s Parcel is equal to the Acreage of such parcel multiplied by 43,560. “Act” means the Mello -Roos C ommunity Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2 of Title 5 (commencing with Section 53311) of the California Government Code. “Administrative Expenses” means the following actual or reasonably estimated costs directly rel ated to the administration of CFD No. 95, including but not limited to: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the City or designee thereof or both); the costs of collecting the Speci al Taxes (whether by the County or otherwise); the costs of remitting the Special Taxes to the Trustee; the costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the City, CFD No. 95 or any designee thereof of complying with arbitrage rebate requirements with respect to the Special Tax and CFD No. 95 Bonds; the costs to the City, CFD No. 95 or any designee thereof of complying with disclosure requirements of the City, CFD No. 95 or obligated persons associated with applicable federal and state securities laws and the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the City, CFD No . 95, or any designee thereof related to the reduction of the Assigned Facilities Special Tax and Backup Facilities Special Tax in accordance with Section C.1 herein; the costs of the City, CFD No. 95 or any designee thereof related to an appeal of the Spe cial Tax; and the City’s annual administration fees and third party expenses related to CFD No. 95 Bonds. Administrative Expenses shall also include amounts estimated or advanced by the City or CFD No. 95 for any other administrative purposes of CFD No. 95, including attorney’s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes.
“Assessor” means the Assessor of the County.
“Assessor’s Parcel” means a lot or parcel to which an Assessor’s parcel number is assigned as determined from an Assessor’s Parcel Map or the applicable assessment roll. 419
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“Assessor’s Parcel Map” means an official map of the Assessor designating parcels by Assessor’s Parcel number.
“Assigned Facilities Special Tax” means the Fac ilities Special Tax for each Land Use Class of Developed Property, as determined in accordance with Section C.1.a.(2) below. “Assigned Services Special Tax” means the Services Special Tax, determined in accordance with Section C.2.b herein, that can be levied in any Fiscal Year on any Assessor’s Parcel of Developed Property. “Attached Residential Property” means Assessor’s Parcels of Developed Property for which building permits have been issued for a residential dwelling unit that shares, or will share, an inside wall with another residential dwelling unit.
“Attached Residential Subdivision” means a Final Residential Subdivision that creates individual lots for which building permits may be issued for residential dwelling units that share, or will share, an inside wall with another residential dwelling unit in such subdivision. “Authorized Facilities” means those facilities eligible to be funded by CFD No. 95. “Authorized Services” means those services eligible to be funded by CFD No. 95 in accordance with the Act, including, but not limited to, fire protection and suppression services, mainte nance and lighting of parks, parkways, streets, roads and open space, flood and storm protection services and maintenance and operation of any real property or other tangible property with an estimated useful life of five or more years that is owned by the City.
“Backup Facilities Special Tax” means the Facilities Special Tax applicable to each Assessor’s Parcel of Developed Property, as determined in accordance with Section C.1.a.(3) below. “Buildout” means, for CFD No. 95, that all expected building permi ts for residential dwelling units and/or non-residential development to be constructed within CFD No. 95 have been issued, as determined by the CFD Administrator.
“CFD Administrator” means an official of the City, or designee thereof, responsible for deter mining the Special Tax Requirement for Facilities and the Special Tax Requirement for Services, providing for the levy and collection of the Special Taxes, and performing other duties as set forth herein. “CFD No. 95” means City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two). “CFD No. 95 Bonds” means any bonds or other debt (as defined in Section 53317(d) of the Act), whether in one or more series, issued by CFD No. 95 and secured by the Facilities Special Tax levy on property within the boundaries of CFD No. 95 under the Act.
“City” means the City of Fontana, California.
“Contractual Impositions” means (a ) a voluntary contractual assessment established and levied on an Assessor’s Parcel pursuant to Chapter 29 of Part 3 of Divis ion 7 of the California Streets and Highways Code (commencing with Section 5898.10 et seq.), as amended from time to time, (b) a special tax established and levied on an Assessor’s Parcel pursuant to Section 53328.1 of the California Government Code and re lated provisions of the Act, as amended from time to time, and (c) any other fee, charge, tax or assessment established and levied on an individual Assessor’s Parcel pursuant to a contractual agreement or other voluntary consent by the owner thereof.
“Council” means the City Council of the City acting as the legislative body of CFD No. 95. 420
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“County” means the County of San Bernardino.
“Detached Residential Property” means Assessor’s Parcels of Developed Property for which building permits have been issued for a residential dwelling unit that is or is expected to be surrounded by freestanding walls and that does not share an inside wall with any other residential dwelling unit. “Detached Residential Subdivision” means a Final Residential Subdivision t hat creates individual lots for which building permits may be issued for residential dwelling units that are or are expected to be surrounded by freestanding walls and that do not share an inside wall with any other residential dwelling unit in such subdivision.
“Developed Property” means, for each Fiscal Year, (i ) with respect to the Facilities Special Tax, all Taxable Property, exclusive of Taxable Public Property and Taxable Property Owner Association Property, for which a building permit for new construction, other than the construction of a garage, parking lot, or parking structure, was issued after January 1, 2019 and on or before May 1 of the Fiscal Year preceding the Fiscal Year for which the Facilities Special Taxes are being levied, and (ii ) with r espect to the Services Special Tax, all Taxable Property, exclusive of Taxable Public Property and Taxable Property Owner Association Property, (a) for which the Final Residential Subdivision was recorded prior to the Fiscal Year for which the Services Special Taxes are being levied, or (b ) for which a building permit has been issued with respect to Non - Residential Property on or before May 1 of the Fiscal Year preceding the Fiscal Year for which the Services Special Taxes are being levied.
“Facilities Special Tax” means the special tax to be levied in each Fiscal Year on each Assessor’s Parcel of Taxable Property within CFD No. 95 to fund the Special Tax Requirement for Facilities, as set forth in Section C.1 herein.
“Final Residential Subdivision” means a Final Subdivision that creates individual lots for which building permits may be issued for residential dwelling units without further subdivision of such property. “Final Subdivision” means (i) a subdivision of property by recordation of a final map, parc el map, or lot line adjustment approved by the City pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq. ) that creates individual lots or parcels for which building permits may be issued, or (ii ) for condominiums, a final m ap approved by the City and a condominium plan recorded pursuant to California Civil Code 1352 that creates an individual lot(s) for which a building permit(s) may be issued without further subdivision. The term “Final Subdivision” shall not include any A ssessor’s Parcel Map or subdivision map or portion thereof that does not create individual lots for which a building permit may be issued, including Assessor’s Parcels that are designated as remainder parcels. “Fiscal Year” means the period starting July 1 and ending on the following June 30. “Indenture” means the indenture, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which CFD No. 95 Bonds are issued, as modified, amended and/or supplemented from time to time.
“Land Use Class” means any of the classes listed in Table 1, Table 4, or Table 5 herein. “Maximum Facilities Special Tax” means the maximum Facilities Special Tax, determined in accordance with Section C.1 herein, that can be levied in any Fiscal Year on any Assessor’s Parcel of Taxable Property. “Maximum Services Special Tax” means the maximum Services Special Tax, determined in accordance with Section C.2 herein, that can be levied in any Fiscal Year on any Assessor’s Parcel of Developed Property. 421
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“Minimum Sale Price” means the minimum price at which parcels of a given Land Use Class have sold or are expected to be sold in a normal marketing environment and shall not include prices for such parcels that are sold at a discount to expected sales prices for the purpose of stimulating the initial sales activity with respect to such Land Use Class.
“Non-Residential Property” means all Assessor’s Parcels of Developed Property for which a building permit(s) has been issued by the City permitting the construction of one or more non -residential structures or facilities.
“Outstanding Bonds” means all CFD No. 95 Bonds which are outstanding under the Indenture. “Planning Area” means an area designated with the letters “P.A.” as shown on Exhibit B. “Price Point Consultant” means any consultant or firm of such consultants selected by CFD No. 95 that (a) has substantial experience in performing price point studies for residential dwelling units within community facilities districts or otherwise estimating or confirming pricing fo r residential dwelling units in community facilities districts, (b ) has recognized expertise in analyzing economic and real estate data that relates to the pricing of residential dwelling units in community facilities districts, (c ) is in fact independent and not under the control of CFD No. 95 or the City, (d ) does not have any substantial interest, direct or indirect, with or in (i) CFD No. 95, (ii ) the City, (iii) any owner of real property in CFD No. 95, or (iv ) any real property in CFD No. 95, and (e ) is not connected with CFD No. 95 or the City as an officer or employee thereof, but who may be regularly retained to make reports to CFD No. 95 or the City. “Price Point Study” means a price point study or a letter updating a previous price point study prepared by the Price Point Consultant pursuant to Section C herein. “Property Owner Association Property” means, for each Fiscal Year, (i) any property within the boundaries of CFD No. 95 for which the owner of record, as determined from the County Assessor’s secured tax roll for the Fiscal Year in which the Special Tax is being levied, is a property owner’s association, including any master or sub -association, or (ii ) any property located in a Final Subdivision that was recorded as of the January 1 preceding the Fiscal Year in which the Special Tax is being levied and which, as determined from such Final Subdivision, is or will be open space, a common area recreation facility, or a private street. “Proportionately” means that the ratio of the actual Facilities Special Tax levy to the Assigned Facilities Special Tax is equal for all Assessor’s Parcels of Developed Property, and that the ratio of the actual Services Special Tax levy to the Assigned Services Special Tax is equal for all Assessor’s Parcel s of Developed Property. For Undeveloped Property, “Proportionately” means that the ratio of the actual Facilities Special Tax levy per Acre to the Maximum Facilities Special Tax per Acre is equal for all Assessor’s Parcels of Undeveloped Property. The t erm “Proportionately” shall similarly be applied to other categories of Taxable Property as listed in Section D herein.
“Public Property” means, for each Fiscal Year, any property within the boundaries of CFD No. 95 that is (i) owned by, irrevocably offere d or dedicated to the federal government, the State, the County, the City, or any local government or other public agency, provided, however, that any property leased by a public agency to a private entity and subject to taxation under Section 53340.1 of t he Act shall be taxed and classified according to its use; or (ii) encumbered by a public utility easement making impractical its use for any purpose other than that set forth in the easement.
“Rate and Method of Apportionment” means this Rate and Method of Apportionment for CFD No. 95. “Residential Floor Area” means all of the square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similar area. The determination of Residential Floor Area for an Assessor’s Parcel shall be as set forth in the building permit(s) 422
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issued for such Assessor’s Parcel and/or as set forth in the appropriate records kept by the Building and Safety Department of the City, or other applicable City department, as determined by the CFD Administrator. “Residential Property” means all Assessor’s Parcels of Developed Property for which a building permit(s) has been issued by the City permitting the construction thereon of one or more residential dwelling units. “Services Special Tax” means the special tax to be levied in each Fiscal Year on each Assessor’s Parcel of Developed Property within CFD No. 95 to fund the Special Tax Requirement for Services, as set forth in Section C.2 herein.
“Special Tax” means the Facilities Special Tax and/or Services Special Tax, as applicable. “Special Tax Requirement for Facilities” means, for any Fiscal Year, that amount required, after taking into account available amounts held in the funds and accounts under the Indenture, for the following items: (i) debt service on all Outstanding Bonds due in the calendar year commencing in such Fiscal Year; (ii ) periodic costs with respect to the CFD No. 95 Bonds, including but not limited to, costs of credit enhancem ent and federal rebate payments due in the calendar year commencing in such Fiscal Year; (iii ) pay all or a portion of Administrative Expenses; (iv ) any amounts required to establish or replenish any reserve funds for all Outstanding Bonds; (v ) without dup licating any amounts described in clause (iv), above, reasonably anticipated Facilities Special Tax delinquencies based on the delinquency rate for the Facilities Special Tax in the previous Fiscal Year, as said levy for delinquencies shall be limited by the Act; and (vi) pay directly for the acquisition or construction of Authorized Facilities, provided that the inclusion of such amount does not increase the Facilities Special Tax levy beyond the first step in Section D.1 herein. “Special Tax Requirement f or Services” means that amount required in any Fiscal Year for CFD No. 95 to (i) pay directly for the Authorized Services; (ii ) pay Administrative Expenses not funded through the Special Tax Requirement for Facilities as determined by the CFD Administrator ; (iii) pay for reasonably anticipated Services Special Tax delinquencies based on the delinquency rate for the Services Special Tax levy in the previous Fiscal Year; less (iv ) a credit for funds available to reduce the annual Services Special Tax levy, as determined by the CFD Administrator, so long as the amount required is not less than zero. “State” means the State of California.
“Taxable Property” means all of the Assessor’s Parcels within the boundaries of CFD No. 95 which are not exempt from the Special Tax pursuant to applicable law or Section E herein. “Taxable Property Owner Association Property” means all Assessor’s Parcels of Property Owner Association Property that are not exempt pursuant to Section E herein. “Taxable Public Property” means all Assessor’s Parcels of Public Property that are not exempt pursuant to Section E herein.
“Total Tax Burden” means, for a parcel of residential property within a Land Use Class, for the Fiscal Year in which Total Tax Burden is being calculated, the sum of (a ) the Assigned Facilities Special Tax for such Fiscal Year, plus (b) the Assigned Services Special Tax for such Fiscal Year, plus (c ) the ad valorem property taxes, special assessments, special taxes for any overlapping community facilities districts, and any other governmental fees, charges (other than fees or charges for services such as sewer and trash), taxes and assessments (which, for purposes of clarity, do not include Contractual Impositions) collected by the County on ad valorem tax bills and that the CFD Administrator estimates would be levied or imposed on such residential property in such Fiscal Year if the residential dwelling unit thereon or therein had been completed and sold, and was subject to such fees, charges, taxes and assessments in such Fiscal Year. “Trustee” means the trustee or fiscal agent under the Indenture. 423
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“Undeveloped Property” means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Taxable Public Property or Taxable Property Owner Association Property.
Please refer to additional definitions in Section H herein relating to the Prepayment of Facilities Special Tax.
B. ASSIGNMENT TO LAND USE CATEGORIES
Each Fiscal Year, commencing with Fiscal Year 2019 -2020, all Taxable Property within CFD No. 95 shall be classified as Developed Property, Undeveloped Property, Taxable Public Property or Taxable Property Owner Association Property, and shall be subject to Special Taxes in accordance with this Rate and Method of Apportionment determined pursuant to Sections C and D herein.
C. MAXIMUM SPECIAL TAX RATE
1. Facilities Special Tax
At least 30 days prior to the issuance of the first series of CFD No. 95 Bonds, the Assigned Facilities Special Tax on Developed Property (set forth in Table 1) shall be analyzed in accordance with and subject to the conditions set forth in this Section C. At such time, the CFD Administrator shall request the Price Point Consultant to prepare a Price Point Study setting forth the Minimum Sale Price of residential prop erty within each Land Use Class. If based upon such Price Point Study the CFD Administrator calculates that the Total Tax Burden applicable to one or more Land Use Classes of residential property constructed or to be constructed within CFD No. 95 shall ex ceed 1.95% of the Minimum Sale Price of such residential property constructed or to be constructed within CFD No. 95, the CFD Administrator shall reduce the Assigned Facilities Special Tax to the extent necessary to cause the Total Tax Burden that shall ap ply to residential property within such Land Use Class(es) to not exceed 1.95% of the Minimum Sale Price of such residential property. Each Assigned Facilities Special Tax reduction for a Land Use Class shall be calculated separately, and it shall not be required that such reduction be proportionate among Land Use Classes. In connection with any reduction in the Assigned Facilities Special Tax, the CFD Administrator shall also reduce the Backup Facilities Special Tax in accordance with Section C.1.a.(3) h erein. Upon determining the reductions, if any, in the Assigned Facilities Special Tax and Backup Facilities Special Tax required pursuant to this Section C, the CFD Administrator shall complete the Certificate to Amend Facilities Special Tax substantiall y in the form attached hereto as Exhibit A (the “Certificate to Amend”) and shall execute such completed Certificate to Amend and shall deliver such Certificate to Amend to CFD No. 95. Upon receipt thereof, if in satisfactory form, CFD No. 95 shall execut e such Certificate to Amend. The reduced Assigned Facilities Special Tax and Backup Facilities Special Tax specified in such Certificate to Amend shall become effective upon the execution of such Certificate to Amend by CFD No. 95. The Assigned Facilitie s Special Tax and Backup Facilities Special Tax reductions permitted pursuant to this Section C shall be reflected in an amended notice of Special Tax lien which CFD No. 95 shall cause to be recorded with the San Bernardino County Recorder as soon as practicable after execution of the Certificate to Amend by CFD No. 95. If based upon such Price Point Study the CFD Administrator calculates that the Total Tax Burden applicable to each Land Use Class of residential property constructed or to be constructed wi thin CFD No. 95 does not exceed 1.95% of the Minimum Sale Price of each such Land Use Class of residential property constructed or to be constructed within CFD No. 95, then there shall be no reduction in the Assigned Facilities Special Tax, nor shall there be a reduction in the Backup Facilities Special Tax.
a. Developed Property
(1). Maximum Facilities Special Tax
The Maximum Facilities Special Tax for each Assessor’s Parcel classified as Developed Property shall be the greater of (i ) the amount derived by application of the Assigned 424
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Facilities Special Tax or (ii ) the amount derived by application of the Backup Facilities Special Tax.
(2). Assigned Facilities Special Tax
Residential Property shall be assigned to Land Use Classes 1 through 21 as li sted in Table 1 below based on the type of use and the Residential Floor Area for each residential dwelling unit. Non -Residential Property shall be assigned to Land Use Class 22. The Assigned Facilities Special Tax that shall be levied in any Fiscal Year for each Land Use Class is shown below in Table 1.
Table 1
Assigned Facilities Special Tax for Developed Property
City of Fontana CFD No. 95 (Summit at Rosena Phase Two) Land
Use
Class Description
Residential Floor
Area (square feet)
Assigned
Facilities
Special Tax
1 Detached Residential Property 4,001 or greater $3,791 per unit 2 Detached Residential Property 3,801 to less than 4,001 $3,577 per unit 3 Detached Residential Property 3,601 to less than 3,801 $3,467 per unit 4 Detached Residential Property 3,401 to less than 3,601 $3,416 per unit 5 Detached Residential Property 3,201 to less than 3,401 $3,108 per unit 6 Detached Residential Property 3,001 to less than 3,201 $3,080 per unit 7 Detached Residential Property 2,801 to less than 3,001 $3,035 per unit 8 Detached Residential Property 2,601 to less than 2,801 $2,880 per unit 9 Detached Residential Property 2,401 to less than 2,601 $2,758 per unit 10 Detached Residential Property 2,201 to less than 2,401 $2,669 per unit 11 Detached Residential Property 2,001 to less than 2,201 $2,661 per unit 12 Detached Residential Property 1,801 to less than 2,001 $2,446 per unit 13 Detached Residential Property 1,601 to less than 1,801 $2,327 per unit 14 Detached Residential Property 1,401 to less than 1,601 $2,185 per unit 15 Detached Residential Property Less than 1,401 $2,163 per unit 16 Attached Residential Property 1,801 or greater $2,320 per unit 17 Attached Residential Property 1,601 to less than 1,801 $2,193 per unit 18 Attached Residential Property 1,401 to less than 1,601 $2,059 per unit 19 Attached Residential Property 1,201 to less than 1,401 $1,759 per unit 20 Attached Residential Property 1,001 to less than 1,201 $1,609 per unit 21 Attached Residential Property Less than 1,001 $1,506 per unit 22 Non-Residential Property NA $24,510 per Acre
(3). Backup Facilities Special Tax
The Backup Facilities Special Tax for an Assessor’s Parcel of Developed Property within a Planning Area shall equal the lesser of (a) the Backup Facilities Special Tax applicable for such Planning Area set forth in Table 2 below, or (b ) in connection with any reduction in the Assigned Facilities Special Tax as set forth in Section C.1 herein, the amount per Acre calculated for each Planning Area pursuant to the formula below:
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BFST = AFST ÷ ATP
These terms have the following meaning:
BFST = the reduced Backu p Facilities Special Tax for Developed Property within a Planning Area
AFST = The total estimated Assigned Facilities Special Tax levy within such Planning Area based on the reduced Assigned Facilities Special Taxes for Developed Property permitted pursuan t to Section C.1 herein which could be levied on all expected development within such Planning Area assuming Buildout of CFD No. 95.
ATP = The sum of the Acreage of all Taxable Property within a Final Subdivision (assuming Buildout of CFD No. 95) within such Planning Area (after excluding Public Property and Property Owner Association Property as set forth in Section E.1 herein) multiplied by 90%.
Table 2
Backup Facilities Special Tax for Developed Property
City of Fontana CFD No. 95 (Summit at Rosena Phase Two) Planning
Area
Backup
Facilities
Special Tax
P.A. 12 $23,850 per Acre
P.A. 15 $17,080 per Acre
P.A. 17/18 $51,010 per Acre
P.A. 19 $35,230 per Acre
Furthermore, all Assessors’ Parcels within CFD No. 95 shall be relieved simultaneously and permanently from the obligation to pay and disclose the Backup Facilities Special Tax if the CFD Administrator calculates that (i ) the annual debt service required for the Outstanding Bonds, when compared to the Assigned Facilities Speci al Tax that shall be levied against all Assessors’ Parcels of Developed Property in CFD No. 95 results in 110% debt service coverage (i.e., the Assigned Facilities Special Tax that shall be levied against all Developed Property in CFD No. 95 in each remain ing Fiscal Year based on the then existing development is at least equal to the sum of (a ) 1.10 times the debt service necessary to support the remaining Outstanding Bonds in each corresponding Fiscal Year, and (b) Administrative Expenses), and (ii ) all authorized CFD No. 95 Bonds have already been issued or the Council has covenanted that it shall not issue any additional CFD No. 95 Bonds (except refunding bonds) to be supported by the Facilities Special Tax in CFD No. 95. (4). Multiple Land Uses
In some instances an Assessor’s Parcel may contain both Developed Property and Undeveloped Property. In such cases, the Acreage of the Assessor’s Parcel shall be allocated between Developed Property and Undeveloped Property based on the portion of the Assessor’s Parcel for which building permits had been issued prior to May 1 of the prior Fiscal Year and the portion of the Assessor’s Parcel for which building permits had not been issued prior to May 1 of the prior Fiscal Year.
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Furthermore, Developed Property may contain more than one Land Use Class. In such cases, the Acreage that is considered Developed Property shall be allocated between Residential Property and Non -Residential Property based on the amount of Acreage designated for each land use as determined by reference to the site plan approved for such Assessor’s Parcel. The Maximum Facilities Special Tax that can be levied on such Assessor’s Parcel shall be the sum of the Maximum Facilities Special Tax that can be levied on each type of property located on that Assessor’s Parcel.
The CFD Administrator’s allocation to each type of property shall be final. b. Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property
The Maximum Facilities Special Tax for each Assessor’s Parcel of Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property within a Planning Area shall be the applicable amount for such Planning Area set forth in Table 3 below. The Maximum Facilities Special Tax for Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property shall not be subject to change and shall therefore remain the same in every Fiscal Year.
Table 3
Maximum Facilities Special Tax for Undeveloped Property, Taxable Public Property and Taxable Property Owner Association Property City of Fontana CFD No. 95 (Summit at Rosena Phase Two) Planning
Area
Maximum
Facilities
Special Tax
P.A. 12 $23,850 per Acre
P.A. 15 $17,080 per Acre
P.A. 17/18 $51,010 per Acre
P.A. 19 $35,230 per Acre
2. Services Special Tax
For purposes of the Services Special Tax, an Assessor’s Parcel of Developed Property within a Final Residential Subdivision shall be assigned to Land Use Class 1 or Land Use Class 2, as identified in Table 4 and Table 5 below, based on the type of development planned for such subdivision. Non -Residential Property shall be assigned to Land Use Class 3. Furthermore, the Services Special Tax levied against each Assessor’s Parcel within a Final Residential Su bdivision shall be based on the number of residential dwelling units for which building permits have been issued or are expected to be issued for such Assessor’s Parcel, as determined by the CFD Administrator based on such Final Residential Subdivision or other available documents. a. Maximum Services Special Tax
The Fiscal Year 2019 -2020 Maximum Services Special Tax for each Land Use Class of Developed Property is shown below in Table 4.
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Table 4
Maximum Services Special Tax for Developed Property
City of Fontana CFD No. 95 (Summit at Rosena Phase Two) Fiscal Year 2019-2020
Land
Use
Class Description
Maximum
Services
Special Tax
1 Detached Residential Subdivision $825 per unit
2 Attached Residential Subdivision $790 per unit
3 Non-Residential Property $8,240 per Acre
b. Assigned Services Special Tax
The Fiscal Year 2019 -2020 Assigned Services Special Tax for each Land Use Class of Developed Property is shown below in Table 5.
Table 5
Assigned Services Special Tax for Developed Property
City of Fontana CFD No. 95 (Summit at Rosena Phase Two) Fiscal Year 2019-2020
Land
Use
Class Description
Assigned
Services
Special Tax
1 Detached Residential Subdivision $590 per unit
2 Attached Residential Subdivision $565 per unit
3 Non-Residential Property $5,880 per Acre
c. Increase in the Maximum Services Special Tax
On each July 1, commencing on July 1, 2020, the Maximum Services Special Tax shall be increased by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year.
d. Increase in the Assigned Services Special Tax
The Assigned Services Special Tax above shall be applicable for Fiscal Year 2019 -2020, and shall increase thereafter, commencing on July 1, 2020, and on each July 1 thereafter in an amount estimated to fund the Special Tax Requirement for Services for the Fiscal Year commencing on such July 1. However, in no case shall the Assigned Services Special Tax for an Assessor’s Parcel of Developed Property exceed the applicable Maximum Services Special Tax for such Assessor’s Parcel of Developed Property in any Fiscal Year. e. Multiple Land Uses
In some instances an Assessor’s Parcel of Developed Property may contain more than one Land Use Class. In such cases, the Acreage of Developed Property shall be allocated between Residential Property and Non -Residential Property based on the amount of Acr eage 428
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designated for each land use as determined by reference to the site plan approved for such Assessor’s Parcel. The Maximum Services Special Tax that can be levied on such Assessor’s Parcel shall be the sum of the Maximum Services Special Tax that can be levied on each type of property located on that Assessor’s Parcel. The CFD Administrator’s allocation to each type of property shall be final.
D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX
1. Facilities Special Tax
Commencing with Fiscal Year 2019 -2020, and for each following Fiscal Year, the CFD Administrator shall determine the Special Tax Requirement for Facilities and shall provide for the levy of the Facilities Special Tax each Fiscal Year as follows:
First: The Facilities Special Tax shall be levied on each Assessor’s Parcel of Developed Property in an amount equal to 100% of the applicable Assigned Facilities Special Tax; Second: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first step has been completed, the Facilities Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property at up to 100% of the Maximum Facilities Special Tax for Undeveloped Property; Third: If additional monies are needed to satisfy the Spec ial Tax Requirement for Facilities after the first two steps have been completed, then the levy of the Facilities Special Tax on each Assessor’s Parcel of Developed Property whose Maximum Facilities Special Tax is determined through the application of the Backup Facilities Special Tax shall be increased in equal percentages from the Assigned Facilities Special Tax up to the Maximum Facilities Special Tax for each such Assessor’s Parcel; Fourth: If additional monies are needed to satisfy the Special Tax Req uirement for Facilities after the first three steps have been completed, then the Facilities Special Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Public Property and Taxable Property Owner Association Property at up to 100% of the Maximum Facilities Special Tax for Taxable Public Property and Taxable Property Owner Association Property, as needed to satisfy the Special Tax Requirement for Facilities.
Notwithstanding the above, the CFD Administrator shall, in any Fiscal Year, calc ulate a levy Proportionately less than 100% of the Assigned Facilities Special Tax in step one (above), when (i ) the CFD Administrator is no longer required to provide for the levy of the Facilities Special Tax pursuant to steps two through four above in o rder to meet the Special Tax Requirement for Facilities; and (ii ) all authorized CFD No. 95 Bonds have already been issued or the Council has covenanted that it shall not issue any additional CFD No. 95 Bonds (except refunding bonds) to be supported by the Facilities Special Tax.
Further notwithstanding the above, under no circumstances shall the Facilities Special Tax levied in any Fiscal Year against any Assessor’s Parcel of Residential Property for which an occupancy permit for private residential use has been issued (in accordance with Section 53321(d)(3) of the California Government Code), be increased as a consequence of delinquency or default by the owner of any other Assessor’s Parcel within CFD No. 95 by more than ten percent above the amount that w ould have been levied in that Fiscal Year had there never been any such delinquencies or defaults. To the extent that the levy of the Facilities Special Tax on Residential Property is limited by the provision in the previous sentence, the levy of the Faci lities Special Tax on each Assessor’s Parcel of Non -Residential Property shall continue in equal percentages up to 100% of the applicable Maximum Facilities Special Tax.
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2. Services Special Tax
Commencing with Fiscal Year 2019 -2020 and for each following F iscal Year, the CFD Administrator shall determine the Special Tax Requirement for Services and shall provide for the levy of the Services Special Tax until the total Services Special Tax levy equals the Special Tax Requirement for Services. The Services Special Tax shall be levied each Fiscal Year as follows:
First: The Services Special Tax shall be levied Proportionately each Fiscal Year on each Assessor’s Parcel of Developed Property at up to 100% of the applicable Assigned Services Special Tax as neede d to satisfy the Special Tax Requirement for Services;
Second: If additional monies are needed to satisfy the Special Tax Requirement for Services after the first step has been completed, then the levy of the Services Special Tax on each Assessor’s Parcel of Developed Property shall be increased in equal percentages from the Assigned Services Special Tax up to the Maximum Services Special Tax for each such Assessor’s Parcel.
E. EXEMPTIONS
1. Facilities Special Tax
No Facilities Special Tax shall be levied on up to the applicable Acreage limit of Public Property and/or Property Owner Association Property established for each Planning Area as set forth in Table 6 below. Tax - exempt status shall be assigned by the CFD Administrator in the chronological order in which property within a Planning Area becomes Public Property or Property Owner Association Property. However, should an Assessor’s Parcel no longer be classified as Public Property or Property Owner Association Property, it shall, from that point forward, be subject to the Facilities Special Tax.
Table 6
Exempt Acreage Limits
City of Fontana CFD No. 95 (Summit at Rosena Phase Two) Planning
Area
Exempt
Acreage
Limit
P.A. 12 4.54 Acres
P.A. 15 3.51 Acres
P.A. 17/18 6.60 Acres
P.A. 19 2.21 Acres
Notwithstanding the above, an Assessor’s Parcel within a Planning Area that is transferred to a public agency or property owner’s association prior to the issuance of the first series of CFD No. 95 Bonds that causes the Acreage of Public Property and Property Owner Association Property within such Planning Area to exceed the applicable Acreage limit that can be designated by the CFD Administrator under this Section E.1 shall also be exempted from paying the Special Tax.
Public Property or Property Owner Association Property that is not exempt from the Facilities Special Tax under this Section E.1 shall be subject to the levy of the Facilities Special Tax and shall be taxed Proportionately as part of the fourth step in Section D herein, at u p to 100% of the applicable Maximum Facilities Special Tax for Taxable Public Property and Taxable Property Owner Association Property. 430
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2. Services Special Tax
No Services Special Tax shall be levied on Undeveloped Property, Taxable Public Property, Taxabl e Property Owner Association Property, Public Property, or Property Owner Association Property.
F. MANNER OF COLLECTION
The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes; provided, however, that CFD No. 95 may directly bill the Special Tax, and/or may collect Special Taxes at a different time or in a different manner if necessary to meet financial obligations, and, to the extent of the Facilities Special Tax, may covenant to foreclose and may actually foreclose on delinquent Assessor’s Parcels.
G. APPEALS AND INTERPRETATIONS
Any landowner or resident who feels that the amount of the Special Tax levied on his/her Assessor’s Parcel is in error may submit a written appeal to the CFD Administrator, p rovided that the appellant is current in his/her payment of Special Taxes. During the pendency of an appeal, all Special Taxes previously levied must be paid on or before the payment date established when the levy was made. The CFD Administrator shall re view the appeal, meet with the appellant if the CFD Administrator deems necessary, and advise the appellant of its determination. If the CFD Administrator agrees with the appellant, a cash refund shall not be made (except for the last year of levy), but t he amount of the Special Tax levied shall be appropriately modified through an adjustment to the Special Tax levy in the following Fiscal Year. If the CFD Administrator disagrees with the appellant and the appellant is dissatisfied with the determination, the appellant then has 30 days in which to appeal to the Council by filing a written notice of appeal with the City Clerk, provided that the appellant is current in his/her payment of Special Taxes. This second appeal must specify the reasons for its disagreement with the CFD Administrator’s determination.
The CFD Administrator shall interpret this Rate and Method of Apportionment for purposes of clarifying any ambiguity and make determinations relative to the annual administration of the Special Tax and any landowner or resident appeals. Any decision of the CFD Administrator shall be subject to appeal to the Council whose decision shall be final and binding as to all persons.
H. PREPAYMENT OF FACILITIES SPECIAL TAX
Under this Rate and Method of Apportionment, an Assessor’s Parcel within CFD No. 95 is permitted to prepay the Facilities Special Tax. The obligation of the Assessor’s Parcel to pay the Facilities Special Tax may be fully or partially prepaid and permanen tly satisfied as described herein, provided that a prepayment may be made only for Assessor’s Parcels of Developed Property, or for an Assessor’s Parcel of Undeveloped Property for which a building permit has been issued after January 1, 2018, and only if there are no delinquent Special Taxes with respect to such Assessor’s Parcel at the time of prepayment. An owner of an Assessor’s Parcel intending to prepay the Facilities Special Tax obligation shall provide the CFD Administrator with written notice of intent to prepay. Within 30 days of receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment amount for such Assessor’s Parcel. The CFD Administrator may charge such owner a reasonable fee for providing this service. If there are Outstanding Bonds, prepayment must be made not less than 30 days prior to a date that notice of redemption of CFD No. 95 Bonds from the proceeds of such prepayment may be given by the Trustee pursuant to the Indenture that is specified in th e report of the Facilities Special Tax Prepayment Amount (defined below).
The following additional definitions apply to this Section H:
“CFD Public Facilities Costs” means either $8,558,100 in 2019 dollars, which shall increase by the Construction Inflation Index on July 1, 2020, and on each July 1 thereafter, or such lower number as (i ) shall be determined by the CFD Administrator as sufficient to provide funding for the Authorized Facilities under 431
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the authorized bonding program for CFD No. 95, or (ii) shall be determined by the Council concurrently with a covenant that it shall not issue any more CFD No. 95 Bonds (except refunding bonds) to be supported by the Facilities Special Tax levy under this Rate and Method of Apportionment. “Construction Inflation Index” means the annual percentage change in the Engineering News Record Building Cost Index for the City of Los Angeles, measured as of the month of December in the calendar year which ends in the previous Fiscal Year. In the event this index ceases to b e published, the Construction Inflation Index shall be another index as determined by the CFD Administrator that is reasonably comparable to the Engineering News Record Building Cost Index for the City of Los Angeles. “Future Facilities Costs” means the CF D Public Facilities Costs minus (i ) costs of Authorized Facilities previously paid from the Improvement Fund, (ii ) moneys currently on deposit in the Improvement Fund available to pay costs of Authorized Facilities, and (iii ) the amount the CFD Administrat or reasonably expects to derive from the reinvestment of these funds.
“Improvement Fund” means a fund or account specifically identified in the Indenture (or prior to the issuance of the first series of CFD No. 95 Bonds a fund or account held by the City) to hold funds which are currently available for expenditure to acquire or construct Authorized Facilities. “Previously Issued Bonds” means, for any Fiscal Year, all Outstanding Bonds that are outstanding under the Indenture after the first interest and/or principal payment date following the current Fiscal Year.
1. Prepayment in Full
The Facilities Special Tax Prepayment Amount (defined below) shall be calculated as summarized below (capitalized terms as defined below):
Bond Redemption Amount
plus Redemption Premium
plus Future Facilities Amount
plus Defeasance Amount
plus Administrative Fees and Expenses
less Reserve Fund Credit
less Capitalized Interest Credit
Total: equals Facilities Special Tax Prepayment Amount As of the proposed date of prepayment, th e Facilities Special Tax Prepayment Amount shall be calculated according to the following paragraphs:
1. Confirm that no Special Tax delinquencies apply to such Assessor’s Parcel.
2. For Assessor’s Parcels of Developed Property, compute the Assigned Facili ties Special Tax and Backup Facilities Special Tax for the Assessor’s Parcel to be prepaid. For Assessor’s Parcels of Undeveloped Property for which a building permit has been issued after January 1, 2018, compute the Assigned Facilities Special Tax and Backup Facilities Special Tax for that Assessor’s Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for such Assessor’s Parcel.
3. (a) Divide the Assigned Facilities Special Tax computed pursuant to paragraph 2 by the total estimated Assigned Facilities Special Tax levy for CFD No. 95 based on the Assigned Facilities Special Taxes for Developed Property which could be levied on all expected development assuming Buildout of CFD No. 95, excluding any Assessor’s Parcels which have been prepaid, and 432
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(b) Divide the Backup Facilities Special Tax computed pursuant to paragraph 2 by the total estimated Backup Facilities Special Taxes at Buildout for the entire CFD No. 95, excluding any Ass essor’s Parcels which have been prepaid.
4. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the Previously Issued Bonds to compute the amount of Previously Issued Bonds to be redeemed (the “Bond Redemption Amount”).
5. Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium (e.g., the redemption price minus 100%), if any, on the Previously Issued Bonds to be redeemed (the “Redemption Premium”).
6. Compute the current Future Facilities Costs.
7. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the amount determined pursuant to paragraph 6 to compute the amount of Future Facilities Costs to be prepaid (the “Future Facilities Amount”).
8. Compute the amount needed to pay interest on the Bond Redemption Amount from the first bond interest and/or principal payment date following the current Fiscal Year until the redemption date for the Previously Issued Bonds specified in the report of the Facilities Special Tax Prepayment Amount.
9. Determine the Facilities Special Tax levied on the Assessor’s Parcel in the current Fiscal Year which has not yet been paid.
10. Compute the minimum amount the CFD Administrator reasonably expects to derive from the reinvestment of the Facilities Special Tax Prepayment Amount, less any interest earnings attributed to the Future Facilities Amount, and less any interest earnings attributed to the Administrative Fees and Expenses (defined below) from the date of prepayment until the red emption date for the Previously Issued Bonds to be redeemed with the prepayment.
11. Add the amounts computed pursuant to paragraphs 8 and 9 and subtract the amount computed pursuant to paragraph 10 (the “Defeasance Amount”).
12. The administrative fees and expenses of CFD No. 95 are as calculated by the CFD Administrator and include the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming CFD No. 95 Bonds, and the costs of recording any notices to evid ence the prepayment and the redemption (the “Administrative Fees and Expenses”).
13. The reserve fund credit (the “Reserve Fund Credit”) shall equal the lesser of: (a ) the expected reduction in the reserve requirement (as defined in the Indenture), if any , associated with the redemption of Previously Issued Bonds as a result of the prepayment, or (b ) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Previously Issued Bonds as a res ult of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero. No Reserve Fund Credit shall be granted if the amount then on deposit in the reserve fund for the Previously Issued Bon ds is below 100% of the reserve requirement (as defined in the Indenture).
14. If any capitalized interest for the Previously Issued Bonds will not have been expended as of the date immediately following the first interest and/or principal payment followin g the current Fiscal Year, a capitalized interest credit shall be calculated by multiplying the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the expected balance in the capitalized interest fund or account under the Indenture after such first interest and/or principal payment date (the “Capitalized Interest Credit”). 433
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15. The Facilities Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 11 and 12, less the amounts computed pursuant to paragrap hs 13 and 14 (the “Facilities Special Tax Prepayment Amount”).
2. Prepayment in Part
The amount of the prepayment shall be calculated as in Section H.1; except that a partial prepayment shall be calculated according to the following formula:
PP = [(PE – A) x F] + A
These terms have the following meaning:
PP = the partial prepayment.
PE = the Facilities Special Tax Prepayment Amount calculated according to Section H.1.
F = the percentage, expressed as a decimal, by which the owner of the Assessor’s Parcel is partially prepaying the Facilities Special Tax.
A = the Administrative Fees and Expenses calculated according to Section H.1.
3. General Provisions Applicable to the Prepayment of Facilities Special Tax (a). Use of the Facilities Special Tax Prepayment Amount The Facilities Special Tax Prepayment Amount, less the Administrative Fees and Expenses calculated according to Section H.1 which shall be retained by CFD No. 95, and less the Future Facilities Amount calculated according to Section H.1 which shall be deposited into the Improvement Fund, shall be deposited into specific funds established under the Indenture, to fully or partially redeem as many Outstanding Bonds as possible, and, if amounts are less than $5,000, to make debt service payments on the Outstanding Bonds.
(b). Full Prepayment of Facilities Special Tax
Upon confirmation of the payment of the current Fiscal Year’s entire Facilities Special Tax obligation, the CFD Administrator shall remove the current Fiscal Year’s Facilities Special Tax levy for such Assessor’s Parcel from the County tax rolls. With respect to any Assessor’s Parcel that is prepaid in accordance with Section H.1, the CFD Administrator shall cause a suitable notice to be recorded in compliance with the Act, to indicate the prepayment of the Facilities Special Tax and the release of the Facilities Special Tax lien on such Assessor’s Parcel, and the obligation of such Assessor’s Parcel to pay the Facilities Special Tax shall cease.
(c). Partial Prepayment of Facilities Special Tax
With respect to any Assessor’s Parcel that is partially prepaid, the CFD Administrator shall (i) distribute or cause to be distributed the funds remitted to it according to Section H.3.(a) and (ii) indicate in the records of CFD No. 95 that there has been a partial prepayment of the Facilities Special Tax and that a portion of the Facilities Special Tax with respect to such Assessor’s parcel, equal to the outstanding percentage (1.00 – F) of the remaining Maximum Facilities Special Tax, shall continue to be levied on such Assessor’s Parcel pursuant to Section D herein. (d). Debt Service Coverage
Notwithstanding the foregoing, no prepayment of the Facilities Special Tax shall be allowed unless the amount of Facilities Special Tax that may be le vied on Taxable Property (assuming Buildout) 434
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within CFD No. 95 in each future Fiscal Year (after excluding Public Property and Property Owner Association Property as set forth in Section E.1 herein), after the proposed prepayment, is at least equal to the sum of (i ) 1.10 times the debt service necessary to support the remaining Outstanding Bonds in each corresponding Fiscal Year, and (ii) Administrative Expenses.
I. TERM OF SPECIAL TAX
The Facilities Special Tax shall be levied for a period not to exceed fo rty-five years commencing with Fiscal Year 2019-2020. The Services Special Tax shall be levied in perpetuity to fund the Special Tax Requirement for Services.
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EXHIBIT A
CERTIFICATE TO AMEND FACILITIES SPECIAL TAX
CFD NO. 95 CERTIFICATE
1. Pursuant to Section C.1 of the Rate and Method of Apportionment (the “Rate and Method”) for City of Fontana Community Facilities District No. 95 (Summit at Rosena Phase Two) (“CFD No. 95”), the Assigned Facilities Special Tax and the Backup Facilities Special Tax for Developed Property within CFD No. 95 has been reduced as described herein.
(a) The information in Table 1 of the Rate and Method relating to the Assigned Facilities Special Tax for Developed Property within CFD No. 95 shall be modified as follows:
Land
Use
Class Description
Residential Floor
Area (square feet)
Assigned
Facilities
Special Tax
1 Detached Residential Property 4,001 or greater $[_____] per unit 2 Detached Residential Property 3,801 to less than 4,001 $[_____] per unit 3 Detached Residential Property 3,601 to less than 3,801 $[_____] per unit 4 Detached Residential Property 3,401 to less than 3,601 $[_____] per unit 5 Detached Residential Property 3,201 to less than 3,401 $[_____] per unit 6 Detached Residential Property 3,001 to less than 3,201 $[_____] per unit 7 Detached Residential Property 2,801 to less than 3,001 $[_____] per unit 8 Detached Residential Property 2,601 to less than 2,801 $[_____] per unit 9 Detached Residential Property 2,401 to less than 2,601 $[_____] per unit 10 Detached Residential Property 2,201 to less than 2,401 $[_____] per unit 11 Detached Residential Property 2,001 to less than 2,201 $[_____] per unit 12 Detached Residential Property 1,801 to less than 2,001 $[_____] per unit 13 Detached Residential Property 1,601 to less than 1,801 $[_____] per unit 14 Detached Residential Property 1,401 to less than 1,601 $[_____] per unit 15 Detached Residential Property Less than 1,401 $[_____] per unit 16 Attached Residential Property 1,801 or greater $[_____] per unit 17 Attached Residential Property 1,601 to less than 1,801 $[_____] per unit 18 Attached Residential Property 1,401 to less than 1,601 $[_____] per unit 19 Attached Residential Property 1,201 to less than 1,401 $[_____] per unit 20 Attached Residential Property 1,001 to less than 1,201 $[_____] per unit 21 Attached Residential Property Less than 1,001 $[_____] per unit 22 Non-Residential Property NA $[_____] per Acre
(b) The Backup Facilities Special Tax for Developed Property within a Planning Area, set forth in Table 2 within Section C.1.a.(3) of the Rate and Method, shall be modified as follows:
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Planning
Area
Original
Backup
Facilities
Special Tax
Modified
Backup
Facilities
Special Tax
P.A. 12 $23,850 per Acre $[_____] per Acre
P.A. 15 $17,080 per Acre $[_____] per Acre
P.A. 17/18 $51,010 per Acre $[_____] per Acre
P.A. 19 $35,230 per Acre $[_____] per Acre
2. The Assigned Facilities Special Tax and the Backup Facilities Special Tax for Developed Property may only be reduced prior to the first issuance of CFD No. 95 Bonds.
3. Upon execution of the certificate by CFD No. 95, CFD No. 95 shall cause an amended notice of Special Tax lien for CFD No. 95 to be recorded reflecting the reductions set forth herein.
All capitalized terms used herein shall have the meanings set forth in the Rate and Method.
By: Date:
CFD Administrator
By execution hereof, the undersigned acknowledge, on behalf of CFD No. 95, receipt of this certificate and modification of the Rate and Method as set forth in this certificate.
CITY OF FONTANA COMMUNITY FACILITIES DISTRICT No. 95 (SUMMIT AT ROSENA PHASE TWO)
By: Date:
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EXHIBIT B
PLANNING AREAS
Planning Area
(P.A.) Legal Description
P.A. 12 Lot 7 of Tract No. 20153
P.A. 15 Lot 6 of Tract No. 20153
P.A. 17/18 Lots 10 & 11 of Tract No. 20153
P.A. 19 Lot 9 of Tract No. 20153
Reference is hereby made to Tract No. 20153 filed in Book 352 of Tract Maps at Pages 17 through 25 in the Office of the San Bernardino County Recorder (recorded as Document No. 2018 - 0477159) for a description of the lines and dimensions of the lots listed above.
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APPENDIX B
APPRAISAL REPORT
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APPENDIX C
UPDATED PRICE POINT STUDY
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APPENDIX D
FORM OF OPINION OF BOND COUNSEL
[TO BE ATTACHED]
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APPENDIX E
GENERAL INFORMATION CONCERNING
THE CITY OF FONTANA
This appendix sets forth general information about the City of Fontana (“Fontana”) including information with respect to its finances. The following information concerning Fontana, the County of San Bernardino (the “County”) and, the State of California (the “State”) are included only for general background purposes. The Bonds are not obligations of the City, County or State or any political subdivision thereof and neither the faith and credit nor the taxing power of the City, County or the State, or any political subdivision thereof, is pledged to the payment of the Bonds.
General
The City of Fontana encompasses approximately 42.4 square miles of land and has an estimated population in 2021 of approximately 213,944. The City is located 50 miles east of Los Angeles, and approximately 10 miles west of the cities of Riverside and San Bernardino. Founded in 1913, Fontana is the second largest city in San Bernardino County, and the 20th largest in the State. The Riverside -San Bernardino area is often referred to as Southern Californ ia’s “Inland Empire.” As one of the cities in the Inland Empire, Fontana is part of a region whose population base exceeds 4.4 million people.
The earliest recorded landowner in the Fontana area was Don Antonio Maria Lugo, who received a land grant in 181 3. A second grant, in 1842, secured the land known as Rancho de San Bernardino for his sons. The Lugo sons sold a portion of their land, which included part of what is now Fontana, to a group of Mormon settlers in 1851. The Mormon settlers eventually re turned to Salt Lake City, and the Semi -Tropical Land & Water Company gained control of the Rancho. Active development of the area, however, did not begin until the early 1900’s when the Fontana Development Company acquired the acreage and began a community called Rosena - a name that was changed to Fontana in 1913.
Fontana quickly became a diversified agricultural area, with citrus, grain, grapes, poultry, and swine being the leading agricultural commodities. The community faced a transition beginning in 1942 when the Fontana area was selected as the site for a steel mill. Fontana incorporated in 1952 and the area became Southern California’s leading producer of steel and steel related products.
The steel industry dominated the City’s economy from the tim e the mill was built until the mid-1980’s. In the late 1970’s, however, Kaiser Steel began to cut down on production and manpower, and the steel mill closed in 1984. The mill site, located outside of City limits, is in the process of being developed into an integrated community of transportation -related industrial, commercial and business park uses to take advantage of the sites excellent highway and rail access. The plate steel and rolling mill plant was acquired by California Steel Industries, which co ntinues to produce steel products. In addition, railroad and trucking operations and a number of industrial facilities and warehousing/distribution centers are located in Fontana because of its convenient geographical location and excellent transportation network.
Auto Club Speedway (formerly California Speedway) is a two -mile (3 km), low -banked, D -shaped oval superspeedway in Fontana, California which has hosted NASCAR racing annually since 1997. The track was also used for open wheel racing events until 2005. The racetrack is located near the former locations of Ontario Motor Speedway and Riverside International Raceway. The track is currently owned and operated by International Speedway Corporation and is the only track owned by ISC to have naming rig hts sold. The speedway is served by the nearby Interstate 10 and Interstate 15 freeways as well as a Metrolink station located behind the backstretch.
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City Government
The City was incorporated as a general law city in 1952, and is governed by a Mayor and four council members elected by geographical district to serve four -year terms. The City operates under the Council - Manager form of government. The City Council appoints the City Manager who is responsible for the day -to- day administration of City business and the coordination of all departments of the City.
The City of Fontana provides police protection, street sweeping, park maintenance, building inspection, library sewer, storm drain and sanitation services. The City contracts with the County for fi re protection services. Numerous hospitals and health care facilities are located near Fontana.
Population
Fontana has been one of the most rapidly growing cities in Southern California. The adopted 1990 General Plan calls for a careful balance of reside ntial, commercial and industrial development to ensure a quality urban environment with a broad range of employment and housing opportunities.
The population in Fontana increased approximately 6.69% from 2013 to 2021. The population growth in the City, County and State is shown on the following chart.
POPULATION ESTIMATES
City of Fontana, County of San Bernardino and State of California 2013-2021
Year(1) City of Fontana
County of San
Bernardino State of California
2013 200,522 2,084,443 38,269,864
2014 201,790 2,094,951 38,556,731
2015 203,790 2,112,187 38,865,532
2016 205,180 2,122,579 39,103,587
2017 208,003 2,139,520 39,352,398
2018 209,113 2,150,017 39,519,535
2019 211,123 2,165,876 39,605,361
2020 211,519 2,175,424 39,648,938
2021 213,944 2,175,909 39,466,855
(1) January 1 estimate.
Source: State of California, Department of Finance.
Transportation
The City of Fontana is strategically located in the hub of surface, rail and air transportation facilities.
Union Pacific and Burlington Northern/Santa Fe rail lines provide rail service to Fontana. Switch yards and multi-modal terminals are located nearby.
Major interstate freeways and state highways provide direct access to the City, making shipp ing and transportation to and from sea ports, North American Free Trade Agreement ports of entry, and the rest of the nation highly dependable. Interstate 10 traverses the southern section of the City, Interstate 15 borders the western portion of the City, and Interstate 210, which is the extension of Route 30, opened in November 2002, links the San Bernardino Valley with the San Fernando Valley and traverses the northern portion of the City.
State freeways 57, 60 and 91 are minutes from Fontana.
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The LA/Ontario International Airport is a medium -hub, full-service airport, which offers more than 70 daily flights to cities in the U.S., Mexico and Taiwan and is served by nine commercial carriers. The airport is owned and operated by Ontario International Airp ort Authority, a joint powers agency, and is served by AeroMexico, Alaska Airlines, American Airlines, Delta Air Lines, Southwest Airlines, United Airlines/United Express, US Airways and Volaris. Various airlines provide freight services at Ontario International Airport.
With the completion of its twin terminals, it is able to handle approximately 10 million passengers annually. When passenger traffic reaches 10 million in two consecutive years, a third terminal will be constructed. LA/Ontario Internatio nal Airport is the Western States Regional Terminal for United Parcel Service. It is a member of the Los Angeles World Airports system and is ideally situated as an airfreight center for Pacific Rim and European cargo. Over 5.5 million passengers used th e airport in 2019, 9.1 % more than the same period in 2018, and over 781,000 tons of air freight were shipped, an increase of 4.1% over the same period last year.
Transit services are provided by Metrolink commuter rail service to Los Angeles with connecti ons to the numerous surrounding cities provided by Omnitrans bus service, Dial -a-Ride, Yellow Cab Company and Bell Cab Company.
Education
Five school district serve students in the City of Fontana. There are thirty public elementary schools, seven middle schools, five high schools, three alternative high schools, seven private elementary/middle schools, one School of Language Development and one adult school. Local colleges and universities include:
Universal Technical Institute of California Inc. , Chaffey College, San Bernardino Valley College, California State University -San Bernardino, Riverside Community College, Westech College and the University of California-Riverside.
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Employment
The following table summarizes the labor force, employment and unemployment figures for the years 2016 through 2020 for the City, the County, the State and the United States.
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT RATE
City of Fontana, San Bernardino County, State of California and United States 2016 through 2020(1)
Year and Area Labor Force Employment(2) Unemployment(3) Unemployment
Rate (%)
2016
City of Fontana 95,300 90,100 5,200 5.5%
San Bernardino County 930,900 877,200 53,700 5.8
State of California 19,044,500 18,002,800 1,041,700 5.5 United States 159,187,000 151,436,000 7,751,000 4.9
2017
City of Fontana 96,900 92,400 4,600 4.7%
San Bernardino County 944,300 897,800 46,500 4.9
State of California 19,205,300 18,285,500 919,800 4.8
United States 160,320,000 153,337,000 6,982,000 4.4
2018
City of Fontana 98,500 94,700 3,800 3.9%
San Bernardino County 956,083 916,725 39,375 4.1
State of California 19,281,092 18,460,433 820,650 4.3
United States 162,075,000 155,761,000 6,314,000 3.9
2019
City of Fontana 99,600 96,100 3,500 3.6%
San Bernardino County 967,700 930,708 37,017 3.8
State of California 19,408,271 18,623,900 784,375 4.0
United States 163,539,000 157,538,000 6,001,000 3.7
2020
City of Fontana 99,500 90,300 9,200 9.2%
San Bernardino County 966,200 874,900 91,300 9.4
State of California 18,821,200 16,913,100 1,908,100 10.1 United States 160,472,000 147,795,000 12,947,000 8.1
Note: Data is not seasonally adjusted.
(1) Annual averages, unless otherwise specified.
(2) Includes persons involved in labor-management trade disputes. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table.
Source: U.S. Department of La bor – Bureau of Labor Statistics, California Employment Development Department. 2020 Benchmark.
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Listed below are the major employers in the City.
CITY OF FONTANA - MAJOR EMPLOYERS – 2020
Employer Number of Employees
Kaiser Hospital & Med. Group 6,248
Fontana Unified School District 5,898
Amazon.com Services LLC 3,008
City of Fontana (includes part-time employees) 995
Estes West 352
Water of Life Community Church 300
Saia Motor Freight Line LLC 289
Schlosser Forge Company 287
Walmart Store #1756 286
Costco Wholesale #627 275
Crown Technical Systems 275
Source: City of Fontana Fiscal Year Ending June 30, 2020 Comprehensive Annual Financial Report.
Listed below are the major employers in the County.
PRINCIPAL EMPLOYERS
San Bernardino County
2021
Rank Name of Business
Approximate No. of
San Bernardino
County
Employees(1) Type of Business
1 County of San Bernardino ≥10,000 Public Administration 2 Loma Linda University ≥10,000 Education
3 Amazon 5,000-9,999 Electronic Commerce
4 Ontario International Airport 5,000-9,999 Airport
5 Plaxicon Holding Corporation 5,000-9,999 Plastics Manufacturer 6 California State University, San
Bernardino
5,000-9,999 Medical Center
7 James Jones Company 2,500-4,999 Water Products
8 Barrett Business Services, Inc. 2,500-4,999 Management Consulting 9 Damao Luggage International Inc. 2,500-4,999 Retailer 10 San Manuel Tribe & Casino 2,500-4,999 Casino
(1) Due to confidentiality of reporting number of employees, ranges have been provided.
Source: San Bernardino County Comprehensive Annual Report for the year ending June 30, 2021. 446
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Industries
Residents of the City find employment throughout the Riverside -San Bernardino -Ontario Labor Market Area . This labor market area, as defined for reporting purposes by the California Employment Development Department, has boundaries coterminous with those of Riverside and San Bernardino Counties.
The following table sets forth certain employment data for th e Riverside - San Bernardino -Ontario Metropolitan Statistical Area and the County for the period from 2016 through 2020.
RIVERSIDE-SAN BERNARDINO-ONTARIO METROPOLITAN STATISTICAL AREA
INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE
2016 2017 2018 2019 2020
Civilian Labor Force 1,983,300 2,017,700 2,053,400 2,071,800 2,073,900 Civilian Employment 1,865,200 1,914,900 1,966,800 1,988,600 1,872,600 Civilian Unemployment 118,000 102,800 86,600 83,200 201,300 Civilian Unemployment Rate 6.0% 5.1% 4.2% 4.0% 9.7%
Total Farm 14,600 14,500 14,500 15,400 13,900
Total Nonfarm 1,401,400 1,452,800 1,506,000 1,552,100 1,487,800 Total Private 1,159,100 1,201,800 1,248,800 1,290,900 1,238,700 Goods Producing 190,400 196,400 206,100 208,900 200,500 Mining and Logging 900 1,000 1,200 1,200 1,300
Construction 92,000 97,400 105,200 107,200 105,000
Manufacturing 97,500 98,000 99,800 100,600 94,300
Service Providing 1,211,000 1,256,400 1,299,300 1,343,200 1,287,400 Trade, Transportation and Utilities 346,300 363,400 378,800 394,400 403,800 Wholesale Trade 61,600 62,600 65,500 67,100 64,600
Retail Trade 178,300 180,900 181,200 180,700 168,800
Transportation, Warehousing and Utilities 106,400 119,900 132,100 146,600 170,500 Information 11,800 11,600 11,400 11,500 9,400
Financial Activities 44,900 44,700 44,600 45,000 43,700 Professional and Business Services 145,100 147,300 152,000 158,700 154,000 Educational and Health Services 215,700 226,700 239,500 250,300 248,700 Leisure and Hospitality 160,200 166,300 170,600 175,900 139,200 Other Services 44,600 45,400 45,800 46,200 39,600
Government 242,300 251,000 257,200 261,200 249,100 Total, All Industries 1,416,000 1,467,300 1,520,500 1,567,500 1,501,800
Note: Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households and persons involved in labor -management trade disputes. Employment reported by place of work. Items may not add to total due to independent rounding. The “Total, All Industries” data is not directly comparable to the employment data found in this Appendix D.
Source: State of California, Employment Development Department, March 2020 Benchmark. 447
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Tax Levy and Tax Collection
Below is a chart which indicates the tax levy and collection records for the City for fiscal years 2010 through 2020.
Fiscal Year
Percent of Levy
Collected
Total Tax Collections
to Tax Levy to Date
2010 97.40 $96,581,878
2011 96.70 91,393,702
2012 36.93(1) 34,465,021
2013 50.76(1) 47,985,784
2014 47.39(1) 45,980,226
2015 44.90(1) 47,694,338
2016 43.35(1) 48,471,707
2017 44.35(1) 52,046,433
2018 43.84(1) 54,606,892
2019 46.47(1) 65,091,616
2020 48.58 73,672,999
(1) Due to the dissolution of the former redevelopment agency, the property taxes collected in the former project areas is no longer remitted to the agencies. Assembly Bill 1X26 provides that revenues will only be allocated to make payments on the indebtedness; all remaining collections will be distributed to the other taxing entities based on the tax sharing formula.
Source: City of Fontana Fiscal Year Ending June 30, 2020 Comprehensive Annual Financial Report.
Largest Taxpayers
The principal property taxpayers in the City for 2020 are as follows:
Taxpayer
2020 Assessed
Valuation
% of Total
Assessed
Valuation
Duke Realty LP $ 142,552,795 0.67%
San Gabriel Valley Water Company 137,264,772 0.65
Vintage Park East LLC 131,420,454 0.62
Target Corporation 119,369,115 0.56
Sierra Lakes Commerce LLC 109,023,747 0.52
Citrus Avenue LLC 101,427,188 0.48
Prologis Usla Newca 1 LLC 91,618,153 0.43
Francisco Street LP 91,279,694 0.43
Intex Properties Inland Empire Corp 87,030,328 0.41
DCT Jurupa Ranch LLC 83,728,342 0.40
TOTAL: $ 1,094,714,568 5.17%
Source: City of Fontana Fiscal Year Ending June 30, 2020 Comprehensive Annual Financial Report. 448
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Taxable Sales
The table below presents taxable sales for the years 2016 through 2020 for the City.
TAXABLE SALES
City of Fontana
2016 through 2020
(Dollars in Thousands)
Year
Retail and Food
Permits
Retail and Food
Taxable
Transactions Total Permits
Total Outlets
Taxable
Transactions
2016 3,946 $2,370,462 5,455 $3,169,604
2017 3,955 2,507,859 5,495 3,380,666
2018 3,944 2,650,007 5,597 3,596,722
2019 4,101 2,688,821 5,870 3,698,999
2020 4,467 2,752,323 6,543 3,615,021
(1) Beginning in 2016, the outlet counts in these reports show the number of outlets that were active during the reporting period.
Retailers that operate part -time are now tabulated with store retailers . Industry-level data for 201 6 are not comparable to that of prior years.
Source: Taxable Sales in California, California Department of Tax and Fee Administration for 2016-2020.
The table below presents taxable sales for the years 2016 through 2020 for the County.
TAXABLE SALES
San Bernardino County
2016 through 2020
(Dollars in Thousands)
Year
Retail and Food
Permits
Retail and Food
Taxable
Transactions Total Permits
Total Outlets
Taxable
Transactions
2016 38,370 $24,477,003 57,629 $37,216,551
2017 39,067 25,603,171 58,956 38,399,373
2018 39,837 26,905,784 61,838 40,554,024
2019 40,964 27,564,216 64,771 41,770,308
2020 44,330 28,518,285 71,145 42,884,767
Source: Taxable Sales in California, California Department of Tax and Fee Administration for 2016-2020. 449
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Personal Income
The following tables show the personal income and per capita personal income for the City, County, State of California and United States from 2015 through 2020.
PERSONAL INCOME
City of Fontana, County of San Bernardino, State of California, and United States 2015-2020
Year
City of
Fontana
County of
San Bernardino California United States
2015 $3,963,623 $76,919,474 $2,172,930,000 $15,717,140,000 2016 4,013,591 80,401,688 2,273,557,000 16,151,881,000
2017 4,159,001 83,401,792 2,383,130,000 16,937,582,000
2018 4,444,518 86,995,697 2,514,503,000 17,839,255,000
2019 4,775,796 91,658,300 2,632,280,000 18,542,262,000
2020 n/a n/a 2,814,011,000 19,679,715,000
Note: Dollars in Thousands.
Source: U.S. Department of Commerce, Bureau of Economic Analysis and City of Fontana Comprehensive Annual Financial Report for the year ending June 30, 2020.
PER CAPITA PERSONAL INCOME(1)
City of Fontana, County of San Bernardino, State of California, and United States 2015-2020
Year
City of
Fontana
County of
San Bernardino California United States
2015 $19,400 $36,361 $55,853 $49,003
2016 19,122 37,713 58,074 49,995
2017 19,545 38,774 60,581 52,096
2018 20,965 40,150 63,759 54,581
2019 22,519 42,043 66,745 56,474
2020 n/a n/a 71,480 59,729
(1) Per capita personal income is the total personal income divided by the total mid -year population estimates of the U.S.
Bureau of the Census. All dollar estimates are in current dollars (not adjusted for inflation).
Source: City of Fontana Comprehensive Annual Financial Report for the year ending June 30, 20 20, Bureau of Economic Analysis for County, State and U.S.
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Construction Trends
Below is a table indicating residential and non-residential building permits valuations for the City.
CITY OF FONTANA
BUILDING PERMIT VALUATION
(in thousands of dollars)
Type 2016 2017 2018 2019 2020
Valuation ($000’s)
Residential: $ 129,741 $ 157,429 $ 145,610 $ 241,481 $ 311,547 Non-Residential: 228,059 131,572 197,379 290,767 149,761 Total Valuation: $ 357,800 $ 289,001 $ 342,989 $ 532,248 $ 461,308
New Housing Units:
Single Family 439 600 413 642 848
Multi Family 33 69 85 202 234
Total Units: 472 669 498 844 1,082
Note: Totals may not add to sums because of independent rounding.
Source: Construction Industry Research Board.
Recreation
The City of Fontana maintains over 40 parks, tot lots, sports facilities and other facilities in the community. The City of Fontana operates eight centers throughout the community. The Center Stage Theatre was originally built in 1937 as a single screen movie theatre and was remodeled in 2008 and re -opened as the premiere performing arts venue in the City of Fontana.
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APPENDIX F
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
[TO COME FROM BOND COUNSEL]
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APPENDIX G
FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT
[TO COME FROM BOND COUNSEL]
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APPENDIX H
FORM OF DEVELOPER CONTINUING DISCLOSURE AGREEMENT
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APPENDIX I
INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY
AND ITS BOOK-ENTRY SYSTEM
The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the compl eteness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC to the District w hich the District believes to be reliable, but the District and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
The Depository Trust Company ( “DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC ’s partnership nominee) or such other name as may be requested by an authorized r epresentative of DTC. One fully - registered Bond will be issued for each annual maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York U niform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non -U.S. equity issues, corporate a nd municipal debt issues, and money market instruments (from over 100 countries) that DTC ’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities trans actions in deposited securities, through electronic computerized book - entry transfers and pledges between Direct Participants ’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( “DTCC”). DTCC is the holding company for DTC, Nation al Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( “Indirect Participants”). DTC has a Standard & Poo r’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct P articipants, which will receive a credit for the Bonds on DTC ’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants ’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Benefici al Owners will not receive Bonds representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC ’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such 455
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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 Ben eficial 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 m ay wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as prepayments, 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 prepaid, 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 District 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 District or the Trustee, on payable date in accordance with their respective holdings shown on DTC ’s records. Payments by Participants to Beneficial Owners wi ll 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 Trustee , or the District, 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 re presentative of DTC) is the responsibility of the District or the Trustee, 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 Trustee, 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 Trustee. 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 Trustee’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 District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered.
The District 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.
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. 456
APPRAISAL REPORT
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 95
(Summit at Rosena Phase Two)
City of Fontana, San Bernardino County, California
(Appraisers’ File No. 2022-1257)
Prepared For
City of Fontana
8353 Sierra Avenue
Fontana, CA 92335
Prepared By
Kitty Siino & Associates, Inc.
115 East Second Street, Suite 100
Tustin, California 92780
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KITTY SIINO & ASSOCIATES, INC.
REAL ESTATE APPRAISERS & CONSULTANTS
April 7, 2022
George Pirsko, Accounting Manager
City of Fontana
8353 Sierra Avenue
Fontana, CA 92335
Reference: Appraisal Report
City of Fontana
Community Facilities District No. 95
Summit at Gabion Ranch by Lennar
East side of Cypress Avenue at Casa Grande Avenue, Fontana
Dear Mr. Pirsko:
At the request and authorization of the City of Fontana, we have completed an Appraisal Report for The City of Fontana Community Facilities District No. 95 (“Fontana CFD No. 95”) which consists of five residential neighborhoods within Phase Two of the master planned community formerly known as the Summit at Rosena Ranch and now known as Gabion Ranch, in the City of Fontana. Gabion Ranch includes eight neighborhoods proposed for 886 total residential units divided into two phases with Phase One encompassing 606 proposed units which are within Fontana CFD No. 90 (not a part of this report) and Phase Two encompassing 280 proposed units within Fontana CFD No. 95 (subject property). Lennar Homes of California, Inc. (“Lennar”) is the builder for the five communities within Phase Two. These include portions of the communities of Stonegate, Iron Walk, Mountainside, Ridgeview and Woodridge. Three of the five communities (Stonegate, Iron Walk and Mountainside) have built, sold and closed out with two projects still marketing, Ridgeview and Woodridge, however Ridgeview is sold out but not yet closed out. This appraisal is for the 280 proposed units within Fontana CFD No. 95 which are located within Phase Two of Gabion Ranch.
Out of the 280 proposed units within Phase Two, 181 have closed to individual homeowners to date with an additional 47 in escrow and due to close upon completion. The builder-owned property ranges from completed homes to homes under construction to generally finished pads for attached product.
The valuation method s used in this report are the Sales Comparison Approach, a Discounted Cash Flow Analysis and a Mass Appraisal Technique as defined within this report. The fee simple estate of the subject property has been valued subject to the Fontana CFD No. 95 special tax lien. This report is written with the hypothetical condition that the subject propert y is enhanced by the improvements and/or fee credits to be funded by the special tax bonds of Fontana CFD No. 95. As a result of our investigation, the concluded minimum market value for the subject property is shown on the following page.
115 East Second Street, Suite 100, Tustin, California 92780 (714) 544-9978 - Phone, (714) 544-9985 – Fax, E-Mail: [email protected] 458
George Pirsko
City of Fontana
April 7, 2022
Page Two
Lennar Individually
Owned Owned
Stonegate
Individual Owners (33 Houses) $ 28,258,800
Iron Walk
Individual Owners (38 Houses) $ 27,916,500
Mountainside
Individual Owners (35 Houses) $ 27,151,350
Ridgeview
Lennar (12 Houses) $ 5,048,124
Individual Owners (42 Houses) $ 23,945,075
Woodridge
Lennar (15 Houses) $ 4,954,790
Lennar (72 Lots) $ 9,371,290
Subtotal Lennar $14,326,080
Individual Owners (33 Houses) $ 15,470,445
Total Individual Owned (181 Houses) $122,742,170
Total Builder Owned $ 19,374,204
Aggregate Total for CFD No. 95 $142,116,374
The values are stated subject to the Assumptions and Limiting Conditions of this report, the Appraiser’s Certification and as of February 15, 2022.
Some supporting documentation concerning the data, reasoning and analyses may be retained in the appraiser ’s files. The information contained in this report is specific to the needs of the client and for the intended use stated in this report. This Appraisal Report is intended to comply with both the Uniform Standards of Professional Appraisal Practice (“USPAP” January 2020) and with the Appraisal Standards of the California Debt and Investment Advisory Commission (“CDIAC”). The appraiser is not responsible for unauthorized use of this report.
This letter of transmittal is part of the attached report, which sets forth the data and analyses upon which our opinion of value is, in part, predicated.
Respectfully submitted,
KITTY SIINO & ASSOCIATES, INC.
Kitty S. Siino, MAI
California State Certified General
Real Estate Appraiser (AG004793)
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TABLE OF CONTENTS
Assumptions and Limiting Conditions............................................................................... i Hypothetical Condition .................................................................................................... iii Extraordinary Assumption ............................................................................................... iii Aerial Photo of Fontana CFD No. 95 ............................................................................... iv Purpose of the Appraisal ................................................................................................ 1 The Subject Property ...................................................................................................... 1 Intended Use of the Report ............................................................................................ 2 Definitions ...................................................................................................................... 3 Property Rights Appraised ............................................................................................. 5 Effective Date of Value ................................................................................................... 5 Date of Report ................................................................................................................ 6 Scope of Appraisal ........................................................................................................ 6 Regional Area Map.......................................................................................................... 8 County of San Bernardino Area Description ................................................................... 9 City of Fontana Area Map & Description ....................................................................... 20 The Summit at Rosena Specific Plan & Immediate Surroundings ................................. 25 Community Facilities District No. 95 ............................................................................. 28 Subject Property Descriptions ....................................................................................... 31 Inland Empire Housing Market ...................................................................................... 46 Highest and Best Use Analysis ..................................................................................... 57 Valuation Analyses and Conclusions ............................................................................ 62 Appraisal Report Summary ........................................................................................... 97 Appraiser’s Certification ............................................................................................... 98
ADDENDA
Fontana CFD No. 95 Boundary Map
Tract Map Nos. 20214-2, 20214-3, 20214-5 and 20214
Discounted Cash Flow Analyses
Finished Lot Land Sales Maps and Summary Charts
Improved Residential Sales Maps and Summary Charts
Appraiser’s Qualifications
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ASSUMPTIONS AND LIMITING CONDITIONS
1. This report might not include full discussions of the data, reasoning and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Some supporting documentation concerning the data, reasoning and analyses may be retained in the appraiser’s files. The information contained in this report is specific to the needs of the client and for the intended use stated in this report. The appraiser is not responsible for unauthorized use of this report.
2. No responsibility is assumed for legal or title considerations. Title to the property is assumed to be good and marketable unless otherwise stated in this report.
3. It is assumed that the subject property is subject to the special tax lien of Fontana CFD No. 95.
4. Responsible ownership and competent property management are assumed unless otherwise stated in this report.
5. The information furnished by others is believed to be reliable; however, no warranty is given for its accuracy.
6. All engineering is assumed to be c orrect. Any plot plans and illustrative material used in this report are included only to assist the reader in visualizing the property and may not be to scale.
7. It is assumed that there are no hidden or unapparent conditions of either property, subsoil or structures that would render them more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them.
8. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws unless otherwise stated in this report.
9. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless nonconformity has been stated, defined and considered in this appraisal report.
10. It is assumed that all required licenses, certificates of occupancy or other legislative or administrative authority from any local, state or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report are based.
11. Any sketch or photograph included in this report may show approximate dimensions and is included only to assist the reader in visualizing the properties. Maps , photographs and exhibits found in this report are provided for reader reference purposes only. No guarantee regarding accuracy is expressed or implied unless 461
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otherwise stated in this report. No survey has been made for the purpose of t his report.
12. It is assumed that the utilization of the land and improvements (if any) are within the boundaries or property lines of the property described and that there is no encroachment or trespass unless otherwise stated in this report.
13. The appraiser is not qualified to detect hazardous waste and/or toxic materials. Any comment by the appraiser that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualified expert relating to asbestos, urea- formaldehyde foam insulation or other potentially hazardous materials that may affect the value of the property. The appraiser’s value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value unless otherwise stated in this report. No responsibility is assumed for any environmental conditions or for any expertise or engineering knowledge required to discover them. The appraiser’s descriptions and resulting comments are the result of the routine observations made during the appraisal process.
14. Proposed improvements , if any, are assumed to be completed in a good workmanlike manner in accordance with the submitted plans and specifications.
15. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings , if any, must not be used in conjunction with any other appraisal and are invalid if so used.
16. The Americans with Disabilities Act (“ADA”) became effective on January 26, 1992 and have been updated several times since then. The appraiser has made no specific compliance survey and analysis of the property to determine whether they conform to the various detailed requirements of the ADA, nor is the appraiser a qualified expert regarding the requirements of the ADA. It is possible that a compliance surv ey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the ADA. If so, this fact could have a negative effect upon the value of the property. Since the appraiser has no direct evidence relating to this issue, a possible noncompliance with requirements of the ADA in estimating the value has not been considered.
17. It is assumed there are no environmental concerns that would slow or thwar t development of the subject properties and that the soils are adequate to support the highest and best use conclusions.
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18. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser, and in any event, only with proper qualification and only in its entirety. Permission is given for this appraisal to be published as a part of the Official Statement or similar document for the Fontana CFD No. 95 special tax bonds
19. It is assumed that there are no conditions of approval or hindrances which could slow or thwart the obtaining of occupancy permits on the 280 subject residential units. This is the case per Lennar; however, we were unable to verify via the various conditions of approval.
HYPOTHETICAL CONDITION
1. It is assumed that all improvements and benefits to the subject properties, which are to be funded by the City of Fontana CFD No. 95 Special Tax Bond Proceeds are completed and in place.
EXTRAORDINARY ASSUMPTION
1. It is assumed that the sales information and remaining development costs as reported by the builder a nd summarized in the report are correct. We have not reviewed escrow documents on the home sales however, per our review the sal es as reported by the builder appear to be reasonable. While we have reviewed the costs and they appear reasonable, we are not experts in the field of construction cost estimation and are relying on the costs received in the valuation analysis. If the actual land development costs differ, the final values may change
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PURPOSE OF THE APPRAISAL
The purpose of this appraisal report is to estimate the value of the fee simple interest of the subject property, subject to the lien of the Fontana CFD No. 95 Special Tax Bonds.
THE SUBJECT PROPERTY
The subject property consists of 280 proposed single-family homes being developed into Phase Two of the master planned community known as Gabion Ranch in the City of Fontana (“City”). Phase Two of Gabion Ranch is located along the north side of Summit Avenue between Sierra and Cypress Avenues in the City of Fontana and is being developed into portions of five communities known as Stonegate, Iron Walk, Mountainside, Ridgeview and Woodridge. All five communities are being built and sold by Lennar. The products range from single-family detached homes on various sized lots, to cluster detached homes on small lots, to row townhomes. The subject includes homes sized from 849 square feet to 4,122 square feet. The five communities are encompassed by four tract maps. Tract Map No. 20214-2 has been subdivided into 33 lots composing Phase Two of Stonegate. Tract Map No. 20214- 3 has been subdivided into 73 lots composing Phase Two of the communities of Iron Walk and Mountainside. Tract Map No. 20214-5 has been subdivided into 54 small clust er lots encompassing Phase Two of Ridgeview. Tract Map No. 20214 (no dash o n the final tract) has been subdivided into four lots which have been further subdivided by Condominium Maps to create 120 motorcourt townhome units composing Phase Two of the Woodridge townhomes. These four tract maps encompass the subject property which is known as Phase Two of Gabion Ranch (“Phase Two”). Each of the above communities is an extension of five of the total of eight communities which were built and marketed by Lennar within Phase One which totaled 606 homes, not included in this appraisal report. The ownership and condition of the lands are detailed in the chart on the following page.
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Description
No.
Lots
Ownership
Condition/Status
Stonegate (SFD)
Lots 1-33 of Tract 20214-2 33 Individuals Completed Houses / Closed Subtotal Stonegate 33
Iron Walk (SFD)
Lots 1-22 and 43-58 of Tract 20214-3 38 Individuals Completed Houses / Closed Total Iron Walk 38
Mountainside (SFD)
Lots 23-42 and 59-73 of Tract 20214-
3 35 Individuals Completed Houses / Closed
Total Mountainside 35
Ridgeview (Small Cluster Lots)
Lots 5-46 of Tract 20214-5 42 Individuals Completed Houses / Closed Lots 1-4 and 47-54 of Tract 20214-5 12 Lennar 95%+ complete (all in escrow) Total Ridgeview 54
Woodridge (Attached Motorcourts)
Units 401-407, 410-411 (p) Lot 2 of
Tract 20214; Units 501 – 512 (p) Lot
2 of Tract 20214; Units 1101 - 1112
(p) Lot 3 of Tract 20214.
33 Individuals Completed Houses / Closed
Units 408-409 and 412 (p) of Lot 2 of
Tract 20214; Units 901 - 912 (p) Lot 3
of Tract 20214,
15 Lennar 95%+ complete (14 in escrow)
Units 301-312 (p) Lot 2 of Tract
20214 and Units 801 – 812 (p) Lot 3
of Tract 20214
24 Lennar Homes under const (21 In escrow)
Units 101-112 and 201-212 (p) Lot 1
Tract 20214; Units 601 - 612 (p) Lot 4
of Tract 20214 and Units 701 - 712
(p) Lot 4 of Tract 20214
48 Lennar Finished Pads (none in escrow)
Total Woodbridge 120
Fontana CFD No. 95 Total 280
INTENDED USE OF THE REPORT
It is the appraiser’s understanding that the client, the City of Fontana, will utilize this report in disclosure documents related to the sale of the Fontana CFD No. 95 Special Tax Bonds. This report may be included in the Official Statement or similar document to be distributed in connection with the marketing and offering of the bonds. It is the appraiser’s understanding that there are no other intended uses of this report.
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DEFINITIONS
Market Value
The term “Market Value” as used in this report is defined as:
"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, 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 each acting in what he or she considers his or her own best interest;
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 Inherent in the Market Value definition is exposure time or the time the subject property would have been exposed on the open market prior to the appraisal in order to sell at the concluded values. In the case at hand and considering current market conditions , the exposure time for each individually owned property or the entire developer owned property in a bulk sale, is less than one year.
Finished Lot
The term “Finished Lot” is defined as:
“A parcel which has legal entitlements created by a recorded subdivision map, whose physical characteristics are a fine graded level pad per lot with infrastructure contiguous to each individual lot, asphalt paved roads and the necessary utilities. This term assumes the payment of all applicable development fees with the exception of building permit and plan check fees.”
Finished Pad
The term “Finished Pad” is defined as:
1 The Appraisal of Real Estate, 13th Edition
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“A parcel which has legal entitlements created by a condominium map, whose physical characteristics are a fine graded level pad per unit with infrastructure contiguous to each proposed unit, asphalt paved roads and the necessary utilities. This term assumes the payment of all applicable development fees with the exception of building permit and plan check fees.”
Minimum Market Value
The term “Minimum Market Value” as used in this report is defined as:
“The base market value of a new home. That is, most buyers purchase some upgrades, options and/or lot premiums when purchasing a new home.
The sales price for the new home typically includes the base price for the plan, plus any upgrades, options or lot premiums, less concessions, if any, which were given or paid for by the builder. The concluded minimum market value is for the base value of the plan only, not taking into consideration any upgrades, options or premiums.”
Mass Appraisal Technique
The term “Mass Appraisal” as used in this report is defined as:
“The process of valuing a universe of properties as of a given date using standard methodology employing common data and allowing for statistical testing”
2 In the case at hand, the statistical testing included reviewing all original builder sales and reviewing the Multiple Listing Service (“MLS”) for any re -sales and/or current listings of each plan type. In addition, we have determined the actual range of sales prices for each plan type which will be utilized in the valuation process . The search of the MLS resulted in no re-sales and no current re-sale listings within the subject property. However, we did find four resales within Phase One in the past six months in the same communities which will be discussed under the valuation sections.
Hypothetical Condition
The term “Hypothetical Condition” is defined by USPAP as:
“A condition, directly related to a specific 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”
2 USPAP 2018-2019 Edition
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The Hypothetical Condition within this report is that subject property is enhanced by the improvements and/or fee credits to be funded by bonds issued by Fontana CFD No. 95.
Extraordinary Assumptions
The term “Extraordinary Assumption” is defined by USPAP as:
“An assignment specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser’s opinions or conclusions”
There is one Extraordinary Assumption within this report which is that the sales information and the cost information as received from Lennar are true and accurate. We have not reviewed actual escrow documents on the sales of the new homes. However, we have revi ewed each sale as reported by the builder and the sales prices appear reasonable. In addition, w e have reviewed the remaining land development costs and they appear reasonable; however, we are not experts in the field of cost estimating. It should be noted that these costs were relied upon for the value conclusion and, if the remaining land development costs differ, it may change the value conclusions.
PROPERTY RIGHTS APPRAISED
The property rights being appraised are of a fee simple estate interest, subject to easements of record and subject to Fontana CFD No. 95. The definition of “fee simple estate” is defined as:
“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.”
3 EFFECTIVE DATE OF VALUE
The subject property is valued as of February 15, 2022.
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DATE OF REPORT
The date of this report is March 7, 2022.
SCOPE OF APPRAISAL
As previously stated, the purpose of this appraisal is to report the appraiser ’s best estimate of the market value for the subject propert y, Fontana CFD No. 95, which is known as Phase Two of the master planned community of Gabion Ranch. The subject property consists of portions of the communities of Stonegate, Iron Walk, Mountainside, Ridgeview and Woodridge; all being built and sold by Lennar. Each of the communities began selling in Phase One of Gabion Ranch (not a part of this appraisal) which houses the model homes. The subject five communities are extensio ns of these existing communities. There are a total of 280 proposed homes within the subject. This appraisal will be presented in the following format:
• County of San Bernardino Description
• City of Fontana Description
• Specific Plan/Immediate Surroundings Description
• Brief Description of Fontana CFD No. 95
• Subject Property Descriptions
• Inland Empire Residential Market Analysis
• Highest and Best Use Analysis
• Valuation Procedure, Analysis and Conclusion
• Appraisal Report Summary
In valuing the subject property, the value estimates will be based upon the highest and best use conclusion using the Sales Comparison Approach. The Sales Comparison Approach to value is defined as:
“…a set of procedures in which a value indication is derived by comparing the property being appraised to similar properties that have been sold recently, then applying appropriate units of comparison and making adjustments to the sales prices of the comparables based on the elements of comparison. The Sales Comparison Approach may be used to value improved properties, vacant land or land being considered as though vacant; it is the most common and preferred method of land valuation when an adequate supply of comparables is available.” 4 4 Dictionary of Real Estate Appraisal, Fourth Edition, 2002 470
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In the Sales Comparison Approach, market value is estimated by comparing properties similar to the subject that have recently been sold, are listed for sale or are under contract.
Neither a cost or income approach was utilized as they were not considered necessary to arrive at credible results. In addition, we have utilized a mass appraisal technique which included reviewing all builder sales and searching the MLS for any re-sales and/or listings.
The due diligence of this appraisal report included the following:
1. Compiled demographic information and related that data to the subject propert y to perform a feasibility/demand analysis.
2. Gathered and analyzed information on the subject marketplace, revi ewed several real estate brokerage publications on historical and projected growth in the subject market and researched the micro- and macro- economic outlook within San Bernardino County and the Fontana area.
3. Inspected the subject properties between February 1, 2022 and March 1, 2022.
4. Had the site flown by an aerial photographer on February 27, 2022.
5. Interviewed representatives from Lennar in order to obtain project information.
6. Reviewed the Summit at Rosena (previous name of Gabion Ranch) Specific Plan.
7. Reviewed preliminary title reports on portions of the subject property.
8. Searched the area for relevant comparable residential land sales , inspected and verified each sale with a buyer or seller or broker familiar with the transaction.
9. Searched the area for relevant comparable new home residential projects, including sales prices and concessions and interviewed representatives from each comparable project.
10. Reviewed the sales brochures and websites for the subject neighborhoods.
11. Reviewed developer sales information on each home within each neighborhood.
12. Reviewed Multiple Listing Service information to determine if there are any re-sales, pending re-sales or listings of re-sale homes.
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REGIONAL AREA MAP
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COUNTY OF SAN BERNARDINO AREA DESCRIPTION
Location
The subject property is located in the southwestern portion of San Bernardino County, in the northern portion of the City of Fontana. More specifically, Gabion Ranch is located about one- and one-half miles north of Interstate 210 (“I-210”), and one- and one-half miles east of Interstate 15 (“I-15”).
San Bernardino County (the “County”) is the largest county in the Uni ted States by area containing over 20,100 square miles, and includes large expanses of undeveloped deserts, valleys, canyons and mountains with deserts comprising about 90 percent of the acreage. The County is a major beneficiary of outward urban pressure from Los Angeles, Orange and Riverside Counties. Although located at the periphery of most urban activity in Southern California, the southwestern portion of San Bernardino County has been a major growth area and is perceived by most observers as an area expected to continue to grow. Riverside and San Bernardino Counties are considered distinct from Los Angeles and Orange Counties , and belong to the same Metropolitan Statistical Area (“MSA”). This area, consisting of San Bernardino and Riverside Counties, is commonly referred to as the Inland Empire.
Transportation
The subject property is situated about one- and one-half miles north of I-210, between I- 15 (one- and one- half miles west of the subject) and Interstate 215 (“I -215”) (approximately six miles east of the subject) , and approximately six miles north of Interstate 10 (“I-10”). The I-15 is the nearest interstate providing access to the subject via the Summit Avenue, Sierra Avenue or Duncan Canyon Road on/off ramps. I-15 travels in a northerly/southerly direction and provides access to Barstow and Nevada to the north and San Diego to the south. I -10 begins from the west in Los Angeles and provides access into Arizona to the east. In the vicinity of the subject, I -210 provides additional east/west access about two miles north of I-10 beginning in Santa Clarita in Los Angeles County and provides access near the city of San Bernardino. The subject is located three 473
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miles north of the historical Route 66, the original Los Angeles to Chicago cross country route.
The County is served by Amtrak and Metrolink as well as several rail -freight lines. The Ontario International Airport provides regional international air service and is located approximately 11 miles southwest of the subject property. San Bernardino International Airport is located approximately 11 miles southeast of the subject. In addition, the County has extensive trucking corridors along the previously referred to interstates, highways and state freeways.
Population
The County has experienced population growth for several decades and is anticipated to continue to do so in the foreseeable future. Per the California Department of Finance, the January 1, 202 1 (latest available per State) County population was 2.176 million. This represents a one- year increase of 485 persons or .02 percent. This compares to an average annual growth rate over the past 20 years of 2.1 percent. Current State of California projections for San Bernardino County suggest the population is anticipated to reach approximately 2.395 million by 2030, indicating an average annual increase of approximately 0.95 percent over the next ten years. The current growth of 0. 02 percent is lower than the previous 20- year annual average of 2.1 percent, likely due to the disruption of the COVID pandemic . The future growth of 0.95 percent annually was predicted assuming a more stable market than was seen prior to the Great Recession, however doesn’t take into effect the COVID pandemic.
Economy
Beginning February 20, 2020, the U.S. began experiencing an unprecedented economic disruption due to the COVID-19 pandemic. Original predictions were for deaths due to the virus overwhelming hospitals and staff. While the U.S. has lost over 900,000 lives due to COVID-19, except for a few exceptions, hospitals have, thus far, had the capacity to treat the patients. January 2021 was the deadliest month in the U.S.; however, cases then declined rapidly as vaccination rates rose. The summer of 2021 b egan new variants of 474
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the disease which increased rates once again; however, thus far not to the extent of last winter with hospitalizations of vaccinated people significantly lower. The Federal, State, County and City Governments (“Governments”) originally shut down non -essential businesses and areas where social gatherings occur in March 2020 in order to slow the spread of the virus. This created a strain on small and large businesses alike. Restaurants and hotels were hit hard and travel reduced drastically as citiz ens were urged to stay home. Layoffs occurred with reports of 40 million people filing for unemployment the first few months of the pandemic. This disruption originally caused extreme volatility in the stock market with an overall drop of 37 percent in March 2020 (based on the Dow Jones Industrial Average “DJIA”); however, as of February 18, 2022, the DJIA has shown a n increase of 15.9 percent over the previous high in February 2020. It should be noted that the DJIA is down 6.6 percent thus far in 2022 with the volatility thought to be due to the Federal Reserve Board tapering off their bond buying and the anticipation of a rise in interest rates. On February 24, 2022 Russia began inv ading Ukraine which is causing some uncertainty in world economics. As of March 4, 2022 the DJIA had dropped 1.3 percent from the February 18, 2022 closing.
The Federal Government attempted to curtail the job losses and hardships with the approval of the Coronavirus Aid, Relief and Economic Security (CARES) Act which was signed into law on March 27, 2020. The CARES Act appropriated over two-trillion dollars to people and businesses that were financially stunted by the COVID -19 pandemic. On April 9, 2020 the Federal Reserve took additional action to provide up to $2.3 trillion in loans to support the economy . Additionally, on April 23, 2020, Congress passed an additional $484 billion in relief for small businesses and hospitals. Over the summer of 2020 some business openings occurred. However, in the fall and winter of 2020 the pandemic surged and businesses shut down once again. In December 2020, the Federal Government passed an additional $900 billion in stimulus that included jobless benefits and additional dollars for vaccine distribution. In March 2021 the new National Administration approved the American Rescue Plan Act which appropriated an additional $1.9 trillion in help to our nation for vaccine distribution and more economic relief for the pandemic. It appears these stimuli totaling $5.6 trillion to date have helped shore up the 475
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economy; however, due to the significant amount of new money may be causing inflation.
Inflation is occurring in the United States at a rate not seen for over 40 years.
As of the end of February, inflation is running at 7.5 percent over the previous year. It is thought that issues contributing to inflation include the re- opening of the economy after COVID, the current supply chain issues and the addition of money entering the economy during COVID. The recent invasion of Ukraine by Russia is creating significant volatility in gas prices which will only increase the rate of inflation in the U.S. The Federal Reserve Board has announced an increase in the Federal Reserve Rate wil l be forthcoming in mid-March. It is unknown at this time whether it will be a one-quarter percent increase or higher. A higher increase will create further volatility in the stock market as investors closely watch the increases.
While some jobs have come back, job losses were huge with the Nation’s unemployment rate going from 3.5 percent in February 2020 to 14.4 percent in April 2020 with the January 2022 National unemployment rate at 3.8 percent (bureau of Labor Statistics). At the beginning of 2021, California was a hot spot with COVID cases surging and Southern California was put under another stay -at-home order. The vaccine roll -out was quicker than anticipated and cases had declined substantially. California “ reopened” June 15, 2021. Beginning in lat e summer 2021, variants caused concern with hospital cases increasing for unvaccinated people and mandates once again occurring. While the news in mid-2021 had been positive with the vaccination roll -out, the new variant s and the winter surge caused the St ate of California to institute a new indoor mask mandate for January 2022. Currently mandates are being rescinded and it appears the pandemic may be transitioning to an endemic. The fallout has been the supply chain disruption along with the inflation which is now occurring.
The Nation’s Gross Domestic Product (GDP) rate of growth was 5.7 percent in 2021 which is the largest annual increase since 1984. However, this rate is compared to the prior year (2020) which included the stopped economy due to COVID . The International Monetary Fund is projecting National GDP growth of 4.0 percent in 2022 which would outpace the 476
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annual average GDP growth from 2010 to 2019. It should be noted that these estimates were prior to the Russian invasion of Ukraine which may change forecasts.
Prior to the COVID-19 pandemic, the nation was experiencing a strong economy. As with the rest of the nation, the Inland Empire experienced a strong multi -year recession, now referred to as the Great Recession, between 2006 and 2012. The MSA, which had strong employment over the ten previous years saw unemployment rates increase significantly between December 2006 and early 2010, at which time a leveling off occurred followed by continued employment growth (generally since July 2011) until the pandemic hit.
The unemployment rate for the MSA was estimated at 5.1 percent (as of December 2021 per the Employment Development Department – latest available ). This reflects a decrease from the peak during the Great Recession of 15.1 percent in 2010 and a decrease from the peak during the COVID pandemic of 14.9 percent; however, this represents an increase from February 2020’s 4.0 percent, prior to the pandemic outbreak.
As of December 2021, Riverside had an unemployment rate of 5.1 percent and San Bernardino County had a 5.2 percent unemployment rate. The current unemployment rate for the MSA of 5.1 percent is similar to the California rate at 5.0 percent and significantly higher than the December 2021 National rate of 3.7 percent. Below is a table comparing Rivers ide County’s unemployment rate to the unemployment rates of the surrounding counties as of December 2021.
Jurisdiction As of Unemployment Rate*
Los Angeles County 12/21 8.4%
Riverside County 12/21 5.1%
San Bernardino County 12/21 5.2%
Orange County 12/21 3.7%
San Diego County 12/21 4.2%
Source: State of California E.D.D.; *Not Seasonally Adjusted
Over the past 25 years, the Inland Empire economy has had significant cycles with home prices almost doubling from 1995 to 2005, then falling by over 50 percent during the Great Recession, taking prices back to 2002 levels. Home values appeared to hit bottom in 477
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2009 then remained essentially flat for two to three years with the majority of the Riverside County housing market seeing an improvement beginning in mid- 2012. While coastal Southern California housing enjoyed significant increases between 2012 and 2015, the Inland Empire bounced back slower with overall San Bernardino County finally passing the previous median home price peak in early 2020 (prior to the pandemic). Contrary to homebuilder’s original thoughts of a slowdown due to the pandemic, new home buyers stepped up in the spring of 2020 and new home sales were significantly higher during the second half of 2020 versus the previous year. In addition, since May 2020 there has been a significant increase in residential builder land purchases in the Inland Empire. While land purchases essentially stopped in February, March and April, beginning in May 2020 builders began looking for land and entering escrow on land purchases with residential land currently moving at a brisk pace. The exceptional activity in new home sales is thought to be due to several factors, including a tight resale supply of homes; historically low interest rates; millennials finally buying homes; and, the work from home factor during the pandemic which is allowing residents to live in more suburban areas without long commutes. Along with dropping the interest rate to 0 - 0.25 percent at the beginning of the pandemic, the Federal Reserve Board (“Board”) began quantitative easing by buying 80 billion in Treasury Bonds and 40 billion in Mortgage- backed Securities each month. .
This has also helped shore up the national economy. At the November Board meeting, the Board decided that the quantitative easing will begin to slowly taper beginning in mid- November. In December the Chairman of the Board stated due to the high rate of inflation, the tapering may be quicker than originally planned.
During the Great Recession, the Federal Government attempted to correct the struggling economy by implementing several economic stimulus packages. The Board kept interest rates below historical averages, dropping rates to near zero in December 2008 until December 2015, when the Board began raising interest rates until December 2018 when the ninth increase appeared to affect t he economy with home sales slowing and stock market volatility. Since then, interest rates dropped three times until the COVID pandemic when the Board dropped the rate 50 basis points due to the stock market reaction to the COVID pandemic and then again on March 16, 2020 when they dropped the rate another 478
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100 basis points to the historical ly low level of 0 - 0.25 percent. Since the March decreases, the Board has left rates unchanged. The Board had previously mentioned that rates could stay low until 2023, h owever, once inflation began, it is thought that interest rates would begin to increase in 2022 . The Federal Interest Rate (“Rate”) in the US averaged 5.69 percent from 1971 to 2019 reaching an all-time high of 20 percent in March 1980 and the previous low of .25 percent in December 2008. The current historically low rates have spurred home sales with the Inland Empire, which was identified as one of the tightest housing markets in the nation in October 2020. At the November meeting of the Federal Reserve B oard, they elected to keep the rate at the 0- 0.25 percent level. On December 15, 2021 the Federal Reserve chairman met with the Senate Banking Committee and due, to the inflation that is occurring, an accelerated timetable for Rate hikes is anticipated to occur with three Rate hikes now projected in 2022. The Board is meeting in mid -March and at minimum a one -quarter percent hike is expected with the possibility of a higher hike due to the high rate of inflation.
The latest UCLA Anderson Forecast (“Forecast”) was issued September 29, 2021 and is less optimistic than the last two quarterly reports which projected robust growth. However, the Forecast acknowledges the historical reality that economic recoveries are never smooth. The September Forecast states the belief that previously projected blockbuster growth for both the U.S. and California has been tempered by the new COVID variants, slowing vaccination rates, consumer caution and supply constraints. The National Forecast states that the recovery heading into the final quarter of the year should be good and solid rather than the previous blockbuster and spectacular growth predictions. Since June, vaccination rates have plateaued and the new variants spread quickly in both the U.S. and around the world. As a result, global supply chains continue to battle disruptions.
Per the Forecast, the U.S. economy is down 5.3 million payroll jobs from its pre- COVID peak. The current forecast is less optimistic with a 5.6 percent growth in 2021 (down from predicted 7.1 growth rate in June), followed by GDP growth of 4.1 percent in 2022 and
3.1 in 2023. This represents a shifting of growth into the future rather than in the next year or two.
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The Forecast for California is still under the shadow of the COVID -19 pandemic. While the Forecast assumes COVID-19 variants will create less serious economic impact, the various variants are spooking consumers creating a slower return of consumption behavior that previously predicted. In California the COVID recession and recovery has hit lower income Californians disproportionately exacerbating inequality in the State. The California Forecast still predicts the state recovery to eventually outpace the U.S. recovery; however, due to the stricter public health interventions, the State’s recovery has been delayed. The Forecast predicts the transition to new ways of work and new ways of social interaction will disproportionately benefit California through its technology sectors.
The leisure and hospitality sector (generally lower income w orkers) will be the last to recover due to the depth of its decline. The Forecast predicts the recovery will occur considerably faster in high-income technical services and faster in residential construction due to the State’s shortage of housing relative to demand.
Per the California Forecast, California’s unemployment rate for the third quarter of this year is expected to be 7.2 percent (currently 6.4 percent), with the anticipated average for 2021, 2022 and 2023 being 7.6 percent, 5.6 percent and 4.4 percent, respectively. In spite of the pandemic, the continued demand for a limited housing stock, coupled with low interest rates , has led to a relatively rapid return of home building. They are forecasting 123,000 new housing units in California in 2021, growing to 139,000 new units in 2023.
According to John Husing’s most recent Inland Empire Economic Report dated October 2021, the Inland Empire, along with the State and the Nation, is going through a most unusual year. The pandemic downturn was severe and second only to the Great Depression. However, Husing states that the combination of Federal and state legislation efforts combined with the impact of vaccinations has created the opportunity for most of what was lost to be regained. Within the Inland Empire at the end of 2020, Husing notes that the economy was down an average of 65,600 jobs, but his 2021 forecast sees the Inland Empire recovering the majority of these jobs. Affecting the growth is the unexpected occurrence of the disruption of the supply chain as families used the funds 480
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allocated for COVID by the government to buy goods, which increased demand. This has even impacted the Inland Empire due to its concentration of trucking firms, e- commerce operations, warehouses, distribution and wholesale trade firms in the area. One benefit of this disruption is the logistics employment statistics which have soared in the Inland Empire, adding 21,100 jobs in 2020 and an estimated additional 25,300 jobs in 2021.
As mentioned in the UCLA California Forec ast, one bright spot in the COVID economy has been sales of new homes. While existing homeowners were reluctant to put their houses on the market during COVID, new home sales in the Inland Empire soared.
Among other factors, historically low interest rates appear to have finally brought the millennial generation to the new home market. In addition, the new work-from-home factor has made non- homeowners realize they can afford a house further outside of the economic areas while they work and buying a home in a more affordable, suburban area makes sense if they don’t have to drive to the office each day. The need for home offices combined with the overall stress on social distancing has incentivized city dwellers to move out of denser urban areas into more suburban neighborhoods with more space.
The minimal existing home inventory, coupled with these factors has put pressure on pricing with new homes prices in the Inland Empire increasing well over 10 percent year- over-year. This will be discussed further in the Inland Empire Housing Market section later within this report.
As a final indicator of overall economic activity for the region we have reviewed the rise or fall of TEUs (Twenty -foot Equivalent Units – i.e., containers) being processed in the local ports. This is especially important for the inland communities as it represents much of the growth in development of West Coast distribution centers and warehouses linked to supply-chain nodes in the Pacific Rim. The chart below shows TEU activity at the Port of Long Beach. Generally, there has been increases since 2009 with the exception of a slight dip in 2016 and again in 2019. As of January 2022 , fiscal year to date TEU’s (October – September) were running 2.5 percent below the previous year however January 2022 was 4.8 percent above January 2021. The ports are a big part of the recovery with both the Port of Long Beach and the Port of Los Angeles backed up 481
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significantly due to the economic disruption of COVID which has created supply -chain issues.
.
Education
The subject area is served by the Fontana Unified School District (“FUSD”). The subject is assigned to Sierra Lakes Elementary School, Wayne Ruble Middle School, and Summit High School. The district operates 45 schools serving students from preschool through adult education. Community Colleges are available near the subject at Ch affey College in Rancho Cucamonga (eight miles southwest ), at Chaffey College’s Fontana campus (four miles south of the subject in Fontana), and San Bernardino Community College (12 miles southeast). Higher education is available approximately seven miles to the northwest at California State at San Bernardino, about 14 miles southeast is University of California at Riverside , 15 miles west in the private Claremont Colleges area which include Claremont McKenna College, Pitzer College, Harvey Mudd College, P omona College and Scripps College, and 22 miles to the southwest at Cal Poly Pomona,
Conclusion
Population in the County has increased over the past 30 years with predictions for continued population growth. The nation’s economy stalled during the Great Recession due to the housing downturn, unemployment and the credit crisis. The housing market saw a resurgence beginning the second half of 2012 with sales and prices rising until March 2020 when the COVID-19 pandemic brought the economy to a halt. The one bright spot over the past 22 months has been the new home market which has been extremely
4.0 5.0
6.0 7.0
8.0 9.0
10.0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 TEU's (millions)
Year
Port of Long Beach TEUs
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strong in the Inland Empire. The region’s affordability coupled with the rising prices in the coastal market and the need for new housing set up a potential boom in the Inland Empire.
This appears to be occurring in part due to residents leaving urban areas for more suburban areas due to COVID factors coupled with low interest rates. Current concerns in the Inland Empire housing market include possible additional variants of the pandemic, the high prices of homes, rising interest rates, inflation , supply chain issues and most recently, the Russian invasion of Ukraine and how it may affect the economy . In conclusion, the County is expected to continue to grow in population due to its Southern California location, the availability of land and the relatively lower land and housing prices in comparison to adjacent Orange, Los Angeles and Riverside Counties.
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CITY OF FONTANA DESCRIPTION
General Area
The subject property is located in the northeastern portion of the City of Fontana (“City”) and in southwestern San Bernardino County. The City is situated at the base of the San Gabriel Foothills, east of the cities of Rancho Cucamonga and Ontario, north of Jurupa Valley, west of the City of Rialto and the community of Bloomington, and south of the San Bernardino Mountains. The City encompasses an estimated 43 square miles with generally the northern border the San Gabriel Mountains and the southern border the Jurupa Mountains. The black star on the below map shows the approximate location of Fontana CFD No. 95 within the City limits.
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History
Fontana was founded in 1913 and is the second largest city in San Bernardino County and the 20th largest city in the State of California. The area was a rural farming community with citrus orchards, vineyards and chicken ranches that ran along U.S. Route 66 which is now known as Foothill Boulevard. The historic Route 66, which was built in 1926 to connect Los Angeles to Chicago, is a commercial corridor that runs east/west through the City. During World War II Henry J. Kaiser opened the Kaiser Steel Mill near Fontana, the only steel mill west of the Mississippi River, which brought industrial employment to the area during the war. To provide for the worker’s health needs, Kaiser constructed the Fontana Kaiser Permanente Medical Facility which now employs more than 5,000 people.
In 1954 the San Bernardino Freeway, which later became Interstate 10, was completed connecting Los Angeles to San Bernardino and making accessibility to Fontana relatively easy. This led to substantial growth as Fontana became an industrial hub for the County.
In the 1950s and 1960s Fontana was home to a drag racing strip which was a significant venue in the National Hot Rod Association (“NHRA”) circuit. In 1997, Roger Penske built the Fontana Speedway, now known as the Auto Club Speedway which became a major NASCAR sanctioned tract. In 2006 , the Auto Club Speedway opened a new NHRA sanctioned drag strip on site to resurrect Fontana’s drag racing heritage. The Auto Club Speedway was purchased by NASCAR in 2019 and hosts at least one major NASCAR race each year.
Population
The January 2021 population of Fontana ( per the California Department of Finance) is 213,944, which represents an increase of 1.1 percent over the previous year. The 2000 population was 128,928, suggesting the population has increased 66 percent over the past 22 years. The City population represents 9.7 percent of the County population. The City has several new home communities currently under construction, especially in the northern portion of the City. Per the U.S. Census Bureau, the average household size in Fontana is 3.85 persons while in overall San Bernardino County the average household 485
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size is 3.3 persons. Over 75 percent of the population of the City are high school graduates and over 28 percent of the population of the City are under 18 years old.
Housing
Per the Southern California Association of Governments (“SCAG”) 2019 Local Profiles (latest available), the City of Fontana has an estimated 52,251 housing units with a growth rate of 53.6 percent since the year 2000. This compares to the County’s housing growth rate of 21.9 percent during this time. This further illustrates Fontana’s growth spurt due to land available for development over the past 20 years. Fontana hosts 8.1 percent of the total number of households in the County. Below is a graph showing residential units permitted in Fontana between 2000 and 2020.
While the current numbers are not at pre-Great Recession numbers, they are the highest in the past 13 years. Per SCAG , 82.2 percent of the homes are single-family and 15 percent are multi-family units. Only 22 percent of the housing stock in the City was built before 1970 and 78 percent was built since that time. Per the City’s 2021 annual report, there are three residential projects in the planning stages: a 489-unit community known as Monarch Hills; a 257-unit project at Duncan Canyon and I-15 and a 189 unit project at Duncan Canyon and Citrus. This is in addition to 777 new single-family residential permits and 405 multi-family residential permits being issued in 2020. Per SCAG, the median home price in the City went from $129,000 in 2000 to a peak of $450,000 in 2006, a low 1,427
1,908
1,545
1,025
209 306 270 261 419 498 865
1,182
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2021 Fontana Residential Building Permits
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of $200,000 in 2009 with the January 2022 median price estimated at $618,000 per Redfin market trends.
Current new homes communities selling within Fontana include Gabion Ranch by Lennar with three neighborhoods (portion of the subject property), The Arboretum by Lennar (currently sold out but future phases coming) , The Retreat by Lennar , Shady Trails by Richmond American and Aurora Park by TRI Pointe Homes . Per Realtor.com there are currently 348 existing homes for sale within the City with the median listing price of $585,500 and the median sold home price of $620,000. Within the subject’s zip code of 92336, the median listing home price is currently $ 642,400 and the median sold home price is $645,500. This is in-line with current resale trends across Southern California of homes selling for higher than their list price.
Access
Fontana has good access with I -15 generally forming the northwest border of the City.
The 210 Freeway provides east -west access through the upper third of the City; Route 66 (also known as Foothill Boulevard) provides east -west access through the approximate middle of the City and the I-10 provides east-west access through the bottom third of the City. Major on/off ramps to the City from I- 15 include Foothill Boulevard, Baseline Avenue, the 210 Freeway, Summit Avenue, Duncan Canyon Road and Sierra Avenue. On/off ramps from the 210 Freeway within the City include Cherry Avenue, Citrus Avenue and Sierra Avenue. Route 66/ Foothill Boulevard has stop lights at major intersections while the major on/off ramps from I-10 in the City include Etiwanda Avenue, Cherry Avenue, Citrus Avenue and Sierra Avenue. Access to the subject is via Summit Avenue, Citrus Avenue and Sierra Avenue.
Economy
Existing commercial property within the City of Fontana is generally along the major thoroughfares including I -10, Route 66/Foothill Boulevard, Summit Boulevard, Sierra Avenue and the 210 Freeway. There are several large shopping centers including Sierra Lakes Marketplace and Falcon Ridge Town Center, both which serve the subject property. The City is home to an Amazon Distribution Center, a Target Distribution Center 487
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and a FedEx transfer station. The intersection of the I -10 and I -15 is a major industrial hub which extends into the City of Fontana with generally industrial use south of I-10. The Auto Club Speedway is located along Cherry Avenue north of I -10 and the Metrolink station is located along Sierra Avenue. The top- ten employers in the City (from 2018 – latest available per City’s website) include the following:
Employer No. of Employees
Kaiser Hospital 5,430
Fontana Unified School District 5,000
City of Fontana 1,030
Target Distribution Center 621
Costco Wholesale 333
Estes West 317
Sierra Aluminum Company 312
Crown Technical systems 297
Walmart Store (Foothill Blvd) 290
Summary
Fontana is located at the base of the San Gabriel Mountains and was incorporated over 100 years ago as a rural farming community. Kaiser Steel brought jobs to the area during World War II and the opening of the I-10 Freeway in the 1950s made it an easy commute to Los Angeles and Orange Counties. Almost 80 percent of the housing stock within the City was built since 1970. There are currently several new home master planned communities selling homes. The last three years have seen residential building permits growing significantly after a lull in the 10 years since the Great Recession. The area has excellent access via three major freeways and the historic Route 66. The area’s central location, reasonable land prices and the availability of land for development combine to make the area a prime area for future growth.
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THE SUMMIT AT ROSENA SPECIFIC PLAN / IMMEDIATE SURROUNDINGS
The Summit at Rosena Specific Plan (previous name of Gabion Ranch – “Specific Plan”) was originally approved March 22, 2006 . Per the Specific Plan, Gabion Ranch encompasses 179.8 acres and was approved for up to 898 residential homes and condominiums and up to 20,000 square feet of new commercial -retail space. The entire Gabion Ranch project is shown on the below land- use map with a yellow dashed line identifying the subject property.
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The subject property, also known as Phase Two of Gabion Ranch, includes Planning Areas 12, 15, and 17-19. Planning Area 16 is within the boundaries of Fontana CFD No. 95, however are open space and recreation areas which are not taxable and therefore not valued within this appraisal. Phase One includes the remainder of the Specific Plan and consists of Planning Areas 1-4, 10 and 13. While Planning Area 15 was originally an elementary school, it was not needed by Fontana Unified School District and was approved for 3 9 additional homesites per the Specific Plan. It should be noted that Planning Area 15 was actually developed into 33 homesites (subject Stonegate property).
Per the Specific Plan, the Planning Area details are as follows:
Land Use. Acres Units
Residential 138.65*
Townhouse 347
Garden & Courts 190
SFR 4,000 sf 97
SFR 5,000 98
SFR 6,000 75
SFR 10,000 88*
Commercial 1.0
Open Space
Edison Trails Park (SCE ROW) 20.00
Pocket Park 1.75
Dog Park 2.0
Tot Lots 0.5
Greenways/Trails 4.5
Other Community Purpose
Dedications of Roadway 10.4
Sub-Total 179.8
Less: SEC ROW and Dedications (30.4)
Total 149.4 895
*Assumes Elementary School Site developed to 39 lots with minimum 10,000 sf The purpose and intent of the Specific Plan is to create an amenity -rich, mixed use, residential community in North Fontana. The amenities include creating a 20- acre park with a quarter -mile running track ; demonstration gardens ; a trail system w ith workout stations; a community recreation center for use by residents with a pool, lap pool, spa, weight room, cabana and barbeque; a neighborhood pocket park with two half -court basketball courts, picnic/BBQ areas and restrooms; two tot lots, one with restrooms; an extensive system of greenways with off-street trails and a dog park.
The residential land uses include single-family detached lots ranging from 4,000 to 10,000 square feet, garden courts which include detached housing in a courtyard configuration 490
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with a density of up to 10 dwelling units per acre and attached townhomes with a density of up to 16 dwelling units per acre. While there are 895 total proposed residential units in the Specific Plan, this appraisal refers to only Phase Two which consists of 280 proposed residential units.
Gabion Ranch is located at the northwest corner of Summit and Sierra Avenues, two of the main arterials in North Fontana. Both Summit and Sierra have on/off ramps from I-15 creating good access to the master planned community. The community is generally bordered by Casa Grande Avenue to the north, Sierra Avenue to the east, Summit Avenue to the south and Cypress Avenue to the west. The site is bisected by a 3 30-foot Southern California Edison (SCE) easement which includes high- power lines. North of the subject is generally undeveloped lands (currently being graded for Arboretum Gardens, a residential community) while to the east is existing industrial use (Target Distribution Center, LGE Electronics Distribution Center and FedEx Distribution Center ).
South of Summit Avenue is the existing Sierra Lakes Golf Course and master planned community. To the west is existing housing and Summit Place, a new home community recently closed out by Taylor Morrison. To both the north and northeast of the subject is the Arboretum, a new home master planned community also being developed by Lennar.
Shopping is available at Summit Avenue and I -15 1.5 miles west at Falcon Ridge Town Center and at Sierra Avenue and the 210 Freeway, 0.8 miles south at the Sierra Lakes Marketplace with a substantial amount of commercial fronting the 210 Freeway between Sierra Avenue and Citrus Avenue. While the original Specific Plan had some commercial land use at the southeast corner of the overall Gabion Ranch site within Phase Two (Planning Area 19), this has been changed to residential.
Gabion Ranch has good access to the local schools of the Fontana Unified School District with Summit High School located about one mile west on Summit, Sierra Lakes Elementary School located one -half miles west on Summit and Wayne Ruble Middle School located about one mile south of the subject.
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FONTANA CFD NO. 95 (SUMMIT AT ROSENDA PHASE TWO)
We have reviewed the City of Fontana CFD Report for Community Facilities District No. 95 (Summit at Rosena Phase Two) dated April 17, 2019 as prepared by David Taussig & Associates, Inc. The Summit at Rosena is being marketed (and referred to in this report) as Gabion Ranch. The CFD Report provides a brief description of Fontana CFD No. 95, a brief description of the Facilities to be funded, a brief description of the boundaries and an estimate of the cost of financing the bonds used to pay for the Facilities. Resolution No. 2019-036 was adopted March 12, 2019 and approved the intention to establish Fontana CFD No. 95.
The exterior boundaries of Fontana CFD No. 95 are generally the southern portion of the Specific Plan as shown on the map below.
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Per the CFD Report, Fontana CFD No. 95 encompasses approximately 44.4 gross acres of land with approximately 27.6 of the acres expected to be developed into uses subject to Fontana CFD No. 95. At time of the report, they were anticipating the subject proposed 280 residential units. Per the CFD Report, the types of facilities to be funded are streets, including grading, paving, curbs and gutters, sidewalks, street signalization and signage, street lights and parkway and landscaping related thereto, sewers, storm drains, fire protection facilities, police facilities, public facilities, landscaping, library facilities, park and recreational facilities and land, rights -of-way and easements necessary for any of such facilities. The types of public services to be financed by Fontana CFD No. 95 are fire protection and suppression s ervices, maintenance and lighting of parks, parkways, streets, roads and open space, flood and storm protection services and maintenance and operation of any real property or other tangible property with an estimated useful life of five or more years that is owned by the City. Incidental expenses are also included.
The estimated cost of public facilities at time of the CFD Report for both CFD No. 90 and CFD No. 95 were estimated as:
PUBLIC FACILITIES AMOUNT5
Acquisition Facilities $20,124,498
Street Improvements $6,992,825
Sewer Improvements $1,670,432
Storm Drain Improvements $8,371,657
Park and Recreational Facilities $3,089,584
Other Public Facilities $16,261,0646 $2,876,0457
Circulation Facility Improvements $4,344,878 $0
Landscape Facility Improvements $433,551 $0
Public Facility Improvements $558,737 $558,737
Police Facility Improvements $533,417 $533,417
Library Facility Improvements $374,219 $374,219
Fire Service Protection Improvements $146,288 $0
Inclusionary Housing Improvements $964,767 $964,767
Sewer Facility Improvements $781,936 $0
Storm Drain Facility Improvements $2,059,698 $0
Flood Control Facility Improvements $444,905 $444,905
Park Facility Improvements $5,618,668 $0
Additional Capital Facilities Infrastructure Improvements $4,765,367 TOTAL ESTIMATED COSTS $27,765,910
5 Estimates provided by project developer
6 Estimated amount of permit fees prior to anticipated City fee credits 7 Estimated amount of permit fees after anticipated City fee credits. 493
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The maximum bonded indebtedness for CFD No. 95 is $ 11,000,000. Per the latest sources and uses of funds ( dated April 7, 2022) for the proposed bond issuance, there will be an estimated $9,205,000 in Bond Par Amount and a Premium of $ 301,587 for a total bond fund deposit of $ 9,506,587 with $ 8,601,403 going to the project fund, $573,062 in a debt service reserve fund and $332,122 in underwriter’s discount and cost of issuance (all amounts subject to change). A larger copy of the Fontana CFD No. 95 boundary map is located in the Addenda for your review.
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SUBJECT PROPERTY DESCRIPTIONS
The subject property consists of portions of the communities known as Stonegate, Iron Walk, Mountainside, Ridgeview, and Woodridge within the master planned community known as Gabion Ranch, being built out by Lennar. Immediately below is information that is applicable to the entire subject property (Phase Two of Gabion Ranch), while specific information about each community is broken out in sub-categories on the following pages.
Location: North side of Summit Avenue, generally bound by Sierra Avenue to the east and Cypress Avenue to the west, Fontana, California Three-Year
Sales History: Lennar purchased the entire Gabion Ranch (including all subject lands and additional property ) for $44,000,000 on November 22, 2017 from J.W. Mitchell Land Company. The site was in an unimproved condition. The site had an approved specific plan for 895 units at the time of sale; post close, as final maps were recorded, lot numbers were slightly adjusted. Individual homebuyers have closed on 181 lots since October 26, 2020.
Size and Shape: The subject property is irregular shaped, and contains an estimated
44.428 gross acres per the dimensions on Tract Map No s. 20214, 20214-2, 20214-3 and 20214-5.
Zoning: Per the current City of Fontana General Plan Land Use Map and the current Zoning Map, the site is designated as R-PC (or Residential Planned Community) and then has a Specific Plan overlay (see above section on Summit at Rosena Specific Plan).
Topography: The topography is generally flat, and currently the subject property is at street level of the surrounding streets. The lands have been developed into single -family detached lots and pads for attached townhomes. Drainage appears to be within an engineered street drainage system.
Soils Condition: We have reviewed three Geotechnical Reports of Rough Grading for Gabion Ranch all prepared by Petra Geosciences of Temecula, California. They are for:
• Updated Geotechnical Recommendations for Planning Areas 1-6 and 10-19 (for both Phase 1 and Phase 2) dated July 9, 2018;
• Tracts 20214- 1, 20214- 2, 30314- 3, 20214- 4, 20214- 5 and 20214-F, Planning Areas 10 through 15 and 17 through 19 495
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(Ridgeview and Stonebrook and additional lands outside of the subject property) dated June 24, 2019.
• Addendum Geotechnical Repor t for Mass Grading of Park Site within Planning Area 15, portion of Tract 2014- f (or no dash) which is located within Fontana CFD 95 however will not be taxable property, thus is not included in this appraisal, dated April 9, 2020.
All reports conclude that the earthwork was performed in general accordance with the recommendations presented in
recommendations provided in Petra’s Geotechnical
Recommendations report dated 2018.
It is an assumption of this report that the soils are adequate to support the highest and best use conclusion. This is evidenced by construction of homes on the site and City inspectors on site during construction.
Seismic
Information: The subject property is not located in a designated Earthquake Study Zone (Alquist-Priolo Earthquake Fault Zone) as determined by the State of California and there are no known active faults crossing the site.
Environmental
Concerns: We have reviewed the Draft Environmental Impact Report (“EIR”) for the entire Summit at Rosena Specific Plan (both Phase One and Phase Two) prepared by Willdan and dated July 2005. We did not receive a Phase 1 Environmental Assessment to review. The EIR describes all environmental impacts the subject proposed specific plan could have. The report concludes that the only significant and unavoidable impacts are short and long- term construction induced air pollutants. The only project alternative that would not have these impacts is to not build on the site. Within the EIR, the issues raised by Agencies and the Public include: Fontana Unified School District expressing school impact concerns. The EIR includes an analysis of the environmental impacts associated with the elementary school; the Metropolitan Water District (MWD) in regards to the Rialto Pipeline/Foothill Feeder which extends through the site which is discussed in the EIR, the South Coast Air Quality Management District (SCAQMD) expressed general air quality impact concerns (addressed in EIR); the Native American Heritage Commission (NAHC) expressed concerns for archaeological resources
(addressed in EIR); and finally, the Santa Ana Regional Water Quality Control Board provided comments which the EIR responded to. The appraiser refers the reader to the EIR for additional information.
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It is an assumption of this report that there are no environmental issues which would slow or thwart development of the subject property. This is evidenced by construction of homes on the site and City inspectors on site during construction.
Flood Information: Per FEMA Map No. 060 71C7915H dated August 28, 2008 the property is shown as being located in Zone X, outside of the annual
0.2 percent change of flood.
Easements and
Encumbrances: We have reviewed two Preliminary Title Reports prepared by Lennar Title, which cover portions of Woodridge and Ridgeview within the subject property. They are:
Report 192002-1636656 dated January 31, 2022 covering portions of Woodridge;
Report 192002-1636666 dated January 31, 2022 covering portions of Ridgeview.
The exceptions within all reports include easements, CC & Rs and property taxes, special assessments, water rights, abutters rights to certain streets, that the property lies within the North Fontana Redevelopment Project area, a notice of builder’s election of handling of construction claims, matters shown as disclosed on said maps, matters in document entitled Declaration of Solar Energy Covenants, Conditions and Restrictions for Gabion Ranch, dedications for open space purposes, any facts, rights, interests or claims not shown by public records but which could be ascertained by an inspection, condominium plan documents and for the Gabion Ranch Master Association, and that no known matters otherwise appropriate were deleted from the report.
While the exceptions appear typical for subject-type lands, it is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than CFD No. 95. The appraisers are not title experts and it is recommended that any concerns relating to title should be addressed to the appropriate experts.
Utilities: All normal utilities are available to serve the subject site by the following companies:
Electrical: Southern California Edison Company
Natural Gas: SoCal Gas
Sewer/Water: City of Fontana
Schools: Fontana Unified School District
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Streets/Access: Access to the subject property is convenient via I -15 to Duncan Canyon Road, east three quarters of a mile to Cypress Avenue, and south on Cypress Avenue for almost one mile to Veneto Drive.
Access via I -210 is convenient using exit Citrus Avenue north one mile to Summit Avenue, or one- and one-half miles to Casa Grande Avenue. From Summit Avenue, travel east one-half mile to Cypress Avenue, and head north on Cypress Avenue. The subject is accessible from Casa Grande Avenue via Napa Valley Road, from Cypress Avenue or Sierra Avenue via Veneto Drive, or from Summit Avenue via Napa Valley Road or Montelena Road.
I-15 is a major north/south freeway, which provides access to both international borders with Mexico and Canada.
I-210 is also an east/west freeway. It begins in Santa Clarita in Los Angeles County and ends near downtown San Bernardino. I -210 provides additional access parallel to I-10 (about three miles north at the subject) which gets congested at commuting times.
I-10 (six miles south of the subject) is a major east/west freeway in San Bernardino across Los Angeles and San Bernardino Counties.
I-10 provides access to Los Angeles to the west and through San Bernardino County and Riverside County to Arizona to the east. I-10 is an interstate providing a southern route across the U.S. to Florida
Citrus Avenue has on/off ramps at I -10 and I -210 and provides access into central and south Fontana. Citrus Avenue’s northern terminus is at Duncan Canyon Road, just north of the subject.
Sierra Avenue in Fontana makes up the eastern border of the subject and provides north/south access into downtown Fontana and into Sunnyslope. It provides access and has on/off ramps for: I-15, I-210, and I-10.
Summit Avenue is a smaller local arterial that provides east/west access to the subject and to Falcon Ridge Town Center at the Beech Avenue/I-15 intersection.
Cost to Complete: Residential lands in the area are typically sold on a “finished lot” or “finished pad” basis. That is, builders pay a finished lot or finished pad price less the remaining development costs that will need to be expended to arrive at a “finished lot” or “finished pad”. Per Lennar and/or their representatives, the remaining land development cost s and fees for the subject portion of Gabion Ranch are estimated at $4,439,477. The homeowners are not responsible for any of the remaining costs; thus, they fall to the builder -owned property only.
There are a total of 280 proposed residential units within the subject 498
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property and 181 have closed to individuals leaving 99 pads/units under builder ownership. Dividing the remaining costs of $4,439,477 by the 99 units/pads equates to $ 44,843.20 in remaining land development costs per pad/unit. These costs will be taken into account in the valuation section, later within this report.
Homeowner’s
Association: Per Lennar Representatives, the master Gabion Ranch homeowner’s association assessment is estimated at $80 per unit at build-out.
Stonegate:
Legal Property
Description: Lots 1-33 of Tract Map No. 20214- 2. Stonegate includes additional lots to the southwest within Phase Two of Gabion Ranch which are not included in the Fontana CFD No. 95 boundaries, thus, are not addressed in this report.
Property Owner: Individual Owners as to Lots 1-33 of Tract 20214-2.
Assessors
Parcel Nos.: 0239-973-01 thru 033
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Property Taxes: The San Bernardino County website does not have property taxes shown for these parcels at this time. It is an assumption of this report that the overall taxes and assessments are under two percent.
Size & Shape: Tract Map 20214- 2 is roughly rectangular in shape and encompasses 11.278 gross acres and 7.765 net acres. Based on the 33 lots within the 11.278 gross acres, the site equates to a density of
2.93 dwelling units per acre.
Entitlements: The subject portion of Stonegate is covered by Tract Map No. 20214- 2, recorded December 19, 2019. The map divides the property into 33 single-family detached lots with a minimum lot size of 10,000 square feet.
Internal Streets: Internal streets within Stonegate include: Oakville Street, Turley Way and Trivento Place. The models for Stonegate are located in Phase 1 of Gabion Ranch and are not included in the subject property.
Current Condition: The subject property has been graded and developed into 33 single- family detached lots. The lots are in a physically finished condition with streets complete and utilities stubbed to each lot. All 33 lots include completed homes, with all 33 individually owned.
Improvement
Description: Stonegate at Gabion Ranch i s proposed for 67 houses, 3 3 located within the subject property. Stonegate offers four floorplans (although only three are included within the subject lots) with four architecture styles: American Farmhouse, California Ranch, Craftsman and Monterey. The homes feature one - and two- story plans with attached three car garages, and a NextGen floorplan option. Home exteriors include Boral cool roof tiles, sectional roll -up garage doors with fully drywalled interior garages, block wall fencing with tubular steel gates, and exterior lighting. Plans include second floor laundry rooms (per plan), walk in closets, tankless water heaters, raised panel doors, LED downlights, bullnose corners and rocker light switches. Gourmet kitchens with islands featuring granite slab countertops and backsplashes, GE stainless steel appliances and a choice of white Thermofoil or maple cabinetry. Lennar also advertises their connectivity features with Wi -Fi certification, smart thermostats, deadbolts and Ring doorbells.
We have rev iewed Stonegate’s sales information from the builder which includes 33 homes closing between October 28, 2020 and September 24, 2021. Closed sale prices range from $655,790 to $839,590. There are currently no escrows at Stonegate included within the subject boundaries as all homes have closed . Per public record, there have been no resales and per our inspection there were 500
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no homes listed for resale. The base pricing at time of sell -out was from $691,323 to $829,240. The houses are detailed below.
Plan
Bd/Ba
Floors/
Parking
Sq. Ft. Ind.
Owned
1 4 / 3 1 / 3 2,470 N/A
2 4 / 3.5 1 / 3 2,820 12
3 5 / 3 2 / 3 3,523 7
4 6 / 4.5 2 / 3 4,122 14
Total 33
Iron Walk:
Legal Property
Description: Lots 1-22 and 43-58 of Tract 20214-3. Iron Walk includes additional lots to the northwest within Phase One of Gabion Ranch which are 501
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not included in Fontana CFD No. 95 boundaries, thus are not included in this report.
Property Owner: Individual Owners as to Lots 1-21 and 43-58 of Tract 20214-3.
Assessors
Parcel Nos.: 0239-266-01; 0239-974-01 thru 037
Property Taxes: The San Bernardino County website does not have property taxes shown for these parcels at this time. It is an assumption of this report that the overall taxes and assessments are under two percent.
Size & Shape: Tract Map 202 14-3 which houses Iron Walk’s 38 lots, plus 35 lots within Mountainside, is irregular in shape and encompasses 14.915 gross acres and 10.371 net acres, the difference being public right of ways for roads and landscape areas. Based on the 73 lots within the 14.915 gross acres equates to a density of 4. 896 dwelling units per acre.
Entitlements: Iron Walk is covered by Tract Map No. 20214 -3, recorded April 15, 2020. The map divides the property into 73 single-family detached lots (38 of which fall within Iron Walk) with a minimum lot size of 5,000 square feet.
Internal Streets: Internal streets within Iron Walk include Oakville Street, Pegasus Bay Place, Rubicon Way, and Shafer Court. The models for Iron Walk are located in Phase One of Gabion Ranch and are not included in the subject CFD No. 95.
Current Condition: The subject property has been graded and developed into 38 single- family detached lots. The lots are in a physically finished condition with streets complete and utilities stubbed to each lot. All 38 lots include completed homes that have closed to individuals.
Improvement
Description: Iron Walk at Gabion Ranch Phase Two includes 38 homes being built out by Lennar. Iron Walk offers three floorplans with four architecture styles: American Farmhouse, California Ranch, Craftsman and Monterey. The homes feature one- and two-story plans with attached two car garages, and a NextGen floorplan option. The NextGen (“NG”) floor plans have a separate entrance and living area allowing for a multi-generation household. Home exteriors include Boral cool roof tiles, sectional roll -up garage doors with fully drywalled interior garages, block wall fencing with tubular steel gates , and exterior lighting. Plans include second floor laundry rooms (per plan), walk in closets, tankless water heaters, raised panel doors, LED downlights, bullnose corners and rocker light switches. Gourmet kitchens with islands feature granite slab countertops and back splashes, GE 502
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stainless steel appliances and a choice of white Thermofoil or maple cabinetry. Lennar also advertises their connectivity features with Wi- Fi certification, smart thermostats, deadbolts and Ring doorbells.
We have reviewed Iron Walk’s sales information from the builder which includes 38 homes closing between January 21, 2021 and October 1, 2021. Closed sale prices range from $557,490 to $744,585. There are currently no escrows at Iron Walk included within the subject boundaries as all 38 homes are closed. Per public record, there have been no resales and per our inspection there were no homes listed for resale. The base pricing at time of sell -out was from $591,490 to $692,490. The houses which are over 95 percent complete are detailed below.
Plan
Bd/Ba
Floors/
Parking
Sq. Ft. Ind.
Owned
1 3 / 2 1 / 2 1,950 14
2 4 / 3 2 / 2 2,723 12
3 4 / 3.5 2 / 2 3,180 12
Total 38
Mountainside:
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Legal Property
Description: Lots 23- 42 and 59- 73 of Tract 20214- 3. Mountainside includes additional lots to the northwest located within Phase One of Gabion Ranch which are not included in Fontana CFD No. 95, thus are not addressed in this report.
Property Owner: Individual Owners as to Lots 23-42 and 59-73 of Tract 20214-3.
Assessors
Parcel Nos.: 0239-266-02 thru 036
Property Taxes: The San Bernardino County website does not have property taxes shown for these parcels at this time. It is an assumption of this report that the overall taxes and assessments are under two percent.
Size & Shape: Tract Map 20214-3 which houses Mountainside’s 35 lots, plus 38 lots within Iron Walk, is irregular in shape and encompasses 14.915 gross acres and 10.371 net acres, the difference being public right of ways for roads and landscape areas. Based on the 73 lots within the 14.915 gross acres equates to a density of 4.896 dwelling units per acre.
Entitlements: The subj ect portion of Mountainside is covered by Tract Map No. 20214-3, recorded April 15, 2020. The map divides the property into 73 single-family detached lots (35 of which fall within Mountainside) with a minimum lot size of 6,000 square feet.
Internal Streets: Internal streets within Mountainside include Oakville Street, Pegasus Bay Place, Rubicon Way, and Shafer Court. The models for Mountainside are located in Phase One of Gabion Ranch and are not included in the subject CFD No. 95.
Current Condition: The subject property has been graded and developed into 35 single- family detached homes. The lots are in a physically finished condition with streets complete and utilities stubbed to each lot and completed homes on some lots. All 35 lots include completed homes that have closed to individuals.
Improvement
Description: Mountainside at Gabion Ranch is proposed for 71 proposed homes, 35 which are within the subject property, being built out by Lennar.
Mountainside offers three floorplans with four architecture styles:
American Farmhouse, California Ranch, Craftsman and Monterey.
The homes fe ature one- and two-story plans with attached two car garages. Home exteriors include Boral cool roof tiles, sectional roll - up garage doors with fully drywalled interior garages, block wall fencing with tubular steel gates , and exterior lighting. Plans incl ude second floor laundry rooms (per plan), walk in closets, tankless water 504
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heaters, raised panel doors, LED downlights, bullnose corners and rocker light switches. Gourmet kitchens with islands feature granite slab countertops and backsplashes, GE stainles s steel appliances and a choice of white Thermofoil or maple cabinetry. Lennar also advertises their connectivity features with Wi -Fi certification, smart thermostats, deadbolts and Ring doorbells.
We have reviewed Mountainside’s sales information from the builder which includes 35 homes closing between October 26, 2020 and April 22, 2021. Closed sale prices range from $520,500 to $728,100.
Per public record, there have been no resales and per our inspection there were no homes listed for resale within the subject portion of Mountainside. Within Phase One, we found two re- sales which will be discussed under the valuation section later within this report. The base pricing at time of sell-out was from $610,400 to $728,900. The houses are detailed below.
Plan
Bd/Ba
Floors/
Parking
Sq. Ft. Ind.
Owned
1 3 / 2 1 / 2 2,140 12
2 5 / 4 2 / 2 3,251 10
3 5 / 3.5 2 / 2 3,325 13
Total 35
Ridgeview:
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Legal Property
Description: Lots 1-54 of Tract 20214-5. Ridgeview includes additional lots to the northwest in Gabion Ranch Phase One which are not included in Fontana CFD No. 95, thus are not addressed in this report.
Property Owner: Lennar Homes of California, Inc. as Lots 1 -4 and 47- 54 of Tract 20214-5. Individual Owners as to Lots 5-46 of Tract 20214-5.
Assessors
Parcel Nos.: 0239-277-01 thru 54
Property Taxes: The San Bernardino County website does not have property taxes shown for these parcels at this time. It is an assumption of this report that the overall taxes and assessments are under two percent.
Size & Shape: Tract Map 20214- 5 which houses the subject 54 cluster lots, is roughly rectangular in shape and encompasses 6.396 gross acres and 5.35 net acres, the difference being public right of ways for roads and landscape areas. Based on the 54 cluster lots within the 6.396 gross acres equates to a density of 8.44 dwelling units per acre.
Entitlements: The subject portion of Ridgeview is covered by Tract Map No. 20214- 5, recorded June 23, 2020. The map divides the property into 5 4 single-family detached lots with a minimum lot size of 3 ,000 square feet (8.4 du/acre).
Internal Streets: Internal streets within Ridgeview include: Villa Maria Way and Wyndham Lane. The models for Ridgeview are located in Phase One of Gabion Ranch and are not included in the subject CFD No. 95.
Current Condition: The subject property has been graded and developed into 54 single- family detached lots with access off shared court streets . The lots are in a physically finished condition with streets complete and utilities stubbed to each lot and completed homes on some lots. All 54 lots have homes over 95 percent complete including 42 individually owned homes, and 12 production homes over 95 percent complete (all in escrow).
Homeowner’s
Association: In addition to the Gabion Ranch Master Association dues of $80 per month per unit, Ridgeview has an assessment of $75 per month for their common areas.
Improvement
Description: Ridgeview at Gabion Ranch is proposed for a total of 108 homes, 54 within the subject property that are detached homes arranged in a motor court/courtyard style being built out by Lennar. Ridgeview offers four floorplans with four architecture styles: American Farmhouse, California Ranch, Craftsman and Monterey. The homes feature two- story plans with attached two car garages. Home 506
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exteriors include Boral cool roof tiles, sectional roll -up garage doors with fully drywalled interior garages, block wall fencing with tubular steel gates, and exterior lighting. Plans include second floor laundry rooms, walk in closets, tankless water heaters, raised panel doors, LED downlights, bullnose corners and rocker light switches. Gourmet kitchens with islands featuring granite slab countertops and backsplashes, GE stainless steel appliances and a choice of white Thermofoil or maple cabinetry. Lennar also advertises their connectivity features with Wi -Fi certification, smart thermostats, deadbolts and Ring doorbells.
We have reviewed Ridgeview’s sales information from the builder which includes 42 homes closing between August 13, 2021 and January 18, 2022 . Closed sale prices range from $472,900 to $590,200, while estimated final sale prices on current escrows range from $555,900 to $595,200. Per public record, there have been no resales and per our inspection there were no homes listed for resale within the subject portion of Ridgeview. Within Phase One our search revealed one sale which will be discussed under the valuation section later within this report. Current base pricing per Lennar is from $556,900 to $587,833. The houses which are over 95 percent complete are detailed below.
Plan
Bd/Ba
Floors/
Parking
Sq. Ft. Ind.
Owned
Bldr.
Owned
1 3 / 2.5 2 / 2 1,578 14 2
2 3 / 2.5 2 / 2 1,715 14 5
3 4 / 3 2 / 2 1,790 7 4
4 4 / 3.5 2 / 2 1,801 7 1
Total 42 12
Woodridge:
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Legal Property
Description: Lots 1- 4 of Tract 20214.
Property Owner: Lennar Homes of California, Inc. as to Units 101-112; 201-212, 301- 312, 408-409 and 412, Units 601- 612, 701-712, 801-812 and 901- 912 all located within portions of Lots 1-4 of Tract 20214.
Individual Owners as to Units 401-407, 410-411, Units 501-512 and Units 1101-1112 on portions of Lots 2 and 3 of Tract 20214.
Assessors
Parcel Nos.: 239-278-11 fhru 82 and 0239-914-13 thru 60.
Property Taxes: The San Bernardino County website does not have property taxes shown for these parcels at this time. It is an assumption of this report that the overall taxes and assessments are under two percent.
Size & Shape: Tract Map No. 2021 4 (also known as Tract 20214- F) houses the subject’s 120 units/pads. The map is generally rectangular in shape and totals 11.839 gross and 5.168 net acres with the difference being setback and landscape areas, streets and roads along with a community park and water quality basin which is shown as Lot N on the map and contains 3.892 acres. Lots 1-4 of Tract Map 20214 houses the subject 120 attached units/pads. Based on the 7.947 gross acres (total acreage minus the park/water basin) and the 120 total units, the overall density for the project is 15.10 dwelling units per acre.
Entitlements: Woodridge is covered by Tract Map No. 20214 , recorded August 4, 2020, as well as further condominium maps which divides the subject portion of Woodridge into 120 attached townhomes with a density of 15 du/acre.
Internal Streets: Internal streets within Woodridge include Wyndham Lane.
Current Condition: The subject property has been graded and developed into 120 single-family attached row townhome pads arranged in a motor court style. The pads are in a physically finished condition with streets complete and utilities stubbed to each unit and completed homes on some lots. There are 48 units with homes over 95 percent complete including 33 individual owned homes and 15 production homes (14 in escrow). There are 24 additional homes under construction (under 95 percent complete with 21 in escrow) and 48 remaining finished pad status units (not yet released).
Homeowner’s
Association: In addition to the Gabion Ranch Master Association dues of $80 per month per unit, Woodridge has an assessment between $71 and $110 per month (depending on the unit) for their common areas. 508
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Improvement
Description: Woodridge at Gabion Ranch includes 228 proposed townhome style condominiums arranged in a motor court/courtyard style being built out by Lennar. The subject portion of Woodridge includes 120 proposed townhomes. Woodridge offers five floorplans with Craftsman and California Ranch-influenced architecture. The homes feature two-story plans with attached one to two- car garages. Home exteriors include Boral cool roof tiles, sectional roll -up garage doors with fully drywalled interior garages, tubular steel fencing with tubular steel gates, and exterior lighting. Plans include second floor laundry rooms, walk in closets, tankless water heaters, raised panel doors, LED downlights, bullnose corners and rocker light switches. Gourmet kitchens with islands featuring granite slab countertops and backsplashes, GE stainless steel appliances and a choice of white Thermofoil or maple cabinetry. Lennar also advertises their connectivity features with Wi -Fi certification, smart ther mostats, deadbolts and Ring doorbells.
We have reviewed Woodridge’s sales information from the builder which includes 33 homes closing between September 22, 2021 and February 11, 2022. Closed sale prices range from $332,000 to $532,500, while estimated final sale prices on current escrows range from $386,150 to $543,500. Per public record, there have been no resales and per our inspection there were no homes listed for resale.
Current base pricing per Lennar is from $399,000 to $548,500. The houses which are over 95 percent complete are detailed below.
Plan
Bd/Ba
Floors/
Parking
Sq. Ft. Ind.
Owned
Bldr.
Owned
1 1 / 1.5 2 / 1 849 5 3
2 2 / 2.5 2 / 2 1,391 11 5
3 3 / 3 2 / 2 1,324 6 2
4 3 / 2.5 2 / 2 1,652 6 2
5 3 / 2.5 2 / 2 1,826 5 3
Total 33 15
In addition to the above shown houses, there are 24 homes under construction and finished pads for an additional 48 townhomes.
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THE INLAND EMPIRE HOUSING MARKET
In analyzing the area’s housing market, population growth and economic conditions need to first be considered.
Population
The County population grew at a 0.02 percent increase between January 2020 and January 2021 and an average of 2.1 percent the previous 20 years. The slowdown in population growth during this time was primarily due to the sluggish national economy and the disruption during COVID. It is interesting to note that while the County did not show growth during this time period, the City of Fontana grew at 1.1 percent. Prior to the COVID pandemic predictions were for the County to grow at an average annual rate of
0.95 percent over the next ten years. This equates to an increase of approximately 20,000 residents per year suggesting the need for about 7,000 homes per year within the County.
The COVID-19 influence is still unknown on the County’s population growth. New home sales in some cities in the County in 2020 were higher than the coastal communities due to affordability, the work from home factor, and the fact that millennials are finally entering the housing market. These factors may increase County population growth in 2021 and 2022.
Economic Conditions
Over the past twenty-five years the Inland Empire has seen various cycles in the housing market. The Great Recession impacted the Inland Empire significantly and resulted in a longer recovery period than in other areas of Southern California. The rise and then fall of housing prices in the Inland Empire between 2004 and 2009 was considerably steeper than almost anywhere in the State. Unfortunately, this meant that the people who bought near the peak of the market likely faced significant negative equity. A fter essentially remaining flat for a few years, housing prices began to increase in late 2012 through January 2020. Once the COVID pandemic hit in March 2020, the housing market seemed to slow down significantly in March but by May 2020 new homes were onc e again going 510
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under contract with new homes selling at above average absorption rates from May 2020 into February 2022 in the region.
Economic growth in the Inland Empire was strong between 2002 and 2007. Job losses occurred between 2007 and 2009, with a leveling out in 2010, a slight upturn in 2011, and general increases since that time until the economic shutdown due to COVID which created a new recession. The unemployment rate for the County was 5.1 percent (per the December 2021 Employment Development Department “EDD” report), lower than the high of 15.1 percent in July 2010. The December 2021 County rate was essential the same as the California unemployment rate (5.0 percent), but was higher than the December 2021 National rate of 3.7 percent. The pre- COVID unemployment rate in February 2020 for the County was 4.1 percent. According to CNN Business, as of January 2022 the U.S. economy is operating at 91 percent of where it was in early March 2020, prior to the pandemic. While it was thought once the CO VID pandemic ends, the Nation will get back to the previous highs, it is now looking like there may be some changes in the post-COVID economy. These changes include many companies switching to work - from-home for their employees whenever possible, on-line shopping will be a larger factor in retail, people moving out of urban areas to suburban areas, on- line academia rising and many now believing that the travel and leisure industry may never get back to the old “normal” as restaurants have closed, hotels are currently at less than 75 percent capacity and airline revenues are down significantly. The closing of businesses appears to have had a ripple effect on trade as materials and consumer goods are hard to obtain which is creating long lead times for many orders.
The housing market has played a large role in the past two recessions. The housing market was a significant factor in strengthening the impact of the Great Recession. Due to increased interest rates and rising home prices between June 2004 and mid-2006, the market reaction was to create non-conventional financing alternatives such as sub-prime and non-conventional mortgages to artificially maintain the boom housing market of 2004 and 2005. By 2007, the housing market saw a shake-up due to the problems in the sub- prime and non-conventional mortgage markets. In March 2007, the Federal Government 511
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initiated efforts to stop or limit sub- prime mortgages. Unfortunately, the damage had already been done with sub-prime mortgages playing a role in the 2008 shake out of Wall Street and contributing significantly to the U.S. economic downturn. Due to stricter income verification on new loans and the lack of available credit, coupled with job losses and declining home prices, sales of new homes slowed for the next few years and essentially remained flat until mid-2012 when home prices began a steady climb.
Thus far into the COVID recession, new home sales have been one of the brightest spots in both the local and National economies. While new home sales slowed in March and April 2020 due to the COVID pandemic, prices did not appear to change in the County.
Some builders increased concessions in March 2020, but by May concessions were back to where they were prior to COVID, and prices have increased significantl y since. The Inland Empire was documented as the tightest housing market in the Nation (OC Register October 2020) based on the supply. The supply of homes in the Inland Empire is still constrained which has put pressure on prices to rise. As of mid-January, over 93 percent of new home builders in the Nation were stating pricing has increased over the past month. However, there are signs that we may be approaching a price ceiling. Per Metrostudy’s survey of homebuilders, their largest concerns relate to (1) availability of materials; (2) cost of materials and land increasing; (3) increasing interest rates leading to affordability issues for buyers; (4) labor shortages; and (5) delay on government services.
Home loan mortgage rates have been and are still playing a large part in the robust housing market. The Board held mortgage rates at all -time lows after the Great Recession in an attempt to assist the housing market. Low rates appeared to help for quite a while. However, first-time buyers are now having a hard time entering the housing market due to rising prices, despite historically low mortgage rates. The Board had kept interest rates below historical averages, dropping rates to zero in December 2008.
Subsequently, there had been eight subsequent one- quarter point increases with the December 2018 increase bringing the Federal Rate to 2.25- 2.5 percent which appeared to have a negative impact on home sales. In 2019 the Board reduced the rate one-quarter 512
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percent three times in an effort to spur the economy. This appeared to help as housing sales began to increase in early 2020, prior to COVID. On March 3, 2020, due to the COVID pandemic economic disruption, the Board reduced the Federal Rate one- half percent. Then on March 16, 2020 they reduced the rate an additional one percent to the current Federal Rate of 0.00 – 0.25 percent, the lowest rate in history. The quoted average U.S. rate for a 30-year fixed mortgage per FRED (Federal Reserve Economic Data) as of February 17, 2022 was 3. 92 percent, w hich is slightly higher than the January 2022 average, and much higher than the most recent low of 2.65 percent on January 7, 2021.
Mortgage applications have been spiking due to these low rates, and the fear that they are starting to slowly tick up. The Federal Reserve Board is expected to increase rates at a minimum of one-quarter percent at the upcoming March meeting which has been felt in the increase of mortgage rates. There are predictions for up to four rate increases this year which will increase mortgage rates back to more “normal” levels.
The fall out of the shut-downs from the COVID pandemic are still affecting the economy.
As previously discussed, the Federal Government approved $5.6 trillion in COVID relief in order to keep the economy stable. This amount of money entering the system appears to be fueling inflation with the 2021 National inflation rate at 7 percent compared to a 1.2 percent average in 2020. High inflation is one of the factors that the Federal Reserve Board watches in order to determine both bond purchases and fluctuations in the interest rate. Due to the recent inflation, the Board has begun tapering off their purchase of bonds.
Since June 2020, in order to help stabilize the economy, the Board has purchased $80 billion in Trea sury Bonds and $40 billion in Mortgage Securities each month. At the November Board meeting, the decision was to begin reducing the bond purchases of both Treasury Bonds Mortgage S ecurities. The monthly purchase of $40 billion in mortgage-backed securities between June 2020 and November 2021 fueled the already active home buying and refinancing markets.
Residential Land Development
While there had been little land development going on in most of the Inland Empire during the years 2008- 2011, the second half of 2012 saw a resurgence in the more coveted 513
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areas such Ontario, Rancho Cucamonga, Fontana, Chino and Chino Hills in Southwest San Bernardino County. The increase in housing prices since 2012 coupled with the limited availability of supply made land dev elopment feasible once again for homebuilders. It is thought that the increase in regulations, which has significantly increased the time of processing entitlements, has limited the master developers’ further entitlement of developable land in California. While prior to the recession it was not unusual to see numerous large master-planned communities selling lots to builders, there are few currently available in the subject area. The majority of land sales over the past few years include single tracts of land with maps ready to record or a public builder buying a larger piece of land but develops the land for its own use (such as the subject property).
Land sales slowly grew from 2012 up to a peak in 2017 with 2018 and 2019 showing lower land transactions. Since then, residential land sales have eclipsed the 2017 peak as builders are trying to keep up with the demand for new homes. With new housing appearing to be one of the strongest sectors in the COVID economy, there appears to be a rebound in new -home starts. It’s possible that the rush to build by the new -home builders in the Inland Empire may create a slower 2022/2023 in residential land sales.
That is, residential land sold exceptionally well in 2021 and is continuing to sell well in early 2022, but that may be pulling future demand forward creating a softening in the land market in the future.
New Home Sales and Pricing
We have researched new single- family homes within the subject real estate market in order to reflect residential trends . It should be noted these sales numbers and prices pertain to new home sales while later in this section we discuss existing home sales. In reviewing new home sales in the Inland Empire market area, per the January 30, 2022 Ryness Report, the average year to date sales are eight percent above the previous year however, when reviewing January 2020 to January 2022 (prior to pandemic and since the pandemic), sales increased 31 percent. This increase is partially slowed due to the limited available supply which was not meeting demand, thus put pressure on pricing along with historically low interest rates. As rates go down, purchasing power becomes larger, which gives new-home buying a boost. At the beginning of the fall season, it appeared sales 514
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were seeing a slight slow- down with some builders dropping pricing in order to keep absorption up. While there was a slight slowdown in September 2021 which suggested that a peak in pricing may have been reached, sales numbers jumped back up for a strong end of 2021 and a very strong start to 2022, possibly from predictions of rates rising in later in the year. Along with home sales comes a demand for appliances, furniture, building materials and services such as insurance, mortgage services, inspections, interior designers and landscapers, all contributing to the area economy.
The years 2018, 2019 and early 2020, saw a significant increase in new homes projects in the Inland Empire. Due to the high number of land sales in 2017, new homes projects increased 84 percent in the Inland Empire from 131 new home projects in January 2018 to 242 new home projects in February 2020; however, decreased since that time to 184 new home projects per the January 30, 2022 Ryness Company Report. While this is a significant increase in number of new home projects since 2018, the number of new home sales is still running over 50 percent below the average of 2002 through 2006. New home sales in overall San Bernardino County for the 3rd quarter of 202 1 were 1,228 (for the quarter) while new ho me sales for the 3rd quarter of 2020 were 1,051, representing an increase of 16.8 percent (latest data per Husing). The 1, 228 new home sales for the quarter would equ ate to 4,912 new home sales for the year, which relate to the aforementioned needed homes based on population growth of about 7,000 per year. This suggests new home supply is not keeping up with the demand due to population growth.
New single -family home prices (combines both attached and detached) in the Inland Empire has also seen changes. The median new home price in the Inland Empire changed from the peak value of $437,200 in the third quarter of 2006 to $268,155 in early 2009 (decrease of 39 percent) while the current new home median price is a record high of $ 529,250 for Riverside County and $ 545,250 for San Bernardino County (for a combined average of $535,419) per John Husing’s October 2021 report. This reflects an increase of over 99 percent from the bottom o f the cycle and an increase of 21 percent over its previous peak. It is important to note that building trends changed to building smaller, more economical homes since pre- Great Recession, so this increase likely 515
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demonstrates an even higher increase when looking at a price per square foot basis. New home sale prices typically fluctuate based on the land value more than the cost of building the home. While finishes and sizes of homes can change, the basic costs on a per square foot basis do not typically fluctuate as much as land values. However, recently there have been inflationary increases in construction costs adding to the increased cost of building a new home.
Within our search for the most comparable actively selling new home communities, we searched the subject’s city of Fontana along with the neighboring cities of Rancho Cucamonga, Rialto and Jurupa Valley. Our search for comparable new home projects as compared to the subject communities within the competitive market area resulted in fifteen new home projects with base pricing ranging from $395,150 to $ 978,000. The subject’s either current or final base pricing (if sold out) range s from $ 395,150 to $826,990.
Existing Homes Sales and Pricing
While the previous section looked at new home sales and pricing, this section refers to existing homes in the Inland Empire. According to the California Association of Realtors’ most recent data, within overall Southern California, the median price paid for an existing single-family home in January 2022 ($740,000) is down 1.3 percent from the previous month, however up 13.8 percent year-over-year from $650,000 in January 2021. Existing home sales in Southern California overall were down 10. 1 percent year-over-year as of January 2022. While this is an annual decrease, sales are substantially up from 2019 sales. Low interest rates have been allowing existing home owners to move up. The overall Southern California numbers compare to San Bernardino County with $450,000 as the median price paid for an existing home in the County in January 2022, down 2.2 percent from the previous month however up 15.4 percent year over year ($390,000).
Sales of existing homes in the County were down 7.7 percent year -over-year. The decrease in sales is mainly due to a lack of supply: less inventory of existing homes.
Below is a table showing the sales and prices for the Southern California area by County per the California Association of Realtors.
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Southern California Existing Home Sales
County Jan. 2022 Dec. 2021
Jan.
2021
Price MTM
% Change
Price YTY
% Change
Sales YTY
% Change
Los Angeles $800,960 $826,500 $704,850 -3.1% 13.6% -12.4% Orange $1,195,000 $1,182,500 $971,000 1.1% 23.1% -18.4% Riverside $590,000 $590,000 $495,500 0.7% 19.1% -4.5%
San Bernardino $450,000 $460,000 $390,000 -2.2% 15.4% -7.7% San Diego $875,000 $836,700 $730,000 4.6% 19.9% -6.7%
Ventura $850,000 $850,000 $776,000 0.0% 9.5% -11.7%
Southern Calif. $740,000 $749,900 $650,000 -1.3% 13.8% -10.1% Source: California Association of Realtors
Based on January 2022 median existing homes prices, in comparison to the majority of the surrounding counties, San Bernardino County has a definite price advantage. The “San Bernardino County Advantage” (price difference between San Bernardino and surrounding counties) is $1 40,000 as compared to Riverside County, $ 350,960 as compared to Los Angeles County, $400,000 as compared to Ventura County , $425,000 as compared to San Diego County and $745,000 as compared to Orange County. That is, in January 2022 , the median priced home in San Bernardino County was $ 745,000 less than the median priced home in Orange County ($1,195,000). Typically, as the price advantage widens, homebuyers are more open to comm uting to further out areas. With the current work-from-home concept, the suburban areas are seeing more growth which is putting pressure on home prices in the Inland Empire.
In a separate attempt to capture the amount of increase in home prices, the resale activity of existing homes in the subject’s immediate area (per Redfin.com) has been reviewed.
The number of sales and sale prices of existing homes within market areas of the subject are shown in the table below.
Community
Name
Location
To
Subject
No. of
Sales
Jan 2022
Price
Median
Price %
Change
from Jan.
2021
Fontana Subject 129 $620,000 31.9%
Lytle Creek North 3 $600,000 42.9%
Rancho Cucamonga West 109 $675,000 8.9%
Rialto East 57 $520,000 20.9%
Jurupa Valley South 61 $600,000 24.2%
Source: Redfin Housing Market Trends January 2022
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The median home price of a detached resale home in Fontana in January 2022 was $620,000, which is within the range of the resale detached home prices in the subject area. The low-end of the range relates to the Rialto which has older homes while the high- end of the range relates to Rancho Cucamonga. The above price fluctuations from year- to-year relate to the California Department of Real Estate’s overall San Bernardino County detached home resale price increase of 15.4 percent year over year from January 2021 to January 2022.
According to the Ryness Report dated January 30, 2022, there are currently 16 new home projects in the subject’s Central San Bernardino submarket with the City of Fontana housing 14 of them (including four within Gabion Ranch (two outside of Fontana No. 95).
Gabion Ranch - Sales and Pricing
The subject consists of portions of five new home communities within Phase Two of the Gabion Ranch master plan which is proposed for 280 new residences . Phase One included an additional 606 new residences within eight communities. Five of the eight communities (Iron Walk , Mountainside, Ridgevie w, S tonegate and Woodridge) have proposed homes within both phases. Within Phase Two, Stonegate began selling homes in May 2020 and generally sold out by March 2021 which suggests an absorption rate of
3.3 homes per month; however, in actuality they were s elling homes within Phase One so the absorption rate was higher. Iron Walk began selling homes in September 2020 with the final home sold in August 2021 resulting in a sales rate of 3.16 homes per month within Phase Two. Again, Iron Walk was selling homes in Phase One so actual absorption was higher within overall Stonegate. Mountainside began selling homes in Phase Two in April 2020 with the last one sold in March 2021 resulting in an average sales rate of 3.18 homes per month. Ridgeview began selling in January 2021 and had their last sale in December 2021 resulting in a sales rate of 4.5 homes per month within Phase Two. Again, they were selling within Phase One a portion of this time resulting in a higher actual sales rate. Woodridge began selling homes within Phase Two in April 2021 and has sold 68 518
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homes resulting in an average sales rate of 6.8 homes per month with additional homes selling during some of this time in Phase One. The higher sales rates for the smaller product is typical as price points are important in the subject market. Looking overall at Phase Two, there have been 228 sales since May of 2020 suggesting an average sales rate within Phase Two of Gabion Ranch of 11.4 sales per month. It should be noted that communities sold out and several had temporary sell-outs due to construction not being able to keep up with demand. This delayed sales along with some communities not beginning sales until 2021, both factors which would result in a higher average absorption for overall Phase Two. While the COVID-19 pandemic has caused a significant disruption to the U.S. economy and the existing home market, it does not seem to have affected the new home housing market in the same way. Furthermore, according to the Inland Empire sales rates, the subject has been performing near or above the averages for the region.
We have also reviewed Empire Economics, Inc. Price Point Review Study for Fontana CFD No. 95 dated February 23, 2022. The study concluded that in comparison to the 2018 Price Point Study Review, all plans had price increases with the current market value of the plans increased by some 20 percent on average over this time period.
Within Gabion Ra nch Phase Two, actual sales prices have seen substantial increases since May 2020. We have reviewed the actual sales prices for each plan within each community. Prices increased at a minimum of ten percent (between April 2021 and November 2021 within Plan 4 of Woodridge) to a maximum of 21 percent (between September 2020 and August 2021 for Plan 3 of Iron Walk). In numbers the overall increases in the actual sales prices for each community have ranged from $ 49,150 to $131,990. These are considered to be significant increases in pricing.
Summary
The Inland Empire as a whole as well as San Bernardino County specifically have seen a substantial increase in pricing since 2012 with most areas, including the subject, in the past year showing double-digit increases. When the COVID pandemic shook the nation in early 2020, the new home market became the better option with new home sales very strong for the past two years. The subject’s pricing and historical average absorption is in 519
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line with the comparable communities. Sales rates in the immediate vicinity of the subject are generally at or above the overall average in the Inland Empire market area. Prices of new homes in the area have had significant increases with some showing over 10 percent year-over-year. The Inland Empire housing market is positive and healthy population growth is occurring in San Bernardino County. It is believed that as population continues to increase, housing growth will also continue.
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HIGHEST AND BEST USE ANALYSIS
The highest and best use is a basic concept in real estate valuation due to the fact that it represents the underlying premise (i.e., land use) upon which the estimate of value is based. In this report, the highest and best use is defined as:
"the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value”8
Proper application of this analysis requires the subject properties to first be considered “As If Vacant” in order to identify the “ideal” improvements in terms of use, size and timing of development. The existing improvements (if any) are then compared to the “ideal” improvements to determine if the use should be continued, altered or demolished preparatory to redevelopment of the site with a more productive or ideal use.
“As If Vacant”
In the following analysis, we have considered the sites probable uses, or those uses which are physically possible; the legality of use, or those uses which are allowed by zoning or deed restrictions; the financially feasible uses, or those uses which generate a positive return on investment; and the maximally productive uses, or those probable permissible uses which combine to give the owner of the land the highest net return on value in the foreseeable future.
Physically Possible Uses
The subject property consists of 44.428 gross acres per the recorded Tract Maps that are irregular in shape and located in the northern portion of the City of Fontana on the east side of Cypress Avenue at Summit Avenue. According to the Summit at Rosena Specific Plan (prior name of Gabion Ranch), the entire Gabion Ranch site was undeveloped lands with a 330 -foot-wide SCE right of way bisecting the site from east to west. There is an additional 100-foot MWD right of way that runs east to west in the northern portion of the property along Casa Grande Avenue but does not appear to affect the subject property’s
8 The Appraisal of Real Estate, 11th Edition
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development potential. At time of the Specific Plan origination in 2006, there were some dirt roads, mostly associated wi th the two right -of-way easements across the property along with some trash and dirt dumped on the site. The subject site is surrounded by Cypress Avenue on the west, Casa Grande and vacant lands to the north, Sierra Avenue to the east and Summit Avenue to the south.
The subject site was graded for development into 280 single-family units with 106 single- family conventional detached lots, 54 single-family detached cluster lots and 120 pads for attached units. We have reviewed soils reports on the subject site. All reports we reviewed concluded that the grading of the site was done according to appropriate standards and that development of the site is feasible; however, all mitigation measures recommended within the reports should be adhered to during construction. The site is being developed with conventional single-family detached homes, small-lot single-family detached homes in a cluster format and attached townhomes. It is an assumption of this report that the soils are adequate to suppor t the highest and best use, and that there are no environmental issues which would slow or thwart development of the property . This is evidenced by existing homes on the site which were recently built with City inspectors on site during construction.
An engineered drainage system appears to have been designed into a street drainage system for the entire master planned community . All standard utilities are available to serve the subject property. The site has good access via I-15 via either Summit Avenue, Duncan Canyon Road or Sierra Avenue. There is neighborhood shopping within one mile and regional shopping within 2.5 miles.
Based on the physical analysis, the size and access make the subject property physically suited for numerous types of development; however, the grading that has occurred on the site suggests residential development.
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Legality of Use
The subject property is located within the City of Fontana in the County of San Bernardino.
Per the City’s General Plan, the subject site is shown as R -PC for Residential Planned Community. In addition, on both the General Plan Land Use Map and the City Zoning Map, the site is shown as Specific Plan 22, which is the Summit at Rosena Specific Plan (previous name for Gabion Ranch). Per the Specific Plan, the subject and adjoining lands to the south were approved for up to a maximum of 895 dwelling units on the entire approximate 180 gross acres. The subject property is shown as Planning Areas 12 and 15-19 within the Specific Plan and has approvals for 280 residential units. A SCE high power line easement bisects the entire Specific Plan. In addition to the Specific Plan entitlements, the subject is covered by recorded Tract Maps 20214-2, 20214- 3 and 20214-5 which subdivide the majority of the subject property into 106 single-family detached lots and 54 single-family detached cluster lots. Tract Map 2021 4 was also recorded along with condominium maps dividing this map into 120 attached units.
Based on the legality of use analysis, the type of development for which the subject properties can be utilized is narrowed to residential use. This is consistent with the findings of the physically possible uses.
Feasibility of Development
The third and fourth considerations in the highest and best use analysis are economic in nature, i.e., the use that can be expected to be most profitable. The subject site would possibly be residential per the above analyses. As discussed under the Inland Empire Housing Market section earlier within this report, the market has been on an upswing for almost a decade with strong increases in sales and pricing, a slowdown in late 2018 and increases since mid-2019. The subject property is located in North Fontana with several new home communities now selling with good to excellent sales rates , suggesting that residential lands in the immediate area are feasible to develop. The COVID-19 pandemic does not appear to have negatively affected new home sales in the Inland Empire, but rather appears to have increased absorption and pricing of new homes in the area.
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Based on the above analysis, the highest and best use for the subject property appears to be for single-family residential development with homes at the right price points. This coincides with the previous conclusions.
Based on the above analysis, in our opinion, the highest and best use for the subject property appears to be for residential land use.
Maximum Productivity
Based on the market activity of residential lands in the immediate area, we have concluded there is a need/demand for residential lands.
Highest and Best Use Conclusion – “As If Vacant”
The final determinant of highest and best use, as if vacant, is the interaction of the previously discussed factors (i.e., physical, legal, financial feasibility and maximum productivity considerations). Based upon the foregoing analysis, it is our opinion that the highest and best use for the subject property is for residential land use.
Highest and Best Use – “As Improved”
The subject property consists of five communities within the Gabion Ranch master plan (Stonegate, Iron Walk, Mountainside, Ridgeview, and Woodridge) consisting of 280proposed homes . The 280 proposed homes are being developed by Lennar with homes ranging in size from 849 to 4,122 square feet with most recent base pricing ranging from $399,000 to $829,240. Included in the 280 proposed homes are 33 within Stonegate, 38 within Iron Walk and 35 within Mountainside which are all sold and closed out.
Ridgeview which includes small cluster lots proposed for 54 units, all sold with 42 closed at this time. The fina l community which includes 120 proposed attached motorcourt homes in Woodridge has 48 units over 95 percent complete (33 closed and remaining in escrow), an additional 24 under construction (21 in escrow) and 48 remaining pads which have not yet been released for sale. New home sales have been strong to very strong in the Inland Empire area with the subject projects selling at very good rates. Prices have increased at substantial rates ranging from 49,150 to $131,990 or between 10 and 20 percent. All of the homes are of good design and appear to be of good quality 524
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workmanship. It appears that the subject properties within Gabion Ranch have been well received and the neighborhoods are selling at the correct price points for the area. Based on the above information, it is concluded that the highest and best use for the subject property, is for the continued use, as improved.
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VALUATION ANALYSIS AND CONCLUSIONS
The Sales Comparison Approach will be used to value the subject property. This approach compares similar properties that have recently sold or are in escrow. In determining the value for the property, a unit of comparison needs to be addressed. For attached residential lands, they are typically sold on the basis of a finished pad for a townhome unit. That is, the sales price is determined by a finished pad value and then the remaining costs to develop the property to a finished condition are taken into account in the sales price. Therefore, in determining a current market value for the lands, the current condition of the lots will be considered. In the case of the existing home valuations, a single new-home sale is the unit of comparison. O ur search will include all new home projects within the subject’s immediate and surrounding market area to find comparable new homes for sale. In determining the value for each house, a base value will be concluded for each plan which will be considered a minimum market value as most buyers typically purchase some premiums, upgrades or options which increase the price of the home.
The valuation will be presented as follows. First, a discussion of the small and attached land sales will be given. Each of the compa rable market data (on a finished pad basis) will be detailed along with a comparison discussion of their relationship to the subject high-density product on a finished pad basis. The remaining construction costs, if any , will be taken into consideration followed by a finished lot/unit value conclusion for the lands. Houses which are under construction (under 95 percent complete) will be valued on the basis of a finished pad rather than attribut ing value to a partially com plete improvement.
In the case of the completed (over 95 percent complete) builder-owned units, the homes will be valued using the Sales Comparison Approach to value to conclude on a retail value for each plan. This will be followed by a Discounted Cash Flow (“DCF”) Analysis due to the single ownership of multiple homes. The DCF will take into account the fair market value of the completed homes (utilizing the Sales Comparison Approach), remaining 526
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development costs (if any), the marketing and carrying c osts associated with selling off the homes, a profit due to the developer of the homes, and a discount rate reflecting both the risk associated with selling off the homes along with the time value of money during the estimated absorption period. In the ca se of the individually owned homes, the concluded base value will be used for each plan and a mass appraisal technique will be addressed. In determining the concluded base value, new home sales in the area will be reviewed and compared with sales of the subject completed homes using standard methodology and statistical testing. All of the value conclusions will take into consideration improvements funded by the Fontana CFD No. 95 special tax bonds and their lien. A summary of the final value conclusions will be reported at the end of this valuation section.
GABION RANCH LAND VALUATION ANALYSES
Within Phase Two of Gabion Ranch, there are a total of 280 proposed residential units, 181 units which are individually owned, 27 homes over 95 percent complete ( none of which are models – models are located in Phase One, not a part of this report), 24 homes under construction (under 95 percent complete) and 48 finished pads. The homes which are under construction (under 95 percent complete) will be valued on the basis of a finished pad rather than attribute value to a partially complete improvement.
Market Data Discussion
All of the remaining lands are attached townhome pads within Woodridge. As mentioned above, in this appraisal, we will consider a house under construction (under 95 percent complete) as a finished pad rather than attribute value to a partially complete improvement; therefore, we will value the homes under construction (under 95 percent complete) and the remaining lands as finished pads. Within Woodridge there are 24 units under construction and 48 remaining townhome pads, thus 72 townhome pads will be valued. We will conclude on a finished pad value, taking into consideration the remaining costs to develop the pads to a true, finished pad condition.
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We have searched the area and found the eight transactions summarized in the Addenda to be most comparable to the subject Woodridge pads. The sales are reported both on a purchase price basis and on a finished lot basis. The actual purchase price is typically less, depending on the condition of the land (lots or pads) at the time the property was acquired. Although some sales refer to “finished lots/pads,” they are typically physically finished lots/pads with some fees remaining to be paid to be considered true finished lots/pads. Below are the details of each of the comparable land sales along with a discussion of each transaction in relationship to the subject property.
Land Sale No. 1 refers to the sale of 526 lots which are to be known as the Gardens at Arboretum. Lennar purchased the acreage which is located just north of Gabion Ranch, from Lewis Group of Companies (North Fontana Investment Company) in December 2021 for $91,935,500 per public record. The Arboretum has similar amenities which compared to the subject Gabion Ranch. The purchase included 69 triplex units, 99 cluster lots with a minimum size of 2,200, 109 cluster lots with a minimum size of 2,600, 97 lots with a minimum lot size of 4,000 square feet, 88 lots with a minimum lot size of 4,950 square feet and 64 lots with a minimum lot size of 6,000 square feet. We were unable to obtain finished lot /pad estimates on each p roduct however brokers familiar with the transaction reported the blended finished lot price estimated at $274,000. In comparison to the subject attached product, this transaction is considered to be significantly superior in lot size as the majority of the lots are detached and up to 6,000 square feet compared to the subject attached pads. It should be noted that this transaction is considered a bulk sale due to the number of lots/pads which would have commanded a discount, making this transaction consider ed to be inferior to the subject when looking at number of pads/lots.
Land Sale No. 2 pertains to the purchase of 107 lots located at the northeast corner of San Savaine Road and South Highland Avenue in Fontana, just south of the 210 Freeway. Richmond Am erican purchased the lands which had approvals for 46 alley loaded lots and 61 motorcourt cluster lots from the Stratham Group in December 2021 for $18,691,821 based on a reported blended finished lot price of $285,000. The site is 528
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adjacent to the 210 Freeway. The overall density of this transaction is 10 dwelling units per acre while the subject’s area of Woodridge is about 15 dwelling units per acre. The subject refers to attached product while this transaction has all detached small lots which command a premium making this sale superior in density and lot size to the subject. The location, adjacent to the 210 Freeway is considered to be inferior to the subject’s location within Gabion Ranch. In addition, the amenities associated with Gabion Ranch are considered to be superior to this transaction which will have a pool/clubhouse, however not to the extent of Gabion Ranch.
Land Sale No. 3 refers to the purchase by Landsea Homes of 489 units located just northwest of the subject nor thwest of Duncan Canyon Road and Interstate 15. Landsea purchased the site in September 2021 from Richland Communities who had entitled and processed engineering on the site. The site is raw land with mapping for 129 townhomes, 127 motorcourt cluster lots, 79 lots with a minimum size of 5,000 square feet and 154 lots with a minimum lot size of 10,000 square feet. The property was reportedly purchased for $42,736,000 or a blended per unit price of $87,395 based on a blended finished lot/pad price of $285,000. The significant cost to develop the lots/pads (almost $200,000 per unit) is due to the hillside condition of a portion of the site. In comparison to the subject property, this transaction is considered to be significantly superior in the majority of the lot sizes; however, inferior due to the number of lots (considered a bulk purchase) and due to the amount of grading needed on the property. While the actual costs of land development are taken into consideration, there is risk associated with the developm ent while the subject lots are all graded and nearly finished.
Land Sale No. 4 pertains to the purchase of a community known as The Retreat, located adjacent to the east to Data No. 2, at the northeast corner of Beech Avenue and South Highland Avenue in Fontana, just south of the 210 Freeway. Lennar purchased the lands from the Stratham Group in May 2021 for $16,500,000 or for $85,052 per unit. The site is entitled for 100 attached units and 92 detached cluster units with an overall density of 14 dwelling units per acre, which is similar to the subject’s density. In comparison to the subject, this transaction is considered to be inferior due to it being adjacent to the 210 529
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Freeway, the amenities and date of sale. While the Retreat will have some amenities , they will not be as plentiful as the Gabion Ranch amenities. The date of sale of May, 2021 is considered to be inferior due to the appreciation which has occurred in the marketplace since that time. When pairing Sale No. 2 and this transaction which are adjacent to each other, Sale No. 2 occurred in September 2021which is after additional appreciation in the subject marketplace making Sale No. 2 superior to Sale No. 4 in Date of Sale. In addition, Sale No. 2 had all detached units with an overall density of 10 dwelling units per acre while this transaction has a density of 14 dwelling units per acre and included over one- half attached units.
Land Sale Nos. 5, 6 & 7 refer to three land sales which closed in 2021 within Fontana in a community known as Shady Trails, about one- half mile west of the subject property.
Land Sale No. 5 refers to the purchase by PLC Communities for 91 detached triplex units.
PLC is selling their community known as Juniper on the site. The property had a density of 14 dwelling units per acre and sold for $7,977,000 based on a reported finished lot price of $133,000. Land Sale No. 6 refers to TRI Pointe Homes purchasing the lands for 139 two- story townhomes at Shady Trails from the Lewis Gr oup of Companies in February 2021. The density is approximately 15 dwelling units per acre for this project.
The land is located west of the subject property near the Summit Avenue and Citrus Avenue intersection. The land was purchased in a finished condit ion with an approved final map for $9,277,000 or $66,741 per unit. This was based upon a reported finished lot price of $100,000 by the buyer and a reported finished lot price of $114,000 by the seller when factoring in the anticipated profit participation. This community is now selling at Birch Bend with base pricing from $480,000 to $570,000. Land Sale No. 7 refers to Taylor Morrison purchasing 60 lots from the Lewis Group of Companies in January 2021. This community consists of two -story detached courtyard cluster units; the lot sizes will vary due to the cluster layout, but the overall density is approximately 12 dwelling units per acre. The land was purchased in a finished condition with an approved final map for $5,022,000 or $83,700 per lot, and based on a reported estimated finished lot price of $132,000. The transaction included a seller carryback loan for $2,510,940. This community which marketed as Aspen Court has sold out. Shady Trails includes a 15,000- 530
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square-foot recreation center, including a fitness center, theater, library, business center, game rooms, and “cybercafé.” It also includes a second recreational club with a pool, spa, fitness center, half -basketball court, tot lot and barbecue area. There are a number of other amenities placed throughout the master-planned community. In comparison to the subject property, Both Shady Trails and the subject property have master -planned amenities and are located within one- half mile of each other. While these transactions closed in 2021, the escrows opened in 2019 and there has been a significant amount of appreciation in the subject marketplace since that time. In comparison to the subject lands, the subject’s attached pads are higher in density than Land Sale No. 7. The other main difference is that these land transactions were negotiated in 2019 which is considered to be significantly inferior due to today’s market value and the appreciation in the marketplace.
Land Sale No. 8 refers to TRI Pointe Homes purchasing 193 detached small lot homesites from The Stratham Group in December 2020. The 193 lots include 82 detached alley-load units and 111 detached cluster units with an overall density of 11 dwelling units per acre. The land is located about three and one- half miles southwest of the subject property near the Interstate 15 and Victoria Street intersection in the City o f Fontana. The land was purchased in an unimproved condition with final engineering in process for $25,315,500 or $131,168 per lot, based on a reported blended finished lot price of $215,000. This community is now known as Aurora Park with two products known as Goldenrod and Sienna currently selling. Aurora Pak has some amenities, but they are fewer and smaller amenities compared to the subject property. In comparison to the subject property, the site is slightly superior due to the density, however inferior due to its location along I-15, its lack of master -planned amenities and the date of sale, over one year ago, prior to a significant amount of appreciation in the subject marketplace.
The chart below summarizes the considerations used in adjusting the market data to the subject property.
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Data
No. Location Date of
Sale Lot Size Finished
Lot Price Comparison to Subject
1 Arboretum,
Fontana 12 / 21 4 du/ac $274,000 Sig. Superior – Density Inferior – Number of Lots
2 Fontana 12 / 21 10 du/ac $285,000
Superior – Density
Inferior – Amenities, Fwy
Location
3 Fontana 9 / 21 4 du/ac $285,000
Sig. Superior – Density
Inferior – Condition & Number of
Lots
4 Fontana 5 / 21 14 du/ac $155,000 Inferior – Amenities, Fwy Location and Date of Sale
5 Shady Trails
Fontana 2 / 21 14 du/ac $133,000 Inferior – Date of Sale 6 Shady Trails
Fontana 2 / 21 15 du/ac $114,000 Inferior – Date of Sale 7 Shady Trails
Fontana 1 / 21 12 du/ac $132,000 Slightly Superior – Density Inferior – Date of Sale
8 Fontana 12 / 20 11 du/ac $215,000
Slightly Superior – Density
Inferior – Date of Sale, Fwy,
Amenities
The market data depicts a wide range of overall finished lot price range from $114,000 to $285,000. Land Sale No. 1 and 3 both refer to much lower density land sales which both include conventional lots which are significantly superior to the subject’s attached pads with a density of 15 dwelling units per acre. home density. Land Sale Nos. 5, 6 and 7 are all located within Shady Trails with similar amenities to Gabion Ranch, however all were negotiated two years ago, prior to a significant amount of appreciation in the subject marketplace. Homes have increased 15 percent just over the past year. While this represents the increase in housing prices which has been upwards of $60,000 on average (California Association of Realtors San Bernardino statistics for January 2022) , a good portion of appreciation does fall to the land. Data No. 2 appears to be a high sale due to the freeway influence as Data No. 4 is adjacent to Data No. 2. Most of the market data relates to blended prices of either attached and small cluster lots, or small to medium sized conventional lots. The only other strictly attached land sale refers to Data No. 6, which sold over a year ago based on a finished lot price of $114,000 which includes an estimate for profit participation). Data No. 4 is similar in density, however is adjacent to the freeway and will not have the amenities that Gabion Ranch does. Based on the market data, we have concluded that the subject Woodridge pads have a fini shed pad value of 532
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$175,000. The valuation for Woodridge’s pads will be within its community’s valuation section below.
GABION RANCH – HOUSE VALUATION ANALYSES
Within Phase 2 of Gabion Ranch, there are 181 individually owned homes and 27 production homes over 95 percent complete owned by the builder. The builder -owned homes over 95 percent complete are all production homes with no models (the models for each community were included in Phase One of Gabion Ranch, and are outside the Fontana CFD No. 95 boundary lines). The 27 builder owned homes include 12 homes within Ridgeview and 15 homes within Woodridge. We have searched the local Multiple Listing Service and inspected the property . Our search resulted in no resales within the subject property and four re- sales of the subject plans within the past six months within Phase One of Gabion Ranch. Below is a valuation section for each neighborhood which includes a summary of the various floor plans , a valuation analysis on each plan using comparable data, a discounted cash flow for the bulk -ownership of the builder -owned homes, and the concluded land valuation followed by a minimum market valuation for the individual owned homes based on the concluded value for each plan. A listing of the improved residential comparable properties for both attached, cluster and conventional single-family detached improved properties are located in the Addenda of this report.
Gabion Ranch Valuation – Stonegate
Stonegate consists of 67 proposed single- family detached homes on minimum 10,000 square foot lots with 33 homes located within Phase Two (Fontana CFD 95, subject property). All 33 of the subject’s 33 houses are complete and closed to individuals. Below is a table showing the break-out of the plans and ownership followed by the valuation for the various plans within Stonegate. Please note, there are no Plan 1 homes located within Phase 2.
Plan
Bd/Ba
Floors/
Parking
Sq. Ft. Ind.
Owned
1 4 / 3 1 / 3 2,470 N/A
2 4 / 3.5 1 / 3 2,820 12
3 5 / 3 2 / 3 3,523 7
4 6 / 4.5 2 / 3 4,122 14
Total 33
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The most appropriate new home comparable data for Stonegate Plan 2 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 2 4 / 3.5 1 / 3 2,820 --
9 3 5 / 3 2 / 3 2,743 $282.33
12 3 3 / 2.5 2 / 2 2,440 $279.91
13 5 4 / 3.5 2 / 2 2,617 $299.58
14 2 5 / 2.5 1 / 2 2,490 $307.63
14 3 4 / 2.5 1 / 2 2,610 $288.89
15 1 3 / 2 1 / 2 2,140 $305.12
The subject market includes comparable product located within Fontana and the neighboring city of Jurupa Valley. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space, and other amenities. There are minimal new, single-story homes for sale in Fontana on large conventional lots, thus we expanded our search to include two- story homes on smaller lots. The comparable new home sales have base prices ranging from $279.91 to $307.63 per square foot. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire.
The final base asking price for Stonegate Plan 2 was $243.38 per square foot. There have been 12 closings of Stonegate Plan 2 within Phase Two with actual sales prices from $232.55 to $260.37 per square foot with the last sale occurring in August 2021; however, this appears to be an outlier as the previous most recent sale was in March 2021. There are no current escrows of Stonegate homes within Phase Two as they are sold out. Our search of the local MLS resulted in no resales within Stonegate Phase One or Phase Two within the past six months.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 2 would have a base current market value of $285.00 per square foot. This calculates as follows:
2,820 sf x $285.00 = $803,700
The most appropriate new home comparable data for Stonegate Plan 3 are:
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Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 3 5 / 3 2 / 3 3,523 --
9 3 5 / 4 2 / 3 2,743 $282.33
13 6 5 / 3 2 / 3 2,722 $287.66
15 3 5 / 3.5 2 / 3 3,325 $249.76
15 4 6 / 4 2 / 3 4,122 $237.26
The subject market includes comparable product all located within Fontana or the neighboring city of Jurupa Valley. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space, and other amenities. The comparable new home sales have base prices ranging from $237.26 to $282.33 per square foot. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for Stonegate Plan 3 was $214.87 per square foot. There have been seven closings of Stonegate Plan 3 with actual sales prices from $188.08 to $212.54 per square foot with the last sale occurring of a Plan 3 within Phase Two in March 2021.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 3 would have a base current market value of $240.00 per square foot. This calculates as follows:
3,523 sf x $240.00 = $845,520
The most appropriate new home comparable data for Stonegate Plan 4 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 4 NG 6 / 4.5 2 / 3 4,122 --
9 3 5 / 4 2 / 3 2,743 $282.33
13 6 5 / 3 2 / 3 2,722 $287.66
15 3 5 / 3.5 2 / 3 3,325 $249.76
15 4 6 / 4 2 / 3 4,122 $237.26
The subject market includes comparable product all located within Fontana or the neighboring city of Jurupa Valley. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, 535
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view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space, and other amenities. The Stonegate Plan 4 is a “NextGen” home which allows for a separate entrance and living area for multi-generations. The comparable new home sales have base prices ranging from $ 237.26 to $282.33 per square foot. It should be noted that the subject is the largest home in the area. As square footage grows, the price per square foot decreases due to economies of scale during construction. There has been significant appreciation in the subject market in the past few months due to the demand for new homes in the Inland Empire. The final base asking price for Stonegate Plan 4 was $201.17 per square foot. There have been 14 closings of Stonegate Plan 4 with actual sales prices from $176.13 to $203.69 per square foot with the last sale occurring of a Plan 4 within Phase Two in March 2021.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 4 would have a base current market value of $ 220.00 per square foot. This calculates as follows:
4,122 sf x $220.00 = $906,840
Individual Owners Value Conclusion – Stonegate
In determining the value for the individually owned homes, we have considered the concluded base price value for the homes, which is considered a minimum market value.
This is due to homebuyers typically purchasing some addition upgrades, options or pay some premiums for the lot. The concluded values are shown below:
Stonegate:
Plan 2 (12 x $803,700) $ 9,644,400
Plan 3 (7 x $845,520) 5,918,640
Plan 4 (14 x $906,840) 12,695,760
Individual Owned Minimum Market Value $28,258,800
In an additional review, we have reviewed the builder sales prices for the 33 homes within Stonegate in Phase Two. Sales occurred between May 2020 and August 2021 however, the August sale appears to be an outlier as the previous sale occurred in March 2021.
The builder’s reported closing prices for the individually owned homes total $24,105,432. 536
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The concluded minimum market value of $28,258,800 equates to 17 percent higher than the actual sales prices. The subject market has had significant price appreciation over the last few months. Within Stonegate, the price increases have run between 12 and 16 percent over the sales time period. These increases offset the options and upgrades which were purchased. Based on the above information and analysis along with our familiarity with the market, it is our conclusion that the original builder sales prices further substantiate the concluded minimum market value for the individually owned homes.
Gabion Ranch Valuation – Iron Walk
Iron Walk consists of 92 proposed single-family detached homes on minimum 5,000 square foot lots with 38 homes located within Phase Two (Fontana CFD No. 95, subject property). All 38 of the subject’s houses are completed and closed to individuals. Below is a table showing the break-out of the plans and ownership followed by the valuation for the various plans within Iron Walk.
Plan
Bd/Ba
Floors/
Parking
Sq. Ft. Ind.
Owned
1 3 / 2 1 / 2 1,950 14
2 4 / 3 2 / 2 2,723 12
3 4 / 3.5 2 / 2 3,180 12
Total 38
The most appropriate new home comparable data for Iron Walk Plan 1 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 1 3 / 2 1 / 2 1,950 --
9 3 5 / 3 2 / 3 2,743 $282.33
12 3 3 / 2.5 2 / 2 2,440 $279.91
13 2 4 / 3 1 / 2 1,898 $376.71
14 1 4 / 2.5 1 / 2 2,280 $319.29
14 2 5 / 2.5 1 / 2 2,490 $307.63
15 1 3 / 2 1 / 2 2,140 $305.12
The subject market includes comparable product all located within Fontana or the neighboring city of Jurupa Valley. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, 537
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room count, garage space and other amenities. There are minimal new, single-story homes for sale in Fontana, thus we expanded our search to include Jurupa Valley along with two- story homes in Fontana. The comparable new home sales have base prices ranging from $279.91 to $376.71 per square foot with the lower per square foot prices generally being for the larger homes and the higher per square foot prices being for the smaller homes. This is due to the economies of scale which occurs during construction. In addition, a single-story home commands a premium in the subject market. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for an Iron Walk Plan 1 was $303.33 per square foot.
There have been 14 closings of Iron Walk Plan 1 with actual sales prices from $285.89 to $334.61 per square foot with the last sale occurring in August of 2021. There no current escrows of Iron Walk homes as they are closed out.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 1 has a base current market value of $330.00 per square foot.
This calculates as follows:
1,950 sf x $330.00 = $643,500
The most appropriate new home comparable data for Iron Walk Plan 2 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 2 4 / 3 2 / 2 2,723 --
9 3 5 / 4 2 / 3 2,743 $282.33
11 3 4 / 3 2 / 3 2,264 $341.09
12 3 3 / 2.5 2 / 2 2,440 $279.91
13 5 4 / 3.5 2 / 2 2,617 $299.58
13 6 5 / 3 2 / 3 2,722 $287.66
15 2 4 / 2.5 2 / 3 2,809 $255.93
The subject market includes comparable product all located within Fontana and the adjacent city of Jurupa Valley . All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The comparable new home sales have base prices ranging from $255.93 to $341.09 per square foot with generally the smaller homes at 538
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the high end of the range and the larger homes at the low end of the range. This is due to the economies of scale obtained during construction. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for Iron Walk Plan 2 wa s $234.11 per square foot. There have been 12 closings of Iron Walk Plan 2 with actual sales prices from $223.65 to $272.12 per square foot with the last sale occurring in August 2021.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 2 has a base current market value of $275.00 per square foot.
This calculates as follows:
2,723 sf x $275.00 = $748,825
The most appropriate new home comparable data for Iron Walk Plan 3 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 3 NG 4 / 3.5 2 / 2 3,180 --
9 3 5 / 4 2 / 3 2,743 $282.33
12 3 3 / 2.5 2 / 2 2,440 $279.91
13 6 5 / 3 2 / 3 2,722 $287.66
15 2 4 / 2.5 2 / 3 2,809 $255.93
15 3 5 / 3.5 2 / 3 3,325 $249.76
15 4 6 / 4.5 2 / 3 4,122 $237.26
The subject market includes comparable product all located within Fontana and the adjacent city of Jurupa Valley . All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The Iron Walk Plan 3 is a “NextGen” (“NG”) home, which allows for a separate entrance and living area for multi-generations. The comparable new home sales have base prices ranging from $237.26 to $287.66 per square foot with generally the smaller homes at the high end of the range and the larger homes at the lower end of the range. This is due to the economies of scale obtained during construction. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for Iron Walk Plan 3 was $217.76 per square foot. There have been 19 closings of Iron Walk Plan 3 with actual 539
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sales prices from $203.30 to $234.15 per square foot with the last sale occurring in August 2021.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 3 has a base current market value of $260.00 per square foot.
This calculates as follows:
3,180 sf x $260.00 = $826,800
Individual Owners Value Conclusion – Iron Walk
In determining the value for the individually owned homes, we have considered the concluded base price value for the homes, which is considered a minimum market value.
This is due to homebuyers typically purchasing some addition upgrades, options or pay some premiums for the lot. The concluded values are shown below:
Iron Walk:
Plan 1 (14 x $643,500) $ 9,009,000
Plan 2 (12 x $748,825) 8,985,900
Plan 3 (12 x $826,800) 9,921,600
Individual Owned Minimum Market Value $ 27,916,500
In an additional review, we have reviewed the builder sales prices for the 38 homes within Iron Walk in Phase Two. Sales occurred between May 2020 and August 2021. The builder’s reported closing prices for the individually owned homes total $24,578,075. The concluded minimum market value of $27,916,500 equates to 13.6 percent higher than the actual sales prices. T he subject market has had significant price appreciation over the last few months. Within Iron Walk , the price increases have run between 15 and 20 percent over the sales time period. These i ncreases offset the options and upgrades which were purchased. Based on the above information and analysis along with our familiarity with the market, it is our conclusion that the original builder sales prices further substantiate the concluded minimum market value for the individually owned homes.
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Gabion Ranch Valuation – Mountainside
Mountainside consists of 71 proposed single-family detached homes on minimum 5,000 square foot lots with 35 located within Phase Two (Fontana CFD 95, subject property).
All 35 of the subject ’s proposed houses are completed and closed to individuals. Below is a table showing the break-out of the plans and ownership followed by the valuation for the various plans within Mountainside.
Plan
Bd/Ba
Floors/
Parking
Sq. Ft. Ind.
Owned
1 3 / 2 1 / 2 2,140 12
2 5 / 4 2 / 2 3,251 10
3 5 / 3.5 2 / 2 3,325 13
Total 35
The most appropriate new home comparable data for Mountainside Plan 1 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 1 3 / 2 1 / 2 2,140 --
9 2 4 / 3 2 / 3 2,292 $313.45
11 3 4 / 3 2 / 3 2,264 $341.09
12 1 3 / 2.5 2 / 2 2,210 $297.28
13 1 3 / 2 1 / 2 1,576 $415.92
13 2 4 / 3 1 / 2 1,898 $376.71
14 1 4 / 2.5 1 / 2 2,280 $319.29
14 2 5 / 2.5 1 / 2 2,490 $307.63
15 1 3 / 2 1 / 2 2,140 $305.12
The subject market includes comparable product all located within Fontana or the adjacent city of Jurupa Valley . All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. There are minimal new, single-story homes for sale in Fontana, thus we expanded our search to include two-story homes. The comparable new home sales have base prices ranging from $297.28 to $415.92 per square foot with generally the lower per square foot price being for the large r homes and the higher per square foot price being for the smaller homes. This is due to the economies of scale which occurs during construction. There has been significant appreciation in the subject market in 541
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the past two years due to the demand for new homes in the Inland Empire. The final base asking price for a Mountainside Plan 1 was $285.23 per square foot. There have been 12 closings of Mountainside Plan 1 within the subject property with actual sales prices from $243.22 to $285.23 per square foot with the last sale occurring in March 2021, prior to a substantial amount of appreciation in the subject marketplace. Our search of the local MLS resulted in one resale of Mountainside Plan 1 within Phase One of Gabion Ranch (not subject portion). The home originally sold in May 2020 for $479,000 and resold in November 2021 for $677,000.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 1 has a base current market value of $320.00 per square foot.
This calculates as follows:
2,140 sf x $320.00 = $684,800
The most appropriate new home comparable data for Mountainside Plan 2 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 2 5 / 4 2 / 2 3,251 --
9 3 5 / 4 2 / 3 2,743 $282.33
12 3 3 / 2.5 2 / 2 2,440 $279.91
13 6 5 / 3 2 / 3 2,722 $287.66
15 2 4 / 2.5 2 / 3 2,809 $255.93
15 3 5 / 3.5 2 / 3 3,325 $249.76
The subject market includes comparable product all located within Fontana and the adjacent city of Jurupa Valley . All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The comparable new home sales have base prices ranging from $249.76 to $2 82.33 per square foot. There has been significant appreciation in the subject market in the past few months due to the demand for new homes in the Inland Empire. The final base asking price for Mountainside Plan 2 was $215.13 per square foot. There have been 10 closings of Mountainside Plan 2 with actual sales prices from $182.77 to $205.23 per square foot with the last sale occurring in March 2021, prior to a substantial amount of appreciation in the subject marketplace. Our search of the local MLS 542
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resulted in one resale of a Mountainside Plan 2 within Phase One of Gabion Ranch (not subject portion). The home originally sold in May 2020 for $566,000 and resold in December 2021 for $810,000.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 2 has a base current market value of $250.00 per square foot.
This calculates as follows:
3,251 sf x $250.00 = $812,750
The most appropriate new home comparable data for Mountainside Plan 3 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 3 5 / 3.5 2 / 2 3,325 --
9 3 5 / 4 2 / 3 2,743 $282.33
13 6 5 / 3 2 / 3 2,722 $287.66
15 2 4 / 2.5 2 / 3 2,809 $255.93
15 3 5 / 3.5 2 / 3 3,325 $249.76
15 4 6 / 4.5 2 / 3 4,122 $237.26
The subject market includes comparable product all located within Fontana and the adjacent city of Jurupa Valley . All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The comparable new home sales have base prices ranging from $237.26 to $287.66 per square foot with generally the smaller homes at the higher end of the price per square foot range and the larger homes at the low end of the range. This is due to the economies of scale typically obtained during construction. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for Mountainside Plan 3 was $219.22 per square foot. There have been 13 closings of Mountainside Plan 3 with actual sales prices from $181.20 to $218.98 per square foot with the last sale occurring in March 2021, prior to a substantial amount of appreciation in the subject marketplace.
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All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 3 has a base current market value of $250.00 per square foot.
This calculates as follows:
3,325 sf x $250.00 = $831,250
Individual Owners Value Conclusion - Mountainside
In determining the value for the individually owned homes, we have considered the concluded base price value for the homes, which is considered a minimum market value.
This is due to homebuyers typically purchasing some addition upgrades or options or pay some premiums for the lot. The concluded values are shown below:
Mountainside:
Plan 1 (12 x $684,800) $ 8,217,600
Plan 2 (10 x $812,750) 8,127,500
Plan 3 (13 x $831,250) 10,806,250
Individual Owned Minimum Market Value $ 27,151,350
In an additional review, we have reviewed the builder sales prices for the 35 closed homes within Mountainside in Phase One. Sales occurred between April 2020 and March 2021.
The builder’s reported closing prices for the individually owned homes total $21,309,500.
The concluded minimum market value of $27, 151,350 equates to 27.4 percent higher than the actual sales prices. The subject market has had significant price appreciation over the last few months. Within Mountainside, the price increases have run between 12 and 20 percent over the sales time period which was May 2020 through March 2021. This sales period was earlier t han the Iron Walk sales suggesting the appreciation would be higher. The above information and analysis along with our familiarity with the market, it is our conclusion that the original builder sales prices further substantiate the concluded minimum market value for the individually owned homes.
Gabion Ranch Valuation – Ridgeview
Ridgeview consists of 108 proposed single- family detached homes in a cluster format with 54 proposed homes located within Phase Two (Fontana CFD 95, subject property).
Forty-two of the subject 54 proposed houses are completed and closed to individuals. 544
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Lennar owns 12 production houses over 95 percent complete (all in escrow). Below is a table showing the break-out of the plans and ownership followed by the valuation for the various plans within Ridgeview.
Plan
Room
Count
Floors/
Parking
Sq.
Ft.
Completed
Ind.
Owned
95% Complete
Bldr.
Owned
Ridgeview
1 3 / 2.5 2 / 2 1,578 14 2
2 3 / 3.5 2 / 2 1,715 14 5
3 4 / 3 2 / 2 1,790 7 4
4 4 / 3.5 2 / 2 1,801 7 1
Ridgeview Subtotal 42 12
House Valuation Analysis – Ridgeview
The most appropriate new home comparable data for Ridgeview Plan 1 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 1 3 / 2.5 2 / 2 1,578 --
1 4 3 / 2.5 2 / 2 1,652 $328.09
6 1 3 / 3 2 / 2 1,724 $342.11
7 1 3 / 2 2 / 2 1,477 $343.87
7 2 4 / 3 2 / 2 1,592 $342.27
8 1 3 / 2.5 2 / 2 1,665 $357.83
10 1 3 / 2.5 2 / 2 1,642 $370.55
All of the comparable communities are located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space , and other amenities. The comparable new home sales have base prices ranging from $328.09 to $370.55 per square foot. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for a Ridgeview Plan 1 was $352.92 per square foot. There have been 14 closings of Ridgeview Plan 1 with actual sales prices from $299.68 to $355.45 per square foot. There are two current escrows of Ridgeview Plan 1 with a sales price range of $352.28 to $353.64 per square foot. It should be noted that the final sale occurred within Ridgeview for a Plan 1 in 545
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November 2021
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 1 has a base current market value of $350.00 per square foot.
This calculates as follows:
1,578 sf x $350.00 = $552,300
The most appropriate new home comparable data for Ridgeview Plan 2 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 2 3 / 2.5 2 / 2 1,715 --
1 4 3 / 2.5 2 / 2 1,652 $328.09
6 1 3 / 3 2 / 2 1,724 $342.11
7 3 4 / 3 2 / 2 1,611 $341.34
8 2 3 / 2.5 2 / 2 1,759 $355.80
10 1 3 / 2.5 2 / 2 1,642 $370.55
10 2 4 / 2.5 2 / 2 1,872 $345.52
All of the comparable communities are located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space, and other amenities. The comparable new home sales have base prices ranging from $328.09 to $370.55 per square foot. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for a Ridgeview Plan 2 was $342.97 per square foot. There have been 14 closings of Ridgeview Plan 2 with actual sales prices from $2 85.07 to $339.94 per square foot. There are five current escrows of Ridgeview Plan 2 with a sales price range of $335.98 to $341.90 per square foot. The final sale occurred in Ridgeview in December 2021. Our search of the local MLS resulted in one resale of a Ridgeview Plan 2 that was located within Phase One (not subject portion). The home originally sold for $415,000 and resold for $535,000.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 2 has a base current market value of $335.00 per square foot.
This calculates as follows:
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1,715 sf x $335.00 = $574,525
The most appropriate new home comparable data for Ridgeview Plan 3 are:
Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 3 4 / 3 2 / 2 1,790 --
1 4 3 / 2.5 2 / 2 1,652 $328.09
6 1 3 / 3 2 / 2 1,724 $342.11
7 3 4 / 3 2 / 2 1,611 $341.34
8 2 3 / 2.5 2 / 2 1,759 $355.80
10 1 3 / 2.5 2 / 2 1,642 $370.55
10 2 4 / 2.5 2 / 2 1,872 $345.52
All of the comparable communities are located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space, and other amenities. The comparable new home sales have base prices ranging from $320.31 to $370.55 per square foot. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for a Ridgeview Plan 3 was $327.69 per square foot. There have been seven closings of Ridgeview Plan 3 with actual sales prices from $281.59 to $329.72 per square foot. There are four current escrows of Ridgeview Plan 3 with a sales price range of $327.49 to $332.51 per square foot. The escrow sales prices versus the closed sales prices shows the recent appreciation in the subject marketplace. The final sale occurred in December 2021.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 3 has a base current market value of $325.00 per square foot.
This calculates as follows:
1,790 sf x $325.00 = $581,750
The most appropriate new home comparable data for Ridgeview Plan 4 are:
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Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj 4 4 / 3.5 2 / 2 1,801 --
6 1 3 / 3 2 / 2 1,724 $342.11
6 2 3 / 2.5 2 / 2 1,961 $315.86
8 2 3 / 2.5 2 / 2 1,759 $355.80
8 3 4 / 2.5 2 / 2 1,891 $351.83
10 1 3 / 2.5 2 / 2 1,642 $370.55
10 2 4 / 2.5 2 / 2 1,872 $345.52
All of the comparable communities are located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, stories, lot size, attached versus detached, view potential, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space, and other amenities. The comparable new home sales have base prices ranging from $320.31 to $370.55 per square foot. There has been significant appreciation in the subject market in the past two years due to the demand for new homes in the Inland Empire. The final base asking price for a Ridgeview Plan 4 was $328.60 per square foot. There have been seven closings of Ridgeview Plan 4 with actual sales prices from $280.68 to $326.37 per square foot. There is one current escrow of Ridgeview Plan 4 with a sales price of $329.15 per square foot with the sale occurring in October 2021. The escrow sales prices versus the closed sales prices shows the recent appreciation in the subject marketplace.
All homes appear to be in excellent condition with little to no physical depreciation visible. It has been concluded that Plan 4 has a base current market value of $325.00 per square foot.
This calculates as follows:
1,801 sf x $325.00 = $585,325
Builder Owned Retail Value – Ridgeview
Within the subject property, there are 12 builder-owned houses over 95 percent complete.
The model homes are located within Gabion Ranch Phase One and are not included in this appraisal report. The retail base value conclusions for the builder -owned homes are calculated as follows:
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Ridgeview:
Plan 1 (2 x $552,300) $ 1,104,600
Plan 2 (5 x $574,525) 2,872,625
Plan 3 (4 x $581,750) 2,327,000
Plan 4 (1 x $585,325) 585,325
Retail Value Builder-Owned $ 6,889,550
Absorption Period
In order to arrive at an absorption period for Ridgeview, the absorption rate within Ridgeview has been considered along with the absorption rates of the comparable communities used in the valuation. As discussed under the Highest and Best Use section earl ier within this report, Ridgeview had an average sales rate within Phase Two of 4.5 units per month. The comparable communities have average sales rates ranging from 3.7 to 12.7 sales per month. These sales rates vary due to some projects having temporary sell-outs as the construction couldn’t keep up with the demand. Ridgeview has 12 homes, all which are in escrow and due to close upon completion. We have concluded that the subject 12 houses will be absorbed over a two-month period.
Remaining Costs
As discussed under the remaining costs section earlier within this report , there are $44,843.20 in remaining land development costs associated with each lot. For the 12 builder-owned homes, this equates to $538,118 in remaining costs. We are assuming that the costs will be spread evenly over the two-month absorption period in our analysis.
Expenses
In determining an expense rate, several builders in the subject area have been interviewed as to their expenses on selling existing inventory. Expenses include marketing and general administrative costs. These costs typically range from six to ten percent depending on varying factors such as absorption period, intensity of marketing, etc. Six percent has been estimated for marketing expenses and two percent for general and administrative costs for a total of eight percent in expenses for this analysis.
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Profit
Several interviews with merchant builders in the area were conducted in order to determine an appropriate profit percentage for the subject properties. In the early 2000s, developers typically attempted to achieve a 10 to 12 percent profit based on gross sales proceeds. During the Great Recession this range was lowered considerably to six to 10 percent with some builders drastically lowering their profit potential in order to maintain their work force. As the market improved, so did the profits. A ten percent profit is considered appropriate in the analysis for this project.
Discount Rate
In selecting a discount rate, the following was completed: