No assurance can be given that the individual property owners within the District will pay the Special Tax in the future or that they will be able to pay the Special Tax 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 District. 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 parcel for which an occupancy permit for private residential use has been iss ued 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 would have been levied in that fiscal year had there never been any such de linquencies or defaults. As a result, it is possible that the District may not be able to increase the tax levy to the Assigned 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 rarely, 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 proportionate share of the debt service on 641
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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, in 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 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 Taxable 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 of the Special Tax. 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 s ame 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 payment 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 fail 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, disru ptions and changes which may affect the willingness and ability of Richmond American, or any other property owner to pay the Special Tax prior to delinquency. Land development is subject to comprehensive federal, State and local 642
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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, school and 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 governmental 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 April 15, 2024, 62 residential units had been completed and conveyed to individual homeowners, Richmond American owned seven completed model units (none of which were in escrow), seven homes over 95% complete (four of which were in escrow), 27 residential units under construction and less than 95% complete (seven of which were in escrow), and four finished pads (none of which were in escrow). As of June 1, 2024, within the District, 79 residential units had been completed and conveyed to individual homeowners, Richmond American owned seven completed model units (none of which were in escrow), two homes over 95% complete (none of which were in escrow), 15 residential units under construction and less than 95% complete (eight of which were in escrow), and four finished lots (none of which were in escrow). Sales contracts are subject to cancelation and, therefore, homes currently in escrow may not result in closed escrows with the prospective homebuyers. Sales contracts are subject to cancelation and, therefore, homes currently in escrow may not result in closed escrows with the prospective homebuyers. Within the District, building permits had been obtained for 103 planned residential units within the District as of May 1, 2024; accordingly, 103 parcels will be classified as Developed Property and four parcels will be classified as Undeveloped Property for the Fiscal Year 2024-25 Special Tax levy. Since May 1, 2024, Richmond American has obtained building permits for the four parcels which will be classified as Undeveloped Property for the Fiscal Year 2024 -25 Special Tax levy and, therefore, all 107 parcels within the District will be classified as Developed Property beginning with the Fiscal Year 2025 -26 Special Tax levy. 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 District to foreclose on the property due to the nonpayment of the Special Tax. 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 the Special Tax 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 Tax prior to delinquency.
There can be no assurance 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 development, an increase in mortgage interest rates, the income tax treatment of real proper ty 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 of the property owners to pay the annual Special Tax. 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 Tax prior to delinquency.
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Concentration of Property Ownership
Based on the development and ownership status as of April 15, 2024, Richmond American is expected to be responsible for approximately 39.80% of the projected Fiscal Year 2024-25 Special Tax levied within the District. Richmond American reports that since such date, additional development and certain sales contracts for residential units have closed escrow to individual homeowners. Based on the development and ownership status as of June 1, 2024, Richmond American is expected to be responsible for approximately 23.09% of the projected Fiscal Year 2024-25 Special Tax levied within the District.
While the District includes 79 completed residential units owned by individual homeowners as of June 1, 2024, the inability or refusal of Richmond American to pay the Special Tax applicable to its property 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. Additionally, pursuant to the Act, the Special Tax 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 default. As a result, while the Maximum Special Tax pursuant to the Rate and Method may be higher, the Maximum Special Tax 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 properties 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 acqui ring 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 limita tion 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 impact upo n 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 remaining 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 effect o f 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, 644
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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 obligat ion 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 special 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.
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 su rplus 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 Account 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 determine d 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 ar e 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 proc eeds 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. 645
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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 struck down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar properties. Since Article XIIIA provides that property may only be assessed up to 2%, per yea r, 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, 1991, 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 charges. 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 Act, or Proposition 218, as ap plicable, other than as described herein.
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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, Proposition 218 removes limitations on the initiative power in matters of, among other things, the Special Tax. 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 S pecial 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 power cannot be used to reduce or repeal the unpaid Special Tax 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 Tax 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 Center 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 generally 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 formation. In the San Diego Decis ion, 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 t o 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 th e Special Tax and the issuance of bonds on October 26, 2021.
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 levied 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 predict with certainty the outcome of such determination.
Ballot Initiatives; Initiative 1935
General. Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Articles XIII A, XIII B, XIII C, and XIII D of the California Constitution were adopted pursuant to me asures qualified for the ballot pursuant to the State’s constitutional initiative process , including through Proposition 13 in 1978, Proposition 218 in 1996 and Proposition 26 in 2010. From time to time, other initiative measures could be adopted by California voters. The 647
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adoption of any such initiative might place limitations on the ability of the State, the City, or other local agencies to increase revenues or to increase appropriations.
As described above, Proposition 218 was approved by California vot ers in 1996 and added Article XIII C to the California Constitution. On November 2, 2010, the voters of the State approved Proposition 26, known as the “Supermajority Vote to Pass New Taxes and Fees Act” (“Proposition 26”). Proposition 26, among other things, amends Article XIIIC to the California Constitution principally to define what constitutes a “tax” under the limitations and requirements of that provision. Article XIIIC imposes limitations on local governments when imposing certain taxes, includin g a requirement that the local government submit certain taxes to the electorate for its approval. Before Proposition 26, Article XIIIC did not define the term “tax.” Proposition 26 broadly defines a tax under Article XIIIC to include “any levy, charge, o r exaction of any kind imposed by a local government.” Proposition 26 lists several exceptions to the definition of “tax,” which include (a) a charge for a specific benefit or privilege, which does not exceed the reasonable costs of providing the benefit or privilege, (b) a charge for a government service or product, which does not exceed the reasonable costs of providing the service or product, (c) a charge for the reasonable regulatory costs of issuing licenses and permits, performing investigations, insp ections, and audits, and the administrative enforcement thereof, (d) a charge for entrance to or use of local government property, or the purchase, rental, or lease of local government property, (e) a fine, penalty, or other monetary charge imposed as a re sult of a violation of law, (f) a charge imposed as a condition of property development, and (g) assessments and property -related fees imposed in accordance with the provisions of Article XIIID.
Initiative 1935. From time to time constitutional initiatives or other initiative measures may be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State or any political subdivision thereof, including the City, to increase revenues or to increase appropriations, or might affect the ability of the District to collect the Special Tax. One such proposed voter initiative, titled “The Taxpayer Protection and Government Accountability Act” (“Initiative 1935”) has been determined to be eligible for the November 2024 Statewide general election and, unless withdrawn by its proponent prior to June 27, 2024, will be certified as qualified for the ballot in such election. Initiative 1935 would, among other things, amend the State Constitution to impose additional r equirements for the imposition of taxes by State and local governments, such as requirements that the title and summary and ballot label or question for each tax measure identify the type, amount or rate, duration, and use of revenue of the tax. Additional ly, Initiative 1935 would provide that any tax imposed after January 1, 2022, not in compliance with its requirements is void 12 months after the effective date of Initiative 1935 unless subsequently reenacted in accordance therewith. As described in this Official Statement, the election at which the qualified electors within the District voted to approve the measure to levy the Special Tax was held on October 26, 2021. Therefore, such provision of Initiative 1935 would not apply to the imposition of the Special Tax.
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 the 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 Distri ct 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 Indenture at all times. Additionally, pursuant to the Act, the Special Tax 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 “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Special Tax.” 648
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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 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 Office 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 those covered by the above requirement, the sel ler 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 con sider 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 the lots and parcels of land on whi ch 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 taxes, other special taxes, and certai n 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 addition, 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 financed 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 additional 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, 649
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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 the 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 by its use to pay such amounts and will not be replenished by the levy of the Special Tax. There 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 court calendars or delays in the leg al 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 instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the obligation to pay t he 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 foreclosure 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 prope rty 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, payment of the Special Tax may be s ubordinated 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 Tax may be limited in certain respects with regard to parcels in which the Federal Deposit Insurance Corporation (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 FDIC 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 will 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 Unit ed States Bankruptcy Court and in Federal District Court. 650
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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 o f Appeals issued a 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 F reddie 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 Tax may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means th at, 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 the Special Tax), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Tax, 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 Tax and preserve the federal government’s mortgage interest.
The District’s remedies may also be limited in the case of delinquent Special Tax 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 District, like all California communities, may be subject to unpredictable seismic activity, fires, flood, or other natural disasters. Southern California is a seismically active area. Seismic activity represents a potential risk f or damage to buildings, roads, bridges and property within the District. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event.
Like all of Southern California, the land within the District is subject to seismic activity. The District is not located in a County Designated Fault Zone or an Earthquake Fault Zone Boundary. However, faults that have the potential to generate the strongest ground shaking in the Fontana area include the Cucamonga ( thrust fault), the San Jacinto (strike -slip fault), and the San Andreas (strike -slip) fault. The Cucamonga fault is an active fault that crosses the northern portion of the City, trending northwest along the foot of the San Gabriel Mountains. The Lytle Creek Branch of the San Jacinto Fault is an active fault that crosses the extreme northeast portion of the City in a southeastern direction. There are several other faults that border the Lytle Creek alluvial basin, including the Chino, San Andreas and San Jacinto faults.
The Federal Emergency Management Agency has determined that the District is located in a Zone “X” flood area (an area determined to be outside of the 0.2 percent annual chance floodplain), and flood insurance will not be required.
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 651
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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 2020. Per the City’s General Plan and Zoning Map, the District is located within a local responsibility area that is contiguous to a very high fire hazard area.
Some commentators believe that climate change will lead to even more frequent and more damag ing wildfires in the future. Property damage due to wildfire could result in a significant decrease in the market value of property in the District and in the ability or willingness of property owners to pay the Special Tax.
In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage to both property and infrastructure in the District. As a result, a substantial portion of the property owners may be unable or unwilling to pay the Special Tax when due. In ad dition, the value of land in the District could be diminished in the aftermath of one or more of such events, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Tax.
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 Property 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, sometim es referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Property be affected by a hazardous substance is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. 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 the property that is realizable upon a delinquency and foreclosure.
While the District is not aware that the owner (or operator) 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. Richmond American has also represented to the District 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 Taxable 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 event of a payment default or other default under the terms of the Bonds or the Indenture. 652
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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, the State or any political subdivision thereof is pledged to the payment of the Bonds or any Additional 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 pledged 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 the Special Tax or the insuffici ency of proceeds derived from the sale of land within the District 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 purpose in the Reserve Fund. The District’s only obligation with respect to delinquent Special Tax 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 n ot 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 permitted to prepay their Special Tax 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 such 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 including, 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 cy bersecurity systems that are in place. However, no assurances 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.
In May 202 1, a public facing web server of the City that was responsible for building permit and inspection scheduling was compromised. The system contained vendor and database account credentials that were promptly changed. An investigation revealed that the credentials had not been used since the compromise and that changing the credentials prevented any further unauthorized access. All traces of the compromise were removed. Mitigation measures, including a web application firewall and Secure Sockets Layer (SSL) decryption, were put into place to prevent future compromises and additional prevention measures have been implemented.
No data was lost and no damage to any systems, financial or otherwise, occurred. There were no costs associated with remediation.
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Impact of Economic Conditions on the Development in the District Certain events and factors which negatively affect the regional, State and national economies could have an adverse effect on the pace at which Richmond American is able to complete and sell homes and demand by and the ability of individuals to purchase homes within the District. Such events and factors could include rising inflation and interest rates, persistent supply chain issues, further impacts of the COVID-19 pandemic and global market instability caused by the war in Ukraine. Any adverse impact of the foregoing and other economic factors on the projects in the District and the real estate market in general cannot be predicted.
Amid an unexpected run on deposits, the Federal Deposit Insu rance Corporation (the “FDIC”) announced on March 10, 2023 that it had been appointed as receiver for Silicon Valley Bank (“SVB”), a large California bank and the 16th largest bank in the United States, and was liquidating SVB as a going concern.
Additionally, on March 12, 2023, the FDIC announced that it had been appointed as receiver for Signature Bank, another large regional bank. However, the United States Treasury Department, the Federal Reserve and the FDIC issued a joint statement that all deposits at both institutions would be honored, regardless of dollar amount.
On March 26, 2023, First Citizens BancShares announced that it would acquire SVB. On May 1, 2023, the FDIC announced that it had been appointed as receiver for First Republic Bank and r eached a purchase and assumption agreement with JPMorgan Chase Bank, National Association, to assume all of the deposits and substantially all of the assets of First Republic Bank. Due to the failures of SVB, Signature Bank, and First Republic Bank, there has been uncertainty and concern in the financial markets that there may be additional bank liquidity issues.
Richmond American expects to use internally generated funds (which may include home sales proceeds and funding from its parent company, Richmond American Homes) to complete its development in the District.
However, the uncertainty in the financial markets may affect homebuyers’ willingness or ability to obtain financing for the purchase of new homes within the District, which, in turn, could impact Richmond American’ ability or determination to complete its development in the District in the budget and timeframe described herein.
See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.”
CONTINUING DISCLOSURE
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 Rulemaking 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 Fontana Public Facilities Financing Authority (the “Facilities Authority”), the Successor Agency to the Fontana Redevelopment Agency (the “Successor Agency”) and various community facilities districts within the City (each, a “CFD”), all of which are entities with the City Council as the legisl ative body, have entered into numerous continuing disclosure undertakings.
Except as described below, within the last five years, the City and its related entities have complied in all material respects with its undertakings under the Rule: (i) t he Authority and the Facilities Authority with respect to their respective bond issues and 12 CFDs with respect to each such CFD’s bond issue(s) filed the City’s Fiscal Year 2019-20 audited financial statements late and failed to file unaudited financial statements on or before the deadlines therefore; (ii) 12 CFDs with respect to each such CFDs’ bond issue(s) and the Facilities Authority with respect to its bond issues filed unaudited financial statements for Fiscal Year 2020-21 but did so after the deadline for mee ting those continuing disclosure obligations; the audited financial statement s were 654
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subsequently filed to EMMA when they became available; (iii) the Successor Agency with respect to its bonds filed unaudited financial statements for Fiscal Year 2020-21 prior to the deadline therefore and posted audited financial statements when such document became available; (iv) the Successor Agency with respect to its bonds filed its Fiscal Year 2022 audited financial statements late and failed to file unaudited financial statements on or before the deadline therefore; (v) with respect to its Fiscal Year 2021-22 disclosure, the Facilities Authority filed unaudited financial information when its audited financial statements were not available, but such filing excluded certain required information typically included in audited financial statements; the Fiscal Year 2021-22 audited financial statements were subsequently posted to EMMA when they became available; (vi) 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; (vii) the Facilities Authority with respect to two bond issues filed the City’s Fiscal Year 2022-23 audited financial statements six days late and failed to file unaudited financial statements on or before the deadlines therefor; and (viii) the District is aware that not all of the required information was included with respect to a number of annual report filings by the City, the Authority, the Successor Agency and several CFDs, including required tabular information.
The City has since made 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, the Facilities Authority and the Authority have not failed to timely comply with their respective prior continuing 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.
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 ass uming, 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 individual alternative minimum tax. Bond Counsel observes tha t interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax.
Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the 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 thereof, 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 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 issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon trade or business disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respect 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 655
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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 amoun t 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 Counsel’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 the 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 benefit 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. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potentia l 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 Counsel 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 Revenue Service (“IRS”) or the courts.
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 interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, howe ver, 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 participate in the audit examination process. Moreover, 656
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because achieving judicial revi ew in connection with an audit examination of tax -exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, 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 marketability 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 o f 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, exchange, 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 timely 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 best of the City Attorney’s 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 impact 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 Tax, or in any way contest or affect the validity of the Bonds, the Indenture, the Special Tax, 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.
CERTAIN LEGAL MATTERS
Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, will render an opinion with respec t 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. 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 opinion relating thereto. Certain legal matters will be passed upon for the City by the City Attorney and by Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, as Disclosure Counsel.
Certain legal matters will be passed upon for the Underwriter by its counsel, Anzel Galvan LLP, San Francisco, California.
Although it is serving as Bond Counsel to the District in connection with the issuance a nd sale of the Bonds, Bond Counsel represents the Underwriter in connection with other financings 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.
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UNDERWRITING
The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”). The Underwriter has agreed to purchase the Bonds at a price of $ __________, being the $___________ principal amount, [plus/less] [net] original issue [premium/discount] 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 obliga tion to make such purchase being subject to certain terms and conditions set forth in the Bond Purchase Agreement, the approval of certain legal matters 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 verifica tion or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.
CSG Advisors Incorporated is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.
ADDITIONAL INFORMATION
The purpose of this Official Statement is to supply information to prospective 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. 107 (HIGHLAND)
By:
City Manager
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APPENDIX A
RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX
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RATE AND METHOD OF APPORTIONMENT FOR
CITY OF FONTANA COMMUNITY FACILITIES DISTRICT No. 107
(HIGHLAND)
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. 107 (Highland) (“CFD No. 107”) and collected each Fiscal Year, in an amount determined by the City Council of the City of Fontana, through the application of the Rate and Method of Apportionment as described below. All of the real property in CFD No. 107, 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, c ondominium 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. 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 Community 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 related to the administration of CFD No. 107, 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 Special 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. 107 or any designee thereof of complying with arbitrage rebate requirements with respect to the Special Tax and CFD No. 107 Bonds; the costs to the City, CFD No. 107 or any designee thereof of complying with disclosure requirements of the City, CFD No. 107 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 inq uiries regarding the Special Taxes; the costs of the City, CFD No. 107, 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. 107 or any designee thereof related to an appeal of the Special Tax; and the City’s annual administration fees and third party expenses related to CFD No. 107 Bonds. Administrative Expenses shall also include amounts estimated or advanced by the C ity or CFD No. 107 for any other administrative purposes of CFD No. 107, 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.
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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 Facilities 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.
“Authorized Facilities” means those facilities eligible to be funded by CFD No. 107.
“Authorized Services” means those services eligible to be funded by CFD No. 107 in accordance with the Act, including, but not limited to, fire protection and suppression services, 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.
“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. 107, that all expected building permits for residential dwelling units and/or non-residential development to be constructed within CFD No. 107 have been issued, as determined by the CFD Administrator.
“CFD Administrator” means an official of the City, or designee thereof, responsible for determining 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. 107” means City of Fontana Community Facilities District No. 107 (Highland).
“CFD No. 107 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. 107 and secured by the Facilities Special Tax levy on property within the boundaries of CFD No. 107 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 Division 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 related 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. 107.
“County” means the County of San Bernardino.
“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, 2021 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) w ith respect to the Services Special Tax, all Taxable 660
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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. 107 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, parcel 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 map approved by the City and a condominium plan recorded pursuant to California Civil Code Section 4285 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 Assessor’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. Notwithstanding the above, a condominium plan for which one or more building permits have been issued, but no individual lots have been created for such building permits, shall be considered a Final Subdivision, and the portion of the condominium plan for which building permits have been issued shall be defined as Developed Property.
“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. 107 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 2, or Table 3 herein.
“Lower Income Households Welfare Exemption Property” means, for each Fiscal Year, an Assessor’s Parcel within the boundaries of CFD No. 107 that is entitled to a welfare exemption un der subdivision (g) of Section 214 of the California Revenue and Taxation Code (or any successor statute), as indicated in the County’s assessment roll finalized as of the last preceding January 1.
“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.
“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. 107 Bonds which are outstanding under the Indenture.
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“Price Point Consultant” means any consultant or firm of such consultants selected by CFD No. 107 that (a) has substantial experience in performing price point studies for residential dwelling units within community facilities districts or otherwise estimating or confirming pricing for 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. 107 or the City, (d) does not have any substantial interest, direct or indirect, with or in (i) CFD No. 107, (ii) the City, (iii) any owner of real property in CFD No. 107, or (iv) an y real property in CFD No. 107, and (e) is not connected with CFD No. 107 or the City as an officer or employee thereof, but who may be regularly retained to make reports to CFD No. 107 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. 107 for which the owner of record, as determined from the County’s assessment 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 rec orded 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. Notwithstanding the forego ing, any property previously classified as Developed Property and subsequently owned in fee or by easement, or dedicated to, a property owner association, including any master or sub -association, shall remain classified as Developed Property.
“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 Speci al Tax is equal for all Assessor’s Parcels 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 term “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. 107 that is (i) owned by, irrevocably offered 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 the 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. 107.
“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, pat io, 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) 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. 107 to fund the Special Tax Requirement for Services, as set forth in Section C.2 herein.
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“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. 107 Bonds, including but not limited to, costs of credit enhancement and federal rebate payments due in the calendar year commencing in such Fiscal Ye ar; (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 (vi) pay directly for the acquisition or construction of Authorized Facil ities, 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 for Services” means that amount required in any Fiscal Year for CFD No. 107 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. 107 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 residentia l 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.
“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 2022-2023, all Taxable Property within CFD No. 107 shall be classified as Developed Property, Undeveloped Property, Taxable Public Property or Taxable Property Owner 663
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Association Property, and shall be subject t o 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. 107 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 property 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 Class es of residential property constructed or to be constructed within CFD No. 107 shall exceed 1.95% of the Minimum Sale Price of such residential property constructed or to be constructed within CFD No. 107, the CFD Administrator shall reduce the Assigned Facilities Special Tax to the extent necessary to cause the Total Tax Burden that shall apply 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) herein. 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 substantially 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. 107. Upon receipt thereof, if in satisfactory form, CFD No. 107 shall execute 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. 107. The Assigned Facilities 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. 107 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. 107. 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 within CFD No. 107 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. 107, 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 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 7 as listed in Table 1 below based on the Residential Floor Area for each residential dwelling unit. Non -Residential Property shall be assigned to Land Use Class 8. The Assigned Facilities Special Tax that shall be levied in any Fiscal Year for each Land Use Class is shown below in Table 1. 664
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Table 1
Assigned Facilities Special Tax for Developed Property
City of Fontana CFD No. 107 (Highland)
Land
Use
Class Description
Residential Floor
Area (square feet)
Assigned
Facilities
Special Tax
1 Residential Property 2,150 or Greater $3,321 per unit 2 Residential Property 2,000 to less than 2,150 $3,290 per unit 3 Residential Property 1,850 to less than 2,000 $3,183 per unit 4 Residential Property 1,700 to less than 1,850 $3,125 per unit 5 Residential Property 1,550 to less than 1,700 $3,072 per unit 6 Residential Property 1,400 to less than 1,550 $2,938 per unit 7 Residential Property Less than 1,400 $2,832 per unit
8 Non-Residential
Property
NA $100,540 per Acre
(3). Backup Facilities Special Tax
The Backup Facilities Special Tax for an Assessor’s Parcel of Developed Property shall equal the lesser of (a) $118,270 per Acre, 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 pursuant to the formula below:
BFST = AFST ATP
These terms have the following meaning:
BFST = the reduced Backup Facilities Special Tax
AFST = The total estimated Assigned Facilities Special Tax levy for CFD No. 107 based on the reduced Assigned Facilities Special Taxes for Developed Property permitted pursuant to Section C.1 herein which could be levied on all expected development assuming Buildout of CFD No. 107.
ATP =The sum of the Acreage of all Taxable Property within a Final Subdivision (assuming Buildout) within CFD No. 107 (after excluding Public Property and Property Owne r Association Property as set forth in Section E.1 herein) multiplied by 85%.
Furthermore, all Assessors’ Parcels within CFD No. 107 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 Special Tax that shall be levied against all Assessors’ Parcels of Developed Property in CFD No. 107 results in 110% debt service coverage (i.e., the Assigned Facilities Special Tax that shall be levied against all Developed Property in CFD No. 107 in each remaining 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. 107 Bonds have already been issued or the 665
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Council has covenanted that it shall not is sue any additional CFD No. 107 Bonds (except refunding bonds) to be supported by the Facilities Special Tax in CFD No. 107.
(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.
Furthermore, Developed Property may contain more than one Land Use Class. In such cases, the Acreage that is considered Developed P roperty 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 shall be $118,270 per Acre and shall not be subject to escalation and shall therefore remain the same in every Fiscal Year.
2. Services Special Tax
For purposes of the Services Special Tax, an Assessor’s Parcel(s) of Developed Proper ty within a Final Residential Subdivision shall be assigned to Land Use Class 1 as identified in Table 2 and Table 3 below. Non- Residential Property shall be assigned to Land Use Class 2. Furthermore, the Services Special Tax levied against each Assessor ’s Parcel within a Final Residential Subdivision 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 of other available documents.
a. Maximum Services Special Tax
The Fiscal Year 2021 -2022 Maximum Services Special Tax for each Land Use Class of Developed Property is shown below in Table 2.
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Table 2
Maximum Services Special Tax for Developed Property
City of Fontana CFD No. 107 (Highland)
Fiscal Year 2021-2022
Land
Use
Class
Description
Maximum
Services
Special Tax
1 Final Residential Subdivision $520 per unit
2 Non-Residential Property $16,650 per Acre
b. Assigned Services Special Tax
The Fiscal Year 2021 -2022 Assigned Services Special Tax for each Land Use Class of Developed Property is shown below in Table 3.
Table 3
Assigned Services Special Tax for Developed Property
City of Fontana CFD No. 107 (Highland)
Fiscal Year 2021-2022
Land
Use
Class
Description
Assigned
Services
Special Tax
1 Final Residential Subdivision $373 per unit
2 Non-Residential Property $11,940 per Acre
c. Increase in the Maximum Services Special Tax
On each July 1, commencing on July 1, 2022, 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 Ta x above shall be applicable for Fiscal Year 2021 -2022, and shall increase thereafter, commencing on July 1, 2022, 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 J uly 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 Ac reage designated for each land use as 667
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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 2022-2023, 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 sati sfy the Special 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 Requirement 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 Fis cal 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 CFD No. 107 Bonds have already been issued or the Council has covenanted that it shall not issue any additional CFD No. 107 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. 107 by more than ten percent 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, th e levy of the Facilities 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.
2. Services Special Tax
Commencing with Fiscal Year 2022 -2023 and for each following Fiscal Year, the CFD Administrator shall determine the Special Tax Requirement for Services and shall provide for the levy of the Services Special Tax 668
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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 needed 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 Facilitie s Special Tax shall be levied on up to 7.7 Acres of Public Property and/or Property Owner Association Property in CFD No. 107. Tax -exempt status shall be assigned by the CFD Administrator in the chronological order in which property in CFD No. 107 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.
Notwithstanding the above, an Assessor’s Parcel in CFD No. 107 that is transferred to a public agency or property owner’s association p rior to the issuance of the first series of CFD No. 107 Bonds that causes the Acreage of Public Property and Property Owner Association Property to exceed the 7.7 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.1 herein, at up to 100% of the applicable Maximum Facilities Special Tax for Taxable Public Property and Property Owner Association Property.
In addition, no Facilities Special Tax shall be levied on Lower Income Households Welfare Exemption Property, provided that if, in any Fiscal Year, applicable law does not require th at an Assessor’s Parcel that is Lower Income Households Welfare Exemption Property be exempt from the Facilities Special Tax, then the Facilities Special Tax shall be levied on such Assessor’s Parcel in accordance with this Rate and Method of Apportionment as if such Assessor’s Parcel were not classified as Lower Income Households Welfare Exemption Property.
2. Services Special Tax
No Services Special Tax shall be levied on Undeveloped Property, Taxable Public Property, Taxable Property Owner Association Property, Public Property, or Property Owner Association Property.
In addition, no Services Special Tax shall be levied on Lower Income Households Welfare Exemption Property, provided that if, in any Fiscal Year, applicable law does not require that an As sessor’s Parcel that is Lower Income Households Welfare Exemption Property be exempt from the Services Special Tax, then the Services Special Tax shall be levied on such Assessor’s Parcel in accordance with this Rate and Method of Apportionment as if such Assessor’s Parcel were not classified as Lower Income Households Welfare Exemption Property.
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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. 107 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, provided 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 Admini strator shall review 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 the 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 th e 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 rea sons 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. 107 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 permanently 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, 2021, and only if there are no de linquent 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. 107 Bonds from the proceeds of such prepayment may be given by the Trustee pursuant to the Indenture that is specified in the report of th e Facilities Special Tax Prepayment Amount (defined below).
The following additional definitions apply to this Section H:
“CFD Public Facilities Costs” means either $4,000,590 in 2021 dollars, which shall increase by the Construction Inflation Index on July 1, 2022, 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 the authorized bonding program for CFD No. 107, or (ii) shall be deter mined by the Council concurrently with a covenant that it shall not issue any more CFD No. 107 Bonds (except refunding bonds) to be supported by the Facilities Special Tax levy under this Rate and Method of Apportionment.
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“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 be published, the Construction Inflation Index shall be another index as determined by the CFD Administrator that is reasonably comparable to the Engineering News Record Building Cost Index for the City of Los Angeles.
“Future Facilities Costs” means the CFD Public Facilities 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 Administrator reaso nably 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. 107 Bonds a fund or account held by the City) to hol d 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, the 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 Facilities 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, 2021, 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. 107 based on the Assigned Facilities Special Taxes for Developed Property which could be levied on all expected development assuming Buildout of CFD No. 107, excluding any Assessor’s Parcels which have been prepaid, and
(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. 107, excludi ng any Assessor’s Parcels which have been prepaid.
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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 amou nt 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 rede mption 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. 107 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. 107 Bonds, and the costs of recording any notices to evidence 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, associa ted 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 result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero. No Reserve Fund Credit shall be granted if the amount then on deposit in the reserve fund for the Previously Issued Bonds is bel ow 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 following the curren t 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”).
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 paragraphs 13 and 14 (t he “Facilities Special Tax Prepayment Amount”).
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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 part ially 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. 107, and less the Future Facilities Amount calculated according to Section H.1 which shall be depo sited 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. 107 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 levied on Taxable Property (assuming Buildout) within CFD No. 107 in each future Fiscal Year (after excluding Public Property and Property Owner 673
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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 exc eed fifty years commencing with Fiscal Year 2022-2023. 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. 107 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. 107 (Highland) (“CFD No. 107”), the Assigned Facilities Special Tax and the Backup Facilities Special Tax for Deve loped Property within CFD No. 107 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. 107 shall be modified as follows:
Land
Use
Class Description
Residential Floor
Area (square feet)
Assigned
Facilities
Special Tax
1 Residential Property 2,150 or Greater $[_____] per unit 2 Residential Property 2,000 to less than
2,150
$[_____] per unit
3 Residential Property 1,850 to less than
2,000
$[_____] per unit
4 Residential Property 1,700 to less than
1,850
$[_____] per unit
5 Residential Property 1,550 to less than
1,700
$[_____] per unit
6 Residential Property 1,400 to less than
1,550
$[_____] per unit
7 Residential Property Less than 1,400 $[_____] per unit 8 Non-Residential
Property
NA $[_____] per
Acre
(b) The Backup Facilities Special Tax for Developed Property, as stated in Section C.1.a.(3) of the Rate and Method, shall be reduced from $118,270 per Acre to $[_____] 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. 107 Bonds.
3. Upon execution of the certificate by CFD No. 107, CFD No. 107 shall cause an amended notice of Special Tax lien for CFD No. 107 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. 107, receipt of this certificate and modification of the Rate and Method as set forth in this certificate.
CITY OF FONTANA COMMUNITY FACILITIES DISTRICT No. 107 (HIGHLAND)
By:___________________________ Date:______________________ 675
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EXECUTED CERTIFICATE TO AMEND
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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
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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 o f 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 n or the taxing power of the City, County or the State, or any political subdivision thereof, is pledged to the payment of the Bonds or any Additional Bonds.
General
The City of Fontana encompasses approximately 42.4 square miles of land and has an estimated population in 2023 of approximately 213,851. 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 California’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 1813. 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 returned 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 time 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 site’s excellent highway and rail access. The plate steel and rolling mill plant was acquired by California Steel Industries, which continues to produce steel products. In addition, railroad and trucking operations and a number of industrial facilities and warehousing/distribut ion centers are located in Fontana because of its convenient geographical location and excellent transportation network.
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. Effective July 1, 2008, the Fontana City Council established the Fontana Fire Protection District, which is governed by the same members who comprise the City Council, and which provides fire and related services to the City and certain adjacent unincorporated areas by means of contract with the San Bernardino County Fire Department. The City Council appoints the City Manager who is responsib le for the day-to-day administration of City business and the coordination of all departments of the City. 680
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The City of Fontana provides police protection, street sweeping, park maintenance, building inspection, library, sewer, storm drain and sanitation 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 residential, 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 5.98% from 2014 to 2023. 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 2014-2023
Year(1) City of Fontana
County of San
Bernardino State of California
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 210,167 2,179,007 39,286,510
2022 212,616 2,180,777 39,078,674
2023 213,851 2,182,056 38,940,231
(1) January 1 estimate.
Source: State of California, Department of Finance. E-4 Population Estimates for Cities, Counties, and the State, 2011-2020 with 2010 Census Benchmark and 2021-2023, with 2020 Benchmark.
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 shipping and transportation to and from seaports, 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 Valle y with the San Fernando Valley and traverses the northern portion of the City.
State freeways 57, 60 and 91 are minutes from Fontana.
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 Airport 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. 681
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With approximately 570,000 square feet and 26 passenger gates within two terminals, Ontario International Airport is the Western States Regional Terminal for United Parcel Service. In 2023 approximately
6.4 million passengers used the airport. The passenger count included approximately 6 million domestic travelers and 417,000 international passengers, increases of 8.4% and 113.5% over 2022, respectively.
Transit services are provided by Metrolink commuter rail service to Los Angeles with connections to the numerous surrounding cities provided by Omnitrans bus service, Dial -a-Ride, Yellow Cab Compa ny and Bell Cab Company.
Education
Five school districts 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 2019 through 2023 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 2019 through 2023(1)
Year and Area Labor Force Employment(2) Unemployment(3) Unemployment
Rate (%)
2019
City of Fontana 99,400 95,800 3,600 3.6%
San Bernardino County 965,400 928,100 37,400 3.9
State of California 19,385,000 18,589,600 795,700 4.1
United States 163,539,000 157,538,000 6,001,000 3.7
2020
City of Fontana 100,500 91,100 9,400 9.4%
San Bernardino County 972,800 879,300 93,500 9.6
State of California 18,958,600 17,037,000 1,921,600 10.1 United States 160,742,000 147,795,000 12,947,000 8.1
2021
City of Fontana 102,200 95,000 7,300 7.1%
San Bernardino County 990,000 916,600 73,500 7.4
State of California 18,956,600 17,568,700 1,387,800 7.3 United States 161,204,000 152,581,000 8,623,000 5.3
2022
City of Fontana 103,500 99,600 4,000 3.8%
San Bernardino County 1,003,000 961,200 41,700 4.2
State of California 19,169,300 18,348,900 820,400 4.3
United States 164,287,000 158,291,000 5,996,000 3.6
2023
City of Fontana 104,800 100,100 4,600 4.4%
San Bernardino County 1,013,700 966,500 47,200 4.7
State of California 19,308,300 18,388,300 920,000 4.8
United States 167,116,000 161,037,000 6,080,000 3.6
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 Labor – Bureau of Labor Statistics, California Employment Development Department. March 2023 Benchmark.
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Listed below are the major employers in the City.
CITY OF FONTANA - MAJOR EMPLOYERS – 2023
Employer Number of Employees
Kaiser Permanente 9,677
Fontana Unified School District 5,983
Amazon.com Services LLC 3,145
St Bernardine Medical Center 1,775
Target Stores T 553 1,297
City of Fontana (includes part-time employees) 1,143
Walmart D C #6060 CD Drop Yard 1,004
Walmart #6060 1,004
Saia Motor Freight Line LLC 349
Legendary Staffing, Inc. 325
Source: City of Fontana Fiscal Year Ending June 30, 2023 Annual Comprehensive Financial Report.
Listed below are the major employers in the County.
PRINCIPAL EMPLOYERS
San Bernardino County
Fiscal Year 2022-23
Rank Name of Business
Approximate No. of San
Bernardino County
Employees(1)
1 County of San Bernardino 10,000+
2 Loma Linda University Medical Center 1,000-4,999
3 Ontario International Airport 1,000-4,999
4 Amazon 1,000-4,999
5 Burlington Distribution Corp 1,000-4,999
6 California State University, San Bernardino 1,000-4,999 7 Dignity Health Community Hospital of San Bernardino 1,000-4,999 8 Environmental Systems Research Institute 1,000-4,999
9 Fedex Ground 1,000-4,999
10 Inland Empire Health Plan 1,000-4,999
(1) Data represents estimated number of employees.
(1) Due to confidentiality of reporting number of employees, ranges have been provided.
Source: San Bernardino County Annual Comprehensive Report for the year ending June 30, 2023.
(1) Due to confidentiality of reporting number of employees, ranges have been provided.
Source: San Bernardino County Annual Comprehensive Financial Report for the year ending June 30, 2023. 684
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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 the Riverside - San Bernardino-Ontario Metropolitan Statistical Area and the County for the period from 2019 through 2023.
RIVERSIDE-SAN BERNARDINO-ONTARIO METROPOLITAN STATISTICAL AREA
INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE
2019 2020 2021 2022 2023
Civilian Labor Force 2,071,600 2,091,700 2,120,600 2,148,700 2,171,500 Civilian Employment 1,987,500 1,885,400 1,964,300 2,058,400 2,068,800 Civilian Unemployment 84,000 206,200 156,300 90,200 102,700 Civilian Unemployment Rate 4.1% 9.9% 7.4% 4.2% 4.7%
Total Farm 15,400 14,100 13,700 13,800 13,100
Total Nonfarm 1,552,700 1,495,800 1,575,100 1,659,800 1,679,800 Total Private 1,291,500 1,247,800 1,333,100 1,409,800 1,418,900 Goods Producing 209,700 202,200 207,700 216,300 216,100 Mining & Logging 1,200 1,300 1,400 1,500 1,500
Construction 107,200 104,900 110,100 114,700 115,700
Manufacturing 101,300 96,000 96,100 100,000 98,900
Service Providing 1,343,000 1,293,700 1,367,400 1,443,500 1,463,700 Trade, Transportation & Utilities 395,100 406,900 443,200 464,900 456,500 Wholesale Trade 67,700 65,600 67,400 69,500 68,700
Retail Trade 180,700 168,800 177,000 181,000 182,700
Transportation, Warehousing & Utilities 146,600 172,500 198,800 214,400 205,100 Information 14,100 12,400 12,500 13,000 13,300
Financial Activities 45,000 44,100 45,200 46,000 44,900 Professional & Business Services 155,300 152,100 166,600 173,900 164,800 Educational & Health Services 250,300 248,800 254,300 267,500 287,500 Leisure & Hospitality 175,900 141,300 160,200 180,900 186,500 Other Services 46,200 40,200 43,600 47,400 49,300
Government 261,200 248,000 242,000 250,000 260,900 Total, All Industries 1,568,100 1,509,900 1,588,800 1,673,500 1,692,900
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 compar able to the employment data found in this Appendix E.
Source: State of California, Employment Development Department, March 2023 Benchmark. 685
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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 fi scal years 2014 through 2023.
Fiscal Year
Percent of Levy
Collected to Date
Total Tax Collections
to Tax Levy to Date
2014 101.55% $100,966,890
2015 106.51 115,888,404
2016 101.77 116,422,050
2017 104.24 125,264,871
2018 106.48 135,757,922
2019 107.57 154,079,402
2020 103.19 160,025,650
2021 103.78 172,050,509
2022 106.23 188,891,255
2023 107.07 215,154,745
Note: The amounts presented include City property taxes and the Former Redevelopment Agency of the City of Fontana (the “Redevelopment Agency”) tax increment. This schedule also includes amounts collected by the City and Redevelopment Agency that were passed-through to other agencies.
Source: City of Fontana Fiscal Year Ending June 30, 2023 Annual Comprehensive Financial Report.
Largest Taxpayers
The principal property taxpayers in the City for 2023 are as follows:
Taxpayer
2023 Assessed
Valuation
% of Total
Assessed
Valuation
San Gabriel Valley Water Company $355,028,013 1.31%
Duke Realty LP 243,765,176 0.90
GLC Fontana LLC 219,604,656 0.81
LBA RV – Company LLC 174,942,701 0.65
USPP Jurupa LLC 170,313,480 0.63
Idil West Valley Logistics Center LLC 159,120,000 0.59
Rexford Industrial Realty LP 153,756,226 0.57
Vintage Park LLC 138,146,361 0.51
Target Corporation 134,224,954 0.50
Lit Industrial LP 115,123,474 0.43
Intex Properties Inland Empire Corporation -- --
TOTAL: $ 1,864,025,041
Source: City of Fontana Fiscal Year Ending June 30, 2023 Annual Comprehensive Financial Report. 686
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Taxable Sales
The table below presents taxable sales for the years 2019 through 2023 for the City.
TAXABLE SALES
City of Fontana
2019 through 2023
(Dollars in Thousands)
Year
Retail and Food
Permits
Retail and Food
Taxable
Transactions Total Permits
Total Outlets
Taxable
Transactions
2019 4,101 $2,688,599 5,870 $3,713,486
2020 4,467 2,768,279 6,543 3,637,135
2021 3,997 3,393,088 5,969 7,374,359
2022 4,209 3,569,599 6,197 4,804,617
2023 4,170 3,450,192 6,183 4,653,260
Source: Taxable Sales in California, California Department of Tax and Fee Administration.
The table below presents taxable sales for the years 2019 through 2023 for the County.
TAXABLE SALES
San Bernardino County
2019 through 2023
(Dollars in Thousands)
Year
Retail and Food
Permits
Retail and Food
Taxable
Transactions Total Permits
Total Outlets
Taxable
Transactions
2019 40,964 $27,585,905 64,771 $41,768,747
2020 44,330 28,745,277 71,145 43,265,512
2021 40,801 38,345,912 66,585 55,378,096
2022 41,690 40,048,058 68,480 59,992,846
2023 40,632 38,103,699 67,336 57,475,069
Source: Taxable Sales in California, California Department of Tax and Fee Administration.
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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 2018 through 2022.
PERSONAL INCOME(1)
City of Fontana, County of San Bernardino, State of California, and United States 2018-2022
Year
City of
Fontana
County of
San Bernardino California United States
2018 4,444,518 $ 83,514,331 $2,411,055,100 $17,514,402,000 2019 4,775,796 89,182,422 2,537,950,600 18,343,601,000
2020 5,061,439 100,359,889 2,767,521,400 19,609,985,000 2021 5,432,476 108,700,135 3,013,676,900 21,392,812,000 2022 (n/a) 108,081,645 3,006,647,300 21,820,248,000
Note: Dollars in Thousands.
Source: U.S. Department of Commerce, Bureau of Economic Analysis and City of Fontana Annual Comprehensive Financial Report for the year ending June 30, 2022.
PER CAPITA PERSONAL INCOME(1)(2)
City of Fontana, County of San Bernardino, State of California, and United States 2018-2022
Year
City of
Fontana
County of
San Bernardino California United States
2018 20,965 $38,663 $60,984 $53,309
2019 22,519 41,079 64,174 55,547
2020 23,763 45,698 70,061 59,153
2021 25,392 49,570 76,991 64,430
2022 (n/a) 49,270 77,036 65,470
(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, 2022 , 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 2018 2019 2020 2021 2022
Valuation ($000’s)
Residential: $ 145,610 $ 241,481 $ 311,547 $ 216,978 $ 211,710 Non-Residential: 197,379 290,767 149,761 126,814 363,353 Total Valuation: $ 342,989 $ 532,248 $ 461,308 $ 343,792 $ 575,063
New Housing Units:
Single Family 413 642 848 670 509
Multi Family 85 202 234 382 562
Total Units: 498 844 1,082 1,052 1,071
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
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APPENDIX G
FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT
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APPENDIX H
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 completeness 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 which 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 representative 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 corpor ation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’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 Participants, 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 Par ticipants’ 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 acti ng on behalf of Beneficial Owners. Beneficial 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.
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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 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 a re credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as 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. Unde r 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 will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the 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 requ ested by an authorized representative 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 tr ansfer 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. 693
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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 REDEMPT ION OF
THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
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APPRAISAL REPORT
CITY OF FONTANA
COMMUNITY FACILITIES DISTRICT NO. 107
(Highland)
City of Fontana, San Bernardino County, California
(Appraisers’ File No. 2024-1294)
Prepared For
City of Fontana
8353 Sierra Avenue
Fontana, California 92335
Prepared By
Kitty Siino & Associates, Inc.
115 East Second Street, Suite 100
Tustin, California 92780
695
KITTY SIINO & ASSOCIATES, IC.
REAL ESTATE APPRAISERS & CONSULTANTS
May 31, 2024
Jessica Brown, Chief Financial Officer
City of Fontana
8353 Sierra Avenue
Fontana, CA 92335
Reference: Appraisal Report
City of Fontana Community Facilities District No. 107 (Highland) Talise & Cascade at Highland Park by Richmond American
NWC Highland and Hemlock Avenues
Fontana, California
Dear Ms. Brown:
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. 107 (Highland) (“Fontana CFD No. 107”) which consists of a gated residential community known as Highland Park, located in the City of Fontana. Highland Park includes a total of 107 residential units split between two product lines, Talise at Highland Park (“Talise”) and Cascade at Highland Park (“Cascade”). Talise is proposed for 61 detached cluster units and Cascade is proposed for 46 detached alley-load units; all homes are detached condominiums . Richmond American Homes of Maryland, Inc. (“Richmond American”) is developing and marketing the property . Highland Park offers two-story floorplans ranging in size from 1, 419 to 1,957 square feet for Talise (cluster product), and 1,861 to 2,065 square feet for Cascade (alley-load product). Out of the 107 proposed units within Highland Park, 62 have closed to individual homeowners to date with an additional 11 in escrow which are due to close upon completion. The Richmond American- owned property ranges from completed model homes to houses under construction to physically finished pads.
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. 107 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. 107. As a result of our investigation, the concluded minimum market value for the subject property is shown below.
Highland Park:
Richmond American (31 lots/pads & 14 houses) $ 11,404,553 Individual Owners (62 houses) $ 35,352,482
Total Aggregate Value CFD No. 107 $ 46,757,035
The values are stated subject to the Assumptions and Limiting Conditions of this report, the Appraiser’s Certification and as of April 15, 2024.
115 East Second Street, Suite 100, Tustin, California 92780 (714) 544-9978 - Phone, (714) 544-9985 – Fax, E-Mail: [email protected] 696
Jessica Brown
City of Fontana
May 31, 2024
Page Two
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 2020/2022) 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. 107 (Highland) ........................................................... iv Purpose of the Appraisal ................................................................................................ 1 The Subject Property ...................................................................................................... 1 Intended Use of the Report ............................................................................................. 2 Definitions ...................................................................................................................... 2 Property Rights Appraised ............................................................................................. 4 Effective Date of Value ................................................................................................... 4 Date of Report ................................................................................................................ 5 Scope of Appraisal ........................................................................................................ 5 Regional Area Map.......................................................................................................... 7 County of San Bernardino Area Description ................................................................... 8 City of Fontana Area Map & Description ....................................................................... 17 Immediate Surroundings ............................................................................................... 23 Community Facilities District No. 107 ........................................................................... 25 Subject Property Description ......................................................................................... 29 Inland Empire Housing Market ...................................................................................... 37 Highest and Best Use Analysis ..................................................................................... 48 Valuation Analysis and Conclusions ............................................................................. 53 Appraisal Report Summary ........................................................................................... 72 Appraiser’s Certification ............................................................................................... 73
ADDENDA
Fontana CFD No. 107 Boundary Map
Tract Map Nos. 20297 and 20349 and Highland Park Site Plan Discounted Cash Flow Analysis
Finished Lot Land Sales Map and Summary Chart
Improved Residential Sales Map and Summary Chart
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. 107.
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 correct. 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 699
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otherwise stated in this report. No survey has been made for the purpose of this 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. P roposed 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 survey 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 thwart development of the subject propert ies 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. 107 special tax bonds
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. 107 S pecial 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 and summarized in the report are correct. Regarding sales , we have reviewed samples of closed sales against public record when available; however, we have not reviewed escrow documents on each sale. Regarding costs, while we have reviewed the remaining land development costs and fees and they appear reasonable; we are not experts in the field of construction estimation and are relying on the costs received in the valuation analysis. If actual costs differ, it may change the value conclusions.
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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 special tax lien of Fontana CFD No. 107.
THE SUBJECT PROPERTY
The subject property consists of 107 proposed single-family detached homes being developed into a gated community known as Highland Park in the City of Fontana (“City”).
Highland Park is located at the northwest corner of Hemlock and Highland Avenues, just south of the I-210 Freeway. Highland Park is being built and sold by Richmond American and features two product lines: Talise which includes 61 detached cluster units sized 1,419 to 1,957 square feet, and Cascade which includes 46 detached alley-loaded units sized from 1,861 to 2,065 square feet. The subject community is encompassed by Tract Maps 20297 and 20349 along with subsequent condominium maps, which subdivide the property into 61 pads for detached cluster units, and 46 pads for detached alley -load units. The lots vary in status from completed models and production homes , to homes under construction to generally finished lots/ pads. The description, ownership and condition of the lands are detailed in the chart below.
Description # Lots Owner Product / Condition / Status
Talise at Highland Park (Cluster Small Lot Detached) Lot 1 of Tract 20349 – Units 47-107 Units 57-79, 81-85 and 87-88 & 90-91 32 Individuals Completed Homes Units 49-52 4 Richmond Am. Model Homes (0 in Escrow)
Units 80, 86 & 89 3 Richmond Am. Over 95% Complete (3 in Escrow) Units 47-48 and 92-107 18 Richmond Am. Under Construction (3 in Escrow) Units 53-56 4 Richmond Am. Finished Pads (0 In Escrow)
Talise Subtotal: 61
Cascade at Highland Park (Alley-Load Small Lot Detached) Lot 1 of Tract 20297–Units 1-46 Units 1, 3-5, 7, 9-25, 35-38 and 43-46 30 Individuals Completed Homes Units 40-42 3 Richmond Am. Model Homes (0 in Escrow)
Units 2, 6, 8 and 39 4 Richmond Am. Over 95% Complete (1 in escrow) Units 26-34 9 Richmond Am. Under Construction (4 in Escrow) 0 Richmond Am. Finished Lots (0 in Escrow)
Cascade Subtotal: 46
TOTAL CFD No. 107 107
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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. 107 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.
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.”
0F
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 Richmond American owned property, in a bulk sale, is less than one year.
1 The Appraisal of Real Estate, 13th Edition
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Finished Lot/Pad
The term “Finished Lot/Pad” is defined as:
“A parcel which has legal entitlements created by a recorded subdivision or condominium map, whose physical characteristics are a fine graded level pad per lot /pad with infrastructure contiguous to each individual lot /pad, 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 and taking into consideration all concessions.”
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”
1F
2 In the case at hand, the statistical testing included reviewing all original builder sales and reviewing the Multiple Listing Service (“MLS”) for any resales 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 resales and no current resale listings within the subject property.
Hypothetical Condition
The term “Hypothetical Condition” is defined by USPAP as:
2 USPAP 2018-2019 Edition
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“ 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”
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. 107.
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 Richmond American are true and accurate. Regarding the sales information, we have reviewed sample closings against public record and the information appears reasonable, however we have not reviewed escrow documents on the sales. Regarding costs, we have reviewed the remaining land development costs and fees 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 costs differ, it may change the value conclusion.
PROPERTY RIGHTS APPRAISED
The property rights being appraised are of a fee simple estate interest , subject to easements of record and the special tax lien of Fontana CFD No. 107. 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.”
2F
3 EFFECTIVE DATE OF VALUE
The subject property is valued as of April 15, 2024.
3 The Appraisal of Real Estate, 13th Edition
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DATE OF REPORT
The date of this report is May 31, 2024.
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 property, Fontana CFD No. 107 , which is known as the community of Highland Park . Richmond American is the builder and is actively marketing the homes. Highland Park offers two-story floorplans ranging in size from 1,419 to 1,957 square feet as marketed for Talise ( detached cluster small lot product), and 1,8 61 to 2,065 square feet for Cascade ( alley-loaded small lot detached product). There are a total of 107 proposed homes within the subject. This appraisal will be presented in the following format:
• County of San Bernardino Description
• City of Fontana Description
• Immediate Surroundings Description
• Brief Description of Fontana CFD No. 107
• Subject Property Description
• Inland Empire Residential Market Analysis
• Highest and Best Use Analysis
• Valuation Procedure, Analysis and Conclusions
• Appraisal Report Summary
In valuing the subject propert y, 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.” 3F
4 4 Dictionary of Real Estate Appraisal, Fourth Edition, 2002 707
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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 resales and/or resale 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, reviewed 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 property between March 1, 2024, and April 15, 2024.
4. Had the site flown by an aerial photographer on March 16, 2024.
5. Interviewed r epresentatives from Richmond American and/or their consultants i n order to obtain project information.
6. Reviewed a preliminary title report on the subject property.
7. 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.
8. Searched the area for relevant comparable new home residential projects, including sales prices and concessions and interviewed representatives from each comparable project.
9. Reviewed the sales brochures and website for the subject communities.
10. Reviewed developer sales information on each home within each neighborhood in the community along with reviewing public record on sample lots in each community.
11. Reviewed Multiple Listing Service information to determine if there are any resales, pending resales or listings of resale 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 northwestern portion of the City of Fontana, about one mile west of Interstate 15 (“I- 15”) and along the south side of Interstate 210 (“I-210”). More specifically, Highland Park is located at the northwest corner of Highland and Hemlock Avenues.
San Bernardino County (the “County”) is the largest county in the United 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 one mile east of I-15, approximately seven miles south of its intersection with Interstate 215, adjacent to the south of I-210, and about five miles north of Interstate 10 (“I -10”). The I-15 and I-210 are the nearest interstates providing access to the subject. From I-15 there is good access from Baseline Road, east 1.3 miles to Cherry Road or 1.75 miles to San Sevaine Road, north 0.75 miles to Highland Avenue and east to the subject . From I -210, access is also good with on/off ramps at C itrus Avenue, south to Highland Avenue and west to the subject. There are also on/off ramps to Citrus Avenue from I -10. 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 -10 710
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beginning in Santa Clarita in Los Angeles County and provides access near the C ity of San Bernardino. The subject is located about four 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 nine miles southwest of the subject property. San Bernardino International Airport is located approximately 13 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, 2023 (latest available) County population was 2.182 million. This represents a one-year increase of 0. 1 percent. This compares to an average annual growth rate over the past 20 years of 2.1 percent. Current projections for San Bernardino County per the California Department of Finance suggest the population is anticipated to reach approximately 2.32 million by 2030, indicating an average annual increase of approximately 0.9 percent over the next seven years. The current near zero growth rate 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. 9 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
The U.S. economy in the past few years has experienc ed challenging times due to reactions from the COVID disruption. These economic challenges include significant inflation, increasing interest rates, banks’ instability and reaching an agreement on the debt ceiling. During COVID, the Federal, State, County and City Governments (“Governments”) originally shut down non-essential businesses and areas where social 711
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gatherings occur 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 citizens were urged to stay home. Layoffs occurred with reports of 40 million people filing for unemployment the first few months of the pandemic. The Governments attempted to curtail the job losses and hardships with the approval of over 5.6 trillion in COVID relief to our nation. In addition, the Federal Reserve Board ( “Board”) reduced interest rates and started quantitative easing by buying bonds. This legislation helped shore up the U.S. economy; however, due to the significant amount of new money introduced into the economy, inflation began occurring at a rate not seen for 40 years. As of March 2024, the national inflation rate was at 3.5 percent; up from a low of 2.97 in July 2023, and down from the peak in June 2022 of 9.1 percent. This compares to a 1.24 annual percent rate for 2020 and an average of 1.74 percent annual rate for the previous ten years. Whether it is a result of world turmoil, supply chain issues due to COVID or from the additional money entering the economy, inflation has been hitting Americans hard.
In an effort to curb inflation, the Federal Reserve Board (“Board”) began raising interest rates. Between March 2022 and August 2023, there were eleven interest rate increases rising the Federal Funds Rate (“FFR”) from 0.25 – 0.50 percent to 5.25 – 5.50 percent.
The Board has not increased rates since August 2023, due to the decrease in inflation coupled with other mostly positive signs in the economy. While the eleven increases appeared to help slow inflation, the quick, significant increases strained bank balance sheets. Three major banks failed in early 2023 with the government taking unprecedented action to help shore them up. At the most recent Board meeting (March 19- 20, 2024) they continued to pause the increases for the f ifth meeting in a row and continued to suggest there still could be interest rate cuts later this year. After the March Board meeting the stock market increased to an all-time high and bond rates decreased slightly based on the news. T he FFR increases over the past couple years increased a typical 30-year fixed mortgage rate from 2.98 percent as of November 10, 2021, to the high of
7.79 percent as of October 2023; however, the rate has dropped to 7.1 percent as of April 712
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18, 2024 (per Federal Reserve Economic Data- St. Louis). This steep increase over the past two years has significantly affected the real estate market.
The COVID disruption to the economy also caused extreme volatility in the stock market with the Dow Jones Industrial Average (“DJIA”) dropping from 29,398 in February 2020 to 19,174 in March 2020, a drop of 37 percent. The Government interventions resulted in a bounce back in the DJIA to 27,111 by June 2020 with the stock market then climbing up to a peak of 36,799 in January 2022. In February 2022, Russia began invading Ukraine which caused volatility in world economics followed by U.S. inflation, interest rate increases and instability in the U.S. due to the debt ceiling being reached. In addition, Israel declared war on Hamas on October 7, 2023, which added to the strain. All of these factors caused a drop in the DJIA of over ten percent from January 2022 to the low on October 27, 2023 (32,418); however, the Federal Reserve Board’s notes from March coupled with generally strong economic news, brought the stock market to a new all-time high of 39,340 (March 25, 2024). It appears the Board’s decision not to increase rates further and their suggestion that decreases may occur in the next nine months has been well received by investors. Current concerns on the U.S. economy include the nation’s debt limit which can only be increased through government approvals. The current partisanship in our government caused a stand-off in increasing the debit limit which has been in danger of being reached numerous times with several temporary deals being reached, however, no permanent agreements at this time.
The significant increase in mortgage rates over the past 20 months is just one part of the puzzle affecting the impact of new housing on the broader economy. Additional risks include homebuilders trying to find balanced inventory levels, supply chain issues, both wage and price increases, and persistent inflation. 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 2009 then remained essentially flat for two to three years with the majority of the Inland Empire housing market seeing an improvement beginning in mid- 2012. Contrary to homebuilder’s original thoughts of a 713
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slowdown due to the COVID 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 and continued extremely strong throughout 2021. This exceptional activity in new home sales was the one bright spot in the COVID disruption and is thought to be due to several factors, including: a tight supply of resale homes; historically low interest rates; millennials finally buying homes; and the work from home factor w hich began during the pandemic and allowed residents to live in more suburban areas without long commutes. As rates began increasing in early 2022, there was a significant slowdown in sales within the Inland Empire. The high mortgage rates have significantly slowed existing homeowners from moving. The limited availability of existing homes on the market has resulted in new homes capturing a much larger share of the Inland Empire total home sales; however, new home sales are also down year-over-year.
While most jobs have come back, job losses were significant during the COVID recession as the Nation’s unemployment rate went from 3.5 percent in February 2020 to 14.4 percent in April 2020, with the March 2024 National unemployment rate at 3.9 percent (Employment Development Department, not seasonally adjusted). The unemployment rate for the MSA was estimated at 5. 2 percent (as of March 2024 per the Employment Development Department). This reflects a decrease from the peak during the Great Recession of 15.1 percent in 2010 and a decrease from the peak during COVID of 14.9 percent. As of March 2024, Riverside County’s unemployment rate was 5. 2 and San Bernardino County had a 5. 1 percent unemployment rate. The current unemployment rate for the MSA of 5. 2 percent is similar to the California rate at 5. 3 percent and higher than the March 2024 National rate of 3.9 percent. On the following page is a table comparing Riverside County’s unemployment rate to the unemployment rates of the surrounding counties as of March 2024.
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Jurisdiction As of Unemployment Rate*
Los Angeles County Mar-2024 5.2%
Riverside County Mar-2024 5.2%
San Bernardino County Mar-2024 5.1%
Orange County Mar-2024 3.9%
San Diego County Mar-2024 4.4%
Source: State of California E.D.D.; *Not Seasonally Adjusted
The latest UCLA Anderson Forecast (“Forecast”) was issued March 13, 2024, and stated the possibility of a recession has faded due to expansionary fiscal policy, new national industrial policy, and the fact that consumers are still spending despite the perception of economic uncertainty. GDP growth in the fourth quarter 2023, came in at a higher-than- expected 3.2 percent annual rate of growth that was mostly due to strong consumer spending but also to inventory replacement after the holidays. The F orecast is now for the first quarter 2024 growth to be 2.2 percent. They believe the impact of higher interest rates will restrain growth in 2024. Inflation is still higher than the target 2.0 percent primarily because of residential rents, automobile repair and new health insurance premiums. The upside of the Forecast is productivity growth thanks to new technology that drives higher wages and higher GDP. The Forecast mentions risks to their current forecast include a possible shutdown of government, geopolitical ev ents and the possibility of a different national economic policy in 2025 due to the election.
The UCLA Forecast for California is typically more positive than the overall Nation due to job growth in California; however, this Forecast suggests a slower -growing California economy with the growth not much faster than the U.S. They believe that the unemployment rate for the f irst quarter of 2024 will average 4.7 percent (currently 5. 2 percent) with the 2024 yearly average of 4.6 percent, then 3.8 percent in 2025 and 3.9 percent in 2026. The housing market in California is still misbehaving as higher int erest rates should send prices lower ; however, the median price of an existing single- family home sold in the state has climbed significantly since December 2022 by 9.3 percent in San Diego; 9.0 percent in Los Angeles and 3.9 percent in San Francisco. With existing home sales numbers at depression levels, builders are responding with new developments with the Forecast stating that 32 percent of all developers interviewed in 715
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Northern California and 55 percent in Southern California are planning to begin one or more new multi-family projects in 2024. The Forecast is estimating 123,000 net new units to be permitted in California in 2024 and grow to 159,500 by the end of 2026.
One bright spot in the current economy is sales of new homes. While existing homeowners are reluctant to put their houses on the market due to their under -four percent mortgages, new home sales continue. Even with rates in the seven percent range, new homes are still selling. This is partially due to the extremely limited availability of existing homes on the market, coupled with homebuilders offering to buy-down interest rates to help new home buyers. While new homes historically captured 10 – 13 percent of total home sales; over the past year new homes are capturing over 30 percent of total home sales. This rush to new home purchases has put pressure on pricing, even while interest rates have soared. During the Great Recession median housing prices (existing) in San Bernardino County dropped from a high of $350,288 in March 2006 to a low of $120,406 in May 2009. Median prices surpassed the pre- recession high in September 2020, hit a peak in April 2022 of $495,000 with the median home price bouncing generally between $475,000 and $500,000 over the past six months (all statistics per the California Association of Realtors). T he median home price in San Bernardino County is up 5.2 percent year over year , which 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 and 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 in the Inland Empire linked to supply -chain nodes in the Pacific Rim. The chart below shows TEU activity at the Port of Long Beach. Generally, there had been increases since 2009 with the exception of a slight dip in 2016 and again in 2019 which ended with a 5.6 percent downturn. The 2022 calendar year saw a decrease of 2.6 percent from the previous year; however, 2023 saw the largest percentage decrease of 12.2 percent year over year (8,018,668 versus 9,133,657 total TEUs). It should be noted that consumer demand 716
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cooled in mid- 2022 leaving fewer TEUs needed. For the calendar year 2024, thus far TEUs are up over 20 percent.
Government
A Board of Supervisors oversees the County as the governing body of the County, certain County special districts, and the County Housing Authority. The Supervisors enact ordinances and resolutions, adopt the annual budget, approve contracts, and appropriate funds, determine land use zoning for unincorporated areas, and appoint certain County officers and members of various boards and commissions. The Board of Supervisors i s elected from five different districts within the County.
Education
The subject area is served by the Etiwanda School District and the Chaffey Joint Union High School District. The Etiwanda School District serves elementary and intermediate students with 13 elementary schools and four intermediate schools. The Chaffey Joint Union High School District serves students with nine high schools, one one- line school, one adult school, and one day school. The subject is assigned to Cecelia L. Solorio Elementary School (0.3 miles south of the subject) , Heritage Intermediate School (1.5 miles southwest of the subject), and Etiwanda High School (2.3 miles west of the subject).
Community Colleges are available near the subject at Chaffey College in Rancho Cucamonga (5.5 miles west), at Chaffey College’s Fontana campus, (3.5 miles south), and San Bernardino Valley College (10 miles southeast). Higher education is available
4.0 5.0
6.0 7.0
8.0 9.0
10.0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 TEU's (millions)
Year
Port of Long Beach TEUs
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approximately nine miles northeast of the subject at California State University San Bernardino, about 15 miles southeast is University of California at Riverside , 15 miles southwest in the private Claremont Colleges (which include Claremont McKenna College, Pitzer College, Harvey Mudd College, Pomona College, and Scripps College) and 20 miles to the southwest at Cal Poly Pomona.
Conclusion
Population in the County has increased over the past 2 0 years with predictions for continued population growth. The Nation’s economy has been slowing after the Board increased the FFR over five percent to fight historical inflation which began during COVID.
One bright spot during COVID was housing; the region’s relative affordability and low interest rates, coupled with the rising prices in the coastal market and the demand for housing, set up a new housing boom. This was followed by a significant drop in sales due to existing homeowners being unwilling to give up their low-rate mortgages, which turned out to be a boon for new homes. Current concerns for the Inland Empire economy include stubborn inflation, the high prices of homes, higher interest rates, supply chain issues, possible government shutdowns along with the Russian/Ukraine and Israel/Palestine conflicts, which are all creating volatility in both local and global financial markets. 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, Riverside and San Diego Counties.
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CITY OF FONTANA DESCRIPTION
General Area
The subject property is located in the northwestern portion of the City of Fontana (“City”) 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. 107 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 originally 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 1994 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 the area of Fontana was home to a drag racing strip which served as a significant venue in the National Hot Rod Association (“NHRA”) circuit. In 1997, Roger Penske built the Fontana Speedway, also 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. It was recently announced the existing raceway will close due to the redevelopment of the lands; however, a smaller short -track will be developed on a portion of the lands keeping car racing in the area of Fontana.
Population
The January 2023 population of Fontana (per the California Department of Finance) was 213,851, which represents an increase of 0.6 percent over the previous year. The 2000 population of Fontana was 128,928, suggesting the population has increased 66 percent over the past 23 years or an average rate of 2.2 percent per year. The City populat ion represents 9.8 percent of the County population. The 0.6 percent growth compares to an 720
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increase of 0.1 percent in the County year-over-year and a negative growth of 0.4 percent in the State year -over-year. Fontana was one of seven cities within the County with positive population growth in the past year compared to 18 cities with negative gr owth.
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 3.75 persons while in overall San Bernardino County the average household size is 3.26 persons. Over 78 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
According to the Southern California Association of Governments (“SCAG”), the City of Fontana has an estimated 55,632 housing units as of 2021 (latest data available), with a growth rate of 56 percent since the year 2000. This compares to the County’s housing growth rate of 22.2 percent during this time. This further illustrates Fontana’s growth spurt due to land available for development over the past 20 years. Fontana hosts over eight percent of the total number of households in the County. Below is a graph showing residential units permitted in Fontana between 2002 and 2022 (2023 not yet available).
While the current numbers are not at pre-Great Recession numbers, they are the highest in the past 15 years. Per SCAG, 68 percent of the housing stock is owner occupied and 32 percent are renters. Only 22 percent of the housing stock in the City was built before 1970 and 78 percent was built since that time. There are several residential projects currently under construction including a 489-unit community known as Nara Hills with five 1,908
1,545
1,025
209 306 270 261 419 498 865
1,182 1,029
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2021 2022 Fontana Residential Building Permits
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new home communities currently selling; Ventana at Duncan Canyon a mixed- use neighborhood proposed for 842 residential units (257 apartments currently under development) along with retail, office and hotel uses; Highland Park, the subject 107-ujnit community; the Summit at Rosena Specific Plan is ongoing; the Arboretum Specific Plan is also ongoing; Monterado, a 198 unit new home community by Lennar; Mountain View Homes proposed for 156 residential units; Lennar’s Citrus West proposed for 86 attached units; Stratham Homes 107 condos at Victoria and Etiwanda Creek; Cypress multi-family housing project and two senior living communities. There are additional planned projects according to the City. Per the 2023 annual report, there were 709 new single -family residential permits and 42 multi-family residential permits issued (unit number not included in the City’s data). According to Redfin Market Trends, the March 2024 median home price in overall Fontana was $633,698 (median of 102 homes) which is 7.9 percent higher than one year prior while the median home price in North Fontana was $ 700,000 (median of 51 homes) which was 7.9 percent higher than one year prior.
Current new homes communities selling within Fontana include: Aurora Park by Tri Pointe with two neighborhoods (one sold out), Highland Park by Richmond American with two neighborhoods (subject property), Shady Trails with one remaining neighborhood by Tri Pointe (nearing sell-out), The Arboretum by Lennar with five neighborhoods, Monterado with two neighborhoods by Lennar (one nearing sell -out) and Nara Hills with five neighborhoods currently being marketed by LandSea Homes.
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, 722
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Cherry Avenue, Citrus Avenue and Sierra Avenue. Access to the subject is via I- 15 to Baseline Road, to Cherry Avenue or San Sevaine Road, north to Highland Avenue and east to the subject. Additional access is via I -210 to Citrus, south to Highland and west to the subject.
Economy
Existing commercial property within the City of Fontana is generally along the major thoroughfares including I -10, Route 66/Foothill 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. There is planned retail across Citrus Avenue from the subject in the Ventana Specific Plan. The City is home to an Amazon Distribution Center, a Target Distribution Center 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 Fontana 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
U S F Reddaway 320
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 723
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City was built since 1970. Between April 2020 and March 2022 residential building permits grew significantly after a lull in the first 10 years since the Great Recession. In the past year permits slowed as sales decreased due to increasing rates. 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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IMMEDIATE SURROUNDINGS
The subject property is located east of I-15, along the north side of Highland Avenue west of Hemlock Avenue, in the northern portion of the City of Fontana. The subject has convenient freeway access to the I -15 via the Baseline Road, or I-210 via the C itrus or Cherry Avenue exits.
The subject lands are immediately surrounded by vacant lands to the west, the I -210 to the north, the Inland Valley Islamic Society beyond which is Lennar’s Retreat project (built out in 2023) to the east and Highland Avenue beyond which is existing residential to the south.
Less than one-half mile south of the subject at the northeast corner of Hemlock Avenue and Walnut Street is Cecilia Lucero Solorio (“Solorio”) Elementary School, which is part of the Etiwanda School District and serves the subject. The Etiwanda School District also serves the subject for middle school, and the subject is assigned to Heritage Intermediate school, located less than two miles southwest of the subject at Baseline Avenue and South Heritage Circle in Fontana. For high school, the subject falls in the boundaries of the Chaffey Joint Union High School District, and the highly ranked Etiwanda High School.
Etiwanda High School is located in Rancho Cucamonga, just two miles southwest of the subject, southwest of the I-210 and I-15 intersection.
There are several parks within close proximity to the subject. One large block southeast of the subject at the northeast corner of Beech Avenue and Walnut Street is Koehler Park, a public recreational park with large fields, basketball courts, tennis courts, play structures, covered tables and restrooms. Just 1.25 miles northeast of the subject, at the corner of Summit Avenue and Lytle Creek Road, is a large public park facility that serves the City and surrounding neighborhoods. This park facility includes the Fontana Park and Aquatic Center, along with a large dog park, and skate park. This park facility is adjacent to Summit High School, which does not serve the subject’s residents.
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There are several shopping centers within one mile of the subject, the closest being about one mile east of the subject at Sierra Lakes Parkway and Citrus Avenue, just north of I - 210. This stretch of retail starts at Citrus Avenue and continues along Sierra Lakes Parkway through the Sierra Avenue on/offramp, and includes a Home Depot, Ralphs Grocery Store, Walgreens, Costco, LA Fitness, Lowes Home Improvement and more.
Located just over one mile northwest of the subject on the southwest corner of Beech Avenue and Summit Avenue is an additional shopping center, known as Summit Heights Gateway, which includes a Kohl’s, PetSmart, Aldi grocery store, a Planet Fitness, and several smaller retail stores and restaurants. Directly across from Summit Heights Gateway is the larger Falcon Ridge Town Center. Falcon Ridge Town Center is located at the corner of Beech Avenue and Summit Avenue on the east side of I -15, and is anchored by a Stater Brothers Market, Target, Michael’s craft store, Ross Dress for Less, CVS, and 24-Hour Fitness. The center also offers a multitude of dining options.
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FONTANA CFD NO. 107 (HIGHLAND)
We have reviewed the City of Fontana CFD Report for Community Facilities District No. 107 (Highland) dated October 6, 2021, as prepared by David Taussig & Associates, Inc.
The CFD Report provides a brief description of Fontana CFD No. 107, a brief description of the facilities to be funded along with an estimate, a description of the boundaries and an estimate of the cost of financing the bonds used to pay for the facilities. The City Council of the City of Fontana adopted a resolution of intention for Fontana CFD No. 107 (Highland) on September 14, 2021.
The exterior boundaries of Fontana CFD No. 107 per the Proposed Boundary map are shown below.
Per the CFD Report, at time of formation, Fontana CFD No. 107 encompassed approximately 11.1 gross acres of which 7.2 are estimated to be taxable. There are 107 single family homes ranging in size from 1,419 to 2,065 square feet consisting of 46 detached alley loaded homes and 61 detached cluster homes.
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Per the CFD Report, the types of facilities to be eligible for funding are streets, including grading, paving, curbs and gutters, sidewalks, street signalization and signage, streetlights 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 facilities proposed to be purchased as completed facilities by CFD No. 1 07 are streets, including grading, paving, curbs and gutters, sidewalks, street signalization and signage, streetlights and parkway and landscaping related thereto, sewers, storm drains, 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 CFD No. 107 are fire protection and suppression services, 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 also included are the cost of planning and designing public facilities to be financed, including the cost of environmental evaluations of those facilities; the costs associated with the creation of CFD No. 107 , issuance of bonds, determination of the amount of taxes, collection of taxes, payment of taxes, or costs otherwise incurred in order to carry out the authorized purposes of CFD No. 107; and, any other expenses incidental to the construction, completion, and inspection of the authorized work.
The estimated cost of public facilities at the time the Fontana CFD No. 107 Report was created were estimated as:
PUBLIC FACILITIES AMOUNT
Acquisition Facilities: $1,064,637(1)
Storm Drain Improvements $599,495
Circulation and Traffic Improvements $315,353
Sewer Improvements $149,789
Other Public Facilities: $2,135,835(2)
Park Facility Improvements $709,731
Traffic Circulation Facility Improvements $613,538
Storm Drain Improvements $205,144
Inclusionary Housing Improvements $144,450
Sewer Improvements $93,797
Local Transportation Facility Improvements $84,744
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Police Facility Improvements $50,504
Public Facility Improvements $47,615
Local Arterials Improvements $47,401
Flood Control Facility Improvements $44,323
Fire Service Protection Improvements $39,483
Landscape Facility Improvements $29,853
Traffic Signal Facility Improvements $14,659
Library Facility Improvements $10,593
Additional Capital Facilities Infrastructure Improvements $800,118 TOTAL ESTIMATED COSTS $4,000,590
Per the Rate and Method, the Assigned Facilities Special Tax for Developed Property for Fontana CFD No. 107 (Highland) are estimated as follows:
Land Use
Class
Description
Residential Floor Area
Special Tax
1 Residential Property 2,150 or Greater $3,321 per unit 2 Residential Property 2,000 to < 2,150 $3,290 per unit 3 Residential Property 1,850 to < 2,000 $3,183 per unit 4 Residential Property 1,700 to < 1,850 $3,125 per unit 5 Residential Property 1,550 to < 1,700 $3,072 per unit Residential Property 1,400 to < 1,550 $2,938 per unit
5 Residential Property < 1,400 $2,832 per unit
6 Non-Residential Property N/A $100,540 per acre
In addition, CFD No. 1 07 is expected to finance annual costs to provide fire protection and suppression services, 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 owned by the City. The Services Special Tax within CFD No. 107 has been established to pay for these public services at approximately $373 per unit per year. This amount is subject to change based on the actual need that arises as development progresses within CFD No. 107 and shall be subject to an annual increase as specified in the Rate and Method of Apportionment. The maximum bonded indebtedness for CFD No. 107 is $5,000,000.
Per the latest sources and uses of funds (dated May 17, 2024) for the proposed bond issuance, there will be an estimated $3,595,000 in Bond Par Amount and a Net Premium 729
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of $103,444 for a total bond fund deposit of $3,698,444 with $3,118,604 going to the Project Fund, $243,000 in Debt Service R eserve Fund and $336,840 in Underwriter’s Discount and C ost of Issuance (all amounts subject to change). A larger copy of the Fontana CFD No. 107 boundary map is located in the Addenda for your review.
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SUBJECT PROPERTY DESCRIPTION
The subject propert y consists of 107 proposed units being developed as Talise and Cascade at Highland Park, both being built and marketed by Richmond American Homes.
The subject site is shown on the below site plan and described as follows.
Location: North side of Highland Avenue between San Sevaine Road and Hemlock Avenue, Fontana, California
Legal Property
Description: Lot 1 of Tract No. 202 97 in the City of Fontana, County of San Bernardino, State of California (Cascade) and Lot 1 of Tract 20349 in the City of Fontana, County of San Bernardino, State of California (Talise).
Property Owner: Talise:
Individual Owners as Units 57-79, 81-85, 87-88 and 90- 91 of Tract 20349. Richmond American Homes of Maryland, Inc. as to Units 47- 56, 80, 86, 89 and 92-107 of Tract 20349.
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Cascade:
Individual Owners as Units 1, 3-5, 7, 9-25, 35-38 and 43-46 of Lot 1 of Tract 20297. Richmond American Homes of Maryland, Inc. as to Units 2, 6, 8, 26, 34 and 39-42 of Lot 1 of Tract 20297.
Assessors
Parcel Nos.: The subject covers various parcels within 0228-262 and 263. A copy of the Assessor’s map is below. The site has not been fully subdivided at this time.
Property Taxes: We have not been able to review property taxes on any of the above assessor parcel numbers. Our review of t he Assessor’s Office does not yet show any taxes on the subdivided parcels. It appears the subdivision is too new for the information to be available on their website. It is an assumption of this report that the overall property taxes and special assessments are not over two percent.
Three-Year
Sales History: Per Richmond American Homes of Maryland, Inc., they purchased the subject property for $ 18,805,676 on December 1, 2021 .
Richmond American began closing homes within the subject property to individual owners in April 2023, and has closed 62 houses between April 21, 2023, and April 15, 2024.
Size and Shape: Lot 1 of Tract No. 20297 (Cascade) is generally rectangular in shape and contains 5.417 acres in one lot per the recorded map for condominium purposes. Lot 1 of Tract No. 20349 (Talise) is irregular in shape and contains 4.647 acres in one lot per the recorded map for condominium purposes. Per the site plan provided by Richmond American, the two lots were further subdivided with Lot 1 of Tract 20297 divided into 46 units and Lot 1 of Tract 20349 divided into 61 732
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units. The total project encompasses a total of 10.064 acres subdivided into 107 units which results in an overall density of 10.63 dwelling units per acre based on the tract map acreages.
Zoning: We have reviewed a letter from the Planning Division of Fontana dated November 12, 2020, which states Resolution No. 2020- 142 adopted the Mitigated Negative Declaration for Highland Park which allowed for Tract Map 20297 for 46 units (detached alley load product) and Tract Map 20349 for 61 units (detached cluster product) for a total of 107 units on the approximate 11 gross acre site. In addition, Ordinance No. 1848 approved an amendment to the zoning district map to change the site from General C ommercial (C-2) to Medium Density Residential (R -2). Per the City’s website, R-2 is a medium intensity, multiple- family zoning district that permits the development of attached and detached single- family, duplex and multiple-family dwellings, as well as condominiums.
Entitlements: The subject is entitled by two Tract Nos. 20297 and 20349, both which recorded August 25, 2022, which divide the area of the community of Cascade (Tract 20297) and the community of Talise (Tract 20349) both into one numbered lot. Subsequent condominium maps further divide the subject into 107 detached condominium units with 46 alley loaded units and 61 cluster detached units. A copy of the two maps along with the site plan is located in the Addenda for your review.
Home Owner’s
Association: Highland Park’s monthly HOA fee is estimated per Richmond American representatives at $ 196.25 per month at build- out. The HOA covers maintenance of the community gate, swimming pool, spa, barbeques, clubhouse and restrooms, community parks, as well as all walkways and community landscaping. The pool, spa , clubhouse and park areas are all under construction.
Topography: The subject lands are generally flat and at grade with streets on the east (Hemlock Avenue) and the south (South Highland Avenue). The western border is a vacant parcel currently owned by the San Gabriel Valley Water Company which also has generally flat topography. The northern border is a vacant triangular sliver of land (begins contiguous to the subject at the northeast corner of the subject site and is about 75 feet in width at the northwest corner of the subject.
The I-210 Freeway is about 15 feet above the subject property with an approximate 75-foot-wide strip which is sloped up to the freeway.
The subject has been fully graded with the lots and pads generally level with the internal streets which are generally complete. It appears there is an engineered street drainage system whic h has been constructed on site.
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Soils Condition: We have reviewed a “Geotechnical Investigation” for the subject site dated March 7, 2019, prepared by Leighton and Associates, Inc. of Rancho Cucamonga. The Report concluded that construction of the proposed residential development is feasible from a geotechnical standpoint provided their conclusions and geotechnical recommendations are incorporated into the design of the project. In addition, we have reviewed a Geotechnical Update, also from Leighton and Associates, Inc. dated April 19, 2021. The update incorporated the seismic design methodologies that were updated in 2019 into the updated report and stated new parameters for seismic design.
It is an assumption of this appraisal that the soils are adequate to support the highest and best use conclusion and that all recommendations made within any and all reports were adhered to during construction. The appraiser is not a soils expert and it is recommended that any concerns relating to soils should be addressed to the appropriate experts.
Seismic
Information: Per San Bernardino County’s Geological Hazard Overlay map, the subject property is not located within a County Designated Fault Zone or an Earthquake Fault Zone Boundary and appears to be within five kilometers of the Cucamonga Fault.
Environmental
Concerns: We have reviewed the Initial Study of the Mitigated Negative Declaration of the California Environmental Quality Act for the Highland Residential Project prepared by Michael Baker
International of Ontario California. The initial findings of the Study were that the proposed project would result in no impacts or less than significant environmental effects under the issue areas of Aesthetics, Agriculture, Air Quality, Energy, Geology and Soils, Greenhouse Gas Emissions, Hazards and Hazardous Materials, Hydrology and Water Quality, Land Use and Planning, Mineral Resources, Noise, Population and Housing, Public Services, Recreation, Utilities and Service Systems, and Wildfire. In addition, the Study determined that the proposed project would result in less than significant effects with mitigation incorporated to the following issue areas: Biological Resources, Geology and Soils, Transportation, and Tribal Cultural Resources.
It is an assumption of this report that there are no environmental issues which would slow or thwart development of the subject property and that all proposed mitigation efforts were completed.
This is evidenced by construction of homes on the site and City inspectors on site during construction.
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Flood Information: Per FEMA Map No. 06071C7915H dated August 28, 2008, the property is shown as being in Zone X which states areas determined to be outside of the 0.2 percent annual chance floodplain.
Fire Hazard
Information: Per the City’s General Plan and Zoning Map, the site is within a fire overlay zone. Per the State of California’s Fire Hazard Map, the site is within a LRA (Local Responsibility Area).
Easements and
Encumbrances: We have reviewed two Preliminary Title Report s prepared by First American Title which cover the two maps that encompass the subject property. The exceptions are as follows.
Order Number NHSC—6748276 dated February 27, 2024, and
covers an example lot within Tract 20349:
Item Nos. 1-5 refers to property taxes including CFD No. 10 (Etiwanda School District) and CFD No. 107 (subject CFD) Item No. 6 refers to Abutter’s rights from the I-210 Freeway. Item No. 7 refers to Abutters rights to Highland Avenue. Item Nos. 8, 10 and 11 refer to waiver of claims for damages by reason of location, construction, landscaping or maintenance of contiguous freeway. Item No. 9 states the property is within the North Fontana Redevelopment Project Area. Item Nos. 12 and 13 pertains to an option in favor of Stratham Chow LLC (previous owner) and a right of first refusal. Item No. 14 refers to abutter’s rights to South Highland Avenue and Hemlock Avenue. Item Nos. 15 and 16 refer to easements for utilities. Item Nos. 17, 23, 24, 25, 26, 30 and 31 pertain to condominium plans. Item No. 18 refers to CC & Rs. Item No. 19 pertains to a notice of non- adversarial prelitigation procedures recorded on the property. Item Nos. 20- 22 and 27 -29 refer to Easements, Covenants and Conditions between Richmond
American Homes and the HOA. Item No. 32 refers to the rights of the public in and to that portion of the land lying within any road, street, alley or highway.
Order Number NHSC —6 375087 dated February 2 8, 2024, and covers an example lot within Tract 20297:
Item Nos. 1 -6 refers to property taxes including CFD No. 10 (Etiwanda School District), CFD Amendment No. 8 ( per Lennar representatives this is Annexation No. 8 of the above CFD No. 10) and CFD No. 107 (subject CFD) Item No. 7 refers to Abutter’s rights from Highland Avenue. Item Nos. 8, 11 and 12 refer to waiver of claims for damages by reason of location, construction, landscaping or maintenance of contiguous freeway. Item No. 9 states the property is within the North Fontana Redevelopment Project. Ite m No. 10 refers to Abutters rights to the I-210 Freeway. Area. Item Nos. 13 and 14 pertains to an option in favor of Stratham Chow LLC (previous owner) and a right of first refusal. Item No. 15 refers to abutter’s rights 735
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to South Highland Avenue and Hemlock Avenue. Item Nos. 16 and 17 refer to easements for utilities. Item Nos. 18 , 23, 24, 25, 26, 30, 31 and 32 pertain to condominium plans. Item No. 19 refers to CC & Rs. Item No. 20 pertains to a notice of non- adversarial prelitigation procedures recorded on the property. Item Nos. 21-22 and 27- 29 refer to Easements, Covenants and Conditions between Richmond American Homes and the HOA. Item No. 33 refers to the rights of the public in and to that portion of the land lying within any road, street, alley or highway.
It is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than Fontana CFD No. 107 , the above referenced CFD Nos. 8 and 10 a nd the easements noted above. The appraiser is not a title expert 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: Inland Empire Utilities Agency
Water: Fontana Water Company
Schools: Fontana Unified School District
Streets/Access: Access to the subject property is convenient via I -15 to Baseline Avenue, east 1.4 miles to San Sevaine Road, north 0.75 mile to South Highland Avenue and east 0.5 miles to the subject. Additional access is via I -210 exit Cherry Avenue, south 0.10 mile to South Highland Avenue and east about 0.75 mile to the subject. I -10 also has on/off ramps for Cherry Avenue.
I- 15 is a major north/south freeway, which provides access to both international borders with Mexico and Canada.
I- 210 is 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 which gets congested at commuting times.
I-10 (4.5 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
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San Sevaine Road is a north/south arterial providing access about one mile north of the subject where it terminates into a shopping center and south of the subject where it crosses Baseline Road and changes to Live Oak Avenue.
South Highland Avenue begins at Cherry Avenue just west of the subject and generally parallels the I-210 freeway past Sierra Avenue where it changes to West Renaissance Parkway then Easton Street east of the subject.
Internal streets within the subject include Gallery Way, Mansard Lane, Arcade Way (entrance off South Highland Avenue), Buttress Lane, Façade Way, Cavetto Lane and Grotto Lane along with cluster driveways and alley loaded streets.
Current Condition: The subject is being developed into 107 single-family homes consisting of motorcourt cluster pads for 61 detached condominiums and all ey load pads for 46 detached condominiums. Upon our inspection, 76 of the homes were over 95 percent complete including 62 individually owned homes, seven model homes, seven production homes (four in escrow) 28 homes under construction (seven in escrow) and four remaining finished pads.
Costs to Complete: The subject property has been developed into 107 finished lots/pads with internal streets generally complete and utilities stubbed to each lot. Per Richmond American representatives the remaining hard costs include $3,074,068 in remaining land development costs (includes final streets , the pool/rec center and
landscaping/hardscaping). In addition, there are $ 200,277 in remaining fees. This appraisal assumes the bonds are in place. The bonds are anticipated to fund $138,177 of the remaining fees , thus there are $62,100 in remaining fees to be paid by the builder suggesting total remaining hard costs and fees of $3,136,168 . It is our understanding that these costs are the builder’s responsibility and will be spread between the Richmond American owned lots as the individual owners are not responsible. Out of the total 107 lots/pads, 62 are individually owned leaving 45 lots, pads or homes owned by Richmond American . Dividing the $3,136,168 by the 45 homes/lots/pads results in remaining land development costs of $69,692.62 per lot/pad.
Improvement
Description: Highland Park is a gated community with two detached product lines; Talise and Cascade . Talise includes 61 proposed units which are cluster detached condominiums with four floorplans sized 1, 419 to 1,957 square feet. The floorplans all are two stories with three to four bedrooms and two-car garages. Cascade includes 46 proposed alley loaded detached condominium units with t hree floorplans sized 737
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1,861 to 2,065 square feet, with three to four bedrooms, two floors and two to three-car garages. The models for both communities are located just northwest of the entrance off Arcade Way and Butress Lane. There are seven models, one for each plan available for each community. Highland Park features two story floorplans with three elevations. We were unable to obtain a features list from Richmond American for Talise or Cascade. The homes appear to be typical for the area with exteriors featuring dual glazed windows, insulated roll- up sectional garage doors, roof tiles and drought tolerant front yard landscaping. Homes typically include tankless water heaters, media enclosures and a smart thermostat. Interiors include bullnose corners, panel interior doors, LED downlights, light switches and a form of tile at entry. K itchens typically include countertops and flat panel cabinets, stainless steel sink and stainless -steel appliances.
Master suites typically include undermount sinks with faucets, semi- frameless clad enclosures and walk -in closets. Sixty-two of the proposed 107 homes in the subject property have closed to individuals with closing dates between April 21, 2023, and April 15, 2024. Per Richmond American, actual closed sales prices (including premium, upgrades, options, and net of all incentives) have ranged from $ 517,966 to $ 720,513. Current reported base asking prices range from $529,990 to $652,990 while grand opening base asking prices in February 2023 ranged from $ 499,990 to $596,990. Our search of the MLS revealed no resales and no current resale listings.
Our physical search noted all homes appear to be in excellent condition. It should be noted that the seller is offering varying concessions including some rate buy downs, on a case- by-case basis. The total incentives including closing cost/rate buy downs have ranged from zero to $37,100 with an average amount of about $15,894 per home to date . The houses which are over 95 percent complete are detailed below.
*Each asterisk designates one model home per that plan. In addition to the above, there are 27 homes under construction ( 18 at Talise and nine at Cascade) and an additional four finished lots/pads (all at Talise).
Highland Park by Richmond American
Plan
Bed/Bath
Floors/
Parking Sq. Ft. Ind.
Owned
Bldr.
Owned
Talise at Highland Park (Cluster)
1 3 / 2.5 2 / 2 1,419 9 1*
2 3 / 2.5 2 / 2 1,653 8 1*
3 3 / 2.5 2 / 2 1,713 9 2*
4 4 / 3 2 / 2 1,957 6 3*
Talise Subtotals: 32 7
Cascade at Highland Park (Alley-Load)
1 3 / 2.5 2 / 2 1,861 8 4*
2 3 / 2.5 2 / 3 1,933 9 2*
3 4 / 3 2 / 3 2,065 13 1*
Cascade Subtotals: 30 7
Highland Park Total: 62 14
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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 San Bernardino County population showed minimal 0.1 percent growth between January 2022 and January 2023, and an average of about two percent the previous 20 years. The stagnant growth during this time is thought to be due to the disruption during COVID. Prior to the COVID pandemic, predictions were for the County to grow at an average annual rate of 0.75 percent over the next eight 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 after -COVID influence is still unknown on the County’s population growth. New home sales in most cities in the County from 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 actual County population growth. This has been offset by minimal existing home sales resulting in less overall home sales over the past year as compared to one year ago and also as compared to 2019, before COVID.
Economic Conditions
Over the past twenty years the County has seen various cycles in the housing market as with most of Southern California. The Great Recession impacted the Inland Empire significantly and resulted in a longer recovery period than that of other Southern California regions. Median housing prices (all types) in the County increased almost 300 percent from $120,406 at the lowest point in 20 09 to the March 2024, price of $499,900 per the California Association of Realtors. This is lower than the recent December 2023 peak of $506,000 median home price in San Bernardino County: however, 5.2 percent higher than one year ago ($475,000).
Economic growth in the Inland Empire was strong generally between 2015 (after the Great Recession), and until the economic shutdown due to COVID. The second half of 739
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2020 and all of 2021 saw economic growth, however the first two quarters of 2022 saw GDP shrinking. The end of 2022 saw lower unemployment rates (December rate of 3.6%) than the Inland Empire’s pre-COVID unemployment rate in February 2020 of 4.0 percent, however 2023 showed unemployment rising slightly with the December 2023 rate for the Inland Empire at 5.1%. Thus far in 2024 the unemployment rate has inched up, with the March 2024 unemployment rate for the Inland Empire at 5.2%. While unemployment rates are still near historical lows, they have risen over the past year and the inflation factor has significantly affected the economy.
The housing market played a large role in the past two recessions. In 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 because of the problems in the sub-prime and non-conventional mortgage markets, which played a role in the 2008 upheaval of Wall Street and contributed significantly to the U.S. economic downturn of the Great Recession. 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.
During the COVID disruption, new home sales were 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 onset of the COVID pandemic, both sales and prices increased significantly due to strong demand from May 2020 throughout COVID until spring 2022 when interest rate increases began affecting the home-buying market. The rising interest rates alone did not seem to slow sales in Spring 2022. However, a combination of increasing home prices and falling consumer confidence, added to the significant interest rate increases, slowed new home sales significantly beginning in mid- 2022. Due to the significantly higher mortgage interest rates, existing homeowners are not moving which has stifl ed the existing home market, making the new home market the only option for some. In the 740
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Inland Empire there were 44,796 existing homes closings in the past 12 months (down
26.9 percent from one year ago) and 8,195 new home closings in the past 12 months (down 24.1 percent from the previous year), all information as of March 1, 2024 per Zonda Research, a new home market research company. In January 2022, mortgage rates were
3.22 percent (for a typical 30-year fixed conventional mortgage) while as of April 18, 2024, the rate for the same loan is 7.1 percent. On a $500,000 mortgage, the monthly payment for this loan has increased from $2,16 8 to $3, 360 or over 50 percent which has hit homebuyers hard.
Per the Zonda National Economic and Housing Market Update in March 2024, the rate of growth of new home sales is off from COVID highs but up from 2022 sales numbers, suggesting a healthy market. Per their survey of over 300 new-home builders nationally, the builders are stating sales are continuing but report they had to adjust pricing and incentives to “find the market.” In the January 2023 survey, 50 percent of builders surveyed were lowering their prices and the remaining 50 percent stated their pricing was flat. In March 2024, the survey resulted in 50 percent of the builders stating their pricing was increasing a little, 46 percent of builders stating their pricing was flat and 4 percent dropping prices. This is a very different dynamic than in January 2023 which was partly due to builder’s readjusting concessions (interest rate buy-downs), and partly due to the market accepting the mortgage rate increases. In today’s market over 60 percent of new- home builders in the U.S. are offering either full-term or temporary interest rate buy-downs (John Burns Research and Consulting) which is helping to sustain new home sales. Per Zonda, in March 2024, 80 percent of new home builders in the Inland Empire are offering incentives.
The larger public homebuilders began offering significant interest rate buy-downs in early 2023 in order to keep absorption rates steady, which reportedly cost between $30,000 and $100,000 in incentives. The builders are attempting to find the “sweet spot” in incentives. In their September 2023, survey of 300 builders nationwide, Zonda asked builders to check all that they were offering and found 70 percent of builders surveyed were offering rate buydowns, 60 percent were offering funds towards closing cost s, 33 741
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percent were offering flex dollars, 22 percent were offering lower home prices and 20 percent were offering funds toward options and upgrades. In the subject communities Talise has had an average of $14,992 in concessions per sale while Cascade has had an average $16,856 per sale. The question is, how long can builders continue to offer these significant incentives. As rates go higher, the extent that builders can buy -down the mortgage rates goes down.
Home loan mortgage rates have been and are still playing a huge part in the housing market. The Board held mortgage rates at all -time lows after the Great Recession and again after the COVID Recession in an attempt to assist the housing market’s recovery.
Low rates helped home sales during these times. However, first -time buyers are now having a hard time entering the housing market due to rising prices and rising interest rates. Mortgage applications had been spiking in late 2020 and 2021 due to the low rates and the fear rates were going to start ticking up, which began happening in March 2022.
The Board has increased the rate eleven times between March 2022 and August 2023, which increased the FFR from 0- 0.25 percent to 5.25- 5.50 percent. At the latest Board meeting in March 2024, they paused the FFR increases for the f ifth time and suggested decreases in 2024 will begin later in the year. The financial markets had been anticipating a possible March decrease which caused volatility in the financial markets in the past month or so. The FFR increases are supposed to help slow the high inflation rate in the Nation, which appears to be occurring as the latest reports are showing inflation in March 2024 at 3.5 percent, significantly down from a high of 9.1 percent in June 2022; however higher than the previous two months.
While new home builders slowed production as sales slowed in 2022, the spring of 2023 brought optimism to builders once again. Sales were up month over month as buyers adjusted to higher mortgage rates and the existing home inventory is at all -time lows.
Existing homeowners that are locked into a 3 percent mortgage are not moving up due to the current almost seven percent rates. This is creating a supply issue for existing homes.
New home sales are benefiting from this supply issue as in some cases, the only option for homebuyers are new homes. Per Zonda, historically, new homes captured 10 to 13 742
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percent of all home sales; however, due to the limited supply of existing homes currently on the market, new homes have captured between 12 and 24 percent of all home sales in the Inland Empire over the past year.
Residential Land Development
While there had been little land development going on in most of the Inland Empire during the Great Recession years 2008-2011, the second half of 2012 saw a resurgence in the more coveted areas of the Inland Empire. The increase in housing prices since 2012 combined with the limited availability of supply made land development feasible once again for homebuilders. It is thought that the increase in regulations, which has significantly increased the timeline for 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 various 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 (such as Richmond American’s Cascade and Talise at Highland Park) or a public builder buying a larger piece of land but develops the land for its own use, such as Narra Hills by LandSea and Gardens at the Arboretum by Lennar.
Land sales in the Inland Empire slowly grew from 2012 up to a peak in 2017, with 2018 and 2019 showing lower land transactions. Once home sales exploded in May 2020, land sales followed with a significant number of residential land sales to builders in the Inland Empire during the second half of 2020 and throughout 2021. In late 2021 and early 2022, prior to the F FR increases, builders were paying significantly more for residential land that was ready to develop as demand was up and supply was shrinking. The beginning of 2022 continued with residential land sales going under contract until May, when new home sales began to fall sharply. According to Zonda’s survey of builders regarding residential land purchases, as of January 2023 only 2 percent of builders surveyed were “full steam ahead,” and almost 40 percent were pausing transactions or bidding lower on land transactions. As of March 2024, these percentages had changed drastically with 49 percent stating they are going “full steam ahead” and 4 6 percent moving “cautiously 743
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forward.” The increase in optimism from new home builders outlook is partially due to the extreme slowdown of existing home inventory which is fueling new home sales. Per Zonda in 2023 there were about 11,245 vacant developed lots in the Inland Empire, which is down 21 percent from the previous year.
New Home Sales and Pricing
We have researched new single- family homes within the subject’s 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 March 24, 2024, Ryness Report, the year-to-date average sales rate (4.3 sales per month) is slightly higher than the same time period of the previ ous year (3.9 sales per month). The month of Marc h is typically when sales rates pick up as it marks the beginning of “selling season” and the peak homebuying months of February through July. Surprisingly, even with the increases in pricing and mortgage rates, sales of new homes are occurring at a very good pace; however, this is partially due to the extremely limited supply of existing homes which is creating more demand for new homes. As interest rates rise, purchasing power becomes lower and therefore fewer people purchase new homes. 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.
When comparing the March 24, 2024, Inland Empire Ryness Report to one year prior, there are six less projects (251 in March 2023 and 245 in March 2024) and sales are about 11 percent higher year-to-date than the previous year (4.3 sales per month in March 2024 versus 3.9 sales per month in March 2023). Looking back, in February 2022 the Inland Empire average sales rate was 5.4 homes per month; in February 2021 the average sales rate was 5.2 homes per month and in January 2020, prior to the pandemic, the average sales rate in the Inland Empire was 4.1 sales per month, similar to the current absorption rate. This similar sales rate to 2020 suggests new home buyers can weather 744
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the higher mortgage rates. However, the reader should note existing home listings are over 30 percent lower than in 2020 which increases the amount of new home buyers.
New single -family home pricing (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 Inland Empire median new home price is $576,500 which is down from a record high of $650,000 in May 2022 per the California Association of Realtors’ (“CAR”). The current median price reflects an increase of over 100 percent from the bottom of the cycle and an increase of more than 32 percent over its peak prior to the Great Recession, however a decrease from the 2022 peak of 11 percent. In reality, this decrease is actually larger as builders are building smaller homes and buying down interest rates which costs the builder at times, up to $100,000, however, the amount is not reflected in the recorded sales price. New home sale prices fluctuate based on the land value and competition more than on the cost of building the home.
While finishes and sizes of homes can change, the basic costs on a per square foot basis typically do not fluctuate as much as land values; however, there have been inflationary increases in construction costs adding to this increase. Construction materials have increased an estimated 40 percent since 2019.
We have reviewed Empire Economics’ Price Point Review Study on Fontana CFD No. 107 (Highland) dated April 15, 2024. Empire Economics did an original Price Point Study on the project in July 2021 in order to determine their market value for the various plans within Talise and Cascade. The “Review Study” is to ascertain if the prices have increased or decreased since the original Study. The Empire Economics Price Point Review Study concluded that the three plans within Cascade had current base price conclusions which were the same as the original base price conclusions in July 2021. Within Talise, three of the four plans had decreases in base price conclusions and one plan had the same base price conclusions. The three that showed decreases ranged from 0.1 to 5.3 percent. The Review Study took into account the concessions which are included in their net prices even though some are not included in the reported sales prices. That is, interest rate buy- 745
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downs and closing cost incentives are not reported in the sales prices, however are considered in both the Price Point Review Study and in the appraisal analysis.
Within our search for the most comparable actively selling new home communities, we searched the subject area of North Fontana, which currently features a multitude of actively selling new home communities. We found nine communities comparable to Cascade and Talise at Highland Park. The comparables have current base prices ranging from $495,000 to $741,000. Both Cascade and Talise’s base prices range from $529,990 to $652,990, which falls well within the range of comparable new homes in the area.
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 detached home in March 2024 ($850,000) is 3 .0 percent higher than the month prior median home price, and up 11.1 percent year-over-year from $7 65,000 in March 2023. These overall Southern California numbers compare to San Bernardino County with $ 499,900 as the median price paid for an existing detached home in the County in March 2024, up 4.8 percent from February 2024 ($477,070), and up 5.2 percent on a year-over-year basis ($475,000). Below is a table showing the sales and prices for the Southern California area by County per the CAR.
Southern California Existing Home Sales
County Mar. 2024 Feb. 2024 Mar. 2023
Price MTM
% Change
Price YTY
% Change
Sales YTY
% Change
Los Angeles $805,100 $817,100 $718,370 -1.5% 12.1% -10.2% Orange $1,400,000 $1,350,000 $1,250,000 3.7% 12.0% -3.8% Riverside $640,000 $636,000 $612,000 0.6% 4.6% -8.8%
San Bernardino $499,900 $477,070 $475,000 4.8% 5.2% -1.5% San Diego $1,020,000 $980,000 $915,000 4.1% 11.5% -7.1% Ventura $918,040 $890,000 $915,000 3.2% 8.1% -18.6%
Southern Calif. $850,000 $825,000 $765,000 3.0% 11.1% -7.8% Source: California Association of Realtors
Based on March 2024 median existing homes prices, in comparison to the majority of the surrounding counties, San Bernardino has a definite price advantage. The “San 746
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Bernardino County Advantage” (price difference between San Bernardino and surrounding counties) is $140,100 as compared to Riverside County, $305,200 as compared to Los Angeles County, $418,140 as compared to Ventura County, $520,100 as compared to San Diego County and $900,100 as compared to Orange County. That is, in March 2024, the median priced home in San Bernardino County ($499,900) was $900,100 less than the median priced home in Orange County ($1, 400,000). Typically, as the price advantage widens, homebuyers are more open to commuting to further out areas. With the current work -from-home concept, the suburban areas have seen more growth which put 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 sur rounding the subject are shown in the table below.
Source: Redfin Housing Market Trends March 2024
The median home price of a detached resale home in the subject’s vicinity of North Fontana in March 2024 was $700,000, which is near the high end of the range of the resale detached home prices in the subject area. The low end of the range relates to the area which includes all of Fontana including the southern portion that includes older homes and the Rialto area which also has older homes. 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 5.2% percent year-over-year from March 2023 to March 2024.
Community
Name
Location
To Subject
No. of
Sales
Mar. ‘24
Mar. ‘24
Median
Sale Price
Price %
Change
Y-O-Y
North Fontana Larger Subject Vicinity 51 $700,000 5.9%
All of Fontana Subject and South 102 $633,698 7.9%
Rialto East 50 $605,000 12.8%
Rancho Cucamonga West 81 $741,000 1.5%
Jurupa Valley South 39 $675,000 6.2%
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According to the Ryness Report dated March 24, 2024, there are currently 26 new home projects in the subject’s Central and East San Bernardino submarkets, with the City of Fontana housing 18 of them (including the subject’s two).
Highland Park - Sales and Pricing
Highland Park is comprised of 107 proposed single-family homes with marketed sizes from 1,419 to 2,065 square feet. Highland Park began sales in Cascade in December 2022 and at Talise in February 2023, with early base pricing ranging from $499,990 to $573,990 for Talise and from $560,990 to $596,990 for Cascade. The latest base pricing at Talise ranges from $ 529,990 to $ 599,990 which is 2.2 to 6.0 percent higher than opening base prices . The latest base pricing at Cascade ranges from $5 86,990 to $652,990 which ranges from 4.6 to 9.4 percent higher than original base pricing. Actual closed prices, including options, upgrades, premiums, and taking into consideration all concessions, have ranged from $ 517,966 to $ 652,848 for Talise and $ 568,717 to $720,513 for Cascade. The significant difference between the base pricing and the actual pricing is options, upgrades and premiums paid by the buyer offset by concessions given by the builder and mortgage companies . The total concessions given by the builder ranges from zero (on one sale) up to $37,100 with an average the sales to date of $15,894. A portion of these concessions are not considered in the reported sales prices and are decided on a case-by-case basis and have increased and decreased over the past 18 months due to fluctuating mortgage rates. Within the subject, Richmond American has sold and closed 62 homes to individuals, with an additional 11 homes in escrow which are due to close at completion. The total of 73 sales since December 2022 equates to an overall absorption rate of 4.56 sales per month spread across the two product types (2.71 sales per month for Talise and 2.05 sales per month for Cascade). These sales rates are considered to be below average for the subject marketplace. Per the Ryness Report, a new home tracking service, as of March 24, 2024, year-to-date average sales per project per month in the Inland Empire is 4.2 homes.
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Summary
The Inland Empire had seen substantial increases in pricing since 2012 with most areas, including the subject, showing astronomical increases from mid-2020 through early 2022.
While existing home sales were originally down when COVID began in spring/early summer 2020, new home sales subsequently shot up due to the existing home market supply being constrained and interest rates hitting all -time lows. The latest statistics indicate a possible slowdown in sales as interest rates have risen substantially; however, buyers appear to be resilient to the increases. The Fontana new -home submarket is performing in line with the Inland Empire market as a whole. The subject market area saw an increase in pricing consistent with most of Southern California throughout 2020 and 2021 and appeared to be continuing in the beginning of 2022. The past year has seen sales slow and prices lowering; followed by price increases as builders offered additional incentives. Builders’ optimism appears to have returned with builders generally believing prices will increase slightly in 2024 or remain flat. Despite uncertainty hitting the market due to interest rates and inflation, most observers agree that the Inland Empire housing market is healthy and population growth is still estimated to occur in the area. It is believed that as the population continues to increase, housing growth will also continue, despite a possible economic slowdown.
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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”
4F
5 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 is irregular in shape, consisting of 10.064 acres per recorded Tract Map Nos. 20297 and 20349. The site is in the northwestern portion of the City of Fontana, along the north side of Highland Drive and west of Hemlock Avenue. The northern border of the site is the I-210 Freeway. The lands are generally at street grade of Highland and Hemlock and below the elevation of the freeway. The site is bounded by a vacant parcel to the west, South Highland Avenue beyond which are existing homes to the south, the
5 The Appraisal of Real Estate, 11th Edition
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Inland Valley Islamic Society building immediately east beyond which are existing homes and the I-210 to the north.
The subject site has been graded for 107 single family homes: 61 pads for detached cluster homes and 46 pads for detached alley load homes. The homes area all detached but are technically condominiums, sitting on HOA owned parcels containing approximately 2,000 square feet. We have reviewed a Soils Report on the subject site which concluded that the development of the site into single- family residential use is feasible; however, all mitigation measures recommended within the report should be adhered to during construction. We also have reviewed an initial study of the mitigated negative declaration of the California Environmental Quality act which found no impacts or less than significant impacts to the surrounding area. It is an assumption of this report that the soil is adequate to support 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 tract. All standard utilities are available to serve the subject property.
The site has good access via I-15, exit Baseline Avenue, east to Cherry Avenue or San Sevaine Avenue, north to S. Highland Avenue and east to the subject. There are two neighborhood shopping centers within one mile of the subject at I-210 and Citrus Avenue, one anchored by Home Depot and the other anchored by Ralph’s Supermarket.
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.
Legality of Use
The subject property is located within the City of Fontana in the County of San Bernardino.
We have revisewed a letter from the Planning Division of Fontana which allowed for Tract Map 20297 for 46 detached alley loan product and Tract Map 20349 for 61 detached 751
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cluster units on the site. Ordinance No. 1848 approved an amendement to the zoning district map to change the site from General Commercial (C -2) to Medium Densit Residential (R-2 – allows for various types of medium density residential zoning). The 107 total units are on both tract maps 10.064 acres which suggests an overall density of
10.63 dwelling units per acre.
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. As discussed under the Inland Empire Housing Market section earlier within this report, the market had shown strong increases in both sales and pricing since COVID until late 2022 when high home prices and increasing interest rates began to slow sales. Overall home sales have slowed down significantly, partially due to existing homeowners not moving due to the higher interest rates, which is stifling the existing home market, at times leaving new homes the only option for homebuyers. Within Highland Park there have been 73 sales to date with the first sale occurring in December 2022, suggesting an overall sales rate between the two communities of 4.3 sales per month (2.6 and 2.0 per project) which is considered to be below the average year to date sales per community in the area which was 4.2 sales per month. All structures appear to be in excellent condition with no physical depreciation apparent. Within the new home market in Fontana, we found nine projects (including the two subject communities) to be most comparable to the subject property. The subject area in Fontana is priced higher than the homes in the older area of Fontana and Rialto (adjacent to the south and east). While the market softened in the second half of 2022, the Inland Empire is still seeing demand and new homes are still selling. Our search for land sales found seven land sales within the past nine months that we consider to be comparable. Population growth is still occurring in the area and will continue to create the need for housing. Based on the above analysis, the highest and best use for the subject 752
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property appears to be for single- family detached residential development at the right price points.
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 Talise at Highland Park and Cascade at Highland Park, with 107 total proposed homes which are currently being marketed by Richmond American. Highland Park began selling Cascade in December 2022 and Talise in mid - February 2023 and has sold 73 homes to date, reflecting a sales rate of 4.3 sales per month spread across the two product lines . Independently, Talise has an average absorption rate of 2.6 sales per month while Cascade has an average absorption rate of
2.0 homes per month. Base prices at Highland Park have increased since grand opening, with base price increases of 2.2 – 6.0 percent at Talise (with most recent base pricing ranging from $5 29,990 to $599,990) and base price increases of 4.6 to 9.4 percent at Cascade (with most recent base pricing ranging from $586 ,990 to $ 652,990). The absorption rates at the subject communities is slower than the average absorption rate per project in the overall Inland Empire. Builders are offering concessions to increase absorption rates in the area. In marketing Highland Park , the builder is offering concessions, including rate buy -downs and help with closing costs, on a case -by-case basis. These concessions have ranged from $0 to $ 37,100 with an average of about $15,900 per sale. Some builders in the area are offering higher concessions in order to maintain a higher absorption rate. While the incentives are showing a softening market per Empire Economics’ Price Point Review Study, the plan pricing (including incentives being offered) has either remained flat or decreased up to 5.3 percent per plan between 753
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proposed pricing in 2021 and current pricing. The sales absorption rate within Highland Park is considered to be below the average in the market area. As discussed under the Inland Empire Housing Market section, within the Inland Empire, the monthly average sales per project year-to-date is 4.2 homes per month, which is about twice the absorption rate of the subject communities. All of the homes are of good design and appear to be of good quality workmanship. While the homes at Highland Park are selling slower than the average in the subject market, it appears the pr oduct is being well received and the neighborhood is selling at or near 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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City of Fontana CFD No. 107 (Highland) - by Richmond American Homes Kitty Siino & Associates, Inc. Page 53
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 small lot alley-loan and cluster residential lands, they are typically sold on the basis of a finished pad/lot for a detached unit. That is, the sales price is determined by a finished pad or lot 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. Our search revealed several projects similar to the subject in that they have some small detached alley and cluster lots. These transactions are typically looked at on a blended price per unit, taking into consideration the overall density of the project.
In the case of the completed home valuations, a single new -home is the unit of comparison. Our 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 minimum market value also includes all concessions given by the builder including mortgage closing cos ts and buy-downs (which are not included in the reported sales prices), if applicable.
For the completed (over 95 percent complete) builder -owned models and production houses, the homes will be valued using the Sales Comparison Approach to conclude on a retail value for each plan, followed by a Discounted Cash Flow (“DCF”) Analysis due to the single ownership. The DCF will take into account the fair market value of the completed homes (utilizing the Sales Comparison Approach), remaining development costs (if any), the marketing and carrying costs 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 755
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estimated absorption period. A home under construction (under 95 percent complete) will be valued as a finished lot /pad rather than attribute value to a partially complete improvement. In the case of the individually owned homes, the concluded minimum market 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 and/or benefits to be funded by the Fontana CFD No. 107 Special Tax Bonds and their lien. A summary of the final value conclusions will be reported at the end of this valuation section.
Market Data Discussion – Residential Lots
Within Highland Park there are 107 pads in a generally physically finished condition, with 62 completed homes individually owned, 14 Richmond American-owned homes that are complete or nearly complete (including seven model homes and seven homes over 95 percent complete – four in escrow), 27 Richmond American-owned homes that are under construction (under 95 percent complete with seven in escrow), and 4 additional finished lots/pads owned by Richmond American. As we are valuing a home under construction (under 95 percent complete) on the basis of a finished lot /pad, we will be valuing 31 lots/pads in our analysis.
We have searched the area and found the seven transactions summarized in the Addenda to be most comparable to the subject property. 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.
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Land Sale No. 1 refers to the January 2024 closing of a site located in North Fontana, about 2.5 miles northeast of the subject along both sides of Garden Street along the east side of Cypress Avenue. The site had tentative mapping and grading plans approved for 174 units on 18.66 acres. Richmond American Homes purchased the site in January 2024 for $28,789,500 or $165,457 per lot based on a reported finished lot estimate of $285,000.
The product will be 4-pack and 6-pack alley loaded detached condominiums. The overall density of this project equates to 9.32 units per acre. There are two small parks in the site plan to serve the community. In comparison to the subject property this transaction is considered to be slightly inferior with a slightly lower density (9.32 dwelling units per acre versus the subject’s 10.63 dwelling units per acre) however superior in location as the subject is adjacent to the I-210 freeway.
Land Sale No. 2 is in regard to the Pulte Homes’ purchase of 333 proposed units along the west side of Hamner, north of Eucalyptus Avenue within the Esperanza Specific Plan about ten miles southwest of the subject in the master planned community of Ontario Ranch. The overall density on the site is 11 dwelling units per acre. Pulte purchased the site in December 2023 for $72,527,499 or $217,800 per unit. Per the approved site plan there are 156 attached townhomes, 82 small , detached cluster lots and 95 large , detached cluster lots. Per brokers familiar with the transaction, the reported blended finished lot/unit price is $315,000 which is broken down as $258,000 for the attached townhomes, $315,000 for the small cluster lots and $401,000 for the large cluster lots.
The site is also known as Planning Area 3 and 4 of the Esperanza Specific Plan. In comparison to the subject property this transaction is considered similar in overall density, however inferior of number of lots (333 would be considered a bulk sale) and superior in location with Ontario Ranch closer in to the employment centers of Los Angeles, Orange and Riverside. In addition, this site is superior due to it having no freeway frontage.
Land Sale No. 3 pertains to the sale of a residential site located in Fontana at Lytle Creek Road and Sierra Lakes Parkway, about one-half mile northeast of the subject site, fronting the northern side of the I-210 Freeway. D.R. Horton purchased the property in September 2023 for $9,850,000 or for $68,881 per unit based on an estimated finished lot price of 757
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$225,000. The site is mapped for 143 units which includes 96 attached units and 47 detached cluster units. Final engineering was underway at time of sale. This property rears to I-210 and has an overall density of 13.9 dwelling units per acre. When compared to the subject property, this site is considered to be inferior in density (compared to the subject property’s density of 10.63 dwelling units per acre) and similar due to the proximity of the I-210 Freeway.
Land Sale No. 4 refers to the purchase by Landsea Homes of 191 lots located in the Westhaven Specific Plan in Ontario Ranch at the west side of Haven Avenue, north of Chino Avenue about nine miles southwest of the subject site. Landsea purchased the 191 lots in August 2023 for $25,234,500 or a blended price of $132,118 per unit based on an estimated finished lot blended price of $280,000. The finished lot per product is estimated at $260,000 for the attached townhomes and $315,000 for the cluster detached lots. The overall density on the site has been estimated at 10 dwelling units per acre, similar to the subject site. In comparison to the subject property this transaction is considered to be superior in location (closer in to employment area) and due to no freeway frontage.
Land Sale No. 5 refers to another D.R. Horton land purchase in Fontana about 1.3 miles east of the subject property. This site is located along the east side of Citrus Avenue, south of Highland Avenue, and is mapped for 68 attached townhome units. The overall density of the site allows for 15.7 dwelling units per acre which is higher than the subject’s
10.63 dwelling units per acre density. D.R. Horton purchased the property from 6997 Citrus LLC in August 2023 for $6,300,000 or $92,647 per unit based on an estimated finished pad price of $215,000. The site was sold in an unimproved condition with tentative mapping in place. In comparison to the subject property this site is considered to be inferior due to the higher density and the product being attached versus detached.
Land Sale No. 6 is in regard to the purchase of another residential site by D. R. Horton.
This property is located at the northwest corner of Citrus and Summit Avenues, about 1.5 miles northeast of the subject property. The site has approved mapping for 85 detached cluster units and sold for $9,850,000 or $115,882 per unit based on an estimated finished 758
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lot value of $265,000. The overall density of this property is 9.4 dwelling units per acre, which is just slightly lower than the subject’s density. D.R. Horton purchased the site in July 2023 from AKY LLC. In comparison to the subject property, this sale is considered to be similar.
Land Sale No. 7 pertains to the latest closing in Ontario Ranch, about ten miles southwest of the subject site. Ontario Ranch is a newer area in the city of Ontario which is being built out, similar to North Fontana. The site is located east of Twinkle Avenue northwest of Haven Avenue. Land Sea purchased the site mapped for 144 lots in June 2023 from a related entity to Richland. The parcel had mapping complete, however was in an unimproved condition at time of sale. The site totals 9.19 acres per brokers familiar with the transaction which suggests a density of 15.6 dwelling units per acre. The proposed product is for 12 unit attached condominiums in a courthouse courtyard configuration.
The property sold for $16,924,000 or $117,528 per unit based on a reported $235,000 finished lot/pad price. In comparison to the subject properties, this site has a higher density than the existing products which makes it inferior, however the location of Ontario Ranch is considered to be slightly superior as it is closer to the employment centers in Riverside, Los Angeles and Orange Counties.
The chart below summarizes the considerations used in adjusting the market data to the subject property.
Data
No. Location Date of
Sale
Lot Size /
Density
Finished
Lot Price Comparison to Subject
1 North Fontana 1/24 9.32 du/ac $285,000 Superior – No freeway frontage & slightly lower density
2 Ontario Ranch 12/23 11 du/ac $315,000 Superior – Location and no freeway frontage
3 Fontana 9/23 13.9 du/ac
Some Att. $225,000 Inferior – Density / some attached
4 Ontario Ranch 8/23
10 du/ac
$280,000 Superior – Location and no freeway
frontage
5 Fontana 8/23 15.7 du/ac
Attached $215,000 Superior – No freeway frontage
Inferior – Density / Attached
6 North Fontana 7/23 9.4 du/ac $265,000 Superior – No freeway frontage
7 Ontario Ranch 6/23 14.5 du/ac $235,000
Superior – Location and no freeway
frontage
Inferior – Density / Attached
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City of Fontana CFD No. 107 (Highland) - by Richmond American Homes Kitty Siino & Associates, Inc. Page 58
As discussed under the Inland Empire County Housing Market section earlier within this report the Inland Empire real estate market rose significantly between January 2020 and June 2022, softened in mid-2022 and appears to have found its bottom and stabilized in mid-2023. Median home pricing rose over 30 percent between January 2020 and January 2022, however a decrease was seen for about a year, with pricing appearing to rise, once again the second half of 2023. While builders halted land purchases in late 2022 and early 2023, late 2023 saw a flurry of closings as builders were running out of lots. The increases in pricing for existing single-family homes in San Bernardino were 11.9 percent in 2020; 19.1 percent in 2021, a decrease of about one percent in 2022 and an approximate 6.0 percent increase since then. While the new home price fluctuations do affect the quality of the home ( lower finishes with lower prices), most of the price fluctuations fall to the land value.
The above market data depicts a wide range of overall finished lot/pad price range from $215,000 to $315,000. The low end of the range relates to Data No. 5 which has a higher density attached product, considered to be inferior to the subject’s detached lots. The high end of the range relates to Data No. 2 that is located in Ontario Ranch, a slightly superior location as it is closer to the employment centers of Los Angeles and Orange Counties. The remainder of the market data ranges from $225,000 to $285,000. The remaining market data at the low end of the range, Data Nos. 3 and 7, both relate to either all or some attached product resulting in a higher density per acre which suggests a lower price per unit. The remaining Market Data, Data Nos. 1, 4 and 6 range from $265,000 to $285,000, however all are superior due to no freeway frontage.
Based on the market data, we have concluded that the subject lots/pads have a finished lot/pad price of $260 ,000. There are 27 homes under construction (under 95 percent complete), and four generally finished pads/lots, all of which are owned by Richmond American. Based on the above and considering the remaining costs as discussed in the Property Description section, the land value is calculated as follows:
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Richmond American Ownership of Lots/Pads:
31 Lots/Pads x $260,000 $ 8,060,000
Less: Remaining Costs ($69,692.62 x 31) (2,160,471) Current Value of 31 Lots/Pads $ 5,899,529
Retail House Valuation – Highland Park
Within Highland Park, there are 62 individually owned homes and 14 homes over 95 percent complete, owned by Richmond American . The builder -owned homes over 95 percent complete include seven production home s ( four in escrow) and seven model homes.
Due to the single ownership of multiple houses ( seven homes) by the builder within the subject property, a Discounted Cash Flow (“DCF”) analysis is needed in order to arrive at a bulk value for the homes within each neighborhood. First, a retail value for each plan within Highland Park will be concluded followed by a DCF for the builder owned homes which will take into account the absorption time to sell off the homes, the costs associated with selling off the homes and any remaining costs owed by the builder, if any. The resulting revenue will be discounted using an appropriate rate to determine the builder - owned bulk value for the builder -owned homes. The DCF builder -owned final value will be followed by a reporting of the concluded values for the individually owned homes within each neighborhood using the concluded base retail value for each plan with a separate check of the analysis utilizing a mass appraisal technique based on actual sales prices of the homes.
Below is a summary of the floor plans within Highland Park , within both the Talise and Cascade product lines. A listing of the improved residential comparable properties is located in the Addenda of this report. All new home comparables are located within the City of Fontana, which currently houses a multitude of actively selling new home communities. Our search of the subject property and the local Multiple Listing Service (MLS) has resulted in no resales and no current resale listings within Highland Park. The floor plans are detailed below.
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*Each asterisk designates one model home per that plan. In addition to the above, there are 27 homes under construction (18 at Talise and nine at Cascade) and an additional four finished lots/pads (all at Talise).
Below we will address the valuation for each plan. The most appropriate new home comparable data for Talise at Highland Park Plan 1 are shown below.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 1 3 / 2.5 2 / 2 1,419 --
1 2 3 / 2.5 2 / 2 1,653 $335.75
1 3 3 / 2.5 2 / 2 1,713 $319.90
2 1 3 / 2.5 2 / 2 1,861 $315.42
3 1 3 / 2.5 2 / 2 1,795 $324.22
5 1 3 / 2.5 2 / 2 1,651 $347.42
6 1 3 / 2 2 / 2 1,582 $330.81
6 2 4 / 3 2 / 2 1,563 $317.24
7 2 3 / 2.5 2 / 2 1,450 $383.45
7 3 4 / 2.5 2 / 2 1,661 $357.62
The comparable communities are all located in Fontana. All are of similar quality, design, and appeal however it should be noted that Data Nos. 5, 6 and 7 are either zero lot line, duplex or a new product with Plan 1 over neighboring garages (Data No. 6). Adjustments were considered (when applicable) for location, school districts, lot size, master plan amenities, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $3 15.42 to $383.45 per square foot, with generally the smaller homes at the higher end of the range. This is typical due to the economies of scale obtained during construction of the homes. Highland Park’s Talise Plan 1 is the smaller sized home Highland Park by Richmond American
Plan
Bed/Bath
Floors/
Parking Sq. Ft. Ind.
Owned
Bldr.
Owned
Talise at Highland Park (Cluster)
1 3 / 2.5 2 / 2 1,419 9 1*
2 3 / 2.5 2 / 2 1,653 8 1*
3 3 / 2.5 2 / 2 1,713 9 2*
4 4 / 3 2 / 2 1,957 6 3*
Talise Subtotals: 32 7
Cascade at Highland Park (Alley-Load)
1 3 / 2.5 2 / 2 1,861 8 4*
2 3 / 2.5 2 / 3 1,933 9 2*
3 4 / 3 2 / 3 2,065 13 1*
Cascade Subtotals: 30 7
Highland Park Total: 62 14
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in the area and has a current base asking price of $373.50 per square foot, which is within the range of the comparables . It should be noted that the base prices do not take into consideration the mortgage concessions (either rate buy-downs or closing cost assistance) which average about $15,900 per home which equates to over $11 per square foot on the subject plan. There have been nine closings of Talise Plan 1 with sales prices ranging from $365.02 to $405.00 per square foot. There are no current escrows of Talise Plan 1. It should be noted that the reported sales prices include upgrades, premiums, and options along with all concessions given by the builder, while the concluded value relates to a base price for the plan including closing cost concessions. Closing cost concessions do not show up in the reported sales price of the home, however, are a cost of selling the home. It has been concluded that Talise Plan 1 has a base current market value of $365.00 per square foot.
This calculates as follows:
1,419 sf x $365.00 = $517,935
The most appropriate new home comparable data for Talise at Highland Park Plan 2 are shown as follows.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 2 3 / 2.5 2 / 2 1,653 --
1 1 3 / 2.5 2 / 2 1,419 $373.50
1 3 3 / 2.5 2 / 2 1,713 $319.90
2 1 3 / 2.5 2 / 2 1,861 $315.42
3 1 3 / 2.5 2 / 2 1,795 $324.22
3 2 4 / 2.5 2 / 2 1,832 $315.46
5 1 3 / 2.5 2 / 2 1,651 $347.42
6 2 4 / 3 2 / 2 1,563 $317.24
7 3 4 / 2.5 2 / 2 1,661 $357.62
The comparable communities are all located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, school districts, lot size, master plan amenities, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $315.42 to $373.50 per square foot, with generally the larger homes at the lower end of the range and the smaller homes at the higher end of the range. This is typical due to the economies of scale obtained during construction 763
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of the homes. Highland Park’s Talise Plan 2 has a current base asking price of $335.75 per square foot, which is within the range of the comparables. It should be noted that the base prices do not take into consideration the mortgage concessions (either rate buy-downs or closing cost assistance) which average about $15,900 per home which equates to over $9.50 per square foot on the subject plan. There have been eight closings of Talise Plan 2 with sales prices ranging from $334.59 to $368.91 per square foot. There is one current escrow of Talise Plan 2 with a sales price of $355.01 per square foot. It should be noted that the reported sales prices include upgrades, premiums , and options along with a ll concessions given by the builder, while the concluded value relates to a base price for the plan including closing cost concessions. Closing cost concessions do not show up in the reported sales price of the home, however, are a cost of selling the home . It has been concluded that Talise Plan 2 has a base current market value of $325.00 per square foot.
This calculates as follows:
1,653 sf x $325.00 = $537,225
The most appropriate new home comparable data for Talise at Highland Park Plan 3 are shown as follows.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 3 3 / 2.5 2 / 2 1,713 --
1 2 3 / 2.5 2 / 2 1,653 $335.75
1 4 4 / 3 2 / 2 1,957 $306.59
2 1 3 / 2.5 2 / 2 1,861 $315.42
3 1 3 / 2.5 2 / 2 1,795 $324.22
3 2 4 / 2.5 2 / 2 1,832 $315.45
4 1 3 / 2.5 2 / 2 1,822 $320.52
5 2 4 / 2.5 2 / 2 1,761 $332.19
6 3 4 / 3 2 / 2 1,669 $318.69
8 1 3 / 2.5 2 / 2 1,867 $326.86
The comparable communities are all located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, school districts, lot size, master plan amenities, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $306.59 to $335.75 per square foot, with generally the larger homes at the lower end of the range and the smaller homes at the higher 764
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end of the range. This is typical due to the economies of scale obtained during construction of the homes. Highland Park’s Talise Plan 3 has a current base asking price of $319.90 per square foot, which is within the range of the comparables. It should be noted that the base prices do not take into consideration the mortgage concessions (either rate buy-downs or closing cost assistance) which average about $15,900 per home which equates to over nine dollars per square foot on the subject plan. There have been nine closings of Talise Plan 3 with sales prices ranging from $311.30 to $349.81 per square foot. There is one current escrow of Talise Plan 3 with a sales price of $334.17 per square foot. It should be noted that the reported sales prices include upgrades, premiums , and options along with a ll concessions given by the builder, while the concluded value relates to a base price for the plan including closing cost concessions. Closing cost concessions do not show up in the reported sales price of the home, however, are a cost of selling the home . It has been concluded that Talise Plan 3 has a base current market value of $315.00 per square foot.
This calculates as follows:
1,713 sf x $315.00 = $539,595
The most appropriate new home comparable data for Talise at Highland Park Plan 4 are shown as follows.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 4 4 / 3 2 / 2 1,957 --
1 3 3 / 2.5 2 / 2 1,713 $319.90
2 1 3 / 2.5 2 / 2 1,861 $315.42
2 2 3 / 2.5 2 / 2 1,933 $312.98
3 2 4 / 2.5 2 / 2 1,832 $315.45
3 3 4 / 2.5 2 / 2 2,007 $290.97
4 2 4 / 2.5 2 / 2 1,932 $307.45
5 4 4 / 2.5 2 / 2 1,970 $309.64
8 2 3 / 2.5 2 / 3 2,090 $308.23
The comparable communities are all located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, school districts, lot size, master plan amenities, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $290.97 to $319.90 per square foot, with generally the larger homes at the lower end of the range and the smaller homes at the higher 765
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end of the range. This is typical due to the economies of scale obtained during construction of the homes. Highland Park’s Talise Plan 4 has a current base asking price of $307.69 per square foot, which is within the range of the comparables. It should be noted that the base prices do not take into consideration the mortgage concessions (either rate buy-downs or closing cost assistance) which average about $15,900 per home which equates to over eight dollars per square foot on the subject plan. There have been six closings of Talise Plan 4 with sales prices ranging from $297.48 to $333.60 per square foot. There are four current escrows of Talise Plan 4 with a sales price range of $319.53 to 337.79 per square foot. It should be noted that the reported sales prices include upgrades, premiums, and options along with all concessions given by the builder, while the concluded value relates to a base price for the plan including closing cost concessions. Closing cost concessions do not show up in the reported sales price of the home, however, are a cost of selling the home. It has been concluded that Talise Plan 4 has a base current market value of $297.00 per square foot. This calculates as follows:
1,957 sf x $297.00 = $581,229
The most appropriate new home comparable data for Cascade at Highland Park Plan 1 are shown as follows.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 1 3 / 2.5 2 / 2 1,861 --
1 3 3 / 2.5 2 / 2 1,713 $319.90
1 4 4 / 3 2 / 2 1,957 $306.59
2 2 3 / 2.5 2 / 2 1,933 $312.98
3 2 4 / 2.5 2 / 2 1,832 $315.45
3 3 4 / 2.5 2 / 2 2,007 $290.97
4 2 4 / 2.5 2 / 2 1,932 $307.45
5 4 4 / 2.5 2 / 2 1,970 $309.64
The comparable communities are all located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, school districts, lot size, master plan amenities, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $290.97 to $319.90 per square foot, with generally the larger homes at the lower end of the range and the smaller homes at the higher 766
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end of the range. This is typical due to the economies of scale obtained during construction of the homes. Highland Park’s Cascade Plan 1 has a current base asking price of $315.42 per square foot, which is within the range of the comparables. It should be noted that the base prices do not take into consideration the mortgage concessions (either rate buy-downs or closing cost assistance) which average about $15,900 per home which equates to over $8.50 per square foot on the subject plan. There have been eight closings of Cascade Plan 1 with sales prices ranging from $305.60 to $353.94 per square foot. There is one current escrow of Cascade Plan 1 with a sales price of $327.85 per square foot. It should be noted that the reported sales prices include upgrades, premiums , and options along with all concessions given by the builder, while the concluded value relates to a base price for the plan including closing cost concessions. Closing cost concessions do not show up in the reported sales price of the home, however, are a cost of selling the home . It has been concluded that Cascade Plan 1 has a base current market value of $306.00 per square foot.
This calculates as follows:
1,861 sf x $306.00 = $569,466
The most appropriate new home comparable data for Cascade at Highland Park Plan 2 are shown as follows.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 2 3 / 2.5 2 / 2 1,933 --
1 3 3 / 2.5 2 / 2 1,713 $319.90
1 4 4 / 3 2 / 2 1,957 $306.59
2 1 3 / 2.5 2 / 2 1,861 $315.42
2 3 4 / 3 2 / 2 2,065 $316.22
3 3 4 / 2.5 2 / 2 2,007 $290.97
4 2 4 / 2.5 2 / 2 1,932 $307.45
4 3 5 / 2.5 2 / 2 2,207 $285.45
5 4 4 / 2.5 2 / 2 1,970 $309.64
8 2 3 / 2.5 2 / 3 2,090 $308.23
The comparable communities are all located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, school districts, lot size, master plan amenities, stories, sales concessions, CFD taxes, com mon area benefits, total square footage, room count, garage space and other amenities. The new 767
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home comparables have a base price range from $285.45 to $319.90 per square foot, with generally the larger homes at the lower end of the range and the smaller homes at the higher end of the range. This is typical due to the economies of scale obtained during construction of the homes. Highland Park’s Cascade Plan 2 has a current base asking price of $312.98 per square foot, which is within the range of the comparables. It should be noted that the base prices do not take into consideration the mortgage concessions (either rate buy-downs or closing cost assistance) which average about $15,900 per home which equates to over eight dollars per square foot on the subject plan. There have been nine closings of Cascade Plan 2 with sales prices ranging from $316.30 to $343.42 per square foot. There are two current escrows of Cascade Plan 2 with a sales price range of $337.04 to $347.58 per square foot. It should be noted that the reported sales prices include upgrades, premiums, and options along with all concessions given by the builder, while the concluded value relates to a base price for the plan including closing cost concessions. Closing cost concessions do not show up in the reported sales price of the home, however, are a cost of selling the home. It has been concluded that Cascade Plan 2 has a base current market value of $305.00 per square foot. This calculates as follows:
1,933 sf x $305.00 = $589,565
The most appropriate new home comparable data for Cascade at Highland Park Plan 3 are shown as follows.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 3 4 / 3 2 / 3 2,065 --
1 4 4 / 3 2 / 2 1,957 $306.59
2 2 3 / 2.5 2 / 2 1,933 $312.98
3 3 4 / 2.5 2 / 2 2,007 $290.97
4 2 4 / 2.5 2 / 2 1,932 $307.45
4 3 5 / 2.5 2 / 2 2,207 $285.45
5 4 4 / 2.5 2 / 2 1,970 $309.64
8 2 3 / 2.5 2 / 3 2,090 $308.23
The comparable communities are all located in Fontana. All are of similar quality, design, and appeal. Adjustments were considered (when applicable) for location, school districts, lot size, master plan amenities, stories, sales concessions, CFD taxes, com mon area benefits, total square footage, room count, garage space and other amenities. The new 768
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home comparables have a base price range from $285.45 to $312.98 per square foot, with generally the larger homes at the lower end of the range and the smaller homes at the higher end of the range. This is typical due to the economies of scale obtained during construction of the homes. Highland Park’s Cascade Plan 3 has a current base asking price of $316.22 per square foot, which is higher than any of the comparables. It should be noted that the base prices do not take into consideration the mortgage concessions (either rate buy-downs or closing cost assistance) which average about $15,900 per home which equates to over $7.50 per square foot on the subject plan. There have been 13 closings of Cascade Plan 3 with sales prices ranging from $301.34 to $348.92 per square foot. There are two current escrows of Cascade Plan 3 with a sales price range of $334.32 to $340.78 per square foot.
It should be noted that the reported sales prices include upgrades, premiums, and options along with all concessions given by the builder, while the concluded value relates to a base price for the plan including closing cost concessions. Closing cost concessions do not show up in the reported sales price of the home, however, are a cost of selling the home. It has been concluded that Cascade Plan 3 has a base current market value of $305.00 per square foot. This calculates as follows:
2,065 sf x $305.00 = $629,825
Builder Owned Retail Value – Highland Park
Within the subject property, there are 14 builder-owned houses over 95 percent complete, seven of which are decorated models. Per interviews with builders, upgrades and landscape/hardscape of up to $100,000 are installed in the model homes, however, the builders generally consider this a marketing cost and do not anticipate recovering this investment on a dollar -for-dollar basis. Based on historical information, home sizes and fixtures, actual model home sales within the subject area and the current real estate market, a consideration of a $40,000 premium has been included with each of the model homes. As concluded above, the retail base value conclusions for the buil der-owned homes within Highland Park are calculated on the following page:
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Talise Plan 1 (1 x $517,935) $ 517,935
Talise Plan 2 (1 x $537,225) 537,225
Talise Plan 3 (2 x $539,595) 1,079,190
Talise Plan 4 (3 x $581,229) 1,743,687
Cascade Plan 1 (4 x $569,466) 2,277,864
Cascade Plan 2 (2 x $589,565) 1,1 79,130
Cascade Plan 3 (1 x $629,825) 6 29,825
Model Upgrades (7 x $40,000) 280 ,000
Total Retail Value $ 8,244,856
Absorption Period
In order to arrive at an absorption period for the fourteen builder-owned homes, the absorption rate for the subject neighborhood along with the surrounding developments has been reviewed. Highland Park began sales in December 2022 and consists of 107 proposed homes. There have been 73 sales since December 2022 suggesting an average absorption of 4.3 homes per month across the two product lines , which is considered to be below average for the subject area. When looking at each product line individually, Talise has averaged a sales pace of 2.6 sales per month while Cascade has averaged a sales pace of
2.0 sales per month. Taking into consideration the product, concluded sales prices and current escrows, along with the current interest rates, it has been concluded that the 14 builder-owned homes will be absorbed within a four-month time period at the concluded values.
Remaining Costs
As discussed under the remaining costs section earlier within this report, there is $69,692.62 per lot/pad in remaining land development costs associated with the builder- owned homes, which equates to a total of $ 975,697 for the subject 14 homes. It is an assumption of this analysis that the remaining costs will be spread evenly over the four - month absorption time period.
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. Due to the volatile 770
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market, we are considering e ight percent for marketing expenses and two percent for general and administrative costs for a total of ten percent in expenses for this analysis.
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 s ales proceeds. During the early 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. A ten percent profit is considered appropriate i n the analysis for this project.
Discount Rate
In selecting a discount rate, the following was completed:
1. Interviews with merchant builders in the San Bernardino area
2. Review of current market conditions including current market rates as well as yields reflected in other markets (i.e., municipal bonds, corporate bonds, etc.)
3. The quality, construction, historical sales and product on the subject property
The homes within Highland Park began selling in December 2022 with the product being nominally well received in the marketplace with a 4.3 sales per month average across the two product lines with the averages per community at 2.6 and 2.0 sales per month. This compares to the overall Inland Empire average sales rate per community of 4.2 sales per month (year to date as of March 24, 2024). The subject is performing below the average of the overall market. The slower absorption rate is thought to be due to the freeway frontage coupled with the minimal mortgage rate/closing cost buydowns. Based on the sales rate within both communities in the subject project, the competition, the product and location, and current market conditions, a ten percent discount rate is considered appropriate for this analysis.
Discounted Cash Flow Summary
The discounted revenue (see DCF Analyses in addenda) for the builder -owned homes within Highland Park is $5,505,024.
771
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Highland Park – Richmond American Ownership
31 Lots/Pads owned by Richmond American $ 5,899,529 14 Houses (including 7 models) Builder-owned 5,505,024 Total Richmond American Ownership $11,404,553
Individual Owners Value Conclusion – Highland Park
There are 62 individually owned homes within the subject property. Based on the concluded value for each plan, the individually owned homes within the subject property have a minimum market value of:
Talise Plan 1 (9 x $517,935) $ 4,661,415
Talise Plan 2 (8 x $537,225) 4,297,800
Talise Plan 3 (9 x $539,595) 4,856,355
Talise Plan 4 (6 x $581,229) 3,487,374
Cascade Plan 1 (8 x $569,466) 4,555,728
Cascade Plan 2 (9 x $589,565) 5,306,085
Cascade Plan 3 (13 x $629,825) 8,187,725
Total Individual Owned $ 35,352,482
In an additional review, we have reviewed the original builder sales prices for the homes within the subject property. Closings for the 62 homes occurred between April 21, 2023, and April 15, 2024. The reported closing prices by the builder for the 62 individually owned homes total $37,702,968, which is similar to the concluded value. The builder’s reported prices include premiums, upgrades and purchased options as well as took into consideration all concessions given by the builder, including closing costs and mortgage buydowns. Base pricing has increased slightly since the project opened; howe ver, builders have increased concessions with rate buy -downs occurring which have totaled within Highland Park up to $37,100 with an average of about $15,900 per sale. Opening base prices in February 2023 for Talise ranged from $ 499,990 to $573,990 with current base pricing ranging from $529,990 to $599,999 equating to increases from 2.2 to 6.0 percent depending on the plan. Opening base prices in December 2022 for Cascade ranged from $560,990 to $596,990 with current base pricing from $586,990 to $652,990 suggesting increases from 4.6 to 9.4 percent depending on the plan. This suggests prices have increased, however the concessions, at times, offset the increases in order to meet the market. The current market and the current incentives have been taken into account 772
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in our analysis . The above valuation is for the minimum market value, as it takes into consideration the base plan price only and does not take into account any options, premiums or upgrades which were purchased by the buyers ; however, it does take all concessions into consideration. 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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APPRAISAL REPORT SUMMARY
The appraisal assignment was to value the subject property within Fontana CFD No. 107 which consists of 1 07 proposed residential units. The 107 units are known as Highland Park, being marketed, and sold by Richmond American, and are located in the northern portion of the City of Fontana. The subject includes two product lines: Talise, 61 detached cluster detached condominiums; and Cascade, 46 detached alley-load condominiums.
As of April 15, 2024, individuals have purchased and closed 62 of the total 107 proposed houses, with an additional 11 homes in escrow which are due to close upon completion.
The community has sold at a below average sales pace. All structures appear to be in excellent condition with no visible depreciation. We have reviewed builder sales and reviewed the local MLS for current listings or resales and found none.
The subject properties were valued utilizing the Sales Comparison Approach to value, a Discounted Cash Flow Analysis, and a Mass Appraisal Technique for the individually owned homes. A minimum value was determined by concluding at a base value for the individually owned homes. The valuation took into account the improvements/benefits to be funded by the special tax Fontana CFD No. 107 bond proceeds along with the Fontana CFD No. 107 special tax lien. The concluded aggregate value for the subject properties, subject to their respective special tax lien, is:
Highland Park:
Richmond American (31 lots/pads & 14 houses) $ 11,404,553 Individual Owners (62 houses) $ 35,352,482
Total Aggregate Value CFD No. 107 $ 46,757,035
The above values are stated as of said date of value and subject to the attached Assumptions and Limiting Conditions and Appraiser’s Certification. 774
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APPRAISER’S CERTIFICATION
The appraiser certifies that to the best of his knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased, professional analyses, opinions and conclusions.
3. The appraiser has no present or prospective interest in the property that is the subject of this report, and no personal interest or bias with respect to the parties involved.
4. The appraiser’s compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result or the occurrence of a subsequent event.
5. This appraisal was not based on a requested minimum valuation, a specific valuation or the approval of a loan.
6. The analyses, opinions and conclusions were developed, and this report was prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.
7. Kitty Siino has made a personal inspection of the property that is the subject of this report.
8. Kitty Siino has not performed any appraisal services on the subject property in the past three years.
9. No other appraisers have provided significant professional assistance to the persons signing this report.
10. The reported analyses, opinions and conclusions were developed, and this report was prepared, in conformity with the requirements of the Appraisal Institute’s Code of Professional Ethics and Standards of Professional Appraisal Practice, which include the Uniform Standards of Professional Appraisal Practice.
11. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.
12. As of the date of this report, Kitty Siino has completed the requirements of the continuing education program of the Appraisal Institute.
Kitty S. Siino, MAI
State Certified General
Real Estate Appraiser (AG004793)
775
ADDENDA
776
FONTANA CFD NO. 107
BOUNDARY MAP
777
778
TRACT MAP Nos. 20297 & 20349
And SITE PLAN
779
780
781
782
DISCOUNTED CASH FLOW ANALYSIS
783
Fontana CFD 107 Highland Park - Richmond American-Owned Houses DCF
MONTH Months MONTH 1 MONTH 2 MONTH 3 MONTH 4 TOTAL
4 INCOME:
Retail Sales 8,244,856 $2,061,214 $2,061,214 $2,061,214 $2,061,214 $8,244,856
TOTAL INCOME $2,061,214 $2,061,214 $2,061,214 $2,061,214 $8,244,856
EXPENSES:
Remaining Costs ($243,924) ($243,924) ($243,924) ($243,925) ($975,697) Marketing & Carrying Expenses 10% ($206,121) ($206,121) ($206,121) ($206,121) ($824,486) Profit 10% ($206,121) ($206,121) ($206,121) ($206,121) ($824,486)
TOTAL EXPENSES ($656,167) ($656,167) ($656,167) ($656,168) ($2,624,668)
NET CASH FLOW $1,405,047 $1,405,047 $1,405,047 $1,405,046 $5,620,188 Discount Factor 10% 0.9917 0.9835 0.9754 0.9673
DISCOUNTED CASH FLOW $1,393,435 $1,381,919 $1,370,498 $1,359,171 $5,505,024
CUMULATIVE DISCOUNTED $1,393,435 $2,775,354 $4,145,853 $5,505,024 $5,505,024
CASH FLOW
784
FINISHED LOT LAND SALES MAP
& SUMMARY CHART
785
FINISHED LOT LAND SALES MAP
786
FINISHED LOT LAND SALES SUMMARY CHART
Data
No. Location / APN / Buyer / Seller Sales
Date
#
Lots Lot Size Sales Price /
Price per Lot
Est.
Finished
Lot Price
Comments
1 North & South of Gardens Street &
Cypress Avenue, Gardens at
Arboretum, Fontana / 1118-421-01
and 1118-441-01 / Richmond
American / North Fontana Inv. Co.
Jan–24 174 9.32 du/ac
$28,789,500 /
$165,457
$285,000
Closed with approved tentative mapping in
place and a rough grade plan approved.
Product includes 4 and 6-pack detached alley-
load product.
2 West side Hamner; north of
Eucalyptus Avenue, Esperanza SP,
Ontario Ranch / N/A / Pulte Homes /
Richland
Dec-23 333 11 du/ac
$72,527,499 /
$217,800 $315,000*
*Blended price -o estimated finished lot values
are $258,000 for 156 townhomes; $315,000
for 82 small detached cluster lots and
$401,000 for 95 larger detached cluster lots.
PA 3 & 4 of Esperanza SP.
3 SEC Lytle Creek Road and Sierra
Lakes Parkway, Fontana / 1108-052-
various / DR Horton / Sobrato
Foundation
Sept-23 143 13.9 du/ac
$9,850,000 /
$68,881 $225,000
Sold with mapping in place and final
engineering underway. Will have 96 attached
units and 47 detached cluster units. This site
rears to the I-210 freeway.
4 W/S Haven Avenue, N/O Chino
Avenue, Westhaven Specific Plan,
Ontario Ranch / 0218-151-10-0000 /
LandSea Homes / Richland
Aug-23 191 10 du/ac $25,234,500 /
$132,118 $280,000
Blended price, estimated F/L values are
$250,000 for att. townhomes and $310,000 for
the cluster product. Within Westhaven
Specific Plan in Ontario Randh.
5 Citrus Lane, SE of Citrus and Highland
Avenues, Fontana / 0240-011-17 / DR
Horton / 6997 Citrus LLC
Aug-23 68 15.7 du/ac
$6,300,000 /
$92,647 $215,000 Sold with tentative mapping in an unimproved condition.
6 NWC Citrus and Summit Avenues,
Fontana / 1107-262-37 / DR Horton /
Aky LLC
July-23 85 9.4 du/ac
$9,850,000 /
$115,882 $265,000 Sold with mapping in place and final
engineering underway.
7 S/E Haven Avenue and Chino Avenue;
east of Twinkle Avenue, Ontario
Ranch / 0218-203-03+ / Land Sea /
Haven Ontario NMC 2 LLC (Richland)
June-23 144 14.5 du/ac $16,924,000/
$117,528 $235,000 12-unit attached courtyard product. Closed in unimproved condition with mapping in place.
787
IMPROVED RESIDENTIAL
SALES MAP & SUMMARY CHART
788
IMPROVED RESIDENTIAL SALES SUMMARY MAP
789
IMPROVED RESIDENTIAL SALES SUMMARY CHART
Data
No.
Project Name
Location/Developer
Plan Room
Count
Floors/
Parking
Size
(SF)
Lot Size /
Absorption
Base
Sales
Price
Price/SF
1 Talise at Highland Park, South Highland Avenue and
San Servaine Road, Fontana / Richmond American
1 2
3 4
3 / 2.5
3 / 2.5
3 / 2.5
4 / 3
2 / 2
2 / 2
2 / 2
2 / 2
1,419
1,653
1,713
1,957
Cluster /
2.6 sales/mo
$529,990
$554,990
$547,990
$599,990
$373.50
$335.75
$319.90
$306.59
2 Cascade at Highland Park, South Highland Avenue
and San Servaine Road, Fontana / Richmond
American
1 2
3 3 / 2.5
3 / 2.5
4 / 3
2 / 2
2 / 3
2 / 3
1,861
1,933
2,065
Alley Load /
2.0 sales/mo
$586,990
$604,990
$652,990
$315.42
$312.98
$316.22
3 Rivello at Monterado, Citrus Avenue and Duncan
Canyon Road, Fontana / Lennar (final base prices –
nearing sell-out)
1 2
3 3 / 2.5
4 / 2.5
4 / 2.5
2 / 2
2 / 2
2 / 2
1,795
1,832
2,007
2,000+- sf
(Alley-load)
4.5 sales/mo
$581,990
$577,900
$583,990
$324.22
$315.45
$290.97
4 Salerno at Monterado, Citrus Avenue and Duncan
Canyon Road, Fontana / Lennar
1 2
3 3 / 2.5
4 / 2.5
5 / 2.5
2 / 2
2 / 2
2 / 2
1,822
1,932
2,207
2,000+- sf
(Det.Cluster)
4.1 sales/mo
$583,990
$593,990
$629,990
$320.52
$307.45
$285.45
5 Blue Sage at Arboretum, Sierra Avenue and Casa
Grande Avenue, Fontana / Lennar
1 2
3 4
3 / 2.5
4 / 2.5
4 / 2.5
4 / 2.5
2 / 2
2 / 2
2 / 2
2 / 2
1,651
1,761
1,862
1,970
2,000 sf lots
(Zero lot line)
3.4 sales/mo
$573,590
$584,990
$605,390
$609,990
$347.42
$332.19
$325.13
$309.64
6 Dayflower at the Arboretum, Cassava Road and
Fieldcress Drive, Fontana / Lennar
1 2
3 3 / 2
4 / 3
4 / 3
2 / 2
2 / 2
2 / 2
1,582
1,563
1,669
Cluster with
Plan 1 Att.
3.1 sales/mo
$523,339
$495,840
$531,900
$330.81
$317.24
$318.69
7 Clementine at Nara Hills, Lytle Creek Road and
Duncan Canyon Road, Fontana, LandSea
1 2
3 3 / 2.5
3 / 2.5
4 / 2.5
2 / 2
2 / 2
2 / 2
1,372
1,450
1,661
Duplex
3.3 sales/mo
N/A
$556,000
$594,000
N/A
$383.45
$357.62
8 Sienna at Aurora Park, Victoria Street and Kestral
Drive, Fontana / TRI Pointe Homes (final base prices
– nearing sell-out)
1 2
3 3 / 2.5
3 / 2.5
4 / 3
2 / 2
2 / 3
2 / 3
1,867
2,090
2,264
2,000 sf lots
(Alley-load)
2.5 sales/mo
$610,250
$644,200
$684,000
$326.86
$308.23
$302.12
9 Goldenrod at Aurora Park, Victoria Street and
Kestral Drive, Fontana / TRI Pointe Homes
1 2
3 3 / 2.5
4 / 3
5 / 4
2 / 2
2 / 2
2 / 3
2,006
2,312
2,777
2,000 sf lots
(Det. Cluster)
2.2 sales/mo
$693,000
$741,000
$811,000
$345.46
$320.50
$292.04
790
APPRAISER’S QUALIFICATIONS
791
QUALIFICATIONS OF KITTY S. SIINO, MAI
Education
Bachelor of Arts in Business Administration, Financial Investments, California State University, Long Beach, California (1980)
Post-Graduate Study, Real Estate Development, University of California, Irvine, California
Appraisal Institute Classes: Uniform Standards of Professional Appraisal Practice, A & B; Appraisal Principles; Appraisal Procedures; Basic Income Capitalization; Advanced Income Capitalization; Narrative Report Writing; Advanced Applications, Case Studies.
Successfully completed all classes in addition to successfully completing the writing of a Demonstration Report and taking the Comprehensive Exam. Became a Member of the Appraisal Institute in December 1996. Have completed over 100 hours of continuing education through the Appraisal Institute every five years.
Employment
1988 - Present:
Self-Employed Real Estate Appraiser. Duties include the appraisal of various types of properties such as commercial, retail, industrial and vacant land. More complex assignments include easements, right-of-ways and special assessment districts. From 1996 to present, specialized in special assessment districts and community facilities districts appraisals for public entities, including Jurupa Community Services District, Corona Norco Unified School District, City of Corona, City of Chula Vista, City of Sa n Marcos and City of Moreno Valley.
1986-1988:
Project Manager of Development for Ferguson Partners, Irvine, California. Duties included land acquisitions; review of fee appraisals and valuations; analysis of proposed development; planning and design; and management of development, construction and lease-up. The types of properties developed were commercial and industrial. Duties ranged from raw, vacant site development through property management of recently developed projects.
1981 - 1986
Manager of Finance, Construction for Community Development Division, The Irvine Company, Irvine, California. Duties included originating and managing a newly formed division of finance to bridge between the accounting functions and project management functions. Worked with analysis and budgets for Community Development Division. Coordinated with cities in forming new Assessment Districts and Community Facilities Districts to finance major infrastructure improvements.
Types of properties were apartments and single- family residential lots on a for sale basis to apartment and homebuilders.
1980 - 1981
Investment Counselor, Newport Equity Funds, Newport Beach, California. Duties included obtaining private financing for residential properties, working with appraisals of properties and analyzing the investments.
792
Licenses
Real Estate Sales Person, State of California, 1980
Certified General Appraiser, State of California (#AG004793)
Organizations
MAI #11145 - The Appraisal Institute
Public Financing
CASTOFF Meetings, 2006, 2007, 2008, 2009, 2010, 2011, 2013, 2014, 2015, 2016, 2017, 2018, 2019 and 2022
Speaker, Mello- Roos & Special Assessment Financing, UCLA Extension Publi c Policy Program, February 2009 and March 2011
793