Agenda packet — Lake Elsinore City Council, August 13, 2024 (part 2 of 2)

Section 3.10. Investments. Moneys held in any of the Funds, Accounts and Subaccounts under this Indenture shall be invested at the written direction of the District upon at least two (2) Business Days’ notice in accordance with the limitations set forth below only in Authorized Investments which shall be deemed at all times to be a part of such Funds, Accounts and Subaccounts. Any loss resulting from such Authorized Investments shall be credited or charged to the Fund, Account or Subaccount from which such investment was made, and any investment earnings on a Fund, Account or Subaccount shall be applied as follows: (i) investment earnings on all amounts deposited in the Acquisition and Construction Fund (including the Accounts therein), the Special Tax Fund, the Surplus Fund and the Rebate Fund and each Account therein (other than the Reserve Account of the Special Tax Fund) shall be deposited in those respective Funds, Accounts and Subaccounts; and (ii) investment earnings on all amounts deposited in the Reserve Account shall be deposited therein to be applied as set forth in Section 3.6. Moneys in the Funds, Accounts and Subaccounts held under this Indenture may be invested by the Trustee as directed in writing by the District, from time to time, in Authorized Investments subject to the following restrictions (provided 26 4858-5434-7218/022042-0026
that the Trustee is not required to verify compliance with such restrictions and may rely on the District’s written instructions as evidence of such compliance):
(a) Moneys in the Acquisition and Construction Fund and the Accounts therein shall be invested in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available without penalty, as close as practicable to the date the District estimates the moneys represented by the particular investment will be needed for withdrawal from the Acquisition and Construction Fund or the Accounts therein. Notwithstanding anything herein to the contrary, amounts in the Acquisition and Construction Fund or the Accounts therein three years after the Delivery Date for the Bonds and the proceeds of each issue of Parity Bonds issued on a tax-exempt basis which are remaining on deposit in the Acquisition and Construction Fund on the date which is three years following the date of issuance of such issue of Parity Bonds shall be invested by the District only in Authorized Investments the interest on which is excluded from gross income under Section 103 of the Code (other than bonds the interest on which is a tax preference item for purposes of computing the alternative minimum tax of individuals under the Code) or in Authorized Investments at a yield not in excess of the yield on the issue of Bonds or Parity Bonds from which such proceeds were derived, unless in the opinion of Bond Counsel such restriction is not necessary to prevent interest on the Bonds or any Parity Bonds which were issued on a tax-exempt basis for federal income tax purposes from being included in gross income for federal income tax purposes. (b) Moneys in the Interest Account, the Principal Account, and the Redemption Account of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so as to ensure the payment of principal of, premium, if any, and interest on the Bonds and any Parity Bonds as the same become due.
(c) Moneys in the Reserve Account of the Special Tax Fund may be invested only in Authorized Investments (other than the Authorized Investment described in clause (2)(i) of the definition thereof) which, taken together, have a weighted average maturity not in excess of five years; provided that such amounts may be invested in an Investment Agreement to the later of the final maturity of the Bonds or any Parity Bonds so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with Section 3.6 hereof; and provided that no such Authorized Investment of amounts in the Reserve Account allocable to the Bonds or an issue of Parity Bonds shall mature later than the respective final maturity date of the Bonds or the issue of Parity Bonds, as applicable.
(d) Moneys in the Rebate Fund shall be invested only in Authorized Investments of the type described in clause (1) of the definition thereof which by their terms will mature, as nearly as practicable, on the dates such amounts are needed to be paid to the United States Government pursuant to Section 3.7 hereof or in Authorized Investments of the type described in clause (2)(e) of the definition thereof.
(e) In the absence of written investment directions from the District, the Trustee shall hold the funds uninvested.

The Trustee shall sell, or present for redemption, any Authorized Investment whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such funds and accounts or from such funds and accounts. Notwithstanding anything in this Indenture to the contrary, the Trustee shall not be responsible for any loss from investments, sales or transfers 27 4858-5434-7218/022042-0026
undertaken in accordance with the provisions of this Indenture. Any Authorized Investments that are registrable securities shall be registered in the name of the Trustee.

The Trustee may act as principal or agent in the making or disposing of any investment and shall be entitled to its customary fee for making such investment. The Trustee may sell at the best market price obtainable, or present for redemption, any Authorized Investment so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such Authorized Investment is credited, and, subject to the provisions of Section 7.4, the Trustee shall not be liable or responsible for any loss resulting from such investment. For investment purposes, the Trustee may commingle the funds and accounts established hereunder, but shall account for each separately. The Trustee is hereby authorized, in making or disposing of any investment permitted by this Section, to deal with itself (in its individual capacity) or which any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third person or dealing as principal for its own account. The parties acknowledge that the Trustee is not providing investment supervision, recommendations, or advice.

The District acknowledges that, to the extent that regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of security transactions as they occur, the District specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the District periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder.

ARTICLE IV

REDEMPTION OF BONDS AND PARITY BONDS
Section 4.1. Redemption of Bonds.
(a) Optional Redemption. The Bonds may be redeemed at the option of the District from any source of funds on any Interest Payment Date on or after September 1, 20__, in whole or in part, from such maturities as are selected by the District and by lot within a maturity, at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption:

Redemption Date Redemption Price
103%
102
101
100
In the event that the District elects to redeem Bonds as provided above, the District shall give written notice to the Trustee of its election to so redeem, the redemption date and the principal amount of the Bonds of each maturity to be redeemed. The notice to the Trustee shall be given at least 45 but no more than 60 calendar days prior to the redemption date, or by such later date as is acceptable to the Trustee.
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(b) Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account established hereunder, on September 1, 20__ and on each September 1 thereafter prior to maturity in accordance with the schedule of Sinking Fund Payments set forth below. The 20__ Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed at a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1) Sinking Fund Payments
$
*
_____________
* Maturity.

The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account established hereunder, on September 1, 20__ and on each September 1 thereafter prior to maturity in accordance with the schedule of Sinking Fund Payments set forth below. The 20__ Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed at a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1) Sinking Fund Payments
$
*
_____________
* Maturity.

If the District purchases Term Bonds during the Fiscal Year immediately preceding one of the sinking fund redemption dates specified above, the District shall notify the Trustee at least 45 days prior to the redemption date as to the principal amount purchased, and the amount purchased shall be credited at the time of purchase to the next Sinking Fund Payment for the Term Bond so purchased, to the extent of the full principal amount of the purchase. All Bonds purchased pursuant to this subsection shall be cancelled pursuant to Section 10.1 hereof. 29 4858-5434-7218/022042-0026
In the event of a partial optional redemption or special mandatory redemption of the Term Bonds, each of the remaining Sinking Fund Payments for such Term Bonds shall be reduced, as nearly as practicable, on a pro rata basis.
(c) Special Mandatory Redemption. The Bonds are subject to special mandatory redemption as a whole or in part on a pro rata basis among maturities and by lot within a maturity, on any Interest Payment Date on or after March 1, 2025, and shall be redeemed by the Trustee, from Prepayments deposited to the Redemption Account pursuant to Section 3.2, plus amounts transferred from the Reserve Account pursuant to Section 3.6(c), at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the redemption date:

Redemption Date Redemption Price
103%
102
101
100
Prepayments and amounts released from the Reserve Account in connection with Prepayments will be allocated to the payment at maturity and redemption of Bonds and any Parity Bonds as nearly as practicable on a proportionate basis based on the outstanding principal amount of the Bonds and any Parity Bonds and such amounts shall be applied to redeem Bonds and Parity Bonds as nearly as practicable on a pro rata basis among maturities in increments of $5,000; provided, however, that, for Prepayments of less than $50,000, the District may specify in a Certificate of an Authorized Representative that Prepayments be applied to one or more maturities of the Bonds or Parity Bonds so long as there is delivered to the Trustee a Certificate of the Independent Financial Consultant that, following such application of the Prepayments, the maximum Special Taxes that may be levied in each Fiscal Year on Taxable Property is not less than 110% of Annual Debt Service in the Bond Year that begins in such Fiscal Year. (d) The redemption provisions for Parity Bonds shall be set forth in a Supplemental Indenture.

Section 4.2. Selection of Bonds and Parity Bonds for Redemption. If less than all of the Bonds or Parity Bonds Outstanding are to be redeemed, the portion of any Bond or Parity Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof. In selecting portions of such Bonds or Parity Bonds for redemption, the Trustee shall treat such Bonds or Parity Bonds, as applicable, as representing that number of Bonds or Parity Bonds of $5,000 denominations which is obtained by dividing the principal amount of such Bonds or Parity Bonds to be redeemed in part by $5,000. The procedure for the selection of Parity Bonds for redemption may be modified as set forth in the Supplemental Indenture for such Parity Bonds. The Trustee shall promptly notify the District in writing of the Bonds or Parity Bonds, or portions thereof, selected for redemption.

Section 4.3. Notice of Redemption. When Bonds or Parity Bonds are due for redemption under Section 4.1 above or under another redemption provision set forth in a Supplemental Indenture relating to any Parity Bonds, the Trustee shall give notice, in the name of the District, of the redemption of such Bonds or Parity Bonds. Such notice of redemption shall: (i) specify the CUSIP numbers (if any), the bond numbers and the maturity date or dates of the Bonds or Parity Bonds 30 4858-5434-7218/022042-0026
selected for redemption, except that where all of the Bonds or all of an issue of Parity Bonds are subject to redemption, or all of the Bonds or Parity Bonds of one maturity are to be redeemed, the bond numbers of such issue need not be specified; (ii) state the date fixed for redemption and surrender of the Bonds or Parity Bonds to be redeemed; (iii) state the redemption price; (iv) state the place or places where the Bonds or Parity Bonds are to be redeemed; (v) in the case of Bonds or Parity Bonds to be redeemed only in part, state the portion of such Bond or Parity Bond which is to be redeemed; (vi) state the date of issue of the Bonds or Parity Bonds as originally issued; (vii) state the rate of interest borne by each Bond or Parity Bond being redeemed; and (viii) state any other descriptive information needed to identify accurately the Bonds or Parity Bonds being redeemed as shall be specified by the Trustee. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond, Parity Bond or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 45 days prior to the redemption date, the Trustee shall mail a copy of such notice of redemption, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register, and to the original purchaser of any Bonds or Parity Bonds; provided, however, so long as the Bonds and Parity Bonds are registered in the name of the Nominee, such notice shall be given in such manner as complies with the requirements of the Depository. The actual receipt by the Owner of any Bond or Parity Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds or Parity Bonds, or the cessation of interest on the redemption date. A certificate by the Trustee that notice of such redemption has been given as herein provided shall be conclusive as against all parties and the Owner shall not be entitled to show that he or she failed to receive notice of such redemption.

In addition to the foregoing notice, further notice shall be given by the Trustee as set out below, but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed.

Each further notice of redemption shall be sent not later than the date that notice of redemption is given to the Owners pursuant to the first paragraph of this Section by first class mail or facsimile to the Depository and to any other registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Bonds and Parity Bonds as determined by the Trustee and to one or more of the national information services that the Trustee determines are in the business of disseminating notice of redemption of obligations such as the Bonds and Parity Bonds.

Upon the payment of the redemption price of any Bonds and Parity Bonds being redeemed, each check or other transfer of funds issued for such purpose shall to the extent practicable bear the CUSIP number identifying, by issue and maturity, the Bonds and Parity Bonds being redeemed with the proceeds of such check or other transfer.

With respect to any notice of optional redemption of Bonds or Parity Bonds, such notice may state that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such Bonds or Parity Bonds to be redeemed and that, if the District determines that such moneys will not be received on the redemption date, said notice shall be of no force and effect and the 31 4858-5434-7218/022042-0026
Trustee shall not be required to redeem such Bonds or Parity Bonds. In the event that such notice of redemption contains such a condition and the District determines that such moneys will not be received, the redemption shall not be made, and the Trustee shall within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.

Section 4.4. Partial Redemption of Bonds or Parity Bonds. Upon surrender of any Bond or Parity Bond to be redeemed in part only, the District shall execute and the Trustee shall authenticate and deliver to the Owner, at the expense of the District, a new Bond or Bonds or a new Parity Bond or Parity Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered, with the same interest rate and the same maturity or, in the case of surrender of a Parity Bond, a new Parity Bond or Parity Bonds subject to the foregoing limitations.

Section 4.5. Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in Section 4.3 hereof, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption:
(a) the Bonds and Parity Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in this Indenture or in any Supplemental Indenture with respect to any Parity Bonds, anything in this Indenture or in the Bonds or the Parity Bonds to the contrary notwithstanding; (b) upon presentation and surrender thereof at the office of the Trustee (except as provided in Section 4.1(b)), the redemption price of such Bonds and Parity Bonds shall be paid to the Owners thereof;
(c) as of the redemption date the Bonds or the Parity Bonds, or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds or Parity Bonds, or portions thereof, shall cease to bear further interest; and (d) as of the date fixed for redemption no Owner of any of the Bonds, Parity Bonds or portions thereof so designated for redemption shall be entitled to any of the benefits of this Indenture or any Supplemental Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available.

ARTICLE V

COVENANTS AND WARRANTY
Section 5.1. Warranty. The District shall preserve and protect the security pledged hereunder to the Bonds and any Parity Bonds against all claims and demands of all persons.

Section 5.2. Covenants. So long as any of the Bonds or Parity Bonds issued hereunder are Outstanding and unpaid, the District makes the following covenants with the Owners under the provisions of the Act and this Indenture (to be performed by the District or its proper officers, agents or employees), which covenants are necessary and desirable to secure the Bonds and Parity Bonds and tend to make them more marketable; provided, however, that said covenants do not require the 32 4858-5434-7218/022042-0026
District to expend any funds or moneys other than the Special Taxes and other amounts deposited to the Special Tax Fund:
(a) Punctual Payment; Against Encumbrances. The District covenants that it will receive all Special Taxes in trust for the Owners and will deposit all Special Taxes with the Trustee immediately upon their apportionment to the District, and the District shall have no beneficial right or interest in the amounts so deposited except as provided by this Indenture. All such Special Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth herein, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the District.

The District covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond and Parity Bond issued hereunder, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and the Parity Bonds and in accordance with this Indenture to the extent that Net Taxes and other amounts pledged hereunder are available therefor, and that the payments into the Funds and Accounts created hereunder will be made, all in strict conformity with the terms of the Bonds, any Parity Bonds, and this Indenture, and that it will faithfully observe and perform all of the conditions, covenants and requirements of this Indenture and all Supplemental Indentures and of the Bonds and any Parity Bonds issued hereunder.

The District will not mortgage or otherwise encumber, pledge or place any charge upon any of the Net Taxes except as provided in this Indenture, and will not issue any obligation or security having a lien or charge upon the Net Taxes superior to or on a parity with the Bonds, other than Parity Bonds. Nothing herein shall prevent the District from issuing or incurring indebtedness which is payable from a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes to repay the Bonds and the Parity Bonds, subject to compliance with the District’s bonded indebtedness limit.
(b) Levy of Special Tax. Beginning in Fiscal Year 2024-25 and so long as any Bonds or Parity Bonds issued under this Indenture are Outstanding, the District covenants to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund, to pay:
(1) the principal of and interest on the Bonds and any Parity Bonds when due; (2) the Administrative Expenses; and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement, including any amounts to pay costs related to the Reserve Policy, if any.

The District further covenants that it will take no actions that would discontinue or cause the discontinuance of the Special Tax levy or the District’s authority to levy the Special Tax for so long as the Bonds and any Parity Bonds are Outstanding.
(c) Commence Foreclosure Proceedings. The District covenants for the benefit of the Owners of the Bonds and any Parity Bonds that it will: (i) commence judicial foreclosure proceedings against parcels with delinquent Special Taxes in excess of $5,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due; and (ii) commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied; and (iii) diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided that, notwithstanding the foregoing, the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the Reserve Account is at least equal to the Reserve Requirement. The District may, but shall not be obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Account. 33 4858-5434-7218/022042-0026
The District may treat any delinquent Special Tax sold to an independent third-party or to the City for at least 100% of the delinquent amount as having been paid. Proceeds of any such sale up to 100% of the delinquent amount will be deposited in the Special Tax Fund.

The District covenants that it will deposit the net proceeds of any foreclosure in the Special Tax Fund and will apply such proceeds remaining after the payment of Administrative Expenses to make current payments of principal and interest on the Bonds and any Parity Bonds, to bring the amount on deposit in the Reserve Account up to the Reserve Requirement and to pay any delinquent installments of principal or interest due on the Bonds and any Parity Bonds. (d) Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Net Taxes or other funds in the Special Tax Fund (other than the Administrative Expense Account therein), or which might impair the security of the Bonds or any Parity Bonds then Outstanding; provided, however, that nothing herein contained shall require the District to make any such payments so long as the District in good faith shall contest the validity of any such claims. (e) Books and Accounts. The District will keep proper books of records and accounts, separate from all other records and accounts of the District, in which complete and correct entries shall be made of all transactions relating to the Project, the levy of the Special Tax and the deposits to the Special Tax Fund. Such books of records and accounts shall at all times during business hours be subject to the inspection of the Trustee or of the Owners or the Owners of any issue of Parity Bonds then Outstanding or their representatives authorized in writing. (f) Federal Tax Covenants. Notwithstanding any other provision of this Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of interest on the Bonds and any Parity Bonds issued on a tax-exempt basis for federal income tax purposes will not be adversely affected for federal income tax purposes, the District covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenants, without limiting the generality of the foregoing, as follows:
(1) Private Activity. The District will take no action or refrain from taking any action or make any use of the proceeds of the Bonds or any Parity Bonds or of any other monies or property which would cause the Bonds or any Parity Bonds issued on a tax-exempt basis for federal income tax purposes to be “private activity bonds” within the meaning of Section 141 of the Code. (2) Arbitrage. The District will make no use of the proceeds of the Bonds or any Parity Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the Bonds or any Parity Bonds issued on a tax-exempt basis for federal income tax purposes to be “arbitrage bonds” within the meaning of Section 148 of the Code.
(3) Federal Guaranty. The District will make no use of the proceeds of the Bonds or any Parity Bonds or take or omit to take any action that would cause the Bonds or any Parity Bonds issued on a tax-exempt basis for federal income tax purposes to be “federally guaranteed” within the meaning of Section 149(b) of the Code.
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(4) Information Reporting. The District will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code.
(5) Hedge Bonds. The District will make no use of the proceeds of the Bonds or any Parity Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the Bonds or any Parity Bonds issued on a tax-exempt basis for federal income tax purposes to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the District takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds and any applicable Parity Bonds. (6) Miscellaneous. The District will take no action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed on the Delivery Date by the District in connection with the Bonds and any issue of Parity Bonds and will comply with the covenants and requirements stated therein and incorporated by reference herein. (7) Other Tax-Exempt Issues. The District will not use proceeds of other tax-exempt securities to redeem any Bonds or Parity Bonds without first obtaining the written opinion of Bond Counsel that doing so will not impair the exclusion from gross income for federal income tax purposes of interest on the Bonds and any Parity Bonds issued on a tax-exempt basis. (8) Subsequent Opinions. If the District obtains a subsequent opinion of Bond Counsel other than Stradling Yocca Carlson & Rauth LLP, where such opinion is required in connection with a change or amendment to this Indenture or the procedures set forth in the Tax Certificate, it will obtain an opinion substantially to the effect originally delivered by Stradling Yocca Carlson & Rauth LLP, that interest on the Bonds is excluded from gross income for federal income tax purposes.
(g) Reduction of Maximum Special Taxes. The District hereby finds and determines that, historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community facilities districts in Southern California have from time to time been at levels requiring the levy of special taxes at the maximum authorized rates in order to make timely payment of principal of and interest on the outstanding indebtedness of such community facilities districts. For this reason, the District hereby determines that a reduction in the maximum Special Tax rates authorized to be levied on parcels in the District below the levels provided in this Section 5.2(g) would interfere with the timely retirement of the Bonds and Parity Bonds. The District determines it to be necessary in order to preserve the security for the Bonds and Parity Bonds to covenant, and, to the maximum extent that the law permits it to do so, the District hereby does covenant, that it shall not initiate proceedings to reduce the maximum Special Tax rates for the District, unless, in connection therewith, the District receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that: (i) such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the District to an amount which is less than the Administrative Expense Cap plus 110% of the Annual Debt Service due in each corresponding future Bond Year with respect to the Bonds and Parity Bonds Outstanding as of the date of such proposed reduction; and (ii) the District is not delinquent in the payment of the principal of or interest on the Bonds or any Parity Bonds.
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(h) Covenants to Defend. The District covenants that, in the event that any initiative is adopted by the qualified electors in the District which purports to reduce the maximum Special Tax below the levels specified in Section 5.2(g) above or to limit the power of the District to levy the Special Taxes for the purposes set forth in Section 5.2(b) above, it will commence and pursue legal action in order to preserve its ability to comply with such covenants. (i) Limitation on Right to Tender Bonds. The District hereby covenants that it will not adopt any policy pursuant to Section 53344.1 of the Act permitting the tender of Bonds or Parity Bonds in full payment or partial payment of any Special Taxes unless the District shall have first received a certificate from an Independent Financial Consultant that the acceptance of such a tender will not result in the District having insufficient Net Taxes to pay the principal of and interest on the Bonds and Parity Bonds when due.
(j) Continuing Disclosure. The District covenants to comply with the terms of the Continuing Disclosure Certificate and with the terms of any agreement executed by the District with respect to any Parity Bonds to assist the Underwriter in complying with Rule 15c2-12 adopted by the Securities and Exchange Commission; provided, however, that a failure to comply shall not be considered an event of default hereunder and the Owners shall be limited to enforcing the terms thereof in accordance with the terms of the Continuing Disclosure Certificate. (k) Further Assurances. The District shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the Bonds and any Parity Bonds of the rights and benefits provided in this Indenture.

ARTICLE VI

AMENDMENTS TO INDENTURE
Section 6.1. Supplemental Indentures or Orders Not Requiring Owner Consent. The District may from time to time, and at any time, without notice to or consent of any of the Owners, adopt Supplemental Indentures for any of the following purposes:
(a) to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provision herein, or to make any other provision with respect to matters or questions arising under this Indenture or in any additional resolution or order, provided that such action is not materially adverse to the interests of the Owners; (b) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in this Indenture other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with this Indenture as theretofore in effect or which further secure Bond or Parity Bond payments; (c) to provide for the issuance of any Parity Bonds, and to provide the terms and conditions under which such Parity Bonds may be issued, subject to and in accordance with the provisions of this Indenture;
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(d) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds or any Parity Bonds then Outstanding;
(e) to modify, alter or amend the RMA in any manner, so long as the Trustee receives a certificate of an Independent Financial Consultant stating that: (i) such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the District to an amount which is less than the Administrative Expense Cap plus 110% of the Annual Debt Service due in each corresponding future Bond Year with respect to the Bonds and Parity Bonds Outstanding as of the date of such amendment; and (ii) based on the current development plan for parcels within the District, do not reduce the maximum Special Taxes which could be levied upon Taxable Property within the District to an amount which is less than the Administrative Expense Cap plus 110% of the Annual Debt Service due in each corresponding future Bond Year with respect to the Bonds and Parity Bonds Outstanding as of the date of such amendment; (f) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to the Owners; or
(g) to modify, alter, amend or supplement this Indenture in any other respect, as may be required to fund all or a portion of the Reserve Requirement with a Reserve Policy.

Section 6.2. Supplemental Indentures or Orders Requiring Owner Consent.

Exclusive of the Supplemental Indentures described in Section 6.1, the Owners of not less than a majority in aggregate principal amount of the Bonds and Parity Bonds Outstanding shall have the right to consent to and approve the adoption by the District of such Supplemental Indentures as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Indenture; provided, however, that nothing herein shall permit, or be construed as permitting: (a) an extension of the maturity date of the principal, or the payment date of interest on, any Bond or Parity Bond; (b) a reduction in the principal amount of, or redemption premium on, any Bond or Parity Bond or the rate of interest thereon; (c) a preference or priority of any Bond or Parity Bond over any other Bond or Parity Bond; or (d) a reduction in the aggregate principal amount of the Bonds and Parity Bonds the Owners of which are required to consent to such Supplemental Indenture, without the consent of the Owners of all Bonds and Parity Bonds then Outstanding.

If at any time the District shall desire to adopt a Supplemental Indenture, which pursuant to the terms of this Section shall require the consent of the Owners, the District shall so notify the Trustee and shall deliver to the Trustee a copy of the proposed Supplemental Indenture. The Trustee shall, at the expense of the District, cause notice of the proposed Supplemental Indenture to be mailed, by first class mail, postage prepaid, to all Owners at their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the office of the Trustee for inspection by all Owners.

The failure of any Owners to receive such notice shall not affect the validity of such Supplemental Indenture when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds and Parity Bonds Outstanding as required by this Section. Whenever at any time within one year after the date of the first mailing of such notice, the Trustee shall receive 37 4858-5434-7218/022042-0026
an instrument or instruments purporting to be executed by the Owners of not less than a majority in aggregate principal amount of the Bonds and Parity Bonds Outstanding, which instrument or instruments shall refer to the proposed Supplemental Indenture described in such notice, and shall specifically consent to and approve the adoption thereof by the District substantially in the form of the copy referred to in such notice as on file with the Trustee, such proposed Supplemental Indenture, when duly adopted by the District, shall thereafter become a part of the proceedings for the issuance of the Bonds and any Parity Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds and Parity Bonds have consented to the adoption of any Supplemental Indenture, Bonds or Parity Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District, shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination.

Upon the adoption of any Supplemental Indenture and the receipt of consent to any such Supplemental Indenture from the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds and Parity Bonds in instances where such consent is required pursuant to the provisions of this Section, this Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the District and all Owners of Outstanding Bonds and Parity Bonds shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments.

Section 6.3. Notation of Bonds or Parity Bonds; Delivery of Amended Bonds or Parity Bonds. After the effective date of any action taken as hereinabove provided, the District may determine that the Bonds or any Parity Bonds may bear a notation, by endorsement in form approved by the District, as to such action, and in that case upon demand of the Owner of any Outstanding Bond or Parity Bond at such effective date and presentation of such Owner’s Bond or Parity Bond for the purpose at the office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation as to such action shall be made on such Bonds or Parity Bonds. If the District shall so determine, new Bonds or Parity Bonds so modified as, in the opinion of the District, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Outstanding Bond or Parity Bond at such effective date such new Bonds or Parity Bonds shall be exchanged at the office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, without cost to each Owner of Outstanding Bonds or Parity Bonds, upon surrender of such Outstanding Bonds or Parity Bonds.

The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning: (i) the lack of material adverse effect of the amendment on Owners; and (ii) the fact that the amendment will not affect the tax status of interest with respect to the Bonds.

ARTICLE VII

TRUSTEE
Section 7.1. Trustee. Wilmington Trust, National Association shall be the Trustee for the Bonds and any Parity Bonds unless and until another Trustee is appointed by the District hereunder.

The Trustee represents that it has (or is a member of a bank holding company system whose bank holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least $100,000,000. The District may, at any time, appoint a successor Trustee satisfying the requirements 38 4858-5434-7218/022042-0026
of Section 7.2 below for the purpose of receiving all money which the District is required to deposit with the Trustee hereunder and to allocate, use and apply the same as provided in this Indenture.

The Trustee is hereby authorized to and shall mail by first class mail, postage prepaid, or wire transfer in accordance with Section 2.5 above, interest payments to the Owners, to select Bonds and Parity Bonds for redemption, and to maintain the Bond Register. The Trustee is hereby authorized to pay the principal of and premium, if any, on the Bonds and Parity Bonds when the same are duly presented to it for payment at maturity or on call and redemption, to provide for the registration of transfer and exchange of Bonds and Parity Bonds presented to it for such purposes, to provide for the cancellation of Bonds and Parity Bonds all as provided in this Indenture, and to provide for the authentication of Bonds and Parity Bonds, and shall perform all other duties assigned to or imposed on it as provided in this Indenture. The Trustee shall keep accurate records of all funds administered by it and all Bonds and Parity Bonds paid, discharged and cancelled by it.

The Trustee is hereby authorized to pay and redeem the Bonds and Parity Bonds when duly presented for payment at maturity, or on redemption prior to maturity. The Trustee shall cancel all Bonds and Parity Bonds upon payment thereof in accordance with the provisions of Section 10.1 hereof.

The District shall from time to time, subject to any agreement between the District and the Trustee then in force, timely pay to the Trustee following demand therefor compensation for its services, reimburse the Trustee for all its advances and expenditures, including, but not limited to, advances to and fees, costs and expenses of independent accountants or counsel employed by it in the exercise and performance of its powers and duties hereunder, and indemnify and save the Trustee, its officers, directors, employees and agents, harmless against costs, claims, expenses and liabilities, including, without limitation, fees, costs and expenses of its attorneys (not arising from its own gross negligence or willful misconduct) which it may incur in the exercise and performance of its powers and duties hereunder. The foregoing obligation of the District to indemnify the Trustee shall survive the removal or resignation of the Trustee or the discharge of the Bonds and Parity Bonds.

Section 7.2. Removal of Trustee. The District may at any time at its sole discretion, upon 30 days’ notice, remove the Trustee initially appointed, and any successor thereto, by delivering to the Trustee a written notice of its decision to remove the Trustee and may appoint a successor or successors thereto; provided that any such successor shall be a bank or trust company having (or whose parent bank holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least $100,000,000, and subject to supervision or examination by federal or state authority. Any removal shall become effective only upon acceptance of appointment by the successor Trustee. If any bank or trust company appointed as a successor publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Any removal of the Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee and notice of the successor Trustee’s identity and address being sent by the successor Trustee to the Owners.

Section 7.3. Resignation of Trustee. The Trustee may at any time resign and be discharged from its duties and obligations hereunder by giving written notice to the District. Upon receiving such notice of resignation, the District shall promptly appoint a successor Trustee 39 4858-5434-7218/022042-0026
satisfying the criteria in Section 7.2 above by an instrument in writing. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed by the District within thirty (30) days of giving such notice or removal or resignation, then the Trustee, or any Owner may petition, at the sole expense of the District, a court of competent jurisdiction for the appointment of a successor Trustee and other appropriate relief, and such court may thereupon, after such notice (if any) as it may deem proper, appoint a successor Trustee under this Indenture.

Section 7.4. Liability of Trustee. The recitals of fact and all promises, covenants and agreements contained herein and in the Bonds and any Parity Bonds shall be taken as statements, promises, covenants and agreements of the District, and the Trustee assumes no responsibility or liability for the correctness of the same and makes no representations whatsoever as to the validity or sufficiency of this Indenture, the Bonds or any Parity Bonds, and shall incur no responsibility or liability in respect thereof, other than in connection with its express duties or obligations specifically set forth herein, in the Bonds and any Parity Bonds, or in the certificate of authentication assigned to or imposed upon the Trustee. The Trustee shall not have nor be under any responsibility or duty with respect to the issuance of the Bonds or any Parity Bonds for value. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own gross negligence or willful misconduct. The Trustee shall not be liable for any action taken or omitted by it or any of its officers, employees or agents in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. The Trustee shall not be liable for any actions taken or omitted to be taken, or any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was grossly negligent in ascertaining the pertinent facts.

The Trustee shall be entitled to request and receive written instructions from the District and/or Owners and shall have no responsibility or liability for any losses or damages of any nature that may arise from any action taken or not taken by the Trustee in accordance with the written direction of any such party. The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in accordance with the written direction of the Owners of not less than a majority in aggregate principal amount of the Bonds and Parity Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture.

The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of an Owner and/or the District, pursuant to the provisions of this Indenture, unless such party shall have offered to the Trustee security or indemnity (satisfactory to the Trustee in its sole and absolute discretion) against the costs, expenses and liabilities which may be incurred by it in compliance with such request or direction.

Neither the Trustee nor any of its directors, officers, employees, agents or affiliates shall be responsible for nor have any duty to monitor the performance or any action of the District or any of its directors, members, officers, agents, affiliates or employees, nor shall it have any liability in connection with the malfeasance or nonfeasance by such party. The Trustee may assume performance by all such persons of their respective obligations. The Trustee shall have no enforcement or notification obligations relating to breaches of representations or warranties of any other person. The Trustee shall be conclusively protected in acting upon any notice, resolution, request, consent, order, judgement, decree, certificate, report, Bond, Parity Bond or other paper or document signed or presented by the proper party or parties as provided hereunder, not only as to due 40 4858-5434-7218/022042-0026
execution, validity and effectiveness, but also as to the truth and accuracy of any information contained therein. The Trustee may, at the expense of the District, request, rely on and act in accordance with officer’s certificates and/or opinions of counsel, and shall incur no liability and shall be fully protected in acting or refraining from acting in accordance with such officer’s certificates and opinions of counsel.

The Trustee shall not be bound to recognize any person as the Owner of a Bond or Parity Bond unless and until such Bond or Parity Bond is submitted for inspection, if required, and his title thereto is satisfactorily established to the Trustee, if disputed.

Whenever in the administration of its express obligations under this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, the Trustee may, at the expense of the District, request, rely on and act in accordance with officer’s certificates and/or opinions of counsel (unless other evidence in respect thereof be herein specifically prescribed), and shall incur no liability and shall be fully protected in acting or refraining from acting in accordance with such officer’s certificates and opinions of counsel, but in its discretion the Trustee may but shall not be obligated to accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. It is understood and agreed that no such act shall broaden or imply the Trustee’s acceptance of a broadening of the scope of the Trustee’s duties and obligations hereunder unless the Trustee shall provide written acceptance thereof.

The Trustee shall have no duty or obligation whatsoever to enforce the collection of Special Taxes or other funds to be deposited with it hereunder, or as to the correctness of any amounts received, but its liability shall be limited to the proper accounting for such funds as it actually receives. No provision in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of its rights or powers.

The Trustee shall not be deemed to have knowledge of any default or event of default under this Indenture until an officer at the Trustee’s corporate trust office responsible for the administration of its duties hereunder shall have actual knowledge thereof or the Trustee shall have received written notice thereof at its corporate trust office.

The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds and any Parity Bonds.

Before taking any action under Article VIII hereof the Trustee may require that indemnity and security satisfactory to the Trustee in its sole and exclusive discretion be furnished to it for and from any expenses and liabilities and to protect it against any liability it may incur hereunder.

The immunities extended to the Trustee also extend to its directors, officers, employees and agents (including its counsel).

The Trustee shall not be liable for any action taken or not taken by it in accordance with the direction of the Owners of 25% (or other percentage provided for herein) in aggregate principal amount of Bonds and Parity Bonds Outstanding relating to the exercise of any right, power or 41 4858-5434-7218/022042-0026
remedy available to the Trustee. In the event of conflicting instructions hereunder, the Trustee shall have the right to decide the appropriate course of action and will be protected in so doing.

The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty or in any way expand or impliedly expand the scope of the Trustee’s duties hereunder, and, with respect to such permissive rights, the Trustee shall not be answerable for other than its gross negligence or willful misconduct.

The Trustee may execute any of the trusts or powers hereof and perform any of its duties through attorneys, agents and receivers and shall not be answerable for the conduct of the same if appointed by it with reasonable care. The Trustee shall be entitled to rely on and shall not be liable for any action taken or omitted to be taken by the Trustee in accordance with the advice of counsel or other professionals retained or consulted by the Trustee.

The Trustee may become the Owner or pledgee of the Bonds and Parity Bonds with the same rights it would have if it were not Trustee.

The Trustee shall perform such duties and only such duties as are specifically set forth in this Indenture and no implied duties or obligations shall be read into this Indenture against the Trustee.

These duties shall be deemed purely ministerial in nature, and the Trustee shall not be liable except for the performance of such duties.

If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person.

The District shall, to the extent permitted by law, indemnify and save the Trustee and its officers, directors, agents, and employees harmless from and against (whether or not litigated) all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of: (i) the use, maintenance, condition or management of, or from any work or thing done on, the Project; (ii) any breach or default on the part of the District in the performance of any of its obligations under this Indenture and any other agreement made and entered into for purposes of the Bonds and Parity Bonds; (iii) any act of the City, the District or of any of its agents, contractors, servants, employees or licensees with respect to the Project; (iv) any act of any assignee of, or purchaser from, the City, the District or of any of its or their agents, contractors, servants, employees or licensees with respect to the Project; (v) the construction or acquisition of the Project or the expenditure of Project Costs; (vi) the exercise and performance by the Trustee of its powers and duties hereunder or any related document; (vii) the sale of the Bonds and Parity Bonds and the carrying out of any of the transactions contemplated by the Bonds and Parity Bonds or this Indenture; or (viii) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made in light of the circumstances in which they were made, not misleading in any official statement or other disclosure document utilized in connection with the sale or marketing of the Bonds and Parity Bonds. The indemnification set forth in this Section shall extend to the Trustee’s officers, agents, employees, successors and assigns. No indemnification will be made under this Section or elsewhere in this Indenture or other agreements for willful misconduct or negligence by the Trustee, its officers, agents, employees, successors or assigns. The District’s obligations hereunder shall remain valid and binding notwithstanding maturity and payment of the Bonds and Parity Bonds, or the resignation or removal of the Trustee.
42 4858-5434-7218/022042-0026
In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity, and all persons, including, without limitation, the Owners, the District and the City, having any claim against the Trustee arising from this Indenture shall look only to the funds and accounts held by the Trustee hereunder for payment, except as otherwise provided herein.

Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Bonds and any Parity Bonds.

THE TRUSTEE MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS

OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR

FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE DISTRICT OF THE PROJECT, OR ANY PORTION THEREOF. In no event shall the Trustee be liable for incidental, indirect, punitive, special or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), in connection with or arising out of the Project or this Indenture for the existence, furnishing, functioning or use and possession of the Project, irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

The Trustee shall not be liable to the parties hereto or deemed in breach or default hereunder if and to the extent its performance hereunder is prevented by reason of force majeure. The term “force majeure” means an occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. Force majeure shall include, but not limited to, any act or provision of any present or future law or regulation or governmental authority; acts of God; earthquakes; fires; floods; wars; terrorism; civil or military disturbances; sabotage; epidemics; quarantine restrictions; riots; interruptions, loss or malfunctions of utilities, computer (hardware or software) or communications service; accidents; labor disputes; acts of civil or military authority or governmental actions; or the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility, or other similar occurrences.

The Trustee shall be entitled to request and receive written instructions from the District or other parties and shall have no responsibility or liability for any losses or damages of any nature that may arise from any action taken or not taken by the Trustee in accordance with the written direction of the District or such other parties. The Trustee shall have the right to accept and act upon directions given pursuant to this Indenture and delivered using electronic notice; provided, however, that the District shall provide to the Trustee an incumbency certificate listing each Authorized Representative of the District with the authority to provide such directions and containing specimen signatures of such authorized officers, which incumbency certificate shall be amended whenever a person is to be added or deleted from the listing. If the District elects to give the Trustee directions using electronic notice and the Trustee in its discretion elects to act upon such directions, the Trustee’s understanding of such directions shall be deemed controlling. The District understands and agrees that the Trustee cannot determine the identity of the actual sender of such directions and that the Trustee shall conclusively presume that directions that purport to have been sent by an authorized officer listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Representative of the District. The District shall be responsible for ensuring that only an Authorized Representative of the District shall transmit such directions to the Trustee and that each Authorized Representative of the District treat applicable user and authorization codes, passwords and/or authentication keys with extreme care. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and a compliance with such directions, notwithstanding such directions conflict or are inconsistent with a subsequent written direction. The District agrees (i) to assume all risks arising out of the use of electronic notice to 43 4858-5434-7218/022042-0026
submit directions to the Trustee, including, without limitation, the risk of the Trustee acting on unauthorized directions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting directions to the Trustee and that there may be more secure methods of transmitting directions than the method(s) selected by the District; and (iii) that the security procedures (if any) to be followed in connection with its transmission of directions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances.

Section 7.5. Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding.

ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.1. Events of Default. Any one or more of the following events shall constitute an “Event of Default”:
(a) default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond or Parity Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; (b) default in the due and punctual payment of the interest on any Bond or Parity Bond when and as the same shall become due and payable; or
(c) except as described in subsections (a) or (b), default by the District in the observance of any of the agreements, conditions or covenants on its part contained in this Indenture, the Bonds or any Parity Bonds, which default continues for a period of 30 days after the District has been given notice in writing of such default by the Trustee or the Owners of twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds and Parity Bonds.

The Trustee agrees to give notice to the Owners as soon as practicable upon the occurrence of an Event of Default under subsections (a) or (b) above and within 30 days of the Trustee’s actual knowledge of an Event of Default under subsection (c) above.

Section 8.2. Remedies of Owners. Upon the occurrence of an Event of Default, any Owner may pursue any available remedy at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Outstanding Bonds and Parity Bonds, and to enforce any rights of the Trustee under or with respect to this Indenture, including:
(a) by mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in this Indenture; 44 4858-5434-7218/022042-0026
(b) by suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or
(c) by a suit in equity to require the District and its members, officers and employees to account as the trustee of an express trust.

If an Event of Default shall have occurred and be continuing and if requested and directed so to do by the Owners of at least twenty-five percent (25%) in aggregate principal amount of Outstanding Bonds and Parity Bonds and if indemnified to its satisfaction, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Owners of the Bonds and Parity Bonds.

No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law.

Section 8.3. Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Owners under the provisions of this Indenture relating to the Bonds and Parity Bonds shall be applied by the Trustee in the following order upon presentation of the several Bonds and Parity Bonds:

First, to the payment of the costs, fees and expenses of the Trustee in declaring such Event of Default and in performing its duties and obligations hereunder, including reasonable compensation to its agents, attorneys and counsel;
Second, to the payment of the fees, costs and expenses of the Owners in declaring such Event of Default and in carrying out the provisions of this Article VIII, including reasonable compensation to its agents, attorneys and counsel, and to the payment of all other outstanding fees and expenses of the Trustee; and
Third, to the payment of the whole amount of interest on and principal of the Bonds and Parity Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Outstanding Bonds and Parity Bonds; provided, however, that in the event that such amounts shall be insufficient to pay the full amount of such interest and principal, then such amounts shall be applied in the following order of priority:
(a) first to the payment of all installments of interest on the Bonds and Parity Bonds then due and unpaid on a pro rata basis based on the total amount then due and owing; (b) second, to the payment of all installments of principal, including Sinking Fund Payments, of the Bonds and Parity Bonds then due and unpaid on a pro rata basis based on the total amount then due and owing; and
(c) third, to the payment of interest on overdue installments of principal and interest on the Bonds and Parity Bonds on a pro rata basis based on the total amount then due and owing. 45 4858-5434-7218/022042-0026
Section 8.4. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its obligations hereunder, whether upon its own discretion or upon the request of the Owners of twenty-five percent (25%) in aggregate principal amount of the Bonds and Parity Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds and Parity Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in aggregate principal amount of the Outstanding Bonds and Parity Bonds hereunder opposing such discontinuance, withdrawal, compromise, settlement or other such litigation. Any suit, action or proceeding which any Owner of Bonds or Parity Bonds shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners of Bonds and Parity Bonds similarly situated and the Trustee is hereby appointed (and the successive respective Owners of the Bonds and Parity Bonds issued hereunder, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney in fact of the respective Owners of the Bonds and Parity Bonds for the purposes of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds and Parity Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact.

Section 8.5. Appointment of Receivers. Upon the occurrence of an Event of Default hereunder, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights and of the Owners of the Bonds and Parity Bonds under this Indenture, the Trustee shall be entitled, as a matter of right to which the District expressly agrees, to the appointment of a receiver or receivers of the Net Taxes and other amounts pledged hereunder, pending such proceedings, with such powers as the court making such appointment shall confer.

Section 8.6. Non-Waiver. Nothing in this Article VIII or in any other provision of this Indenture, or in the Bonds or the Parity Bonds, shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds and Parity Bonds to the respective Owners of the Bonds and Parity Bonds at the respective dates of maturity, as herein provided, or to pay the Trustee its fees and expenses as provided in Section 8.3 hereof, out of the Net Taxes and other moneys herein pledged for such payment.

A waiver of any default or breach of duty or contract by the Trustee or any Owners shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission of the Trustee or any Owner of any of the Bonds or Parity Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy conferred upon the Trustee or the Owners by the Act or by this Article VIII may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Owners, as the case may be.

Section 8.7. Limitations on Rights and Remedies of Owners. No Owner of any Bond or Parity Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Indenture, unless: (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the 46 4858-5434-7218/022042-0026
Owners of a majority in aggregate principal amount of all the Bonds and Parity Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity and security reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity and security shall have been made to, the Trustee.

Such notification, request, tender of indemnity and security and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds and Parity Bonds of any remedy hereunder; it being understood and intended that no one or more Owners of Bonds and Parity Bonds shall have any right in any manner whatever by his or their action to enforce any right under this Indenture, except in the manner herein provided, and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Owners of the Outstanding Bonds and Parity Bonds.

The right of any Owner of any Bond and Parity Bond to receive payment of the principal of and interest and premium (if any) on such Bond and Parity Bond as herein provided or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the written consent of such Owner, notwithstanding the foregoing provisions of this Section or any other provision of this Indenture.

Section 8.8. Termination of Proceedings. In case any Owner shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case, the District, the Trustee and the Owners shall be restored to their former positions and rights hereunder, respectively, with regard to the property subject to this Indenture, and all rights, remedies and powers of the Owners shall continue as if no such proceedings had been taken.

ARTICLE IX

DEFEASANCE AND PARITY BONDS
Section 9.1. Defeasance. If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond or Parity Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in this Indenture or any Supplemental Indenture, then the Owner of such Bond or Parity Bond shall cease to be entitled to the pledge of Net Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond or Parity Bond under this Indenture and any Supplemental Indenture relating to such Parity Bond shall thereupon cease, terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds and Parity Bonds pursuant to this Section, the Trustee shall execute and deliver to the District all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the District’s general fund all money or securities held by it pursuant to this Indenture which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds and Parity Bonds.
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Any Outstanding Bond or Parity Bond shall be deemed to have been paid within the meaning expressed in the first paragraph of this Section if such Bond or Parity Bond is paid in any one or more of the following ways:
(a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond or Parity Bond, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond or Parity Bond, as and when the same shall become due and payable; or (c) by depositing with the Trustee or another escrow bank appointed by the District, in trust, federal securities described in subparagraph (1) of the definition of Authorized Investments, in which the District may lawfully invest its money, in such amount as will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond or Parity Bond, as and when the same shall become due and payable.

If paid as provided above, then, at the election of the District, and notwithstanding that any Outstanding Bonds and Parity Bonds shall not have been surrendered for payment, all obligations of the District under this Indenture and any Supplemental Indenture with respect to such Bond or Parity Bond shall cease and terminate, except for the obligation of the Trustee to pay or cause to be paid to the Owners of any such Bond or Parity Bond not so surrendered and paid all sums due thereon, and except for the covenants of the District contained in Section 5.2(f) or any covenants in a Supplemental Indenture relating to compliance with the Code. Notice of such election shall be filed with the Trustee not less than ten days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Trustee. In connection with a defeasance under (c) above, there shall be provided to the District a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Trustee or the escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding Bonds and Parity Bonds to be defeased in accordance with this Section, as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds or Parity Bonds being defeased have been legally defeased in accordance with this Indenture and any applicable Supplemental Indenture.

Upon a defeasance, the Trustee, upon request of the District, shall release the rights of the Owners of such Bonds and Parity Bonds which have been defeased under this Indenture and any Supplemental Indenture and execute and deliver to the District all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance hereunder of all Outstanding Bonds and Parity Bonds, the Trustee shall pay over or deliver to the District any funds held by the Trustee at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of or interest on the Bonds and Parity Bonds when due. The Trustee shall, at the written direction of the District, mail, first class, postage prepaid, a notice to the Owners whose Bonds or Parity Bonds have been defeased, in the form directed by the District, stating that the defeasance has occurred.
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Section 9.2. Conditions for the Issuance of Parity Bonds and Other Additional Indebtedness. The District may at any time after the issuance and delivery of the Bonds hereunder issue Parity Bonds payable from the Net Taxes and other amounts deposited in the Special Tax Fund (other than in the Administrative Expense Account therein) and secured by a lien and charge upon such amounts equal to the lien and charge securing the Outstanding Bonds and any other Parity Bonds theretofore issued hereunder or under any Supplemental Indenture; provided, however, that Parity Bonds may only be issued for the purpose of refunding all or a portion of the Bonds or Parity Bonds then Outstanding subject to the following specific conditions, which are hereby made conditions precedent to the issuance of any such Parity Bonds:
(a) The District shall be in compliance with all covenants set forth in this Indenture and any Supplemental Indenture then in effect and a certificate of the District to that effect shall have been filed with the Trustee; provided, however, that Parity Bonds may be issued notwithstanding that the District is not in compliance with all such covenants so long as immediately following the issuance of such Parity Bonds the District will be in compliance with all such covenants. (b) The issuance of such Parity Bonds shall have been duly authorized pursuant to the Act and all applicable laws, and the issuance of such Parity Bonds shall have been provided for by a Supplemental Indenture duly adopted by the District which shall specify the following:
(1) the purpose for which such Parity Bonds are to be issued and the fund or funds into which the proceeds thereof are to be deposited; (2) the authorized principal amount of such Parity Bonds; (3) the date and the maturity date or dates of such Parity Bonds; provided that:
(i) each maturity date shall fall on a September 1; (ii) all such Parity Bonds of like maturity shall be identical in all respects, except as to number; (iii) fixed serial maturities or Sinking Fund Payments, or any combination thereof, shall be established to provide for the retirement of all such Parity Bonds on or before their respective maturity dates; and (iv) the maturity of such Parity Bonds shall not exceed the maturity of the Bonds being refunded;
(4) the description of the Parity Bonds, the place of payment thereof and the procedure for execution and authentication;
(5) the denominations and method of numbering of such Parity Bonds; (6) the amount and due date of each mandatory Sinking Fund Payment, if any, for such Parity Bonds;
(7) the amount, if any, to be deposited from the proceeds of such Parity Bonds in the Reserve Account of the Special Tax Fund to increase the amount therein to the Reserve Requirement;
(8) the form of such Parity Bonds; and
(9) such other provisions as are necessary or appropriate and not inconsistent with this Indenture.
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(c) The District shall have received the following documents or money or securities, all of such documents dated or certified, as the case may be, as of the date of delivery of such Parity Bonds by the Trustee (unless the Trustee shall be directed by the District to accept any of such documents bearing a prior date):
(1) a certified resolution of the City Council, acting as the legislative body of the District, authorizing the issuance of such Parity Bonds; (2) a written request of the District as to the delivery of such Parity Bonds; (3) an opinion of Bond Counsel and/or general counsel to the District to the effect that: (i) the District has the right and power under the Act to execute and deliver the Supplemental Indenture relating to such Parity Bonds, and such Supplemental Indenture has been duly and lawfully executed by the District, and the Indenture and such Supplemental Indenture are in full force and effect and are valid and binding upon the District and enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors’ rights); (ii) this Indenture creates the valid pledge which it purports to create of the Net Taxes and other amounts as provided in this Indenture, subject to the application thereof to the purposes and on the conditions permitted by this Indenture; and (iii) such Parity Bonds are valid and binding limited obligations of the District, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors’ rights) and the terms of this Indenture and the Supplemental Indenture executed and delivered in connection with such Parity Bonds and are entitled to the benefits of this Indenture and such Supplemental Indenture, and such Parity Bonds have been duly and validly authorized and issued in accordance with the Act (or other applicable laws) and this Indenture and such Supplemental Indenture; (4) a certificate of the District containing such statements as may be reasonably necessary to show compliance with the requirements of this Indenture; (5) a certificate of an Independent Financial Consultant certifying that in each Bond Year the Annual Debt Service on the Bonds and Parity Bonds to remain Outstanding following the issuance of the Parity Bonds proposed to be issued is less than the Annual Debt Service on the Bonds and Parity Bonds Outstanding prior to the issuance of such Parity Bonds; and (6) such further documents, money and securities as are required by the provisions of this Indenture and the Supplemental Indenture providing for the issuance of such Parity Bonds.

ARTICLE X

MISCELLANEOUS
Section 10.1. Cancellation of Bonds and Parity Bonds. All Bonds and Parity Bonds surrendered to the Trustee for payment upon maturity or for redemption shall be upon payment therefor, and any Bond or Parity Bond purchased by the District as authorized herein and delivered to the Trustee for such purpose shall be, cancelled forthwith and shall not be reissued. The Trustee shall destroy such Bonds and Parity Bonds, as provided by law, and, upon request of the District, furnish to the District a certificate of such destruction. 50 4858-5434-7218/022042-0026
Section 10.2. Execution of Documents and Proof of Ownership. Any request, direction, consent, revocation of consent, or other instrument in writing required or permitted by this Indenture to be signed or executed by Owners may be in any number of concurrent instruments of similar tenor and may be signed or executed by such Owners in person or by their attorneys appointed by an instrument in writing for that purpose, or by the bank, trust company or other depository for such Bonds. Proof of the execution of any such instrument, or of any instrument appointing any such attorney, and of the ownership of Bonds or Parity Bonds shall be sufficient for the purposes of this Indenture (except as otherwise herein provided), if made in the following manner:
(a) The fact and date of the execution by any Owner or his or her attorney of any such instrument, and of any instrument appointing any such attorney, may be proved by a signature guarantee of any bank or trust company located within the United States of America. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such signature guarantee shall also constitute sufficient proof of his authority.
(b) As to any Bond or Parity Bond, the person in whose name the same shall be registered in the Bond Register shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal of any such Bond or Parity Bond, and the interest thereon, shall be made only to or upon the order of the registered Owner thereof or his or her legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond or Parity Bond and the interest thereon to the extent of the sum or sums to be paid. Neither the District nor the Trustee shall be affected by any notice to the contrary.

Nothing contained in this Indenture shall be construed as limiting the Trustee or the District to such proof, it being intended that the Trustee or the District may accept any other evidence of the matters herein stated which the Trustee or the District may deem sufficient. Any request or consent of the Owner of any Bond or Parity Bond shall bind every future Owner of the same Bond or Parity Bond in respect of anything done or suffered to be done by the Trustee or the District in pursuance of such request or consent.

Section 10.3. Unclaimed Moneys. Anything in this Indenture to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of any of the Outstanding Bonds and Parity Bonds which remain unclaimed for two years after the date when such Outstanding Bonds or Parity Bonds have become due and payable, if such money was held by the Trustee at such date, or for two years after the date of deposit of such money if deposited with the Trustee after the date when such Outstanding Bonds or Parity Bonds become due and payable, shall be repaid by the Trustee to the District, as its absolute property and free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the District for the payment of such Outstanding Bonds or Parity Bonds; provided, however, that, before being required to make any such payment to the District, the Trustee, at the expense of the District, shall cause to be mailed by first-class mail, postage prepaid, to the registered Owners of such Outstanding Bonds or Parity Bonds at their addresses as they appear on the registration books of the Trustee a notice that said money remains unclaimed and that, after a date named in said notice, which date shall not be less than 30 days after the date of the mailing of such notice, the balance of such money then unclaimed will be returned to the District.
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Section 10.4. Provisions Constitute Contract; Governing Law. The provisions of this Indenture shall constitute a contract between the District and the Owners and the provisions hereof shall be governed by and construed in accordance with the laws of the State of California.

In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and, should said suit, action or proceeding be abandoned, or be determined adversely to the Owners or the Trustee, then the District, the Trustee and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken.

After the issuance and delivery of the Bonds, this Indenture shall be irrepealable, but shall be subject to modifications to the extent and in the manner provided in this Indenture, but to no greater extent and in no other manner.

Section 10.5. Future Contracts. Nothing herein contained shall be deemed to restrict or prohibit the District from making contracts or creating bonded or other indebtedness payable from a pledge of the Net Taxes which is subordinate to the pledge hereunder, or which is payable from the general fund of the District or from taxes or any source other than the Net Taxes and other amounts pledged hereunder.

Section 10.6. Further Assurances. The District will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture, and for the better assuring and confirming unto the Owners of the Bonds or any Parity Bonds the rights and benefits provided in this Indenture.

Section 10.7. Entire Agreement; Severability. This Indenture and the exhibits hereto set forth the entire agreement and understanding of the parties related to this transaction and supersedes all prior agreements and understandings, oral or written. If any covenant, agreement or provision, or any portion thereof, contained in this Indenture, or the application thereof to any person or circumstance, is held to be unconstitutional, invalid or unenforceable, the remainder of this Indenture and the application of any such covenant, agreement or provision, or portion thereof, to other persons or circumstances, shall be deemed severable and shall not be affected thereby, and this Indenture, the Bonds and any Parity Bonds issued pursuant hereto shall remain valid and the Owners shall retain all valid rights and benefits accorded to them under the laws of the State of California.

Section 10.8. Notices. Any notices required to be given to the District with respect to the Bonds or this Indenture shall be mailed, first class, postage prepaid, or personally delivered to the City Manager of the City of Lake Elsinore, 130 South Main Street, Lake Elsinore California 92530, all notices to the Trustee in its capacity as Trustee shall be mailed, first class, postage prepaid, or personally delivered to the Trustee, Wilmington Trust, National Association, 650 Town Center Drive, Suite 800, Costa Mesa, California 92626.

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IN WITNESS WHEREOF, COMMUNITY FACILITIES DISTRICT NO. 2019-2 OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH) has caused this Indenture to be signed by an Authorized Representative of the District and Wilmington Trust, National Association in token of its acceptance of the trust created hereunder, has caused this Indenture to be signed in its corporate name by its officers identified below, all as of the day and year first above written.

COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS
RANCH)
By:

City Manager of the City of Lake Elsinore,
acting as the legislative body of Community
Facilities District No. 2019-2 of the City of
Lake Elsinore (Nichols Ranch)
ATTEST:

City Clerk of the City of Lake Elsinore,
acting as the legislative body of
Community Facilities District No. 2019-2
of the City of Lake Elsinore (Nichols
Ranch)

WILMINGTON TRUST, NATIONAL
ASSOCIATION, as Trustee
By:

Authorized Signatory
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EXHIBIT A

FORM OF SPECIAL TAX BOND

UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE DISTRICT OR TRUSTEE FOR

REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO

SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY

TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

R-____ $___________

UNITED STATES OF AMERICA

STATE OF CALIFORNIA

COUNTY OF RIVERSIDE
COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH)
SPECIAL TAX BOND, SERIES 2024
INTEREST RATE: MATURITY DATE: DATED DATE: CUSIP:
% September 1, 20__ September ___, 2024 ___
REGISTERED OWNER: CEDE & CO.

PRINCIPAL AMOUNT: __________________ DOLLARS
COMMUNITY FACILITIES DISTRICT NO. 2019-2 OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH) (the “District”) which was formed by the City of Lake Elsinore (the “City”) and is situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Indenture (as hereinafter defined), to the Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter provided, the Principal Amount set forth above, and to pay interest on such Principal Amount from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication hereof, unless: (i) the date of authentication is an Interest Payment Date, in which event interest shall be payable from such date of authentication; (ii) the date of authentication is after a Record Date (as hereinafter defined) but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication; or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the A-2
4858-5434-7218/022042-0026
interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above.

Interest will be paid semiannually on March 1, 2025 and each March 1 and September 1 thereafter (each an “Interest Payment Date”), at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment.

The principal of and premium, if any, on this Bond are payable to the Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of the Trustee (as such term is defined in the Indenture), initially Wilmington Trust, National Association (the “Trustee”). Interest on this Bond shall be paid by check of the Trustee mailed, by first class mail, postage prepaid, or in certain circumstances described in the Indenture by wire transfer to an account within the United States of America, to the Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the “Record Date”) at such Owner’s address as it appears on the registration books maintained by the Trustee.

This Bond is one of a duly authorized issue of “Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) Special Tax Bonds, Series 2024” (the “Bonds”) issued in the aggregate principal amount of $________ pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, being Section 53311 et seq. of the California Government Code (the “Act”) for the purpose of financing public improvements, funding a reserve account, funding capitalized interest on the Bonds and paying certain costs related to the issuance of the Bonds. The issuance of the Bonds and the terms and conditions thereof are provided for by a resolution adopted by the City Council of the City, acting in its capacity as the legislative body of the District (the “Legislative Body”), on August 13, 2024, and a Bond Indenture executed in connection therewith dated as of September 1, 2024 (the “Indenture”), by and between the District and the Trustee, and this reference incorporates the Indenture herein, and by acceptance hereof the Owner of this Bond assents to said terms and conditions. The Indenture is adopted under and this Bond is issued under, and both are to be construed in accordance with, the laws of the State of California.

Pursuant to the Act and the Indenture, the principal of, premium, if any, and interest on this Bond are payable solely from the portion of the annual special taxes authorized under the Act to be levied and collected within the District (the “Special Taxes”) and certain other amounts pledged to the repayment of the Bonds as set forth in the Indenture. Any amounts for the payment hereof shall be limited to the Net Taxes pledged and collected or foreclosure proceeds received following a default in payment of the Special Taxes and other amounts deposited to the Special Tax Fund (other than the Administrative Expense Account therein) established under the Indenture, except to the extent that other provision for payment has been made by the Legislative Body, as may be permitted by law. The District has covenanted for the benefit of the owners of the Bonds that under certain circumstances described in the Indenture it will commence and diligently pursue to completion appropriate foreclosure proceedings in the event of delinquencies of Special Tax installments levied for payment of principal and interest on the Bonds.

The Bonds may be redeemed at the option of the District from any source of funds on any Interest Payment Date on and after September 1, 20__, in whole or in part, from such maturities as are selected by the District and by lot within a maturity, at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption:

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Redemption Date Redemption Price
103%
102
101
100
The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account established under the Indenture, on September 1, 20__ and on each September 1 thereafter prior to maturity in accordance with the schedule of Sinking Fund Payments set forth below. The 20__ Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed at a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1) Sinking Fund Payments
$
*
_____________
* Maturity.

The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account established under the Indenture, on September 1, 20__ and on each September 1 thereafter prior to maturity in accordance with the schedule of Sinking Fund Payments set forth below. The 20__ Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed at a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1) Sinking Fund Payments
$
*
_____________
* Maturity.

The Bonds are subject to special mandatory redemption as a whole, or in part on a pro rata basis among maturities and by lot within a maturity, on any Interest Payment Date on and after A-4
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March 1, 2025, and shall be redeemed by the Trustee, from Prepayments deposited to the Redemption Account plus amounts transferred from the Reserve Account in connection with such transfers, at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the redemption date:

Redemption Date Redemption Price
103%
102
101
100
Notice of redemption with respect to the Bonds to be redeemed shall be mailed to the registered owners thereof not less than 30 nor more than 45 days prior to the redemption date by first class mail, postage prepaid, to the addresses set forth in the registration books; provided, however, so long as the Bonds are registered in the name of the Nominee, such notice shall be given in such manner as complies with the requirements of the Depository. Neither a failure of the Owner hereof to receive such notice nor any defect therein will affect the validity of the proceedings for redemption. All Bonds or portions thereof so called for redemption will cease to accrue interest on the specified redemption date, provided that funds for the redemption are on deposit with the Trustee on the redemption date. Thereafter, the registered owners of such Bonds shall have no rights except to receive payment of the redemption price upon the surrender of the Bonds.

This Bond shall be registered in the name of the Owner hereof, as to both principal and interest, and the District and the Trustee may treat the Owner hereof as the absolute owner for all purposes and shall not be affected by any notice to the contrary.

The Bonds are issuable only in fully registered form in the denomination of $5,000 or any integral multiple thereof and may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same issue and maturity, all as more fully set forth in the Indenture. This Bond is transferable by the Owner hereof, in person or by his attorney duly authorized in writing, at the Principal Office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, upon surrender and cancellation of this Bond. Upon such transfer, a new registered Bond of authorized denomination or denominations for the same aggregate principal amount of the same issue and maturity will be issued to the transferee in exchange therefor.

The Trustee shall not be required to register transfers or make exchanges of: (i) any Bonds for a period of 15 days next preceding any selection of the Bonds to be redeemed; or (ii) any Bonds chosen for redemption.

The rights and obligations of the District and of the registered owners of the Bonds may be amended at any time, and in certain cases without notice to or the consent of the registered owners, to the extent and upon the terms provided in the Indenture.

THE BONDS DO NOT CONSTITUTE GENERAL OBLIGATIONS OF THE CITY OR OF THE DISTRICT. NEITHER THE CITY NOR THE DISTRICT IS OBLIGATED TO LEVY OR

PLEDGE, OR HAS LEVIED OR PLEDGED, GENERAL OR SPECIAL TAXES, OTHER THAN THE SPECIAL TAXES REFERENCED HEREIN. THE BONDS ARE LIMITED OBLIGATIONS

OF THE DISTRICT PAYABLE FROM THE PORTION OF THE SPECIAL TAXES AND OTHER A-5
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AMOUNTS PLEDGED UNDER THE INDENTURE BUT ARE NOT A DEBT OF THE CITY,

THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR RESTRICTION.

This Bond shall not become valid or obligatory for any purpose until the certificate of authentication and registration hereon endorsed shall have been dated and signed by the Trustee.

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by law to exist, happen and be performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law, and that the amount of this Bond, together with all other indebtedness of the District, does not exceed any debt limit prescribed by the laws or Constitution of the State of California.

IN WITNESS WHEREOF, Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) has caused this Bond to be dated the Dated Date, to be signed on behalf of the District by the Mayor of the City by her facsimile signature and attested by the facsimile signature of the City Clerk of the City.

Mayor of the City of Lake Elsinore, acting as the
legislative body of Community Facilities District No.
2019-2 of the City of Lake Elsinore (Nichols Ranch)
ATTEST:

City Clerk of the City of Lake Elsinore, acting
as the legislative body of Community
Facilities District No. 2019-2 of the City of
Lake Elsinore (Nichols Ranch)
[FORM OF TRUSTEE’S CERTIFICATE
OF AUTHENTICATION AND REGISTRATION]
This is one of the Bonds described in the within-defined Indenture.

Dated: September ___, 2024 WILMINGTON TRUST, NATIONAL
ASSOCIATION as Trustee
By:

Authorized Signatory
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[FORM OF LEGAL OPINION]
The following is a true copy of the opinion rendered by Stradling Yocca Carlson & Rauth LLP, in connection with the issuance of, and dated as of the date of the original delivery of, the Bonds. A signed copy is on file in my office.

City Clerk of the City of Lake Elsinore
[FORM OF ASSIGNMENT]
For value received the undersigned do(es) hereby sell, assign and transfer unto whose tax identification number is ,
the within-mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee with full power of substitution in the premises.

Dated:

Signature guaranteed:

NOTE: Signature(s) must be guaranteed by an
eligible guarantor institution.

NOTE: The signatures(s) on this Assignment
must correspond with the name(s) as written on
the face of the within Bond in every particular
without alteration or enlargement or any change
whatsoever.

B-1
4858-5434-7218/022042-0026
EXHIBIT B-1

FORM OF REQUISITION FOR DISBURSEMENT OF PROJECT COSTS
$________
SPECIAL TAX BONDS, SERIES 2024
COMMUNITY FACILITIES DISTRICT NO. 2019-2 OF THE

CITY OF LAKE ELSINORE (NICHOLS RANCH)
Wilmington Trust, National Association (the “Trustee”), is hereby requested to pay from the [City Facilities][Water Facilities] Account of the Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) Acquisition and Construction Fund, established by the Bond Indenture, dated as of September 1, 2024, by and between the Trustee and Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) (the “District”), the amount specified to the payee named below for payment of the Project Costs set forth in Attachment No. 1 hereto.

Payee:

Address:

Purpose:

Amount: $
The amount is due and payable under purchase order, contract or other authorization and has not formed the basis of any prior request for payment. The conditions for the release of this amount from the [City Facilities][Water Facilities] Account, including those conditions in Section 3.9(b) of the Indenture have been satisfied.

There has not been filed with nor served upon the District notice of any lien, right to lien or attachment upon, or stop notice or claim affecting the right to receive payment of the amount specified above which has not been released or will not be released simultaneously with the payment of such amount, other than materialmen’s or mechanic’s liens accruing by mere operation of law.

Dated: COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS
RANCH)
By:

Name:

Title: _____________________________________
4873-2980-6805v1/022042-0026

DISTRICT CONTINUING DISCLOSURE CERTIFICATE
THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated as of September 1, 2024, is executed and delivered by Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) (the “District”) in connection with the issuance of the Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) Special Tax Bonds, Series 2024 (the “Bonds”). The Bonds are being issued pursuant to a Resolution of Issuance adopted by the City Council of the City of Lake Elsinore, acting as the legislative body of the District on August 13, 2024 and a Bond Indenture by and between the District and Wilmington Trust, National Association, as Trustee, dated as of September 1, 2024 (the “Indenture”).

The District covenants as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered, for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.

SECTION 2. Definitions. In addition to the definitions set forth in the Indenture and the Rate and Method of Apportionment, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Beneficial Owner” shall mean any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including a person holding Bond through a nominee, depository or other intermediary), or (b) is treated as the owner of any Bond for federal income purposes.
“City” shall mean the City of Lake Elsinore, County of Riverside, California. “Disclosure Representative” shall mean the City Manager of the City, or such other officer or employee as the District shall designate in writing to the Dissemination Agent from time to time. “Dissemination Agent” shall mean, initially, Spicer Consulting Group, LLC, or any successor Dissemination Agent designed in writing by the District. “EMMA” shall mean the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at www.emma.msrb.org, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission in the future.
“Financial Obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule.
2 “Listed Events” shall mean any of the events listed in Section 5 of this Disclosure Certificate. “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule.

Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.
“Official Statement” shall mean the District’s official statement with respect to the Bonds. “Participating Underwriter” shall mean Stifel, Nicolaus & Company, Incorporated. “Rate and Method of Apportionment” means that certain Rate and Method of Apportionment of Special Tax approved pursuant to the Resolution of Formation. “Resolution of Formation” means the resolutions adopted by the City Council pursuant to which the City Council formed the District and undertook certain change proceedings with respect to the District.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

SECTION 3. Provision of Annual Reports.
(a) Not later than February 15 of each year commencing February 15, 2024, the District shall, or shall cause the Dissemination Agent to, provide to EMMA and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate.

If the Dissemination Agent is other than the District, then not later than 15 business days prior to the date referred to in the prior sentence hereof, the District shall provide the Annual Report (in a form suitable for filing with EMMA) to the Dissemination Agent. The Annual Report may be submitted as a single document or as separate documents comprising a package and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report. (b) In the event that the Dissemination Agent is an entity other than the District, then the provisions of this Section 3(b) shall apply. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report, the District shall provide the Annual Report to the Dissemination Agent. If by fifteen (15) Business Days prior to the due date for an Annual Report the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District will be filing the Annual Report in compliance with subsection (a). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report.
(c) If the Dissemination Agent is other than the District and if the Dissemination Agent is unable to verify that an Annual Report has been provided to EMMA by the date required in subsection 3 (a), the Dissemination Agent shall send a notice in a timely manner to EMMA, in the form required by EMMA. If the District acts as its own Dissemination Agent, it shall file a notice with EMMA no later than the date specified in subsection (a) for filing an Annual Report if the District fails to file the Annual Report by that date.
(d) If the Dissemination Agent is other than the District, the Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual Report the name and address of the repository if other than the MSRB through EMMA; and (ii) promptly after receipt of the Annual Report, file a report with the District certifying that the Annual Report has been provided to EMMA and the date it was provided. (e) Notwithstanding any other provision of this Disclosure Certificate, all filings shall be made in accordance with the MSRB’s EMMA system or in another manner approved under the Rule.

SECTION 4. Content of Annual Reports. The District’s Annual Report shall contain or include by reference:
(a) Financial Statements. The audited financial statements of the District, if any, for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board.

If the District’s audited financial statements, if any are prepared, are not available by the time the Annual Report is required to be filed pursuant to Section 3, the Annual Report shall contain unaudited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available.
(b) Financial and Operating Data. The Annual Report shall contain or incorporate by reference the following information:
(i) the principal amount of Bonds outstanding as of the September 2 preceding the filing of the Annual Report;
(ii) the balance in each fund under the Indenture as of the September 2 preceding the filing of the Annual Report;
(iii) the aggregate assessed valuation of the Taxable Property within the District; (iv) any changes to the Rate and Method of Apportionment of the Special Tax approved or submitted to the qualified electors for approval prior to the filing of the Annual Report; (v) a table setting forth the annual Special Tax delinquency rate within the District at June 30 for each fiscal year on which a delinquency exists, listing for each fiscal year the total Special Tax levy, the amount delinquent and the percent delinquent; (vi) the status of any foreclosure actions being pursued by the District with respect to delinquent Special Taxes within the District; and
4 (vii) an update of the value-to-lien of the property within the District based on the assessed value and the Special Tax levy for then current fiscal year, which update may be provided in a form similar to Table 2 in the Official Statement; provided that such update need not include overlapping special tax, assessment or general obligation indebtedness. (c) Any or all of the items listed in (a) or (b) above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB through EMMA.

The District shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the District shall give, or cause the Dissemination Agent to give, notice to EMMA in a timely manner not in excess of ten (10) business days after the occurrence of any of the following events with respect to the Bonds:

1. principal and interest payment delinquencies;

2. unscheduled draws on debt service reserves reflecting financial difficulties;

3. unscheduled draws on credit enhancements reflecting financial difficulties;

4. substitution of credit or liquidity providers, or their failure to perform;

5. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds;

6. defeasances;

7. tender offers;

8. bankruptcy, insolvency, receivership or similar proceedings;

9. ratings changes; and

10. default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties.
(b) Additionally, the District shall give or cause the Dissemination Agent to give notice to EMMA in a timely manner not in excess of ten (10) business days after the occurrence of any of the following events with respect to the Bonds, if material:

1. mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated persons or their termination;
5 2. appointment of a successor or additional fiscal agent or the change of the name of a fiscal agent;

3. nonpayment related defaults;

4. modifications to the rights of Bondholders;

5. bond calls;

6. release, substitution or sale of property securing repayment of the Bonds; and

7. incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders.
(c) In the event that the District’s fiscal year changes, the District shall report or shall instruct the Dissemination Agent to report such change in the same manner and to the same parties as Listed Events would be reported pursuant to this Section. (d) The District hereby agrees that the undertaking set forth in this Disclosure Certificate is the responsibility of the District, and the Dissemination Agent, if other than the District, shall not be responsible for determining whether the District’s instructions to the Dissemination Agent under this Section comply with the requirements of the Rule.

SECTION 6. Termination of Reporting Obligation. The obligations of the District and the Dissemination Agent under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5.

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Spicer Consulting Group, LLC. The Dissemination Agent may resign by providing (i) thirty days written notice to the District, and (ii) upon appointment of a new Dissemination Agent hereunder.

SECTION 8. Amendment.
(a) This Disclosure Certificate may be amended, by written agreement of the parties, without the consent of the Owners, and any provision of this Disclosure Certificate may be waived, if all of the following conditions are satisfied: (1) such amendment or waiver is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law, or a change in the identity, nature or status of the District or the type of business conducted thereby, (2) the undertakings in this Disclosure Certificate as so amended or waived would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule as of the date of this Disclosure Certificate, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (3) the amendment or waiver 6 either (i) is approved by the Owners of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Owners or (ii) does not, in the determination of the District, materially impair the interests of the Owners or Beneficial Owners of the Bonds. (b) To the extent any amendment to this Disclosure Certificate results in a change in the type of financial information or operating data provided pursuant to this Disclosure Certificate, the first Annual Report provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.
(c) If an amendment is made to the basis on which financial statements are prepared, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a quantitative and, to the extent reasonably feasible, qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the District or the Dissemination Agent to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District and/or the Dissemination Agent to comply with their respective obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the District or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. Where an entity other than the District is acting as the Dissemination Agent, the Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. Any Dissemination Agent shall be paid (i) compensation by the District for its services provided hereunder in accordance with a schedule of fees to be mutually agreed to; and (ii) all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the District pursuant to this Disclosure 7 Certificate. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Certificate. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach under this Disclosure Certificate.

SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds; and it shall create no rights in any other person or entity.

SECTION 13. Merger. Any person succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any further act.

This Disclosure Certificate is executed as of the date and year first set forth above.

COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS
RANCH)
By:

Disclosure Representative
1 $________
COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH)
SPECIAL TAX BONDS, SERIES 2024

BOND PURCHASE AGREEMENT
__________, 2024
City of Lake Elsinore
Community Facilities District No. 2019-2
(Nichols Ranch)
130 South Main Street
Lake Elsinore, California 92530
Ladies and Gentlemen:

Stifel, Nicolaus & Company, Incorporated, as underwriter (the “Underwriter”), acting not as a fiduciary or agent for you, but on behalf of itself, offers to enter into this Bond Purchase Agreement (this “Purchase Agreement”) with Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) (the “Community Facilities District”), which upon acceptance will be binding upon the Underwriter and the Community Facilities District. The agreement of the Underwriter to purchase the Bonds (as hereinafter defined) is contingent upon the Community Facilities District satisfying all of the obligations imposed upon them under this Purchase Agreement.

This offer is made subject to the Community Facilities District’s acceptance by the execution of this Purchase Agreement and its delivery to the Underwriter at or before 11:59 P.M., local time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the Community Facilities District at any time prior to the acceptance hereof by the Community Facilities District. All capitalized terms used herein, which are not otherwise defined, shall have the meaning provided for such terms in the Bond Indenture, dated as of September 1, 2024 (the “Indenture”), by and between the Community Facilities District and Wilmington Trust, National Association, as trustee (the “Trustee”).

1. Purchase, Sale and Delivery of the Bonds.

Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein: (i) the Underwriter hereby agrees to purchase from the Community Facilities District and the Community Facilities District hereby agrees to sell to the Underwriter all (but not less than all) of the $_______ aggregate principal amount of the Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) Special Tax Bonds, Series 2024 (the “Bonds”), dated the Closing Date (as hereinafter defined), bearing interest at the rates and maturing on the dates and in the principal amounts set forth in Exhibit A hereto. The purchase price for the Bonds shall be $________ (being 100% of the aggregate principal amount thereof, plus an original issue premium of $_______ and less an Underwriter’s discount of $_______).

The Underwriter agrees to make a bona fide public offering of all of the Bonds initially at the public offering prices (or yields) set forth in Exhibit A attached hereto and incorporated herein by 2 reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds subject to Section 2 hereof, provided that the Underwriter shall not change the interest rates set forth in Exhibit A. The Bonds may be offered and sold to certain dealers at prices lower than such initial offering prices.

The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable from the Net Taxes as provided in the Indenture, the Preliminary Official Statement (as hereinafter defined), and the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Community Facilities District Act”). The issuance of the Bonds has been duly authorized by the City Council of the City of Lake Elsinore (the “City”), as the legislative body for the Community Facilities District, pursuant to a resolution (the “Community Facilities District Resolution of Issuance”) adopted on _________, 2024.

The net proceeds of the Bonds will be used to: (i) finance certain public improvements needed with respect to the development of property located within the Community Facilities District, including public improvements to be owned by the City and water and sewer facilities to be owned and operated by the Elsinore Valley Municipal Water District; (ii) fund a reserve account for the Bonds; (iii) fund capitalized interest on a portion of the Bonds through March 1, 2025; and (iv) pay costs of issuance for the Bonds.

The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable from special taxes as provided in the Indenture (the “Special Taxes”).

A. The Community Facilities District hereby acknowledges that the Underwriter is entering into this Purchase Agreement in reliance on the representations, warranties and agreements made by the Community Facilities District herein, and the Community Facilities District shall take all action necessary to enforce its rights hereunder for the benefit of the Underwriter and shall immediately notify the Underwriter if it becomes aware that any representation, warranty or agreement made by the Community Facilities District herein is incorrect in any material respect.

The Community Facilities District acknowledges and agrees that (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm’s-length commercial transaction between the Community Facilities District and the Underwriter, (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as principal and not as the agent or fiduciary of the Community Facilities District, (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the Community Facilities District with respect to (a) the offering of the Bonds or the process leading thereto (whether or not the Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the Community Facilities District on other matters) or (b) any other obligations to the Community Facilities District with respect to the offering contemplated hereby, except the obligations expressly set forth in this Purchase Agreement or otherwise imposed by law, (iv) the Underwriter has financial interests that differ from those of the Community Facilities District and (v) the Community Facilities District has consulted with their own legal, financial and other advisors to the extent they have deemed appropriate in connection with this transaction. The Community Facilities District acknowledges that it has previously provided the Underwriter with an acknowledgement of receipt of the required Underwriter disclosure under Rule G-17 of the Municipal 3 Securities Rulemaking Board (“MSRB”). The Community Facilities District acknowledges and represents that it has engaged Urban Futures, Inc. as its municipal advisor (the “Municipal Advisor”) (as defined in Securities and Exchange Commission Rule 15Ba1) and will rely solely on the financial advice of Urban Futures, Inc. with respect to the Bonds.

B. Pursuant to the authorization of the Community Facilities District, the Underwriter has distributed copies of the Preliminary Official Statement dated _______, 2024, relating to the Bonds, which, together with the cover page, inside cover page and appendices thereto is herein called the “Preliminary Official Statement.” By its acceptance of this Purchase Agreement, the Community Facilities District hereby ratifies the use by the Underwriter of the Preliminary Official Statement, and the Community Facilities District agrees to execute a final official statement relating to the Bonds (including any supplements and/or amendments thereto, the “Official Statement”) which will consist of the Preliminary Official Statement with such changes as may be made thereto, with the approval of Stradling Yocca Carlson & Rauth LLP, Bond Counsel (“Bond Counsel”), Stradling Yocca Carlson & Rauth LLP, Disclosure Counsel (“Disclosure Counsel”), and the Underwriter, and to provide copies thereof to the Underwriter as set forth herein. The Community Facilities District hereby authorizes and requires the Underwriter to use and promptly distribute, in connection with the offer and sale of the Bonds, the Preliminary Official Statement, the Official Statement and any supplement or amendment thereto. The Community Facilities District further authorizes the Underwriter to use and distribute, in connection with the offer and sale of the Bonds, the Indenture, the Continuing Disclosure Certificate executed by the Community Facilities District in connection with the Bonds (the “Continuing Disclosure Certificate”), this Purchase Agreement and all information contained herein, and all other documents, certificates and statements furnished by or on behalf of the Community Facilities District to the Underwriter in connection with the transactions contemplated by this Purchase Agreement.

C. To assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”), the Community Facilities District will undertake pursuant to the Continuing Disclosure Certificate, in the form attached to the Official Statement as Appendix F, to provide annual reports and notices of certain enumerated events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement.

D. Except as the Underwriter and the Community Facilities District may otherwise agree, the Community Facilities District will deliver to the Underwriter, at the offices of Bond Counsel in Newport Beach, California, or at such other location as may be mutually agreed upon by the Underwriter and the Community Facilities District, the documents hereinafter mentioned; and the Community Facilities District will deliver to the Underwriter through the facilities of The Depository Trust Company (“DTC”), the Bonds, in definitive form (all Bonds bearing CUSIP numbers), duly executed by the Community Facilities District and authenticated by the Trustee in the manner provided for in the Indenture and the Community Facilities District Act at 8:00 a.m. California time, on ________, 2024 (the “Closing Date”), and the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in paragraph (A) of this Section by wire transfer, payable in federal or other immediately available funds (such delivery and payment being herein referred to as the “Closing”). The Bonds shall be in fully registered book-entry form (which may be typewritten) and shall be registered in the name of Cede & Co., as nominee of DTC. 4 2. Establishment of Issue Price.

A. The Underwriter agrees to assist the Community Facilities District in establishing the issue price of the Bonds and shall execute and deliver to the Community Facilities District at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit D, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the Community Facilities District and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds.

B. Except as otherwise set forth in Exhibit A attached hereto, the Community Facilities District will treat the first price at which 10% of each maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase Agreement, the Underwriter shall report to the Community Facilities District the price or prices at which it has sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the Community Facilities District the prices at which it sells the unsold Bonds of that maturity to the public.

That reporting obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been satisfied as to the Bonds of that maturity or until all Bonds of that maturity have been sold to the public.

C. The Underwriter confirms that it has offered the Bonds to the public on or before the date of this Purchase Agreement at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Exhibit A attached hereto. Exhibit A also sets forth, as of the date of this Purchase Agreement, the maturities, if any, of the Bonds for which the Underwriter represents that (i) the 10% test has been satisfied (assuming orders are confirmed by the close of the business day immediately following the date of this Purchase Agreement) and (ii) the 10% test has not been satisfied and for which the Community Facilities District and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the Community Facilities District to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-the-offering-price rule”). So long as the hold-the-offering- price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following:

1. the close of the fifth (5th) business day after the sale date; or

2. the date on which the Underwriter has sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public.

The Underwriter shall promptly advise the Community Facilities District when it has sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public, if that occurs prior to the close of the fifth (5th) business day after the sale date.

D. The Underwriter confirms that:
(i) any selling group agreement and any third-party distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will 5 contain language obligating each dealer who is a member of the selling group and each broker-dealer that is a party to such third-party distribution agreement, as applicable:
(A)(i) to report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter and (ii) to comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter, (B) to promptly notify the Underwriter of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below), and (C) to acknowledge that, unless otherwise advised by the dealer or broker-dealer, the Underwriter shall assume that each order submitted by the dealer or broker-dealer is a sale to the public. (ii) any selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer that is a party to a third-party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such third-party distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter or the dealer that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter or the dealer, and (B) comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter or the dealer and as set forth in the related pricing wires.

E. The Community Facilities District acknowledges that, in making the representation set forth in this section, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a third-party distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in the third-party distribution agreement and the related pricing wires.

F. The Underwriter acknowledges that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section. Further, for purposes of this section:

1. “public” means any person other than an underwriter or a related party; 6 2. “underwriter” means (A) any person that agrees pursuant to a written contract with the Community Facilities District (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the public);

3. a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (A) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (B) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (C) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and

4. “sale date” means the date of execution of this Purchase Agreement by all parties.

3. Representations, Warranties and Covenants of the Community Facilities District. The Community Facilities District represents, warrants and covenants to the Underwriter on behalf of itself and the City that:

A. The City is duly organized and validly existing as a general law city under the Constitution and laws of the State of California and has duly authorized the formation of the Community Facilities District pursuant to resolutions duly adopted by the City Council (the “Community Facilities District Formation Resolution” and, together with the Community Facilities District Resolution of Issuance, the “Community Facilities District Resolutions”) and the Community Facilities District Act. The City Council, as the legislative body of the City and the Community Facilities District, has duly adopted the Community Facilities District Formation Resolution, and has caused to be recorded in the real property records of the County of Riverside, a notice of special tax lien, and any required amendments thereof (collectively, the “Notice of Special Tax Lien”) (the Community Facilities District Formation Resolution and Notice of Special Tax Lien being collectively referred to herein as the “Formation Documents”), and has duly adopted a Community Facilities District Resolution of Issuance. Each of its Formation Documents remains in full force and effect as of the date hereof and has not been amended. The Community Facilities District is duly organized and validly existing as a Community Facilities District under the laws of the State of California. The Community Facilities District has, and at the Closing Date will have, as the case may be, full legal right, power and authority:
(i) to execute, deliver and perform its obligations under this Purchase Agreement, the Continuing Disclosure Certificate and the Indenture, and to carry out all transactions contemplated by each of such agreements; (ii) to issue, sell and deliver the Bonds as provided herein; and (iii) to carry out, give effect to and consummate the transactions contemplated by the Formation Documents, the Indenture, the Bonds, the Continuing Disclosure Certificate, this Purchase Agreement and the Official Statement.

This Purchase Agreement, the Indenture, the Bonds and the Continuing Disclosure Certificate are collectively referred to herein as the “Community Facilities District Documents.” 7 B. The Community Facilities District and the City, as applicable, have each complied, and will at the Closing Date be in compliance in all material respects, with the Formation Documents and the Community Facilities District Documents, and any immaterial noncompliance by the Community Facilities District and the City, if any, will not impair the ability of the Community Facilities District and the City, as applicable, to carry out, give effect to or consummate the transactions contemplated by the foregoing. From and after the date of issuance of the Bonds, the Community Facilities District will continue to comply with the covenants of the Community Facilities District contained in the Community Facilities District Documents.

C. The information in the Preliminary Official Statement and in the Official Statement relating to the Community Facilities District and the Bonds (other than information under the captions “PROPERTY OWNERSHIP AND THE DEVELOPMENT,” CONTINUING DISCLOSURE — Developer Continuing Disclosure and “UNDERWRITING,” Appendix D and Appendix H, information provided by Meritage Homes of California, Inc. (the “Developer”), the Appraiser and the Special Tax Consultant (as such terms are defined herein) and statements pertaining to the book entry system, as to which no view is expressed), is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and, upon delivery and up to and including 25 days after the End of the Underwriting Period (as defined in paragraph (D) below), the Official Statement will be amended and supplemented so as to contain no misstatement of any material fact or omission of any statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading.

D. Up to and including 25 days after the End of the Underwriting Period (as defined below), the Community Facilities District will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The Community Facilities District will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise materially affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. As used herein, the term “End of the Underwriting Period” means the later of such time as: (i) the Bonds are delivered to the Underwriter; or (ii) the Underwriter does not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless the Underwriter gives notice to the contrary, the End of the Underwriting Period shall be deemed to be the Closing Date. Any notice delivered pursuant to this provision shall be written notice delivered to the Community Facilities District at or prior to the Closing Date and shall specify a date (other than the Closing Date) to be deemed the “End of the Underwriting Period.” E. Except as described in the Preliminary Official Statement and Official Statement, the Community Facilities District is not, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Community Facilities District is a party or is otherwise subject or bound, and the performance of its obligations under the Community Facilities District Documents and compliance with the provisions of each thereof, or the performance of the conditions precedent to be performed by the Community Facilities District pursuant to this Purchase Agreement, will not conflict with or constitute a breach of 8 or default under any applicable law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Community Facilities District is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the Community Facilities District of its obligations under the Community Facilities District Documents or the performance of the conditions precedent to be performed by the Community Facilities District pursuant to this Purchase Agreement.

F. Except as may be required under the “blue sky” or other securities laws of any jurisdiction, all approvals, consents, authorizations, elections and orders of, or filings or registrations with, any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the Community Facilities District of its obligations under the Community Facilities District Documents, and the performance of the conditions precedent to be performed by the Community Facilities District pursuant to this Purchase Agreement, have been or will be obtained at the Closing Date and are or will be in full force and effect at the Closing Date.

G. The Community Facilities District Documents conform as to form and tenor to the descriptions thereof contained in the Official Statement.

H. The Bonds are payable from the Special Tax of the Community Facilities District, as set forth in the Indenture, the levy of which has been duly and validly authorized pursuant to the Community Facilities District Act and the Community Facilities District will covenant in the Indenture to levy the Special Taxes within the Community Facilities District in an amount which, together with other available funds, is required for the payment of the principal of, and interest on, the Bonds when due and payable, all as provided in the Indenture.

I. The Indenture creates a valid pledge of, first lien upon and security interest in, the Net Taxes, and in the moneys in the Special Tax Fund (other than the Administrative Expense Account) established pursuant to the Indenture, on the terms and conditions set forth in the Indenture.

J. Except as disclosed in the Preliminary Official Statement, there are, to the best of the Community Facilities District’s knowledge, no entities with outstanding assessment liens against any of the properties within the Community Facilities District or which are senior to or on a parity with the Special Taxes of the Community Facilities District referred to in paragraph (I) hereof.

K. The Preliminary Official Statement was deemed final by a duly authorized officer of the Community Facilities District prior to its delivery to the Underwriter, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(1) of the Rule. The Community Facilities District hereby covenants and agrees that, within seven (7) business days from the date hereof, or upon reasonable written notice from the Underwriter within sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, the Community Facilities District shall cause a final printed form of the Official Statement to be delivered to the Underwriter in sufficient quantity to comply with paragraph (b)(4) of the Rule and Rules G-12, G-15, G-32 and G-36 of the Municipal Securities Rulemaking Board.

L. At the time of acceptance hereof there is and as of the Closing there will be no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, 9 public board or body (collectively and individually, an “Action”) pending (notice of which has been served on the Community Facilities District) or to the best knowledge of the Community Facilities District or the City threatened, in which any such Action: (i) in any way questions the existence of the Community Facilities District or the titles of the officers of the Community Facilities District to their respective offices; (ii) affects, contests or seeks to prohibit, restrain or enjoin the issuance or delivery of the Bonds or the payment or collection of Special Taxes or any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contests or affects the validity of the Community Facilities District Documents or the consummation of the transactions on the part of the Community Facilities District contemplated thereby; (iii) contests the exemption of interest on the Bonds from federal or State income taxation or contests the powers of the Community Facilities District which may result in any material adverse change relating to the financial condition of the Community Facilities District; or (iv) contests the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserts that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and as of the time of acceptance hereof there is and, as of the Closing Date, there will be no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of this sentence.

M. Any certificate signed on behalf of the Community Facilities District by any officer or employee of the Community Facilities District authorized to do so shall be deemed a representation and warranty by the Community Facilities District to the Underwriter on behalf of itself and the Community Facilities District as to the statements made therein.

N. At or prior to the Closing the Community Facilities District will have duly authorized, executed and delivered the Continuing Disclosure Certificate in substantially the form attached as Appendix F to the Official Statement. Based upon a review of its previous undertakings, and except as disclosed in the Preliminary Official Statement, the Community Facilities District has not failed to comply in all respects with any previous undertakings with regard to the Rule to provide annual reports or notices of enumerated events in the last five years.

O. The Community Facilities District will apply the proceeds of the Bonds in accordance with the Indenture and as described in the Official Statement.

P. Until such time as moneys have been set aside in an amount sufficient to pay all then outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior to maturity, the Community Facilities District will faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture.

Q. Between the date of this Purchase Agreement and the date of Closing, the Community Facilities District will not offer or issue any bonds, notes or other obligations for borrowed money not previously disclosed to the Underwriter.

The Community Facilities District hereby approves the preparation and distribution of the Official Statement, consisting of the Preliminary Official Statement with such changes as are noted thereon and as may be made thereto, with the approval of Bond Counsel, Disclosure Counsel and the Underwriter, from time to time prior to the Closing Date. 10 The execution and delivery of this Purchase Agreement by the Community Facilities District shall constitute a representation by the Community Facilities District to the Underwriter that the representations and warranties contained in this Section 3 with respect to the Community Facilities District are true as of the date hereof.

4. Conditions to the Obligations of the Underwriter. The obligation of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations and warranties on the part of the Community Facilities District contained herein, to the accuracy in all material respects of the statements of the officers and other officials of the Community Facilities District made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the Community Facilities District of their obligations to be performed hereunder at or prior to the Closing Date, and in reliance upon the representations and covenants of the Developer contained in the certificates delivered as of the Closing Date, and to the following additional conditions:

A. At the Closing Date, the Community Facilities District Resolutions and the Community Facilities District Documents shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds and with the Bonds, and with the transactions contemplated thereby, and by this Purchase Agreement, all such actions as, in the opinion of Bond Counsel, shall be necessary and appropriate.

B. At the Closing Date, except as described in the Official Statement, the City shall not be, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, and the performance of the conditions precedent to be performed hereunder will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance of the conditions precedent to be performed by the City hereunder.

C. At the Closing Date, except as described in the Official Statement, the Community Facilities District shall not be, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Community Facilities District is a party or is otherwise subject or bound, and the performance by the Community Facilities District of its obligations under the Bonds, the Community Facilities District Resolutions, the Indenture, and any other instruments contemplated by any of such documents, and compliance with the provisions of each thereof, or the performance of the conditions precedent to be performed hereunder, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or 11 administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Community Facilities District is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the Community Facilities District of its obligations under the Indenture, the Bonds or the performance of the conditions precedent to be performed by the Community Facilities District hereunder.

D. The information contained in the Official Statement is, as of the Closing Date and as of the date of any supplement or amendment thereto pursuant hereto, true and correct in all material respects and does not, as of the Closing Date or as of the date of any supplement or amendment thereto, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

E. Between the date hereof and the Closing Date, the market price or marketability, at the initial offering prices set forth on the inside cover page of the Official Statement, of the Bonds or the ability of the Underwriter to enforce contracts for the sale of the Bonds, shall not have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice to the Community Facilities District terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds), by reason of any of the following:

1. Legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America or recommended to the Congress by the President of the United States, the Department of the Treasury, the Internal Revenue Service, or any member of Congress, or favorably reported for passage to either House of Congress by any committee of such House to which such legislation had been referred for consideration, or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department of the United States of America or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon such interest as would be received by any owners of the Bonds beyond the extent to which such interest is subject to taxation as of the date hereof; or

2. Legislation introduced in or enacted (or resolution passed) by the Congress or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, including any or all underlying arrangements, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character of the Bonds, including any or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise is or would be in violation of the federal securities laws as amended and then in effect; or

3. A general suspension of trading on the New York Stock Exchange or other major exchange shall be in force, or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on any such exchange, whether by virtue of determination by that exchange or by order of the SEC or any other governmental authority having jurisdiction; or
12 4. The introduction, proposal or enactment of any amendment to the Federal or California Constitution or any action by any Federal or California court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the Community Facilities District, its property, income, securities (or interest thereon), the validity or enforceability of Special Taxes, or the ability of the Community Facilities District to issue the Bonds as contemplated by the Indenture and the Official Statement; or

5. Any event occurring, or information becoming known which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Preliminary Official Statement or in the Official Statement, or has the effect that the Preliminary Official Statement or the Official Statement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; or

6. Any national securities exchange, the Comptroller of the Currency, or any other governmental authority, shall impose as to the Bonds, or obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, the Underwriter; or

7. There shall have occurred (1) an outbreak or escalation of hostilities or the declaration by the United States of a national emergency or war or (2) any other calamity or crisis in the financial markets of the United States or elsewhere or the escalation of such calamity or crisis; or

8. Except as disclosed in or contemplated by the Official Statement, any material adverse change in the affairs of the City or Community Facilities District shall have occurred; or

9. Any event or circumstance shall exist that either makes untrue or incorrect in any material respect any statement or information in the Official Statement (other than any statement provided by the Underwriter) or is not reflected in the Official Statement but should be reflected therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and, in either such event, the Community Facilities District refuses to permit the Official Statement to be supplemented to supply such statement or information, or the effect of the Official Statement as so supplemented is to materially adversely affect the market price or marketability of the Bonds or the ability of the Underwriter to enforce contracts for the sale of the Bonds; or

10. A general banking moratorium shall have been declared by federal or State authorities having jurisdiction and be in force; or

11. A material disruption in securities settlement, payment or clearance services affecting the Bonds shall have occurred; or

12. Any new restriction on transactions in securities materially affecting the market for securities (including the imposition of any limitation on interest rates) or the extension of credit by, or a charge to the net capital requirements of, underwriters shall have been established by the New York Stock Exchange, the SEC, any other federal or State agency or the Congress of the United States, or by Executive Order; or

13. A decision by a court of the United States shall be rendered, or a stop order, release, regulation or no-action letter by or on behalf of the SEC or any other governmental agency having jurisdiction of 13 the subject matter shall have been issued or made, to the effect that the issuance, offering or sale of the Bonds, including the underlying obligations as contemplated by this Purchase Agreement or by the Official Statement, or any document relating to the issuance, offering or sale of the Bonds, is or would be in violation of any provision of the federal securities laws at the Closing Date, including the Securities Act, the Exchange Act and the Trust Indenture Act; or

14. Any proceeding shall have been commenced or be threatened in writing by the Securities and Exchange Commission against the City or the Community Facilities District; or

15. The commencement of any Action.

F. At or prior to the Closing Date, the Underwriter shall have received a counterpart original or certified copy of the following documents, in each case satisfactory in form and substance to the Underwriter:

1. The Official Statement, executed on behalf of the Community Facilities District by an authorized officer;

2. The Indenture, duly executed and delivered by the Community Facilities District and the Trustee;

3. The Community Facilities District Resolution, the Community Facilities District Documents and the Formation Documents, together with a certificate dated as of the Closing Date of the City Clerk to the effect that the Community Facilities District Resolutions are true, correct and complete copies of the ones duly adopted by the City Council;

4. The Continuing Disclosure Certificate executed and delivered by an authorized officer the Community Facilities District;

5. An unqualified approving opinion for the Bonds, dated the Closing Date and addressed to the Community Facilities District, of Bond Counsel, to the effect that the Bonds are the valid, legal and binding obligations of the Community Facilities District and that the interest thereon is excluded from gross income for federal income tax purposes and exempt from personal income taxes of the State of California, in substantially the form included as Appendix C to the Official Statement, together with a letter of Bond Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the Community Facilities District may be relied upon by the Underwriter to the same extent as if such opinion was addressed to it;

6. A supplemental opinion or opinions, dated the Closing Date and addressed to the Underwriter, of Bond Counsel, to the effect that:
(i) this Purchase Agreement and the Continuing Disclosure Certificate have been duly authorized, executed and delivered by the Community Facilities District and, assuming due authorization, execution and delivery by the other parties thereto, as applicable, constitute the legal, valid and binding obligations of the Community Facilities District and are enforceable in accordance with their terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting creditors’ rights generally or by the exercise of judicial discretion in accordance with general principles of equity or otherwise in appropriate cases and by limitations on legal remedies against public agencies in the State; 14 (ii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended;
(iii) the information contained in the Official Statement on the cover and under the captions “THE BONDS” (other than the caption “Debt Service Schedule”), “SOURCES OF PAYMENT FOR THE BONDS,” “TAX EXEMPTION” AND “LEGAL OPINION” and in Appendices C and E to the Official Statement, are accurate insofar as such statements purport to summarize certain provisions of the Bonds, the Indenture, Bond Counsel’s final approving opinion, and the Community Facilities District Act.

7. The letter of Disclosure Counsel, dated the Closing Date and addressed to the Community Facilities District and to the Underwriter, to the effect that, without having undertaken to determine independently the accuracy or completeness of the statements contained in the Official Statement, but on the basis of their participation in conferences with representatives of the Community Facilities District, the Special Tax Consultant and others, and their examination of certain documents, nothing has come to their attention which has led them to believe that the Preliminary Official Statement as of its date and the Official Statement as of its date and as of the Closing Date contained or contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that no opinion or belief need be expressed as to any financial statements or other financial, statistical or engineering data or forecasts, numbers, charts, estimates, projections, assumptions, or expressions of opinion, any information about valuation, appraisals, absorption, archeological or environmental matters, or any information with respect to the City, or any information with respect to prior compliance by the Developer with continuing disclosure undertakings under the Rule or about DTC or the book-entry-only system);

8. A certificate dated the Closing Date and signed by an authorized representative of the Community Facilities District or an authorized designee, on behalf of the Community Facilities District to the effect that: (i) the representations and warranties made by the Community Facilities District contained herein are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date; (ii) to the best knowledge of such officer, no event has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; and (iii) the Community Facilities District has complied with all the agreements and satisfied all the conditions on its part to be satisfied under this Purchase Agreement, the Community Facilities District Resolutions, and the Community Facilities District Documents at or prior to the Closing Date;

9. An opinion of the City Attorney dated the date of Closing and addressed to the Underwriter and the City, to the effect that:
(i) The City is a municipal corporation and general law city, duly organized and existing under the Constitution and laws of the State of California; (ii) The Community Facilities District Resolutions have been duly adopted at meetings of the City Council, which were called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the Community 15 Facilities District Resolutions are in full force and effect and have not been modified, amended, rescinded or repealed since the respective dates of their adoption; (iii) The Community Facilities District Documents and the Official Statement have been duly authorized, executed and delivered by the City and the Community Facilities District Documents constitute the legal, valid and binding obligations of the Community Facilities District enforceable against the Community Facilities District in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights, to the application of equitable principles where equitable remedies are sought and to the exercise of judicial discretion in appropriate cases;
(iv) Except as may be stated in the Official Statement, there is no action, suit, proceeding or investigation before or by any court, public board or body pending (notice of which has been served on the City or the Community Facilities District) or, to such counsel’s knowledge, threatened wherein an unfavorable decision, ruling or finding would: (a) affect the creation, organization, existence or powers of the City, or the titles of its members and officers to their respective offices; or (b) affect the validity of the Community Facilities District Documents or restrain or enjoin the repayment of the Bonds or in any way contest or affect the validity of the Community Facilities District Documents or contest the authority of the Community Facilities District to enter into or perform its obligations under any of the Community Facilities District Documents, questions the right of the Community Facilities District to use Special Taxes levied within the Community Facilities District for the repayment of the Bonds or affects in any manner the right or ability of the Community Facilities District to collect the Special Taxes or pledge the Net Taxes levied within the Community Facilities District for the repayment of the Bonds;

10. A certificate dated the Closing Date from Kitty Siino & Associates, Inc. (the “Appraiser”) to the effect that: (i) the statements in the Official Statement provided by the Appraiser and all information supplied by it for use in the Official Statement were as of the date of the Official Statement and are as of the Closing Date true and correct, and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) no events or occurrences have been ascertained by the Appraiser or have come to the Appraiser’s attention that would materially change the opinion set forth in the Appraisal;

11. A certificate dated the Closing Date from Spicer Consulting Group, LLC to the effect that:
(i) the Special Tax if collected in the maximum amounts permitted pursuant to the Rate and Method of Apportionment of Special Taxes of the Community Facilities District as of the Closing Date would generate at least 110% of the annual debt service payable with respect to the Bonds plus the Administrative Expenses Cap in each year, based on such assumptions and qualifications as shall be acceptable to the Underwriter; and (ii) the statements in the Official Statement provided by Spicer Consulting Group, LLC concerning Special Taxes in the Community Facilities District and all information supplied by it for use in the Official Statement were as of the date of the Official Statement and are as of the Closing Date true and correct, and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;

12. Certified copies of the general resolution of the Trustee authorizing the execution and delivery of certain documents by certain officers of the Trustee, which resolution authorizes the execution of the Indenture and the authentication of the Bonds;
16 13. A certificate of the Trustee, dated the Closing Date, to the effect that: (i) the Trustee is authorized to carry out corporate trust powers, and have full power and authority to perform its duties under the Indenture; (ii) the Trustee is duly authorized to execute and deliver the Indenture, to accept the obligations created by the Indenture and to authenticate the Bonds pursuant to the terms of the Indenture; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the authentication of the Bonds or the consummation by the Trustee of the other transactions contemplated to be performed by the Trustee in connection with the authentication of the Bonds and the acceptance and performance of the obligations created by the Indenture; and (iv) to the best of its knowledge, compliance with the terms of the Indenture will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties;

14. An opinion of counsel to the Trustee dated the Closing Date, addressed to the Underwriter, and the Community Facilities District to the effect that the Trustee is a national banking association duly organized and validly existing under the laws of the United States having full power and being qualified to enter into, accept and agree to the provisions of the Indenture, and that the Indenture has been duly authorized, executed and delivered by the Trustee, and, assuming due execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligation of the Trustee, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors’ rights in general and except as such enforceability may be limited by the application of equitable principles if equitable remedies are sought;

15. A certificate of the Community Facilities District dated the Closing Date, in a form acceptable to Bond Counsel and the Underwriter, that the Bonds are not arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended;

16. An opinion of counsel to the Developer, dated the date of the Closing, addressed to the Underwriter and the Community Facilities District, in form and substance acceptable to the Underwriter and Bond Counsel;

17. A Letter of Representations from the Developer, dated the date of printing the Preliminary Official Statement, substantially in the form attached hereto as Exhibit B;

18. A Closing Certificate of the Developer, dated the date of the Closing, substantially in the form attached hereto as Exhibit C or as such Closing Certificate may be modified with the approval of the Underwriter and Disclosure Counsel;

19. The Continuing Disclosure Certificate executed and delivered by the Developer in substantially the form attached as Appendix G to the Official Statement;

20. An opinion of Kutak Rock LLP, counsel to the Underwriter (“Underwriter’s Counsel”), dated the date of Closing and addressed to the Underwriter in form and substance acceptable to the Underwriter; and

21. Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of 17 the Closing Date, of the material representations and warranties of the Community Facilities District contained herein, and of the statements and information contained in the Official Statement and the due performance or satisfaction by the Community Facilities District at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the Community Facilities District in connection with the transactions contemplated hereby and by the Indenture and the Official Statement.

If the Community Facilities District shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds contained in this Purchase Agreement, or if the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement shall terminate and neither the Community Facilities District nor the Underwriter shall be under any further obligation hereunder, except that the respective obligations of the Underwriter and the Community Facilities District set forth in Section 5 hereof shall continue in full force and effect.

5. Expenses. Whether or not the transactions contemplated by this Purchase Agreement are consummated, the Underwriter shall be under no obligation to pay, and the Community Facilities District shall pay only from the proceeds of the Bonds, or any other legally available funds of the City, or the Community Facilities District, but only as the Community Facilities District and such other party providing such services may agree, all expenses and costs of the Community Facilities District incident to the performance of its obligations in connection with the authorization, execution, sale and delivery of the Bonds to the Underwriter, including, without limitation, printing costs, rating agency fees and charges, initial fees of the Trustee, including fees and disbursements of their counsel, if any, fees and disbursements of Bond Counsel, Disclosure Counsel and other professional advisors employed by the City, costs of preparation, printing, signing, transportation, delivery and safekeeping of the Bonds and for expenses (included in the expense component of the spread) incurred by the Underwriter on behalf of the City’s employees which are incidental to implementing this Purchase Agreement, including, but not limited to, meals, transportation, lodging, and entertainment of those employees. The Underwriter shall pay all out-of-pocket expenses of the Underwriter, including, without limitation, advertising expenses, the California Debt and Investment Advisory Commission fee, CUSIP Services Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds, including fees and disbursements of Underwriter’s Counsel. Any meals in connection with or adjacent to meetings, rating agency presentations, pricing activities or other transaction-related activities shall be considered an expense of the transaction and included in the expense component of the Underwriter’s discount.

6. Notices. Any notice of other communication to be given to the Community Facilities District or the Community Facilities District under this Purchase Agreement may be given by delivering the same in writing to the City of Lake Elsinore, 130 South Main Street, Lake Elsinore, California 92530, Attention: City Manager; any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to Stifel, Nicolaus & Company, Incorporated, 2121 Avenue of the Stars, Ste. 2150, Los Angeles, California 90067, Attention: Public Finance Department.

7. Parties In Interest. This Purchase Agreement is made solely for the benefit of the Community Facilities District and Underwriter (including any successors or assignees of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. 18 8. Survival of Representations and Warranties. The representations and warranties of the Community Facilities District under this Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the Community Facilities District and regardless of delivery of and payment for the Bonds.

9. Execution in Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

10. Effective. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the Community Facilities District and shall be valid and enforceable as of the time of such acceptance.

11. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understanding among the parties hereto in relation to the sale of the Bonds by the Community Facilities District.

12. Governing Law. This Purchase Agreement shall be governed by the laws of the State of California.

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13. Effective Date. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the Community Facilities District and shall be valid and enforceable as of the time of such acceptance.

Very truly yours,

STIFEL, NICOLAUS & COMPANY,

INCORPORATED
By:

Its: Authorized Officer
The foregoing is hereby agreed to and accepted as of the date first above written:

COMMUNITY FACILITIES DISTRICT
NO. 2019-2 OF THE CITY OF LAKE

ELSINORE (NICHOLS RANCH)
By:

Authorized Officer
Time of Execution: _____________ p.m. California time
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EXHIBIT A
COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH)
SPECIAL TAX BONDS, SERIES 2024

MATURITY SCHEDULE
Maturity
(September 1)
Principal
Amount
Interest
Rate Yield Price
10% Test
Satisfied*
10% Test
Not
Satisfied
Subject to
Hold-The-
Offering-
Price Rule
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
20__(T)
20__(T)
20__(T)
20__(T)
_________________
(T) Term Bond.
(C) Priced to optional call at [par] on September 1, 20__. * At the time of execution of this Purchase Agreement and assuming orders are confirmed by the close of the business day immediately following the date of this Purchase Agreement.

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EXHIBIT B
COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH)
SPECIAL TAX BONDS, SERIES 2024
LETTER OF REPRESENTATIONS OF MERITAGE HOMES OF CALIFORNIA, INC. [POS Date]
City of Lake Elsinore
Community Facilities District No. 2019-2 (Nichols Ranch) 130 South Main Street
Lake Elsinore, California 92530
Stifel, Nicolaus & Company, Incorporated
2121 Avenue of the Stars, Suite 2150
Los Angeles, California 90067
Ladies and Gentlemen:

Reference is made to the Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) Special Tax Bonds, Series 2024 (the “Bonds”) and to the Bond Purchase Agreement to be entered into in connection therewith (the “Bond Purchase Agreement”). This Letter of Representations of Meritage Homes of California, Inc. (the “Letter of Representations”) is delivered pursuant to and in satisfaction of Section 4(F)(17) of the Bond Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Bond Purchase Agreement.

The undersigned certifies that he or she is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of Meritage Homes of California, Inc., a California corporation (the “Developer”), and the undersigned, on behalf of the Developer, further certifies as follows:

1. The Developer is duly organized and validly existing and in good standing under the laws of the State of California, and has all requisite corporate right, power and authority: (i) to execute and deliver this Letter of Representations; (ii) to execute and deliver the Developer Continuing Disclosure Certificate to be executed by the Developer prior to the Closing (the “Continuing Disclosure Certificate”), and (iii) to undertake all of the transactions on its part described in the Preliminary Official Statement.

2. As set forth in the Preliminary Official Statement, title to a certain portion of the property within the Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch) (the “Community Facilities District”) is held in the name of the Developer (herein, the “Property”). The undersigned, on behalf of the Developer, makes the representations herein with respect to all such Property. Except as otherwise described in the Preliminary Official Statement, B-2
the Developer is and the Developer’s current expectations are that the Developer shall remain the party responsible for the development of the Property. The Developer has not entered into an agreement for development or management of the Property by any other entity, except such subcontracts, consultant agreements and similar agreements for land development activities associated with the Developer’s development plan as are entered into in the ordinary course of business.

3. Except as set forth in the Preliminary Official Statement, no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, or public board or body is pending against the Developer (with proper service of process to the Developer having been accomplished) or, to the Actual Knowledge of the Undersigned 1, is pending against any current Relevant Entity 2 (with proper service of process to such Relevant Entity having been accomplished) or to the Actual Knowledge of the Undersigned is threatened in writing against the Developer or any such Relevant Entity (a) to restrain or enjoin the collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds (e.g., the Reserve Account of the Special Tax Fund established under the Indenture), (b) to restrain or enjoin the development of the Property as described in the Preliminary Official Statement, (c) in any way contesting or affecting the validity of the Special Taxes or the Continuing Disclosure Certificate, (d) to restrain or enjoin the execution of and performance by the Developer of its obligations under the Continuing Disclosure Certificate, or (e) which, if successful, is reasonably likely to materially and adversely affect the Developer’s ability to complete the development and sale of the Property as described in the Preliminary Official Statement or to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency.

4. As of the date of the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the information contained therein solely with respect to the Developer, its Relevant Entities, ownership of the Property, the Developer’s development plan and financing plan for the Property, the Developer’s lenders, if any, and contractual arrangements of the Developer or any 1 “Actual Knowledge of the Undersigned” means, as of the date of signing, the actual (as opposed to constructive) knowledge that the individual signing on behalf of the Developer currently has or has obtained through (i) interviews with such current officers and responsible employees of the Developer and its Relevant Entities as the undersigned has determined are reasonably likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth in this Letter of Representations, and/or (ii) review of documents that were reasonably available to the undersigned and which the undersigned has reasonably deemed necessary for the undersigned to sign this Letter of Representations. The undersigned has not conducted any extraordinary inspection or inquiry other than such inspections or inquiries as are prudent and customary in connection with the ordinary course of the Developer’s current business and operations. The individual signing this Letter of Representations has not contacted any individuals who are no longer employed by or associated with the Developer or its Relevant Entities. 2 “Relevant Entity” means, with respect to the Developer, any other Person (i) who directly, or indirectly through one or more intermediaries, is currently controlling, controlled by or under common control with the Developer, and (ii) for whom information, including financial information or operating data, concerning such Person is material to potential investors in their evaluation of the Community Facilities District and investment decision regarding the Bonds (i.e., information relevant to (a) the Developer’s development plans with respect to the Property and ability to pay its Special Taxes on the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency, or (b) such Person’s assets or funds that would materially affect the Developer’s ability to develop the Property as described in the Preliminary Official Statement or to pay its Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of Developer) prior to delinquency. “Person” means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. For purposes hereof, the term “control” (including the terms “controlling,” “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

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Affiliates (including, if material to the Developer’s development plan or financing plan for the Property, loans of such Relevant Entities) as set forth under the sections of the Preliminary Official Statement captioned “PROPERTY OWNERSHIP AND THE DEVELOPMENT and “CONTINUING DISCLOSURE – Developer Continuing Disclosure” (excluding therefrom in all cases information regarding the Appraisal Report, market value ratios and annual special tax ratios, and information which is identified as having been provided by a source other than the Developer), is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

5. Except as described in the Preliminary Official Statement, there are no material loans outstanding and unpaid and no material lines of credit of the Developer or its Relevant Entities, that are secured by an interest in the Property. Neither the Developer nor, to the Actual Knowledge of the Undersigned, any of its Relevant Entities is currently in material default on any loans, lines of credit or other obligation to repay borrowed money related to the development of the Property or any other project which default is reasonably likely to materially and adversely affect the Developer’s ability to develop the Property as described in the Preliminary Official Statement or to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency.

6. To the Actual Knowledge of the Undersigned, the Developer is not aware that any of the Property has a current liability with respect to the presence of a substance presently classified as hazardous under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 or applicable California law or is adversely affected by the presence of endangered or threatened species or habitat for endangered or threatened species.

7. The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer and its Relevant Entities which it controls will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body, that in any way seeks to challenge or overturn the formation of the Community Facilities District, to challenge the adoption of the ordinance of the Community Facilities District levying Special Taxes within the Community Facilities District, to invalidate the Community Facilities District or any of the Bonds or any refunding bonds related thereto, or to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notices of special tax lien relating thereto. The foregoing covenant shall not prevent the Developer and its Relevant Entities in any way from bringing any other action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body including, without limitation, (a) an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the Rate and Method of Apportionment of Special Taxes pursuant to which Special Taxes are levied, (b) an action or suit with respect to the application or use of the Special Taxes levied and collected or (c) an action or suit to enforce the obligations of the City and/or the Community Facilities District under the Community Facilities District Resolutions, the Indenture, the Continuing Disclosure Certificate or any other agreements among the Developer, any Relevant Entity, the City and/or the Community Facilities District or to which the Developer or a Relevant Entity is a party or beneficiary.

8. The Developer consents to the issuance of the Bonds. The Developer acknowledges and agrees that the proceeds of the Bonds will be used as described in the Preliminary Official Statement.

B-4

9. The Developer intends to comply with the provision of the Mello-Roos Community Facilities District Act of 1982, as amended relating to the Notice of Special Tax described in Government Code Section 53341.5 in connection with the sale of the Property, or portions thereof.

10. To the Actual Knowledge of the Undersigned, the Developer is able to pay its bills as they become due and no legal proceedings are pending against the Developer (with proper service of process having been accomplished) or, to the Actual Knowledge of the Undersigned, threatened in writing in which the Developer may be adjudicated as bankrupt or discharged from any and all of its debts or obligations, or granted an extension of time to pay its debts or obligations, or be allowed to reorganize or readjust its debts, or be subject to control or supervision of the Federal Deposit Insurance Corporation.

11. To the Actual Knowledge of the Undersigned, Relevant Entities of the Developer are able to pay their bills as they become due and no legal proceedings are pending against any Relevant Entity of the Developer (with proper service of process having been accomplished) or to the Actual Knowledge of the Undersigned, threatened in writing in which the Relevant Entities of the Developer may be adjudicated as bankrupt or discharged from any or all of their debts or obligations, or granted an extension of time to pay their debt or obligations, or be allowed to reorganize or readjust their debts or obligations, or be subject to control or supervision of the Federal Deposit Insurance Corporation.

12. The Developer has been developing or has been involved in the development of numerous projects over an extended period of time. It is likely that the Developer has been delinquent at one time or another in the payment of ad valorem property taxes, special taxes or special assessments. However, to the Actual Knowledge of the Undersigned, during the last five years, neither the Developer nor any current Relevant Entity has, during the period of its ownership, been delinquent to any material extent in the payment of any ad valorem property tax, special assessment or special tax on property in California owned by the Developer or any such Relevant Entity (during the period of their ownership) included within the boundaries of a community facilities district or an assessment district in California that (a) caused a draw on a reserve fund relating to such assessment district or community facilities district financing or (b) resulted in a foreclosure action being commenced against the delinquent Developer or Relevant Entity by a court filing.

13. The Developer has not filed for the reassessment of the assessed value of portions of the Property, other than in connection with the sale of homes to individual homebuyers.

14. To the Actual Knowledge of the Undersigned, there are no claims, disputes, suits, actions or contingent liabilities by and among the Developer, its Relevant Entities or any contractors working on the development of the Property which is reasonably likely to materially and adversely affect the Developer’s ability to develop the Property as described in the Preliminary Official Statement or to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency.

15. Based upon the current development plans, including, without limitation, the current budget and subject to economic conditions and risks generally inherent in the development of real property, including, but not limited to, the risks described in the Preliminary Official Statement under the section entitled “SPECIAL RISK FACTORS,” the Developer presently anticipates that B-5
it will have sufficient funds to complete the development of the Property as described in the Preliminary Official Statement and to pay the Special Taxes levied against the portion of the Property then owned by the Developer (to the extent the responsibility of the Developer) prior to delinquency and does not anticipate that the City or the Community Facilities District will be required to resort to a draw on the Reserve Account of the Special Tax Fund for payment of principal of or interest on the Bonds due to the Developer’s nonpayment of Special Taxes.

However, neither the Developer nor any of its Relevant Entities are obligated to pay the Special Taxes or to make any additional capital contribution or loan to the Developer at any time, and the Developer reserves the right to change its respective development plan and financing plan for the Property at any time without notice, and there is no recourse against the Developer for the failure to pay the Special Taxes other than the filing of a foreclosure action.

16. An appraisal of the taxable properties within the Community Facilities District, dated _________, 2024 (the “Appraisal Report”), with a date of value of July 1, 2024 (the “Date of Value”), was prepared by Kitty Siino & Associates, Inc. (the “Appraiser”). The Appraisal Report estimates the market value of the appraised taxable properties within the Community Facilities District as of the Date of Value. To Actual Knowledge of the Undersigned, all information submitted by, or on behalf of and authorized by, the Developer to the Appraiser and contained in the sections of the Appraisal Report highlighted in yellow or circled in Exhibit B attached hereto, was true and correct in all material respects as of the Date of Value and Updated Date of Value, as applicable.

17. Solely as to the limited information described in paragraph 4 above (and subject to the limitations and exclusions contained in Paragraph 4), the Developer agrees to indemnify and hold harmless, to the extent permitted by law, the City and the Community Facilities District, and their officials and employees, and each Person, if any, who controls any of the foregoing within the meaning of Section 15 of the Securities Act of 1933, as amended, or of Section 20 of the Securities Exchange Act of 1934, as amended (each, an “Indemnified Party” and, collectively, the “Indemnified Parties”), against any and all losses, claims, damages or liabilities, joint or several, to which such Indemnified Party may become subject under any statute or at law or in equity and shall reimburse any such Indemnified Party for any reasonable legal or other expense reasonably incurred by it in connection with investigating any such claim against it and defending any such action, insofar as and solely to the extent such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement of a material fact by the Developer or the omission of a material fact by the Developer in the above-referenced information in the Preliminary Official Statement, as of the dates indicated in the Preliminary Official Statement, necessary to make the statements made by the Developer contained therein, in light of the circumstances under which they were made not misleading. This indemnity provision shall not be construed as a limitation on any other liability which the Developer may otherwise have to any Indemnified Party, provided that in no event shall the Developer be obligated for double indemnification, or for the negligence or willful misconduct of an Indemnified Party.

If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Indemnified Party in respect of which indemnification may be sought pursuant to the above paragraph, such Indemnified Party shall promptly notify the Developer in writing; provided that the failure to notify the Developer shall not relieve it from any liability that it may have hereunder except to the extent that it has been materially prejudiced by such failure; and provided, further, that the failure to notify the Developer shall not relieve it from any liability that it may have to an Indemnified Party B-6
otherwise than under the above paragraph unless such liability was also conditioned upon such notice. If any such proceeding shall be brought or asserted against an Indemnified Party and it shall have notified the Developer thereof, the Developer shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Developer and the Indemnified Party shall have mutually agreed to the contrary; (ii) the Developer has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Party; (iii) the Indemnified Party shall have reasonably concluded that there may be legal defenses available to it that are in conflict with those available to the Developer such that a material conflict of interest exists for such counsel; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Developer and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual differing interest between them. It is understood and agreed that the Developer shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Parties, and that all such fees and expenses, to the extent reasonable, shall be paid or reimbursed as they are incurred. Any such separate firm shall be designated in writing by such Indemnified Parties. The Developer shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Developer agrees to indemnify each Indemnified Party from and against any loss or liability by reason of such settlement or judgment. The Developer shall not, without the written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is a party and indemnification could have been sought hereunder by such Indemnified Party, unless such settlement (x) includes an unconditional release of such Indemnified Party, in form and substance reasonably satisfactory to such Indemnified Party, from all liability on claims that are the subject matter of such proceeding as to which the Developer has an obligation to indemnify such Indemnified Party and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.

18. If between the date hereof and the Closing Date any event relating to or affecting the Developer, its Relevant Entities, ownership of the Property, the Developer’s development plan, the Developer’s financing plan, the Developer’s lenders, if any, and contractual arrangements of the Developer or any Relevant Entities (including, if material to the Developer’s development plan or the Developer’s financing plan, other loans of such Relevant Entities) shall occur of which the Developer has actual knowledge which would cause the information under the sections of the Preliminary Official Statement indicated in Paragraph 4 hereof (and subject to the limitations and exclusions contained in Paragraph 4), to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the City, the Community Facilities District and the Underwriter and if in the opinion of counsel to the City or the Underwriter such event requires the preparation and publication of a supplement or amendment to the Preliminary Official Statement, the Developer shall reasonably cooperate with the City and the Community Facilities District in the preparation of an amendment or supplement to the Preliminary Official Statement in form and substance satisfactory to counsel to the City, the Community Facilities District and to the Underwriter.

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19. The Developer agrees to deliver a Closing Certificate dated the date of issuance of the Bonds at the time of issuance of the Bonds in substantially the form attached as Exhibit A.

20. On behalf of the Developer, the undersigned has reviewed the contents of this Letter of Representations and has consulted with counsel to the Developer regarding the meaning of its contents. The undersigned acknowledges and understands that a variety of state and federal securities laws, including but not limited to the Securities Act of 1933, as amended, and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, as amended, may apply to the Developer and that under some circumstances certification as to the matters set forth in this Letter of Representations, without additional disclosures or other action, may not fully discharge all duties and obligations of the Developer under such securities laws.

The undersigned has executed this Letter of Representations solely in his or her capacity as an authorized officer or representative of the Developer and he or she will have no personal liability arising from or relating to this Letter of Representations. Any liability arising from or relating to this Letter of Representations may only be asserted against the Developer subject to the limitations and procedures set forth above.

MERITAGE HOMES OF CALIFORNIA, INC., a
California corporation
By:

Name:

Its:
[EXECUTION PAGE OF LETTER OF REPRESENTATIONS OF
MERITAGE HOMES OF CALIFORNIA, INC.]
C-1

EXHIBIT C
COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH)
SPECIAL TAX BONDS, SERIES 2024
CLOSING CERTIFICATE – MERITAGE HOMES OF CALIFORNIA, INC. [Closing Date]
City of Lake Elsinore
Community Facilities District No. 2019-2 (Nichols Ranch) 130 South Main Street
Lake Elsinore, California 92530
Stifel, Nicolaus & Company, Incorporated
2121 Avenue of the Stars, Suite 2150
Los Angeles, California 90067
Ladies and Gentlemen:

Reference is made to the above-captioned bonds (the “Bonds”) and to the Bond Purchase Agreement, dated [BPA Date] (the “Bond Purchase Agreement”), entered into in connection therewith. This Closing Certificate of Meritage Homes of California, Inc. (the “Closing Certificate”) is delivered by Meritage Homes of California, Inc., a California corporation (the “Developer”) pursuant to the Bond Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Letter of Representations of Meritage Homes of California, Inc. (the “Letter of Representations”), dated [POS Date], delivered by the Developer.

The undersigned certifies that he or she is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of the Developer, and the undersigned, on behalf of the Developer, further certifies as follows:

1. The Developer has received the final Official Statement relating to the Bonds, dated [BPA Date] (the “Official Statement”). To the Actual Knowledge of the Undersigned, each statement, representation and warranty made in the Letter of Representations is true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, except that all references therein to the Preliminary Official Statement shall be deemed to be references to the final Official Statement.

2. To the Actual Knowledge of the Undersigned, no event has occurred since the date of the Preliminary Official Statement affecting the statements and information described in the sections of the Preliminary Official Statement indicated in Paragraph 4 of the Letter of Representations (and subject to the limitations and exclusions contained in Paragraph 4 of the Letter of Representations) relating to the Developer, its Relevant Entities, ownership of the Property, the Developer’s C-2
development plan, the Developer’s financing plan, the Developer’s lenders, if any, and contractual arrangements of the Developer or any Relevant Entities (including, if material to the Developer’s development plan or the Developer’s financing plan, loans of such Relevant Entities), which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make such statements and information contained in the Official Statement not misleading in any material respect.

3. For the period through 25 days after the “End of the Underwriting Period” as defined in the Bond Purchase Agreement to mean the Closing Date unless the Underwriter gives written notice to the Developer to the contrary, if any event relating to or affecting the Developer, its Relevant Entities, ownership of the Property, the Developer’s development plan and financing plan for the Property, the Developer’s lenders, if any, and contractual arrangements of the Developer or any Relevant Entities (including, if material to the Developer’s development plan or the Developer’s financing plan, loans of such Relevant Entities) shall occur as a result of which it is necessary, in the opinion of the Underwriter or counsel to the City or the Community Facilities District, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it was delivered to a purchaser, the Developer shall reasonably cooperate with the City, the Community Facilities District and the Underwriter in the preparation and publication of a supplement or amendment to the Official Statement, in form and substance satisfactory to the Underwriter and counsel to the City and the Community Facilities District which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser, not misleading.

4. The Developer has duly executed and delivered the Continuing Disclosure Certificate.

The undersigned has executed this Closing Certificate solely in his or her capacity as an authorized officer or representative of the Developer and he or she will have no personal liability arising from or relating to this Closing Certificate. Any liability arising from or relating to this Closing Certificate may only be asserted against the Developer.

MERITAGE HOMES OF CALIFORNIA, INC., a
California corporation
By:

Name:

Its:

[EXECUTION PAGE OF CLOSING CERTIFICATE OF MERITAGE HOMES OF CALIFORNIA, INC.]
C-3

EXHIBIT B
COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH)
SPECIAL TAX BONDS, SERIES 2024

DEVELOPER PROVIDED INFORMATION IN APPRAISAL REPORT
See attached.

D-1

EXHIBIT D
$_______
COMMUNITY FACILITIES DISTRICT NO. 2019-2

OF THE CITY OF LAKE ELSINORE (NICHOLS RANCH)
SPECIAL TAX BONDS, SERIES 2024

FORM OF ISSUE PRICE CERTIFICATE
The undersigned, on behalf of Stifel, Nicolaus & Company, Incorporated (“Stifel”) hereby certifies as set forth below with respect to the sale and issuance of the above-captioned bonds (the “Bonds”).

1.Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Schedule A.

2.Defined Terms.
(a)General Rule Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “General Rule Maturities.”
(b)Issuer means the Community Facilities District No. 2019-2 of the City of Lake Elsinore (Nichols Ranch).
(c)Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities.
(d)Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter.

The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (e)Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public).

The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Stifel’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Stradling Yocca Carlson & Rauth LLP in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for D-2
federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds.

STIFEL, NICOLAUS & COMPANY,

INCORPORATED
By:

Name:

By:

Name:

Dated: [Closing Date]
D-3

SCHEDULE A

SALE PRICES OF THE GENERAL RULE MATURITIES
(To be attached)

APPRAISAL REPORT

CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2019-2
(Nichols Ranch)
City of Lake Elsinore, Riverside County,
California (Appraisers’ File No. 2024-1298)
Prepared For
City of Lake Elsinore
130 S. Main Street
Lake Elsinore, CA 92530
Prepared By
Kitty Siino & Associates, Inc.
115 East Second Street, Suite 100
Tustin, California 92780

KITTY SIINO & ASSOCIATES, INC.

REAL ESTATE APPRAISERS & CONSULTANTS

August 2, 2024

Mr. Jason Simpson, City Manager
City of Lake Elsinore
130 S. Main Street
Lake Elsinore, CA 92530

Reference: Appraisal Report – City of Lake Elsinore
Community Facilities District No. 2019-2 (Nichols Ranch) Nichols Ranch by Meritage Homes
South side of Nichols Road; East of I-15, City of Lake Elsinore

Dear Mr. Simpson:

At the request and authorization of the City of Lake Elsinore, we have completed an Appraisal Report for Community Facilities District No. 2019-2 (Nichols Ranch) of the City of Lake Elsinore (“Lake Elsinore CFD No. 2019 -2”). Lake Elsinore CFD No. 2019-2 consists of a new home community being marketed as Nichols Ranch with two neighborhoods both being developed by Meritage Homes (“Meritage”). The two neighborhoods are known as Highland at Nichols Ranch and Hilltop at Nichols Ranch.

Highland consists of a total of 9 1 proposed homes while Hilltop consists of 7 7 proposed homes. Highland has four house plans ranging in size from 2,320 to 2,948 square feet while Hilltop has three house plans ranging in size from 2,020 to 2,427 square feet. Within the total 16 8 proposed homes , 83 are completed and have closed to individual homeowners to date, with an additional 16 homes in escrow which are due to close upon completion. The builder-owned property ranges from completed model homes to homes under construction to generally finished lots.

The valuation method used in this report is the Sales Comparison Approach along with 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 lien of the Lake Elsinore CFD No. 2019 -2 Special Tax Bonds. This report is written with the hypothetical condition that the subject property is enhanced by the improvements and/or fee credits to be funded by the Lake Elsinore CFD No. 2019-2 Special Tax Bonds.

As a result of our investigation, the concluded Minimum Market Value (as defined within this report) for the subject property is:

Nichols Ranch by Meritage

Meritage Homes Ownership (23 homes & 62 lots) $ 24,041,432 Individual Owned (83 homes) $ 48,736,425

Aggregate Value of Lake Elsinore CFD No. 2019-2 $ 72,777,857

The values are stated subject to the Assumptions and Limiting Conditions of this report, the Appraiser’s Certification and as of July 1, 2024.

115 East Second Street, Suite 100, Tustin, California 92780 (714) 544-9978 - Phone, (714) 544-9985 – Fax, E-Mail: [email protected] Mr. Jason Simpson
City of Lake Elsinore
August 2, 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 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)

TABLE OF CONTENTS

Assumptions and Limiting Conditions............................................................................... i Hypothetical Condition .................................................................................................... iii Extraordinary Assumption ............................................................................................... iii Aerial Photo of Lake Elsinore CFD No. 2019-2 ............................................................... v Purpose of the Appraisal ................................................................................................ 1 The Subject Property ...................................................................................................... 1 Intended Use of the Report ............................................................................................ 1 Definitions ...................................................................................................................... 2 Property Rights Appraised ............................................................................................. 4 Effective Date of Value ................................................................................................... 4 Date of Report ................................................................................................................ 4 Scope of Appraisal ........................................................................................................ 4 Regional Area Map.......................................................................................................... 7 County of Riverside Area Description ............................................................................. 8 Lake Elsinore Description and Map ............................................................................... 17 Nichols Ranch Specific Plan / Surrounding Area .......................................................... 23 Community Facilities District No. 2019-2 ....................................................................... 26 Subject Property Description ......................................................................................... 28 Riverside County Housing Market ................................................................................. 35 Highest and Best Use Analysis ..................................................................................... 46 Valuation Analyses and Conclusions ............................................................................ 50 Appraisal Report Summary ........................................................................................... 68 Appraiser’s Certification ............................................................................................... 69

ADDENDA

Lake Elsinore CFD No. 2019-2 Boundary Map
Tract Map Nos. 37305 and 37305-1
Discounted Cash Flow Analyses
Finished Lot Land Sales Map and Summary Chart
Improved Residential Sales Map and Summary Chart
Appraiser’s Qualifications
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Kitty Siino & Associates, Inc. Page i

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 Lake Elsinore CFD No. 2019-2.

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 _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page ii
purposes only. No guarantee regarding accuracy is expressed or implied unless 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 properties and that the soils are adequate to support the highest and best use conclusions.

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 entiret y. Permission is given for this appraisal to be published as a part of the Official Statement or similar document for the Lake Elsinore CFD No. 2019-2 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 Lake Elsinore CFD No. 2019-2 Special Tax Bond proceeds, are completed and in place.

EXTRAORDINARY ASSUMPTION

1. It is assumed that the cost and sales information provided by the homebuilder are true and accurate. We have reviewed the sales and checked some against public record, however we have not reviewed actual sales documents on each sale. We have reviewed and analyzed the remaining land development costs and they appear reasonable; however, we do not have expertise in cost estimating. If the sales or the costs differ, it will affect the value of the property.

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 the Lake Elsinore CFD No. 2019-2 Special Tax Bonds.

THE SUBJECT PROPERTY

The subject property is encompassed by Lake Elsinore CFD No. 2019-2 and is proposed for 168 single-family residences within the northern most portion of the City of Lake Elsinore located at the southeast quadrant of Interstate -15 and Nichols Road. The subject property is known as the community of Nichols Ranch, being developed by Meritage Homes. The entire community is planned for 1 68 homes being built-out into two neighborhoods as detailed below.

Description
No.

Lots

Ownership

Condition/Status
Hilltop by Meritage – Lots 1-26, 54-55, 120-134 of Tract 37305 and Lots 1-34 of Tract 37305-1 Lots 1-14, , 16-17, 22-23, 120-134 of Tract
37305 and Lots 24-34 of Tract 37305-1
44 Individuals Completed Houses / Closed
Lots 54 and 55 of Tract 37305 2 Meritage Model Homes
Lots 15, 18-21 and 24-26 of Tract 37305 8 Meritage Homes over 95% complete (8 in escrow)
Lots 1-9 and 17-23 of Tract 37305-1 16 Meritage Homes U/C (3 in escrow) Lots 10-16 of Tract 37305-1 7 Meritage Finished Lots
Subtotal Hilltop 77
Highland by Meritage – Lots 27-53 and 56-119 of Tract 37305 Lots 35-37, 60-91, 105, 109-111 of Tract 37305 39 Individuals Completed Houses / Closed Lots 58-59 of Tract 37305 2 Meritage Model Homes
Lots 101-104, 106-108; 112-115 of Tract 37305 11 Meritage Homes over 95% complete (5 In escrow)
Lots 32-34, 92-94, 97-100 and 116-119 of Tract
37305
14 Meritage Homes U/C (0 in escrow)
Lots 27-31, 38-53, 56-57 and 95-96 of Tract
37305
25 Meritage Finished Lots (0 in escrow)
Subtotal Highland 91
Total Lots 168

INTENDED USE OF THE REPORT

It is the appraiser’s understanding that the client, the City of Lake Elsinore, will utilize this report in disclosure documents related to the sale of the Special Tax Bonds of Lake Elsinore CFD No. 2019-2. This report may be included in the Official Statement or similar _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 2
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 co nsummation 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 single home or the builder’s ownership in a bulk sale is less than one year.

Aggregate Retail Proceeds
As used in the Discounted Cash Flow Analysis, Aggregate Retail Proceeds is defined:
“The sum of the appraised values of the individual units over 95 percent and builder-owned, at date of value. The sum includes an allowance for lot premiums, when applicable. This is not the market value of the project in bulk.”

1 The Appraisal of Real Estate, 13th Edition
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City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 3
Bulk Value
Bulk Value is defined as:

The value of a group of lots, parcels, or homes to a single purchaser, on a specified date, under the terms and conditions of the definition of market value.

Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow Analysis is:

The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analys is specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate.

Finished Lot
The term “Finished Lot” is defined as:
“A parcel which has legal entitlements created by a recorded subdivision map, whose physical characteristics are a fine graded level pad per lot with infrastructure contiguous to each individual lot, asphalt paved roads and the necessary utilities. This term assumes the payment of all applicable development fees with the exception of building permit and plan check fees.”

Hypothetical Condition
The Term “Hypothetical Condition” is defined by USPAP as:
“That which is contrary to what exists but is supposed for the purpose of the 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 Lake Elsinore CFD No. 2019-2.

Extraordinary Assumption
The term “extraordinary assumption” is defined by USPAP as:
“An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusion”

_________________________________________________________________________________________________________ Appraisal Report
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Kitty Siino & Associates, Inc. Page 4
The Extraordinary Assumption used in this report is that the cost and sales information provided by each of the homebuilders are true and accurate. We have reviewed the sales and checked some against public record, however, we have not reviewed actual sales documents on each sale. We have reviewed the remaining land development costs and they appear reasonable, however, we are not experts in the field of cost estimating. If the sales or costs differ, it will affect the value of the property.

PROPERTY RIGHTS APPRAISED

The property rights being appraised are of a fee simple estate interest , subject to easements of record and subject to the Lake Elsinore CFD No. 2019-2 special tax lien.

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
2 EFFECTIVE DATE OF VALUE

The subject properties are valued as of July 1, 2024.

DATE OF REPORT

The date of this report is August 2, 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, Lake Elsinore CFD No. 2019-2 , which encompasses the community known as the residential portion of the Nichols Ranch, a planned community in Lake Elsinore. The residential portion of the Nichols Ranch Specific Plan and is proposed for 168 single family detached homes being built out into two neighborhoods by Meritage Homes. This valuation is for the residential

2 The Appraisal of Real Estate, 13th Edition
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City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
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property in its current condition assuming the improvements to be funded by the bonds of Lake Elsinore CFD No. 2019-2 are in place or have accrued to the property. Both neighborhoods are c urrently selling homes. Out of the total 168 proposed homes, 83 homes have closed to individuals at this time and an additional 16 are in escrow and due to close upon completion. This appraisal will be presented in the following format:
• County of Riverside Description
• City of Lake Elsinore Description
• Nichols Ranch / Immediate Surroundings Description
• Brief Description of CFD No. 2019-2
• Subject Property Descriptions
• Riverside County Residential Market Analysis
• Highest and Best Use Analysis
• Valuation Procedure, Analyses 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
3 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.

The due diligence of this appraisal report included the following:

3 Dictionary of Real Estate Appraisal, Fourth Edition, 2002 _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 6

1. Compiled demographic information and related that data to the subject propert ies 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 Riverside County and the Lake Elsinore area.

3. Toured and inspected the subject property between May 15 and July 1, 2024.

4. Had the site flown by an aerial photographer on June 22, 2024.

5. Interviewed representatives from the builder in order to obtain project information.

6. Reviewed the Nichols Ranch Specific Plan No. 2018-01 adopted June 11, 2019.

7. Reviewed land development cost information from the builders in order to ascertain the remaining costs to complete the development of the lands to true finished lots.

8. Reviewed mapping on the subject property.

9. Reviewed title reports on the subject property.

10. Reviewed FEMA correspondence on the subject property.

11. Reviewed sales brochures on each of the subject neighborhoods.

12. Reviewed actual sales information from the builder on all closed homes and current escrows.

13. Searched the area for relevant comparable new home residential projects, including sales prices and concessions and interviewed representatives from each comparable neighborhood.

14. Searched the area for relevant comparable residential land sales and interviewed representatives regarding the transactions when available.

15. Reviewed Multiple Listing Service (“MLS”) information on re- sales and current listings of existing homes within Lake Elsinore CFD No. 2019-2.

16. Inspected the subject property for any for-sale or property listing signs that may not be listed on the MLS yet.

Regional Map
_________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 8

COUNTY OF RIVERSIDE AREA DESCRIPTION

Location
The subject propert y is located in the northwestern portion of Riverside County (the “County”) within the City of Lake Elsinore along Interstate 15 (“I-15”). More specifically, Nichols Ranch is located along the south side of Nichols Road, just east of I-15.

The County encompasses approximately 7,300 square miles, and includes large expanses of undeveloped deserts, valleys, canyons and mountains. The County is a major beneficiary of outward urban pressure from Orange and Los Angeles Counties as well as growth from San Diego County to the south. Although located at the periphery of most urban activity in Southern California, Riverside County, particularly the western area, has been a major growth area and is perceived by most observers as an area expected to continue to grow. Riverside and San Bernardino Counties are considered distinct from Los Angeles and Orange Counties and belong to the same Metropolitan Statistical Area (“MSA”). This area, consisting of San Bernardino and Riverside Counties, is commonly referred to as the Inland Empire.

Transportation
The subject property is situated about one-tenth mile west of I-15 and approximately 16 miles south of State Route 91 (SR -91) and 14 miles north of the southern end of Interstate 215 (I-215). I-15 travels in a northerly/southerly direction and provides access to Barstow and Nevada to the north and San Diego to the south. SR -91 travels in a northeasterly/westerly direction, providing access to Orange and Los Angeles Counties to the west and connecting with the 60 Freeway and I -215 to the north in Riverside County. I-215 branches off from I -15 and provides a north/south alternate connection between I -15 in the Murrieta area and I -15 to the north in the Fontana area in San Bernardino County. State Route 60 provides access to the west (Los Angeles) and to the east where it merges with Interstate 10 (“I-10”) providing access to Arizona

The County is served by Amtrak and Metrolink as well as several rail freight lines. The Ontario International Airport provides regional air service and is located approximately _________________________________________________________________________________________________________ Appraisal Report
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27 miles north of the subject property. Corona Airport is located about 20 miles northwest of the subject property. A general aviation airport that is home to 350- 400 aircraft, the Corona Airport is a recreational airport with no commercial flights, however extremely active with approximately 50,000 annual operations. 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, 2024 , County population was 2.442 million, representing a one- year increase of 0.6 percent. This compares to an average annual growth rate over the past thirteen years of about 0.8 percent, and an average annual growth rate of approximately

2.5 percent for the previous eighteen- year period. It should be noted however, California’s overall population increased for the first time in 2024 by 0.2 percent following three years of decreasing population statewide. Current State projections for Riverside County suggest the population is anticipated to reach approximately 2. 525 million by 2030, indicating an average annual increase of approximately 0.6 percent over the next six years. The current growth of 0.6 percent is lower than the previous twelve-year annual average of about 0.8 percent likely due to the COVID pandemic disruption, and significantly lower than the previous 18-year average (2.5 percent) likely due to the Great Recession. Future growth is predicted assuming a more stable market than was seen prior to the Great Recession.

Economy
The U.S. economy in the past few years has experienced 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 gatherings occur in order to slow the spread of the virus. This created a strain on small _________________________________________________________________________________________________________ Appraisal Report
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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 in 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 April 2024, the national inflation rate was at 3. 4 percent; up from a low of 2.97 in July 2023, and down from the peak in June 2022 of 9.1 percent. 2021 had an annual inflation rate of 4.7 percent as inflation began after COVID. This compares to a

1.24 annual percentage rate for 2020 and an average of a 1.74 annual percentage rate for the previous ten years. Whether it is a result of the 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 signs in the economy. While the eleven increases help ed 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 ( June 2024) they continued to pause the increases for the sixth meeting in a row and suggested that rate cuts will begin later in the year rather than earlier. In addition to causing bank instability, the F FR 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 6.86 percent as of June 27, 2024 (per Federal Reserve Economic Data-St. Louis). This steep increase over the past two+ years has significantly affected the real estate market.
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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, in 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 pausing of the interest rate increases coupled with strong economic news, brought the stock market to a new all-time high of 40,003 (May 17, 2024) with the current average at 39,034 (as of June 27, 2024). It appears the recent Board’s decision not to increase rates further and their suggestion that a decrease may occur within this calendar year has been well received by investors. Current concerns on the U.S. economy include the upcoming presidential election and 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 two years 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 _________________________________________________________________________________________________________ Appraisal Report
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slowdown due to the pandemic, new home buyers stepped up in the spring of 2020 and new home sales were significantly higher during the second half of 2020 versus the previous year 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 which b egan 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 total home sales.

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 May 2024 National unemployment rate at 3. 4 percent (Employment Development Department, not seasonally adjusted). The unemployment rate for the MSA was estimated at 4.3 percent (as of May 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 May 2024, Riverside County’s unemployment rate was 4.4 and San Bernardino County had a 4. 3 percent unemployment rate. The current unemployment rate for the MSA of 4.3 percent is the same as the California rate at 4. 3 percent and higher than the May 2024 National rate of 3. 4 percent. Below is a table comparing Riverside County’s unemployment rate to the unemployment rates of the surrounding counties as of May 2024.

Jurisdiction As of Unemployment Rate*
Los Angeles County May-2024 4.7%
Riverside County May-2024 4.4%
San Bernardino County May-2024 4.3%
Orange County May-2024 3.1%
San Diego County May-2024 3.3%
Source: State of California E.D.D.; *Not Seasonally Adjusted

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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 of 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 Forecast 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 that risks to their current forecast include a possible shutdown of government, geopolitical events 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 first quarter of 2024 will average 4.7 percent (currently 5.3 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 (as of March per the Forecast). 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 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.

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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, at times, 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 Riverside County dropped from a high of $431,713 in June 2006 to a low of $171,480 in April 2009. Median prices surpassed the pre-recession high in April 2020 ($435,000), hit a peak in May 2022 of $650,000 and decreased until last month with both the April and May 2024 median home price in Riverside County again at the peak of $650,000 (all statistics per the California Association of Realtors). It should be noted that the median home price in Riverside County is up 5.7 percent year over year. This will be discussed further in the Riverside County 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 cooled in mid -2022 leaving fewer TEUs needed. For the calendar year 2024, thus far TEUs are up over 16 percent.
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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 Board enacts ordinances and resolutions, adopts the annual budget, approves contracts and appropriates funds, determines land use zoning for unincorporated areas, and appoints certain County officers and members of various boards and commissions. The Board of Supervisors is elected from five different districts within the County.

Education
The subject area is served by the Lake Elsinore Unified School District. Community Colleges are available near the subject at Norco College (18 miles northwest), Riverside City College (1 8 miles north), The Menifee campus of San Jacinto College (10 miles east) and Santiago Canyon College (21 miles west). Higher education is available, within an hour’s drive, at the University of California campuses at Riverside and Irvine, or California State University campuses in San Bernardino, San Marcos, Fullerton and Pomona. In addition, the area offers many excellent private colleges.

Conclusion
Population in the County has increased over the past 20 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

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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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, the upcoming election, 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.

LAKE ELSINORE AREA MAP

CITY OF LAKE ELSINORE DESCRIPTION

The subject property is located in the northernmost portion of the City of Lake Elsinore (“City”), east of I-15 along the south side of Nichols Road. Lake Elsinore is approximately half-way between the cities of Los Angeles and San Diego, about 25 miles east of the Pacific Ocean. Downtown Riverside, which houses the County seat, is approximately 20 miles north of the City. The City is situated along I -15 at the intersection of State Route 74 and encompasses an estimated 41 square miles. It is surrounded by unincorporated County lands to the north and east, the City of Wildomar to the south, and the Ortega Mountains and the Cleveland National Forest to the west.

History
The Luiseno Native Americans are the earliest known inhabitants of the Elsinore Valley, prior to when settlers came in the early 1800s due to the region’s natural springs which were said to have healing qualities. In the 1850s, the area housed a stagecoach stop for the Butterfield Overland Mail route between the Temecula station (20 miles south) and the Temescal Station (10 miles north). The rich and fertile farmlands and natural resources of clay, coal, sand and gravel within the Elsinore Valley kept peopl e in the area. At incorporation in 1888 the City was originally in San Diego County; however, became part of Riverside County upon its creation in 1893. The City was named Elsinore after a city in Denmark which is featured in the Shakespeare play, Hamlet. In the 1920s and 1930s, the area became a Hollywood getaway with many stars building homes in the hills surrounding the Lake.

Lake Elsinore (the “Lake”) was originally known as Laguna Grande and is the largest natural lake in Southern California. The Lake is situated at the lowest point within the 750-mile San Jacinto River watershed with headwaters from the western slopes of San Jacinto Peak and Lake Hemet. Lake Elsinore levels are at 1,244 feet above sea level with a volume of 30,000-acre feet that use to change substantially prior to federal grants to prevent the flooding and ebbing of the lake. The largest flooding came in the 1930s when the Lake rose from 8,000-acre feet to 92,000-acre feet. In 1951 the Lake dried up _________________________________________________________________________________________________________ Appraisal Report
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and remained dry for about 10 years. In 1981 and 1983 the El Nino rains again flooded the area and in 1984 the City was successful in obtaining Federal grants for the major project to regulate the Lake and end the cycle of flooding and drying. Now at 1,255 feet, the Lake spills into the outflow channel known as the Temescal Wash, flowing northwest along I-15 to Temescal Creek which dumps into the Santa Ana River near the city of Corona and flows to Orange County and out into the Pacific Ocean.

Population
The City had enjoyed rapid population growth in the mid- 2000’s, which altered the appearance of the City from a small lakeside town of 3,800 people in 1976, to a bedroom community of upper middle-class professionals. From 2000 to 2008 the City was the 12 th
fastest growing city in the State going from 28,928 residents in 2000 to 51,821 residents in 2010, suggesting an average annual increase of 6.0 percent. Between 2010 and 2015 the city increased to 59,142 residents (average annual increase of 2.67 percent), with a most recent January 2024 population estimate of 71,452 per the Department of Finance, which represents an annual increase of 0.1 percent since January 2023. This compares to the overall Riverside County growth of 0.0 6 percent during the past year. The significant growth between 2000 and 2010 includes the residential boom prior to the Great Recession. The population forecast for 2030 per the City of Lake Elsinore website shows approximately 88,500 which suggests an average annual growth of approximately three percent over the next seven years. The stagnant growth in the City over the past year was partially due to limited availability of new homes for sale as the two master plans sold out with only two new home communities selling in early 2022. In the past 18 months the number of new active residential projects within the City has grown from two new home communities to 11 , suggesting increasing population growth. Lake Elsinore typically has positive population growth due to the convenient access along the I -15 corridor providing access to the employment centers in Riverside, Orange, Los Angeles, and San Diego Counties.

The subject is currently one of 11 actively selling communities in the City of Lake Elsinore. Alberhill Ranch, a master planned community, is currently selling Fairfield, _________________________________________________________________________________________________________ Appraisal Report
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Linden and Ridgeline by Pulte Homes along with Crestly by Centex (also owned by Pulte). Richmond American is selling their Running Deer Estates which is nearing build- out. Meritage Homes is selling two communities known as Highland and Hilltop at their Nichols Ranch master plan (subject property). KB Home is selling their Carrera and Villa Real communities at Terracina along with their Crimson Hills neighborhood and TriPointe Homes is selling their Echo Highlands project. For many years previously, Lake Elsinore featured several actively selling new master planned communities including Canyon Hills which sold out in early 2020, and more recently, Summerly, which is located on the south side of the Lake and sold out in 2021. Summerly, including The Links golf course consists of a total of 700 acres, was proposed for over 1,600 residential units and is now fully built out. Canyon Hills includes approximately 4,300 residential units and is also fully built out.

Economy
The City of Lake Elsinore has enjoyed industrial and commercial development along the I-15 Corridor including the Lake Elsinore Outlet Center at Nichols Road which was opened in the 1990s as one of the first Outlet Malls in Southern California. The City has been promoting its economic platform by becoming more business friendly. The 2023 estimated average household income over $100,000 for the City, as compared to $104,490 for the County, $103,856 for the State and $67,521 for the United States. Per the City of Lake Elsinore’s 2021 Comprehensive Annual Financial Report (fiscal year ending June 30, 2021), the top employers were as reported below. (Please note, while the City has released the 2023 Comprehensive Annual Financial Report, it does not include the top employers).

Summary of Major Employers
Employer No. of Employees
Lake Elsinore Unified School District 2,524
M & M Framing 450
Stater Bros (3 locations) 328
Costco 312
Walmart 295
Lake Elsinore Hotel & Casino 230
Riverside County (Dept. of Social Services) 179
EVMWD 167
Home Depot 143
City of Lake Elsinore 118
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Per the City’s Economic Development’s General Plan Update 2023 Growth Report, there were 1,130 single family lots under construction and an additional 933 single family lots and 745 multi-family units going through the approval process at the time.

Entertainment
While Lake Elsinore served as a get-away for the movie industry in the 1920s, the area also began emerging as an entertainment/sports area when it hosted Olympic teams for training along with high- speed boat racing on the Lake. In 1964 the Skylark Airport (located southeast of the subject) emerged as a world class skydiving drop zone due to the thermals from the surrounding mountains. This is still one of the most prominent drop zones in Southern California. The Lake Elsinore Motorsports Park for off -road racing is located directly east of the Airport. In 1991 the Lake Elsinore Outlet Center opened boasting 100 outlets (currently 40 stores) and in 1994 Diamond Stadium was constructed which is the home of the Lake Elsinore Storm, an affiliate of minor league baseball.

Diamond Stadium is located adjacent to the master planned community of Summerly, southwest about six miles from the subject. The major commercial centers are along I - 15 at Central Avenue (Highway 74) with Walmart, Costco, Home Depot and Lowes as anchor tenants.

Transportation
Interstate 15 is the major arterial with access to the City, with State Route 91 approximately 20 miles north and I -215 about 10 miles south. I -15 provides access to State borders to the north in Nevada and to the south where it merges with I -5 before going into Mexico. State Route 91 (20 miles north on I-15) provides freeway access into Orange and Los Angeles Counties to the west and to San Bernardino County to the east.

I-215 provides northerly access connecting to State Route 60, which provides access to the west into Los Angeles and to the east where it merges with I-10 and provides access to the Arizona state border. The nearest freeway access points to the subject property is the I-15 Nichols Road on/off ramp, about 0.1 mile west of the subject. State Route 74 to the west is a winding road through the Ortega Mountains (also known as Ortega Highway _________________________________________________________________________________________________________ Appraisal Report
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west of Lake Elsinore) that provides a more direct access into South Orange County, which is located approximately 19 miles southwest.

Schools
The subject property is served by the Lake Elsinore Unified School District (LEUSE) which has 13 elementary schools, two K -8
th grade schools, four middle schools along
with three high schools and one continuing education high school. In addition LEUSD has a child development pre- school and two alternative schools. The subject will be served by Alberhill Elementary School (1.6 miles west), Elsinore Middle School (about

2.7 miles southeast) and Temescal Canyon High School (adjacent to the south)

Conclusion
In summary, the City of Lake Elsinore experienced above average growth over the past 20 years, however, experienced a slowdown in 2022 which is thought to be due to the limited availability of new homes. Future growth of the City should continue with over 1,100 single family lots under construction and over 900 in planning stages along with 745 multi -family units going through the approval process. Lake Elsinore’s housing market is currently healthy and the subject is being well received in the marketplace at this time. Unknowns include the effect of a slowing U.S. and global economy. The City’s abundant recreation, expanding employment opportunities, location, reasonable land and home prices and the availability of land for development combine to make the C ity a prime area for future growth.

NICHOLS RANCH SPECIFIC PLAN / SURROUNDING AREA

The Nichols Ranch Specific Plan ( “Specific Plan”) includes approximately 72.5 gross acres proposed for 168 residential units and a 14.5- acre commercial center. This appraisal includes the residential areas only and does not include the commercial center.

The entire Nichols Ranch Specific Plan is shown below with the subject property’s approximate boundaries outlined in black.

The entire Nichols Ranch Specific Plan is generally bounded to the north by Nichols Road, to the east by existing residential use, to the south by Temescal Valley High School and to the west by I-15. More specifically, the subject area is bounded by existing residential use to the east, parks, open space and a drainage channel to the south, the commercial portion of Nichols Ranch (unimproved) to the east and Nichols Road to the north. I-15 runs in a northwest -southeast direction about one- eighth mile west o f the subject. Access is considered good via I-15 to Nichols Road. Neighborhood shopping is available within one mile at Central Avenue with three major neighborhood shopping centers with anchors of Walmart, Costco and Lowes and a Home Depot.

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The Specific Plan was adopted by the City Council on June 11, 2019 and is also known as City of Lake Elsinore SP No. 2018-01.

The Nichols Ranch Specific Plan is a master planned community which preserves Stovepipe Creek in its natural state, while establishing residential, commercial and recreational uses. The Plan approved 168 single family homes (subject property), a 14.5- acre future commercial center, 8.3 acres of parks and 7.8 acres of open space. The Specific Plan preserves the natural drainage course and riparian habitat within Stovepipe Creek which bisects a portion of the subject and forms the southern border of the western portion of the subject. There is a 6.5-acre linear park proposed for a par-course fitness station which overlooks Stovepipe Creek. While the residential is divided into six planning areas by the Specific Plan, all planning areas are zoned Low -Medium Residential and total 31.3 acres for 168 dwelling units. Meritage Homes purchased and is developing the six residential planning areas into two neighborhoods, with Planning Areas 1, 2 and 3 generally encompassing the Hilltop neighborhood and Planning Areas 4, 5 and 6 generally encompassing the Highland neighborhood. The exception to this is two lots which house the Hilltop models which are located in Planning Area 4. The overall density for the residential portion of the Specific Plan (the subject property) is 5.4 dwelling units per acre. The additional acreage within the Specific Plan includes 41.2 acres of non-residential land uses which include the 14.5- acre commercial center, the 6.8 acre linear park, 1.6 acres of open space, 5.5 acres of drainage basin, 5.6 acres of floodway and 5.3 acres of circulation (internal streets).

Immediately south of the Nichols Ran ch Specific Plan is the Temescal Valley High School beyond which are existing residences and commercial development along Central Avenue, the next exit on I -15 to the south. To the east there are existing residences and some rural housing. North of Nichols Road is a mining operation and asphalt yard. Per the Specific Plan the mining area is covered by the Alberhill Ranch Specific Plan which is now designated as Commercial – Specific P lan (C -SP).

Immediately to the west is the commercial portion of the Nichols Ranch (not included in this appraisal) which is generally in a superpad condition (mass graded with adjoining _________________________________________________________________________________________________________ Appraisal Report
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street of Bedrock Road improved) beyond which is I -15. West of I -15, south of Nichols Road is the Lake Elsinore Outlets, a large outlet shopping center. The outlet center includes national brands such as Gap Factory, Levi’s Outlets, Oneill, Lids, Guess Factory, Van’s The Children’s Place, Carter’s and Bath and Body Works along with several local smaller in- line stores and restaurants. West on Nichols Road from I -15 is the community of Alberhill Ranch with four new home communities currently being developed by Pulte Homes along with KB Homes two communities in Terracina.

On October 22, 2019, the City Council of the City of Lake Elsinore adopted a Resolution of Intention to form Community Facilities District No. 2019-2 (Nichols Ranch). At the time of formation, Lake Elsinore CFD 2019- 2 comprised five parcels totaling 58.19 gross acres and was encompassed by Tentative Tract Map 37305 proposed for 168 residential units. According to the CFD Report (“Report”), the types of Facilities that are proposed to be financed by the proceeds from CFD No. 2019- 2 consist of the construction, purchase, modification, expansion, rehabilitation and/or improvement of (i) drainage, library, park, roadway, traffic, administration and community center facilities, marina and animal shelter facilities, other public facilities of the City, including the foregoing public facilities which are included in the City’s fee programs with respect to such facilities and authorized to be financed under the Mello- Roos Community Facilities Act of 1982, as amended (the City Facilities”) and (ii) water and sewer facilities including the acquisition of capacity in the sewer system and/or water system of the Elsinore Valley Municipal Water District (“EVMWD”) which are included in the EVMWD’s water and sewer capacity and connection fee programs (the “Water District Facilities” and together with the C ity Facilities, the “Facilities”), and all appurtenances and appurtenant work in connection with the foregoing Facilities, including the cost of engineering, planning, designing, materials testing, coordination, construction staking, construction management and supervision for such Facilities. In addition, the Incidental Expenses associated with the Lake Elsinore CFD 2019-2 bonds are to be included.

The cost of Facilities, at time of the CFD Report were estimated to be $5,300,000 based on fiscal year 2019-20 dollars. The costs, as shown in the Report are as follows:

City of Lake Elsinore Total Bond Allocation
Traffic Impact Fee $229,992 $229,992
Library $25,200 $25,200
City Hall & Public Works Facilities $135,912 $135,912
Community Center $91,560 $91,560
Marina Facilities $130,872 $130,872
Animal Shelter $58,464 $58,464
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Fire Facility $126,168 $126,168
Drainage Fee $467,852 $467,852
Total City Fees $1,266,020 $1,266,020
EVMWD
Water Capacity Fees $2,242,128 $2,242,128
Temescal Valley Project CFD Credit ($456,120 ($456,120
Water Capacity Fee $91,720 $91,720
Water Capacity Fee Credit ($1,000,000) ($1,000,000)
Sewer Capacity Fee $1,330,056 $1,330,056
Sewer Lift Station $2,162,500 $797,825
Water Main Line – Nichols Road $1,000,000 $0
Total EVMWD $5,370,284 $3,005,609
Total Eligible Fees/Improvements $6,636,304 $4,271,629
Incidental Financing Costs $1,028,371
Total Funded by Bond Proceeds $5,300,000
Total Funded by Developer $2,364,675

According to the Rate and Method of Apportionment, the assigned Special Tax for Developed Residential Property is shown in the table below. It should be noted that all amounts are in 2019-2020 dollars.

Land Use Bldg Sq. Footage Special Tax
Single Family Residential Less than 1,700 SF $1,693
Single Family Residential 1,700 SF to 1,899 SF $1,712
Single Family Residential 1,900 SF to 2,099 SF $1,866
Single Family Residential 2,100 SF to 2,299 SF $1,895
Single Family Residential 2,300 SF to 2,500 SF $1,953
Single Family Residential Greater than 2,500 SF $2,049
Multli-Family Property N/A $15,378/Ac

Per the latest sources and uses ( dated July 16, 2024), the project fund deposit is anticipated to be $ 6,799,861 with $683,558 in Debt Service Reserve Fund, $94,431 in capitalized interest and $361,762 in costs of issuance and underwriters discount (all amounts subject to change). The boundary map showing Lake Elsinore CFD No. 2019- 2 is shown in the Addenda.
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SUBJECT PROPERTY DESCRIPTION

The subject propert y consists of the residential area of Nichols Ranch which includes two neighborhoods, Hilltop and Highland by Meritage Homes. The two neighborhoods are shown in the site plans below with the description beginning on the following page.

Hilltop Site Plan

Highland Site Plan

Legal Property
Description: Hilltop is known as Lots 1- 26, 54-55 and 120- 134 of Tract 37305 and Lots 1-34 of Tract 37305-1 in the City of Lake Elsinore.

H ighland is known as Lots 27-53 and 56-119 of Tract 37305, City of Lake Elsinore.

Property Owner: Meritage Homes as to Lots 15, 18 -21, 24-34, 38-59, 92-104, 106- 108, 112- 119 of Tract 37305 and Lots 1- 23 of Tract 37305- 1.

Individual Homeowners as to Lots 1-14, 16-17, 22-23, 35-37, 60-91, 105, 109-111 and 120-134 of Tract 37305 and Lots 24- 34 of Tract 37305-1.

Assessors
Parcel Nos.: The Assessor’s Parcel Map which is currently available on public record does not show the individual parcels within the tract map as shown below. We were unable to obtain the new Assessor’s Parcel Map.

Three-Year
Sales History: Per representatives from Meritage Homes, they purchased the property in January 2021 for $8,110,000. In addition, 83 homes have closed to individual homeowners.

Size and Shape: The subject property is irregular in shape. Per the recorded Tr act Maps, Tract Map 37305-1 includes Tract Map 37305 (no dash) and gives the acreage as 58.19 gross acres. Tract 37305- 1 identifies Remainder Parcel 1 (6.94 acres) and Remainder Parcel 2 (40.27 acres) which make up Tract No. 37305 (no dash).

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Zoning: The subject property is covered by City of Lake Elsinore Specific Plan 2018-01 which is also known as the Nichols Ranch Specific Plan. Per the Specific Plan the subject is shown as low to medium density residential which allows for 1- 6 dwelling units per acre with a target density of 5.4 dwelling units per acre. Per the City’s Zoning and General Plan Map, the site is shown as SP for Specific Plan.

Entitlements: The subject property is entitled by virtue of the previously summarized Specific Plan 2018-1. In addition, T ract Map 37305-1 was recorded on the property on October 27, 2021, dividing the site into 34 residential lots with two remainder parcels. Tract Map 37305 recorded on the property on April 22, 2022, dividing the two remainder parcels from Tract Map 37305- 1 into 134 single family detached residential lots. The lots have a minimum lot size of 4,600 square feet however the majority of the lots are in the 5,000 – 6,000 square foot range.

Homeowner’s
Association: Per Meritage Homes representatives, the HOA Fees within Nichols Ranch are estimated at $114 per month.

Topography: The subject property was slightly hilly undeveloped land which had Stovepipe Creek crossing the site from the central portion on the east boundary, in a southwest direction to the southwestern portion of the site. There is a large detention basin at the southwest corner of the subject residential property to allow for runoff. The site has been mass graded into 168 single-family detached lots. The lots are each generally level with drainage into an engineered street storm drain system.

Soils Condition: We have reviewed a Final Geotechnical Report of Rough Grading for Lots 3- 28, 48, 121 -124 of Tract 37305 prepared by Petra Geosciences and dated April 18, 2023. The report presented a summary of the observation and testing services provided by Petra.

The report has limitations that supervision or direction of the grading contractor was not included. Their observation and testing did not reveal any deviations from the recommendations provided in the referenced geotechnical reports. Based on their findings, the conclusions and recommendations presented within the above noted report along with the referenced reports were prepared in conformance with generally accepted professional engineering practices.

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 reports were or will be adhered to during construction. It should be noted that this report only covered a portion of the lots within the subject property. _________________________________________________________________________________________________________ Appraisal Report
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Seismic
Information: Per the County of Riverside, the Elsinore Fault is located across I - 15 from the subject property. The appraiser is not an earthquake expert and refers the reader to both California and Riverside County for more detailed information.

Environmental
Concerns: We have not received an environmental report to review; however, we have received the conditions of approval for TPM 37305 which covers Nichols Ranch. Per the conditions, the 6.49-acre park needs to be completed prior to the 125
th Certificate of Occupancy being
obtained. Per Meritage representatives, the park was recently completed and began the 90- day maintenance prior to City acceptance and the timing should not stop any Certificate of Occupancy’s being obtained.

It is an assumption of this appraisal that the subject property is free and clear of any environmental issues which would slow or thwart development of the site, that all recommendations contained in any such reports were adhered to and that the City park is accepted prior to the 125 Certificate of Occupancy being needed. This is suggested by appropriate approvals provided by the County throughout planning and construction along with interviews with the builder.

Flood Information: Per FEMA Map 06065C 2028G dated 8/28/2008 the subject within an area of minimal flooding and is not located within a Federal Emergency Management Agency (FEMA) designated flood zone.

This is due to LOMR 22- 09-1014P which was effective August 18, 2023, and covers the Stovepipe Canyon Creek. Stovepipe Canyon Creek is along the south side of a portion of the subject site.

Fire Hazard: From the CalFire Fire Hazard Severity Zone Map, the subject property is within a Local Responsibility Area and their recommendation appears to be for a designation of a Very High Fire Severity Zone which requires certain construction materials. It is an assumption of this appraisal that the requirements have been included in the construction of the homes. This is suggested by the City approval of the house plans within Nichols Ranch.

Easements and
Encumbrances: We have reviewed a Preliminary Title Report prepared by FNTG Builder Services Order Number 00143967 -996-SD1-RT4 which covers Tract Map 37305 (no dash) dated August 1, 2022. The exceptions are as follows.

Item Nos. A through F refers to property taxes and special assessments including CFD 98- 1 (EVMWD), CFD 2015 -1 (Lake Elsinore Fire Safety Services), CFD 2015- 2 (Lake Elsinore Maintenance Services) and CFD No. 2019- 2 (subject CFD). Item _________________________________________________________________________________________________________ Appraisal Report
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No. 1 refers to water rights on the property. Item Nos. 2, 5, 6, 9, 10, 12 and 14 refer to easements for public utilities, roads, drainage and access, and for the easements shown on Tract Map 37305. Item Nos. 3 and 13 refers to access rights. Item No. 4 pertains to a waiver of any claims for damages to said land by reason of the location, construction, landscaping or maintenance of I -15. Item 7 refers to an agreement to establish covenants and equitable servitudes between adjoining landowners. Item Nos. 8 and 11 were
intentionally omitted. Item No. 15 pertains to the CC & Rs recorded on the property. Item No. 16 pertains to a Notice of Alternative Non- Adversarial and Dispute Resolution Procedures for Nichols Ranch recorded on the property.

It is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than the aforementioned CFDs and the easements noted within the preliminary reports noted above which are assumed not to hinder development of the site. This is suggested by the approval by the City for development of the 168 lots.

Utilities: All normal utilities will serve the subject property by the following companies:

Electrical: Southern California Edison Company
Natural Gas: The Gas Company
Sewer/Water: Elsinore Valley Municipal Water District
Schools: Lake Elsinore Unified School District

Streets/Access: Access to the subject project is via I- 15 to Nichols Road, east 0.2 miles to Bedrock Road which forms the eastern border of the subject property and provides the main entrance to the model complex.

Additional access is via Nichols Road to Ranch Road and south to River Rock Court (access to Tract No. 37501-1).

I-15 is a major north/south freeway providing access to international borders both north and south.

Nichols Road has on/off ramps at I -15. To the east is the subject site beyond which Nichols Road becomes El Toro Road which provides access to more remote areas outside of the City limits. To the west Nichols Road provides access to the community of Alberhill Ranch and connects with Lake Street, a main entrance into the City of Lake Elsinore

Bedrock Road is an access road to the south off Nichols Road providing access to the subject community and to the future commercial site within Nichols Ranch (not part of this appraisal). _________________________________________________________________________________________________________ Appraisal Report
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Bedrock Road currently terminates at Horse Creek Road, the main entry into the residential portion of Nichols Ranch.

Internal Streets within the project include Horse Creek Road, Hanging Rock Road, Brush Creek Way, Bigfork Road, Horseshoe Bend Road, Quarry Way, River Bend Road, Ranch Road, Flathead Road and River Rock Court.

Current Condition: The subject property has been developed into 168 single- family detached lots, 106 of which have houses that are over 95 percent complete. There are an additional 30 houses under construction (under 95 percent complete) and 32 remaining finished lots.

Costs to Complete: Per Meritage representatives there are $1,395,145 in remaining land development costs which include staking, grading, sewer, water, utilities, concrete, paving, retaining/perimeter walls and concrete, paving and landscaping for the amenities and common areas. In addition, there are $819,251 in remaining land development fees to be paid by the builder which include School Fees, TUMF Fees and MSHCP Fees. The CFD is anticipated to fund the City Fees and Water/Sewer Fees. Within this report it is a hypothetical condition that Lake Elsinore CFD 2019- 2 is in pl ace, thus, only the remaining fees to be paid by the builder are included in our analysis. The remaining land development costs and fees are a cost to the builder and do not affect the individually owned homes.

Out of the 168 proposed lots, 83 have closed to individuals leaving 85 lots owned by Meritage. Dividing the total remaining costs of $2,214,396 ($1,395,145 plus $819,251) by the 85 lots suggests an average per lot remaining cost of $26,051.72.

Improvement
Description: Nichols Ranch includes two neighborhoods known as Hilltop and Highland, both by Meritage Homes. All of the home exteriors include dual-glazed vinyl windows, rear yard fencing, full front yard landscaping, 2- car garages with interior access , roll -up garage doors with automatic opener and concrete walks and driveway.

Interiors include LED lighting, air conditioning, smoke detectors, interior laundry rooms and paneled interior doors. Kitchens include wood cabinets , large kitchen islands, stainless steel Whirlpool appliances and solid stone countertops. Energy efficiency includes spray foam insulation and water efficient faucets. Automation includes advanced thermostats, door sensors, motion detector s, smart door locks, smart home hubs and video doorbells. All homes appear to be in excellent condition with no visible depreciation.

It should be noted that the first homes within both Hilltop and Highland were built under 2019 building codes which had the square footages within Hilltop as 2,020, 2,177 and 2,427 square feet. When _________________________________________________________________________________________________________ Appraisal Report
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the 2022 building codes went into effect, it changed the square footage of the homes within Hilltop to 2,020, 2,165 and 2,417 square feet either the same or slightly smaller. Within Highland the 2019 building code square footages were 2,320, 2,541, 2771 and 2,948 square feet while the 2022 building codes changed the square footages to 2,308, 2,532, 2,744 and 2,932, all slightly smaller . The marketing brochures list for both neighborhoods, “approximate” square footages, which are slightly different. Per Meritage Homes representatives, the above listed square footages are correct, and the marketing brochures are wrong. This has been corrected on the Nichols Ranch website for the two communities. For purposes of this report, we are using the square footages per the 2022 building codes which are slightly more conservative than the 2019 building codes.

We have reviewed sales information from the builder which included the homes closing from August 31, 2023 through July 1 , 2024.

Actual s ales prices less concessions ranged from $ 584,695 to $667,050. Per the Multiple Listing Service, there have been no re- sales and per our inspection there were no homes listed for re-sale and our inspection did not reveal any homes up for sale. Base asking prices currently range from $5 96,000 to $675,000 while at opening in June 2023 base pricing was $ 563,000 to $649 ,000 suggesting an increase of 4-5 percent over the past year. On top of base pricing there are lot premiums (due to size) and
options/upgrades purchased. The houses which are over 95 percent completed are detailed below.

In addition to the above detailed houses there are 30 houses under construction and 32 finished lots.

Plan
Room
Count
Floors/
Parking
Sq.

Ft.

Ind.

Own
Bldr.

RIVERSIDE COUNTY HOUSING MARKET

In analyzing the County’s housing market, population growth and economic conditions need to first be considered.

Population
The County population grew 0.6 percent between January 2023 and January 2024 (per the California Department of Finance). This compares to an average annual growth rate over the past ten years of about 0.8 percent, and an average annual growth rate of approximately 2.5 percent for the previous eighteen-year period. Predictions are for the County to grow at an average annual rate of 0.6 percent over the next six years. This equates to an increase of approximately 15,000 residents per year, suggesting the need for about 5,500 homes per year within the County. Due to the impact of COVID, new home sales in most cities in the County in 2020 through 2022 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.

Economic Conditions
Over the past twenty-five years the Inland Empire has seen various cycles in the housing market. The Great Recession impacted the Inland Empire significantly and resulted in a longer recovery period than that of other Southern California regions. The rise and then fall of housing prices in the Inland Empire between 2004 and 2009 were considerably steeper than almost anywhere in the State. Unfortunately, this meant that the people who bought near the peak of the market likely faced significant negative equi ty. After essentially remaining flat for a few years, housing prices began to increase in late 2012 through January 2020. Once the COVID pandemic hit in March 2020, the economy entered what is now known as the COVID disruption. The housing market slowed down significantly early on, but by May 2020, new homes were going under contract and selling at well above average absorption rates from May 2020 through Spring of 2022 in the region. Beginning in mid- 2022, the new home market saw a slowdown in absorption rates due to the increasing interest rates, the high prices of homes, and the high rate of inflation which was shaking consumer confidence.
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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 2020 and all of 2021 saw economic growth, however the first two quarters of 2022 saw GDP shrinking. The most recent unemployment rate for the County is 4. 4 percent (per the May 2024 EDD report). The end of 2022 saw lower unemployment rates than the County’s pre-COVID unemployment rate in February 2020 of 4.0 percent, however 2023 saw unemployment rising from 3.6 to a high of 5.5 percent. Thus far in 2024, unemployment has decreased about one percent. While unemployment rates are still near historical lows, 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 _________________________________________________________________________________________________________ Appraisal Report
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the existing home market, making the new home market the only option for some. In January 2022 mortgage rates were 3.22 percent (for a typical 30-year fixed conventional mortgage) while as of July 3, 2024, the rate for the same loan is 6.95 percent. On a $600,000 mortgage, the monthly payment for this loan has increased from $2,594 to $3,949 or over 52 percent.

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 costs , 33 percent were offering flex dollars, 22 percent were offering lower home prices and 20 percent were offering funds toward options and upgrades. The question is, how long can builders continue to offer these significant incentives. As rates go higher, the extent _________________________________________________________________________________________________________ Appraisal Report
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that builders can buy -down the mortgage rates goes down. In the April 2024 Zonda survey, 61 percent of builders surveyed stated demand was higher than or on-track with expectations, however 39 percent stated demand was slower than anticipated.

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 this time. 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 June 2024, they paused the FFR increases for the sixth 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 market s. 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 June 2024 at 3.1 percent, significantly down from a high of 9.1 percent in June 2022 however higher than some recent readings.

While new home builders slowed production as sales slowed in 2022, the spring of 2023 brought optimism to builders once again which has continued into the first half of 2024.

New home sales were up as buyers adjusted to higher mortgage rates and the existing home inventory hit all-time lows. Existing homeowners that are locked into an under - four percent mortgage are not moving up due to the current 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 percent of all home sales; however, due to the limited supply of existing homes currently on the market, new homes are capturing closer to 25 percent of all home sales in the Inland Empire. _________________________________________________________________________________________________________ Appraisal Report
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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 201 2 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 with Bedford and Terramor (subject property) two of the only master plans selling to various builders in the area. The majority of land sales over the past few years include single tracts of land with maps ready to record or a public builder purchasing a lar ger piece of land but develops the land for its own use such as Meritage Homes at Nichols Ranch and Pulte Homes at Alberhill Ranch.

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 FFR 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 46 percent moving “cautiously 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 the first quarter 2024 there were about 11,478 _________________________________________________________________________________________________________ Appraisal Report
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vacant developed lots in the Inland Empire, which is down 23 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 review ing new home sales in the Inland Empire market area, per the June 30, 2024, Ryness Report, the year-to-date average sales rate (4.2 sales per month) is three percent higher than the same time period of the previous year (4.07 sales per month). 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. New home sales rates started to level off in late Spring 2022, likely due to the increase in mortgage interest rates; however, with the limited existing homes on the market, new homes are enjoying a boost.

One negative is that as interest rates rise, purchasing power becomes lower and therefore fewer people purchase new homes and amenities. 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 June 30, 2024, Inland Empire Ryness Report to one year prior, there are 13 fewer projects (250 in June 2023 and 237 in June 2024) and sales are about three percent higher year-to-date than the previous year at 4.2 sales per month. Looking back, in 2023 the average sales rate pre project in the Inland Empire was 3.6 sales per month with 2022 at 3.2 sales per month, 2021 at 4.5 homes per month, 2020 at 4.3 homes per month while in 2019, prior to COVID, the average sales rate was 3.3 homes per month per project. Per Zonda’s May 2024 Market Report on the Inland Empire, the 12-month annualized average new home sales rate is outpacing both that of California and of the U.S.

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 _________________________________________________________________________________________________________ Appraisal Report
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changed from the peak value of $437,200 in the third quarter of 2006 to $268,155 in early 2009 (during the Great Recession, a decrease of 39 percent) while the current Inland Empire median new home price is $598,490 which is down from a record high of $650,000 in May 2022 per the California Association of Realtors’ latest market report.

The current median price reflects an increase of over 100 percent from the bottom of the cycle and an increase of almost 37 percent over its peak during the Great Recession, however a decrease from the 2022 peak of almost eight percent. In reality, this decrease is actually larger as builders are 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 sales 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.

Within our search for the most comparable actively selling new home communities, we searched the subject’s Ryness submarket of South Riverside which houses Lake Elsinore, Wildomar, Menifee, the French Valley and Winchester. This submarket has 49 new home communities which have an average sales rate year to date of 4.5 homes per month. This is higher than the Inland Empire average of 4.2 sales per month which reflects favorably on the subject submarket. Out of the 49 total new home communities in the South Riverside submarket, Lake Elsinore houses 11 of them. Pulte and Centex have four neighborhoods in Alberhill Ranch, KB Home has two neighborhoods in Terracina, Meritage has two neighborhoods at Nichols Ranch (subject property), KB Home has Crimson Hills, Richmond American has Running Deer Estates (nearing sell out) and Tri Pointe Homes has Echo Highlands. Due to the plentiful number of new home communities within Lake Elsinore, we did not have to extend our search outside of the City. We have utilized 10 of t he Lake Elsinore new home communities (including the subject’s two product lines) with base pricing ranging from $513,500 to $733,990, with the majority of base pricing in the $600,000 to $700,000 range. The subject’s most recent base pricing is from $596,000 to $675,000, which falls within the comparables price range, with the majority of the floorplans falling in the low to mid-point of the range.

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 sales data, within overall Southern California, the median price paid for an existing single-family home in May 2024 ($880,000) reflects an increase of te n percent from the previous year ($800,000 in May 2023) and the same as the previous month.

Existing home sales in Southern California overall were down one percent year -over- year as of May 2024, however up 8.9 percent from the previous month. The overall Southern California numbers compare to Riverside County with $650,000 as the median price paid for an existing home in the County in May 2024, the same as the previous month and up 3.3 percent from one year ago. Sales of existing homes in the County were u p 4.4 percent month- over-month and down 7.7 percent year -over-year due to limited inventory, higher mortgage rates, and high home prices. Sales slowed significantly for existing homes in 2022 and 2023 reflecting homeowners not ready to sell due to the changing market. Thus far in 2024 existing home sales have risen, however , they are still below historical averages. Historically, the new home market captures 10- 13 percent of the overall home sales; however, in the past year, new home sales are capturing around 25 percent of total home sales. Below is a table showing the sales and prices for the Southern California area by County per the California Association of Realtors.

Southern California Existing Home Sales
County May 2024 Apr. 2024 May 2023
Price MTM
% Change
Price YTY
% Change
Sales YTY
% Change
Los Angeles $811,610 $825,970 $744,770 (1.7%) 9.0% (2.6%) Orange $1,422,500 $1,440,000 $1,256,500 (1.2%) 13.2% 12.2% Riverside $650,000 $650,000 $629,000 0.0% 3.3% (7.7%)
San Bernardino $488,900 $516,080 $455,000 (5.3% 7.5% (2.2%) San Diego $1,025,000 $1,047,500 $935,000 (2.1%) 9.6% 0.7% Ventura $925,000 $940,000 $925,500 (1.6%) (0.1%) (2.1%) Southern Calif. $880,000 $880,000 $800,000 0.0% 10.0% (1.0%) Source: California Association of Realtors

It is interesting to note that all Southern California Counties have had prices either stay the same or decrease since last month. Based on May 2024 median existing homes prices, in comparison to the majority of the surrounding counties, Riverside County has _________________________________________________________________________________________________________ Appraisal Report
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a definite price advantage. The “Riverside County Advantage” (price difference between Riverside and surrounding counties) is $161,610 as compared to Los Angeles County, $275,000 as compared to Ventura County, $375,000 as compared to San Diego County and $772,500 as compared to Orange County. That is, in May 2024, the median priced home in Riverside County was $772,500 less (or over 50 percent less) than the median priced home in Orange County ($1,422,500). However, San Bernardino County has a $161,100 price advantage over Riverside County. Typically, as the price advantage widens, homebuyers are more open to commuting to further out areas. With the work - from-home concept, the suburban areas have seen more growth which put pressure on home prices in the Inland Empire. It’s worth noting that the majority of Southern California counties showed median price decreases from the previous month suggesting that pricing may have peaked.

In a separate attempt to capture the neighborhood specific price changes, the resale activity of existing homes in the subject area (per Redfin.com’s Housing Market Trends) has been reviewed. The number of sales and sale prices of existing homes within market areas in the immediate area of the subject are shown in the table below.

ZIP Code/Community
Name
Border
To
Subject
Sales of
Homes
May
2024
Sales %
Change
from
May 2023
May 2024
Price
Median
Price %
Change
from May
2023
May
2024
PSF
Median
92532 (East Lake Elsinore) Subject 93 22.4% $625,000 7.8% $266 92530 (Lake Elsinore) West 144 4.3% $575,000 7.5% $296
92883 (Temescal Valley) North 201 34.0% $751,049 8.5% $339 92587 (Canyon Lake) East 70 2.9% $650,000 1.1% $396
92584 (Menifee) Southeast 189 (14.1%) $622,000 5.4% $287 92595 (Wildomar) South 89 27.1% $655,000 7.4% $300
92570 (Perris-Unincorporated Northeast 84 47.4% $595,642 5.4% $333 Source: Redfin.com Housing Market Trends May 2024

The median home price of a detached resale home in the subject’s immediate market area is $625,000, which is mid-range of all of the sales in the subject market area. The above price fluctuations from year to year relate to the California Association of Realtors overall Riverside County detached home resale price increase of 3.3 percent year-over- year and 7.7 percent sales decrease from May 2023 to May 2024.

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Nichols Ranch - Sales, Pricing and Competition
Nichols Ranch includes Hilltop and Highland by Meritage Homes. Both began selling their homes in July 2023 with 99 houses sold to date suggesting a sales rate of 8.25 homes per month including both neighborhoods. Detailing each neighborhood, Hilltop has sold 55 homes suggesting an average sales rate of 4.6 homes per month while Highland has sold 3.7 homes per month. Original base pricing in Hilltop was $563,000 to $592,000 while current base pricing is $596,000 to $624,000 reflecting increases of $32,000 per plan or in the 5.5 percent range over the past year. Actual closed home pricing ranged from $561,695 to $643,295. Actual closed prices include options, upgrades and premiums along with all concessions given by the builder. Highland’s original base pricing was $604,000 to $649,000 while current base pricing is $630,000 to $675,000 reflecting increases of $26,000 per plan which equates to about 4.0 percent over the past year. Actual closed home prices ranged from $568,824 to $667,050. Both neighborhoods are closing with incentives, which are common in today’s marketplace.

Incentives in the two neighborhoods range from $18,000 to $86,000 which is typical for the Inland Empire.

Hilltop, the lower priced and smaller homes, is experiencing sales rates above the local average at 4.6 home sales per month while Highland is experiencing slightly lower absorption rates of 3.7 homes per month compared to the Inland Empire’s overall average sales rate (4.2 sales per month). According to the Ryness Report dated June 30, 2024, there are currently 49 new home projects in the South Riverside submarket which includes Lake Elsinore. The 49 projects include 11 communities in Lake Elsinore (including the subject two ). The average absorption rate within the 49 South Riverside communities’ year to date per the June 30, 2024 Ryness Report is 4.5 sales per month.

The subject sales rates in the 3.7 to 4.6 sales per month range is near the overall average in the area.

Summary
Riverside County has seen a substantial increase in pricing since 2012 with most areas, including the subject, showing astronomical increases from Mid- 2020 through early _________________________________________________________________________________________________________ Appraisal Report
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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 suggest a possible slowdown in sales as interest rates have risen substantially; however, buyers appear to be resilient to the increases. While there are 49 new home projects in the South Riverside submarket, they are experiencing slightly higher overall sales rates than the overall Inland Empire. 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 second half of 2022 and 2023 saw sales slow and prices lowering; followed by price increases as builders offered additional incentives. Builders’ optimism appears to have returned with the majority of 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. _________________________________________________________________________________________________________ Appraisal Report
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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
4 Proper application of this analysis requires the subject propert ies to first be considered “As If Vacant” in order to identify the “ideal” improvements in terms of use, size and timing of development. The existing improvements (if any) are then compared to the “ideal” improvements to determine if the use should be continued, altered or demolished preparatory to redevelopment of the site with a more productive or ideal use.

“As If Vacant”
In the following analysis, we have considered the sites probable uses, or those uses which are physically possible; the legality of use, or those uses which are allowed by zoning or deed restrictions; the financially feasible uses, or those uses which generate a positive return on investment; and the maximally productive uses, or those probable permissible uses which combine to give the owner of the land the highest net return on value in the foreseeable future.

Physically Possible Uses
The subject property consists of approximately 58.19 acres per the recorded tract maps (including internal streets , setback areas, open space and two park sites ), which are irregularly shaped contiguous parcels located along the south side of Nichols Road generally between Wood Mesa Court and Bedrock Road, east of I-15 in the northernmost portion of City of Lake Elsinore. Stovepipe Creek bisects the site from Wood Mesa Court to Bedrock Road. Stovepipe Creek has been approved to be a drainage through the subject along with water quality basins at the southeast corner and the southwest corner

4 The Appraisal of Real Estate, 11th Edition
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of the subject site. We have reviewed a geotechnical report which states the site is geographically sound to be developed into residential land use. In addition, mass grading has occurred on the site along with grading the site into 168 single-family detached lots.

It is an assumption of this appraisal that the soils are adequate to support the highest and best use conclusion and that there are no environmental or condition issues which would slow or thwart development of the site. This is evidenced by City approvals along with City inspectors on site during construction and certificates of occupancy being obtained on homes within the site. An engineered drainage system has been designed into a street drainage system to alleviate any potential flooding problems and to control project water runoff. The site has good access from I-15 via Nichols Road.

Based on the physical analysis, the size, access and topography make the subject property physically suited for numerous types of development; however, the grading and development that has occurred on the site suggests single-family residential use.

Legality of Use
The subject property is located within the City of Lake Elsinore, the controlling entity to regulate land use. Per the City the subject property is covered by Specific Plan 2018-01 (Nichols Ranch) with the subject property identified as low to medium residential (allows for 1-6 dwelling units per acre) per the Specific Plan. Per both the City’s zoning map and the City’s general plan map, the subject is shown as SP (Specific Plan). In addition, Tract Map Nos. 37305 and 37305-1 have been recorded on the subject property subdividing the subject site into 168 single family residential lots, internal streets, setback areas, two parks, two water quality basins and open space areas. The approved mapping is consistent with the approved Specific Plan that has been approved on the property.

Based on the legality of use analysis, the type of development for which the subject property 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 _________________________________________________________________________________________________________ Appraisal Report
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Riverside County Housing Market section earlier within this report, the City of Lake Elsinore market and surrounding communities are showing good absorption and increases in pricing over the past few years.

Nichols Ranch opened for sale in June 2023 with 99 homes sold to date, suggesting the need for new homes in the area. There are currently 11 new home communities in the City of Lake Elsinore, all selling at good to excellent sales rates. Two of the new hom e communities are nearing sell-out. The sales of 99 homes within the past year between the two subject neighborhoods suggest that there is a need for new homes in the City of Lake Elsinore.

Based on the above analysis, the highest and best use for the subject property appears to be for single-family residential development.

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. Based on the absorption of new homes in the area, coupled with population growth projected in the subject marketplace, it is our opinion that the subject property is feasible for residential development.

Highest and Best Use Conclusion – “As Vacant”
The final determinant of highest and best use, as 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 “As Vacant” is for residential development.

Highest and Best Use – “As Improved”
The subject property consists of Hilltop and Highland at Nichols Ranch. The two communities opened in June 2023 and have sold 99 homes since that time suggesting an average sales rate between the two communities of 8.25 houses per month.

Individually, Hilltop, the smaller and less expensive homes, have sold 4.6 homes per month while Highland, the larger homes have sold 3.7 homes per month. The average _________________________________________________________________________________________________________ Appraisal Report
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year to date monthly sales per project in the Inland Empire is 4.2 houses per month while within the subject submarket of South Riverside the year-to-date average is 4.5 houses per month. The range within the South Riverside submarket area is from 1.0 to 11.2 year-to-date average sales per month for the active projects. The two subject communities with average sales ranging from 3.6 to 4.6 houses per month fall within the subject market area’s range.

All of t he homes appear to be in excellent condition with no physical depreciation of structures visually apparent. The sales rate within the subject neighborhoods and the new home sales in the surrounding communit ies suggests there is demand for new homes in the current market with current financing rates at the correct price points. All of the homes are of good design and appear to be of good quality workmanship. Based on the overall sales rates within both Hilltop and Highland at Nichols Ranch, it is our conclusion that the highest and best use for the subject property is for the continued use, as improved.
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VALUATION ANALYSES AND CONCLUSIONS

The Sales Comparison Approach will be the primary approach used to value the subject property. This approach compares similar properties that have recently sold or are in escrow to the subject property . In determining the value for the property, a unit of comparison needs to be addressed. For detached single-family lots, the lots are typically sold on a finished lot basis with the condition of the land taken into consideration. That is, the sales price is determined by a finished lot value, then the remaining costs to develop the property to a tr ue finished lot condition are taken into consideration.

Therefore, in determining a current market value for the lands, the current condition of the lots will be considered. In the case of the existing home valuations, a single new - home sale is the unit of comparison. Our search will include all new home projects within the Lake Elsinore area in order 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. In addition, concessions given by builders will also be considered.

In the case of the completed (over 95 percent complete) builder -owned models and production units, the homes will be valued using the Sales Comparison Approach to value to conclude on a retail value for each plan, followed by a Discounted Cash Flow (“DCF”) Analysis due to the single ownership of multiple homes by the builder. The DCF will consider the retail 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 estimated absorption period. In the case of the individually owned homes, a concluded base value will be used for each plan and a mass appraisal technique will be used. 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 _________________________________________________________________________________________________________ Appraisal Report
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conclusions will assume that the improvements funded by the Lake Elsinore CFD No. 2019-2, Special Tax Bonds are completed and in place and that the property is subject to the Special Tax Lien.

The valuation will be presented as follows: First, a discussion of the comparable residential market data will be given. Each of the transactions will be detailed along with a comparison discussion of their relationship to the subject property based on a per lot price. Following the land value conclusions, a value analysis for each house plan within Hilltop and Highland will be completed along with a discounted cash flow analysis for the builder-owned completed homes . A summary of the final value conclusions will be reported at the end of this valuation section.

Market Data Discussion –Residential Lots

Within Nichols Ranch, out of 168 total proposed homes, there are currently 83 closed to individual homeowners, four models and 19 production homes over 95 percent complete owned by the builder, 30 houses under construction and 32 generally finished lots. We will value a home under construction (under 95 percent complete) as a finished lot rather than give value to a partially complete improvement, therefore, we will value 62 lots in this section. While the lots have a minimum lot size of 4,600 square feet, there are only a few with sizes under 5,000 square feet.

We have searched the area for land sales that are similar to the subject lands. Due to the limited availability of recent sales in Lake Elsinore, we have expanded our search to include land sales within the surrounding communities of Temescal Valley, Wildomar and Menifee. Our search resulted in the s even transactions summarized below and, in the Addenda, to be most comparable to the subject property. The sales are reported both on a purchase price basis (when available) and on a finished lot basis (when available). Although some sales refer to “finished lots”, they are typically physically finished lots with some fees remaining to be paid in order to be considered true finished lots. Below are the details of each of the comparable land sales along with a discussion of each transaction in relationship to the subject lands. _________________________________________________________________________________________________________ Appraisal Report
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Land Sale No. 1 refers to a current escrow located in Menifee about 12 miles east of the subject at the northeast corner of Southshore Drive and Holand Road near the community known as Menifee Lakes. KB Home is in escrow to purchase the site from Ambient Pacific with escrow anticipated to close in the next few weeks. The site is mapped for 233 single family detached lots with a minimum lot size of 6,000 square feet.

The property is in escrow at a confidential price however brokers familiar with the transaction state the finished lot amount is estimated at $253,000 per lot. The site is in an unimproved condition with mapping in place. The lots are being purchased in two takedowns. In comparison to the subject property, this location is considered to be similar (Menifee median home price is currently $622,000 while East Lake Elinore’s median home price is $625,000). This transaction is not a closed sale, which makes it slightly superior to today’s current market value as there is no guarantee the transaction will close. However, dollars have gone non- refundable in this transaction suggesting it will close. In addition, this transaction is slightly inferior in condition (mapped, unfinished lands). Although costs are considered in the finished lot price, the risk of developing the property is not. Finally, the lot size within this transaction of 6,000 square f oot minimum lots when compared to the subject’s 4,600 square foot minimum lots (majority closer to 5,000 square foot minimum lots) is considered to be slightly superior.

Land Sale No. 2 refers to the most recent closing we found in the subject market area.

KB Home purchased 53 lots in June 2024, also from Ambient. The property is located in Menifee at the northwest corner of Leon Road and Craig Avenue about 13.5 miles southeast of the subject. The transaction includes 53 lots with a minimum lot size of 5,500 square feet which were purchased for $4,246,364 or $80,120 per lot based on an estimated finished lot price of $227,500. The lots were in an unimproved condi tion with final mapping in place. This site is known as Phase 2 of Canterwood. D.R. Horton purchased Phase 1 in Canterwood in April 2022 based on a finished lot value of $175,000, however there were significant offsites needed prior to development. While the cost estimate of the offsites were taken into consideration, there is additional risk associated with the first phase in a larger development which D.R. Horton accepted when _________________________________________________________________________________________________________ Appraisal Report
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buying the first phase of the development at a lower finished lot cost. Additionally, there has been appreciation in the subject marketplace between April 2022 and June 2024.

In comparison to the subject property, this location is considered to be similar to the subject property and the lot size is slightly superior.

Land Sale No. 3 pertains to the Lennar purchase of 491 lots, also located in Menifee which are along the east side of I -215 at Rouse Road and Encanto Drive, The lots are known as the first phase of Lagado, a master planned community generally east of I-215 and north of McCall Road. The lots have varying minimum sized lots from 5,000 to 7,000 square feet. The site was in a rough graded condition at time of sale in March 2024. They were purchased for $22,500,000 or $45,825 per lot based on an estimated finished lot cost of $240,000. When compared to the subject property this transaction is considered to be slightly inferior in location as Legado is a bit further out for commuters into Los Angeles and Orange Counties. In addition, the number of lots within this transaction is considered to be inferior. That is, most builders purchase a single tract in a transaction with lots typically ranging from around 50 to 200, so this transaction for 491 lots would be considered a bulk value due to the time it will take for Lennar to develop and sell the 491 proposed homes.

Land Sale No. 4 i
s also located in Menifee, along the southeast side of Domenigoni Parkway, north of Lindenberger Road, very near to Land Sale No. 1. The site was unimproved with a recorded final map subdividing the site into 197 lots with a minimum lot size of 6,000 square feet. Pulte purchased the site in January 2024 for $8,500,000 or $43,147 per lot based on an estimated finished lot cost of $240,000. The site is adjacent to Pulte’s successful Banner Park community. When compared to the subject site this property is considered to be similar in location and slightly superior in minimum lot size.

Land Sale No. 5 i
s the most recent land sale in the Temescal Valley, about five miles northwest of the subject site. KB Home purchased the site in December 2023 for $27,539,637 or about $135,663 per lot based on a finished lot cost estimated at $295,000. The property is located at Horsethief Canyon and Bosley Lane. Th e site was unimproved at time of sale with an approved map for 203 lots with a minimum lot size of _________________________________________________________________________________________________________ Appraisal Report
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6,000 square feet. In comparison to the subject property this sale is considered to be inferior in condition, however superior in minimum lot size.

Land Sale No. 6 relates to the purchase of a site in Lake Elsinore, about three miles southwest of the subject site. D.R. Horton purchased the site, located along the southwest side of Lakeshore Drive, southeast of Machada, in December 2023 for $8,000,000 or $57,143 per unit. The site had a tentative tract map for 140 duplexes and was purchased in an unimproved condition. This transaction is considered inferior in lot size as it is for a duplex (attached) product. We were not able to obtain finished lot estimates for this purchase. We have included it as it is a recent trading of land in the City of Lake Elsinore as it shows the demand in the market area.

Land Sale No. 7 pertains to the D.R. Horton purchase of a parcel located on the southwest side of the I-15 in Wildomar at Palomar Street and Starbuck Circle about nine miles south of the subject property. The site is zoned R -1 for single family residential with a minimum lot size of 7,200 square feet. D.R. Horton purchased the site in June 2023 for $7,000,000 or $55,555 per lot based on an estimated finished lot price of $265,000. The development costs are higher due to the offsite improvements which are needed and the fact that the site is unimproved. There is an approved final map for the 126 lots on the site. In comparison to the subject property this location is considered to be similar (Wildomar versus Lake Elsinore) . These lots are superior in lot size to the subject due to the minimum lot size of 7,200 versus the subject’s generally 5,000 minimum lot size. In addition, this sale is considered to be inferior due to the unimproved nature of the site versus the subject’s graded and finished or nearly fini shed condition.

While costs are taken into account in our analysis, the risk associated with the development is not.

Land Sale No. 8 pertains to the only other residential land sale in the City of Lake Elsinore in the past two years that our search uncovered. In May 2022 Pulte purchased a portion of Alberhill Ranch located at Alberhill Ranch Road and Nicholas Road about three miles west of the subject site. This site was hilly with view potential. Pulte _________________________________________________________________________________________________________ Appraisal Report
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purchased the 344 lots for $37,056,914 or for $107,723 per lot based on a reported finished lot of $220,000. The lots have a minimum lot size of 6,000 square feet and were sold in an unimproved condition however with final map in place. Pulte is now selling their Crestly (being sold under the Centex brand), Fairfield, Linden and Ridgeline neighborhoods, all at Alberhill Ranch. In comparison to the subject property this transaction is considered to be slightly superior in lot sizes and view potential, however inferior in condition of land at time of sale and in number of lots. Pulte purchased 344 lots which is considered to be inferior due to it being a bulk value as most builders purchase in the range of 50 – 200 lots in a single transaction. While the devel opment costs are considered in our analysis, there is risk associated with the grading and development of a parcel when it is in an unimproved condition. In addition, this transaction occurred in mid-2022 as the Federal Reserve Board began increasing rates.

Now that the rate increases have subsided, builders are more optimistic, making this transaction slightly inferior in date of sale when compared to today’s current market.

In addition to the above sales, we are aware of two current escrows for two planning areas within the next phase of Bedford, about four miles northwest of the subject in the southernmost portion of the City of Corona adjacent to the Temescal Valley. Bedford is a successful master planned community with significant amenities which are considered superior to the subject property. Due to the current escrow status, we have been asked to keep the information confidential in our files. The two sites are in escrow to two different public builders on the basis of $467,000 for 4,000 square foot minimum lots and $423,000 for 3,760 square foot minimum lots. These transactions are not yet closed; however, they are due to close in a few weeks according to the seller. The Planning Areas are being sold in a mass graded condition with all entitlements and mapping in place. They are within the third phase of Bedford as Phase One is sold out and Phase Two is nearing sell -out. In comparison to the subject property these transactions are considered to be superior in location (closer into Orange County Los Angeles and Riverside for commuters), and superior as they are not yet closed sales.

The chart below summarizes the various differences in the market data as compared to the subject property.
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The market data has an overall finished lot range from $220,000 to $295,000. This wide range is largely due to various lot sizes and locations. Larger lots command a higher price depending on other factors being equal while smaller lots generally indicate lower finished lot prices. We have included the older sale from 2022 as it was the last Lake Elsinore transaction we were able to obtain the finished lot price on. It should be noted that appreciation on homes has gone up significantly since 2022. The highest transaction is located in the Temescal, close to the subject property, however considered to be a slightly superior area and with larger minimum sized lots. The lowest transaction relates to the sale in 2022, prior to a significant amount of appreciation in the subject marketplace. We have considered adjustments primarily due to location, condition of lands and lot size.

Based on the market data, as well as the current escrow activity, we have concluded at a finished lot value for the subject property of $250,000. As discussed above under the Property Description Section there are $26,051.72 in remaining land development costs and fees per lot. The concluded value for the lots is as follows:

62 Lots x $250,000 $15,500,000
Less Rem. Costs ($26,051.72 x 62) (1,615,207)
As Is value for the 62 Lots $ 13,884,793
Data
No.

Location
Date of
Sale
Lot Size Finished
Lot Price

Comparison to Subject
1 Menifee Cur. Esc 6,000 $253,000
Superior – Lot Size & Not Closed
Sale
Inferior - Condition
2 Menifee June 2024 5,500 $227,500 Slightly Superior – Lot Size Inferior – Condition
3 Menifee March 2024 5,000 –
7,000 $240,000 Inferior – Location, Condition, and
Number of Lots

4 Menifee Jan. 2024 6,000 $240,000 Superior - Lot Size
Inferior - Condition
5 Temescal Valley Dec. 2023 6,000 $295,000 Superior – Lot Size & Location Inferior – Condition

6 Lake Elsinore Dec. 2023 Duplex N/A Significantly Inferior – Lot Size 7 Wildomar June 2023 7,200 $265,000 Superior – Lot Size Inferior – Condition
8 Lake Elsinore May 2022 6,000 $220,000 Superior – Lot Size Inferior – Condition and Date of Sale
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Retail House Valuation

Due to the single ownership of multiple houses by Meritage Homes, a Discounted Cash Flow (“DCF”) analysis is needed in order to arrive at a bulk value for the homes. First, a retail value for each plan will be concluded, followed by a DCF for the builder which will take into consideration the absorption time to sell off the builder owned houses, the costs associated with selling off the homes and any remaining development costs to be paid by the builder within each neighborhood. The resulting revenue will be discounted using an appropriate rate to determine the builder-owned bulk value.

Hilltop and Highland currently have 23 completed homes owned by Meritage, including four models and 19 production homes, 13 of which are in escrow and due to close upon completion. In this analysis we will value each plan within Hilltop and Highland and then use a discounted cash flow analysis to conclude at a bulk value for the builder -owned homes.

Below is a summary of the floor plans within Hilltop and Highlands. A listing of the improved residential comparable properties is located in the Addenda of this report.

detailed below.

In addition to the above detailed houses there are 30 houses under construction and 32 finished lots.

The most appropriate new home comparable data for Hilltop Plan 1 are shown below.

Plan
Room
Count
Floors/
Parking
Sq.

Ft.

Ind.

Own
Bldr.

Own
Hilltop:
1 4 / 3 2 / 2 2,020 11 2
2 4 / 3 2 / 2 2,165 16 3*
3 5 / 3 2 / 2 2,417 17 5*
Hilltop Total 44 10
Highland:
1 4 / 3 2 / 2 2,308 11 5*
2 4 / 3 2 / 2 2,532 9 0
3 4+ / 3 2 / 2 2,744 11 5*
4 5+ / 3 2 / 2 2,932 8 3
Highland Total 39 13
Total 83 23
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Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 1 4 / 3 2 / 2 2,020 --
1 2 4 / 3 2 / 2 2,165 $280.37
2 1 4 / 3 2 / 2 2,308 $272.96
7 4 3 / 2.5 2 / 2 1,976 $304.14
7 5 3 / 2.5 2 / 2 2,139 $291.25
8 4 3 / 2.5 2 / 2 2,218 $278.17
10 4 4 / 3 2 / 2 2,216 $263.99

There are currently three escrows of Hilltop Plan 1 with a sales price range of $289.45 to $292.92 per square foot. It should be noted that most homebuyers purchase some upgrades, premiums and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options less all concessions. Concessions for Plan 1 generally have ranged from $35,000 to $50,000. All homes appear to be in excellent condition with no depreciation visible. It has been concluded that Hilltop Plan 1 has a base current market value of $280.00 per square foot. This calculates as follows:
2,020 sf x $280.00 = $565,600

The most appropriate new home comparable data for Hilltop Plan 2 are shown below.

Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 2 4 / 3 2 / 2 2,165 --
1 1 4 / 3 2 / 2 2,020 $295.05
1 3 5 / 3 2 / 2 2,417 $258.17
2 1 4 / 3 2 / 2 2,308 $272.96
2 2 4 / 3 2 / 2 2,532 $255.92
7 5 3 / 2.5 2 / 2 2,139 $291.25
8 4 3 / 2.5 2 / 2 2,218 $278.17
10 4 4 / 3 2 / 2 2,216 $263.99
_________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 59
The new home comparables are all located within the City of Lake Elsinore. All are of similar quality, design and appeal . Adjustments were considered (when applicable) for location, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The comparable new home base prices range from $255.92 to $295.05 per square foot with generally the lower prices per square foot being for the larger homes. Typically, larger homes have a lower price per square foot due to the economies of scale obtained during c onstruction. The asking base price for Hilltop Plan 2 is currently $280.37 per square foot. There have been 16 closings of Plan 2 with sale prices ranging from $268.82 to $287.26 per square foot.

There are currently two escrows of Hilltop Plan 2 with a sales price range of $272.19 to $288.36 per square foot. It should be noted that most homebuyers purchase some upgrades, premiums and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options less all concessions. Concessions for Plan 2 have generally ranged from $30,000 to $50,000. All homes appear to be in excellent condition with no depreciation visible. It has been concluded that Hilltop Plan 2 has a base current market value of $265.00 per square foot. This calculates as follows:

2,165 sf x $265.00 = $573,725

The most appropriate new home comparable data for Hilltop Plan 3 are shown below.

Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 3 5 / 3 2 / 2 2,417 --
1 2 4 / 3 2 / 2 2,165 $280.37
2 1 4 / 3 2 / 2 2,308 $272.96
2 2 4 / 3 2 / 2 2,532 $255.92
3 2 5 / 2.5 2 / 2 2,404 $266.63
4 2 4 / 2.5 2 / 2 2,654 $245.29
7 6 4 / 3 2 / 2 2,389 $269.56
8 5 4 / 3 2 / 2 2,453 $258.86
10 5 5 / 3 2 / 3 2,532 $247.04

The new home comparables are all located within the City of Lake Elsinore. All are of similar quality, design and appeal . Adjustments were considered (when applicable) for location, lot size, stories, sales concessions, CFD taxes, common area benefits, total _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 60
square footage, room count, garage space and other amenities. The comparable new home base prices range from $245.29 to $280.37 per square foot with generally the lower prices per square foot being for the larger homes. Typically, larger homes have a lower price per square foot due to the economies of scale obtained during construction . The asking base price for Hilltop Plan 3 is currently $258.17 per square foot. There have been 17 closings of Plan 3 with sale prices ranging from $243.90 to $266.15 per square foot.

There are currently six escrows of Hilltop Plan 3 with a sales price range of $25 7.55 to $267.40 per square foot. It should be noted that most homebuyers purchase some upgrades, premiums and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options less all concessions. Concessions for Plan 3 have generally ranged from $20,000 to $60,000 All homes appear to be in excellent condition with no depreciation visible. It has been concluded that Hilltop Plan 3 has a base current market value of $245.00 per square foot. This calculates as follows:

2,417 sf x $245.00 = $592,165

The most appropriate new home comparable data for Highland Plan 1 are shown below.

Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 1 4 / 3 2 / 2 2,308 --
1 2 4 / 3 2 / 2 2,165 $280.37
1 3 5 / 3 2 / 2 2,417 $258.17
2 2 4 / 3 2 / 2 2,532 $255.92
3 2 5 / 2.5 2 / 2 2,404 $266.63
4 2 4 / 2.5 2 / 2 2,654 $245.29
7 6 4 / 3 2 / 2 2,389 $269.56
8 5 4 / 3 2 / 2 2,453 $258.86
10 5 5 / 3 2 / 3 2,532 $247.04

The new home comparables are all located within the City of Lake Elsinore. All are of similar quality, design and appeal . Adjustments were considered (when applicable) for location, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The comparable new home base prices range from $245.29 to $280.37 per square foot with generally the lower prices per square foot being for the larger homes. Typically, larger homes have a lower _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 61
price per square foot due to the economies of scale obtained during construction . The asking base price for Highland Plan 1 is currently $272.96 per square foot. There have been 11 closings of Plan 1 with sale prices ranging from $246.46 to $278.95 per square foot. There are currently two escrows of Highland Plan 1 with a sales price range of $271.10 to $281.06 per square foot. It should be noted that most homebuyers purchase some upgrades, premiums and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options less all concessions. Concessions for Plan 1 have generally ranged from $30,000 to $60,000. All homes appear to be in excellent condition with no depreciation visible. It has been concluded that Highland Plan 1 has a base current market value of $250.00 per square foot. This calculates as follows:

2,308 sf x $250.00 = $577,000

The most appropriate new home comparable data for Highland Plan 2 are shown below.

Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 2 4 / 3 2 / 2 2,532 --
1 3 5 / 3 2 / 2 2,417 $258.17
2 1 4 / 3 2 / 2 2,308 $272.96
2 3 4 / 3 2 / 2 2,744 $241.62
3 2 5 / 2.5 2 / 2 2,404 $266.63
4 2 4 / 2.5 2 / 2 2,654 $245.29
8 6 4 / 2.5 2 / 2 2,517 $254.66
10 5 5 / 3 2 / 3 2,532 $247.04

The new home comparables are all located within the City of Lake Elsinore. All are of similar quality, design and appeal . Adjustments were considered (when applicable) for location, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The comparable new home base prices range from $241.62 to $272.96 per square foot with generally the lower prices per square foot being for the larger homes. Typically, larger homes have a lower price per square foot due to the economies of scale obtained during c onstruction. The asking base price for Highland Plan 2 is currently $255.92 per square foot. There have been nine closings of Plan 2 with sale prices ranging from $229.86 to $257.99 per square foot. There are no current escrows of Highland Plan 2. It should be noted that most _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 62
homebuyers purchase some upgrades, premiums and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options less all concessions. Concessions for Plan 2 have generally ranged from $30,000 to $65,000. All homes appear to be in excellent condition with no depreciation visible. It has been concluded that Highland Plan 2 has a base current market value of $235 .00 per square foot. This calculates as follows:

2,532 sf x $235.00 = $595,020

The most appropriate new home comparable data for Highland Plan 3 are shown below.

Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 3 4 / 3 2 / 2 2,744 --
1 3 5 / 3 2 / 2 2,417 $258.17
2 2 4 / 3 2 / 2 2,532 $255.92
2 4 5 / 3 2 / 2 2,932 $230.22
3 3 5 / 3 2 / 2 2,824 $238.31
4 2 4 / 2.5 2 / 2 2,654 $245.29
4 3 5 / 3 2 / 2 2,824 $238.31
5 1 4 / 2.5 2 / 3 2,792 $245.70
9 6 5 / 3 2 / 2 2,882 $229.00

The new home comparables are all located within the City of Lake Elsinore. All are of similar quality, design and appeal . Adjustments were considered (when applicable) for location, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The comparable new home base prices range from $229.00 to $258.17 per square foot with generally the lower prices per square foot being for the larger homes. Typically, larger homes have a lower price per square foot due to the economies of scale obtained during construction . The asking base price for Highland Plan 3 is currently $241.62 per square foot. There have been 11 closings of Plan 3 with sale prices ranging from $213.92 to $240.39 per square foot. There are two current escrows of Highland Plan 3 with a sales price range from $239.61 to $249.65 per square foot. It should be noted that most homebuyers purchase some upgrades, premiums and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options less all concessions. Concessions for _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 63
Plan 3 have generally ranged from $35,000 to $85,000. All homes appear to be in excellent condition with no depreciation visible. It has been concluded that Highland Plan 3 has a base current market value of $220.00 per square foot. This calculates as follows:

2,744 sf x $220.00 = $603,680

The most appropriate new home comparable data for Highland Plan 4 are shown below.

Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 4 5 / 3 2 / 2 2,932 --
2 3 4 / 3 2 / 2 2,744 $241.62
3 3 5 / 3 2 / 2 2,824 $238.31
4 3 5 / 3 2 / 2 2,824 $238.31
5 1 4 / 2.5 2 / 3 2,792 $245.70
5 2 4 / 2.5 2 / 3 2,988 $234.94
9 6 5 / 3 2 / 2 2,882 $229.00

The new home comparables are all located within the City of Lake Elsinore. All are of similar quality, design and appeal . Adjustments were considered (when applicable) for location, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The comparable new home base prices range from $229.00 to $245.70 per square foot with generally the lower prices per square foot being for the larger homes. Typically, larger homes have a lower price per square foot due to the economies of scale obtained during construction . The asking base price for Highland Plan 4 is currently $230.22 per square foot. There have been eight closings of Plan 4 with sale prices ranging from $213.17 to $227.51 per square foot. There is one current escrow of Highland Plan 4 with a sales price of $235.92 per square foot. It should be noted that most homebuyers purchase some upgrades, premiums and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options less all concessions. Concessions for Plan 4 have generally ranged from $30,000 to $85,000. All homes appear to be in excellent condition with no depreciation visible. It has been concluded that Highland Plan 4 has a base current market value of $210.00 per square foot. This calculates as follows:

2,932 sf x $210.00 = $615,720

_________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 64
Builder Owned Retail Value
Within both Hilltop and Highland there are 19 production homes over 95 percent complete and four completed models for a total of 23 houses being valued in this section.

Per interviews with builders, upgrades and landscape/hardscape of up to $10 0,000 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 $50,000 premium has been included with each of the model homes. The retail base value conclusions for the builder-owned homes are calculated below.

Hilltop at Nichols Ranch:

Plan 1 (2 x $565,600) $ 1,131,200
Plan 2 (3 x $573,725) 1,721,175
Plan 3 (5 x $592,165) 2,960,825
Highland at Nichols Ranch:

Plan 1 (5 x $577,000) 2,885,000
Plan 2 (0 x $595,020) 0
Plan 3 (5 x $603,680) 3,018,400
Plan 4 (3 x $615,720) 1,847,160
Model Upgrades (4 x $50,000) 200,000
Total Nichols Ranch $ 13,763,760
Absorption Period
In order to arrive at an absorption period for the builder owned homes within Nichols Ranch, the absorption rates for the subject communities along with comparable projects have been reviewed. The average monthly sales rate in Nichols Ranch (including both neighborhoods) is 8.25 homes per month. The comparable sales have average sales rates ranging from 2.4 to 8.9 sales per month. Thirteen of the nineteen production homes over 95 percent complete are in escrow. We have concluded that the 23, builder-owned homes will be absorbed over a four-month time period at the concluded prices.

Remaining Costs
As discussed under the property description section above there are $26,051.72 in remaining land development costs and fees per lot. This equates to $599,190 in remaining land development costs associated with the 23 homes over 95 percent _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 65
complete owned by the builder. For purposes of our analysis, it is assumed these costs will be expended 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 percen t depending on varying factors such as absorption period, intensity of marketing, etc. Eight percent has been estimated for marketing expenses and two percent for general and administrative costs for a total of ten percent in expenses for the subject neighborhood’s analyses.

Profit
Several interviews with merchant builders in the area were conducted in order to determine an appropriate profit percentage for the subject properties . D evelopers typically attempted to achieve a 10 to 12 percent profit based on gross sales proceeds.

During recessionary times, this range is typically lowered considerably to six to eight percent with some builders drastically lowering their profit margins in order to maintain their work force. As the market improved, so did the profits. A ten percent profi t is considered appropriate in the analysis for this community.

Discount Rate
In selecting a discount rate, the following was completed:

1. Interviews with merchant builders in the Riverside County market 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

4. Discussed the project with equity investors and master plan community developers

The sales rate of homes within Nichols Ranch which has been average to good has also been taken into consideration in the discount rate. Based on the above factors, a twelve percent discount rate is considered appropriate for the subject neighborhood.

_________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 66
Discounted Cash Flow Summary
The discounted revenue (see DCF Analyses in Addenda) for the builder owned homes resulted in the value of $10,156,639.

Nichols Ranch – Builder Ownership Final Valuation

Meritage Homes owns 62 lots, 30 which are under construction, along with 23 homes that are over 95 percent complete, including four model homes . Thirteen of the production homes over 95 percent complete are in escrow . The final value conclusion for the Builder owned property is shown below.
62 lots $13,884,793
23 Builder-Owned Houses $ 10,156,639
Total Builder Ownership Valuation $24,041,432

Nichols Ranch - Individual Owners Value Conclusion

In determining the value for the individually owned homes, we have considered the concluded base price value for the homes which is considered a minimum market value.

This is due to homebuyers typically purchasing some upgrades and options or pay ing premiums for the lot and in some cases views. Within Nichols Ranch there are 83 individually owned homes. The concluded values are shown below:

Hilltop at Nichols Ranch:

Plan 1 (11 x $565,600) $ 6,221,600
Plan 2 (16 x $573,725) 9,179,600
Plan 3 (17 x $592,165) 10,066,805
Highland at Nichols Ranch:

Plan 1 (11 x $577,000) 6,347,000
Plan 2 (9 x $595,020) 5,355,180
Plan 3 (11 x $603,680) 6,640,480
Plan 4 (8 x $615,720) 4,925,760

Total Nichols Ranch Individually Owned $48,736,425

In an additional analysis, we have reviewed the actual builder sales prices for the homes within Nichols Ranch. Closings occurred between August 2023 and July 1, 2024. The builder reported closing prices for the 83 individually owned homes totals $50,756,278. _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 67
The actual sales prices include any upgrades, premiums or options purchased by the homeowner along with all concessions given by the builder while our concluded value is for the base value of the homes, less the concessions. The actual sales prices are about four percent higher than the concluded base prices. This difference is due to the options, upgrades and premiums which were purchased which typically increase the actual home prices over the base value. It is our opinion this further substantiates the concluded minimum market values for the Nichols Ranch individually owned homes.

APPRAISAL REPORT SUMMARY

The appraisal assignment was to value the subject property within Lake Elsinore CFD No. 2019-2 which includes 168 proposed homes within the master planned community of Nichols Ranch, located in Lake Elsinore. Nichols Ranch is being developed by Meritage Homes into two neighborhoods known as Hilltop at Nichols Ranch and Highland at Nichols Ranch. The lands have all been developed to generally finished lots and range from completed, individually owned houses to houses under construction to generally finished lots. The homes are currently being marketed with 83 of the proposed 168 houses sold to individuals and another 16 in escrow which are due to close upon completion.

The subject property was valued utilizing the Sales Comparison Approach to value along with a mass appraisal technique. In the case of multiple builder -owned properties, a Discounted Cash Flow was also utilized in the valuation process. The valuation took into consideration the improvements/benefits to be funded by Special Tax Lake Elsinore CFD No. 2019-2 Bond Proceeds along with the Lake Elsinore CFD No. 2019-2 special tax lien. The concluded aggregate value for the subject property, subject to their respective special tax lien, is:

Nichols Ranch by Meritage

Meritage Homes Ownership (23 homes & 62 lots) $ 24,041,432 Individual Owned (83 homes) $ 48,736,425

Aggregate Value of Lake Elsinore CFD No. 2019-2 $ 72,777,857

The above values are stated as of said date of value and subject to the attached Assumptions and Limiting Conditions and Appraiser’s Certification. _________________________________________________________________________________________________________ Appraisal Report
City of Lake Elsinore CFD No. 2019-2 (Nichols Ranch)
Kitty Siino & Associates, Inc. Page 69
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)

ADDENDA

LAKE ELSINORE CFD NO. 2019-2

BOUNDARY MAP

TRACT MAP NOS. 37305 and 37305-1

DISCOUNTED CASH FLOW ANALYSES

Nichols Ranch Builder-Owned Houses Discounted Cash Flow Analysis

MONTH Months MONTH 1 MONTH 2 MONTH 3 MONTH 4 TOTAL
4 INCOME:

Retail Sales 13,763,760 $3,440,940 $3,440,940 $3,440,940 $3,440,940 $13,763,760

TOTAL INCOME $3,440,940 $3,440,940 $3,440,940 $3,440,940 $13,763,760

EXPENSES:

Remaining Costs ($149,797) ($149,798) ($149,797) ($149,798) ($599,190) Marketing & Carrying Expenses 10% ($344,094) ($344,094) ($344,094) ($344,094) ($1,376,376) Profit 10% ($344,094) ($344,094) ($344,094) ($344,094) ($1,376,376)

TOTAL EXPENSES ($837,985) ($837,986) ($837,985) ($837,986) ($3,351,942)

NET CASH FLOW $2,602,955 $2,602,954 $2,602,955 $2,602,954 $10,411,818 Discount Factor 12% 0.9901 0.9803 0.9706 0.9610

DISCOUNTED CASH FLOW $2,577,183 $2,551,666 $2,526,402 $2,501,388 $10,156,639

CUMULATIVE DISCOUNTED $2,577,183 $5,128,849 $7,655,251 $10,156,639 $10,156,639

CASH FLOW

FINISHED LOT LAND SALES MAP
& SUMMARY CHART

FINISHED LOT LAND SALES MAP

FINISHED LOT LAND SALES SUMMARY CHART

Data
No. Location / APN / Buyer / Seller Sales #
Lots Lot Size Sales Price /
Est.

Finished Comments Date Price per
Lot
Lot Price
1 Nautical Cove, NWC Briggs Road and
Holland Road, Menifee / 364-200-009 /
KB Home / Ambient (Escrow)
Escrow 233 6,000 Confidential $253,000
Closing with an approved
Final Map in an unimproved
condition. Three phase take
down- Phase 1 scheduled to
close late July 2024.

2 Canterwood Phase 2, NWC of Leon
Road and Craig Ave., Menifee / 466-
310-026 / KB Home / Ambient
June
2024 53 5,500 $4,246,364 /
$80,120 $227,500
Closing with an approved
Final Map in an unimproved
condition. Phase 2 closed
6/20/24 (Phase 3 additional
93 lots scheduled to close
2/20/25).

3 Legado Phase 1 / SEC Rouse Road
and Encanto Dr/I-215, Menifee / 333-
020-020 / Lennar / IHP
March
2024 491 5,000-
7,000
$22,500,000
/
$45,825
$240,000
Closed with an approved
final map in a rough graded
condition.

4 Diamond Brothers South / SE side of
Domenigoni Pkwy, N of Lindenberger
Rd, Menifee / 340-603-040 / Pulte /
Diamond Brothers Five
January
2024 197 6,000 $8,500,000 /
$43,147 $240,000
Closed with a recorded final
map in an unimproved
condition.

5 JBJ Ranch Phase 1, SW Horsethief
Canyon and Bosley Lane, Temescal
Valley / 393-310-005 / KB Home /
Mission Pacific
December
2023 203 6,000
$27,539,637
/
$135,663
$295,000
Closed with an approved
Final Map in an unimproved
condition.

6 SW side of Lakeshore; SE of Machado,
Lake Elsinore / 379-230-001 / D.R.

Horton / Coastal Commercial Property
December
2023 140 Duplex $8,000,000 /
$57,143 N/A
Purchased with a tentative
tract map and in an
unimproved condition.

7 Murrieta Creek Estates, Palomar Street
and Starbuck Circle, Murrieta / 380-
210-004 / D.R. Horton / JPR Homes
June
2023 126 7,200 $7,000,000 /
$55,555 $265,000
Closed with an approved
Final Map in an unimproved
condition.

IMPROVED RESIDENTIAL SALES MAP
& SUMMARY CHART

IMPROVED RESIDENTIAL SALES MAP

IMPROVED RESIDENTIAL SALES SUMMARY CHART

Data
No.

Project Name
Location/Developer Plan Room
Count
Floors/
Parking Size (SF)
Lot Size or
Density /
Absorption
Base Sales
Price Price/SF
1 Hilltop at Nichols Ranch, SEC Nichols
Road and I-15, Lake Elsinore /
Meritage Homes
1 4 / 3 2 / 2 2,020 5,000 sf lots $596,000 $295.05
2 4 / 3 2 / 2 2,165 4.6 sales/mo $607,000 $280.37
3 5 / 3 2 / 2 2,417 $624,000 $258.17
2 Highland at Nichols Ranch, SEC
Nichols Road and I-15, Lake Elsinore /
Meritage Homes
1 4 / 3 2 / 2 2,308 $630,000 $272.96
2 4 / 3 2 / 2 2,532 5,000 sf lots $648,000 $255.92
3 4 / 3 2 / 2 2,744 3.6 sales/mo $663,000 $241.62
4 5 / 3 2 / 2 2,932 $675,000 $230.22
3 Crestly at Alberhill Ranch,SEC Nichols
Road and Alberhill Ranch Road, Lake
Elsinore / Centex Homes
1 4 / 2 1 / 2 1,959 5,000 sf lots $605,990 $309.34
2 5 / 2.5 2 / 2 2,404 3.6 sales/mo $640,990 $266.63
3 5 / 3 2 / 2 2,824 $672,990 $238.31
4 Fairfield at Alberhill Ranch, SEC
Nichols Road and Alberhill Ranch
Road, Lake Elsinore / Pulte Homes
1 3 / 2 1 / 2 2,191 5,000 sf lots $603,990 $275.67
2 4 / 2.5 2 / 2 2,654 2.4 sales/mo $650,990 $245.29
3 5 / 3 2 / 2 2,824 $665,990 $235.83
5 Linden at Alberhill Ranch, South of
Alberhill Ranch Road at Merrifield
Street, Lake Elsinore / Pulte Homes
1 4 / 2.5 2 / 3 2,792 5,000 sf lots $685,990 $245.70
2 4 / 2.5 2 / 3 2,988 4.6 sales/mo $701,990 $234.94
3 5 / 4 2 / 3 3,337 $733,990 $219.96
6 Ridgeline at Alberhill Ranch, South of
Alberhill Ranch Road at Hudson Lane,
Lake Elsinore / Pulte Homes
1 3 / 2 1 / 2 2,070 6,000 sf lots $634,990 $306.76
2 3 / 2 1 / 2 2,304 5.6 sales/mo $673,990 $292.53
3 5 / 3 1 / 2 2,641 $700,990 $265.43
7 Carrera at Terracina / NEC Lakeshore
Drive and Terra Cotta Road, Lake
Elsinore / KB Home
1 3 / 2 1 / 2 1,435 $562,990 $392.33
2 3 / 2 1 / 2 1,663 $577,990 $347.56
3 3 / 2 1 / 2 1,840 4,500 sf lots $590,990 $321.19
4 3 / 2.5 2 / 2 1,976 4.9 sales/mo $600,990 $304.14
5 3 / 2.5 2 / 2 2,139 $622,990 $291.25
6 4 / 3 2 / 2 2,389 $643,990 $269.56
8 Villa Real at Terracina / NEC
Lakeshore Drive and Terra Cotta
Road, Lake Elsinore / KB Home
1 3 / 2 1 / 2 1,539 $565,990 $367.76
2 3 / 2 1 / 2 1,742 $582,990 $334.67
3 4 / 2 1 / 2 2,027 5,000 sf lots $606,990 $299.45
4 3 / 2.5 2 / 2 2,218 4.5 sales/mo $616,990 $278.17
5 4 / 3 2 / 2 2,453 $634,990 $258.86
6 4 / 2.5 2 / 2 2,517 $640,990 $254.66

9 Crimson Hills / Rosetta Canyon Drive
and Elsinore Hills Road, Lake Elsinore
/ KB Home
1 3 / 2 1 / 2 1,551 $554,990 $357.83
2 3 / 2 1 / 2 1,751 $571,990 $326.66
3 3 / 2 1 / 2 2,035 7,200 sf lots $590,990 $290.41
4 4 / 2 1 / 2 2,206 4.9 sales/mo $615,990 $279.23
5 4 / 2.5 2 / 2 2,528 $642,990 $254.35
6 5 / 3 2 / 2 2,882 $659,990 $229.00
10 Echo Highlands / SEC Laguna Avenue
and Riverside Drive, Lake Elsinore /
Tri Pointe Homes
1 2 / 2 1 / 2 1,569 $513,500 $327.28
2 3 / 2 1 / 2 1,758 7,000 sf lots $538,500 $306.31
3 3 / 2 1 / 2 1,941 8.9 sales/mo $549,500 $283.10
4 4 / 3 2 / 2 2,216 $585,000 $263.99
5 5 / 3 2 / 3 2,532 $625,500 $247.04

APPRAISER’S QUALIFICATIONS

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.

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 and 2018

Speaker, Mello- Roos & Special Assessment Financing, UCLA Extension Publi c Policy Program, February 2009 and March 2011

Lake Elsinore City CouncilAugust 13, 2024

Lake Elsinore City Council
August 13, 2024