MDR 6; MDR 7 and MDR 8 - Phase 2. The property in MDR 6, MDR 7 and the second phase of MDR 8 is planned for 102, 96 and 60 for-sale single-family detached homes, respectively. The timing of Signature Homes’ acquisition of the property within such Villages is dependent on the satisfaction of certain conditions of approval necessary to record the final subdivision maps, including the Sewer Condition.
This, in turn, affects the timing for home construction and sales. As described above, the Sewer Condition is expected to be satisfied by the end of 2022. Signature Homes currently expects to commence site work on the property in MDR 6, MDR 7 and the second phase of MDR 8 at the time it acquires such property. Signature Homes expects the site work to be complete in approximately six months, at which point Signature Homes expects to commence model home construction. Signatu re Homes expects to commence home sales in such Villages in approximately the second quarter of 2024. Signature Homes estimates an absorption rate of approximately four homes per month within each Village and estimated sellout in 2026.
Signature Homes has reviewed the absorption schedule set forth under “— Market Absorption Study” and believes the absorption schedule for MDR 5 is achiev able. Assuming the Sewer Condition is satisfied by the end of 2022, Signature Homes believes the absorption schedules in the Market Absorption Study for MDR 6, MDR 7 and MDR 8 are achievable.
The following table sets forth the estimated number of lots, home sizes, lot sizes and estimated sales prices for Signature Homes’ product lines planned within Improvement Area No. 2.
DEVELOPMENT PLANS BY NEIGHBORHOOD AND PLAN
Project Area
Number of
Planned Units/
Parcels
Estimated Home Sizes
(Square Feet)
Estimated
Minimum Lot Size
(Square Feet)
Estimated
Base Sales Prices
(1)
MDR 5 87 2,500 – 2,871 4,000 $655,000 - $675,000
MDR 6 102 1,597 – 1,987 1,550 $499,000 - $549,000
MDR 7 96 1,622 – 2,214 1,829 $540,000 - $590,000
MDR 8 136 1,940 – 2,521 3,116 $588,000 - $639,000
Total 421
(1) Base home prices shown exclude lot prem iums, options and extras and any incentives or price reductions. Base sales prices are subject to change.
Source: Signature Homes.
Signature Homes Financing Plan
General. Signature Homes currently estimates that its total land acquisition, infrastructure, home construction (including all soft costs), marketing and other carrying costs for the projects in MDR 5 through MDR 8 to be approximately $241.5 million. Through December 31, 2021, Signature Homes has spent approximately $3.6 million on its planned projects in Improvement Area No. 2, which includes costs relating to processing subdivision maps, the capital contributions to the Joint Venture for MDR 5, and design and planning.
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To date, Signature Homes has financed the costs of its proposed developments within Improvement Area No. 2 through internal funds. Signature Homes currently expects to finance the future land acquisition, infrastructure, home construction (including all soft costs), marketing and other carrying costs for its planned projects within MDR 5 through MDR 8 from internal funds, construction loans to be obtained, home sales revenues and reimbursements from the Developer as described in the following paragraph. Such funding includes all expected capital contributions to the Joint Venture Entity.
The Developer and Signature Homes are currently negotiating an agreement pursuant to which certain costs of infrastructure to be constructed by Signature Homes which also benefit property owned by the Developer (i.e. the HDR lots) are shared between Signature Homes and the Developer. The cost sharing agreement is expected to allocate the costs of infrast ructure to the Developer, the Joint Venture Entity and Signature Homes based on a fixed percentage of the actu al amount incurred. The current expectation is that approximately 52.9%, 38.7% and 8.4% of such costs will be allocated to the Developer, Signature Homes and the Joint Venture Entity, respectively. The total estimated cost of such infrastructure is between $14.8 million to $17.3 million (which includes soft costs). Based on such estimated costs, approximately $7.8 million to $9.1 million will be allocated to the Developer, approximately $5.7 million to $6.7 million will be allocated to Signature Homes, and approximately $1.3 million to $1.5 million will be allocated to the Joint Venture Entity.
The actual amount of such costs and therefore the foregoing allocations can be expected to vary based on actual construction bids received. The total amount that the Developer will owe Signature Homes under the cost sharing agreement, if finalized, will depend on th e actual amount incurred for such infrastructure. No assurances can be made that an agreement will ultimatel y be reached or if an agre ement is reached, the final terms of such agreement. Any delay in reaching an agreement, if at a ll, could cause a delay in Signature Homes’ planned projects in Improvement Area No. 2.
The following table shows Signature Homes’ estimated budget with respect to the projects in MDR 5 through MDR 8. Such estimates are subject to change.
SIGNATURE HOMES BUDGET (MDR 5 THROUGH MDR 8)
Total
Budgeted
Costs
Through
December 31,
2021 2022 2023 2024
Balance to
Completion
Sources of Funds
Internal Funds/Home Sales
Revenues $ 283,621,000 $ 3,605,000 $20,350,000 $ 25,010,000 $ 101,421,000 $ 133,235,000 Construction Loans 203,865,000 - 14,375,000 66,570,000 72,780,000 50,140,000 Developer Reimburse ment 12,426,000 - 3,990,000 6,270,000 2,166,000 - Total $ 499,912,000 $ 3,605,000 $38,715,000 $ 97,850,000 $ 176,367,000 $ 183,375,000
Uses of Funds
Land Acquisition $ 19,120,000 $ 2,400,000 $16,720,000 $ - $ - $ - Ma jor Infrastructure 21,800,000 - 7,000,000 11,000,000 3,800,000 - In-Tract Infrastructure 17,200, 000 - 4,000,000 7,000,000 6,200,000 - Vertical/Home Construction 107,325,000 - 800,000 23,255,000 44,120,000 39,150,000 Impact Fees (1) 28,437,000 - 77,000 3,305, 000 11,130,000 13,925,000 Loan Pa yoff 203,865,000 - 835,000 33, 330,000 91,550,000 78,150,000 Soft Costs /Other 47,580,000 1,205,000 6,910,000 12,980,000 12,545,000 13,940,000 Total $ 445,327,000 $ 3,605,000 $36,342,000 $ 90,870,000 $ 169,345,000 $ 145,165,000 ___________________
(1) Includes school district and park fees and the Delta Shores Impact Fee.
Source: Signature Homes.
Construction Loans. In line with the manner in which it has financed other residential projects, Signature Homes expects to obtain a separate construc tion loan for each of its projects in Improvement Area No. 2 (i.e. MDR 5, MDR 6, MDR 7 and MDR 8) to finance a portion of the costs of such projects. Signature Homes currently expects to obtain such construction loans from banks from which Signature Homes has
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obtained construction loans for prior projects and with comparable loan structures. No assurances can be made, however, that such construction loans will be obtained.
Although Signature Homes expects to have sufficient funds available to complete its development in Improvement Area No. 2 in accordance with the development schedule descri bed in this Official Statement, there can be no assurance that am ounts necessary to finance the devel opment costs will be available from Signature Homes or any other source when needed. Neither Signature Homes, nor any of its related entities are under any legal obligation of any kind to expend funds for the development of and construction of homes in Improvement Area No. 2. Any contributio ns by Signature Homes to fund the costs of such development are entirely voluntary.
If and to the extent that internal funding, incl uding but not limited to home sales revenues, are inadequate to pay the costs to complete the planne d development by Signature Homes within Improvement Area No. 2 and other financing by Signature Homes is no t put into place, there co uld be a shortfall in the funds required to complete the planned development by Signature Homes in Improvement Area No. 2.
COVID-19 (Coronavirus) Pandemic. Signature Homes has experien ced increases in certain construction costs, supply chain delays, labor shortages, and increased cycle time for home deliveries.
However, Signature Homes has not experienced any significant development delays resulting from work stoppages, reduced attendance of wo rkers, or the ability to obtain n ecessary inspections and approvals for homes, which may be attributed, directly or indirectly, to the COVID-19 pandemic. While the cost increases and delays may have been and may continue to be intermittently affected by COVID-19, the majority of cost increases and delays can be attributable to the strength of the housing market and the result of vendors not anticipating the scale of the demand for housing materials.
No prediction can be made with respect to the ultimate effects of the COVID-19 outbreak and related public health and governmental authorities’ orders and actions (including, without limitation, the scope of restrictions under the current or any amended County or State of California orders), on Signature Homes’ ability to sell and close homes in Improvement Area No. 2. Such effects, if and as they arise, could have a material adverse effect on the ability to develop the homes in Improvement Area No. 2 as planned, and no assurance can be provided that Signature Homes will be able to (a) complete in whole or in any part, or within any particular time, its construction of infrastructure and homes within Improvement Area No. 2; (b) avoid material increases in development costs or delays resulting from work stoppages, reduced attendance of workers, shortages or delays in the delivery of building materials, and/or delays in obtaining necessary inspections and approvals; or (c) sell homes, and close home sales or not experience purchase contract cancellations, due to in each case to public health or governmental restrictions, further spread of COVID-19, an economic downturn driven by the pandemic, or otherwise.
PROPERTY OWNERSHIP
The information in this sectio n about the Developer and Signature Homes has been provided by Developer and Signature Homes and has not been independently confirmed or verified by the Underwriter or the City. The Underwriter and the City make no representation as to the accuracy or adequacy of the information contained in this section.
The Developer
General. M&H Realty Partners VI, L.P. (previously defined as the “Developer”) is a California limited partnership formed on August 1, 2003. M&H Realty Partners VI, L.P. was formed for the purpose of, among other things, acquiring, improving and developing real property. The General Partner of M&H Realty Partners VI, L.P. is MHRP VI L.P., a California Limited Part nership. The General Pa rtner of MHRP VI L.P. is Merlone/Hagenbuch VI Inc. The key officers of Merlone/Hagenbuch VI Inc. are John J. Hagenbuch
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(Chairman and Secretary) and Peter J. Merlone (President and Treasurer). Brief bi ographies of the foregoing individuals are set forth below.
The Developer is formed and managed by individuals of Merlone Geier Partners (“Merlone Geier”).
Merlone Geier and its affiliated entities have been active in real estimate investment, redevelopment and management activities on the west coast of the United States for approximately 40 years. Merlone Geier and its affiliated entities have primarily been focuse d on the acquisition and development of community and neighborhood shopping centers.
Peter J. Merlone. Peter Merlone is a founder, co-owner and managing partner of the general partner entities of Merlone Geier and Merlone Geier Management (“MGM”). Mr. Merlone is also a founder, co-owner and president of the general partner entities of M&H Realty Partners (“M&H”), the predecessor to Merlone Geier, and was a founder and president of M&H Property Management (“MHPM”), the predecessor to MGM.
From 1986 to 1993, prior to the formation of the firs t M&H fund, Mr. Merlone was the founder and owner of The Merlone Company, MHPM’s predecessor.
Since 1993, Mr. Merlone has overseen twelve institutional limited partnerships with aggregate equity capital commitments of $4.3 billion which have acquired 173 operating properties aggregating to over 28.5 million square feet of retail improvements. Mr. Merlon e is a graduate of UCLA, simultaneously earning an undergraduate degree in economics, summa cum laude, and a master’s degree in education; he was also elected to Phi Beta Kappa.
John J. Hagenbuch . John J. Hagenbuch is Chairman of M&H and WestLand Capital Partners, investment firms he co-founded in 1994 and 2010, respectively. Prior to the formation of M&H, Mr.
Hagenbuch served from 1985-1993 as a general partner of Hellman & Friedman, a San Francisco-based investment banking and investment firm, which provided investment banking services to a wide range of clients and managed private equity partnerships with aggregate capital commitments in excess of $1 billion.
Mr. Hagenbuch is the past director of several compan ies and charitable organizations. He graduated magna cum laude from Princeton University.
Projects. The following summarizes certain of Merlone Geier’s projects:
The Village at San Antonio Center. Located in Mountain View, California, The Village at San Antonio Center is a multi-phase regional shopping center with retail, residential, hotel and office space. The two phases are complete and include approximately 225,000 square of retail space, 440,000 square feet of office space (which is 100% leased), a mixed-use component with 330 apartments, a boutique hotel and a nine- level parking structure. Anchor tenants include Safeway and a high-end cinema. The first two phases were completed in 2019.
Stella. Located in Marina Del Rey, California, Merlone Geier developed this project with 244 condominium units and 9,000 square feet of ground floor retail. Construction commenced in 2010 and the project reached stabilized occupancy in 2013. Merlone Geier sold the property in late 2013.
The UV. Located in Sacramento, California, Merl one Geier acquired this neighborhood shopping center in 2014 and reconfigured the site. The property now includes approximately 84,000 square feet of leasable space on approximately 7.6 acres. Approximately 91% of the space is currently leased.
Aurora Shopping Center. This project currently cons ists of a 130,000 square foot shopping center located in Seattle, Washington. Merlone Geier is currently remodeling the center, including the addition of approximately 35,000 square feet to be anchored by a national grocery chain.
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Further information regarding Merlone Geier is av ailable from its website at www.merlonegeier.com.
This internet address is included for reference only, and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement.
Signature Homes
General. Signature Homes, Inc. is a privately held California corporation headquartered in Pleasanton, California. Signature Homes is owned by the Ghielmetti family, and two individuals who are actively involved in the day-to-day operation: Gary Galindo (President and Chief Operating Officer) and Steve Miller (Executive Vice President of Land Acquisition & Forward Planning). Collectively, the owners have over 100 years of experience in the homebuilding industry. Founded in 1983 by James Ghielmetti, the company’s primary business is homebuilding and land development, initially in the San Francisco Bay Area.
Since 1995 Signature Homes has built communities in, among others, the cities of Sacramento, Davis, Folsom, Lincoln, Rocklin and Roseville, California. Signature Homes is presently building in Sacramento, Sonoma, Rohnert Park, Oakley, Lathrop, Folsom, Rocklin, Lincoln, Lodi and Roseville. The company is also involved in redevelopment and revitalization projects in older cities and neighborhoods, office construction and retail center development.
Key decisions for Signature Homes are principally made by its executive team, which consists of Jim Ghielmetti, Chairman of the Board and Chief Executiv e Officer; Gary Galindo, President and Chief Operating Officer; Steve Miller, Executive Vice President of Land Acquisition & Forward Planning; Juliann Cretsinger, Vice President of Sales and Marketing; and Ron Buck, Vi ce President of Operations . Additional information on Signature Homes Inc., including certain biographica l information for the executive team, can be found on the “our culture” tab of www.sighomes.com. This internet address is included for reference only and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on the internet site.
Signature Homes has been and is actively developing several projects in northern California. The below table lists certain of Signature Homes’ recent developments in northern California.
SIGNATURE HOMES
DEVELOPMENT PROJECTS
Project
Actual/Anticipated
Number of Units
at Completion
Location
Status
Bristol 42 Sonoma Sold Out
Sycamore 114 Rohnert Park Sold Out
Acaci
a 108 Oakley Under Construction/Selling
Legacy 68 Folso m Under Construction/Selling
Cardiff at River Islands 95 Lathrop Under Construction/Selling Lumina 150 Lodi Under Land Development
Source: Signature Homes.
SPECIAL RISK FACTORS
The purchase of the Bonds involves significant risks that are not appropriate investments for certain investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. The Bonds have not been rated by a rating agency. This discussion does not purport to be comprehensive or definitive and does not purport to be a
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complete statement of all factors which may be consider ed as risks in evaluating the credit quality of the Bonds. The occurrence of one or more of the events discussed below could adversely affect the ability or willingness of property owners in Improvement Area No. 2 to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the City to make full and punctual payments of debt service on the Bonds. In addition, the occurrence of one or more of the events discussed below could adversely affect the value of the property in Improvement Area No. 2. See “—Property Values” and “— Limited Secondary Market.”
Risks of Real Estate Secured Investments Generally
The Bond owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of Im provement Area No. 2, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; (iii) natural disasters (including, without limitation, earthquakes, fires and floods), which may result in uninsured losses; and (iv) high rate of inflation, rising interest rates and other economic trends that adversely affects consumers, whether cyclical or resulting from geopolitical events.
No assurance can be given that the Developer, Signature Homes, the current or any future builders or any future homeowners within Improvement Area No. 2 will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See “— Bankruptcy and Foreclosure” below, for a discussion of certain limitations on the City’s ability to pursue judicial proceedings with respect to delinquent parcels.
Concentration of Ownership
Based on the ownership status of the property with in Improvement Area No. 2 as of the Date of Value, approximately 46.6% and 53.3% of the estimated Fiscal Year 2022-23 Special Taxes would be paid by the Developer and the Joint Venture Entity, respectively. See “
DEVELOPMENT OF PROPERTY IN
IMPROVEMENT AREA NO. 2 ” above. Failure of any developers currently owning property within Improvement Area No. 2, any future developers or any of their successor(s), to pay the Special Tax when due could result in a draw on the Bond Reserve Fund, and ultimately a default in payments of the principal of, and interest on, the Bonds, when due. No assurance can be given that the Developer, the Joint Venture Entity, the current or any future merchant builders or their successors, will complete the remaining intended construction and development in Improvement Area No. 2. See “— Failure to Develop Property.” Construction of vertical improvements have not commenced on any portion of the property in Improvement Area No. 2. Therefore, the Special Ta x will be levied on property which is presently undeveloped. In the event that the Developer, the Joint Venture Entity and Signature Homes (assuming Signature Homes acquires the property under contract) fail to complete the intended construction and development in Improvement Area No. 2, the Special Tax will continue to be levied on undeveloped property.
No assurance can be given that the Developer, the Joint Venture Entity, Signature Homes (assuming Signature Homes acquires the property under contract) or any future merchant builders will pay the Special Tax in the f u t u r e o r t h a t t h e y w i l l b e a b l e t o p a y s u c h S pecial Tax on a timely basis. See “— Bankruptcy and Foreclosure” for a discussion of certain limitations on the City’s ability to pursue judicial proceedings with respect to delinquent parcels.
Failure to Develop Property
Development of property within Improvement Area No. 2 may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of the Developer, the Joint Venture
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Entity, Signature Homes (assuming Signature Homes acqui res the property under contract), or any property owner to pay the Special Tax when due. Land development is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. There is always the possi bility that such approvals will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect planned land development.
Development of land in Improvement Area No. 2 is also subject to the availability of water. Finally, development of land is subject to economic considerations.
The major infrastructure surrounding Improvement Area No. 2 is substantially complete. However, the property within Improvement Ar ea No. is presently ungraded land and there remains significant onsite infrastructure to be constructed in order to develop such property. No assurance can be given that the remaining proposed development will be partially or fully completed; and for purposes of evaluating the investment quality of the Bonds, prospective purchasers s hould consider the possibility that such parcels will remain unimproved.
Undeveloped or partially developed land is inherently less valuable than developed land and provides less security to the Holders should it be necessary for the City to foreclose on the property due to the nonpayment of the Special Tax. The failure to complete development in Improvement Area No. 2 as planned, or substantial delays in the completion of the development due to litigation or other causes may reduce the value of the property within Improvement Area No. 2 and increase the length of time during which the Special Tax will be payable from undeveloped property, and may affect the willingness and ability of the owners of property within Improvement Area No. 2 to pay the Special Tax when due.
There can be no assurance that land development operations within Improvement Area No. 2 will not be adversely affected by future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, an increase in mortgage interest rates, the income tax treatment of real property ownership, the national economy, or other economic trends that adversely affects consumers, whether cyclical or resulting from geopolitical events. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the property owners to pay the Special Tax. In that event, there could be a default in the payment of principal of, and interest on, the Bonds when due.
Holders should assume that any event that significantly impacts the ability to develop land in Improvement Area No. 2 would cause the property va lues within Improvemen t Area No. 2 to decrease substantially from those estimated by the Appraiser and could affect the willingness and ability of the owners of land within Improvement Area No. 2 to pay the Special Tax when due.
The City expects to levy the Special Tax on Fi nal Subdivision Map Property and Tentative Map Property in Fiscal Year 2022-23. The City will levy the Special Tax on property classified as Final Subdivision Map Property and Tentative Map Property, and if necessary, Undeveloped Property, in future fiscal years until the Special Tax levied on Developed Property is sufficient to fund the Special Tax Requirement. Property without vertical improvements is less valuable per unit of area than property with completed vertical improvements, especially if there are no plans to develop such land or if there are severe restrictions on the development of such land. Undevelo ped property also provides less security to the Holders should it be necessary for the City to foreclose on such property due to the nonpayment of the Special Tax.
Furthermore, an inability to develop the land within Improvement Area No. 2 as currently proposed will make the Holders dependent upon timely payment of the Special Tax levied on undeveloped property. A slowdown or stoppage in the continued development of Improvement Area No. 2 could reduce the willingness and ability of the Developer, the Joint Venture Entity and Signature Homes (assuming Signature Homes acquires the property under contract) to make Special Tax payments on property that they own and could greatly reduce the value of such property in the event it has to be foreclosed upon. See “—Property Values.”
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Inability to Access Escrow Fund
As described above under the caption “SOURCES OF PAYMENT FOR THE BONDS—Escrow Fund,” certain conditions must be satisfied prior to the transfer of any money from the Escrow Fund to the Acquisition and Construction Fund (where it would be available to pay for Facilities). The failure to satisfy all of these conditions would mean that no additional money could be transferred from the Escrow Fund to the Acquisition and Construction Fund, and such funds will be applied to effect an early redemption of the Escrow Bonds, without premium. See “THE BONDS—Redemption. ” There can be no assura nce that the conditions precedent contained in the Indenture will be satisfied in the timeframe required in order for all of the funds to be released from the Escrow Fund prior to the Escrow Fund Release Cut-Off Date of June 1, 2024.
If and to the extent that the conditions precedent in the Indenture have not been satisfied prior to the Escrow Fund Release Cut-Off Date, the amount then on deposit in the Escrow Fund will never be available for transfer to the Acquisition and Construction Fund, and su ch amount will never be available for the acquisition or construction of Facilities, effectively increasing the cost of development in Improvement Area No. 2 to the Developer.
Limited Obligations
The Bonds are not payable from the general funds of the City. Except with respect to the Net Special Tax Revenues, neither the faith and credit nor the taxing power of the City is pledged for the payment of the Bonds or related interest, and, except as provided in the Indenture, no owner of the Bonds may compel the exercise of any taxing power by the City or force th e forfeiture of any City property. The principal of, premium, if any, and interest on the Bonds are not a debt of the City or a legal or equitable pledge, charge, lien or encumbrance upon any of the City’s property or upon any of the City’s income, receipts or revenues, except the Net Special Tax Revenues and other amounts pledged under the Indenture.
Insufficiency of Special Tax
Under the Amended Rate and Method, the annual amount of Special Tax to be levied on Taxable Property in Improvement Area No. 2 will generally be based on the Zone to which a parcel of Taxable Property is assigned. See APPENDIX A — “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX” and “SOU RCES OF PAYMENT FOR THE BONDS — Special Tax — Amended and Restated Rate and Method of Apportionment of Special Tax.” In order to pay debt service on the Bonds, it is necessary that the Special Tax be paid in a timely manner. The City will establish and fund upon the issu ance of the Bonds a Bond Reserve Fund in an amount, initially, equal to the Required Bond Reserve to pay debt service on the Non-Escrow Bonds to the extent other funds are not available. The Required Bond Reserve will be revised in the event conditions precedent in the Indenture are satisfied prior to the Escrow Fund Release Cut-Off Date and the amounts in the Escrow Fund are released to fund additional Facilities and to increas e the balance in the Bond Reserve Fund. See “SOURCES OF PAYMENT FOR THE BONDS — Bond Reserve Fund.”
The City will covenant in the Indenture to maintain in the Bond Reserve Fund an amount equal to the Required Bond Reserve, subject, however, to the limit ation that the City may not levy the Special Tax in Improvement Area No. 2 in any fiscal year at a rate in excess of the maximum amounts permitted under the Amended Rate and Method. In addition, pursuant to the Act, under no circumstances will the Special Tax levied in any Fiscal Year against property within Improvement Area No. 2 for which an occupancy permit for private residential use has been issued be increased as a consequence of delinquency or default by the owner of any other property within Improvement Area No. 2 by more than 10% above the amount that would have been levied in such Fiscal Year had there never been any such delinquencies or defaults. As a result, if a significant number of delinquencies occur, the City could be unable to replenish the Bond Reserve Fund to the Required
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Bond Reserve due to the limitations on the maximum Special Tax. If such defaults were to continue in successive years, the Bond Reserve Fund could be depleted and a default on the Bonds could occur.
The City will covenant in the Indenture that, under certain conditions, it will institute foreclosure proceedings to sell any property with a delinquent Special Tax in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to protect its security interest. See “SOURCES OF PAYMENT FOR THE BONDS — Special Tax — Foreclosure Covenant ” for provisions which apply in the event of such foreclosure and which the City is required to follow in the event of delinquencies in the payment of the Special Tax.
In the event that sales or foreclosur es of property are inst ituted, there could be a delay in payments to owners of the Bonds (if the Bond Reserve Fund has been depleted) pending such sales or the prosecution of such foreclosure proceedings and receipt by the City of the proceeds of sale. The City may adjust the future Special Tax levied on Taxable Property in Improvement Area No. 2, subject to the limitation on the maximum Special Tax, to provide an amount required to pay interest on, principal of, and redemption premiums, if any, on the Bonds, and the amount, if any, necessary to replen ish the Bond Reserve Fund to an amount equal to the Required Bond Reserve and to pay all current expenses. There is, however, no assurance that the total amount of the Special Tax that could be levied and collected against Taxable Property in Improvement Area No. 2 will be at all times sufficient to pay the amounts required to be paid by the Indenture, even if the Special Tax is levied at the maximum Special Tax rates. See “—Bankruptcy and Foreclosure” for a discussion of potential delays in foreclosure actions.
The Amended Rate and Method governing the levy of the Special Tax provides that no Special Tax shall be levied on up to 55.12 Acres of Non-Residential Property, Open Space Property, Property Owner Association Property, and Public Property (as such terms are defined in the Amended Rate and Method). In addition, no Special Tax shall be levied on Welfare Ex empt Property under the conditions set forth in the Amended Rate and Method. See Section E of APPENDIX A — “AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” If for any reason property within Improvement Area No. 2 becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government or anothe r public agency, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within Improvement Area No. 2.
This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due.
The Act provides that, if any property within Improvement Area No. 2 not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. Due to problems of collecting taxes from public agencies, if a substantial portion of land within Im provement Area No. 2 was to become owned by public agencies, collection of the Special Tax might become mo re difficult and could result in collections of the Special Tax which might not be sufficient to pay principal of and interest on the Bonds when due and a default could occur with respect to the payment of such principal and interest.
Increasing Mortgage Interest Rates
Between approximately November 2021 and May 2022, mortgage interest rates have increased from approximately 3.1% to 5.0%. Mortgage interest rates are expected to continue to increase in the near term.
Increases in mortgage interest rates could have a negative impact on the estimated absorption rates and
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projected sales prices of the planned for-sale residential units in Improvement Area No. 2 described herein.
With respect to entry-level households, increased mortgage interest rates may adversely impact the affordability of homes and may increase mortgage payment levels for owning a lower-priced home relative to renting a residence, thereby making purchasing less attractive. With respect to move-up households, higher mortgage interest rates may impact the desire of current homeowners to move from their present home due to the fact that their present home likely has a relatively low mortgage interest rate. In addition, the new home would likely have a higher interest rate on a new mortgage loan as well as higher purchase price and property taxes. Such considerations may decrease the desire for move-up households to purchase a new home. The foregoing factors could reduce demand fo r and/or the ability to achieve the sales prices of the planned for-sale homes within Improvement Area No. 2 as described herein.
Teeter Plan Termination
The County has implemented its Teeter Plan as an alternate procedure for the distribution of certain property tax and assessment levies on the secured roll. Pursuant to its Te eter Plan, the County has elected to provide local agencies and taxing areas, including Improvement Area No . 2, with full tax and assessment levies instead of actual tax and assessment collections. In return, the County is entitled to retain all delinquent tax and assessment payments, penalties and interest. Thus, the County’s Teeter Plan may protect the Holders of the Bonds from the risk of delinquencies in the payment of the Special Tax. However, the County is entitled, and under certain circumstances could be required, to terminate its Teeter Plan with respect to all or part of the local agencies and taxing areas covered thereby. A termination of the Teeter Plan with respect to Improvement Area No. 2 would eliminate such protection from delinquencies in the payment of the Special Tax. See “SOURCES OF PAYMENT FOR THE BONDS — Teeter Plan.” No Representation as to Merchant Builders
No representation is made as to the experience, abilities or financial resources of Signature Homes or of any other purchaser or potential purchaser of property in Improvemen t Area No. 2 or the likelihood that such merchant builders, purchasers or potential purchasers will be successful in developing such purchased properties within Improvement Area No. 2 beyond the current stage of development. See “
DEVELOPMENT
OF PROPERTY IN IMPROVEMENT AREA NO. 2 .” The description of expected development by the Developer, the Joint Venture Entity and Signature Homes in this Official Statement is based on information provided to the City by such entities and the Appraiser. In making an investment decision, purchasers of the Bonds should not assume that any current or future property owners within Improvement Area No. 2 will develop such properties beyond the current stage of development.
Natural Disasters
The market value of the property within Improvement Area No. 2 can be adversely affected by a variety of factors that may affect public and private im provements. Those additional factors include, without limitation, geologic conditions (such as earthquakes), topographic conditions (such as earth movements) and climatic conditions (such as droughts, fire hazard, and floods). Certain of such events may become more frequent or extreme as a result of climate change.
With respect to geologic conditions, building codes require that some of these factors be taken into account in the design of private impr ovements of the parcels, and the C ity has adopted the Uniform Building Code standards with regard to seismic standards. Design criteria are established upon the basis of a variety of considerations and may change, leaving previously designed improvements unaffected by more stringent subsequently established criteria. In general, design criteria reflect a balance at the time of establishment between the present costs of protection and the future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur.
Consequently, neither the absence of, nor the establishmen t of, design criteria with respect to any particular condition means that the applicable governmental agency has evaluated the condition and has established
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design criteria in the situations in which the criteria are needed to preserve value, or has established the criteria at levels that will preserve value. To the contrary, the City expects that one or more of such conditions may occur and may result in damage to improvements of varying seriousness; that the damage may entail significant repair or replacement costs; and that repair or replacement may never occur because of the cost, because repair or replacement will not facilitate habi tability or other use, or because other considerations preclude repair or replacement. Under any of these circumstances, the actual value of the parcels might depreciate or disappear, notwithstanding the establishment of design criteria for any such condition.
In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event. The property within Improvement Area No. 2 is not located in an Alquist Priolo Earthquake Study Zone and is not located within one-half mile of an active earthquake fault.
In recent years, wildfires have caused extensive dama ge throughout the State. Certain of these fires have burned thousands of acres and destroyed hundreds and in some cases thousands of homes. In some instances entire neighborhoods have been destroyed. Several fires which occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. Additionally, property located adjacent to burn areas can be subject to mudslides and flooding, which can cause significant damage and destruction to property. Improvement Area No. 2 is not located in an area which the Department of Forestry and Fire Protection of the State of California has designated as a high fire hazard severity zone.
Hazardous Substances
The presence of hazardous substances on a parcel may result in a reduction in the value of a parcel. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming the owner, will become obligated to remedy the condition just as is the seller.
Further, it is possible that liabilities may arise in the future with respect to any of the parcels resulting from the existence, currently, on the parcel of a substa nce presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling such substance. All of these possibilities could significantly affect the value of a parcel that is realiz able upon a delinquency and the willingness or ability of the owner of any parcel to pay the Special Tax installments.
The value of the taxable property within Improvement Area No. 2, as set forth in the various tables in this Official Statement, does not reflect the presence of any hazardous substance or the possible liability of the owner (or operator) for the remedy of a hazardous subs tance condition of the prop erty. The Developer has represented to the City that it is not aware of any hazardous substance condition of the property within Improvement Area No. 2. The City has not independently determined whether any owner (or operator) of any of the parcels within Improvement Area No. 2 has such a current liability with respect to any such parcel; nor is the City aware of any owner (or operator) who has such a liability. However, it is possible that such liabilities do currently exist and that the City is not aware of them.
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Proximity to Wastewater Treatment Plant
Improvement Area No. 2 is located approximately a quarter mile from the property on which the Sacramento Regional County Sanitation District’s Re gional Wastewater Treatment Plant (the “Treatment Plant”). The Treatment Plant provides secondary wast ewater treatment and dispos al of substantially all wastewater generated by sewer systems of the cities of Sacramento and Folsom and the Sacramento Area Sewer District. Given the proximity of the Treatment Plant, there is a heightened potential for the property in Improvement Area No. 2 to be impacted by unintended discharge, spillage or overflow events occurring at the Treatment Plant. Such events could result in nuisance (e.g. odors) and potentially property damage. Any of such events could have a negative impact on property value in Improvement Area No. 2.
Payment of the Special Tax is not a Personal Obligation of the Property Owners An owner of Taxable Property is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the Taxable Property. If the value of the parcel of Taxable Property is not sufficient, taking into account other liens imposed by public agencies, to secure fully the Special Tax, the City has no recourse against the property owner.
Property Values
The value of the property within Improvement Area No. 2 is a critical factor in determining the investment quality of the Bonds. If a property owner is delinquent in the payment of the Special Tax, the City’s only remedy is to commence foreclosure proceedings against the delinquent parcel in an attempt to obtain funds to pay the Special Tax. Reductions in property values due to a downturn in the economy, physical events such as earthquakes, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Tax. See “IMPROVEMENT AREA NO. 2 — Value-to-Lien Ratios.”
The Appraisal Report does not reflect any possible negative impact which could occur by reason of future slow or no growth voter initiatives, an economic downturn, any potential limitations on development occurring due to time delays, an inability of any landowner to obtain any needed development approval or permit, the presence of hazardous substances or other adverse soil conditions within Improvement Area No. 2, the listing of endangered species or the determination th at habitat for endangered or threatened species exists within Improvement Area No. 2, or other similar situations.
Prospective purchasers of the Bonds should not as sume that the land within Improvement Area No. 2 could be sold for the amount stated in the Appraisal Repo rt at a foreclosure sale as a result of delinquencies in the Special Tax. In arriving at the estimate of market value by ownership, the Appraiser assumes that any sale will be sold in a competitive market after a reasonable exposure time; the Appraiser also assumes that neither the buyer or seller is under duress, which is not al ways true in a foreclosure sale. See APPENDIX B — “APPRAISAL REPORT” for a description of other assumptions made by the Appraiser and for the definitions and limiting conditions used by the Appraiser. Any event which causes one of the Appraiser’s assumptions to be untrue could result in a reduction of the value of the land within Improvement Area No. 2 below that estimated by the Appraiser.
The assessed values set forth in th is Official Statement do not represent market values arrived at through an appraisal process and generally reflect only the sales price of a parcel when acquired by its current owner, adjusted annually by an amount determined by the County Assessor, generally not to exceed an increase of more than 2% per fiscal year. No assurance can be given that a parcel could actually be sold for its assessed value.
No assurance can be given that any bid will be received for a parcel with delinquencies in the Special Tax offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all
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delinquencies in the Special Tax. See APPENDI X F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Covenants of the City — Foreclosure of Special Tax Liens.” Parity Taxes and Special Assessments
Property within Improvement Area No. 2 is subject to taxes and assessments imposed by other public agencies also having jurisdiction over the land w ithin Improvement Area No. 2. See “IMPROVEMENT AREA NO. 2 — Direct and Overlapping Indebtedness.”
The Special Tax and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is co-equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The Special Tax has priority over all existing and future private liens imposed on the property except, possibly, for liens or security interests held by the Federal Deposit Insurance Corporation. See “— Bankruptcy and Foreclosure.” The City has no control over the ability of other entities and districts to issue indebtedness secured by special taxes, ad valorem property taxes or assessments payable from all or a portion of the property within Improvement Area No. 2. In addi tion, the landowners within Improvement Area No. 2 may, without the consent or knowl edge of the City, petition othe r public agencies to issue public indebtedness secured by special taxes and ad valorem property taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Tax and could reduce the estimated value-to-lien ratios for the property within Improvement Area No. 2 described herein. See “SOURCES OF PAYMENT FOR THE BONDS” and “IMPROVEMENT AREA NO. 2 — Direct and Overlapping Indebtedness” and “—Value to Lien Ratios.”
Disclosures to Future Purchasers
The willingness or ability of an owner of a parcel to pay the Special Tax may be affected by whether the owner (1) was given due notice of the Special Tax authorization when the owner purchased the parcel; (2) was informed of the amount of the Special Tax on th e parcel should the Special Tax be levied at the maximum tax rate, and the risk of such a levy: and (3) has the ability at the time of such a levy to pay it as well as pay other expenses and obligations. The City has caused a notice of the Special Tax to be recorded in the Office of the Recorder for the County against each parcel. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a property within Improvement Area No. 2 or lending of money thereon.
The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a special tax under the Act of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6(b) requires that in th e case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.
Special Tax Collections
Under provisions of the Act, the Special Tax, from which funds necessary for the payment of principal of, and interest on, the Bonds are derived, will be billed to the properties within Improvement Area No. 2 on the regular ad valorem property tax bills sent to owners of such properties by the County Tax Collector. The
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Act currently provides that such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do ad valorem property tax installments.
See APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Covenants of the City — Foreclosure of Special Tax Lien s” for a discussion of the provisions which apply, and procedures which the City is obligated to follow under the Indenture, in the event of delinquencies in the payment of the Special Tax. See “— Bankruptcy and For eclosure” for a discussion of the policy of the Federal Deposit Insurance Corporation regarding the payment of special taxes and assessment and limitations on the City’s ability to foreclosure on the lien of the Special Tax in certain circumstances.
FDIC/Federal Government Interests in Properties
General. The ability of the City to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the “FDIC”), the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest.
The supremacy clause of the United States Constitution reads as follows: “This Constitution, and the Laws of the United States which shall be made in Purs uance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding.”
This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to the Special Tax within Improvement Area No. 2 but does not pay taxes and assessments levied on the parcel (including the Special Tax), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the City wishes to foreclose on the pa rcel as a result of delinquencies in the payment of the Special Tax, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Tax and preserve the federal government’s mortgage interest. In Rust v. Johnson (9
th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association (“FNMA”) is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States.
The City has not undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels subject to the Special Tax within Improvement Area No. 2, and therefore expresse s no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding.
FDIC. If any financial institution making any loan which is secured by real property within Improvement Area No. 2 is taken over by the FDIC, and pr ior thereto or thereafter th e loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the City to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid amounts of the Special Tax may be limited. The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the proper ty’s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with so und business practice and the orderly administration of the institution’s affairs, unless abandonment of the FDIC’s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the
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interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC’s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC’s consent.
The Policy Statement states that the FDIC generally will not pay non- ad valorem property taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. The special taxes imposed under the Act and a special tax formula which determines the special tax due each year are specificall y identified in the Policy Statement as being imposed each year and therefore covered by the FDIC’s federal immunity. The Ninth Circuit has issued a ruling on August 28, 2001 in which it determined that the FDIC, as a federal agency, is exempt from special taxes under the Act.
The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of the Special Tax on a parcel within Improvement Area No. 2 in which the FDIC has or obtains an interest, although prohibiting the lien of the Special Tax to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Bond Reserve Fund and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the Bonds.
Bankruptcy and Foreclosure
Bankruptcy, insolvency and other laws generally affecting creditors’ rights could adversely impact the interests of owners of the Bonds. The payment of property owners’ taxes and the ability of the City to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State relating to judicial for eclosure. See “SOURCES OF PAYMENT FOR THE BONDS— Special Tax— Foreclosure Covenant.” In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays.
Although a bankruptcy proceeding would not cause the Special Tax to become extinguished, the amount of any Special Tax lien could be modified if the value of the property falls below the value of the lien.
If the value of the property is less than the lien, such excess amount could be treated as an unsecured claim by the bankruptcy court. In addition, bankruptcy of a property owner could result in a delay in prosecuting Superior Court foreclosure proceedings. Such delay would increase the likelihood of a delay or default in payment of delinquent Special Tax installments and the possibility of delinquent Special Tax installments not being paid in full.
On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property.
Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed after the filing of the bankruptcy petition were declared to be “administrative expenses” of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all the proceeds of the sale except the amount of the pre-petition taxes.
The Bankruptcy Reform Act of 1994 (the “Bankruptcy Reform Act”) included a provision which excepts from the Bankruptcy Code’s automatic stay provisions, “the creation of a statutory lien for an ad
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valorem property tax imposed by . . . a political subdivision of a state if such tax comes due after the filing of the petition [by a debtor in bankruptcy cour t].” This amendment effectively makes the Glasply holding inoperative as it relates to ad valorem real property taxes. However, it is possible that the original rationale of the Glasply ruling could still result in the treatment of post-petition special taxes as “administrative expenses,” rather than as tax liens secured by real property, at least during the pendency of bankruptcy proceedings.
According to the court’s ruling, as administrative expenses, post-petition taxes would be paid, assuming that the debtor had sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise), it would at that time become subject to current ad valorem property taxes.
The Act provides that the Special Tax is secured by a continuing lien which is subject to the same lien priority in the case of delinquency as ad valorem property taxes. No case law exists with respect to how a bankruptcy court would treat the lien for the Special Tax levied after the filing of a petition in bankruptcy court. Glasply is controlling precedent on bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Tax, the amount of the Special Tax received from parcels whose owners declare bankruptcy could be reduced.
The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel’s approving legal opinion) will be qualif ied, as to the enforceability of the various legal instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally.
No Acceleration Provision
The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Indenture or in the event interest on the Bonds becomes included in gross income for federal income tax purposes. Pursuant to the Indenture, the Trustee is given the right for the equal benefit and protection of all Holders of the Bonds similarly situated to pursue certain remedies described in APPENDIX F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Events of Default and Remedies.”
Loss of Tax Exemption
As discussed under the caption “TAX MATTERS,” interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued as a result of future acts or omissions of the City in violation of its covenants in the Indenture with respect to compliance with certain provisions of the Internal Revenue Code of 1986, as amended. Should such an event of taxability occur, the Bonds are not subject to early redemption as a result of such event and will remain outstanding until maturity or until redeemed under the redemption provisions contained in the Indenture.
Limited Secondary Market
There can be no guarantee that there will be a s econdary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any pa rticular price. Although the City has committed to provide certain statutorily required financial and operating information, there can be no assurance that such information will be available to Holders on a timely basis. See “CONTINUING DISCLOSURE.” Any failure to provide annual financial information, if required, does not give rise to monetary damages but merely an action for specific performan ce. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating for the Bond s or because of adverse history or economic prospects connected with a particular issue, secondary marketin g practices in connection w ith a particular issue are
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suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.
Proposition 218
An initiative measure commonly referred to as the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to th e California Constitution. Accordin g to the “Title and Summary” of the Initiative prepared by the California Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” The provisions of the Initiative as they may relate to community facilities district are subject to interpretation by the courts. The Initiative could potentially impact the Special Tax available to the City to pay the principal of and interest on the Bonds as described below.
Among other things, Sect ion 3 of Article XIIIC states that “. . . the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” The Act provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code Section 5854, which states that:
“Section 3 of Article XIIIC of the Calif ornia Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initi ative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution.” Accordingly, although the matter is not free from doubt, it is likely that the Initiative has not conferred on the voters the power to repeal or reduce the Special Tax if such reduction would interfere with the timely retirement of the Bonds.
It may be possible, however, for voters or the Ci ty Council to reduce the Special Tax in a manner which does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of the Special Tax that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Ta x in amounts greater than th e amount necessary for the timely retirement of the Bonds. Therefore, no assurance can be given with respect to the levy of the Special Tax for Expenses.
The interpretation and app lication of Article XIII C and Article XIII D will u ltimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determinat ion or the timeliness of any remedy afforded by the courts. See “SPECIAL RISK FACTORS — Limitations on Remedies.” Litigation with Respect to Community Facilities Districts Shapiro. The California Court of Appeal, Fourth Appellate District, Division One, issued its opinion in City of San Diego v. Melvin Shapiro (2014) 228 Cal.App.4th 756 (the “San Diego Decision”). The case involved a Convention Center Facilities District (the “CCFD”) established by the City of San Diego (“San Diego”). The CCFD is a financing district much like a community facilities dist rict established under the
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provisions of the Act. The CCFD is comprised of all of the real property in San Diego. However, the special tax to be levied within the CCFD was to be levied only on hotel properties located within the CCFD.
The election authorizing the special tax was limited to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was modeled after Section 53326(c) of the Act, which ge nerally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special tax election was invali d under the California Const itution because Article XIIIA, Section 4 thereof and Article XIIIC, S ection 2 thereof require that the elec tors in such an election be the registered voters within the district.
Horizon. The Sacramento County Superior Co urt had issued a tentative ruling in Horizon Capital Investments, LLC v. City of Sacramento et al. (Case No. 34-2017-80002661). That ruling subsequently became the court’s final order. As described below, this case involved an election to approve the levy of a special tax within a community facilities district (“CFD”) formed under the Act.
In 2017, the City initiated proceedings to form a CFD to finance certain costs to operate and maintain a streetcar line. As permitted by the Act, the propose d district included non-contiguous parcels of non- residential property. Because there were fewer than 12 registered voters residing within the territory of the proposed CFD, the City Council submitted the special ta x proposed to be levied within the proposed CFD to the owners of land within the proposed CFD, as requ ired by Section 53326(c) of the Act. The proposed special tax received the requisite two-thirds vote in the landowner election.
Petitioners Horizon Capital Investments, LLC et al. filed a writ of mandate and complaint for reverse validation and declaratory relief. Petitioners argued, and the superior court agreed in its final ruling, that under section 4(a) of article XIII A of th e California Constitution (w hich provides that “Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district [sic], may impose special taxes on such district…”) the phrase “qualified electors” means the regi stered voters of the entire City and not just the owners of the property within the boundaries of the proposed CFD. Citing the San Diego Decision, the ruling states that the phrase “qualified electors of the district” refers to the registered voters of the entity imposing the special tax, which in this case was the City. Because the vote within the proposed CFD was by landowners only and not by all registered voters in the City, the final ruling states that the special tax is invalid.
The superior court’s final ruling is not binding upon other courts within the State and does not directly apply to the District, the Special Tax, or the Bonds. Although the City disagrees with the final ruling on a number of grounds, the City decided not to appeal.
The Special Tax Election in Improvement Area No. 2. With respect to the San Diego Decision, the facts of such case show that there were thous ands of registered voters within the CCFD ( viz., all of the registered voters in San Diego). The elections held in Improvement Area No. 2 had less than 12 registered voters at the time of the election to authorize the Special Tax. In the Sa n Diego Decision, the court expressly stated that it was not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where there are fewer than 12 registered voters. Thus, by its terms, the court’s holding in the San Diego Decision does not apply to the Special Tax election in Improvement Area No. 2. Moreover, Section 53341 of the Act provides that any “action or proceeding to attack, review, set aside, void or annul the levy of a special tax…shall be commenced within 30 days after the special tax is approved by the voters.” Similarly, Section 53359 of the Act provides that any ac tion to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving the issuance of such bonds. The petitioners in Horizon filed the writ of mandate within 30 days of the landowner election. Landowners in Improvement Area No. 2 approved the Special Tax to be levied in accordance with the Amended Rate and Method on February 1, 2022. Based on Sections 53341 and 53359 of the Act and analysis of existing laws, regulations, rulings, and
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court decisions, the City believes that no successful ch allenge to the Special Tax being levied in accordance with the Amended Rate and Method may now be brought. In connection with the issuance of the Bonds, Bond Counsel expects to deliver its opinion in the proposed form attached hereto as Appendix D.
Ballot Initiatives
Articles XIII A, XIII B, XIII C and XIII D were adopte d pursuant to measures qu alified for the ballot pursuant to California’s constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. On March 6, 1995, in the case of Rossi v. Brown, the State Supreme Court held that an initiative can repeal a tax ordinance and prohibit the imposition of further such taxes and that the exemption from the referendum requirements does not apply to initiatives. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the City, or local districts to increase revenues or to increase appropriations or on the ability of the Developer, the Joint Venture Entity and Signature Homes (assuming Signature Homes acquires the property under contract) within Improvement Area No. 2 to complete the remaining proposed development within Improvement Area No. 2.
Limitations on Remedies
Remedies available to the owners of the Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the tax-exempt status of interest on the Bonds.
Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other simila r laws affecting generally the enforcement of creditor’s rights, by equitable principles and by the exercise of judicial di scretion and by limitations on remedies against public agencies in the State of California. The Bonds are not subject to acceleration. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners.
Potential Early Redemption of Bonds from Prepayments or Bond Proceeds Property owners within Improvement Area No. 2, including the Developer, the Joint Venture Entity and Signature Homes (assuming Signature Homes acquires the property under contract) and any future individual property owner, are permitted to prepay their Special Tax obligation at any time. Such prepayments could also be made from the proceeds of bonds issued by or on behalf of an overlapping community facilities district. Such prepayments will result in a redemption of the Bonds on the Interest Payment Date for which timely notice may be given under the Indenture following the receipt of the prepayment. The resulting redemption of Bonds that were purchased at a price greater than par could reduce the otherwise expected yield on such Bonds. See the caption “THE BONDS—Redemption— Extraordinary Redemption from Special Tax Prepayments.”
Cybersecurity
The City relies on computers and technology to conduct its operations. The City and its departments face cyber threats from time to time, including but not lim ited to hacking, viruses, malware, and other attacks on computers and other sensitive digital networks and systems. In late-2019, the City experienced a cyber event relating to a fraudulently misdirected payment of a substantial amount. The City has recovered almost all of the payment, and has instituted procedures intended to prevent a reoccurrence.
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No assurances can be given that the City’s security and operational control measures will guard against all cyber threats and attacks. The results of any attack on the City’s computer and information- technology systems could adversely affect the City’s operations and damage its digital networks and systems, and potential losses from such attacks, as well as the costs of defending against future attacks, could be substantial. The City is also reliant on other en tities and service providers in connection with the administration of the Bonds, including without limitation the County tax collector for the levy and collection of Special Tax and the Trustee. No assurance can be gi ven that the City and these other entities will not be affected by cyber threats and attacks in a manner that may affect the Bond owners.
CONTINUING DISCLOSURE
City Continuing Disclosure
The City will execute a continuing disclosure certificate (the “Continuing Disclosure Certificate”) for the benefit of the Holders and Beneficial Owners of th e Bonds to provide certain financial information and operating data relating to Improvement Area No. 2 and th e District and to provide no tices of the occurrence of certain enumerated events (the “Listed Events”). Th e City, as the initial dissemination agent under the Continuing Disclosure Certificate, will file the City Reports and notices of Listed Events with EMMA. The specific nature of the information to be included in th e City Reports and the notices of Listed Events is set forth in APPENDIX G — “FORM OF CONTINUING DISCLOSURE CERTIFICATE OF THE CITY.” The City will sign and deliver to the Underwriter the Continui ng Disclosure Certificate to assist the Underwriter in complying with the Rule. The City will file the City Reports with EMMA no later than nine months after the end of the City’s fiscal year, which is currently June 30. The first Annual Report will be due March 31, 2023.
The City has previously entered into a number of continuing disclosure undertakings under the Rule in connection with the issuance of long-term obligations and has provided annual financial information and event notices in accordance with those undertakings. Certain continuing disclosure filings during the past five years were made after the required filing date, such as the City ’s annual reports for one of the past five fiscal years with respect to a certain prior issue, and certain requ ired information supplementing the City’s annual reports for certain prior issues (including the actuarial valuation reports for the Sacramento City Employees’ Retirement System and the Ci ty’s Public Employees’ Retirement System plans for two prior issues). The City did not file notices of late filings in the past five year s. On two occasions, the City filed annual reports with tables determined later not to be entirely accurate. The City subsequently filed corrected tables.
The City believes it has established processes to ensure that in the future it will make its continuing disclosure filings as required.
The City is required to file certain financial statements with the City Reports. This requirement has been included in the Continuing Disclosure Certificate solely to satisfy the requirements of the Rule. The inclusion of this information does not mean that the Bonds are secured by any resources or property of the City other than as described in this Official Statem ent. See “SOURCES OF PAYMENT FOR THE BONDS” and “SPECIAL RISK FACTORS.” The list of significant events the City has agreed to report includes items that have absolutely no application whatsoever to the Bonds. These items have been included in the list solely to satisfy the requirements of the Rule. Thus, any implica tion from the inclusion of these items in the list to the contrary notwithstanding, there are no credit enhancements applicable to the Bonds and there are no credit or liquidity providers with respect to the Bonds.
Developer Continuing Disclosure
To provide updated information with respect to th e development within Improvement Area No. 2, the Developer and Signature Homes will each execute a Co ntinuing Disclosure Certificate (the “Developer Continuing Disclosure Certificates”), and will covenant to provide Developer Reports semiannually not later than June 15 and December 15 of each year beginn ing December 15, 2022, until satisfaction of certain
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conditions set forth in the Developer Continuing Disclosure Certificate. Each of the Developer Reports will contain updates regarding the respective entity’s development within Improvement Area No. 2 as outlined in Section 4 of each of the Developer Continuing Disclosure Certificates attached as Appendix H. In addition to the Developer Reports, the Developer and Signature Homes will agree to provide noti ces of certain events set forth in their respective Developer Continuing Disclosure Certificate.
TAX MATTERS
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual, or receipt of interest on, the Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX D hereto.
To the extent the issue price of an y maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treate d as interest on the Bonds which is excluded from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bo nds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, pl acement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrue s daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing orig inal issue discount is added to th e adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original i ssue discount, including the treatment of Beneficial Owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public.
Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at th eir earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.
The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The City has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants.
Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after
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the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds.
Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.
Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts tr eated as interest on, the Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decision s may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the Internal Revenu e Service (“IRS”) or the courts.
Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the City, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. Th e City has covenanted, however, to comply with the requirements of the Code.
Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obli gated to defend the City or the Beneficial Owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, Beneficial Owners would have little, if any, right to participate in the audit examination process.
Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the City legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the City or the Beneficial Owners to incur significant expense.
Payments on the Bonds generally will be subject to U.S. information reporting and possibly to “backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate Beneficial Owner of Bonds may be subject to backup withholding with respect to “reportable payments,” which include interest paid on the Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnis h a U.S. taxpayer identification number (“TIN”) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against a Beneficial Owner’s federal income tax liability , if any, provided that the required information is timely furnished to the IRS. Certain Beneficial Owners (including among others, corporations and certain tax- exempt organizations) are not subject to backup withholding. The failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS.
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LEGAL MATTERS
The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City. A complete copy of the proposed form of Bond Counsel opinion is attached hereto as Appendix D. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the City by the Office of the City Attorney.
Stradling Yocca Carlson & Rauth, a Professional Corporation, is serving as Disclosure Counsel to the City.
ABSENCE OF LITIGATION
In connection with the issuance of the Bonds, the Office of the City Attorney will deliver an opinion to the effect that, to its actual knowledge as of the date of delivery of the Bonds, the City has not been served with process in, and has not been overtly threatened with, any action, suit, proceeding, inquiry or investigation before or by any court, public board or body (a) that co ntests in any way the completeness or accuracy of this Official Statement; (b) that seeks to contest the validity of the Special Tax or to restrain or enjoin the collection of the Special Tax; (c) in which an unfavorable decision, ruling or finding is likely to have a material adverse effect on the City’s ability to complete the transactions contemplated by the Bonds, the Indenture or this Official Statement; or (d) in which an unfavorable decision, ruling or finding is likely to have a material adverse effect on the validity or enforceability of the Bonds or the Indenture.
MUNICIPAL ADVISOR
The City has retained Fieldman, Rolapp & Associat es, Inc. (the “Municipal Advisor”), as municipal advisor in connection with the issuance and sale of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information cont ained in this Official Statement or any of the other legal documents, and further the Municipal Advisor does not assume any responsibility for the information, covenants and representations with respect to the federal income tax status of the Bonds, or the possible impact of any current, pending or future actions taken by any legislative or judicial bodies or rating agencies.
NO RATING
The City has not made and does not contemplate ma king application to any rating agency for the assignment of a rating to the Bonds.
UNDERWRITING
The Bonds are being purchased by Piper Sandler & Co. The Underwriter has agreed to purchase the Bonds at a price of $__________, being $___________ aggregate principal amount thereof, plus original issue premium of $__________ and less Underwriter’s discount of $__________. The purchase contract relating to the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the purchase contract, the approval of certain legal matters by counsel and certain other conditions.
The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof. The offering price may be changed from time to time by the Underwriter.
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FINANCIAL INTERESTS
The fees being paid to the Underwriter, Bond Counsel, Disclosure Counsel, the Municipal Advisor, the Trustee and Underwriter’s Counsel are contingent upon the issuance and delivery of the Bonds. The fees being paid to the Appraiser and to the Special Tax C onsultant are not contingent upon the issuance and delivery of the Bonds. From time to time, Bond Counsel and Disclosure Counsel represent the Underwriter on matters unrelated to the Bonds.
PENDING LEGISLATION
The City is not aware of any significant pending legislation which would have material adverse consequences on the Bonds or the ability of the City to pay the principal of and interest on the Bonds when due.
ADDITIONAL INFORMATION
So far as any statements made in this Official Statement involve matters of opinion, assumptions, projections, anticipated events or estimates, whether or not expressly stated, they are set forth as such and not as presentations of fact, and actual results may differ substantially from those set forth therein. Neither this Official Statement nor any statement that may have been made orally or in writing is to be construed as a contract with the Holders of the Bonds.
The summaries of certain provisions of the Bond s, statutes and other documents or agreements referred to in this Official Statement do not purport to be complete, and reference is made to each of them for a complete statement of their provisions. Copies are available for review by making requests to the City.
The appendices are an integral part of this Official Statement and must be read together with all other parts of this Official Statement.
The distribution of this Official Statement has been authorized by the City.
CITY OF SACRAMENTO
By:
City Treasurer
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APPENDIX A
AMENDED AND RESTATED
RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX
The following sets forth the Amended and Restated Rate and Method of Apportionment for the levy and collection of Special Taxes of Improvement Area No. 2 of City of Sacramento Delta Shores Community Facilities District No. 2019-01 (Improvements), City of Sacramento, County of Sacramento. An Annual Special Tax shall be levied on and collected in Improvement Area No. 2 each Fiscal Year, in an amount determined through the application of the Amended and Restated Rate and Method of Apportionment described below. All of the real property in Improvement Area No. 2, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent, and in the manner herein provided.
A Special Tax as hereinafter defined shall be levied on each Assessor's Parcel of Taxable Property within Improvement Area No. 2 of the City of Sacramento De lta Shores Community Facilities District No. 2019-01 (Improvements), City of Sacramento, County of Sacramento, State of California and collected each Fiscal Year commencing no earlier than Fiscal Year 2021-2022 in an amount determined through the application of the procedures described below. All of the real property within Improvement Area No. 2, unless exempted by law or the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided.
A. DEFINITIONS
The terms hereinafter set forth have the following meaning:
“Acre or Acreage” means the land area of an Assessor’s Parcel as shown on County records, such as on an Assessor’s Parcel Map and/or in the Assessor’s Data, or if the land area is not shown on an Assessor’s Parcel Map, the land area shown on the applicable final subdivision map, parcel map, condominium plan, record of survey, or other recorded document creating or describing the parcel or calculated using available spatial data and GIS, all as determined by the CFD Administrator. The square footage of an Assessor’s Parcel is equal to the Acreage of such parcel multiplied by 43,560. “Act” means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Division 2 of Title 5 of the Government Code of the State of California. “Accessory Dwelling Unit” means a secondary residential unit of limited size, as defined in California Government Code Section 65852.2 and/or meeting the criteria outlined in Sacramento City Code Section 17.228.105, as may be amended from time-to-time. “Administrative Expenses” means the actual or reasonably estimated costs directly related to the administration of Improvement Area No. 2 including, but not limited to, the following: the costs of computing the Special Tax and preparing the annual Special Tax collection schedules (whether by the City or designee thereof or both); the costs of collecting the Special Tax (whether by the County, the City, or otherwise); the costs of remitting the Special Tax to the Trustee; the costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the City, Improvement Area No. 2, or any designee thereof of complying with arbitrage rebate requirements or responding to questions from the IRS pertaining to any Bonds or any audit of any Bonds by the IRS; the costs to the City, Improvement Area No. 2, or any designee thereof of providing continuing disclosure regarding the Bonds pursuant to applicable state or federal securities law; the costs associated with preparing Special Tax disclosu re statements and responding to public inquiries regarding the Special Tax; the costs of the City , Improvement Area No. 2, or any designee thereof related to any appeal of the levy or application of the Special Tax; and the costs associated with the release of funds from an escrow account, if any. Administrative Expenses shall also include amounts estimated or advanced by the City, or Improvement Area No. 2 for any other administrative purposes,
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including, but not limited to, attorney’s fees and other costs related to commencing and pursuing to completion any foreclosure of any delinquent installment of the Special Tax. “Airspace Parcel” means a property with an assigned Assessor’s Parcel number that constitutes vertical space on an underlying land Parcel.
“Assessor’s Data” means the property characteristic data compiled and maintained by the County Assessor for each Assessor’s Parcel, including, but not limited to, Assessor’s Parcel Number, Use Code, and Units.
“Assessor’s Parcel” or “Parcel” means a lot or parcel shown in an Assessor’s Parcel Map with an assigned Assessor’s Parcel number.
“Assessor’s Parcel Map” means an official map of the County Assessor designating parcels by an Assessor’s Parcel number.
“Assigned Special Tax” means the Special Tax for each Land Use Class of Developed Property, as determined in accordance with Section C.1.a., or the Special Tax for each Land Use Class of Final Subdivision Property, as determined in accordance with Section C.1.b. “Authorized Facilities” means the public facilities authorized to be financed, in whole or in part, by Bonds or Special Tax revenue dedicated to Pay-As-You-Go Expenditures for Improvement Area No. 2.
“Backup Special Tax” means the Backup Special Tax amount set forth in Section C.1.c. “Bonds” means any bonds or other debt (as defined in the Act), whether in one or more series, issued or incurred for Improvement Area No. 2 under the Act to fund the Authorized Facilities. “Bond Year” means a one-year period beginning on September 2 nd in each year and ending on September 1st in the following year, unless defined differently in the applicable Indenture. “Boundary Map” means that map recorded with the County Recorder’s office on August 23, 2019, in Book 129 at Page 9 as Document Number 201908230413.
“CFD Administrator” means an official of the City, or designee thereof, responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Tax. “CFD” means Delta Shores Community Facilities District No. 2019-01 (Improvements), City of Sacramento, County of Sacramento, State of California.
“City” means the City of Sacramento.
“Council” means the City Council of the City, acting as legislative body with respect to the CFD as contemplated by the Act.
“County” means the County of Sacramento.
“County Assessor” means the County of Sacramento, Office of the Assessor. “Developed Property” means all Assessor’s Parcels of Taxable Property for which a building permit has been issued prior to June 1st preceding the Fiscal Year in which the Special Tax is being levied.
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“Exempt Property” means all Assessor’s Parcels that are ex empt from the Special Tax pursuant to Section E.
“Expected Revenue” means the expected Special Tax revenue from Developed Property within Improvement Area No. 2, as shown on the attached Exhibit 1. “Expected Units” means the expected number of Units on Developed Property within Improvement Area No. 2, as shown on the attached Exhibit 1.
“Final Subdivision” means a subdivision of property created by recordation of a final subdivision map, parcel map or lot line adjustment, approved by the City pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pursuant to California Civil Code Section 1352, that creates individual lots for which residential building permits may be issued without further subdivision of such property. “Final Subdivision Property” means, in any Fiscal Year, all prop erty for which a Final Subdivision was recorded prior to June 1
st of the preceding Fiscal Year and which has not yet become Developed Property.
“Fiscal Year” means the period starting July 1st and ending on the following June 30th. “GIS”, or geographic information system, means a system designed to capture, store, manipulate, analyze, manage, and present spatial or geographic data. “High-Density Residential Property” means, in any Fiscal Year , all Assessor’s Parcels of Developed Property with a density of 15 or greater Units per Acre. The assignment of the High-Density Residential Property Land Use Class to an Assessor’s Parcel shall be based upon reference to Exhibit 2 to this RMA showing the Villages within Improvement Area No. 2 designated as “HDR” or similar. “Improvement Area” means any of the three improvement areas shown on the Boundary Map of the CFD.
“Improvement Area No. 2” means Improvement Area No. 2 of the Delta Shores Community Facilities District No. 2019-01 (Improvements), City of Sacramento, County of Sacramento, State of California.
“Indenture” means the indenture, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing the same. “Land Use Class” means any of the classes listed in Table 1 and Table 2. “Low-Density Residential Property” means, in any Fiscal Year, all Assessor’s Parcels of Developed Property with a density of 7 or fewer Units per Acre. The assignment of the Low-Density Residential Property Land Use Class to an Assessor’s Parcel shall be based upon reference to Exhibit 2 to this RMA showing the Villages within Improvement Area No. 2 designated as “LDR” or similar. “Maximum Special Tax” means the maximum annual Special Tax, determined in accordance with the provisions of Section C, which may be levied in any Fiscal Year on any Assessor’s Parcel of Taxable Property.
“Medium-Density Residential Property” means, in any Fiscal Year , all Assessor’s Parcels of Developed Property with a density of 8-14 Units per Acre. The assignment of the Medium-Density
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Residential Property Land Use Class to an Assessor’s Parcel shall be based upon reference to Exhibit 2 to this RMA showing the Villages within Improvement Area No. 2 designated as “MDR” or similar. “Minimum Taxable Acreage” means 83.95 Acres for Improvement Area No. 2. “Mixed-Use Residential Property” means, in any Fiscal Year, all Assessor’s Parcels of Developed Property containing structures that have a mixture of residential and non-residential uses. The non- residential portions of the Parcel are not subject to the Special Tax. The assignment of the Mixed-Use Residential Property to an Assessor’s Parcel shall be based upon refe rence to Exhibit 2 to this RMA showing the Villages within Improvement Area No. 2 designated as “MU” or similar. “Non-Residential Property” means, in any Fiscal Year, all Assessor’s Parcels of Developed Property not classified as Low-Density Residential Property, Medium-Density Residential Property, High- Density Residential Property, or Mixed-Use Residential Property. “Open Space Property” means property within the boundaries of Improvement Area No. 2 which (a) has been designated with specific boundaries and Acreage on a Final Subdivision map as open space, a park, detention basin, or wetland restoration, (b) is classified by the County Assessor as open space, a park, detention basin, or wetland restoration, (c) has been irrevocably offered for dedication as open space, a park, detention basin, or wetland restoration to the federal government, the State of California, the County, the City, or any other publ ic agency or nonprofit holding a conservation easement, or (d) is encumbered by an easement or other restriction required by the City limiting the use of such property to open space, a park, detention basin, or wetland restoration. “Outstanding Bonds” mean all Bonds, which remain outstanding as defined in the Indenture pursuant to which such Bonds were issued.
“Pay-As-You-Go Expenditure” means Special Tax revenue which is used or set aside for Authorized Facilities, including for Authorized Faci lities to be constructed or acquired by the CFD.
Pay-As-You-Go Expenditures may be included in the Special Tax Requirement until all Authorized Facilities have been constructed or acquired.
“Property Owner Association Property” means any property within the boundaries of Improvement Area No. 2 which is (a) owned by a property owner association or (b) designated with specific boundaries and Acreage on a Final Subdivision map as property owner association property. As used in this definition, a property owner association includes any master or sub-association. “Proportionately” means for Developed Property that the ratio of the Special Tax levy to the Assigned Special Tax or the Backup Special Tax is equal for all Assessor’s Parcels of Developed Property within Improvement Area No. 2. For Final Subdivision Property, Taxable Contingent Property, Tentative Map Property, or Undeveloped Property, “Proportionately” means that the ratio of the actual Special Tax levy per Acre to the Maximum Annual Special Tax per Ac re is equal for all Assessor’s Parcels of Final Subdivision Property, Taxable Co ntingent Property, Tentative Map Property, or Undeveloped Property within Improvement Area No. 2.
“Public Property” means any property within the boundaries of Improvement Area No. 2 which (a) is owned by a public agency, (b) has been irrevocably offered for dedication to a public agency, or (c) is designated with specific boundaries and Acreage on a Final Subdivision map as property which will be owned by a public agency. For purposes of this definition, a public agency includes the federal government, the State, the County, the City or any other public agency, including school districts and public utilities.
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“RMA” means this Amended and Restated Rate and Method of Apportionment of Special Tax, which may be amended from time-to-time.
“Special Tax” means the annual special tax to be levied in each Fiscal Year on each Assessor’s Parcel of Taxable Property to fund the Special Tax Requirement. “Special Tax Requirement” means that amount of Special Tax revenue required in any Fiscal Year for Improvement Area No. 2 to: (i) pay Administrative Expenses; (ii) pay annual debt service on all Outstanding Bonds due in the Bond Year beginning in such Fiscal Year; (iii) pay other periodic costs on Outstanding Bonds, including but not limited to, credit enhancement and rebate payments on Outstanding Bonds; (iv) pay any amounts required to establish or replenish any reserve funds for all Outstanding Bonds in accordance with the Indenture, to the extent not included in a computation of the Special Tax Requirement for a previo us Fiscal Year; (v) to the exte nt permitted by the Act, pay for reasonably anticipated delinquent installments of the Special Tax based on the delinquency rate for the Special Tax levied in the previous Fiscal Year; and (vi) account for Pay-As-You-Go Expenditures for the Authorized Facilities; less (vii) a credit for funds available to reduce the annual Special Tax levy as determined by the CFD Administrator pursuant to the Indenture. “State” means the State of California.
“Taxable Contingent Property” means any Assessor’s Parcel of Non-Residential Property, Open Space Property, Property Owner Association Property, Public Property, or other property that would otherwise be classified as Exempt Property pursuan t to the provisions of Section E, but cannot be classified as Exempt Property because to do so would reduce the Acreage of all Taxable Property located within Improvement Area No. 2 below the Minimum Taxable Acreage for Improvement Area No. 2.
“Taxable Property” means all of the Assessor’s Parcels within the boundaries of Improvement Area No. 2 that are not exempt from the Special Tax pursuant to law or Section E below. “Tentative Map” means a map that is made for the purpose of showing the design of a proposed subdivision, including the individual lots that are expected within the subdivision, as well as the conditions pertaining thereto. A Tentative Map is not based on a detailed survey of the property within the map and is not recorded with the County recorder’s office to create legal lots. “Tentative Map Property” means, in any Fiscal Year, all Parcels which are included within a Tentative Map that was approved prior to June 1 of the prior Fiscal Year. “Trustee” means the financial institution appointed pursuant to an Indenture to act as the trustee, fiscal agent, or paying agent or a combination thereof to administer a series of Bonds for and on behalf of Improvement Area No. 2 and the City under such Indenture. “Undeveloped Property” means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Final Subdivision Property, Taxable Contingent Property, or Tentative Map Property.
“Unit” means an individual residential living space. The number of Units assigned to each Assessor’s Parcel may be determined by (i) referencing Assessor’s Data, (ii) site surveys and physical unit counts, and/or (iii) reviewing City building permit data. An Accessory Dwelling Unit shall not be considered a Unit for the purposes of the Special Tax.
“Use Code” means the six-digit use code assigned by the County Assessor to each Assessor’s Parcel.
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“Village” means an area, as shown on Exhibit 2 to the RMA, proposed for residential development for Low-Density Residential Property, Medium-Density Residential Property, High-Density Residential Property, or Mixed-Use Residential Property.
“Welfare Exempt Property” means any Parcel within the boundaries of Improvement Area No. 2 that is exempt from the Special Tax pur suant to Section 53340 (c) of the Act because the Parcel has received a welfare exemption under subdivision (g) of Section 214 of the Revenue and Taxation Code.
During any time that Bonds are outstanding, proper ty that was not classified as Welfare Exempt Property prior to the issuance of Bonds and was subject to the Special Tax prior to receiving the welfare exemption may no longer be categorized as Welfare Exempt Property regardless of whether the Assessor’s Parcel has been granted a welfare ex emption under subdivision (g) of Section 214 of the Revenue and Taxation Code by the County.
B. ASSIGNMENT TO LAND USE CATEGORIES
Each Fiscal Year, all Assessor’s Parcels of Taxable Property within Improvement Area No. 2 shall be (a) classified as Developed Property, Final Subdivision Property, Taxable Contingent Property, Tentative Map Property, or Undeveloped Property and (b) shall be subject to the levy of the annual Special Tax determined pursuant to Section C below.
C. MAXIMUM SPECIAL TAX RATE
1. Developed Property and Final Subdivision Property
The Maximum Special Tax for each Assessor’s Parcel of Developed Property and Final Subdivision Property shall be the greater of (1) the Assigned Special Tax described in Section C.1.a and C.1.b or (2) the Backup Special Tax computed pursuant to Section C.1.c.
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a. Assigned Special Tax for Developed Property
The Assigned Special Tax for each Assesso r’s Parcel of Developed Property is shown in Table 1 .
TABLE 1
Assigned Special Tax for Developed Property
(Fiscal Year 2021-2022)
Land Use
Class Description
Assigned
Special Tax
1 Low-Density Residential Property $1,966 per Unit
2 Medium-Density Residential Property $1,530 per Unit
3 High-Density Residential Property $250 per Unit
4 Mixed-Use Residential Property $250 per Unit
5 Non-Residential Property $0
b. Assigned Special Tax fo r Final Subdivision Property The Assigned Special Tax for each Assessor’s Parcel of Final Subdivision Property is shown in Table 2.
TABLE 2
Assigned Special Tax for Final Subdivision Property
(Fiscal Year 2021-2022)
Land Use
Class Description
Assigned
Special Tax
1 Low-Density Residential Property $1,966 per Parcel
2 Medium-Density Residential Property $1,530 per Parcel 3 High-Density Residential Property $250 per Unit 1
4 Mixed-Use Residential Property $250 per Unit 1
5 Non-Residential Property $0
1 Per Unit expected on each Parcel of Final Subdivision Property.
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c. Backup Special Tax (F iscal Year 2021-2022)
The Backup Special Tax per Village for each Assessor’s Parcel of Developed Property and Final Subdivision Property, is calculated as follows:
Backup Special Tax = Expected Revenue / Units on Developed Property and/or Units expected on Final Subdivision Property
For each Village, by reference to Exhibit 1, should the number of Units be less than the Expected Units when all Assessor’s Parcels are classified as Developed Property, the Backup Special Tax per Unit shall be adjusted so that the Backup Special Tax per Unit is sufficient to generate the Expect ed Revenue in any Fiscal Year. The CFD Administrator shall update Exhibit 1 with the revised Units and Expected Revenue to be derived from each Village.
Notwithstanding the foregoing, once an Assessor’s Parcel is used for private residential purposes (as determined by the Act), the Backup Special Tax for the Assessor’s Parcel cannot be increased because of future reductions in the number of Units on other Assessor’s Parcels. The increases to the Backup Special Tax pursuant to Section C.1.e below would still apply to such Assessor’s Parcel. d. Changes to Land Use Class
Prior to a bond sale, if a Land Use Class change is proposed or identified that will result in a change in the Expected Revenues, no action will be needed pursuant to this Section. Each Fiscal Year, the CFD Administrator shall update Exhibit 1 to show the revised Units and Expected Revenues if a Land Use Class change has been approved.
After a Bond sale, if a Land Use Class change is proposed or identified, the following must be applied:
If the revenues calculated are higher than those reflected in Exhibit 1 or less than those calculated in Exhibit 1, but the reduction in Expected Revenues does not reduce debt service coverage below the required 110% debt service coverage, no further action is needed, and the CFD Administrator shall update Exhibit 1 to show the revised Expected Revenues.
If the revenues calculated are less than those reflected in Exhibit 1, and the CFD Administrator determines that the reduction in Exp ected Revenues would reduce debt service coverage below the requir ed 110% debt service coverage the Special Tax levied on the Parcel subject to a Land Use Class change will need to be paid and one of the following shall occur: (i) The landow ner requesting the Land Use Class change may make a prepayment in an amount that will ensure that the reduced Expected Revenues are sufficient to meet the required 110% debt service coverage or (ii) If a prepayment is not selected, the Assigned Special Tax on the Parcel or Parcels subject to the Land Use Class change shall be increased proportionately until the Expected Revenues are sufficient to maintain the required 110% debt service coverage. Notwithstanding the foregoing, once an Assessor’s Parcel is used for private residential purposes (as determined pursuant to the Act), the Maximum Special Tax for the Assessor’s Parcel cannot be increased because of future Land Use Class changes for other Assessor’s Parcels.
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e. Increase in the Assigned Sp ecial Tax and Backup Special Tax On each July 1, commencing on July 1, 2022, the Assigned Special Tax and the Backup Special Tax for Developed Property and Final Subdivision Property shall be increased by an amount equal to two percen t (2%) of the amount in effect for the previous Fiscal Year.
2. Taxable Contingent Prop erty, Tentative Map Property, and Undeveloped Property a. Maximum Special Tax
The Maximum Special Tax for each Assessor’s Parcel of Taxable Contingent Property, Tentative Map Property, and Undeveloped Property shall be $10,180 per Acre in Fiscal Year 2021-2022.
b. Increase in the Maximum Special Tax
On each July 1, commencing on July 1, 2022, the Maximum Special Tax for Taxable Contingent Property, Tentative Map Property, and Undeveloped Property shall be increased by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year.
D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX
Commencing no earlier than Fiscal Year 2021-2022 and for each following Fiscal Year, the CFD Administrator shall determine the Special Tax Requirement, and shall levy the Special Tax until the amount of the Special Tax equals the Special Tax Requirement. The Special Tax shall be levied each Fiscal Year as follows:
First: The Special Tax shall be levied Proportionately on each Assessor's Parcel of Developed Property at a rate up to 100% of the greater of the applic able Assigned Special Tax or the applicable Backup Special Tax to satisfy the Special Tax Requirement.
Second: If additional monies are needed to satisfy the Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on all Final Subdivision Property at a rate up to 100% of the greater of the applicable Assigned Special Tax or the applicable Backup Special Tax for Final Subdivision Property.
Third: If additional monies are needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax shall be levied Proportionately on all Tentative Map Property at a rate up to 100% of the Maximum Special Tax for Tentative Map Property.
Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Undeveloped Property at a rate up to 100% of the Maximum Special Tax for Undeveloped Property Fifth: If additional monies are needed to satisfy th e Special Tax Requirement af ter the first four steps have been completed, then the Special Tax shall be levied Proportionately on all Taxable Contingent Property at a rate up to 100% of the Maximum Special Tax for Taxable Contingent Property.
Notwithstanding the above, under no circumstances will the Special Tax levied against any Assessor’s Parcel of Developed Property used for private residential purposes (as determined pursuant to the Act) in any Fiscal Year be increased as a consequence of the delinquency or default in the payment of the
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Special Tax by the owner or owners of any other Taxable Property by more than ten percent above the amount that would have been levied against such Assessor’s Parcel in such Fiscal Year had there been no delinquencies or defaults.
E. EXEMPTIONS
1. No Special Tax shall be levied on up to 55.12 Acres of Non-Residential Property, Open Space Property, Property Owner Association Pr operty, and Public Property. Tax-exempt status will be assigned by the CFD Administra tor in the chronological order in which property becomes Non- Residential Propert y, Open Space Property, Property Owner Association Property, or Public Property.
2. For the following property types in excess of the 55.12 Acres exempted above, Non- Residential Property, Open Space Property, Property Owner Association Property, or Public Property that is not exempt from the Sp ecial Tax under this section, or pursuant to the Act, shall be classified as Taxable Contingent Property. Taxable Contingent Property shall be subject to the levy of the Special Tax and shall be taxed Proportionately as part of the fifth step in Section D above, at up to 100% of the applicable Maximum Special Tax for Taxable Contingent Property.
3. No Special Tax shall be levied on Welfare Exempt Property. If a Parcel is no longer eligible to be classified as Welfare Exempt Property that would make such Assessor’s Parcel eligible to continue to be classified as Exempt Property, such Assessor's Parcel shall cease to be classified as Exempt Property and shall be deemed to be Taxable Property. Any property that is granted a welfare exemption when any Bonds are outstanding and was subject to the Special Tax prior to receiving the welfare exemption shall not be considered Welfare Exempt Property.
4. The Special Tax for any Developed Property, which would change classification to Public Property upon its transfer or dedication to a public agency, shall continue to be subject to the levy of the Special Tax as Developed Property.
5. If the use of an Assessor's Parcel changes so that such Assessor's Parcel is no longer eligible to be classified as one of the uses set forth in Section E.1. above that would make such Assessor's Parcel eligible to continue to be classified as Exempt Property, such Assessor's Parcel shall cease to be classified as Exempt Property and shall be deemed to be Taxable Property.
6. If an Assessor’s Parcel designated as Low- Density Residential Property, Medium- Density Residential Property, High-Density Reside ntial Property, or Mixed-Use Residential Property changes to Non-Residentia l Property, the Special Tax shall continue to be levied on such Non- Residential Prope rty as if the Assessor’s Parcel was still classified as Low-Density Residential Propert y, Medium-Density Residential Property, High-Density Residential Property, or Mixed-Use Residential Property.
F. SPECIAL TAX APPEALS
Any property owner may file a written appeal of the Special Tax with the CFD Administrator claiming that the amount or application of the Special Tax is not correct. The appeal must be filed not later than one calendar year after having paid the Sp ecial Tax that is disputed, and the appellant must be current in all payments of the Special Tax. In addition, during the term of the appeal process, any Special Tax levied must be paid on or before the payment date established when the levy was made.
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The appeal must specify the reas ons why the appellant claims the amount of the Special Tax is not correct. The CFD Administrator shall review the appeal, meet with the appellant if the CFD Administrator deems necessary, and advise the appellant of its determination.
If the property owner disagrees with the CFD Administrator’s decision relative to the appeal, the owner may then file a written appeal with the Council whose subsequent decision shall be final and binding on all interested parties. If the decision of the CFD Administrator or subsequent decision by the Council requires the Special Tax to be modified or changed in favor of the property owner, no cash refund shall be made for the prior years’ Special Tax, but an adjustment shall be made to credit future Special Tax levies.
G. INTERPRETATIONS
The City may, by resolution or ordinance, interpre t, clarify and/or revise this RMA to correct any inconsistency, vagueness, or ambiguity as it relates to the Special Tax, method of apportionment, classification of Parcels, or any definition used here in, as long as such correction does not materially affect the levy and collection of the Special Tax. In addition, the interpretation and application of any section of this document shall be at the City’s discretion.
H. MANNER OF COLLECTION
The annual Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes; provided, however, that the CFD Administrator may, at the sole discretion of the City, directly bill the Special Tax, may collect the Special Tax at a different time or in a different manner as necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on Assessor's Parcels of Taxable Property that are delinquent in the payment of the Special Tax.
I. PREPAYMENT OF SPECIAL TAX OBLIGATION
The following definitions apply to this Section I:
“CFD Public Facilities” means those public facilities authorized to be financed by Improvement Area No. 2.
“CFD Public Facilities Costs” means either $11,249,860 in costs for completed facilities/land dedications in 2021 dollars; plus $2,364,838 in costs for pending facilities/land dedications in 2021 dollars, which shall increase by the Construction Cost Index on July 1, 2022, and on each July 1 thereafter, or such lower number as shall be de termined either by (a) th e CFD Administrator as sufficient to finance the CFD Public Facilities, or (b ) the Council concurrently with a covenant that it will not issue any more Bonds to be secured by Special Taxes levied under this RMA. “Construction Cost Index” means the annual percentage change in the Engineering News-Record Construction Cost Index for the City of San Francisc o, measured as of June in the previous Fiscal Year. In the event this index ceases to be published, the Construction Cost Index shall be another index as determined by the CFD Administrator that is reasonably comparable to the Engineering News- Record Building Cost Index for the City of San Francisco. “Construction Fund” means an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct the CFD Public Facilities. “Future Facilities Costs” means the CFD Public Facilities Costs minus the portion of the CFD Public Facilities Costs previously funded from (a) proceeds of all previ ously issued Bonds, (b) interest
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earnings on the Construction Fund actually earned prior to the date of prepayment and (c) proceeds of the Special Tax dedicated to Pay-As-You-Go Expenditures. In no case, shall the Future Facilities Costs be less than zero.
“Outstanding Bonds” means all previously issued Bonds which will remain outstanding after the first principal payment date following the then current Fiscal Year, excluding Bonds to be redeemed at a later date with the proceeds of prior prepayments of Special Tax obligations.
1. Prepayment in Full
The Special Tax obligation of an Assessor's Parcel of Developed Property, Final Subdivision Property, Taxable Contingent Property, Tentative Map Property, or Undeveloped Property may be prepaid and permanently satisfied as described herein; provided that there are no delinquent installments of the Special Tax with respect to such Assessor's Parcel at the time of prepayment. An owner of an Assessor's Parcel intending to prepay the Special Tax obligation shall provide the CFD Administrator with written notice of intent to prepay. Within 45 days of receipt of such written notice, the CFD Administrator shall notify such owner of th e prepayment amount of such Assessor's Parcel.
Prepayment must be made not less than 75 days prior to the next occurring date that notice of redemption of Bonds from the proceeds of such prepayment may be given to the Trustee pursuant to the Indenture. The CFD Administrator may charge a fee for providing this service.
The Prepayment Amount (defined below) shall be calculated as summarized below (capitalized terms as defined below):
Bond Redemption Amount
plus Future Facilities Amount
plus Redemption Premium
plus Defeasance Amount
plus Administrative Fees and Expenses
less Reserve Fund Credit
less Capitalized Interest Credit
Total: equals Prepayment Amount
As of the proposed date of prepayment, the Prepayment Amount (defined below) shall be calculated as follows:
Step Number:
1. Confirm that no Special Tax delinquencies apply to such Assessor’s Parcel.
2. For Assessor’s Parcels of Developed Property other than Non-Residential Property, compute the Assigned Special Tax and Backup Specia l Tax. For Assessor’s Parcels of Final Subdivision Property, Tentative Map Property, and Undeveloped Property to be prepaid, compute the Assigned Special Tax and Backup Special Tax for that Assessor’s Parcel as though it was already designated as Developed Property, based upon the number of Expected Units to be developed on that Assessor’s Parcel.
3. a. Divide the Assigned Special Tax computed pursuant to Step 2 by the total estimated Assigned Special Tax for Improvement Area No. 2 based on the Developed Property Special Tax which could be charged in the current Fiscal Year on all Expected Units through buildout of Improvement Area No. 2, excluding any Assessor’s Parcels which have prepaid the Special Tax obligation in full pursuant to Section I.1.
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b. Divide the Backup Special Tax computed pursuant to Step 2 by the total estimated Backup Special Tax for Improvement Area No. 2 based on the Developed Property Special Tax which could be charged in the current Fiscal Year on all Expected Units through buildout of Improvement Area No. 2, excluding any Assesso r’s Parcels which have prepaid the Special Tax obligation in full pursuant to Section I.1.
4. Multiply the larger quotient computed pursuant to Step 3.a or 3.b by the Outstanding Bonds to compute the amount of Outstanding Bonds to be retired and prepaid (the “ Bond Redemption Amount”).
5. Compute the current Future Facilities Costs.
6. Multiply the larger quotient computed pursuant to Step 3.a or 3.b by the total Future Facilities Costs to compute the amount of the Future Facilities Amount to be retired and prepaid (the “Future Facilities Amount”).
7. Multiply the Bond Redemption Amount comput ed pursuant to Step 4 by the applicable redemption premium, if any, on the Outstanding Bonds to be redeemed (the “ Redemption Premium”).
8. Compute the amount needed to pay interest on the Bond Redemption Amount on the earliest redemption date for the Outstanding Bonds.
9. Compute the amount the Administrator reasonab ly expects to derive from the reinvestment of the Prepayment Amount less the Future Facilities Amount and the Administrative Fees and Expenses from the date of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the prepayment.
10. Subtract the amount computed pursuant to Step 9 from the amount computed pursuant to Step 8 (the “Defeasance Amount”).
11. Verify the administrative fees and expenses, including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming the Outstanding Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the “Administrative Fees and Expenses”).
12. A reserve fund credit (the “ Reserve Fund Credit ”) shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requ irement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds as a result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero.
13. If any capitalized interest for the Outstanding Bonds will not have been expended at the time of the first interest and/or principal payment following the current Fiscal Year, a capitalized interest credit shall be calculated by multiplying the larger quotient computed pursuant to Steps 3.a or 3.b by the expected balance in the capitalized interest fund after such first interest and/or principal payment (the “Capitalized Interest Credit”).
14. The Special Tax prepayment is equal to the sum of the amounts computed pursuant to Steps 4, 6, 7, 10 and 11, less the amount computed pursuant to Steps 12 and 13 (the “ Prepayment Amount”).
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15. From the Prepayment Amount, the amounts computed pursuant to Steps 4, 7, 10, and 13 shall be deposited into the appropriate fund as established under the Indenture and be used to retire Outstanding Bonds and make debt service payments. The amount computed pursuant to Step 6 shall be deposited into the Construction Fund. The amount computed pursuant to Step 11 shall be retained by the City for the payment of Administrative Fees and Expenses.
The Prepayment Amount may be sufficient to redeem other than a $5,000 increment of Bonds. In such cases, the increment amount that is not $5,000 or integral multiple thereof will be retained in the appropriate fund established under the Indenture to be used with the next prepayment of bonds or to make debt service payments.
Any current-year Special Tax that has been placed on the County tax roll will remain on the tax roll.
Notwithstanding the foregoing, no prepayment will be allowed unless the amount of the Maximum Special Taxes that may be levied on Taxable Property both prior to and after the proposed prepayment is at least 1.1 times the annual debt service on all Outstanding Bonds in each succeeding Bond Year.
2. Prepayment in Part
The Special Tax obligation of an Assessor's Parcel of Developed Property, Final Subdivision Property, Tentative Map Property, or Undeveloped Property for which a building permit has been issued may be partially prepaid in increments of 25%, 50%, or 75% of the Prepayment Amount calculated according to Section I.1, minus Administ rative Fees and Expenses calculated according to Section I.1.
A partial prepayment can only occur once per Assessor’s Parcel. The amount of the prepayment shall be calculated as in Section I.1; except that a part ial prepayment shall be calculated according to the following formula:
PP = ((P
E – A) x F) + A
These terms have the following meaning:
PP = the Partial Prepayment Amount
PE = the Prepayment Amount calcul ated according to Section I.1 A = the Administrative Fees and Expens es calculated according to Section I.1 F = the percent by which the owner of the Asse ssor’s Parcel(s) is partially prepaying the Special Tax obligation.
The owner of an Assessor’s Parcel who desires to partially prepay the Special Tax obligation shall notify the CFD Administrator of (i) such owner’s intent to partially prepay the Special Tax obligation, (ii) the amount of partial prepayment expresse d in increments of 25%, 50%, or 75% of the Prepayment Amount calculated according to Section I.1, minus Administrative Fees and Expenses calculated according to Section I.1, and (iii) the company or agency that will be acting as the escrow agent, if applicable. Partial prepayment must be made not less than 75 days prior to the next occurring date that notice of redemption of Bonds from the proceeds of such partial prepayment may be given to the Trustee pursuant to the Indenture. The CFD Ad ministrator may charge a fee for providing this service.
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With respect to any Assessor’s Parcel that is partially prepaid, the CFD Administrator shall (i) distribute the funds remitted to it according to Step 15 of Section I.1, and (ii) indicate in the records of Improvement Area No. 2 that there has been a partial prepayment of the Special Tax obligation and that a portion of the Special Tax obligation equal to the outstanding percentage (1.00 - F) of the remaining Special Tax obligation shall continue to be authorized to be levied on such Assessor’s Parcel pursuant to Section D.
Notwithstanding the foregoing, no partial prepayment will be allowed unless the amount of Maximum Special Taxes that may be levied on Taxable Property both prior to and after the proposed partial prepayment is at least 1.1 times the annual debt service on all Outstanding Bonds in each succeeding Bond year.
J. TERM OF SPECIAL TAX
The Special Tax shall be levied commencing in Fiscal Year 2021-2022 to the extent necessary to fully satisfy the Special Tax Requirement and shall not be levied after the 2065-2066 Fiscal Year.
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EXHIBIT 1
EXPECTED UNITS/REVENUE PER VILLAGE FOR DEVELOPED PROPERTY (FISCAL YEAR 2021-22)
Land Use Class Village 1
Expected
Units 2
Expected
Revenue 3
2 MDR-5 87 $133,110
2 MDR-6 102 156,060
2 MDR-7 96 146,880
2 MDR-8 136 208,080
3 HDR-6 163 40,750
3 HDR-7 132 33,000
3 HDR-8 112 28,000
3 HDR-9 152 38,000
3 HDR-10 S 163 40,750
4 MU-1 120 30,000
1 As shown on Exhibit 2 to this RMA.
2 There is a total of 1,263 Expected Units within Improvement Area No. 2. 3 The total Expected Revenue within Improvement Area No. 2 is $854, 630, stated in Fiscal Year 2021- 2022 dollars. On each July 1, commencing on July 1, 2022, the Expected Revenue shall be increased by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year.
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EXHIBIT 2
MAP OF VILLAGES WITHIN IMPROVEMENT AREA NO. 2
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APPENDIX B
APPRAISAL REPORT
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APPENDIX C
APPRAISAL REVIEW REPORT
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APPENDIX D
PROPOSED FORM OF OPINION OF BOND COUNSEL
[Date of Issuance]
City Council
City of Sacramento
Sacramento, California
City of Sacramento
Delta Shores Community Facilities District No. 2019-01
(Improvements) Improvement Area No. 2 Special Tax Bonds, Series 2022 (Final Opinion)
Ladies and Gentlemen:
We have acted as bond counsel to the City of Sacr amento (the “City”) in connection with issuance of $________ aggregate principal amount of City of Sa cramento Delta Shores Community Facilities District No. 2019-01 (Improvements) Improvement Area No. 2 Special Tax Bonds, Series 2022 (the “Bonds”). The Bonds are being issued pursuant to a Master Indenture, da ted as of June 1, 2022 (the “Master Indenture”), as supplemented by a First Supplemental Indenture, dated as of June 1, 2022 (the “First Supplemental Indenture” and, together with the Master Inde nture, the “Indenture”), each betw een the City and U.S. Bank Trust Company, National Association, as trustee (the “Tru stee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.
In such connection, we have reviewed the Indenture; the Tax Certificate, dated the date hereof (the “Tax Certificate”), executed by the C ity; opinions of counsel to the City and the Trustee; certificates of the City, the Trustee and others; and such other document s, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.
The opinions expressed herein are based on an analys is of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after or iginal delivery of the Bonds on the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after original delivery of the Bonds on the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures provided to us and the due and legal execution and delivery thereof by, and validity against, any parties other than the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof.
Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or even ts will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganizat ion, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the applicat ion of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against governmental entities such as
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the City in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or to have the effect of a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or in terest in any of the assets described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. We express no opinion with respect to the plans, specifications, maps, financial report or other engineering or financial details of the proceedings, or upon the rate and method of apportionment of the Special Tax or the validity of the Special Tax levied upon any individual parcel. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statem ent or other offering material relating to the Bonds and express no opinion or conclusion with respect thereto.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:
1. The Bonds constitute the valid and binding special tax obligations of the City, payable solely from the Net Special Tax Revenues and certain funds held under the Indenture.
2. The Master Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the City.
3. The First Supplemental Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the City.
4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific pref erence item for purposes of the federal alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds.
F a i t h f u l l y y o u r s ,
ORRICK, HERRINGTON & SUTCLIFFE
LLP
p e r
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APPENDIX E
GENERAL INFORMATION ABOUT THE CITY OF SACRAMENTO AND THE
COUNTY OF SACRAMENTO
The following information is included only for the purpose of supplying general information regarding the City of Sacramento (the “City”) and the County of Sacramento (the “County”). This information is provided only for general informational purposes and provides prospective investors limited information about the City and the County and their economic base. The Bonds are not a debt of the County or the State or any of its political subdivisions, and the County, and the State and its political subdivisions are not liable therefor.
The Bonds are special limited obligations of the City payable solely from the Net Special Tax Revenues (as defined in the Official Statement) and other amounts as set forth in the Indenture.
General
The City is located at the confluence of the Sacr amento and American Rivers in the south-central portion of the Sacramento Valley, a part of the State’s Central Valley. Although the City is approximately 75 air miles northeast of San Francisco, its temperature ra nge is more extreme than that of most Northern California coastal cities, ranging from a daily average of 45 degrees Fahrenheit in January to 85 degrees Fahrenheit in July. Average elevation of the City is 30 feet above sea level.
Population
The following table lists population figures for the Ci ty, the County and the State as of January 1 for 2017 through 2021.
CITY AND COUNTY OF SACRAMENTO
Population Estimates
Calendar
Year
City of
Sacramento
County of
Sacramento
State of
California
2017 494,785 1,511,390 39,352,398
2018 500,872 1,525,099 39,519,535
2019 507,490 1,538,054 39,605,361
2020 513,626 1,553,157 39,648,938
2021 515,673 1,561,014 39,466,855
Source: State Department of Finance estimates (as of January 1).
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Industry and Employment
The unemployment rate in the Sacramento—Arden -Arcade—Roseville, CA Metropolitan Statistical Area (“Sacramento MSA”), which includes Sacramento, Placer, El Dorado, and Yolo Counties, was 6.4% in 2021. The table below provides information about employment rates and employment by industry type for the Sacramento MSA for calendar years 2017 through 2021. As of February 2022, the unemployment rate in the Sacramento MSA was 4.3%.
SACRAMENTO MSA
Civilian Labor Force, Employment and Unemployment
Calendar Years 2017 through 2021
Annual Averages
2017 2018 2019 2020 2021
Civilian Labor Force (1) 1,074,000 1,088,300 1,100, 800 1,091,700 1,099,300 Employment 1,024,800 1,046,900 1,060,300 994,000 1,028,800 Unemployment 49,200 41,500 40,500 97,700 70,500
Unemployment Rate 4.6% 3.8% 3.7% 9.0% 6.4%
Wage and Salary Employment (2)
Agriculture 9,800 9,100 8,700 8,300 9,000
Natural Resources and Mining 400 500 500 600 700
Construction 58,700 64,500 69,400 70,200 74,100
Manufacturing 35,700 36,000 36,800 36,100 37,500
Wholesale Trade 26,500 28,400 28,600 26,500 26,400
Retail Trade 101,400 102, 000 100,500 95,200 101,100
Transportation, Warehousing and
Utilities
27,400 29,500 32,200 34,300 37,100
Information 12,600 12,400 11,900 10,200 10,000
Finance and Insurance 37,400 36,700 35,200 34,800 34,300 Real Estate and Rental and Leasing 15,200 16,800 17,300 16,900 17,400 Professional and Business Services 132,400 136,000 137,400 132,500 136,700 Educational and Health Services 153,600 159,800 166,600 164,000 168,400 Leisure and Hospitality 103,300 106,200 109,600 83,900 92,900 Other Services 33,000 34, 200 35,400 31,000 32,600
Federal Government 14,200 14,100 14,200 14,800 14,500
State Government 118,400 120,400 121,900 121,700 126,800 Local Government 102,600 103,500 105,300 98,900 98,000 Total, All Industries 982,500 1, 009,900 1,031,400 979,700 1,017,200
(1) Labor force data is by place of residence; includes self-e mployed individuals, unpaid fa mily workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self-e mployed individuals, unpaid fa mily workers, household domestic workers, and workers on strike.
Source: State of California Employment Development Department.
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Major Employers
The following table shows the largest employers located in the County as of fiscal year 2021.
COUNTY OF SACRAMENTO
PRINCIPAL EMPLOYERS
As of June 30, 2021
Rank Name of Company
Number of
Employees
Percentage
of Total City
Employment
1. UC Davis Health Syste m 14,618 2.18%
2. Kaiser Permanente 12,078 1.80
3. Dignity/Mercy Healthcare 10,888 1.63
4. Sutter/California Health Services 10,764 1.61
5. Intel Corporation 5,992 0.90
6. Raley’s Inc./Bel Ai
r 3,394 0.51
7. VPS Global 2,834 0.42
8. Sacramento Municipal Utility 2,099 0.31
9. Siemens Mobility Inc. 2,000 0.30
10. Safeway 1,823 0.27
Source: County of Sacramento Annual Comprehensive Financial Report for the year ending June 30, 2021.
The following table shows the largest employers located in the City as of fiscal year 2021.
CITY OF SACRAMENTO
PRINCIPAL EMPLOYERS
As of June 30, 2021
Rank Name of Company
Number of
Employees
Percentage
of Total City
Employment
1. State of Californi a 82,076 12.39%
2. UC Davis Health Syste m 14,618 2.21
3. Sacramento County 12,585 1.90
4. Kaiser Permanente 12,078 1.82
5. U.S. Government 11,752 1.77
6. Dignity Health 10,888 1.64
7. Sutter Health 10,764 1.63
8. Intel Corporation 5,992 0.90
9. California State University, Sacramento 5,283 0.80
10. San Juan Unified School District 4,962 0.75
11. City of Sacramento 4,883 0.74%
Source: City of Sacramento Annual Comprehensive Financial Report for the year ending June 30, 2021.
Personal Income
Personal Income is the income that is received by al l persons from all sources. It is calculated as the sum of wage and salary disbursements, supplements to wages and salaries, proprietors’ income with inventory valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment,
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personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance.
The personal income of an area is the income that is received by, or on behalf of, all the individuals who live in the area; therefore, the es timates of personal income are presen ted by the place of residence of the income recipients.
The following table summarizes the personal income for the County of Sacramento, the State and the United States for the period 2016 through 2020.
COUNTY OF SACRAMENTO
Personal Income
2016 through 2020
Year Sacramento County California United States
2016 $72,128,370 $2,218,457,774 $16,092,713,000
2017 75,062,017 2,318,644,417 16,845,028,000
2018 78,804,776 2,431,821,953 17,681,159,000
2019 82,669,864 2,544,234,978 18,402,004,000
2020 90,908,707 2,763,311,977 19,607,447,000
Note: Dollars in Thousands.
Source: U.S. Department of Commer ce, Bureau of Economic Analysis.
The following table summarizes per capita personal income for the County of Sacramento, the State and the United States for 2016-2020. This measure of income is calculated as the personal income of the residents of the area divided by the resident population of the area.
PER CAPITA PERSONAL INCOME
County of Sacramento, State of California and the United States 2016 Through 2020
Year Sacramento County California United States
2016 $47,723 $56,667 $49,812
2017 49,125 58,942 51,811
2018 51,187 61,663 54,098
2019 53,278 64,513 56,047
2020 58,307 70,192 59,510
Source: U.S. Department of Commer ce, Bureau of Economic Analysis.
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Commercial Activity
A summary of historic taxable sales within the City for 2017-2021 is shown in the following table.
CITY OF SACRAMENTO
Taxable Transactions
(dollars in thousands)
Retail Stores Total All Outlets
Number of
Permits
Taxable
Transactions
Number of
Permits
Taxable
Transactions
2017 9,422 $4,679,961 14,258 $6,792,197
2018 9,839 4,904,555 15,421 7,157,368
2019 10,006 4,999,470 15,970 7,463,634
2020 11,088 4,430,901 17,722 6,839,199
2021 10,362 5,401,724 16,793 8,118,898
Source: State Board of Equalization.
A summary of historic taxable sales within the County for 2017-2021 is shown in the following table.
COUNTY OF SACRAMENTO
Taxable Transactions
(dollars in thousands)
Retail Stores Total All Outlets
Number of
Permits
Taxable
Transactions
Number of
Permits
Taxable
Transactions
2017 24,501 $16,934,872 37,317 $24,610,617
2018 24,853 17,593,375 39,066 25,443,669
2019 25,530 18,195,302 40,858 26,836,365
2020 28,055 18,488,106 45,361 27,173,406
2021 25,936 23,700,364 42,482 33,783,460
Source: State Board of Equalization.
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Building and Construction
Provided below are the building permits and valuations for the City and the County for calendar years 2016 through 2020.
CITY OF SACRAMENTO
Total Building Permit Valuations
(valuations in thousands)
2016 2017 2018 2019 2020
Permit Valuation
New Single-family $ 288,236.6 $ 432,659.8 $ 406,973.1 $ 400,648.4 $ 254,127.0 New Multi-family 181,997.4 158,324.1 106, 149.2 176,862.7 465,623.0 Res. Alterations/Additions 99,166.2 113,843.3 97,761.1 140,240.6 174,415.1 Total Residential $ 569,400.2 $ 704, 827.2 $ 610,883.4 $ 717,751.7 $ 894,165.1 New Commercial $ 125,112.7 $ 143,368. 7 $ 133,602.0 $ 540,144.9 $ 154,484.2 New Industrial 150.0 0. 0 2,489.1 31,485.4 31,155.0
New Other 34,081.1 76,890.9 71, 153.7 427,661.2 302,114.6 Com. Alterations/Additions 238,524.2 120,410.0 242,928.6 491,148.7 230,448.0 Total Nonresidential $ 397,868.0 $ 340,669. 6 $ 450,173.4 $ 1,490,440.2 $ 718,201.8
New Dwelling Units
Single-Family 995 1,723 1,608 1,552 956
Multiple Family 601 1,076 813 1,487 2,855
TOTAL 1,596 2,799 2,421 3,039 3,811
Source: Construction Industry Research Board, Building Permit Summary.
COUNTY OF SACRAMENTO
Total Building Permit Valuations
(valuations in thousands)
2016 2017 2018 2019 2020
Permit Valuation
New Single-family $ 611,073.6 $ 744,006.3 $ 1,069,568 .3 $ 1,108,399.8 $ 1,088,390.6 New Multi-family 83,282.9 242,222.8 158, 638.0 265,188.8 467,418.7 Res. Alterations/Additions 255,821.8 214,028.1 276,723.5 293,210.5 262,864.6 Total Residential $ 950,178.3 $ 1,200,257.2 $ 1,504,929.8 $ 1,666,799.1 $ 1,818,673.9 New Commercial $ 482,772.0 $ 270,736. 7 $ 292,766.9 $ 639,170.3 $ 411,058.0 New Industrial 150.0 3,026. 0 14,151.1 31,851.4 31,155.0 New Other 418,862.1 265,276.7 137, 414.6 131,286.6 113,793.0 Com. Alterations/Additions 85,354.4 140,367.2 518,663.2 700,603.9 335,458.0 Total Nonresidential $ 987,138.5 $ 679,406. 6 $ 962,995.8 $ 1,502,912.2 $ 891,464.0
New Dwelling Units
Single-Family 2,676 3,174 3,589 3,981 3,588
Multiple Family 609 1,761 1,272 2,008 2,868
TOTAL 3,285 4,935 4,861 5,989 6,456
Source: Construction Industry Research Board, Building Permit Summary.
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Transportation
Sacramento’s strategic location and broad transpor tation network have contributed to the City’s economic growth. The City is traversed by the main east-west and north-south freeways serving northern and central California. Interstate 80 connects Sacramento with the San Fr ancisco Bay Area, Reno, Nevada, and points east. U.S. 50 carries traffic from Sacramento to the Lake Tahoe area. Interstate 5 is the main north- south route through the interior of California, running from Mexico to Canada. State Route 99 parallels Interstate 5 through central California and passes through Sacramento.
The Union Pacific Railroad, a transcontinental line, has junctions in Sacramen to and is connected to the Burlington Northern Santa Fe Railway via the Central California Traction Company. Passenger rail service is provided by AMTRAK. Bus lines offering intercity as well as local service include Greyhound and the Sacramento Regional Transit District. The Sacramento Regional Transit District also provides light-rail service within the City. The Port of Sacramento, lo cated 79 nautical miles northeast of San Francisco, provides direct ocean-freight service to all major United States and world ports. Via a deep-water channel, ships can reach Sacramento from San Francisco in less than eight hours. The major rail links serving Sacramento connect with the port, and Interstate 80 and Interstate 5 are immediately adjacent to it.
Trucking services are offered through facilities of interstate common carriers operating terminals in the area and by contract carriers of general commodities. Greyhound Bus Lines also has passenger and package-service stations in the City.
Sacramento International Airport, about 12 miles northwest of the City’s downtown, is served by 13 major carriers and 1 commuter carrier. Sacramento Ex ecutive Airport, about 6 miles south of the City’s downtown, is a full-service, 540-acre facility serving gene ral aviation and providing a wide array of facilities and services.
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APPENDIX F
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
[TO COME FROM BOND COUNSEL]
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APPENDIX G
FORM OF CONTINUING DISCLOSURE CERTIFICATE OF THE CITY
This Continuing-Disclosure Certificate, dated as of June 1, 2022 (this “ Certificate”), is executed and delivered by the City of Sacramento, a California municipal corporation (the “ Issuer”), in connection with the issuance of the City of Sacramento Delta Shores Co mmunity Facilities District No. 2019-01 (Improvements) Improvement Area No. 2 Special Tax Bonds, Series 2022 (the “ Bonds”). The Bonds are being issued under Resolution No. 2022____ adopted by the Sacramento City Council on ______, 2022, and a Master Indenture, dated as of June 1, 2022, as supplemented by a First Supplemental Indenture dated as of June 1, 2022 (collectively, the “Indenture”), each between the Issuer and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).
The Issuer hereby covenants as follows:
1. Purpose of this Certificate . This Certificate is being executed and delivered for the benefit of the Holders and Beneficial Owners of the Bonds and to assist the Participating Underwriter in complying with the Rule.
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 Certificate unless otherwise defined in this section 2, the following capitalized terms have the following meanings:
“Annual Report” means any annual report that meets the criteria in section 4 and is provided by the Issuer under section 3.
“Beneficial Owner” means 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-tax purposes.
“Business Day” means any day the Issuer’s offices at 915 I Street, Sacramento, California, are open to the public.
“Dissemination Agent ” initially means the Issuer, and thereafter it means any successor Dissemination Agent the Issuer designates in writing.
“District” means the Delta Shores Community Facilities District No. 2019-01 (Improvements), City of Sacramento, County of Sacramento, State of California.
“EMMA” means 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 the Securities and Exchange Commission may designate in the future.
“Fiscal Year” means the Issuer’s fiscal year, which begins on July 1 and ends the following June 30.
“Improvement Area No. 2” means Improvement Area No. 2 of the District.
“Listed Events” means any of the events listed in section 5(a) below.
“
MSRB” means the Municipal Securities Rulemaking Board.
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“Official Statement” means the Issuer’s official statement with respect to the Bonds.
“Participating Underwriter” means Piper Sandler & Co.
“Rate and Method of Apportionment ” means the Amended and Restated Rate and Method of Apportionment of Special Tax for Improvement Area No. 2 approved by the Resolution of Formation.
“Resolution of Formation” means the Resolution adopted by the Sacramento City Council on September 24, 2019, and designated as Resolution No. 2019-0371, and the Resolution of Change adopted by the Sacramento City Council on February 1, 2022, and designated as Resolution No. 2022-0036 by which the City established and undertook change proceedings with respect to the District and Improvement Area No. 2 of the District.
“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time.
“Tax-exempt” means that interest on the Bonds is excluded from gross income for federal income-tax purposes, whether or not the interest is includable as an item of tax preferences or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax or environmental tax.
3. Provision of Annual Reports.
(a) Beginning with the Fiscal Year ending June 30, 2022, the Issuer shall provide to EMMA, or shall cause the Dissemination Agent to provide to EMMA, not later than March 31 after the end of the Fiscal Year, an Annual Report that is consistent with the requirements of section 4 of this Certificate. If the Dissemination Agent is other than the Issuer, then the Issuer shall provide the Annual Report to the Dissemination Agent, in a form suitable for filing with EMMA, not later than 15 business days before the date specified in the prior sentence for providing the Annual Report to EMMA. The Annual Report may be submitted as a single document or as separate documents composing a package and may include by reference other information as provided in section 4 of this Certificate, except that the Issuer’s audited financial statements 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) If the Dissemination Agent is an entity other than the Issuer, then the provisions of this section 3(b) will apply. The Issuer shall provide the Annual Report to the Dissemination Agent not later than 15 Business Days before the date specified in section 3(a) for providing the Annual Report to EMMA. If the Dissemination Agent has not received a copy of the Annual Report by the 15 th
Business Day before the date for providing the Annual Report, then the Dissemination Agent shall contact the Issuer to determine if the Issuer will be filing the Annual Report in compliance with section 3(a). The Issuer shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that the Annual Re port constitutes the Annual Report required to be furnished by it under this Certificate. The Dissemination Agent may conclusively rely upon the Issuer’s certification and will have no duty or obligation to review the Annual Report.
(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to EMMA by the date required in section 3(a), then the Dissemination Agent shall send a notice in a timely manner to EMMA, in the form required by EMMA.
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(d) If the Dissemination Agent is other than the Issuer, then the Dissemination Agent shall— (1) determine each year, before the date for providing the Annual Report, the name and address of the repository if other than the MSRB through EMMA; and (2) file a report with the Issuer, promptly afte r receipt of the Annual Report, certifying that the Annual Report has been provided to EMMA and the date it was provided. (e) Notwithstanding any other provision of this Certificate, all filings must be made in accordance with the EMMA system or in another manner approved under the Rule.
4. Content of Annual Reports. The Issuer’s Annual Report must contain or include by reference all of the following:
(a) Financial Statements . The Issuer’s audited financial statem ents for the most recent Fiscal Year then ended. If audited financial statements are not available by the time the Annual Report is required to be filed by section 3, then the Annual Report must contain unaudited financial statements, and the audited financial statements mu st be filed in the same manner as the Annual Report when they become available.
(b) Financial and Operating Data . The Annual Report must contain or incorporate by reference the following information except to the extent the information is included in the Issuer’s audited financial statements or in a report to the California Debt and Investment Advisory Commission that has been uploaded to EMMA:
(1) Balances in each of the following funds established under the Indenture as of the close of the prior fiscal year:
(A) The Bond Redemption Fund (with a statement of the debt-service requirement to be discharged by the fund before the receipt of expected additional Special Tax revenue, i.e., the Debt Service due on the following September 1). (B) The Bond Reserve Fund.
(2) The aggregate land assessed valuation and th e aggregate improvement assessed valuation of the Taxable Property within Improvement Area No. 2.
(3) A statement of the debt-service requiremen ts for the Bonds for the prior Fiscal Year. (4) A statement of the actual Special Tax collections and delinquencies for Improvement Area No. 2 for the prior Fiscal Year.
(5) An update of the informatio n in Table 3 of the Official Statement based on the assessed valuation of the Taxable Property within Improvement Area No. 2 for the current Fiscal Year, except that the information with respect to overlapping land-secured debt need not be included.
(6) A statement as to whether the Series 2022 Es crow Release Conditions have been satisfied and whether the City has provided a Series 2022 Es crow Fund Release Certificate to the Trustee pursuant to the Indenture; provided, however, th at the requirement to provide the information in this section 4(b)(6) shall no longer be requir ed for any Annual Report due after the date on which the City has provided a notice pursuant to section 5(a)(11) or for any Annual Report due after March 31, 2025.
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(7) The following information (to the extent that it is no longer reported in the City’s annual filings with the California Debt and Investment Advisory Commission regarding the Bonds):
(A) The Required Bond Reserv e for the prior Fiscal Year. (B) A statement as to the status of any foreclosure actions with respect to delinquent payments of the Special Tax.
(C) A statement of any discontinuance of the County’s Teeter Plan with respect to any Taxable Parcel.
(c) Any or all of the items listed in section 4(a) or 4(b) may be included by specific reference to other documents (including official statements of debt issu es of the Issuer or related public entities) that 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 through EMMA. The Issuer shall clearly identify each document included by reference.
5. Reporting of Significant Events.
(a) The Issuer shall give or cause the Dissemination Agent to give notice to the MSRB, through EMMA, not more than ten 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, in solvency, receivership, or similar proceedings.
Note: For the purposes of the event identified in section 5(a)(8), the event is considered to occur when any of the following occur: if a receiver, fiscal agent, or similar officer is appointed for the Issuer in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially al l of the assets or business of the Issuer; or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority; or if an order confirming a plan of reorganization, arrangement, or liquidation is entered by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Issuer. (9) Ratings changes.
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(10) Default, event of accelerat ion, 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.
(11) Satisfaction of the Series 2022 Escrow Fund Release Conditions and delivery to the Trustee by the City of a Series 2022 Escrow Fund Release Certificate. (b) Additionally, the Issuer shall give or cause the Dissemination Agent to give notice to the MSRB, through EMMA, not more than ten Business Days after the occurrence of any of the following events with respect to the Bonds, if material:
(1) Unless described in section 5(a)(5), other notices or dete rminations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds.
(2) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business; the entry into a definitive agreement to undertake such an action; or the termination of a definitive agreement relating to any such actions, other than under its terms.
(3) Appointment of a successor or additional fiscal agent or the change of the name of a fiscal agent.
(4) Nonpayment related defaults.
(5) Modifications to the rights of Bondholders.
(6) Bond calls.
(7) Release, substitution, or sale of property securing repayment of the Bonds. (8) 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 Bondholders. (c) For purposes of the events identified in section 5( a)(10) or 5(b)(8), “financial obligation” means a (1) debt obligation; (2) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (3) guarantee of (1) or (2). “Financial obligation” does not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule. (d) If the Issuer’s Fiscal Year changes, then the I ssuer shall report or shall instruct the Dissemination Agent to report the change in the same manner an d to the same parties as Listed Event would be reported under this section 5.
(e) The undertaking set forth in this Certificate is the Issuer’s responsibility. The Dissemination Agent, if other than the Issuer, is not responsible for determining whether the Issuer’s instructions to the Dissemination Agent under this section 5 comply with the Rule.
6. Termination of Reporting Obligation. The obligations of the Issuer and the Dissemination Agent under this Certificate terminate upon the legal defeasance, prior redemption, or payment in full of all of
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the Bonds. If termination occurs before the final maturity of the Bonds, then the Issuer shall give notice of the termination in the same manner as for a Listed Event under section 5.
7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Certificate and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Issuer will be the initial Dissemination Agent. The Dissemination Agent may resign by providing 30-days’ advance written notice to the Issuer, with the resignation effective upon appointment of a new Dissemination Agent.
8. Amendment.
(a) The parties may amend this Certificate by written agreement of the parties without the consent of the Holders, and any provision of this Certificate may be waived, if all of the following conditions are satisfied:
(1) The amendment or waiver is made in connectio n 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 Issuer or the type of business the Issuer conducts. (2) The undertakings in this Certificate as so amended or waived would have complied, in the opinion of a nationally recognized bond counsel, wi th the requirements of the Rule as of the date of this Certificate, after taking into account any amendments or interpretations of the Rule as well as any change in circumstances.
(3) The amendment or waiver either (A) is appr oved by the Holders of the Bonds in the same manner as provided in the Indenture for amendm ents to the Indenture with the consent of Holders or (B) does not, in the determination of the Issuer, materially impair the interests of the Holders or Beneficial Owners of the Bonds.
(b) To the extent any amendment to this Certificate results in a change in the type of financial information or operating data provided under this Certificate, the first Annual Report provided after the change must include a narrative explan ation of the reasons fo r the amendment and the effect of the change on the type of operating data or financial information being provided. (c) If an amendment is made to the basis on wh ich financial statements are prepared, the Annual Report for the year in which the change is made must 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 pr inciples. The comparison must include both a quantitative discussion and, to the extent reasonably feasible, a qualitative discussion of the differences in the accounting principles and the effect of the change in the accounting principles on the presentation of the financial information.
9. Additional Information. This Certificate does not prevent th e Issuer (a) from disse minating any other information, using the means of dissemination set forth in this Certificate or any other means of communication; or (b) from including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that required by this Certificate. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that specifically required by this Certificate, then the Issuer will have no obligation under this Certificate to update the information or include it in any future Annual Report or notice of occurrence of a Listed Event.
10. Default. If the Issuer or the Dissemination Agent fails to comply with any provision of this Certificate, then any Holder or Beneficial Owner of the Bonds may take any necessary and appropriate actions,
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including seeking mandate or specific performance by court order, to cause the Issuer and the Dissemination Agent to comply with their obligations under this Certificate. A default under this Certificate will not be an Event of Default under the Indenture, and the sole remedy under this Certificate in the event of any failure of the Issuer or the Dissemination Agent to comply with this Certificate is an action to compel performance.
11. Duties, Immunities, and Liabilities of Dissemination Agent. (a) Where an entity other than the Issuer is acti ng as the Dissemination Agent, the Dissemination Agent will have only the duties expressly set forth in this Certificate, and the Issuer shall indemnify and save the Dissemination Agent and it s officers, directors, employees, and agents harmless against all losses, expenses, and liabilitie s that arise out of, or in the exercise or performance of, their powers and duties under this Cert ificate, including reasonable attorney’s fees and other expenses of defending against any claim of liability, but excluding losses, expenses, and liabilities due to the Dissemination Agent’s negligence or willful misconduct. (b) Except as provided in section 11(a), the Issuer shall pay any Dissemination Agent (1) compensation for its services provided under this Certificate in accordance with an agreed- upon schedule of fees; and (2) all expenses, legal fees, and advances made or incurred by the Dissemination Agent in the performance of its duties under this Certificate. (c) The Dissemination Agent has no duty or obligat ion to review any information the Issuer provides to it under this Certificate. The Issuer’s obligations under this section 11 will survive the Dissemination Agent’s resignation or removal and payment of the Bonds. No person has any right to commence any action against the Dissemination Agent for any remedy other than specific performance of this Certificate. The Disseminatio n Agent is not liable under any circumstances for monetary damages to any person for any breach under this Certificate.
12. Beneficiaries. This Certificate inures solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriter, and Holders and Benefici al Owners from time to time of the Bonds, and it creates no rights in any other person or entity.
13. Merger. Any person succeeding to all or substantially all of the Dissemination Agent’s corporate trust business will be the successor Dissemination Agent without the filing of any paper or any further act.
14. Effective Date. This Certificate is effective as of the date and year set forth above in the preamble.
CITY OF SACRAMENTO
By:
John P. Colville Jr., City Treasurer
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APPENDIX H
FORM OF CONTINUING DISCLOSURE CERTIFICATES OF THE DEVELOPERS
CONTINUING DISCLOSURE CERTIFICATE
(M&H Realty Partners VI, L.P.)
This Continuing Disclosure Certificate (M&H Realty Partners VI, L.P.) (this “ Disclosure Certificate”) is executed and delivered by M&H Realty Partners VI, L.P., a California limited partnership (the “Property Owner”), in connection with the issuance by the City of Sacramento (the “ City”) of the City of Sacramento Delta Shores Community Facilities Dist rict No. 2019-01 (Improvements) Improvement Area No. 2 Special Tax Bonds, Series 2022 (the “ Bonds”). The Bonds are being issued pursuant to Resolution No. 2022-____ adopted by the Sacramento City Council on May 31, 2022, and a Master Indenture, dated as of June 1, 2022 as supplemented by a First Supplemental Indenture dated as of June 1, 2022, each by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “ Trustee”) (collectively, the “Indenture”). The Property Owner covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds.
Section 2. Definitions. In addition to the definitions set forth above and herein, and in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined herein, the following capitalized terms shall have the following meanings:
“Affiliate” means any person presently directly (or indirectly through one or more intermediaries) under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the Property or to the Property Owner’s ability to pay the Special Taxes levied on the Property prior to delinquency). For purposes of this Disclosure Certificate, MHRP/Signature Homes, LV I, LLC (and any successor or assignee thereof), shall no t be an Affiliate. Any future entities formed by the Property Owner or any other joint venture entity form ed by the Property owner to develop property in Improvement Area No. 2 that is a Major Owner who has not entered into an Assumption Agreement, shall be an Affiliate for purposes of this Disclosure Certificate. “Assumption Agreement” means an undertaking of a Major Owner , for the benefit of the holders and beneficial owners of the Bonds, containing terms substantially similar to this Disclosure Certificate (as modified for such Major Owner’s development and financing plans with respect to the property in Improvement Area No. 2 acquired by the Major Owner), whereby such Major Owner agrees to provide semi- annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in Improvement Area No. 2 owned by such Major Owner and, at the option of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 12 hereof. “Dissemination Agent ” means the Property Owner or an entity experienced in providing dissemination agent services such as those required un der this Disclosure Certificate designated by the Property Owner to serve as the Dissemination Agent hereunder and who has accepted such obligation in writing, and for which the Property Owner has filed with the City and the Participating Underwriter notice of such designation and acceptance.
“District” means City of Delta Shores Community Facilities District No. 2019-01 (Improvements), City of Sacramento, County of Sacramento, State of California.
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“Improvement Area No. 2” means Improvement Area No. 2 of the District. “Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate. “Major Owner ” means, as of any date of calculation, an owner of land that, together with any Affiliates, owns property that is responsible for 15% or more of the Maximum Special Tax (as defined in the Amended and Restated Rate and Method of Apportionment of Special Tax for Improvement Area No. 2) levy. “MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Marketplace Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.
“Official Statement” means the final Official Statement dated June __, 2022, executed by the City in connection with the issuance of the Bonds.
“Participating Underwriter” means Piper Sandler & Co., the original underwriter of the Bonds. “Property” means, as of the date of determination, (i ) the property owned by the Property Owner or any Affiliate in Improvement Area No. 2 of the District , and (ii) the property in Improvement Area No. 2 of the District that the Property Owner sold to a Majo r Owner who has not assumed the undertakings of this Disclosure Certificate under Section 7(b) with respect to such property. “Report Date” means (a) March 31 of each year, and (b) September 30 of each year. “Semi-Annual Report” means any Semi-Annual Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Special Taxes ” means the special taxes of the District levied by the City on the Property in Improvement Area No. 2.
Section 3. Provision of Semi-Annual Reports.
(a) Until such obligations are terminated pursuant to Section 7 herein, the Property Owner shall, or upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing September 30, 2022, provide to the MSRB, in an electronic format as prescribed by the MSRB, a Semi-Annual Report which is consistent with the requiremen ts of Section 4 of this Disclosure Certificate with a copy to the Participating Underwriter and the City. Not la ter than 15 calendar days prior to the Report Date, the Property Owner shall provide the Semi-Annual Report to the Dissemination Agent (if different from the Property Owner). The Property Owner shall provide a written certification with (or included as a part of) each Semi-Annual Report furnished to the Dissemination Agent (if different from the Property Owner), the Participating Underwriter and the City to the effect that such Semi-Annual Report constitutes the Semi-Annual Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent, the Participating Underwriter, and the City may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Semi-Annual Report. The Semi-Annual Report may be submitted as a single document or as separate documents comprising a package, and may incorporate by reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the Dissemination Agent is not the Property Owner and it does not receive a Semi-Annual Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Semi-Annu al Report has not been provided as required under Section 3(a) above.
The reminder notice shall instruct the Property Owner to determine whether its obligations under this
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Disclosure Certificate have terminated (pursuant to Section 7 below) and, if so, to provide the Dissemination Agent with a notice of such termination in the same manner as for a Listed Event (pursuant to Section 5 below). If the Property Owner does not provide, or cause the Dissemination Agent to provide, a Semi-Annual Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall provide a notice to the MSRB, in an el ectronic format as prescribed by the MSRB, with a copy to the City and the Participating Underwriter.
(c) The Dissemination Agent shall:
(i) determine prior to each Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of continuing disclosure reports; and (ii) to the extent the Semi-Annual Report has been furnished to it, file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the City, and the Participating Underwriter certifying that the Semi-Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Section 4. Content of Semi-Annual Reports. Each Semi-Annual Report shall contain or incorporate by reference the information set forth in Exhibit A, any or all of which may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related public entities, which are available to the public on the MSRB’s internet web site or filed with the Securities and Exchange Commission. Th e Property Owner shall clear ly identify each such othe r document so included by reference.
In addition to any of the information expressly required to be provided in Exhibit A, each Semi- Annual Report shall include such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
Section 5. Reporting of Significant Events.
(a) Until such obligations are terminated pursuant to Section 7 herein, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material:
(i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Property Owner;
(ii) failure to pay any Special Taxes due with respect to the Property prior to the delinquency date, to the extent such failure is not promptly cured by the Property Owner upon discovery thereof;
(iii) filing of a lawsuit against the Property Owner or, if known, an Affiliate of the Property Owner, seeking damages which, if successful, could have a material and adverse impact on the Property Owner’s ability to pay Special Taxes prior to delinquency or to sell or develop the Property;
(iv) material damage to or destruction of any of the improvements on the Property; and (v) any payment default or other material default by the Property Owner that continues to exist beyond any applicable notice and cure periods on any loan with respect to the construction of improvements on the Property.
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(b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if su ch event would be material under applicable Federal securities law.
(c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Property Owner shall, or shall cause the Dissemination Agent to, within 10 business days file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, with a copy to the City and the Participating Underwriter.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Duration of Reporting Obligation.
(a) All of the Property Owner’s obligations hereunder shall commence on the date hereof and shall terminate (except as provided in Section 12) on the earliest to occur of the following:
(i) upon the legal defeasance, prior redemption or payment in full of all the Bonds, or (ii) the date that 80% of the building permits for the planned residential units within the HDR Villages and the mixed-use Villages (as defined and described in the Official Statement) have been issued, or
(iii) the date on which all of the Special Taxe s attributable to the Property are prepaid in full.
The Property Owner shall give notice of the termin ation of its obligations under this Disclosure Certificate in the same manner as for a Listed Event under Section 5. (b) If a portion of the Property is conveyed to a person or entity that, upon such conveyance, will be a Major Owner, the obligations of the Property Owner hereunder with respect to the property conveyed to such Major Owner may be assumed by such Major Owner and the Property Owner’s obligations hereunder with respect to the property conveyed will be terminated. In order to effect such assumption, such Major Owner shall enter into an Assumption Agreement in form and substance substantially similar to this Disclosure Certificate. However, a Major Owner shall not be requi red to enter into an Assumption Agreement if such Major Owner is already a party to a continuing disclosu re certificate in form and substance similar to this Disclosure Certificate with respect to the Bonds, and under which the property conveyed to such Major Owner will become subject to future semi-annual reports. As of the date hereof, the Property Owner has sold property, and is under contract to sell additional property, in Improvement Area No. 2 to Signature Homes, Inc. (“ Signature Homes ”). Signature Homes has entered into a continuing disclosure certificate wherein Signature Homes has agreed to provide information regarding the property Signature Homes owns in Improvement Area No. 2 (the “ Signature Homes CDC”). The Signature Homes CDC specifically states that as additional property is acquired by Signature Home s from the Property Owner, such property automatically (and without the necessity of an Assumption Agreement) becomes subject to the Signature Homes CDC.
Accordingly, so long as the Signat ure Homes CDC has not been terminated, as the Property Owner sells additional property to Signature Ho mes, the Property Owner shall be released from providing information on the property conveyed without requiring the execution of an Assumption Agreement.
Section 8. Dissemination Agent. The Property Owner may, from time to time, with the written consent of the City, appoint or engage a Dissemination Agent to assist the Property Owner in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with the written consent of the City, with or without appointing a successor Dissemination Agent. The initial
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Dissemination Agent shall be the Property Owner. The Dissemination Agent may resign by providing 30 days’ written notice to the District, the Property Owner, the City, and the Participating Underwriter.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner may amend this Disclosu re Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied (provided, however, that the Dissemination Agent shall not be obligated under any such amendment that modifies or increases its duties or obligations hereunder without its written consent thereto):
(a) if the amendment or waiver rela tes to the provisions of sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in lega l requirements, or change in law;
(b) the proposed amendment or wa iver either (i) is approved by holders of the Bonds in the manner provided in the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.
Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner 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 Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Proper ty Owner chooses to include any in formation in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Semi-Annual Report or notice of occurrence of a Listed Event.
Section 11. Default. In the event of a failure of the Property Owner to comply with any provision of this Disclosure Certificate, the Participating Underwriter, the City, and any holder 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 Property Owner to comply with its 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 Ce rtificate in the event of any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance.
Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys’ fees) of defending against any claim of liab ility, but excluding any loss, expense and liabilities due to the Dissemination Agent’s negligence or willful misconduct or failure to perform its duties hereunder. If the Dissemination Agent is not the Property Owner, the Dissemination Agent shall be paid compensation for its services provided hereunder by the Pr operty Owner in accordance with th e Dissemination Agent’s schedule of fees as amended from time to time, which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reasonable 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 hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Property Owner, the Participating Underwriter, the Bond owners, or any other party. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 13. Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given by regular, overnight, or electronic mail as follows:
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To the issuer: City of Sacramento
Historic City Hall
915 I Street, 3rd Floor
Sacramento, California 95814
Attn: City Treasurer
Email: [email protected]
Email: [email protected]
To the Participating Underwriter: Piper Sandler & Co.
2626 Fair Oaks Boulevard, Suite 100
Sacramento, CA 95864
Attention: Dennis McGuire
Email: [email protected]
To the Property Owner: M&H Realty Partners VI, L.P.
[ADDRESS]
Attention:
Email: [email protected]
[email protected]
Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent.
Section 14. Beneficiaries. This Disclosure Certific ate shall inure solely to the benefit of the City, the Property Owner (its successors an d assigns), the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. All obligations of the Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization.
Date: June __, 2022
M&H REALTY PARTNERS, VI, L.P.,
a California limited partnership
By:
Name:
Title:
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EXHIBIT A
SEMI-ANNUAL REPORT
[MARCH 31, ____ / SEPTEMBER 30, _____]
$__________
CITY OF SACRAMENTO
DELTA SHORES COMMUNITY FACILITIES DISTRICT NO. 2019-01 (IMPROVEMENTS) IMPROVEMENT AREA NO. 2 SPECIAL TAX BONDS, SERIES 2022
This Semi-Annual Report is hereby submitted pursuant to Section 4 of the Continuing Disclosure Certificate (M&H Realty Pa rtners VI, L.P.) (the “ Disclosure Certificate”) dated June __, 2022, executed by the undersigned (the “ Property Owner ”) in connection with the issuance by the City of Sacramento (the “City”) of the bonds captioned above (the “ Bonds”) for Improvement Area No. 2 of the City of Sacramento Delta Shores Community Facilities District No. 20 19-01 (Improvements), City of Sacramento, County of Sacramento, State of California (the “District”).
Capitalized terms used in this Semi-Annual Report but not otherwise defined have the meanings given to them in the Disclosure Certificate.
I. Property Ownership and Development
The information in this section is provided as of ____________________ (this date must be not more than 60 days before the Report Date of this Semi-Annual Report).
A. Description of the Property in Improvement Area No. 2 of the District (the “ Property”) in substance and form similar to such information in the Official Statement for the Bonds. ________________________________________________________________________ ________________________________________________________________________ B. Updated information regarding land development activities with respect to the Property described in the Official Statement for the Bonds or the Semi-Annual Report last filed in accordance with the Disclosure Certificate.
________________________________________________________________________ ________________________________________________________________________ C. Status of any material changes to the description of land use or development entitlements for the Property described in the Official Statement for the Bonds or the Semi-Annual Report last filed in accordance with the Disclosure Certificate.
________________________________________________________________________ ________________________________________________________________________ D. Status of any land purchase contracts with rega rd to the Property, whether acquisition of land in Improvement Area No. 2 by the Pr operty Owner or sales of land to other property owners (other than individual homeowners).
________________________________________________________________________ ________________________________________________________________________
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II. Legal and Financial Status of Property Owner
Unless such information has previously been included or incorporated by reference in a Semi-Annual Report, describe any material change in the legal structure of the Property Owner or the financial condition and financing plan of the Property Owner that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement. To the extent that the ownership of the Property Owner has changed, describe all material terms of the new ownership structure. ________________________________________________________________________ ________________________________________________________________________ III. Change in Development or Financing Plans
Unless such information has previously been included or incorporated by reference in a Semi-Annual Report, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement. ________________________________________________________________________ ________________________________________________________________________ IV. Change in Relationship with Merchant Builders
To the extent a relationship exists between the Pr operty Owner and a merchant builder, describe any material change in such relationship with respect to the construction, marketing and sale of homes within Improvement Area No. 2. To the extent that a new merchant builder has been engaged to carry out home construction, marketing and sales activity by the Property Owner in Improvement Area No. 2, fully describe all material terms of the relationship between the Property Owner and any such new merchant builder. ________________________________________________________________________ ________________________________________________________________________ V. Official Statement Updates
Unless such information has previously been included or incorporated by reference in a Semi-Annual Report, describe any other significant changes in the information relating to the Property Owner or the Property contained in the Official Statement un der the heading “DEVELOPMENT OF PROPERTY IN IMPROVEMENT AREA NO. 2” (other than under the captions “Acquisition of MDR Villages by Signature Homes,” “Infrastructure and Home Construction by Signature Homes” and “Signature Homes Financing Plan”), and under the heading “PROPERTY OWNERSHI P — The Developer” that would materially and adversely interfere with the Property Owner’s ability to develop and sell the Property as described in the Official Statement.
________________________________________________________________________ ________________________________________________________________________ VI. Status of Tax Payments
Describe status of payment of taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property owned by the Property Owner and its Affiliates. ________________________________________________________________________ ________________________________________________________________________
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VII. Other Material Information
In addition to any of the information expressly required above, provide such further information, if any, as may be necessary to make the specifically requ ired statements, in the light of the circumstances under which they are made, not misleading.
________________________________________________________________________ ________________________________________________________________________ Certification
On behalf of the Property Owner, the undersigned officer or representative, based on actual knowledge after reasonable inquiry of employees of Property Owner and its Affiliates, hereby certifies that this Semi-Annual Report constitutes the Semi-Annual Report required to be furnished by the Property Owner under the Disclosure Certificate.
ANY OTHER STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER’ S FINANCING PLAN OR FINANCIAL CONDITION,
OTHER THAN STATEMENTS MADE BY THE PROP ERTY OWNER IN AN OFFICIAL RELEASE, OR
FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNE R IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS.
THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS SEMI-ANNUAL REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE.
Dated:
M&H REALTY PARTNERS, VI, L.P.,
a California limited partnership
By:
Name:
Title:
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CONTINUING DISCLOSURE CERTIFICATE
(Signature Homes, Inc.)
This Continuing Disclosure Certific ate (Signature Home s, Inc.) (this “ Disclosure Certificate ”) is executed and delivered by Signature Homes, Inc., a California corporation (the “ Property Owner ”), in connection with the issuance by the City of Sacramento (the “ City”) of the City of S acramento Delta Shores Community Facilities District No. 2019-01 (Improvements) Improvement Area No. 2 Special Tax Bonds, Series 2022 (the “Bonds”). The Bonds are being issued pursuant to Resolution No. 2022-____ adopted by the Sacramento City Council on May 31, 2 022, and a Master Indenture, dated as of June 1, 2022 as supplemented by a First Supplemental Indenture dated as of June 1, 2022, each by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “ Trustee”) (collectively, the “ Indenture”). The Property Owner covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds.
Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined herein, the following capitalized terms shall have the following meanings:
“Affiliate” means any person presently directly (or indirectly through one or more intermediaries) under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the Property or to the Property Owner’s ability to pay the Special Taxes levied on the Property prior to delinquency). For purposes of this Disclosure Certificate, MHRP/Signature Homes, LV I, LLC (and any successor or assignee thereof) and any entities formed by the Property Owner for purposes of development of property in Improvement Area No. 2 shall be an Affiliate.
“Assumption Agreement” means an undertaking of a Major Owner , for the benefit of the holders and beneficial owners of the Bonds, containing terms substantially similar to this Disclosure Certificate (as modified for such Major Owner’s development and financing plans with respect to the property in Improvement Area No. 2 acquired by the Major Owner), whereby such Major Owner agrees to provide semi- annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in Improvement Area No. 2 owned by such Major Owner and, at the option of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 12 hereof.
“Dissemination Agent ” means the Property Owner or an entity experienced in providing dissemination agent services such as those required un der this Disclosure Certificate designated by the Property Owner to serve as the Dissemination Agent hereunder and who has accepted such obligation in writing, and for which the Property Owner has filed with the City and the Participating Underwriter notice of such designation and acceptance.
“District” means City of Delta Shores Community Facilities District No. 2019-01 (Improvements), City of Sacramento, County of Sacramento, State of California.
“Improvement Area No. 2” means Improvement Area No. 2 of the District.
“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.
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“Major Owner ” means, as of any date of calculation, an owner of land, and together with any Affiliates, who owns 84 or more residential lots (or property intended to be subdivided into 84 or more residential lots) in Improvement Area No. 2.
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Marketplace Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.
“Official Statement” means the final Official Statement dated June __, 2022, executed by the City in connection with the issuance of the Bonds.
“Participating Underwriter” means Piper Sandler & Co., the original underwriter of the Bonds.
“Property” means (i) the property owned by the Property Owner or any Affiliate in Improvement Area No. 2 of the District, and (ii) the property in Improv ement Area No. 2 of the Distri ct that the Property Owner sold to a Major Owner who has not assumed the undertakin gs of this Disclosure Certificate under Section 7(b) with respect to such property.
“Report Date” means (a) March 31 of each year, and (b) September 30 of each year.
“Semi-Annual Report” means any Semi-Annual Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Special Taxes” means the special taxes of the District levied by the City on the Property.
Section 3. Provision of Semi-Annual Reports.
(a) Until such obligations are terminated pursuant to Section 7 herein, the Property Owner shall, or upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing September 30, 2022, provide to the MSRB, in an electronic format as prescribed by the MSRB, a Semi-Annual Report which is consistent with the requiremen ts of Section 4 of this Disclosure Certificate with a copy to the Participating Underwriter and the City. Not la ter than 15 calendar days prior to the Report Date, the Property Owner shall provide the Semi-Annual Report to the Dissemination Agent (if different from the Property Owner). The Property Owner shall provide a written certification with (or included as a part of) each Semi-Annual Report furnished to the Dissemination Agent (if different from the Property Owner), the Participating Underwriter and the City to the effect that such Semi-Annual Report constitutes the Semi-Annual Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent, the Participating Underwriter, and the City may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Semi-Annual Report. The Semi-Annual Report may be submitted as a single document or as separate documents comprising a package, and may incorporate by reference other information as provided in Section 4 of this Disclosure Certificate.
(b) If the Dissemination Agent is not the Property Owner and it does not receive a Semi-Annual Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Semi-Annu al Report has not been provided as required under Section 3(a) above.
The reminder notice shall instruct the Property Owner to determine whether its obligations under this Disclosure Certificate have terminated (pursuant to Section 7 below) and, if so, to provide the Dissemination Agent with a notice of such termination in the same manner as for a Listed Event (pursuant to Section 5 below). If the Property Owner does not provide, or cause the Dissemination Agent to provide, a Semi-Annual Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall
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provide a notice to the MSRB, in an el ectronic format as prescribed by the MSRB, with a copy to the City and the Participating Underwriter.
(c) The Dissemination Agent shall:
(i) determine prior to each Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of continuing disclosure reports; and
(ii) to the extent the Semi-Annual Report has been furnished to it, file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the City, and the Participating Underwriter certifying that the Semi-Annual Report has be en provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Section 4. Content of Semi-Annual Reports. Each Semi-Annual Report shall contain or incorporate by reference the information set forth in Exhibit A, any or all of which may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related public entities, which are available to the public on the MSRB’ s internet web site or filed with the Securities and Exchange Commission. The Property Owner shall clearly identify each such other document so included by reference.
In addition to any of the information expressly required to be provided in Exhibit A, each Semi- Annual Report shall include such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
Section 5. Reporting of Significant Events.
(a) Until such obligations are terminated pursuant to Section 7 herein, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material:
(i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings comme nced by or against any Affiliate of the Property Owner;
(ii) failure to pay any Special Taxes due with respect to the Property prior to the delinquency date, to the extent such failure is not promptly cured by the Property Owner upon discovery thereof;
(iii) filing of a lawsuit against the Property Owner or, if known, an Aff iliate of the Property Owner, seeking damages which, if successful, could have a material and adverse impact on the Property Owner’s ability to pay Special Taxes prior to delinquency or to sell or develop the Property;
(iv) material damage to or destruction of any of the improvements on the Property; and
(v) any payment default or other material default by the Property Owner that continues to exist beyond any applicable notice and cure periods on any loan with respect to the construction of improvements on the Property.
(b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if su ch event would be material under applicable Federal securities law.
(c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Property Owner shall, or shall cause the Dissemination
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Agent to, within 10 business days file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, with a copy to the City and the Participating Underwriter.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Duration of Reporting Obligation.
(a) All of the Property Owner’s obligations hereunder shall commence on the date hereof and shall terminate (except as provided in Section 12) on the earliest to occur of the following:
(i) upon the legal defeasance, prior redemption or payment in full of all the Bonds, or
(ii) at such time as the Property in Improvem ent Area No. 2 of the District owned by the Property Owner or any Affiliate, or under contract to be acquired by the Property Owner as of the date of issuance of the Bonds, is fewer than 84 residential lots (or property intended to be subdivided into fewer than 84 residential lots) in Improvement Area No. 2, or
(iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to the Property.
The Property Owner shall give notice of the termin ation of its obligations under this Disclosure Certificate in the same manner as for a Listed Event under Section 5.
(b) If a portion of the Property is conveyed to a person or entity that, upon such conveyance, will be a Major Owner, the obligations of the Property Owner hereunder with respect to the property conveyed to such Major Owner may be assumed by such Major Owner and the Property Owner’s obligations hereunder with respect to the property conveyed will be terminated. In order to effect such assumption, such Major Owner shall enter into an Assumption Agreement in form and substance substantially similar to this Disclosure Certificate. As of the date hereof, the Property Owner has acquired property, and is under contract to acquire additional property, in Improvement Area No. 2 from M&H Realty Partners VI, L.P., a California limited partnership (“M&H”). M&H has entered into a continuing disclosure certificate wherein M&H has agreed to provide information regarding the property M&H owns in Improvement Area No. 2 (the “ M&H CDC’). The M&H CDC specifically states that as additional prop e r t y i s a c q u i r e d b y P r o p e r t y O w n e r f r o m M & H , s u c h property automatically (and without the necessity of an Assumption Agreement) becomes subject to this Disclosure Certificate. Accordingly, so long as this Disclosure Certificate has not been terminated, as Property Owner acquires additional property from M&H, M&H sh all be released from providing information on the property conveyed without requiring the execution of an Assumption Agreement.
Section 8. Dissemination Agent. The Property Owner may, from time to time, with the written consent of the City, appoint or engage a Dissemination Agent to assist the Property Owner in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with the written consent of the City, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the Property Owner. The Dissemination Agent may resign by providing 30 days’ written notice to the District, the Property Owner, the City, and the Participating Underwriter.
Section 9. Amendment; Waiver. Notwithstanding a ny other provision of this Disclosure Certificate, the Property Owner may amend this Disclosure Certificat e, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied (provided, however, that the Dissemination Agent shall not be obligated under a ny such amendment that modifies or increases its duties or obligations hereunder without its written consent thereto):
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(a) if the amendment or waiver rela tes to the provisions of sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in lega l requirements, or change in law;
(b) the proposed amendment or wa iver either (i) is approved by holders of the Bonds in the manner provided in the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.
Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner 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 Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Proper ty Owner chooses to include any in formation in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Semi-Annual Report or notice of occurrence of a Listed Event.
Section 11. Default. In the event of a failure of the Property Owner to comply with any provision of this Disclosure Certificate, the Participating Underwriter, the City, and any holder 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 Property Owner to comply with its 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 Ce rtificate in the event of any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance.
Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the reasonab le costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding any loss, expense and liabilities due to the Dissemination Agent’s negligence or willful misconduct or failure to perform its duties hereunder. If the Dissemination Agent is not the Property Owner, the Dissemination Agent shall be paid compensation for its services provided hereunder by the Pr operty Owner in accordance with th e Dissemination Agent’s schedule of fees as amended from time to time, which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reasonable 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 hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Property Owner, the Participating Underwriter, the Bond owners, or any other party. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
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Section 13. Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given by regular, overnight, or electronic mail as follows:
To the issuer: City of Sacramento
Historic City Hall
915 I Street, 3rd Floor
Sacramento, California 95814
Attn: City Treasurer
Email: [email protected]
Email: [email protected]
To the Participating Underwriter: Piper Sandler & Co.
2626 Fair Oaks Boulevard, Suite 100
Sacramento, CA 95864
Attention: Dennis McGuire
Email: [email protected]
To the Property Owner: Signature Homes, Inc.
4670 Willow Road, Suite 200
Pleasanton, CA 94588
Attention: Adam Browne
Email: [email protected]
Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent.
Section 14. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Property Owner (its successors and assigns), the Diss emination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. All obligations of the Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization.
Date: June __, 2022
SIGNATURE HOMES, INC.,
a California corporation
By: ___________________
Name: ___________________
Title: ___________________
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EXHIBIT A
SEMI-ANNUAL REPORT
[MARCH 31, ____ / SEPTEMBER 30, _____]
$__________
CITY OF SACRAMENTO
DELTA SHORES COMMUNITY FACILITIES DISTRICT NO. 2019-01 (IMPROVEMENTS) IMPROVEMENT AREA NO. 2 SPECIAL TAX BONDS, SERIES 2022
This Semi-Annual Report is hereby submitted pursuant to Section 4 of the Continuing Disclosure Certificate (Signature Homes, Inc.) (the “ Disclosure Certificate ”) dated June __, 2022, executed by the undersigned (the “Property Owner”) in connection with the issuance by the City of Sacramento (the “City”) of the bonds captioned above (the “ Bonds”) for Improvement Area No. 2 of its City of Sacramento Delta Shores Community Facilities District No. 2019-01 (Improvements), City of Sacramento, County of Sacramento, State of California (the “District”).
Capitalized terms used in this Semi-Annual Report but not otherwise defined have the meanings given to them in the Disclosure Certificate.
I. Property Ownership and Development
The information in this section is provided as of ____________________ (this date must be not more than 60 days before the Report Date of this Semi-Annual Report).
A. Description of the Property currently owned by the Property Owner in Improvement Area No. 2 of the District (the “Property”) in substance and form similar to such information in the Official Statement for the Bonds.
________________________________________________________________________ ________________________________________________________________________
B. Updated information regarding land development and home construction activities with respect to the Property described in the Official Statement for the Bonds or the Semi-Annual Report last filed in accordance with the Disclosure Certificate. Such in formation shall include, for the period covered by this Semi-Annual Report and cumulatively, the statue of infrastructure constructed or to be constructed by the Property Owner, the number of lots acquired from M&H, the number of building permits issued, the number of homes sold and the number of homes closed to individuals.
________________________________________________________________________ ________________________________________________________________________
C. Status of any material changes to the description of land use or development entitlements for the Property described in the Official Statement for the Bonds or the Semi-Annual Report last filed in accordance with the Disclosure Certificate.
________________________________________________________________________ ________________________________________________________________________
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D. Other than as covered in Section B above, the status of any land purchase contracts with regard to the Property, whether acquisition of land in Improvement Area No. 2 by the Property Owner or sales of land to other property owners (other than individual homeowners). ________________________________________________________________________ ________________________________________________________________________
II. Legal and Financial Status of Property Owner
Unless such information has previously been included or incorporated by reference in a Semi-Annual Report, describe any material change in the legal structure of the Property Owner or the financial condition and financing plan of the Property Owner that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement. To the extent that the ownership of the Property Owner has changed, describe all material terms of the new ownership structure.
________________________________________________________________________ ________________________________________________________________________
III. Change in Development or Financing Plans
Unless such information has previously been included or incorporated by reference in a Semi-Annual Report, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement. ________________________________________________________________________ ________________________________________________________________________
IV. Official Statement Updates
Unless such information has previously been included or incorporated by reference in a Semi-Annual Report, describe any other significant changes in the information relating to the Property Owner or the Property contained in the Official Statement un der the heading “DEVELOPMENT OF PROPERTY IN IMPROVEMENT AREA NO. 2—Acquisition of MDR Villages by Signature Homes,” “Infrastructure and Home Construction by Signature Homes” and “Signature Homes Financing Plan ” and under the heading PROPERTY OWNERSHIP — Signature Homes, Inc.” that would materially and adversely interfere with the Property Owner’s ability to develop and sell the Property as described in the Official Statement. ________________________________________________________________________ ________________________________________________________________________
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V. Status of Tax Payments
Describe status of payment of taxes, special taxe s (including the Special Ta xes) or assessments due with respect to the Property owned by the Property Owner and its Affiliates.
________________________________________________________________________ ________________________________________________________________________
VI. Other Material Information
In addition to any of the information expressly requ ired above, provide such further information, if any, as may be necessary to make the specifically requ ired statements, in the light of the circumstances under which they are made, not misleading.
________________________________________________________________________ ________________________________________________________________________
Certification
On behalf of the Property Owner, the undersigne d officer or representative, based on actual knowledge after reasonable inquiry of employees of Pr operty Owner and its Affiliates, hereby certifies that this Semi-Annual Report constitutes the Semi-Annual Report required to be furnished by the Property Owner under the Disclosure Certificate.
ANY OTHER STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER’S FINANCING PLAN OR FINANCIAL CONDITION,
OTHER THAN STATEMENTS MADE BY THE PROP ERTY OWNER IN AN OFFICIAL RELEASE, OR
FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNE R IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS.
THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS SEMI-ANNUAL REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE.
Dated:
SIGNATURE HOMES, INC.,
a California corporation
By: ___________________
Name: ___________________
Title: ___________________
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APPENDIX I
BOOK-ENTRY ONLY SYSTEM
The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the City believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transf ers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC to the City which the City believes to be reliable, but the City and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
The Depository Trust Company (“DTC”), New York, Ne w York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered se curities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered Bond will be issued for each annual maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provis ions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. an d non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Par ticipants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DT CC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companie s, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Di rect and Indirect Participants ’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing deta ils of the transaction, as well as pe riodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Benefi cial Owners. Beneficial Owners w ill not receive Bonds representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts
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such Bonds are credited, which may or may not be the Benefi cial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other comm unications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indire ct Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial Owners of Bonds may wish to take certain st eps to augment the transmission to them of notices of significant events with respect to the Bonds, such as pr epayments, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being prepaid, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Partic ipant in accordance with DT C’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Dist rict as soon as possible after the r ecord date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, a nd dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized re presentative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DT C’s receipt of funds and corresponding deta il information from th e District or the Trustee, on payable date in accordan ce with their respective ho ldings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by stan ding instructions and custom ary practices, as is the case with securities held for the accounts of customers in bear er form or registered in “s treet name,” and will be the responsibility of such Participant and not of DTC, the Trust ee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
A Bond Holder shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Bonds by caus ing the Direct Participant to transfer the Participant’s interest in the Bonds, on DTC’s records, to the Trust ee. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Pa rticipants on DTC’s records and followed by a book-entry credit of tendered Bonds to the Trustee’s DTC account.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or th e Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered.
The District may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered to DTC.
THE PAYING AGENT, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY
FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY
ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE
VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
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APPENDIX J
MARKET ABSORPTION REPORT
Stradling Yocca Carlson & Rauth
Draft dated May 24, 2022
4882-1897-1672v4/022536-0020
CITY CONTINUING DISCLOSURE CERTIFICATE
This Continuing‐Disclosure Certificate, dated as of June 1, 2022 (this “Certificate”), is executed and delivered by the City of Sacramento, a California municipal corporation (the “Issuer”), in connection with the issuance of the City of Sacramento Delta Shores Community Facilities District No. 2019‐01 (Improvements) Improvement Area No. 2 Special Tax Bonds, Series 2022 (the “Bonds”). The Bonds are being issued under Resolution No. 2022____ adopted by the Sacramento City Council on ______, 2022, and a Master Indenture, dated as of June 1, 2022, as supplemented by a First Supplemental Indenture dated as of June 1, 2022 (collectively, the “Indenture”), each between the Issuer and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).
The Issuer hereby covenants as follows:
1. Purpose of this Certificate. This Certificate is being executed and delivered for the benefit of the Holders and Beneficial Owners of the Bonds and to assist the Participating Underwriter in complying with the Rule.
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 Certificate unless otherwise defined in this section 2, the following capitalized terms have the following meanings:
“Annual Report” means any annual report that meets the criteria in section 4 and is provided by the Issuer under section 3.
“Beneficial Owner” means 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‐tax purposes.
“Business Day” means any day the Issuer’s offices at 915 I Street, Sacramento, California, are open to the public.
“Dissemination Agent” initially means the Issuer, and thereafter it means any successor Dissemination Agent the Issuer designates in writing.
“District” means the Delta Shores Community Facilities District No. 2019‐01 (Improvements), City of Sacramento, County of Sacramento, State of California.
“EMMA” means the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at www.emma.msrb.org, or any 2 4882-1897-1672v4/022536-0020
other repository of disclosure information the Securities and Exchange Commission may designate in the future.
“Fiscal Year” means the Issuer’s fiscal year, which begins on July 1 and ends the following June 30.
“Improvement Area No. 2” means Improvement Area No. 2 of the District.
“Listed Events” means any of the events listed in section 5(a) below.
“MSRB” means the Municipal Securities Rulemaking Board.
“Official Statement” means the Issuer’s official statement with respect to the Bonds.
“Participating Underwriter” means Piper Sandler & Co.
“Rate and Method of Apportionment” means the Amended and Restated Rate and Method of Apportionment of Special Tax for Improvement Area No. 2 approved by the Resolution of Formation.
“Resolution of Formation” means the Resolution adopted by the Sacramento City Council on September 24, 2019, and designated as Resolution No. 2019‐0371, and the Resolution of Change adopted by the Sacramento City Council on February 1, 2022, and designated as Resolution No. 2022‐0036 by which the City established and undertook change proceedings with respect to the District and Improvement Area No. 2 of the District.
“Rule” means Rule 15c2‐12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time.
“Tax‐exempt” means that interest on the Bonds is excluded from gross income for federal income‐tax purposes, whether or not the interest is includable as an item of tax preferences or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax or environmental tax.
3. Provision of Annual Reports.
(a) Beginning with the Fiscal Year ending June 30, 2022, the Issuer shall provide to EMMA, or shall cause the Dissemination Agent to provide to EMMA, not later than March 31 after the end of the Fiscal Year, an Annual Report that is consistent with the requirements of section 4 of this Certificate. If the Dissemination Agent is other 3 4882-1897-1672v4/022536-0020
than the Issuer, then the Issuer shall provide the Annual Report to the Dissemination Agent, in a form suitable for filing with EMMA, not later than 15 business days before the date specified in the prior sentence for providing the Annual Report to EMMA.
The Annual Report may be submitted as a single document or as separate documents composing a package and may include by reference other information as provided in section 4 of this Certificate, except that the Issuer’s audited financial statements 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) If the Dissemination Agent is an entity other than the Issuer, then the provisions of this section 3(b) will apply. The Issuer shall provide the Annual Report to the Dissemination Agent not later than 15 Business Days before the date specified in section 3(a) for providing the Annual Report to EMMA. If the Dissemination Agent has not received a copy of the Annual Report by the 15th Business Day before the date for providing the Annual Report, then the Dissemination Agent shall contact the Issuer to determine if the Issuer will be filing the Annual Report in compliance with section 3(a). The Issuer shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that the Annual Report constitutes the Annual Report required to be furnished by it under this Certificate. The Dissemination Agent may conclusively rely upon the Issuer’s certification and will have no duty or obligation to review the Annual Report. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to EMMA by the date required in section 3(a), then the Dissemination Agent shall send a notice in a timely manner to EMMA, in the form required by EMMA.
(d) If the Dissemination Agent is other than the Issuer, then the Dissemination Agent shall—
(1) determine each year, before the date for providing the Annual Report, the name and address of the repository if other than the MSRB through EMMA; and (2) file a report with the Issuer, promptly after receipt of the Annual Report, certifying that the Annual Report has been provided to EMMA and the date it was provided.
(e) Notwithstanding any other provision of this Certificate, all filings must be made in accordance with the EMMA system or in another manner approved under the Rule.
4. Content of Annual Reports. The Issuer’s Annual Report must contain or include by reference all of the following:
(a) Financial Statements. The Issuer’s audited financial statements for the most recent Fiscal Year then ended. If audited financial statements are not available by the time 4 4882-1897-1672v4/022536-0020
the Annual Report is required to be filed by section 3, then the Annual Report must contain unaudited financial statements, and the audited financial statements must be filed in the same manner as the Annual Report when they become available. (b) Financial and Operating Data. The Annual Report must contain or incorporate by reference the following information except to the extent the information is included in the Issuer’s audited financial statements or in a report to the California Debt and Investment Advisory Commission that has been uploaded to EMMA:
(1) Balances in each of the following funds established under the Indenture as of the close of the prior fiscal year:
(A) The Bond Redemption Fund (with a statement of the debt‐service requirement to be discharged by the fund before the receipt of expected additional Special Tax revenue, i.e., the Debt Service due on the following September 1).
(B) The Bond Reserve Fund.
(2) The aggregate land assessed valuation and the aggregate improvement assessed valuation of the Taxable Property within Improvement Area No. 2. (3) A statement of the debt‐service requirements for the Bonds for the prior Fiscal Year.
(4) A statement of the actual Special Tax collections and delinquencies for Improvement Area No. 2 for the prior Fiscal Year.
(5) An update of the information in Table 3 of the Official Statement based on the assessed valuation of the Taxable Property within Improvement Area No. 2 for the current Fiscal Year, except that the information with respect to overlapping land‐secured debt need not be included.
(6) A statement as to whether the Series 2022 Escrow Release Conditions have been satisfied and whether the City has provided a Series 2022 Escrow Fund Release Certificate to the Trustee pursuant to the Indenture; provided, however, that the requirement to provide the information in this section 4(b)(6) shall no longer be required for any Annual Report due after the date on which the City has provided a notice pursuant to section 5(a)(11) or for any Annual Report due after March 31, 2025.
(7) The following information (to the extent that it is no longer reported in the City’s annual filings with the California Debt and Investment Advisory Commission regarding the Bonds):
(A) The Required Bond Reserve for the prior Fiscal Year. 5 4882-1897-1672v4/022536-0020
(B) A statement as to the status of any foreclosure actions with respect to delinquent payments of the Special Tax.
(C) A statement of any discontinuance of the County’s Teeter Plan with respect to any Taxable Parcel.
(c) Any or all of the items listed in section 4(a) or 4(b) may be included by specific reference to other documents (including official statements of debt issues of the Issuer or related public entities) that 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 through EMMA. The Issuer shall clearly identify each document included by reference.
5. Reporting of Significant Events.
(a) The Issuer shall give or cause the Dissemination Agent to give notice to the MSRB, through EMMA, not more than ten 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.
Note: For the purposes of the event identified in section 5(a)(8), the event is considered to occur when any of the following occur: if a receiver, fiscal agent, or similar officer is appointed for the Issuer in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Issuer; or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision 6 4882-1897-1672v4/022536-0020
and orders of a court or governmental authority; or if an order confirming a plan of reorganization, arrangement, or liquidation is entered by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Issuer. (9) Ratings changes.
(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.
(11) Satisfaction of the Series 2022 Escrow Fund Release Conditions and delivery to the Trustee by the City of a Series 2022 Escrow Fund Release Certificate. (b) Additionally, the Issuer shall give or cause the Dissemination Agent to give notice to the MSRB, through EMMA, not more than ten Business Days after the occurrence of any of the following events with respect to the Bonds, if material:
(1) Unless described in section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds.
(2) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business; the entry into a definitive agreement to undertake such an action; or the termination of a definitive agreement relating to any such actions, other than under its terms. (3) Appointment of a successor or additional fiscal agent or the change of the name of a fiscal agent.
(4) Nonpayment related defaults.
(5) Modifications to the rights of Bondholders.
(6) Bond calls.
(7) Release, substitution, or sale of property securing repayment of the Bonds. (8) 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 Bondholders.
(c) For purposes of the events identified in section 5(a)(10) or 5(b)(8), “financial obligation” means a (1) debt obligation; (2) derivative instrument entered into in 7 4882-1897-1672v4/022536-0020
connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (3) guarantee of (1) or (2). “Financial obligation” does not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule.
(d) If the Issuer’s Fiscal Year changes, then the Issuer shall report or shall instruct the Dissemination Agent to report the change in the same manner and to the same parties as Listed Event would be reported under this section 5. (e) The undertaking set forth in this Certificate is the Issuer’s responsibility. The Dissemination Agent, if other than the Issuer, is not responsible for determining whether the Issuer’s instructions to the Dissemination Agent under this section 5 comply with the Rule.
6. Termination of Reporting Obligation. The obligations of the Issuer and the Dissemination Agent under this Certificate terminate upon the legal defeasance, prior redemption, or payment in full of all of the Bonds. If termination occurs before the final maturity of the Bonds, then the Issuer shall give notice of the termination in the same manner as for a Listed Event under section 5.
7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Certificate and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Issuer will be the initial Dissemination Agent. The Dissemination Agent may resign by providing 30‐days’ advance written notice to the Issuer, with the resignation effective upon appointment of a new Dissemination Agent.
8. Amendment.
(a) The parties may amend this Certificate by written agreement of the parties without the consent of the Holders, and any provision of this Certificate may be waived, if all of the following conditions are satisfied:
(1) The 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 Issuer or the type of business the Issuer conducts. (2) The undertakings in this Certificate as so amended or waived would have complied, in the opinion of a nationally recognized bond counsel, with the requirements of the Rule as of the date of this Certificate, after taking into account any amendments or interpretations of the Rule as well as any change in circumstances.
8 4882-1897-1672v4/022536-0020
(3) The amendment or waiver either (A) is approved by the Holders of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders or (B) does not, in the determination of the Issuer, materially impair the interests of the Holders or Beneficial Owners of the Bonds.
(b) To the extent any amendment to this Certificate results in a change in the type of financial information or operating data provided under this Certificate, the first Annual Report provided after the change must include a narrative explanation of the reasons for the amendment and the effect of the change on 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 must 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. The comparison must include both a quantitative discussion and, to the extent reasonably feasible, a qualitative discussion of the differences in the accounting principles and the effect of the change in the accounting principles on the presentation of the financial information.
9. Additional Information. This Certificate does not prevent the Issuer (a) from disseminating any other information, using the means of dissemination set forth in this Certificate or any other means of communication; or (b) from including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that required by this Certificate. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that specifically required by this Certificate, then the Issuer will have no obligation under this Certificate to update the information or include it in any future Annual Report or notice of occurrence of a Listed Event.
10. Default. If the Issuer or the Dissemination Agent fails to comply with any provision of this Certificate, then any Holder or Beneficial Owner of the Bonds may take any necessary and appropriate actions, including seeking mandate or specific performance by court order, to cause the Issuer and the Dissemination Agent to comply with their obligations under this Certificate. A default under this Certificate will not be an Event of Default under the Indenture, and the sole remedy under this Certificate in the event of any failure of the Issuer or the Dissemination Agent to comply with this Certificate is an action to compel performance.
11. Duties, Immunities, and Liabilities of Dissemination Agent. (a) Where an entity other than the Issuer is acting as the Dissemination Agent, the Dissemination Agent will have only the duties expressly set forth in this Certificate, and the Issuer shall indemnify and save the Dissemination Agent and its officers, 9 4882-1897-1672v4/022536-0020
directors, employees, and agents harmless against all losses, expenses, and liabilities that arise out of, or in the exercise or performance of, their powers and duties under this Certificate, including reasonable attorney’s fees and other expenses of defending against any claim of liability, but excluding losses, expenses, and liabilities due to the Dissemination Agent’s negligence or willful misconduct. (b) Except as provided in section 11(a), the Issuer shall pay any Dissemination Agent (1) compensation for its services provided under this Certificate in accordance with an agreed‐upon schedule of fees; and (2) all expenses, legal fees, and advances made or incurred by the Dissemination Agent in the performance of its duties under this Certificate.
(c) The Dissemination Agent has no duty or obligation to review any information the Issuer provides to it under this Certificate. The Issuer’s obligations under this section 11 will survive the Dissemination Agent’s resignation or removal and payment of the Bonds. No person has any right to commence any action against the Dissemination Agent for any remedy other than specific performance of this Certificate. The Dissemination Agent is not liable under any circumstances for monetary damages to any person for any breach under this Certificate.
12. Beneficiaries. This Certificate inures solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriter, and Holders and Beneficial Owners from time to time of the Bonds, and it creates no rights in any other person or entity.
13. Merger. Any person succeeding to all or substantially all of the Dissemination Agent’s corporate trust business will be the successor Dissemination Agent without the filing of any paper or any further act.
14. Effective Date. This Certificate is effective as of the date and year set forth above in the preamble.
CITY OF SACRAMENTO
By:
John P. Colville Jr., City Treasurer
Improvement Area No. 2 of the Delta Shores Community Facilities District No. 2019-01 Cosumnes River Boulevard and Delta Shores Circle South
Sacramento, California 95832
BBG File #0121024185
Prepared For
Bill Sinclair
City of Sacramento
915 I Street, 2nd Floor
Sacramento, CA 95832
Report Date
May 19, 2022
Date of Valuation
April 1, 2022
Prepared By
BBG, Inc., Northern California
Sacramento Office
1708 Q Street
Sacramento, CA 95811
Client Manager: Scott Beebe, MAI, FRICS
[email protected]
B B G – N O R T H E R N C A L I F O R N I A
SAN FRANCISCO
465 CALIFORNIA STREET, SUITE 435
SAN FRANCISCO, CA 95811
P + (415) 248-5000
SACRAMENTO
1708 Q STREET
SACRAMENTO, CA 95811
P + (916) 554-6492
B B G R E S . C O M
SP
Subdivision Practice
May 19, 2022
Bill Sinclair
Real Property Agent
City of Sacramento, Departments of Public Works
915 I Street, 2nd Floor
Sacramento, CA 95832
Re: Appraisal of Real Property
Improvement Area No. 2 of the Delta Shores Community Facilities District No. 2019-1 Cosumnes River Boulevard and Delta Shores Circle South
Sacramento, California 95832
BBG File #0121024185
Dear Mr. Sinclair,
BBG, Inc. – Northern California is pleased to submit the accompanying appraisal of Improvement Area No. 2 of the Delta Shores Community Facilities District No. 2019-1 or commonly referred to in this report as “the CFD.” This report is written in conformance with the requirements set forth under Standards Rule 2- 2(a) of the Uniform Standards of Professional Appraisal Practice (USPAP) and the Appraisal Standards for Land Secured Financing, published by the California Debt and Investment Advisory Commission (CDIAC).
The intended user of the appraisal is the City of Sacramento and the CFD finance team. The intended use is for bond financing. The appraisal is not intended for any other use or users.
The CFD has been established to create a land-secured funding mechanism for authorized facilities. The Improvement Area No. 2 CFD No. 2019-01 (the “Bonds”) will reimburse for eligible facilities completed by M & H Realty Partners VI LP (the “Master Developer”).
The subject property is a tract of land located along Cosumnes River Boulevard and Delta Shores Circle South in Sacramento, California. It is identified as Sacramento County Assessor Parcel No.’s 053-0180-030 and -032. More particularly, the subject is identified as Parcels 1 thru 10, Parcels A and B, and Remainder 1 on the Final Master Parcel Map of Delta Shores Phase 2. The subject property consist of 145.88 gross acres of which 90.76 acres is planned for development with 1,573 residential and multi-family lots/units.
The remaining 55.12 acres consists of roads, two park sites and a school site.
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The property is part of the larger Delta Shores development, a master planned community containing 782 acres. The project has entitlements for up to 1.3 million feet of regional retail uses, 5,222 residential units, 144 acres of open space and a mixed use town center of approximately 20 acres. To date, over 900,000 square feet of the regional retail space has been completed. The subject property represents the initial residential development within the project.
Substantial off-site improvements have been completed including all of the subject property’s perimeter roads as well as much of the utility, drainage, and highway interchange infrastructure. All major entitlements for development of the property are in place. The Final Master Parcel Map of Delta Shores Phase 2 was recorded in November 2021.
The four medium density village are presently in various stages of map approval. The final map for MDR- 5 (87 lots) was recorded May 2, 2022. MDR-8 (136 total lots) is being processed in two phases. MDR-8A (76 lots) has an approved final map that is expected record in mid-May 2022. MDR-8B (60 lots) has an approved (small lot) tentative map. The MDR-8B final map is expected to be recorded in late 2022. Small lot tentative maps are currently in process for MDR-6 (102 lots) and MDR-7 (96 lots) and the developer anticipates tentative map approval in mid-2022 and final maps recording in late 2022. Only moderate remaining costs associated with mapping and engineering are anticipated. There are no foreseeable issues that would cause delay for near-term development of the property.
Improvement Area No. 2 is one of three improvement areas within the Delta Shores CFD and is located east of Interstate 5 and south of Cosumnes River Boulevard. The developer has completed significant portions of the authorized CFD facilities and anticipates that the medium density residential villages (MDR-5 thru 8) will be sold to a merchant builder in phases between January and October 2022.
According to the Rate and Method of Apportionment (RMA) for Improvement Area 2, the identified public facilities authorized to be financed equate to $13,614,698 in 2021 dollars ($11,249,860 for completed facilities/land dedications plus $2,364,838 for pending facilities/land dedications). The completed facilities include various road, utilities, storm drainage and public land dedication to serve the project. A detailed summary of the completed and pending facilities is shown later in the report.
The values estimated herein are based on a hypothetical condition. USPAP defines a hypothetical condition as “a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.” As of the date of value, the Bonds had not been sold. The market value is based on the hypothetical condition that, as of the date of value, the Bonds had just been sold and the property was encumbered by Special Taxes as described herein. The market value accounts for the impact of the lien of the Special Tax securing the Bonds.
We have been requested to provide market value by ownership. M & H Realty Partners VI, LP is the owner of the majority of the property. MHRP / Signature Homes JV I LLC is the owner of MDR-5.
Based on our inspection of the property and the investigation and the analysis undertaken, we have developed the following value opinion(s) of value.
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Our estimate of value is subject to the following Extraordinary Assumptions and/or Hypothetical Conditions:
BBG Northern California appreciates the opportunity to have performed this appraisal assignment on your behalf. If we may be of further service, please contact us.
Sincerely,
BBG, Inc.
Arthur A. Leck, MAI
Managing Director
California Certified General Appraiser
No. AG 011823
Ph: (916) 949-7377
Email: [email protected]
Scott Beebe, MAI
Senior Managing Director
California Certified General Appraiser
No. AG 015266
Ph: (925) 588-7641
Email: [email protected]
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
TABLE OF CONTENTS
Subject Photos & Map ........................................................................................................................1 Summary of Salient Facts ...................................................................................................................9 General Information ........................................................................................................................ 12 SWOT Analysis ................................................................................................................................. 20 Scope of Work ................................................................................................................................. 22 Regional Analysis ............................................................................................................................. 24 Neighborhood Analysis .................................................................................................................... 33 Property Description ........................................................................................................................ 46 Property Tax Analysis ....................................................................................................................... 64 Single-Family Market Analysis .......................................................................................................... 66 Multi-Family Market Analysis ........................................................................................................... 83 Highest and Best Use ..................................................................................................................... 105 Valuation Process .......................................................................................................................... 107 Sales Comparison Approach – Single-family Lots ............................................................................. 109 Subdivision Development Method - Single-Family Lots ................................................................... 127 Reconciliation and Conclusions of Lot Value ................................................................................... 144 Sales Comparison Approach – HDR Land ......................................................................................... 146 MDR-5 Valuation ........................................................................................................................... 155 Hypothetical Market Value (Bulk Value) ......................................................................................... 156 Final Opinion of Value .................................................................................................................... 163 Certification ................................................................................................................................... 164 Standard Assumptions and Limiting Conditions .............................................................................. 166 Addenda ........................................................................................................................................ 171 SUBJECT PHOTOS & MAP 1
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUBJECT PHOTOS & MAP
Aerial Map with Subject outlined in Green
SUBJECT PHOTOS & MAP 2
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Viewing East on Cosumnes River Bl Viewing South (at MDR-5 & 8) from Cosumnes River Bl Viewing West on Cosumnes River Bl Viewing South (at MDR-8/MU-1) from Cosumnes River Bl Viewing Southeast at Regional Park Site Viewing Southwest at Intersection of Cosumnes River Bl and Delta Shores South Circle
SUBJECT PHOTOS & MAP 3
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Viewing West on Delta Shores South Circle Viewing Northwest from Delta Shores South Circle Viewing Northwest from South Portion of MDR-7 Viewing Northwest from Delta Shores Circle South (from Vicinity of HDR-8)
Viewing East from Delta Shores Circle South
(from vicinity of HDR-6 & 7)
Viewing Northwest at Delta Shores Shopping Center
SUBJECT PHOTOS & MAP 4
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
LOCATION MAP
SUBJECT PHOTOS & MAP 5
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUBJECT PHOTOS & MAP 6
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Map is dated, but provides overall image of Delta Shores Subject is Highlighted in Yellow in center of the Map
Highlighted Red is Regional Commercial substantially built-out
OVERALL DELTA SHORES DEVELOPMENT
SUBJECT PHOTOS & MAP 7
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL IMPROVEMENT AREA 2
The subject property includes only those areas highlighted above.
SUBJECT PHOTOS & MAP 8
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
LARGE LOT FINAL MAP
SUMMARY OF SALIENT FACTS 9
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUMMARY OF SALIENT FACTS
Property The subject property is identified as identified as Sacramento County Assessor Parcels No.’s 053-0180-030 and -032. More particularly, the subject is identified as Parcels 1 thru 10, Parcels A and B, and Remainder 1 on the Final Master Parcel Map of Delta Shores Phase 2. The subject property consist of 145.88 gross acres of which 90.76 acres is planned for development with 1,573 residential and multi-family lots/units. The remaining 55.12 acres consists of roads, two park sites and a school site.
Location The subject project is located along the south side of Cosumnes River Boulevard at Delta Shores Circle South within the City of Sacramento, Sacramento County, California 95832.
Assessor Parcel Numbers 053-0180-030 and -032.
Ownership M & H Realty Partners VI LP (majority of property) & MHRP / Signature Homes JV I LLC (MDR-5).
Zoning Single-Unit or Duplex (R-1A-PUD), Multi-Unit Dwelling (R-3-PUD), and Residential Mixed Use (RMX-PUD).
Entitlements Final large lot parcel map is recorded. The subject is identified as Parcels 1 thru 10, Parcels A and B, and Remainder 1 on the Final Master Parcel Map of Delta Shores Phase 2, Subdivision No. P20- 024, dated September 2021 and recorded November 19, 2021.
The four medium density village are presently in various stages of map approval. The final map for MDR-5 (87 lots) was recorded May 2, 2022. MDR-8 (136 total lots) is being processed in two phases. MDR-8A (76 lots) has an approved final map that is expected record in mid-May 2022. MDR-8B (60 lots) has an approved (small lot) tentative map. The MDR-8B final map is expected to be recorded in late 2022. Small lot tentative maps are currently in process for MDR-6 (102 lots) and MDR-7 (96 lots) and the developer anticipates tentative map approval in mid- 2022 and final maps recording in late 2022. Only moderate remaining costs associated with mapping and engineering are anticipated.
The entitlements are vested by Amended and Restated
Development Agreement that was authorized for execution on May 8, 2015.
SUMMARY OF SALIENT FACTS 10
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Land Use Summary
Flood Zone Zone X (Shaded) – Within the 500-year floodplain.
Highest and Best Use Single-family and multi-family residential development, as currently approved
Exposure Time 9 months
Marketing Time 9 months
Property Rights Appraised Fee Simple Estate
Effective Date of Value: April 1, 2022
The values reported above are subject to the extraordinary assumptions, hypothetical conditions, standard assumptions and limiting conditions set forth in the accompanying report of which this summary is a part. No party other than the client and stated intended users may use or rely on the information, opinions and conclusions contained in the report.
SUMMARY OF SALIENT FACTS 11
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
GENERAL INFORMATION 12
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
GENERAL INFORMATION
IDENTIFICATION OF THE SUBJECT PROPERTY
The subject property is a development property located along Cosumnes River Boulevard and Delta Shores Circle South in Sacramento, California. It is situated in south Sacramento, east of Interstate Highway 5 along Cosumnes River Boulevard.
The subject property is identified as Sacramento County Assessor Parcel No.’s 053-0180-030 and -032. More particularly, the subject is identified as Parcels 1 thru 10, Parcels A and B, and Remainder 1 on the Final Master Parcel Map of Delta Shores Phase 2. The subject property consist of 145.88 gross acres of which 90.76 acres is planned for development with 1,573 residential and multi-family lots/units. The remaining 55.12 acres consists of roads, two park sites and a school site. The subject property is the first residential portion of Delta Shores. The commercial use at I-5 and Cosumnes Boulevard Road consisting of over 900,000 square feet has been developed. Major backbone infrastructure including the ring road circling the subject has been completed.
GENERAL INFORMATION 13
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Delta Shores is a 782 acre master-planned community, located in the southwestern section of Sacramento, California. The community is entitled up to 1.3 million square feet of regional retail uses, 5,222 residential units, approximately 144 acres of open space, and mixed-use town center of approximately 20 acres. The initial Master Subdivision subdivided the development into sixty-four master parcels. The commercial component of the project (not a part of the appraisal) includes a village commercial center, and a neighborhood-serving mixed-use town center. Amenities such as open space, recreation, pedestrian/bicycle paths, and a community center have been incorporated into the land use plan.
Since 2009 the project has received various entitlements. These include approval of the Delta Shores PUD, Certification of the Delta Shores Environmental Impact Report, approval of the Delta Shores Development Agreement, various cost sharing agreements, several mitigation measures and various tentative and final maps. In 2019 Economic & Planning Systems, Inc. (EPS) prepared and updated their Finance Plan to address infrastructure and facility funding strategy for Delta Shores and to implement funding and reimbursement mechanisms. The Finance Plan includes use of existing and new fee programs, implementation of a land- secured financing district, and uses of other funding mechanisms. The appraisal of the subject is to assist in the land-secured financing of the finance plan.
The area north of the project site and east of I-5, known as the Meadowview neighborhood, has been developed with single family residential units over the last 30 years. Bordering the project site on the northeast is the federally-owned Sacramento Job Corps facility, a portion of which (102 acres) was recently acquired by the City of Sacramento for a planned homeless services facility. To the south of the Job Corps facility, east of the project site, is vacant privately-owned land zoned for residential uses; in November 2021 Taylor Builders announced a proposal for 1,160 residential units on this 141.2-acre site known as Stone Beetland. The western portion of the project site is just north of the City-owned Bartley Cavanaugh Golf Course. The Town of Freeport, which is within an unincorporated area of Sacramento County, borders the western boundary of the project site.
GENERAL INFORMATION 14
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Improvement District No. 2 was formed for reimbursement of already constructed improvements within the district. The following provided by the developer summarizes authorized facilities within several Improvement Areas (IA’s), including the subject are (IA2).
GENERAL INFORMATION 15
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Improvement Area No. 2 is one of three improvement areas within the Delta Shores CFD and is located east of Interstate 5 and south of Cosumnes River Boulevard. The developer has completed significant portions of the authorized CFD facilities and has transferred one medium density village (MDR-5) into a joint venture agreement with Signature Homes (MDR-5 was transferred to MHRP / Signature Homes JV I LLC on 12/21/2021). The developer anticipates that the remaining medium density residential villages (MDR-6 thru 8) will be sold to a merchant builder in phases as final maps are recorded (between May/June 2022 for MDR-8A and year-end 2022 for MDR-6, 7 and 8B).
According to the Rate and Method of Apportionment (RMA) for Improvement Area 2, the identified public facilities authorized to be financed equate to $13,614,698 in 2021 dollars ($11,249,860 for completed facilities/land dedications plus $2,364,838 for pending facilities/land dedications). The completed facilities include various road, utilities, storm drainage and public land dedication to serve the project.
A summary of the subject property is as follows:
PROJECT HISTORY
In 1983 the City of Sacramento approved the Delta Shores Planned Unit Development (PUD) which was intended to be developed as a manufacturing, research, and development zone with an emphasis on high tech business. A limited amount of residential development was included with the original PUD. Up until 2016 the project site had remained mostly undeveloped and had been used primarily for agricultural purposes. In 2009 the current Delta Shores Planned Unit Development (PUD) consisting of 1.3 million feet of commercial and up to 5,222 residential units was approved by the City of Sacramento. Today, over 900,000 square feet of commercial and retail space has been developed. As previously mentioned, the subject property is the first residential portion of Delta Shores.
GENERAL INFORMATION 16
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUBJECT PROJECT TO DATE
Development of Delta Shores started in 2015. Between 2014-2016 Cosumnes River Boulevard, the I-5 overpass interchange as well as the commercial shopping center commenced construction. In approximately 2017, Delta Shores Circle South, the southern border road of the property was completed. By the middle of 2018, over 900,000 square feet of retail space was completed at the southeast corner of I-5 and Cosumnes River Boulevard.
The subject has a new large lot final map (Final Master Parcel Map of Delta Shores Phase 2, Subdivision No.
P20-024, dated September 2021 and recorded November 19, 2021).
The four medium density village are presently in various stages of map approval. The final map for MDR-5 (87 lots) was recorded May 2, 2022. MDR-8 (136 total lots) is being processed in two phases. MDR-8A (76 lots) has an approved final map that is expected record in mid-May 2022. MDR-8B (60 lots) has an approved small lot tentative map. The MDR-8B final map is expected to be recorded in late 2022. Small lot tentative maps are currently in process for MDR-6 (102 lots) and MDR-7 (96 lots) and the developer anticipates tentative map approval in mid-2022 and final maps recording in late 2022.
In June 2020 the subject owner and Signature Homes, Inc. entered into a partnership agreement for MDR-5 (87 lots). The terms of the agreement include an initial cash contribution by Signature Homes with the owner participating in profit on the development of the homes. Signature Homes was obligated to obtain map entitlements and construct the in-tract lot development as well as adjacent main roads. The financial details relating to this agreement are confidential and retained within the appraisal file. The closing date for MDR-5 was December 21, 2021. MDR-5 is presently owned by MHRP / Signature Homes JV I LLC.
Subsequent to the partnership agreement for MDR-5, the subject owner entered into purchase and sale agreements with Signature Homes for the remaining medium density villages (MDR-6, 7 and 8). The purchase agreements were provided and have been reviewed and analyzed and considered in our valuation; however, the financial details are not disclosed in this appraisal due to confidentiality agreements between the parties.
Under the pending sale agreements, the buyer will be responsible for in-tract lot development and adjacent main roads, similar to the MDR-5 agreement. The anticipated closing dates for the remaining MDR villages are concurrent with the expected final map recording dates. For MDR-8, there will be two final subdivision maps (8A & 8B), which cover the initial and subsequent takedown areas. The initial acquisition (MDR-8A) is projected for May/June 2022. The subsequent acquisition (MDR-8B) is expected in late 2022. For MDR-6 & 7, closing is also projected for late 2022.
While the details relating to the closed and pending sale agreements for the four MDR villages are not reported herein, they have been analyzed and considered in our valuation.
The current owner recently placed on of the HDR sites on the market with no stated asking price. The owner is projecting pricing in the range of $28,000 to $30,000 per potential unit for the subject HDR sites.
CURRENT OWNERSHIP AND SALES HISTORY
The owner of the majority of the subject property is M & H Realty Partners VI LP. This entity has owned the property in excess of three years. As previously noted, the village identified as MDR-5 (87 lots) has been transferred into a joint venture with Signature Homes (owner of record as of December 21, 2021 is MHRP / Signature Homes JV I LLC). As discussed above, M & H Realty Partners VI LP has entered into purchase GENERAL INFORMATION 17
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL agreements with Signature Homes for the three other medium density villages (MDR-6, 7 and 8), which are expected to close between June and December 2022.
As previously noted, the partnership agreement for MDR-5 and the purchase and sale agreements for MDR- 6, 7 and 8 were provided for our review. While the details relating to the closed and pending sale agreements for the four MDR villages are not reported herein, they have been analyzed and considered in our valuation.
One of the subject HDR parcels (HDR-6, 8.6 acres, 232 potential units) was recently offered for sale (unpriced) by Walker & Dunlop. Nate Oleson, the listing agent, reports that there has been strong interest from prospective buyers and provided the opinion that a price near $30,000 per unit is expected/achievable for this site.
No other listing, sales or pending agreements are in place.
FACILITIES TO BE FINANCED BY THE DISTRICT
The Bonds will assist with the financing of capital improvements and the costs of issuance. Specifically, per City of Sacramento Resolution No. 2019-90, the authorized facilities roadways, sewer, storm drainage, water and land dedication. Other such bond related expenses such as administrative fees, reimbursement of costs of CFD formation, and costs and incidental expenses related to eligible facilities are costs of the issuance.
These improvements have already been constructed. The proceeds from the bond sale will be used to off-set remaining development costs of the project.
Principal and interest on the Bonds will be paid by a Special Tax levied against the subject property. This report is based on a hypothetical condition that the Bonds have just been sold and the subject properties are encumbered by the Special Tax.
Improvement Area No. 2 is one of three improvement areas within the Delta Shores CFD and is located east of Interstate 5 and south of Cosumnes River Boulevard. The developer has completed significant portions of the authorized CFD facilities and anticipates that home building activities will commence in mid-2022.
According to the Rate and Method of Apportionment (RMA) for Improvement Area 2, the identified public facilities authorized to be financed equate to $13,614,698 in 2021 dollars ($11,249,860 for completed facilities/land dedications plus $2,364,838 for pending facilities/land dedications). The completed facilities include various road, utilities, storm drainage and public land dedication to serve the project.
INTENDED USER AND INTENDED USE
The intended user of the appraisal is the City of Sacramento and the CFD finance team. The intended use is for bond financing. The appraisal is not intended for any other use or users.
PRIOR SERVICES
USPAP requires appraisers to disclose to the client any other services they have provided in connection with the subject property in the prior three years, including valuation, consulting, property management, brokerage, or any other services. We have previously appraised the property that is the subject of this report for the current client within the three-year period immediately preceding acceptance of this assignment.
GENERAL INFORMATION 18
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the Hypothetical Market Value of the subject property as of April 1, 2022. The value is subject to a hypothetical condition that the CFD Bonds have sold. The appraisal is valid only as of the stated effective date. The date of the report is May 19, 2022, which is the date this report was delivered to the client.
PROPERTY RIGHTS APPRAISED
As stated above, our analysis pertains to the fee simple interest in the subject property. This is defined as follows:
Fee simple: “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.”
Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015)
DEFINITION OF MARKET VALUE
Pertinent definitions, including the definition of market value, are included in the glossary, located in the Addenda to this report. The following definition of market value is used by agencies that regulate federally insured financial institutions in the United States:
“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
Buyer and seller are typically motivated;
Both parties are well informed or well advised, and acting in what they consider their own best interests;
A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.” Source: Interagency Appraisal and Evaluation Guidelines; December 10, 2010, Federal Register, Volume 75 Number 237, Page 77472
LOT DEFINITION (S)
Note that in this report, the term “finished lot” means all site development is completed, final map has recorded, and all development fees due at final map have been paid. A finished lot does not include fees due at building permit, since these items are associated with home construction. The definition of finished lot utilized in this report is shared by market participants in the Northern California region.
APPLICABLE REQUIREMENTS
This appraisal is intended to conform to the requirements of the following:
GENERAL INFORMATION 19
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Uniform Standards of Professional Appraisal Practice (USPAP); Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute;
Applicable state appraisal regulations;
Appraisal Standards for Land Secured Financing, published by the California Debt and Investment Advisory Commission.
LEVEL OF REPORTING DETAIL AND APPLICABLE REQUIREMENTS
Standards Rule 2-2 (Real Property Appraisal, Reporting) contained in USPAP requires each written real property appraisal report to be prepared as either an Appraisal Report or a Restricted Appraisal Report. This report is prepared as an Appraisal Report which, at a minimum, must summarize the appraiser’s analysis and the rationale for the conclusions.
This appraisal report was prepared to conform with the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP), the Code of Ethics and the Standards of Professional Practice of the Appraisal Institute, as well as any additional standards of the client and intended users.
APPRAISER COMPETENCY
No steps were necessary to meet the competency provisions established under USPAP. We have appraised several properties similar to the subject in physical, locational, and economic characteristics, and are familiar with market conditions and trends; therefore, we have adequate experience and qualifications to appraise the subject. Appraiser certifications and qualifications are included in the Addenda of this report.
SIGNIFICANT PROFESSIONAL ASSISTANCE
No one provided significant real property appraisal assistance to the persons signing this certification.
SWOT ANALYSIS 20
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SWOT ANALYSIS
SWOT ANALYSIS
During the course of our market analysis and valuation, the following Strengths, Weaknesses, Opportunities and Threats (SWOT) have been identified and considered in our valuation of the subject property.
STR EN G TH S
Within a fully entitled master planned community with major infrastructure already in place. Excellent accessibility to Interstate 5 and proximate to commuter light rail station. Walkable to major retail center with a wide variety of stores and restaurants. Within 10 miles (±15 minute drive) of Downtown Sacramento employment hub.
WEAKNE S SE S
Subject schools are rated below average (could deter some family buyers and renters). The Meadowview neighborhood to the north of Delta Shores has below average residential values. Above average concentration of proposed high-density residential within subject project area. Potential for odor issues from the Sacramento Regional Wastewater Treatment Plant (located ±1 mile southeast of subject); however the operator been successful with odor control and has had few “odor events” (0 to 5 annually) over the past five years.
OPP OR TU NI TIE S
The substantial size and scope of the Delta Shores project should allow it to differentiate itself from the nearby Meadowview area.
Very limited new home competition in immediate area.
The single family and multifamily residential markets in the region and subject market area remain undersupplied.
High builder demand for single-family residential land/lots as well as multifamily land. Kaiser has acquired ±28 acres within Delta Shores for a planned medical office complex. This potential “on-site” employment center would walkable for residents. 4.8-mile bike trail terminus schedule to be constructed in 2023.
THR EAT S
In response to inflationary pressures, the Federal Reserve approved a 0.25% interest rate hike in March 2022, the first increase since December 2018. Fed officials indicated an aggressive path ahead, with further rates increases expected at each of the remaining six Fed meetings in 2022. Mortgage- interest rates have responded, and recently spiked to a national average of about 5% for a 30-year fixed rate mortgage. Rising inflation and Federal Reserve activity could push up mortgage rates further SWOT ANALYSIS 21
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL over the coming months/years. Though higher than the recent past, the current level is still historically low, with a long-term norm of about 6%.
Proximity to City of Sacramento’s planned homeless service project (on January 21, 2022 the City of Sacramento announced the acquisition of an undeveloped 102-acre property in south Sacramento for a planned homeless services project that is envisioned to include: safe parking, affordable housing, homeless services and potentially a civic amenity such as a community park). This project is located less than ½ mile northeast of the subject.
A variety of economic headwinds (the fallout from Russia’s war in Ukraine, above average inflation, volatile construction costs, labor shortages, supply chain issues, and future COVID-19 disruptions) could continue into the foreseeable future.
SCOPE OF WORK 22
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SCOPE OF WORK
The intended use and intended user(s) of this appraisal report, characteristics and complexity of the subject property, market conditions, widely-accepted methods and practices within the appraisal profession, and other pertinent factors were all considered in our determination of scope of work, which is detailed in the following sections.
VALUATION METHODOLOGY
Appraisers typically consider utilizing the cost, sales, and/or income capitalization approach in developing an opinion of value. The applicability of each approach is determined by the economic characteristics of the property, the availability of reliable data, and the common practice of market participants that reflect the most likely purchaser of the subject property.
In the valuation of the subject lots, we utilize the sales comparison and the income capitalization approach, which, for subdivision analysis, is commonly referred to as the subdivision development method. The sales comparison approach considers area bulk lot sales, with adjustments applied accordingly relative to the subject. The subdivision development method is a discounted cash flow analysis that reflects anticipated home prices and costs over an absorption period, leading to an estimate of residual land value. The projected cash flows have a finite life that corresponds with the sellout of the project.
A traditional cost approach for the subject is not applicable. However, in the finished lot valuation, we utilized numerous land sales, some of which were vacant land sales. We considered the cost of completing site improvements for each sale when determining an estimate of finished lot value; and from this value, we deducted the subject’s projected remaining site improvement costs (if any) to arrive at an estimate of as is value. The same value could have been resulted had the comparables been analyzed on an unimproved or partially finished basis, with adjustments made for projected site development cost differences. From this value, we could have added the subject’s projected remaining site development costs and arrived at an estimate of finished lot value. However, this method is not utilized by market participants, who prefer to analyze land deals on an “all in” land plus cost basis. The method applied in this report mirrors how market participants analyze like property. Moreover, in arriving at an estimate of finished lot value, costs associated with proposed home construction relative to current home pricing were considered in the subdivision development method.
RESEARCH AND ANALYSIS
In preparing this appraisal and over the course of this assignment, we performed extensive research and analysis of the subject, its competitors, and the broader market factors that impact value. The type and extent of our research and analysis is described throughout the report as it pertains to each section. In summary:
Researched the legal and physical attributes of the subject property including: a physical inspection of the property was completed and serves as the basis for the site description contained in this report; the sales history was verified by consulting public records (ParcelQuest); zoning and entitlement information was obtained from the City of Sacramento Planning Department; the subject’s deed restrictions; the subject’s earthquake zone, flood zone and SCOPE OF WORK 23
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL utilities were verified with applicable public agencies; property tax information for the current tax year was obtained from the Sacramento County Tax Collector’s Office. Analyzed and documented data relating to the subject’s neighborhood and surrounding market areas. This information was obtained through personal inspections of portions of the neighborhood and market areas, newspaper articles and interviews with various market participants.
Determined the highest and best use of the subject property as though vacant, based on the four standard tests (legal permissibility, physical possibility, financial feasibility and maximum productivity). As will be shown in the Highest and Best Use Analysis section, the highest and best use of the subject property is for single-family residential homes (production homes). Gathered information on comparable properties and confirmed comparable transactions. We also relied on comparable information (sales, costs, permits and fees) that we had retained in our appraisal files and which may have resulted from prior interviews with market participants. The type and extent of our research and analysis is detailed in individual sections of the report.
Although we make an effort to confirm the arms-length nature of each sale with a party to the transaction, it is sometimes necessary to rely on secondary verification from sources deemed reliable.
Estimated reasonable exposure and marketing times associated with the market value estimates.
INSPECTION DETAILS
Arthur Leck, MAI conducted several inspections of the property with the last inspection occurring on February 1, 2022. Scott Beebe, MAI has inspected the property on several occasions, most recently on April 20, 2022.
REGIONAL ANALYSIS 24
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
REGIONAL ANALYSIS
SACRAMENTO MSA
The Sacramento-Roseville-Arden Arcade Metropolitan Statistical Area is comprised of El Dorado, Placer, Sacramento and Yolo Counties, hereinafter called the Sacramento MSA. Sacramento is the capital of the State of California and the seat of Sacramento County. The city is located towards the north the California’s expansive Central Valley and has an estimated population of just over 500,000, making it the sixth most-populous city in California. The four-county Sacramento MSA has 2.38 million residents, making it the largest MSA in the Central Valley and the fourth largest in California behind greater Los Angeles, the San Francisco Bay Area and San Diego.
Situated approximately 85 miles northeast of San Francisco, Sacramento is at the intersection of two major interstate freeways (I-5 and I-80) and at the confluence of the Sacramento and American rivers. The area is also served by a number of rail lines including the Amtrak Capital Corridor. This, in addition to convenient access to airports, rail and a deep-water port, makes Sacramento well connected both regionally and nationally. Sacramento is increasingly regarded as a leading business location due to its growing, well-educated population, affordable cost of living, plentiful amenities and overall high quality of life.
ECONOMIC OVERVIEW
Consistent with national and statewide trends, the regional economy had performed very well after rebounding from the “Great Recession”. The region experienced strong job growth across private and public sectors; however, job growth as of early 2020 had started to slow and performance across industries was mixed in pre-COVID 19 affected data.
REGIONAL ANALYSIS 25
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Employment losses in Sacramento soared during early to mid-2020 thanks to the coronavirus pandemic.
In April 2020, employment losses totaled nearly 150,000 and the unemployment spiked to 14%; however jobs gradually returned as the economy reopened later in the year. As of August 2021, over 110,000 of the lost jobs have returned and the unemployment rate has declined to the mid 6% level.
The following excepts are from a Moody’s Analytics for the Sacramento region dated July 2021, the most recent report available.
Recent Performance
Sacramento-Roseville-Arden-Arcade’s economy is on the mend. Despite falling slightly off the national pace in recent months, the share of jobs regained since last spring closely resembles that of the U.S., placing SAC well ahead of California. Leisure/hospitality is leading the way in job growth, mirroring the national trend, while pivotal state government remains a source of strength. The unemployment rate has dropped to 6.2%, but it remains further from its prerecession rate than the nation. Moreover, a recent decline owes partly to a shrinking labor force.
State Government
The fall reopening of the University of California, Davis campus will bolster SAC’s consumer industries.
State government employment, anchored by UCD, accounts for a higher share of overall employment in SAC than in 90% of metro areas nationally. Not only does the university directly provide stable, higher- wage employment and bolster already-high workforce quality, but UCD’s sizable student body contributes valuable spending to the area’s bars and restaurants. Student consumption will be unleashed in full during the fall semester. The university plans to return to near-normal operations, with instruction conducted primarily on-campus and capacity restrictions lifted for residence facilities.
The public sector outlook is also bolstered by stronger state finances than initially projected. According to a Moody’s Analytics state stress test, California will end the next three years with a small budget surplus net of federal aid and reserves. This above-average performance will help safeguard pivotal state government jobs.
Healthcare
SAC’s healthcare industry will be a reliable driver of the metro area’s recovery. Payrolls have recovered significantly more quickly than they have nationally, especially among hospitals. Prospects will improve further in the coming years thanks to UC Davis Medical Center, which is a hub for medical research. The hospital is investing $3.5 billion, and construction is expected to begin late this year to replace and expand existing patient care facilities. The hospital network’s growing footprint and ability to deliver specialty services have made it a draw to an ever-larger pool of patients. Some of these will be from outside of the metro area, and this medical tourism will support retail and hospitality. Moreover, as major healthcare institutions in SAC continue to invest and expand, the metro area will create more high-wage jobs at hospitals and outpatient care centers.
Demographics
Midyear estimates showed a slowdown in 2020 population growth, pushing SAC closer to the nation, but a more open immigration policy will turn the tide. The main culprit last year was fewer people moving in from other parts of the U.S. on net. But there was also a decline in international in-migration amid stricter enforcement of immigration laws and the pandemic’s impacts. Still, the metro area is adding prime-age workers, those aged 25 to 54, at a well above-average clip. SAC also enjoys far stronger natural population growth than elsewhere, as its elevated share of young adults means more births and fewer deaths.
REGIONAL ANALYSIS 26
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL However, natural population growth is weakening as a support. The winding down of the pandemic will not resolve the metro area’s demographic issues, but President Biden’s eventual changes to immigration policy represent an upside risk
Overall
Sacramento-Roseville-Arden-Arcade’s recovery will extend into next year. UCD will provide stability while consumer spending will gain momentum as spending gets closer to pre-pandemic norms. Longer term, low costs and strong demographics, including a highly skilled workforce, will help SAC excel.
PO PU LA TI ON
The Sacramento MSA has an estimated 2021 population of 2,383,795, which represents a compound annual increase of 0.9% over the 2010 census. This is down from the early to mid- 2000’s when the region was growing in excess of 2% annually. Population growth trends within the region are summarized as follows:
Looking forward, Sacramento MSA’s population is projected to increase at a 0.7% annual rate from 2021- 2026, equivalent to the addition of an average of approximately 17,253 residents per year.
EMP L OY MEN T
Sacramento’s ability to attract and retain quality talent is largely attributed to its two higher-education institutions, the University of California, Davis and California State University, Sacramento. These facilities also help to foster organic growth within the labor force and produce a highly educated workforce for many of the region’s leading companies as well as businesses that are relocating from the Bay Area for the relatively affordable space and living costs. As the Bay Area becomes increasingly less affordable and congested, Sacramento will continue to provide a viable opportunity for a better quality of life to much of that labor force. As a result, the city has begun to attract the employers that desire to be close to this labor pool.
Historical employment trends for the region versus California are summarized in the following table.
REGIONAL ANALYSIS 27
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Average annual unemployment rates for the region have been lower than the state for the past decade.
Over the past decade, the average annual unemployment rate for the Sacramento MSA was 6.9%, compared to 7.6% for California.
The unemployment rate spiked early in the pandemic (April 2020) to 14% for the Sacramento MSA and 16% for California as a result of mass layoffs. The unemployment rate has gradually moved downward since and as of August 2021, the unemployment rate was 6.4% for the Sacramento MSA and 7.5% for California.
REGIONAL ANALYSIS 28
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The following tables provide an overview and illustration of the major industry sectors within Sacramento MSA and the California. Total employment is broken down by major employment sector and ranked from largest to smallest based on the percentage of Sacramento MSA jobs in each category.
GOVER N MEN T E MP L OY MEN T
As the capital of California, a large portion of Sacramento’s employment has historically been dominated by the State government and other public-sector employers. Today, State and local government accounts for 23% of the region’s labor pool (±230,000 EE’s), which is a very large share by national norms.
With a GDP of $3.2 trillion in 2019, California moved to 4th place in the IMF world economy rankings (California is the only state on the list of nations). As California continues to become more of a global player, Sacramento will continue to grow in significance as a city and the seat of the legislative body that governs the state.
PRIVA TE SECT OR EM PL O YME N T
Government will always play a significant role in the region’s economic base; however, as the population of Sacramento has grown, the economy has become increasingly diverse, attracting major employers in many private sector industries such as professional services, healthcare, education and trade, transportation and utilities. Sacramento has also provided a welcoming environment to many green and clean technology companies. This is largely due to California’s progressive environmental policies but also in the provision of the opportunity to influence these policies from within the California state capital.
REGIONAL ANALYSIS 29
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The strength of the region’s labor force coupled with the availability of land, relatively affordable cost of living and ease of access to other major employment hubs continues to make Sacramento a desirable place to conduct business. Major private sector companies that have maintained a strong local presence and continue to have a positive impact on the region’s economy are summarized in the following table.
HI GHER EDU CAT I ON
The University of California at Davis, situated 15 miles west of Sacramento, is one of the nation’s top public research universities and is ranked tenth amongst public universities nationwide by U.S. News and World Report. The UC Davis School of Medicine is ranked fourth amongst U.S. medical schools in research funding. Currently, more than 35,000 students are enrolled in over 100 undergraduate and 90 graduate programs at UC Davis. An additional 30,000 students are enrolled at California State University, Sacramento which offers 58 undergraduate and 40 graduate programs. Both schools make a significant impact on the higher-education levels of the local labor pool.
HOU SEH O LD I NC O ME
The median household income for the overall Sacramento MSA is slightly above the statewide average.
Within the region, median household income is the highest in Placer and El Dorado Counties. The 2020 median income levels are summarized in the following table.
REGIONAL ANALYSIS 30
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Areas of concern for the Sacramento region are the slower pace of income growth and an increase in income inequality. Household income distribution in the region comparted to the State of CA is summarized below.
REGIONAL ANALYSIS 31
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
CO NC LUS I ON
The region has experienced several economic cycles over the past 25 years. The growth periods were largely attributed to the area's quality of life, affordable housing costs and proximity to the San Francisco Bay region. The abundance of available land in the region however contributed to high speculation which resulted in wide swings in development cycles and real estate prices. The most recent down cycle was attributed partly to widespread economic factors for the United States related to greatly reduced economic activity resulting from measures enacted to slow the spread of the coronavirus pandemic. Going forward, the region will still be vulnerable to large economic swings primarily because the economy is not as diversified as many MSA’s due to a heavy reliance on government jobs.
The mid-to-long term outlook for the region remains encouraging due to strong fundamentals. The region’s affordability and attractiveness with respect to business in-migration, population growth, and development opportunities are considered embedded long-range assets. The Sacramento region experienced growth in the number of jobs over the past five years, and it is reasonable to assume that growth in employment as well as population will continue to occur in the future.
COVID-19 was first identified in the United States in early March 2020 and caused upheaval in the US economy through early 2021 when vaccines were rolled out in large scale. Since then, vaccines in the US have been a successful in reducing death and new case rates. The Delta Variant has continued to spread; however, the hospitalization rates for vaccinated adults has remained low compared with hospitalizations for unvaccinated individuals which continues to impact the health care system negatively. In late November 2021, the new Omicron Variant was discovered causing further concern. On a short-term basis, the economic outlook for Sacramento, as that of the nation, remains guarded due to lingering COVID-19 impacts.
On a long-term basis, it is anticipated that the Sacramento MSA will continue to grow and prosper. This future growth should provide an economic base that supports continued demand for real estate of all types on a long-term basis.
REGIONAL ANALYSIS 32
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
REGIONAL MAP
NEIGHBORHOOD ANALYSIS 33
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
NEIGHBORHOOD ANALYSIS
This section of the report provides an analysis of the observable data that indicate patterns of growth, structure and/or change that may enhance or detract from property values. For the purpose of this analysis, a neighborhood is defined as “a group of complementary land uses; a congruous grouping of inhabitants, buildings or business enterprises,” as described by The Dictionary of Real Estate Appraisal.
LO CA TI ON AN D NEI G HB OR H O OD BOUND AR IE S
The boundaries of a neighborhood identify the physical area that influences the value of the subject property. These boundaries may coincide with observable changes in prevailing land use or occupant characteristics. Physical features such as the type of development, street patterns, terrain, vegetation and parcel size tend to identify neighborhoods. Roadways, waterways and changing elevations can also create neighborhood boundaries.
The subject is located in the southern portion of City of Sacramento. The subject property is located along the south side of Cosumnes River Boulevard, approximately ¼ mile east of I-5 within the South Sacramento submarket. The subject location is southwest of the Pocket area neighborhood, south of the Meadowview neighborhood and north of the Laguna neighborhood. Meadowview, located north and east of the subject is an older neighborhood of fair quality commercial and residential and generally has a below average residential property values. Laguna, one mile to the south, is a 20 year old suburban area of Sacramento and features good quality homes and commercial properties. To the west is Freeport, an unincorporated town having older commercial and residential properties.
ACCES S A ND LI N KA GES
Primary highway access to the area is via Interstate Highway 5. The main east-west corridors in the area are Meadowview/Mack Road, Cosumnes River Boulevard and Laguna Boulevard. These roads connect to both Interstate-5 and Highway 99. Interstate 5, Franklin Boulevard, Center Parkway, and Highway 99 are the major north-south arteries.
Already well served by Regional Transit (RT) bus service, the subject neighborhood recently became home to a light-rail station. The new light-rail south line is now transporting thousands to downtown and the northern and eastern portions of Sacramento County.
NEIG HB OR H O OD OVE RVI EW /L A ND USES
The neighborhood can generally be described as a mature mixed-use area, which encompasses all types of land uses. It is situated approximately 10 miles south of downtown Sacramento and is easily accessible via Interstate 5 and Highway 99. Given the proximity to these major freeways, access to the neighborhood is considered good/excellent.
The South Sacramento community includes a wide variety of housing types, including: single and multiple family developments, independent and assisted senior housing developments. Home ownership in this neighborhood is approximately 50 percent and the quality and condition of the homes is fair to average relative to other areas of Sacramento. Multi-family uses in the neighborhood account for about 5-10 percent of the land uses. Most are 50 or more units in size. The median age of the apartment complexes NEIGHBORHOOD ANALYSIS 34
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL is 30 years. The apartment projects include both market rate units and those with subsidized rents. The overall multi-family occupancy of the neighborhood is roughly 97%.
The immediate subject neighborhood has not experienced any large scale residential development for many years; however, this trend is expected to change over the coming years as the residential portions of Delta Shores are built-out with homes. As previously noted, Delta Shores is a mixed-use master planned community containing 782 acres. The project has entitlements for up to 1.3 million feet of regional retail uses, 5,222 residential units, two new elementary schools, as well as parks, extensive open space and wetlands.
Additionally, a planned ±141 acre development known as Stone Beetland is located just east of Delta Shores. The developer, Taylor Builders, recently announced that they are planning about 1,160 residential units. The project is located on the north side of Cosumnes River Boulevard east of 24 th Street (future road) and immediately west of the Morrison Creek light rail station. The project is envisioned to include transit oriented villages as part of the overall development. The potential timing of this project is uncertain at present, but is expected to lag the initial residential development within Delta Shores by several years.
Most of the existing retail/commercial properties are located at the major arterials of the neighborhood such a I-5 and Cosumnes River Boulevard, Laguna Boulevard, Florin Road, Fruitridge Road, Mack Road, Calvine Road, Freeport Boulevard and Franklin Boulevard. These uses primarily cater to the surrounding residents. In addition, the community is served by two hospitals, several medical facilities, and the Cosumnes River Community College.
Large commercial shopping developments include Delta Shores, with Florin Towne Centre and the Southgate Shopping Center located in the northern portion of the area. Delta Shores is a regional shopping center located at I-5 and Cosumnes River Boulevard. The center contains over 900,000 SF of retail and is anchored by Walmart Supercenter, RC Willey, At Home, Floor & Décor, Regal Theater, Hobby Lobby, Dick’s Sporting Goods, Ross, Old Navy and Ulta Beauty and includes many other smaller national retailers. The overall project is ±95% occupied.
A site plan and tenant list for this project is provided on the following pages.
NEIGHBORHOOD ANALYSIS 35
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
NEIGHBORHOOD ANALYSIS 36
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL *List above excludes Walmart Supercenter (±190,000 SF) and RC Willey (±165,000 SF).
NEIGHBORHOOD ANALYSIS 37
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
EDIATE SURROUNDING LAND USE MAP
NEIGHBORHOOD ANALYSIS 38
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
DE M O GR APH IC S
Demographics for the subject neighborhood are summarized and compared to the city, county, and MSA below.
1 Mile 3 Mile 5 Mile City of Sacram ento Sacram ento
Description Totals Totals Totals Sacram ento County MSA Population
2000 Ce n s u s 2,764 83,921 246,210 406,233 1,223,782 1,796,842 2010 Ce n s u s 2,341 88,198 278,057 466,488 1,418,788 2,149,127 2021 Es ti m a te 2,406 95,320 302,156 510,476 1,564,478 2,383,795 2026 Pro je cti o n 2,440 98,314 312,056 527,205 1,619,112 2,470,060 2021 Es t. Me d i a n Age 30.27 33.94 35.32 36.38 37.23 38.26 2021 Es t. Ave ra ge Age 32.39 36.31 37.21 37.80 38.60 39.40 Households
2000 Ce n s u s 636 25,968 81,842 90,973 453,700 665,300 2010 Ce n s u s 529 27,634 91,819 103,770 513,945 787,667 2021 Es ti m a te 550 29,684 98,269 112,324 557,643 866,097 2026 Pro je cti o n 560 30,587 101,154 115,742 575,017 896,343 2021 Est. Households by Household Incom e %
I n co m e < $15,000 7.09 9.36 9.47 10.04 8.45 8.20
I n co m e $15,000 - $24,999 6.00 7.94 8.74 8.63 7.46 6.98 I n co m e $25,000 - $34,999 12.55 8.70 8.41 7.60 7.10 6.90 I n co m e $35,000 - $49,999 13.09 12.35 11.45 11.11 10.75 10.07 I n co m e $50,000 - $74,999 20.91 18.72 17.35 16.77 16.37 15.51 I n co m e $75,000 - $99,999 14.55 12.96 12.67 12.54 12.75 12.65 I n co m e $100,000 - $124,999 9.64 9.73 9.69 9.85 10.26 10.38 I n co m e $125,000 - $149,999 5.27 6.24 6.68 7.13 7.72 7.88 I n co m e $150,000 - $199,999 5.09 6.54 7.53 7.46 8.96 9.28 I n co m e $200,000 - $249,999 3.09 3.70 3.99 3.84 4.58 4.85 I n co m e $250,000 - $499,999 2.00 2.73 3.00 3.51 3.95 4.82 I n co m e $500,000+ 0.73 1.02 1.03 1.54 1.66 2.48
2021 Est. Average H ousehold Incom e $81,945 $87,517 $90,090 $94,236 $101,240 $109,265 2021 Est. Median Household Incom e $62,888 $64,847 $66,591 $68,313 $74,785 $79,233 2021 Est. Tenure of Occupied H ousing Units -%
Ow n e r Occu p i e d 60.73 54.83 57.03 49.08 57.54 61.01 R e n te r Occu p i e d 39.27 45.17 42.97 50.92 42.46 38.99 2021 Est. Median All Owner-Occupied Housing Value $406,220 $361,124 $390,566 $409,255 $423,907 $463,200 So u rce : 2021 Cl a ri ta s In c.
CO MPARATIVE DEMOGRAPHIC ANALYSIS FO R PRIMARY TRADE AREA As shown above, the current population within a 3-mile radius of the subject is 95,320, and the average household size is 3.2. Population in the area has grown since the 2010 census, and this trend is projected to continue over the next five years.
Median household income is $64,847, which is lower than the household income for the Sacramento MSA ($79,233). Residents within a 3-mile radius have lower owner-occupied median home values at $361,124 in comparison to the Sacramento MSA at $463,200.
SUP POR T SER VICE S & RECR EATI O NA L
The neighborhood contains most typical support services. Medical uses are located near Highway 99 and Mack Road. It is noted that Kaiser recently acquired a 29-acre site at the northeast quadrant of Interstate 5 and Cosumnes River Blvd (within Delta Shores) for a future medical campus. Retail uses are located in close proximity to the neighborhood residential area, with the major retail use being the previously discussed Delta Shores regional shopping center. Neighborhood parks are located throughout the area.
NEIGHBORHOOD ANALYSIS 39
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The City of Sacramento is planning a regional park to be located immediately east of the subject along Cosumnes River Boulevard. Existing recreational areas include several public golf courses including Bing Maloney and Bartley Cavanaugh and the Sacramento River with boat docks and marina along Freeport Boulevard.
The City of Sacramento is working on the Del Rio trail to connect parts of south Sacramento to existing Sacramento River Bike Trail. The trail would start at the Bill Conlin Sports complex, at Freeport Boulevard.
The project has $2.2 million in funding for preliminary engineering, environmental clearance, and final design from the federal Active Transportation Program (ATP), through the Sacramento Area Council of Governments (SACOG), and matching local transportation funds. The total project cost is approximately $16.5 million. The construction phase is anticipated to begin Spring 2022.
SCH O O L DIS TR I CT
The neighborhood is split between two school districts. The highly acclaimed Elk Grove School District makes up most of the south, central and eastern portions of the neighborhood. The Elk Grove School District boundary near Delta Shores is one-quarter mile to the east. The balance of the neighborhood is served by the Sacramento Unified School District, considered by most to be inferior to Elk Grove School District. The subject project (Delta Shores) is within the Sacramento Unified School District. The elementary, middle and high schools that will serve Delta Shores have below average rankings as compared to the nearby Elk Grove School District.
CO NC LUS I ON S
The area is in the limited growth /stable stage of its life cycle. Given the history of the area and the growth trends, we expect that property values will hold generally steady in the near and mid-term. In comparison to other areas in the region, the area is rated as follows:
SURROUNDING AREA ATTRIBUTE RATINGS
Highway Access Above Average
Demand Generators Average
Convenience to Supporting Land Uses Average
Employment Stability Average
Demographic Trends Fair-Average
Property Compatibility Average
General Appearance of Properties Fair-Average
Appeal to Market Average
Price/Value Trend Fair-Average
NEIGHBORHOOD ANALYSIS 40
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SACRAMENTO REGIONAL WASTEWATER TREATMENT PLANT
A notable large-scale land use within the subject neighborhood is the Sacramento Regional Wastewater Treatment Plant (SRWTP), situated just southeast of Delta Shores, which includes some ±2,150-acres of buffer land (open space) surrounding the facility to minimize odor impacts on surrounding residential areas. The plant is located ±1 mile southeast of subject.
The SRWPT has been successful with odor control and has had few “odor events” over the past five years.
Information relating to odor events at the facility is summarized as follows:
NEIGHBORHOOD ANALYSIS 41
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
CO NC L U SIO N
Given the surrounding buffer lands and the operators successful track record with minimizing odor impacts on the surrounding areas, the proximity of this facility is not expected to have a measurable impact on the planned subject project.
NEIGHBORHOOD ANALYSIS 42
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
PLANNED HOMELESS SERVICES FACILITY
On January 21, 2022 the City of Sacramento announced the acquisition of an undeveloped 102-acre property in south Sacramento for a planned homeless services project that could potentially include: safe parking, affordable housing, homeless services and potentially a civic amenity (such as a community park).
The subject is located less than ½ mile southwest of this project. The location of the project is identified in the following aerial exhibit.
Several excerpts from the City’s Media Release after the acquisition are as follows:
City officials said that they envision using a portion of the land in the near term as a place where people living in their cars can safely park and receive services, similar to the Safe Parking Site the City operates on South Front Street south of downtown.
Part of the appeal of the undeveloped property – other than its size and flexibility in usage – is its proximity to two Regional Transit light rail stations, officials said. Both the Morrison Creek Station and the Meadowview Station are within walking distance of the site.
NEIGHBORHOOD ANALYSIS 43
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Before any development on the property can occur, the City first will need to vet the various possible land uses. Subsequently, work will begin on establishing infrastructure (including water, sewage and power), financing and partnering opportunities both public and private. The City will also need to develop plans for public roadway access to the property, which will likely require easements from other organizations.
The City initially plans to provide access to the site from Meadowview Road to the north, but eventually intends to provide access from Cosumnes River Boulevard due to proximity to light rail stations.
CO NC L U SIO N S
Given the aforementioned lack of infrastructure and the need to establish land use and services plans, it could take several years for this project to move forward; however, creating a “safe parking” area on portions of the site could occur in the near term given the lack of infrastructure required for this use.
The Stone Beetland property (which lies directly south of this project) and the portions of Delta Shores that are located north of Cosumnes River Boulevard (directly west and southwest of this project) serve as buffers between the project and the subject property. However, given that the City eventually intends to secure access to the project from Cosumnes River Boulevard, future foot and vehicle traffic to and from the project could eventually result in a nuisance factor.
Under a best case scenario, the impact (to the subject property and other nearby surrounding properties) of the planned homeless services project being announced and-or eventually developed as envisioned would be neutral. A more likely impact is that some future buyers and renters could be deterred if or when there is a high degree of development certainty or upon actual development of the project as envisioned.
The potential impacts of this project have been considered in our valuation of the subject.
NEIGHBORHOOD ANALYSIS 44
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
ABILITY TO PAY
The subject is located in Sacramento County, where the current (2022) conforming/FHA loan limit is $675,050. The subject developers proposed product lines have preliminary pricing ranging from $499,000 to $675,000.
For analysis purposes, we have assumed pricing ranging from $525,000 to $665,000. At these price levels, and using household income figures for Sacramento County, we estimate 44% of total households can afford to purchase the lowest estimated home value and 37% can afford to purchase the highest. The loan rates and maximum qualifying income (40%) below are based on recent quotes from reputable mortgage companies.
As summarized above, roughly 37% to 44% of households within Sacramento County have income levels sufficient to qualify for purchasing homes within the subject project.
NEIGHBORHOOD ANALYSIS 45
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL As previously noted, income levels in the immediate subject area (3-mile radius) are lower and roughly 30% to 36% of households would qualify for purchasing homes.
NEIGHBORHOD MAP
PROPERTY DESCRIPTION 46
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
PROPERTY DESCRIPTION
The description of the site is based upon our physical inspection of the property, information available from the client, and public sources.
LOCATION & DESCRIPTION
The subject is located on the south side of Cosumnes River Boulevard, just east of Interstate 5, within the southern portion of the City of Sacramento.
The property is part of the larger Delta Shores development, a master planned community containing 782 acres. The project has entitlements for up to 1.3 million feet of regional retail uses, 5,222 residential units, 144 acres of open space and a mixed use town center of approximately 20 acres. To-date, over 900,000 square feet of the regional retail space has been completed. The subject property represents the initial residential development within the project.
PROPERTY DESCRIPTION 47
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The subject property consists of two parcels of land. These include Assessor Parcel No.’s 053-0180-030 (APN 030) and 053-0180-032 (APN 032). The APN 030 is the development site while APN 032 will be dedicated to the City of Sacramento for part of a regional park. For the following analysis, most of the description concerns APN 030 which is the development site. Below is a map of the two subject parcels.
FRONTAGE /A CCESS
The subject development site has approximately 2,200 feet of frontage along Cosumnes River Boulevard with two planned access points. Cosumnes River Boulevard is a four lane road with curbs, gutters and sidewalls. Delta Shores Circle South loops the southern portion of the property and has four access points.
Both frontage roads are fully developed with the remaining infrastructure being a traffic lights to be installed. Sidewalls, streetlights and most perimeter landscaping has been installed.
SHAPE AND DIMENSIONS
The project and perimeter boundary comprise an irregular shape. Based on the overall size and scale of the project, the shape does not adversely affect the project. Site utility based on shape and dimensions is average.
TOPOGRAPHY
The subject has a mostly level terrain with minimal vegetation.
DRAINAGE
A storm drainage system has been constructed to the east of the project. All major drainage for the project is complete. No particular drainage problems were observed or disclosed at the time of field inspection.
This appraisal assumes that there are not any unusual drainage issues that would affect the development of the subject.
PROPERTY DESCRIPTION 48
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
VEGETATION
No vegetation exists for most of the property.
LAND USE PLAN
Under the original entitlements and CEQA clearance the subject property was approved for up to 1,943 residential units. The land use count of 1,573 units as stated above is the most probable density of the subject according to the developer.
REMAINING OFFSITE IMPROVEMENTS
Off-site infrastructure improvements are substantially complete to serve the property. The remaining off- site improvements include two future traffic signals along Cosumnes River Boulevard, with an estimated cost of $300,000. There is also a fair share contribution (reported by developer at $43,000) required for intersection improvements at Mack Road-Franklin Boulevard and Meadowview Road-Freeport Boulevard.
The total on-site costs are summarized as follows.
PROPERTY DESCRIPTION 49
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
ON-S ITE INTERNAL BACKBONE IMPROVEMENTS
SE WE R LI FT S T ATIO N A N D FO RC E M AI N
The developer is required to construct the regional sewer lift station and force main within Improvement Area 2 once the project exceeds 1.2MGD sewer generation threshold. The total cost of these improvements is budgeted at $5,112,250; however, these improvements will also benefit areas outside of Improvement Area 2. The allocation of these sewer related costs to Improvement Area 2 provided by the master developer is $3,000,000.
The developer estimates that the 1.2MGD threshold will not be achieved until 1,400 to 1,600 residential units are completed within the overall Delta Shores project, which will likely be in excess of five years out.
RO AD W A Y CO ST S
There are several main internal roads to the development that will need to be constructed. The developer reported the following costs for these roads.
The developers projected cost for internal roads (backbone infrastructure) have been relied on in the valuation. It is noted that the costs reported above are the most recent information available as of the effective date (April 1, 2022) and reflect a 16% increase compared to the initial estimate provided in late 2021.
IN-T RACT IMPROVEMENTS –MDR VILLAGES
The master developer provided the following lot development costs that were provided by Signature Homes. It is important to note that the Signature estimates include in-tract costs as well as costs for main internal roads adjacent to the villages. An allocation of in-tract costs only was requested, but was reported to be not available.
PROPERTY DESCRIPTION 50
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Given that the lot development cost estimates provided Signature Homes include both in-tract costs as well as costs for adjacent main internal roads, no reliance is placed on these estimates other than as an outlying (high) indicator for in-tract development costs.
In order to estimate in-tract development costs we have assembled cost comparables from various sources. These are listed below.
Based on the following cost comparables we estimate in-tract lot development costs as follows:
PROPERTY DESCRIPTION 51
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
PERMITS AND FEES
The building an impact fees were obtained from the Updated Finance Plan, Table 7-1. Below are these fees for each land use category.
Category LDR MDR HDR Mixed Use
Assumed Unit Size 2,500 1,800 1,000 1,000
Total Fees -Table 701 Finance Plan $61,552 $49,874 $33,256 $32,905 Less: Credit For Housing Impact Fees $7,375 $5,310 $2,950 $2,950 Net Fees $54,177 $44,564 $30,306 $29,955
Building & Impact Fees
For purposes of the discounted cash flow analyses employed in the valuation of the MDR villages, permits and fees have been rounded to $45,000 per unit.
PROPOSED CFD TAXES
The above are the assigned special taxes for the 2021/2022 tax year; the special taxes increase 2% annually.
PROPERTY DESCRIPTION 52
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
UTILITIES
All typical public utilities (water, sewer, gas, electricity and phone service) are available to the property.
All major utility infrastructure is located at the planned access points along Cosumnes River Boulevard and Delta Shores Circle South. Below are the utility providers for the property:
UTILITIES
Service Provider
Water City of Sacramento
Sewer Sacramento Regional Sanitation District
Electricity SMUD
Natural Gas PG&E
Local Phone & Cable Various
TRANSPORTATION & LINKAGES
I-5 provides vehicle access to Sacramento’s central business district. Public transportation is available from Light rail. The Franklin Station is located one-half mile to the east on Cosumnes River Boulevard. The City of Sacramento is working on the Del Rio trail to connect parts of south Sacramento to existing Sacramento River Bike Trail. The trail would start at the Bill Conlin Sports complex, at Freeport Boulevard. The project has $2.2 million in funding for preliminary engineering, environmental clearance, and final design from the federal Active Transportation Program (ATP), through the Sacramento Area Council of Governments (SACOG), and matching local transportation funds. The total project cost is approximately $16.5 million.
The construction phase is anticipated to begin Spring 2022.
ENVIRONMENTAL CONCERNS & HAZARDOUS SUBSTANCES
The subject underwent an extensive environmental assessment as part of the CEQA process. In 2009 the City of Sacramento certified the environmental impact report for Delta Shores. As part of the certification and city resolution, there was an adopted a Mitigation Monitoring Plan (MMP). The EIR, resolution and MMP identified all feasible mitigation that would reduce the impacts of physical changes in the environment caused by the project, and identified the timing of implementation of the mitigation.
In 2021 the developer applied for a grading permit with the City of Sacramento. The Department of Utilities and the Department of Community Development concluded that “rough grading” of the project site could proceed under the various conditions to be imposed. No grading will be permitted, however, unless and until implementation of all mitigation required prior to grading. Implementation of some mitigation is through action (for example, preserving other land for foraging habitat), while in other cases it is through conditions that ensure surveys and reporting (for example, for burrowing owls).
A Delta Shores Mitigation Monitoring Plan Summary dated May 10, 2021 was provided for review. This document indicated a number of completed and on-going mitigations measures being undertaken. A review of this document as well as an interview with the master developer indicated that there are no significant mitigation issues (from a cost or timing perspective) outstanding.
For purposes of this appraisal, we assume that the subject site is not impacted by any significant environmental concerns that would warrant remediation, or otherwise impact the marketability of the property.
PROPERTY DESCRIPTION 53
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
EASEMENTS , ENCROACHMENTS & RESTRICTIONS
A preliminary title report prepared by First American Title Company, dated April 14, 2021 was provided for review. The complete title report is provided in the addendum. The title report cites the following ownership.
M & H Realty Partners VI LP, a California Limited Partnership It is noted that title to MDR-5 was transferred to MHRP / Signature Homes JV I LLC on December 21, 2021, subsequent to the date of the preliminary title report.
The title report lists numerous exceptions and exclusions. These are addressed as follows:
Items 1, 5, 6, 7, 8, 9 & 10: These relate to existing and proposed taxes and assessments. The assessments include the Delta Shores Community Facilities District No. 2019-01. The exceptions regarding taxes and assessments are shown in the Real Estate Tax section of this report and have been considered in the valuation.
Items 2, 3, 4 & 49: These items are noted as having “been intentionally deleted” from the report.
Item 11: This relates to any potential unpaid amounts owed for utilities. This is a non-value impacting exception.
Item 12 thru 20, 28, 29, 30, 33, 34, 35, 37, and 39 thru 46: These relate to various easements for roads and utilities (water, sewer, drainage, electrical, gas, communications, etc.) as well as repair and maintenance of said utilities and public roads. These types of easements are common for larger development tracts and are necessary for development to occur. These easements are considered typical and do not have an adverse impact on value.
Item 21: This relates to relinquishment of abutter’s rights to ingress and egress from Interstate 5.
This is a non-value impacting exception.
Item 22: This relates to any lease, grant, exception or reservation of minerals or mineral rights. This is a non-value impacting exception.
Item 23: This item relates a 1986 “Contract for Exchange of Real Property”. This is a non-value impacting exception.
Item 24: This relates to CC&Rs included in a grant deed recorded in 1990. This is a non-value impacting exception.
Item 25: This relates to a recorded “Release Agreement and Covenant Not to Sue” between the prior owner of the property and the current owner (M&H Realty Partners). This is a non-value impacting exception.
Items 26 &27: These relate to prior recorded documents relating to purchase agreements and amendments. These are non-value impacting exceptions.
PROPERTY DESCRIPTION 54
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Items 31 & 32: These relate to the Development Agreement and Public Improvement Agreement for Delta Shores between the City of Sacramento and M&H Realty Partners VI, LP. These proposed development of the subject conforms with these agreements, which has been considered in the valuation of the subject.
Items 36 & 38: These relate to easements for public utilities and the grantor’s waiver of claims for severance damages to the project resulting from construction and maintenance of said public utilities. These are non-value impacting exceptions.
Item 47: This item states that “We find no outstanding voluntary liens of record affecting the subject property.” This is a non-value impacting exception.
Item 48: This item states “Water rights, claims or title to water, whether or not shown by the Public Records.” This is a non-value impacting exception.
Item 50: This item states “Rights of parties in possession.” This is a non-value impacting exception.
Item 51: This item states “Any claim that any portion of the land is or was formerly tidelands and submerged lands within the bed of any tidal slough, creek or river.” This is a non-value impacting exception.
Based on our review, the various exception and exclusions to title are considered typical of this property type and location. There were no adverse easements, encroachments, or adverse conditions identified in connection with the subject property.
ZONING , MAPS AND ENTITLEMENTS
The subject is part of fully entitled and approved project. The major entitlements achieved include: 1) approval of Delta Shores PUD, 2) certification of Environmental Impact Report, 3) an approved Development Agreement, 4) adoption of the Delta Shores Financing Plan, 5) approval of the Mixed- Income Housing strategy, 6) approval of Large Lot Tentative Map as well as other miscellaneous approvals.
The final large lot parcel map is recorded. The subject is identified as Parcels 1 thru 10, Parcels A and B, and Remainder 1 on the Final Master Parcel Map of Delta Shores Phase 2, Subdivision No. P20-024, dated September 2021 and recorded November 19, 2021.
The four medium density village are presently in various stages of map approval. The final map for MDR- 5 (87 lots) was recorded May 2, 2022. MDR-8 (136 total lots) is being processed in two phases. MDR-8A (76 lots) has an approved final map that is expected record in mid-May 2022. MDR-8B (60 lots) has an approved (small lot) tentative map. The MDR-8B final map is expected to be recorded in late 2022. Small lot tentative maps are currently in process for MDR-6 (102 lots) and MDR-7 (96 lots) and the developer anticipates tentative map approval in mid-2022 and final maps recording in late 2022. Only moderate remaining costs associated with mapping and engineering are anticipated and we have recognized a moderate cost of $100,000 for these items. The approved and in-process tentative maps are summarized as follows.
PROPERTY DESCRIPTION 55
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The above referenced maps are shown on the following pages.
PROPERTY DESCRIPTION 56
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Recorded Final Large Lot Map
PROPERTY DESCRIPTION 57
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Recorded Final Map – MDR-5 (87 Lots)
PROPERTY DESCRIPTION 58
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Small Lot Tentative Map – MDR-8 (136 Lots)
PROPERTY DESCRIPTION 59
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Preliminary Map – MDR-6 (102 Lots)
PROPERTY DESCRIPTION 60
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Preliminary Map – MDR-7 (96 Lots)
PROPERTY DESCRIPTION 61
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
ZO NI NG
Single-family and multi-family residential are legally permissible, and development as proposed is legally permissible. Under the original entitlements the subject property was approved for 1,943 units. This included 802 single-family lots and 1,141 high density residential lots.
The current land use plan is for 1,573 units. This includes 421 single-family lots and 1,152 high density multi-family units.
The current plan for MDR-5 and MDR-8 is for traditional single-family lots with minimum sizes of roughly 3,116 SF (MDR-8) and 4,000 SF (MDR-5) densities ranging from 6.2 to 7.9 units per acre. The remaining MDR villages (6 & 7) are planned for smaller cluster/zero lot line projects with densities of 11.4 to 13.6 units per acre. The plan for the multi-family units will be traditional for-lease apartments with overall density of 27 units per acre. The plan for the mixed-use parcel is for 125 attached townhome units (density of 22.8 units per acre).
The pending land use plan for the project includes internal park lot of 6.13 acres (P-9) and the dedication of parcel APN 032 for a regional park. This park site will satisfy the Quimby park requirement for the subject project.
The subject will also include an elementary school site of 10.01 acres. The school site is subject to reservation process under the Subdivision Map Act. Under this act, the local school district has up to 2 years to acquire the after completion of the subdivision improvements unless extended by mutual agreement. The purchase price shall be the market value at the time of the filing of the tentative map plus the taxes against such reserved area from the date of the reservation and any other costs incurred by the subdivider in the maintenance of such reserved area, including interest costs incurred on any loan covering such reserved area. If the public agency for whose benefit an area has been reserved does not enter into such a binding agreement, the reservation of such area shall automatically terminate. The subject developer and the Sacramento City Unified School District has not entered into any agreement.
The subject school site will be exempt from special taxes and therefore is not included as a productive land use in our valuation.
ZONING SUMMARY
Zoning Jurisdiction City of Sacramento
Zoning Designation R-1A-PUD - Single-Family Alternative; R-3-PUD-Multi-family Dwelling Description R-1A: The purpose of the R-1A zone is to permit single-unit or duplex dwellings, whether attached or detached, at a higher density than is permitted in the R-1 zone. Dwellings that have no interior side yards, such as townhouses and rowhouses, are allowed.
R-3-PUD: The purpose of the R-3 zone is to accommodate traditional types of apartments. This zone is located outside the central city, serving as a buffer along major streets and near shopping centers. Density up to 30 units per acre.
Legally Conforming? Yes
Zoning Change Likely? No
Permitted Uses Single-Family and Multi-Family Residential on the specified portions PROPERTY DESCRIPTION 62
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
A F F O R D A B L E H O U S I N G
The project must comply with the City of Sacramento’s Housing Element which addresses requirements for affordable housing. This requirement requires either a land dedication, an impact fee or a combination of both. In May 2020 the City of Sacramento approved the project’s Mixed Income Housing Strategy.
Under this plan a land dedication of 15.89 acres located in improvement Area No. 3 has been set-aside to satisfy the affordable housing requirement. Because of this dedication, builders in the project will be exempt from paying the housing fee of $2.95 per square foot. This fee exemption has been reflected in the overall building and impact fees.
FLOOD HAZARD STATUS
The following table summarizes flood hazard information.
SOIL /S UBSOIL CONDITIONS
A soils report was not provided for our review. Based on our inspection of the subject and observation of development on nearby sites, there are no apparent ground stability problems. However, we are not experts in soils analysis. We assume that the subject’s soil bearing capacity is sufficient to support a variety of uses, including those permitted by zoning.
EARTHQUAKE ZONE
Given the presence of several active faults throughout the State of California, nearly all properties in California are subject to some degree of seismic risk. The Alquist-Priolo Earthquake Fault Zoning Act was passed in 1972 in order to regulate development of structures intended for human occupancy on the surface trace of active faults. While the Alquist-Priolo Act only addresses surface rupture risk, the Seismic Hazards Mapping Act, passed in 1990, considers non-surface earthquake hazards, such as liquefaction and landslides. These laws require the State Geologist to establish regulatory zones based on seismic risk, and distribute maps to agencies for affected areas for use in planning and development. Structures cannot be constructed over the trace of a fault, and a setback from the fault is typically required. Properties that are not located within a fault zone, but are at increased risk for seismic damage due to their location within affected cities can be subject to additional government-imposed requirements, such as seismic or soft- story retrofitting, and lenders and/or institutional investors will often require property owners/operators to carry earthquake insurance.
Based on our review of the current Alquist-Priolo Fault Zone and Seismic Hazard Zone Maps, the subject city is not affected by a nearby fault, and the subject property is not within a special studies zone.
PROPERTY DESCRIPTION 63
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL HOA
The Master Developer reportedly plans to create an HOA for the MDR component of the subject and provided a fee estimate of $100 per unit monthly.
SCHOOLS
The subject property is located in the Sacramento Unified School District. The school map locator indicates the subject district schools are as follows:
SCHOOLS
Grade Level Public School Grade Level
Distance from
Subject
API Score (State Goal of
800)* 2016 Percentile CSR Rank
Elementary & Middle John Still K-8 <1.0 Mile 646 8.5% 1 out of 10 High School Luther Burbank 9-12 <3.0 Mile 678 32.0% 4 out of 10 Source: School-Ratings.com
*Ranges from 200 to 1,000, with a state goal of 800 for all schools CONCLUSION –SITE ANALYSIS
Overall, site dimensions, shape, and topography result in average utility. In consideration of site and legal characteristics, the subject is well-suited for residential development (production homes and apartments).
PROPERTY TAX ANALYSIS 64
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
PROPERTY TAX ANALYSIS
PROPERTY TAXES AND ASSESSMENT DATA
Real estate taxes for the subject property are assessed and collected by the County of Sacramento. In 1978, California voters approved the Jarvis-Gann Amendment, popularly known as “Proposition 13”.
Proposition 13 abolished the practice of periodic reassessment of properties, based on market value appraisals, and limited increases on assessed values to 2% per year. The only circumstances under which properties are reassessed to current market value are upon a market sale, or completion of new construction or substantial renovation of a property. Ad valorem tax rates are limited to a general rate of 1%, plus the rates needed to service any bonded indebtedness. Voter-approved direct assessments can also be added, and are often related to the installation of infrastructure.
This appraisal assumes a market sale of the subject property, rendering the current total ad valorem tax amount irrelevant to our analysis. In projecting real estate tax expenses for the subject property, we consider the ad valorem tax rate and direct assessments (which include Special Taxes).
Current Assessment and Taxes
The subject has a valorem tax rate of 1.1167%. In addition, the land and future homes will be subject to special assessments and CFD taxes. Below are the direct assessment estimates for the major land use categories.
Tax Service LDR MDR HDR Mixed Use
Citywide Landscape & Lighting Assessment Distict [1] $84 $84 $84 $84 Sacramento Core Library Services Tax [2] $13 $13 $13 $13 Sacramento Library Services Tax [3] $34 $34 $34 $34
SAFCA Consolidated Capital Assessment [4] $137 $103 $76 $76 SAFCA O&M Assessment #1 [5] $52 $52 $40 $40
Sac Maintenance CFD No. 2014-04 [6] $466 $366 $221 $222 Maintenance Area #9 [7] $19 $19 $19 $19
Total Special Taxes and Assessments $805 $671 $487 $488 Special Taxes and Assessments
[1] Landscaping and Lighting Assessment District, City of Sacramento, levied on property owners based on land use, subject to annual adjustment in proportion to the increase in the Consumer Price Index (CPI), San Francisco area, all items, most recently available prior to the date of adjustment. This increase shall not exceed 3% in any year. [2] This is a parcel tax for library services in the City of Sacramento. A parcel tax for library services is imposed upon every parcel of real property in the City to assist in funding the core library services provided by the City. Core library services include, without limitation, open hours at City libraries, library staff, acquisition of library materials and access to technology.
PROPERTY TAX ANALYSIS 65
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL [3] Sacramento Library Services Tax, City of Sacramento, imposed upon every parcel of real property in the city, subject to annual adjustment in proportion to the increase in the CPI, San Francisco area, all items, most recently available prior to the date adjustment. This increase shall not exceed 3% in any year. [4] SAFCA (Sacramento Area Flood Control Agency) Consolidated Capital Assessment levied on property owners based on the benefit zone, land use, and building sq. ft., subject to annual recalculation from changes in development activity, zoning, conditional use permits, and lot splits.
[5] SAFCA Operation and Maintenance Assessment for Assessment District No. 1 levied on properties within the district boundaries based on zone type (wet or dry), land use, and parcel size, subject to minimum annual assessment of $1.50 to reflect SAFCA's administration costs and assessment recalculation from changes in development activity, zoning, conditional use permits, and lot splits. [6] Delta Shores is subject to a maintenance agreement and was annexed into CFD 2014-04. Among other things, the CFD will provide funding for interchange maintenance and landscape maintenance for backbone roadways and extension roads.
[7] Maintenance Area #9, This assessment finances state maintenance of levees on the east side of the Sacramento River.
SINGLE-FAMILY MARKET ANALYSIS 66
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SINGLE -F AMILY MARKET ANALYSIS
The condition of the single-family residential real estate market has a bearing on the economic viability of the subject property. The current condition of the single-family market in terms of inventory, demand and sales performance of residential properties is examined in the following section.
STATEWIDE ANALYSIS –RESALE MARKET
The following are excerpts from California Association of Realtor’s October 7, 2021 News Release.
C.A.R. 2022 CAL IFO R NI A HO U SI NG MA RK E T FO RE C A ST California housing market to remain solid if pandemic is kept under control, but structural challenges will persist.
Existing, single-family home sales are forecast to total 416,800 units in 2022, a decline of 5.2 percent from 2021’s projected pace of 439,800.
California’s median home price is forecast to rise 5.2 percent to $834,400 in 2022, following a projected 20.3 percent increase to $793,100 in 2021.
Housing affordability is expected to drop to 23 percent next year from a projected 26 percent in 2021.
Supply constraints and higher home prices will bring California home sales down slightly in 2022, but transactions will still post their second highest level in the past five years, according to a housing and economic forecast released today by the California Association of Realtors® (C.A.R.).
The baseline scenario of C.A.R.’s “2022 California Housing Market Forecast” sees a decline in existing single-family home sales of 5.2 percent next year to reach 416,800 units, down from the projected 2021 sales figure of 439,800. The 2021 figure is 6.8 percent higher compared with the pace of 411,900 homes sold in 2020.
The California median home price is forecast to rise 5.2 percent to $834,400 in 2022, following a projected 20.3 percent increase to $793,100 in 2021 from $659,400 in 2020. An imbalance in demand and supply will continue to put upward pressure on prices, but higher interest rates and partial normalization of the mix of sales will likely curb median price growth. Additionally, a shift in housing demand to more affordable areas, as the trend of remote working continues, will also keep prices in check and prevent the statewide median price from rising too fast in 2022. “A slight decline next year from the torrid sales pace of the past year-and-a-half will be a welcome relief to potential homebuyers who have been pushed out of the market due to high market competition and an extremely low level of homes available for sale,” said C.A.R. President Dave Walsh. “Homeownership aspirations remain strong and motivated buyers will have more inventory to choose from. They will also benefit from a favorable lending environment, with the average 30-year fixed rate mortgage remaining below 3.5 percent for most of next year.”
C.A.R.’s 2022 forecast projects growth in the U.S. gross domestic product of 4.1 percent in 2022, after a projected gain of 6.0 percent in 2021. With California’s 2022 nonfarm job growth rate at 4.6 percent, SINGLE-FAMILY MARKET ANALYSIS 67
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL up from a projected increase of 2.0 percent in 2021, the state’s unemployment rate will decrease to 5.8 percent in 2022 from 2021’s projected rate of 7.8 percent.
Growing global economic concerns will keep the average for 30-year, fixed mortgage interest rates low at 3.5 percent in 2022, up from 3.0 percent in 2021 and from 3.1 percent in 2020 but will still remain low by historical standards.
“Assuming the pandemic situation can be kept under control next year, the cyclical effects from the latest economic downturn will wane, and a strong recovery will follow,” said C.A.R. Vice President and Chief Economist Jordan Levine. “However, structural challenges will reassert themselves as the normalization of the market continues. Demand for homes will continue to outstrip available supply as the economy improves, resulting in higher home prices and slightly lower sales in 2022,” Levine continued.
2022 CALIFORNIA HOUSING FORECAST
The following is an excerpts are from California Association of Realtor’s April 2022 News Release.
California home sales tick higher in March as statewide median price sets another all-time high, C.A.R. reports
Housing demand in California remained strong in March as the effects of rising interest rates have yet to be borne out while the statewide median home price sets another record high, primarily due to a surge in sales of higher-priced homes. Existing, single-family home sales totaled 426,970 in March on a seasonally adjusted annualized rate, up 0.5 percent from February and down 4.4 percent from March 2021. March’s statewide median home price was $849,080, up 10.1 percent from February and up
11.9 percent from March 2021.
SINGLE-FAMILY MARKET ANALYSIS 68
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Year-to-date statewide home sales were down 7.0 percent in March.
March’s sales pace ticked up 0.5 percent on a monthly basis from 424,640 in February and was down
4.4 percent from a year ago, when 446,410 homes were sold on an annualized basis. The year-over-year sales decrease was the ninth straight decline and the smallest in eight months. “With homes still selling at a rapid clip and more homes selling above asking price than last summer when prices were at record highs, California’s housing market continues to perform remarkably well as buyers enter the market to get ahead of rising mortgage interest rates,” said C.A.R. President Otto Catrina, a Bay Area real estate broker. “An increase in active listings for the first time since prior to the pandemic should give consumers more options and alleviate some of the upward pressure on home prices, which bodes well for prospective buyers.”
California’s median home price reached a new record high in March at $849,080, surpassing the previous record of $827,940 set in August 2021 and rising above the $800,000 benchmark for the first time in six months. The March price was 11.9 percent higher than the $758,990 recorded last March.
The month-to-month percent change in median price was the highest pace since March 2013, and the
10.1 percent increase from February was the first time in nine years that the monthly price increase was in the double-digits.
A surge in sales at the top end of the market was the primary factor for the jump in the statewide median price at the end of the first quarter. The share of million-dollar home sales increased for the second consecutive month, surging to 32.9 percent in March, the highest level on record. Additionally, strong month-to-month sales growth in the San Francisco Bay Area contributed to the jump in sales of million-dollar homes statewide, as 70 percent of the region’s sales were priced above $1 million, and sales in the region increased 70.5 percent from February. “March sales data continues to suggest strong buying interest and a solid housing market, as the effects of higher mortgage interest rates won’t be realized for a few more months,” said C.A.R. Vice President and Chief Economist Jordan Levine. “With the Federal Reserve expected to announce two back-to-back half-point interest rate hikes in May and June to combat inflation, interest rates will be elevated for the foreseeable future, adversely affecting housing demand and lowering housing affordability in the coming months, but the effects may not be visible until the second half of the year as many of the homes that are, or will be, closing were negotiated before the sharp increase in rates.” SINGLE-FAMILY MARKET ANALYSIS 69
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Other key points from C.A.R.’s April 2022 resale housing report include:
At the regional level, home sales in all major California regions, except the Central Valley recorded sales decreases on a year-over-year basis. The Central Coast region recorded the sharpest sales decline of all regions again, dropping 20.1 percent from a year ago. Housing demand in the Central Coast region was exceptionally strong last year though with sales climbing 31.8 percent in March 2021, and as such, a sizable dip was anticipated. The Far North had the second largest sales decline at 7.7 percent, followed by Southern California (-7.5
SINGLE-FAMILY MARKET ANALYSIS 70
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL percent) and the San Francisco Bay Area (-2.7 percent). Sales in the Central Valley increased for the second straight month with a year-over-year increase of 2.8 percent. At the regional level, home prices in all major California regions continued to surge from last year by double-digits, with four of them reaching a new record high in March. The Central Coast region recorded the highest year-over-year price growth with a 20.4 percent increase, followed by the Central Valley (19.3 percent), the San Francisco Bay Area (17.9 percent), Southern California (13.8 percent), and the Far North (12.9 percent). At the county level, home prices continued to increase across the state, with 25 counties setting new record highs in March. Forty-six out of fifty-one counties tracked by C.A.R. experienced increases in their median prices in March, with 38 of them rising more than 10 percent from a year ago.
The 30-year, fixed-mortgage interest rate averaged 4.17 percent in March, up from 3.08 percent in March 2021, according to Freddie Mac. The five-year, adjustable mortgage interest rate averaged 3.19 percent, compared to 2.78 percent in March 2021.
NEW SIN G LE-F A MI LY HOU SI NG TR END S -S ACR A MEN TO MSA The single-family new home market has enjoyed growth over the past decade. Home prices and building trends have been increasing at moderate rates. The following summarizes some of these trends.
BUIL DI NG PE RM I T S
Below we summarize single-family permits pulled in the area since 2001. Permit levels for Sacramento County and the MSA have consistency trended upward since 2012 levels.
SINGLE-FAMILY MARKET ANALYSIS 71
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL New single-family homes development in Sacramento County and the region have been at consistent growth over the past five years. Sacramento County on averaged 49% of the new homes constructed over 2017-2020.
Reports from the National Association of Home Builders (NAHB) indicate slowing homes sales across the country beginning in April 2021. Affordability factors due to rising construction costs and supply issues were the cited reasons for the softening of sales. They indicate lumber prices skyrocketed in 2020 and early 2021, which caused the price of an average new single-family home to increase by nearly $30,000, or about $13,000 more than in April 2020. Framing lumber prices declined from June to November 2021, but then spiked again in March 2022 before trending downward over the past few months.
The following graphic from provides an overview of the behaviors within the US framing lumber pricing market over the past five years.
NAHB also reports shortages of materials are now more widespread since they began tracking the issue in the 1990s. More than 90% of builders reporting shortages of appliances, framing lumber and OSB.
Exactly 90% said there was a shortage of plywood, and nearly as many respondents (87%) said there was a shortage of windows and doors, according to a May 2021 survey for the NAHB/Wells Fargo Housing Market Index (HMI).
SINGLE-FAMILY MARKET ANALYSIS 72
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SINGLE-FAMILY BUILDING PERMITS - CHARTED
Source: SOCDS
HO M E S P RI C E S A ND AB SO RP T IO N –S AC R AM E N TO MSA
SINGLE-FAMILY MARKET ANALYSIS 73
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Regionally, asking prices and absorption rates for new homes have been escalating consistently since the middle of 2020, with smaller increases in prior years. The COVID affect is responsible for most of this increase as buyers have been relocating to Sacramento from more expensive areas. Higher construction costs has also been a contributing factor.
Over the past year new homes prices have increased 17% for the region. Sacramento County saw asking new home prices increase 21% according to Gregory Group. Relative to other Northern California regions, Sacramento still remains one of the more affordable areas for new home purchases.
Source: Gregory Group
New home sales for the region in 2020 rose 30% compared to the prior year and were up substantially higher as compared to the last four years. During 2021, new home sales were 4% above 2020 level and A1-2022 sales remained strong despite headwinds of increasing interest rates.
Source: Gregory Group
Similar to the home building construction data, Sacramento County has seen rising sales volume and are consistently around 50% of all new home sales in the region.
Over the past four quarters the region has achieved average absorption rates between 2.4 to 4.4 sales per month per project. Over the past two quarters these were 3.6 and 2.4 sales per project per month.
For Sacramento County, the absorption rate trends are similar to the region. Sales rates per month for project in Sacramento County ranged from 2.6 to 4.0 over the past four quarters. Over the past two quarters these were 3.3 and 4.0 sales per project per month, which is similar to the region-wide averages.
SINGLE-FAMILY MARKET ANALYSIS 74
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Source: Gregory Group
New home trends for Sacramento County have seen similar trends as the region, with increases in both asking prices and absorption rates.
HO M E S P RI C E S A ND AB SO RP T IO N –S UBJ E C T S U BM AR KE T Th information above references averages and totals for the Laguna submarket of which the subject property is located. As of Q1-2022 there were eight active projects having average net home price of $718,581. This is slightly higher than the county wide average of $697,566. Absorption rates have been similar to the region with projects averaging between 2.8 to 4.8 sales per month over the past four quarters and higher rates of 3.8 and 4.8 sales per month over the past two quarters. Asking home prices have been escalating between 2.3% to 8.3% quarterly over the past year. Cumulative appreciation of
SINGLE-FAMILY MARKET ANALYSIS 75
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL asking prices in comparison to the year-ago (Q1-2021) level are up by $150,000 per home or 26.5%. The annual escalation is above Sacramento County appreciation rates during the same time period.
Over 2017 - 2020 the Laguna Submarket has achieved annual new sales between 225 to 634 sales annually with an average of 418 sales annually. The submarket capture rate over this period has been
12.9% of all new sales in the County as monitored by the Gregory Group. Below is a summary of the capture rate summary for Laguna, Sacramento and the MSA.
The Laguna area (subject included) has a good supply land and lots for the foreseeable future. We expect that the subject submarket will garner a similar capture rate going forward. An estimated capture rate of 13% of county totals is projected for the submarket. On a region-wide basis, the subject sub-market capture rate is estimated to be around 7%.
The Market and Absorption Analysis Report prepared by John Burns Real Estate Consulting (JBREC) reported an estimated annual new homes sales of 8,600 for Sacramento MSA, 4,500 for Sacramento County and 1,350 for the City of Sacramento. Utilizing the capture rate conclusion from above and the JBREC annual estimate, indicates the following projection of annual sales in the subject submarket:
SINGLE-FAMILY MARKET ANALYSIS 76
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Note: the estimated subject capture rate of 20% relates to capture of Laguna area sales.
As summarized later, the JBREC report projects peak annual sales for the four MDR villages ranging from 149 to 154 units annually during 2024 and 2025 when all four product lines are projected to be actively marketing. The initial year (2023) projection is for 60 sales (MRD-5 & 8 marketing) and the final year is 58 sales (MDR-6, 7 & 8 marketing). Over the four year projected sellout period, the average sales per year equate to 105 units per year. Overall, these projections appear reasonable.
The Laguna sales estimate above is on par with the 2019 & 2020 statistics, which average actuals of 590 sales annually. According to the Gregory Group there are 244 lots unoffered in Laguna. This represents less than one-years of inventory. The Burns Report indicates 3,106 lots available or in the pipeline for West Elk Grove which would be competitive to the subject. Including the subject’s initial 421 SFR lots and the Laguna and West Elk Grove inventory, an estimated ±4,000 lots are existing or in the pipeline for the in the south Sacramento County market area. The subject’s lot count represents 10.5% of the total lots existing available or in the pipeline.
AC TIVE NE W HO M E P RO J E C TS
The active new home projects, pricing and absorption rates within the Laguna and Elk Grove submarkets are summarized in the following tables.
SINGLE-FAMILY MARKET ANALYSIS 77
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Source: The Gregory Group
SINGLE-FAMILY MARKET ANALYSIS 78
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
ABS OR PT I ON PR OJEC TI O N
During the past four quarters, the currently active projects in Laguna have achieved average absorption rates between 2.8 to 5.5 sales per month, averaging 3.9 sales per month. The average absorption rate of these projects is 4.0 sales per month per project over the past two-years.
The Elk Grove projects indicate similar absorption rates, with averages between 2.6 and 4.8 and averaging
3.6 over the past four quarters and 3.8 per month over the past two years.
The Market and Absorption Analysis Report prepared by John Burns Real Estate Consulting (JBREC) on the subject project projected absorption rates for the four product lines proposed by the developer. Relevant excerpts from the JBREC report are provided in the following section.
SINGLE-FAMILY MARKET ANALYSIS 79
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SINGLE-FAMILY MARKET ANALYSIS 80
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SINGLE-FAMILY MARKET ANALYSIS 81
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL ABSO RP T IO N CO N C L U SIO N S –MDR CO M P O NE N T
Home Absorption: The JBREC absorption estimates for completed homes within the four MDR villages are generally considered reasonable and appropriately supported. We conclude to absorption rates of 12 units per quarter (4/month) for MDR-5, MDR-8 and MDR-7. A slightly lower rate of nine units per quarter (3/month) is recognized for MDR-6 due to the higher density and somewhat unique product type. These estimates are applied in the subdivision development analyses relative to the finished lot valuations (presented later) for the four MDR villages.
Lot Absorption: The subject will have 421 single-family lots within four villages that range in size from 87 to 136 lots. There is currently robust developer demand for single-family lots and land it is likely that the villages could be sold immediately (within three months or less) if the lots were finished and available today. In order to allow for completion of major roads and in-tracts, we conclude to a two-year absorption of the four MDR villages, with MDR-5 and MDR-8 selling in year one and MDR-6 and MDR-7 selling in year two.
PRO J E C TE D T RE N D S, OU T L O O K AN D CO NC L U SI O N S The region has had a strong economic rebound recovering from the COVID-19 pandemic with solid job growth and income growth projected over the next few years.
In response to inflationary pressures, the Federal Reserve approved a 0.25% interest rate hike in March 2022 and Fed officials indicated an aggressive path ahead, with further rates increases expected at each of the remaining six Fed meetings in 2022. Mortgage-interest rates have responded, and recently spiked to a national average of about 5% for a 30-year fixed rate mortgage. The following excerpt from the JBREC report addressing the current interest rate environment and expected impacts on the housing market.
Mortgage Rates: We project mortgage rates to finish 2022 at an average rate of 4.8% (full calendar year) after recent increases have spiked the national average to about 5.0% at present.
We forecast the average rate for 2023 at 4.8%, followed by slight decreases to 4.5% in 2024 and
4.2% for 2025. Though higher than the recent past, these levels are still historically low with a long-term norm of about 6.0%. Mortgage rates have been at 6.0% or even higher during other strong market periods. Though rising inflation and Federal Reserve activity could push up mortgage rates further, builders have a host of tools to respond to this. Builders could incentivize buyers with rate buy-downs or rate locks, shift buyers into adjustable rates (something many buyers are already doing on their own), ease back on lot premium levels, lower home prices, offer higher general incentives, etc. Historically, homebuyers have tended to adjust to rising rates as have builders. Though mortgage rates may slow the market in the near-term and should be monitored, they do not appear to be, at present, cause for alarm. Basic fundamentals of a good economy and very limited housing supply have, to date, maintained strong demand.
Housing market conditions remain strong, both within the larger Sacramento region, Sacramento County and the subject market area. The Sacramento region took a severe dip in the beginning of the COVID-19 pandemic but bounced back with surprising speed. New home prices increased by over 20% between Q3-2020 and Q3-2021 both within the region and submarket. During the 4 th quarter 2021 and the 1 st quarter 2022, home price continued to escalate, with appreciate totaling 5.9% for the region and 7.4% for Sacramento County over a six month period. Comparable new home projects in the Subject CMA (defined as southern Sacramento and western Elk Grove west of Highway 99) are SINGLE-FAMILY MARKET ANALYSIS 82
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL relatively limited. These projects are generally performing well, although price increases have slowed from earlier this year.
We project continued strong demand in the Sacramento region, although price growth is expected to level off given recent increases in mortgage interest rates. Affordability is increasingly a concern, but the market will be bolstered by limited supply, continued in-state in-migration, and solid economic fundamentals.
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MULTI -F AMILY MARKET ANALYSIS
Costar is the source for the following data. The data reflects conditions of 2022-Q1, the most recent data available. The initial discussion provides information on the overall Sacramento Multi-Family market, followed by the subject’s submarket, which will be discussed later in this report.
Costar rates multi-family properties using a star rating, in which 1 and 2-star properties generally equate to the more traditional Class C rating; 3-star properties generally equate to Class B; and 4 and 5-star properties generally equate to Class A.
SACRAMENTO (MSA ) APARTMENT MARKET
Key apartment market statistics and five-year projections are summarized in the following table.
KEY TAKE AWA YS
The Sacramento apartment market has experienced increased demand due to stronger in-migration from the Bay Area (and other coastal markets) during the Covid-19 pandemic, as increased teleworking prompted employees to relocate to more affordable and suburban areas. The Sacramento apartment market has maintained consistently positive rental growth, low vacancy rates and healthy net absorption.
New construction is at a decade high level, but demand remains strong. Vacancy and rents are not expected to be impacted due to supply drive pressure.
Robust market fundamentals and growing investor interest continue to place upward pressure on pricing and downward pressure on capitalization rates.
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OVER VIEW
Sacramento multifamily vacancies have fallen to an all-time low of near 4% in 2021. As in the wider U.S., metro unemployment remains elevated, but with many office-using employees having returned to work and strong demand stemming from inbound Bay Area residents, demand remains elevated. This is particularly true in pricier, suburban markets with large units and areas with an abundance of affordable inventory.
The construction pipeline has risen to an all-time peak, with 4,800 units underway. However, this figure is modest compared to the size of the market and accounts for only 3.6% of growth. Construction activity has largely been concentrated Downtown and in affluent suburban cities like Elk Grove, Folsom, Roseville, and Rocklin.
Thanks to new jobs, strong net migration, and rapidly rising home prices, rent growth has been a dominant market theme for many years. Over the past decade, the average apartment rent in Sacramento has increased 77.3%, with 11.9% coming in the last 12 months.
With limited supply and rapidly rising rents, investor interest has soared. Deal flow in 2021 is on pace to surpass last year's modest figure. Class A & B communities typically dominate metro sales, often trading at a significant premium over their prior purchase prices.
ABS OR PT I ON
The market experienced record absorption (±3,000 units) during 2020 and ±1,700 units in 2021.
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Historical and projected net absorption trends are shown in the following graph.
VACA NC Y
Sacramento's apartment market began 2021 with vacancies falling to an all-time metro low and the vacancy rate has further declined to 3.5% in 21Q3. The previous trough, of 3.8%, had stood since 2000. At year-end, the vacancy rate stood at 3.8% and increased slightly (to 4.2%) during Q1-2022.
A lack of new construction, population growth that was nearly double the U.S. norm, and a solid economy propelled significant occupancy gains over the past decade. Furthermore, after the onset of the coronavirus pandemic and ensuing recession, demand soared to almost unprecedented levels, and it remained strong in the new year. California's eviction moratorium, stimulus checks, and enhanced unemployment benefits may have initially buttressed occupancy, but interest in both cheaper submarkets and suburban areas with larger units have helped push vacancies lower.
Looking ahead, near-term demand is expected to remain healthy; an end to the pandemic will conclude the eviction moratorium and bring back jobs but little to remedy the supply shortage. Lack of inventory in the market combined with consistent levels of demand will continue to put significant upward pressure on lease rates. One trend to watch is how sticky the market will remain as Bay Area residents who relocated to the region with an eye toward working from home may be asked to return to the office. While there is a near-record level of construction in the market, it only accounts for 4.3% of total inventory, with the first projects completing at the end of 2021 and the bulk of units are projected to deliver in 2022 and 2023.
Historical and projected vacancy rate trends are shown in the following graph.
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RE N TA L RATE S
Sacramento apartment rents continue to soar with gains of 11.3% during 2021. Rents declined at the start of the pandemic before staging a remarkable comeback, ranking in the top 20 for annual rent growth as of year-end 2021.
Population growth has been the biggest demand driver of late. According to recently released Census data, Sacramento, Yolo, and Placer have had population growth that has exceeded increases in housing inventory over the last ten years. More recently, net migration from the Bay Area has been a major factor as individuals look to capitalize on their employer's more lenient work-from-home policies and relocate to the region.
The desire to acquire more space while lowering costs has led to significant rent growth in the suburbs.
Sacramento's more affluent suburbs like Roseville/Rocklin and Folsom offer relocating tenants more space, easy access to retail and other amenities, and high quality of life at a much lower price point. As a result, rent growth in both markets has exceeded 20% over the last year.
While downtown rents have also increased, they have been more significantly impacted by the pandemic.
They have seen less demand from out-of-market tenants as pricing is typically higher and average square footage is lower. Also, with neighboring retail establishments closed for much of the last 24 months, the properties lack some or many or the surrounding amenities that help to command a higher price point.
There is little reason to think trends will change in the short term. Supply remains constrained and while there are 5,800 units currently under construction that number is only 4.3% of total market inventory.
Given high levels of demand in the region, new inventory will likely have limited impact on rent growth.
Historical and projected rent growth are shown in the following graphs.
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INVEN TOR Y & C O N STR U CTI O N
Sacramento's development pipeline has grown steadily over the past few years and is currently near a post-Great Recession peak, with 4,500 units under construction. However, even with new units breaking ground consistently, construction will only add 3.3% to total market inventory.
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL While rent growth has largely been concentrated in the suburbs, development has been focused around the urban core, with 18 properties and nearly 3,800 units underway within two miles of Downtown Sacramento. However, there is also significant activity in the suburbs, specifically Roseville/Rocklin and Folsom, with six properties and approximately 1,000 units under construction.
High construction costs, lengthy and difficult approval processes, and uncertainty of demand to support high-end rents have deterred many developers. Before breaking ground, entitlement costs for apartment projects often could reach $50,000/unit, depending on a number of factors. Those entitlement costs were only slightly less than the average price per unit for existing product in Sacramento from 2010–13. As a result, construction in the past decade was largely confined to Class A projects in the metro's more affluent areas, which greatly contributed to the region's current housing shortage.
Historical and projected construction trends are shown in the following graphs.
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SA LE S & CA PI TA LIZ AT I O N RATE S
Since a slow start to 2020, Sacramento multifamily investment market has returned to form. Annual sales volume reached $1.5 billion with $115 million occurring in the current quarter. The market cap rate has been falling as well, currently resting at 4.4%, well below the three-year average of 4.7%. Investors have been driven to Sacramento for some time as a top national market for rent growth, reaching 10% over the last year, and while construction is near a record high of 4,500 units, that comprises only a 3.3% increase in market inventory, leaving significant housing demand remaining. While much of the market's activity has been concentrated in Class A & B properties, there have been a number of significant transactions in the rest of the market.
While deal flow has picked up in 2021 relative to 2020, average pricing has accelerated as well, reaching $254,000 in 2021, well above the three-year average of $225,000. As of Q1-2002, the average transactional price rose to $262,000/unit, the highest figure on record. Assets have been rapidly appreciating for some time as in 2016, the average transactional price was only$143,000/unit, making the average increase in value near 80% over the last five years.
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL MAJ O R AP A RTM E NT SAL E S –S AC R AM E NTO RE G IO N The following table summarizes recent major sale transactions.
SACRA MEN T O AP AR T ME NT MAR KET OUT L O OK
The Sacramento apartment market has maintained consistently positive rental growth, low vacancy rates and healthy net absorption over the past decade and this trend is expected to continue. The average regional vacancy rate over the past decade is near 5% and the current vacancy rate (4.2%) remains healthy. Rent growth has remained strong, averaging near 5% annually over the past decade and the current (10% YOY) rate is near the record high level. Overall, market fundamental remain solid and pending/future additions to supply are not expected to outweigh demand. Future gains in rent growth are expected to remain elevated in the 6%-8% range over the next few years and then moderate to historic levels going forward and vacancy rates are projected to remain at or below the 5% level. Overall, the outlook is clearly positive of the regional apartment market.
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL SUBMARKET ANALYSIS –SOUTH SACRAMENTO
The Delta Shores project is within the South Sacramento multifamily submarket, as defined by CoStar. Key apartment market statistics and five-year projections for the South Sacramento apartment market are summarized in the following table.
OVE R V IE W
South Sacramento is one of the metro's largest submarkets by units and one of the more affordable. While the region has had low vacancy for a number of years, the high proportion of low-end inventory focused inbound renters from the Bay Area on suburban submarkets farther away from the urban core. However, a lack of housing inventory throughout the Sacramento metro has refocused residents on South Sacramento, and fundamentals are improving accordingly.
South Sacramento is largely in uncharted territory in terms of market fundamentals. What has historically been a submarket of low-end, low-cost inventory has started to shift toward overall market averages.
With limited new supply set to enter the submarket and construction metro wide primarily focused on high-end product, little change is expected in the near to medium term.
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ABS OR PT I ON
Demand has picked up in recent periods, with net absorption reaching 318 units in 2020 and 45 units in 2021.
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VACA NC Y
South Sacramento has long enjoyed solid fundamentals but hasn't seen the outsized rent demand or near- zero vacancy that put the metro in national headlines. However, market dynamics have begun to shift, and metrics are coming in line with activity across the balance of the market. Specifically, the submarket vacancy rate now rests at 4.9%and asking rents have reached $1,595/unit, up 12% year-over-year.
There is new supply in the pipeline, with 298 units currently underway. The largest project is the Maven, which will bring a total 444 units to the market in phases, but likely will not complete until mid-2022.
Other than a handful of small projects, no new inventory has entered the market since 19Q4, all of which has been absorbed.
South Sacramento is in a much different position than it has been traditionally. Renters are seeing value in the centralized location as well as cost-effective rents relative to the metro as a whole. However, this value proposition may not last, with the aforementioned low vacancy and rising rental rates expected to continue through the near to medium term, bringing metrics in line with metro norms.
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RE N TA L RATE S
Apartments in South Sacramento offer some of the lowest costs in the metro, but like the rest of the market, outsized demand has been pushing rents, up 10.8% during 2021 and 12.0% year-over-year as of Q1-2022r. Rent growth has been concentrated in the most recent periods with gains hovering around 6% from 17Q4 to 21Q2. Recent increases are likely due to a lack of housing throughout Sacramento as supply becomes increasingly limited despite record-high levels of construction, with South Sacramento the latest area of focus.
Despite the rapid increase in rents, the average asking rent in South Sacramento is $1,595/month, roughly 10% below the metro norm. Depressed lease rates are primarily a function of aging inventory as the submarket is home to some of the oldest inventories in the region with a wide array of low- and mid-tier product. Nevertheless, rents are up significantly, easily surpassing the three-year average of $1,430/month.
Rent growth has been concentrated in mid-tier product as 3 Star inventory has seen increases of 12.6% outpacing the rest of the market. More of the same is expected in the near term as the market remains significantly supply constrained. There is a modest amount of construction activity in the market, which will likely be priced at the top of the market, further driving rents.
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INVEN TOR Y & C O N STR U CTI O N
The submarket covers a large geographic area and contains a current inventory of approximately 17,662 units, with more than 90% of existing inventory being at least 20 years old and nearly 94% of existing project is rated Class B and C.
EXISTING INVENTORY NET DELIVERIES UNDER CONSTRUCTION
SUBTYPE (UNITS) (12 MONTHS) (UNITS)
Class A (4 & 5 Star) 1,109 408 266
Class B (3 Star) 8,997 0 32
Class C (1 & 2 Star) 7,118 0 0
Total 17,662 0 298
High construction costs and some of the lowest rents in the region have combined to limit construction activity in South Sacramento and there has been minimal supply-driven pressure in the South Sacramento submarket over the past decade. The only notable recent addition to supply was the Gio Apartments (213 units), which was completed in 2019 at 3675 T Street, just north of the UC Davis Medical Center.
There are two projects presently under construction within the submarket. The largest project contains 444 units (known as “Maven” and located at 2570 3rd Street, just south of Broadway). The developer is 29th Street Capital and the projected delivery date for the initial phase is in Q2-2022. The other project contains 32 units (known as “Tran Villa Luxury Apartments” located at 6458 Stockton Blvd), with projected completion in Q3-2022.
Another notable project slated to break ground soon is known as the Klotz Ranch Apartments, planned for 266 units located just south of Pocket Road immediately east of Interstate 5. A.G. Spanos Co. secured entitlements for the project and closed on the site in July 2021. This submarket also has a pipeline of approximately 10 proposed projects ranging in size from 20 to 220 units; however, development timing for many of these proposed projects is uncertain.
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SA LE S & CA PI TA LIZ AT I O N RATE S
South Sacramento's multifamily sales peaked in 2019 before the onset of the pandemic and caused hesitancy among investors. However, there are signs of rebound in 2021 as sales volume over the last year has reached $194 million across 25 transactions.
This figure is inflated slightly by the largest sale of the last year, the 4 Star Broadleaf Apartments, which recapitalized in September 2021 for $87.5 million ($359,000/unit). The 244-unit property was purchased by Seattle-based Security Properties, Inc. Broadleaf was 96% leased at the time of sales and offers a mix of one- and two-bedroom units along with a variety of amenities including a game room, lounge, media center, and business center.
Driven in no small part by the Broadleaf trade, pricing continues to increase. The average per-unit pricing for the market has reached $214,000 in 2021. While this is less than Sacramento's overall figure of $250,000, it is higher than the three-year average of $190,000/unit. Given the recent increase in rental rate growth, per-unit pricing will likely continue to grow, approaching the metro norm.
South Sacramento offers a unique mixture of proximity to the urban core and relatively low-cost housing.
However, the submarket is still very much supply constrained, putting upward pressure on both lease rates and property values. Sales volume is likely to be strong in coming periods as this remains one of the region's few remaining options with value-add potential.
The average market cap rate, which has been trending below 5% since 2019, is presently 4.5%.
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SO UTH SA CR AME NT O AP AR TME NT MAR KE T OUT L O OK South Sacramento is one of the metro's largest submarkets by units and one of the more affordable. While the region has had low vacancy for a number of years, the high proportion of low-end inventory focused inbound renters from the Bay Area on suburban submarkets farther away from the urban core. However, a lack of housing inventory throughout the Sacramento metro has refocused residents on South Sacramento, and fundamentals are improving accordingly.
Consistent with regional trends, the South Sacramento apartment market has maintained consistently positive rental growth and low vacancy rates over the past decade and this trend is expected to continue.
Lack of new development and increased demand have placed significant pressure on lease rates, which are up at a near-record pace of 10.8% as of year-end 2021.
Overall, market fundamentals remain solid and the limited pending and future additions to supply are not expected to outweigh demand. Future gains in rent growth are expected to remain well above average over the next few years, and then moderate to historic levels going forward. Overall, the outlook remains positive of the South Sacramento apartment market.
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COMPETING APARTMENT PROPERTIES
The high density residential sites within Delta Shores will most likely be developed with Class A product.
We have identified six existing competing projects within the South Sacramento submarket area. The following table summarizes the new and relatively new Class A projects in these areas.
As summarized above, the six most competitive existing apartment projects indicate average rental rates ranging from $2,177 to $2,323 per month or from $1.90 to $2.42 per square foot. These projects have current occupancy rates ranging from 95% to 98% (average 97%).
Broadleaf apartments is located in the Pocket Area and is within closest physical proximity to Delta Shores.
The five additional projects are located in the Valley High/North Laguna sub-area to the southeast in closer proximity to Highway 99.
A map identifying the locations of these projects relative to Delta Shores follows.
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CO M PE TI NG AP AR TM E N T LO C AT I O NS
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ELK GROVE SUBMARKET TRENDS
As previously discussed, the subject is technically within the South Sacramento submarket, which consists primarily of older Class B and C product. The Elk Grove submarket is located directly to the south. The following table identifies inventory levels, by Class, within these two submarkets.
ELK GROVE SOUTH SACRAMENTO UNDER
EXISTING INVENTORY EXISTING INVENTORY CONSTRUCTION
SUBTYPE (UNITS) (UNITS) (UNITS)
Class A (4 & 5 Star) 2,202 1,109 0
Class B (3 Star) 1,440 8,997 0
Class C (1 & 2 Star) 450 7,188 0
Total 4,092 17,224 0
Recognizing that the subject part of the new master planned community of Delta Shores, the neighboring Elk Grove submarket to the south is considered to be the most competitive submarket area for future apartment projects. Therefore, a summary of trends for the Elk Grove submarket is presented here.
Key apartment market statistics and five-year projections for the Elk Grove apartment market are summarized in the following tables and exhibits.
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EL K GRO VE S UBM A RKE T OVE R V IE W
One of the premier suburbs for families, vacancies in Elk Grove of ended 2021 at 3.5%. Net absorption levels have been very low since the end of 2020 as a lack of available space on the market has severely hampered the metric.
Current owners understand the market dynamics well and are pushing rents throughout the submarket up 12.8% as of year-end 2021 versus year-ago levels. Rents in high-end product have had the most increases, up 16.5% during that time.
Available inventory will remain low for some time as there are no projects under construction in Elk Grove.
The last property brought to market was a 324-unit community that completed at the end of 2017.
Elk Grove, like many of the region's suburbs, has done very well during the pandemic. The submarket saw an influx of new residents fleeing the Bay Area and driving the already low vacancy rates down further.
Fundamentals will likely remain at this level for some time with no new development in the pipeline to reset the area to the pre-pandemic norm.
MAR KET AND AB S OR P TI ON ANA L YS I S - BY JBREC
A market and absorption study for the subject project (prepared by John Burns Real Estate Consulting - JBREC) was provided for review. The JBREC report identified seven competitive apartment properties in South Sacramento, the Pocket and Elk Grove. A summary of these properties is provided below. The project report an average occupancy rate of 96% average base rental rates ranging from $2.00 to $2.67 per square foot (average of $2.36/SF). On average, they report the subject would compete in the middle of the range of the competitive properties.
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The Burn’s report cited information from REIS Services which monitors the apartment market. Some of the relevant finding from this source indicates the following:
From 2007 to 2021 the Sacramento market has had average apartment completions of 494 units annually. In the South Sacramento/Elk Grove Market the annual completions averaged 100 units.
The average occupancy of apartments properties in the subject sub-market rate very similar to the region with occupancy levels between 96% to 98% over the past five years. Effective rents rates for the past 3 years in the subject submarket ranged from $1,308 to $1,483 per month, on par with region-wide averages.
ABSO RP T IO N
JBREC completed two build-out scenarios for absorption of the subject multi-family units. The basis of their absorption was a lease-up schedule of 15 units per month. In Scenario 1, the first HDR land sale was projected to occur in 2Q-2023 with approximately 15-months to complete construction and an absorption rate of 15 units per month. Scenario 1 estimates a 10 year absorption period for the five HDR sites with a total build-out period of 12 years for completed projects. This scenario assumes the sale of the next HDR parcel immediately toward the completion of leasing of the previous apartment complex.
Under Scenario 2 they used the same 15 units per month leasing, but assumed no down-time between apartment projects being completed. Scenario 2 estimates a six year absorption period for the five HDR sites with a total build-out period of eight years for completed projects.
We have considered both scenarios in our projection and conclude to a total absorption period of nine years. The JBREC projections and our conclusions are summarized as follows:
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HIGHEST AND BEST USE
A determination of highest and best use is necessary prior to valuation of a property. In the sixth edition of The Dictionary of Real Estate Appraisal , the Appraisal Institute defines Highest and Best Use 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.” We conduct four tests to determine the highest and best use of the subject property:
Legally permissible per the applicable zoning standards and other restrictions Physically possible
Financially feasible
Maximally productive
Typically, these tests are applied in the order listed above. The highest and best use of a property is the one that meets the first three criteria, and will produce the greatest future benefit to the owner. Analysis of the highest and best use of the land assumes that the subject site is vacant and available for development to the determined highest and best use. The analysis of Highest and Best Use As Improved determines whether continued use as is, alteration, or demolition and redevelopment constitutes the maximally productive use of the existing improvements.
AS VACANT
LEG AL L Y PER MI S SI B LE
The subject is zoned Single-family and Multi-family residential. The subject is part of fully entitled and approved master planned project. Under the original entitlements the subject property was approved for 1,943 units. This included 802 single-family lots and 1,141 high density residential lots. The current land use plan of 1,573 units is well under the existing entitlements. As part of the approvals various on-going mitigation measures must be undertaken. Updated information indicates the existing mitigation measures for the project are being achieved.
Based on the zoning and entitlements, the site can be developed with single-family and multi-family residential units. No other restrictions have been identified that would limit development of the property beyond the development standards stipulated by the municipal code for the subject’s designated zoning.
Given prevailing land use patterns in the area, only residential development is given further consideration in determining the highest and best use of the site as vacant.
PHY S ICA L LY PO SS IB LE
The physical characteristics of the site do not appear to impose any unusual restrictions on development.
Surrounding land uses are similar or complementing. Primary offsite improvements appear to be in place.
The subject is not located in an adverse flood or earthquake zone. Nearby parcels have been developed with no apparent negative soil conditions. The subject is located in a growing area of Sacramento County.
There exists sufficient support uses in the area to accommodate residential uses on the site. The physical characteristics of the site support the legally allowable uses of the property.
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FINA NC IA L LY FEA SI BLE
Based on our analysis of the market, there is currently high demand for residential lots and homes within the region, Sacramento County and the City of Sacramento. Review of sales of finished single-family and multi-family residential land acquisitions indicate prices are well above lot development cost which is one sign of feasibility. Further, finished homes and multi-family units are selling in excess of land and improvement costs. Based on our analysis, new single-family and multi-family residential lot development is financially feasible.
MAXI MA L LY PR ODUC TI V E
There does not appear to be any reasonably probable use of the site that would generate a higher residual land value than single-family and multi-family residential development. The subject project is legally permitted for up to 1,943 units. While the existing development plan is for 1,573 units (421 medium density and 1,152 high density), the existing legal and physical characteristics would allow changing the allocation of the these uses to accommodate the demand for the two property uses.
Based on current market trends and our analysis, the maximally productive use of the four MDR sites (421 single-family residential units) for near term development with detached single-family homes. The five HDR sites and single MU site could support a several high-density residential uses including traditional apartment product, for-sale condominiums or for-sale (attached) townhome product; however given the proposed density levels (27 units/acre for HDR sites and 23 units/acre for the MU site) development with traditional market rate apartment product is considered most likely.
Accordingly, it is our opinion that both single-family (421 units) and multi-family (1,152 units) residential development is the maximally productive use of the property.
CO NC LUS I ON –AN D MO ST PR O BA BLE BUYER
Single-family and multi-family residential development are the only uses that meets the four tests of highest and best use. Therefore, it is concluded to be the highest and best use of the property as vacant.
Builder demand for lots across the region are expected to remain high for the foreseeable future. The most probable buyer of the subject property would be single-family homebuilders for the single-family villages and apartment developers for the multi-family sites.
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VALUATION PROCESS
In developing an opinion of value, appraisers consider the Cost Approach, Sales Comparison Approach and the Income Approach. These three valuation methods are defined in the following table:
VALUATION METHOD DEFINITION
Cost Approach In this approach, the contributory value of the improvements (after deductions for accrued physical depreciation, functional obsolescence, and external obsolescence) is added to the value of the land as if it were vacant per our determination of highest and best use. If the interest appraised is other than fee simple, additional adjustments may be necessary for non-realty interest and/or the impact of existing leases or contracts.1
Sales Comparison Approach In this approach, recent sales of similar properties in the marketplace are compared directly to the subject property, based upon a market- derived unit of comparison (i.e. price per square foot). We analyze physical, locational, and geographic differences between the subject and each comparable, and apply quantitative or qualitative adjustments to the comparables in order to arrive at an indication of value. The theoretical basis for this approach lies in the principle of substitution, whereby investors or owner-users are able to comparison-shop and set prices based on relative differences in properties. The reliability of an indication found by this method depends on the quality of the comparable data found in the marketplace.1
Income Capitalization Approach The income approach utilizes a market-oriented rate of return to convert a property’s potential income into a value indication (capitalization). The approach considers explicitly considers rent, vacancy, expense, and capitalization/discount rate trends in the subject’s market, and reflects the primary analysis employed by most investors in leased commercial real estate assets. The two most commonly used income approach methodologies are direct
capitalization and discounted cash flow analysis. These are frequently employed separately or in concert, depending upon the economic characteristics of the property, and the anticipated process of the most probable purchaser. The theoretical basis for this approach comes from the principle of anticipation and substitution. The principle of anticipation applies because the value of a property is the present value of expected future cash flow. The principle of substitution is also applicable, because rental rates for the subject property must be in line with those of competitive space. Furthermore, the value estimated by the income capitalization approach assumes that investors will earn a rate of return consistent with that available for alternative investments of comparable risk.1
1 Real Estate Education Company, “Income Property Appraisal”, 1991.
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL We have considered the physical and economic characteristics of the property, as well as the most probable purchaser concluded in the analysis of Highest and Best Use, to determine the appropriate valuation methodology.
The valuation begins with the valuation the proposed lots and tracts of land within the subject project.
In the valuation of the subject lots, we utilize the sales comparison and the subdivision development method. The sales comparison approach considers area bulk lot sales, with adjustments applied accordingly relative to the subject. The subdivision development method is a discounted cash flow analysis that reflects anticipated home prices and costs over an absorption period, leading to an estimate of residual land/lot value. The two approaches to value are then reconciled to arrive at finished lot prices.
The next step in the valuation process is the use of a discounted cash flow analysis for the whole project.
This analysis takes into account the potential revenue from the sale of lots, the expected apportion period, development costs for the backbone infrastructure costs, holding and sales costs as well as profit expectations of a buyer for the property.
For each component analyzed, we reconcile the value indications of each approach to value. The reliability of each approach, and resulting emphasis given in the final reconciliation, is determined based upon the quantity, quality, and overall reliability of its data.
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We utilize the sales comparison approach to value the residential lots within the development. The sales comparison approach develops an indication of value by comparing the subject to sales of similar properties. The steps taken to apply this approach are:
Identify relevant property sales;
Research, assemble, and verify pertinent data for the most relevant sales; Analyze the sales for material differences in comparison to the subject; Reconcile the analysis of the sales into a value indication for the subject.
The subject property will include 421 single-family lots. The valuation process starts with the benchmark value for the single-family lots under the following criteria:
Finished Single-Family Lots: The benchmark value for single-family lots is based on MDR-8, which contains 136 lots (assumed to be finished) with a minimum lot size of 3,116 square feet. Finished lot means all site development is completed, final map has recorded, and all development fees due at final map have been paid. A finished lot does not include fees due at building permit, since these items are associated with home construction.
On the following pages are the comparable sales for this land use category.
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COMPARABLES MAP
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Sale 1 –Parcel Map & Aerial
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Sale 2 –Parcel Map & Aerial
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Sale 3 –Parcel Map & Aerial
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Sale 4 –Parcel Map & Aerial
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Sale 5 –Parcel Map & Aerial
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Sale 6 –Parcel Map & Aerial
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Sale 7 –Parcel Map & Aerial
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Sale 8 –Parcel Map & Aerial
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SI NG LE- FA MI LY LO T SAL ES AN AL Y SI S
ADJUS T MEN T FA CT OR S
Adjustments are based on our rating of each comparable sale in relation to the subject. If the comparable is superior to the subject, its sale price is adjusted downward to reflect the subject’s relative inferiority; if the comparable is inferior, its price is adjusted upward. The adjustable elements of comparison are:
EF FE C TI VE S AL E P RIC E /E X PE N DIT URE S A FTE R S AL E For subdivision land, expenditures after sale typically include site development costs, permits and fees, and atypical holding costs such as Special Taxes or association fees. For subdivisions where site development is complete and final subdivision map has recorded, expenditures typically pertain to permits and fees due at building permit and holding costs.
Finished Lot Analysis - We apply adjustments for remaining site development costs (if any) on a dollar-for- dollar basis. That is, comparable sales will be analyzed on a finished lot-basis, where any remaining site development costs are added to the lot price to yield a price that reflects the total consideration.
Sales 5, 6 and 7 are adjusted upward by the reported lot development costs plus a moderate (5%) profit on lot development cost.
Adjustments for Permits and Fees – Adjustments for permits and fees are applied on a dollar-for-dollar basis, since builder buyers typically consider these fees on this basis when making land purchasing decisions. The subject lots will have average fees and permits of $45,000 per lot. Those with lower or higher fees per lot have been adjusted accordingly.
Adjustments for CFD Taxes – We consider the impact of different tax structures (including the impact of the CFD) between the comparable sales and subject. We consider anticipated tax differences at the completed home stage on home value, and considered the impact of home pricing differences on underlying lot value. The adjustment is based on the present value difference in taxes for a 10-year period (ownership time period) and an interest rate of 3.5%.
RE AL P RO PE R TY RIG HT S CO NVE YE D
This adjustment is generally applied to reflect the transfer of property rights different from those being appraised, such as differences between properties owned in fee simple and in leased fee.
In this analysis, no adjustments are required for property rights.
FIN A NC I NG T E RM S
This adjustment is generally applied to a property that transfers with atypical financing, such as having assumed an existing mortgage at a favorable interest rate. Conversely, a property may be encumbered with an above-market mortgage which has no prepayment clause or a very costly prepayment clause.
Such atypical financing often plays a role in the negotiated sale price.
Adjustments do not apply for financing terms.
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CO ND ITI O N S O F S AL E
This adjustment category reflects extraordinary motivations of the buyer or seller to complete the sale.
Examples include a purchase for assemblage involving anticipated incremental value or a quick sale for cash. This adjustment category may also reflect a distress-related sale, or a corporation recording a non- market price.
Sale 4 included profit participation by the seller and therefore reflects a minimum price. A moderate upward adjustment is applied for this factor.
T IM E - M A RKE T CO N DI TI O N S
Real estate values normally change over time. The rate of change fluctuates due to investors’ perceptions of prevailing market conditions. This adjustment category reflects value changes, if any, that have occurred between the date of the sale and the effective date of the appraisal. We consider the effect that home price changes have had on lot value.
The lot sales closed between October 2019 and January 2022. Notably, the most recent sale (Sale 8) indicates that lot prices have continued to increase at a significant pace. Prices of the comparable sales are usually established 3-6 months earlier when lot sale contracts are initially set. As reported earlier new home pricing for the Sacramento MSA has increased substantially over the past two years, with much greater appreciation experienced during the past 12 months, as summarized in the following table.
As noted, the appreciation of homes has been the greatest over the past year. Much lower appreciation was occurring prior to 2Q 2020. A portion of the price is appreciation is attributed to higher construction costs for homes.
Shown below is a market conditions adjustment pairing to quantify the appreciation net of high construction costs.
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The analysis above indicates a monthly appreciation of residual lot values of 2.43% over the past year. We believe this is a high mark as builder’s will not recognize the full appreciation in lot values during an extreme price appreciation period. Nonetheless, the analysis shows high appreciation of residual lot values over the past 12 months.
Appreciation of home prices in excess of construction costs typically goes to direct increase in lot prices.
Based on analysis of lot and home trends, an annual appreciation of 12% annually (1.00% per month) is attributed to lot values. The adjustments are applied through the effective date of value (4/1/2022).
LO C AT IO N
The comparable sales are located is various sub-markets in the region. As a starting point we examine home prices (Gregory Group 1Q-2022) and school districts where the comparable sales are located.
In ranking order, Folsom rates at the top followed by Roseville, Lincoln and Elk Grove and Rancho Cordova.
South Natomas appears to be the least desirable location as compared to the subject. Based on our analysis, we believe the following location adjustments are appropriate:
Comparable 1: Rancho Cordova, superior location (-5% adjustment) Comparable 2: Folsom, superior location (-20% adjustment)
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NUM BE R O F LO T S/P RO J E C T SIZ E
Generally, there is an indirect relationship between project size and price per lot. For this analysis we have assumed a lot count of 136 lots.
The comparables range in size from 68 to 151 lots. Larger bulk lot acquisitions typically sell at a discount in relation to smaller acquisitions due to associated holding costs. Adjustments are applied based on differences of 20 lots or more based on $125 per lot count variance, which results in downward adjustments to Sales 3, 4, 5, 6 and 7.
BASE LO T S I Z E
The subject base lots being analyzed is for minimum lot size of 3,116 square feet, which is smaller than typical. The comparable sales are analyzed relative to the subject’s minimum lot size.
Lot size adjustments are applied for variances of over 500 square feet. Sales 1, 2, 4, 5, 6 and 8 have considerably larger minimum lot sizes and warrant downward adjustment. We have considered paired sales to assist with the determination of a lot size adjustment factor, as well as market participant interviews. For each comparable, we estimate and apply a lot size adjustment factor ($15 per square foot as shown in the grid) to the difference in lot area between the comparable and subject.
LO T P RE M IUM S
The subject will consist of relatively small lot sizes and minimal lot premiums are anticipated. Several of the comparables have larger lot sizes and are anticipated to generate more significant premiums.
Downward adjustments ranging from 3% to 4% are applied to 1, 2, 4, 5 and 8 based on minimum lot size variances versus the subject.
ZO NI NG/E NTI TL E M E N T S
The subject and comparables have similar zoning and entitlements. Adjustments for this factor do not apply.
LO T T YP E
The subject and the comparable sales have traditional lot types. No adjustments are required for this element.
ADJ U STM E NT GRI D
The following grid summarize the discussed adjustments.
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IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL SA LE S C OM PARI S O N AP PR O ACH CO NC LU SI O NS –MDR-8 The eight comparable sales have adjusted values from $132,611 to $182,207 per lot with an average of $158,092 and a median of $155,417 per finished lot. Sales 3 and 7 are most similar in terms of lot size.
These comparables indicate adjusted prices ranging from $148,110 to $$162,724 with an average of $155,417. Overall, a value within a range of $150,000 to $160,000 per finished lot is cosnidered well supported.
Based on our analysis, we estimate the benchmark value for the MDR-8 (136 finished lots with minimum size of 3,116 SF) to be as follows.
SA LE S C OM PARI S O N AP PR O ACH CO NC LU SI O NS –AL L VI L LA GE S Based on the prior analysis, a benchmark value of $155,000 per finished lot is concluded for MDR-8.
For project size, we apply an adjustment based $125 per lot count variance. For lot size, we apply an adjustment based on $15 per square foot for lot size variance.
The concluded finished lot values by village are shown below.
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SUB DIV ISION DEV ELOPM ENT ME T HOD - SINGLE -F AMILY LOTS When analyzing a subdivision, the income approach (yield capitalization) to value is commonly referred to as the “Subdivision Development Method.” This technique utilizes discounted cash flow (DCF) analysis to extract the price that an investor/developer can afford to pay for land or finished lots, and still satisfy a profitability requirement in production as a merchant builder or land developer. The subdivision development method is a “house down” analysis that deducts anticipated home construction and carrying costs from anticipated home prices over a projected absorption period. As a discounted cash flow analysis, there are four components (revenue, absorption, expenses and discount rate). The steps required to complete this analysis are as follows:
Estimate the revenue from the retail sale of completed homes, with consideration to appreciation/inflation factors, if any;
Estimate an appropriate absorption rate for the sale of homes or lots; Estimate all expenses associated with the sell-off of completed homes, including holding and selling costs, as well as direct and indirect construction costs (with consideration for inflationary expense trending);
Estimate the appropriate profit rate/discount rate for the type of project under consideration, and discount the net cash flows to arrive at a value indication.
The DCF model allows for a complete analysis of the subject’s financial performance throughout the projection period. In the following analysis, the appraisers have attempted to model the anticipated revenues and expenses for the project based on assumptions derived from the market. The four components of the discounted cash flow analysis are discussed on the following pages.
In this analysis, we analyze each of the four MDR villages separately. The parameters identified for each village based on the proposed Signature Homes product lines are summarized below:
The proposed product lines provide segmentation between the village and are considered reasonable for the market and location of the subject.
The proposed product lines are expected to appeal primarily to first time buyers, empty nesters and young families; MDR-5 would appeal to first move-up buyers as well.
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 128 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL MDR-5 and MDR-8 are planned for traditional detached product. MDR-6 and MDR-7 have very narrow lots in alley-loaded court configurations; the proposed product for these villages appears “attached” from the exterior, but will have narrow (4”) air gaps between units.
The JBREC Market study concluded to pricing recommendations that were consistent with the pricing provided by the developer as noted in the prior table. The JBREC report noted the following:
We project revenue based on the average home size for each village.
REVENUE
Revenue is generated from the sale of completed homes, lot premiums (if applicable) and model home recapture (if any). Projected revenues are based on the typical product that meets the highest and best use criteria for the subject property relative to the market area.
HO M E SAL E RE VE N UE
We have estimated an average home sale price from analysis of comparable new home projects, focusing on projects with generally similar locations and lot sizes. The following tables summarize our analysis and conclusions for each village.
The new home pricing data analyzed was obtained from the most recent The Gregory Group database (1st Quarter 2022). It is noted that average new home prices continued to increase during the first quarter of 2022. A comparison of average detached new home pricing for Sacramento County over the past three quarters based on data obtained from The Gregory Group is summarized below:
Period Avg. Net Price Avg. Price/SF
2021 – Q3: $659,847 $295.59
2021 – Q4: $687,561 $301.48
2022 – Q1: $706,767 $311.87
ANAL Y SI S O F CO M P AR A BL E PRO J E C TS
In the following analysis we considered qualitative ratings relative to location, lot size and home size.
Consideration has been given to the subject’s specific Delta Shores location (an unproven new home market) as well as strengths and weaknesses identified in the prior SWOT Analysis section. Based on these factors, most comparable projects identified in the following analysis are rated slightly superior in terms of location.
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PRO J E C TE D A VE R AG E B A S E PRIC E
The following table summarizes our projected average base price for each MDR village based on the respective proposed product lines.
As summarized above, JBREC concluded that the developer pricing was reasonable and their pricing recommendations are consistent with developer’s preliminary pricing. Based on our analysis, the developer pricing and JBREC recommendations appear reasonable. Our projected average base prices are
0.1% to 2.5% (weighted average of 0.9%) below the developer’s preliminary pricing.
OP TI O N RE VE NUE
For the subject market segment in an entry-level neighborhood, a builder would likely underwrite its purchase with a standard options allocation.
OPTIONS SURVEY
We utilize an estimate of 3% of base of base revenue for average options, consistent with the projected option revenue provided by Signature Homes and estimated in the JBREC report.
LO T P RE M IUM S
Given the relatively high density and smaller lot sizes, no lot premium revenue is recognized on our projections.
MO DE L RE C AP TU RE
We estimate the typical product line will have three models. Builders typically recapture around 30% to 50% of model expenses. The difference between model costs and recapture represents furniture costs (which are not real estate), upgrade depreciation and sale office conversion costs. We estimate model Location Year Builder Type
Average Base
Price
Options
Allocation
Option Revenue
as % of Base
Revenue
Options
Cost
Options Cost at
% of Option
Revenue Source/Comment
Sacramento 2019 Private $563,062 $55,010 10% $38,507 70% Pro Forma, mid-construction Lathrop 2019 Private $499,382 $48,264 10% $39,563 82% Pro Forma, pre-construction Brentwood 2018 Public $647,865 $48,958 8% $31,823 65% Pro Forma, pre-construction Lincoln 2018 Public $488,178 $35,000 7% $21,875 63% Pro Forma, pre-construction Sacramento 2018 Private $464,661 $23,637 5% $16,546 70% Pro Forma, pre-construction Sacramento 2018 Private $456,571 $22,829 5% $15,980 70% Pro Forma, pre-construction Santa Rosa 2018 Private $606,500 $21,250 4% $14,854 70% Pro Forma, pre-construction Stockton 2017 Private $434,030 $24,000 6% $18,000 75% Pro Forma, pre-construction Folsom 2017 Private $572,857 $40,000 7% $30,000 75% Pro Forma, pre-construction Folsom 2017 Private $488,784 $20,932 4% $14,652 70% Pro Forma, pre-construction Folsom 2017 Private $682,388 $40,000 6% $26,000 65% Pro Forma, pre-construction Fairfield 2017 Private $510,224 $10,204 2% $8,164 80% Pro Forma, pre-construction SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 132 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL recapture at 35% of model upgrade costs. Revenue from model recapture is reflected in the last period of sales. As shown later, we estimate model upgrades to cost $100,000 per model for MDR-5 & MDR-8, $90,000 for MDR-7 and $80,000 for MDR-6.
CO NS TR UC TI ON C O ST S
HO M E CO N ST RUC TIO N DI RE C T CO ST
Direct construction costs pertain to the labor and materials to build the project. There is typically an inverse relationship between size and cost, with larger homes having lower unit costs. The following cost comparables are used to estimate direct construction costs by product line.
Home construction prices have been escalating due to material shortage and labor. Cost comparables 2, 4 and 5 are the most current costs and reflect these increases.
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INDI RE C T HO M E CO N ST R UC TIO N CO ST S
To estimate the indirect construction costs we have considered the following market data.
SAL E S CO M M IS SI O N S, CL O SI NG CO S TS A N D W A RR A NTY Sales commissions, closing costs and warranty expenses typically are non-financeable and are paid at home closing. Sales commissions include both internal commissions and broker co-op. We estimate sales commissions at 3.5% of gross revenue. Closing and warranty expenses were previously estimated at 0.25% and 1.00%, respectively.
GENERAL ADMINISTRATION & OVERHEAD COSTS
This category includes all salaries for internal professionals (construction supervisors, support staff, etc.) and office overhead and supplies. We apply an estimate of 3.0%. This expense is spread evenly over the sell-off period.
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MA RK E TI NG
Like previously discussed, we estimate marketing expenses at 1.50% of gross sales (which includes master marketing, if any). This expense is spread evenly over the sell-off period.
OTHE R I ND I RE C T CO ST S
Other indirect items (not including indirect costs that have been considered separately) are the costs and fees incurred in developing the project and during the construction cycle, which may include architectural and engineering, insurance/bonds, common costs, field overhead and project coordinator fees. As previously discussed, we estimate other indirect costs at 6.50% of the anticipated sale price, which is spread evenly over the sell off period.
BUIL DI NG PE RM I T S AN D F E E S
Like previously discussed, permits and fees vary by product type and on average are estimated to be $45,000 per home for the MDR villages.
OP TI O N CO S TS
Like previously discussed, there is strong demand for lots and the market is expanding. A builder in this competitive environment would likely underwrite its purchase with a standard options allocation. Based on the prior survey presented, we estimate options costs at 65% of option revenue.
RE AL E ST A TE T A XE S
The subject’s taxes are estimated based on the current tax rate of around 1.1167% applied to the estimated market value. Taxes have been applied to the remaining unclosed lots each quarter based on the final value estimate.
As vacant finished lots, annual direct levies for the subject are $671 per lot and this amount is used our projections. In addition, for each unit we consider the Special Taxes for the CFD. The reported average maximum Special Tax is $1,530 per lot for the MDR component, as was discussed in the Property Taxes section of this report.
The direct levy and Special Tax amounts are adjusted to a quarterly basis and applied to the unclosed beginning period inventory.
HOA
As previously discussed, the Master Developer plans to create an HOA for the MDR component of the subject and provided a fee estimate of $100 per unit monthly. This expense is applied to the units remaining in inventory each period.
SI TE DE VE L O P M E N T CO ST S
In this section, we consider the subject as if all site development including in-tract costs are completed.
Therefore, an allocation for site development is not needed.
CHAN GE S IN EX PE N SE S
While the “all items less food and energy” CPI index as of December 2021 rose to 4.9% over the past 12 months, reflecting the largest 12 month increase in at least 13 years. Builders have been reporting even higher direct cost increases over the last 12 months, attributable to increases in labor costs (labor shortage) and materials. As the market adjusts, we expect lesser increases over the next 12-24 months.
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 135 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Given the relatively short duration of the sell-out of the four villages (around 2-3 years), we have utilized a 4% annual increase in cost.
PRICE CHA NGE S
Since the beginning of summer in 2020 homes prices have been rising rapidly. As of the 4th Quarter 2021, The Gregory Group reported an average new home price increase of 20% over the prior 12 months. Prices started to moderate in the 4th quarter. Industry projections are less favorable moving forward due to the recent spike in mortgage interest rates in March/April 2022.
During up markets, market participants will generally speculate with some price trending. The size of the project also matters. Given the current mortgage interest rate environment, it is our opinion that any appreciation of the next 12-24 months will likely be offset by incentives provided by builders (rate buy- downs or higher general incentives).
Based on these factors, we project 0% price appreciation during the first 18 months (six quarters), with 4% annual appreciation reflected thereafter.
ABS OR PT I ON AND T IM IN G
Based on discussion and analysis presented in the prior Residential Market Analysis section, we project absorption rates at 4 units per month (12 units per quarter) for MDR-5, MDR-7 and MDR-8 and 3 units per month (9 units per quarter) for MDR-6.
CL O SI NG P RO J E C TIO NS
The typical time required for the construction of units has been approximately three to six months from start of construction to closing. It is assumed that closings will occur within three to six months beyond the date of sale. The discounted cash flow analysis reflects close of escrow of homes occurring in the period following the period of sale. The premise is that the builder constructs efficiently as homes are sold.
DI SC OUN T RATE /D EVE L OPER PR OF IT
The final element in the discounted cash flow analysis is the discount rate that is applied to the individual cash flows. Discount rates applied typically in one of two ways: (1) an overall discount rate (IRR) inclusive of profit and the cost of funds of money; or (2) a bifurcated discount rate that is net of profit and represents the cost of funds of money only. The latter may be applied with a profit net of debt only, where the discount rate represents the cost of debt only, or it may be applied with a profit net of debt and equity, where the discount rate represents the blended cost of debt and equity.
Both the overall discount rate and bifurcated models are typical in the market. However, one shortcoming of the overall discount rate (IRR) methodology is the IRR skews upward significantly for smaller projects, particularly those less than 75 lots. For instance, Project A may contain 50 lots and Project B may contain 125 lots, and both may achieve the same profit per home, but an overall discount rate (IRR) would show Project A yielding an IRR of 25% while Project B may be 20%. This phenomenon was discussed in a featured article of The Appraisal Journal titled “The Trouble with Rates in the Subdivision Development Method to Land Valuation,” (Curry, 2013).
In this analysis we utilize a bifurcated discount rate in this report (net of debt of equity). We also calculate the implied IRR based on the estimated profit and discount rate, as a test of reasonableness and additional support only.
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 136 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Interviews with home builders provide support for a profit range from 8-10% of home price, as supported by the following profit survey. Note that the profit survey about was based on respondents of suburban area projects. Urban projects typically require much higher profits, as capital outlays for construction are nearly double that of suburban projects.
PROFIT (INCENTIVE) SURVEY by BBG – Sacramento/San Francisco Information not to be copied or distributed
Note: Net profit implies net of debt financing only (some builders do not utliize or report equity financing), unless otherwise specified The reported profit expectations above are net of debt financing but before equity financing (unless otherwise noted). Based on the subject characteristics, we’ve estimate profit from 8.0% - 9.0% net of debt and equity financing (or before accounting for the time value of money). Typical debt financing is summarized as follows:
COST OF FUNDS SURVEY by BBG – Northern California
Information not to be copied or distributed
Pro Forma (based on market acquisition) Area
Public builder acquiring 300 +/- unimproved lots, multiple product lines (2018) East Bay Area Private builder acquiring 200 +/- townhome lots at t-map (2018) North Bay Area Private builder acquiring 70 +/- finished lots (2018) Sacramento MSA Private builder acquiring 30 +/- finished lots (2018) Sacramento MSA Private builder acquiring 35 +/- finished lots (2017) Sacramento MSA Private builder acquiring 15 +/- finished lots (2017) Sacramento MSA Private builder acquiring 15 +/- unimproved lots (2016) Sacramento MSA Private builder acquiring 90+ finished lots (2016) Mountain House/Lathrop Private builder acquiring 40+ finished lots (2016) Sacramento MSA Public builder acquiring 100+ finished lots (2016) Sacramento MSA
11.4% net profit from production homes averaging $680K
Expectation
14.3% net profit from production homes averaging $575K
11.3% net profit from production homes averaging $465K; 8.34% net profit after equity
9.9% net profit from production homes averaging $455K; 6.69% net profit after equity
10.3% net of debt and equity
13.8% net profit
9.34% net profit before upgrades from production homes averaging $350K, plus 1.2% after upgrades
6.28% net profit from production homes averaging $475K, including profit associated with completing site development
6.5% net profit before upgrades from production homes averaging $465K, plus 1.6% after upgrades
12.4% net profit before upgrades from production homes averaging $475K, plus 0.9% after upgrades. After profit participation, 10.4% net profit before upgrades, plus 0.9% after upgrades
Source Area
Private Builder Pro Forma using Regional Bank (2018) Sacramento MSA Private Builder Pro Forma using National Bank (2017) Sacramento MSA Private Builder Pro Forma using National Bank (2017) Sacramento MSA Private Builder Pro Forma using Regional Bank (2016) Manteca/Lathrop Private Builder (anonymous) using National Bank (2016) Secondary market in San Joaquin County Private Builder Pro Forma using Regional Bank (2016) San Francisco Bay Area and Sacramento Loan Executive (anonymous) - Regional Bank (2015) San Francisco Bay Area and Sacramento Expectation
Prime plus 1.5% to 2.0%. Higher rates are typical for smaller builders and projects. A 1.5% spread would be typical for a 50- lot subdivision with an experienced developer. Given really good loan terms (sub 50% LTV), a strong guarantor, market competition, etc., would likely go as low as Prime plus 1.0%.
Committment fee is 1.0% to 2.0%.
Prime plus 1%, develoment and construction in one loan based on the lesser of 75% Loan to Retail Value or 83% Loan to Total Cost. Plus 1.25 points.
65% LTV on finished lot acquisition, 75% LTC on vertical, at
5.0% interest, points not reported
3.94% plus 1.25 points, 75% LTC
70% LTV or 80% LTC on completed homes at 5.25% interest, plus one point
4.2% plus 0.7 point
5.50% plus one point for lender, 12.0% equity with 1.6X SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 137 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Equity financing is typically paid on a waterfall basis. Preferred returns typically range from 8% to 20% and come with minimum IRR expectations. Private equity requirements vary based on project size and type.
Smaller projects may rely on private equity financing based on a preferred return only (reflecting a minor premium on rates expected from “safe” commercial investments such as low-risk self-storage facilities), while larger projects—such as master planned Community—may require a preferred return, as well as multiples of 2X or 3X, in addition to project performance requirements such as sales rate (3+/month) and unleveraged IRR requirements (25+%).
Assuming typical loan costs, we estimate a discount rate (cost of funds) of 6.0% for the subject.
At the estimated bifurcated variables, our analysis yields overall discount rates (IRRs) ranging from 17% to 22%, which are considered to be within reason.
As a test of reasonableness, we compare the inferred overall discount rate (IRRs) with overall discount survey data in the market. We’ve considered the PwC Real Estate Investor Survey, Realty Rates and propriety BBG surveys for determination of the discount rate.
PUBLISHED SURVEYS
Survey Rate Comment
PwC Real Estate Investor Survey
4th Quarter 2021
10% - 30%, with an average of 16.8% Up 120 basis points from 2nd Quarter 2021 Realty Rates
4th Quarter 2021
15.29%- 33.1%, 23.22% average
(Pro-Forma Rates)
California/Pacific Islands Region
Subdivisions/PUDs
100-500 units
Site-Built Residential
Further support for an appropriate yield rate is from the opinions of market participants. A discount rate survey (completed by BBG, Inc.) is presented below. Note that most of the properties below represented unimproved projects with higher risk (in this section, we are analyzing the subject on a finished lot basis).
IRR SURVEY by BBG – Northern California
Information not to be copied or distributed beyond the intended users of this report.
The calculated IRRs for the neighborhood tested are reasonable relative to market data.
CO NC LUS I ON
A summary of the DCF analyses is provided on the following page, followed by the full discounted cash flow analysis per village.
Pro Forma (based on market acquisition) Area
Private Builder acquiring 200+ townhome lots at t-map North Bay Area 22.90% One product line, 5+ years of expected sales Land Banker completing site improvements and selling 300 finished lots (three villages) on rolling takedown at 3 lots per month (2018) SE Bay Area/Mt. House 12.60% All cost overruns guaranteed by builder-buyer Private Builder acquiring 300 +/- unimproved lots w/ imp. plans (2018) SE Bay Area/Mt. House 24.10% Three product lines Private Builder acquiring 300 +/- unimproved lots w/ imp. plans (2018) East Bay Area 22.30% Three product lines Private Builder acquiring 70 +/- unimproved lots no imp. plans (2018) Sacramento Area 19.04% Private Builder acquiring 30 +/- unimproved lots w/ imp. plans (2018) Sacramento Area 26.34% Private Builder acquiring 10 +/- unimproved lots, no imp. plans (2016) San Francisco Bay Area 24.02% Private Builder acquiring 200+ unimproved lots, no imp. plans (2016) San Francisco Bay Area 24.12% Two product lines Private Builder acquiring 130+ blue-top lots (2015) South Bay Area 21.41% Price not finaled; price likely to be adjusted downward for higher IRR
Expectation
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 138 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 139 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 140 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 141 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 142 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SUBDIVISION DEVELOPMENT METHOD - SINGLE-FAMILY LOTS 143 IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL CO NC LUS I ON S O F LOT VALUE –D IS COU NTE D CA SH FL OW ANA L YS IS The bulk value conclusion for each MDR village as finished via the subdivision development method are shown below.
The values shown above are only one indication of value. These will be considered along with the results of the Sales Comparison Approach in the following reconciliation section.
RECONCILIATION AND CONCLUSIONS OF LOT VALUE 144
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
RECO NC ILIATION AND CON C LU SION S OF LOT VALUE
Two methods were used in the valuation of the subject lots. The results of these methods are summarized below.
The subdivision development method is the better supported approach to value. While the sales comparison approach has adjustments that are supported, its reliability is weakened by the quality of data available (which is also the best data available) and large market conditions and location adjustments were applied. We place primary reliance on the subdivision development method and secondary weight on the sales comparison approach.
Based on the foregoing analysis, we estimate the following values for each village, assuming finished lots.
RECONCILIATION AND CONCLUSIONS OF LOT VALUE 145
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
RE CEN T A ND PEN DIN G SALE S O F SU B JECT MDR VI L LA GES One June 10, 2020, M & H Realty Partners VI LP and Signature Homes, Inc. entered into a partnership agreement for MDR-5. On December 21, 2021 MDR-5 was transferred into the joint venture entity identified as MHRP / Signature Homes JV I LLC.
Subsequent to the partnership agreement for MDR-5, M & H Realty Partners VI LP entered into purchase and sale agreements (PSA) with Signature Homes for the remaining medium density villages. The PSA for MDR-8 is dated June 24, 2021. The PSA for MDR-6 is dated September 7, 2021. A letter of intent dated June 30, 2021 was provided for MDR-7.
While the details relating to the closed joint venture agreement for MDR-5 and pending sale agreements for the other MDR villages are not reported herein due to confidentiality agreements between the parties, they have been provided for our review and analyzed and considered in our valuation.
The finished lot values concluded in the prior section are difficult to accurately compare to the joint venture and purchase agreements for the subject MDR villages due to several factors including the fact that the buyer, Signature Homes, is responsible for processing the maps and constructing in-tract improvements as well as the main internal roads adjacent to the villages. The MDR-5 joint venture transfer is further complicated by a relatively high level of profit participation by MHRP.
Based on our analysis, our estimated finished lot cost basis for Signature Homes (purchase prices + allocated backbone costs + estimated in-tract costs) are below the concluded finished lot values for the MDR villages. This variance is primarily attributed to significant appreciation in the new home market since the dates these agreements were executed. Per The Gregory Group, the average new detached home price in Sacramento County was $706,767 as of Q1-2022. This is up 10% ($64,903 per home) in comparison to the mid-year 2021 level ($641,864) and up 20% (or $118,187 per home) from the year-ago (Q1-2021) level of $588,580.
SALES COMPARISON APPROACH –HDR LAND 146
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL SALES COMPARISON APPROACH –HDR LAND
In order to develop an opinion of the subject site as if vacant and available for development to its highest and best use, we employ the sales comparison approach. This is accomplished by compiling, verifying, and comparing recent and pending sales, as well as listings of sites similar in location, potential use, and physical attributes. The sales comparison approach is based upon the principle of substitution, which states that when a property is replaceable in the market, its value tends to be set at the cost of acquiring an equally desirable substitute property, assuming that no costly delay is encountered in making the substitution.
The sales comparison approach to value involves the following steps:
Determine the Unit of Comparison: Examine market trends, interview market participants, and consider market data in order to determine the most widely used unit of comparison for properties with characteristics similar to those of the subject. For purposes of this analysis, the unit of comparison utilized is price per unit.
Compile and Verify Comparable Data: Research is conducted to compile comparable pending sales, closed sales, and active listings of sites that are similar to the subject in location, size, utility, zoning, potential use, density, and other physical and legal characteristics. A reasonable effort has been made to verify the salient facts of each comparable transaction, as well its arm’s length status. In the event that we are unable to confirm a comparable with a direct party to the transaction, we have obtained secondary verification from public records and other market sources unless otherwise noted.
Comparison and Adjustment: Once the comparable data set has been identified, we adjust each sale/listing to account for specific differences in value-impacting transactional, locational, physical, and legal attributes (elements of comparison). All adjustments are applied to the comparables as they relate to the subject property.
Reconciliation: The value indications rendered from the adjustment process are evaluated for reliability and relevance to the subject, and reconciled to a single value conclusion for the subject property. The relevance of each comparable is largely captured in a comparison of the net and overall adjustments that are necessary in the adjustment process.
HDR Land: Benchmark value for a 10-acre finished multi-family lot/tract with an achievable density of 27 units per acre. This lot is assumed to have all perimeter streets installed as well as utilities stubbed up to the property boundary.
COMPARABLE LAND SALES
On the following pages, we present a summary of the comparable land sales that have been determined to be most relevant to the subject, including maps and photos.
SALES COMPARISON APPROACH –HDR LAND 147
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SALES COMPARISON APPROACH –HDR LAND 148
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SALES COMPARISON APPROACH –HDR LAND 149
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
COMPARABLE LAND SALES MAP
SALES COMPARISON APPROACH –HDR LAND 150
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL Land Sale 1
3801 Gateway Park Blvd
Land Sale 2
7299 Klotz Ranch Ct
Land Sale 3
3701 E Commerce Way
Land Sale 4
2450 Natomas Park Dr
Land Sale 5
9142 Bruceville Rd
Land Sale 6
Venture Oaks Way
SALES COMPARISON APPROACH –HDR LAND 151
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
DISCUSSION OF ADJUSTMENTS
ADJUS T MEN T PR OCE S S
Each comparable is compared to the subject based upon the elements of comparison that have been determined to be relevant to the subject’s property type and location. Attributes of the comparable that are deemed to be inferior to the subject warrant an upward adjustment; whereas, superior attributes warrant a downward adjustment. Depending upon the availability and reliability of market data, adjustments are applied quantitatively (expressed as a percentage or dollar-per-unit amount) or qualitatively (inferior/similar/superior). Comparables that require less net and overall adjustment are often considered to be more reliable indicators of value; however, each comparable is evaluated by the appraiser in order to arrive at a final reconciled value.
TR ANS ACT I ON AL ADJU S T ME N TS
No adjustments are warranted for property rights conveyed, financing or conditions of sale.
MAR KET CO ND IT IO N S
The four closed comparables had closing dates between October 2019 and July 2021; however, it is important to note that Sales 2 and 3 were initially placed in contract in August 2019 and the contract dates of these sales are considered in our market conditions adjustment. Sales 1 and 6 reflect pending sales that were placed under contract in September 2021 and Mach 2022, respectively. Sale 8 was recent placed under contract (March 2022) and reflects continued appreciation for multifamily land in the market area.
Based upon trends in multi-family rent, vacancy, and capitalization rates, it is clear that market conditions have been improving over this time. Based on these factors we have recognized a 5% annual adjustment to the comparables due to improving market conditions between the sale dates and the effective date of value.
LO CA TI ON
The appeal of a property’s location to users of and/or investors in a particular property type can influence value significantly. This factor broadly considers the impact of demographics, geographical attributes, access and visibility from major thoroughfares, and local land use trends on pricing. Comparisons of location can often be derived, or even quantified, by examining rent, vacancy, capitalization rate, and land value trends in the subject and directly competitive areas.
The subject has an average location in the city of Sacramento. Sales 2 and 5 are located in South Sacramento and have similar locations as the subject. Sales 1 and 3 are located in North Natomas and also rate similar to the subject in terms of location. Sales 4 and 6 are located in South Natomas and are rated slightly superior.
PRO JEC T SIZE
Project size and pricing typically have an inverse relationship, whereby larger sites tend to achieve lower pricing on a per-square-foot basis. This is attributable to economies of scale, as well as the narrower pool of prospective buyers for a larger property.
SALES COMPARISON APPROACH –HDR LAND 152
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL The subject HDR sites range in size from 5.89 to 8.59 acres. Sales 1-5 are rated similar in project site. Sale 6 is a larger project and is rated slightly inferior in land size.
BO ND DEB T/B UI LDI N G FEE S
The subject has a combined bond debt and building fee of $34,100 per achievable unit. The cumulative bond debt and fees for the comparable sales range from $20,000 to $45,000 per unit. Sale 5 has the highest total fees/bond debt ($45,000/unit). The remaining sales have lower and superior debt/fees from $20,000 to $28,940 per unit. Judging from the prices being paid for the comparable sales there not appear to be direct correlation or adjustment for differences in fees/debt. Thus, while quantitative adjustments for differences in these costs is not applicable the cumulative fee/bond debt are important factors considered by developers. Overall, we rate Sales 1 and 3 similar to the subject with respect to these costs.
Sales 2, 4 and 6 are rated superior and Sale 5 is rated inferior.
ZO NIN G/D EN S IT Y
The value of vacant land is largely contingent upon its potential use. This factor considers the uses permitted by the applicable development standards, per the subject’s zoning designation. The maximum density to which a property can be developed typically impacts total value positively; however, depending upon property type, location, and type of construction higher permitted densities can have an inverse relationship to pricing on a per-unit basis.
The subject is analyzed under a potential density of 27 units per acre. This density is similar to Sales 1, 2 and 3. Sales 4 and 5 have lower densities per acre and rate superior. Sale 6 has a higher density and is rated slightly inferior.
UT IL IT Y
The configuration, shape, dimensions, and topography of a site determine its developability and overall utility. These factors can impact development costs, usable area of the site, and thereby, achievable pricing. Overall, site dimensions, shape, and topography result in average utility. The comparable sales have similar site utility and no adjustments were made.
ENT IT LEME NT S
This adjustment category accounts for the value of any existing approvals at a site. The premium attributed to entitlements in place depends upon market conditions, the cost and risk associated with processing entitlements through the local planning department, and the property’s current entitlement status. The subject sites have appropriate zoning and most entitlements in place for multi-family development; however, specific project level entitlements will be required prior to development.
Sales 1 and 6 are presently in-contract and closing is contingent upon entitlements being secured. Sales 2 and 3 did not have specific entitlements in place at the time of contract; however, the buyer secured entitlements prior to closing. Sales 4 and 5 had multi-family zoning in place, but lack project level entitlements at the time of closing. Thus, all comparables are rated similar in terms of entitlements.
INFR A S TR U CTU R E /S ITE IMPR OVEME NT S
This analysis assumes that the subject HDR sites have all off-site roads and utilities complete to the property boundary. All comparables are rated similar and no adjustments are necessary.
SALES COMPARISON APPROACH –HDR LAND 153
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
SALES COMPARISON APPROACH –HDR LAND 154
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL LAND VALUE CONCLUSION –MULTI -F AMILY
The comparable sales were quantitatively adjusted for market conditions, while all of the other factors were considered on a qualitative basis.
There were two sales that indicated overall superior ratings and these had prices from $28,189 to $28,723 per achievable unit. A value estimate lower than this range is appropriate.
One sale (Sale 2) had a final overall rating of slightly superior and had a price of $24,002 per achievable unit. This comparable is located in close proximity to the subject and is most similar in terms of location.
Based on our analysis, a value estimate slightly lower that this is appropriate.
Three sales indicated overall similar ratings and these had prices from $18,954 to $22,991 per achievable unit, with an average of $20,851 per unit. A value estimate within this range is appropriate.
In addition, we have considered the opinions of market participants in our conclusion. One of the subject HDR parcels (HDR-6, 8.6 acres, 232 potential units) was recently offered for sale by Walker & Dunlop. Nate Oleson, the listing agent, reports that there has been strong interest from prospective buyers and provided the opinion that a price near $30,000 per unit is expected/achievable for this site. Another market participant (Alleghany Properties representative, the seller of Comparable 3) provided the opinion that a value “above $20,000 per unit” was appropriate for the Delta Shores HDR land.
Given the foregoing analysis, we conclude to a land value estimate $22,000 per unit for the benchmark multi-family site.
The five HDR tracts (HDR 6 through 10) are rated similar overall in terms of location, density, size and utility. Thus, a similar per unit value is appropriate for these five tracts. In addition, a similar conclusion is supported for the MU site given the highest and best use of this tract.
MDR-5 VALUATION 155
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL MDR-5 VALUATION
As previously discussed, this village was transferred into the joint venture (JV) comprised of M&H Realty Partners VI L.P and Signature Homes in December 21, 2021. The current ownership entity is identified as MHRP / Signature Homes JV I LLC. We have been requested to provide market value by ownership.
Therefore, a separate value estimate is provided for MDR-5 based on the current condition of the property.
A finished lot value of $185,000 per lot was previously concluded for MDR-5 on a stand alone basis. In order to estimate the current value of this portion of the subject deductions are applied for total lot development costs (main internal roadway costs and in-tract development costs) as well as profit on lot development. As previously discussed, the in-tract development costs are estimated at $60,000 per lot.
The allocated cost of the main internal road is summarized as follows:
The value of MDR-5 is derived as follows:
The bulk value of the remainder of the subject (all land except MDR-5) is derived in the following section.
HYPOTHETICAL MARKET VALUE (BULK VALUE) 156
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
HYPOTHETICAL MARKET VALUE (B ULK VALUE )
This analysis relates to all subject lots/parcels with the exception of MDR-5.
To estimate the Hypothetical Market Value, we utilize a discounted cash flow analysis, which includes four components (Revenue, Absorption, Expenses and Discount Rate). The steps required to complete this analysis are as follows:
Estimate the revenue from the sale of lots/tracts of land within the development, with consideration to appreciation/inflation factors, if any;
Estimate an appropriate absorption rate for the sale of lots or tracts; Estimate all expenses associated with the sell-off of completed lots, including holding and selling costs, as well as direct and indirect construction costs (with consideration for inflationary expense trending);
Estimate the appropriate profit rate/discount rate for the type of project under consideration, and discount the net cash flows to arrive at a value indication.
The discounted cash flows reflect finished lot revenue with deductions for remaining site development costs, accordingly, as applicable.
RE VENUE
The revenue of the of the lots and tracts of land were estimated in the foregoing analysis. A summary of the revenue is shown as follows:
HYPOTHETICAL MARKET VALUE (BULK VALUE) 157
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
PRICE CHA NGE S
A previously discussed, regional home prices and residential land/lot prices have appreciated substantially over mid-2020 through year-end 2021. These factors were considered in our previous conclusions of finished lot values for the MDR villages and HDR land tracts. Prices started to moderate in the 4 th quarter. Industry projections are less favorable moving forward due to the recent spike in mortgage interest rates in March/April 2022. Given the current mortgage interest rate environment, we do not reflect any appreciation for the MDR village land sales, which are projected to occur over the initial two years.
The multifamily market is not expected to be materially impacted by aforementioned trends in mortgage interest rates. Based on recent prices changes, we estimate an annual increase of 4% annually for the HDR land.
ABS OR PT I ON
The lot sale absorption was discussed earlier in the report. The following is a summary of the lot sale estimates:
Single-family Lots: Excluding MDR-5, the subject will have 334 single-family lots within three villages. There is currently robust developer demand for single-family lots and land it is likely that the villages could be sold immediately if the lots were finished today. In order to allow for completion of major roads and in-tracts, we conclude to a two-year absorption of these lots, with MDR-8 selling in year one and MDR-6 and MDR-7 selling in year two.
Multi-family: The subject includes five HDR sites that can accommodate 1,027 units and one MU site that can accommodate 125 high-density units (a total of 1,152 achievable multi-family units). The market and absorption study by John Burns Real Estate Consulting (JBREC) included two absorption projections for the HDR land. Scenario 1 was more conservative, projecting a 10 year absorption period, while Scenario 2 was more aggressive, projecting a six year absorption period. We have considered both scenarios in our projection and conclude to a total absorption period of 9 years. The JBREC projections and our conclusions are summarized as follows:
EXPEN SES
The discounted cash flow analyses account for the following expense items:
GE NE R AL A ND A DM I NI ST RA TI VE E XPE NSE S
General and administrative expenses would include management of project entitlements and construction, as well as coordination with others. We have estimated this expense at 1.0% of revenue, which is spread evenly over the sell-off period.
HYPOTHETICAL MARKET VALUE (BULK VALUE) 158
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
MA RK E TI NG A ND S AL E
For the sell-off of the MDR villages to builders, marketing costs would be minimal, since master developers often contact builders directly and indicate lots are available, rather than openly list properties and have marketing costs. Therefore, a 1% sales cost is applied to single family (MDR) sale revenue.
It is expected that an experienced broker would be required to market the HDR sites. We have estimated an expense of 3.0% revenue for HDR sites, which is within market parameters.
RE AL E ST A TE T A XE S
Base Taxes: The subject’s taxes are estimated based on the current tax rate of around 1.1167% applied to the estimated market value. Taxes have been applied to the remaining unclosed lots each quarter based on the final value estimate allocated to MDR and HDR components.
Direct Assessments: The proposed levies are $671 per lot for medium density and $487 per units for high density; however, the direct levies during the build-out will be substantially less as many of the levies are not assessed until final maps are recorded (for MDR component) or apartments are completed (HDR component).
As vacant land the subject is likely be assessed lower direct levies. The current direct levies for the overall subject project equate to $20,278 annually. We have applied a conservative estimate of $50,000 in year one of the projection, which is reduced by the percentage of units sold in future years.
Special CFD Taxes: In addition, for each unit we consider the Special Taxes for the CFD. The reported average maximum Special Tax is $1,530 per single-family (MDR) lot and $250 per multi-family unit was discussed in the Property Taxes section of this report.
For the HDR land, we utilize these CFD taxes ($250 per unit annually) for the unsold inventory.
For MDR-5 (not included in this analysis) and MDR-8, capitalized CFD interest will offset special CFD taxes through December 2022. For MDR-6 and MDR-7, capitalized interest will offset special CFD taxes through September 2024. Therefore, CFD taxes for MDR-6, 7 & 8 are nearly 100% offset by capitalized interest over the two year sell-off period for these lots, as summarized in the following table.
HYPOTHETICAL MARKET VALUE (BULK VALUE) 159
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
S I T E D E V E L O P M E N T C O S T S
We deduct all costs associated with remaining off-site improvements, backbone infrastructure, on-sites, in- tract development, and engineering. These costs were previously discussed in the prior Property Description section and are summarized briefly here.
RE M AI NI NG O F F-S I TE S
As discussed in the prior Property Description section, the total remaining off-site costs are estimated at $343,000. The remaining off-site costs are recognized in year one.
SE WE R LI FT S T ATIO N
The developer is required to construction the regional sewer lift station and force main within Improvement Area 2 once the project exceeds 1.2MGD sewer generation threshold. The total cost of these improvements is budgeted at $5,112,250; however, these improvements will also benefit areas outside of Improvement Area 2. The allocation of these sewer related costs to Improvement Area 2 provided by the master developer is $3,000,000.
The developer estimates that the 1.2MGD threshold will not be achieved until 1,400 to 1,600 residential units are completed within the overall Delta Shores project, which will likely be in excess of five years out. We have recognized this cost in year six of the projection and applied a 4% annual inflation factor to the current cost estimate.
MA IN I N TE R N AL RO AD S
As discussed in the prior Property Description section, the main internal roadway costs are estimated at $14,861,157, which includes allocated soft costs at 15%. The allocated costs of internal roads between MDR- 5 and the balance of the project are estimated as follows:
The developer reports that these costs will be incurred in phases, spread over approximately a three year period. Our projection assumes that these costs will be incurred in equal increments over the first three years of the projection and applied a 4% annual inflation factor to the 2nd and 3rd year costs, as summarized below.
HYPOTHETICAL MARKET VALUE (BULK VALUE) 160
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
IN-T R AC T LO T DE VE L O P M E NT
As discussed in the prior Property Description section, Signature Homes provided estimated lot development costs for each of the four MDR villages; however, their total cost estimate ($28,528,000 or $67,762 per MDR lot) included both in-tract lot development costs as well as costs for main internal roads adjacent to the MDR villages. An allocation (between in-tracts and main internal roads) was requested, but was not available.
Therefore, the following in-tract costs were estimated based on analysis of cost comparables.
The in-tract costs for MDR-5 are excluded. The cost for MDR-8 ($6,800,000) is recognized in year one and the in-tract costs for MDR-6 and MDR-7 ($8,910,000 plus 4% inflation factor) are recognized in year two.
RE MA IN IN G MA P A ND E NG INEER I N G C O ST S
As previously discussed, only moderate remaining costs associated with mapping and engineering are anticipated. We have recognized a moderate cost of $100,000 in year one for remaining mapping and engineering costs.
DI SC OUN T RATE
The final element in the discounted cash flow analysis is the discount rate that is applied to the individual cash flows. The discount rate is a rate of return commensurate with perceived risk used to convert future payments or receipts to present value. This rate reflects the compensation offered to an investor for assuming the inherent risk associated with the property. Naturally the discount rate varies with the size and complexity of the project and can be affected by numerous other factors. The discount rate is inclusive of developer profit.
HYPOTHETICAL MARKET VALUE (BULK VALUE) 161
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL A survey of discount rates was presented in the Subdivision Development Method section of this report. As stated, the subject property as unimproved land and would normally carry elevated risk relative to finished lots. This is true in the as-is condition, where development of backbone infrastructure and in-tract lot improvements can lead to significant cost overruns and profit reductions. However, this factor is mitigated, at least relative to the MDR component of the subject, by the robust developer demand for entitled residential land and lots. This is demonstrated by the fact that all of the subject MDR villages are presently under contract to one developer and also that Delta Shores West (3 villages totaling 348 tentative map lots on the west side of I-5) are also under contract to a national builder.
In addition, we have considered the length of the sell-out period. Rates of returns are generally lower for longer sell-out periods. With a 9-year sell-out period, a lower rate is reasonable given the magnitude of the discounting.
In order to support and appropriate discount rate for the subject we’ve considered published surveys by PwC and RealtyRates, as well as propriety BBG surveys.
PUBLISHED SURVEYS
Survey Rate Comment
PwC Real Estate Investor Survey
4th Quarter 2021
10% - 30%, with an average of 16.8% Up 120 basis points from 2 nd Quarter 2021
RealtyRates
4th Quarter 2021
15.3%- 33.1%, 23.2% average
(Pro-Forma Rates )
California/Pacific Islands Region
Subdivisions/PUDs
100-500 units
Site-Built Residential
The PwC survey indicates, that on an unleveraged basis, discount rates (including developers’ profit) for the national development land market range from 10.0% to 30.0% and average 16.8% this quarter – 120 basis points higher from six months ago.
The RealtyRates survey relates to ground‐up construction through completed improvements. For site built residential, the IRR’s range from about 15% to 33% and average near 23%. As our analysis is based on land and lot sales , a rate below the average is considered appropriate.
Developers surveyed in this market climate noted that projects are being looked at based on IRR requirements. BBG interviews with developers of various projects throughout Northern and Central California quoted IRR requirements within a range of 10% to 20%.
All things considered we estimate that a discount rate of 15% is best supported for the valuation of the overall project (as unimproved).
The discounted cash flow with the aforementioned parameters is presented on the following page.
HYPOTHETICAL MARKET VALUE (BULK VALUE) 162
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
FINAL OPINION OF VALUE 163
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
FINAL OPINION OF VALUE
Based on the preceding valuation analysis and subject to the definitions, assumptions, and limiting conditions expressed in the report, our value opinion follows:
The value reported above is subject to the extraordinary assumptions, hypothetical conditions, standard assumptions and limiting conditions set forth in the accompanying report of which this summary is a part.
No party other than the Client and Intended Users may use or rely on the information, opinions and conclusions contained in the report.
EXPOSURE TIME AND MARKETING PERIOD
Exposure time is the period a property interest would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. In attempting to estimate a reasonable exposure time for the subject property, we looked at both the historical exposure times of a number of sales, as well as current economic conditions. Demand remains high for bulk purchase of lots. Based on our review of recent sales transactions for similar properties and our analysis of supply and demand in the local market, it is our opinion that the probable exposure time is 9 months for the subject lots, based on the concluded value(s) and as of the date of value.
Marketing time is an estimate of the time to sell a property interest in real estate at the estimated market value during the period immediately after the effective date of value. A reasonable marketing time is estimated by comparing the recent exposure time of similar properties, and then taking into consideration current and future economic conditions and how they may impact marketing of the subject property. We see no significant changes in market conditions in the near term; therefore, it is our opinion that a reasonable marketing period is likely to be similar to the exposure time. Accordingly, we estimate the subject’s marketing period at 9 months, based on the concluded value(s) and as of the date of value.
CERTIFICATION 164
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
CERTIFICATION
We certify that, to the best of our knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved with this assignment.
4. We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.
5. Our engagement in this assignment was not contingent upon developing or reporting predetermined results.
6. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.
7. This appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan.
8. We have previously appraised the property that is the subject of this report for the current client within the three-year period immediately preceding acceptance of this assignment.
9. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice, as well as applicable state laws and regulations.
10. The reported analyses, opinions, and Value Indications were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics, the Standards of Professional Appraisal Practice of the Appraisal Institute.
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, Arthur Leck, MAI and Scott Beebe, MAI have completed the continuing education program for Designated Members of the Appraisal Institute.
13. Arthur Leck, MAI and Scott Beebe, MAI, have personally inspected the property.
CERTIFICATION 165
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
14. No one provided significant real property appraisal assistance to the person signing this certification.
Arthur A. Leck, MAI
Managing Director
California Certified General Appraiser
No. AG 011823
Ph: (916) 949-7377
Email: [email protected]
Scott Beebe, MAI
Senior Managing Director
California Certified General Appraiser
No. AG 015266
Ph: (925) 588-7641
Email: [email protected]
STANDARD ASSUMPTIONS AND LIMITING CONDITIONS 166
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
STANDARD ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report has been made with the following general assumptions:
1) Notwithstanding that Appraiser may comment on, analyze or assume certain conditions in the appraisal, BBG, Inc. shall have no monetary liability or responsibility for alleged claims or damages pertaining to: (a) title defects, liens or encumbrances affecting the property; (b) the property’s compliance with local, state or federal zoning, planning, building, disability access and environmental laws, regulations and standards; (c) building permits and planning approvals for improvements on the property; (d) structural or mechanical soundness or safety; (e) contamination, mold, pollution, storage tanks, animal infestations or other hazardous conditions affecting the property; and (f) other conditions and matters for which licensed real estate appraisers are not customarily deemed to have professional expertise. Accordingly:
a) The Appraiser has not conducted any engineering or architectural surveys in connection with this appraisal assignment. Information reported pertaining to dimensions, sizes, and areas is either based on measurements taken by the Appraiser or the Appraiser’s staff or was obtained or taken from referenced sources and is considered reliable. The Appraiser and BBG, Inc. shall not be monetarily liable or responsible for or assume the costs of preparation or arrangement of geotechnical engineering, architectural, or other types of studies, surveys, or inspections that require the expertise of a qualified professional. b) Unless otherwise stated in the report, only the real property is considered, so no consideration is given to the value of personal property or equipment located on the premises or the costs of moving or relocating such personal property or equipment. Further, unless otherwise stated, it is assumed that there are no subsurface oil, gas or other mineral deposits or subsurface rights of value involved in this appraisal, whether they are gas, liquid, or solid.
Further, unless otherwise stated, it is assumed that there are no rights associated with extraction or exploration of such elements considered. Unless otherwise stated it is also assumed that there are no air or development rights of value that may be transferred. c) Any legal description or plats reported in the appraisal are assumed to be accurate. Any sketches, surveys, plats, photographs, drawings or other exhibits are included only to assist the intended user to better understand and visualize the subject property, the environs, and the competitive data. BBG, Inc. has made no survey of the property and assumes no monetary liability or responsibility in connection with such matters. d) Title is assumed to be good and marketable, and in fee simple, unless otherwise stated in the report. The property is considered to be free and clear of existing liens, easements, restrictions, and encumbrances, except as stated. Further, BBG, Inc. assumes there are no private deed restrictions affecting the property which would limit the use of the subject property in any way.
e) The appraisal report is based on the premise that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless otherwise stated in the appraisal report; additionally, that all applicable zoning, building, and use regulations and STANDARD ASSUMPTIONS AND LIMITING CONDITIONS 167
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL restrictions of all types have been complied with unless otherwise stated in the appraisal report. Further, it is assumed that all required licenses, consents, permits, or other legislative or administrative authority, local, state, federal and/or private entity or organization have been or can be obtained or renewed for any use considered in the value opinion. Moreover, unless otherwise stated herein, it is assumed that there are no encroachments or violations of any zoning or other regulations affecting the subject property, that the utilization of the land and improvements is within the boundaries or property lines of the property described, and that there are no trespasses or encroachments.
f) The American Disabilities Act (ADA) became effective January 26, 1992. The Appraiser has not made a specific compliance survey or analysis of the property to determine whether or not it is in conformity with the various detailed requirements of ADA. It is possible that a compliance survey of the property and a detailed analysis of the requirements of the ADA would reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative impact upon the value of the property. Since the Appraiser has no direct evidence relating to this issue, possible noncompliance with the requirements of ADA was not considered in estimating the value of the property. g) No monetary liability or responsibility is assumed for conformity to specific governmental requirements, such as fire, building, safety, earthquake, or occupancy codes, except where specific professional or governmental inspections have been completed and reported in the appraisal report.
h) It is assumed the subject property is not adversely affected by the potential of floods; unless otherwise stated herein. Further, it is assumed all water and sewer facilities (existing and proposed) are or will be in good working order and are or will be of sufficient size to adequately serve any proposed buildings.
i) Unless otherwise stated within the appraisal report, the depiction of the physical condition of the improvements described therein is based on visual inspection. No monetary liability or responsibility is assumed for (a) the soundness of structural members since no engineering tests were conducted; (b) the condition of mechanical equipment, plumbing, or electrical components, as complete tests were not made; and (c) hidden, unapparent or masked property conditions or characteristics that were not clearly apparent during the Appraiser’s inspection.
j) If building improvements are present on the site, it is assumed that no significant evidence of termite damage or infestation was observed during physical inspection, unless so stated in the appraisal report. Further, unless so stated in the appraisal report, no termite inspection report was available. No monetary liability or responsibility is assumed for hidden damages or infestation.
k) Unless subsoil opinions based upon engineering core borings were furnished, it is assumed there are no subsoil defects present, which would impair development of the land to its maximum permitted use or would render it more or less valuable. No monetary liability or responsibility is assumed for such conditions or for engineering which may be required to discover them.
STANDARD ASSUMPTIONS AND LIMITING CONDITIONS 168
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL l) BBG, Inc. is not an expert in determining the presence or absence of hazardous substances, defined as all hazardous or toxic materials, wastes, pollutants or contaminants (including, but not limited to, asbestos, PCB, UFFI, or other raw materials or chemicals) used in construction or otherwise present on the property. BBG, Inc. assumes no monetary liability or responsibility for the studies or analyses which would be required to determine the presence or absence of such substances or for loss as a result of the presence of such substances.
Appraiser is not qualified to detect such substances. The Client is urged to retain an expert in this field; however, Client retains such expert at Client’s own discretion, and any costs and/or expenses associated with such retention are the responsibility of Client. m) BBG, Inc. is not an expert in determining the habitat for protected or endangered species, including, but not limited to, animal or plant life (such as bald eagles, gophers, tortoises, etc.) that may be present on the property. BBG, Inc. assumes no monetary liability or responsibility for the studies or analyses which would be required to determine the presence or absence of such species or for loss as a result of the presence of such species. The Appraiser hereby reserves the right to alter, amend, revise, or rescind any of the value opinions contained within the appraisal repot based upon any subsequent endangered species impact studies, research, and investigation that may be provided. However, it is assumed that no environmental impact studies were either requested or made in conjunction with this analysis, unless otherwise stated within the appraisal report. 2) If the Client instructions to the Appraiser were to inspect only the exterior of the improvements in the appraisal process, the physical attributes of the property were observed from the street(s) as of the inspection date of the appraisal. Physical characteristics of the property were obtained from tax assessment records, available plans, if any, descriptive information, and interviewing the client and other knowledgeable persons. It is assumed the interior of the subject property is consistent with the exterior conditions as observed and that other information relied upon is accurate.
3) If provided, the estimated insurable value is included at the request of the Client and has not been performed by a qualified insurance agent or risk management underwriter. This cost estimate should not be solely relied upon for insurable value purposes. The Appraiser is not familiar with the definition of insurable value from the insurance provider, the local governmental underwriting regulations, or the types of insurance coverage available. These factors can impact cost estimates and are beyond the scope of the intended use of this appraisal. The Appraiser is not a cost expert in cost estimating for insurance purposes. 4) The dollar amount of any value opinion herein rendered is based upon the purchasing power and price of the United States Dollar as of the effective date of value. This appraisal is based on market conditions existing as of the date of this appraisal.
5) The value opinions reported herein apply to the entire property. Any proration or division of the total into fractional interests will invalidate the value opinions, unless such proration or division of interests is set forth in the report. Any division of the land and improvement values stated herein is applicable only under the program of utilization shown. These separate valuations are invalidated by any other application.
STANDARD ASSUMPTIONS AND LIMITING CONDITIONS 169
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL 6) Any projections of income and expenses, including the reversion at time of resale, are not predictions of the future. Rather, they are BBG, Inc.’s best estimate of current market thinking of what future trends will be. No warranty or representation is made that such projections will materialize. The real estate market is constantly fluctuating and changing. It is not the task of an appraiser to estimate the conditions of a future real estate market, but rather to reflect what the investment community envisions for the future in terms of expectations of growth in rental rates, expenses, and supply and demand. The forecasts, projections, or operating estimates contained herein are based on current market conditions, anticipated short-term supply and demand factors, and a continued stable economy. These forecasts are, therefore, subject to changes with future conditions.
7) The Appraiser assumes no monetary liability or responsibility for any changes in economic or physical conditions which occur following the effective date of value within this report that would influence or potentially affect the analyses, opinions, or conclusions in the report. Any subsequent changes are beyond the scope of the report.
8) Any proposed or incomplete improvements included in the appraisal report are assumed to be satisfactorily completed in a workmanlike manner or will be thus completed within a reasonable length of time according to plans and specifications submitted. 9) If the appraisal report has been prepared in a so-called “public non-disclosure” state, real estate sales prices and other data, such as rents, prices, and financing, are not a matter of public record.
If this is such a “non-disclosure” state, although extensive effort has been expended to verify pertinent data with buyers, sellers, brokers, lenders, lessors, lessees, and other sources considered reliable, it has not always been possible to independently verify all significant facts. In these instances, the Appraiser may have relied on verification obtained and reported by appraisers outside of our office. Also, as necessary, assumptions and adjustments have been made based on comparisons and analyses using data in the report and on interviews with market participants. The information furnished by others is believed to be reliable, but no warranty is given for its accuracy.
10) Although the Appraiser has made, insofar as is practical, every effort to verify as factual and true all information and data set forth in this report, no responsibility is assumed for the accuracy of any information furnished the Appraiser either by the Client or others. If for any reason, future investigations should prove any data to be in substantial variance with that presented in this report, the Appraiser reserves the right to alter or change any or all analyses, opinions, or conclusions and/or opinions of value.
11) The right is reserved by the Appraiser to make adjustments to the analyses, opinions, and conclusions set forth in the appraisal report as may be required by consideration of additional or more reliable data that may become available. No change of this report shall be made by anyone other than the Appraiser. The Appraiser shall have no monetary liability or responsibility for any unauthorized change(s) to the report.
12) The submission of the appraisal report constitutes completion of the services authorized and agreed upon. Such appraisal report is submitted on the condition the Client will provide reasonable notice and customary compensation, including expert witness fees, relating to any subsequent required attendance at conferences, depositions, or judicial or administrative STANDARD ASSUMPTIONS AND LIMITING CONDITIONS 170
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL proceedings. In the event the Appraiser is subpoenaed for either an appearance or a request to produce documents, a best effort will be made to notify the Client immediately. The Client has the sole responsibility for obtaining a protective order, providing legal instruction not to appear with the appraisal report and related work files, and will answer all questions pertaining to the assignment, the preparation of the report, and the reasoning used to formulate the opinion of value. Unless paid in whole or in part by the party issuing the subpoena or by another party of interest in the matter, the Client is responsible for all unpaid fees resulting from the appearance or production of documents regardless of who orders the work.
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
ADDENDA
Addenda
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
APPRAISER QUALIFICATIONS
Arthur Leck, MAI
Managing Director
Work: 916-949-7377
[email protected]
Profile
Arthur Leck is a Managing Director at BBG in the Sacramento office. His Background includes over 25 years of consultation and valuation analysis of commercial and residential properties. Prior to joining BBG, Mr. Leck was a principal and Managing Director with Integra Realty Resources - Sacramento (2000-2017). Previous work affiliations include Morgan, Beebe & Harper of Sacramento (Senior Appraiser, 1996-2000), First Interstate Bank (Staff Appraiser, 1992-1996), and Stephen R. Clark & Associates (1989-1992).
Experience includes the analysis of various property t ypes including land and master planned communities, multi‐ family, retail, office, industrial and special purpose properties in Northern California. Specialized property types include residential subdivisions, LIHTC and senior apartment communities, automob ile dealerships, assessment districts, self‐storage facilities, power centers, school facilities, medical office buildings and others. Services provided include valuation analyses, feasibility and market studies and real estate counseling. Clients served i nclude various financial concerns, law and public accounting firms, private and public agencies, pension and advisory companies, investment firms, and the general public.
Professional Affiliations
Appraisal Institute
Member Designation
Certified General Appraiser:
State of California (License #AG 011823)
State of Nevada (License #A.0207409)
Board of Director: Appraisal Institute, Sacramento Sierra Chapter, January 2010 ‐ December 201 1 Education Committee: Appraisal Institute, Sacramento Sierra Chapter, January 2005 ‐ December 2009
Education
Bachelor of Science, Managerial Economics, University of California, Davis Completed numerous real estate related courses and seminars sponsored by the Appraisal Institute, accredited universities and others.
Currently certified by the Appraisal Institute’s voluntary program of continuing education for its designated members.
Scott Beebe, MAI
Senior Managing Director
Work: 916-949-7360
[email protected]
Profile
Scott Beebe is a Senior Managing Director at BBG in the Sacramento office. Mr. Beebe has over 30 years of experience in the valuation and analysis of commercial real estate including multi -family, retail, industrial, office, mixed-use and development land. Prior to BBG, Scott was one of the founding partners of Integra Realty Resources in 1999. Specialized property types include all types of lodging fac ilities, affordable housing , senior apartment communities, sports and health club facilities, golf course properties, automobile dealerships, manufactured home parks, self-storage facilities, regional malls and power centers and others.
Mr. Beebe has prov ided valuation and consulting services for condemnation purposes, estate, financing, equity participation and due diligence support. Specialized services include portfolio valuations, institutional -grade property valuations, market feasibility studies and acquisition/disposition counseling. Mr. Beebe has testified as an expert witness in superior and municipal courts. Clients served include life insurance companies, pension funds and pension fund advisors, banks and financial institutions, conduits, develop ers and investors, law firms, businesses/ corporations and government.
Professional Affiliations & Licences
Appraisal Institute
Member (MAI)
Lambda Alpha International – Honorary Land Economics Society Board Director, Sacramento Sierra Chapter, Current Board Member and 2000 -2002 Education Committee Member & Chair, (1996-2002)
General Certified Appraiser:
State of California (License # AG 015266)
Education
B.B.A. Degree, Business Administration, University of Texas, Austin, Texas, 1988 Successfully completed numerous real estate related courses and seminars sponsored by the Appraisal Institute, accredited universities and others.
Currently certified by the Appraisal Institute’s voluntary program of continuing education for its designated members
Addenda
IMPROVEMENT AREA NO. 2 OF THE DELTA SHORES CFD NO. 2019-1 APPRAISAL
TITLE REPORT
Order Number: NCS-1053020-ONT1
Page Number: 1
First American Title Insurance Company
April 22, 2021 Amendment
First American Title Insurance Company
National Commercial Services
3281 E Guasti Road, Suite 440
Ontario, CA 91761
Karen C. Ahearn
Glaser Weil Fink Howard Avchen &, Shapiro LLP
10250 Constellation Boulevard, 19th Floor
Los Angeles, CA 90067
Phone: (310)556-7852
Fax: (310)843-2652
Customer Reference: CFD Improvement Area #2
Title Officer: Wendy Hagen Bowen
Phone: (909)510-6225
Email: [email protected]
Owner: M&H Realty Partnership VI LP
PRELIMINARY REPORT
In response to the above referenced application for a policy of title insurance, this company hereby reports that it is prepared to issue, or cause to be issued, as of the date hereof, a Policy or Policies of Title Insurance describing the land and the estate or interest therein hereinafter set forth, insuring against loss which may be sustained by reason of any defect, lien or encumbrance not shown or referred to as an Exception below or not excluded from coverage pursuant to the printed Schedules, Conditions and Stipulations of said Policy forms.
The printed Exceptions and Exclusions from the coverage and Limitations on Covered Risks of said policy or policies are set forth in Exhibit A attached. The policy to be issued may contain an arbitration clause. When the Amount of Insurance is less than that set forth in the arbitration clause, all arbitrable matters shall be arbitrated at the option of either the Company or the Insured as the exclusive remedy of the parties. Limitations on Covered Risks applicable to the CLTA and ALTA Homeowner's Policies of Title Insurance which establish a Deductible Amount and a Maximum Dollar Limit of Liability for certain coverages are also set forth in Exhibit A. Copies of the policy forms should be read. They are available from the office which issued this report.
Please read the exceptions shown or referred to below and the exceptions and exclusions set forth in Exhibit A of this report carefully. The exceptions and exclusions are meant to provide you with notice of matters which are not covered under the terms of the title insurance policy and should be carefully considered.
It is important to note that this preliminary report is not a written representation as to the condition of title and may not list all liens, defects, and encumbrances affecting title to the land.
This report (and any supplements or amendments hereto) is issued solely for the purpose of facilitating the issuance of a policy of title insurance and no liability is assumed hereby. If it is desired that liability be assumed prior to the issuance of a policy of title insurance, a Binder or Commitment should be requested.
Order Number: NCS-1053020-ONT1
Page Number: 2
First American Title Insurance Company
Order Number: NCS-1053020-ONT1
Page Number: 3
First American Title Insurance Company
Dated as of April 14, 2021 at 7:30 A.M.
The form of Policy of title insurance contemplated by this report is:
To Be Determined
A specific request should be made if another form or additional coverage is desired.
Title to said estate or interest at the date hereof is vested in:
M & H Realty Partners VI L.P., a California Limited Partnership The estate or interest in the land hereinafter described or referred to covered by this Report is:
Fee
The Land referred to herein is described as follows:
(See attached Legal Description)
At the date hereof exceptions to coverage in addition to the printed Exceptions and Exclusions in said policy form would be as follows:
1. General and special taxes and assessments for the fiscal year 2021-2022, a lien not yet due or payable.
2. This item has been intentionally deleted.
3. This item has been intentionally deleted.
4. This item has been intentionally deleted.
5. Assessment liens, if applicable, collected with the general and special taxes, including but not limited to those disclosed by the reflection of the following on the tax roll:
1915 Bond for SAFCA Consolidated Cap Asmt #2.
6. The land lies within the boundaries of proposed community facilities District No. 2002-02, as disclosed by a map filed December 13, 2010 in Book 111, Page 0028 of maps of assessment and community facilities districts.
7. The land lies within the boundaries of proposed community facilities District No. 2012-01, as disclosed by a map filed October 03, 2012 in Book 114, Page 0013 of maps of assessment and community facilities districts.
8. The lien of special tax assessed pursuant to Chapter 2.5 commencing with Section 53311 of the California Government Code for Community Facilities District No. 2014-04, as disclosed by Notice of Special Tax Lien recorded April 08, 2016 as Book 20160408, Page 639 of Official Records.
Order Number: NCS-1053020-ONT1
Page Number: 4
First American Title Insurance Company
9. The lien of special tax assessed pursuant to Chapter 2.5 commencing with Section 53311 of the California Government Code for Community Facilities District No. 2019-01, as disclosed by Notice of Special Tax Lien recorded November 04, 2019 as Book 20191104, Page 0511 of Official Records.
10. The lien of supplemental taxes, if any, assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code.
11. Any unpaid amounts owing for utilities, of record or not, due to the County and/or any of the following entities:
Sacramento County Utility Billing office at (916) 875-5555.
City of Sacramento at Utility Billing Office at (916) 808-5454.
12. An easement for transmission and distribution of electricity and for telephone purposes and incidental purposes, recorded December 23, 1922 in Book 626 of Deeds, Page 77.
In Favor of: Great Western Power Company of California
Affects: As described therein
The location of the easement cannot be determined from record information.
13. An easement for transmission and distribution of electricity and incidental purposes, recorded December 23, 1922 in Book 626 of Deeds, Page 78.
In Favor of: Great Western Power Company, a corporation Affects: As described therein
The location of the easement cannot be determined from record information.
14. An easement for transmission and distribution of electricity and incidental purposes, recorded December 23, 1922 in Book 626 of Deeds, Page 79.
In Favor of: Great Western Power Company, a California corporation Affects: As described therein
The location of the easement cannot be determined from record information.
15. An easement for transmission of electricity and incidental purposes, recorded June 13, 1927 as Book 127, Page 494 of Official Records.
In Favor of: Great Western Power Company, a California corporation Affects: as described therein
Portion of said easement Quitclaimed through Easement Quitclaim document recorded on May 28, 2015 as Book 20150528, Page 0963 of Official Records.
The location of the easement cannot be determined from record information.
16. An easement for transmission and distribution of electricity and incidental purposes, recorded June 13, 1927 as Book 127, Page 498 of Official Records.
In Favor of: Great Western Power Company of California Affects: as described therein
Order Number: NCS-1053020-ONT1
Page Number: 5
First American Title Insurance Company
Portion of said easement Quitclaimed through Easement Quitclaim document recorded on May 28, 2015 as Book 20150528, Page 0963 of Official Records.
The location of the easement cannot be determined from record information.
17. An easement for the transmission and distribution of electricity and wires and incidental purposes, recorded August 15, 1930 as Book 321, Page 49 of Official Records.
In Favor of: Great Western Power Company of California Affects: as described therein
The location of the easement cannot be determined from record information.
18. An easement for transmission and distribution of electricity and incidental purposes, recorded July 12, 1946 as Book 1257A, Page 40 of Official Records.
In Favor of: Pacific Gas and Electric Company
Affects: as described therein
The location of the easement cannot be determined from record information.
19. An easement for sewer and drainage pipe lines and incidental purposes, recorded July 30, 1964 as Book 5023, Page 204 of Official Records.
In Favor of: City of Sacramento
Affects: As described therein
20. An easement for build, construct, reconstruct and to operate and maintain a drainage pipe lines and incidental purposes, recorded September 11, 1964 as Book 5059, Page 24 of Official Records.
In Favor of: City of Sacramento, a Municipal corporation Affects: As described therein
21. Abutter's rights of ingress and egress to or from Interstate 5 have been relinquished in the document recorded May 01, 1978 as Book 780501, Page 843 of Official Records.
22. Any lease, grant, exception or reservation of minerals or mineral rights as described in the deed executed by Harry M. Tonkin and Dalton G. Feldstein, as trustees of the Freeport Liquidating Trust, recorded June 29, 1984, in Book 84 06 29, Page 1677, Official Records and also described in the quitclaim deed dated January 19, 1960, recorded January 20, 1960, in Book 3980 of Official Records