CA Aliso Viejo - California Tax Foundation

Transcription

NEW ISSUE
BOOK-ENTRY ONLY
NO RATING
In the opinion of Best Best & Krieger LLP, Bond Counsel, based on an analysis of existing laws, regulations, rulings and court
decisions, and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross
income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California
personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of
federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted
current earnings in calculating federal corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding
any other federal or state income tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on,
the Bonds. See “TAX MATTERS” herein.
$34,070,000
COMMUNITY FACILITIES DISTRICT NO. 2005-01
(GLENWOOD AT ALISO VIEJO)
OF THE CITY OF ALISO VIEJO
County of Orange
State of California
2007 SPECIAL TAX BONDS
Dated: Date of Issuance
Due: September 1, as shown below
The Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo, County of Orange, State of California
(the “District”) 2007 Special Tax Bonds (the “Bonds”) are being issued by the City of Aliso Viejo (the “City”) for the District pursuant to the
provisions of the Mello-Roos Community Facilities Act of 1982, as amended (constituting Section 53311 et seq. of the California Government
Code), and a Fiscal Agent Agreement (the “Agreement”), dated as of November 1, 2007, between the City, for itself and on behalf of the District,
and The Bank of New York Trust Company, N.A., as Fiscal Agent. The Bonds are special obligations of the City and are payable solely from
revenues derived from certain annual Special Taxes (as defined herein) to be levied on certain taxable land within the District (less certain
administrative expenses) and from certain other funds pledged under the Agreement, all as further described herein. The Special Taxes are
to be levied according to the rate and method of apportionment approved by the City Council of the City and the qualified electors within the
District. See “SECURITY FOR THE BONDS – Special Taxes.” The City Council of the City is the legislative body of the District.
The proceeds of the Bonds will primarily be used to (i) pay costs of acquisition and construction of certain public facilities described
herein to be owned and maintained by the City, the County of Orange and the Moulton Niguel Water District; (ii) fund a reserve fund; (iii) pay
capitalized interest on the Bonds, until September 1, 2009; and (iv) pay costs of issuing the Bonds. See “THE FINANCING PLAN” herein.
Interest due with respect to the Bonds is payable on March 1 and September 1 of each year, commencing March 1, 2008. Initial purchases
of beneficial interests in the Bonds will be made in book-entry form and the Bonds will be registered in the name of Cede & Co., as nominee
for The Depository Trust Company (“DTC”). Bond denominations are $5,000 and any integral multiple in excess thereof. Purchasers of
beneficial interests in the Bonds will not receive certificates representing their interests in the Bonds and will not be paid directly by the
Fiscal Agent. See “APPENDIX G – DTC and Book Entry System.”
The Bonds are subject to optional and mandatory redemption prior to their stated maturity, as described herein. See
“THE BONDS – Redemption” herein.
To provide funds for payment of the Bonds in the event of a shortfall of revenues caused by delinquent Special Tax payments, the City
will establish a Reserve Fund for the Bonds initially funded from Bond proceeds. If revenues from the Special Taxes are insufficient to pay
the debt service on the Bonds, the moneys in the Reserve Fund are available to cover the deficiency. There is no assurance that funds will
be available for this purpose and if, during the period of revenue shortfall, there are insufficient moneys in the Reserve Fund, there may be a
delay in payment to the owners of the Bonds.
Neither the faith and credit nor the taxing power of the City, the County of Orange, the State of California or any political subdivision
thereof is pledged to the payment of the Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds. The Bonds
are special tax obligations of the City payable solely from Special Tax Revenues and other amounts held under the Agreement as more fully
described herein.
CERTAIN EVENTS COULD AFFECT THE ABILITY OF THE CITY TO PAY THE PRINCIPAL OF AND INTEREST ON
THE BONDS WHEN DUE. THE PURCHASE OF THE BONDS INVOLVES SIGNIFICANT RISKS, AND THE BONDS ARE
NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. SEE THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED
“SPECIAL RISK FACTORS” FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED, IN
ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN EVALUATING THE INVESTMENT QUALITY OF THE
BONDS.
This cover page contains certain information for quick reference only. It is not a complete summary of the terms of this Bond issue.
Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision with
respect to the Bonds. See the section of this Official Statement entitled “SPECIAL RISK FACTORS” for a discussion of certain risk factors
that should be considered, in addition to the other matters discussed herein, in considering the investment quality of the Bonds.
MATURITY SCHEDULE
(see Inside Cover Page)
The Bonds are being offered when, as and if issued by the City on behalf of the District, subject to the approval as to their legality by
Best Best & Krieger LLP, San Diego, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for
the City by Best Best & Krieger LLP, as City Attorney and Disclosure Counsel to the City, for the Underwriter by Nossaman Guthner Knox
& Elliott LLP, as Underwriter’s Counsel, and for Shea Homes Limited Partnership (the “Developer”) by Latham & Watkins LLP, acting as
Special Counsel to the Developer and its internal counsel. Delivery of the Bonds is expected to occur in New York, New York on or about
December 6, 2007.
Dated: November 16, 2007
MATURITY SCHEDULE
(Base CUSIP†: 016398)
$4,110,000 Serial Bonds
Maturity Date
(September 1)
2011
2012
2013
2014
2015
2016
Principal
Amount
$ 40,000
85,000
130,000
180,000
230,000
290,000
Interest
Rate
4.500%
4.600%
4.750%
4.800%
5.000%
5.100%
Yield
4.500%
4.600%
4.750%
4.900%
5.050%
5.200%
CUSIP†
AB5
AC3
AD1
AE9
AF6
AG4
Maturity Date
(September 1)
2017
2018
2019
2020
2021
2022
Principal
Amount
$ 350,000
415,000
480,000
555,000
635,000
720,000
Interest
Rate
5.200%
5.300%
5.400%
5.500%
5.600%
5.700%
Yield
5.300%
5.400%
5.500%
5.600%
5.700%
5.800%
CUSIP†
AH2
AJ8
AK5
AL3
AM1
AN9
$5,140,000 5.875% Term Bonds Due September 1, 2027 Yield 5.950% CUSIP†: AP4
$24,820,000 6.000% Term Bonds Due September 1, 2038 Yield 6.070% CUSIP†: AQ2
†
Copyright 2007, American Bankers Association. CUSIP data herein is provided by Standard and Poor’s, CUSIP Service
Bureau, a division of The McGraw-Hill Companies, Inc. Neither the Underwriter nor the District takes any responsibility
for the accuracy of the data.
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
Use of Official Statement. This Official Statement is submitted in connection with the offer and sale
of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.
This Official Statement is not to be construed as a contract with the purchasers of the Bonds.
Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City to
give any information or to make any representations in connection with the offer or sale of the Bonds other than
those contained herein and if given or made, such other information or representations must not be relied upon
as having been authorized by the City or the Underwriter. This Official Statement does not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any
jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in
this Official Statement: the Underwriter has reviewed the information in this Official Statement in accordance
with, and as a part of, its responsibilities to investors under the Federal securities laws as applied to the facts
and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of
such information.
Information Subject to Change. The information and expressions of opinion herein are subject to
change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the affairs of the City, the District,
the Developer or any other entity described or referenced herein since the date hereof. All summaries of the
documents referred to in this Official Statement are made subject to the provisions of such documents,
respectively, and do not purport to be complete statements of any or all of such provisions.
Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect
transactions which stabilize or maintain the market price of the Bonds at a level above that which might
otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The
Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering
prices set forth on the cover page hereof and said public offering prices may be changed from time to time by
the Underwriter.
Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the
City, in any press release and in any oral statement made with the approval of an authorized officer of the City
or any other entity described or referenced herein, the words or phrases “will likely result,” “are expected to,”
“will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions
identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties.
Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and
circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and
those differences may be material.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS
CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER
THE SECURITIES LAWS OF ANY STATE.
CITY OF ALISO VIEJO
City Council
Carmen Cave, Mayor
William Phillips, Mayor Pro-Tem
Greg Ficke, Council Member
Donald Garcia, Council Member
Philip Tsunoda, Council Member
City Staff
Mark Pulone, City Manager
Gina Tharani, Director of Financial Services/City Treasurer
Linda Ruth, City Clerk
Best Best & Krieger LLP, City Attorney
SPECIAL SERVICES
Bond Counsel and Disclosure Counsel
Best Best & Krieger LLP
San Diego, California
Special Tax Consultant
Koppel & Gruber Public Finance
San Marcos, California
Financial Advisor
Fieldman Rolapp & Associates
Irvine, California
Underwriter
Stone & Youngberg LLC
Los Angeles, California
Underwriter’s Counsel
Nossaman Guthner Knox & Elliott LLP
Appraiser
Harris Realty Appraisal
Newport Beach, California
Fiscal Agent
The Bank of New York Trust Company, N.A.
Market Absorption Consultant
Empire Economics, Inc.
Capistrano Beach, California
Dissemination Agent
San Marcos, California
TABLE OF CONTENTS
INTRODUCTION .......................................................... 1
General........................................................................ 1
Issuing Authority......................................................... 1
Application of Proceeds .............................................. 1
The District ................................................................. 2
Security for the Bonds................................................. 3
Limited Liability ......................................................... 4
Description of the Bonds............................................. 5
Tax Matters ................................................................. 5
Continuing Disclosure................................................. 6
Bond Owners’ Risks.................................................... 6
Professionals Involved in the Offering........................ 6
Forward-Looking Statements ...................................... 6
Additional Information................................................ 7
THE FINANCING PLAN .............................................. 7
Financing Plan............................................................. 7
Sources and Uses of Bond Proceeds ........................... 8
Annual Debt Service of Bonds.................................... 9
THE BONDS.................................................................. 9
Authority for Issuance ................................................. 9
Description of the Bonds........................................... 10
Redemption ............................................................... 10
Selection of Bonds for Redemption .......................... 12
Notice of Redemption ............................................... 12
Effect of Redemption ................................................ 12
Transfer or Exchange of Bonds................................. 13
SECURITY FOR THE BONDS................................... 13
Limited Obligations................................................... 13
Special Taxes ............................................................ 13
Reserve Fund............................................................. 16
Limited Liability ....................................................... 17
THE DISTRICT ........................................................... 17
Authorization ............................................................ 17
Rate and Method of Apportionment.......................... 17
Estimated Direct and Overlapping Debt.................... 18
Expected Tax Burden................................................ 21
Appraisal ................................................................... 23
Market Absorption Study .......................................... 24
Estimated Value-to-Lien Ratios ................................ 25
THE DEVELOPMENT AND PROPERTY
OWNERSHIP ............................................................... 27
The Developer........................................................... 27
The Proposed Development ...................................... 28
Financing Plan........................................................... 29
Status of Entitlement Approvals................................ 31
Environmental Constraints ........................................ 31
Infrastructure Requirements and Construction
Status......................................................................... 32
Development Projects ............................................... 34
SPECIAL RISK FACTORS ......................................... 35
Concentration of Ownership ..................................... 36
Limited Obligations................................................... 36
Insufficiency of Special Taxes .................................. 36
Special Tax Delinquencies ........................................ 36
Adjustable Rate and Unconventional Mortgage
Structures .................................................................. 37
Slowdown in Home Sales.......................................... 37
Failure to Develop Properties.................................... 38
Future Land Use Regulations and Growth
Control Initiatives ......................................................39
Water Availability......................................................40
Natural Disasters........................................................40
Hazardous Substances................................................41
Parity Taxes, Special Assessments and Land
Development Costs ....................................................41
Disclosures to Future Purchasers ...............................42
Non-Cash Payments of Special Taxes........................42
Payment of the Special Tax is not a Personal
Obligation of the Owners ...........................................43
Land Values ...............................................................43
FDIC/Federal Government Interests in
Properties ...................................................................44
Bankruptcy and Foreclosure ......................................44
Loss of Tax Exemption ..............................................45
Limitations on Remedies............................................45
Limited Secondary Market.........................................45
Proposition 218 ..........................................................45
Ballot Initiatives.........................................................46
No Acceleration Provision .........................................47
TAX MATTERS ...........................................................47
LEGAL MATTERS.......................................................48
Continuing Disclosure................................................48
Absence of Litigation.................................................48
Legal Matters Incident to the Issuance of the
Bonds .........................................................................49
No Rating...................................................................49
Underwriting ..............................................................49
Miscellaneous ............................................................49
APPENDIX A - SUMMARY OF THE
AGREEMENT....................................................... A-1
APPENDIX B – PROPOSED FORM OF OPINION
OF BOND COUNSEL ...........................................B-1
APPENDIX C – APPRAISAL REPORT ....................C-1
APPENDIX D – RATE AND METHOD OF
APPORTIONMENT OF SPECIAL TAX ............. D-1
APPENDIX E – THE ECONOMY OF
THE CITY OF ALISO VIEJO...............................E-1
APPENDIX F – FORMS OF CONTINUING
DISCLOSURE CERTIFICATES ........................... F-1
APPENDIX G – DTC AND THE BOOK ENTRY
SYSTEM ............................................................... G-1
APPENDIX H – SUMMARY OF MARKET
ABSORPTION STUDY........................................ H-1
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THIS PAGE INTENTIONALLY LEFT BLANK
OFFICIAL STATEMENT
$34,070,000
OF THE CITY OF ALISO VIEJO
County of Orange
State of California
INTRODUCTION
This introduction is not a summary of this Official Statement. It is only a brief description of and guide
to, and is qualified by, more complete and detailed information contained in this entire Official Statement,
including the cover page and appendices hereto, and the documents summarized or otherwise described herein.
A full review should be made of this entire Official Statement and such documents prior to making an
investment in the Bonds. The sale and delivery of the Bonds to potential investors is made only by means of
the entire Official Statement.
General
This Official Statement, including the appendices hereto, sets forth certain information concerning the
issuance by the City of Aliso Viejo (the “City”), of the $34,070,000 aggregate principal amount of Community
Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo, County of Orange, State
of California 2007 Special Tax Bonds (the “Bonds”) for and on behalf of the Community Facilities District No.
2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo (the “District”). The Bonds are being issued by
the City, for itself and on behalf of the District, under the provisions of the Mello-Roos Community Facilities
Act of 1982, as amended (constituting Section 53311 et seq. of the California Government Code) (the “Act”),
and a Fiscal Agent Agreement, dated as of November 1, 2007 (the “Agreement”), between the City and The
Bank of New York Trust Company, N.A., as Fiscal Agent (the “Fiscal Agent”). Capitalized terms used in this
Official Statement and not otherwise defined herein have the meanings given such terms in the Agreement,
some of which are set forth in Appendix A hereto.
Issuing Authority
The District was established by the City Council of the City (the “City Council”) pursuant to
proceedings under the Act on April 20, 2005. See “THE DISTRICT – Authorization” herein. The Bonds were
authorized to be issued by a resolution adopted by the City Council on November 7, 2007 (the “Resolution of
Issuance”). The Bonds are being issued pursuant to the Act, the Resolution of Issuance, and the Agreement.
See “THE BONDS – Authority for Issuance.”
Application of Proceeds
The net proceeds of the Bonds will be used to: (i) finance certain fees used for the acquisition and
construction of certain public facilities to be owned by the City, and the County of Orange (the “County”) and
fees to be paid to and improvements to be owned by the Moulton Niguel Water District (the “Water District”);
(ii) fund a reserve fund for the Bonds; (iii) fund capitalized interest with respect to the Bonds; and (iv) pay costs
of issuing the Bonds. See “THE FINANCING PLAN – Sources and Uses of Bond Proceeds” herein.
1
The District
Formation Proceedings. The District has been formed by the City pursuant to the Act.
The Act was enacted by the California legislature to provide an alternative method of financing certain
public capital facilities and services, especially in developing areas of the State of California (the “State”). Any
local agency (as defined in the Act) may establish a community facilities district to provide for and finance the
cost of eligible public facilities and services. Generally, the legislative body of the local agency which forms a
community facilities district acts on behalf of such district as its legislative body. Subject to approval by twothirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of
a local agency may issue bonds for a community facilities district and may levy and collect a special tax within
such district to repay such indebtedness. The City Council acts as the legislative body of the District.
Pursuant to the Act, the City Council adopted the necessary resolutions stating its intent to establish the
District, to authorize the levy of special taxes on taxable property within the boundaries of the District, and to
incur bonded indebtedness within the District. The Bonds are secured and payable solely from Special Tax
Revenues (as defined herein) of the District, including foreclosure proceeds obtained from foreclosure and sale
of property located in the District. Following public hearings conducted pursuant to the provisions of the Act,
the City Council adopted resolutions establishing the District and calling special elections to submit the levy of
the Special Taxes and the incurring of bonded indebtedness to the qualified voters of the District. On April 20,
2005, at an election held pursuant to the Act, the then current landowners who comprised the qualified voters of
the District authorized the District to incur bonded indebtedness in the aggregate principal amount not to exceed
$37,500,000 for the District to be secured by the levy of Special Taxes on taxable property within the District.
On that same date, the landowners within the District approved the rate and method of apportionment of the
Special Taxes on land within the District to pay the principal of and interest on the bonds of the District (the
“Original Rate and Method”). On November 1, 2006, at a subsequent election held pursuant to the Act, the
landowners who comprised the qualified electors of the District approved the levy of a special tax within the
District pursuant to a Modified Rate and Method of Apportionment of Special Tax (the “Modified Rate and
Method,” and the Original Rate and Method as modified by the Modified Rate and Method, the “Rate and
Method”). The Rate and Method is set forth in Appendix D hereto. The facilities authorized to be financed by
the District are referenced herein as the “Facilities.” See “THE FINANCING PLAN – Financing Plan.”
District Development. The City, which has a population of approximately 45,000 and is approximately
7 square miles, is located in South Orange County. The City is located in Southern California, 45 miles from
downtown Los Angeles, 70 miles north of San Diego, and 4 miles northeast of the Pacific Ocean. Neighboring
communities include Laguna Hills, Laguna Niguel, Laguna Beach, and Newport Beach.
The District is located in the City at the southeast corner of Glenwood Drive and Aliso Creek Road.
The District consists of approximately 104 gross acres. The developer of the taxable property in the District is
Shea Homes Limited Partnership (the “Developer”). The Developer is developing approximately 91 acres, of
which approximately 43 acres are taxable. The development will consist of 318 single-family detached homes,
and 184 attached homes (including 43 affordable units which will be exempt from the Special Tax). This
proposed development is referred to herein as the “Project.” See “THE DEVELOPMENT AND PROPERTY
OWNERSHIP” herein. The balance of the acreage in the District represents parcels that are exempt from the
levy of the Special Tax and include open space, public rights-of-way, parcels to be owned by the City on which
a Conference Center, Aquatic Center, and public park are to be located, and a portion of the Aliso Viejo Golf
Course, a privately owned golf course. The Bonds are secured and payable solely from Special Tax Revenues
of the District, including foreclosure proceeds obtained from foreclosure and sale of property in the District.
On January 26, 2006, grading began on the property within the District. As of May 1, 2006,
construction of infrastructure (utilities, roads, sidewalks, etc.) within the District had commenced. The
backbone road, sewer, water, storm drain and dry utilities improvements are expected to be completed in the
fourth quarter of 2008. The in-tract improvements that remain to be completed include: (i) dry utilities east of
Golf Drive and west of Chapala Lane; (ii) curb, gutter, and paving of Anacapa Street, and all streets west of
Anacapa Lane; and (iii) water, sewer, storm drain, dry utilities, curb, gutter, sidewalk, and paving in the area
2
currently occupied by the existing golf course clubhouse. The in-tract improvements are expected to be
completed in the last quarter of 2008. The Conference Center and the Aquatic Center are expected to be
completed and open to the public by approximately April 2008. The Aliso Viejo Golf Course and clubhouse
are also expected to be completed for an approximate April 2008 opening. For a more detailed description of
development activity within the District, see “THE DEVELOPMENT AND PROPERTY OWNERSHIP –
Infrastructure Requirements and Construction Status.”
Construction of model homes for certain residential projects within the District has been completed. As
of October 1, 2007, 11 of 14 model homes were completed with the 3 remaining expected to be constructed in
approximately the second quarter of 2009, 49 production homes were under construction, and 20 purchase
contracts had been entered into for the sale of production homes within the District. For a more detailed
description of development projects within the District, see “THE DEVELOPMENT AND PROPERTY
OWNERSHIP – Development Projects.”
Developer. The Developer’s property is being developed into a master-planned community known as
“Glenwood at Aliso Viejo.” The Project contains 4 different residential projects: Harbor Station, Pasadera,
Birch River, and Vista Vallarta.
For certain information concerning the Developer, see “THE
DEVELOPMENT AND PROPERTY OWNERSHIP – The Developer.”
As of September 1, 2007, the Developer had active construction and sales programs for 3 projects and
was in design review for the fourth project, Vista Vallarta. Currently, the Developer anticipates proceeding
with build out of Vista Vallarta, but there can be no assurance that the Developer will not sell lots designated
for Vista Vallarta to another builder. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP – The
Proposed Development.”
Appraisal. Harris Realty Appraisal (the “Appraiser”) has conducted an appraisal (the “Appraisal”) of
the taxable land within the District and has concluded, based upon the assumptions and limiting conditions
contained in the Appraisal, that, as of September 1, 2007, the aggregate value of such land was $116,800,000.
The analyses and opinions set forth in the Appraisal are subject to certain assumptions and limiting conditions.
For a complete description of such assumptions and limiting conditions, see “THE DISTRICT – Appraisal” and
“APPENDIX C – APPRAISAL REPORT.”
Market Absorption Study. Empire Economics, Inc. (the “Market Absorption Consultant”) has prepared
a Market Absorption Study of the District, dated July 27, 2007, and revised as of September 28, 2007 (the
“Market Absorption Study”) for the purpose of developing a build-out projection for the 459 for-sale marketrate residential units planned in the District which are subject to the Special Tax. The Market Absorption Study
concludes that escrow closings or occupancies of the residential units within the District should be completed in
2012. The Market Absorption Study is based upon various assumptions and limiting conditions, including, but
not limited to, a certain designated economic scenario. Specifically, this scenario represents the Market
Absorption Consultant’s perception of economic and real estate conditions for the Market Region and Market
Area (as such terms are defined in the Market Absorption Study) during the foreseeable future according to the
most probable conditions. However, the economic and market conditions which actually materialize on a yearby-year basis may differ from those presented according to the designated economic scenario, as a result of
exogenous factors which are difficult to forecast/quantify. Accordingly, the designated scenario is utilized as
an economic framework for evaluating the marketing prospects of the properties within the District rather than
a “literal” representation of what is expected to occur on a year-by-year basis during the foreseeable future. See
“THE DISTRICT – Market Absorption Study,” “APPENDIX H – SUMMARY OF MARKET ABSORPTION
STUDY.”
Security for the Bonds
Under the Agreement, the Bonds are payable from a portion of the Special Tax levied on taxable
property within the District. See “SECURITY FOR THE BONDS – Special Taxes” herein. “Special Tax” is
defined in the Agreement and is used in this Official Statement, to mean the special taxes levied by the City
Council on parcels of taxable property within the District pursuant to the Act, the Rate and Method and the
3
Agreement. Under the Agreement, the City has pledged to repay the Bonds from Special Tax Revenues and
certain funds pledged thereto pursuant to the Agreement. “Special Tax Revenues” is defined in the Agreement
to mean the proceeds of the Special Taxes received by the City, including any scheduled payments, interest and
penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of
the Special Taxes in the amount of said lien and interest and penalties thereon. The Special Taxes levied
pursuant to the Rate and Method increase by two percent (2%) annually. See “APPENDIX D – RATE AND
METHOD OF APPORTIONMENT OF SPECIAL TAX” AND “APPENDIX A – SUMMARY OF THE
AGREEMENT” herein.
Under the Agreement, the City has agreed to levy the Special Tax, and to repay the Bonds from the
Special Tax Revenues (except for $30,600 which shall be deposited in the Administrative Expense Fund for
Fiscal Year 2007-2008, escalating by 2% each Fiscal Year thereafter during the term of the Bonds, the “Priority
Administrative Expense Allocation”) and from certain amounts on deposit in the Special Tax Fund, the Bond
Fund and the Reserve Fund established under the Agreement. See “APPENDIX A – SUMMARY OF THE
AGREEMENT.” In the event that the Special Tax Revenues are not fully paid when due after the end of the
capitalized interest period (September 1, 2009), the only source of funds to repay Bonds will be the amounts
held by the Fiscal Agent in certain of the funds established under the Agreement, including amounts held in the
Reserve Fund, and the proceeds, if any, from a foreclosure sale of the property with delinquent Special Taxes
within the District. A portion of the proceeds of the Bonds will be deposited in the Reserve Fund to the extent
necessary to make the amount on deposit therein equal to the Reserve Requirement. The moneys in the Reserve
Fund will be used for, among other purposes permitted by the Agreement, payment of the principal of and
interest on the Bonds in the event that moneys in the Bond Fund are insufficient therefor. See “SECURITY
FOR THE BONDS – Reserve Fund.”
Foreclosure Proceeds. The City, on behalf of the District, has covenanted for the benefit of the owners
of the Bonds that it will (i) order, and cause to be commenced, judicial foreclosure proceedings against
properties with delinquent Special Taxes in excess of $10,000 by the October 1 following the close of the Fiscal
Year in which such Special Taxes were due; and (ii) commence judicial foreclosure proceedings against all
properties with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it
receives Special Taxes in an amount which is less than ninety-five percent (95%) of the total Special Taxes
levied, and diligently pursue to completion such foreclosure proceedings; provided, however, the City shall not
be required to order, and cause judicial foreclosure proceedings to be commenced against delinquent properties
as long as no deficiency in the Reserve Fund exists (or is projected to exist in order to meet the next upcoming
debt service payment) and the City determines that the cost of pursuing such foreclosure is greater than the
outstanding delinquency. See “SECURITY FOR THE BONDS” herein. There is no assurance that the taxable
property within the District can be sold for the appraised value or assessed values described herein, or for a
price sufficient to pay the principal of and interest on the Bonds in the event of a default in payment of Special
Taxes by the current or future landowners within the District. See “SPECIAL RISK FACTORS – Land
Values” and “APPENDIX C – APPRAISAL REPORT” herein.
EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE
PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF
THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE SPECIAL
OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM SPECIAL TAX REVENUES AND
CERTAIN AMOUNTS HELD UNDER THE AGREEMENT AS MORE FULLY DESCRIBED HEREIN.
Limited Liability
Although the unpaid Special Taxes constitute a lien on the taxable real property within the District,
they do not constitute a personal indebtedness of any landowner within the District, the Developer, or any
future property owner in the District. There is no assurance that the current owner of property within the
District, or any future property owners within the District will be financially able to pay the Special Taxes or
that it will pay the Special Taxes even though financially able to do so.
4
THE BONDS ARE PAYABLE SOLELY FROM THE PROCEEDS OF THE SPECIAL TAX TO BE
LEVIED ANNUALLY ON THE LAND WITHIN THE DISTRICT (EXCEPT FOR THE PRIORITY
ADMINISTRATIVE EXPENSE ALLOCATION) AND AMOUNTS IN CERTAIN FUNDS ESTABLISHED
UNDER THE AGREEMENT. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE
STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN OF THE
DISTRICT, TO THE LIMITED EXTENT SET FORTH IN THE AGREEMENT) IS PLEDGED TO THE
PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS. THE BONDS
ARE NOT SECURED BY A LEGAL OR EQUITABLE PLEDGE OF OR CHARGE, LIEN OR
ENCUMBRANCE UPON ANY OF THE PROPERTY OR REVENUES OF THE CITY, AND THE
PAYMENT OF THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON
THE BONDS IS NOT A GENERAL DEBT, LIABILITY OR OBLIGATION OF THE CITY OR THE
DISTRICT.
Description of the Bonds
The Bonds are dated their date of delivery and mature in the amounts and in the years, and bear interest
at the rates set forth on the inside cover page of this Official Statement. Interest on the Bonds will be payable
on each March 1 and September 1 each year, beginning March 1, 2008.
The Bonds will be issued and delivered as fully registered bonds, registered in the name of Cede & Co.
as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to actual
purchasers of the Bonds (the “Beneficial Owners”) in denominations of $5,000 or any integral multiple in
excess thereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or
act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical
delivery of the Bonds. In the event that the book-entry-only system described herein is no longer used with
respect to the Bonds, the Bonds will be registered and transferred in accordance with the Agreement. See
“THE BONDS – Description of the Bonds” and “APPENDIX G – DTC AND THE BOOK ENTRY SYSTEM”
herein.
Principal of, premium, if any, and interest on the Bonds are payable by the Fiscal Agent to DTC.
Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such
payments to the Beneficial Owners is the responsibility of DTC Participants. In the event that the book-entryonly system is no longer used with respect to the Bonds, the Beneficial Owners will become the registered
owners of the Bonds and will be paid principal and interest by the Fiscal Agent, all as described herein. See
“THE BONDS – Description of the Bonds” and “APPENDIX G – THE BOOK ENTRY SYSTEM” herein. So
long as the Bonds are in book-entry-only form, all references in the Official Statement to the owners or holders
of the Bonds shall mean DTC or its nominee and not the Beneficial Owners of the Bonds.
The Bonds are subject to optional redemption and mandatory redemption as described herein. For more
complete descriptions of the Bonds and the Agreement pursuant to which they are being issued and delivered.
See “THE BONDS” and “APPENDIX A – SUMMARY OF THE AGREEMENT,” herein.
Tax Matters
In the opinion of Bond Counsel, based on an analysis of existing laws, regulations, rulings and court
decisions, and assuming, among other matters, compliance with certain covenants, interest on the Bonds is
excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of
1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel,
interest on the Bonds is not a specific preference item for purposes of federal individual or corporate alternative
minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in
calculating federal corporate alternative minimum taxable income. Bond Counsel expresses no opinion
regarding any other federal or state income tax consequences relating to the ownership or disposition of, or the
accrual or receipt of interest on, the Bonds. See “TAX MATTERS” herein.
5
Continuing Disclosure
Under the terms of separate Continuing Disclosure Certificates, the City and the Developer have each
agreed to provide, or cause to be provided, to each nationally recognized municipal securities information
repository and any entity designated by the State as a state repository for purposes of Rule 15c2-12(b)(5)
adopted by the Securities and Exchange Commission (the “Rule”) certain annual, semi-annual, and other
information and notice of the occurrence of certain material events. The Developer has previously failed to
comply with its continuing disclosure reporting obligations. See “LEGAL MATTERS – Continuing Disclosure
– Developer” for a discussion of the Developer’s prior failure to comply with its continuing disclosure reporting
obligations.
These covenants have been made in order to assist the Underwriter in complying with the Rule. See
“LEGAL MATTERS – Continuing Disclosure” and “APPENDIX F – FORMS OF CONTINUING
DISCLOSURE CERTIFICATES” herein for a description of the specific nature of the reports and notices of
material events to be filed by the City and the Developer.
Bond Owners’ Risks
Certain events could affect the timely repayment of the principal of and interest on the Bonds when
due. See “SPECIAL RISK FACTORS” herein for a discussion of certain factors which should be considered,
in addition to other matters set forth herein, in evaluating an investment in the Bonds. The Bonds are not rated
by any nationally recognized rating agency. The purchase of the Bonds involves significant risks, and the
Bonds may not be appropriate investments for some investors.
Professionals Involved in the Offering
The Bank of New York Trust Company, N.A., Los Angeles, California, will act as Fiscal Agent under
the Agreement. Stone & Youngberg LLC, Los Angeles, California, is the Underwriter of the Bonds. The
proceedings of the City Council in connection with the issuance, sale and delivery of the Bonds are subject to
the approval of Best Best & Krieger LLP, San Diego, California, Bond Counsel. Koppel & Gruber Public
Finance, San Marcos, California is acting as Special Tax Consultant to the City and will act as dissemination
agent under the Continuing Disclosure Certificate of the City. Certain legal matters will be passed on for the
City and the District by Best Best & Krieger LLP as City Attorney and Disclosure Counsel. Latham & Watkins
LLP, is acting as Special Counsel to the Developer. Nossaman Guthner Knox & Elliott LLP, is acting as
Underwriter’s Counsel. Other professional services related to the Bonds have been performed by: Harris Realty
Appraisal, Real Estate Appraiser, Newport Beach, California, as the Appraiser; Fieldman Rolapp & Associates,
Irvine, California, as the City's Financial Advisor; and Empire Economics Inc., Capistrano Beach, California, as
the Market Absorption Consultant.
Forward-Looking Statements
Certain statements included or incorporated by reference in this Official Statement constitute “forwardlooking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995,
Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United
States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used
such as “plan,” “expect,” “estimate,” “project,” “budget” or other similar words. Such forward-looking
statements include, but are not limited to, certain statements contained in the information under the caption
“THE DISTRICT” and “THE DEVELOPMENT AND PROPERTY OWNERSHIP.”
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD6
LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO
THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.
Additional Information
Brief descriptions of the Bonds, the Agreement, the Continuing Disclosure Certificates, the security for
the Bonds, the District, the actual and proposed development of the property in the District and certain other
documents and information are included in this Official Statement. Such descriptions and information do not
purport to be comprehensive or definitive. Any references to documents herein are qualified by reference to the
complete text thereof. Capitalized terms used in this Official Statement and not otherwise defined herein have
the meanings given them in the Agreement, some of which are set forth in “APPENDIX A – SUMMARY OF
THE AGREEMENT.” Copies of documents referenced herein may be obtained upon written request and
payment of the cost of mailing and duplication from the office of the City Clerk of the City, 12 Journey, Suite
100, Aliso Viejo, California 92656-5335.
THE FINANCING PLAN
Financing Plan
The City and Aliso Viejo Golf Club Joint Venture (“AVGCJV”) and Aliso Viejo Commercial Property
Joint Venture (together with “AVGCJV”, the “Former Owners”), the predecessors to the Developer as the
owners of the property within the District, entered into an agreement entitled “Glenwood at Aliso Viejo
Development Agreement Between the City of Aliso Viejo, A California, municipal corporation and Aliso Viejo
Golf Club Joint Venture and Aliso Viejo Commercial Property Joint Venture, California Joint Ventures,” dated
as of September 1, 2004, as amended by a “First Amendment to Glenwood at Aliso Viejo Development
Agreement,” dated as of February 1, 2005, by and between the City and the Former Owners (collectively, the
“Development Agreement”). The Former Owners and the City also entered into those certain: (i) Operating
Memorandum of Glenwood at Aliso Viejo Project dated March 16, 2005, in order to define the nature of certain
park improvements; (ii) Second Operating Memorandum of Glenwood at Aliso Viejo Project dated May 1,
2005, in order to adjust the timing for the Management Agreement; (iii) Third Operating Memorandum of
Glenwood at Aliso Viejo Project dated June 17, 2005, in order to adjust the timing for the Management
Agreement; (iv) Fourth Operating Memorandum of Glenwood at Aliso Viejo Project dated July 22, 2005, to
include the Affordable Housing Implementation Program; and (v) Fifth Operating Memorandum of Glenwood
at Aliso Viejo Project dated October 15, 2005, in order to adjust the timing for the Management Agreement and
to clarify Owner’s obligations with respect to delivery of the Aquatic Center, the Conference Center, and the
public park to the City. The City and the Developer entered into a Sixth Operating Memorandum of Glenwood
at Aliso Viejo Project dated December 20, 2005, which clarified obligations regarding maintenance of the
multi-modal trails in the District.
The City and the Former Owners entered into the Development Agreement to, among other things, set
forth certain financing arrangements that would provide sufficient funding to ensure adequate and appropriate
public facilities, infrastructure and services exist in advance of or at the time of need generated by the
development of the property with the District. Pursuant to the Development Agreement, the Former Owners
were obligated to, among other things, construct a Conference Center, an Aquatic Center, a public park, a
public parking lot, and Golf Drive, each as described in the Development Agreement (collectively, the “City
Improvements”). Additionally, in accordance with the Development Agreement, the City agreed to consider
formation of the District to finance certain public facilities and infrastructure, including the City Improvements,
and various fees to be used to finance public facilities and infrastructure. It is anticipated that the District
Bonds will finance not only the City Improvements, but certain water and sewer fees and improvements to be
used, owned and operated by the Water District and required for development of the Project in the District (the
“Water District Improvements”), as well as certain fees to be used by the County of Orange to finance certain
street improvements required for development of the Project in the District (the “County Improvements” and,
together with the City Improvements and the Water District Improvements, the “Improvements”). On April 20,
2005, the City and the Former Owners entered into an “Acquisition/Financing Agreement relating to the
Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo” (the
7
“Acquisition Agreement”). The Acquisition Agreement establishes the terms and conditions pursuant to which
the Improvements will be financed by the District. On April 20, 2005, the City further entered into separate
Joint Community Facilities Agreements with the Water District and the County to establish the terms and
conditions pursuant to which the Water District Improvements and the County Improvements will be
constructed and financed by the District.
The Development Agreement was assigned to and the obligations of the Former Owners (with the
exception of certain obligations related to the conversion of the existing golf course from a 27-hole course to an
18-hole course and the construction of a clubhouse and parking lot for the golf course and clubhouse) were
assumed by the Developer pursuant to an Assignment and Assumption of Development Agreement, Consent
and Estoppel made on December 14, 2005. The Acquisition Agreement was assigned to the Developer
pursuant to that Assignment of Acquisition/Financing Agreement dated as of December 14, 2005.
The Bonds are being issued to finance a portion or all of the cost of the Improvements in compliance
with the Acquisition Agreement and the Joint Community Facilities Agreements. A portion of the Bond
proceeds will be deposited into the Improvement Fund to acquire the Improvements to be constructed by or on
behalf of the Developer and to pay for the construction of the Improvements to be constructed by the City, the
Water District, or the County.
Sources and Uses of Bond Proceeds
Under the provisions of the Agreement, the Fiscal Agent will receive the proceeds from the sale of the
Bonds and will apply them as follows:
Sources of Funds
Principal Amount of Bonds
Less Underwriter’s Discount
Less Original Issue Discount
Total
Uses of Funds
Improvement Fund
(1)
Costs of Issuance Fund
(2)
Reserve Fund
Administrative Expense Fund
Capitalized Interest Subaccount (3)
Total
$34,070,000.00
331,841.80
__ 320,757.20
$33,417,401.00
$26,272,733.55
365,000.00
3,319,160.70
30,600.00
3,429,906.75
$33,417,401.00
___________________________
(1)
To be used to pay costs of issuance of the Bonds, including Bond Counsel fees, Disclosure Counsel fees, initial Fiscal
Agent fees, Financial Advisor's fees, Special Tax Consultant fees, Appraisal fees, Market Absorption fees, Official
Statement printing and other costs of issuance.
(2)
An amount equal to the initial Reserve Requirement. See “SECURITY FOR THE BONDS – Reserve Fund.”
(3)
To be deposited in the Capitalized Interest Subaccount of the Interest Account of the Bond Fund in an amount equal to
interest due on the Bonds through September 1, 2009, net of Special Taxes levied on Developed Property in Fiscal
Year 2007-2008.
8
Annual Debt Service of Bonds
The table below sets forth the scheduled annual debt service payments on the Bonds, assuming no
optional or extraordinary redemption of the Bonds but including mandatory sinking fund redemptions.
Year Ending
(September 1)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023*
2024*
2025*
2026*
2027*
2028*
2029*
2030*
2031*
2032*
2033*
2034*
2035*
2036*
2037*
2038*
Total
Interest(1)
$1,480,488.75
2,011,230.00
2,011,230.00
2,011,230.00
2,009,430.00
2,005,520.00
1,999,345.00
1,990,705.00
1,979,205.00
1,964,415.00
1,946,215.00
1,924,220.00
1,898,300.00
1,867,775.00
1,832,215.00
1,791,175.00
1,743,293.76
1,689.537.50
1,629,612.50
1,562,931.26
1,489,200.00
1,405,800.00
1,314,000.00
1,213,200.00
1,102,800.00
982,200.00
850,500.00
707,100.00
551,100.00
381,900.00
198,600.00
$47,544,473.77
Principal
$40,000
85,000
130,000
180,000
230,000
290,000
350,000
415,000
480,000
555,000
635,000
720,000
815,000
915,000
1,020,000
1,135,000
1,255,000
1,390,000
1,530,000
1,680,000
1,840,000
2,010,000
2,195,000
2,390,000
2,600,000
2,820,000
3,055,000
3,310,000
$34,070,000
Total
$1,480,488.75
2,011,230.00
2,011,230.00
2,051,230.00
2,094,430.00
2,135,520.00
2,179,345.00
2,220,705.00
2,269,205.00
2,314,415.00
2,361,215.00
2,404,220.00
2,453,300.00
2,502,775.00
2,552,215.00
2,606,175.00
2,658,293.76
2,709,537.50
2,764,612.50
2,817,931.26
2,879,200.00
2,935,800.00
2,994,000.00
3,053,200.00
3,112,800.00
3,177,200.00
3,240,500.00
3,307,100.00
3,371,100.00
3,436,900.00
3,508,600.00
$81,614,473.77
_________________
*
Indicates a scheduled mandatory sinking account payment.
(1)
Interest due through September 1, 2009, to be capitalized with Bond proceeds.
THE BONDS
Authority for Issuance
The District was established and bonded indebtedness within the District in an amount not to exceed
$37,500,000 was authorized pursuant to the provisions of the Act. The Bonds will be issued pursuant to the
Act, a Resolution of Issuance, and the Agreement. The Bonds are secured under the Agreement and are payable
from Special Tax Revenues (except for the Priority Administrative Expense Allocation) and from funds and
accounts held under the Agreement, excluding the Improvement Fund and all subaccounts therein, the
Administrative Expense Fund and the Rebate Fund. See “APPENDIX A – SUMMARY OF AGREEMENT”
herein.
9
Description of the Bonds
The Bonds are being issued in the aggregate principal amount of $34,070,000, are dated their date of
delivery and will mature in the amounts and in the years, and bear interest at the rates set forth on the cover
page of this Official Statement.
The Bonds will be issued without coupons as one fully registered bond for each maturity, in the name
of Cede & Co., as nominee for DTC, as registered owner of all the Bonds. The Bonds will be available to
ultimate purchasers in denominations of $5,000 or any integral multiple thereof, under the book-entry system
maintained by DTC. Ultimate purchasers of Bonds will not receive physical certificates representing their
interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC,
references herein to the owners shall mean Cede & Co., and shall not mean the purchasers or Beneficial Owners
of the Bonds. See “APPENDIX G – THE BOOK ENTRY SYSTEM.”
So long as the Bonds are held in book-entry only form, principal of, premium, if any, and interest on the
Bonds will be paid directly to DTC for distribution to the Beneficial Owners of the Bonds in accordance with
the procedures adopted by DTC. See “APPENDIX G – THE BOOK ENTRY SYSTEM.” The Bonds will
mature on September 1, in the principal amounts and years, and bearing rates of interest, as shown on the inside
cover of this Official Statement.
Interest on the Bonds will be payable semiannually on September 1 and March 1 of each year,
commencing March 1, 2008 (each, an “Interest Payment Date”) and will be computed on the basis of a 360-day
year comprised of twelve 30-day months. Each Bond will bear interest from the Interest Payment Date next
preceding the date of authentication thereof, unless (i) it is authenticated on an Interest Payment Date, in which
event it shall bear interest from such date of authentication; or (ii) it is authenticated prior to an Interest
Payment Date and after the close of business on the Record Date preceding such Interest Payment Date, in
which event it shall bear interest from such Interest Payment Date; or (iii) it is authenticated prior to the Record
Date preceding the first Interest Payment Date, in which event it shall bear interest from the Closing Date;
provided, however, that if at the time of authentication of a Bond, interest is in default thereon, such Bond shall
bear interest from the Interest Payment Date to which interest has previously been paid or made available for
payment thereon or from the Closing Date, if no interest has previously been paid or made available for
payment thereon.
Payments of the principal of, premium, if any, and interest on the Bonds will be made directly to DTC,
or its nominee, Cede & Co., by the Fiscal Agent, so long as DTC or Cede & Co. is the registered owner of the
Bonds. Disbursements of such payments to Participants is the responsibility of DTC and disbursements of such
payments to the Beneficial Owners is the responsibility of Participants and Indirect Participants, as more fully
described herein. See “APPENDIX G – THE BOOK ENTRY SYSTEM.”
Redemption
Optional Redemption. The Bonds are subject to redemption prior to their stated maturity dates on any
Interest Payment Date, as selected among maturities by the City (and by lot within any one maturity), in integral
multiples of $5,000, at the option of the City from moneys derived by the City from any source, at a redemption
price (expressed as a percentage of the principal amount of the Bonds to be redeemed), together with accrued
interest thereon to the date fixed for redemption, as follows:
Redemption Dates
March 1, 2008 through March 1, 2015
September 1, 2015 and March 1, 2016
September 1, 2017 and any Interest Payment Date thereafter
10
Redemption Price
103%
102%
101%
100%
Mandatory Redemption from Special Tax Prepayments. The Bonds are subject to mandatory
redemption prior to their stated maturity dates on any Interest Payment Date, as selected among maturities by
the City (and by lot within any one maturity), in integral multiples of $5,000, from moneys derived by the City
from Special Tax Prepayments, at redemption prices (expressed as percentages of the principal amounts of the
Bonds to be redeemed), together with accrued interest to the date of redemption, as follows:
Redemption Dates
March 1, 2008 through March 1, 2015
September 1, 2017 and any Interest Payment Date thereafter
Redemption Price
103%
102%
101%
100%
Mandatory Sinking Fund Redemption. The outstanding Bonds maturing on September 1, 2027 and
September 1, 2038 are subject to mandatory sinking fund redemption, in part, on September 1, 2023 and
September 1, 2028, respectively, and on each September 1 thereafter to maturity, by lot, at a redemption price
equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption,
without premium, and from sinking payments as follows:
BONDS MATURING SEPTEMBER 1, 2027
Redemption Date
(September 1)
2023
2024
2025
2026
2027 (maturity)
Sinking Payment
$815,000
915,000
1,020,000
1,135,000
1,255,000
BONDS MATURING SEPTEMBER 1, 2038
Redemption Date
(September 1)
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038 (maturity)
Sinking Payment
$1,390,000
1,530,000
1,680,000
1,840,000
2,010,000
2,195,000
2,390,000
2,600,000
2,820,000
3,055,000
3,310,000
The amounts in the foregoing schedules shall be reduced by the City pro rata among redemption dates,
in order to maintain substantially level debt service, as a result of any prior partial optional redemption of the
Bonds or mandatory redemption of the Bonds from the prepayment of Special Taxes.
Purchase of Bonds. In lieu of payment at maturity or redemption, moneys in the Bond Fund may be
used and withdrawn by the Fiscal Agent for purchase of outstanding Bonds, upon the filing with the Fiscal
Agent of an Officer’s Certificate requesting such purchase, at a public or private sale as and when, and at such
prices (including brokerage and other charges) as such Officer’s Certificate may provide, but in no event will
11
Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of
purchase. In such event, the City shall, as may be appropriate, provide to the Fiscal Agent a revised maturity
schedule or a revised mandatory sinking fund schedule for the Bonds, or both.
Selection of Bonds for Redemption
If less than all the Bonds outstanding are to be redeemed, the portion of any Bond of a denomination of
more than $5,000 to be redeemed shall be in the principal amount of $5,000 or a multiple thereof, and, in
selecting portions of such Bonds for redemption, the Fiscal Agent shall treat each such Bond as representing the
number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond to
be redeemed in part by $5,000.
Whenever provision is made in the Agreement for the redemption of less than all of the Bonds of a
maturity or any given portion thereof, the Fiscal Agent shall select the Bonds of such maturity to be redeemed,
from all Bonds of such maturity or such given portion thereof not previously called for redemption, by lot
within a maturity in any manner which the Fiscal Agent in its sole discretion shall deem appropriate.
Upon surrender of Bonds redeemed in part only, the City will execute and the Fiscal Agent will
authenticate and deliver to the Bondowner, at the expense of the District, a new Bond or Bonds, of the same
maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the
Bond or Bonds.
Notice of Redemption
The Fiscal Agent shall cause notice of any redemption to be mailed by first class mail, postage prepaid,
at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption, to the Securities
Depositories and to the Information Services, and to the respective registered owners of any Bonds designated
for redemption, at their addresses appearing on the Bond registration books maintained by the Fiscal Agent at
its Principal Office; but such mailing shall not be a condition precedent to such redemption and failure to mail
or to receive any such notice, or any defect therein, shall not affect the validity of the proceedings for the
redemption of such Bonds.
Such notice shall state the date of such notice, the date of issue of the Bonds, the place or places of
redemption, the redemption date, the redemption price and, if less than all of the then outstanding Bonds are to
be called for redemption, shall designate the CUSIP numbers and Bond numbers of the Bonds to be redeemed,
by giving the individual CUSIP number and Bond number of each Bond to be redeemed, or shall state that all
Bonds between two stated Bond numbers, both inclusive, are to be redeemed or that all of the Bonds of one or
more maturities have been called for redemption, shall state as to any Bond called for redemption in part the
portion of the principal of the Bond to be redeemed, shall require that such Bonds be then surrendered at the
Principal Office of the Fiscal Agent for redemption at the said redemption price, and shall state that further
interest on such Bonds will not accrue from and after the redemption date. The cost of the mailing and
publication of any such redemption notice shall be paid by the District.
Effect of Redemption
From and after the date fixed for redemption, if funds available for the payment of the redemption
prices of the Bonds called for redemption have been deposited in the Bond Fund, such Bonds will cease to be
entitled to any benefit under the Agreement other than the right to receive payment of the redemption price, and
interest will cease to accrue on the Bonds to be redeemed on the redemption date specified in the notice of
redemption. All Bonds redeemed and purchased by the Fiscal Agent pursuant to the Agreement will be
cancelled by the Fiscal Agent.
12
Transfer or Exchange of Bonds
So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, transfers and
exchanges of Bonds shall be made in accordance with DTC procedures. See “APPENDIX G – DTC AND
THE BOOK ENTRY SYSTEM.” If the book-entry only system for the Bonds is ever discontinued, any Bond
may, in accordance with its terms, be transferred or exchanged by the person in whose name it is registered, in
person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by
delivery of a duly written instrument of transfer in a form acceptable to the Fiscal Agent. Whenever any Bond
or Bonds shall be surrendered for transfer or exchange, the City shall execute and the Fiscal Agent shall
authenticate and deliver a new Bond or Bonds, for a like aggregate principal amount of Bonds of authorized
denominations and of the same maturity. The Fiscal Agent shall collect from the Bondowner requesting such
transfer any tax or other governmental charge required to be paid with respect to such transfer or exchange.
No transfers or exchanges of Bonds shall be required to be made (i) within 15 days prior to the date
established by the Fiscal Agent for selection of Bonds for redemption or (ii) with respect to a Bond after such
Bond has been selected for redemption.
SECURITY FOR THE BONDS
Limited Obligations
The Bonds are special, limited obligations of the City secured by a pledge upon all of the Special Tax
Revenues (except for the Priority Administrative Expense Allocation) and all moneys on deposit in the Special
Tax Fund, the Bond Fund, and the Reserve Fund (including the investment earnings thereon), and from no other
sources.
“Special Tax Revenues” are defined in the Agreement to mean the proceeds of the Special Taxes
received by the City, including any scheduled payments, interest and penalties thereon and proceeds of the
redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes in the amount of
said lien and interest and penalties thereon.
In the event that the Special Tax Revenues are not received when due, the only sources of funds
available to pay the debt service on the Bonds are amounts held by the Fiscal Agent, including amounts held in
the Reserve Fund, for the exclusive benefit of the Bondowners.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE
COUNTY OF ORANGE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION
THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE SPECIAL
TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS
ARE NOT GENERAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE
DISTRICT BUT ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM
SPECIAL TAX REVENUES AND OTHER AMOUNTS PLEDGED UNDER THE AGREEMENT AS
MORE FULLY DESCRIBED HEREIN.
Special Taxes
Authorization and Pledge. In accordance with the provisions of the Act, the City Council established
the District on April 20, 2005, to finance the construction and acquisition of public capital improvements. On
that same date, at an election held pursuant to the Act, the landowners who comprised the qualified voters of
the District authorized the District to incur bonded indebtedness in the aggregate principal amount not to exceed
$37,500,000 for the District to be secured by the levy of Special Taxes on taxable property within the District
pursuant to the rate and method of apportionment of the Special Taxes (the “Original Rate and Method”). A
Notice of Special Tax Lien was recorded in the Office of the Recorder of the County of Orange on April 29,
2005 as Document No. 2005-000329076. On November 1, 2006, at a subsequent election held pursuant to the
Act, the landowners who comprised the qualified electors of the District approved the levy of the Special Tax
13
within the District pursuant to a modified rate and method of apportionment thereof (the “Modified Rate and
Method,” and the Original Rate and Method as modified by the Modified Rate and Method, the “Rate and
Method”). An Amendment to Notice of Special Tax Lien was recorded in the Office of the Recorder of the
County of Orange on November 13, 2006 as Document No. 2006-000763701. See “APPENDIX D – RATE
AND METHOD OF APPORTIONMENT OF SPECIAL TAX ” attached hereto for the complete text of the
Rate and Method.
The Bonds are secured by a pledge of and lien upon (which shall be effected in the manner and to the
extent provided in the Agreement) all of the Special Tax Revenues (except the Priority Administrative Expense
Allocation which will be deposited in the Administrative Expense Fund for each Fiscal Year pursuant to the
Agreement) and all moneys on deposit in the Special Tax Fund, the Bond Fund, and the Reserve Fund. The
Bonds that may be issued shall be equally secured by a pledge of and lien upon such Special Tax Revenues and
such moneys without priority for number, date of Bond, date of execution or date of delivery; and the payment
of the interest on and principal of the Bonds and any premium upon the redemption of any thereof shall be and
is secured by a pledge of and lien upon such Special Tax Revenues and such moneys. Such Special Tax
Revenues and all moneys deposited into such funds are dedicated in their entirety to the payment of the
principal of the Bonds that may be issued, and interest and any premium on, the Bonds, as provided in the
Agreement and in the Act, until all of the Bonds have been paid and retired or until moneys or Defeasance
Securities have been set aside irrevocably for that purpose in accordance with the Agreement.
The Bonds are not secured by any amounts on deposit in the Improvement Fund (including all
subaccounts thereof), the Administrative Expense Fund, or the Rebate Fund established under the Agreement.
Any Improvements financed with the proceeds of the Bonds are not in any way pledged to pay debt service on
the Bonds.
In the Agreement, the City has agreed to effect the levy of the Special Taxes each Fiscal Year in
accordance with the Act by August 10 of each year (or such later date as may be authorized by the Act or any
amendment thereof) that the Bonds are outstanding, such that the computation of the levy is complete before the
final date on which the County Auditor-Controller will accept the transmission of the Special Tax amounts for
the parcels within the District for inclusion on the tax roll for the Fiscal Year then beginning. Upon the
completion of the computation of the amounts of the levy of the Special Taxes, the City shall prepare or cause
to be prepared, and shall transmit to the Auditor-Controller, such data as the Auditor-Controller requires to
include the levy of the Special Taxes on the tax roll.
The City shall fix and levy the amount of Special Taxes within the District required for the payment of
the principal of and interest on any outstanding Bonds becoming due and payable during the ensuing calendar
year, including any necessary replenishment or expenditure of the Reserve Fund, and the amount estimated to
be sufficient to pay the Administrative Expenses during such calendar year. The Special Taxes so levied shall
not exceed the authorized amounts for the District as provided in the proceedings for the formation of the
District and in the Rate and Method. Such maximum amount may not be sufficient to fully replenish the
Reserve Fund. See “APPENDIX D – RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.”
Prepayment of Special Taxes. There are certain events that will result in a required prepayment of
Special Taxes as described in the following paragraph. Under the Rate and Method, the Special Tax obligation
for any parcel within the District may be prepaid in full and permanently satisfied at anytime. The special tax
obligation on all parcels within a Tract (as defined in the Rate and Method) may only be prepaid in part prior to
the first conveyance to the initial home buyer (as described in the Rate and Method). A prepayment may be
made, however, only if at the time of the prepayment there are no delinquent Special Taxes with respect to such
parcel and all other parcels which are under the same ownership and located within the District. See
“APPENDIX D – RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” Any required or
voluntary prepayment of Special Taxes will result in a mandatory redemption of Bonds. See “THE BONDS –
Redemption – Mandatory Redemption from Special Tax Prepayments.”
Collection and Application of Special Taxes. The Agreement provides that the Special Taxes shall be
payable and be collected (except in the event of judicial foreclosure proceedings pursuant to the Agreement) in
14
the same manner and at the same time and in the same installments as the general taxes on real property are
payable, and have the same priority, become delinquent at the same times and in the same proportionate
amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real
property. Notwithstanding the foregoing, the City Council may elect, as permitted by the Act, to collect the
Special Taxes to be levied for any Fiscal Year directly from the owners of the parcels of taxable property upon
which the Special Taxes are levied rather than by transmitting the Special Taxes to the Auditor-Controller for
collection on the tax roll. The Special Taxes will be transferred to the Fiscal Agent and deposited in the Special
Tax Fund established under the Agreement when received by the City. See “APPENDIX A – SUMMARY OF
THE AGREEMENT.”
Under the Agreement, the City has covenanted that, (a) to the extent that it is legally permitted to do so,
it will levy the Special Taxes for the payment of the Administrative Expenses which are expected to be incurred
in each Fiscal Year; and (b) it will not initiate proceedings under the Act to reduce the maximum Special Tax
rates for Developed Property (the “Maximum Rates”) below the amounts which are necessary to provide
Special Tax Revenues in an amount equal to one hundred ten percent (110%) of Maximum Annual Debt
Service on the outstanding Bonds plus estimated Administrative Expenses for the then current Fiscal Year. The
City has further covenanted that in the event an ordinance is adopted by initiative pursuant to Section 3 of
Article XIIIC of the California Constitution, which purports to reduce or otherwise alter the Maximum Rates, it
will commence and pursue legal action seeking to preserve its ability to comply with its covenant described in
the preceding sentence. See “SPECIAL RISK FACTORS – Proposition 218” herein.
Although the Special Tax will constitute a lien on the land within the District which is subject to
taxation, it does not constitute a personal indebtedness of either of the current or any future property owners
within the District. There is no assurance that the landowners within the District will be financially able to pay
the annual Special Tax or that they will pay such tax even if financially able to do so. The risk of property
owners within the District not paying the annual Special Tax is more fully described under the heading
“SPECIAL RISK FACTORS – Insufficiency of Special Taxes.”
Under the terms of the Agreement, not later than the ten Business Days after receipt from the City, all
Special Tax Revenues received by the City are to be deposited by the Fiscal Agent in the Special Tax Fund.
Special Tax Revenues (with the exception of Special Tax Revenues representing Prepayments) are to be applied
by the Fiscal Agent under the Agreement in the following order of priority: (i) to deposit annually the Priority
Administrative Expense Allocation to the Administrative Expense Fund; (ii) to replenish the Reserve Fund to
the Reserve Requirement; (iii) to pay the principal of and interest on the Bonds when due; (iv) to deposit
additional funds to the Administrative Expense Fund to pay Administrative Expenses of the District above the
Priority Administrative Expense Allocation, referenced in (i) above; and (v) to transfer the remaining amounts
to the Surplus Account. See “APPENDIX A – SUMMARY OF THE AGREEMENT.” Special Tax
Prepayments shall be deposited in the Special Tax Prepayment Account of the Bond Fund as provided for in the
Agreement and used to redeem Bonds. See “THE BONDS – Redemption of Bonds – Mandatory Redemption
from Special Tax Prepayment.”
Proceeds of Foreclosure Sales. The net proceeds received following a judicial foreclosure sale of land
within the District resulting from a landowner’s failure to pay the Special Taxes when due are included within
the Special Tax Revenues pledged to the payment of principal of and interest on the Bonds under the
Agreement.
Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of any Special
Tax or receipt by the District of Special Taxes in an amount which is less than the Special Tax levied, the City
Council, as the legislative body of the District, may order that Special Taxes be collected by a superior court
action to foreclose the lien within specified time limits. In such an action, the real property subject to the
unpaid amount may be sold at a judicial foreclosure sale. Under the Act, the commencement of judicial
foreclosure following the nonpayment of a Special Tax is not mandatory. However, the City has covenanted for
the benefit of the owners of the Bonds that it will commence and diligently pursue to completion, judicial
foreclosure proceedings against: (i) properties under common ownership with delinquent Special Taxes in the
aggregate of $10,000 or more by the October 1 following the close of the Fiscal Year in which such Special
15
Taxes were due; and (ii) all properties with delinquent Special Taxes by October 1 following the close of each
Fiscal Year in which it receives Special Taxes in an amount which is less than ninety-five percent of the total
Special Taxes levied; provided, however, the City is not required to cause judicial foreclosure proceedings to be
commenced against any delinquent properties if the City determines that the amount of the delinquent Special
Taxes for such properties is so small that the cost of foreclosure is not warranted. See “APPENDIX A –
SUMMARY OF THE AGREEMENT – Other Covenants of the City” herein.
If foreclosure is necessary and other funds (including amounts in the Reserve Fund) have been
exhausted, debt service payments on the Bonds could be delayed until the foreclosure proceedings have ended
with the receipt of any foreclosure sale proceeds. Judicial foreclosure actions are subject to the normal delays
associated with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the
federal government and other factors beyond the control of the City and the District. See “SPECIAL RISK
FACTORS – Bankruptcy and Foreclosure” herein. Moreover, no assurances can be given that the real property
subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such
sale will be sufficient to pay any delinquent Special Tax installment. See “SPECIAL RISK FACTORS – Land
Values” herein. Although the Act authorizes the City to cause such an action to be commenced and diligently
pursued to completion, the Act does not impose on the District or the City any obligation to purchase or acquire
any lot or parcel of property sold at a foreclosure sale if there is no other purchaser at such sale. However, the
City does have the ability to use the foreclosure judgment to purchase property by credit bid at a foreclosure
sale, in which case the City would have no obligation to pay such credit bid for 24 months. The Act provides
that, in the case of a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem
taxes.
Reserve Fund
In order to secure the payment of principal and interest on the Bonds, the City will initially deposit
Bond proceeds in an amount equal to the initial Reserve Requirement into the Reserve Fund held by the Fiscal
Agent. The Reserve Requirement is, as of any date of calculation, the lesser of (i) ten percent (10%) of the
original principal amount of the Bonds; (ii) Maximum Annual Debt Service on the Bonds; or (iii) 125 percent
of average Annual Debt Service on the Bonds, as determined by the City.
All amounts on deposit in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for
the purpose of making transfers to the Interest Account and the Principal Account of the Bond Fund in the event
of any deficiency at any time in either of such accounts of the amount then required for payment of the
principal of and interest and any premium on the Bonds or, in accordance with the provisions of the Agreement
for the purpose of redeeming Bonds. In addition, the Agreement provides that whenever, on any September 2,
the amount in the Reserve Fund, less Investment Earnings resulting from the investment of the funds therein
which pursuant to the Agreement must be rebated to the United States, exceeds the Reserve Requirement, the
Fiscal Agent shall provide written notice to the City of the amount of the excess. The Fiscal Agent shall,
subject to the requirements of the Agreement, transfer an amount from the Reserve Fund which will reduce the
amount on deposit therein to an amount equal to the Reserve Requirement to the Interest Account and the
Principal Account, in the priority specified in the Agreement, to be used for the payment of the interest on and
principal of the Bonds on the next succeeding Interest Payment Date.
The Agreement provides that moneys in any fund or account created or established by the Agreement
and held by the Fiscal Agent shall be invested by the Fiscal Agent in Permitted Investments, as directed
pursuant to an Officer’s Certificate filed with the Fiscal Agent at least two (2) business days in advance of the
making of such investments. In the absence of any such Officer’s Certificate, the Fiscal Agent shall invest any
such moneys in Permitted Investments as described in the Agreement. The Fiscal Agent shall not have any
responsibility for determining the legality of any Permitted Investments and shall have no obligation to pay
additional interest or maximize investment income on any funds held by it. The Agreement further provides
that investments, other than investment agreements in which moneys in the Reserve Fund are invested, will be
valued by the City at fair market value and marked-to-market at least once in each Fiscal Year. See
“APPENDIX A – SUMMARY OF THE AGREEMENT” for a description of the Permitted Investments for
amounts in the Reserve Fund.
16
Limited Liability
THE BONDS ARE PAYABLE SOLELY FROM THE PROCEEDS OF THE SPECIAL TAX TO BE
LEVIED ANNUALLY ON THE TAXABLE PROPERTY IN THE LAND WITHIN THE DISTRICT AND
AMOUNTS IN CERTAIN FUNDS ESTABLISHED UNDER THE AGREEMENT. NEITHER THE FAITH
AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION
THEREOF (OTHER THAN THE DISTRICT, TO THE LIMITED EXTENT SET FORTH IN THE
AGREEMENT) IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR
INTEREST ON THE BONDS. THE BONDS ARE NOT SECURED BY A LEGAL OR EQUITABLE
PLEDGE OF OR CHARGE, LIEN OR ENCUMBRANCE UPON ANY OF THE PROPERTY OR
REVENUES OF THE CITY AND THE PAYMENT OF THE INTEREST ON OR PRINCIPAL OF OR
REDEMPTION PREMIUMS, IF ANY, ON THE BONDS IS NOT A GENERAL DEBT, LIABILITY OR
OBLIGATION OF THE CITY OR THE DISTRICT.
THE DISTRICT
The District is located in Southern Orange County, at the northeast corner of Glenwood Drive and
Aliso Creek Road, in the City. The District consists of approximately 104 gross acres, of which approximately
43 acres are subject to the levy of the Special Tax. The taxable property within the District which is expected
to be developed into 318 single-family detached homes and 141 market rate attached homes. See “THE
DEVELOPMENT AND PROPERTY OWNERSHIP” herein. The balance of the acreage in the District
represents parcels which are exempt from the levy of the Special Tax and includes, slopes, open space, public
right-of-way, affordable units, parcels to be owned by the City and developed as a Conference Center, Aquatic
Center and public park and property constituting a portion of the Aliso Viejo Country Club, a privately owned
golf course.
Authorization
Pursuant to the Act, on March 16, 2005, the City Council adopted Resolution No. 2005-17 on March
16, 2005, stating its intention to establish the District and Resolution No. 2005-018, declaring the necessity for
the District to incur bonded indebtedness. On April 20, 2005 following a duly noticed public hearing, the City
Council adopted Resolution No. 2005-024 establishing the District and Resolution No. 2005-025 determining
the necessity to incur bonded indebtedness in an amount not to exceed $37,500,000 within the District.
Pursuant to Resolution No. 2005-25, the City Council called an election pursuant to the Act. The owners of the
land within the District voted in favor of the incurrence of bonded indebtedness in a principal amount not to
exceed $37,500,000 to finance certain public facilities, and the levy of the Special Tax consistent with the Rate
and Method. The Bonds are secured solely by Special Tax Revenues generated within the District, including
foreclosure proceeds obtained therein. See “APPENDIX D – RATE AND METHOD OF APPORTIONMENT
OF SPECIAL TAX.” The Bonds were authorized to be issued by the Resolution of Issuance adopted by the
City Council on November 7, 2007.
Rate and Method of Apportionment
The District is legally authorized and has covenanted in the Agreement to levy the Special Taxes in
accordance with the Rate and Method. The Rate and Method divides the District into two zones. Zone 2
consists of parcels that are also within the boundaries of the County’s CFD No. 88-1. The County’s CFD 88-1
does not allow for the prepayment of the Special Tax. Consequently, in order to provide equity in the relative
amount of the aggregate special taxes paid by the owners of parcels which are located within the District and
CFD No. 88-1, the Zone 2 Special Taxes were established at a lower rate. It is anticipated that there will be
four single-family detached houses within Zone 2. The Rate and Method apportions the total amount of Special
Taxes to be collected among the taxable parcels in the District as more fully described therein. Pursuant to the
Rate and Method, the amount of the Special Tax to be levied in each Fiscal Year will be levied for a period not
to exceed 40 years, commencing with Fiscal Year 2006-2007. See “APPENDIX D – RATE AND METHOD
OF APPORTIONMENT OF SPECIAL TAX.”
17
Estimated Direct and Overlapping Debt
The property within the District is within the jurisdiction of several overlapping local agencies
providing public services. The direct and overlapping debt secured by such taxes, assessments, and charges as
of Fiscal Year 2006-2007 in Zone 1 and Zone 2 is shown on the following tables (the “Debt Report”). The
Debt Report is based on data obtained by Koppel & Gruber Public Finance, Special Tax Consultant, from
National Tax Data, Inc., and is included for general information purposes only. The City makes no
representations as to its completeness or accuracy.
18
Unissued
$45,000
$0
Type
Authorized
Authorized Direct and Overlapping Bonded Debt
Capistrano Unified School District CFD No. 87-1
CFD $100,110,000
City of Aliso Viejo Community Facilities District No. 2005-1, Zone 1
CFD
$37,274,971
TOTAL UNISSUED LAND SECURED BOND INDEBTEDNESS (1)
TOTAL OUTSTANDING AND UNISSUED LAND SECURED BOND INDEBTEDNESS (1)
% Applicable
0.06310%
100.00000%
% Applicable
0.06310%
100.00000%
Parcels
318
318
Parcels
318
318
Amount
$28
$0
$28
$33,908,054
Amount
$42,473
$33,865,553
$33,908,026
19
TOTAL OF ALL OUTSTANDING AND OVERLAPPING BONDED DEBT
$33,908,026
3.52:1
VALUE TO ALL OUTSTANDING DIRECT AND OVERLAPPING BONDED DEBT (3)
TOTAL OF ALL OUTSTANDING AND UNISSUED DIRECT AND OVERLAPPING BONDED DEBT (2)
$33,908,054
3.52:1
VALUE TO ALL OUTSTANDING AND UNISSUED DIRECT AND OVERLAPPING BONDED DEBT (2)(3)
______________
(1)
Additional bonded indebtedness or available bond authorization may exist but is not shown because a tax was not levied for the referenced Fiscal Year.
(2)
Excluding general obligation debt.
(3)
Based on FY 2006-07 County Assessed Value, which is higher than the Appraiser’s opinion of value as of September 1, 2007.
(4)
Due to an error at the County, two single-family residential parcels were not assigned a land value and therefore not levied taxes that are based on land value. The County
has since made this correction.
Source: National Tax Data, Inc. and Koppel & Gruber Public Finance
Outstanding
$67,310,000
$33,865,553
Issued
$100,065,000
$33,865,553
III. Land Secured Bond Indebtedness
Outstanding Direct and Overlapping Bonded Debt
Type
CFD
City of Aliso Viejo Community Facilities District No. 2005-1, Zone 1
CFD
TOTAL OUTSTANDING LAND SECURED BOND INDEBTEDNESS (1)
Levy
$1,192,710.00
$5,684.52
$5,602.67
$3,616.70
$33.30
$33.30
$129,431.19
$606.92
$1,661.08
$1,339,379.68
1.12%
Parcels
316 (4)
318
316 (4)
318
2
2
316 (4)
318
318
II. Secured Property Taxes
Description on Tax Bill
Type Total Parcels
Total Levy
Basic Levy
PROP13
816,689
$3,535,180,100.60
CFD
16,044
$9,008,833.60
Metropolitan Water District of Southern California Debt Service
GOB
530,624
$11,133,662.71
Metropolitan Water District of Southern California Water Standby
STANDBY
530,500
$6,371,557.30
Moulton Niguel Water District Improvement District No. 6 (Sewer)
STANDBY
188
$2,330.40
Moulton Niguel Water District Improvement District No. 6 (Water)
STANDBY
188
$2,330.31
Moulton Niguel Water District Improvement District No. 6 (Bond)
GOB
14,302
$4,062,451.64
Orange County Vector Control Assessment
VECTOR
753,532
$1,499,401.72
Orange County Vector Control Mosquito & Fire Ant Assessment
VECTOR
752,459
$4,258,573.40
2006-2007 TOTAL PROPERTY TAX LIABILITY
TOTAL PROPERTY TAX LIABILITY AS A PERCENTAGE OF 2006-2007 ASSESSED VALUATION
% Applicable
0.03374%
0.06310%
0.05032%
0.05676%
1.42894%
1.42899%
3.18604%
0.04048%
0.03901%
$119,271,000
I. Assessed Value
2006-2007 Secured Roll Assessed Value
Table 1
Community Facilities District No. 2005-01
(Glenwood at Aliso Viejo)
of the City of Aliso Viejo
Direct and Overlapping Debt Report
Zone 1
Table 2
Direct and Overlapping Debt Report
Zone 2
8/24/2007
I. Assessed Value
2006-2007 Secured Roll Assessed Value
$958,000
II. Secured Property Taxes
Description on Tax Bill
Basic Levy
Type
Total Parcels
Total Levy
% Applicable
Parcels
Levy
PROP13
816,689
$3,535,180,100.60
0.00027%
4
$9,580.00
CFD
16,044
$9,008,833.60
0.00097%
4
$87.00
County of Orange Community Facilities District No. 88-1
CFD
11,511
$14,872,270.12
0.00104%
4
$154.61
Metropolitan Water District of Southern California Debt Service
Metropolitan Water District of Southern California Water
Standby
Moulton Niguel Water District Improvement District No. 6
(Bond)
GOB
530,624
$11,133,662.71
0.00040%
4
$44.97
STANDBY
530,500
$6,371,557.30
0.00063%
4
$40.32
Orange County Vector Control Assessment
Orange County Vector Control Mosquito & Fire Ant
Assessment
GOB
14,302
$4,062,451.64
0.02559%
4
$1,039.60
VECTOR
753,532
$1,499,401.72
0.00051%
4
$7.68
VECTOR
752,459
$4,258,573.40
0.00049%
4
2006-2007 TOTAL PROPERTY TAX LIABILITY
$20.96
$10,975.14
TOTAL PROPERTY TAX LIABILITY AS A PERCENTAGE OF 2006-2007 ASSESSED VALUATION
1.15%
III. Land Secured Bond Indebtedness
Outstanding Direct and Overlapping Bonded Debt
Type
Issued
Outstanding
% Applicable
Parcels
Amount
City of Aliso Viejo Community Facilities District No. 2005-1,
Zone 2
CFD
$100,065,000
$67,310,000
0.00097%
4
$653
CFD
$204,447
$204,447
100.00000%
4
$204,447
CFD
$219,325,000
$123,860,000
0.00104%
4
TOTAL OUTSTANDING LAND SECURED BOND INDEBTEDNESS (1)(2)
$1,288
$206,388
Authorized Direct and Overlapping Bonded Debt
Type
Authorized
Unissued
% Applicable
Parcels
Amount
City of Aliso Viejo Community Facilities District No. 2005-1,
Zone 2
CFD
$100,110,000
$45,000
0.06718%
4
$30
TOTAL
UNISSUED
LAND
SECURED
BOND
INDEBTEDNESS (1)
CFD
$225,029
$0
100.00000%
4
$0
CFD
$270,000,000
$50,675,000
0.00104%
4
$527
$557
TOTAL OUTSTANDING AND UNISSUED LAND SECURED BOND INDEBTEDNESS
(1)
$206,388
TOTAL OF ALL OUTSTANDING AND OVERLAPPING BONDED DEBT
$206,388
VALUE TO ALL OUTSTANDING DIRECT AND OVERLAPPING BONDED DEBT
4.64:1
TOTAL OF ALL OUTSTANDING AND UNISSUED DIRECT AND OVERLAPPING BONDED DEBT
(2)(3)
$206,945
VALUE TO ALL OUTSTANDING AND UNISSUED DIRECT AND OVERLAPPING BONDED DEBT
(2)(3)
4.63:1
______________
(1)
Additional bonded indebtedness or available bond authorization may exist but are not shown because a tax was not levied for the referenced Fiscal Year.
Excluding general obligation debt.
(3)
Based on FY 2006-07 County Assessed Value, which is higher than the Appraiser’s opinion of value as of September 1, 2007.
Source: National Tax Data, Inc. and Koppel & Gruber Public Finance
(2)
20
The City has no control over the amount of additional debt payable from special taxes or assessments
levied on all or a portion of the property within the District that may be incurred in the future by other
governmental agencies having jurisdiction over such property. Furthermore, nothing prevents owners of
property within the District from consenting to the issuance of such debt by other governmental agencies. To
the extent that such indebtedness is payable from assessments, special taxes levied pursuant to the Act, or other
taxes, such assessments, special taxes, and other taxes will be secured by liens on the property within the
District on a parity with the lien of the Special Taxes.
The incurrence of any such additional indebtedness could cause the total debt on the property within the
District to increase without any corresponding increase in the value of such property, thereby reducing (perhaps
dramatically) the estimated value-to-lien ratios that exist at the time the Bonds are issued. The incurrence of
such additional indebtedness could reduce the willingness and ability of the property owners within the District
to pay special taxes when due. See “SPECIAL RISK FACTORS –Parity Taxes, Special Assessments, and Land
Development Costs.”
Expected Tax Burden
Table 3 below sets forth estimated property tax bills for a range of typical single-family residential
units proposed to be located within the District. As of October 1, 2007, the estimated total effective tax rate for
Fiscal Year 2007-2008 for such units ranges from approximately 1.60% to 1.72% of total estimated value based
on projected selling prices as of such date. The maximum Special Tax escalates by 2% per year, beginning in
Fiscal Year 2008-2009.
21
Table 3
Projected Property Taxes for a Single Family Resident
CFD Land Use Class
Plan Size (Sq Ft)
Number of Houses
Base Sales Price as of
Oct 12, 2007
Estimated Taxes Per
Unit
Ad Valorem
MWD charge
Moulton Niguel ID #6
Bond
MWD Standby Charge
Mosquito, Fire Ant
Assessment
Vector Control
MNWD 6 Acr Charge
MNWD 6 Sewer Charge
Capistrano Unified CFD
87-1
Orange County CFD 881 (1)
Total
Proposed CFD Tax
Proposed ETR w/ CFD
Proposed Tax Rate with
CFD
Total CFD Special
Taxes Generated
ZONE 1
3
4
5
2,351-2,800 2,801-3,250
3,251-3,700
90
59
18
1
<1,901
141
6
3,701-4,150
108
7
4,151-4,600
39
ZONE 2
6
7
3,701-4,150
4,151-4,600
2
2
$519,990
$820,000
$889,630
$1,299,990
$1,310,300
$1,331,800
$1,310,300
$1,331,800
1.00000%
0.00410%
$5,200
21
$8,200
34
$8,896
36
$13,000
53
$13,103
54
$13,318
55
$13,103
54
$13,318
55
0.08382%
$10.08
227
10
357
10
388
10
567
10
571
10
580
10
571
10
580
10
$5.92
$1.92
$5.04
$5.04
6
2
5
5
6
2
5
5
6
2
5
5
6
2
5
5
6
2
5
5
6
2
5
5
6
2
5
5
6
2
5
5
305
764
764
1,223
1,223
1,223
1,223
1,223
0
$5,781
0
$9,383
0
$10,113
0
$14,871
0
$14,979
0
$15,204
3,262
$18,241
3,262
$18,467
2,927.40
4,528.80
5,217.30
5,905.80
5,997.60
6,844.20
2,856.00
3,631.20
$8,709
$13,912
$15,330
$20,777
$20,977
$22,048
$21,097
$22,098
1.67%
1.70%
1.72%
1.60%
1.60%
1.66%
1.61%
1.66%
$412,763
$407,592
$307,821
$106,304
$647,741
$266,924
$5,712
$7,262
(1)
Rates shown are Maximum Special Tax rates. Actual Special Tax rates for 2007/08 are approximately 41%.
Notes: Due to the preliminary and unapproved product type in the Vista Vallarta project, the planned square footages have been reduced by 100 sq ft each and
then classified accordingly.
Land Use Classes without units proposed to be constructed are not shown in the table above.
Source: Koppel & Gruber Public Finance. Compiled with information obtained from the Developer and the County of Orange.
22
Appraisal
The information regarding ownership of property in the District included in the Appraisal is relevant to
an informed evaluation of the Bonds. The inclusion in this Official Statement of information related to existing
owners of property should not be construed to suggest that the Bonds, or the Special Taxes that will be used to
pay the Bonds, are recourse obligations of the property owners. A property owner may sell or otherwise
dispose of land within the District or any interest therein at any time. Development may also be abandoned at
any time.
The Appraiser valued certain property within the District, taking into consideration the lien of the
Special Taxes and the other existing special taxes comprising a lien on property within the District, based upon
a number of assumptions and limiting conditions contained in the Appraisal as set forth in Appendix C. In
appraising the property in the District, the Appraiser utilized a direct comparison approach to value and a
discounted cash flow analyses. The direct comparison approach is based upon the principal that the value of a
property tends to be set by the price at which comparable properties have been recently sold or for which they
can be acquired. This approach requires a detailed comparison of sales of comparable properties with the
subject property. Under a discounted cash flow analysis, the Appraisal takes into account an absorption period,
costs of development, sales, marketing and carrying costs and a discount rate which will consider the risk
associated with the development and a profit due to the Developer. The Appraiser estimated a separate value
for Zone 1 and Zone 2. Assuming a successful issuance with construction proceeds of approximately
$27,000,000 to finance a portion of the Improvements, the Appraiser is of the opinion that, as of September 1,
2007, the aggregate “as is” value of the land within Zone 1 was $114,800,000 and land within Zone 2 was
$2,000,000.
In arriving at the statement of value, the Appraisal is contingent on the successful issuance of the Bonds
by the District, with construction proceeds of approximately $27,000,000. The Appraiser assumed that: (i) a
portion of the total site improvements will be paid from the proceeds of the Bonds; (ii) the development site
cost and Developer in-tract site cost information prepared by Developer in-house engineers are all costs
associated with the development of the District, satisfy the conditions of map approval, the Development
Agreement, and current development plans, and are correct; (iii) there were no hidden or unapparent conditions
of the property or subsoil that render it more or less valuable; (iv) the property is in full compliance with all
applicable federal, state, and local environmental regulations and laws; (v) the property is in conformance with
all applicable zoning and use ordinance/restrictions, unless otherwise stated; (vi) no hazardous waste and/or
toxic materials are located on the property within the District that would affect the development process.
The Appraisal merely indicates the Appraiser’s opinion as to the market value of the property referred
to therein as of the date and under the conditions specified therein. The Appraiser’s opinion reflects conditions
prevailing in the applicable market as of the date of value. As set forth in the Appraisal, those market
conditions include a recent decline in demand for residential property. The Appraiser’s opinion does not
predict the future value of the subject property, and there can be no assurance that market conditions will not
change adversely in the future.
No assurance can be given that the assumptions made by the Appraiser will, in fact, be realized, and, as
a result, no assurance can be given that the property within the District could be sold at the appraised value
included in the Appraisal. The above synopsis of the Appraisal is not, and does not purport to be, a
comprehensive or definitive description of the Appraisal or the information contained therein. Reference is
made to the complete Appraisal for a complete statement of the investigation undertaken pursuant thereto, the
analyses and methodology employed therein, and conclusions reached and estimates made therein and the
premises, assumptions, contingencies, and limiting conditions to which the Appraisal is subject. For a complete
list of the Appraiser’s premises, assumptions, contingencies, and limiting conditions. See “APPENDIX C –
APPRAISAL REPORT.”
23
Market Absorption Study
The Market Absorption Study for the District, dated July 27, 2007, and revised as of September 28,
2007, was prepared by the Market Absorption Consultant. A synopsis and summary of the Market Absorption
Study is included herein as Appendix H. The Market Absorption Consultant has estimated, based upon the
analysis of relevant demographic and economic conditions in the Aliso Viejo area, the number and proportion
of housing units in the District that can be expected to be sold annually using the estimated absorption
schedules for each of the product types. The Market Absorption Study concludes that the residential units
should be closed out by the end of 2012 with most of the sales occurring in 2009-2010, and with final
absorption occurring in 2012. The Market Absorption Study projects that, of the 459 single-family attached
and detached units within the District that are subject to the Special Tax, 18 will be absorbed in 2007, 85 will
be absorbed in 2008, 105 will be absorbed in 2009, 127 will be absorbed in 2010, 99 will be absorbed in 2011,
and 25 will be absorbed in 2012. The estimated absorption schedules for the residential projects in the District
are subject to change due to potential shifts in economic and real estate market conditions and/or the
development strategy by the Developer.
The Market Absorption Study performs a comprehensive analysis of the product mix characteristics,
macroeconomic factors, and microeconomic factors as well as the potential risk factors that are expected to
influence the absorption of the residential projects in the District. The projected absorption assumes that the
Developer will respond to the market conditions with products that are competitively priced and have
features/amenities that are desired by the purchasers. The Market Absorption Consultant states that one
potential risk factor of the District is that the housing market is expected to experience some significant
adjustments during the foreseeable future, as the current price structure, which is based upon the extensive use
of creative financing, is re-aligned with a sustainable price structure, which is based upon the use of more
traditional financing structures. According to the Market Absorption Consultant, the majority of home
purchasers in recent years have utilized creative financing structures, and this has enabled them to afford homes
at current market prices; however, such structures are subject to resets that will cause their payments to rise
substantially, and so they face the risk of becoming delinquent on their mortgage and tax payments. However,
he further concludes that if these purchasers instead used traditional financing structures, then the majority of
them would not be able to afford homes at current market prices, and so their inability to do so would have
caused the rate of sales to slowdown, unless builders offered them substantial concessions, and eventually
lower prices. The Market Absorption Consultant believes, therefore, that as the market transitions from the
creative financing structure to the traditional financing structures, prospective purchasers will encounter
challenges in paying current prices, since their purchasing power with traditional loan structures is significantly
below their purchasing power with creative structures. Thus, he states that the real estate market is expected to
encounter some significant adjustments, through a combination of lower prices, enhanced builder incentives,
and slower sales prices. Finally, he concludes that these market adjustments are expected to have a much more
significant impact on newly developing residential community facilities districts than the broader market, as a
whole, since community facilities districts represent the marketing of new homes to purchasers at current prices
and they are also concentrated in particular geographical locations. The Market Absorption Study does note
that according to the Developer, the potential purchasers that were in escrow as of September 28, 2007, are
expected to utilize primarily “traditional” mortgage loan structures rather than creative mortgage loan
structures, as reflected by the following: as of the date of the Market Absorption Study 15 of the 20 potential
purchasers had an 80% loan to value ratio and 11 of the 20 had fixed rate loans for a term of 15 or 30 years.
Furthermore, most of the prospective purchasers that were in escrow as of the date of the Market Absorption
Study were non-contingent purchasers, and therefore do not need to sell their current homes. See “APPENDIX
H – SUMMARY OF MARKET ABSORPTION STUDY.”
24
Estimated Value-to-Lien Ratios
The appraised value of the taxable property within the District, based on the assumptions and limiting
conditions contained in the Appraisal, was $116,800,000 as of September 1, 2007. The lien of the Bonds is
$34,070,000. The estimated appraised value-to-lien ratio for such taxable property, excluding overlapping debt,
within the District currently subject to the levy of the Special Tax, based upon land values and property
ownership described in the Appraisal, is approximately 3.39 to 1 in Zone 1 and 9.78 to 1 in Zone 2, for an
overall appraised value to lien ratio for all such taxable properties of 3.43 to 1 There are certain overlapping
debt liens on property within the District as shown in Tables 1 and 2 above. The appraised value-to-lien ratio
for the property within the District subject to the Special Tax, including the overlapping debt, is 3.42 to 1. See
Table 4 below.
In the Annual Report to be filed pursuant to the Continuing Disclosure Certificate, the City will
estimate the value-to-lien ratios for the taxable property within the District subject to the Special Tax based on
the assessed value of the taxable property within the District, but not based on the appraised value of such
property. The information in the Annual Report for the estimated assessed value-to-lien ratios will follow the
format of Table 4 below.
25
Owner
Developer
Developer
Taxable
Acres
41.69
0.74
42.43
Source: Koppel & Gruber Public Finance, Special Tax Consultant.
26
City of Aliso
Viejo CFD No.
2005-1
Outstanding
Bond
Amount (2)
$33,865,553
204,477
$34,070,000
__________________
(1) Special Tax is based on development plan provided by the Developer.
(2) Estimated based on percentage of Maximum Special Tax.
(3) See Direct and Overlapping Debt Tables 1 & 2 above.
(4) Based on the Appraisal’s appraised date of value of September 1, 2007.
Zone
Zone 1
Zone 2
Totals
Projected 200708 Special Tax
Based on
Development
Plan (1)
$2,149,145
12,974
$2,162,120
Percentage of
Total Special
Tax
99%
1%
100%
Total
Overlapping
Debt (3)
$42,501
1,941
$44,442
Table 4
Estimated Appraised Value-to-Lien Ratios
Based on Ownership and Appraised Values as of September 1, 2007
Total Direct and
Outstanding Debt
Plus the Bonds
$33,908,054
206,388
$34,114,442
Appraised
Value (4)
$114,800,000
2,000,000
$116,800,000
Estimated
Appraised
Value-ToLien Ratio
3.39:1
9.69:1
3.42:1
THE DEVELOPMENT AND PROPERTY OWNERSHIP
The information herein regarding ownership of property in the District has been included because it is
considered relevant to an informed evaluation of the Bonds. The inclusion in this Official Statement of
information related to existing owners of property should not be construed to suggest that the Bonds, or the
Special Taxes that will be used to pay the Bonds, are recourse obligations of the property owners. A property
owner may sell or otherwise dispose of land within the District or any interest therein at any time.
No assurance can be given that the proposed development within the District will occur as described
below. As the proposed land development progresses and parcels are sold, it is expected that the ownership of
the land within the District will become more diversified. Although planning for the development of the
District is at an advanced stage, actual construction of improvements is as described below under the caption “–
Infrastructure Requirements and Construction Status” herein. No assurance can be given that further
development of the land within the District will occur, or that it will occur in a timely manner or in the
configuration or intensity described herein, or that any landowner described herein will obtain or retain
ownership of any of the land within the District. The Bonds and the Special Taxes are not personal obligations
of any landowners and, in the event that a landowner defaults in the payment of the Special Taxes, the City, on
behalf of the District, may proceed with judicial foreclosure on the land that is delinquent but has no direct
recourse to the assets of any landowner other than the land that is delinquent. As a result, other than as
provided herein, no financial statements or information is, or will be, provided about the Developer, the
merchant builders or other landowners. The Bonds are secured solely by Special Tax Revenues and other
amounts pledged under the Agreement. See “SECURITY FOR THE BONDS” and “SPECIAL RISK
FACTORS.”
The Developer
The Developer of the Glenwood at Aliso Viejo project is a California limited partnership and an
affiliate of the Shea family of companies. The Developer’s general partner is J.F. Shea, L.P., a Delaware
limited partnership, whose general partner is JFS Management, L.P., a Delaware limited partnership. JFS
Management’s general partner is J.F. Shea Construction Management, Inc., a California corporation. The
Developer currently has 8 operating divisions: Southern California, Inland Empire, Northern California,
Sacramento, San Diego, Colorado, Arizona, and its Active Adult division, which has operations in California,
Arizona, Washington, and Florida. The development of the residential lots in the District is being undertaken
by the Southern California Division of the Developer located in Brea, California. The Developer and its related
entities are privately held and have been managed by the Shea family for over 125 years.
The Shea family began construction of housing in 1968. The Developer was formed in 1989 to own
and operate the residential home building business of the Shea family. The Developer currently constructs and
sells residential units in California, Colorado, Arizona, Washington, and Florida through its eight different
operating divisions. The Developer builds a diverse selection of residential homes, including town homes,
condominiums and detached single-family housing. Together with its affiliates and subsidiaries, the Shea
family of companies are builders of master planned communities, active adult communities, homes, apartments,
offices, industrial parks, and neighborhood and community shopping centers and also operate as a civil
infrastructure contractor and venture capital investor. The Shea family has been involved in a wide variety of
construction activities since 1881, including such heavy construction projects as the Hoover Dam, the Golden
Gate Bridge, the Washington D.C. metro system, the Bay Area Rapid Transit (BART) system in the San
Francisco Bay area, and the California Aqueduct.
27
The Shea family has been constructing homes in the Southern California area, including Orange, San
Diego, San Bernardino, and Riverside Counties for more than 36 years. A representative sampling of projects
recently or currently under active development by the Developer in the Southern California Division are
summarized in Table 5 below.
Table 5
Projects of the Developer
Project Name
Cazadero at Talega
Tapestry
The Retreat
San Lorenzo
Costa Azul
Walden Estates
Bella Tierra
Canterbury Lane
City Walk @ Vantis
Destinations at Riverpark
Latitudes North
Latitudes South
Market Street at Riverpark
Meridian
The Cottages
Windstone
Number
of Units at
Buildout
72
113
36
174
37
54
140
77
41
116
165
101
113
159
52
90
Location (CA)
Expected
Close-Out
Date(1)
San Clemente
La Habra
Santa Ana
Yorba Linda
Newport Coast
Brea
Laguna Beach
Moorpark
Aliso Viejo
Oxnard
Aliso Viejo
Aliso Viejo
Oxnard
Oxnard
Oxnard
Simi Valley
12/31/07
8/31/09
11/30/08
12/31/09
12/31/07
6/30/08
12/31/08
1/31/11
12/31/09
8/31/09
4/30/11
2/28/10
6/30/09
12/31/11
3/30/09
12/31/08
_____________________
(1)
As of October 1, 2007.
Source: The Developer.
The Proposed Development
The District is located within the master-planned community called “Glenwood at Aliso Viejo,” which
is expected to be developed in accordance with the Glenwood at Aliso Viejo Specific Plan approved by the City
Council pursuant to Ordinance No. 2004-065 on November 3, 2004, (the “Specific Plan”). The Specific Plan
authorizes a total of 502 dwelling units and permanently designates and zones approximately 148 acres as
recreation/open space, which includes the Aliso Viejo Golf Course, parks, and a trail system. The Former
Owners, the predecessor in interest to the Developer, entered into the Development Agreement which is
recorded in the office of the Clerk-Recorder of the County of Orange as Document No. 2004-001020473.
Pursuant to the Development Agreement, the City agreed to initiate proceedings to consider the formation of
the District for the purpose of financing the Improvements. The Developer acquired from the Former Owners
321 of the 326 parcels of land comprising the Property on December 14, 2005. The remaining five parcels are
currently owned by the Aliso Viejo Golf Club Joint Venture and will continue to be used for the Aliso Viejo
Golf Course. The property within the District will be developed for residential development, public uses
(including, among others, a Conference Center, Aquatic Center, public park, parking lot, water and sewer
improvements, and road improvements, open space lands, and major street facilities).
Prior to the Developer’s purchase of the Property, the existing use of the property comprising the
District was a golf course. Because the 27-hole, Jack Nicklaus-designed golf course, which was located on the
property, was underperforming, the Former Owners of the Property decided to re-zone the land to residential
and received entitlements for 502 units to be constructed on 9 of the existing 27 holes. The Aliso Country Club
28
is being redesigned by the Nicklaus Group and will be one of two Nicklaus-designed courses in Orange County
when completed.
The Developer is a homebuilder, and, as such, intends to develop the lots and construct and sell homes
thereon. The Developer currently expects that the District will consist of 318 single-family detached homes,
and 184 attached homes (including 43 affordable units which will be exempt from the levy of the Special Tax).
The development within the District consists of four projects. See “– Development Projects” below.
Of the 4 projects, 3 are under construction and conceptual plans for the fourth, Vista Vallarta, have
been submitted to the City for approval. There can be no assurance that development will proceed in the
manner, timeline, or according to the plans and financing structure set forth herein. As of the date hereof, the
Developer anticipates proceeding with construction of Vista Vallarta; however, there can be no assurance that
the Developer’s plans will not change or that the Developer will not decide to transfer or sell such project to
another merchant builder subsequent to the issuance of the Bonds. See “– Development Projects.”
Financing Plan
While as of October 1, 2007, the Developer has expended approximately $176,000,000 on the
development of the property in the District, including construction of the required infrastructure, additional
expenditures of funds will be necessary to fully develop the property and complete the required infrastructure.
See “– Infrastructure Requirements and Construction Status” below for a description of the required
infrastructure and status of construction. The Developer anticipates the cost of the development of the Project,
including all required infrastructure and public improvements, to be approximately $357,000,000. See table 6
below. Such development will require funds in addition to the Bond proceeds, which are anticipated to fund
only the Improvements. It is anticipated that the cash sources outside of the Bond proceeds necessary to
complete development of the lots and the infrastructure will come from ongoing home sales revenues available
to the Developer from all of its home building projects, corporate financing, including a Line of Credit (defined
below), and other sources of internal cash flows. The Developer currently has a revolving, unsecured line of
credit with a group of banks managed by Wells Fargo Bank in the amount of $1.2 billion (the “Line of Credit”).
The amount outstanding as of November 1, 2007, was approximately $385 million. To date, the development
of the property in the District has been principally financed by draws on the Line of Credit, other cash available
from ongoing home sales of all of the Developer’s projects, and other internal sources. The Line of Credit is
available for Developer projects other than the development in the District, and is also available to J.F. Shea
Co., Inc. J.F. Shea Construction Inc., (a wholly owned subsidiary of J.F. Shea Co., Inc.) and Shea Homes, Inc.
(a wholly owned subsidiary of the Developer) are co-guarantors of the Line of Credit. There is no requirement
that any portion of the Line of Credit be reserved or made available for the Project. As a revolving line of
credit available to these Shea family-related entities, amounts available under the Line of Credit may vary from
time to time, and at any one time the amount available may not be sufficient to cover the costs of the Project.
Moreover, as a revolving line of credit of these Shea-family entities, there is no guaranty that amounts available
thereunder will be made available to the Developer for the Project.
There are no outstanding loans secured by the property within the District. The following table
summarizes the actual sources and uses of funds for the Developer for the Project.
29
Warranty
Selling Expenses
G&A
TOTAL Selling, G &A
CASH FLOW
$803,020
2,514,743
$3,317,763
0
$6,691,865
2,141,638
$8,833,504
$175,822,861
$3,304,420
2,075,890
3,400,944
$8,781,254
$132,242
$481,812
943,029
$1,424,840
0
$1,199,149
793,327
$1,992,475
$10,170,842
$4,876,022
778,459
728,774
$6,383,254
$1,759,555
3,663,704
2,100,000
271,854
(6,000,000)
$1,795,112
$13,224,196
($1,496,271)
$11,877,068
837,386
509,742
10/200712/2007
18
$411,754
$4,883,173
3,772,115
$8,655,288
0
$4,772,590
1,476,904
$6,249,494
$32,973,396
$12,196,846
3,113,835
2,915,095
$18,225,776
$5,278,664
13,232,048
4,900,000
1,087,414
(16,000,000)
$8,498,126
$41,175,408
$865,030
$38,032,110
1,953,901
1,189,398
2008
42
$609,529
$5,868,482
3,772,115
$9,640,596
0
$4,347,629
1,992,742
$6,340,371
$22,396,724
$7,320,824
3,113,835
2,915,095
$13,349,754
$6,619,184
1,087,414
(5,000,000)
$2,706,598
$60,952,919
($28,306,070)
$55,863,770
3,163,458
1,925,692
2009
68
$1,152,169
$5,868,482
3,772,115
$9,640,596
0
$4,681,349
1,821,690
$6,503,039
$73,906,643
$56,639,159
3,113,835
2,915,095
$62,668,089
$3,648,101
1,087,414
$4,735,515
$115,216,898
($30,517,489)
$106,310,885
5,536,052
3,369,961
2010
119
(2)
30
All Closings, Revenues and Costs include the 43 affordable units. The total columns/rows may not add up to a sum of their parts as a result of rounding of numbers.
Corporate Financing includes line of credit and other sources of internal cash flows and the repayment of such draws.
(3)
Direct Home Construction Costs per square foot match those provided to the appraiser.
(4)
Option Revenues are 5.5% of Base House Sales Revenue.
(5)
Option Costs are 70% of Option Revenues.
(6)
Indirect Construction Costs include Architecture, Building Permits and Supervision.
(7)
Property Taxes are for Builder only and include CFD special taxes.
(8)
Appreciation assumptions are 3.0% per annum for Revenues starting January 1, 2011 and 2.0% per annum for Costs starting January 1, 2012.
Source: The Developer
(1)
________________________
$4,680,216
$29,155,100
21,060,973
$50,216,073
$56,309,480
TOTAL OUTFLOWS (Inflated) (8)
$113,762,960
16,347,636
14,818,399
$144,928,995
$121,528,540
12,316,882
18,984,650
4,200,000
1,178,032
$158,208,104
$121,528,540
19,355,100
47,819,747
11,200,000
5,799,542
(27,000,000)
$178,702,929
$179,140,623
Completed
to Date
0
$468,021,624
-
$429,945,144
23,668,659
14,407,821
$24,343,512
8,840,418
$33,183,931
$356,815,854
Financing
Interest (External)
Property Tax (7)
Home Construction
Directs (3)
Options Costs (5)
Indirects (6)
TOTAL REVENUE (Inflated) (8)
CORPORATE FINANCING (2)
CASH OUTFLOWS:
Lot Costs
Land Acquisition
Grading
Site Development
Community Center
Assessment Fees
CFD Reimbursements
HOUSE CLOSINGS
CASH INFLOWS
House Sales Revenue
Options Revenue (4)
Premium Revenue
Total
502
Table 6
Developer’s Business Pro Forma Summary of Cash Flows (1)
(as of October 1, 2007)
$1,166,153
5,868,482
3,772,115
$9,640,596
0
$1,586,512
421,718
$2,008,230
$24,510,645
$14,685,710
3,113,835
1,943,397
$19,742,942
$1,672,060
1,087,414
$2,759,474
$116,615,276
($81,297,882)
$107,601,172
5,603,242
3,410,862
2011
120
$1,208,369
$5,381,650
2,514,743
$7,896,393
$56,309,481
$1,064,417
192,400
$1,256,817
$17,034,742
$14,739,980
1,037,945
$15,777,925
-
$120,836,927
($38,387,941)
$110,260,140
6,574,620
4,002,167
2012
135
The full build-out of the District as planned is dependent upon a number of external factors, including
the general and local economy, the health of the local real estate market, the ability of the Developer to
maintain access to internal funds and the Line of Credit to finance costs to complete the Project, and the ability
of the Developer to timely complete all development and pay all fees required to pull permits for the Project.
The Developer intends to fund costs related to homebuilding and site preparation and construction for
all four residential projects through the internal funding sources, plus home sales revenue and Line of Credit
described above and anticipates that such sources will be sufficient to cover on a timely basis all remaining
development expenses for the full development of the Project. See “– Development Projects” below for a
discussion of current development projections. Notwithstanding the foregoing, there can be no assurance that
the Developer will have timely access to the sources of funds which will be necessary to complete the proposed
development in the District. There can also be no assurance that there will be no substantial changes in the
sources of funds anticipated to be utilized by the Developer or that additional funds necessary to finance the
Project will be available as needed from loans, home sales, or any other financing sources, or that the Developer
will complete the development according to its projected completion schedule. Furthermore, if the financing
sources are inadequate or unavailable, there is no assurance that the Developer will secure additional funds to
finance the remainder of the development.
There is no legal obligation to Bond holders on the part of the Developer or any of its affiliates to make
any such funds available to fund its remaining development costs or to pay ad valorem property taxes or Special
Taxes related to the Developer’s property in the District. Many factors beyond the Developer’s control, or a
decision by the Developer to alter its current plans, may cause the actual sources of funding and planned uses
thereof to differ materially from the projections. The Developer does not guarantee any particular cash flow or
source. The Developer is required to provide updates on any material changes to the Developer’s financial
projections and financing plan in the Annual Report or Semi-annual Report to be prepared by the Developer
pursuant to the Continuing Disclosure Certificate. See APPENDIX F –“FORMS OF CONTINUING
DISCLOSURE CERTIFICATES.” To the extent that actual revenues are less than projected or are received
more slowly than projected, other needed financing mechanisms are not put into place or actual expenses are
greater than or occur earlier than projected herein, there could be a shortfall in the cash required to complete the
Developer’s portion of the development in the District.
Status of Entitlement Approvals
All entitlements for the development of the 502 residential units, along with the Aquatic Center, the
Conference Center, and the Golf Course clubhouse have been received. The Developer recorded an amended
final map on February 21, 2007.
Environmental Constraints
The development in the District as currently planned has undergone extensive environmental and
biological review and the necessary environmental approvals for the development of the entire Property have
been obtained. On November 3, 2004, the City Council approved the Specific Plan for the Property and an
Addendum to the City Final Environmental Impact Report for the General Plan. The Glenwood at Aliso Viejo
Specific Plan provides zoning on the Property. A General Plan Environmental Impact Report Addendum was
approved with the Specific Plan and the Development Agreement, as well as a Mitigation and Monitoring
Reporting Program consistent with mitigation measures required by the General Plan Environmental Impact
Report. To the best of the Developer’s knowledge, there are no endangered species or endangered habitats on
the Property.
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Infrastructure Requirements and Construction Status
On January 26, 2006, grading began on the development of the property within the District. As of
May 1, 2006, construction of infrastructure (utilities, roads, sidewalks, etc.) within the District had commenced.
As of October 1, 2007, most of the lots are in blue top or semi-finished condition. The backbone road, sewer,
water, storm drain and dry utilities improvements are expected to be completed in the fourth quarter of 2008.
The in-tract improvements that remain to be completed include: (i) dry utilities east of Golf Drive and west of
Chapala Lane; (ii) curb, gutter, and paving of Anacapa Street, and all streets west of Anacapa Lane; and (iii)
water, sewer, storm drain, dry utilities, curb, gutter, sidewalk, and paving in the area currently occupied by the
existing golf course clubhouse. The in-tract infrastructure improvements are expected to be completed in the
fourth quarter of 2008.
The Development Agreement requires that the Developer obtain a certificate of occupancy shall for
each of the Conference Center, the Aquatic Center, the public park, and the Aliso Viejo Country Club
clubhouse, and that construction of Golf Drive and private internal streets within the boundaries of the District
be complete prior to or concurrent with the later of: (i) the issuance of a certificate of occupancy or final
approval for the 50th single-family detached residential unit in the District; (ii) six months following the
issuance of the certificate of occupancy or final approval for the first single-family detached residential unit in
the District; or (iii) eighteen months following the issuance of bonds and the availability of sufficient bond
proceeds for such purposes. Currently the Developer anticipates that the Conference Center, Aquatic Center,
public park, and clubhouse will be completed approximately in April 2008. Golf Drive is completed as of the
date hereof and 95% of all internal streets have been completed and the remainder will be completed in
approximately the third quarter of 2008.
The Developer believes that its timing for completion of its
infrastructure requirements and the Former Owners’ construction of the clubhouse will be in compliance with
the requirements of the Development Agreement referenced above.
In addition, the Development Agreement also requires the Developer to do the following:
(1)
Pay to the City Community Enhancement Fees in the amount of $7,500 per residential
unit (not to exceed 430 residential units) for a total fee of $3,225,000, which are required to be paid at
the time the Developer pulls building permits. The fees will be used for City-wide community
improvements. These fees are part of the Improvements to be financed with Bond proceeds.
(2)
Satisfy requirements for park and recreational amenities. The Developer anticipates
these requirements will be satisfied by the Developer’s provision of approximately 6.4 acres of park
and open space property (including the public park and homeowner’s association-owned park adjacent
thereto and all 7 neighborhood parks within the Project). As of October 1, 2007, development of the
public park and adjacent homeowner association-owned park had commenced; rough grading is 100%
complete on such parks and approximately 95% complete on the neighborhood parks. The Developer
anticipates that the public park and adjacent homeowner’s association-owned park will be completed by
the second quarter of 2008. The Developer will construct and complete the neighborhood parks as the
adjacent residential homes are completed, and anticipates that they will be completed by the fourth
quarter of 2010. Costs for the public park are included in the Improvements to be financed with Bond
proceeds. See Table 7 below (City Improvements – Conference Center/Aquatic Center).
(3)
Pay for construction of a bus shelter and pullout on Glenwood Drive or, before the
issuance of a certificate of occupancy or final approval for the 50 th single-family detached residential
unit in the Project, pay to the City the sum of $35,000. The Developer anticipates satisfying this
requirement by paying the $35,000 at the required time. This amount is included in the Improvements
to be financed by Bond proceeds. See Table 7 below (City Improvements – Offsite Traffic Mitigation
Improvements).
(4)
Pay for construction of an off-set median on Glenwood Drive or pay to the City
$470,250 before the issuance of a certificate of occupancy or final approval for the 50 th single family
detached residential unit in the Project. The $470,250 is included in the Improvements to be financed
32
with Bond proceeds.
Improvements).
See Table 7 below (City Improvements – Offsite Traffic Mitigation
(5)
Contribute its fair share to the City traffic impact improvements in an amount of
$115,000 before the issuance of a certificate of occupancy or final approval for the 50 th single-family
detached residential unit on. Such amount is part of the Improvements to be financed from the District
Bond proceeds. See Table 7 below (City Improvements – Offsite Traffic Mitigation Improvements).
(6)
Comply with Affordable Housing requirements to build 43 affordable units and pay to
the City an Affordable Housing Fee of $174,900. The Developer is in the process of building the
affordable units in the Harbor Station project and has paid the Affordable Housing Fee.
(7)
Pay to the City Offsite Park Enhancement Fees in the amount of $70,000, which will be
paid in full by the Developer at the 50th certificate of occupancy for single-family detached residence
and will be used for park improvements for Ridgecrest Park. This amount is included in the
Improvements to be financed with Bond proceeds. See Table 7 below (City Improvements – Offsite
Park Enhancement Improvements).
(8)
Construct Golf Drive, which is complete as of the date hereof. Costs of acquisition of
Golf Drive are included as part of the Improvements to be financed with Bond proceeds.
(9)
Construct and install the Aquatic Center, Conference Center, a multi-modal trail
system, and parking lot to serve them. The Conference Center will include meeting rooms, banquet
facilities to accommodate at least 225 people, classrooms, a kitchen and restroom facilities. The
Aquatic Center will include a 25-meter lap pool, a recreation pool, a children’s pool, a spa/jacuzzi,
playground and lawn/park area. As of October 1, 2007, rough grading and framing is completed on the
Conference Center and the Aquatic Center, and the Developer currently anticipates that all such
facilities will be complete and open to the public in approximately April 2008 in compliance with the
timing requirements set forth in the Development Agreement (see above). The Developer is currently
constructing a parking lot with approximately 200 spaces to serve these facilities. It is anticipated that
the parking lot will be also be complete in approximately April 2008. Costs of acquisition of the
Conference Center and Aquatic Center and a portion of the parking lot serving such facilities are
included as part of the Improvements to be financed with Bond proceeds. See Table 7 (City
Improvements – Conference Center/Aquatic Center).
(10)
Convert the current golf course into an 18-hole golf course, and construct a golf course
clubhouse and a parking lot to serve both. This obligation remains that of the Former Owners, but the
Developer anticipates that these facilities will be completed in approximately April 2008.
In addition, other conditions to development of the Project require the Developer to:
(1)
Pay (a) water and sewer connection fees in the amount of $602,400, of which $584,900
has been paid as of October 1, 2007; (b) other water and sewer fees in an amount of $230,046, of which
$212,046 has been paid as of October 1, 2007, to the Water District. The District will finance the
Water District Improvements with proceeds of the Bonds that would otherwise be funded with the
proceeds of such fees, and the Water District will grant the Developer a credit in an amount equal to the
Bond proceeds actually received by the Water District for such Water District Improvements. See
Table 7 (Water District Improvements – Water and Sewer Fees and Water and Sewer Connection
Fees).
(2)
Pay the Moulton Parkway and Laguna Niguel Road and Coastal Area Road
Improvement Fees in the amount of $1,051,846, of which $186,409 has been paid as of October 1,
2007. The District will finance the County Improvements with proceeds of the Bonds that would
otherwise be funded with the proceeds of such fees and the County will grant the Developer a credit in
33
an amount equal to the Bond proceeds actually received by the County for such County Improvements.
See Table 7 (County Improvements).
In addition to the Improvements and other infrastructure described above, as of October 1, 2007,
approximately 80% of the dry utility improvements for the District had been completed.
Table 7 below lists (i) the Improvements to be constructed within the District and which are proposed
to be financed by Bond proceeds; (ii) provides the Developer’s cost estimate for such Improvements; and (iii)
summarizes the amount expended by the Developer as of October 1, 2007, toward the cost of completing such
Improvements.
Table 7
Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo)
Public Improvements Developer Budget
(as of October 1, 2007)
Description
City Improvements
Golf Drive (1)
Relocation of Storm Drain
Conference Center/Aquatic Center (2)
Community Enhancement Fees
Offsite Traffic Mitigation Improvements
Offsite Park Enhancement Improvements
Total City Improvements
Water District Improvements
Water Improvements
Sewer Improvements
Water and Sewer Fees
Water and Sewer Connection Fees
Total Water District Improvements
County Improvements
Cost Estimate
Amount Expended
as of 10/1/07
$2,740,175
699,379
11,200,000
3,225,000
$620,250
70,000
$18,554,804
$2,740,175
699,379
6,828,793
552,428
$0
$0
$9,589,252
$3,451,261
2,042,575
230,046
602,400
$6,326,282
$3,095,679
1,210,342
212,046
584,900
$5,023,706
Street Improvements Eligible to be Financed from
Moulton Parkway and Laguna Niguel Road Program Fees
Street Improvements Eligible to be Financed from Coastal
Road Program Fees
Total County Road Fees
$237,244
$21,660
814,602
$ 1,051,846
164,749
$186,409
Acquisition and District Formation Costs(3)
Total
994,419
$26,927,351
994,419
$15,793,786
__________________
(1)
Includes grading, curb, gutter, paving, and landscaping.
Includes buildings, pools, landscaping, parking lot, and public park.
(3)
Includes (a) amounts advanced to the City to pay costs incurred by the City related to the formation of
the District and the issuance of the Bonds; (b) amounts paid by the Former Owners of the Developer to its
financial consultants and attorneys for services directly related to the formation of the District and the
issuance of the Bonds; and (c) various other soft costs incurred by the Former Owners and the Developer.
Source: The Developer.
(2)
Development Projects
General Overview. The Specific Plan allows for the development of a total of 502 dwelling units
within the District. At build-out, development within the District is anticipated to include 318 single-family
detached units within the District, 141 single-family attached units, and 43 affordable attached units. The 43
34
affordable attached units will not be subject to the Special Tax. As of October 1, 2007, the proposed projects
for the development within the District are as follows:
Harbor Station: This is a town home community comprised of 141 single-family, market rate, attached
homes. An additional 43 affordable homes, which are not subject to the Special Tax, will be located in this
project. The market rate homes are currently priced on average at $539,593, with a range of $519,990 to
$553,990. The living areas on average are approximately 1,515 square feet, and have a range of 1,488 square
feet to 1,526 square feet. Construction has started on the first two phases of Harbor Station. As of October 1,
2007, a model complex was open, construction had been completed on 5 model homes, 25 production homes
were under construction (of which 6 are affordable units), and a total of 33 units (6 of which are affordable
housing units not subject to the Special Tax) had been released for sale, with 10 under contract and expected to
begin escrow closings in late October 2007.
Pasadera: There are 149 single-family detached homes in this project that are expected to be priced on
average at $852,747, with a range of $820,000 to $889,630. The living areas on average are approximately
2,877 square feet, and have a range of 2,652 square feet to 3,163 square feet. As of October 1, 2007, a model
complex was open, construction had been completed on 3 model homes, 6 homes were released for sale, 12
production homes were under construction, and 1 was under contract for sale. Pasadera is expected to
commence escrow closings to homeowners during the first quarter of 2008.
Birch River: There are 69 single-family detached homes in this project that are expected to be priced
on average at $1,368,186, with a range of $1,299,990 to $1,399,810. The living areas on average are
approximately 3,837 square feet, and have a range of 3,656 square feet to 4,056 square feet. Construction has
started on phases 1 and 2, consisting of 12 homes. Most of the homes in this project will have views of the Golf
Course. As of October 1, 2007, a model complex was open, construction had been completed on 3 model
homes, 12 production homes were released for sale and under construction, and 9 were under contract for sale.
Birch River is expected to commence escrow closings to homeowners during December 2007.
Vista Vallarta: There are 100 single-family detached homes in this project that are expected to be
priced on average at $1,322,895, with a range of $1,310,300 to $1,331,800. The living areas on average are
expected to be approximately 4,309 square feet, and have a range of 4,189 square feet to 4,432 square feet.
Many of the homes in this project will have views of the Golf Course and the Saddleback Mountain Range.
Conceptual drawings have been completed for the Vista Vallarta project, which are currently in the plan review
process with the City. As of October 1, 2007, construction had not commenced on any model homes or
production homes in Vista Vallarta. This project has not entered the marketplace and the Developer currently
anticipates that model construction will commence in the second quarter of 2009. Escrow closings are
anticipated to commence in the first quarter of 2010.
Special Taxes securing the payment of the Bonds will be levied only in the District, and only the taxable
property in the District is security for the Bonds.
SPECIAL RISK FACTORS
Investment in the Bonds involves risks which may not be appropriate for certain investors. The
following is a discussion of certain risk factors, in no particular order of importance, all of which should be
considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. This
discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events
discussed herein could adversely affect the ability or willingness of existing or future property owners within
the District or the Developer to pay the Special Taxes levied in the District when due. Such failure 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 herein could adversely affect the
value of the property in the District.
35
Concentration of Ownership
As of the date of the Appraisal, all of the residential lots proposed to be developed within the District
which are subject to the Special Tax levy were owned by the Developer. Based on the land use status as of the
date of Appraisal, assuming no further land sales, 100% of the projected Fiscal Year 2007-2008 Special Tax
levy would be paid by the Developer. This concentration of ownership by the Developer presents a risk to
Bondowners. Until the completion and sale of units to individual owners, the receipt of the Special Taxes is
dependent on the willingness and the ability of the Developer and its successors to pay the Special Taxes when
due. Failure of the Developer, or its successors, to pay the annual Special Taxes when due could result in a
default in payments of the principal of, and interest on, the Bonds, when due. See “DEVELOPMENT AND
PROPERTY OWNERSHIP – Development Projects” herein for status of development and sales and “– Failure
to Develop Properties” below.
No assurance can be made that the Developer, will complete the intended construction and development
in the District. See “– Failure to Develop Properties” below. As a result, no assurance can be given that the
Developer will continue to pay Special Taxes in the future or that it 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.
Limited Obligations
The Bonds and interest thereon are not payable from the general funds of the City. Except with respect
to the Special Taxes, neither the credit nor the taxing power of the District or the City is pledged for the
payment of the Bonds or the interest thereon, and, except as provided in the Agreement, no owner of the Bonds
may compel the exercise of any taxing power by the District or the City or force the forfeiture of any City or
District 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 or the District’s property or upon
any of the City’s or the District’s income, receipts or revenues, except the Special Taxes and other amounts
pledged under the Agreement.
Insufficiency of Special Taxes
Under the Rate and Method, the annual amount of Special Tax to be levied on each taxable parcel in
the District will generally be based on whether such parcel is categorized as Undeveloped Property or as
Developed Property and on the zone and land use class to which a parcel of property is assigned. See
“APPENDIX D – RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX” and “SECURITY
FOR THE BONDS – Special Taxes.”
The Rate and Method governing the levy of the Special Tax expressly allows the District Administrator
to classify certain property as exempt from the levy of special Taxes, including 43 units of affordable
residential housing, property owned by public agencies or a property owner association, any property used as a
golf course within the District (including any clubhouse, pro shop, parking, maintenance facilities, and other
golf related amenities), and certain other public or quasi-public uses, provided that no such classification by the
District Administrator would reduce the sum of all taxable property within the District to less than 42.32 acres.
See “APPENDIX D – RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.”
Special Tax Delinquencies
Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of
principal of, and interest on, the Bonds are derived, are customarily billed to the properties within the District
on the ad valorem property tax bills sent to owners of such properties. The 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 “SECURITY FOR THE BONDS – Special Taxes,” for a discussion
of the provisions which apply, and procedures which the District is obligated to follow under the Agreement, in
the event of delinquencies in the payment of Special Taxes. See “– Bankruptcy and Foreclosure” below, for a
36
discussion of the policy of the Federal Deposit Insurance Corporation (the “FDIC”) regarding the payment of
special taxes and assessment and limitations on the City’s ability to foreclose on the lien of the Special Taxes in
certain circumstances. Currently, for Fiscal Year 2007-2008 Special Taxes have been levied on 4 parcels,
representing 18 units within the District, for a total of $61,812.00.
The value of the land within the District is an important factor in determining the investment quality of
the Bonds. If a property owner within the District is delinquent in the payment of the Special Taxes, the City’s
only remedy is to commence foreclosure proceedings on such taxable property on behalf of the District in an
attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the
economy, physical events such as earthquakes or floods, stricter land use regulations, delays in development or
other events will adversely impact the security underlying the Special Taxes.
Adjustable Rate and Unconventional Mortgage Structures
Since the end of 2002, many persons have financed the purchase of new homes using loans with little or
no down payment and with adjustable interest rates that start low and are subject to being reset at higher rates
on a specific date or upon the occurrence of specified conditions. Many of these loans allow the borrower to
pay interest only for an initial period, in some cases up to 10 years. Currently, in Southern California, a
substantial portion of outstanding home loans are adjustable rate loans at historically low interest rates. In the
opinion of some economists, the significant increase in home prices in this time period has been driven, in part,
by the ability of home purchasers to access adjustable rate and non-conventional loans. These economists
predict that as interest rates on new loans increase and as the interest rates on existing adjustable rate loans are
reset (and payments are increased) there will be a decrease in home sales due to the inability of purchasers to
qualify for loans with higher interest rates. They further predict that such a decrease in home sales will,
eventually, result in a decrease in home prices. Some economists are concerned that such a reduction in home
prices will result in recent homebuyers having loan balances that exceed the value of their homes, given their
low down payments and small amount of equity in their homes.
Homeowners in the District who purchase their homes with adjustable rate and non-conventional loans
with no or low down payments may experience difficulty in making their loan payments due to automatic
mortgage rate increases and rising interest rates and should homeowners in the District have loan balances that
exceed the value of their homes, those homeowners may choose not to make their loan payments even if they
are able to. This could result in an increase in the Special Tax delinquency rate in the District and draws on the
Reserve Fund. If there were significant delinquencies in Special Tax collections in the District and the Reserve
Fund was fully depleted, there could be a default in the payment of principal of and interest on the Bonds. See
Some economists have also predicted that, as mortgage loan defaults increase bankruptcy filing by such
homeowners are also likely to increase. Bankruptcy filings by homeowners with delinquent Special Taxes
would delay the commencement and completion of foreclosure proceedings to collect delinquent Special Taxes.
See “Bankruptcy and Foreclosure” below.
Slowdown in Home Sales
Increasing home loan interest rates and other inflationary factors could result in a slow down in the
construction and sale of homes in the District and a reduction in home sales prices. Increasing home loan
interest rates could result in fewer persons being able to qualify for loans. Either of these factors could cause a
slow down in the sale of homes in the District, and could also result in a reduction in expected home sales
prices. A slowdown in the rate of home sales would increase the Developer’s carrying costs and reduce its
expected profit from the sale of homes in the project. A slowdown in home sales would also delay the
diversification of property ownership in the District and extend the period of time during which the City would
need to levy Special Taxes on undeveloped property in the District which is owned by the Developer to pay
debt service on the Bonds. This would further reduce the Developer’s expected profit. These factors, or any
combination of them, might result in the Developer being unwilling to make timely payment of the Special
Taxes levied on its property.
37
Failure to Develop Properties
Undeveloped or partially developed land is inherently less valuable than developed land and provides
less security to the Bondowners should it be necessary for the City to foreclose on such land due to the
nonpayment of Special Taxes. The failure to complete development of the required infrastructure and
development in the District as planned, or substantial delays in the completion of the planned infrastructure and
development due to litigation or other causes may reduce the value of the property within the District and
increase the length of time during which Special Taxes will be payable from undeveloped property, and may
affect the willingness and ability of the owners of such undeveloped property within the District to pay the
Special Taxes 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 possibility that such approvals will not be obtained or, if obtained, will not
be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental
requirements would adversely affect planned land development. Finally, development of land is subject to
economic considerations. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP” for a discussion of
the status of entitlements, the Development Agreement, and development within the District as of October 1,
2007.
Additionally, although the Developer is currently funding the development of the Property in the
District principally from draws on the Line of Credit and internal cash flows, the Developer may need to obtain
other financing to complete its development activities within the District. No assurance can be given that the
required funding will be secured or that the proposed development will be partially or fully completed, and it is
possible that cost overruns will be incurred which will require additional funding beyond what the Developer
has projected, which may or may not be available. See “THE DEVELOPMENT AND PROPERTY
OWNERSHIP – Financing Plan” herein.
The future development of the land within the District may be adversely affected by existing or future
governmental policies, or both, restricting or controlling the development of land in the District. See “THE
DEVELOPMENT AND PROPERTY OWNERSHIP – Infrastructure Requirements and Construction Status”
for a discussion of certain potential limitations on the ability of the Developer to complete the projected
development of the District and the status of development therein.
Deteriorating conditions in the real estate market experienced in 2007 may result in declining property
values. Such declining property values may impact the ability of the Developer to complete the required
infrastructure and development within the District. See “THE DEVELOPMENT AND PROPERTY
OWNERSHIP – Financing Plan” above regarding Developer’s financing plan for the development of the
Project, and “– Land Values” below for a discussion of the price paid by the Developer in 2005 to purchase the
property within the District being less than the appraised value of the taxable property within the District, as
determined by the Appraiser as of September 1, 2007. The failure to complete development of the required
infrastructure and development in the District as planned, or substantial delays in the completion of the planned
infrastructure and development may further reduce the value of the property within the District and increase the
length of time during which Special Taxes will be payable from undeveloped property, and may affect the
willingness and ability of the owners of such undeveloped property within the District to pay the Special Taxes
when due.
There can be no assurance that land development operations within the District will not be adversely
affected by current or future deterioration of the real estate market and economic conditions or future local,
State, and federal governmental policies relating to real estate development, the income tax treatment of real
property ownership, or the national economy, or the direct or indirect consequences of military and/or terrorist
activities in this country or abroad. A slowdown of the development process and the absorption rate could
adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special
Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Bonds when
38
due. In addition to the foregoing, a substantial portion of projects within the City are historically occupied by
commuters to employment centers in other cities throughout the County, and such projects may be adversely
affected by circumstances affecting such commuters, including but not limited to rising gasoline prices.
Bondowners should assume that any event that significantly impacts the ability to develop land in the
District would cause the property values within the District to decrease substantially from those estimated by
the Appraiser and could affect the willingness and ability of the owners of land within the District to pay the
Special Taxes when due.
The payment of the principal of and interest on the Bonds currently depends in large part upon the
receipt of Special Taxes levied on undeveloped property. Undeveloped property is less valuable per unit of
area than developed land, especially if there are no plans to develop such land or if there are severe restrictions
on the development of such land. The undeveloped property also provides less security to the Bondowners
should it be necessary for the City to foreclose on undeveloped property due to the nonpayment of the Special
Taxes. Furthermore, an inability to develop the land within the District as currently proposed will make the
Bondowners dependent upon timely payment of the Special Taxes levied on undeveloped property for a longer
period of time than projected. Because a majority of the land within the District is currently owned or
controlled by the Developer and related entities, the timely payment of the Bonds depends upon the willingness
and ability of the Developer and related entities to pay the Special Taxes levied on the undeveloped property
when due. See “– Concentration of Ownership” above. A slowdown or stoppage in the continued development
of the District could reduce the willingness and ability of the Developer and related entities and their successors
to make Special Tax payments on undeveloped property and could greatly reduce the value of such property in
the event it has to be foreclosed upon. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP –
Infrastructure Requirements and Construction Status” for a discussion of certain potential limitations on the
ability of the Developer to complete the projected development of the District and the status of development
therein and “– Land Values” below.
Future Land Use Regulations and Growth Control Initiatives
It is possible that future growth control initiatives could be enacted by the voters or future local, state or
federal land use regulations could be adopted by governmental agencies and be made applicable to the
development of the vacant land within the District with the effect of negatively impacting the ability of the
owners of such land to complete the development of such land if they should desire to develop it. This
possibility presents a risk to prospective purchasers of the Bonds in that an inability to complete desired
development increases the risk that the Bonds will not be repaid when due. The owners of the Bonds should
assume that any reduction in the permitted density, significant increase in the cost of development of the land
within the District or substantial delay in development caused by growth and building permit restrictions or
more restrictive land use regulations would cause the values of the land within the District to decrease. A
reduction in land values increases the likelihood that in the event of a delinquency in payment of Special Taxes
a foreclosure action will result in inadequate funds to repay the Bonds when due. See “THE DEVELOPMENT
AND PROPERTY OWNERSHIP – The Proposed Development,” “– Status of Entitlement Approvals,” and “–
Infrastructure Requirements and Construction Status” for a discussion of the Development Agreement and the
status of entitlement approvals for development within the District.
Completion of construction of any proposed structures on the land within the District is subject to the
receipt of approvals from a number of public agencies concerning the layout and design of such structures, land
use, health and safety requirements and other matters. The failure to obtain any such approval could adversely
affect the planned development of such land.
Under current State law, it is generally accepted that proposed development is not exempt from future
land use regulations until building permits have been issued and substantial work has been performed and
substantial liabilities have been incurred in good faith reliance on the permits. As of October 1, 2007, at least
60 homes (including model homes) were under construction within the District. Because future development of
the property in the District could occur over several years, if at all, the application of future land use regulations
to the development of the land could cause significant delays and cost increases not currently anticipated,
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thereby reducing the development potential of the land and the ability or willingness of owners of such land to
pay Special Taxes when due or causing the value of such land within the District to decrease substantially from
that contained in the Appraisal.
Water Availability
The development of the land within the District is dependent upon the availability of water for the
planned units. The Water District is the agency responsible for providing water to properties within the
District. The Water District is a member agency of the Municipal Water Districts of Orange County
(“MWDOC”). MWDOC is a member agency of the Metropolitan Water Districts of Southern California
(“MWD”). The Water District purchases its water from MWD through MWDOC. Supply deficiencies can
occur during periods of drought. Increased use of MWD water, coupled with a reduction of MWD’s existing
water supplies could reduce the amount of water available to MWD to supply the MWDOC, and ultimately the
properties within the District.
The Developer and the City believe that the Water District will be able to provide water to the
properties within the District to permit the construction of the planned units. On August 15, 2005, the City
received a “Will Serve Letter” from the Water District stating its indication that, subject to receiving payment
of all applicable water and sewer fees for the units comprising the Project, it will be able to serve the Project.
The Will Serve Letter states that availability of water service from the Water District is subject to suppliers of
water to the Water District continuing to honor their contractual obligations relative to the amount of water
supplied. No assurance can be given, however, that water service will be available at the time that building
permits are applied for, and the lack of water availability could adversely affect the planned development in the
District. A slowdown or stoppage in the continued development of the District could reduce the willingness
and ability of such owners to make Special Tax payments on undeveloped property and could greatly reduce the
value of such property in the event it has to be foreclosed upon. See “– Land Values” below.
Natural Disasters
The District, like all California communities, may be subject to unpredictable seismic activity, fires,
flood, or other natural disasters. Southern California is a seismically active area. Seismic activity represents a
potential risk for damage to buildings, roads, bridges and property within the District. The District is not
located in a fault zone, but is proximate to the Newport-Inglewood Fault Zone and 5 other fault zones. All
undocumented fill, compressible alluvial soils, and weathered bedrock considered unsuitable for engineered
structures has been over-excavated and removed from the site. The Geotechnical Report prepared by Pacific
Soils Engineering, Inc., states that the potential for liquefaction is considered as “very low.” However, land
susceptible to seismic activity may be subject to liquefaction during the occurrence of such an event.
In recent years portions of Southern California have experienced outbreaks of wildfires that have
burned thousands of acres at a time and destroyed thousands of homes and structures. In October 2003 and,
most recently, in October 2007, such wildfires occurred in Orange County and the adjacent counties of Los
Angeles, Riverside, San Bernardino, and San Diego Counties. No such wildfires have recently occurred within
the City. The risk of major wildfires in the Southern California region does exist.
In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage
to both property and infrastructure in the District. As a result, a substantial portion of the property owners may
be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in the District could be
diminished in the aftermath of such a natural disaster, reducing the resulting proceeds of foreclosure sales in the
event of delinquencies in the payment of the Special Taxes.
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Hazardous Substances
The presence of a hazardous substance on a parcel may result in a reduction in its value. 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 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 substance presently classified as hazardous but which has not
been released or the release of which is not presently threatened, or may arise in the future resulting from the
existence, currently on the parcel of a substance not presently classified as hazardous but which may in the
future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous
substance but from the method of handling it. All of these possibilities could significantly affect the value of a
parcel that is realizable upon a delinquency.
Neither the City nor the Developer has knowledge of any hazardous substances being located on
property within the District.
Parity Taxes, Special Assessments and Land Development Costs
Property within the District is subject to the lien of taxes and assessments imposed by public agencies
and several overlapping districts also having jurisdiction over the land within the District. See “THE
DISTRICT– Estimated Direct and Overlapping Indebtedness.” The City’s policy respecting the formation of
community facilities districts provides that the total tax burden (i.e., the anticipated maximum annual
community facilities district special tax, together with ad valorem property taxes, special assessments, special
taxes for any overlapping community facilities district, and any other taxes, fees and charges payable from and
secured by the property) on any residential owner-occupied parcel in the community facilities district shall not
exceed 2.0% of the estimated base sales price of such parcel upon completion of the public and private
improvements relating thereto. As of October 1, 2007, the estimated effective tax rate for units within the
District subject to the Special Tax, based on anticipated home prices as of such date, ranges from approximately
1.60% to 1.72%, which is below the City’s policy of a not to exceed total tax burden of 2.0%. See
The Special Taxes 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 the City and other agencies and is co-equal to and independent of the lien for
general property taxes regardless of when they are imposed. The Special Taxes have 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” below.
Development of land within the District is contingent upon construction or acquisition of major public
improvements such as arterial streets, water facilities, sewer facilities, drainage and flood protection facilities,
dry utilities, parks and street lighting, a Conference Center, an Aquatic Center, as well as local in-tract
improvements and on-site grading and related improvements. Certain of these improvements have been
acquired and/or completed; however, there can be no assurance that the remaining improvements will be
constructed or will be constructed in time for development to proceed as currently expected. The cost of these
additional improvements plus the public and private in-tract, on-site, and off-site improvements could increase
the public and private debt for which the land within the District is security. This increased debt could reduce
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the ability or desire of the property owners to pay the annual Special Taxes levied against the property. In that
event there could be a default in the payment of principal of, and interest on, the Bonds when due. See “THE
DEVELOPMENT AND PROPERTY OWNERSHIP – Infrastructure Requirements and Construction Status”
for a discussion of certain potential limitations on the ability of the Developer to complete the projected
development of the District and the status of development therein and “– Land Values” below.
Neither the City nor the District has control over the ability of other entities and districts to issue
indebtedness secured by taxes or assessments payable from all or a portion of the property within the
District. In addition, the landowners within the District may, without the consent or knowledge of the
City, petition other public agencies to issue public indebtedness secured by taxes or assessments. Any
such taxes or assessments may have a lien on such property on a parity with the Special Taxes and could
reduce the estimated value-to-lien ratios for property within the District described herein.
Disclosures to Future Purchasers
The willingness or ability of an owner of a parcel to pay the Special Tax may be affected by whether or
not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel,
was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum
tax rate, and the risk of such a levy at the maximum rate. The City has caused a notice of the Special Tax Lien
to be recorded in the Office of the Recorder for the County of Orange on November 13, 2006, against each
parcel within the District. 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 the District or lending or money thereon.
The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective
purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existence and
maximum amount of such special tax using a statutorily prescribed form. California Civil Code section
1102.6b requires that in the case of transfers other than those covered by the above requirement, the 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.
Non-Cash Payments of Special Taxes
Under the Act, the City Council as the legislative body of the District may reserve to itself the right and
authority to allow the owner of any taxable parcel to tender a Bond in full or partial payment of any installment
of the Special Taxes or the interest or penalties thereon. A Bond so tendered is to be accepted at par and credit
is to be given for any interest accrued thereon to the date of the tender. Thus, if Bonds can be purchased in the
secondary market at a discount, it may be to the advantage of an owner of a taxable parcel to pay the Special
Taxes applicable thereto by tendering a Bond. Such a practice would decrease the cash flow available to the
City to make payments with respect to other Bonds then outstanding; and, unless the practice was limited by the
City, the Special Taxes paid in cash could be insufficient to pay the debt service due with respect to such other
Bonds. In order to provide some protection against the potential adverse impact on cash flows which might be
caused by the tender of Bonds in full or partial payment of any Special Taxes, the Agreement includes a
covenant pursuant to which the City will not authorize owners of taxable parcels to satisfy Special Tax
obligations by the tender of Bonds unless the City shall have first obtained a certificate of an Independent
Financial consultant that to accept such tender will not result in the city having insufficient Special Tax
Revenues in any Bond year to pay the principal and interest on the Bonds remaining outstanding following such
tender.
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Payment of the Special Tax is not a Personal Obligation of the Owners
A property owner of a taxable parcel within the District 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 parcel. If the
value of a taxable parcel 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 owner.
Land Values
The value of the property within the District is a critical factor in determining the investment quality of
the Bonds. If a property owner is delinquent in the payment of Special Taxes, the City’s only remedy is to
commence foreclosure proceedings in an attempt to obtain funds to pay the Special Taxes. Reductions in
property values due to a downturn in the economy, changes in laws regarding real estate taxes and deductions,
the direct or indirect consequences of military and/or terrorist actions in this country or abroad, 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 Taxes. See “THE DISTRICT– Estimated Value-to-Lien
Ratios” herein.
The Appraisal notes that the property within the District was purchased by the Developer on
December 14, 2005. According to the Purchase and Sale Agreement and the recorded Grant Deed, the price
paid for the property was $120,500,000. The land was purchased in a raw condition with recorded Final Tract
Map No. 16969 that was subsequently amended and recorded on February 21, 2007. The Appraiser has
estimated, on the basis of certain definitions, assumptions and limiting conditions contained in the Appraisal,
that as of September 1, 2007, the value of the taxable property within the District was $116,800,000. The
Appraisal is based on the assumptions as stated in “APPENDIX C – APPRAISAL REPORT.” The Appraisal
does not reflect any possible negative impact which could occur by reason of future slow or no growth voter
initiatives, any potential limitations on development occurring due to time delays, an inability of the Developer
to obtain any needed development approval or permit, the presence of hazardous substances within the District,
the listing of endangered species or the determination that habitat for endangered or threatened species exists
within the District, or other similar situations. The Appraiser has conditioned the Appraisal on a specific
condition in addition to the typical list of assumptions and limiting conditions which is that there are no
environmental issues which would slow or thwart development of the District to its highest and best use. See
“THE DEVELOPMENT AND PROPERTY OWNERSHIP – Infrastructure Requirements and Construction
Status” and “– Development Projects” for a discussion of the status of construction of the infrastructure and
homes within the District.
Prospective purchasers of the Bonds should not assume that the land within the District could be sold
for the appraised amount described above at a foreclosure sale for delinquent Special Taxes. In arriving at the
estimates of value, the Appraiser assumes that any sale will be unaffected by undue stimulus and will occur
following a reasonable marketing period, which is not always present in a foreclosure sale. See “APPENDIX C
– APPRAISAL REPORT” for a description of other assumptions made by the Appraiser and for the definitions
and limiting conditions used by the Appraiser.
No assurance can be given that any bid will be received for a parcel with delinquent Special Taxes
offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent
Special Taxes. See “SECURITY FOR THE BONDS – Special Tax – Proceeds of Foreclosure Sales.”
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FDIC/Federal Government Interests in Properties
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”) has an
interest. In the event that any financial institution making any loan which is secured by real property within the
District is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, then the
ability of the City to collect interest and penalties specified by State law and to foreclose the lien of delinquent
unpaid Special Taxes 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 property’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 sound 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 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 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. Special taxes imposed under the Mello-Roos Act and a
special tax formula which determines the special tax due each year are specifically identified in the Policy
Statement as being imposed each year and therefore covered by the FDIC’s federal immunity.
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 Special Taxes on a parcel within the District in which the FDIC has or
obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale
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 Reserve Fund and perhaps, ultimately, a default in payment on the Bonds.
Bankruptcy and Foreclosure
Bankruptcy, insolvency and other laws generally affecting creditor’s rights could adversely impact the
interests of owners of the Bonds in at least two ways. First, 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 foreclosure. In addition, the prosecution of a
foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy
procedural delays.
Second, the Bankruptcy Code might prevent moneys on deposit in the funds and accounts created under
the Agreement from being applied to pay interest on the Bonds and/or to redeem Bonds if bankruptcy
proceedings were brought by or against the Developer or other landowner and if the court found that the
Developer or other landowner has an interest in such moneys within the meaning of Section 541(a)(1) of the
Bankruptcy Code.
Although a bankruptcy proceeding would not cause the Special Taxes 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.
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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.
The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond
Counsel’s approving legal opinion) will be qualified, as to the enforceability of the various legal instruments,
by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors
generally.
Loss of Tax Exemption
As discussed under the caption “TAX MATTERS,” the interest on the Bonds could become includable
in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds as a result of a
failure of the City to comply 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 and will remain outstanding to
maturity or until redeemed under the optional redemption provisions of the Agreement.
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 Agreement to the
extent that enforceability may be limited by bankruptcy, insolvency, moratorium, or other similar laws affecting
generally the enforcement of creditors’ rights and by the exercise of judicial discretion in accordance with
general principles of equity. 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 of the Bonds.
Limited Secondary Market
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market
exists, that the Bonds can be sold for any particular price. The Underwriter will not be obligated to repurchase
any of the Bonds. Although the City and the Developer have committed to provide certain financial and
operating information on an annual basis, there can be no assurance that such information will be available to
Bondowners on a timely basis. See “LEGAL MATTERS – Continuing Disclosure.” The failure to provide the
required annual financial information does not give rise to monetary damages but merely an action for specific
performance. Occasionally, because of general market conditions, lack of current information, or because of
adverse history or economic prospects connected with a particular issue, secondary marketing practices in
connection with a particular issue are 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 of California at the November 5, 1996 general election. The Initiative added
Article XIIIC and Article XIIID to the California Constitution. According 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.” Certain provisions of the Initiative have
been interpreted by the courts, although it is expected that various aspects of the Initiative will be the subject of
litigation for a number of years. The Initiative could potentially impact the Special Taxes available to the City
to pay the principal of and interest on the Bonds as described below.
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Among other things, Section 3 of Article XIII 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 California 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
initiative 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 Taxes if such reduction would interfere with the timely
retirement of the Bonds. The provisions of the initiative relating to the exercise of the initiative power have not
been interpreted by the courts and no assurance can be given as to the outcome of any such litigation.
It may be possible, however, for voters or the City Council acting as the legislative body of the District
to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but
which does reduce the maximum amount of Special Taxes 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 Taxes in amounts
greater than the amount necessary for the timely retirement of the Bonds. Therefore, no assurance can be given
with respect to the levy of Special Taxes for Administrative Expenses. Nevertheless, to the maximum extent
that the law permits it to do so, the City covenanted that it will not initiate proceedings under the Act to reduce
the maximum Special Tax rates on Developed Property within the District below the amounts which are
necessary to provide Special Tax Revenues in an amount equal to 110% of Maximum Annual Debt Service on
the Outstanding Bonds plus estimated Administrative Expenses for the then current Fiscal Year. In connection
with the foregoing covenant, the City has made a legislative finding and determination that any elimination or
reduction of Special Taxes below the foregoing level would interfere with the timely retirement of the Bonds.
The City has covenanted that, in the event an initiative is adopted which purports to alter the Rate and Method,
it will commence and pursue legal action in order to preserve its ability to comply with the foregoing covenant.
However, no assurance can be given as to the enforceability of the foregoing covenants. See “Appendix A –
Summary of the Agreement”
The interpretation and application of the Initiative will ultimately be determined by the courts with
respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty
the outcome of such determination or the timeliness of any remedy afforded by the courts. See “SPECIAL
RISK FACTORS – Limitations on Remedies.”
Ballot Initiatives
Article XIII A, Article XIII B and the Initiative were adopted pursuant to measures qualified for the
ballot pursuant to California’s constitutional initiative process. From time to time, other initiative measures
could be adopted by California voters. The adoption of any such initiative 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
landowners within the District to complete the remaining proposed development. See “SPECIAL RISK
FACTORS – Failure to Develop Properties” herein.
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No Acceleration Provision
The Agreement does not contain a provision allowing for the acceleration of the unpaid principal of the
Bonds in the event of a payment default or other default under the terms of the Bonds or the Agreement.
TAX MATTERS
In the opinion of Best Best & Krieger LLP, San Diego, California, Bond Counsel, under existing
statutes, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for
federal income tax purposes and is not an item of tax preference for purposes of calculating the federal
alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel,
interest on the Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with
respect to corporations, interest on the Bonds will be included as an adjustment in the calculation of alternative
minimum taxable income, which may affect the alternative minimum taxable liability of such corporations.
Bond Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of
interest on the Bonds is based upon certain representations of fact and certifications made by the City, the
Underwriter and others and is subject to the condition that the City complies with all requirements of the
Internal Revenue Code of 1986, as amended (the “Code”) that must be satisfied subsequent to the issuance of
the bonds to assure that interest on the Bonds will not become includable in gross income for federal income
tax purposes. Failure to comply with such requirements of the Code might cause interest on the Bonds to be
included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The
City has covenanted to comply with all such requirements.
Should the interest on the Bonds become includable in gross income for federal income tax purposes,
the Bonds are not subject to early redemption as a result of such occurrence and will remain outstanding until
maturity or until otherwise redeemed in accordance with the Agreement.
The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of taxexempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected
for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such
an audit of the Bonds (or by an audit of similar bonds).
Bond Counsel’s opinion may be affected by action taken (or not taken) or events occurring (or not
occurring) after the date of issuance of the bonds. Bond Counsel has not undertaken to determine, or to inform
any person, whether any such action or events are taken or do occur, or whether such actions or events may
adversely affect the value of tax treatment of a Bond and Bond Counsel expresses no opinion with respect
thereto.
Although Bond Counsel has rendered an opinion that interest on the Bonds is excluded from gross
income for federal income tax purposes, provided the City continues to comply with certain requirements of the
Code, the accrual or receipt of interest on the Bonds may otherwise affect the tax liability of the recipient. The
extent of these other tax consequences will depend upon the recipient’s particular tax status and other items of
income or deductions. Bond Counsel expresses no opinion regarding any such consequences. Accordingly, all
potential purchasers should consult their tax advisors before purchasing any of the Bonds.
It is possible that subsequent to the issuance of the Bonds there might be federal, state, or local
statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal,
state, or local tax treatment of the Bonds or the market value of the Bonds. No assurance can be given that
subsequent to the issuance of the Bonds such changes or interpretations will not occur. On May 21, 2007, the
U.S. Supreme Court agreed to review a Kentucky state court decision, in the matter of Kentucky v. Davis, on the
issue of whether the U.S. Constitution commerce clause precludes states from giving more favorable tax
treatment to state and local government bonds issued within that state than the tax treatment given bonds issued
outside that state. The outcome of this or any similar case cannot be predicted, but the ultimate result could be
a change in the treatment for state tax purposes of interest on the Bonds. If the Kentucky v. Davis decision is
47
affirmed by the United States Supreme Court, states such as California may be required to eliminate the
disparity between the income tax treatment of out-of-state tax-exempt obligations and the income tax treatment
of in-state tax-exempt obligations, such as the Bonds. The impact of such a United States Supreme Court
decision may also affect the market price for, or the marketability of the Bonds. Prospective purchasers of the
Bonds should consult their tax advisors regarding this matter.
LEGAL MATTERS
Continuing Disclosure
City. The City has covenanted in a Continuing Disclosure Certificate for the benefit of the Bondowners
to provide annually and semi-annually certain financial information and operating data, and to provide notices
of the occurrence of certain enumerated events, if material. The City has agreed in the Continuing Disclosure
Certificate to file, or cause to be filed, with each Nationally Recognized Municipal Securities Information
Repository and each State Repository an annual and a semi-annual report and notices of certain material events.
See “APPENDIX F – FORMS OF CONTINUING DISCLOSURE CERTIFICATES.” The covenants of the
City and the Developer have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c212(b)(5) (the “Rule”). The City has never failed to comply with any undertaking by the City under the Rule.
A default by the City under its Continuing Disclosure Certificate will not, in itself, constitute a default
under the Agreement. Koppel & Gruber Public Finance will act as the initial dissemination agent under the
Continuing Disclosure Certificate. See “APPENDIX F – FORMS OF CONTINUING DISCLOSURE
CERTIFICATES.”
Developer. The Developer has covenanted in a Continuing Disclosure Certificate for the benefit of the
Bondowners to provide on a semi-annual basis certain information and operating data, and to provide notices of
the occurrence of certain enumerated events, if material. See “APPENDIX F – FORMS OF CONTINUING
DISCLOSURE CERTIFICATES.” The Developer failed to comply with its reporting obligations under Rule
15c2-12 in connection with the City of Murrieta Community Facilities District No. 2003-2 (Blackmore Ranch).
The Developer subsequently filed its final notice indicating they were no longer required to make any
additional filings for such community facilities district. The Developer is or has been involved in the
development of a number of different projects over the past five years. Except as described above, the
Developer is not aware of any material failures to comply with previous continuing disclosure undertakings by
it to provide periodic continuing disclosure reports or notices of material events (within the meaning of Rule
15c2-12) within the past five years. However, some such reports may have been filed after their due dates from
time to time. A default by the Developer under its Continuing Disclosure Certificate will not constitute a
default under the Agreement.
Absence of Litigation
At the time of delivery of and payment for the Bonds, the City will deliver a certificate to the effect that
there is no known action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or
regulatory agency against the City or the District affecting the existence of the City or the District or the title of
their respective officers to office or seeking to restrain or to enjoin the issuance, sale, or delivery of the Bonds,
the application of the proceeds thereof in accordance with the Agreement, or the collection or application of the
Special Taxes to pay the principal of and interest on the Bonds, or in any way contesting or affecting the
validity or enforceability of the Bonds, the Resolution of Issuance, the Agreement, or any other applicable
agreements or any action of the City or the District or contemplated by any of said documents.
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Legal Matters Incident to the Issuance of the Bonds
Certain legal matters incident to the authorization and issuance of the Bonds are subject to the
approving opinion of Best Best & Krieger LLP, acting in its capacity as Bond Counsel. Certain legal matters
related to the Bonds and the District will be passed upon for the City by Best Best & Krieger LLP, acting in its
capacity as City Attorney to the City. Certain legal matters related to disclosure will be passed upon for the
City by Best Best & Krieger LLP, acting in its capacity as Disclosure Counsel to the City. Nossaman Guthner
Knox & Elliott LLP is acting as counsel for the Underwriter. Certain legal matters will be passed upon for the
Developer by Latham & Watkins LLP, acting as Special Counsel to the Developer and its internal counsel.
Payment of Bond Counsel’s, Disclosure Counsel’s, and Underwriter Counsel’s fees and expenses is contingent
upon the sale and issuance of the Bonds. The various legal opinions to be delivered concurrently with the
delivery of the Bonds will be qualified as to enforceability of the various legal instruments by limitations
imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors
generally and by equitable remedies and proceedings generally.
No Rating
The Bonds are not rated. No application has been made by the City to any rating agency for the
assignment of a municipal bond credit rating on the Bonds.
Underwriting
The Bonds are being purchased by the Underwriter for a price of $33,417,401 being equal to the initial
principal amount of the Bonds of $34,070,000, less an Underwriter’s discount of $331,841.80 and less an
Original Issue Discount of $320,757.20. The Underwriter has committed to purchase all of the Bonds if any of
such Bonds are purchased. The Bonds are being offered for sale to the public at the price set forth on the cover
page of this Official Statement, which price may be changed by the Underwriter from time to time without
notice. The Bonds may be offered and sold to dealers, including the Underwriter and dealers acquiring Bonds
for their own account or an account managed by them, at prices lower than the public offering price.
Miscellaneous
Any statements made in this Official Statement involving matters of opinion or of estimates, whether or
not expressly stated, are intended as such and not as representations of fact. No representation is made that any
of such statements made will be realized. Neither this Official Statement nor any statement which may have
been made verbally or in writing is to be construed as a contract or agreement between any of the City, the
District or the Underwriter and the purchasers or the owners of the Bonds.
The execution and delivery of this Official Statement has been duly authorized by the City Council.
CITY OF ALISO VIEJO, for itself and on behalf of
(GLENWOOD AT ALISO VIEJO) OF THE CITY ALISO
VIEJO
By: /s/ Mark Pulone
City Manager
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APPENDIX A
SUMMARY OF THE AGREEMENT
The following is a summary of certain provisions of the Agreement not otherwise summarized in the
text of this Official Statement. This summary is not intended to be definitive, and reference is made to the
complete text of each of such documents for the complete terms thereof.
DEFINITIONS
Except as otherwise defined in this summary, the terms previously defined in this Official Statement
have the respective meanings ascribed to such terms in the body of this Official Statement.
In addition to the preceding definitions, the following terms defined in the Agreement have, except
where specified otherwise, the following meanings.
“Act” means the Mello-Roos Community Facilities Act of 1982, as amended, Chapter 2.5 (commencing
with Section 53311) of Part 1 of Division 2 of Title 5 of the California Government Code.
“Administrative Expenses” means any or all of the following: the fees and expenses of the Fiscal
Agent (including any fees or expenses of its counsel), the expenses of the City or its designee in carrying out its
duties pursuant to the Agreement (including, but not limited to, the levying and collection of the Special Taxes,
complying with the disclosure provisions of the Act, the Continuing Disclosure Certificate and the Agreement,
including those related to public inquiries regarding the Special Tax and disclosures to Bondowners and the
Original Purchaser; the costs of the City or any designee of the City related to an appeal of the Special Tax)
including the fees and expenses of its counsel, an allocable share of the salaries of City staff directly related
thereto and a proportionate amount of City general administrative overhead related thereto, any amounts paid
by the City from its general funds pursuant to the Agreement, the fees and expenses of the Financial Advisor,
the fees and expenses of the Independent Financial Consultant, and all other costs and expenses of the City or
the Fiscal Agent incurred in connection with the discharge of their respective duties pursuant to the Agreement
and, in the case of the City, in any way related to the administration of the District.
“Administrative Expense Fund” means the fund by that name established by the Agreement.
“Agreement” means the Agreement, as it may be amended or supplemented form time to time by any
Supplemental Agreement adopted pursuant to the provisions thereof.
“Annual Debt Service” means, for each Bond Year, the sum of (i) the interest due on the Outstanding
Bonds and in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled, and (ii) the
principal amount of the Outstanding Bonds scheduled to be paid, including sinking fund payments.
“Auditor” means the Auditor-Controller of the County of Orange.
“Authorized Officer” means the City Manager, the Director of Financial Services/City Treasurer and
any other officer or employee of the City authorized by the City Council or by an Authorized Officer to
undertake the action referenced in the Agreement as required to be undertaken by an Authorized Officer.
“Bond Counsel” means any attorney or firm of attorneys acceptable to the City and nationally
recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by
public entities.
“Bond Fund” means the fund by that name established by the Agreement.
“Bond Year” means the period beginning on the Closing Date and ending on September 1, 2008 and
thereafter the period beginning on each September 2 and ending on the following September 1.
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“Bonds” means, unless otherwise expressly provided, the Community Facilities District No. 2005-01
(Glenwood at Aliso Viejo) of the City of Aliso Viejo 2007 Special Tax Bonds authorized by and at any time
Outstanding pursuant to the Act and the Agreement.
“Business Day” means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking
institutions in the State of California or in any state in which the Fiscal Agent has its Principal Office are
authorized or obligated by law or executive order to be closed.
“Capitalized Interest Sub-account” means the sub-account by that name established in the Interest
Account in the Bond Fund by the Agreement.
“City” means the City of Aliso Viejo.
“City Council” means the City Council of the City.
“City Manager” means the City Manager of the City.
“Closing Date” means the date upon which there is an exchange of the Bonds for the proceeds
representing payment of the purchase price of the Bonds by the Original Purchaser.
“Code” means the Internal Revenue Code of 1986, as amended.
“Continuing Disclosure Certificate” means the Continuing Disclosure Certificate of the City, dated as
of the Closing Date, as originally executed and as it may be amended from time to time in accordance with the
terms thereof.
“Costs of Issuance” means items of expense payable or reimbursable directly or indirectly by the City
and related to the authorization, sale and issuance of the Bonds, which items of expense shall include, but not
be limited to, printing costs, costs of reproducing and binding documents, including but not limited to the
preliminary official statement and official statement regarding the Bonds, closing costs, filing and recording
fees, initial fees and charges of the Fiscal Agent including its first annual administration fee and the fees of its
counsel, expenses incurred by the City in connection with the issuance of the Bonds and the formation of the
District, Bond (underwriter’s) discount, legal fees and charges, including the fees of Bond Counsel and counsel
to the Underwriter, Financial Advisor’s fees, appraiser’s fees and costs, Tax Consultant’s fees and costs,
charges for authentication, transportation and safekeeping of the Bonds and other costs, charges and fees in
connection with the foregoing.
“Costs of Issuance Fund” means the fund by that name established by the Agreement.
“Debt Service” means the amount of interest and principal payable on the Bonds scheduled to be paid
during the period of computation, excluding amounts payable during such period which relate to principal of
the Bonds which are scheduled to be retired and paid before the beginning of such period.
“Defeasance Securities” means, for purposes of the Agreement, the following:
(i)
United States Treasury Certificates, Notes and Bonds (including State and Local
Government Series - “SLGs”);
(ii)
Direct obligations of the United States Treasury which have been stripped by the
Treasury itself, CATS, TIGRS and similar securities;
(iii)
Resolution Funding Corporation (REFCORP) obligations; provided that only the
interest component of REFCORP strips which have been stripped by request of the Federal Reserve
Bank of New York in book-entry form are acceptable;
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(iv)
Pre-refunded municipal bonds rated “Aaa” by Moody’s and “AAA” by Standard &
Poor’s; provided, however, that if the issue is only rated by Standard & Poor’s (i.e., there is no
Moody’s rating), then the pre-refunded bonds must have been pre-refunded with cash, direct United
States or United States guaranteed obligations, or “AAA” rated pre-refunded municipal bonds; and
(v)
Obligations issued by the following agencies which are backed by the full faith and
credit of the United States of America:
(a)
(b)
(c)
(d)
(e)
U.S. Export-Import Bank
Direct obligations or fully guaranteed
certificates of beneficial ownership
Federal Financing Bank
General Services Administration
Participation certificates
United States Maritime Administration
Guaranteed Title XI financing
United States Department of Housing and Urban Development
Project notes
Local Authority Bonds
New Communities Debentures - United States government
guaranteed debentures
United States Public Housing Notes and Bonds - United States
government guaranteed public housing notes and bonds.
“Director of Financial Services/City Treasurer” means the Director of Financial Services/City
Treasurer of the City.
“District” means Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the City of
Aliso Viejo, County of Orange, State of California.
“Federal Securities” means any of the following which at the time of investment are legal investments
under the laws of the State of California for the moneys proposed to be invested therein:
(i)
Cash; and
(ii)
Direct general obligations of (including obligations issued or held in book entry form
on the books of the Department of the Treasury of the United States of America and CATS and
TIGRS), or obligations, the payment of principal of and interest on which is unconditionally guaranteed
by the United States of America.
“Financial Advisor” means an independent financial consulting firm appointed by the City to advise the
City as to financial matters relating to the Bonds.
“Fiscal Agent” means The Bank of New York Trust Company, N.A., the Fiscal Agent appointed by the
City, acting as an independent fiscal agent with the duties and powers provided in the Agreement, its successors
and assigns, and any other corporation or association which may at any time be substituted in its place, as
provided in the Agreement.
“Fiscal Year” means the twelve-month period extending from July 1 in a calendar year to June 30 of the
succeeding year, both dates inclusive.
“Improvement Fund” means the fund by that name established by the Agreement.
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“Independent Financial Consultant” means a firm of certified public accountants, a financial consulting
firm, a consulting engineering firm or engineer which is not an employee of, or otherwise controlled by, the
City.
“Information Services” means Bloomberg Municipal Repositories, P.O. Box 840, Princeton, New
Jersey, 08542-0840; DPC Data Inc., One Executive Drive, Fort Lee, New Jersey, 07024; Interactive Data, 100
Williams Street, New York, New York, 10038, Attention: Repository; Standard & Poor’s J. J. Kenny
Repository, 55 Water Street, 45th Floor, New York, New York, 10041; and, in accordance with then current
guidelines of the Securities and Exchange Commission, such other services providing information with respect
to called bonds as the City may designate in an Officer’s Certificate delivered to the Fiscal Agent.
“Interest Account” means the account by that name established in the Bond Fund by the Agreement.
“Interest Payment Dates” means March 1 and September 1 of each year, commencing March 1, 2008,
until the maturity or redemption of all Outstanding Bonds.
“Investment Earnings” means all interest earned and any gains and losses on the investment of moneys
in any fund or account created by the Agreement, excluding interest earned and gains and losses on the
investment of moneys in the Rebate Fund.
“Maximum Annual Debt Service” means the largest Annual Debt Service for any Bond Year after the
calculation is made through the final maturity date of any Outstanding Bonds.
“Moody’s” shall mean Moody’s Investors Service, a national rating service with offices in New York,
New York.
“Officer’s Certificate” means a written certificate of the City signed by an Authorized Officer of the
City.
“Ordinance” means any ordinance of the City or resolution of the City Council levying the Special
Taxes.
“Original Purchaser” means the first purchaser of the Bonds from the City.
“Outstanding,” when used as of any particular time with reference to the Bonds means (subject to the
provisions of the Agreement) all Bonds except:
(i)
cancellation;
Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for
(ii)
Bonds called for redemption which, for the reasons specified in the Agreement, are no
longer entitled to any benefit under the Agreement other than the right to receive payment of the
redemption price therefor;
(iii)
Bonds paid or deemed to have been paid within the meaning of the Agreement; and
(iv)
Bonds in lieu of or in substitution for which other Bonds shall have been authorized,
executed, issued and delivered by the City and authenticated by the Fiscal Agent pursuant to the
Agreement or any Supplemental Agreement.
“Owner” means any person who shall be the registered owner of any Outstanding Bond.
“Permitted Investments” means:
(i)
Federal Securities;
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(ii)
Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any
of the following federal agencies and provided such obligations are backed by the full faith and credit
of the United States of America (stripped securities are only permitted if they have been stripped by the
agency itself):
(a)
U.S. Export-Import Bank
Direct obligations or fully guaranteed certificates of beneficial ownership
(b)
Federal Financing Bank
(c)
Federal Housing Administration Debentures
(d)
General Services Administration
Participation certificates
(e)
Government National Mortgage Association (GNMA)
GNMA - guaranteed mortgage-backed bonds
GNMA - guaranteed pass-through obligations
(f)
U.S. Maritime Administration
Guaranteed Title XI financing
(g)
U.S. Department of Housing and Urban Development
Project Notes
Local Authority Bonds
New Communities Debentures - United States government guaranteed debentures
U.S. Public Housing Notes and Bonds - United States government guaranteed public housing notes and
bonds;
(iii)
Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any
of the following non-full faith and credit United States government agencies (stripped securities are
only permitted if they have been stripped by the agency itself):
(a)
(b)
(c)
(d)
(e)
(f)
Federal Home Loan Bank System
Senior debt obligations
Federal Home Loan Mortgage Corporation
Participation Certificates
Federal National Mortgage Association
Mortgage-backed securities and senior debt obligations
Student Loan Marketing Association
Resolution Funding Corporation
(REFCORP) obligations
Farm Credit System
Consolidated systemwide bonds and notes;
(iv)
Money market funds registered under the Federal Investment Company Act of 1940,
whose shares are registered under the Federal Securities Act of 1933, and having a rating by Standard
& Poor’s of “AAAm-G,” “AAA-m” or “AA-m” and, if rated by Moody’s, rated “Aaa,” “Aa1” or “Aa2”
by Moody’s, including funds for which the Fiscal Agent, its parent holding company, if any, or any
affiliates or subsidiaries of the Fiscal Agent or such holding company provide investment management
or other management services;
(v)
Certificates of deposit secured at all times by collateral described in clauses (i) and/or
(ii) above. Such certificates must be issued by commercial banks, including the Fiscal Agent and its
affiliates, savings and loan associations or mutual savings banks. The collateral must be held by a third
party and the Fiscal Agent on behalf of the Owners of the Bonds must have a perfected first security
interest in the collateral;
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(vi)
Certificates of deposit, savings accounts, deposit accounts or money market deposits
which are fully insured by FDIC, including BIF and SAIF including those that may be issued or
provided by the Fiscal Agent and its affiliates;
(vii)
Investment agreements with domestic or foreign banks, insurance companies or
corporations the long-term debt or claims paying ability of which or, in the case of a guaranteed
corporation, the long-term debt of the guarantor, or, in the case of a monoline financial guaranty
insurance company, the claims paying ability or financial strength, of the guarantor is rated in at least
the double A category by Standard & Poor’s and Moody’s; provided that, by the terms of the
investment agreement:
(a)
interest payments are to be made to the Fiscal Agent at times and in amounts as
necessary to pay Debt Service on the Bonds (if the funds invested pursuant to the investment
agreement are from the Reserve Fund);
(b)
the investment agreement shall provide that the invested funds are available for
withdrawal without penalty or premium at any time upon not more than seven (7) days’ prior
notice (The City and the Fiscal Agent shall give or cause to be given notice in accordance with
the terms of the investment agreement so as to receive funds thereunder with no penalty or
premium payable.);
(c)
the investment agreement shall provide that it is the unconditional and general
obligation of, and is not subordinated to any other obligation of, the provider thereof;
(d)
the City and the Fiscal Agent receive the opinion of domestic counsel (which
opinion shall be addressed to the City and the Fiscal Agent) that such investment agreement is
legal, valid, binding and enforceable upon the provider in accordance with its terms and of
foreign counsel (if applicable) in form and substance acceptable, and addressed to, the City and
the Fiscal Agent;
(e)
the investment agreement shall provide that if during its term
(1)
the provider’s (or its guarantor’s) rating by either Standard & Poor’s or
Moody’s falls below “AA-” or “Aa3”, respectively, the provider shall, at its option,
within ten (10) days of receipt of publication of such downgrade, either (i) collateralize
the investment agreement by delivering or transferring in accordance with the
applicable state and federal laws (other than by means of entries on the provider’s
books) to the City, the Fiscal Agent or a third party acting solely as agent therefor (the
“Holder of the Collateral”) collateral free and clear of any third-party liens or claims,
the market value of which collateral is maintained at one hundred four percent (104%)
of securities identified in clauses (i) and (ii) of this definition; or (ii) assign the
investment agreement and all of its obligations thereunder to a financial institution
mutually acceptable to the Provider, the City and the Fiscal Agent which is rated either
in the first or second highest category by Standard & Poor’s and Moody’s; and
(2)
the provider’s (or its guarantor’s) rating by either Standard & Poor’s or
Moody’s is withdrawn or suspended or falls below “A-” or “A3”, respectively, the
provider must, at the direction of the City or the Fiscal Agent, within ten (10) days of
receipt of such direction, repay the principal of and accrued but unpaid interest on the
invested funds, in either case with no penalty or premium to the City or the Fiscal
Agent; and
(f)
the investment agreement shall provide and an opinion of counsel shall be
rendered, in the event collateral is required to be pledged by the provider under the terms of the
investment agreement at the time such collateral is delivered, that the Holder of the Collateral
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has a perfected first priority security interest in the collateral, any substituted collateral and all
proceeds thereof (in the case of bearer securities, this shall mean the Holder of the Collateral is
in possession of such collateral); and
(g)
the investment agreement shall provide that if during its term
(1)
the provider shall default in its payment obligations, the provider’s
obligations under the investment agreement shall, at the direction of the City or the
Fiscal Agent, be accelerated and amounts invested and accrued but unpaid interest
thereon shall be paid to the City or the Fiscal Agent, as appropriate; and
(2)
the provider shall become insolvent, not pay its debts as they become
due, be declared or petition to be declared bankrupt, etc. (“event of insolvency”), the
provider’s obligations shall automatically be accelerated and amounts invested and
accrued but unpaid interest thereon shall be paid to the City or the Fiscal Agent, as
appropriate;
(viii) Commercial paper rated, at the time of purchase, “Prime - 1” by Moody’s and “A-1” or
better by Standard & Poor’s;
(ix)
Bonds or notes issued by any state or municipality which are rated by Moody’s and
Standard & Poor’s in one of the two highest rating categories assigned by them;
(x)
Federal funds or bankers acceptances with a maximum term of one year of any bank,
including the Fiscal Agent and its affiliates, which has an unsecured, uninsured and unguaranteed
obligation rating of “Prime - 1” or “A3” or better by Moody’s and “A-1” or better by Standard &
Poor’s;
(xi)
Repurchase agreements which satisfy the following criteria:
(a)
Repurchase agreements must be between the City or the Fiscal Agent and an
entity which is:
(1)
A primary dealer on the Federal Reserve reporting dealer list which is
rated “A” or better by Standard & Poor’s and Moody’s, or
(2)
A bank rated “A” or above by Standard & Poor’s and Moody’s; or
(3)
A corporation the long-term debt or claims paying ability of which, or
in the case of a guaranteed corporation, the long-term debt of the guarantor, or, in the
case of a monoline financial guaranty insurance company, the claims paying ability or
financial strength of the guarantor, is rated in at least the double A category by
Standard & Poor’s and Moody’s.
(b)
The written agreement must include the following:
(1)
Securities which are acceptable for transfer are:
(A)
direct obligations of the United States government, or
(B)
obligations of federal agencies backed by the full faith and
credit of the United States of America (or the Federal National Mortgage
Association (FNMA) or the Federal Home Loan Mortgage Corporation
(FHLMC)),
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(2)
The collateral must be delivered to the City or the Fiscal Agent (if the
Fiscal Agent is not supplying the collateral) or a third party acting as agent for the
Fiscal Agent (if the Fiscal Agent is supplying the collateral) before or simultaneous
with payment (perfection by possession of certificated securities),
(3)
(A) The securities must be valued weekly, marked-to-market at current
market price plus accrued interest, and
(B) The value of the collateral must be at least equal to one hundred
four percent (104%) of the amount of money transferred by the Fiscal Agent to
the dealer, bank or corporation under the agreement plus accrued interest. If
the value of the securities held as collateral is reduced below one hundred four
percent (104%) of the value of the amount of money transferred by the Fiscal
Agent, then additional acceptable securities and/or cash must be provided as
collateral to bring the value of the collateral to one hundred four percent
(104%); provided, however, that if the securities used as collateral are those of
FNMA or FHLMC, then the value of the collateral must equal to one hundred
five percent (105%) of the amount of money transferred by the Fiscal Agent;
(xii)
Forward delivery agreements (FDA) or forward purchase and sale agreements (FPSA)
having as the underlying investment property investments of the type which are identified in clauses (i),
(ii), (iii) or (viii) above; and
(xiii) the Local Agency Investment Fund in the State Treasury of the State of California as
permitted by the State Treasurer pursuant to Section 16429.1 of the California Government Code.
“Principal Account” means the account by that name established in the Bond Fund by the Agreement.
“Principal Office” means the principal corporate trust office of the Fiscal Agent in Los Angeles,
California or such other addresses may be specified in writing by the Fiscal Agent; provided, however, that for
purposes of the transfer, registration, exchange, payment and surrender of Bonds “Principal Office” means the
office or agency of the Fiscal Agent at which, at any time, its corporate trust agency business shall be conducted
or such other office or address as may be specified in writing by the Fiscal Agent.
“Priority Administrative Expense Allocation” means an amount equal to $30,600 for Fiscal Year 20072008 escalating by 2% each Fiscal Year thereafter during the term of the Bonds.
“Proceeds,” when used with reference to the Bonds, means the aggregate principal amount of the
Bonds, plus accrued interest and premium, if any, less original issue discount, if any.
“Project” means the public facilities which are to be financed with the proceeds of the sale of the bonds
of the District, as described in Resolution No. 2005-024 adopted by the City Council on April 20, 2005.
“Rebate Certificate” means the certificate delivered by the City upon the delivery of the Bonds relating
to Section 148 of the Code, or any functionally similar replacement certificate.
“Rebate Fund” means the fund by that name established by the Agreement.
“Record Date” means the fifteenth (15th) day of the month next preceding the applicable Interest
Payment Date whether or not such day is a Business Day.
“Registration Books” means the registration books maintained by the Fiscal Agent pursuant to the
Agreement.
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“Regulations” means the temporary and permanent regulations of the United States Department of the
Treasury promulgated under the Code.
“Representation Letter” means the representation letter which the City has delivered to The Depository
Trust Company (“DTC”) with respect to the utilization of the book-entry system maintained by DTC for the
issuance and registration of bonds.
“Reserve Fund” means the fund by that name established by the Agreement.
“Reserve Requirement” means, as of the date of calculation, the lesser of (i) ten percent (10%) of the
original principal amount of the Bonds; (ii) Maximum Annual Debt Service on the Bonds; or (iii) 125 percent
of average Annual Debt Service on the Bonds, as determined by the City.
“Resolution” means Resolution No. 2007-037, adopted by the City Council on November 7, 2007.
“Securities Depositories” means The Depository Trust Company, 55 Water Street, 50 th Floor, New
York, New York, 10041-0099, Call Notification Department, Fax (212) 855-7232, and, in accordance with then
current guidelines of the Securities and Exchange Commission, such other securities depositories as the City
may designate in an Officer’s Certificate delivered to the Fiscal Agent.
“Special Taxes” or “Special Tax” means the special taxes levied by the City Council on parcels of
taxable property within the District pursuant to the Act and the Agreement.
“Special Tax Fund” means the fund by that name established by the Agreement.
“Special Tax Prepayments” means amounts received by the City as prepayments of all or a portion of
the Special Tax obligation of a parcel of property in the District.
“Special Tax Prepayments Account” means the account by that name established by the Fiscal Agent in
the Bond Fund pursuant to the Agreement.
“Special Tax Revenues” means the proceeds of the Special Taxes received by the City, including any
scheduled payments, interest and penalties thereon and proceeds of the redemption or sale of property sold as a
result of foreclosure of the lien of the Special Taxes in the amount of said lien and interest and penalties
thereon.
“Standard & Poor’s” shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill
Companies, Inc., a national rating service with offices in New York, New York.
“Subdivided Property” means a parcel of property in the District for which a subdivision or parcel map
creating lots or parcels upon which dwelling units will be constructed has been recorded with the County
Recorder of the County of Orange.
“Supplemental Agreement” means an agreement entered into by and between the City and the Fiscal
Agent amending and supplementing the Agreement as permitted by the Agreement.
“Surplus Account” means the account by that name established in the Special Tax Fund by the
Agreement.
“Tax Consultant” means an engineer or financial consultant or other such person or firm with expertise
in the apportionment and levy of special taxes in community facilities districts which is employed by the City to
assist the City in levying the Special Taxes.
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FUNDS AND ACCOUNTS
Improvement Fund
(A)
Establishment of Improvement Fund. There is hereby established, as a separate account to be
held by the Fiscal Agent, the “Community Facilities District No. 2005-01 of the City of Aliso Viejo 2007
Special Tax Bonds Improvement Fund” to the credit of which a deposit shall be made as required by the
Agreement. Moneys in the Improvement Fund shall be held by the Fiscal Agent for the benefit of the City, and
shall be disbursed, except as otherwise provided in the Agreement, for the payment or reimbursement of the
costs of the design, acquisition and construction of the Project.
(B)
Procedure for Disbursement. Disbursements from the Improvement Fund shall be made by the
Fiscal Agent upon receipt of an Officer’s Certificate which shall:
(i)
set forth the amount required to be disbursed, the purpose for which the disbursement
is to be made and the person to which the disbursement is to be paid; and
(ii)
certify that no portion of the amount then being requested to be disbursed was set forth
in any Officer’s Certificate previously filed with the Fiscal Agent requesting disbursement, and that the
amount being requested is an appropriate disbursement from the Improvement Fund.
(C)
Investment. Moneys in the Improvement Fund shall be invested and deposited in accordance
with the Agreement. Investment Earnings with respect to the Improvement Fund shall be retained by the Fiscal
Agent in such fund to be used for the purposes of such fund.
(D)
Closing of Fund. Upon the filing of an Officer’s Certificate stating that the construction and
acquisition of the Project has been completed and that all costs of the Project have been paid or are not required
to be paid from the Improvement Fund, and further stating that moneys on deposit in the Improvement Fund are
not needed to complete the Project or reimburse the cost thereof, the Fiscal Agent shall transfer the amount, if
any, remaining in the Improvement Fund to the Principal Account of the Bond Fund to be used to pay the
principal of the Bonds, and the Improvement Fund shall be closed. Notwithstanding the preceding provisions
of this subsection, the Improvement Fund shall be closed if all amounts on deposit therein are disbursed
pursuant to Subsection (B) above.
(E)
Officer’s Certificate. Upon receipt of an Officer’s Certificate delivered pursuant to the
Agreement, the Fiscal Agent is authorized to act thereon without further inquiry and shall not be responsible for
the accuracy of the statements made in such Officer’s Certificate or the application of the funds disbursed
pursuant thereto, and shall be absolutely protected and incur no liability in relying on such Officer’s Certificate.
Special Tax Fund.
(A)
Establishment of Special Tax Fund. There is hereby established, as a separate account to be
held by the Fiscal Agent, the “Community Facilities District No. 2005-01 of the City of Aliso Viejo Special
Tax Bonds Special Tax Fund” to the credit of which the City shall deposit, as provided in the Agreement, not
later than ten (10) Business Days after receipt, all Special Tax Revenues received by the City. There is hereby
also established in the Special Tax Fund as a separate account, to be held by the Fiscal Agent, the “Surplus
Account” to the credit of which amounts shall be deposited as provided in the Agreement. Moneys in the
Special Tax Fund, and the Surplus Account therein, shall be held by the Fiscal Agent for the benefit of the City
and the Owners of the Bonds, shall be disbursed as provided below and, pending disbursement, shall be subject
to a lien in favor of the Owners of the Bonds.
Notwithstanding the foregoing, any amounts received by the City which constitute Special Tax
Prepayments shall be transferred by the City not later than ten (10) Business Days after receipt to the Fiscal
Agent for deposit by the Fiscal Agent in the Special Tax Prepayments Account established pursuant to the
Agreement.
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(B)
Disbursements. As soon as practicable after the receipt from the City of any Special Tax
Revenues, but no later than ten (10) Business Days after such receipt, the Fiscal Agent shall withdraw from the
Special Tax Fund and deposit in the Administrative Expense Fund, an amount which is estimated by the City, in
a written communication from an Authorized Officer delivered to the Fiscal Agent (upon which the Fiscal
Agent may conclusively rely) to be sufficient, together with the amount then on deposit in the Administrative
Expense Fund, to pay the Administrative Expenses during the current Fiscal Year; provided, however, that the
amount deposited in the Administrative Expense Fund prior to the deposits to the Interest Account and the
Principal Account of the Bond Fund, as provided below, shall not exceed the Priority Administrative Expense
Allocation for any Fiscal Year. From the amount then remaining on deposit in the Special Tax Fund, the Fiscal
Agent shall, as soon as the amount on deposit in the Special Tax Fund is sufficient, deposit in the Reserve Fund
the amount, if any, which the City shall direct in a written communication from an Authorized Officer delivered
to the Fiscal Agent (upon which the Fiscal Agent may conclusively rely), to be withdrawn from the Special Tax
Fund and deposited in the Reserve Fund to make the amount on deposit therein equal to the Reserve
Requirement. Thereafter, on or before each Interest Payment Date, the Fiscal Agent shall deposit in the Interest
Account and the Principal Account of the Bond Fund the amounts required for payment of interest on or
interest on and principal of the Bonds, as provided in the Agreement.
Notwithstanding the preceding provisions of this subsection, if prior to the September 1 Interest
Payment Date in any Bond Year the City determines that Special Tax Revenues will be sufficient to enable the
Fiscal Agent to deposit in the Reserve Fund the amount, if any, which is necessary to make the amount on
deposit therein equal to the Reserve Requirement and deposit in the Bond Fund the full amount required for
deposit to the Interest Account and the Principal Account to pay the interest on and principal of the Bonds on
such Interest Payment Date, the City may instruct the Fiscal Agent in an Officer’s Certificate, upon which the
Fiscal Agent may conclusively rely, to deposit an additional amount in the Administrative Expense Fund which
amount shall not exceed the difference between the amount of Special Tax Revenues then on deposit in the
Special Tax Fund and the amounts required to be deposited in the Reserve Fund and the Bond Fund before
making the required deposits to the Interest Account and the Principal Account of the Bond Fund, and the
Fiscal Agent shall deposit such additional amount in the Administrative Expense Fund before depositing any
amount to the Reserve Fund or the Interest Account and the Principal Account of the Bond Fund.
On or before the March 1 Interest Payment Date in each Bond Year, if the amount of other moneys
which is on deposit in the Special Tax Fund is less than the amount of the interest on the Bonds which is due on
such Interest Payment Date, the Fiscal Agent shall transfer moneys from the Surplus Account, to the extent of
moneys on deposit therein and available for transfer, to and deposit such moneys in the Interest Account of the
Bond Fund in an amount not to exceed the deficiency in the amount of other moneys which are on deposit in
the Special Tax Fund, and available for transfer to and deposit in the Interest Account to pay the full amount of
the interest on the Bonds which is due and payable on such Interest Payment Date. On or before the September
1 Interest Payment Date in each Bond Year, if the amount of other moneys which is on deposit in the Special
Tax Fund is less than the amount of the interest on and principal of the Bonds which is due on such Interest
Payment Date, the Fiscal Agent shall transfer moneys from the Surplus Account, to the extent of moneys on
deposit therein and available for transfer, to and deposit such moneys in the Interest Account and the Principal
Account in amounts not to exceed the amount of the deficiency in the amount of other moneys which are on
deposit in the Special Tax Fund, and available for transfer, to pay the full amount of the interest on and
principal of the Bonds which is due and payable on such Interest Payment Date. On or before May 30 of each
year, commencing on May 30, 2008 the Fiscal Agent shall notify the City of the amount which is then on
deposit in the Surplus Account and of the aggregate amount of the principal of and interest on the Bonds which
will become due and payable on March 1 and September 1 of the following calendar year.
On September 2 of each year, beginning on September 2, 2008, the amount, if any, on deposit in the
Special Tax Fund (including the amount on deposit in the Surplus Account), together with the amount then on
deposit in the Principal Account of the Bond Fund (but not including, however, the amounts, if any, then on
deposit in the Interest Account or the Special Tax Prepayments Account), as determined by the City, shall not
exceed the greater of (i) one year’s earnings on such amounts, or (ii) one-twelfth (1/12th) of Annual Debt
Service for the then current Bond Year. If on September 2 of any year the amount on deposit in the Special Tax
Fund (including the Surplus Account), together with the amount then on deposit in the Principal Account,
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exceeds the maximum amount allowable pursuant to the preceding sentence, as determined by the City and
communicated in writing by an Authorized Officer to the Fiscal Agent (upon which the Fiscal Agent may
conclusively rely), shall be transferred from the Special Tax Fund to and deposited in the Reserve Fund to the
extent that the amount on deposit therein is less than the Reserve Requirement. Any such excess remaining in
the Special Tax Fund after any such amount is transferred from the Special Tax Fund to the Reserve Fund shall
be transferred from the Special Tax Fund to and deposited in the Administrative Expense Fund. On
September 2 of each year, after any such excess amount has been transferred as hereinabove provided, the
amount on deposit in the Special Tax Fund (including the Surplus Account), together with the amount then on
deposit in the Bond Fund (other than such excluded amounts), shall not exceed in the aggregate the greater of
(i) one year’s earnings thereon, or (ii) one-twelfth (1/12th) of Annual Debt Service for the then current Bond
Year. The Fiscal Agent shall have no obligation to monitor the City’s obligations as set forth in this paragraph.
(C)
Investment. Moneys in the Special Tax Fund shall be invested and deposited in accordance
with the Agreement. Investment Earnings shall be retained in the Special Tax Fund to be used for the purposes
of such fund.
Administrative Expense Fund.
(A)
Establishment of Administrative Expense Fund. There is hereby established, as a separate
account to be held by the Fiscal Agent, the “Community Facilities District No. 2005-01 of the City of Aliso
Viejo 2007 Special Tax Bonds Administrative Expense Fund” to the credit of which deposits shall be made as
required by the Agreement. Moneys in the Administrative Expense Fund shall be held by the Fiscal Agent for
the benefit of the City, and shall be disbursed as provided below.
(B)
Disbursement. Amounts in the Administrative Expense Fund shall be withdrawn by the Fiscal
Agent and paid to the City or its order upon receipt by the Fiscal Agent of an Officer’s Certificate stating the
amount to be withdrawn, that such amount is to be used to pay an Administrative Expense and the nature of
such Administrative Expense.
Annually, not later than the last day of each Fiscal Year, the Fiscal Agent shall withdraw any amount
then remaining in the Administrative Expense Fund that has not been allocated by an Officer’s Certificate
received by the Fiscal Agent from the City to pay Administrative Expenses which are expected to be incurred in
the succeeding Fiscal Year prior to the receipt by the City of Special Tax Revenues for such succeeding Fiscal
Year and transfer such amount to the Surplus Account.
(C)
Investment. Subject to the provisions of subsection (B) above, moneys in the Administrative
Expense Fund shall be invested and deposited in accordance with the Agreement. Investment Earnings shall be
retained by the Fiscal Agent in the Administrative Expense Fund to be used for the purposes of such fund.
Costs of Issuance Fund.
(A)
Establishment of Costs of Issuance Fund. There is hereby established, as a separate account to
be held by the Fiscal Agent, the “Community Facilities District No. 2005-01 of the City of Aliso Viejo 2007
Special Tax Bonds Costs of Issuance Fund” to the credit of which a deposit shall be made as required by the
Agreement. Moneys in the Costs of Issuance Fund shall be held by the Fiscal Agent and shall be disbursed as
provided in subsection (B) below for the payment or reimbursement of Costs of Issuance.
(B)
Disbursement. Amounts in the Costs of Issuance Fund shall be disbursed to pay Costs of
Issuance, as set forth in a requisition containing respective amounts to be paid to the designated payees, signed
by an Authorized Officer and delivered to the Fiscal Agent concurrently with the delivery of the Bonds. The
Fiscal Agent shall pay all Costs of Issuance upon receipt of an invoice from any such payee which requests
payment in an amount which is less than or equal to the amount set forth with respect to such payee in such
requisition, or upon receipt of an Officer’s Certificate requesting payment of a Cost of Issuance not listed on the
initial requisition delivered to the Fiscal Agent on the Closing Date. The Fiscal Agent shall maintain the Costs
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of Issuance Fund for a period of ninety (90) days from the Closing Date and shall then transfer and deposit any
moneys remaining therein, including any Investment Earnings thereon, in the Improvement Fund.
(C)
Investment. Moneys in the Costs of Issuance Fund shall be invested and deposited in
accordance with the Agreement. Investment Earnings shall be retained by the Fiscal Agent in the Costs of
Issuance Fund to be used for the purposes of such fund.
Rebate Fund; Rebate to the United States. There is hereby created, to be held by the Fiscal Agent, as a
separate account distinct from all other funds and accounts held by the Fiscal Agent under the Agreement, the
Rebate Fund. The Fiscal Agent shall, in accordance with written directions received from an Authorized
Officer, deposit into the Rebate Fund moneys transferred by the City to the Fiscal Agent pursuant to the Rebate
Certificate or moneys transferred by the Fiscal Agent from the Reserve Fund. The Rebate Fund shall be held
either uninvested or invested only in Federal Securities at the written direction of the City. Moneys on deposit
in the Rebate Fund shall be applied only to payments made to the United States, to the extent such payments are
required by the Rebate Certificate. The Fiscal Agent shall, upon written request and direction of the City, make
such payments to the United States.
The Fiscal Agent may rely conclusively upon the City’s determinations, calculations and certifications
required by the Agreement. The Fiscal Agent shall have no responsibility to independently make any
calculation or determination or to review the City’s calculations pursuant to the Agreement. The Fiscal Agent’s
sole responsibilities under the Agreement are to follow the written instructions of the City pertaining hereto.
The City shall be responsible for any fees and expenses incurred by the Fiscal Agent pursuant to the
Agreement.
The Fiscal Agent shall, upon written request and direction from the City, transfer to or upon the order
of the City any moneys on deposit in the Rebate Fund in excess of the amount, if any, required to be maintained
or held therein in accordance with the Rebate Certificate.
SPECIAL TAX REVENUES; BOND FUND; RESERVE FUND
Pledge of Special Tax Revenues. The Bonds shall be secured by a pledge of and lien upon (which shall
be perfected in the manner and to the extent provided in the Agreement) all of the Special Tax Revenues
(except the initial amount of Priority Administrative Expense Allocation, which will be deposited in the
Administrative Expense Fund for each Fiscal Year pursuant to the Agreement) and all moneys on deposit in the
Bond Fund and all moneys on deposit in the Reserve Fund. The Bonds that may be issued shall be equally
secured by a pledge of and lien upon the Special Tax Revenues and such moneys without priority for number,
date of Bond, date of execution or date of delivery; and the payment of the interest on and principal of the
Bonds and any premium upon the redemption of any thereof shall be and is secured by a pledge of and lien
upon the Special Tax Revenues and such moneys. The Special Tax Revenues and all moneys deposited into
such funds are dedicated in their entirety to the payment of the principal of the Bonds that may be issued, and
interest and any premium on, the Bonds, as provided in the Agreement and in the Act, until all of the Bonds
have been paid and retired or until moneys or Defeasance Securities have been set aside irrevocably for that
purpose in accordance with the Agreement.
Bond Fund.
(A)
Deposits. There is hereby established, as a separate account to be held by the Fiscal Agent, the
“Community Facilities District No. 2005-01 of the City of Aliso Viejo Special Tax 2007 Bonds Bond Fund” to
the credit of which deposits shall be made as required by the Agreement and any other provision of the Act.
There are hereby established in the Bond Fund, as separate accounts to be held by the Fiscal Agent, the
“Interest Account” and the “Principal Account.” There is hereby also established in the Bond Fund, as a
separate account to be held by the Fiscal Agent, the “Special Tax Prepayments Account” to the credit of which
deposits shall be made as required by the Agreement. There is hereby also established in the Interest Account,
as a separate sub-account to be held by the Fiscal Agent, the “Capitalized Interest Sub-account” to the credit of
which a deposit shall be made as required by the Agreement. Moneys in the Bond Fund shall be held by the
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Fiscal Agent for the benefit of the Owners of the Bonds, shall be disbursed for the payment of the principal of,
and interest and any premium on, the Bonds as provided below, and, pending such disbursement, shall be
subject to a lien in favor of the Owners of the Bonds.
(B)
Disbursements. On or before each Interest Payment Date, the Fiscal Agent shall transfer from
the Special Tax Fund (including the Surplus Account) and deposit into the following respective accounts in the
Bond Fund, the following amounts in the following order of priority, the requirements of each such account
(including the making up of any deficiencies in any such account resulting from lack of Special Tax Revenues
sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made
to any account subsequent in priority:
(1)
Interest Account. On or before each Interest Payment Date the Fiscal Agent shall
deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the
Interest Account to equal the amount of interest becoming due and payable on the Bonds on such date.
No deposit need be made into the Interest Account on any Interest Payment Date if the amount on
deposit therein is at least equal to the interest becoming due and payable on the Bonds on such date.
All moneys in the Interest Account shall be used and withdrawn by the Fiscal Agent solely for the
purpose of paying the interest on the Bonds as it shall become due and payable (including accrued
interest on any Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on
the first day of any Bond Year, to the extent not required to pay any interest then having become due
and payable on the Outstanding Bonds shall be withdrawn therefrom by the Fiscal Agent and
transferred to the Surplus Account.
(a)
Capitalized Interest Sub-account. On or before the Interest Payment Dates that
occurs on March 1, 2008, September 1, 2008, March 1, 2009 and September 1, 2009 the Fiscal
Agent shall withdraw from the Capitalized Interest Sub-account instead of from the Special Tax
Fund and transfer to the Interest Account the amount which is necessary to cause the amount on
deposit in the Interest Account to be equal to the amount of interest which is due and payable
on the Outstanding Bonds on such Interest Payment Date. The amount, if any, on deposit in the
Capitalized Interest Sub-account on September 2, 2009 shall be withdrawn by the Fiscal Agent
and transferred to the Surplus Account and the Capitalized Interest Sub-account shall be closed.
(2)
Principal Account. On or before each Interest Payment Date that occurs on September
1, the Fiscal Agent shall deposit in the Principal Account an amount required to cause the aggregate
amount on deposit in the Principal Account to equal the principal amount of the Bonds becoming due
and payable on such date pursuant to the Agreement, or the redemption price of the Bonds (consisting
of the principal amount thereof and any applicable redemption premium) required to be redeemed on
such date pursuant to any of the provisions of the Agreement. Except as provided in the Agreement, all
moneys in the Principal Account shall be used and withdrawn by the Fiscal Agent solely for the
purpose of (i) paying the principal of the Bonds at the maturity thereof, or (ii) paying the principal of
and premium (if any) on any Bonds upon the redemption thereof pursuant to the Agreement. All
amounts on deposit in the Principal Account on the first day of any Bond Year, to the extent not
required to pay the principal of any Outstanding Bonds then having become due and payable, shall be
withdrawn therefrom by the Fiscal Agent and transferred to the Surplus Account.
In the event that moneys on deposit in the Special Tax Fund, including moneys on deposit in the
Surplus Account, will be insufficient on any Interest Payment Date for the Fiscal Agent to deposit the required
amounts in the Interest Account and the Principal Account, as provided above, the Fiscal Agent shall deposit
the available funds first to the Interest Account up to the full amount required to cause the aggregate amount on
deposit therein to equal the amount of interest becoming due and payable on the Bonds on the Interest Payment
Date, and shall then deposit the remaining available funds in the Special Tax Fund to the Principal Account up
to the full amount required to cause the aggregate amount on deposit therein to equal the amount, if any, of
principal becoming due and payable on the Bonds on the Interest Payment Date. If, after making such deposits
to the Interest Account and the Principal Account, and after transferring moneys from the Reserve Fund to such
accounts, as provided in the Agreement, the amount on deposit in the Principal Account is insufficient to pay
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the full amount of the principal of each of the Bonds which is to be redeemed on the Interest Payment Date, the
Fiscal Agent shall make a prorated payment of the principal of each of such Bonds as specified in an Officer’s
Certificate provided to the Fiscal Agent.
On September 2 of each year, beginning on September 2, 2009 the amount, if any, on deposit in the
Principal Account (but not including, however, the amounts, if any, on deposit in the Interest Account and the
Special Tax Prepayments Account), as determined by the City, together with the amount then on deposit in the
Special Tax Fund (including the Surplus Account), shall not exceed the greater of (i) one year’s earnings on
such amounts, or (ii) one-twelfth (1/12th) of Annual Debt Service for the then current Bond Year. If on
September 2 of any year the amount on deposit in the Principal Account, together with the amounts then on
deposit in the Special Tax Fund (including the Surplus Account), exceeds the maximum amount allowable
pursuant to the preceding sentence, the excess shall be transferred by the Fiscal Agent, as directed in writing by
the City (upon which the Fiscal Agent may conclusively rely), to the Reserve Fund to the extent that the amount
on deposit therein is less than the Reserve Requirement, and any such excess remaining thereafter shall be
transferred by the Fiscal Agent to the Administrative Expense Fund. On September 2 of each year, after any
such excess amount has been transferred as hereinabove provided, the amount on deposit in the Principal
Account, together with the amount then on deposit in the Special Tax Fund (including the Surplus Account),
shall not exceed the greater of (i) one year’s earnings thereon, or (ii) one-twelfth (1/12th) of Annual Debt
Service for the then current Bond Year. The Fiscal Agent shall have no obligation to monitor the City’s
obligations as set forth in this paragraph.
(C)
Special Tax Prepayments Account Deposits and Disbursements. Within ten (10) Business
Days after receiving a Special Tax Prepayment the City shall deliver the amount thereof to the Fiscal Agent,
together with an Officer’s Certificate notifying the Fiscal Agent that the amount being delivered is a Special
Tax Prepayment which is to be deposited in the Special Tax Prepayments Account. Upon receiving a Special
Tax Prepayment from the City and such an Officer’s Certificate, the Fiscal Agent shall deposit the amount of
the Special Tax Prepayment in the Special Tax Prepayments Account. Such an Officer’s Certificate may be
combined with the Officer’s Certificate which the City is required to deliver to the Fiscal Agent pursuant to the
Agreement. A portion of the moneys on deposit in the Special Tax Prepayments Account shall be transferred
by the Fiscal Agent, upon receipt of an Officer’s Certificate directing such transfer and specifying the amount
to be transferred (upon which the Fiscal Agent may conclusively rely), to the Principal Account on the next date
for which notice of the redemption of the Bonds can timely be given under the Agreement, and shall be used to
redeem the Bonds on the redemption date selected in accordance with the Agreement. The portion of the
moneys on deposit in the Special Tax Prepayments Account representing funded interest on a portion of the
Outstanding Bonds shall be transferred by the Fiscal Agent, upon receipt of an Officer’s Certificate directing
such transfer and specifying the amount to be transferred (upon which the Fiscal Agent may conclusively rely),
to the Interest Account on or before each Interest Payment Date prior to and including the Interest Payment
Date on which the redemption of such Bonds will occur. Pending such transfers, the moneys on deposit in the
Special Tax Prepayments Account shall be invested in Permitted Investments of the type and at such yield as
Bond Counsel shall determine is necessary to preserve the exclusion of interest on the Bonds from gross income
for purposes of federal income taxation. Investment earnings on the moneys on deposit in the Special Tax
Prepayments Account shall be retained in such account.
(D)
Investment. Except as provided in subsection (C) above, moneys in the Bond Fund, including
all accounts therein, shall be invested and deposited in accordance with the Agreement. Investment Earnings
shall be retained in the Bond Fund, except to the extent they are required to be deposited by the Fiscal Agent in
the Rebate Fund in accordance with the Agreement.
Amounts in the Bond Fund, including all accounts therein, shall also be withdrawn and deposited in the
Rebate Fund as provided in the Agreement.
Reserve Fund.
(A)
Establishment of Fund. There is hereby established, as a separate account to be held by the
Fiscal Agent, the “Community Facilities District No. 2005-01 of the City of Aliso Viejo 2007 Special Tax
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Bonds Reserve Fund” to the credit of which a deposit shall be made as required by the Agreement, which
deposit is equal to the Reserve Requirement, and to which deposits shall be made as provided in the Agreement.
Moneys in the Reserve Fund shall be held by the Fiscal Agent for the benefit of the Owners of the Bonds as a
reserve for the payment of the principal of and interest and any premium on the Bonds and shall be subject to a
lien in favor of the Owners of the Bonds.
(B)
Use of Fund. Except as otherwise provided in the Agreement, all amounts on deposit in the
Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the
Interest Account and the Principal Account of the Bond Fund in the event of any deficiency at any time in either
of such accounts of the amount then required for payment of the principal of and interest and any premium on
the Bonds or, in accordance with the provisions of subsection (E) below, for the purpose of redeeming Bonds.
(C)
Transfer Due to Deficiency in Interest and Principal Accounts. Whenever transfer is made
from the Reserve Fund to the Interest Account or the Principal Account due to a deficiency in either such
account, the Fiscal Agent shall provide written notice thereof to the City.
(D)
Transfer of Excess of Reserve Requirement. Whenever, on any September 2, the amount in the
Reserve Fund, less Investment Earnings resulting from the investment of the funds therein which pursuant to
the Agreement must be rebated to the United States, exceeds the Reserve Requirement, the Fiscal Agent shall
provide written notice to the City of the amount of the excess. The Fiscal Agent shall, subject to the
requirements of the Agreement, transfer an amount from the Reserve Fund which will reduce the amount on
deposit therein to an amount equal to the Reserve Requirement to the Interest Account and the Principal
Account, in the priority specified in the Agreement, to be used for the payment of the interest on and principal
of the Bonds on the next succeeding Interest Payment Date in accordance with the Agreement.
(E)
Transfer When Balance Exceeds Outstanding Bonds. Whenever the balance in the Reserve
Fund is equal to or exceeds the amount required to redeem or pay the Outstanding Bonds, including interest
accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent
shall, upon receiving written direction from an Authorized Officer (upon which the Fiscal Agent may
conclusively rely), transfer the amount in the Reserve Fund to the Interest Account and the Principal Account,
in the priority specified in the Agreement, to be applied, on the next succeeding Interest Payment Date, to the
payment and redemption, in accordance with the Agreement of all of the Outstanding Bonds. In the event that
the amount available to be so transferred from the Reserve Fund to the Interest Account and the Principal
Account exceeds the amount required to pay and redeem the Outstanding Bonds, the excess shall be transferred
to the City to be used for any lawful purpose of the City.
(F)
Transfers on Payment of Special Tax Obligations. Whenever the City receives a Special Tax
Prepayment, the City shall by an Officer’s Certificate notify the Fiscal Agent thereof and of the amount by
which the Reserve Fund is to be reduced and which is transferrable from the Reserve Fund to the Principal
Account of the Bond Fund, which amount shall be specified in the Officer’s Certificate. Each such Officer’s
Certificate shall be accompanied by a report of an Independent Financial Consultant verifying the accuracy of
the calculation of the amount to be transferred from the Reserve Fund to the Principal Account (“Verification”).
Upon receipt of each such Officer’s Certificate and Verification, upon which the Fiscal Agent may conclusively
rely, the Fiscal Agent shall at such time as the amount of such Special Tax Prepayment will be used to redeem
Bonds, as provided in the Agreement, transfer the amount specified in such Officer’s Certificate to the Principal
Account and use such amount, together with the amount of such Special Tax Prepayment, to redeem Bonds, as
provided in the Agreement. Notwithstanding the preceding provisions of this subsection, no amount shall be
transferred from the Reserve Fund to the Principal Account if the amount on deposit in the Reserve Fund is, or
as a result of such transfer would be, less than the Reserve Requirement.
(G)
Investment. Moneys on deposit in the Reserve Fund shall be invested in Permitted Investments
which do not have maturities extending beyond five (5) years; provided, however, if the Reserve Fund is
invested in an investment agreement (as defined in clause (vii) of the definition of Permitted Investments in the
Agreement) or a repurchase agreement (as defined in clause (xi) of such definition) such agreement may have a
maturity longer than five (5) years if the Fiscal Agent is authorized by the provisions of such agreement to draw
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the full amount thereof, without penalty, if required for the purposes of the Reserve Fund. The City shall cause
the Permitted Investments, other than such investment agreements, in which moneys on deposit in the Reserve
Fund are invested to be valued at fair market value and marked-to-market at least once in each Fiscal Year.
COVENANTS OF THE CITY
Punctual Payment. The City will punctually pay or cause to be paid the principal of and interest and
any premium on the Bonds when and as due in strict conformity with the terms of the Agreement and any
Supplemental Agreement to the extent that the Special Tax Revenues are available therefor, and it will
faithfully observe and perform all of the conditions, covenants and requirements of the Agreement and all
Supplemental Agreements and of the Bonds.
Special Obligation. The Bonds are special obligations of the City and the District and are payable
solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund, the Reserve
Fund and the Special Tax Fund.
Extension of Time for Payment. In order to prevent any accumulation of claims for interest after
maturity, the City shall not, directly or indirectly, extend or consent to the extension of the time for the payment
of any claim for interest on any of the Bonds and shall not, directly or indirectly, be a party to the approval of
any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any
such claim for interest shall be extended or funded, whether or not with the consent of the City, such claim for
interest so extended or funded shall not be entitled, in case of default pursuant to the Agreement, to the benefits
of the Agreement, except subject to the prior payment in full of the principal of all of the Bonds then
Outstanding and of all claims for interest which shall not have been so extended or funded.
Against Encumbrances. The City shall not encumber, pledge or place any charge or lien upon any of
the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and
lien created pursuant to the Agreement for the benefit of the Bonds, except as permitted by the Agreement.
Books and Accounts. The City shall keep, or cause to be kept, proper books of record and accounts,
separate from all other records and accounts of the City in which complete and correct entries shall be made of
all transactions relating to the expenditure of amounts disbursed from the Administrative Expense Fund. Such
books of record and accounts shall at all times during business hours, upon reasonable notice, be subject to the
inspection of the Owners of not less than ten percent (10%) of the aggregate principal amount of the Bonds then
Outstanding, or their representatives duly authorized in writing.
Protection of Security and Rights of Owners. The City will preserve and protect the security of the
Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of
all persons. From and after the delivery of any of the Bonds by the City, the Bonds shall be incontestable by the
City.
Collection of Special Tax Revenues. The City shall comply with all requirements of the Act, including
the enactment of necessary Ordinances, so as to assure the timely collection of Special Tax Revenues, including
without limitation, the enforcement of the payment or collection of delinquent Special Taxes.
The City shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Act by
August 10 of each year (or such later date as may be authorized by the Act or any amendment thereof) that the
Bonds are Outstanding, such that the computation of the levy is complete before the final date on which the
Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion
on the tax roll for the Fiscal Year then beginning. Upon the completion of the computation of the amounts of
the levy of the Special Taxes, the City shall prepare or cause to be prepared, and shall transmit to the Auditor,
such data as the Auditor requires to include the levy of the Special Taxes on the tax roll. Notwithstanding the
preceding provisions of this paragraph, the City Council may elect, as permitted by the Act, to collect the
Special Taxes to be levied for any Fiscal Year directly from the owners of the parcels of taxable property upon
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which the Special Taxes are levied rather than by transmitting the Special Taxes to the Auditor for collection on
the tax roll; provided that, in such event, the City shall otherwise comply with the provisions of the Agreement.
The City shall fix and levy the amount of Special Taxes within the District required for the payment of
the principal of and interest on any Outstanding Bonds becoming due and payable during the ensuing calendar
year, including any necessary replenishment or expenditure of the Reserve Fund, and the amount estimated to
be sufficient to pay the Administrative Expenses during such calendar year. The Special Taxes so levied shall
not exceed the authorized amounts for the District as provided in the proceedings for the formation of the
District.
The Special Taxes shall be payable and be collected (except in the event of judicial foreclosure
proceedings pursuant to the Agreement) in the same manner and at the same time and in the same installments
as the general taxes on real property are payable, and have the same priority, become delinquent at the same
times and in the same proportionate amounts and bear the same proportionate penalties and interest after
delinquency as do the general taxes on real property.
The City will not, in collecting the Special Taxes or in processing any such judicial foreclosure
proceedings, exercise any authority which it has pursuant to Sections 53340, 53344.1, 53344.2, 53356.1 and
53356.8 of the California Government Code in any manner which would materially and adversely affect the
interests of the Owners and, in particular, will not permit the tender of Bonds in full or partial payment of any
Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such
tender will not result in the City having insufficient Special Tax Revenues in any Bond Year to pay the
principal of and interest on the Bonds remaining Outstanding following such tender.
Levy of Special Taxes for Administrative Expenses. The City covenants that, (a) to the extent that it is
legally permitted to do so, it will levy the Special Taxes for the payment of the Administrative Expenses which
are expected to be incurred in each Fiscal Year, and (b) it will not initiate proceedings under the Act to reduce
the Maximum Special Tax rates for Developed Property (the “Maximum Rates”) below the amounts which are
necessary to provide Special Tax Revenues in an amount equal to one hundred ten percent (110%) of Maximum
Annual Debt Service on the Outstanding Bonds plus estimated Administrative Expenses for the then current
Fiscal Year.
The City further covenants that in the event an ordinance is adopted by initiative pursuant to Section 3
of Article XIII C of the California Constitution, which purports to reduce or otherwise alter the Maximum
Rates, it will commence and pursue legal action seeking to preserve its ability to comply with its covenant
contained in the preceding paragraph.
Further Assurances. The City will adopt, make, execute and deliver any and all such further
ordinances, resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the
intention or to facilitate the performance of the Agreement, and for better assuring and confirming unto the
Owners of the Bonds of the rights and benefits provided in the Agreement.
Tax Covenants. The City covenants that:
(A)
It will not take any action or omit to take any action, which action or omission, if
reasonably expected on the date of the initial issuance and delivery of the Bonds, would have caused
any of the Bonds to be “arbitrage bonds” within the meaning of Section 103(b) and Section 148 of the
Code;
(B)
reasonably expected on the date of initial issuance and delivery of the Bonds, would result in loss of
exclusion from gross income for purposes of federal income taxation under Section 103(a) of the Code
of interest paid with respect to the Bonds;
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(C)
reasonably expected on the date of initial issuance and delivery of the Bonds, would have caused any of
the Bonds to be “private activity bonds” within the meaning of Section 141 of the Code;
(D)
It will comply with the Rebate Certificate as a source of guidance for achieving
compliance with the Code; and
(E)
In order to maintain the exclusion from gross income for purposes of federal income
taxation of interest paid with respect to the Bonds, it will comply with each applicable requirement of
Section 103 and Sections 141 through 150 of the Code.
The covenants of the City contained in the Agreement shall survive the payment, redemption or
defeasance of Bonds pursuant to the Agreement.
Covenant to Foreclose. The City hereby covenants with and for the benefit of the Owners of the Bonds
(i) that it will order, and cause to be commenced, judicial foreclosure proceedings against properties with
delinquent Special Taxes in excess of $10,000 by the October 1 following the close of the Fiscal Year in which
such Special Taxes were due, and (ii) that it will commence judicial foreclosure proceedings against all
properties with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it
receives Special Taxes in an amount which is less than ninety-five percent (95%) of the total Special Taxes
levied, and diligently pursue to completion such foreclosure proceedings; provided, however, the City shall not
be required to order and cause judicial foreclosure proceedings to be commenced against delinquent properties
as long as no deficiency in the Reserve Fund exists (or is projected to exist in order to meet the next upcoming
debt service payment) and the City determines that the cost of pursuing such foreclosure is greater than the
outstanding deficiency.
Prepayment of Special Taxes. The City shall cause all applications of owners of property in the District
to prepay and satisfy the Special Tax obligation for their property to be reviewed by the Tax Consultant and
shall not accept any such prepayment unless such consultant certifies in writing that following the acceptance of
the proposed prepayment by the City and the redemption of Bonds with such prepayment, (a) the ratio of (i) the
maximum amount of the Special Taxes that may be levied on all Developed Property in the District which
following such prepayment will be subject to the levy of the Special Taxes to (ii) Maximum Annual Debt
Service on the Bonds which will remain Outstanding following such redemption (e.g., 1.10 to 1.0) plus
estimated Administrative Expenses will not be less than such ratio as it existed prior to such prepayment, and
(b) the maximum amount of the Special Taxes that may be levied on Developed Property at build-out of the
property in the District, as then approved by the City, will be equal to at least one hundred ten percent (110%)
of Maximum Annual Debt Service on such Outstanding Bonds. For purposes of the Agreement, “Developed
Property” shall include parcels of Subdivided Property for which building permits are expected to be issued by
the City for the construction of dwelling units.
Calculation of Prepayments. The City will cause all Special Tax Prepayments to be calculated to
include the amount of the premium on the Outstanding Bonds that will be redeemed with the Special Tax
Prepayment and negative arbitrage on the investment of the Special Tax Prepayment from the date of receipt
until the Interest Payment Date upon which the Special Tax Prepayment and the amount to be transferred from
the Reserve Fund to the Principal Account pursuant to the Agreement will be used to redeem Outstanding
Bonds pursuant to the Agreement. The City will not include in any calculation of the amount of any Special
Tax Prepayment for any parcel of taxable property in the District a proportionate amount of the amount then on
deposit in the Reserve Fund, if or to the extent such a credit would cause the amount on deposit in the Reserve
Fund following such prepayment to be less than the Reserve Requirement.
Continuing Disclosure. The City hereby covenants that it will comply with and carry out all of the
provisions of the Continuing Disclosure Certificate.
Accountability Measures. The City shall comply with the requirements of Section 53410 of the
California Government Code with respect to the deposit and expenditure of the Proceeds of the sale of the
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Bonds and shall cause the appropriate officer of the City to file a report with the City Council no later than
January 2, 2008, and annually thereafter, which shall contain the information required by Section 53411 of the
California Government Code with respect to the expenditure of the Proceeds and the status of the construction
and acquisition of the Project.
INVESTMENTS; DISPOSITION OF INVESTMENT PROCEEDS
Deposit and Investment of Moneys in Funds. Subject in all respects to the provisions of the Agreement,
moneys in any fund or account created or established by the Agreement and held by the Fiscal Agent shall be
invested by the Fiscal Agent in Permitted Investments, as directed pursuant to an Officer’s Certificate filed with
the Fiscal Agent at least two (2) Business Days in advance of the making of such investments. In the absence
of any such Officer’s Certificate, the Fiscal Agent shall invest any such moneys in Permitted Investments
described in clause (iv) of the definition of Permitted Investments in the Agreement. The Fiscal Agent shall not
have any responsibility for determining the legality of any Permitted Investments. The Fiscal Agent shall have
no obligation to pay additional interest or maximize investment income on any funds held by it. Neither the
City nor the Owners of the Bonds shall have any claim of any kind against the Fiscal Agent in connection with
investments properly made pursuant to the Agreement. Obligations purchased as an investment of moneys in
any fund or account shall be deemed to be part of such fund or account, subject, however, to the requirements
of the Agreement for transfer of Investment Earnings in funds and accounts.
The Fiscal Agent and its affiliates may act as sponsor, advisor, depository, principal or agent in the
holding, acquisition or disposition of any investment. The Fiscal Agent shall not incur any liability for losses
arising from any investments made pursuant to the Agreement. For purposes of determining the amount on
deposit in any fund or account held pursuant to the Agreement, all Permitted Investments or investments
credited to such fund or account with the exception of the Reserve Fund shall be valued at the cost thereof
(excluding accrued interest and brokerage commissions, if any).
Subject in all respects to the provisions of the Agreement, investments in any and all funds and
accounts may be commingled in a single fund for purposes of making, holding and disposing of investments,
notwithstanding provisions in the Agreement for transfer to or holding in or to the credit of particular funds or
accounts of amounts received or held by the Fiscal Agent pursuant to the Agreement, provided that the Fiscal
Agent shall at all times account for such investments strictly in accordance with the funds and accounts to
which they are credited and otherwise as provided in the Agreement.
The Fiscal Agent shall sell or present for redemption, any investment security whenever it shall be
necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund
or account to which such investment security is credited, and the Fiscal Agent shall not be liable or responsible
for any loss resulting from the acquisition or disposition of any such investment security in accordance
herewith.
The City acknowledges that to the extent regulations of the Comptroller of the Currency or other
applicable regulatory entity grant the City or the District the right to receive brokerage confirmations of
securities transactions as they occur, the City for itself and the District specifically waives receipt of such
confirmations to the extent permitted by law. The Fiscal Agent shall furnish the City periodic cash transaction
statements which include detail for all investment transactions made by the Fiscal Agent pursuant to the
Agreement.
The Fiscal Agent may make any investments pursuant to the Agreement through its own bond or
investment department or trust investment department, or those of its parent or any affiliate.
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MODIFICATION OR AMENDMENT OF THE AGREEMENT
Amendments Permitted.
(A)
The Agreement and the rights and obligations of the District and the City and of the Owners of
the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative
vote at a meeting of the Owners, or with the written consent, without a meeting, of the Owners of at least sixty
percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as
provided in the Agreement. No such modification or amendment shall (i) extend the maturity of any Bond or
the time for paying interest thereon, or otherwise alter or impair the obligation of the City on behalf of the
District to pay the principal of, and the interest and any premium on, any Bond, without the express consent of
the Owner of such Bond, or (ii) permit the creation of any pledge of or lien upon the Special Tax Revenues, or
the moneys on deposit in the Special Tax Fund, the Bond Fund or the Reserve Fund, superior to or on a parity
with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws
of the State of California or the Agreement), (iii) reduce the percentage of Bonds required for the amendment
hereof, or (iv) reduce the principal amount of or redemption premium on any Bond or reduce the interest rate
thereon. Any such amendment may not modify any of the rights or obligations of the Fiscal Agent without its
written consent. The Fiscal Agent shall be furnished an opinion of counsel that any such Supplemental
Agreement entered into by the City and the Fiscal Agent complies with the provisions of the Agreement and the
Fiscal Agent may conclusively rely on such opinion.
(B)
The Agreement and the rights and obligations of the District and the City and the Owners may
also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners,
only to the extent permitted by law and only for any one or more of the following purposes:
(1)
to add to the covenants and agreements of the City in the Agreement contained, other
covenants and agreements thereafter to be observed, or to limit or surrender any right or power pursuant
to the Agreement reserved to or conferred upon the City;
(2)
to make modifications not adversely affecting any Outstanding Bonds in any material
respect;
(3)
to make such provisions for the purpose of curing any ambiguity, or of curing,
correcting or supplementing any defective provisions of the Agreement, or in regard to questions
arising under the Agreement, as the City and the Fiscal Agent may deem necessary or desirable and not
inconsistent with the Agreement, and which shall not adversely affect the rights of the Owners;
(4)
to make such additions, deletions or modifications as may be necessary or desirable to
assure compliance with Section 148 of the Code relating to required rebate of moneys to the United
States or otherwise as may be necessary to assure exclusion from gross income for federal income tax
purposes of interest on the Bonds or to conform with the Regulations; or
(5)
to pay and discharge the indebtedness of a portion of the Outstanding Bonds ( a “Partial
Discharge”) pursuant to the Agreement.
Owners’ Meetings. The City may at any time call a meeting of the Owners. In such event, the City is
authorized to fix the time and place of any such meeting and to provide for the giving of notice thereof and to
fix and adopt rules and regulations for the conduct of the meeting.
Procedure for Amendment with Written Consent of Owners. The City and the Fiscal Agent may at any
time enter into a Supplemental Agreement amending the provisions of the Bonds or of the Agreement or any
Supplemental Agreement, to the extent that such amendment is permitted by the Agreement, to take effect when
and as provided in the Agreement. A copy of the Supplemental Agreement, together with a request to Owners
for their consent thereto, shall be mailed by first class mail, postage prepaid, by the Fiscal Agent to each Owner
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of Bonds Outstanding, but failure to mail copies of the Supplemental Agreement and request shall not affect the
validity of the Supplemental Agreement when assented to as in the Agreement provided.
Such a Supplemental Agreement shall not become effective unless there shall be filed with the Fiscal
Agent the written consents of the Owners of at least sixty percent (60%) in aggregate principal amount of the
Bonds then Outstanding (exclusive of Bonds disqualified as provided in the Agreement) and a notice shall have
been mailed as provided in the Agreement. Each such consent shall be effective only if accompanied by proof
of ownership of the Bonds for which such consent is given, which proof shall be such as is permitted by the
Agreement. Any such consent shall be binding upon the Owner of the Bonds giving such consent and on any
subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in
writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Fiscal
Agent prior to the date when the notice provided for in the Agreement has been mailed.
After the Owners of the required percentage of Bonds shall have filed their consents to the
Supplemental Agreement, the City shall mail a notice to the Owners in the manner provided in the Agreement
for the mailing of the Supplemental Agreement, stating in substance that the Supplemental Agreement has been
consented to by the Owners of the required percentage of Bonds and will be effective as provided in the
Agreement (but failure to mail copies of said notice shall not affect the validity of the Supplemental Agreement
or consents thereto). Proof of the mailing of such notice shall be filed with the Fiscal Agent. A record,
consisting of the documents required by the Agreement to be filed with the Fiscal Agent, shall be proof of the
matters therein stated until the contrary is proved. The Supplemental Agreement shall become effective upon
the filing with the Fiscal Agent of the proof of mailing of such notice, and the Supplemental Agreement shall be
deemed conclusively binding (except as otherwise specifically provided in the Agreement) upon the City, the
District and the Owners of all Bonds then Outstanding at the expiration of sixty (60) days after such filing,
except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal
action or equitable proceeding for such purpose commenced within such sixty (60)-day period.
Disqualified Bonds. Bonds owned or held for the account of the City, excepting any pension or
retirement fund, shall not be deemed Outstanding for the purpose of any vote, consent or other action or any
calculation of Outstanding Bonds provided for in the Agreement, and shall not be entitled to vote upon, consent
to, or participate in any action provided for in the Agreement. Upon request of the Fiscal Agent, the City shall
specify to the Fiscal Agent those Bonds disqualified pursuant to the Agreement and the Fiscal Agent may
conclusively rely on such certificate.
Effect of Supplemental Agreement. From and after the time any Supplemental Agreement becomes
effective pursuant to the Agreement, the Agreement shall be deemed to be modified and amended in accordance
therewith, and the respective rights, duties and obligations under the Agreement of the City and all Owners of
Bonds Outstanding shall thereafter be determined, exercised and enforced pursuant to the Agreement subject in
all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental
Agreement shall be deemed to be part of the terms and conditions of the Agreement for any and all purposes.
Endorsement or Replacement of Bonds Issued After Amendments. The City may determine that Bonds
issued and delivered after the effective date of any action taken as provided in the Agreement shall bear a
notation, by endorsement or otherwise, in form approved by the City, as to such action. In that case, upon
demand of the Owner of any Bond Outstanding at such effective date and upon presentation of his Bond for that
purpose at the Principal Office of the Fiscal Agent or at such other office as the City may select and designate
for that purpose, a suitable notation shall be made on such Bond. The City may determine that new Bonds, so
modified as in the opinion of the City is necessary to conform to such action, shall be prepared, executed and
delivered. In that case, upon demand of the Owner of any Bonds then Outstanding, such new Bonds shall be
exchanged at the Principal Office of the Fiscal Agent without cost to any Owner, for like Bonds then
Outstanding, upon surrender of such Bonds.
Amendatory Endorsement of Bonds. The provisions of the Agreement shall not prevent any Owner
from accepting any amendment as to the particular Bonds held by him, provided that due notation thereof is
made on such Bonds.
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APPENDIX B
PROPOSED FORM OF OPINION OF BOND COUNSEL
Date of Closing
City of Aliso Viejo
12 Journey
Aliso Viejo, CA 92656-5335
Re:
$34,070,000 Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the City
of Aliso Viejo, 2007 Special Tax Bonds
Ladies and Gentlemen:
We have acted as bond counsel in connection with the issuance by the City of Aliso Viejo (the “City”),
on behalf of itself and for Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the City of
Aliso Viejo, County of Orange, State of California (the “District”), of its Community Facilities District No.
2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo, 2007 Special Tax Bonds (the “Bonds”). The
Bonds are issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5
(commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the Government Code of the State of
California (the “Act”), a resolution adopted by the City Council of the City of Aliso Viejo on November 7,
2007, (the “Resolution”), and a Fiscal Agent Agreement, dated as of November 1, 2007 (the “Agreement”)
between the City and The Bank of New York Trust Company, N.A., as fiscal agent (the “Fiscal Agent”).
We have examined the Act, the Resolution, the Agreement and certified copies of the proceedings taken
for the issuance and sale of the Bonds. As to questions of fact which are material to our opinions, we have
relied upon the representations of the City contained in the Agreement and in certificates of its authorized
officers which have been delivered to us for the purpose of supplying such facts, without having undertaken to
verify the accuracy of any such representations by independent investigation.
Based upon such examination, we are of the opinion, as of the date hereof, that the proceedings referred
to above have been taken in accordance with the laws and the Constitution of the State of California, and that
the Bonds, having been issued in duly authorized form and executed by the proper officials and delivered to and
paid for by the purchaser thereof, constitute the legally valid and binding obligations of the City enforceable in
accordance with their terms subject to the qualifications specified below and, except where funds are otherwise
available, as may be permitted by law, are payable, as to both principal and interest, solely from certain special
taxes to be levied and collected within the District and other funds available therefor held under the Agreement.
The Internal Revenue Code of 1986, as amended (the “Code”), sets forth certain investment, rebate and
related requirements which must be met subsequent to the issuance and delivery of the Bonds for the interest on
the Bonds to be and remain exempt from federal income taxation. Noncompliance with such requirements
could cause the interest on the Bonds to be subject to federal income taxation retroactive to the date of issuance
of the Bonds. Pursuant to the Agreement, the City has covenanted to comply with the requirements of the Code
and applicable regulations promulgated thereunder.
We are of the opinion that, under existing statutes, regulations, rulings and court decisions, and
assuming compliance by the City with the aforementioned covenants, the interest on the Bonds is excluded
from gross income for purposes of federal income taxation and is exempt from personal income taxation
imposed by the State of California.
We are further of the opinion that interest on the Bonds is not a specific preference item for purposes of
the alternative minimum tax provisions of the Code. However, interest on the Bonds received by corporations
will be included in corporate adjusted current earnings, a portion of which may increase the alternative
minimum taxable income of such corporations.
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Although interest on the Bonds is excluded from gross income for purposes of federal income taxation,
the accrual or receipt of interest on the Bonds may otherwise affect the federal income tax liability of the
recipient. The extent of these tax consequences will depend on the recipient's particular tax status or other
items of income or deduction. We express no opinion regarding any such consequences.
The rights of the owners of the Bonds and the enforceability of the Bonds and the Agreement may be
subject to bankruptcy, insolvency, moratorium, and other similar laws affecting creditors' rights heretofore or
hereafter enacted, and their enforcement may be subject to the exercise of judicial discretion in accordance with
general principles of equity.
Respectfully submitted,
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APPENDIX C
APPRAISAL REPORT
APPENDIX D
RATE AND METHOD OF APPORTIONMENT
OF SPECIAL TAX
CITY OF ALISO VIEJO
MODIFIED RATE AND METHOD OF APPORTIONMENT
An Annual Special Tax shall be levied on all Taxable Property within the boundaries of
City of Aliso Viejo Community Facilities District No. 2005-01 (Glenwood at Aliso
Viejo) (“CFD No. 2005-01”) and collected each Fiscal Year commencing in Fiscal Year
2006-2007 according to the tax liability determined by the Council, through the
application of this Modified Rate and Method of Apportionment of the Special Tax to the
extent and in the manner herein provided.
1. Definitions
“Acre” or “Acreage” means the land area of an Assessor’s Parcel as shown on an
Assessor's Parcel map, or if the land area is not shown on an Assessor's Parcel map,
the land area shown on the applicable final map, parcel map, condominium plan,
record of survey or other recorded document creating and describing such area of
land. The square footage of an Assessor’s Parcel is equal to the Acreage of such
parcel multiplied by 43,560 square feet.
“Act” means the Mello-Roos Community Facilities Act of 1982, as amended, being
Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of
California.
“Administrative Expenses” means the actual or reasonably estimated costs directly
related to the administration of CFD No 2005-01 including, but not limited to the
following: the costs of computing the Special Taxes; the costs of preparing the
Annual Special Tax collection schedules (whether by the City or designee thereof or
both); the costs of collecting the Special Taxes (whether by the City, the County or
otherwise); the costs of remitting the Special Taxes to the Trustee; the costs of the
Trustee (including its legal counsel) in the discharge of the duties required of it under
the Indenture; the costs to the City, CFD No. 2005-01, or any designee thereof
complying with arbitrage rebate requirements, including without limitation rebate
liability costs and periodic rebate calculations; the costs to the City, CFD No. 200501, or any designee thereof complying with disclosure or reporting requirements of
the City or CFD No. 2005-01 associated with applicable federal and State laws; the
costs associated with preparing Special Tax disclosure statements and responding to
public inquiries regarding the Special Taxes; the costs to the City, CFD No. 2005-01,
or any designee thereof related to an appeal of the Special Tax; and the City’s annual
administration fees and third party expenses. Administrative Expenses shall also
include amounts estimated or advanced by the City or CFD No. 2005-01 for any other
administrative purposes of CFD No. 2005-01, including attorney’s fees and other
September 6, 2006
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costs related to commencing and pursuing any foreclosure of delinquent Special
Taxes.
“Affordable Unit” means a residential unit classified as Land Use Class 1 that is
either deed-restricted to maintain the affordability of the residential unit or, at the
City’s sole discretion, otherwise qualifies as affordable housing. A maximum of 43
Affordable Units will be classified as Exempt Property in accordance with Section 8
below. Any additional units (beyond 43) will be subject to the Special Tax and to
mandatory prepayment of the Special Tax Obligation applicable to such Affordable
Unit by the Property Owner prior to the issuance of a Certificate of Occupancy.
“Annual Special Tax” means any Special Tax levied within CFD No. 2005-01
pursuant to the Act and this Modified Rate and Method of Apportionment for any
Fiscal Year.
“Annual Special Tax Requirement” means that amount required in any Fiscal Year
to: (i) pay Debt Service; (ii) pay periodic costs on the Outstanding Bonds, including
but not limited to, credit enhancement and rebate payments on the Outstanding
Bonds; (iii) pay Administrative Expenses; (iv) pay any amounts required to establish
or replenish any reserve funds for all Outstanding Bonds; (v) accumulate funds to pay
directly for acquisition or construction of facilities, provided that the inclusion of
such amount does not cause the Special Tax to be levied on Undeveloped Property,
and (vi) pay for reasonably anticipated delinquent Special Taxes based on the
delinquency rate for Special Taxes levied in the previous Fiscal Year; less (vii) a
credit for funds available to reduce the annual Special Tax levy, as determined by the
CFD Administrator pursuant to the Indenture.
“Assessor” means the Assessor of the County.
“Assessor's Parcel” means a lot or parcel shown on an Assessor's Parcel map with
an assigned Assessor's parcel number.
“Assigned Annual Special Tax” means the Special Tax for each Land Use Class of
Developed Property, as determined in accordance with Section 3 below.
“Backup Annual Special Tax” or “Revised Backup Annual Special Tax” means
the Special Tax applicable to each Assessor’s Parcel of Developed Property, as
determined in accordance with Section 3.A.iv below.
“Bonds” means any bonds or other indebtedness (as defined in the Act) of CFD No.
2005-01, whether in one or more series, secured by the levy of all or a portion of the
Annual Special Taxes.
“Calendar Year” means the period commencing January 1 of any year and ending
the following December 31.
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D-2
“CFD No. 2005-01” means the City of Aliso Viejo Community Facilities District No.
2005-01 (Glenwood at Aliso Viejo).
“CFD Administrator” means an official of the City, or designee thereof, responsible
for determining the Annual Special Tax Requirement and for preparing the Annual
Special Tax roll and calculating the Backup Annual Special Taxeses.
“Certificate of Occupancy” means a permit issued by the City as a precondition to
the occupancy of a residential dwelling unit.
“City” means the City of Aliso Viejo, California.
“Council” means the City Council of the City acting as the legislative body of the
CFD under the Act.
“County” means the County of Orange, California.
“Debt Service” means for each Fiscal Year, the total amount of principal and interest
payable on any Outstanding Bonds during the Calendar Year commencing on January
1 of such Fiscal Year.
“Developed Property” means for each Fiscal Year, all Taxable Property, exclusive
of Property Owner Association Property or Public Property, for which a building
permit for new construction or renovations was issued prior to March 1 of the
previous Fiscal Year.
“Development Agreement” means the Development Agreement dated September 1,
2004 executed by the City, Aliso Viejo Golf Club Joint Venture and Aliso Viejo
Commercial Property Joint Venture and Ordinance 2004-065 and Ordinance 2004066 and the Assignment and Assumption of Development Agreement, Consent and
Estoppel dated December 14, 2005 executed by the City, Aliso Viejo Golf Club Joint
Venture, Aliso Viejo Commercial Property Joint Venture and Shea Homes Limited
Partnership.
“Exempt Property” means Assessor’s Parcels designated as being exempt from
Special Taxes pursuant to Section 8.
“Facilities” means facilities, fees or improvements authorized to be funded by CFD
No. 2005-01.
“Final Subdivision” means a subdivision of property created by recordation of a
final map or parcel map pursuant to the Subdivision Map Act (California Government
Code Section 66410 et seq.) or recordation of a condominium plan pursuant to
September 6, 2006
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California Civil Code 1352 or lot line adjustment that creates individual lots for
which building permits may be issued without further subdivision.
“Fiscal Year” means the period starting on July 1 and ending the following June 30.
“Golf Course Property” means any property within CFD No. 2005-01 that is used
as a golf course, including but not limited to clubhouse, pro shop, parking,
maintenance facilities and other golf-related amenities.
“Indenture” means the indenture, trust agreement, fiscal agent 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 under
Section 3 below.
“Lot” means a parcel created by a Final Subdivision on which a single family
residential home can be constructed.
“Maximum Annual Special Tax” means the greatest amount of Special Tax,
determined in accordance with Section 3 below, which may be levied in any Fiscal
Year on any Assessor’s Parcel of Taxable Property.
“Non-Residential Property” means all Assessor’s Parcels of Developed Property for
which a building permit(s) was issued for a non-residential use.
“Outstanding Bonds” mean all Bonds that are deemed to be outstanding under the
Indenture.
“Property Owner” means a homebuilder or Golf Course Property developer.
“Property Owner Association Property” means any Assessor’s Parcel within the
boundaries of CFD No. 2005-01 owned in fee by a property owner association,
including any master or sub-association.
“Proportionately” means, for Developed Property, that the ratio of the actual Special
Tax levy to the Assigned Annual Special Tax is equal for all Assessor’s Parcels of
Developed Property, or where the Backup Annual Special Tax is being levied, that
the ratio of the actual Special Tax levy to the Maximum Annual Special Tax is equal
for all Assessor’s Parcels upon which an Annual Backup Special Tax is being levied.
For Undeveloped Property, "Proportionately" means that the ratio of the actual
Special Tax levy per Acre to the Maximum Annual Special Tax per Acre is equal for
all Assessor's Parcels of Undeveloped Property. The term "Proportionately" may
September 6, 2006
D-4
similarly be applied to other categories of Taxable Property as listed in Section 4
below.
“Provisional Taxable Property” means all Assessor’s Parcels of Public Property,
Property Owner Association Property or property that would otherwise be classified
as Exempt Property pursuant to the provisions of Section 8, but cannot be classified
as Exempt Property because to do so would reduce the Acreage of all Taxable
Property below the required minimum Acreage as set forth in Section 8.
“Public Property” means any property within the boundaries of CFD No. 2005-01,
which is owned by, or irrevocably offered for dedication to, the federal government,
the State of California, the County, the City or any other public agency; provided
however that any property owned by a public agency and leased to a private entity
and subject to taxation under Section 53340.1 of the Act shall be taxed and classified
in accordance with its use. Public Property shall also include any property within
CFD No. 2005-01 that is used or expected to be used for the Community Conference
Center, Aquatics Center, the Public Park, the Public Parking Lot and Golf Drive as
defined in the Development Agreement.
“Residential Floor Area” means all of the square footage of usable area within the
perimeter of a residential structure, not including any carport, walkway, garage,
overhang, or similar area. The determination of Residential Floor Area shall be made
by reference to the livable space as identified on the building permit(s) issued for
such Assessor’s Parcel or other data that may be furnished to the CFD Administrator
by the Property Owner or City.
“Residential Property” means all Assessor’s Parcels of Developed Property for
which a building permit has been issued for purposes of constructing one or more
residential dwelling units.
“Special Tax” means any special tax levied within CFD No. 2005-01 pursuant to the
Act and this Modified Rate and Method of Apportionment.
“Special Tax Obligation” means the total obligation of an Assessor’s Parcel of
Taxable Property to pay the Special Tax for the period described in Section 7 below.
“State” means the State of California.
“Taxable Property” means all of the Assessor's Parcels within the boundaries of
CFD No. 2005-01, which are not exempt from the levy of the Special Tax pursuant to
law or Section 8 below.
“Tract” means a group of Lots owned by the same Property Owner.
“Trustee” means the trustee or fiscal agent under the Indenture.
September 6, 2006
D-5
“Undeveloped Property” means, for each Fiscal Year, all Taxable Property within
the boundaries of CFD No. 2005-01 not classified as Developed Property or
Provisional Taxable Property.
“Zone 1” means all property located within CFD No. 2005-01 which is not located
within Zone 2.
“Zone 2” means all property within CFD No. 2005-01 located within Assessor’s
Parcel 623-431-38 (as designated on the County Assessor’s Roll for Fiscal Year
2006-2007).
2. Classification of Property within CFD No. 2005-01
Each Fiscal Year the CFD Administrator shall initially classify all property within the
boundaries of CFD No. 2005-01 as Taxable Property or Exempt Property. Taxable
Property within the boundaries of CFD No. 2005-01 shall be further classified as
Developed Property, Provisional Taxable Property or Undeveloped Property, and all
such Taxable Property shall be subject to the levy of Special Taxes in accordance
with this Modified Rate and Method of Apportionment determined pursuant to
Sections 3 and 4 below. Assessor’s Parcels of Developed Property shall be classified
as Residential Property or Non-Residential Property. Assessor’s Parcels of
Residential Property shall be further classified to its applicable Land Use Class based
on its Residential Floor Area.
3. Maximum Annual Special Tax Rates
A.
Developed Property
(i).
Maximum Annual Special Tax
The Maximum Annual Special Tax for each Assessor's Parcel
classified as Developed Property shall be the greater of (i) the amount
derived by application of the Assigned Annual Special Tax or (ii) the
amount derived by application of the Backup Annual Special Tax or
the Revised Backup Annual Special Tax.
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D-6
(ii).
Assigned Annual Special Tax
(a) The Assigned Annual Special Tax for Residential Property is
shown in Table 1 and Table 2 for the 2006-2007 Fiscal Year.
Table 1
Zone 1 Assigned Annual Special Tax Rates
Fiscal Year 2006-2007
Fiscal Year 20062007 Assigned
Annual
Special Tax
$2,870 per unit
Land
Use
Class
1
Description
Residential Property
Residential Floor Area
Less than 1,901 Sq. Ft.
2
1,901 Sq. Ft. to 2,350 Sq. Ft.
$4,150 per unit
3
2,351 Sq. Ft. to 2,800 Sq. Ft.
$4,440 per unit
4
2,801 Sq. Ft. to 3,250 Sq. Ft.
$5,115 per unit
5
3,251 Sq. Ft. to 3,700 Sq. Ft.
$5,790 per unit
6
3,701 Sq. Ft. to 4,150 Sq. Ft.
$5,880 per unit
7
4,151 Sq. Ft. to 4,600 Sq. Ft.
$6,710 per unit
8
Greater than 4,600 Sq. Ft.
$6,850 per unit
September 6, 2006
D-7
Table 2
Zone 2 Assigned Annual Special Tax Rates
Fiscal Year 2006-2007
Land
Use
Class
Fiscal Year 20062007 Assigned
Annual
Special Tax
1
Description
Residential Floor Area
Less than 1,901 Sq. Ft.
$1,100 per unit
2
1,901 Sq. Ft. to 2,350 Sq. Ft.
$1,200 per unit
3
2,351 Sq. Ft. to 2,800 Sq. Ft.
$1,300 per unit
4
2,801 Sq. Ft. to 3,250 Sq. Ft.
$2,000 per unit
5
3,251 Sq. Ft. to 3,700 Sq. Ft.
$2,650 per unit
6
7
3,701 Sq. Ft. to 4,150 Sq. Ft.
4,151 Sq. Ft. to 4,600 Sq. Ft.
$2,800 per unit
$3,560 per unit
8
Greater than 4,600 Sq. Ft.
$3,700 per unit
On July 1st of each Fiscal Year, commencing July 1, 2007, the
Assigned Annual Special Tax for Residential Property shall increase
by two-percent (2.0%) of the amount in effect in the prior Fiscal Year.
(b) The Maximum Annual Special Tax for Non-Residential Property
shall be $54,818 per Acre. On July 1st of each Fiscal Year,
commencing July 1, 2007, the Maximum Annual Special Tax for NonResidential Property shall increase by two-percent (2.0%) of the
amount in effect in the prior Fiscal Year.
September 6, 2006
D-8
(iii).
Multiple Land Use Classes
In some instances an Assessor’s Parcel of Residential Property
may contain more than one Land Use Class or an Assessor’s Parcel
may contain both Residential Property and Non-Residential
Property. For Assessor’s Parcels of Residential Property containing
more than one Land Use Class, the Assigned Annual Special Tax
levied on an Assessor’s Parcel shall be the sum of the Assigned
Annual Special Taxes for all Land Use Classes located on that
Assessor’s Parcel. The Maximum Annual Special Tax that can be
levied on an Assessor’s Parcel shall be the sum of the Maximum
Annual Special Taxes that can be levied for all Land Use Classes
located on that Assessor’s Parcel. For an Assessor’s Parcel that
contains both Residential Property and Non-Residential Property,
the Acreage of such Assessor’s Parcel shall be allocated to each
type of property based on the amount of Acreage designated as
Residential Property and Non-Residential Property as determined
by reference to the site plan approved for such Assessor’s Parcel.
The CFD Administrator’s allocation to each type of property shall
be final.
(iv).
Backup Annual Special Tax
Each Fiscal Year, each Assessor's Parcel of Residential Property
shall be subject to a Backup Annual Special Tax. In each Fiscal
Year, the Backup Annual Special Tax rate for Residential Property
within a Final Subdivision shall be the rate per dwelling unit
calculated according to the following formula:
B=
ZxA
T
The terms above have the following meanings:
B=
Backup Annual Special Tax per Assessor’s Parcel for
the applicable Fiscal Year.
Z=
Maximum Annual Special Tax for Undeveloped
Property for the applicable Fiscal Year per Acre as
shown is Section 3.B.
A=
Acreage of Taxable Property, excluding Provisional
Taxable Property, in such Final Subdivision that lies
within the boundaries of CFD No. 2005-01, as
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determined by the CFD Administrator pursuant to
Section 8.
T=
Total number of Assessor’s Parcels of for which
building permits for residential construction have or
may be issued within the Final Subdivision that lie
within the boundaries of CFD No. 2005-01.
If a Final Subdivision includes Assessor’s Parcels for which
building permits for both residential and non-residential
construction may be issued, then the Backup Annual Special Tax
for each Assessor's Parcel of Residential Property within such
Final Subdivision area shall be computed by the CFD
Administrator exclusive of the allocable portion of total Acreage of
Taxable Property attributable to Assessor’s Parcels for which
building permits for non-residential construction may be issued.
Except as provided below (and except for the 2% annual increase),
once a Final Subdivision is recorded, the Backup Annual Special
Tax for each Assessor’s Parcel within such Final Subdivision shall
be fixed and shall not be recalculated. Notwithstanding the
foregoing, if Assessor’s Parcels of Residential Property are
subsequently changed or modified by recordation of a subsequent
Final Subdivision, then the Backup Special Tax as previously
determined will be applied to the unchanged Lots and a Revised
Backup Special Tax shall be recalculated to equal the amount of
the Backup Special Tax that would have been generated if such
change did not take place and applied to the Lots that are part of
the changed or modified area based on the following formula:
R=
B
N
The terms above have the following meanings:
R=
Revised Backup Annual Special Tax per Assessor’s
Parcel that applies to the changed or modified lots in
a Final Subdivision.
B=
Backup Annual Special Tax applicable to the changed
or modified lots in a Final Subdivision prior to the
change or modification.
September 6, 2006
D-10
N=
B.
Total number of new Assessor’s Parcels of
Residential Property created through the change or
modification of the Final Subdivision.
Undeveloped Property and Provisional Taxable Property.
The Maximum Annual Special Tax for Undeveloped Property and
Provisional Taxable Property shall be $62,910 per Acre for Fiscal Year
2006-2007. On July 1st of each Fiscal Year, commencing July 1, 2007, the
Maximum Annual Special Tax for Undeveloped Property and Provisional
Taxable Property shall increase by two-percent (2.0%) of the amount in
effect in the prior Fiscal Year.
4. Method of Apportionment
For each Fiscal Year the Council shall determine the Annual Special Tax
Requirement and levy the Special Tax, until the amount of Special Taxes equals the
Annual 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 in an amount up to 100% of the applicable Assigned Annual
Special Tax as necessary to satisfy the Annual Special Tax Requirement;
Second: If additional monies are needed to satisfy the Annual Special Tax
Requirement after the first step has been completed, the Special Tax shall be levied
Proportionately on each Assessor's Parcel of Undeveloped Property up to 100% of the
Maximum Annual Special Tax for Undeveloped Property;
Third: If additional monies are needed to satisfy the Annual Special Tax Requirement
after the first two steps have been completed, then the levy of the Special Tax on each
Assessor's Parcel of Developed Property whose Maximum Annual Special Tax is
determined through the application of the Backup Annual Special Tax shall be
increased in equal percentages from the Assigned Annual Special Tax up to 100% of
the Maximum Annual Special Tax for each such Assessor's Parcel;
Fourth: If additional monies are needed to satisfy the Annual Special Tax
Requirement after the first three steps have been completed, then the Special Tax
shall be levied Proportionately on each Assessor’s Parcel of Provisional Taxable
Property at up to 100% of the Maximum Annual Special Tax for Provisional Taxable
Property.
Notwithstanding the above, under no circumstances shall the Annual Special Tax
levied against any Assessor’s Parcel of Residential Property for which a Certificate of
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D-11
Occupancy has been issued be increased by more than ten percent as a consequence
of delinquency or default by the owner of any other Assessor’s Parcel within CFD
No. 2005-01.
5. Collection of Special Taxes
Collection of the Special Tax shall be by the County in the same manner as ordinary
ad valorem property taxes are collected and the Special Tax shall be subject to the
same penalties and the same lien priority in the case of delinquency as ad valorem
taxes; provided, however, that the Council may provide for (i) other means of
collecting the Special Tax, including direct billings thereof to the property owners;
and (ii) judicial foreclosure of delinquent Special Taxes.
6. Prepayment of Special Tax Obligation
The Special Tax Obligation for any Assessor's Parcel may be prepaid in full and
permanently satisfied at anytime or prepaid in part prior to the first conveyance to the
initial home buyer, as described herein, provided that a prepayment may be made
only if at the time of the prepayment there are no delinquent Special Taxes with
respect to such Assessor's Parcel and all other Assessor's Parcels which are under the
same ownership and located within the CFD. 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 and any fee required to calculate the
prepayment. Within sixty (60) days of receipt of such written notice and fee payment,
the CFD Administrator shall notify such owner of the prepayment amount for such
Assessor's Parcel and the date through which the amount of such prepayment shall be
valid.
A. Prepayment in Full
The “Prepayment” shall be an amount equal to the sum of (1) Principal, (2)
Premium, (3) Defeasance, and (4) Fees, minus the Reserve Fund Credit, where the
terms “Principal,” “Premium,” “Defeasance,” “Fees,” and “Reserve Fund Credit,”
have the following meanings:
“Principal” means the principal amount of Bonds to be redeemed from
the proceeds of such Prepayment and equals the quotient derived by
dividing (a) the applicable Maximum Annual Special Tax for the
applicable Assessor's Parcel by (b) the projected aggregate Maximum
Annual Special Taxes as determined by the CFD Administrator (and
excluding from (b) any Special Taxes for Assessor's Parcels which have
fully prepaid the Special Tax), and (c) multiplying the quotient by the
principal amount of Outstanding Bonds as of the first interest and/or
principal payment date following the then current Fiscal Year.
September 6, 2006
D-12
“Premium” means an amount equal to the Principal multiplied by the
applicable redemption premium, if any, for the Bonds so redeemed with
the proceeds of any such Prepayment.
“Defeasance” means an amount equal to the amount needed to pay
interest on the Principal to be redeemed until the earliest redemption date
as determined by the CFD Administrator for the Outstanding Bonds less
the amount that is estimated by the CFD Administrator to be received
from the reinvestment of the difference of the Prepayment and the Fees.
Credit shall also be given for any Special Tax heretofore paid and which
will not be needed for purposes of funding the then current Fiscal Year's
Annual Special Tax Requirement.
“Unfunded Facilities” means an amount equal to the estimated cost of
the unfunded public facilities allocable to the Assessor's Parcel for which
the Prepayment is being calculated and is computed by multiplying the
quotient calculated when determining Principal by $34,790,000, less the
estimated cost of any such facilities financed by previously issued Bonds.
Unfunded Facilities shall equal zero following the issuance of all of the
Bonds (i.e., all the authorized Bonds have been issued and/or CFD No.
2005-01 has covenanted not to issue any more Bonds, other than refunding
bonds).
“Fees” equal the fees and expenses of CFD No. 2005-01 related to the
Prepayment, including but not limited to City Administration Expenses,
publishing fees, and bond call fees.
“Reserve Fund Credit” shall equal the lesser of (i) the expected
reduction in the applicable reserve fund requirement (as defined in the
Indenture), if any, following the redemption of Bonds from proceeds of
the Prepayment or (ii) the amount derived by subtracting the new reserve
fund requirement in effect after the redemption of Bonds from the balance
in the reserve fund (as such term is defined in the Indenture) on the
prepayment date, but in no event shall such amount be less than zero.
The sum of the amounts calculated in the preceding steps shall be paid to CFD
No. 2005-01 and shall be used to pay and redeem Bonds in accordance with the
Indenture and to pay the Fees. Upon receipt of such Prepayment by CFD No.
2005-01, the obligation to pay the Special Tax for such Assessor's Parcel shall be
deemed to be permanently satisfied, the Special Tax shall not be levied thereafter
on such Assessor's Parcel, and the CFD Administrator shall cause notice of
cancellation of the Special Tax for such Assessor's Parcel to be recorded within
30 working days of receipt of the Prepayment.
September 6, 2006
D-13
Notwithstanding the foregoing, no prepayment shall be allowed unless the amount
of Special Taxes that may be levied pursuant to this Modified Rate and Method of
Apportionment after the proposed prepayment is at least the sum of (i) the
estimated Administrative Expenses, based on the average annual Administrative
Expenses to date, and (ii) one hundred ten percent (110%) of the maximum
annual debt service for the Bonds, taking into account the Bonds to remain
outstanding after such prepayment.
B.
Prepayment in Part
The Special Tax on all Lots within a Tract of Developed Property or Undeveloped
Property for which building permits have been issued may be partially prepaid
prior to the conveyance of each Lot to the initial home buyer. The Prepayment
shall be calculated as in Section 6.A.; except that a partial prepayment shall be
calculated according to the following formula:
PP = PE x F.
These terms have the following meanings:
PP =
PE =
F=
the partial prepayment
the Prepayment calculated according to Section 6.A.
the percentage by which the owner of the Assessor’s Parcel(s) is partially
prepaying the Special Tax.
The Property Owner of any Tract who desires such prepayment shall notify the
CFD Administrator of (i) such owner’s intent to partially prepay the Special Tax,
(ii) the percentage by which the Special Tax shall be prepaid, and (iii) the
company or agency that will be acting as the escrow agent, if any. The CFD
Administrator shall provide the Property Owner with a statement of the amount
required for the partial prepayment of the Special Tax for each Lot within the
Tract within sixty (60) days of the request and may charge a reasonable fee for
providing this service.
With respect to any Assessor’s Parcel or Lot that is partially prepaid, the City
shall (i) distribute the funds remitted to it according to Section 6.A., and (ii)
indicate in the records of CFD No. 2005-01 that there has been a partial
prepayment of the Special Tax and that a portion of the Special Tax with respect
to such Assessor’s Parcel or Lot, equal to the outstanding percentage (1.00 - F) of
the remaining Maximum Annual Special Tax, shall continue to be levied on such
Assessor’s Parcel or Lot pursuant to Section 3.
September 6, 2006
D-14
7. Term of Annual Special Tax
The Annual Special Tax shall be levied for a period not to exceed 40 years
commencing with Fiscal Year 2006-2007.
8. Exemptions
A maximum of 43 Affordable Units are exempt from the Special Tax. If, in any
Fiscal Year, the CFD Administrator identifies a total number of Affordable Units
within CFD No. 2005-01 greater than 43, the Property Owner of the additional
Affordable Units will be required to prepay the Special Tax Obligation on such
Affordable Units prior to issuance of a Certificate of Occupancy.
The CFD Administrator shall classify as Exempt Property (i) Assessor’s Parcels of
Public Property, (ii) Assessor’s Parcels of Property Owner Association Property, (iii)
Assessor’s Parcels of Golf Course Property, (iv) Assessor’s Parcels with public utility
easement making unpractical the utilization thereof for purposes other than those
permitted in such easement, or (v) as determined reasonably by the CFD
Administrator, provided that no such classification would reduce the sum of all
Taxable Property in CFD No. 2005-01 to less than 42.32 acres of Acreage. Assessor’s
Parcels which cannot be classified as Exempt Property because such classification
would reduce the sum of all Taxable Property in CFD No. 2005-01 to less than 42.32
acres of Acreage be classified as Provisional Taxable Property, and will continue to
be subject to the CFD No. 2005-01 Special Taxes accordingly. Exempt Property
status for the purpose of this paragraph will be assigned by the CFD Administrator in
the chronological order in which property becomes eligible for classification as
Exempt Property.
The Special Tax Obligation for any property which would be classified as Public
Property upon its transfer or dedication to a public agency but which is classified as
Provisional Taxable Property pursuant to the first paragraph of Section 8 above shall
be prepaid in full by the seller pursuant to Section VII, prior to the transfer/dedication
of such property to such public agency. Until the Special Tax Obligation for any such
Public Property is prepaid, the property shall continue to be subject to the levy of the
Special Tax as Provisional Taxable Property.
If the use of an Assessor’s Parcel of Exempt Property changes so that such Assessor’s
Parcel is no longer classified as one of the uses set forth in the first paragraph of
Section 8 above that would make such Assessor’s Parcel eligible 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.
September 6, 2006
D-15
9. Appeals
Any landowner or resident who pays the Annual Special Tax and believes that the
amount of the Annual Special Tax levied on his or her Assessor’s Parcel is in error
shall first consult with the CFD Administrator regarding such error. If following such
consultation, the CFD Administrator determines that an error has occurred, the CFD
Administrator may amend the amount of the Annual Special Tax levied on such
Assessor’s Parcel. If following such consultation and action, if any by the CFD
Administrator, the landowner or resident believes such error still exists, such person
may file a written notice with the City Clerk of the City appealing the amount of the
Annual Special Tax levied on such Assessor’s Parcel. Upon the receipt of any such
notice, the City Clerk shall forward a copy of such notice to the City Manager or
designee, who may establish such procedures as deemed necessary to undertake the
review of any such appeal. The City Manager or designee thereof shall interpret this
Modified Rate and Method of Apportionment and make determinations relative to the
administration of the Annual Special Tax and any landowner or resident appeals as
herein specified. The decision of the City Manager or designee shall be final and
binding as to all persons.
September 6, 2006
D-16
APPENDIX E
THE ECONOMY OF THE CITY OF ALISO VIEJO
The following information relating to the City of Aliso Viejo and the County of Orange, California is
supplied solely for the purposes of information. Neither the City nor the County is obligated in any manner to
pay principal of or interest on the Bonds or to cure any delinquency or default on the Bonds. The Bonds are
payable solely from the sources described in the Official Statement.
THE CITY OF ALISO VIEJO
General and Economic Information on the City
The City of Aliso Viejo, which has a population of approximately 45,000 and is approximately 7 square miles,
is located in South Orange County. The City is located in Southern California, approximately 45 miles from
downtown Los Angeles, 70 miles north of downtown San Diego, and 4 miles northeast of the Pacific Ocean.
Neighboring communities include Laguna Hills, Laguna Niguel, Laguna Beach, and Newport Beach.
The City of Aliso Viejo is a general law city and was incorporated on July 1, 2001. The City has a CouncilMember form of government. The City Council appoints the City Manager, who is responsible for the day-today administration of City business and the coordination of all City departments. The City Council is
comprised of five members elected bi-annually to four-year alternating terms. The City Council annually elects
a Mayor from its members. The City employs a staff of 13 full-time employees.
City Management
The administration of the City is under the direction of Mark Pulone, the City Manager and Gina
Tharani, the Director of Financial Services/City Treasurer.
Mark Pulone, City Manager. Mr. Pulone was appointed City Manager for the City of Aliso Viejo in
November, 2005. He has worked in local government for the past nineteen years, including the cities of Santa
Fe Springs and Lake Forest. During his 14 years in Lake Forest, Mr. Pulone held a number of positions
including Assistant City Manager and Director of Management Services. Mr. Pulone has a wealth of
experience in contract services, community services and human resource management. He is a graduate of
California State University Long Beach, with undergraduate studies in Business Management and graduate
studies in Public Administration.
Gina Tharani, Financial Services Director/City Treasurer. Ms. Tharani is the City’s first permanent
financial employee. Ms. Tharani is a finance professional with over eighteen years of experience. She has
focused her attention on building a Finance Department which provides a variety of financial services for the
City. She has established policies, procedures, and implemented a financial system to facilitate creation of the
City’s budget and provide for enhanced reporting capabilities, winning the CAFR award for the City every year
since incorporation. Ms. Tharani is a member of Government Finance Officers Association, California Society
of Municipal Finance Officers, California Municipal Treasurers Association and Association of Public
Treasurers for USA and Canada. She is actively involved with the local CMTA chapter and has been serving as
their treasurer for the past three years. Ms. Tharani holds a MBA and Bachelor of Science degree with majors
in finance and auditing from Mumbai, India and a certificate in Governmental and Non-Profit Accounting from
University of California, Riverside.
E-1
General Demographic Information
Table E-1 provides population, income levels and employment information for Fiscal Year 2000-01
through 2004-05.
Table E-1
CITY OF ALISO VIEJO
Demographic and Economic Statistics
Last Five Fiscal Years
as of June 30, 2006
Fiscal
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
City
Population
Total Personal
Income
Per Capita
Personal
Income
$35,230
$36,980
$39,264
$42,527
$45,997
$49,891
Jobs within
Jurisdiction
8,788
9,885
11,348
12,991
14,806
14,988
42,591
$1,500,479,339
43,955
$1,625,455,473
44,846
$1,760,840,970
44,854
$1,907,502,834
44,924
$2,066,380,283
44,867
$2,238,472,556
____________________
Sources: California Department of Finance; Orange County Business Council.
Job Growth
Rate
N/A
12.48%
14.80%
14.48%
13.97%
12.97%
Unemployment
Rate
2.00%
2.60%
2.50%
2.20%
1.90%
1.80%
The following table lists the top 20 sales tax generators within the City for Fiscal Year ended June 30,
2006.
E-2
Table E-2
CITY OF ALISO VIEJO
Principal Sales Tax Generators
June 30, 2006
Business Name
1. Aliso Creek Shell
2. All Hands Carwash
3. Aqueduct
4, Barnes & Noble
5. Buy Com
6. Chameleon Merchandising & Design
7. Chevron USA
8 Chilis/Macaroni
9. Circle K
10. Crown Bolt
11. El Dorado Hand Carwash
12. Freeway Mobile
13. Lowes
14 Michaels
15. Mobil Oil
16. Opah Grille
17. Petsmart
18. Qlogic
19. Ralphs
20. Sav On
Business Category
Service Stations
Service Stations
Office Supplies/Furniture
Stationery/Bookstore
Radio/Appliance Stores
Home Furnishings
Service Stations
Restaurants/Liquor
Grocery Stores
Heavy Industry
Service Stations
Service Stations
Lumber/Bldg Materials
Florists Shops
Service Stations
Restaurants/Liquor
Specialty Stores
Office Equipment
Grocery Stores/Liquor
Drug Stores
_______________
Source: City of Aliso Viejo Comprehensive Annual Financial Report for Fiscal Year 2005-06.
Employment
Table E-6 shows the largest employers within the City for the Fiscal Year ended June 30, 2006.
Table E-3
CITY OF ALISO VIEJO
Principal Employers
June 30, 2006
Name
Quest Software Inc.
Fluor Daniel Construction Co.
Lennar Corp.
Capistrano Unified School Dist.
Pacific Shore Funding
U.S. Technology Resources
Pepsi Bottling Group Inc.
Buycom Inc.
Merit Property Management
Lowe’s Home Centers Inc.
Target Corp.
Number of Employees
630
500
435
410
250
225
200
215
187
150
150
_______________
Source: Orange County Business Council.
E-3
Percent of Total
Employment
3.90%
3.10%
2.69%
2.54%
1.55%
1.39%
1.24%
1.33%
1.16%
.93 %
.93%
The following table presents the annual average distribution of persons in various wage and salary
employment categories for Orange County Primary Metropolitan Statistical Area (“PMSA”) for 2001 through
2006.
TABLE E-7
ORANGE COUNTY
ANNUAL AVERAGE EMPLOYMENT COMPARISON
Civilian Labor Force
Employment
Unemployment
Unemployment Rate
Wage and Salary Employment:
Agriculture
Natural Resources and Mining
Construction
Manufacturing
Wholesale Trade
Retail Trade
Transportation, Warehousing and
Utilities
Information
Finance and Insurance
Real Estate and Rental and
Leasing
Professional and Business Services
Educational and Health Services
Leisure and Hospitality
Other Services
Government
Federal Government
State Government
Local Government
Total All Industries
2001
2002
2003
2004
1,513,200
1,453,400
59,800
4.0%
1,532,900
1,456,500
76,400
5.0%
1,558,700
1,484,200
74,500
4.8%
1,583,800
1,516,400
67,400
4.3%
2005
1,605,100
1,544,800
60,300
3.8%
2006
1,623,600
1,568,300
55,300
3.4%
7,100
600
80,800
209,000
81,400
150,500
7,300
600
79,200
190,800
82,400
151,400
7,200
500
83,700
183,900
83,200
152,800
6,700
600
92,200
183,500
82,400
153,200
5,600
700
99,900
185,900
83,000
158,100
5,400
600
107,000
183,400
82,900
159,500
30,500
40,300
74,000
28,700
36,800
77,400
29,000
35,200
88,000
29,200
33,800
96,000
28,700
32,800
100,900
28,400
31,700
99,500
39,400
32,100
249,000
114,800
154,600
45,300
150,900
12,000
25,500
113,300
1,420,800
32,700
248,800
118,400
155,400
45,000
155,100
11,800
26,400
116,900
1,411,000
34,200
252,600
126,300
158,600
46,700
154,200
12,100
26,800
115,300
1,436,200
36,300
254,900
131,000
162,900
47,400
155,400
11,800
26,900
114,700
1,463,400
37,500
264,200
133,500
165,000
48,400
155,300
11,600
26,800
116,900
1,496,500
Source: State of California Employment Development Department.
E-4
274,800
138,900
169,500
47,900
156,500
11,300
24,400
117,800
1,525,500
The following table shows certain employment information with respect to the County of Orange, the State of
California, and the United States for Calendar Years 2001 through 2006.
Table E-8
ORANGE COUNTY
LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
Yearly Average for Calendar Years 2001 through 2006, as of January 1 of Each Year
Employment
Unemployment
Unemployment
Rate
1,513,200
17,152,100
143,734,000
1,453,400
16,220,000
136,933,000
59,800
932,100
6,801,000
4.0%
5.4%
4.7%
2002
Orange County
California
United States
1,532,900
17,343,600
144,863,000
1,456,500
16,180,800
136,485,000
76,400
1,162,800
8,378,000
5.0%
6.7%
5.8%
2003
Orange County
California
United States
1,558,700
17,418,700
146,510,000
1,484,200
16,227,000
137,736,000
74,500
1,191,700
8,774,000
4.8%
6.8%
6.0%
2004
Orange County
California
United States
1,583,800
17,538,800
147,401,000
1,516,400
16,444,500
139,252,000
67,400
1,094,300
8,149,000
4.3%
6.2%
5.5%
2005
Orange County
California
United States
1,605,100
17,740,400
149,320,000
1,544,800
16,782,300
141,730,000
60,300
958,100
7,591,000
3.8%
5.4%
5.1%
2006
Orange County
California
United States
1,623,600
17,901,900
151,457,583
1,568,300
17,029,300
144,427,000
55,300
872,600
7,000,583
3.4%
4.9%
4.6%
Year and Area
2001
Orange County(1)
California(2)
United States(3)
Civilian Labor Force
__________________
Source: California Employment Development Department; U.S. Department of Labor Bureau of Labor Statistics.
Education
The City is included within the boundaries of the San Juan Capistrano Unified School District,
Saddleback Valley Unified School District, and Laguna Beach Unified School District, which also serves the
surrounding cities of Dana Point, Laguna Niguel, Mission Viejo, Rancho Santa Margarita, San Juan Capistrano
and San Clemente, as well as portions of the unincorporated county. This City has in its boundaries five
elementary schools, one middle school and one high school. There are three private schools. Higher education
is available within the City at SOKA University of America.
E-5
APPENDIX F
FORMS OF CONTINUING DISCLOSURE CERTIFICATES
CITY OF ALISO VIEJO CONTINUING DISCLOSURE CERTIFICATE
$34,070,000
(GLENWOOD AT ALISO VIEJO) OF THE CITY OF ALISO VIEJO
COUNTY OF ORANGE,
STATE OF CALIFORNIA,
This City of Aliso Viejo Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed
and delivered by the City of Aliso Viejo (the “Issuer”) in connection with the issuance of $34,070,000
Community Facilities No. 2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo, County of Orange,
State of California, 2007 Special Tax Bonds (the “Bonds”). The Bonds are being issued pursuant to a Fiscal
Agent Agreement, dated as of November 1, 2007 (the “Agreement”), between the Issuer and The Bank of New
York Trust Company, N.A., as fiscal agent (the “Fiscal Agent”). The Issuer, on behalf of Community Facilities
District No. 2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo (the “District”), covenants and
agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and
delivered by the Issuer for the benefit of the holders and beneficial owners of the Bonds and in order to assist
the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).
Section 2. Definitions. In addition to the definitions set forth above and in the Agreement, which apply
to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the
following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the Issuer pursuant to, and as described in,
Sections 3 and 4 of this Disclosure Certificate.
“Annual Report Date” shall mean the date that is nine (9) months after the end of the Issuer's fiscal
year (currently March 31 based on the Issuer's fiscal year end of June 30).
“Dissemination Agent” shall mean Koppel &Gruber Public Finance or any successor Dissemination
Agent designated in writing by the Issuer and which has filed with the Issuer a written acceptance of such
designation.
“District” shall mean Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the
City of Aliso Viejo.
“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.
“National Repository” shall mean any Nationally Recognized Municipal Securities Information
Repository for purposes of the Rule. Information on the National Repositories as of a particular date is
available on the Securities and Exchange Commission's Internet site at www.sec.gov.
“Official Statement” shall mean the final official statement executed by the Issuer in connection with
the issuance of the Bonds.
“Participating Underwriter” shall mean Stone & Youngberg LLC, the original underwriter of the
Bonds required to comply with the Rule in connection with offering of the Bonds.
F-1
“Repository” shall mean each National Repository and each State Repository, if any.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as the same may be amended from time to time.
“Semi-Annual Report” means any Semi-Annual Report provided by the Issuer pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
“Semi-Annual Report Date” means October 1 of each calendar year.
“State Repository” shall mean any public or private repository or entity designated by the State of
California as a state repository for the purpose of the Rule and recognized as such by the Securities and
Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.
Section 3. Provision of Annual Reports and Semi-Annual Reports.
(a)
The Issuer shall, or shall cause the Dissemination Agent to, not later than the Annual Report
Date, commencing March 31, 2008, with the report for the 2006-07 fiscal year, provide to the Participating
Underwriter and to each Repository an Annual Report that is consistent with the requirements of Section 4 of
this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the Issuer shall
provide the Annual Report to the Dissemination Agent (if other than the Issuer). The Annual Report may be
submitted as a single document or as separate documents comprising a package, and may include by reference
other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial
statements of the Issuer may be submitted separately from the balance of the Annual Report, and later than the
Annual Report Date if not available by that date. The audited financial statements of the Issuer may be
included within or constitute a portion of the audited financial statements of the Issuer. If the Issuer's fiscal
year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).
(b)
The Issuer shall, or shall cause the Dissemination Agent to, not later than the Semi-Annual
Report Date, commencing October 1, 2008, provide to the Participating Underwriter and to each Repository a
Semi-Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not
later than 15 Business Days prior to the Semi-Annual Report Date, the Issuer shall provide the Semi-Annual
Report to the Dissemination Agent (if other than the Issuer).
(c)
If the Issuer does not provide, or cause the Dissemination Agent to provide, an Annual Report
to the Repositories by the Annual Report Date as required in subsection (a) above, the Dissemination Agent
shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any,
in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if different than the
Dissemination Agent) and the Participating Underwriter. If the Issuer does not provide, or cause the
Dissemination Agent to provide, a Semi-Annual Report to the Repositories by the Semi-Annual Report Date as
required in subsection (b) above, the Dissemination Agent shall send a notice to the Municipal Securities
Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached hereto as
Exhibit B, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and the Participating
Underwriter.
(d)
The Dissemination Agent shall:
(i)
determine each year prior to the Annual Report Date and Semi-Annual Report Date, the
name and address of each National Repository and each State Repository, if any; and
(ii)
if the Dissemination Agent is other than the Issuer, file a report with the Issuer and the
Participating Underwriter certifying that the Annual Report or Semi-Annual Report has been provided
pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to
which it was provided.
F-2
(e)
Notwithstanding any statement to the contrary, any filing under this Certificate may be made
solely by transmitting such filing to the Texas Municipal Advisory Council (the “MAC”) as provided at
http://www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the
interpretive advice in its letter to the MAC dated September 7, 2004.
Section 4. Content of Annual Reports and Semi-Annual Reports. The Issuer's Annual Report shall
contain or incorporate by reference the following documents and information:
(a)
The Issuer's audited financial statements for the most recently completed fiscal year, together
with the following statement:
THE CITY OF ALISO VIEJO'S ANNUAL FINANCIAL STATEMENT IS
PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE
COMMISSION STAFF'S INTERPRETATION OF RULE 15c2-12. NO FUNDS OR
ASSETS OF THE CITY OF ALISO VIEJO ARE REQUIRED TO BE USED TO PAY
DEBT SERVICE ON THE BONDS, AND THE ISSUER IS NOT OBLIGATED TO
ADVANCE AVAILABLE FUNDS TO COVER ANY DELINQUENCIES.
INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE
CITY OF ALISO VIEJO IN EVALUATING WHETHER TO BUY, HOLD, OR SELL
THE BONDS.
(b)
Total assessed value (based on the most recent Orange County Assessor's Secured Roll) of all
parcels currently subject to the Special Tax within the District, showing the total assessed valuation for all land
and the total assessed valuation for all improvements within the District.
(c)
The total dollar amount of delinquencies in the District as of December 1 of such fiscal year for
Special Taxes due in prior fiscal years and, in the event that the total delinquencies within the District as of
such December 1 in any year exceed 5% of the Special Tax due for any previous fiscal years, delinquency
information for each parcel delinquent in the payment of Special Tax, amounts of delinquencies, length of
delinquency and status of any foreclosure of each such parcel.
(d)
The amount of prepayments of the Special Tax with respect to the District for the prior Fiscal
Year.
(e)
The principal amount of the Bonds outstanding and the balance in the Reserve Fund (along
with a statement of the Reserve Requirement) as of the September 30 preceding the Annual Report Date.
(f)
An updated table in substantially the form of the Table 4 in the Official Statement entitled
“Community Facilities District 2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo Estimated
Appraised Value-to-Lien Ratios” based upon the most recent information available, provided that assessed
values shown on the Orange County Assessor's most recent equalized tax roll prior to the September next
preceding the Annual Report Date shall be substituted for appraised values.
(g)
Any changes to the Rate and Method of Apportionment for the District set forth in Appendix D
to the Official Statement.
(h)
A copy of the annual information required to be filed by the Issuer with the California Debt and
Investment Advisory Commission pursuant to the Act and relating generally to outstanding Issuer Bond
amounts, fund balances, assessed values, special tax delinquencies and foreclosure information.
(i)
In addition to any of the information expressly required to be provided under paragraphs (a)
through (h) of this Section, the Issuer shall provide such further information, if any, as may be necessary to
make the specifically required statements, in the light of the circumstances under which they were made, not
misleading.
F-3
The Issuer’s Semi-Annual Report shall contain the total dollar amount of delinquencies in the District
as of June 30 of such year for Special Taxes due in prior fiscal years and, in the event that the total
delinquencies within the District as of such date exceed 5% of the Special Tax for the previous fiscal year(s),
delinquency information for each parcel delinquent in the payment of Special Tax, amounts of delinquencies,
length of delinquency, and status of any foreclosure of each such parcel.
Any or all of the items listed above may be included by specific reference to other documents,
including official statements of debt issues of the Issuer or related public entities, which have been submitted to
each of the Repositories or the Securities and Exchange Commission. If the document included by reference is
a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Issuer
shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events.
(a)
Pursuant to the provisions of this Section 5, the Issuer shall give, or cause to be given, notice of
the occurrence of any of the following events with respect to the Bonds, if material:
(i)
Principal and interest payment delinquencies.
(ii)
Non-payment related defaults.
(iii)
Unscheduled draws on debt service reserves reflecting financial difficulties.
(iv)
Unscheduled draws on credit enhancements reflecting financial difficulties.
(v)
Substitution of credit or liquidity providers, or their failure to perform.
(vi)
Adverse tax opinions or events affecting the tax-exempt status of the security.
(vii)
Modifications to rights of security holders.
(viii)
Contingent or unscheduled bond calls.
(ix)
Defeasances.
(x)
Release, substitution or sale of property securing repayment of the securities.
(xi)
Rating changes.
(b)
Whenever the Issuer obtains knowledge of the occurrence of a Listed Event, the Issuer shall as
soon as possible determine if such event would be material under applicable Federal securities law.
(c)
If the Issuer determines that knowledge of the occurrence of a Listed Event would be material
under applicable Federal securities law, the Issuer shall, or shall cause the Dissemination Agent to, promptly
file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository, if
any, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and the Participating
Underwriter. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix)
need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to
holders of affected Bonds pursuant to the Agreement.
Section 6. Termination of Reporting Obligation. The Issuer's obligations under this Disclosure
Certificate shall terminate upon the legal defeasance, prior redemption, or payment in full of all of the Bonds.
If such termination occurs prior to the final maturity of the Bonds, the Issuer shall give notice of such
termination in the same manner as for a Listed Event under Section 5(c).
F-4
Section 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 Disclosure Certificate, and may
discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The
initial Dissemination Agent will be Koppel & Gruber Public Finance.
Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate,
the Issuer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be
waived, provided that the following conditions are satisfied:
(a)
if the amendment or waiver relates to the provisions of Sections 3(a), 3(b), 4 or 5(a), it may
only be made in connection with a change in circumstances that arises from a change in legal requirements,
change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or
type of business conducted.
(b)
the undertakings herein, as proposed to be amended or waived, would, in the opinion of
nationally recognized bond counsel, have complied with the requirements of the Rule, as well as any change in
circumstances; and
(c)
the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner
provided in the Agreement for amendments to the Agreement with the consent of holders; or (ii) does not, in the
opinion of the Fiscal Agent or nationally recognized bond counsel, materially impair the interests of the holders
or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is amended
pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the
amended operating data or financial information shall explain, in narrative form, the reasons for the amendment
and the impact of the change in the type of operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be followed in
preparing financial statements, the annual financial information for the year in which the change is made shall
present a comparison between the financial statements or information prepared on the basis of the new
accounting principles and those prepared on the basis of the former accounting principles. The comparison
shall include a qualitative discussion of the differences in the accounting principal and the impact of the change
in the accounting principles on the presentation of the financial information, in order to provide information to
investors to enable them to evaluate the ability of the Issuer to meet its obligations. To the extent reasonably
feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent
to the Repositories in the same manner as for a Listed Event under Section 5(c).
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent
the Issuer from disseminating any other information, using the means of dissemination set forth in this
Disclosure Certificate or any other means of communication, or including any other information in any Annual
Report, Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by
this Disclosure Certificate. If the Issuer chooses to include any information in any Annual Report, SemiAnnual Report or notice of occurrence if a Listed Event in addition to that which is specifically required by this
Disclosure Certificate, the Issuer shall have no obligation under this Disclosure Certificate to update such
information or include it in any future Annual Report, Semi-Annual Report or notice of occurrence of a Listed
Event.
Section 10. Default. In the event of a failure of the Issuer to comply with any provision of this
Disclosure Certificate, the Participating Underwriter or 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 Issuer 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 Agreement, and the sole remedy under
this Disclosure Certificate in the event of any failure of the Issuer to comply with this Disclosure Certificate
shall be an action to compel performance.
F-5
Section 11. 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 Issuer agrees to
indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any
loss, expenses and liabilities which it may incur arising out of or in the exercise or performance of its powers
and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any
claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct.
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 Issuer, the property owners, the Fiscal
Agent, the Bond owners or any other party. The obligations of the Issuer under this Section shall survive
resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 12. Notices. Any notice or communications to be among any of the parties to this Disclosure
Certificate may be given as follows:
To the Issuer:
City of Aliso Viejo
12 Journey, Suite 100
Attention: Director of Financial Services/City Treasurer
Fax: (949) 425-3899
To the Fiscal Agent:
700 South Flower Street, Suite 500
Los Angeles, CA 90017-4104
Attention:
Fax: (213) 630-6457
To the Dissemination Agent:
334 Via Vera Cruz, Suite 256
San Marcos, CA 92078-2642
Attention: Disclosure Department
Fax: (760) 510-0288
To the Participating Underwriter:
One Ferry Building, Suite 275
San Francisco, CA 941111
Attention: Research
Fax: (415) 445-2395
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 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Issuer, the
Fiscal Agent, the Dissemination Agent, the Participating Underwriter and the holders and beneficial owners
from time to time of the Bonds, and shall create no rights in any other person or entity.
F-6
Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of
which shall be regarded as an original, and all of which shall constitute one and the same instrument.
Dated: December 6, 2007
CITY OF ALISO VIEJO
By:
City Manager
Koppel & Gruber Public Finance agrees to act as Dissemination Agent pursuant to the foregoing
Continuing Disclosure Certificate
By:
Its:
F-7
EXHIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD
OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer:
City of Aliso Viejo, County of Orange, State of California
Name of Bond Issue:
Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of City of Aliso
Viejo, County of Orange, State of California, 2007 Special Tax Bonds
Date of Issuance:
December 6, 2007
NOTICE IS HEREBY GIVEN that the City of Aliso Viejo (the “Issuer”) has not provided an Annual
Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Certificate
dated as of December 6, 2007, executed by the Issuer for the benefit of the owners and beneficial owners of the
above-referenced bonds. The Issuer anticipates that the Annual Report will be filed by _____________.
Dated: __________________, 20__
___________________________________, as
Dissemination Agent
By:
Its:
cc:
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EXHIBIT B
OF FAILURE TO FILE SEMI-ANNUAL REPORT
Name of Issuer:
Name of Bond Issue:
Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of City of Aliso
Viejo, County of Orange, State of California, 2007 Special Tax Bonds
Date of Issuance:
December 6, 2007
NOTICE IS HEREBY GIVEN that the City of Aliso Viejo (the “Issuer”) has not provided a Semi-Annual
Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Certificate
dated as of December 6, 2007, executed by the Issuer for the benefit of the owners and beneficial owners of the
above-referenced bonds. The Issuer anticipates that the Semi-Annual Report will be filed by _____________.
Dated: __________________, 20__
___________________________________, as
Dissemination Agent
By:
Its:
cc:
F-9
DEVELOPER CONTINUING DISCLOSURE CERTIFICATE
$34,070,000
(GLENWOOD AT ALISO VIEJO) OF THE CITY OF ALISO VIEJO
COUNTY OF ORANGE,
STATE OF CALIFORNIA,
This CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”) is executed and
delivered by Shea Homes Limited Partnership, a California limited partnership (the “Developer”) in connection
with the issuance of the $34,070,000 Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of
the City of Aliso Viejo, County of Orange, State of California, 2007 Special Tax Bonds (the “Bonds”). The
Developer covenants and agrees as follows:
Section 1.
Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed
and delivered by the Developer for the benefit of the owners and beneficial owners of the Bonds.
Section 2.
Definitions. In addition to the definitions set forth above and in the Fiscal Agent
Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in
this Section, the following capitalized terms shall have the following meanings:
“Affiliate” of another Person means (a) a Person directly or indirectly owning, controlling, or holding
with power to vote, 5% or more of the outstanding voting securities of such other Person; (b) any Person, 5% or
more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to
vote, by such other Person; and (c) any Person directly or indirectly controlling, controlled by, or under
common control with, such other Person. For purposes hereof, “control” means the power to exercise a
controlling influence over the management or policies of a Person, unless such power is solely the result of an
official position with such Person.
“Assumption Agreement” means an agreement of a Major Developer or an Affiliate thereof, the
Dissemination Agent and the Fiscal Agent, for the benefit of the owners and beneficial owners of the Bonds
containing terms substantially similar to this Disclosure Certificate (as modified for such Major Developer’s
development and financing plans with respect to the Community Facilities District), whereby such Major
Developer or Affiliate 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 the
Community Facilities District owned by or under option to such Major Developer and its Affiliates and, agrees
to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof.
“Community Facilities District” means Community Facilities District No. 2005-01 (Glenwood at Aliso
Viejo) of the City of Aliso Viejo.
“Dissemination Agent” means Koppel & Gruber Public Finance or any successor Dissemination Agent
designated in writing by the Developer, and which has filed with the Developer, the Community Facilities
District and the Fiscal Agent a written acceptance of such designation, and which is experienced in providing
dissemination agent services such as those required under this Disclosure Certificate.
Fiscal Agent Agreement” means the Fiscal Agent Agreement by and between the City of Aliso Viejo
and the Bank of New York Trust Company, N.A., dated as of November 1, 2007, relating to Community
Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo, 2007 Special Tax Bonds.
“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.
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“Major Developer” means, as of any Report Date, an owner of land in the Community Facilities
District responsible in the aggregate for 15% or more of the Special Taxes in the Community Facilities District
actually levied at any time during the then-current fiscal year.
“National Repository” means any Nationally Recognized Municipal Securities Information Repository
for purposes of the Rule. Information on the National Repositories as of a particular date is available on the
Securities and Exchange Commission’s Internet site at www.sec.gov/info/municipal/nrmsir.htm.
“Official Statement” means the final official statement executed by the Community Facilities District in
connection with the issuance of the Bonds.
“Participating Underwriter” means Stone & Youngberg LLC, the original underwriter of the Bonds
required to comply with the Rule in connection with offering of the Bonds.
“Person” means an individual, a corporation, a partnership, a limited liability company, an association,
a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof.
“Property” means the property owned by the Developer in the Community Facilities District.
“Report Date” means April 1 and October 1 of each calendar year.
“Repository” means each National Repository and each State Repository, if any.
“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as the same may be amended from time to time.
“Semi-Annual Report” means any Semi-Annual Report provided by the Developer pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
“Special Taxes” means the special taxes levied on taxable property within the Community Facilities
District and used to pay debt service on the Bonds.
“State Repository” means any public or private repository or entity designated by the State of California
as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange
Commission. As of the date of this Disclosure Certificate, there is no State Repository.
Section 3.
Provision of Semi-Annual Reports.
(a)
The Developer shall, or upon written direction shall cause the Dissemination Agent to, not later
than the Report Date, commencing April 1, 2008, provide to each Repository a Semi-Annual Report which is
consistent with the requirements of Section 4 of this Disclosure Certificate with a copy to the Fiscal Agent (if
different from the Dissemination Agent), the Participating Underwriter and the City. Not later than 15 Business
Days prior to the Report Date, the Developer shall provide the Semi-Annual Report to the Dissemination Agent.
The Developer shall provide a written certification with (or included as a part of) each Semi-Annual Report
furnished to the Dissemination Agent, the Fiscal Agent (if different from the Dissemination Agent), 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 Fiscal
Agent, the Participating Underwriter and the City may conclusively rely upon such certification of the
Developer 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. The Semi-Annual Report
may be provided in electronic format to each Repository and the Participating Underwriter and may be provided
through the services of a “central post office” approved by the Securities and Exchange Commission. For
example, any filing under this Disclosure Certificate may be made solely by transmitting such filing to the
Texas Municipal Advisory Council (the “MAC”) as provided at http://www.disclosureusa.org unless the United
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States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC
dated September 7, 2004. The Dissemination Agent may utilize the reminder system offered by MAC to notify
the Developer to file its Semi-Annual disclosure reports in addition to the notice provided by the Dissemination
Agent pursuant to Section 3(b) below.
(b)
If the Dissemination Agent does not receive a Semi-Annual Report by 15 days prior to the
Report Date, the Dissemination Agent shall send a reminder notice to the Developer that the Semi-Annual
Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the
Developer to determine whether its obligations under this Disclosure Certificate have terminated (pursuant to
Section 6 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 Developer does not provide, or cause the
Dissemination Agent to provide, a Semi-Annual Report to the Repositories by the Report Date as required in
subsection (a) above, the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking
Board and appropriate State Repository, if any, in substantially the form attached hereto as Exhibit A, with a
copy to the Fiscal Agent (if other than the Dissemination Agent), the City, the Participating Underwriter and the
Developer.
(c)
The Dissemination Agent shall: (i) determine prior to each Report Date the name and address
of each National Repository and each State Repository, if any; and (ii) to the extent the Semi-Annual Report
has been furnished to it, file a report with the Developer, the City, and the Participating Underwriter certifying
that the Semi-Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was
provided and listing all the Repositories to which it was provided.
Section 4.
Content of Semi-Annual Reports. The Developer’s Semi-Annual Report shall contain
or incorporate by reference the information set forth in Exhibit B, any or all of which may be included by
specific reference to other documents, including official statements of debt issues of the Developer or related
public entities, which have been submitted to each of the Repositories or the Securities and Exchange
Commission. If the document included by reference is a final official statement, it must be available from the
Municipal Securities Rulemaking Board. The Developer shall clearly identify each such other documents so
included by reference.
In addition to any of the information expressly required to be provided in Exhibit B, the Developer’s
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.
A form of information cover sheet for municipal secondary market disclosure recommended by the
Municipal Securities Rulemaking Board is attached as Exhibit C.
Section 5.
Reporting of Significant Events.
(a)
The Developer shall give, or cause to be given, notice of the occurrence of any of the following
Listed Events with respect to the Bonds, if material:
(i)
bankruptcy or insolvency proceedings commenced by or against the Developer and, if
known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Developer;
(ii)
failure of the Developer, or if known, any Affiliate, to pay any taxes, special taxes
(including the Special Taxes) or assessments due with respect to the Property;
(iii)
filing of a lawsuit against the Developer (of which the Developer has notice, such as
through proper service of process) or, if known, an Affiliate of the Developer, seeking damages which could
have a material impact on the Developer’s or an Affiliate’s ability to pay Special Taxes or to sell or develop the
Property;
(iv)
material damage to or destruction of any of the improvements on the Property;
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(v)
any uncured material payment default or other material default by the Developer or, if
known, an Affiliate of the Developer, on any loan with respect to the construction of improvements on the
Property;
(vi)
any denial or termination of credit, any denial or termination of, or default under, any
line of credit or loan or any other loss of a source of funds that could have a material adverse affect on such
Developer’s most recently disclosed financing plan or development plan or on the ability of such Developer, or
any Affiliate of such Developer that owns any portion of the Property, to pay Special Taxes within the
Community Facilities District when due;
(vii)
any materially adverse significant amendments to land use entitlements for such
Developer’s or, if known, an Affiliate’s Property;
(viii) any previously undisclosed governmentally-imposed preconditions to commencement
or continuation of development on such Developer’s or, if known, an Affiliate’s Property if material to the
development plan for the Community Facilities District;
(ix)
any previously undisclosed legislative, administrative or judicial challenges to
development on such Developer’s or, if known, an Affiliate’s Property, if material to the Development Plan;
and
(x)
any changes, if materially adverse to the development plan, in the alignment, design or
likelihood of completion of significant public improvements affecting such Developer’s or, if known, an
Affiliate’s Property, including major thoroughfares, sewers, water conveyance systems and similar facilities.
(b)
Whenever the Developer obtains knowledge of the occurrence of a Listed Event, the Developer
shall as soon as possible determine if such event would be material under applicable federal securities law.
(c)
If the Developer determines that knowledge of the occurrence of a Listed Event would be
material under applicable federal securities law, the Developer shall, or shall cause the Dissemination Agent to,
promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State
Repository, if any, with a copy to the Fiscal Agent, the City and the Participating Underwriter.
Section 6.
Duration of Reporting Obligation.
(a)
All of the Developer’s obligations hereunder shall commence on the date hereof and shall
terminate (except as provided in Section 11) on the earliest to occur of the following:
(i)
upon the legal defeasance, prior redemption or payment in full of all the Bonds;
(ii)
or at such time as property owned by the Developer or any of its Affiliates is no longer
responsible for payment of 15% or more of the Special Taxes; or
(iii)
the date on which the Developer prepays in full all of the Special Taxes attributable to
its Property;
provided, however, that notwithstanding that the Property owned by the Developer is no longer responsible for
payment of 15% or more of the Special Taxes, in the event the Developer shall transfer any portion of its
Property to another Person which, taking into account such transfer shall be a Major Developer, the
Developer’s obligations hereunder shall continue with respect to the Property transferred and the other
property owned by the Major Developer until such time as the transferee shall have assumed the obligations of
the Developer hereunder or such transferee shall have the disclosure obligations set forth herein with respect to
such Property pursuant to a Major Developer Continuing Disclosure Certificate executed in connection with
issuance of the Bonds or an Assumption Agreement.
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The Developer shall give notice of the termination 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 in the Community Facilities District owned by the Developer, or
any Affiliate of the Developer, is conveyed to a Person that, upon such conveyance, will be a Major Developer,
the obligations of the Developer hereunder with respect to the property in the Community Facilities District
owned by, or under option to, such Major Developer and its Affiliates may be assumed by such Major
Developer or by an Affiliate thereof and the Developer’s obligations hereunder will be terminated. In order to
effect such assumption, such Major Developer or Affiliate shall enter into an Assumption Agreement in form
and substance satisfactory to the Community Facilities District and the Participating Underwriter.
Section 7.
Dissemination Agent. The Developer may, from time to time, appoint or engage a
Dissemination Agent to assist the Developer in carrying out its obligations under this Disclosure Certificate,
and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent.
The initial Dissemination Agent shall be Koppel & Gruber Public Finance. The Dissemination Agent may
resign by providing thirty days’ written notice to the City, the Developer and the Fiscal Agent.
Section 8.
Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the Developer may amend this Disclosure 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 relates 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 legal requirements, change in
law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of
business conducted;
(b)
the undertakings herein, as proposed to be amended or waived, would, in the opinion of
nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary
offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any
change in circumstances; and
(c)
the proposed amendment or waiver either (i) is approved by owners of the Bonds in the manner
provided in the applicable Fiscal Agent Agreement(s) with the consent of owners or (ii) does not, in the opinion
of nationally recognized bond counsel, materially impair the interests of the owners or beneficial owners of the
Bonds.
If an amendment is made to the accounting principles followed in preparing any financial information,
the financial information for the year in which the change is made shall present a comparison between the
financial statements or information prepared on the basis of the new accounting principles and those prepared
on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the
differences in the accounting principles and the impact of the change in the accounting principles on the
presentation of the financial statements or information, in order to provide information to investors to enable
them to evaluate the ability of the Developer to generally meet its obligations. To the extent reasonably
feasible, the comparison shall be quantitative. A qualitative analysis in accordance with Generally Accepted
Accounting Principles (“GAAP”) shall be deemed to satisfy this requirement. A notice of the change in the
accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5
hereof.
Section 9.
Additional Information. Nothing in this Disclosure Certificate shall be deemed to
prevent the Developer 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 Developer chooses to include any information in any Semi-Annual Report or
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notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure
Certificate, the Developer shall have no obligation under this Agreement to update such information or include
it in any future Semi-Annual Report or notice of occurrence of a Listed Event.
Section 10.
Default. In the event of a failure of the Developer to comply with any provision of this
Disclosure Certificate, the Fiscal Agent shall (upon written direction and only to the extent indemnified to its
satisfaction from any liability, cost or expense, including fees and expenses of its attorneys), and the
Participating Underwriter and any owner or beneficial owner of the Bonds may, take such actions as may be
necessary and appropriate, including seeking mandate or specific performance by court order, to cause the
Developer 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 Fiscal Agent Agreement, and the sole remedy
under this Disclosure Certificate in the event of any failure of the Developer to comply with this Disclosure
Certificate shall be an action to compel performance. Neither the Developer nor the Dissemination agent shall
have any liability to the owners of the Bonds or any other party for monetary damages or financial liability of
any kind whatsoever relating to or arising from this Disclosure Certificate.
Section 11.
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 Developer 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 such claim of liability, but excluding liabilities, costs and expenses due to the
Dissemination Agent’s negligence or willful misconduct or failure to perform its duties hereunder. The
Dissemination Agent shall be paid compensation for its services provided hereunder in accordance with its
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 Developer, the Fiscal Agent, Bond owners, or any other party. The obligations of the Developer under
this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 12.
Notices. Any notice or communications to be among any of the parties to this
Disclosure Certificate may be given as follows:
To the Issuer:
City of Aliso Viejo
Attention: Director of Financial Services/City Treasurer
Fax: (949) 425-3899
To the Fiscal Agent:
700 South Flower Street, Suite 500
Los Angeles, CA 90017-4104
Attention:
Fax: (213) 630-6457
To the Dissemination Agent:
334 Via Vera Cruz, Suite 256
San Marcos, CA 92078-2642
Attention: Disclosure Department
Fax: (760) 510-0288
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To the Participating Underwriter:
One Ferry Building, Suite 275
San Francisco, CA 941111
Attention: Research
Fax: (415) 445-2395
To the Developer:
Shea Homes Limited Partnership
603 S. Valencia Avenue
Brea, CA 92823
Attention: Damien Delany
Telecopier:
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 13.
Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City,
the Developer (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating
Underwriter and owners 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 Developer hereunder shall be assumed by any legal successor to
the obligations of the Developer as a result of a sale, merger, consolidation or other reorganization.
Section 14.
Counterparts. This Disclosure Certificate may be executed in several counterparts,
each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.
Section 15.
Merger. Any person succeeding to all or substantially all of the Dissemination Agent’s
corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any
further act.
Section 16.
Severability. In case any one or more of the provisions contained herein shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof.
Section 17.
State of California Law Governs. The validity, interpretation and performance of this
Disclosure Certificate shall be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Certificate as of the date
first above written.
Dated: December 6, 2007
SHEA HOMES LIMITED PARTNERSHIP
By: _______________________________
Name:
Title:
AGREED AND ACCEPTED:
KOPPEL & GRUBER PUBLIC FINANCE,
as Dissemination Agent
By: __________________________________
Name:
Title:
By:
_____________________
Title: _____________________
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EXHIBIT A
OF FAILURE TO FILE SEMI-ANNUAL REPORT
Name of Issuer:
Name of Bond Issue: Community Facilities District No. 2005-01 (Glenwood at Aliso Viejo) of the City of
Aliso Viejo, County of Orange, State of California, 2007 Special Tax Bonds
Date of Issuance:
December 6, 2007
NOTICE IS HEREBY GIVEN that ____________ (the “Developer”) has not provided a Semi-Annual
Report with respect to the above-named bonds as required by that certain Developer Continuing Disclosure
Certificate, dated December 6, 2007. The Developer anticipates that the Semi-Annual Report will be filed by
_____________.
Dated:
DISSEMINATION AGENT:
By: ______________________________________
Its: ______________________________________
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EXHIBIT B
SEMI - ANNUAL REPORT
OF THE CITY OF ALISO VIEJO,
COUNTY OF ORANGE, STATE OF CALIFORNIA,
This Semi-Annual Report is hereby submitted under Section 4 of the Developer Continuing Disclosure
Certificate (the “Disclosure Certificate”) dated as of ________ 1, 200_, executed by the undersigned (the
“Developer”) in connection with the issuance of the above-captioned bonds by Community Facilities District
No. 2005-01 (Glenwood at Aliso Viejo) of the City of Aliso Viejo, County of Orange, State of California (the
“Community Facilities District”).
Capitalized terms used in this Semi-Annual Report but not otherwise defined have the meanings given
to them in the Disclosure Certificate.
I.
Developer and Development
The information in this section is provided as of ____________________ (this date must be not more
than 60 days before the date of this Semi-Annual Report).
A.
“Property”):
Property currently owned by the Developer in the Community Facilities District (the
Development Name(s) _______________________________________________
Total Lots and
Homes in the
Development
Acres* ____
Lots
____
Homes ____
*
B.
Total Homes Completed
(as of __________,
200__)
Total Homes Sold
(Closed Escrow) (as
of__________, 200__)
Acres* ____
Lots
____
Homes ____
Property Sold
(Closed Escrow)
Since the
Last Semi-Annual
Report (Report
dated ___, 200__)
Acres* ____
Lots
____
Homes ____
Acres* ____
Lots ____
Homes____
For bulk land sales only (excluding sales of finished lots for completed homes).
Status of land development or home construction activities with regard to the Property:
________________________________________________________________________
________________________________________________________________________
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C.
Status of building permits and any significant amendments to land use or development
entitlements with regard to the Property:
________________________________________________________________________
________________________________________________________________________
D.
Status of any land purchase contracts with regard to the Property, including sales of land to
other property owners (other than individual homeowners):
________________________________________________________________________
________________________________________________________________________
E.
Any changes, if material, to the development plan of the Developer, in the alignment, design or
likelihood of completion of significant public improvements affecting such Developer’s Property, including
major thoroughfares, sewers, water conveyance systems and similar facilities:
________________________________________________________________________
________________________________________________________________________
II.
Legal and Financial Status of Developer
Unless such information has previously been included or incorporated by reference in a Semi-Annual
Report, describe any change in the legal structure of the Developer or the financial condition and financing plan
of the Developer that would materially and adversely interfere with its ability to complete its proposed
development of the Property.
________________________________________________________________________
________________________________________________________________________
III.
Change in Development or Financing Plans
Report, describe any development plans or financing plans relating to the Property owned by the Developer or
an Affiliate that are materially different from the proposed development and financing plan described in the
Official Statement or any previous Semi-Annual Report.
________________________________________________________________________
________________________________________________________________________
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IV.
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 Developer or an Affiliate.
________________________________________________________________________
________________________________________________________________________
V.
Official Statement Updates
Report or addressed above, describe any other significant changes in the information relating to the Developer
or the Property contained in the Official Statement under the heading “THE DEVELOPMENT AND
PROPERTY OWNERSHIP” that would materially and adversely interfere with the Developer’s ability to
develop and sell the Property as described in the Official Statement.
________________________________________________________________________
________________________________________________________________________
VI.
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 required statements, in the light of the circumstances under which
they are made, not misleading.
________________________________________________________________________
________________________________________________________________________
Certification
The undersigned Developer hereby certifies that this Semi-Annual Report constitutes the Semi-Annual
Report required to be furnished by the Developer under the Developer Continuing Disclosure Certificate dated
as of December 6, 2007, executed by the Developer in connection with the issuance of the above-captioned
bonds.
ANY OTHER STATEMENTS REGARDING THE DEVELOPER, THE DEVELOPMENT OF THE
PROPERTY, THE DEVELOPER’S FINANCING PLAN OR FINANCIAL CONDITION, OR THE BONDS,
OTHER THAN STATEMENTS MADE BY THE DEVELOPER IN AN OFFICIAL RELEASE OR
NEWSPAPER OF GENERAL CIRCULATION, OR FILED WITH THE MUNICIPAL SECURITIES
RULEMAKING BOARD OR A NATIONALLY RECOGNIZED MUNICIPAL SECURITIES
INFORMATION REPOSITORY, ARE NOT AUTHORIZED BY THE DEVELOPER. THE DEVELOPER IS
NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH
UNAUTHORIZED STATEMENTS.
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THE DEVELOPER HAS NO OBLIGATION TO UPDATE THIS SEMI-ANNUAL REPORT OTHER
THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE.
Dated: __________
SHEA HOMES LIMITED PARTNERSHIP
By:
Its:
By: ___________________________
Its: ___________________________
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EXHIBIT C
MUNICIPAL SECONDARY MARKET DISCLOSURE
INFORMATION COVER SHEET
Municipal Secondary Market Disclosure
Information Cover Sheet
This cover sheet should be sent with all submissions made to the Municipal Securities Rulemaking
Board, Nationally Recognized Municipal Securities Information Repositories, and any applicable State
Information Depository, whether the filing is voluntary or made pursuant to Securities and Exchange
Commission Rule 15c2-12 or any analogous state statute.
See www.sec.gov/info/municipal/nrmsir.htm for list of current NRMSIRs and SIDs
IF THIS FILING RELATES TO A SINGLE BOND ISSUE:
Provide name of bond issue exactly as it appears on the cover of the Official Statement
(please include name of state where Issuer is located):
$__________
(GLENWOOD AT ALISO VIEJO) OF THE CITY OF ALISO VIEJO,
COUNTY OF ORANGE, STATE OF CALIFORNIA,
Provide nine-digit CUSIP® numbers* if available, to which the information relates:
F-23
IF THIS FILING RELATES TO ALL SECURITIES ISSUED BY THE ISSUER OR ALL
SECURITIES OF A SPECIFIC CREDIT OR ISSUED UNDER A SINGLE INDENTURE:
Issuer’s Name (please include name of state where Issuer is located):
_____________________________________________
Other Obligated Person’s Name (if any):
___________________________________________________________________
(Exactly as it appears on the Official Statement Cover)
Provide six-digit CUSIP® number(s),* if available, of Issuer:
_____________________________________________
*(Contact CUSIP’s Municipal Disclosure Assistance Line at 212.438.6518 for assistance with
obtaining the proper CUSIP® numbers.)
TYPE OF FILING:
? Electronic (number of pages attached)___________________ ?
Paper (number of pages attached) ________________
If information is also available on the Internet, give URL:
_________________________________________________________________
WHAT TYPE OF INFORMATION ARE YOU PROVIDING? (Check all that apply)
A. ? Annual Financial Information and Operating Data pursuant to Rule 15c2-12
(Financial information and operating data should not be filed with the MSRB.)
Fiscal Period Covered:
_____________________________________________________________________________
B. ? Audited Financial Statements or CAFR pursuant to Rule 15c2-12
Fiscal Period Covered:
_____________________________________________________________________________
F-24
C. ? Notice of a Material Event pursuant to Rule 15c2-12 (Check as appropriate)
1.
?
Bankruptcy or insolvency proceedings
commenced by or against the Developer and,
if known, any bankruptcy or insolvency
proceedings commenced by or against any
Affiliate of the Developer
6.
?
Any denial or termination of credit, any
denial or termination of, or default under, any
line of credit or loan or any other loss of a
source of funds that could have a material
adverse affect on such Developer’s most
recently disclosed financing plan or
development plan or on the ability of such
Developer, or any Affiliate of such Developer
that owns any portion of the Property, to pay
Special Taxes within the Community
Facilities District when due
2.
? Failure of the Developer, or if known, any
Affiliate, to pay any taxes, special taxes
(including the Special Taxes) or assessments
due with respect to the Property
7.
?
Any materially adverse significant
amendments to land use entitlements for such
Developer’s or, if known, an Affiliate’s
Property
3.
? Filing of a lawsuit against the Developer (of
which the Developer has notice, such as
through proper service of process) or, if
known, an Affiliate of the Developer, seeking
damages which could have a material impact
on the Developer’s or an Affiliate’s ability to
pay Special Taxes or to sell or develop the
Property
8.
?
Any materially adverse significant
amendments to land use entitlements for such
Developer’s or, if known, an Affiliate’s
Property
4.
? Material damage to or destruction of any of
the improvements on the Property
9.
? Any previously undisclosed legislative,
administrative or judicial challenges to
development on such Developer’s or, if
known, an Affiliate’s Property, if material to
the Development Plan
5.
?
10.
?
Any uncured material payment default or
other material default by the Developer or, if
known, an Affiliate of the Developer, on any
loan with respect to the construction of
improvements on the Property
Release, substitution, or sale of property
securing repayment of the securities
D. ? Notice of Failure to Provide Annual Financial Information as Required
E. ? Other Secondary Market Information (Specify):
_____________________________________________________
F-25
I hereby represent that I am authorized by the issuer or obligor or its agent to distribute this
information publicly:
Issuer Contact:
Name ______________________________________________
Title ____________________________________________
Employer
_________________________________________________________________________
Address ____________________________________________ City _____________ State _____
Zip Code_____________
Telephone ___________________________________________
Fax ____________________________________________
Email Address _______________________________________
Issuer Web Site Address ____________________________
Dissemination Agent Contact, if any:
Name ______________________________________________
Title ____________________________________________
Employer
___________________________________________________________________________
Zip Code_____________
Telephone ___________________________________________
Fax ____________________________________________
Email Address _______________________________________
Relationship to Issuer_______________________________
F-26
Obligor Contact, if any:
Name ______________________________________________
Title ____________________________________________
Employer
___________________________________________________________________________
Zip Code_____________
Telephone ___________________________________________
Fax ____________________________________________
Email Address _______________________________________
Obligor Web Site Address ____________________________
Investor Relations Contact, if any:
Name______________________________________________
Title ____________________________________________
Telephone___________________________________________
Email Address ___________________________________
F-27
APPENDIX G
DTC AND THE BOOK ENTRY SYSTEM
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the
Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s
partnership nominee) or such other name as may be requested by an authorized representative of DTC. One
fully-registered bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of
such maturity, and will be deposited with DTC.
DTC, the world’s largest 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 provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity
issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC’s
participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among
Direct Participants of sales and other securities transactions in deposited securities, through electronic
computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need
for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities
brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a
wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is
owned by a number of Direct Participants of DTC and Members of the National Securities Clearing
Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets
Clearing Corporation, (NSCC, GSCC, MBSCC and EMCC, also subsidiaries of DTCC), as well as by the New
York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities
brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard
& Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and
Exchange Commission.
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
Bonds (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records.
Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are,
however, expected to receive written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered
into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on
the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive bonds representing their ownership interest 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 such Bonds are credited, which may or may not be the Beneficial Owner. The Direct and
Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants
to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect
from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission
G-1
to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and
proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to
ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to
Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the
registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being
redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such
maturity to be redeemed.
Neither DTC nor Cede & Co. (not such other DTC nominee) will consent or vote with respect to the
Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual
procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts
the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co.,
or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit
Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Direct
or the Fiscal Agent, on payment date in accordance with their respective holdings shown on DTC’s records.
Payments by Participants to Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street
name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Fiscal Agent, 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 Fiscal Agent, disbursement of
such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered, through its
Participant, to the Fiscal Agent, and shall effect delivery of such Bonds by causing the Direct Participant to
transfer the Participant’s interest on the Bonds, on DTC’s records, to the Fiscal Agent. The requirement for
physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed
satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC’s records and
followed by a book-entry credit of tendered Bonds to the Fiscal Agent’s DTC account.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by
giving reasonable notice to the District or the Fiscal Agent. Under such circumstances, in the event that a
successor depository is not obtained, physical Bonds 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, physical Bonds will be printed and delivered to DTC.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof.
G-2
APPENDIX H
SUMMARY OF MARKET ABSORPTION STUDY
MARKET ABSORPTION STUDY
CITY OF ALISO VIEJO
ORANGE COUNTY, CALIFORNIA
MODEL COMPLEX IN CFD NO. 2005-1
BY
EMPIRE ECONOMICS, INC.
*** REVISED: SEPTEMBER 28, 2007 ***
(ORIGINAL STUDY: JULY 27, 2007)
THE USE OF THIS MARKET ABSORPTION STUDY IS AUTHORIZED ONLY FOR
THE CITY OF ALISO VIEJO CFD NO. 2005-1 BOND ISSUE
1
EMPIRE ECONOMICS, INC.
Economic-Real Estate Consultants
Joseph T. Janczyk, Ph.D.
35505 Camino Capistrano, Suite 200
Capistrano Beach, CA 92624
Phone: (949) 661-7012
Fax: (949) 661-8763
September 28, 2007
Ms. Gina Tharani
Financial Services Manager
City of Aliso Viejo
Re: Market Absorption Study for Community Facilities District No. 2005-1 (Glenwood)
Empire Economics (Empire) is pleased to provide you with the Market Absorption Study for Community
Facilities District (CFD) No. 2005-1 (Glenwood) of the City of Aliso Viejo, hereafter referred to as CFD No.
2005-1; accordingly, the primary conclusions are set-forth below:
Product Mix Characteristics
The projects in CFD No. 2005-1, based upon their planning approvals as well as representations from the
developer/builder, Shea Homes, are expected to have some 459 attached and single-family detached homes;
accordingly, their product mix characteristics are now discussed.
¾ Harbor Station: There are 141 attached homes in this project that are priced at some $539,593, on the
average, with a range of $519,990 to $553,990. The living areas amount to some 1,515 sq.ft. of living
area, on the average, and have a range of 1,488 sq.ft. to 1,526 sq.ft. The value ratio (price/living area)
amounts to $356, on the average. This project has a model complex that is already opened, and is
expected to commence escrow closings to homeowners during the 4th-2007.
¾ Pasadera: There are 149 single-family detached homes in this project that are priced at some $852,747,
on the average, with a range of $820,000 to $889,630. The living areas amount to some 2,877 sq.ft. of
living area, on the average, and have a range of 2,652 sq.ft. to 3,163 sq.ft. The value ratio amounts to
$296, on the average. This project recently had its grand opening and is expected to commence escrow
closings to homeowners during the 1st-2008.
¾ Birch River: There are 69 single-family detached homes in this project that are priced at some
$1,368,186, on the average, with a range of $1,299,990 to $1,399,810. The living areas amount to some
3,837 sq.ft. of living area, on the average, and have a range of 3,656 sq.ft. to 4,056 sq.ft. The value ratio
amounts to $357, on the average. This project has a model complex that is already opened, and is
expected to commence escrow closings to homeowners during the 4th-2007.
2
¾ Vista Vallarta: There are 100 single-family detached homes in this project that are expected to be
priced at some $1,322,895, on the average, with a range of $1,310,300 to $1,331,800. The living areas
are expected to amount to some 4,309 sq.ft., on the average, and have a range of 4,189 sq.ft. to 4,432
sq.ft. The value ratio amounts to $307, on the average. This project has not yet entered the marketplace
but is expected to commence escrow closings to homeowners during the 1st-2010.
So, according to Shea Homes, the projects in CFD No. 2005-1 (Glenwood) have current estimated base prices
that amount to $929,654, on the average, and they have a range of $519,990 to $1,399,810. Their living area
amounts to some 2,986 square feet of living area, on the average, with a range of 1,488 to 4,432 sq.ft. So, the
resulting value ratio (price divide by living area) amounts to some $311, on the average.
Potential Financial Risk Factors
The housing market is expected to experience some significant adjustments during the foreseeable future, as the
current price structure, which is based upon the extensive use of creative financing, is re-aligned with a
sustainable price structure, which is based upon the use of more traditional financing structures:
¾ The majority of home purchasers in recent years have utilized creative financing structures, and this has
enabled them to “afford” homes at current market prices; however, such structures are subject to resets
that will cause their payments to rise substantially, and so they face the risk of becoming delinquent on
their mortgage and tax payments.
¾ However, if these purchasers instead used traditional financing structures, then the majority of them
would NOT be able to “afford” homes at current market prices, and so their inability to do so would
have caused the rate of sales to slowdown, unless builders offered them substantial concessions, and
eventually lower prices.
These market adjustments are expected to have a much more significant impact on newly developing residential
CFDs than the broader market, as a whole, since CFDs represent the marketing of new homes to purchasers at
current prices and they are also concentrated in particular geographical locations.
According to Shea Homes, the potential purchasers that are currently in escrow are expected to utilize
primarily “traditional” mortgage loan structures rather than creative mortgage loan structures, as
reflected by the following: 15 of the 20 have an 80% Loan to Value ratio and 11 of the 20 have fixed rate
loans for a term of 15 or 30 years. Furthermore, most of the prospective purchasers that are currently in
escrow are non-contingent purchasers, so they do not need to sell their current homes.
Empire’s Algorithm for Estimating Absorption Schedules
Empire Economics has estimated the expected absorption schedules for the homes in CFD No. 2005-1, through
a comprehensive analysis of the following economic scenario:
The following scenario is based upon the most probable set of economic and financial market
conditions; however, this scenario is subject to further adjustments/modifications to the extent
that actual conditions vary from the most probable scenario. For example, a significant factor is
the level of mortgage rates: to the extent that mortgage rates rise, then further housing market
adjustments could be required, including price reductions as well as lower levels of new housing
activity.
3
Time Periods
Year/Quarter
Phases of Housing Cycle
Housing Price
Appreciation
Residential
Building Permits
Mortgage
Notices-Default
1997.2
1999.4
Prices Start to Recover
Moderate
Moderate
Moderate/High
2000.1
2004.2
New Record Prices
Mortgage Rates Decline
Strong
Very Strong
Moderate/Minimal
2004.3
2006.4
Further Record Prices
Creative Financing
Very Strong
Very Strong
Minimal
2007.1
2008.4
Prices/Sales Soften
Mortgage Resets
New Mortgage Regulations
Declining
Moderate/Weak
Very High
2009.1
2010.4
Market Stabilizes
Excess Inventory - Cleared
Declining
Weak
High
Market Recovers
Recovering
Recovering
Moderate
2011.1 >>>
¾ The current housing market cycle began in 2nd-1997, as prices started to recover, and this was followed
by strong/very strong housing market conditions, as reflected by record levels of prices and high
amounts of new construction activity.
¾ During 1st-2007 to 4th-2008 the housing market is expected to undergo a correction, due to significant
amounts of mortgage resets for creative financing structures and this will be exacerbated by more
stringent mortgage loan qualification criteria. The result will be high levels of mortgage loan defaults
accompanied by declining prices and low levels of building permit activity.
¾ During 1st-2009 to 4th-2010 the housing market is expected to stabilize, as the market moves towards a
balance of demand-supply at the new, reduced prices, thereby allowing the excess inventory to be
cleared.
¾ Starting in 1st-2011 the housing market is expected to move into a recovery phase, as prices and new
housing activity increase at a moderate rate.
Furthermore, a special potential financial risk factor is that the housing market is expected to experience some
significant adjustments during the foreseeable future, as the current price structure, which is based upon the
extensive use of creative financing, is re-aligned with a sustainable price structure, which is based upon the use
of more traditional financing structures.
Expected Market Entry of the Projects and Recent Sales/Cancellations
The projects in CFD No. 2005-1 are expected to commence escrow closings to homeowners as follows:
¾
¾
¾
¾
Harbor Station is expected to commence escrow closings during 4th-2007.
Pasadera is expected to commence escrow closings during 1st-2008.
Birch River is expected to commence closings during 4th-2007.
Vista Vallarta is expected to commence escrow closings during 1st-2010.
The projects in CFD No. 2005-1 are expected to provide housing opportunities to households in various market
segments, including Harbor Station oriented primarily towards first-time buyers and then for the other three
projects oriented primarily towards move-up households.
4
The estimated absorption schedules represent escrow closings by homeowners, and, as such, they take into
consideration the number of homes that have sold as well as the cancellations. Cancellation rates are subject to
significant amount of change, as prospective purchasers move through the sales process. For instance, during the
past several months, the number of purchasers for homes in Harbor Station decreased from 14 to 12 while the
number of purchasers for homes in Birch River rose from 4 to 10. However, since these homes are not expected
to close escrow until mid-October for Harbor Station and mid-November for Birch River, further changes are
expected to occur.
Estimated Absorption Schedules for the Projects in CFD No. 2005-1
Accordingly, the estimated absorption schedules for the residential projects in CFD No. 2005-1 are as follows:
CFD NO. 2005-1 (GLENWOOD):
ESTIMATED ABSORPTION SCHEDULE - EMPIRE ECONOMICS
140
NUMBER OF HOMES - ANNUALLY
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
2012
Vista Vallarta
0
0
0
30
45
25
Birch River
8
20
25
16
0
Pasadera
0
25
30
40
54
0
Harbor Station
10
40
50
41
0
0
0
Therefore, the 459 attached and detached homes in CFD No. 2005-1 are expected to be absorbed (escrows
closed) during the 2007 to 2012 time period, as follows:
¾ 2007: 18 homes, as two projects commence escrow closings, but sales occur at the modified sales rates
due to the softening real estate market.
¾ 2008: 85 homes, as three of the projects are on the marketplace closing escrows, but with sales again
occurring at the modified sales rates due to the soft real estate market.
¾ 2009: 105 homes, as three of the projects are on the marketplace at the beginning of the year;
additionally, the sales rate per project increases due to the real estate market starting to stabilize.
¾ 2010: 127 homes, as all of the projects are on the marketplace, and the sales rate per project increases
due to the real estate market stabilizing, with some of the projects being closed-out.
¾ 2011: 99 homes, as the market recovers, with most of the projects being closed-out.
¾ 2012: 25 homes, as the remaining projects are closed-out.
Supplemental Remarks
The estimated absorption schedules for the residential projects in CFD No. 20051 are subject to change due to potential shifts in economic/real estate market
conditions and/or the development strategy by the developer/builder, Shea
Homes.
5
ESTIMATED ABSORPTION SCHEDULES
PROJECTS IN CFD NO. 2005-1 (GLENWOOD)
. SEPTEMBER 28, 2007.
Projects >>>
Harbor Station
Pasadera
Birch River
Vista Vallarta
Shea Homes
Shea Homes
Shea Homes
Shea Homes
Attached
Detached
Detached
Detached
Plan # 1
38
38
18
24
Plan # 2
62
52
26
35
Plan # 3
41
59
25
41
Totals
141
149
69
100
Builders
Product Types
Annually
Cumulatively
Number of Homes - Estimated
459
Model Complex
Model Complex
Model Complex
Shea Homes
Plan # 1
$519,990
$820,000
$1,299,990
$1,310,300
Plan # 2
$553,990
$834,830
$1,384,990
$1,321,100
Plan # 3
$535,990
$889,630
$1,399,810
$1,331,800
Average
$539,593
$852,747
$1,368,186
$1,322,895
Builder Incentives
$10,000
$17,500
$25,000
N/A
Plan # 1
1,488
2,652
3,656
4,189
Plan # 2
1,526
2,718
3,753
4,248
Plan # 3
1,523
3,163
4,056
4,432
1,515
2,877
3,837
4,309
2,986
$356
$296
$357
$307
$311
Estimated Base Prices
$929,654
Estimated Living Areas
Average
Value Ratio
Estimated Absorption: Empire
. 4th-2007
.1st-2008
. 4th-2007
1st-2010
2007
10
0
8
0
18
18
2008
40
25
20
0
85
103
2009
50
30
25
0
105
208
2010
41
40
16
30
127
335
2011
0
54
0
45
99
434
2012
0
0
0
25
25
459
141
149
69
100
459
Commence Escrow Closings
6
CERTIFICATION OF INDEPENDENCE
EMPIRE ECONOMICS PROVIDES CONSULTING SERVICES
ONLY FOR PUBLIC ENTITIES
The Securities & Exchange Commission has taken action against firms that have utilized their research
analysts to promote companies with whom they conduct business, citing this as a potential conflict of
interest. Accordingly, Empire Economics (Empire), in order to ensure that its clients, including the
City of Aliso Viejo, are not placed in a situation that could cause such conflicts of interest, provides a
Certification of Independence. This Certificate states that Empire performs consulting services
only for public entities such as the City of Aliso Viejo, in order to avoid potential conflicts of
interest that could occur if it also provided consulting services for developers/builders. For
example, if a research firm for a specific Community Facilities District or Assessment District were to
provide consulting services to both the public entity as well as the property owner/developer/builders,
then a potential conflict of interest could be created, given the different objectives of the public entity
versus the property owner/developer.
Accordingly, Empire Economics certifies that the Market Absorption Study for the CFD No. 2005-1
(Glenwood) of the City of Aliso Viejo was performed in an independent professional manner, as
represented by the following statements:
¾ Empire was retained to perform the Market Absorption Study by the City of Aliso Viejo,
not the District’s developer/builder, Shea Homes.
¾ Empire has not performed any consulting services for the District’s property owner or the
developer/builder during the past ten years.
¾ Empire will not perform any consulting services for the District’s property owner or the
developer/builder during at least the next three years.
¾ Empire’s compensation for performing the Market Absorption Study for the District is not
contingent upon the issuance of Bonds; Empire’s fees are paid on a non-contingency basis.
Therefore, based upon the statements set-forth above, Empire hereby certifies that the Market
Absorption Study for CFD No. 2005-1 (Glenwood) of the City of Aliso Viejo was performed in an
independent professional manner.
________________________
Empire Economics, Inc.
Joseph T. Janczyk, President
7
TABLE OF CONTENTS
INTRODUCTION
A. Overview of the Bond Financing Program…………………………………………………………………………….1
Location Maps: Southern California Market Region and the Market Area
Map of the Neighborhood
B. Roles of the Market Study for the Bond Financing…..………………………………………………….…………..4
C. Methodology Underlying the Market Absorption Study……………………………………….…………………...5
SECTION I: EXPECTED PRODUCT MIX CHARACTERISTICS
A. Characteristics of the Expected Product Mix for CFD No. 2005-1 (Glenwood) ……….………….…………..….6
SECTION II: MACROECONOMIC ANALYSIS
A. Methodology Underlying the Macroeconomic Analysis for the CFD No. 2005-1 Market Area… ……………..…8
B. Long-Term Employment and Housing Projections for the CFD Market Area…………………………….….……9
C. Recent/Expected Economic and Real Estate Conditions…………………………………………………………….10
1. National/State Economic Trends/Patterns
2. Employment Trends/Patterns
3. Housing Starts Trends/Patterns
D. CFD Market Area Employment/Housing Forecasts Modified for Recent/Expected Economic Conditions……20
SECTION III: MICROECONOMIC ANALYSIS
A. Methodology Underlying the Microeconomic Analysis of the Residential Products in CFD No. 2005-1………...21
B. Socioeconomic Characteristics: Crime Levels and Quality of Schools……………………………………………..22
C. Recent Housing Price Trends and Sales Levels………………………………………………………………………24
Southern California Counties
CFD Market Area as well as Nearby Competing Areas
D. Residential Development Trends/Patterns in the Southeasterly Portion of Orange County……………………...28
E. Competitive Market Analysis of the Projects in the CFD Housing Market Area….……………………………....30
8
SECTION IV: POTENTIAL “FINANCIAL” RISK FACTORS
Potential “Financial” Risk Factors Underlying the Credit Quality and Bond Sizing
for Land Secured Financings in Southern California………………………………………………………….……….36
1. Recent Housing Price Appreciation Patterns
2. Structural Shift in the Factors Underlying Housing Price Appreciation
3. Role of Financial Factors Underlying Recent Rates of Housing Price Appreciation
4. Potential Risk Factors for Purchasers Utilizing Creative Financing Structures
Recent Purchasers and Mortgage Loan Resets
Simulated Example of Recent Purchasers of Homes in a New Project
Delinquency Rates and Types of Loans
5. Concluding Remarks
SECTION V: ABSORPTION
Estimated Absorption Schedules for the Products/Projects in CFD No. 2005-1 (Glenwood)………………………...44
Market Demand and Supply Factors as well as Market/Financial Risk Factors
Algorithm for Estimating Absorption Schedules
Market Entry for the Projects
SECTION VI: ASSUMPTIONS AND LIMITING CONDITIONS
Assumptions and Limiting Conditions………………………………………………………………….……………........48
9
INTRODUCTION
A. OVERVIEW OF THE BOND FINANCING PROGRAM
The City of Aliso Viejo was previously petitioned to form a Community Facilities District for the
Master Planned Community of Glenwood, hereafter referred to as CFD No. 2005-1, to assist with the
financing of a portion of the infrastructure that is required to support the development of the residential
projects by Shea Homes. The Bond Issue will be utilized to provide funds for various infrastructure
components, including road, water and sewer improvements, various fees to the city/other agencies, as
well as a community center and aquatic center, among others. The specific size of the Bond Issue and
the particular improvements included will depend upon various factors which will be finalized when
these bonds are sold.
According to Shea Homes, the projects in CFD No. 2005-1 (Glenwood) have current estimated base
prices that amount to $929,654, on the average, and they have a range of $519,990 to $1,399,810.
Their living area amounts to some 2,986 square feet of living area, on the average, with a range of
1,488 to 4,432 sq.ft. So, the resulting value ratio (price divide by living area) amounts to some $311,
on the average.
The City of Aliso Viejo has retained Empire Economics Inc., an economic and real estate consulting
firm, to perform a Market Absorption Study for the residential projects in CFD No. 2005-1
(Glenwood). The purpose of the Market Absorption Study for CFD No. 2005-1 is to conduct a
comprehensive analysis of the product mix characteristics, macroeconomic factors, and
microeconomic factors as well as the potential risk factors that are expected to influence the
absorption of the residential projects in the CFD, in order to arrive at conclusions regarding the
following:
¾ Confirmation that the total tax burden is in conformance with the City of Aliso Viejo’s policies:
that the total tax burden for homeowners does not exceed the designated amount of the base
prices of the homes for the City of Aliso Viejo (2.00%).
¾ Estimated absorption schedules for each of the residential projects, from market-entry to buildout on an annualized basis.
¾ Discussion of potential risk factors that may adversely impact their marketability:
o Financial Risk Factors: Shift from Creative Financing to More Stringent Loan
Criteria as well as Higher Mortgage Rates
1
2
SOUTHERN CALIFORNIA MARKET REGION
LOCATION OF CFD NO. 2005-1
3
LADERA
CFD NO. 2005-1 MARKET AREA: CENTRAL COASTAL
B. ROLES OF THE MARKET STUDY FOR THE BOND FINANCING
The Market Absorption Study for CFD No. 2005-1 (Glenwood) has a multiplicity of roles with regards
to the Bond Financing; accordingly, these are set-forth below:
Marketing Prospects for the Residential Projects
* Estimated Absorption Schedules:
Escrow Closings of Homes to Homeowners,
From Market-Entry to Build-Out
* Potential Risk Factors that may Adversely Impact
the Marketability of the Homes
Relationship of the Market Study to the Special Tax Payments
* Maximum Special Taxes
for the Residential Projects/Products
Conforming to the Issuer’s Policies
* Aggregate Levels of
Special Tax Revenues for Bond Sizing
* Share of Payments:
Developer/Builder vs. Homeowners
Relationship of the Market Study to the Appraisal/Valuation
* Appraisal of Property
Discounted Cash Flow – Present Value
(The Longer the Absorption Time, the Lower the Present Value)
The Issuing Agency, the City of Aliso Viejo, along with the Finance Team, can utilize the Market
Absorption Study as well as the Special Tax Revenues and Appraised Value to structure the Bond
Issue for CFD No. 2005-1 (Glenwood).
4
C. METHODOLOGY UNDERLYING THE MARKET ABSORPTION STUDY
The Market Absorption Study performs a comprehensive analysis of the product mix characteristics,
macroeconomic factors, and microeconomic factors as well as the potential risk factors that are
expected to influence the absorption of the residential projects in CFD No. 2005-1 (Glenwood).
I. Expected Product Mix Characteristics
* Expected Number of Homes and their Prices/Features
II. Macroeconomic Analysis
* Long-term Employment and Housing SCAG Projections
for the CFD Market Area
* Recent/Expected Economic and Real Estate Conditions
* CFD Market Area Employment/Housing Forecasts Modified for
Recent/Expected Economic Conditions
III. Microeconomic Components
* Socioeconomic Factors: Crime Levels and School Quality
* Recent Housing Price Trends and Sales Levels
* Competitive Market Analysis of the Projects in the CFD
IV. Potential “Financial” Market Risk Factors
*Potential “Financial” Risk Factors Underlying the Credit Quality and
Bond Sizing of Land-Secured Financings in Southern California
* Purchasers Using Creative Financing Structures – Mortgage Resets
*Purchasers Facing More Stringent Loan Qualification Criteria and Higher
Mortgage Rates: Difficult to Qualify for Current Prices
V. Estimated Absorption Schedules
*Market Demand and Supply Factors
*Expected Market Entry for the Projects
* Escrow Closings to Homeowners
* Estimated Capture Rates
*Closing Remarks
VI. Assumptions and Limiting Conditions
5
SECTION I:
EXPECTED PRODUCT MIX CHARACTERISTICS FOR THE
The projects in CFD No. 2005-1, based upon their planning approvals as well as representations from
the developer/builder, Shea Homes, are expected to have some 459 attached and single-family
detached homes; accordingly, their product mix characteristics are now discussed.
¾ Harbor Station: There are 141 attached homes in this project that are priced at some
$539,593, on the average, with a range of $519,990 to $553,990. The living areas amount to
some 1,515 sq.ft. of living area, on the average, and have a range of 1,488 sq.ft. to 1,526 sq.ft.
The value ratio (price/living area) amounts to $356, on the average. This project has a model
complex that is already opened, and is expected to commence escrow closings to homeowners
during the 4th-2007.
¾ Pasadera: There are 149 single-family detached homes in this project that are priced at some
$852,747, on the average, with a range of $820,000 to $889,630. The living areas amount to
some 2,877 sq.ft. of living area, on the average, and have a range of 2,652 sq.ft. to 3,163 sq.ft.
The value ratio amounts to $296, on the average. This project recently had its grand opening
and is expected to commence escrow closings to homeowners during the 1st-2008.
¾ Birch River: There are 69 single-family detached homes in this project that are priced at some
$1,368,186, on the average, with a range of $1,299,990 to $1,399,810. The living areas amount
to some 3,837 sq.ft. of living area, on the average, and have a range of 3,656 sq.ft. to 4,056
sq.ft. The value ratio amounts to $357, on the average. This project has a model complex that is
already opened, and is expected to commence escrow closings to homeowners during the 4th2007.
¾ Vista Vallarta: There are 100 single-family detached homes in this project that are expected to
be priced at some $1,322,895, on the average, with a range of $1,310,300 to $1,331,800. The
living areas are expected to amount to some 4,309 sq.ft., on the average, and have a range of
4,189 sq.ft. to 4,432 sq.ft. The value ratio amounts to $307, on the average. This project has not
yet entered the marketplace but is expected to commence escrow closings to homeowners
during the 1st-2010.
So, according to Shea Homes, the projects in CFD No. 2005-1 (Glenwood) have current estimated
base prices that amount to $929,654, on the average, and they have a range of $519,990 to $1,399,810.
Their living area amounts to some 2,986 square feet of living area, on the average, with a range of
1,488 to 4,432 sq.ft. So, the resulting value ratio (price divide by living area) amounts to some $311,
on the average.
The expected total tax burden for the projects in CFD No. 2005-1 amounts to some 1.65%, and this is
below the City’s policy of a not to exceed total tax burden of some 2.0%.
6
EXPECTED PRICES FOR THE HOMES IN THE PROJECTS
IN CFD NO. 2005-1 (GLENWOOD)
$1,600,000
$1,400,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Harbor Station
Pasadera
Birch River
Vista Vallarta
Plan # 1
$519,990
$820,000
$1,299,990
$1,310,300
Plan # 2
$553,990
$834,830
$1,384,990
$1,321,100
Plan # 3
$535,990
$889,630
$1,399,810
$1,331,800
$539,593
$852,747
$1,368,186
$1,322,895
Average
EXPECTED LIVING AREAS FOR THE HOMES IN THE PROJECTS
IN CFD NO. 2005-1 (GLENWOOD)
5,000
4,500
EXPECTED LIVING AREAS FOR HOMES
EXPECTED PRICES FOR HOMES
$1,200,000
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Harbor Station
Pasadera
Birch River
Vista Villarta
Plan # 1
1,488
2,652
3,656
4,189
Plan # 2
1,526
2,718
3,753
4,248
Plan # 3
1,523
3,163
4,056
4,432
1,515
2,877
3,837
4,309
Average
7
SECTION II: MACROECONOMIC ANALYSIS
A. METHODOLOGY UNDERLYING THE MACROECONOMIC ANALYSIS
FOR THE CFD NO. 2005-1 MARKET AREA
The macroeconomic section performs a comprehensive analysis of the planning projections, which
represent the long-term development potential, and the recent/expected economic conditions, which
determine the rate at which such development will actually occur, in order to arrive at the growth
prospects for Southern California, as a whole, and the CFD No. 2005-1 Market Area (MA), the central
coastal portion of Orange County.
Based upon Empire Economics’ experience in conducting 400+ Market Studies, these
macroeconomic factors are regarded as being the most significant determinants of the actual
performance of Planned Communities and Business Parks in the marketplace, and, as such, they
represent a critical component of the Market Absorption Study.
Long-Term Employment and Housing SCAG Projections
for the CFD Market Area
* Employment/Housing Projections for the CFD Market Area
* Employment vs. Residential Centers
Recent/Expected Economic and Real Estate Conditions
* United States: Gross Domestic Product, CPI, Productivity Trends,
Mortgage Rates, Oil/Gas Prices and Homebuilder Stocks
* Orange County: Employment and Housing Trends/Patterns
CFD Market Area Employment and Housing Forecasts
* Modifications to Projections based upon Recent/Expected
Economic Conditions
*Employment/Housing Forecasts
Therefore, the analysis of these macroeconomic factors provides an understanding of the economic and
real estate environment within which Shea Homes, the developer/builder, in CFD No. 2005-1 will be
marketing the residential products.
8
B. LONG-TERM EMPLOYMENT AND HOUSING PROJECTIONS
FOR THE CFD MARKET AREA
To arrive at long-term employment and housing planning projections for the CFD No. 2005-1 Market
Area (MA), Empire Economics utilizes information from the Southern California Association of
Governments (SCAG). These projections are considered to be reasonable estimates of the development
potential for the forthcoming commercial-industrial and residential projects since they are based upon
probable land-use policies of the governing planning jurisdictions.
Projected employment growth in the CFD MA is expected to amount to some 27,101 new positions
during the 2000-2020 time period for a capture rate of some 1.19% of all the expected employment
growth in Southern California.
CFD NO. 2005-1 MARKET AREA
LONG-TERM EMPLOYMENT DEVELOPMENT PATTERNS
NEW EMPLOYMENT POSITIONS
14,000
13,150
12,000
10,000
8,000
6,000
5,621
4,386
4,000
3,944
2,000
0
2000-2005
2005-2010
2010-2015
2015-2020
Note: Fiscal Years: For example, 2006 represents July 1, 2006 to June 30, 2007
Projected housing growth in the CFD MA is expected to amount to some 12,073 new homes during
the 2000-2020 time period, for a capture rate of some 0.77% of all the expected housing growth in
Southern California; this can be attributed to the Market Area not having a significant amount of
developable property.
LONG-TERM HOUSING DEVELOPMENT PATTERNS
6,000
NEW HOUSING UNITS
5,000
4,984
4,000
3,306
3,000
2,224
2,000
1,559
1,000
0
2000-2005
2005-2010
2010-2015
2015-2020
Note: Fiscal Years: For example, 2006 represents July 1, 2006 to June 30, 2007
The capture rate for employment growth in the CFD Market Area is higher than the capture rate for
residential growth, 1.19% vs. 0.77%, and so it is relatively stronger as an employment center as
compared to a residential center; hence, some of the demand for housing will require that households
commute to other market areas.
9
C. RECENT/EXPECTED ECONOMIC AND REAL ESTATE CONDITIONS
The near-term economic and real estate conditions for the United States (US), California (CA),
Southern California (SC) and Orange County (OC) economies are now discussed. These are then
utilized to modify the long-term employment and housing growth projections for the CFD No. 2005-1
Market Area (MA).
1. National/State Economic Trends/Patterns
*Gross Domestic Product (GDP)
*Consumer Price Index (CPI)
*Productivity Trends
*Mortgage Rates
*United States Oil Prices
*California Gas Prices
*Homebuilder Stocks
UNITED STATES REAL GDP AND ITS COMPONENTS
12%
RATE OF CHANGE - ANNUALLY
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
1999
2000
2001
2002
2003
2004
2005
2006
2007 Forecast
US: Overall
4.50%
3.70%
0.80%
1.60%
2.53%
3.90%
3.23%
3.33%
1.63%
Consumption
5.10%
4.70%
2.50%
2.70%
2.73%
3.88%
3.50%
3.18%
3.01%
Investment
7.80%
5.70%
-7.90%
-2.60%
3.58%
9.80%
5.43%
4.35%
-2.95%
Government
3.90%
2.10%
3.40%
4.40%
2.48%
1.88%
0.88%
2.10%
1.46%
¾ Overall U.S. Real GDP: The rate of growth moderated from 3.90% (year/year) in 2004 to
3.23% in 2005 and 3.33% in 2006, but it is expected to moderate significantly in 2007, to some
1.63%.
o Consumption: A growth rate of some 3.18% in 2006, but this is expected to
moderate, to some 3.01% in 2007.
o Business Investment: A growth rate of some 4.35% in 2006 but is expected to
decline, by some -2.95% in 2007.
o Government Purchases: A growth rate of some 2.10% in 2006 and is expected to
moderate somewhat, to 1.46% in 2007.
The overall rate of growth for GDP is expected to moderate significantly; additionally, with
regards to its composition, the rates of growth for consumption and also government are expected
to moderate, while the rate of growth for investment spending is expected to decline.
10
UNITED STATES CONSUMER PRICE INDEX
4.00%
CONSUMER PRICE
PERCENT CHANGE - ANNUALLY
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
US CPI Index
¾
¾
¾
¾
1999
2000
2001
2002
2003
2004
2005
2006
2007 Forecast
2.21%
3.36%
2.85%
1.58%
2.28%
2.66%
3.39%
3.23%
2.56%
1999-2001: A range of some 2.21% to 3.36% per year, relatively low by historical levels.
2002: Rose by only 1.58%, due to the economic slowdown caused by the terrorist attacks.
2003-2005: Rose by successively higher amounts, reaching some 3.39%, in 2005.
2006-2007: Decline slightly, to some 3.23% in 2006, and then continue to moderate further, to
some 2.56% for 2007.
UNITED STATES PRODUCTIVITY TRENDS AND EMPLOYMENT CHANGES
5%
4%
3%
2%
1%
0%
-1%
-2%
2007 Forecast.
1999
2000
2001
2002
2003
2004
2005
2006
Employ. Change
2.44%
2.20%
0.00%
-1.13%
-0.26%
1.13%
1.42%
1.40%
1.00%
Prod. Change
3.20%
2.00%
1.10%
3.88%
3.23%
2.98%
1.90%
1.85%
0.83%
Although GDP growth has been strong in recent years, the rate of change in the CPI has been minimal;
this relationship represents an aberration from historical standards. Specifically, this can be attributed
primarily to high levels of productivity growth which have enabled firms to increase their levels of
output without substantially hiring additional employees, and thereby keeps their costs and prices
relatively stable. However, for 2007, the rate of productivity growth is expected to decline due to both
lower inflation and also slower employment growth; these, in turn, this will result in a lower rate of
GDP growth.
11
The relatively low levels of CPI changes during 2002 through 2006 have resulted in recent historic
lows for both the 10-year bond, which is the primary driving force behind fixed rate mortgages, and
also the federal fund rates, which is the primary driving force behind short-term rates, that also
enhances the financial feasibility of creative financing mortgage structures.
UNITED STATES MORTGAGE RATES
9.00%
8.00%
7.00%
LEVEL - ANNUALLY
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2000
2001
2002
2003
2004
2005
2006
2007- Forecast
10-Yr Bond
5.96%
4.97%
4.53%
4.00%
4.26%
4.27%
4.78%
4.57%
1 Yr Adjustable
7.04%
5.83%
4.62%
3.75%
3.89%
4.49%
5.53%
5.59%
15 Year - Fixed
7.73%
6.51%
5.98%
5.16%
5.20%
5.42%
6.07%
6.28%
30-Year Fixed
8.06%
6.97%
6.54%
5.82%
5.84%
5.86%
6.41%
6.57%
¾ 2000 to 2003: The rates on the 10-year Treasury Bond, the 15 year fixed mortgage, 30 year
fixed mortgage, and the 1 year adjustable mortgage all declined.
¾ 2004 to 2006: The rates started to rise during 2004 through 2006 as compared to 2003: the 10year Treasury Bond rose to 4.78% by +0.78%, the 15 year fixed mortgage increased to 6.07%
by +0.91%, the 30 year fixed rate rose to 6.41% by +0.59%, and the 1 year adjustable mortgage
rose to 5.53% by +1.78%.
¾ 2007: As compared to 2006, some of the financial rates are expected to rise further. The 10year Treasury Bond is expected to decline to 4.57% by -0.21%, the 15 year mortgage should
increase to 6.28% by +0.21%, the 30 year fixed rate is forecasted to rise to 6.57% by +0.16%,
and the 1 year adjustable is predicted to increase slightly to 5.59% by +0.06%. So, the 10-year
Treasury Bond is expected to decline but the 15 year mortgage and 30 year mortgage rates are
expected to rise while the 1 year adjustable will increase only slightly.
12
UNITED STATES CRUDE OIL PRICES
$70
PRICE/BARREL - ANNUALLY
$60
$50
$40
$30
$20
$10
$0
US Oil Prices
1999
2000
2001
2002
2003
2004
2005
2006
2007 Forecast
$19.3
$30.3
$25.9
$26.1
$31.1
$41.4
$56.5
$66.1
$64.3
¾ 1999-2002: Crude oil prices rose moderately, from $19 a barrel in 1999 to $26 a barrel in 2002.
¾ 2003-2006: Prices rose significantly, from $31 in a barrel 2003 to $66 in 2006, more than
doubling.
¾ 2007: Prices are expected to moderate, to some $64 a barrel.
CALIFORNIA GAS PRICES
$3.50
$3.00
PRICE - ANNUALLY
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
CA Gas Prices
1999
2000
2001
2002
2003
2004
2005
2006
2007 Forecast
$1.47
$1.77
$1.74
$1.62
$1.94
$2.23
$2.57
$2.91
$3.27
¾ 1999-2001: California gas prices rose moderately, from $1.47 to $1.77.
¾ 2002-2006: Prices rose dramatically from $1.62 in 2002 to $2.91 in 2006, by some 80%, due to
the invasion of Iraq and uncertainty in the Middle East
¾ 2007: Gas prices are expected to rise, to some $3.27, increasing from their 2006 levels.
13
The recent trends in homebuilder stocks MAY provide a leading indicator of future housing market
conditions, since the stock market factors reflect anticipated changes in the profitability of a firm.
MAJOR HOMEBUILDERS - STOCK INDEX
$300
Peak Level of $293 in July 2005
STOCK INDEX - QUARTERLY
$250
$200
$150
$100
$50
$0
2003-1st 2003-2nd 2003-3rd 2003-4th 2004-1st 2004-2nd 2004-3rd 2004-4th 2005-1st 2005-2nd 2005-3rd 2005-4th 2006-1st 2006-2nd 2006-3rd 2006-4th 2007-1st 2007-2nd
HGX Stock
$110
$130
$147
$175
$187
$186
$190
$209
$240
$246
$273
$253
$265
$238
$203
$221
$235
$228
The recent trends for the homebuilder stock price index, consisting of 19 major builders, referred to as
HGX, have been as follows:
¾ 1st-2003 to 3rd-2005: The homebuilder stock index rose dramatically from $110 to $267, an
increase of some 143% (more than double); the peak level of $293 occurred in July 2005.
¾ 3rd-2005 to 4th-2006: The index declined to $221, some -25% below the prior peak level, as a
result of higher mortgage rates and lower demand for housing, thereby reducing the profit
margins of homebuilders.
¾ 1st-2007 to 2nd-2007: The index increased slightly to $235 before falling to $228.
HOMEBUILDER STOCK - TOLL BROTHERS
$60
Peak Level of $57 in July 2005
STOCK INDEX - QUARTERLY
$50
$40
$30
$20
$10
$0
TOL Stock
2003-1st 2003-2nd 2003-3rd 2003-4th 2004-1st 2004-2nd 2004-3rd 2004-4th 2005-1st 2005-2nd 2005-3rd 2005-4th 2006-1st 2006-2nd 2006-3rd 2006-4th 2007-1st 2007-2nd
$10
$13
$14
$19
$21
$20
$21
$26
$39
$43
$51
$37
$34
$30
$26
$30
$31
$29
The recent stock value trends for Toll Brothers, a homebuilder primarily of luxury homes, have been
as follows:
¾ 1st-2003 to the 3rd-2005: The stock values rose significantly from $10 to $51, an increase of
some 400%+.
¾ 3rd-2005 to the 4th-2006: The stock values declined to $30, a decrease of some -47% from the
prior peak level, as a result of higher mortgage rates and slower sales reducing the profit
margins for the move-up and luxury segments, as compared to the residential market as a
whole.
¾ 1st-2007 to 2nd-2007: The stock rose slightly to $31 before declining to $29.
So, based upon the recent declines in homebuilder stocks, Wall Street is anticipating a slowdown in the
housing market.
14
2. Employment Trends/Patterns
The purpose of this section is to discuss the recent/expected trends/patterns of employment activity for
the United States (US), California (CA) and Orange County (OC).
EMPLOYMENT TRENDS IN ORANGE COUNTY
6%
AMOUNT OF CHANGE - ANNUALLY
5%
60,000
4%
3%
40,000
2%
20,000
1%
0%
0
-1%
-20,000
PERCENTAGE CHANGE - ANNUALLY
80,000
-2%
-3%
Left Axis: Change #
¾
¾
¾
¾
¾
¾
¾
2006
2007-Forecast
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-40,000
Right Axis: Change %
1991-1993: Economic recession, with losses of -19,000 or -1.65%/yr.
1994-1996: Economic recovery, with growth rates of 22,967 or 2.02%/yr.
1997-2000: Strong expansion, with growth rates of 51,150 or 4.07%/yr.
2002-2003: Some moderation, growth rates of 13,367 or 0.96%/yr.
2004-2005: Stronger growth rates of 40,100 or 2.77%/yr.
2006: A moderation in the rate of growth to some 29,455 or 1.95%/yr.
2007: An expected rate of growth of some 15,387 or 1.00%/yr.
UNITED STATES, CALIFORNIA & ORANGE COUNTY
RECENT/EXPECTED EMPLOYMENT TRENDS: ANNUALLY
4%
3%
2%
1%
0%
-1%
-2%
1999
2000
2001
2002
2003
2004
2005
2006
2007-Forecast
United States
2.44%
2.20%
0.00%
-1.13%
-0.26%
1.13%
1.42%
1.40%
1.00%
California
2.91%
3.55%
0.79%
-0.99%
-0.45%
0.96%
1.84%
1.86%
1.05%
Orange County
3.55%
3.25%
1.79%
-0.71%
1.80%
1.94%
2.35%
1.95%
1.00%
¾ 1999-2001: The US, CA, and OC economies experienced moderate rates of growth during
1999 to 2000 but in 2001 their rates of growth diminished, as a result of the terrorist attacks.
¾ 2002: Their rates of employment growth all decreased from 2001, US experienced a decline of
-1.13%, California declined by -0.99% and OC declined by -0.71%.
¾ 2003 to 2005: Their rates of employment growth all rose, the US to 1.42%, CA to 1.84% and
OC to 2.35%.
¾ 2006: Their rates of growth generally moderated, the US to 1.40%, CA to 1.86% and OC to
1.95%.
¾ 2007: Their rates of growth are expected to continue to moderate, the US to 1.00%, CA to
1.05% and OC to 1.00%.
15
Economic Engines Underlying Employment Growth
The total level of wage/salary employment during 2002-2006 for Southern California (SC) amounted
to some 8,244,550 positions, on the average. During the 2002 to 2006 time period, the SC economy
experienced cumulative employment growth of some 118,5250 net positions, or some 1.48% per year,
on the average. The performance of the various employment sectors were classified into three
categories: strong, stable and declining, using Southern California as a benchmark:
20%
SC: GROWTH SECTORS
SC: STABLE SECTORS
15%
10%
5%
0%
-5%
SC: DECLINING SECTORS
Southern California
Construction
Financial Activities
Retail Trade
Educational and Health Services
Professional and Business Services
Sectors - Relatively Strong Growth
Wholesale Trade
Transportation, Warehousing and Utilities
Federal Government
State Government
Information
Local Government
Sectors - Relatively Stable
Nondurable Goods
Durable Goods
-10%
Sectors - Relatively Slow Growth
RECENT CHANGE IN EMPLOYMENT: 2002-2006
RECENT GROWTH RATES OF EMPLOYMENT BY SECTORS
SOUTHERN CALIFORNIA AND ORANGE COUNTY DURING 2002-2006
Orange County
Sectors with Relatively Slow (Declining) Growth Rates
¾ Non-Durable Goods (4.3% of all employment in SC) recently declined by some -4.2%.
¾ Durable Goods (7.3%) recently declined at a rate of some -3.9%.
Sectors with Relatively Stable (Average) Growth Rates
¾ Local Government (11.3% of all employment in SC) recently declined by some -0.6%.
¾ Information (3.7%) recently declined at a rate of some -0.7%.
¾ State Government (2.1%) recently rose at a rate of 0.6%.
¾ Federal Government (1.6%) was stable.
¾ Transportation/Warehousing (3.4%) recently grew at a rate of 2.6%.
¾ Wholesale Trade (4.9%) had a recent growth rate of 3.2%.
Sectors with Relatively Strong Growth Rates
¾ Professional and Business Services (14.8% of all employment in SC) recently grew at a rate of
some 4.1%.
¾ Educational and Health Services (10.4%) recently grew at a rate of 4.2%.
¾ Retail Trade (10.9%) recently grew at a rate of 4.6%.
¾ Financial Activities (6.2%) recently grew at a rate of some 7.1%.
¾ Construction (5.5%), recently grew at a cumulative rate of 13.8%.
So, for Southern California, as a whole, the economic engines underlying the recent employment
growth have been primarily construction and financial activities, due to the robust levels of real estate
activity, as well as retail trade, education/health services and professional/business services sectors.
16
Industrial and Office Construction Activity in Orange County
Employment growth is the primary driving force underlying the levels of industrial and office
construction activity.
100%
$800,000
90%
SHARE OF COUNTY / SOUTHERN CALIFORNIA
VALUE OF NEW STRUCTURES - ANNUALLY $2006 THOUSANDS
ORANGE COUNTY: NEW INDUSTRIAL BUILDINGS
$900,000
80%
$700,000
70%
$600,000
60%
$500,000
50%
$400,000
40%
$300,000
30%
$200,000
20%
$100,000
10%
0%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
$0
Industrial Valuation
Share Orange Co./So.Cal.
Poly. (Share Orange Co./So.Cal.)
¾ Major Cycles: During 1970-2006, industrial construction activity in Orange County has
exhibited four major cycles, with peak levels of activity, occurring in 1973, 1978, 1985 and
1998.
¾ Capture Rates: The capture rate for Orange County relative to Southern California, has
decreased significantly, from some 30% during the early 1970’s to less some 4% during 20042006, on the average.
¾ Recent Activity The amount of construction activity for 2004 and 2005 declined significantly,
but then rebounded somewhat in 2006.
ORANGE COUNTY: NEW OFFICE BUILDINGS
100%
90%
$1,000,000
80%
70%
$800,000
60%
$600,000
50%
40%
$400,000
30%
20%
$200,000
$1,200,000
10%
Office Valuation
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
0%
1980
$0
¾ Major Cycles: During the 1980-2006 time period, the level of office construction activity in
Orange County has exhibited three peak levels of activity occurring in 1984, 2000 and 2006.
¾ Capture Rates: The capture rate for Orange County, relative to Southern California, has
demonstrated an increasing trend, from 15% during early 1980’s to some 47% for 2006.
¾ Recent Activity: The level of office construction activity as well as the capture rate has
recently increased during 2006, to some $677 million and some 47%, respectively.
17
3. Housing Starts Trends/Patterns
The purpose of this section is to discuss the recent/expected trends/patterns for the levels of housing
activity for the United States (US), California (CA) and Orange County (OC).
UNITED STATES, CALIFORNIA AND ORANGE COUNTY
HOUSING STARTS: ANNUALLY
14,000
12,000
2,000,000
10,000
1,500,000
8,000
6,000
1,000,000
4,000
ORANGE COUNTY
UNITED STATES AND CALIFORNIA
2,500,000
500,000
2,000
0
1999
Right: Orange County
Left: United States
Left: California
2000
2001
2002
2003
2004
2005
2006
2007Forecast
12,382
12,367
8,646
10,204
9,311
9,322
7,206
8,316
6,800
1,663,100
1,573,400
1,601,200
1,710,300
1,853,800
1,949,800
2,072,000
1,845,300
1,600,000
139,073
148,540
148,757
164,318
195,682
212,960
208,972
163,449
145,000
0
¾ United States: The US residential market experienced higher levels of activity during 2001 to
2005, with a peak level of some 2,072,000 homes in 2005. However, for 2006 and also 2007,
the levels of activity are expected to decline to some 1,845,300 and 1,600,000, respectively,
due primarily to higher mortgage rates.
¾ California: The CA residential market experienced higher level of activity during 2000 to
2004, with a peak level of some 212,960 homes in 2004, and then declined to 163,449 homes in
2006. For 2007, the level of activity is expected to decline further, to some 145,000 homes,
again due primarily to higher mortgage rates.
¾ Orange County: The OC residential market experienced lower levels of activity during 1999
to 2005, from 12,382 in 1999 to 8,316 in 2006, due to the diminishing supply of developable
property. For 2007, the level of activity is expected to continue to decline further, to 6,800.
Recent Residential Construction Activity in Orange County
100%
18,000
90%
16,000
80%
14,000
70%
12,000
60%
10,000
50%
8,000
40%
6,000
30%
4,000
20%
2,000
10%
0%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
0
NUMBER OF HOMES IN COUNTY - ANNUALLY
ORANGE COUNTY: NEW SINGLE-FAMILY HOMES
20,000
Single-Family Homes
¾ Major Cycles: During the 1970-2006 time period, the number of new single-family homes in
OC exhibited four major cycles, with peak levels of activity occurring in 1972, 1976, 1988 and
1997; the peaks for these cycles have each been successively lower.
¾ Capture Rates: With regards to the capture rate for OC, relative to Southern California, it has
demonstrated a decreasing trend, from some 30% in the early 1970’s to some only 6% in 2006,
and this can be attributed to the diminishing supply of developable property.
18
100%
18,000
90%
16,000
80%
14,000
70%
12,000
60%
10,000
50%
8,000
40%
6,000
30%
4,000
20%
2,000
10%
0%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
0
NUMBER OF HOMES IN COUNTY - ANNUALLY
ORANGE COUNTY: NEW MULTIPLE-FAMILY HOMES
20,000
Multiple-Family Homes
¾ Major Cycles: During the 1970-2006 time period, the number of new multiple-family homes
in OC exhibited four major cycles, with peak levels of activity occurring in 1972, 1976, 1987
and 2000.
¾ Capture Rates: With regards to the capture rate for Orange County, relative to Southern
California, it has demonstrated a decreasing trend, from some 20% in the early 1970’s to some
12% in 2005-2006.
Retail Construction Activity in Orange County
Retail construction activity is driven primarily by new residential growth, and so its trends/patterns
generally reflect the residential construction activity.
ORANGE COUNTY: NEW RETAIL BUILDINGS
100%
90%
$500,000
80%
70%
$400,000
60%
$300,000
50%
40%
$200,000
30%
20%
$100,000
$600,000
10%
Retail Valuation
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
0%
1980
$0
¾ Major Cycles: During the 1980-2006 time period, the level of retail construction activity in
OC exhibited four major cycles, with peak levels of activity occurring in 1981, 1989, 1997 and
2006.
¾ Capture Rates: With regards to the capture rate for OC relative to Southern California, it has
demonstrated a decreasing trend since the early 1980’s, from some 27% to some 9% in recent
years, 2003-2006.
19
D. CFD MARKET AREA EMPLOYMENT AND HOUSING FORECASTS
MODIFIED FOR RECENT/EXPECTED ECONOMIC CONDITIONS
The employment and housing planning SCAG projections for the CFD No. 2005-1 Market Area
(MA), which are considered to be reasonable estimates of the development potential for the projects,
are now modified by taking into account the expected short-run economic conditions, along with the
amount of growth that actually occurred recently, in order to arrive at the most probable forecasts for
employment and housing growth during the foreseeable future.
FORECAST OF FUTURE EMPLOYMENT DEVELOPMENT
NUMBER OF NEW EMPLOYMENT POSITIONS
3,000
2,500
2,000
1,500
1,000
500
0
2001
SCAG Projections 1,877
Actual/Forecast
1,877
2002
2003
2004
2005
2006
2007
2008
2009
2010
1,877
1,877
1,877
998
1,877
2,144
1,877
2,282
1,877
1,889
1,877
1,173
1,877
1,592
1,877
2,123
1,877
2,654
FORECAST OF FUTURE RESIDENTIAL DEVELOPMENT
1,000
NUMBER OF NEW HOUSING UNITS
900
800
700
600
500
400
300
200
100
0
SCAG: Projections
Actual/Forecast
Years
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
829
829
829
829
829
951
829
952
829
736
829
849
829
694
829
664
829
653
829
868
Economic Forecasts
Employment
Housing
2007
2008
2009
2010
1,173
1,592
2,123
2,654
694
664
653
868
Totals
Averages
7,541
1,885
2,879
720
Therefore, during the 2007-2010 time period, as a whole, the CFD No. 2005-1 MA is expected to have
employment growth amounting to some 7,541 new positions (1,885 per year, on the average) and some
2,879 new housing units (720 per year, on the average).
20
SECTION III: MICROECONOMIC ANALYSIS
A. METHODOLOGY UNDERLYING THE MICROECONOMIC ANALYSIS
OF THE RESIDENTIAL PROJECTS IN CFD NO. 2005-1
The microeconomic analysis focuses upon the competitiveness of the residential projects in CFD No.
2005-1 with various regional development factors within Orange County and also the comparable
projects within the Competitive Market Area.
Competitiveness from a Regional Perspective
* Socioeconomic Characteristics: Crime Rates and School Quality
* Recent Housing Price Trends/Patterns:
Southern California, Orange County and the CFD Market Area
The existing/active/forthcoming Planned Communities, Retail Centers and Business Parks, in
conjunction with the transportation system, determines the locations of the employment centers and
residential areas along with retail centers; accordingly, these patterns can then be utilized to gauge the
marketing potential of CFD No. 2005-1 from a regional perspective.
Competitive Market Analysis of the Projects in the CFD
* Identification of the Comparable Projects
* Competitive Market Analysis of the CFD Projects
- Base Prices
- Living Areas
- Special Taxes
The Competitive Market Analysis evaluates the competitiveness of the residential projects in CFD
No. 2005-1 relative to the currently active projects in comparable Planned Communities.
21
B. SOCIOECONOMIC CHARACTERISTICS:
CRIME LEVELS AND THE QUALITY OF SCHOOLS
When households consider the purchase of a home, the primary factors are the location relative to their
place of employment and also the price that they can afford; furthermore, secondary socioeconomic
factors that are significant include the safety of the neighborhood as well as the quality of the schools.
Crime Levels and Neighborhood Safety
To gauge the safety of Orange County and the CFD No. 2005-1 Neighborhood Area, information on
crime levels was obtained utilizing the most recent data available from the Federal Bureau of
Investigation (FBI) Index.
CRIME RATES PER ONE THOUSAND PEOPLE
CRIME RATES FOR CALIFORNIA AND
SOUTHERN CALIFORNIA COUNTIES
50
45.6
45
39.9
40
40.9
39.8
35.8
35.6
35
30
27.3
25.1
25
20
15
10
5
0
¾ California: The overall crime rate is approximately 39.9 per 1,000 people per year.
¾ Southern California: The crime rate is 35.6, slightly lower than the state.
¾ Orange County: The crime rate is 27.3, much lower than the crime rate than either California
or Southern California.
ORANGE COUNTY CRIME RATES BY CITY
(* DESIGNATES CITY IN THE CFD MARKET AREA)
44
45
32
36
36
37
37
Fullerton
31
33
Costa Mesa
31
Los Alamitos
29
Tustin
26
28
Stanton
16
23
Fountain Valley
Mission Viejo
15
23
Laguna Hills
14
San Clemente
14
San Juan Capistrano
14
Aliso Viejo
13
Lake Forest
13
Yorba Linda
15
23
Laguna Beach
19
20
22
Cypress
22
Huntington Beach
25
Seal Beach
27
26
Buena Park
30
30
Garden Grove
35
Westminster
40
Santa Ana
Orange County Average: 27.3
Laguna Niguel
CRIMES PER ONE THOUSAND PEOPLE
50
33
24
20
16
10
10
6
5
Brea
Anaheim
Newport Beach
La Habra
Orange
Placentia
La Palma
Irvine
Villa Park
Dana Point
Laguna Woods
Rancho Santa Margarita
0
¾ CFD Neighborhood Area: This consists of the City of Aliso Viejo which has a significantly
lower crime rate, some 14.
22
Quality of Schools and Education
To gauge the quality of schools in Orange County and the CFD No. 2005-1 Neighborhood Area,
information was compiled on educational achievement, specifically SAT II scores.
2400
2000
1506
1600
1485
1429
1421
1444
1593
1521
1596
1200
800
400
Ventura Average
Orange Average
San Diego Average
Los Angeles
Average
Southern California
Average
San Bernardino
Average
Riverside Average
0
California Average
SAT SCORES: AVERAGE PER STUDENT FOR EACH COUNTY
(SOURCE - CA DEPT OF EDUCATION)
SOUTHERN CALIFORNIA AVERAGE
SAT II TEST SCORES
¾ California: The SAT II scores (with 2400 being the highest possible) amount to some 1506.
¾ Southern California: The SAT I scores amount to some 1485, slightly lower than the state.
¾ Orange County: The SAT I scores amount to 1593, significantly higher than for California
and also Southern California.
ORANGE COUNTY SAT II TEST SCORES
1592
1606
1625
1628
1630
1633
1640
1646
1678
Tustin Unified
Los Alamitos
Unified
Brea-Olinda
Unified
Placentia-Yorba
Linda Unified
Saddleback Valley
Unified
Fullerton Joint
Union High
Capistrano Unified
Laguna Beach
Unified
1584
Huntington Beach
Union High
1564
Newport-Mesa
Unified
1502
Orange Unified
1490
Garden Grove
Unified
1600
Anaheim Union
High
Orange County Average: 1593
2000
1771
1322
1200
800
0
Irvine Unified
400
Santa Ana Unified
SAT SCORES: AVERAGE PER STUDENT FOR EACH DISTRICT
(SOURCE - CA DEPT OF EDUCATION)
(*Designates District in the CFD Market Area)
2400
¾ CFD Neighborhood Area: The Capistrano Unified School District has a significantly higher
SAT II score of 1646, as compared to that of the County.
Conclusions
From a socioeconomic perspective, Orange County has a significantly lower crime rate and a
significantly higher educational achievement level than California and also Southern California.
Furthermore, the CFD Neighborhood has a significantly lower crime rate and also a somewhat higher
educational achievement level as compared to Orange County, as a whole, and so the CFD projects are
considered to be in a desirable socioeconomic area.
23
C. RECENT HOUSING PRICE TRENDS AND SALES LEVELS
The recent price and sales trends for homes in Southern California, Orange County and the CFD
Market Area are now discussed, utilizing statistics acquired from Data Quick, which represent the
median values of the homes sold. Although these prices are regarded as being reasonably accurate
representations of housing market trends, they do not make adjustments for differences in the specific
characteristics of the homes sold, such as location, lot sizes and living area.
Southern California Counties
RECENT PRICE TRENDS FOR HOMES
IN THE SOUTHERN CALIFORNIA COUNTIES
$800,000
$700,000
PRICES OF HOMES
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
Southern California
Orange
Ventura
San Diego
Los Angeles
Riverside
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
$0
San Bernardino
¾ 1988-1995: The prices for homes in Southern California (SC) previously peaked in 1991, at
some $205,500 and then, due to the economic recession, declined during 1992-1995, falling to
a trough in 1995, some $174,600.
¾ 1996-2006: With the economic recovery, prices began to rise, surpassing their prior peak level
in 1999, and then since 2000, prices have risen to successive new peaks, attaining a level of
some $523,855 in 2006.
¾ Orange County: An estimated price of some $671,503 for 2006, significantly higher than SC
by some +$147,648.
24
RECENT SALES OF HOMES
IN THE SOUTHERN CALIFORNIA COUNTIES
400,000
350,000
NUMBER OF HOUSING SALES
300,000
250,000
200,000
150,000
100,000
50,000
Los Angeles
Orange
Riverside
San Diego
San Bernardino
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
Ventura
¾ 1988-1995: The sales of homes in Southern California previously peaked in 1988, at some
320,000 units and then, due to the economic slowdown and subsequent recession, declined
during 1989-1995, falling to a trough in 1992-1993, some 191,300 units.
¾ 1996-2001: With the economic recovery starting in 1996, sales rose significantly, to levels of
some 277,000.
¾ 2002-2005: Sales rose to new record levels of some 340,000 to 346,000.
¾ 2006: The level of sales declined to some 268,000, due to higher mortgage rates.
¾ Shares of Sales: With respect to the market shares of sales for 2005 various SC-Counties, they
are relatively high for Los Angeles (38%), moderate for San Diego County (17%), Riverside
County (16%) San Bernardino (12%) as well as Orange (13%), and relatively low for Ventura
(5%).
During 2002-2005, the Southern California Market Region experienced record levels of housing prices
and strong levels of housing sales, and so the market conditions are regarded as being robust.
However, for 2006, the appreciation rate for homes moderated while the sales level for homes
declined.
25
CFD No. 2005-1 Market Area and Nearby Competing Areas
The competitiveness of the CFD MA, Central Coastal portion of Orange County, can be gauged by
comparing the prices/sales of homes with those of the competing areas: Orange County–South Inland
(OC: South-Inland) and Orange County – South Coastal (OC: South-Coastal).
CFD NO. 2005-1 COMPETING HOUSING AREAS
OC: CENTRAL COASTAL
HOUSING AREA
SOUTH INLAND
HOUSING AREA
SOUTH COASTAL
HOUSING AREA
ORANGE COUNTY
BOUNDARY
26
RECENT HOUSING PRICE TRENDS
$1,200,000
$1,000,000
HOUSING PRICES.
$800,000
$600,000
$400,000
$200,000
CFD No. 2005-1
OC: South Inland
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
$0
OC: South Coastal
¾ Price Trends: The various market areas attained prior peak price levels in 1990/1991,
generally experienced price declines during 1991-1996, but then, during 1998 to 2000,
surpassed their prior peaks and went on to attain new record levels through 2005, along with
another record level for 2006.
¾ Relative Price Levels: The prices of homes in the OC South Coastal have been the highest,
since this area has a very desirable location in combination with a limited amount of
developable property.
¾ Appreciation Rates: Comparing the prices for homes in 2006 with their levels in 1990 reveals
their cumulative rates of appreciation: CFD MA: +178%, OC: South-Inland: +184%, OC:
South-Coastal: +219% and so prices have generally tripled since 1990.
RECENT SALES TRENDS
12,000
NUMBER OF HOUSING SALES
10,000
8,000
6,000
4,000
2,000
CFD No. 2005-1
OC: South Inland
¾
¾
¾
¾
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
OC: South Coastal
1988-1989: The various market areas attained their prior peak levels of sales activity.
1990-1995: Due to the economic slowdown, the level of housing sales declined.
1996-1998: Sales activity started to recover.
CFD No. 2005-1 MA: The level of sales attained a new record level of activity in 1998 but,
since then, has moderated, due to the scarcity of developable property.
¾ OC: South-Inland: The level of sales activity increased through 2002 but, since then, has
moderated, again due to a limited amount of developable property.
¾ OC: South-Coastal: The level of sales activity has continued to increase to 2005 but then
moderated, due also to the same reason as well.
27
D. RESIDENTIAL DEVELOPMENT TRENDS/PATTERNS
IN THE SOUTHERLY PORTION OF ORANGE COUNTY
The southeasterly portion of Orange County has experienced a considerable amount of development
activity during the past thirty years, as various Planned Communities, Business Parks, and Retail
Centers have entered the marketplace in a systematic manner; the Planned Community of Glenwood is
considered to be an “infill” component of this development pattern.
MAJOR PLANNED COMMUNITIES IN THE CFD NO. 2005-1 MARKET AREA
SANTA MARGARITA
F/ETC TOLL ROAD
Route 5
CFD 2005-1
ALISO VIEJO
COTO DE
CAZA
MISSION VIEJO
LADERA
LADERA
RANCHO MADRINA
FORSTER HIGHLANDS
TALEGA
The development patterns in the southeasterly portion of Orange County (OC) have been influenced by
two key factors:
¾ First, the pattern represents a systematic extension from the urbanized areas of central OC into
the rural areas of southern OC as well as the cities located in the far southern portion of Orange
County.
¾ Secondly, the Planned Communities in southern OC are accessed by Interstate 5, a major northsouth freeway, as well as the completed northern portion of the Foothill Transportation
Corridor (FTC), Route 241, a north-south toll road; additionally, the southern segment of the
FTC (south of Oso Parkway) is expected to be completed during the next five+ years.
¾ Third, access to CFD No. 2005-1 is immediately to the northeast of Route 73, a major northsouth toll road, by way of Aliso Creek Road and Glenwood Drive.
28
The types of development in southeasterly Orange County that have occurred or are expected to occur
in the vicinity of CFD No. 2005-1 (Glenwood) are as follows:
¾ Aliso Viejo, a Planned Community with some 20,000 residential units, upon build-out, along
with some 600 acres for commercial-industrial uses; CFD No. 2005-1 (Glenwood) represent
the final major residential development within Aliso Viejo, and, as such, is considered to be an
infill development.
¾ Rancho Santa Margarita, a conglomeration of various Planned Communities, Business Parks
and Retail Centers, which, together contains some 15,000 housing units, 400+ business-office
acres and 100+ commercial-retail acres. Most of this property has already been
developed/marketed to final-users, and so these Planned Communities, Business Parks and
Retail Centers are build-out.
¾ Planned Community of Coto de Caza which features luxury housing in a golf course setting; it
has completed the marketing of its some 4,000 homes.
¾ Mission Viejo, a Planned Community with some 30,000 homes entered the marketplace some
30 years ago and has recently completed the marketing of its residential projects and apartment
complexes.
¾ Ladera Ranch, a Planned Community with some 8,100 homes entered the marketplace in 1999
and, since then, has marketed some marketed some 7,800+ housing units in various residential
projects and apartment complexes.
¾ Rancho Madrina, with some 120 homes, entered the marketplace in mid-2005, and most of its
homes are occupied.
¾ The Planned Community of Forster Highlands with some 1,000 homes that entered the
marketplace in mid-2000, and, since then, has closed escrows on all its homes.
¾ The Planned Community of Marblehead which has entitlements for some 300 housing units; it
has not yet entered the marketplace.
¾ The Planned Community of Talega which has entitlements for some 3,900 housing units; it
entered the marketplace in mid-1999, and, since then, has had some 3,400 housing units
occupied.
¾ Finally, various Planned Communities that are proposed for future development in the southern
Orange County, near Ortega Highway and Antonio Parkway; however, they have not yet
obtained their planning approvals, and so they are not expected to enter the marketplace for
two+ years.
Therefore, within the context of the development in southeasterly Orange County, CFD No. 2005-1
Glenwood represents a Planned Community that continues this development pattern, as an infill
development.
29
¾
¾
E. COMPETITIVE MARKET ANALYSIS
OF THE PROJECTS IN CFD NO. 2005-1
The purpose of this section is to provide an overview of the currently active Planned Communities
with for-sale housing in the Competitive Housing Market Area, in the vicinity of the CFD, and to then
compare these with the characteristics of the projects in the Planned Community of CFD No. 2005-1
(Glenwood).
Competitive Market Analysis of CFD No. 2005-1
The CFD No. 2005-1 Competitive Housing Market Area currently has two Major Planned
Communities (PCs), Vantis in Aliso Viejo and also Ladera Ranch; their projects are regarded as being
the most comparable.
Accordingly, based upon market surveys, the currently active projects which are considered to be
comparable to the projects in CFD No. 2005-1 are as follows;
Planned Community Vantis in Aliso Viejo: All Attached Projects
Latitudes South by Shea Homes
Latitudes North by Shea Homes
City Walk by Shea Homes
Planned Community of Ladera Ranch: All Detached Projects
Segovia by Pardee
Montanez by Centex Homes
Arboledo by Warmington Homes
Capistrano by K. Hovnanian
Encantada by Pardee
Skye Isle by K. Hovnanian
COMPARABLE PLANNED COMMUNITIES FOR CFD NO. 2005-1
CFD 2005-1
ALISO VIEJO VANTIS
LADERA
LADERA
30
The Planned Communities (PCs) of Aliso Viejo - Vantis and Ladera Ranch as well as the projects in
CFD No. 2005-1, have a total of 13 projects with some 1,085 housing units of which 229 have had
their escrows closed and so they are considered to be occupied; the distribution of these projects
among the PCs are as follows:
¾ CFD No. 2005-1 - Attached: 1 project with 141 homes; no closings thus far.
¾ CFD No. 2005-1 - Detached: 3 projects with 318 homes; no closings thus far.
¾ Comparables-Attached: 3 active projects with 307 homes of which 17 are occupied.
¾ Comparables-Detached: 6 active projects with 319 homes of which 212 are occupied.
CFD NO. 2005-1 COMPETITIVE HOUSING MARKET AREA:
CHARACTERISTICS OF ACTIVE PROJECTS
MARKETING STATUS
350
300
250
200
150
100
50
0
Escrows Closed
Future Units
CFD No. 2005-1 - Attached
CFD No. 2005-1 - Detached
Comparables: Attached
0
0
17
212
141
318
290
107
31
Comparables: Detached
For the projects in the currently active PCs as well as the projects in CFD No. 2005-1, their prices
amount to some $1,105,599, as a whole, while their living areas are some 3,309 sq.ft., as a whole;
accordingly, the prices and living areas are as follows:
¾ CFD No. 2005-1 – Attached: Prices of $539,593 for some 1,515 sq.ft. of living area.
¾ CFD No. 2005-1 - Detached: Prices of $1,181,276 for some 3,674 sq.ft. of living area.
¾ Comparables - Attached: Prices of $598,335 for some 1,818 sq.ft. of living area.
o These base prices for these projects as represented above were reduced
by their incentives of $17,400, on the average.
¾ Comparables - Detached: Prices of $1,415,727 for some 4,170 sq.ft. of living area.
o These base prices for these projects as represented above were reduced
by their incentives of $11,700, on the average.
$1,600,000
4,500
$1,400,000
4,000
3,500
PRICES OF HOUSING UNITS
$1,200,000
3,000
$1,000,000
2,500
$800,000
2,000
$600,000
1,500
$400,000
1,000
$200,000
$0
LEFT: Price
RIGHT: Living Area
500
0
CFD No. 2005-1 Attached
CFD No. 2005-1 Detached
Comparables:
Attached
Comparables:
Detached
Totals/Averages
$539,593
$1,181,276
$598,335
$1,415,727
$1,105,599
1,515
3,674
1,818
4,170
3,309
32
SIZE OF LIVING AREA - SQUARE FEET
CFD NO. 2005-1 COMPETITIVE HOUSING MARKET AREA
HOUSING PRICES AND LIVING AREAS
To compare the prices of the projects in the PCs as well as the projects in CFD No. 2005-1, their value
ratios are utilized, the price per sq. ft. of living area, since this effectively makes adjustments for
differences in their sizes of living areas. Accordingly, the value ratios amount to $334 per sq. ft. of
living area and their Special Taxes/Assessments amounts to some $6,155/yr. (0.55% as a ratio to the
housing prices); accordingly, the value ratios and Special Tax/Assessment characteristics are as
follows:
¾ CFD No. 2005-1 – Attached: Value Ratio of $356 and Special Taxes of $2,870/yr. (0.53%).
¾ CFD No. 2005-1 – Detached: Value Ratio of $320 and Special Taxes of $5,723/yr. (0.49%).
¾ Comparables - Attached: Value Ratio of $333 and Special Taxes of $2,992/yr. (0.50%).
¾ Comparables - Detached: Value Ratio of $338 and Special Taxes of $8,500/yr. (0.60%).
$400
$9,000
$350
$8,000
$7,000
$300
$6,000
$250
$5,000
$200
$4,000
$150
$3,000
$100
$2,000
$50
$0
LEFT: Value Ratio
RIGHT: Special Assmt/Tax
$1,000
CFD No. 2005-1 Attached
CFD No. 2005-1 Detached
$0
Comparables: Attached Comparables: Detached
Totals/Averages
$356
$320
$333
$338
$334
$2,870
$5,723
$2,992
$8,500
$6,155
33
SPECIAL TAXES / ASSESSMENTS - ANNUALLY
VALUE RATIO: PRICE / LIVING AREA
VALUE RATIOS AND SPECIAL TAXES
The PCs with 9 active projects have had an estimated sales rate of some 159 homes per year, for an
average of some 18 units per project per year; the distribution of these sales among the various product
types has been as follows:
¾ Comparables – Attached: 3 projects with sales of 60 homes annually, some 20 per project, on
the average.
Applying the recent sales rate, 60 homes per year, to the number of homes remaining to close
escrow, 290 homes, results in a close-out time of almost five years.
¾ Comparables - Detached: 6 projects with total sales of 99 homes annually, some 17 per
project, on the average.
Applying the recent sales rate, 99 homes per year, to the number of homes remaining to close
escrow, 107 homes, results in a close-out time of about one year.
SALES RATES
400
50
40
350
18
17
250
20
20
10
0
200
159
150
-20
99
100
-10
-30
60
50
-40
-50
0
Total Sales
Sales-Project
34
Totals/Averages
SALES PER PROJECT-ANNUALLY
TOTAL SALES BY PC - ANNAULLY
30
300
Ladera Ranch
Ladera Ranch
Ladera Ranch
N/A
N/A
20
17
18
Totals/Averages
Sales / Year
Skye Isle
Encantada
Capistrano
Arboledo
Montanez
Segovia
City Walk - Vantis
Latitudes North - Vantis
Latitudes South - Vantis
Vista Vallarta
Birch River
Casadera
Harbor Station
Project Names
Statistical Summary
Ladera Ranch
Ladera Ranch
Ladera Ranch
Aliso Viejo
Aliso Viejo
Glenwood
Aliso Viejo
Glenwood
Glenwood
Glenwood
Community
Locations
Planned
Project
13
6
3
3
1
K. Hovnanian
Pardee
K. Hovnanian
Warmington Homes
Centex Homes
Pardee
Shea Homes
Shea Homes
Shea Homes
Shea Homes
Shea Homes
Shea Homes
Shea Homes
Builder
Detached
Detached
Detached
Detached
Detached
Detached
Attached; Live/Work
Attached
Attached
Single Family
Single Family
Single Family
Attached
(Averages)
Lot Sizes
1,085
319
307
318
141
61
37
35
62
59
65
41
165
101
100
69
149
141
Total
35
229
212
17
0
0
57
16
27
37
43
32
8
6
3
0
0
0
0
Closed
Escrows
856
107
290
318
141
4
21
8
25
16
33
33
159
98
100
69
149
141
Future
159
99
60
0
0
16
12
10
25
16
20
25
20
15
N/A
N/A
N/A
N/A
Rate/Yr.
Sales
Project Size and Sales
Housing Prices.
$1,032,111
$1,299,228
$557,267
$1,143,430
$519,990
$1,559,419
$1,460,000
$1,430,000
$1,252,000
$1,067,000
$1,026,950
$716,820
$504,990
$449,990
$1,310,300
$1,299,990
$820,000
$519,990
Lower
$1,105,599
$1,415,727
$598,335
$1,181,276
$539,593
$1,801,705
$1,587,500
$1,527,500
$1,402,000
$1,122,500
$1,053,158
$742,525
$559,990
$492,490
$1,322,895
$1,368,186
$852,747
$539,593
Average
$1,175,907
$1,532,226
$639,403
$1,207,080
$553,990
$2,043,990
$1,715,000
$1,625,000
$1,552,000
$1,178,000
$1,079,365
$768,230
$614,990
$534,990
$1,331,800
$1,399,810
$889,630
$553,990
Upper
(Prices of Comparables, After Incentives)
3,057
3,829
1,594
3,499
1,488
4,568
4,350
3,999
3,600
3,292
3,166
2,194
1,401
1,188
4,189
3,656
2,652
1,488
Lower
3,309
4,170
1,818
3,674
1,515
5,227
4,625
4,350
3,900
3,569
3,351
2,415
1,632
1,408
4,309
3,837
2,877
1,515
Average
3,567
4,511
2,042
3,884
1,526
5,886
4,900
4,700
4,200
3,846
3,536
2,636
1,863
1,627
4,432
4,056
3,163
1,526
Upper
Size of Living Area
$334
$338
$333
$320
$356
$345
$343
$351
$359
$315
$314
$307
$343
$350
$307
$357
$296
$356
Ratio
Value
Special
$6,155
$8,500
$2,992
$5,723
$2,870
$11,000
$9,500
$9,100
$7,800
$6,800
$6,800
$3,713
$2,800
$2,462
$6,850
$5,880
$4,440
$2,870
Year
Amount/
0.55%
0.60%
0.50%
0.49%
0.53%
0.61%
0.60%
0.60%
0.56%
0.61%
0.65%
0.50%
0.50%
0.50%
0.52%
0.43%
0.52%
0.53%
Price
Ratio/
Assessments/Taxes
SECTION IV:
POTENTIAL “FINANCIAL” RISK FACTORS UNDERLYING THE CREDIT
QUALITY AND BOND SIZING FOR LAND SECURED FINANCINGS IN
SOUTHERN CALIFORNIA
There has been a fundamental shift in the driving force underlying the recent rates of housing price
appreciation, from the historical role of employment growth as the driving force to the recent role of
adjustable rate and creative financing techniques as the driving force. Since January 2002, these
financial factors have been the primary driving force underlying the extraordinary rate of housing
price appreciation in Southern California, more than 70%. However, the economic feasibility of
creative financing has recently diminished, as both short-term and long-terms rates have risen.
Consequently the current levels of housing prices and land values are subject to potentially substantial
downward adjustments, due to mortgage rate resets (as mortgages are adjusted from teaser rates to
market rates) as well as higher short-term rates (due to rate hikes by the Federal Reserve Board).
These adjustments, in turn, may cause a softening in housing prices and land values that could
adversely impact the credit quality underlying land-secured financings.
Financial Risk Factors: New Projects vs. Overall Market
New projects with newly developing residential projects have characteristics that make them more
vulnerable to a housing market bubble than national or regional markets. Specifically, New projects
represent the marketing of new homes to purchasers at current prices that utilize creative financing
structures and they are also concentrated in particular geographical locations.
CHARACTERISTICS
OVERALL MARKET
COMMUNITY FACILITIES DISTRICT
Geographical Location
Broad
CFD - Focused Area
Time of Purchase
Long Time Span: 10- 20 Years
Recently
Type of Financing Structure
Amount of Equity
Mostly
Predominantly
> Fixed Rates
> Amortization of Principal
> Adjustable & Creative
> Higher Loan Balances
Significant; Accumulated Over Time
Minimal
> Recent Purchase
> Negative Amortization
Timing of Loan Resets
Minimal & Spread Over Time
Most & Similar Time
Definition of Creative Financing
Creative financing, as utilized herein, refers to the use of loan structures other than fixed-rate or oneyear adjustable loan structures that provide for amortization of principal; some examples of creative
structures are as follows:
¾ Interest only payments.
¾ Payment option loans (with minimum payment options).
¾ Loans with initial teaser rates (below market rates that are offered only for a limited time
period).
Additional factors related to creative loan structures include:
¾ Less stringent lending standards such as low/no documentation.
¾ Higher mortgage payment to income ratios.
36
1. Recent Housing Price Appreciation Patterns
A comparison of the price appreciation patterns for the current (2001-2006) and the prior (1986-1993)
real estate cycles reveals that there are significant similarities between them:
¾ The peak rates of appreciation amounted to 32% in 3rd-quarter of 2004 for the current cycle and
24% in the 2nd-quarter of 1989 for the prior cycle.
¾ For the three years leading to the peak rate of appreciation, the average rates of appreciation
amounted to 14% for the prior cycle and 16% for the current cycle,
¾ For the two years after the peak rate of appreciation, the average rates of appreciation
amounted to 23% for the current cycle and 12% for the prior cycle. Furthermore, after two
years from the peak, the rates of appreciation stabilized for both cycles,
So a comparison of the price appreciation patterns for the current and the prior real estate cycles
reveals that there are significant similarities between them.
PRICE CHANGE - ANNUALLY; COMPUTED BY EMPIRE ECONOMICS
HOUSING PRICE APPRECIATION: PRIOR VS CURRENT CYCLES
40%
2-YEARS AFTER PEAK
PRICES APPRECIATION STABILIZES
PEAK RATES OF APPRECIATION:
PRIOR CYCLE: 24%
CURRENT CYCLE: 32%
35%
30%
25%
APPRECIATION FOR 3-YEARS
PRIOR TO PEAK:
PRIOR CYCLE: 14%
CURRENT CYCLE: 16%
20%
15%
10%
5%
0%
-5%
SOURCE: EMPIRE ECONOMICS
-10%
1986
2001
1987
2002
1988
2003
1989
2004
Prior Peak: 1989
1990
2005
1991
2006
1992
Current Peak: 2004
Sources: Empire Economic and Office of Federal Housing
37
1993
2. Structural Shift in the Primary Factors Underlying Housing Price Appreciation:
From Employment Growth to Creative Financing
The primary factors underlying the current cycle of housing price appreciation in Southern California,
declining mortgage rates as well as the extensive use of adjustable and creative financing, represent a
fundamental shift from the prior cycle, employment growth.
¾ During the prior cycle, 1986-1991, housing price appreciation was driven by employment
growth, with an average growth rate of some +2.3% per year, along with accommodating
financial factors, such as stable or somewhat declining mortgage rates. During this time period
financial factors played only a secondary role: for instance, over 1991-1993 when employment
decreased, housing prices declined, even though mortgage rates fell by more than two
percentage points from their 1989-1990 levels.
¾ However, for the current cycle, 2001-2006, as housing prices escalated at strong rates, the
primary fundamental factor, employment growth, has experienced only minimal growth, some
+0.6% per year, on the average. Instead, housing price appreciation has been driven primarily
by financial factors, particularly the use of adjustable rate mortgages and creative financing
techniques.
CHANGE - ANNUALLY; CALCULATED - EMPIRE ECONOMICS
COMPARISON OF EMPLOYMENT GROWTH
COMPARISON OF MORTGAGE RATES
TWO REAL ESTATE CYCLES: 1986-1991 AND 2001-2006
12%
10%
8%
FOR THE 1989 CYCLE, EMPLOYMENT ROSE PRIOR TO
THE PEAK AND THEN DECLINED THEREAFTER.
FOR THE 1989 CYCLE, MORTGAGE RATES WERE
RELATIVELY HIGH, AND REMAINED AT HIGH LEVELS
PRIOR/AFTER THE PEAK
WHILE FOR THE 2004 CYCLE, EMPLOYMENT
GROWTH WAS MINIMAL PRIOR TO THE PEAK AND
THEN ROSE MODERATELY THEREAFTER.
6%
4%
2%
0%
FOR THE 2004 CYCLE, MORTGAGE RATES DECLINED
TO RECENT HISTORIC LOWS AND THEN CREATIVE
FINANCING WAS UTILIZED THEREAFTER
-2%
SOURCE: EMPIRE ECONOMICS
-4%
1986
2001
1987
2002
1988
2003
1989
2004
1990
2005
1991
2006
1986
2001
Employment: 1989 Peak
Mortgage Rates: 1989 Peak
1987
2002
1988
2003
1989
2004
1990
2005
1991
2006
Employment: 2004 Peak
Mortgage Rates: 2004 Peak
Sources: Empire Economics, Employment Development Department, & Freddie Mac
38
3. Role of Financial Factors Underlying Recent Rates of Housing Price Appreciation
Since January 2002, the primary driving forces underlying housing price appreciation have been as
follows:
¾ Households initially taking advantage of recent historically low fixed rates, through June 2003.
¾ A shift to adjustable rate mortgages, through March 2004.
¾ Since April 2004, the use of creative financing structures.
The impacts of creative mortgage financing structures on the price of housing can be gauged by
estimating the prices that households could afford to pay utilizing the various structures; the starting
price for housing, as of January 2002, was some $278,000, and prices have recently increased to some
$475,000, a change of more than 70%.
PRICE OF HOUSING USING ALTERNATIVE MORTGAGE STRUCTURES
$600,000
+20%
+ 30%
PRICE - VALUE OF HOUSING
$500,000
+70%
$475,279
$400,000
$362,984
$330,825
$300,000
$277,584
$200,000
$100,000
$0
Starting Price - January
2002
Current: Fixed Rate
Current: Adjustable
Current: Creative
¾ Fixed Rates: Based upon the recent historic low for fixed rates, which occurred in June 2003,
the price amounted to some $350,000, an increase of $72,000; however, using current fixed
rates, the most recent price amounts to some $331,000, some -$144,000 below current price
levels.
¾ Adjustable Rates: Based upon the recent historic low for adjustable rates, which occurred in
March 2004, the price amounted to some $444,000, an increase of $164,000; however, using
current adjustable rates, the most recent price amounts to some $363,000, some -$112,300
below current price levels.
¾ Creative Financing: Based upon the rates for creative financing, the price currently amounts
to some $475,000, an increase of $197,000 above the price for housing as of January 2002 of
some $278,000.
39
4. Potential Risk Factors for Purchasers Utilizing Creative Financing Structures
The purchasers of homes that utilize creative financing structures are able to “afford” homes at current
market prices; however, their rates are subject to resets that will cause their payments to rise
substantially, and so they face the risk of potentially becoming delinquent on their mortgage and tax
payments.
4-A. Purchasers Using Creative Financing and Mortgage Loan Resets
Purchasers of homes that utilize creative financing are subject to resets, as their initial teaser rates are
re-aligned to the market rates, and so their mortgage payments are likely to increase significantly.
The potential for mortgage reset is illustrated below, using a home with a price of $500,000 that is
fully financed, with no down payment, something that buyers often do using first and second
mortgages:
Fixed Rate Loan Structure:
¾ Mortgage payment of some $32,500 per year.
Creative Loan Structure:
¾ First three years, $24,375 per year, using a teaser rate interest only payment.
¾ Starting in the fourth year, when the loan payment is adjusted to the market rate and fully
amortized to pay principal as well, the payment rises to some $34,600 per year.
Therefore, the mortgage payment for the fourth year and thereafter is some 42% higher than for the
first three years, an increase of some $10,225 per year.
MORTGAGE PAYMENTS: FIXED RATE VS CREATIVE FINANCING
PRESENT VALUE OF LOAN PAYMENTS THE SAME
$40,000
FIXED RATE LOAN - LEVEL PAYMENT FOR 30 YEARS
$38,000
ADDITIONAL PAYMENTS DUE TO EARLY SAVINGS
MORTGAGE PAYMENTS - ANNUALLY
$36,000
$34,000
$32,000
$30,000
YEAR # 4 LOAN PAYMENT INCREASES BY + 42%
$28,000
$26,000
$24,000
EARLY SAVING USING
CREATIVE FINANCING
$22,000
$20,000
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Fixed Rate
Creative: 3-Years
With regard to the amount of mortgages that are subject to such resets, based upon data for the United
States mortgage market as a whole, these are expected to rise dramatically, from some $0.83 billion in
2005 to more that $1.0 trillion in 2007.
Furthermore, it is worthwhile to note that with regards to New projects in particular, mortgage resets
are expected to be significant, since most of the recent purchasers have utilized creative financing.
40
4 - B. Example of Purchasers of Homes in a Residential Project with Mortgage Resets
The following example provides a simulation of the potential impacts of mortgage resets for the recent
purchasers of homes in a newly developing residential project:
¾
¾
¾
¾
Price of Homes: $500,000
Household Income: $75,000
Fully Mortgaged: 100% First of 80% and second of 20%
Creative Structure:
¾ Interest only for first three years: $20,000 per year
¾ Interest and amortization: next 27 years: $30,000 per year
¾ Property and Special Taxes: 2.0%, $10,000 per year.
HOUSING PAYMENTS FOR HOUSEHOLDS WITHIN A CFD
SAMPLE PROJECT: MORTGAGE RESETS IN YEAR 3
$80,000
HOUSEHOLD INCOME = $75,000
$70,000
MORTGAGE RESETS RAISE MORTGAGE PAYMENT BY +$10,000 OR +50%
$60,000
HOUSING PAYMENTS
HOUSEHOLDS NEED TO CUT BACK ON OTHER EXPENDITURES BY $10,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
2004 - Sales
2005 - Sales
2006
Phase I: 50 Buyers
2007 -Resets
Start
2008- Resets Continue
2009
Phase II: 50 Buyers
Accordingly, the application of these assumptions results in the following scenario:
¾ Phase I: 50 buyers in 2004 have payments of $30,000 per year until 2007 when the reset cause
the payment to escalate to $40,000 per year. (mortgage payment rises by $10,000)
¾ Phase II: 50 buyers in 2005 follows a similar pattern, with a year’s delay.
¾ 2006: The buyers in both phases have stable payments, and so the delinquency rate is expected
to be normal.
¾ 2007: The first 50 buyers have their payment rise by some $10,000.
¾ 2008: The buyers in Phase II which have their payments also rise.
The delinquency rates resulting from these mortgage payment increases will be determined by a
multiplicity of factors, including the financial reserves of the households, their ability to reduce other
expenditures, and so forth. Nevertheless, an increase in the mortgage payment by some $10,000 may
prove to be beyond the financial capabilities of some of the households. Furthermore, their motivation
to re-allocate funds to the mortgage payment may be diminished by their low levels of equity (100%
financing and negative amortization).
41
4 – C Delinquency Rates and Types of Loans
From an historical perspective, the mortgage delinquency levels for homeowners with adjustable
mortgages have traditionally been significantly higher than for homeowners with fixed rate loans.
During the 2000-2005 time period, the 5.4% delinquency rate for adjustable rate loans has been above
the 3.6% delinquency rate for fixed rate loans by some 50% (5.4% vs. 3.6%.). This is typically
attributed to homeowners with adjustable rate loans having difficulty with higher mortgage payments
as rates rise as well as such households having “low” equity levels (due to higher loan to price ratios as
well as negative amortization), and hence less of an incentive to “hold-on” to the home.
DELINQUENCY RATES:
FIXED-RATE VS. VARIABLE-RATE LOANS
7%
PERCENTAGE OF LOANS
6%
5%
4%
3%
2%
1%
0%
2000
2001
2002
2003
2004
Fixed-Rate
2005
Variable-Rate
Sources: Empire Economics & National Delinquency
S
However, the potential delinquency rates for households with creative financing does not have an
historical track record, since such loan structures have just become the available recently, and so they
have not yet been tested under adverse real estate and economic conditions. Considering that creative
loans are subject to substantial increase in mortgage payments when they are reset, as compared to
traditional adjustable loans which vary only due to interest rates fluctuations, their delinquency rates
are likely to be substantially higher.
A “leading” indicator of higher Special Tax delinquency rates may be “notices of default” that are
recorded against homes that are not making their mortgage payments on a timely basis.
ORANGE COUNTY: TRENDS FOR NOTICES OF DEFAULT
7,000
NOTICES OF DEFAULT - QUARTERLY
6,000
5,000
4,000
3,000
2,000
Empire Economics
& Dataquick
1,000
2006Q3
2006Q1
2007 Q1
2005Q3
2005Q1
2004Q3
2004Q1
2003Q3
2003Q1
2002Q3
2002Q1
2001Q3
2001Q1
2000Q3
2000Q1
1999Q3
1999Q1
1998Q3
1998Q1
1997Q3
1997Q1
1996Q3
1996Q1
1995Q3
1995Q1
1994Q3
1994Q1
1993Q3
1993Q1
1992Q3
1992Q1
0
Therefore, although a project may initially have low delinquency levels, when the resets start to
occur several years after the original purchase, then the delinquency rates may rise
dramatically, since most of the buyers in the project have similar financing structures.
Furthermore, these delinquency rate increases may occur despite the higher value of the homes
(but minimal equity) and favorable economic growth (not a recession).
42
5. Conclusions
The housing market is expected to experience some significant adjustments during the foreseeable
future, as the current price structure, which is based upon the extensive use of creative financing, is realigned with a sustainable price structure, which is based upon the use of more traditional financing
structures:
¾ The majority of home purchasers in recent years have utilized creative financing structures, and
this has enabled them to “afford” homes at current market prices; however, such structures are
subject to resets that will cause their payments to rise substantially, and so they face the risk of
becoming delinquent on their mortgage and tax payments.
¾ However, if these purchasers instead used traditional financing structures, then the majority of
them would NOT be able to “afford” homes at current market prices, and so their inability to
do so would have caused the rate of sales to slowdown, unless builders offered them substantial
concessions, and eventually lower prices.
Therefore, as the market transitions from the creative financing structure to the traditional financing
structures, prospective purchasers will encounter challenges in paying the current prices, since their
purchasing power with traditional loan structures is significantly below their purchasing power with
creative structures. So, the real estate market is expected to encounter some significant adjustments,
through a combination of lower prices, enhanced builder incentives, and slower sales rates.
Finally, these market adjustments are expected to have a much more significant impact on newly
developing residential projects in CFDs as compared to the broader market as a whole, since such
projects represent the marketing of new homes to purchasers at current prices and they are also
concentrated in particular geographical locations.
43
V. ESTIMATED ABSORPTION SCHEDULES FOR THE
The purpose of this section is to estimate the absorption schedules for the projects in CFD No.
2005-1, based upon a consideration of the recent/expected market demand/supply conditions as well
as the potential market and financial risk factors, along with the market-entry of the projects.
Market Demand/Supply as well as the Market/Financial Risk Factors
Macroeconomic Components
* Market Demand for Housing Based Upon
SCAG Projections Modified for
Recent/Expected Economic Conditions
Microeconomic Components
* Socioeconomic Factors: School and Crime
* Housing Price Trends and Patterns
* Competitive Market Analysis
Potential “Market” Risk Factors
* Recent/Expected Increases in Mortgage Rates
* Currently Active Projects: Future Housing Supply
Potential “Financial” Risk Factors
* Purchasers Utilizing Creative Financing
Subject to Mortgage Resets
* Purchasers Using Traditional Financing Structures:
Difficult to Qualify at Current Prices
44
Empire’s Algorithm for Estimating Absorption Schedules
Empire Economics has estimated the expected absorption schedules for the homes in CFD No. 2005-1,
through a comprehensive analysis of the following factors:
¾ the anticipated product characteristics for the homes, such as their prices, sizes of living areas,
and Special Taxes.
¾ the competitive market analysis of the currently active comparable projects.
¾ the recent/expected economic and real estate factors, including a slowdown for the real estate
market during the next several years that will result in slower sales rates.
Finally, the estimated absorption schedules, which represent escrow closings to homeowners, are
subject to the Assumptions and Qualifications set-forth in the next section.
Expected Market Entry of the Projects and Recent Sales/Cancellations
The projects in CFD No. 2005-1 are expected to commence escrow closings to homeowners as
follows:
¾
¾
¾
¾
Harbor Station is expected to commence escrow closings during 4th-2007.
Pasadera is expected to commence escrow closings during 1st-2008.
Birch River is expected to commence closings during 4th-2007.
Vista Vallarta is expected to commence escrow closings during 1st-2010.
The projects in CFD No. 2005-1 are expected to provide housing opportunities to households in
various market segments, including Harbor Station oriented primarily towards first-time buyers and
then for the other three projects oriented primarily towards move-up households.
The estimated absorption schedules represent escrow closings by homeowners, and, as such, they take
into consideration the number of homes that have sold as well as the cancellations. Cancellation rates
are subject to significant amount of change, as prospective purchasers move through the sales process.
For instance, during the past several months, the number of purchasers for homes in Harbor Station
decreased from 14 to 12 while the number of purchasers for homes in Birch River rose from 4 to 10.
However, since these homes are not expected to close escrow until mid-October for Harbor Station and
mid-November for Birch River, further changes are expected to occur.
45
Accordingly, the estimated absorption schedules for the residential projects in CFD No. 2005-1 are as
follows:
CFD NO. 2005-1 (GLENWOOD):
ESTIMATED ABSORPTION SCHEDULE - EMPIRE ECONOMICS
140
NUMBER OF HOMES - ANNUALLY
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
2012
Vista Vallarta
0
0
0
30
45
25
Birch River
8
20
25
16
0
0
Pasadera
0
25
30
40
54
0
Harbor Station
10
40
50
41
0
0
Therefore, the 459 attached and detached homes in CFD No. 2005-1 are expected to be absorbed
(escrows closed) during the 2007 to 2012 time period, as follows:
¾ 2007: 18 homes, as two projects commence escrow closings, but sales occur at the modified
sales rates due to the softening real estate market.
¾ 2008: 85 homes, as three of the projects are on the marketplace closing escrows, but with sales
again occurring at the modified sales rates due to the soft real estate market.
¾ 2009: 105 homes, as three of the projects are on the marketplace at the beginning of the year;
additionally, the sales rate per project increases due to the real estate market starting to
stabilize.
¾ 2010: 127 homes, as all of the projects are on the marketplace, and the sales rate per project
increases due to the real estate market stabilizing, with some of the projects being closed-out.
¾ 2011: 99 homes, as the market recovers, with most of the projects being closed-out.
¾ 2012: 25 homes, as the remaining projects are closed-out.
The estimated absorption schedules for the residential projects in CFD
No. 2005-1 are subject to change due to potential shifts in economic/real
estate market conditions and/or the development strategy by the
developer/builder, Shea Homes.
46
ESTIMATED ABSORPTION SCHEDULES
. SEPTEMBER 28, 2007.
Projects >>>
Harbor Station
Pasadera
Birch River
Vista Vallarta
Shea Homes
Shea Homes
Shea Homes
Shea Homes
Attached
Detached
Detached
Detached
Plan # 1
38
38
18
24
Plan # 2
62
52
26
35
Plan # 3
41
59
25
41
Totals
141
149
69
100
Builders
Product Types
Annually
Cumulatively
Number of Homes - Estimated
459
Model Complex
Model Complex
Model Complex
Shea Homes
Plan # 1
$519,990
$820,000
$1,299,990
$1,310,300
Plan # 2
$553,990
$834,830
$1,384,990
$1,321,100
Plan # 3
$535,990
$889,630
$1,399,810
$1,331,800
Average
$539,593
$852,747
$1,368,186
$1,322,895
Builder Incentives
$10,000
$17,500
$25,000
N/A
Plan # 1
1,488
2,652
3,656
4,189
Plan # 2
1,526
2,718
3,753
4,248
Plan # 3
1,523
3,163
4,056
4,432
1,515
2,877
3,837
4,309
2,986
$356
$296
$357
$307
$311
Estimated Base Prices
$929,654
Estimated Living Areas
Average
Value Ratio
Estimated Absorption: Empire
. 4th-2007
.1st-2008
. 4th-2007
1st-2010
2007
10
0
8
0
18
18
2008
40
25
20
0
85
103
2009
50
30
25
0
105
208
2010
41
40
16
30
127
335
2011
0
54
0
45
99
434
2012
0
0
0
25
25
459
141
149
69
100
459
Commence Escrow Closings
47
SECTION VI: ASSUMPTIONS AND LIMITING CONDITIONS
The Market Absorption Study is based upon various assumptions and limiting conditions; accordingly, these are
as follows:
Property Boundaries
No survey or engineering analysis of CFD No. 2005-1 property has been made by the market analyst; the
District Engineer's report utilized for the Bond is deemed to be reliable. The market analyst assumes the existing
boundaries to be correct, that no encroachments exist and assumes no responsibility for any condition not
readily observable from customary investigation and inspection of the premises, which might affect the
valuation, excepting those items which were specifically mentioned in the report.
Maps and Exhibits
Maps and exhibits included in this report are for illustration only as an aid in visualizing matters discussed within
the report. They should not be considered as surveys, or relied upon for any other purpose, nor should they be
removed from, reproduced, or used apart from the report.
Title to Property
No opinion as to title is rendered. Data related to ownership and legal description, obtained from governmental
records related to the formation of the District that forms the basis for identifying the boundaries of CFD No.
2005-1 are considered reliable. Title is assumed to be marketable and free and clear of all liens, encumbrances,
easements and restrictions except those specifically discussed in the report. The property is evaluated assuming
to be under responsible ownership and competent management and available for development to highest and best
use.
Earthquakes and Seismic Hazards
The property which is the subject of this market analysis is within a geographic area prone to earthquakes and
seismic disturbances. Except as specifically indicated in the report, no seismic or geologic studies have been
provided to the market analyst concerning the geologic and/or seismic condition of the subject property. The
market analyst assumes no responsibility for the possible effect on the subject property of seismic activity and/or
earthquakes.
Soil and Geological Studies
No detailed soil studies or geological studies or reports were made available to the market analyst. Assumptions
employed in this report regarding soils and geologic qualities of the subject property have been provided to the
client. However, such assumptions are not conclusive and the market analyst assumes no responsibility for soils
or geologic conditions discovered to be different from the conditions assumed unless otherwise stated in this report.
Hidden or Unapparent Conditions
The market analyst assumes no responsibility for hidden or unapparent conditions of the property, subsoil,
groundwater or structures that render the subject property more or less valuable. No responsibility is assumed for
arranging for engineering, geologic or environmental studies that may be required to discover such hidden or
unapparent conditions.
Presence and Impact of Hazardous Material
Unless otherwise stated in the report, the market analyst did not become aware of the presence of any hazardous
material or substance during the market analyst's general inspection of the subject property. However, the
market analyst is not qualified to investigate or test for the presence of such materials or substances. The
presence of such materials or substances may adversely affect the evaluation of the subject property. The
market analyst assumes no responsibility for the presence of any such substance or material on or in the
subject property, nor for any expertise or engineering knowledge required to discover the presence of such
substance or material.
48
Structural Deficiencies of Improvements
The market analyst has not performed a thorough inspection of the subject property, and except as noted in this
report has not found obvious evidence of structural deficiencies in any improvements located on the subject
property. Consequently, the market analyst assumes no responsibility for hidden defects or nonconformity with
specific governmental requirements, such as fire, building and safety, earthquake or occupancy codes, unless
inspections by qualified independent professions or governmental agencies were provided to the market analyst.
Further, the market analyst is not a licensed engineer or architect and assumes no responsibility for structural
deficiencies not apparent to the market analyst at the time of their inspection.
Presence of Asbestos
The market analyst is not aware of the existence of asbestos in any existing improvements on the subject
property. However, the market analyst is not trained to discover the presence of asbestos and assumes no
responsibility should asbestos be found in or at the subject property. For the purposes of this report, the market
analyst assumes the subject property is free of asbestos and the subject property meets all federal, state and
local laws regarding asbestos abatement.
Environmental and Other Regulations
The property is evaluated assuming it to be in full compliance with all applicable federal, state and local
environmental regulations and laws, unless otherwise stated.
Required Permits and Other Governmental Authority
Unless otherwise stated, the property evaluated is assumed to have all required licenses, permits, certificates,
consents or other legislative and/or administrative authority from any local, state or national government or
private entity or organization that have been or can be obtained or renewed for any use on which the evaluation
analysis contained in this report is based upon.
Designated Economic Scenario
The Market Absorption Study focuses upon the expected absorption schedules for the products in CFD No.
2005-1 according to the designated economic scenario. Specifically, this scenario represents the economic and
real estate conditions for the Market Region and also the Market Area during the foreseeable future according to
the most probable conditions, and this is regarded as being appropriate for the Bond Financing. However, the
economic and market conditions which actually materialize on a year by year basis may differ from those
presented according to the designated economic scenario, as a result of exogenous factors which are difficult
to forecast/quantify. Accordingly, the designated scenario should be utilized as an economic framework for
evaluating the marketing prospects of the properties within CFD No. 2005-1 rather than a "literal" representation of
what is expected to occur on a year/year basis during the foreseeable future.
Provision of the Infrastructure
The Market Absorption Study assumes that the governmental agencies that supply public facilities and services,
including water, provide these in a timely manner so that the proposed products/projects in CFD No. 2005-1 can
respond to the expected market demand for their products. Otherwise, if the required infrastructure is not
available in a timely manner, then the absorption of the products/projects could be adversely impacted.
Developer/Builder Responsiveness to Market Conditions
The Market Absorption Study assumes that the developer/builder in CFD No. 2005-1 responds to the market
conditions with products that are competitively priced and have the features/amenities that are desired by the
purchasers. Specifically, most of the products in CFD No. 2005-1 have not yet entered the marketplace, and so the
specific characteristics of their product types cannot be identified until they actually offer products on the
marketplace. Consequently, to the extent that future products/projects have prices/features that differ from the
competitive market standards, then their absorption schedules would need to be modified from those presented
according to the designated economic scenario.
49
Financial Strength of the Project Developer/Builder
The Market Absorption Study assumes that Project developer/builder in CFD No. 2005-1 (and also their lenders)
have sufficient financial strength to adequately fund their projects, including paying their Special
Taxes/Assessments, and that they have sufficient financial reserves which could be utilized to supplement
their cash flow positions, in the event that adverse economic or market conditions occur.
Accuracy of Information from Others
In preparing this report, the market analyst was required to rely on information furnished by other individuals or
found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed
to be reliable. However, no warranty, either expressed or implied, is given by the market analyst for the accuracy
of such information and the market analyst assumes no responsibility for information relied upon and later found
to have been inaccurate. The market analyst reserves the right to make such adjustments to the analyses, opinions
and conclusions set forth in this report as may be required by consideration of additional data or more reliable
data that may become available.
Liability of Market Analyst
The liability of Empire Economics, the market analyst responsible for this report, is limited to the client only and
to the fee actually received by the market analyst. Further, there is no accountability, obligation or liability to any
third party. If this report is placed in the hands of anyone other than the client, the client shall make such party
aware of all limiting conditions and assumptions of the assignment and related discussion. The market analyst is
in no way to be responsible for any costs incurred to discover or correct any deficiencies or any type present in
the property--physical, financial, and/or legal.
Testimony or Court Attendance
Testimony or attendance in court or at any other hearing is not required by reason of rendering this market
analysis, unless such arrangements are made a reasonable time in advance of said hearing. Separate arrangements
would need to be made concerning compensation for the market analyst's time to prepare for and attend any
such hearing.
Right of Publication of Report
Possession of this report, or a copy of it, does not carry with it the right of publication except for the party to whom
it is addressed. Without the written consent of the market analyst, this report may not be used for any purpose
by any person other than the party to whom it is addressed. In any event, this report may be used only with
properly written qualification and only in its entirety for its stated purpose.
Timeliness of the Market Absorption Study
The Market Absorption Study performs a comprehensive analysis of the relevant land-use, economic and residential
market conditions that are expected to influence the marketing success of the products/projects in CFD No. 2005-1.
Nevertheless, the Study should be dated within six-months of the Bond Sale, or even sooner, should these land-use
and/or economic market as well as real estate conditions change significantly.
50
COMMUNITY FACILITIES DISTRICT NO. 2005-01 (GLENWOOD AT ALISO VIEJO) OF THE CITY OF ALISO VIEJO
COUNTY OF ORANGE STATE OF CALIFORNIA 2007 SPECIAL TAX BONDS
Printed on Recycled Paper
IMAGEMASTER 800.452.5152

CA Aliso Viejo - California Tax Foundation

Transcription

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