AGENDA STAFF REPORT

Agenda Item AGENDA STAFF REPORT ASR Control 22-000523
MEETING DATE:	07/19/22
legal entity taking action:	Community Facilities District No. 2021-1
board of supervisors district(s):	5
SUBMITTING Agency/Department:	County Executive Office (Approved)
Department contact person(s):	Louis McClure (714) 834-5999
	Suzanne Luster (714) 834-3362

Subject: Community Facilities District 2021-1 Rienda Financing Approval

ceo CONCUR

County Counsel Review

Clerk of the Board

Concur

Approved Resolution to Form

Discussion

4/5 Vote

Budgeted: No

Current Year Cost: See Financial Impact Section

Annual Cost: See Financial Impact Section

Staffing Impact:

# of Positions:

Sole Source: N/A

Current Fiscal Year Revenue: N/A

Funding Source: Bond Proceeds and Special Taxes: 100%	County Audit in last 3 years: No

Prior Board Action: 3/8/2022 #34, 12/14/2021 #S39B, 11/23/2021 #1, 11/8/2004 #1

RECOMMENDED ACTION(S):

Adopt the Resolution of the Board of Supervisors, acting in its capacity as the Legislative Body of Community Facilities District No. 2021-1 of the County of Orange (Rienda), authorizing the issuance of bonds in a principal amount not to exceed $135 million and the execution of documents and certain actions related thereto. (Requires 3 votes Board of Supervisors majority)

Direct the Auditor-Controller to establish appropriations and estimated revenues, pursuant to Government Code Section 29130, as follows: (Requires 4/5 vote)

Construction Fund:

Fund	Dept.	Budget Control	Unit	Object	Description	Amount

565	017	565	5300	1900	Professional Services	$ 1,200,000
565	017	565	5300	2400	Special Department Expense	$ 73,400,000
565	017	565	5300	3100	Construction Payments	$ 47,000,000
565	017	565	5300	7815	Operating Transfers In	$121,600,000

Debt Service Fund:

Fund	Dept.	Budget Control	Unit	Object	Description	Amount

566	017	566	5300	1900	Professional Services	$ 75,000
566	017	566	5300	2400	Special Department Expense	$ 10,325,000
566	017	566	5300	3300	Interest on Bonds	$ 3,000,000
566	017	566	5300	4805	Operating Transfers Out	$121,600,000
566	017	566	5300	7840	Long Term Debt Proceeds	$135,000,000

SUMMARY:

Approval of the Recommended Actions will allow for financing of infrastructure at the time of development.

BACKGROUND INFORMATION:

On November 8, 2004, your Board of Supervisors (Board) approved the Ranch Plan Development Agreement (Development Agreement) between the County of Orange and Rancho Mission Viejo allowing up to 14,000 dwelling units, as well as retail, office, and recreational uses within a development area of approximately 7,700 acres with approximately 15,000 acres retained in open space. Rancho Mission Viejo has proposed the formation of one or more community facilities districts (CFD) pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982 (Act), as amended to finance various facilities and improvements that serve the community. The County has already formed three CFDs (2015-1, 2016-1 and 2017-1) to finance improvements in Planning Area 2, known as the Village of Esencia. The development of Esencia is nearly complete and consists of approximately 2,514 residential units, three apartment communities, 99,200 square feet of business park space, 130,000 square feet of self-storage, a K-8 school, a daycare facility, a forthcoming medical office building and a future 30 acre commercial retail space.

In May 2021, the County Executive Office received an Infrastructure Finance Program District Application from Rancho Mission Viejo, on behalf of RMV PA3 Development, LLC (Developer), for the proposed formation of the first CFD within Planning Area 3. Planning Area 3 is located on approximately 2,100 acres in an unincorporated area of South Orange County, east of the new community of Esencia, and between the existing master planned community of Coto de Caza and Ortega Highway.

Upon build out, Planning Area 3 is expected to contain approximately 7,000 residential units, including market rate and affordable apartments, three million square feet of commercial development, schools, daycare facilities, a civic center and parks, trails and community recreation space. The village name for the first five phases of Planning Area 3 is Rienda. The CFD requested in the May 2021 District Application (CFD 2021-1) includes phases 1 and 2a of Rienda, which together are expected to include approximately 950 residential units (consisting of 805 market-rate residential units and 145 age-qualified residential units) and an assisted living facility of approximately 605,000 square feet. The balance of the property within CFD 2021-1 is anticipated to be used for recreational facilities, parks, open space, public property and property owned by the owners association.

Merchant homebuilders have acquired or are under contract to acquire all of the land available for residential development. Phase 1 of the development in CFD 2021-1 is planned to include 671 for-sale residential units at buildout. The area in phase 1 has been graded and major infrastructure (sewer, water, storm drains, utilities, arterial roads) to be installed by the Developer within the first phase of development has been substantially completed. All merchant builders have commenced vertical construction of their projects within phase 1 and the grand opening occurred in April 2022. At buildout, the area within phase 2a of the development in CFD 2021-1 is planned for residential projects including 279 for-sale homes (145 of which are planned to be age-qualified). The grand opening for phase 2a is planned to occur in November 2022. In addition to the for-sale residential development, CFD 2021-1 is planned to include a senior assisted living facility of approximately 605,000 square feet. The facility is expected to be completed in late 2023.

Pursuant to the Act, on November 23, 2021, the Board adopted resolutions that established CFD 2021-1, authorized the levy of a special tax, determined the necessity to incur bonded indebtedness and called an election within CFD 2021-1. On November 23, 2021, an election was held within CFD 2021-1, at which the landowners eligible to vote approved the issuance of bonds for CFD 2021-1 in an amount not to exceed $165 million. On December 14, 2021, the Board, acting as the legislative body of CFD 2021-1, adopted an ordinance that authorizes the levy of a special tax in accordance with the rate and method of apportionment approved at the election within CFD 2021-1. In addition, on March 8, 2022, the Board, adopted a resolution accepting the unanimous approval of the owners of additional property to be annexed to CFD 2021-1, and such property has been annexed to CFD 2021-1 and is subject to the levy of the special tax.

Consistent with the County’s practices regarding CFD financings, on December 22, 2021, the County filed a complaint in the Superior Court of the State of California (Court) for the County of Orange seeking judicial validation of the formation of CFD 2021-1. On June 9, 2022, the Court entered a default judgment that validated the actions taken with respect to the formation of CFD 2021-1, the incurrence of bonded indebtedness and levy of the special tax. The last day of the appeal period for the validation action was July 13, 2022.

The proceeds of the proposed Series A of 2022 Special Tax Bonds (Bonds) will be used to pay the costs and expense of the acquisition and construction of facilities and improvements, fund a reserve account and pay the costs of issuing the Bonds. The facilities authorized to be constructed and acquired consist of roadway improvements, tunnels, regional hiking and biking trails, storm drains and basins, water and wastewater facilities, wet and dry utilities, bridges and pedestrian bridges, parks, traffic signals, school sites, school facilities and equipment, facilities and equipment relating to fire protection and suppression, sheriffs substations and equipment, library facilities and equipment, and related infrastructure improvements, appurtenances and appurtenant work in connection with the facilities.

The estimated principal amount of the Bonds is $115.1 million, which will provide proceeds of approximately $116.6 million (including premium on the Bonds). Of the $116.6 million, approximately $105.2 million will be deposited in the project fund. Approximately $10.3 million will be deposited in the Bond reserve fund. The true interest cost of the Bonds is estimated at 5.16 percent and the cost of issuance including underwriter’s discount and all other fees and charges paid to third parties is estimated at $1.1 million. The budget actions above are based on the not to exceed amounts in the resolution to provide flexibility in the event municipal bond market conditions change from the estimated amounts set forth above.

The Act provides that the legislative body of a CFD may sell bonds only if it determines, prior to the award of the sale of bonds, that the value of the real property that would be subject to the special tax to pay debt service on the bonds will be at least three times the principal amount of the bonds to be sold and the principal amount of all other bonds outstanding that are secured by a special tax or assessment levied on property within the CFD. This is referred to as the value-to-lien test. In accordance with industry practice, the County’s special tax consultant has calculated the direct and overlapping debt of the Capistrano Unified School District and the Metropolitan Water District allocable to CFD 2021-1 to be approximately $115.2 million, including the proposed Bonds. The market value of the land and improvements in CFD 2021-1 was appraised at $385.9 million, as of April 14, 2022, by Integra Realty Resources (Attachment D). This results in a value-to-lien ratio of 3.35 to 1 when calculated using the $385.9 million appraised value. Integra Realty Resources is preparing an update to the appraisal which will capture the additional value of the home construction and sales activity that have occurred since the April 14, 2022, date of value in the appraisal.

The tax rate within CFD 2021-1 ranges from 1.8 percent to 2.0 percent of the estimated market value of the units at the time of sale. This estimated tax burden includes the overlapping debt of the Capistrano Unified School District and the Metropolitan Water District, as well as the base property tax rate of 1 percent. With the estimated tax burden being 2 percent or less of the estimated market value, CFD 2021-1 is in compliance with the County’s policy. Of the approximately 113 acres within CFD 2021-1, 64 are expected to be subject to the special tax at build-out.

The Market Absorption Study (Attachment E) prepared by Empire Economics, Inc. (Empire) estimates the rate of absorption for the projects within CFD 2021-1. Empire concluded, based on statistical comparison of the currently active comparable projects that the absorption prospects for future closings of the 950 for-sale homes are generally favorable. Empire estimates the calendar year absorption schedules for the residential projects as follows: 80 units in 2022, 282 units in 2023, 310 units in 2024, 214 units in 2025 and 64 units in 2026.

The Policy Compliance Report (Attachment H) prepared by the Municipal Advisor, CSG Advisors Inc., concludes that the County policies have been met and the economics of the project are sound. The project serves a community need, the special taxes have been apportioned to the property owners on a reasonable basis and relate to the cost of the financed facilities. An independent market economist and real estate appraiser were used, and the value of the property is at least three times the principal amount of the proposed bonds and other overlapping debt. In addition, the developer has a history of success in Orange County and has not defaulted on any special tax, assessment, loan or line of credit.

The County Executive Office recommends the issuance of the Bonds since the proposed Bonds are in compliance with County policies, the Act and other applicable statutes. In addition, the value of CFD 2021-1 will continue to increase with the continued development of the project. The analysis by Empire indicates a favorable project absorption period. The developer has a history of success and experience in Orange County and CFD 2021-1 is consistent with the County’s formation and financing of previous CFDs and the County’s commitment to construct public improvements as development occurs.

FINANCIAL IMPACT:

There is no financial impact to the County as repayment of the bonds will be paid by the special taxes levied within CFD 2021-1. CFD 2021-1 RMV (Rienda) Construction Fund 565 and CFD 2021-1 RMV (Rienda) Debt Service Fund 566 were established in FY 2021-22. Recommended Action #2 will establish the required appropriations and revenues for the issuance of bonds and debt service. These amounts were not included in the FY 2022-23 budget because they were not known at the time of budget development.

STAFFING IMPACT:

N/A

ATTACHMENT(S):

Attachment A - Resolution
Attachment B - Bond Indenture
Attachment C - Preliminary Official Statement (POS)
Attachment D - Appendix B to the POS, The Appraisal Report
Attachment E - Appendix J to the POS, The Market Absorption Study
Attachment F - Acquisition Funding and Disclosure Agreement
Attachment G - Bond Purchase Agreement
Attachment H - Policy Compliance Report
Attachment I - Continuing Disclosure Certificate
Attachment J - Government Code Section 29130