are cfds the solution to jumpstart housing in your...

Are CFDs the Solution to Jumpstart Housing in your City?

Palm Springs, CA February 19, 2014

3:15 p.m.

Presenters

• Speakers: Sara Brown, Managing Director, Stifel Nicolaus & Company

James Fabian, Principal, Fieldman, Rolapp & Associates

Dr. Joseph Janczyk, Empire Economics

• Moderator: John Adams, Finance Director/Treasurer, City of Thousand

Oaks

2

Are CFDs the Solution to Jumpstart Housing in your City?

TOPIC PAGE

I. Alternative Perspective on How a City can Jump Start its Economy

4

II. Overview of Community Facilities Districts 18

III. Overview of CFD Bond Market 26

IV. Characteristics of Successful CFD Programs 35

V. Conclusion / Questions & Answers 40

3

I. Alternative Perspectives on how a City can jump start its economy

4

How CFDs Can Be Utilized as a Policy Tool to Enhance a City’s Local Economy and Housing Market

5

1. TRADITIONAL APPROACH TO GROWING A CITY’S ECONOMY

ATTRACT NEW FIRMS INTO A CITY TO GENERATE EMPLOYMENT • MOST EFFECTIVE FOR CITIES WITHIN/NEAR ESTABLISHED EMPLOYMENT CENTERS

2. ALTERNATIVE APPROACH TO GROWING A CITY’S ECONOMY

ATTRACT NEW HOMEOWNERS INTO A CITY TO GROW A CITY’S ECONOMY

* HAVE DEVELOPABLE PROPERTY TO ACCOMMODATE NEW HOUSING

• USE OF CFDs TO FACILITATE RESIDENTIAL DEVELOPMENTS

* RESULTS OF BOTH APPROACHES SIMILAR: NEWLY EMPLOYED HOUSEHOLDS

Background on Critical Employment Metrics

6

1. EMPLOYMENT REPORTED BY FIRMS LOCATED IN A CITY

FIRMS THAT LOCATE IN A CITY GENERATE EMPLOYMENT, BUT THEIR EMPLOYEES MAY RESIDE IN VARIOUS LOCATIONS:

WITHIN THE CITY OR OTHER NEARBY CITIES

2. EMPLOYMENT REPORTED BY HOUSEHOLDS RESIDING IN A CITY

BY COMPARISON, HOUSEHOLDS THAT PURCHASE HOMES IN A CITY: RESIDE SPECIFICALLY WITHIN THE CITY

THE WELL BEING OF A CITY IS MEASURED BY ITS “UNEMPLOYMENT RATE”, HOUSEHOLDS WITHIN THE CITY THAT ARE EMPLOYED IN CITY OR ELSEWHERE

Potential Benefits of a New Homeowner for a City

7

1. THE NEW HOME IS PURCHASED BY A HOUSEHOLD THAT:

IS EMPLOYED BY A FIRM OR ORGANIZATION

HAS THE ECONOMIC CAPABILITY TO PURCHASE THE HOME

2. THE NEW HOME HAS A SUBSTANTIAL ECONOMIC IMPACT ON THE CITY

THE DEVELOPMENT/CONSTRUCTION OF THE HOME CREATES JOBS

THE SALE OF THE HOME ENHANCES THE CITY’S HOUSING MARKET

3. THE NEW HOMEOWNER SPENDS MONEY LOCALLY ON RETAIL PRODUCTS AND SERVICES, MOSTLY IN THE CITY

SO ATTRACTING A NEW HOMEOWNER TO A CITY GENERATES ECONOMIC

GROWTH AND BOLSTERS THE CITY’S HOUSING MARKET

California Counties – Unemployment Rates

8

8.3%

4%5% 5%

5%6% 6% 6%

6% 6% 6% 6% 7%7%

7%8%

9% 9% 9% 9% 9%

11%11%

12%12%13%

13%14%

0%

2%

4%

6%

8%

10%

12%

14%

16%

CALIFORNIA COUNTIES - UNEMPLOYMENT RATES (COUNTIES WITH 100,000+ JOBS)

COUNTIES WITH LOW UNEMPLOYMENT RATES HAVE A HIGHER PROPORTION OF THEIR LOCAL HOUSEHOLDS THAT ARE EMPLOYED

THERE IS A SIGNIFICANT AMOUNT OF VARIATION IN UNEMPLOYMENT RATES AMONG CALIFORNIA COUNTIES

Cities in Riverside County Housing Prices & Unemployment Rates

9

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

$550,000

$600,000

0% 5% 10% 15% 20% 25%

HO

USI

NG

PRI

CES-

AVER

AGE

UNEMPLOYMENT RATES

CITIES IN THE COUNTY OF RIVERSIDEHOUSING PRICES AND UNEMPLOYMENT RATES

CITIES WITH LOWER UNEMPLOYMENT RATESTYPICALLY HAVE HIGHER HOUSING PRICES

CITIES WITH HIGHER UNEMPLOYMENT RATESTYPICALLY HAVE LOWER HOUSING PRICES

Riverside County Cities/Areas Unemployment Rates

10

9.1%

6% 6%7%

7%7%

9% 9% 9% 9%10% 10%

11% 11%

12%

13%

14%14% 15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

RIVERSIDE COUNTY CITIES/AREAS - UNEMPLOYMENT RATES (CITIES/AREAS WITH 10,000+ JOBS)

CITIES/AREAS WITH LOW UNEMPLOYMENT RATES HAVE A HIGHER PROPORTION OF THEIR LOCAL HOUSEHOLDS THAT ARE EMPLOYED.

For Households that are employed in Orange County but cannot afford Housing there, they commute through portal and have various housing

options to choose among.

11

For Households that are employed in Orange County but cannot afford Housing there, they commute through portal and have

various housing options to choose among.

PORTAL

Households Employed in Coastal Areas

12

FOR HOUSEHOLDS THAT ARE EMPLOYED IN THE COASTAL AREAS, BUT CANNOT AFFORD HOUSING THERE, THEY COMMUTE THROUGH PORTALS AND HAVE VARIOUS HOUSING OPTIONS.

PORTAL

PORTAL

PORTAL

PORTAL

San Joaquin County Cities/Areas Unemployment Rates

13

12.1%

3% 4%

6% 6%8%

8%9%

10% 10% 10% 11% 11%

15%

17%

19%21%

23% 23%

28%

0%

5%

10%

15%

20%

25%

30%

SAN JOAQUIN COUNTY CITIES/AREAS - UNEMPLOYMENT RATES

CITIES/AREAS WITH LOW UNEMPLOYMENT RATES HAVE A HIGHER PROPORTION OF THEIR LOCAL HOUSEHOLDS THAT ARE EMPLOYED

Greater San Francisco Bay Area Households

14

FOR HOUSEHOLDS EMPLOYED IN THE GREATER SAN FRANCISCO BAY AREA BUT NOT ABLE TO AFFORD HOUSING THERE, THEY COMMUTE THROUGH PORTAL AND HAVE VARIOUS HOUSING OPTIONS

PORTAL

Greater San Francisco Bay Area Households

15

FOR HOUSEHOLDS EMPLOYED IN THE GREATER SAN FRANCISCO BAY AREA BUT NOT ABLE TO AFFORD HOUSING THERE, THEY COMMUTE THROUGH SEVERAL PORTALS AND HAVE VARIOUS HOUSING OPTIONS

PORTAL

PORTAL

PORTAL

Conclusions on Jumpstarting a Local Economy

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*IF* A CITY HAS DEVELOPABLE PROPERTY FOR HOUSING PROJECTS AND

*IF* A CITY IS COMFORTABLE USING CFDs TO FACILITATE DEVELOPMENT

THEN SUCH A CITY MAY VIEW PROSPECTIVE NEW HOMEOWNERS AS A RESOURCE WHICH HAS THE FOLLOWING BENEFITS:

ATTRACTING GAINFULLY EMPLOYED HOUSEHOLDS THAT PURCHASE HOMES

SUCH HOUSEHOLDS TYPICALLY HAVE HIGHER INCOMES SINCE THEY COMMUTE

FROM ESTABLISHED/GROWING EMPLOYMENT CENTERS

THE CONSTRUCTION OF A HOME PROVIDES A MAJOR ECONOMIC STIMULUS (THE RESOURCE USED TO DEVELOP/CONSTRUCT THE HOME ARE ENORMOUS)

THE SPENDING THEREAFTER BENEFITS LOCAL RETAIL GOODS/SERVICES

Appendix: Source of Data for Local Unemployment Rates

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http://www.labormarketinfo.edd.ca.gov/CES/Labor_Force_Unemployment_Data_for_Cities_and_Census_Areas.html

January 24, 2014 Labor Market Information DivisionMarch 2012 Benchmark http://www.labormarketinfo.edd.ca.gov

(916) 262-2162

Labor Employ-Area Name Force ment Number Rate

Alameda County 770,000 721,600 48,300 6.3%

Alameda city 40,800 39,000 1,700 4.3%Albany city 9,300 9,100 200 2.6%Ashland CDP 10,400 9,600 800 7.3%

Monthly Labor Force Data for Cities and Census Designated Places (CDP)December 2013 - PreliminaryData Not Seasonally Adjusted

Unemployment

PORTION OF THE TABLE >>

II. Overview of Community Facilities Districts

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Overview of CFDs

• Mello-Roos Community Facilities Act of 1982 (Government Code 53311 et. Seq.)

• Funds construction of: Street improvements Water, Sewer, Storm Drain improvements Parks Libraries, Schools and Public buildings Development Impact Fees for any of the above

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Overview of CFDs (continued)

• Public capital facilities must have a useful life of 5 years or more

• Hard and soft costs for public capital facilities can be funded

• Development Fees for public capital facilities can be funded

• Public Agency generally must own public capital facilities when completed

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Overview of CFDs (Continued)

• Not affected by Proposition 218 • Response to Proposition 13 in 1978 • Authorizes the levy of a “Special Tax” to: Pay debt service on bonds issued to finance

improvements Finance authorized improvements on a pay-as-you-go

basis Finance certain public services

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• CFD Special taxes can fund the following public services: (new service can only be funded to the extent they do not supplant services already available in the CFD when it is created)

Police protection services Fire protection and suppression services Ambulance and paramedic services Recreation programs, Libraries and Schools* Parks, parkways and open space maintenance Flood and storm protection services Street maintenance * Requires 2/3 registered voter approval

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• CFD formation Timeframe Depends on voter pool (landowner or registered voters)

o Landowner vote if less than 12 registered voters reside within the boundaries of the proposed CFD

Preparing Required Documents: 3-6 months Special Election: 90-180 days from public hearing

• Requires Special Election (which can be held at a regularly schedules Council or Board meeting)

• Some legal timeframes may be waived if 100% unanimous consent by land owners

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Usual Sequence of Events

1. City/Property Owner Petition Initiates process 2. City adopts Local Goals & Policies 3. City Council commences CFD legal proceedings 4. City Council conducts Public Hearing 5. Election held and votes tabulated 6. Final Action taken by City Council 7. CFD Bonds issued 8. Annual Special Taxes levied to pay debt service on the

CFD Bonds 9. Project Costs Funded/Reimbursed 10.City administers the CFD until Bonds mature

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Why do Cities issue CFD Bonds?

• It is a tool to finance infrastructure and to have the costs paid by those who benefit from the improvements

• In other words, infrastructure provided without general tax dollars or existing resident’s tax dollars

• And in most cases it allows the City to get more infrastructure sooner and at a lower costs than if it was built under the City’s typical Capital Improvement Program and available funding sources

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III. Overview of CFD Bond Market

26

Developer Perspective on CFDs

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• Multiple Cash Flow Benefits:

Earlier reimbursement for the cost of infrastructure vs. recovery through home sales

vs. return required by Equity Partners, interest rates much lower

vs. bank construction loan, repayment term much longer to reduce annual carrying cost

• Dependable Take-Out Financing Source

Banks often more willing to buy if confident about the take-out source


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• “Free” Money? - Can the CFD burden be passed on to buyers without an appreciable difference in purchase price? Argument For: Markets vary. Competition may all have CFDs.

Buying a house is an emotional decision. Argument Against: Annual CFD tax is factored into mortgage

qualification.

• Lower purchase price may make loan qualification easier Smaller down payment required


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• Other Things to Note re. Developers’ Point of View Developers and builders may not always be aligned on the CFD

financing program Margins lower today; CFD may make the difference In slowing real estate market, CFD obligation may have to be

bought down or paid off

The Market for CFD Bonds

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As goes the real estate market, so goes the market for real estate-secured bonds

Note: land-secured includes both CFD Bonds and Assessment District Bonds.

$0.9

$1.3

$1.6

$1.8

$2.9 $3.0

$2.5

$1.9

$0.4 $0.3

$0.4

$0.9

$1.6

$1.4

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Par I

ssued

($ in

Billio

ns)

Annual California Land-Secured Issuance Since 2000 By $ Amount Issued

New Money Refunding

Source: SDC. As of 12/31/2013.

The Market for CFD Bonds

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•Coming out of 1990s recession, real estate values grow; everyone getting into the game

2001-2006

•Sharp drop as activity slows; investors cautious

•New issues reflect full build-out; no development risk

2007-2010

• Refundings prevalent with interest rates at historic lows

•Some new money with “select” development risk

2011-2013

• Investors more interested in these credits…if they can find them

•Low supply may keep spreads narrow

2014

$0.9

$1.3

$1.6

$1.8

$2.9 $3.0

$2.5

$1.9

$0.4 $0.3

$0.4

$0.9

$1.6

$1.4

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Pa

r Issu

ed ($

in Bi

llions

)

Annual California Land-Secured Issuance Since 2000 By $ Amount Issued

New Money Refunding

Interest Rate Environment

32

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%


CC

CFD 12-I McMillin

Otay Ranch

Yield: 5.27%

CC

CFD 2006-1 Imp. Area 2 West Hills

Yield: 11.625%

CC

Yield: 5.53%

CFD 2008-1 Bay

Meadows

Land-Secured by Region

33


Source: SDC. As of 12/31/2013.

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Par I

ssued

($ in

Billio

ns)

California Land-Secured Bonds by County of Issuer From 2000 - 2013

Oran

ge

Rive

rside

SanD

iego

Los A

ngele

s

SanB

ern.

Othe

rs Sacr

amen

to

Plac

er

San

Jq.

San

F.

CC Othe

rs

Southern California Northern California

Investors in CFD Bonds

34

“Traditional” Institutional & Narrow Retail

“plus” Insurance Companies, Hedge

Funds & wider audience of Retail

Just Sophisticated Retail

Late 1990s – Early 2000s

Growing Prominence to

2007

2007 to 2010

2010 to Present


IV. Characteristics of Successful CFD Programs

35

Recap of Benefit to Cities that facilitate CFDs

36

• Increase in Residential Construction coming out of the great recession

• Spill-over benefits derived from new residential construction and new homeowners

• Additional new infrastructure or upgrades to existing infrastructure

• Potential to fund new services

Techniques that Cities can use to facilitate CFDs

37

For areas with large regional infrastructure needs

o Establish common practices among developers

o If possible, cooperate in the sharing of large infrastructure costs among the that benefit

Incorporate other public agencies’ infrastructure – (i.e. school impact fees, water agencies, etc.)

Build CFD financing into the Development Agreement

Utilize common team of consultants/professionals to stream line the process

Example of Cities that have successful CFD Programs

38

• City of Fontana

• City of Rancho Cucamonga

• City of Rocklin

• City of Sacramento

• City of San Diego

• City of San Marcos

• City of San Mateo

• City of Temecula

• City of Tustin

• Others?

Common Attributes of these Cities’ CFD Programs

39

• Flexible Local Goals And Policies

• Encourage new residential development

• Open to using CFD’s to fund services

• Open to funding other public agencies infrastructure

• Common team to of consultants/professionals used to stream line process

V. Conclusion / Questions & Answers

40

Contact Information Sara Brown, Managing Director, Stifel Nicolaus & Company

[email protected] 1-213-443-5004 James Fabian, Principal, Fieldman, Rolapp & Associates

[email protected] 1-949-660-7307 Dr. Joseph Janczyk, Empire Economics

[email protected] 1-949-661-7012

John Adams, Finance Director/Treasurer, City of Thousand

Oaks [email protected] 1-805-449-2235

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