Title
RESOLUTION NO. 2018-087 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA, ACTING IN ITS CAPACITY AS THE LEGISLATIVE BODY OF COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA), AUTHORIZING AND PROVIDING FOR THE ISSUANCE OF SPECIAL TAX BONDS FOR IMPROVEMENT AREA NO. 1 OF SUCH COMMUNITY FACILITIES DISTRICT, APPROVING THE FORM OF BOND INDENTURE, BOND PURCHASE AGREEMENT, PRELIMINARY OFFICIAL STATEMENT AND OTHER DOCUMENTS RELATED THERETO AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION WITH THE ISSUANCE OF SUCH BONDS
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RECOMMENDED ACTION
Recommended Action
Council adopt the resolution.
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SUMMARY
In September 2016 the City formed Community Facilities District No. 16-I (Millenia) pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, to finance the acquisition, construction, expansion, improvement, or rehabilitation of certain public facilities to serve the area within the District and its neighboring areas. The District is authorized to issue up to $20,000,000 principal amount of bonds. The City now wants to issue for the District a series of special tax bonds to finance the public facilities.
ENVIRONMENTAL REVIEW
Environmental Notice
Environmental Notice
The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
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Environmental Determination
The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the proposed action is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change to the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the actions proposed are not subject to CEQA.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
Community Facilities District No. 16-I (Millenia) was formed by the City pursuant to the Mello-Roos Community Facilities Act of 1982 and Improvement Area No. 1 and Improvement Area No. 2 were designated therein. The District constitutes a governmental entity separate and apart from the City.
Pursuant to the Act, on August 2, 2016, the City Council adopted Resolution No. 2016-154 stating its intention to form the District, designate Improvement Area No. 1 and Improvement Area No. 2 therein, and to authorize the levy of a special tax on the taxable property within each of Improvement Area No. 1 and Improvement Area No. 2. On August 2, 2016, the City Council also adopted Resolution No. 2016-155, stating its intention to incur bonded indebtedness in an aggregate principal amount, with respect to Improvement Area No. 1, not to exceed $20,000,000, for the purpose of financing the acquisition, construction, expansion, improvement, or rehabilitation of certain public facilities to serve the area within the District and its neighboring areas.
Subsequent to a noticed public hearing, the City Council adopted Resolution Nos. 2016-184 and 2016-185 on September 13, 2016, which established the District, designated Improvement Area No. 1 and Improvement Area No. 2 therein, authorized the levy of a special tax within each of Improvement Area No. 1 and Improvement Area No. 2, determined the necessity to incur bonded indebtedness within the District with respect to each of Improvement Area No. 1 and Improvement Area No. 2, and called an election within each of Improvement Area No. 1 and Improvement Area No. 2 on the propositions of incurring bonded indebtedness, levying a special tax and setting an appropriations limit within the District.
On September 13, 2016, an election was held within Improvement Area No. 1 at which the landowners within Improvement Area No. 1 eligible to vote approved the issuance of bonds for the District with respect to Improvement Area No. 1 in an amount not to exceed $20,000,000. A Notice of Special Tax Lien for Improvement Area No. 1 was recorded in the office of the County of San Diego Recorder on September 22, 2016 as Document No. 2016-0502330. On September 20, 2016, the City Council, acting as the legislative body of the District, adopted Ordinance No. 3375, which authorizes the levy within Improvement Area No. 1 of a special tax pursuant to the Rate and Method of Apportionment of Special Tax for Improvement Area No. 1 approved at the September 13, 2016 election.
The District is located in the eastern portion of the City of Chula Vista approximately 8 miles southeast of the City of San Diego, within the Otay Ranch master planned community. The District consists of approximately 67 gross acres of which 42 acres are within Improvement Area No. 1 therein and 25 acres are within Improvement Area No. 2 therein. The District is a portion of a larger development within Otay Ranch known as “Millenia.” The Millenia development is located south of Birch Road, east of State Route 125, and west of Eastlake Parkway. The Millenia project covers approximately 230 gross acres and is planned for a mixed-use development both rental and for-sale residential units and a maximum of 3.4 million square feet of commercial uses, including a hotel, retail space and a business district of up to two million square feet of office space. The Millenia development is expected to be served by a number of parks and a civic core including library facilities, an elementary school and a City fire station. Existing developments within the Millenia community include apartments, single family homes and an Ayres Hotel, which is under construction.
Improvement Area No. 1 of the District is made up of six separate project areas, four of which are planned for residential uses and two of which are planned for commercial uses. 393 residential units and over 1 million square feet of commercial development are planned within Improvement Area No. 1. The project areas within Improvement Area No. 1 originally consisted of six separate assessor’s parcels, certain of which have been further subdivided in accordance with the development plans for such parcels. Approximately 41 acres of property in Improvement Area No. 1 are expected to be subject to the Special Tax at build-out. The property within Improvement Area No. 1 which is not expected to be subject to the levy of the Special Tax consists primarily of property to be owned by the property owners associations.
PROPERTY OWNERSHIP: SLF - IV Millenia LLC, a Delaware limited liability company (“SLF”), is the master developer within the District. SLF has contracted with Meridian Development (“Meridian”), a land development and homebuilding company, to manage the development of the property within the Millenia project, including the District. SLF and Meridian are not affiliated entities. Meridian does not own any property within Improvement Area No. 1.
SLF has conveyed three of the four original assessor’s parcels within Improvement Area No. 1 planned for residential development to Shea Homes Limited Partnership, a California limited partnership (“Shea Homes”), CalAtlantic Group, Inc., a Delaware corporation (“CalAtlantic”) and KB HOME California LLC, a Delaware limited liability company (“KB Home California”), respectively.
From the two project areas within Improvement Area No. 1 that are planned for commercial uses, LMC Millenia Investment Company, L.P. (“LMC Millenia Company”) has acquired one parcel corresponding with one of such commercial project areas from SLF and is under contract to purchase the second from SLF (which sale is expected to close in July 2018). The remaining assessor’s parcel owned by SLF is planned for 60 residential units, which SLF expects to convey to a residential builder by the end of 2018.
The major infrastructure (sewer, water, storm drains, utilities, and arterial roads) to be installed by SLF to serve the property within Improvement Area No. 1 is substantially complete. The major arterial roads which border the Millenia project are Birch Road and Eastlake Parkway. The roads within the Millenia development from which the property included in Improvement Area No. 1 can be accessed are complete. The property within Improvement Area No. 1 varies from a mass-graded land to completed homes. In-tract improvements are expected to be constructed by the homebuilders and the commercial property developer as development within their respective projects is completed.
SLF is responsible for constructing six parks within the Millenia development pursuant to the Park Agreement with the City. The issuance of certificates of occupancy for the residential projects being constructed by Shea Homes and KB Home California are limited to certain thresholds until certain requirements with respect to construction of two park sites are satisfied.
DEVELOPMENT STATUS: As of February 1, 2018, the status of the residential developments owned by homebuilders within Improvement Area No. 1 was as follows: (i) Shea Homes had completed and conveyed 53 homes within Improvement Area No. 1 to individual homeowners, owned six completed model homes, had 34 homes under construction (seven of which were over 95% complete) and owned 83 finished lots; (ii) KB Home California owned two completed model homes, had six homes under construction and owned 71 partially finished lots; and (iii) CalAtlantic owned one assessor’s parcel planned for 78 attached townhomes for which grading had commenced. As of such date, the assessor’s parcel owned by LMC Millenia Company had been finish graded, including the below-grade excavation for a proposed parking structure. Such assessor’s parcel is planned for an office campus with two buildings totaling approximately 318,000 square feet of leasable space, an amenity building of approximately 6,100 square feet and a parking garage of approximately 401,760 square feet.
As of February 1, 2018, SLF owned one assessor’s parcel under contract to be sold to LMC Millenia Company planned for commercial use (which sale is expected to close in July 2018) and one assessor’s parcel planned for a residential development of 60 homes, which SLF expects to convey to a homebuilder. As of such date, such property owned by SLF were in a mass graded condition. The assessor’s parcel under contract to be sold to LMC Millenia Company is expected to be developed into an office campus with four buildings with approximately 700,000 square feet of leasable space.
AUTHORIZATION AND SALE: The Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311 et seq. of the Government Code of the State of California) and pursuant to a resolution( the “Resolution”) presented for consideration of adoption by the City Council of the City of Chula Vista, acting as the legislative body of the District and a Bond Indenture dated as of June 1, 2018, by and between the District and U.S. Bank National Association, as Fiscal Agent. The resolution approves the form of the following documents in connection with the financing:
1. Indenture between the Community Facilities District and U.S. Bank National Association (as Fiscal Agent);
2. Bond purchase agreement between the Community Facilities District and Stifel, Nicolaus & Company, Incorporated (the underwriter);
3. Preliminary Official Statement;
4. Continuing Disclosure Agreements.
The Resolution also approves the distribution of the preliminary official statement and authorizes the execution of the Bond Purchase Agreement by the City Manager, the Assistant City Manager, or the Director of Finance, as well as provides certain sale parameters. These parameters are as follows: (1) the par amount of the bonds cannot exceed $15,000,000, (2) true interest cost cannot exceed 6%, and (3) the underwriter’s discount cannot exceed 1.25% of the par amount of the Bonds.
Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds and any Parity Bonds. The Bonds and any Parity Bonds are not general or special obligations of the City nor general obligations of the CFD, but are special obligations of the CFD payable solely from Special Taxes and amounts held under the Indenture.
In connection with the issuance of the Bonds, the City has been represented by Best Best & Krieger LLP as Bond Counsel, Stradling Yocca Carlson and Rauth as Disclosure Counsel, Fieldman Rolapp & Associates, Inc. as Municipal Advisor, Willdan Financial Services as Special Tax Consultant, Kitty Siino & Associates as Real Estate Appraiser and Meyers Research LLC as Market Absorption Analyst. U.S. Bank National Association, Los Angeles, California, will act as Fiscal Agent for the Bonds. The Bonds, if issued, will be sold on a negotiated sale basis to Stifel, Nicolaus & Company, Incorporated as investment banker /underwriter.
USE OF PROCEEDS: The amount of bonds to be issued is currently estimated at $13,200,000. The proceeds of the Bonds will be used to (a) pay the costs of forming the District; (b) pay the cost and expense of acquisition and construction of certain public facilities required in connection with the development of the District; (c) fund capitalized interest on a portion of the Bonds through September 1, 2019; (d) fund a Reserve Fund securing the Bonds; (e) pay costs of issuance of the Bonds; and (f) make an initial deposit to the City’s Administrative Expense Fund . The major infrastructure (sewer, water, storm drains, utilities, and arterial roads) to be installed by SLF to serve the property within Improvement Area No. 1 is substantially complete.
CREDIT FEATURES: The CFD is being actively developed. Existing developments within the Millenia community include apartments, single family homes and a hotel, which is under construction. Currently 53% of the Improvement Area No. 1 property is considered developed and 47% considered undeveloped. Fiscal Year 2018-19 will be the first fiscal year in which Special Taxes are levied within Improvement Area No. 1 so there are no delinquencies of Special Tax. It is estimated that for Fiscal Year 2018-2019 only approximately 15% of the Special Tax obligation will be the responsibility of individual owners with the remaining 85% the responsibility of SLF and homebuilders. Shea Homes will be responsible for approximately 33% of the total levy, CalAtlantic about 17%, KB Home about 5% and SLF Millenia about 24%. The appraised value of property to the estimated lien is estimated at 4.62 to 1. As with most Community Facility District bonds, the bonds will not have a rating.
SB 450/GOVERNMENT CODE 5852.1: A recent change to California law now requires prior to authorization of the issuance of bonds with a term greater than 13 months the governing body of a public body to obtain and disclose all of the following information in a meeting open to the public:
(A) True Interest Cost of the Bonds: 4.14 %
(B) Finance Charge of the Bonds (Sum of all fees paid to third parties): $ 384,000.00
(C) Net Proceeds to be received (net of finance charges, reserves and capitalized interest, if any): $9,880,461
(D) Total Payments Amount Through Maturity: $25,047 492
An attachment provides a breakdown of this information.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council / Legislative Body members and has found no property holdings within 500 feet of the boundaries of the property which is the subject of this action. Consequently, this item does not present a disqualifying real property-related financial conflict of interest under California Code of Regulations Title 2, section 18702.2(a)(11), for purposes of the Political Reform Act (Cal. Gov’t Code §87100,et seq.).
Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. This action supports two City Strategic Plan major goals: Economic Vitality, via additional commercial activities, and a Connected Community by way of enhanced roadway improvements and pedestrian oriented facilities and development in the EUC/Millenia area of the City.
CURRENT YEAR FISCAL IMPACT
The estimated costs of issuance associated with this financing, including costs for the underwriting, bond counsel and financial advisor firms are contingent upon actually selling the bonds and are payable from the bond proceeds.
ONGOING FISCAL IMPACT
The costs to administer the District, shall be paid from the proceeds of special taxes to be levied within the District. There is, therefore, no ongoing fiscal impact on the City’s General Fund.
ATTACHMENTS
1. Indenture
2. Bond Purchase Agreement
3. Appraisal
4. Supplement to Appraisal
5. Continuing Disclosure Agreement
6. Preliminary Official Statement
7. Market Absorption Study
8. Market Absorption Study Executive Summary
Staff Contact: Alicia Granados