are cfds the solution to jumpstart housing in your...
TRANSCRIPT
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
16
*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
17
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
18
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
19
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
20
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
21
Overview of CFDs (Continued)
• 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
22
Overview of CFDs (Continued)
• 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
23
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
24
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
25
III. Overview of CFD Bond Market
26
Developer Perspective on CFDs
27
• 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
Developer Perspective on CFDs
28
• “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
Developer Perspective on CFDs
29
• 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
30
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
31
As goes the real estate market, so goes the market for real estate-secured bonds
•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%
As goes the real estate market, so goes the market for real estate-secured bonds
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
As goes the real estate market, so goes the market for real estate-secured bonds
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
As goes the real estate market, so goes the market for real estate-secured bonds
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
41