$12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS

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1 NEW ISSUE BOOK-ENTRY-ONLY NO RATING In the opinion of Best Best & Krieger, LLP San Diego, California ( Bond Counsel ), subject to certain qualifications described in this Official Statement, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, the 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 the federal alternative minimum tax. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income tax. See TAX MATTERS herein. $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS Dated: Delivery Date Due: September 1, as shown on the inside cover page This Official Statement describes bonds that are being issued by Community Facilities District No. 16-I (Millenia) (the District ) with respect to Improvement Area No. 1 therein ( Improvement Area No. 1 ). The City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds (the Bonds ) are being issued by the District 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 Administrative Expense Fund. The Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections et seq. of the Government Code of the State of California), and pursuant to Resolution No adopted by the City Council of the City of Chula Vista (the City ), acting as the legislative body of the District and a Bond Indenture, dated as of June 1, 2018 (the Indenture ), by and between the District and U.S. Bank National Association, as Fiscal Agent (the Fiscal Agent ). The Bonds are limited obligations of the District and are payable solely from revenues derived from certain annual Special Taxes (as defined herein) to be levied on and collected from the owners of parcels within Improvement Area No. 1 subject to the Special Taxes and from certain other funds pledged under the Indenture, 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 Improvement Area No. 1. See SOURCES OF PAYMENT FOR THE BONDS Special Taxes. The City Council of the City is the legislative body of the District. The Bonds are issuable in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). Individual purchases of the Bonds may be made in principal amounts of $5,000 and integral multiples thereof and will be in book-entry form only. Purchasers of Bonds will not receive certificates representing their beneficial ownership of the Bonds but will receive credit balances on the books of their respective nominees. Interest on the Bonds will be payable semiannually on each March 1 and September 1, commencing September 1, The Bonds will not be transferable or exchangeable except for transfer to another nominee of DTC or as otherwise described herein. Principal of and interest on the Bonds will be paid by the Fiscal Agent to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See THE BONDS General Provisions and APPENDIX H BOOK-ENTRY ONLY SYSTEM herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY OF CHULA VISTA, THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES (AS DEFINED HEREIN), NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM SPECIAL TAXES TO BE LEVIED IN IMPROVEMENT AREA NO. 1 OF THE DISTRICT AND CERTAIN OTHER AMOUNTS HELD UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN. The Bonds are subject to optional redemption, extraordinary redemption from prepaid Special Taxes, and mandatory sinking fund redemption prior to maturity as set forth herein. See THE BONDS Redemption herein. THE BONDS ARE NOT RATED BY ANY RATING AGENCY, AND INVESTMENT IN THE BONDS INVOLVES SIGNIFICANT RISKS THAT ARE NOT APPROPRIATE FOR CERTAIN INVESTORS. CERTAIN EVENTS COULD AFFECT THE ABILITY OF THE DISTRICT TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS WHEN DUE. 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 general reference only. It is not intended to be a summary of the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. MATURITY SCHEDULE (See Inside Cover Page) The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Best Best & Krieger LLP, San Diego, California, Bond Counsel, and subject to certain other conditions. Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California is serving as Disclosure Counsel to the District with respect to the Bonds. Certain legal matters will be passed on for the City and the District by the Office of the City Attorney, for the Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California, as counsel to the Underwriter and for the Fiscal Agent by its counsel. It is anticipated that the Bonds in book-entry form will be available for delivery through the facilities of DTC on or about June 27, Dated: June 6, 2018

2 $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS MATURITY SCHEDULE Base CUSIP No. : Serial Bonds Maturity Date (September 1) Principal Amount Interest Rate Yield Price CUSIP No $ 50, % 1.980% JP , JQ , JR , JS , JT , JU , JV , JW , JX , JY , JZ , C KA , C KB , C KC , KD , KE , KF , KG , KH3 Term Bonds $3,135, % Term Bonds due September 1, 2043, Yield: 3.740% Price: CC CUSIP No KJ9 $4,585, % Term Bonds due September 1, 2048, Yield: 3.790% Price: CC CUSIP No KK6 C Priced to the optional redemption date of September 1, 2028, at par. CC Priced to the optional redemption date of September 1, 2025, at 103%. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Global Market Intelligence on behalf of The American Bankers Association. This information is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated with the City, the District or the Underwriter and are included solely for the convenience of the registered owners of the applicable Bonds. None of the City, the District or the Underwriter is responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the applicable Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

3 CITY OF CHULA VISTA STATE OF CALIFORNIA CITY COUNCIL Serving as the Legislative Body of Community Facilities District No. 16-I (Millenia) Mary Casillas Salas, Mayor John McCann (First District) Patricia Aguilar (Second District) Stephen Padilla (Third District) Mike Diaz (Fourth District) CITY OFFICIALS Gary Halbert, City Manager Maria Kachadoorian, Assistant City Manager Glen Googins, City Attorney Kerry K. Bigelow, MMC, City Clerk David Bilby, Director of Finance/Treasurer BOND COUNSEL Best Best & Krieger LLP San Diego, California DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California MUNICIPAL ADVISOR Fieldman, Rolapp & Associates, Inc. Irvine, California SPECIAL TAX CONSULTANT Willdan Financial Services Temecula, California REAL ESTATE APPRAISER Kitty Siino & Associates, Inc. Tustin, California MARKET ABSORPTION ANALYST Meyers Research, LLC Solana Beach, California FISCAL AGENT U.S. Bank National Association Los Angeles, California

4 Except where otherwise indicated, all information contained in this Official Statement has been provided by the City and the District. No dealer, broker, salesperson or other person has been authorized by the City, the District, the Fiscal Agent or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District, the Fiscal Agent 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. This Official Statement is not to be construed as a contract with the purchasers or owners of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as representations of fact. This Official Statement, including any supplement or amendment to this Official Statement, is intended to be deposited with the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at The information set forth in this Official Statement which has been obtained from third party sources is believed to be reliable, but such information is not guaranteed as to accuracy or completeness by the City or the District. The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the 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 or the District or any other parties described in this Official Statement since the date of this Official Statement. All summaries of the Indenture or other documents 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. Reference is made by this Official Statement to such documents on file with the City for further information. While the City maintains an internet website for various purposes, none of the information on that website is incorporated by reference herein or intended to assist investors in making any investment decision or to provide any continuing information with respect to the Bonds or any other bonds or obligations of the City. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded. The Underwriter has provided the following sentence 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. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking 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 IMPROVEMENT AREA NO. 1 and PROPERTY OWNERSHIP AND THE DEVELOPMENT. 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 FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH 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 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

5 TABLE OF CONTENTS Page INTRODUCTION... 1 The District and Improvement Area No Property Ownership and Development Status... 3 Forward Looking Statements... 4 Sources of Payment for the Bonds... 4 Appraisal Report and Supplement to Appraisal Report... 6 Description of the Bonds... 6 Tax Exemption... 7 Professionals Involved in the Offering... 7 Continuing Disclosure... 7 Bond Owners Risks... 8 Other Information... 8 ESTIMATED SOURCES AND USES OF FUNDS... 9 THE BONDS... 9 General Provisions... 9 Debt Service Schedule Redemption Registration, Transfer and Exchange SOURCES OF PAYMENT FOR THE BONDS Limited Obligations Special Taxes Reserve Fund Issuance of Parity Bonds for Refunding Only IMPROVEMENT AREA NO General Description of Millenia, the District and Improvement Area No Description of Authorized Facilities Direct and Overlapping Indebtedness Expected Tax Burden; Potential Special Tax Prepayment Market Absorption Study Appraisal Report and Supplement to Appraisal Report Appraised Value-To-Lien Ratios Largest Taxpayers Delinquency History PROPERTY OWNERSHIP AND THE DEVELOPMENT General Description of the Development SLF and the Contracted Project Manager History of Property Tax Payments; Loan Defaults; Litigation; Bankruptcy The Development Builders in Improvement Area No Shea Homes Development and Financing Plan KB Home California Development and Financing Plan CalAtlantic Development and Financing Plan LMC Millenia Company Development and Financing Plan SPECIAL RISK FACTORS Risks of Real Estate Secured Investments Generally Tax Cuts and Jobs Act Concentration of Ownership Limited Obligations Insufficiency of Special Taxes Failure to Develop Properties i

6 TABLE OF CONTENTS (continued) Page Natural Disasters Endangered/Threatened Species Hazardous Substances Payment of the Special Tax is not a Personal Obligation of the Property Owners Property Values Parity Taxes and Special Assessments Disclosures to Future Purchasers Special Tax Delinquencies FDIC/Federal Government Interests in Properties Bankruptcy and Foreclosure No Acceleration Provision Loss of Tax Exemption Limited Secondary Market Proposition Shapiro Decision Ballot Initiatives Limitations on Remedies CONTINUING DISCLOSURE District Continuing Disclosure Developer Continuing Disclosure TAX MATTERS LEGAL MATTERS ABSENCE OF LITIGATION NO RATING UNDERWRITING FINANCIAL INTERESTS PENDING LEGISLATION ADDITIONAL INFORMATION APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX... A-1 APPENDIX B-1 APPRAISAL REPORT... B-1-1 APPENDIX B-2 SUPPLEMENT TO APPRAISAL REPORT... B-2-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL... C-1 APPENDIX D GENERAL INFORMATION CONCERNING THE REGION... D-1 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE... E-1 APPENDIX F FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT... F-1 APPENDIX G FORMS OF DEVELOPERS CONTINUING DISCLOSURE CERTIFICATES... G-1 APPENDIX H BOOK-ENTRY ONLY SYSTEM... H-1 APPENDIX I EXECUTIVE SUMMARY OF MARKET ABSORPTION STUDY... I-1 ii

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9 $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS INTRODUCTION The purpose of this Official Statement, which includes the cover page, the table of contents and the appendices (collectively, the Official Statement ), is to provide certain information concerning the issuance by Community Facilities District No. 16-I (Millenia) (the District ) of its Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds (the Bonds ) in the aggregate principal amount of $12,280,000. 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 Administrative Expense Fund (as defined herein). See ESTIMATED SOURCES AND USES OF FUNDS. The Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections et seq. of the Government Code of the State of California) (the Act ), and pursuant to Resolution No adopted by the City Council of the City of Chula Vista (the City Council ), acting as the legislative body of the District, on May 15, 2018 and a Bond Indenture dated as of June 1, 2018 (the Indenture ), by and between the District and U.S. Bank National Association, as Fiscal Agent (the Fiscal Agent ). The Bonds are secured under the Indenture by a pledge of and lien upon Net Taxes (as defined herein) levied on parcels within Improvement Area No. 1 (as defined and further described below) of the District and all moneys in the funds and accounts (other than the Project Fund, the Rebate Fund and the Administrative Expense Fund) established under and as described in the Indenture. See SOURCES OF PAYMENT FOR THE BONDS. The Bonds are being issued and delivered pursuant to the provisions of the Act, Ordinance No adopted by the City Council (the CFD Ordinance ) and the Indenture. The Bonds are being sold to the Underwriter pursuant to a Bond Purchase Agreement between the Underwriter and the District. See THE BONDS General Provisions and UNDERWRITING herein. 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 the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not defined shall have the meaning set forth in APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE DEFINITIONS herein. The District and Improvement Area No. 1 General. The District is located in the eastern portion of the City of Chula Vista (the City ), approximately 8 miles southeast of the City of San Diego, within the master planned community known as Otay Ranch. The District consists of approximately 67 gross acres of which 42 acres are within Improvement Area No. 1 ( Improvement Area No. 1 ) therein and 25 acres are within Improvement Area No. 2 ( Improvement Area No. 2 ) therein. The District is a portion of a larger development within Otay Ranch known as Millenia. The Millenia project 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 consisting of both rental and for-sale residential units and a maximum of 3.4 million square feet of commercial uses, including 1

10 a hotel, retail space and a business district of up to two million square feet of office space. The Millenia project 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 Millenia include apartments, attached and detached condominiums and a hotel, which is under construction. See IMPROVEMENT AREA NO. 1 General Description of Millenia, the District and Improvement Area No. 1 for a description of the completed and active developments within the Millenia community as a whole. 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 non-residential uses. 393 residential units and over 1 million square feet of commercial development are planned within Improvement Area No. 1. Approximately 42 acres of property in Improvement Area No. 1 are expected to be subject to the Special Tax (as defined herein) at build-out. 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 Millenia, including the District. SLF and Meridian are not affiliated entities. Meridian does not own any property within Improvement Area No. 1. See PROPERTY OWNERSHIP AND THE DEVELOPMENT. Formation Proceedings. The District was formed and Improvement Area No. 1 and Improvement Area No. 2 were designated therein, by the City pursuant to the Act and the CFD Ordinance. The District constitutes a governmental entity separate and apart from the City. 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. 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 two-thirds 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 or any improvement area designated therein to repay such indebtedness. The City Council adopted the CFD Ordinance to establish certain provisions applicable to the formation of a community facilities district in addition to those set forth in the Act. Pursuant to the Act and the CFD Ordinance, on August 2, 2016, the City Council adopted Resolution No (the Resolution of Intention ), 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 , 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. See IMPROVEMENT AREA NO. 1 Description of Authorized Facilities. Subsequent to a noticed public hearing, the City Council adopted Resolution Nos and on September 13, 2016 (the Resolution of Formation and the Resolution to Incur Debt, respectively) 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. 2

11 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 Recorder of the County of San Diego (the County ) on September 22, 2016 as Document No On September 20, 2016, the City Council, acting as the legislative body of the District, adopted Ordinance No (the Special Tax Ordinance ) 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 Rate and Method ), a copy of which is attached hereto as APPENDIX A. For a summary of the Rate and Method, including certain circumstances under which the Special Tax may be prepaid, in whole or in part for a parcel, see SOURCES OF PAYMENT FOR THE BONDS Special Taxes. If Special Taxes are prepaid, such prepayments would be applied to the redemption of Bonds in accordance with the Indenture. See THE BONDS Redemption Extraordinary Redemption from Special Tax Prepayments. Property Ownership and Development Status The District and Improvement Area No. 1 therein encompasses a portion of the Millenia project within the Otay Ranch master planned community of the City. The area within the Millenia project has been divided into separate project areas, six of which are included in Improvement Area No. 1. Four of the project areas within Improvement Area No. 1 are planned for for-sale market-rate residential projects totaling 393 residential units and two are planned for non-residential uses. 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 as further described herein. SLF has conveyed three of the four project areas 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. There are two project areas within Improvement Area No. 1 planned for non-residential uses. LMC Millenia Investment Company, L.P. ( LMC Millenia Company ) has acquired one parcel corresponding with one of such project areas from SLF and is under contract to purchase the second from SLF (which contract provides for a July 1, 2018 closing date). The remaining project area in Improvement Area No. 1 is owned by SLF and is planned for 60 residential units, which SLF expects to convey to a residential builder by the end of See PROPERTY OWNERSHIP AND THE DEVELOPMENT. 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. Millenia is accessed via Birch Road and Eastlake Parkway, the arterial roads which border Millenia. The roads within Millenia from which the property included in Improvement Area No. 1 can be accessed are complete. The property within Improvement Area No. 1 varies from mass-graded land to completed homes. The remaining in-tract improvements are expected to be constructed by the homebuilders and the non-residential property developer as development within their respective projects is completed. SLF is responsible for constructing six parks within the Millenia project pursuant to the Park Agreement (as defined herein) 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 of these park sites are satisfied. See PROPERTY OWNERSHIP AND THE DEVELOPMENT The Development Infrastructure Requirements and SLF Financing Plan. 3

12 As of February 1, 2018, the status of the residential developments owned by homebuilders within Improvement Area No. 1 were 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 of sale to LMC Millenia Company planned for non-residential use (which contract provides for a July 1, 2018 closing date) and one assessor s parcel planned for a development of 60 residential units, which SLF expects to convey to a homebuilder by the end of As of such date, such parcels owned by SLF were in a mass graded condition. The assessor s parcel under contract of sale to LMC Millenia Company by SLF is expected to be developed into an office campus with four buildings with approximately 700,000 square feet of leasable space. Since February 1, 2018, additional homes have been sold and closed, sold and placed in escrow and under construction. See PROPERTY OWNERSHIP AND THE DEVELOPMENT herein. 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 a plan, expect, estimate, project, budget or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions IMPROVEMENT AREA NO. 1, PROPERTY OWNERSHIP AND THE DEVELOPMENT and APPENDIX B-1 APPRAISAL REPORT and APPENDIX B-2 SUPPLEMENT TO APPRAISAL REPORT. 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 FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. Sources of Payment for the Bonds Limited Obligations. The Bonds and any Parity Bonds (as defined herein) are not general or special obligations of the City nor general obligations of the District, but are special obligations of the District payable solely from Net Taxes (as defined herein) and certain amounts held under the Indenture as more fully described herein. The interest on and principal of and redemption premiums, if any, on the Bonds and any Parity Bonds are payable solely from the Net Taxes (as defined herein), and amounts on deposit in certain funds and accounts under the Indenture, including, to the extent necessary, from the moneys on deposit in the Reserve Fund. As described herein, the Special Taxes are collected along with ad valorem property taxes on the tax bills mailed to property owners by the Office of the Treasurer-Tax Collector of the County. Although the Special Taxes will constitute a lien on the property subject to taxation in Improvement Area No. 1, they will not constitute a personal indebtedness of the owners of such property. There is no assurance that such owners will be financially able to 4

13 pay the annual Special Taxes or that they will pay such taxes even if they are financially able to do so. Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds and any Parity Bonds. Special Tax. As used in this Official Statement, the terms Special Tax and Special Taxes is the Improvement Area No. 1 Special Tax, which term is defined in the Indenture as the Special Tax authorized to be levied in Improvement Area No. 1 pursuant to the Act and the Rate and Method. Under the Indenture, the District will pledge to repay the Bonds and any Parity Bonds from the Net Improvement Area No. 1 Special Tax Revenues (referred to in this Official Statement as the Net Taxes ), which term is defined in the Indenture to mean the Improvement Area No. 1 Special Tax Revenues minus amounts applied annually to fund the Administrative Expense Requirement. The term Improvement Area No. 1 Special Tax Revenues is defined in the Indenture as: (a) the proceeds of the Special Tax levied by the District within Improvement Area No. 1 of the District pursuant to the Rate and Method and received by the District, and (b) the Delinquency Proceeds. Delinquency Proceeds is defined in the Indenture as amounts collected from the redemption of delinquent Special Taxes including the penalties and interest thereon and from the sale of property sold as a result of the foreclosure of the lien of the Special Tax resulting from the delinquency. See SOURCES OF PAYMENT FOR THE BONDS Special Taxes and APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX. The Special Taxes are the primary security for the repayment of the Bonds and any Parity Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to pay the debt service on the Bonds and any Parity Bonds are amounts held by the Fiscal Agent in the funds and accounts under the Indenture (other than the Project Fund, the Rebate Fund and the Administrative Expense Fund). See SOURCES OF PAYMENT FOR THE BONDS Reserve Fund. Foreclosure Proceeds. The District will covenant in the Indenture for the benefit of the owners of the Bonds and Parity 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 $5,000 or more by October 1 following the close of the Fiscal Year in which the Special Taxes were due, and (ii) against all properties with delinquent Special Taxes in the aggregate of $5,000 or more by October 1 following the close of any Fiscal Year if the amount of the Reserve Fund is less than the Reserve Requirement. The District may, but shall not be obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Fund at the Reserve Requirement or to avoid a default in payment on the Bonds and any Parity Bonds. See SOURCES OF PAYMENT FOR THE BONDS Special Taxes herein and APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE MISCELLANEOUS CONDITIONS Covenants. There is no assurance that the property within Improvement Area No. 1 can be sold at foreclosure for the appraised value 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 landowners or future landowners within Improvement Area No. 1. See SPECIAL RISK FACTORS Property Values and APPENDIX B-1 APPRAISAL REPORT and APPENDIX B-2 SUPPLEMENT TO APPRAISAL REPORT. Special Taxes Are Not Within Teeter Plan. Section 4701 et seq. of the California Revenue and Taxation Code allows a county to adopt a tax distribution procedure which distributes taxes to taxing agencies on the basis of the amount of the tax levy, rather than on the basis of actual tax collections. This mechanism is known as a Teeter Plan. The Special Taxes are not subject to the County s Teeter Plan. The amount of Special Taxes available to pay debt service on the Bonds will depend on actual tax collections. Parity Bonds and Liens. Under the terms of the Indenture, the District may issue additional bonds secured by the Net Taxes on a parity with the Bonds (the Parity Bonds ) for the purpose of refunding the Bonds. Parity Bonds may be issued so long as the issuance of such Parity Bonds results in a reduction in each Bond Year on the Annual Debt Service on the Bonds when combined with the Debt Service on Parity Bonds following the issuance of such Parity Bonds. See SOURCES OF PAYMENT FOR THE BONDS Issuance of Parity Bonds 5

14 for Refunding Only. Parity Bonds may be issued by means of a supplemental indenture and without any requirement for the consent of any Bondowners. See APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE MISCELLANEOUS CONDITIONS Covenants. Other taxes and/or special assessments with liens equal in priority to the continuing lien of the Special Taxes have been levied and may also be levied in the future on the property within Improvement Area No. 1 which could adversely affect the willingness of the property owners to pay the Special Taxes when due. See SPECIAL RISK FACTORS Parity Taxes and Special Assessments herein. Appraisal Report and Supplement to Appraisal Report An appraisal of the land and existing improvements within Improvement Area No. 1 was prepared by Kitty Siino & Associates, Inc., Newport Beach, California (the Appraiser ). The appraisal is entitled Appraisal Report Community Facilities District No. 16-I Improvement Area No. 1 (Millenia) Otay Ranch, Chula Vista (the Appraisal Report ). See APPENDIX B-1 APPRAISAL REPORT. The Appraisal Report provides an estimate of the approximate minimum market value of the property in Improvement Area No. 1 subject to the levy of Special Taxes, assuming that development of the property as currently planned will consist of 393 residential units and the non-residential projects described therein. Based on the assumptions and limiting conditions in the Appraisal Report, the Appraiser concluded that the market value of all of the parcels within Improvement Area No. 1 subject to the Special Tax was $62,228,054 as of February 1, 2018 (the Date of Value ). The Appraiser has prepared a Supplement to Appraisal Report (the Appraisal Supplement ) in which the Appraiser concludes that the estimated market value of the property within Improvement Area No. 1 subject to the levy of Special Taxes as of April 1, 2018, was not less than the concluded value as of the Date of Value set forth in the Appraisal Report. See APPENDIX B-2 SUPPLEMENT TO APPRAISAL REPORT. The Appraisal Report and the Appraisal Supplement are based upon a variety of assumptions and limiting conditions that are described in APPENDIX B-1 and APPENDIX B-2. The District makes no representation as to the accuracy of the Appraisal Report or the Appraisal Supplement. See IMPROVEMENT AREA NO. 1 Appraisal Report and Supplement to Appraisal Report and Appraised Value-to-Lien Ratios. There is no assurance that property within Improvement Area No. 1 can be sold for the prices set forth in the Appraisal Report or that any parcel can be sold for a price sufficient to pay the Special Tax for that parcel in the event of a default in payment of Special Taxes by a property owner. See IMPROVEMENT AREA NO. 1, SPECIAL RISK FACTORS Property Values and APPENDIX B-1 APPRAISAL REPORT and APPENDIX B-2 SUPPLEMENT TO APPRAISAL REPORT herein. Description of the Bonds 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 the denominations of $5,000 or any integral multiple 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 Indenture. See APPENDIX H BOOK-ENTRY ONLY SYSTEM. Principal of, premium, if any, and interest on the Bonds is 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-entry only 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 in the Indenture. 6

15 The Bonds are subject to optional redemption, extraordinary redemption from prepaid Special Taxes, and mandatory sinking fund redemption as described herein. See THE BONDS Redemption. For a more complete descriptions of the Bonds and the basic documentation pursuant to which they are being sold and delivered, see THE BONDS and APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE herein. Tax Exemption In the opinion of Bond Counsel, subject to certain qualifications described in this Official Statement, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, the 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 the federal alternative minimum tax. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income tax. Set forth in APPENDIX C is the form of opinion of Bond Counsel expected to be delivered in connection with the issuance of the Bonds. For a more complete discussion of such opinion and certain other tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax treatment of interest, see TAX MATTERS. Professionals Involved in the Offering U.S. Bank National Association, Los Angeles, California, will act as Fiscal Agent under the Indenture. Stifel, Nicolaus & Company, Incorporated is the Underwriter (the Underwriter ) of the Bonds. Certain proceedings in connection with the issuance and delivery of the Bonds are subject to the approval of Best Best & Krieger LLP, San Diego, California, Bond Counsel, and Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Disclosure Counsel to the District in connection with the issuance of the Bonds. Certain legal matters will be passed on for the District and the City by the Office of the City Attorney, for the Underwriter, by Jones Hall, A Professional Law Corporation, San Francisco, California, as counsel to the Underwriter and for the Fiscal Agent by its counsel. Other professional services have been performed by Kitty Siino & Associates, Inc., Tustin, California, as the Appraiser, Meyers Research, LLC, Solana Beach, California as Market Absorption Analyst, Fieldman, Rolapp & Associates, Inc., Irvine, California as municipal advisor to the City and Willdan Financial Services, Temecula, California, as Special Tax Consultant. For information concerning respects in which certain of the above-mentioned professionals, advisors, counsel and consultants may have a financial or other interest in the offering of the Bonds, see FINANCIAL INTERESTS herein. Continuing Disclosure The District has agreed to provide, or cause to be provided, pursuant to Rule 15c2-12 (the Rule ) adopted by the Securities and Exchange Commission (the SEC ) certain financial information and operating data on an annual basis (the District Reports ). The District has further agreed to provide, in a timely manner, notice of certain events with respect to the Bonds (the Listed Events ). These covenants have been made in order to assist the Underwriter in complying with the Rule. The District Reports will be filed with the Electronic Municipal Market Access System ( EMMA ) of the Municipal Securities Rulemaking Board (the MSRB ) available on the Internet at Notices of Listed Events will also be filed with the MSRB. The District has not entered into any prior continuing disclosure obligations. The City will assist the District in preparing the District Reports. Within the last five years, the City and certain related entities have failed to comply in certain respects with prior continuing disclosure undertakings as described under the caption CONTINUING DISCLOSURE. The Underwriter does not consider any of SLF, LMC Millenia Company or the current homebuilders within Improvement Area No. 1 to be an obligated person with respect to the Bonds for purposes of the Rule. However, to assist in the marketing of the Bonds, SLF, LMC Millenia Company and the homebuilders within 7

16 Improvement Area No. 1 have agreed to provide, or cause to be provided on EMMA, updated information with respect to their respective development within Improvement Area No. 1 (the Developer Reports ), on a semiannual basis and notices of certain Listed Events until certain development milestones have been reached. The termination of such reporting requirements varies between each continuing disclosure undertaking. See CONTINUING DISCLOSURE herein and APPENDIX F and APPENDIX G hereto for a description of the specific nature of the reports to be filed by the District, SLF, LMC Millenia Company and the current homebuilders within Improvement Area No. 1 and notices of Listed Events and a copy of the continuing disclosure undertakings pursuant to which such reports are to be made. Bond Owners Risks Certain events could affect the ability of the District to pay the principal of and interest on the Bonds when due. See the section of this Official Statement entitled SPECIAL RISK FACTORS 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 are not appropriate investments for certain investors. See SPECIAL RISK FACTORS herein. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the Bonds and the Indenture are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture, the Bonds and the constitution and laws of the State as well as the proceedings of the City Council, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the Bonds, by reference to the Indenture. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture. Copies of the Indenture, the Appraisal Report, the Appraisal Supplement and other documents and information are available for inspection and (upon request and payment to the District of a charge for copying, mailing and handling) for delivery from the City Clerk at 276 Fourth Avenue, Chula Vista, California

17 ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the expected sources and uses of Bond proceeds. Sources of Funds: Principal Amount of Bonds $ 12,280, Plus Net Original Issue Premium 800, Total Sources $ 13,080, Uses of Funds: Project Fund $ 11,350, Capitalized Interest Sub-Account (1) 164, Administrative Expense Fund 37, Costs of Issuance (2) 365, Reserve Fund 1,028, Underwriter s Discount 134, Total Uses $ 13,080, (1) (2) Amounts deposited to pay a portion of the interest on the Bonds through September 1, Includes Bond Counsel fees, Disclosure Counsel fees, Appraiser fees, Special Tax Consultant fees, Municipal Advisor fees, Fiscal Agent fees, printing costs and other issuance costs. Source: The Underwriter. General Provisions THE BONDS The Bonds will be dated as of their date of delivery and will bear interest at the rates per annum set forth on the inside cover page hereof, payable semiannually on each March 1 and September 1, commencing on September 1, 2018 (each, an Interest Payment Date ), and will mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. Interest on a portion of the Bonds through September 1, 2019 will be paid from a portion of the proceeds of the Bonds. Interest will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on any Bond will be payable from the Interest Payment Date next preceding the date of authentication of that Bond, unless (i) such date of authentication is an Interest Payment Date, in which event interest will be payable from such date of authentication; (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest will be payable from the Interest Payment Date immediately succeeding the date of authentication; or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest will be payable from the date of the Bonds; provided, however, that if at the time of authentication of a Bond, interest is in default, interest on that Bond will be payable from the last Interest Payment Date to which the interest has been paid or made available for payment. As used herein, Record Date means the fifteenth calendar day of the month immediately preceding an Interest Payment Date, regardless of whether such day is a Business Day. Interest on any Bond will be paid to the person whose name appears in the Registration Books as the Owner of such Bond as of the close of business on the Record Date. Principal of the Bonds due at maturity or upon prior redemption, and any premium due upon redemption, is payable upon presentation and surrender of the Bonds at the principal corporate trust office of the Fiscal Agent in Los Angeles, California. The Bonds will be issued as fully registered bonds and will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the Bonds. Ownership interests in the Bonds may be purchased in book-entry form only in denominations of $5,000 and any integral multiple thereof. So long as DTC is the securities depository all payments of principal and interest on the Bonds will be made to DTC and will be 9

18 paid to the Beneficial Owners in accordance with DTC s procedures and the procedures of DTC s Participants. See APPENDIX H BOOK-ENTRY-ONLY SYSTEM. In the event the Bonds are not held in book-entry form, interest on the Bonds will be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, to the Bondowner at its address on the Registration Books. In addition, with respect to any Bonds owned by the District and upon a request in writing received by the Fiscal Agent on or before the applicable Record Date from an Owner of $1,000,000 or more in principal amount of the Bonds, payment will be made by wire transfer in immediately available funds to an account in the United States designated by such Owner. Debt Service Schedule The following table presents the annual debt service on the Bonds (including mandatory sinking fund redemption), assuming there are no optional or extraordinary redemptions. See SOURCES OF PAYMENT FOR THE BONDS and THE BONDS Redemption. Date (September 1) Principal Interest Total 2018 $ - $ 98, $ 98, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,014, , , ,040, , , ,062, , , ,081, ,055,000 52, ,107, Total $ 12,280,000 $ 12,548, $ 24,828, Source: The Underwriter. 10

19 Redemption Optional Redemption. The Bonds may be redeemed at the option of the District prior to maturity as a whole, or in part on any Interest Payment Date on and after September 1, 2025, from such maturities as are selected by the District, and by lot within a maturity, from any source of funds, at the following redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), together with accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 2025 and March 1, % September 1, 2026 and March 1, September 1, 2027 and March 1, September 1, 2028 and any Interest Payment Date thereafter 100 Extraordinary Redemption from Special Tax Prepayments. The Bonds are subject to extraordinary mandatory redemption on any Interest Payment Date, prior to maturity, as a whole or in part on as nearly as practicable a pro rata basis among maturities of authorized denominations from amounts deposited to the Redemption Fund in connection with a prepayment of Special Taxes pursuant to the Rate and Method (see IMPROVEMENT AREA NO. 1 Expected Tax Burden; Potential Special Tax Prepayment ). Such extraordinary mandatory redemption of the Bonds shall be at the following redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), together with accrued interest thereon to the date of redemption: Redemption Dates Redemption Price Any Interest Payment Date from September 1, 2018 through March 1, % September 1, 2026 and March 1, September 1, 2027 and March 1, September 1, 2028 and any Interest Payment Date thereafter 100 Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, 2043 are subject to mandatory sinking fund redemption, in part by lot, on September 1 in each year commencing September 1, 2039 at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued and unpaid interest thereon to the date fixed for redemption, without premium, in the aggregate principal amount and in the years shown on the following redemption schedule: Sinking Fund Redemption Date (September 1) Sinking Fund Payments 2039 $ 530, , , , (maturity) 730,000 The Bonds maturing on September 1, 2048 are subject to mandatory sinking fund redemption, in part by lot, on September 1 in each year commencing September 1, 2044 at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued and unpaid interest thereon to the date fixed for redemption, without premium, in the aggregate principal amount and in the years shown on the following redemption schedule: 11

20 Sinking Fund Redemption Date (September 1) Sinking Fund Payments 2044 $ 785, , , , (maturity) 1,055,000 In the event of a partial optional redemption or extraordinary redemption from Special Tax prepayments of the Bonds maturing on September 1, 2043 or September 1, 2048, each of the remaining mandatory sinking fund payments for the applicable maturity of the Bonds so redeemed will be reduced, as nearly as practicable, on a pro rata basis in integral multiples of $5,000. Notice of Redemption. So long as the Bonds are held in book-entry form by the Depository, or its Nominee, notice of redemption will be given to the Depository in such manner as is set forth in the procedures of the Depository, at least thirty (30) days but not more than forty-five (45) days prior to the redemption date. It is the responsibility of DTC Participants to provide such notice. See APPENDIX H BOOK-ENTRY ONLY SYSTEM. If the Bonds are no longer registered to the Depository, or its Nominee, the Fiscal Agent is required to mail, at least thirty (30) days but not more than forty-five (45) days prior to the date of redemption, notice of redemption, by first-class mail, postage prepaid, to the original purchaser of the Bonds and the respective registered Owners of the Bonds at the addresses appearing on the Registration Books. The notice of redemption shall state: (a) the redemption date; (b) the redemption price; (c) the bond registration numbers, dates of maturity and CUSIP numbers of the Bonds to be redeemed, and in the case of Bonds to be redeemed in part, the respective principal portions to be redeemed; provided, however, that whenever any call includes all Bonds of a maturity, the numbers of the Bonds of such maturity need not be stated; (d) that such Bonds must be surrendered at the principal corporate trust office of the Fiscal Agent; (e) that further interest on such Bonds will not accrue from and after the designated redemption date; (f) the date of the issue of the Bonds as originally issued; (g) the rate of interest borne by each Bond being redeemed; and (h) that any other descriptive information needed to identify accurately the Bonds being redeemed as the District shall direct. Each notice of redemption shall be sent at least 2 days before the notice of redemption is mailed to the Bondowners by registered or certified mail or overnight delivery service to the Securities Depositories and to at least one of the Information Services that disseminate notice of redemption of obligations similar to the Bonds or, in accordance with the then-current guidelines of the SEC, such other services providing information on called bonds, or no such other services, as District may determine in its sole discretion. Any notice of optional redemption of the Bonds delivered in accordance with the Indenture may be conditional and if any condition stated in the notice of redemption shall not have been satisfied on or prior to the redemption date, said notice shall be of no force and effect and the District shall not be required to redeem such Bonds. In such event, the redemption shall not be made and the Fiscal Agent shall within a reasonable time thereafter give notice, to the persons and in the manner in which the notice of redemption was given, that such condition or conditions were not met and that the redemption was cancelled. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the Owners of the Bonds so called for redemption. Any optional redemption and notice thereof shall be rescinded if for any reason on the date fixed for redemption moneys are not available in the Debt Service Fund or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the principal of, interest, and any premium due on the Bonds called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the Owner of any Bond of notice of such 12

21 rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission. So long as notice has been provided as set forth in the Indenture, the actual receipt by the Owner of any Bond of notice of such redemption shall not be a condition precedent to redemption, and failure to receive such notice shall not affect the validity of the proceedings for redemption of such Bonds or the cessation of interest on the date fixed for redemption. Effect of Redemption. When notice of redemption has been given substantially as provided for in the Indenture, and when the amount necessary for the redemption of the Bonds called for redemption is set aside for that purpose in the Debt Service Fund or the Redemption Fund, as provided for in the Indenture, the Bonds designated for redemption shall become due and payable on the date fixed for redemption thereof, and upon presentation and surrender of said Bonds at the place specified in the notice of redemption, said Bonds shall be redeemed and paid at the redemption price out of the Debt Service Fund or the Redemption Fund and no interest will accrue on such Bonds or portions of Bonds called for redemption from and after the redemption date specified in said notice, and the Owners of such Bonds so called for redemption after such redemption date shall look for the payment of principal and premium, if any, of such Bonds or portions of Bonds only to the Debt Service Fund or the Redemption Fund, as applicable. All Bonds redeemed shall be canceled forthwith by the Fiscal Agent and shall not be reissued. Upon surrender of Bonds redeemed in part, a new Bond or Bonds of the same maturity shall be registered, authenticated and delivered to the registered Owner at the expense of the District, in the aggregate principal amount of the unredeemed portion. All unpaid interest payable at or prior to the date fixed for redemption shall continue to be payable to the respective Owners of such Bonds or their order, but without interest thereon. Selection of Bonds for Redemption. If less than all of 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 District shall treat each such Bond as representing that 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. Purchase in lieu of Redemption. In lieu of such an optional, extraordinary mandatory or mandatory sinking fund redemption, the District may elect to purchase such Bonds at public or private sale at such prices as the District may in its discretion determine; provided, that, unless otherwise authorized by law, the purchase price (including brokerage and other charges) thereof shall not exceed the principal amount thereof, plus the applicable premium, if any, stated above, plus accrued interest to the purchase date. Registration, Transfer and Exchange Registration. The Fiscal Agent will keep sufficient books for the registration and transfer of the Bonds. The ownership of the Bonds will be established by the Bond registration books held by the Fiscal Agent. Upon initial issuance, the ownership of the Bonds will be registered in the name of the nominee of DTC. Transfer or Exchange. Whenever any Bond or Bonds shall be surrendered for registration of transfer or exchange, the Fiscal Agent shall authenticate and deliver a new Bond or Bonds of the same maturity, for a like aggregate principal amount of authorized denominations; provided that the Fiscal Agent shall not be required to register transfers or make exchanges of (i) Bonds for a period of 15 days next preceding the date of any selection of the Bonds to be redeemed, or (ii) any Bonds chosen for redemption. 13

22 SOURCES OF PAYMENT FOR THE BONDS Limited Obligations The Bonds are special, limited obligations of the District payable only from amounts pledged under the Indenture and from no other sources. In the event that the Special Taxes are not paid when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the funds and accounts established in the Indenture (including the investment earnings thereon) with the exception of the Project Fund, the Rebate Fund and the Administrative Expense Fund. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM SPECIAL TAXES TO BE LEVIED IN IMPROVEMENT AREA NO. 1 AND CERTAIN OTHER AMOUNTS HELD UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN. Special Taxes Authorization and Pledge. In accordance with the provisions of the Act and the CFD Ordinance, the City established the District and designated Improvement Area No. 1 therein on September 13, 2016, for the purpose of financing various public improvements required in connection with the proposed development within the District. On September 13, 2016, an election was held within Improvement Area No. 1 at which the landowners eligible to vote approved the issuance of bonds for Improvement Area No. 1 in an amount not to exceed $20,000,000, and the levy of the Special Taxes on property within Improvement Area No. 1 to repay such bonds and to finance the Facilities (as defined below). The landowner within Improvement Area No. 1 also voted to approve the Rate and Method which authorized the Special Tax to be levied to repay indebtedness of the District with respect to Improvement Area No. 1, including the Bonds. The District will covenant in the Indenture that it will comply with all requirements of the Act so as to assure the timely collection of the Special Taxes in an amount sufficient to pay the Annual Debt Service on the Bonds when due, Administrative Expenses, and any amounts to replenish the Reserve Fund to the Reserve Requirement. The Special Taxes are collected in the manner and at the same time as ad valorem property taxes are collected and are subject to the same penalties and the same procedure, sale, and lien priority in case of delinquency as is provided for ad valorem property taxes. See APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX. The Net Taxes pledged by the District to secure the repayment of the Bonds (and any Parity Bonds) are the Special Tax Revenues minus amounts applied annually to fund the Administrative Expense Requirement. As used in this Official Statement, the term Special Tax Revenues refers to the Improvement Area No. 1 Special Tax Revenues, which is defined in the Indenture as: (a) the proceeds of the Special Tax levied by the District within Improvement Area No. 1 of the District pursuant to the Rate and Method and received by the District, and (b) the Delinquency Proceeds. Delinquency Proceeds is defined in the Indenture as amounts collected from the redemption of delinquent Special Taxes including the penalties and interest thereon and from the sale of property sold as a result of the foreclosure of the lien of the Special Tax resulting from the delinquency. 14

23 The District will, no later than the tenth Business Day after which Special Tax Revenues have been received by the District, and in any event not later than February 15th and August 15th of each year, transfer such Special Tax Revenues to the Fiscal Agent. Except for Prepayments which shall be deposited to the Redemption Fund and the Administrative Expense Fund, as set forth in written instructions from the District in accordance with the Indenture, the Fiscal Agent will deposit the Special Tax Revenues received in the Special Tax Fund. The Special Tax Revenues deposited in the Special Tax Fund shall be held in trust and deposited in the following accounts of the Special Tax Fund or transferred to the following other funds and accounts on the dates and in the amounts set forth in the following paragraphs and in the following order of priority: (1) The Fiscal Agent will each Fiscal Year transfer to the Administrative Expense Fund from the Special Tax Revenues received by the Fiscal Agent during such Fiscal Year an amount equal to the Administrative Expense Requirement; (2) The Fiscal Agent will transfer to the Interest Account of the Debt Service Fund, on each Interest Payment Date and date for redemption of the Bonds, an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest due or becoming due and payable on such Interest Payment Date on all Outstanding Bonds or to be paid on the Bonds being redeemed on such date; (3) The Fiscal Agent will transfer to the Principal Account of the Debt Service Fund, on each September 1, an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of, and premium (if any) on, the Bonds coming due and payable on such September 1, whether at maturity or by mandatory sinking fund payments on Term Bonds; (4) On or after September 2 of each year after making the deposits and transfers to the Administrative Expense Fund and the Debt Service fund described above, the Fiscal Agent shall transfer the amount, if any, necessary to replenish the amount then on deposit in the Reserve Fund to an amount equal to the Reserve Requirement; (5) On or after September 2 of each year after making the deposits and transfers required to the Administrative Expense Fund, the Debt Service Fund and the Reserve Fund described above, upon receipt of written instructions from the District, the Fiscal Agent will transfer from the Special Tax Fund to the Rebate Fund the amount specified in such request; (6) On or after September 2 of each year after making the deposits and transfers required to the Administrative Expense Fund, the Debt Service Fund, the Reserve Fund and the Rebate Fund described above, upon receipt of a written request of the District, the Fiscal Agent will transfer from the Special Tax Fund to the Administrative Expense Fund the amounts specified in such request to pay those Administrative Expenses which the District reasonably expects will become due and payable during such Fiscal Year or the cost of which Administrative Expenses have previously been incurred and paid by the District from funds other than the Administrative Expense Fund in excess of the Administrative Expense Requirement for such Fiscal Year; and (7) If, on or after September 2 of each year, after making the deposits and transfers required to the Administrative Expense Fund, the Debt Service Fund, the Reserve Fund and the Rebate Fund described above, monies remain in the Special Tax Fund, such monies shall be transferred to the Project Fund until the Project Fund is closed. The Fiscal Agent will, upon receipt of Special Tax Revenues representing Prepayments, immediately transfer Prepayments to the Redemption Fund and utilize such funds to redeem Bonds pursuant to the Indenture (see Redemption Extraordinary Redemption from Special Tax Prepayments above) as set forth in written instructions to be delivered to the Fiscal Agent by the District; provided, however, that any portion of a 15

24 Prepayment constituting Administrative Expenses shall be deposited into the Administrative Expense Fund as set forth in such written instructions. See APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE. The Special Taxes levied in any fiscal year may not exceed the maximum rates authorized pursuant to the Rate and Method. See APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX hereto. There is no assurance that the Special Tax proceeds will, in all circumstances, be adequate to pay the principal of and interest on the Bonds when due. See the caption Estimated Debt Service Coverage below and SPECIAL RISK FACTORS Insufficiency of Special Taxes herein. Rate and Method of Apportionment of Special Tax. The District is legally authorized and will covenant in the Indenture to cause the levy of the Special Taxes in an amount determined according to the Rate and Method. The Rate and Method apportions the total amount of Special Taxes to be collected among the taxable parcels in Improvement Area No. 1 as more particularly described below. The following is a synopsis of the provisions of the Rate and Method for Improvement Area No. 1, which should be read in conjunction with the complete text of the Rate and Method which is attached as APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX. The meaning of the defined terms used in this section are as set forth in APPENDIX A. This section provides only a summary of the Rate and Method, and is qualified by more complete and detailed information contained in the entire Rate and Method attached as APPENDIX A. Assignment to Land Use Categories. Under the Rate and Method, Improvement Area No. 1 is classified into three tax zone areas (each a Zone ). Each Fiscal Year, commencing Fiscal Year , all Taxable Property within Zone A through C of Improvement Area No. 1 shall be classified as Taxable Property or Exempt Property. In addition, all Taxable Property shall further be classified as Developed Property, Undeveloped Property or Provisional Property, and all such Taxable Property shall be subject to the levy of Special Taxes determined pursuant to Sections 3 and 4 of the Rate and Method. The Assigned Special Tax for an Assessor s Parcel of Residential Property shall be based on the Zone in which the Assessor s Parcel is located and the Building Square Footage of the dwelling units located on the Assessor s Parcel. The Assigned Special Tax for Non-Residential Property shall be based on the Zone in which the Assessor s Parcel is located and the Acreage of the Assessor s Parcel. For Assessor s Parcels of Non-Residential Property developed with Condominiums (e.g., office or industrial condos), the Acreage applicable to each such Condominium for purposes of levying Special Taxes shall be computed from the Acreage of the legal lot created by the Final Map upon which such Condominiums are entitled to be developed, with the Acreage of such lot allocated to each Condominium on a pro-rata basis using the Building Square Footage of such Condominium relative to the total Building Square Footage of all Condominiums entitled to be developed on such lot. The determination of Building Square Footage for each nonresidential Condominium shall be made by reference to the applicable Building Permit, and to the extent a Building Permit has not been issued for all Condominiums to be located on the applicable legal lot, the building square footage attributable to any such Condominiums shall be determined from the recorded condominium plan, or applicable site plan, plot plan, or other appropriate records kept by the City as reasonably determined by the City. In the event the City takes ownership of a Condominium within Improvement Area No. 1 and such property in all other respects meets the definition of Public Property as set forth in Section 1 of the Rate and Method, such property shall be exempt from Special Taxes pursuant to Section 5 of the Rate and Method. Exemptions. No Special Tax shall be levied on Assessor s Parcels of Public Property, Property Owner Association Property, Assessor s Parcels which are used as places of worship and are exempt from ad valorem property taxes because they are owned by a religious organization, and Assessor s Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement. 16

25 Notwithstanding the foregoing, no property within Improvement Area No. 1 will be classified as Exempt Property if such classification would reduce the sum of all Taxable Property in Improvement Area No. 1 to less than 9.53 Acres for Zone A, Acres for Zone B, or Acres for Zone C. Assessor s Parcels which cannot be classified as Exempt Property because such classification would reduce the sum of all Taxable Property in Improvement Area No. 1 to less than the foregoing acreages for each Zone shall be classified as Provisional Property and will continue to be subject to the Improvement Area No. 1 Special Taxes. Under the Rate and Method, classification of Exempt Property will be assigned by the City in the chronological order in which property becomes eligible for classification as Exempt Property. Maximum Special Tax, Assigned Annual Special Tax and Backup Special Tax. Maximum Special Tax. The Maximum Special Tax for each Assessor s Parcel classified as Developed Property within a particular Zone shall be the greater of (i) the amount derived by application of the Assigned Special Tax for such Zone or (ii) the amount derived by application of the Backup Special Tax for such Zone. For Fiscal Year , the Maximum Special Tax for an Assessor s Parcel of Provisional Property and Undeveloped Property within each Zone will be $28,613 per Acre for Zone A, $30,231 per Acre for Zone B, and $6,571 per Acre for Zone C. Section 3F of the Rate and Method provides for the process by which the District may, upon the receipt of a request from SLF prior to the issuance of the Bonds, reduce the Assigned Special Tax rates, the Backup Special Tax rates and the Maximum Special Tax (as such terms are defined in the Rate and Method) rates to a level which will provide not less than the sum of estimated the Administrative Expense Requirement and one hundred ten percent (110%) of the estimated debt service with respect to the amount of Bonds requested to be issued in such written request. No request has been made or is expected to be made prior to the issuance of the Bonds to reduce the Assigned Special Tax rates, the Backup Special Tax rates or the Maximum Special Tax rates pursuant to Section 3F of the Rate and Method. Assigned Special Tax. The Assigned Special Tax for each Land Use Class within each Zone is shown in Tables 1 through 3 of the Rate and Method attached as APPENDIX A, which rates increase by two percent on each July 1, commencing July 1, Assigned Special Tax rates have been established for Residential Property and Non-Residential Property in the three Zones. The number of units/acres projected in each Zone is as follows: Zone Projected Residential Development (Units) 17 Projected Non-Residential Development (Acreage) A B C Total The Assigned Special Tax levied against Developed Property that is Residential Property will generally correlate with the residential square footage of the unit in question. For a detailed description of Assigned Special Taxes for Residential Property in the Zones, see the Rate and Method attached as APPENDIX A. The Assigned Special Tax levied against Non-Residential parcels of Developed Property within each Zone will generally be determined on a per acre basis. For a detailed description of Assigned Special Taxes for Non-Residential Property that is Developed Property, see the Rate and Method attached as APPENDIX A. Multiple Land Use Classes. In some instances an Assessor s Parcel of Developed Property may contain more than one Land Use Class. The Maximum Special Tax that may be levied on such an Assessor s Parcel shall only be levied on the Residential Property Land Use Class located on such Assessor s Parcel. Backup Special Tax. For each Assessor s Parcel of Residential Property or for each Assessor s Parcel of Undeveloped Property to be classified as Residential Property upon its development within the Final Map area,

26 the Backup Special Tax is calculated based on a formula that is a function of a per acre rate, multiplied by the number of acres within such Assessor s Parcel, divided by the number of lots which are classified or to be classified as Residential Property. In Fiscal Year , the per acre rates for Zones A, B and C will be $28,613, $30,231 and $6,571, respectively. For each Assessor s Parcel of Developed Property classified as Non-Residential Property or for each Assessor s Parcel of Undeveloped Property to be classified as Non-Residential Property within the Final Map area, the Backup Special Tax shall be determined by multiplying the per-acre Backup Special Tax rates as set forth above for Residential Property by the total Acreage of any such Assessor s Parcel. Annual Increases. On each July 1, the Assigned Special Tax and the Backup Special Tax for each Assessor s Parcel of Taxable Property within Improvement Area No. 1 will be increased by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. Method of Apportionment of Special Tax. Commencing with Fiscal Year and for each following Fiscal Year, the District shall levy the Special Tax on all Taxable Property in order to satisfy the Special Tax Requirement in accordance with steps 1 through 4 below. The Rate and Method defines the Special Tax Requirement as that amount required in any Fiscal Year to: (i) pay regularly scheduled Debt Service on all Outstanding Bonds; (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 an increase in the Special Tax to be levied on Undeveloped Property; and (vi) pay for reasonably anticipated delinquent Special Taxes based on (a) the average delinquency rate for special taxes levied in the previous Fiscal Year in all community facilities districts within the portion of the City commonly known as Otay Ranch for the first Fiscal Year in which Special Taxes are levied and (b) the delinquency rate for Special Taxes levied in the previous Fiscal Year within Improvement Area No. 1 for all subsequent Fiscal Years in which Special Taxes are levied; less (vii) a credit for funds available to reduce the Annual Special Tax levy, as determined by the CFD Administrator pursuant to the Fiscal Agent Agreement: Step 1: The Special Tax shall be levied Proportionately on each Assessor s Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax to satisfy the Special Tax Requirement; Step 2: If additional monies are needed to satisfy the Special Tax Requirement after Step 1 has been completed, the Special Tax shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property up to 100% of the Maximum Special Tax for Undeveloped Property; Step 3: If additional monies are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then the Special Tax amount determined in Step 1 shall be increased Proportionately on each Assessor s Parcel of Developed Property up to 100% of the Maximum Special Tax for Developed Property. Step 4: If additional monies are needed to satisfy the 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 Property up to 100% of the Maximum Special Tax for Provisional Property. Notwithstanding the above, under no circumstances will the Special Tax levied in a Fiscal Year against any Assessor s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) above the amount that would have been levied in that Fiscal Year as a consequence of delinquency or default by the owner of any other Assessor s Parcel within Improvement Area No. 1. To the extent that the levy of the Special Tax on Residential Property is limited by the provision in the previous sentence, the levy of the Special Tax on all other Assessor s Parcels shall continue in equal percentages at up to 100% of the Maximum Special Tax. 18

27 Prepayment of Annual Special Taxes. The Annual Special Tax obligation for an Assessor s Parcel may be prepaid in full, or in part, provided that the terms set forth under the Rate and Method are satisfied. The Prepayment Amount is calculated based on the sum of the Bond Redemption Amount, the Redemption Premium, the Future Facilities Prepayment Amount, the Defeasance Amount, the Prepayment Administrative Fees and Expenses and less a credit for the resulting reduction in the Reserve Requirement for the Bonds (if any) and less capitalized interest (if any), all as specified in Section 8 of the Rate and Method attached as APPENDIX A. Pursuant to the Rate and Method and the Indenture, prepayments of Special Taxes will be applied to effect an extraordinary redemption of Bonds and Parity Bonds. Where the total tax burden exceeds 2.0% of the actual sales price of a home when first sold by a homebuilder, the Special Tax, or special taxes and assessments of overlapping taxing districts, must be partially prepaid to the extent described herein. See THE BONDS Redemption Extraordinary Redemption from Special Tax Prepayments and IMPROVEMENT AREA NO. 1 Expected Tax Burden; Potential Special Tax Prepayment. Estimated Debt Service Coverage. In order to size the Bonds, the District evaluated the maximum Assigned Special Taxes that could be levied based on projected build out of Improvement Area No. 1. Assuming an Administrative Expense Requirement of $75,000 and build out within Improvement Area No. 1 as planned, Net Taxes would not be less than 110% of debt service on the Bonds in each Bond Year which begins in a Fiscal Year. While the maximum Special Tax rates, if levied in accordance with the Rate and Method, would produce coverage levels of Net Taxes which are higher than 110% of debt service in certain circumstances, because of the limitations imposed by Section 53321(d) of the Government Code, investors should assume that the maximum amount that could be levied in any Fiscal Year is the amount that would produce Net Taxes equal to 110% of debt service due on the Bonds in the corresponding Bond Year. Government Code Section 53321(d) provides that the special tax levied against any Assessor s parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other Assessor s parcel by more than 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or defaults. Potential Application of Backup Special Tax as a Result of Development Timing. Depending upon how the homebuilders time the issuance of building permits with the recording of final condominium plans for the residential projects, it may be necessary to levy the Backup Special Tax which would increase the rates above the Assigned Special Tax rates for developed residential parcels. KB Home California and CalAtlantic have obtained building permits for several units but KB Home California has not recorded final condominium plans for all the phases in its project and CalAtlantic has not yet recorded a final condominium plan for its project. Recordation of final condominium plans allows for separate assessor s parcel numbers to be assigned to individual units. In such a scenario, although there may be several residential units under construction on a parcel, only one assessor s parcel number exists for such parcel. Under the Rate and Method, when at least one building permit has been issued for a parcel, the entire parcel is classified as Developed Property thereby reducing the amount of Undeveloped Property subject to the Special Tax levy by an amount that could require the levy of the Backup Special Tax in future years if the condominium plans are not recorded. It is possible that the homebuilder which purchases the remaining parcel owned by SLF planned for residential development could also pull building permits without recording a condominium plan. KB Home California expects to record the balance of the final condominium plans for its project and CalAtlantic expect to record final condominium plans for its project by the end of June Interest on a portion of the Bonds will be capitalized through September 1, 2019 which reduces the likelihood of a need to levy the Special Taxes on Developed Property at the Backup Special Tax rates during the initial development period. However, the levy of the Backup Special Tax may be necessary beginning in Fiscal Year if the condominium plans are not recorded by KB Home California and CalAtlantic, as planned. 19

28 Collection of Special Taxes. The Special Taxes are levied and collected by the Treasurer Tax-Collector of the County in the same manner and at the same time as ad valorem property taxes. The District may, however, collect the Special Taxes at a different time or in a different manner if necessary to meet its financial obligations. The District will make certain covenants in the Indenture for the purpose of ensuring that the current maximum Special Tax rates and method of collection of the Special Taxes are not altered in a manner that would impair the District s ability to collect sufficient Special Taxes to pay debt service on the Bonds and Administrative Expenses when due. First, the District will covenant that, to the maximum extent that the law permits it to do so, the District will not initiate proceedings to reduce the Maximum Special Tax rates (as set forth in the Rate and Method), unless, in connection therewith, (i) the District receives a certificate from one or more Special Tax Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in Improvement Area No. 1 as of the July 1 preceding the reduction, the Maximum Special Tax which may be levied on all Assessor s Parcels (as such term is defined in the Rate and Method) of taxable property on which a completed structure is located in each Fiscal Year will equal at least 110% of the largest sum of the Annual Debt Service on the Bonds to remain Outstanding and the Debt Service on any Parity Bonds outstanding ( Maximum Debt Service ) after the reduction is approved and will not reduce the Maximum Special Tax payable from parcels on which a completed structure is located or to be located at buildout of Improvement Area No. 1 as proposed to less than 110% of the Maximum Debt Service, and (ii) the City Council, acting as the legislative body of the District, finds pursuant to the Indenture that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. The District will also covenant that, in the event that any initiative is adopted by the qualified electors which purports to reduce the Maximum Special Tax below the levels authorized pursuant to the Rate and Method or to limit the power or authority of the District to levy the Special Taxes pursuant to the Rate and Method, the District shall, from funds available under the Indenture, commence and pursue legal action in order to preserve the authority and power of the District to levy the Special Taxes pursuant to the Rate and Method. The District will further covenant that it will not adopt any policy pursuant to Section of the Act permitting tender of Bonds in full payment or partial payment of any Special Taxes unless it first receives a certificate of a Special Tax Consultant that accepting such tender will not result in the District having insufficient Net Taxes to pay the principal of and interest on the Bonds when due. See APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE. Although the Special Taxes constitute liens on taxed parcels within Improvement Area No. 1, they do not constitute a personal indebtedness of the owners of property within Improvement Area No. 1. In addition to the obligation to pay Special Taxes, properties in Improvement Area No. 1 are subject to other assessments and special taxes as set forth in Table 1 herein. These other special taxes and assessments are co-equal to the lien for the Special Taxes. Moreover, other liens for taxes and assessments could come into existence in the future in certain situations without the consent or knowledge of the City or the landowners in Improvement Area No. 1. See SPECIAL RISK FACTORS Parity Taxes and Special Assessments herein. There is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described in the section of this Official Statement entitled SPECIAL RISK FACTORS. Special Taxes Are Not Within Teeter Plan. Section 4701 et seq. of the California Revenue and Taxation Code allows a county to adopt a tax distribution procedure which distributes taxes to taxing agencies on the basis of the amount of the tax levy, rather than on the basis of actual tax collections. This mechanism is known as a Teeter Plan. The Special Taxes are not subject to the County s Teeter Plan. The amount of Special Taxes available to pay debt service on the Bonds will depend on actual tax collections. Proceeds of Foreclosure Sales. The amounts collected from the redemption of delinquent Special Taxes including the penalties and interest thereon and from the sale of property sold as a result of the foreclosure of the lien of the Special Tax resulting from the delinquency in the payment of Special Taxes due and payable on such 20

29 property, are included within the Special Tax Revenues from which principal and interest on the Bonds is payable under the Indenture. Pursuant to Section 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 of the City, 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 District will covenant 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 $5,000 or more by October 1 following the close of the Fiscal Year in which the Special Taxes were due, and (ii) against all properties with delinquent Special Taxes in the aggregate of $5,000 or more by October 1 following the close of any Fiscal Year if the amount of the Reserve Fund is less than the Reserve Requirement. See APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE MISCELLANEOUS CONDITIONS Covenants herein. If foreclosure is necessary and other funds held under the Indenture (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 Property Values herein. Although the Act authorizes the District 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. 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 further the payment of principal of and interest on the Bonds, the District is required, upon delivery of the Bonds, to deposit in the Reserve Fund an amount equal to the Reserve Requirement and thereafter to levy Special Taxes to maintain in the Reserve Fund an amount equal to the Reserve Requirement. The Indenture provides that the amount to be maintained in the Reserve Fund as the Reserve Requirement shall, as of any date of calculation, equal the lesser of: (i) Maximum Annual Debt Service for the Bonds, (ii) one hundred twenty-five percent (125%) of Average Annual Debt Service for the Bonds; (iii) ten percent (10%) of the original issue price of the Bonds calculated in accordance with Treasury Regulations Section (f)(1); or (iv) $1,028,446.13, the initial Reserve Requirement. Subject to the limits on the maximum annual Special Tax which may be levied within Improvement Area No. 1 in accordance with the Rate and Method, the District will covenant to levy Special Taxes in an amount that is anticipated to be sufficient, in light of the other intended uses of the Special Tax proceeds, to maintain the balance in the Reserve Fund at the Reserve Requirement. Amounts in the Reserve Fund are to be applied to (i) pay debt service on the Bonds and any Parity Bonds, to the extent other moneys in the Interest Account and the Principal Account are insufficient therefor; and (ii) redeem and/or defease the Bonds and any Parity Bonds in whole or in part. See APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE FUNDS AND ACCOUNTS Reserve Fund herein. 21

30 Issuance of Parity Bonds for Refunding Only The District will not issue any other obligations payable from the Special Taxes which have, or purport to have, any lien upon the Special Taxes superior to or, except for Parity Bonds, on a parity with the lien of the Bonds. Nothing in the Indenture prevents the District from issuing and selling, pursuant to law, Parity Bonds payable from and having a first lien upon the Special Taxes on a parity with the Outstanding Bonds so long as the issuance of such Parity Bonds results in a reduction in each Bond Year on the Annual Debt Service on the Bonds when combined with the Debt Service on the Parity Bonds following the issuance of such Parity Bonds. IMPROVEMENT AREA NO. 1 General Description of Millenia, the District and Improvement Area No. 1 The District is located in eastern portion of the City, approximately 8 miles southeast of the City of San Diego, within the master planned community known as Otay Ranch. The District is located within a development of Otay Ranch known as Millenia. For a description of the Millenia project and the ongoing development activity surrounding the District, see PROPERTY OWNERSHIP AND THE DEVELOPMENT General Description of the Development. The District consists of separate project areas within the Millenia development totaling approximately 67 gross acres. Improvement Area No. 1 of the District consists of approximately 42 gross acres and includes six of the project areas within the Millennia development. Four of the project areas are planned for for-sale market-rate residential projects totaling 393 units and two are planned for non-residential uses, which are expected to include over 1 million square feet of office space. 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 as further described herein. The District was formed and Improvement Area No. 1 was designated therein in 2016 by the City Council under the Act and the CFD Ordinance to provide for the financing of public improvements to meet the needs of new development within the District. SLF, as the qualified elector of Improvement Area No. 1, authorized the District to incur bonded indebtedness for Improvement Area No. 1 to finance certain public facilities to meet the needs of new development within the District and approved the Rate and Method for Improvement Area No. 1 and authorized the levy of the Special Tax. At build-out, approximately 42 acres of property in Improvement Area No. 1 are expected to be developed for residential and non-residential uses and be subject to the Special Tax levy. SLF has conveyed three of the four project areas within Improvement Area No. 1 planned for residential projects to CalAtlantic, Shea Homes and KB Home California and the remaining residential project area owned by SLF is planned to include 60 residential units. SLF expects to convey such project area to a homebuilder by the end of There are two project areas within Improvement Area No. 1 planned for non-residential uses. LMC Millenia Company has acquired one parcel corresponding with one of such project areas from SLF and is under contract to purchase the second from SLF (which contract provides for a July 1, 2018 closing date). The parcel currently owned by LMC Millenia Company 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. See PROPERTY OWNERSHIP AND THE DEVELOPMENT The Development Entitlements for the Overall Millenia Planned Community for a description of the potential for a public library to be located within the property currently owned by LMC Millenia Company. The parcel corresponding with the other project area which is under contract to be sold by SLF to LMC Millenia Company is expected to be developed into an office campus with four buildings totaling approximately 700,000 square feet of leasable space. Under the Rate and Method, all Non-Residential Property which is not Exempt Property (as such terms are defined in the Rate and Method) will be subject to the Special Tax levy on a per-acre basis. 22

31 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. Millenia is accessed via Birch Road and Eastlake Parkway, the arterial roads which border Millenia. The roads within Millenia from which the property included in Improvement Area No. 1 can be accessed are complete. The property within Improvement Area No. 1 varies from mass-graded land to completed homes. The remaining in-tract improvements are expected to be constructed by the homebuilders and the non-residential property developer as development within their respective projects is completed. See PROPERTY OWNERSHIP AND THE DEVELOPMENT. A detailed description of the status of the construction and ownership as of the date of the Appraisal Report is included in APPENDIX B-1 APPRAISAL REPORT. Water and sewer service to the property within the District is provided by the Otay Water District and the City, respectively. Electricity and natural gas is supplied by San Diego Gas and Electric, and police and fire services are provided by the City. Description of Authorized Facilities The expected total cost of the facilities eligible to be financed with the proceeds of the bonds to be issued by the District (the Facilities ), which includes the Bonds and any bonds issued by the District for Improvement Area No. 2, based on the current estimated cost of the Facilities, is approximately $90,000,000. The Facilities consist of street and bridge improvements, curbs and gutters, sidewalks, trails, medians, traffic signalization and signage, street lights, utilities, storm water drainage, on and off-site detention and treatment facilities, and landscaping and irrigation related thereto, sewer collection and conveyance facilities, land and facilities for parks and recreational uses, fire facilities and equipment, library facilities and equipment, transit facilities, fiber optic telecommunication facilities, general government office, administrative and meeting facilities, bus and rapid transit facilities and land, rights of way and easements necessary for any of such facilities. The estimated cost of the Facilities necessary to serve the property within Improvement Area No. 1, based on current estimates, will exceed the amount of proceeds of the Bonds and bonds to be issued by the District for Improvement Area No. 2 available to finance such Facilities. The costs of the Facilities in excess of available proceeds from the sale of the Bonds and any bonds to be issued for Improvement Area No. 2 of the District are expected to be paid for by SLF. See PROPERTY OWNERSHIP AND THE DEVELOPMENT The Development Infrastructure Requirements and SLF Financing Plan below. The District currently expects that a portion of the proceeds of the Bonds will be used to acquire the land for all or a portion of the six parks planned within the Millenia project as discrete components of the parks in accordance with the Development Agreement and that certain Acquisition/Financing Agreement dated as of February 6, 2018, by and among the City, the District and SLF (the Acquisition Agreement ). Direct and Overlapping Indebtedness The ability of an owner of land within Improvement Area No. 1 to pay the Special Taxes could be affected by the existence of other taxes and assessments imposed upon the property. These other taxes and assessments consist of the direct and overlapping debt in Improvement Area No. 1 and are set forth in Table 1 below (the Debt Report ). The Debt Report sets forth those entities which have issued debt and does not include entities which only levy or assess fees, charges, ad valorem taxes or special taxes. See Expected Tax Burden; Potential Special Tax Prepayment below for information regarding other entities levying taxes, assessments or other charges on property in Improvement Area No. 1. The Debt Report includes the principal amount of the Bonds. The Debt Report has been derived from data assembled and reported to the District by Willdan Financial Services as of February 1, None of the District, the City, or the Underwriter has independently verified the information in the Debt Report and do not guarantee its completeness or accuracy. In addition to the direct and overlapping debt shown in Table 1 below, the qualified electors within Community Facilities District No. 18 of the Chula Vista Elementary School District (the Elementary School 23

32 District CFD ) and Community Facilities District No. 18 of the Sweetwater Union High School District (the High School District CFD and together with the Elementary School District CFD, the School District CFDs and each a School District CFD ) have authorized bonded indebtedness in the maximum principal amounts of $40,000,000 and $100,000,000, respectively. The boundaries of the School District CFDs are conterminous with the boundaries of the Millenia project which includes property outside of the District. Each School District CFD may issue debt payable from special taxes levied by such School District CFD and may covenant in accordance with the Act to foreclose upon property which is delinquent in the payment of such special taxes. If a School District CFD issues such debt, a portion of such debt would be payable from special taxes levied on property within Improvement Area No. 1. It is not known how much of the authorized debt the School District CFDs might issue or when. However, assuming buildout of the property within the Millenia project to the levels described herein, approximately % of the amount of the Elementary School District CFD debt issued would be paid from special taxes levied within Improvement Area No. 1 and 7.00% of the amount of the High School District CFD debt would be paid from special taxes levied within Improvement Area No. 1. Assuming the issuance of the maximum authorized amounts, this would be approximately $4,250,000 of Elementary School District CFD debt and $7,000,000 High School District CFD debt. As discussed under SPECIAL RISK FACTORS Parity Taxes and Special Assessments, the property within Improvement Area No. 1 may be subject to additional taxes and assessments imposed by other public agencies in the future. Table 1 below does not include the authorized School District CFDs debt or any authorized and unissued debt of other agencies. Overlapping District (1) TABLE 1 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) OVERLAPPING DEBT SUMMARY Total Fiscal Year Levy (2) Amount of Levy on Parcels in Improvement Area No. 1 (2) Percent of Levy on Parcels in Improvement Area No. 1 Total Debt Outstanding (3) Improvement No. 1 Share of Total Debt Outstanding (4) Metropolitan Water District $16,165,942 $ % $ 74,905,000 $ 538 Otay Water District, I.D. No , ,390,000 4,912 Southwestern Community College District 25,808,472 9, ,043, ,009 Sweetwater Union High School District 22,334,763 10, ,955, ,926 Chula Vista Elementary School District 5,122,982 3, ,495,000 28,073 Chula Vista Elementary School District SFID No. 1 2,770,944 3, ,375, ,144 Estimated Share of Overlapping Debt Allocable to Improvement Area No. 1 $ 475,602 Plus the Bonds 12,280,000 Estimated Share of Direct and Overlapping Debt Allocable to Improvement Area No. 1 $ 12,755,602 (1) (2) (3) (4) Does not include authorized and unissued debt of the School District CFDs or other entities. See Table 2 below. Based on actual Fiscal Year levy. Represents overlapping general obligation indebtedness as of February 1, General obligation debt is allocated based on the assessed value within Improvement Area No. 1 as a percentage of the total assessed valuation within the respective taxing jurisdiction. Source: Willdan Financial Services; California Municipal Statistics, Inc. Expected Tax Burden; Potential Special Tax Prepayment Table 2 below sets forth the estimated total effective tax rates for the average residential unit size for each residential project currently being developed within Improvement Area No. 1. The expected tax burden of the Special Taxes and other taxes and assessments on individual parcels located within Improvement Area No. 1 will vary among parcels. Actual amounts charged and the effective tax rates may vary and may increase or decrease in future years. 24

33 Table 2 below does not include the remaining project area owned by SLF within Improvement Area No. 1 that is planned for residential uses. SLF expects to sell such property to a residential homebuilder by the end of In addition, Table 2 does not include the property planned for non-residential uses currently owned by LMC Millenia Company and the property owned by SLF which is currently under contract to be sold to LMC Millenia Company. See Table 4 below for the estimated Fiscal Year Special Tax levy on the property currently owned by LMC Millenia Company and PROPERTY OWNERSHIP AND THE DEVELOPMENT LMC Millenia Company Development and Financing Plan for a description of LMC Millenia Company s development plans within Improvement Area No. 1. In accordance with City policies, each homebuilder within Improvement Area No. 1 is required to prepay a portion of the Special Tax, or special taxes and assessments of overlapping taxing districts, at the time a completed home is sold, if, based on the actual sales price of such home, the projected total effective tax rate on such parcel would exceed 2.00% of the actual sales price. If the 2.00% threshold is exceeded, the homebuilder is required to prepay that amount of the Special Tax obligation, or special taxes and assessments of overlapping taxing districts, necessary to reduce the effective tax rate to 2.00% or less of the actual sales price. In determining the overall effective tax rate, special taxes levied by the City for maintenance and services are excluded, but all other special taxes, assessments and ad valorem property taxes are included. The effective tax rate at the time of sale could increase due to a reduction in sales prices or other factors including, but not limited to, escalation of the Special Tax rates at 2.00% per Fiscal Year pursuant to the Rate and Method, additional overlapping special taxes and assessments and increases in the amount of general obligation bonds issued by overlapping taxing entities. As of April 1, 2018, no prepayment of the Special Tax or overlapping special taxes and assessments has been required in connection with homes that have closed to individual homeowners to reduce the effective tax rate thereof to 2.00% or less. Based on the projected Fiscal Year Special Tax levy and the Fiscal Year levy for overlapping special taxes (excluding those levied for maintenance and services), assessments and ad valorem property taxes, the following approximate percentage decreases in the average base sales prices of homes within each residential project, as set forth in Table 2 below, would result in effective tax rates greater than 2.00% for such products: (i) 25% for each of Shea Homes Z at Millenia and Element at Millenia projects; (ii) 23% for KB Home California s Skylar at Millenia project; and (iii) 20% for CalAtlantic s Boulevard at Millenia project. Based on the base sales prices of the homes to be constructed by the current homebuilders as described herein, the District does not expect that any prepayments of Special Taxes or overlapping special taxes and assessments will be required; however, if actual sale prices were to be reduced in the future or any of the other factors that could affect the effective tax rate described above were to occur, it is possible that some prepayments could occur. Such prepayments of the Special Taxes, if any, would be applied to the redemption of Bonds in accordance with the Indenture. See THE BONDS Redemption Extraordinary Redemption from Special Tax Prepayments. Neither the District nor the Underwriter can make any assurance that prepayments of the Special Taxes will not be required in connection with the initial sale of a home within Improvement Area No. 1 to reduce the effective tax rate thereof to 2.00% or less of the actual sales price. 25

34 TABLE 2 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) ESTIMATED TAX OBLIGATION (1) Percent of Total Assessed Valuation Z at Millenia (Shea Homes) Element at Millenia (Shea Homes) Skylar at Millenia (KB Home California) Boulevard at Millenia (CalAtlantic) Sales Prices and Property Taxes Zone A A B B Average Unit Size (square feet) (2) 1,432 2,027 2,631 1,857 Average Sales Price (3) $413,660 $541,063 $605,098 $469,605 AD VALOREM PROPERTY TAXES (4) Basic Levy % $4, $5, $6, $4, Metropolitan Water District General Obligation Bonds Otay Municipal Water District, I.D. No. 27 General Obligation Bonds Southwestern Community College District General Obligation Bonds Sweetwater Union High School District General Obligation Bonds Chula Vista City School District General Obligation Bonds Chula Vista City School District School Facilities Improvement District No. 1 General Obligation Bonds Total Ad Valorem Property Taxes % $4, $6, $6, $5, ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES City of Chula Vista CFD 14M (5) $ $ $ $ City of Chula Vista CFD 97-2 (6) CWA Water Availability (7) Mosquito Surveillance (8) Vector Disease Control (9) Otay Water Availability (10) MWD Water Standby Charge (11) Sweetwater Union High School District CFD No. 18 (12) , , , Sweetwater Union High School District General Obligation Bonds Credit (13) (213.28) (278.97) (311.99) (242.13) Chula Vista Elementary School CFD No. 18 (14) Chula Vista Elementary School District General Obligation Bonds Credit (13) (69.74) (91.22) (102.02) (79.18) City of Chula Vista CFD No. 16-I (15) 1, , , , Total Assessments, Special Taxes and Parcel Charges $2, $3, $4, $3, PROJECTED TOTAL PROPERTY TAXES $7, $9, $11, $8, Projected Total Effective Tax Rate (as percentage of Average Sales Price) 1.84% 1.83% 1.85% 1.86% (1) (2) (3) (4) (5) Table does not include the remaining project area owned by SLF within Improvement Area No. 1 that is planned for residential uses. SLF expects to sell such property to a residential homebuilder by the end of Based on the expected average unit size within each residential project as set forth in the Market Absorption Study (as defined below). See Appendix I hereto. Based on average base sales prices within each residential project as set forth in the Market Absorption Study. See Appendix I hereto. Based on Fiscal Year ad valorem rates. Based on Fiscal Year community facilities district special tax levy for services maximum rate of $ per dwelling unit. (Footnotes continued on following page) 26

35 (6) (Continued from previous page) Based on Fiscal Year community facilities district special tax levy for services maximum rate of $0.02 per building square foot. (7) Based on Fiscal Year rate of $10.00 per parcel or per acre, whichever is greater. (8) Based on the actual Fiscal Year levy of $2.28 per parcel. (9) Based on the actual Fiscal Year levy of $7.07 per single family equivalent benefit unit. (10) Based on Fiscal Year rate of $10.00 per parcel (less than one acre). (11) Based on the actual Fiscal Year levy of $11.50 per parcel or per acre, whichever is greater. (12) Based on the Fiscal Year maximum rate of $ per building square foot. (13) Credit for school districts ad valorem general obligation levy per mitigation agreements between the applicable school district and the developer. Pursuant to the mitigation agreements, such credits are to be provided until the final maturity of the general obligation bonds which are payable from such ad valorem general obligation levy. (14) Based on the Fiscal Year maximum rate of $ per building square foot. (15) Based on the Fiscal Year Assigned Special Tax rates. Source: Willdan Financial Services; the Market Absorption Analyst. Market Absorption Study In order to determine the projected absorption of the planned residential and non-residential property within Improvement Area No. 1, the City engaged Meyers Research, LLC (the Market Absorption Analyst ) to perform a comprehensive analysis of the product mix characteristics as well as the macroeconomic and microeconomic factors that are expected to influence the absorption of the planned products within Improvement Area No. 1. The Market Absorption Analyst delivered its Market Absorption Study titled Market Absorption Analysis Chula Vista CFD 16-I (Millenia IA No. 1) (the Market Absorption Study ). With respect to the planned residential developments within Improvement Area No. 1, the Market Absorption Study concludes that the attached and detached condominiums are comparable to other projects within the south County area, which the Market Absorption Study reports are selling well. The Market Absorption Study states that new home sales in the region where Improvement Area No. 1 is located have increased by approximately 108% from 2016 to The Market Absorption Analyst s estimated calendar year sales for the residential units within Improvement Area No. 1 is set forth in the table below. With respect to the proposed non-residential projects within Improvement Area No. 1, the Market Absorption Analyst concludes that the projects are supportable. The Market Absorption Study states that office vacancy rates within the County and the Southbay area (including the City) have decreased from approximately 15.2% in 2009 to approximately 9.6% in the fourth quarter of In addition, the Market Absorption Study notes that office market absorption within the same region has outpaced deliveries in seven of the last eight years. The Market Absorption Study estimates an average annual absorption rate of 87,800 square feet of leasable space within the Millenia project as a whole. With respect to the property currently owned by LMC Millenia Company, which is planned to include approximately 318,000 square feet of leasable office space, the Market Absorption Study estimates full absorption within approximately four years from the time such property is made available to the market. Based on the assumptions and limiting conditions set forth in the Market Absorption Study, the Market Absorption Analyst has estimated the calendar year sales for the residential units and the demand for commercial office space as set forth in the table below. With respect to the estimated absorption of the leasable square footage of commercial space, the table below shows the estimated demand for such space in the market in which Improvement Area No. 1 is located. LMC Millenia Company expects to commence construction of the office buildings on the property that it owns within Improvement Area No. 1 in October 2018 and to complete construction in January The Market Absorption Analyst concludes that, with pre-leasing efforts of the planned office space within Improvement Area No. 1, there could be enough demand for such office space to absorb the square footage per the schedule in the table below prior to construction completion, with occupancy to begin when completion occurs. LMC Millenia Company expects to pre-lease office space prior to construction completion, however, no assurances can be made that any leases will be executed. See PROPERTY OWNERSHIP AND THE DEVELOPMENT LMC Millenia Company Development and Financing Plan. 27

36 (1) PROJECTED FUTURE ABSORPTION Year Residential Homes (1) Non-Residential Property (Square Feet) (2) , , , , , , , , , , , ,295 Total 309 1,018,000 Excludes actual sales of 84 homes which occurred prior to As of April 1, 2018, there were 57 home sales which had closed to individual homeowners. (2) Reflects estimated demand for office space in the market in which Improvement Area No. 1 is located. The office campus planned to be constructed on the property owned by LMC Millenia Company is not expected to be complete until January 2020 but LMC Millenia Company has began pre-leasing activities. See PROPERTY OWNERSHIP AND THE DEVELOPMENT LMC Millenia Company Development and Financing Plan. Source: The Market Absorption Analyst. The Market Absorption Analyst notes that actual absorption rates will differ from projections in the Market Absorption Study. Such differences could be material. Factors which may influence the pace of absorption of the residential and non-residential products within Improvement Area No. 1 include economic downturn, a sudden spike in mortgage rates, tax reform policies relating to housing, and competition from developments within the vicinity of Improvement Area No. 1. See SPECIAL RISK FACTORS Risks of Real Estate Secured Investments Generally and Tax Cuts and Jobs Act. An executive summary of the Market Absorption Study is attached hereto as APPENDIX I. Appraisal Report and Supplement to Appraisal Report The estimated assessed value of the property within Improvement Area No. 1, as shown on the City s assessment roll for Fiscal Year , is approximately $19,297,732. However, as a result of the requirements of Article XIIIA of the California Constitution, a property s assessed value is not necessarily indicative of its market value. In order to provide information with respect to the minimum market value of the property within Improvement Area No. 1, the City engaged Kitty Siino & Associates, Inc., the Appraiser, to prepare the Appraisal Report. The Appraiser has an MAI designation from the Appraisal Institute and has prepared numerous appraisals for the sale of land-secured municipal bonds. The Appraiser was selected by the City and has no material relationships with the City, the District, or the owners of the land within Improvement Area No. 1 other than the relationship represented by the engagement to prepare the Appraisal Report. The City instructed the Appraiser to prepare its analysis and report in conformity with City-approved guidelines and the Appraisal Standards for Land Secured Financings published in 1994 and revised in 2004 by the California Debt and Investment Advisory Commission. A copy of the Appraisal Report is included as APPENDIX B-1 APPRAISAL REPORT to this Official Statement. The purpose of the Appraisal Report was to estimate the minimum market value of the property within Improvement Area No. 1 subject to the lien of the Special Taxes. The estimate of market value takes into consideration and assumes the improvements to be funded with the proceeds of the Bonds have been installed and 28

37 that the remaining costs to develop each of the projects within Improvement Area No. 1 provided to the Appraiser by SLF and each of the builders are correct. As a result, the value conclusions are based upon a hypothetical condition that the Bonds have been sold with proceeds available for construction of improvements of approximately $11,000,000. The Appraiser also assumes that SLF will commence construction of Orion Park and Strata Park at such time so as to not limit the ability of Shea Homes and KB Home California to obtain certificates of occupancy above the thresholds set forth in the Park Agreement. See PROPERTY OWNERSHIP AND THE DEVELOPMENT The Development Infrastructure Requirements and SLF Financing Plan. Subject to the assumptions and limiting conditions set forth in the Appraisal Report, the Appraiser concluded that, as of the Date of Value (February 1, 2018), the market value of the Taxable Property within Improvement Area No. 1 was $62,228,054. In valuing the property within Improvement Area No. 1, the Appraiser used a sales comparison approach for the property to be developed and, with respect to the builderowned models and production units more than 95% complete, a discounted cash flow analysis was applied. The discounted cash flow analysis accounts for remaining development costs, marketing and carrying costs, developer profit and a discount rate through the estimated absorption period for such models and production units. To arrive at the absorption schedule for the models and production units, the Appraiser reviewed both the actual sales made to date and the projection set forth in the Market Absorption Study. For the 53 individual homes that had closed escrow as of the Date of Value, the Appraiser used a mass appraisal technique identifying the base prices for each model. The Appraiser has also prepared the Appraisal Supplement, in which the Appraiser concludes that the estimated minimum market value of the property within Improvement Area No. 1 subject to the levy of Special Taxes as of April 1, 2018, was not less than the concluded value of $62,228,054 set forth in the Appraisal Report. In the Appraisal Supplement, the Appraiser states that subsequent to the Date of Value, within Improvement Area No. 1, there were additional home closings and homes in escrow and additional homes have been constructed. In connection with the preparation of the Appraisal Supplement, the Appraiser inspected the property within Improvement Area No. 1 and was provided information with respect to the additional home closings, sales and construction activity by the homebuilders and non-residential builder within Improvement Area No. 1. Tables 3A and 3B below show the appraised value of the various parcels owned by SLF, the builders and the individual homeowners within Improvement Area No. 1 as set forth in the Appraisal Report as of the Date of Value. In the aggregate, the estimated appraised value of the property owned by SLF as of the Date of Value is $6,030,000. See PROPERTY OWNERSHIP AND THE DEVELOPMENT below. 29

38 (1) TABLE 3A COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) SUMMARY OF APPRAISED VALUES FOR RESIDENTIAL DEVELOPMENTS Owner (1) Lot Number (2) Parcel Count as of the Date of Value (3) Projected Number of Units at Build-Out (4) Appraised Value SLF $ 2,490,000 CalAtlantic ,900,000 KB Home California ,750,000 Shea Homes (2) ,520,500 Individual Homeowners (2) ,027,554 Total Appraised Value $54,688,054 Based on ownership as of the Date of Value set forth in the Appraisal Report. See PROPERTY OWNERSHIP AND THE DEVELOPMENT below. (2) Lot numbers correspond to those shown on the Site Map on page 41 hereof. The Shea Homes projects are located within Lot 1 of Tract No (3) Based on the number of assessor s parcels as of the Date of Value. As of the Date of Value the final condominium plans for the property owned by CalAtlantic and KB Home California, respectively, had not been recorded. Since the Date of Value, KB Home California has recorded final condominium plans for the first phase of its project (consisting of nine units) and expects to record the final condominium plans for the balance of its project by the end of June Individual assessor s parcels will be assigned by the County reflecting the projected number of units at buildout for such property when the applicable map is recorded. See PROPERTY OWNERSHIP AND THE DEVELOPMENT below. (4) Based on the total number of units expected to be developed by the current homebuilders and on Lot 11 owned by SLF, which SLF expects to convey to a homebuilder. See PROPERTY OWNERSHIP AND THE DEVELOPMENT below. Source: The Appraiser. 30

39 (1) TABLE 3B COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) SUMMARY OF APPRAISED VALUES FOR COMMERCIAL DEVELOPMENTS Owner (1) Lot Number (2) Parcel Count as of the Date of Value 31 Projected Leasable Square Footage at Build-Out (3) Appraised Value (4) SLF (5) ,000 $3,540,000 LMC Millenia Company ,000 4,000,000 Total Appraised Value 2 1,018,000 $7,540,000 Based on ownership as of the Date of Value set forth in the Appraisal Report. See PROPERTY OWNERSHIP AND THE DEVELOPMENT below. (2) Lot numbers correspond to those shown on the Site Map on page 41 hereof. (3) Based on the estimated leasable square footage of the proposed commercial developments on such property. Excludes the square footage associated with the parking garage and amenity building expected to be constructed on the property owned by LMC Millenia Company. Pursuant to the Rate and Method, Non-Residential Property (as such term is defined in the Rate and Method) is taxed on a per-acre basis. See PROPERTY OWNERSHIP AND THE DEVELOPMENT below. (4) The Appraiser used a sales comparison approach to arrive at the estimated appraised value of the property planned for nonresidential use in Improvement Area No. 1. The total estimated appraised value for each parcel was determined by multiplying the estimated value per square foot by the total square footage within the applicable parcel. (5) Property constitutes Lot 1 of Tract No SLF has entered into a contract to sell such property to LMC Millenia Company for approximately $3,923,000. See PROPERTY OWNERSHIP AND THE DEVELOPMENT LMC Millenia Company Development and Financing Plan Additional Property Under Contract to be Acquired below. Source: The Appraiser. Reference is made to APPENDIX B-1 for a complete list of the Appraiser s assumptions and limiting conditions and a full discussion of the appraisal methodology and the basis for the Appraiser s opinions. In the event that any of the assumptions and limiting conditions are not actually realized, the value of the property within Improvement Area No. 1 may be less than the amount reported in the Appraisal Report. In any case, there can be no assurance that any portion of the property within Improvement Area No. 1 would actually sell for the amount indicated by the Appraisal Report. The Appraisal Report is a statement of the Appraiser s opinion as to the market value of the taxable property in Improvement Area No. 1 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. 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. See SPECIAL RISK FACTORS Property Values. It is a condition precedent to the issuance of the Bonds that the Appraiser deliver to the District a certification to the effect that, nothing has come to the attention of the Appraiser subsequent to the date of the Appraisal Supplement that would cause the Appraiser to believe that the value of the property in Improvement Area No. 1 is less than the value reported in the Appraisal Report. However, the Appraiser notes that acts and events may have occurred since the date of the Appraisal Supplement which could result in both positive and negative effects on market value within Improvement Area No. 1. The Appraiser has reviewed the homebuilder base prices as of the date of this Official Statement and concluded that those base prices do not cause it to believe that the value of property listed for any owner in Table 3A above would be reduced. Appraised Value-To-Lien Ratios Table 4 below incorporates the values assigned to parcels in the Appraisal Report, the estimated principal amount of the Bonds allocable to each category of parcels and the estimated appraised value-to-lien ratios for such categories of parcels based upon property ownership in Improvement Area No. 1 as of Date of Value as set forth

40 in the Appraisal Report. Based on the principal amount of the Bonds, the estimated appraised value-to-lien ratio of the Taxable Property within Improvement Area No. 1 is 5.07-to-1. This ratio does not include other overlapping debt within Improvement Area No. 1. See Direct and Overlapping Indebtedness above. Taking that overlapping debt into account, the ratio of the aggregate appraised value of the Taxable Property within Improvement Area No. 1 to the total principal amount of the Bonds and such overlapping general obligation debt for Improvement Area No. 1 is approximately 4.88-to-1. The share of Bonds set forth in Table 4 below is allocated based on each property s share of the estimated Fiscal Year Special Tax levy based on land use and ownership as of the Date of Value. In the District Reports to be provided pursuant to the District Continuing Disclosure Agreement, Table 4 will not be updated based on appraised value, but similar information will be provided based on current assessed value. Based on the Fiscal Year assessed value of $19,297,732, the assessed value-to-lien ratio, taking the Bonds and the overlapping debt in Table 1 into account, is approximately 1.51-to-1. 32

41 Property Classification / Owner (2) TABLE 4 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) APPRAISED VALUE-TO-LIEN RATIOS (1) Estimated Fiscal Year Number of Units/Lots (2) City of Chula Vista CFD No. 16-I Improvement Area No. 1 Estimated Fiscal Year Special Tax Levy (3) Percentage of Estimated Fiscal Year Special Tax Levy City of Chula Vista CFD No. 16-I Improvement Area No. 1 Bonds (4) Appraised Value (5) Estimated Appraised Valueto-Lien Ratios (6)(7) Developed Property KB Home California (8) 16 $ 27, % $ 597,147 $ 8,750, Shea Homes , ,091,848 14,520, Individually Owned 53 84, ,839,467 25,027, Subtotal 192 $ 300, % $ 6,528,462 $ 48,298, Undeveloped Property CalAtlantic (9) 1 $ 93, % $ 2,041,134 $ 3,900, SLF-IV Millenia, LLC 2 133, ,894,694 6,030, LMC-Millenia Investment Co. 1 37, ,711 4,000, Subtotal 4 $ 264, % $ 5,751,538 $ 13,930, Total 196 $ 564, % $ 12,280,000 $ 62,228, (1) Total may not sum due to rounding. (2) Based on ownership status as of February 1, 2018 and development status as of March 1, 2018, as provided by SLF, Shea Homes, KB Home California, CalAtlantic and LMC Millenia Company. Homebuilders within Improvement Area No. 1 have obtained additional building permits for their projects after March 1, Such property will be classified as Developed Property under the Rate and Method beginning with the Fiscal Year Special Tax levy. (3) Based on development status as of March 1, In Fiscal Year , the District expects to levy Special Taxes on Developed Property at the Assigned Special Tax rates and on Undeveloped Property at approximately 80.83% of the Maximum Special Tax rates for Undeveloped Property. Interest on a portion of the Bonds due through September 1, 2019 will be paid from proceeds of the Bonds. (4) Allocated based on the estimated Fiscal Year Special Tax levy. (5) Based on the Appraisal Report as of the Date of Value. (6) Calculated by dividing the Appraised Value column by the Chula Vista CFD No. 16-I Improvement Area No. 1 Bonds column. (7) Does not include overlapping general obligation bonded debt. The property within Improvement Area No. 1 is located within the School District CFDs. Such School District CFDs have not yet issued any bonded indebtedness but are levying special taxes on property classified as developed property under each rate and method of apportionment of special tax for such School District CFDs. See Direct and Overlapping Indebtedness above. (8) KB Home California has recorded final condominium plans for the first phase of its project (consisting of nine units) and expects to record the final condominium plans for the balance of its project by the end of June After such recordation, assessor s parcel number will be assigned to each unit within such project and be subject to the Fiscal Year Special Tax levy. See SOURCES OF PAYMENT FOR THE BONDS Special Taxes Potential Necessity for Application of Backup Special Tax as a Result of Development Timing. (9) See SOURCES OF PAYMENT FOR THE BONDS Special Taxes Potential Necessity for Application of Backup Special Tax as a Result of Development Timing for a discussion on the potential need for the application of the Backup Special tax rates on Developed Property. Source: Willdan Financial Services. 33

42 Largest Taxpayers Table 5 below lists the taxpayers within Improvement Area No. 1 based on ownership as of February 1, 2018 and development status as of March 1, 2018, measured by the percentage of the projected Fiscal Year Special Tax levy. As shown in Table 5 below, based on the ownership status as of February 1, 2018 provided in the Appraisal Report and the number of building permits issued as of March 1, 2018, assuming no additional conveyance of property by SLF or any transfer of property by homebuilders to individual homeowners, for Fiscal Year , the largest taxpayer within Improvement Area No. 1 will be Shea Homes. See SPECIAL RISK FACTORS Concentration of Ownership. Zone (1) Owner (2) (1) (2) TABLE 5 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) ESTIMATED FISCAL YEAR LARGEST TAXPAYERS Estimated Fiscal Year Number of Units (3) 34 Estimated Fiscal Year Taxable Acreage (3) Fiscal Year Land Use Class (3) Estimated Fiscal Year Special Tax Levy (4) Percent of Total Levy (4) A Shea Homes 123 N/A Developed $ 188, % A Individual Owners 53 N/A Developed 84, B KB Home California 16 N/A Developed 27, B CalAtlantic N/A 3.74 Undeveloped 93, C LMC-Millenia Investment Co. N/A 7.06 Undeveloped 37, B SLF-IV Millenia, LLC N/A 3.07 Undeveloped 75, C SLF-IV Millenia, LLC N/A Undeveloped 58, SLF-IV Millenia, LLC Subtotal $ 133, % Total $ 564, % Reflects the Zone designations set forth in the Rate and Method. Based on Appraisal Report as of the Date of Value. See PROPERTY OWNERSHIP AND THE DEVELOPMENT Builders in Improvement Area No. 1 below. (3) Based on the number of units and acreage as provided by SLF, Shea Homes, KB Home California, CalAtlantic and LMC Millenia Company. Residential Property that is classified as Developed Property under the Rate and Method will be taxed on a per-residential unit basis. Property that is classified as Undeveloped Property under the Rate and Method will be taxed per acre. See APPENDIX A attached hereto. (4) Total may not sum due to rounding. Source: Willdan Financial Services. Delinquency History Fiscal Year will be the first fiscal year in which Special Taxes are levied within Improvement Area No. 1. PROPERTY OWNERSHIP AND THE DEVELOPMENT The following information about SLF, Shea Homes, KB Home California, CalAtlantic and LMC Millenia Company and their respective developments within Improvement Area No. 1 has been provided by such entities. No assurance can be given that the proposed developments will occur as described in this Official Statement or that they will be completed in a timely manner, if at all, or that the current property owners will continue to own the property. Neither the Bonds nor the Special Taxes are personal obligations of the property owners or any affiliate thereof and, in the event that a property owner defaults in the payment of its Special Taxes, the District may proceed with judicial foreclosure but has no direct recourse to the assets of such property owner or any affiliate thereof. Neither the Underwriter nor the District has independently

43 confirmed or verified the information in this section of the Official Statement nor does any such party make any representation as to accuracy or adequacy of this information. Further, there may be material adverse changes in this information after the date of this Official Statement. General Description of the Development The District is located in the eastern portion of the City, approximately 8 miles southeast of the City of San Diego, within the master planned community known as Otay Ranch. The District is located within a development of Otay Ranch known as Millenia. The Millenia project is located south of Birch Road, east of State Route 125, and west of Eastlake Parkway. The Millenia project is a mixed-use development compassing approximately 230 gross acres. Pursuant to the EUC Sectional Planning Area (as defined and described below under The Development Entitlements for the Overall Millenia Planned Community ) the area within the Millenia project is organized into districts with different predominant uses such as residential, civic, office/commercial and retail. As a whole, the Millenia project is entitled for up to 2,983 multi-family 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 project, including the property within Improvement Area No. 1, 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. Millenia is accessed via entries along the arterial roads which bound the development, and access to the individual districts (i.e. the residential neighborhoods and commercial and civic centers) is via interior streets. Existing developments within the Millenia community include apartments, attached and detached condominiums and a hotel, which is under construction. In addition to the active developments within Improvement Area No. 1, development within Millenia is ongoing. A 273-unit apartment project called Pulse Millenia and a 210-unit apartment project called Duetta and Volta at Millenia are complete and nearly fully occupied. Two additional apartment projects consisting of a 309-unit project marketed as Alexan Millenia and a 253-unit project marketed as Esplanade by Trammel Crow Residential are under construction. A condominium project spanning three neighborhoods being developed and marketed by Meridian as Metro, Trio and Evo is under construction. Commercial developments within Millenia under construction include a 130,000 square foot retail development by Sudberry Properties, planned for shops and restaurants, and a 135-room hotel by Ayres Group. With respect to the public facilities planned within Millenia, one of the six parks has been completed, construction of the second park is expected to begin in mid-2018, and the City fire station is under design with construction expected to begin in Construction of a pedestrian bridge crossing Eastlake Parkway to link the Millenia project to the surrounding developments is expected to begin in late The foregoing developments are outside of Improvement Area No. 1 and are not subject to the Special Tax levy. The area within the Millenia project has been divided into separate project areas, six of which are included in Improvement Area No. 1. Four of the project areas within Improvement Area No. 1 are planned for for-sale market-rate residential projects totaling 393 residential units and two are planned for nonresidential uses. 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 42 acres of property in Improvement Area No. 1 are expected to be subject to the Special Tax at build-out. SLF has conveyed three of the four project areas within Improvement Area No. 1 planned for residential projects to homebuilders. SLF plans to sell the remaining project area within Improvement Area No. 1 that is planned for a residential project to a homebuilder by the end of There are two project areas within Improvement Area No. 1 planned for non-residential uses. LMC Millenia Company has acquired one parcel corresponding with one of such project areas from SLF and is under contract to purchase the second from SLF (which contract provides for a July 1, 2018 closing date). 35

44 The parcel currently owned by LMC Millenia Company 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. The parcel which is under contract to be sold by SLF to LMC Millenia Company is expected to be developed into an office campus with four buildings totaling approximately 700,000 square feet of leasable space (See PROPERTY OWNERSHIP AND THE DEVELOPMENT LMC Millenia Company Development and Financing Plan Additional Property Under Contract to be Acquired below). 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. As of the Date of Value, the status of the residential developments owned by homebuilders within Improvement Area No. 1 were 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, which is planned for non-residential uses, had been graded with a basement area for a proposed parking structure. The remaining property owned by SLF is in a mass graded condition. A description of the progress made by the residential homebuilders within Improvement Area No. 1 is set forth below. SLF and the Contracted Project Manager SLF. The master developer of the Millenia project, including the property within Improvement Area No. 1, is SLF IV-Millenia, LLC, a Delaware limited liability company (previously defined herein as SLF), formerly known as SLF IV / McMillin Millenia JV, LLC, a Delaware limited liability company. Membership interests in SLF were formerly held by SLF IV Millenia Investor, LLC, a Texas limited liability company (as successor to Stratford Land Fund IV, L.P.) and The Corky McMillin Real Estate Group, LLC. In 2014, SLF IV Millenia Investor, LLC purchased The Corky McMillin Real Estate Group, LLC s interest in SLF and became the sole member of SLF. The membership interest in SLF purchased by SLF IV Millenia Investor, LLC included the title, rights and obligations with respect to the property within the Millenia project, including the rights and obligations under the Development Agreement (as defined below). In 2015, SLF IV / McMillin Millenia JV, LLC changed its name to SLF IV-Millenia, LLC. SLF is an entity funded by an investment fund of Stratford Land ( Stratford ). Established in 1983 and based in the United States, Stratford is a real estate investment manager focusing on high growth corridors in the Sunbelt region from North Carolina to Florida and across to Texas, Arizona and southern California. Stratford, through its investment vehicles, has invested in approximately $800 million of land acquisitions and development. Until 1998, Stratford formed and managed a series of 19 separate single-asset partnerships to invest in land. Since 1998, Stratford s primary investment management vehicles include 5 funds that have invested in land investments (equity and debt) such as the Millenia project. The Contracted Project Manager. Pursuant to a contract with SLF, Meridian manages the development of the Millenia project, including the property within Improvement Area No. 1. Founded in 2014, Meridian is a land development and homebuilding company led by former longstanding senior executives of The Corky McMillin Companies. Since 2015, Meridian has been contracted to manage all aspects of development of the Millenia project for SLF. Meridian Development does not own any property within Improvement Area No

45 History of Property Tax Payments; Loan Defaults; Litigation; Bankruptcy Each of SLF, Shea Homes, KB Home California, CalAtlantic and LMC Millenia Company has made certain representations to the District, which, among others, include the following: a) such entity has not intentionally failed to pay when due any property taxes, special taxes, or assessments levied or assessed against its property within Improvement Area No. 1 or failed to cure such delinquencies within forty-five days of becoming aware of such delinquencies; b) there are no events of monetary default or events which with the passage of time would constitute a monetary default under any loan or similar credit arrangement to which such entity is a party the result of which could have a material adverse effect on the development and sale of the property that it owns within Improvement Area No. 1 as described in this Official Statement or its ability to pay Special Taxes related to such property prior to delinquency; c) such entity has not been adjudicated as bankrupt or discharged from any or all of its debts or obligations or granted an extension of time to pay its debts (except such extensions that are granted in the ordinary course of business) or a reorganization or readjustment of its debts in the past 10 years; and d) such entity does not have any proceedings pending (with service of process having been accomplished) or, to the actual knowledge of the individual providing the representations on behalf of such entity, threatened in which such entity may be adjudicated as bankrupt, become the debtor in a bankruptcy proceeding, be discharged from any or all of its debts or obligations, be granted an extension of time to pay its debts or obligations, or be granted a reorganization or readjustment of its debts or obligations. The Development Infrastructure Requirements and SLF Financing Plan. As of the Date of Value, the backbone infrastructure improvements to serve the parcels within Improvement Area No. 1 have been substantially completed. The only remaining improvements to be completed by SLF to serve the parcels within Improvement Area No. 1 are the installation of two traffic signals on Millenia Avenue and the final lift of paving on several streets in the second phase of street improvements. SLF estimates that the cost to complete this work is approximately $500,000. These improvements are expected to be completed by August 2018 and are not prerequisites to the issuance of building permits in Improvement Area No. 1. Pursuant to the Agreement Regarding Construction of Parks in a Portion of Otay Ranch Eastern Urban Center, dated as of September 15, 2009, by and between the City and SLF (as successor in interest thereunder to McMillin Otay Ranch LLC), as amended (the Park Agreement ), SLF is required to: (i) commence construction of Orion Park prior to the occupancy of the 100 th home within Shea Homes development in Improvement Area No. 1, and (ii) commence construction of Strata Park prior to the occupancy of the 65 th home within KB Home California s development in Improvement Area No. 1. SLF expects to commence construction of Orion Park in June 2018 and expects to commence construction of Strata Park in late-2018, which, in each case, is expected to be prior to the occupancy thresholds of each builder s project described in the preceding sentence. The issuance of certificates of occupancy for the residential projects being constructed by Shea Homes and KB Home California will be limited to such thresholds until SLF commences construction of such parks. Sidewalks, landscape and irrigation improvements (the Pedestrian Corridor Improvements ) which front the two project areas owned by SLF and the project area owned by CalAtlantic remain to be completed. The builders are responsible for completing the Pedestrian Corridor Improvements. With respect to the project area currently under contract to be sold to LMC Millenia Company, however, SLF will reimburse LMC Millenia Company for the costs of the Pedestrian Corridor Improvements. The costs of the Pedestrian Corridor Improvements for the remaining project area owned by SLF that is planned for residential development is expected to be borne by the purchaser of such project area. Within the overall Millenia project, as of the Date of Value, mass grading had been completed and approximately 75% of the project infrastructure had been installed. As of the Date of Value, SLF expects to spend approximately $41,000,000 in additional site development costs on improvements within the overall 37

46 Millenia project, including the third and final phase of street and infrastructure development, construction of five parks, a fire station, and pedestrian bridge improvements. Through February 1, 2018, for the Millenia project, SLF has financed its land acquisition costs, various site development and costs related to home construction participation interests with respect to certain property in Millenia which is outside of Improvement Area No. 1, through internally generated funds, thirdparty loans, and related party loans. SLF expects to use land sales revenue, home sales revenue from SLF s homebuilding participation in projects in Millenia outside of Improvement Area No. 1, internal funding, revenue from the sale of City development impact fee credits, proceeds from bonds issued by the District (including the Bonds), and various loans to complete its development activities in Millenia. However, land sale revenue from SLF s property in Improvement Area No. 1 and proceeds of bonds issued by the District paid to acquire public facilities from SLF will not be segregated and set aside for the payment of costs required to complete its activities in Improvement Area No. 1. Such funds along with land sales revenue, home sales revenue (from SLF s homebuilding participation in projects outside of Improvement Area No. 1) and fee credit sales revenues from all projects is accumulated and used to pay costs of operations for SLF and its subsidiaries, to pay debt service on outstanding debt and for other project purposes, and may be diverted to pay costs other than the costs of completing SLF s activities in Improvement Area No. 1 at the discretion of SLF s management. Notwithstanding the foregoing, SLF believes that it will have sufficient funds available to complete its development activities within the Millenia project, including the infrastructure for which it is responsible in order to allow for buildout of the property within Improvement Area No. 1, commensurate with the development timing described in this Official Statement. Although SLF expects to have sufficient funds available to complete its development activities in Improvement Area No. 1 in accordance with the development timing described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining development costs will be available from SLF or any other source when needed. SLF has no legal obligation to the Bondowners to expend funds for the development of the property within Improvement Area No. 1 or the payment of ad valorem property taxes or the Special Taxes. SLF has posted improvement bonds for the costs of the backbone infrastructure required for Improvement Area No. 1. SLF expects to provide improvement bonds for the costs to complete Orion Park and Strata Park prior to the commencement of construction of each park. Entitlements for the Overall Millenia Planned Community. The Millenia project is located within the Otay Ranch General Development Plan (the Otay Ranch GDP ) approved by the City Council. The Otay Ranch GDP groups the land within Otay Ranch into villages and established community-wide land use policies which governs the developments within Otay Ranch. The Otay Ranch GDP is implemented through the subdivision of land into Sectional Planning Areas. Each Sectional Planning Area that is approved by the City implements the policies and objectives of the Otay Ranch GDP by defining land uses, development standards, design criteria and the type and amount of development permitted. The Millenia project comprises the Otay Ranch Eastern Urban Center Sectional Planning Area (the EUC Sectional Planning Area ). On October 6, 2009, the City Council adopted an ordinance which found that the EUC Sectional Planning Area plans were consistent with the City s general plan and the Otay Ranch GDP. Pursuant to the EUC Sectional Planning Area, the Millenia project is entitled for up to 2,983 multifamily residential units, up to 3.4 million square feet of commercial uses, and a civic core with public facilities such as a library, museum and multipurpose venues. In 2009, the City approved and entered into a development agreement with McMillin Otay Ranch LLC (the Development Agreement ), which provided for the vesting of rights to develop the Millenia Project consistent with the terms of the Development Agreement, the EUC Sectional Planning Area plan, the Park Agreement and the Final EIR (as defined below). Other than the construction of Orion Park and Strata Park, which is required prior to certain residential occupancy levels within the Shea Homes and KB Home California developments, SLF has fulfilled the requirements necessary to achieve buildout within Improvement Area No. 1 consistent with the EUC Sectional Planning Area plan. See The Development Infrastructure Requirements and SLF Financing Plan above. 38

47 SLF is in the process of amending the EUC Sectional Planning Area plans with respect to certain land uses and building heights in the Millenia project. Such amendments include reducing the square footage of commercial uses from 3.4 million square feet to 3.1 million square feet, modifying the minimum average building height from five stories to four stories in six project areas, and revising the amount and distribution of commercial uses in the main commercial district within Millenia. The proposed amendments do not affect the currently active or planned developments within Improvement Area No. 1, however, such amendments, if approved, would reduce the minimum building height on the project area owned by SLF that is planned for residential development from five stories to four stories, which allows for more flexibility in building design. Such amendments are tentatively scheduled for consideration by the City s planning commission in June 2018 and by the City Council in July The Development Agreement requires that SLF provide land and/or space within a building located in the Millenia project for a public library to be owned and operated by the City. Pursuant to a Consent to Partial Assignment and Transfer of Development Agreement dated February 9, 2016 (the Library Transfer Agreement ), by and among the City, SLF and LMC Millenia Company, SLF transferred to LMC Millenia Company the obligation under the Development Agreement to provide land and/or space for the public library. The Library Transfer Agreement provides that such public library will be located on the property currently owned by LMC Millenia Company within Improvement Area No. 1. However, the City and LMC Millenia Company are currently discussing potential sites for the library facility, which may include a location outside of Improvement Area No. 1. Pursuant to the Development Agreement, the library facility may be located on property to be transferred to the City or in space to be leased by the City. Based on estimates provided by LMC Millenia Company, if the library were to be located on the property currently owned by LMC Millenia Company within Improvement Area No. 1, it would require a site of approximately 0.67 acres. In such event, LMC Millenia Company expects to subdivide such assessor s parcel that it currently owns within Improvement Area No. 1 to create a separate assessor s parcel for the library site. Upon transfer of ownership to the City, the library site would be classified as Exempt Property under the Rate and Method and would not be subject to the Special Tax levy unless the classification as Exempt Property would reduce the acreage of Taxable Property in a Zone below a certain threshold. In such event, the library site would be classified as Provisional Property and be subject to the Special Tax levy, if necessary, to meet the District s obligations with respect to Improvement Area No. 1, including debt service on the Bonds. Based on the current estimate of the size of the library site provided by LMC Millenia Company, the classification of such site as Exempt Property in and of itself, would not reduce the acreage within Zone C (the Zone in which such property is located) below the threshold which would require Exempt Property within Zone C to be classified as Provisional Property. See SOURCES OF PAYMENT FOR THE BONDS Special Taxes Rate and Method of Apportionment of Special Tax and Appendix A hereto. Rather than becoming the owner of the library site and facility, the City may instead elect to lease space within a building for the library facility. Pursuant to the Development Agreement, the City would be required to pay market-rate rental if the City elects to lease space within a building for the library facility. In such case, the property on which such building is located would be classified as Non-Residential Property under the Rate and Method and remain subject to the Special Tax levy, payable by the owner of such parcel. See SOURCES OF PAYMENT FOR THE BONDS Special Taxes Assignment to Land Use Categories and Appendix A hereto. Environmental Impact Report. In 1993, the City Council and the County Board of Supervisors approved the final environmental impact report for the Otay Ranch development. In 2009, a Second-Tier environmental impact report was prepared for the proposed Millenia project within the EUC Sectional Planning Area (the Final EIR ). The possible use of pesticides in connection with the prior agricultural use of portions of the land within Improvement Area No. 1 was noted in the original environmental report for the Otay Ranch development and the Final EIR. Such issues were addressed during the grading of the land and included special handling and reuse of soil on-site pursuant to a soil reuse plan. In 2009, the City Council 39

48 adopted a resolution approving a statement of overriding considerations, adopting a mitigation, monitoring and reporting program and ratifying the Final EIR. Builders in Improvement Area No. 1 The property in Improvement Area No. 1 is planned for four for-sale residential developments and two developments consisting of non-residential uses. The following table summarizes the planned developments and the status of the active developments within Improvement Area No. 1. (1) TABLE 6 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) SUMMARY OF DEVELOPMENTS Builder Project Name Product Type (1) Number of Units (2) Number of Building Permits Issued (3) Shea Homes Element Residential Detached Shea Homes Z Residential Attached KB Home California Skylar Residential Detached CalAtlantic Boulevard Residential Attached 78 0 LMC Millenia Company (4) N/A Office Park N/A 0 SLF (5) N/A Office Park N/A 0 SLF (6) N/A Residential 60 0 TOTAL All active residential developments are planned for detached and attached condominiums. (2) Reflects number of units projected at buildout. (3) As of March 1, Since March 1, 2018, Shea Homes and KB Home California have obtained additional building permits and CalAtlantic has obtained building permits for their respective projects in Improvement Area No. 1. (4) Lot is planned for an office campus with two buildings totaling approximately 318,000 leasable square feet, an amenity building of approximately 6,100 square feet and a parking garage of approximately 401,760 square feet. (5) Lot is under contract to be sold by SLF to LMC Millenia Company. Planned development on such lot is for an office campus with four buildings totaling approximately 700,000 square feet of leasable space. (6) Lot is planned for residential use with 60 homes at buildout. SLF expects to sell such property to a homebuilder by the end of Source: SLF, Shea Homes, KB Home California, CalAtlantic, LMC Millenia Company. 40

49 (Shown in Red Boundaries) Lot 1 Lot 7 (Chestnut) 41 Lot 14 (KB Home) Lot 11

50 Shea Homes Development and Financing Plan General. Shea Homes Limited Partnership (previously defined herein as Shea Homes) (as part of the Shea family of companies) builds homes in California, Arizona, Colorado, Florida, Nevada, North Carolina, South Carolina, Texas and Washington. Although Shea Homes is a privately held company, it produces quarterly disclosures similar to a publicly held company for its bondholders and other interested parties which are available at Shea Homes website at Such Internet address is included for reference only, and the information on such Internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement. Development Plan. In 2016, Shea Homes purchased Lot 1 of Tract No (totaling approximately 10 acres) within Improvement Area No. 1 from SLF for a purchase price of $10,350,000. Shea Homes plans to develop this property to include 176 condominiums in two neighborhoods being marketed as Element at Millenia and Z at Millenia. As of February 1, 2018, Shea Homes had completed and conveyed 53 homes within Improvement Area No. 1 to individual homeowners. As of such date, Shea Homes owned six completed model homes, seven homes over 95% complete (four of which were in escrow), 27 homes under construction (22 of which were in escrow) and 83 finished lots (five of which were in escrow). As shown in the tables below, between February 1, 2018 and April 1, 2018, Shea Homes has conveyed additional homes to individual homeowners and has commenced construction of additional homes within Improvement Area No. 1. Shea Homes expects to complete construction and convey all homes within both neighborhoods to individual homeowners by the end of The commencement of construction of Orion Park by SLF (as described above under The Development Infrastructure Requirements and SLF Financing Plan ) is required prior to the occupancy of the 100 th home within the Shea Homes projects. Shea Homes projects will be limited to 100 certificates of occupancy until the commencement of construction of Orion Park. Other than the foregoing, all approvals and permits required for development of property within the Shea Homes projects within Improvement Area No. 1 have been secured except for the issuance of building permits for residential construction and other approvals required in the normal course of development. Final condominium plans for the Element at Millenia and Z at Millenia projects were recorded on June 27, 2017, and June 26, 2017, respectively. As of February 1, 2018, in-tract improvements which remain to be completed within Shea Homes projects consisted primarily of street paving, curbs, gutters and landscaping. Shea Homes expects to begin home construction on the remaining finished lots that it owns within Improvement Area No. 1 once the remaining in-tract infrastructure for such lots is complete. Shea Homes Element at Millenia project is planned to consist of 70 detached condominiums. The Z at Millenia project is planned to consist of 106 attached condominiums. The tables below summarize, as of April 1, 2018, the product mix and development status of the Shea Homes projects within Improvement Area No

51 (1) Plan Total Units Planned TABLE 7 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) SHEA HOMES ELEMENT AT MILLENIA Estimated Home Square Footage Closings as of April 1, 2018 Additional Completed Homes/Homes Under Construction (1) Finished Lots Homes in Escrow Base Home Prices (2) , $489, , , , , , ,000 Total Includes four completed model homes and homes over 95% complete. Excludes homes which have closed to individual homeowners. (2) Base home prices shown exclude lot premiums, options and extras and any incentives or price reductions. Base sales prices are subject to change. Source: Shea Homes. (1) Plan Total Units Planned TABLE 8 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) SHEA HOMES Z AT MILLENIA Estimated Home Square Footage Closings as of April 1, 2018 Additional Completed Homes/Homes Under Construction (1) Finished Lots Homes in Escrow Base Home Prices (2) , $386, , , , ,000 Total Includes two completed model homes and homes over 95% complete. The two completed model homes are within the same building as two other homes and such homes are therefore not available for sale until the model homes are no longer needed for sales purposes. Excludes homes which have closed to individual homeowners. (2) Base home prices shown exclude lot premiums, options and extras and any incentives or price reductions. Base sales prices are subject to change. Source: Shea Homes. Financing Plan. Through March 1, 2018, Shea Homes has spent approximately $41,712,294 on land acquisition, design and construction costs on its projects within Improvement Area No. 1. Shea Homes expects to spend approximately $31,876,260 in additional site development, permit and impact fees, and direct and indirect construction costs between March 1, 2018 and full build-out of the homes proposed to be constructed, which is expected to occur by the end of Through March 1, 2018, Shea Homes has financed its land acquisition costs and various site development and home construction costs related to its property within Improvement Area No. 1 through 43

52 internally generated funds. Shea Homes expects to use internal funding to complete its development activities within Improvement Area No. 1. If necessary, Shea Homes may access additional funding from a revolving credit facility, as described below. Shea Homes has a $175 million unsecured revolving credit facility (the Shea Homes Revolving Facility ), which matures on April 1, The Shea Homes Revolving Facility is not secured by Shea Homes property in Improvement Area No. 1. The Shea Homes Revolving Facility has an accordion feature that allows the facility to be increased by up to an additional $125 million, for a total of $300 million. The Shea Homes Revolving Facility contains certain covenants and conditions that may limit Shea Homes ability to increase the maximum amount available to be drawn and the amount that Shea Homes may borrow or have outstanding at any time. As of December 31, 2017 Shea Homes has no outstanding borrowings and $20.6 million of issued letters of credit under the Shea Homes Revolving Facility leaving $154.4 million of available borrowing capacity at that date. Shea Homes ability to renew the Shea Homes Revolving Facility in the future is dependent upon a number of factors including the state of the commercial lending environment, the willingness of banks to lend to homebuilders and Shea Homes financial condition and strength. The following table shows Shea Homes estimated sources and uses of funds for developing the property that it owns within Improvement Area No. 1. TABLE 9 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) SHEA HOMES ESTIMATED CASH FLOW Total Budget Through March 1, March 1, 2018 to December 31, 2018 January 1, 2019 to December 31, 2019 January 1, 2019 Through Build-Out Sources of Funds Shea Homes Corporate (Internal Funds) $73,588,543 $41,712,294 $20,653,867 $9,229,305 $1,993,088 Total Sources of Funds $73,588,543 $41,712,294 $20,653,867 $9,229,305 $1,993,088 Uses of Funds Land $10,354,265 $10,354, Common Costs/Land Planning/Other 1,995,402 1,478,744 $ 437,835 $ 59,124 $ 19,708 Site Construction (In-tracts) 9,544,850 6,347,125 2,961, , Direct Construction 30,174,506 15,347,043 8,460,150 5,566, ,014 Fees & Permits 8,815,097 3,809,537 3,891,590 1,113, Service & Warranty 1,085,239 78, , ,605 92,741 Field Expenses 2,879,382 1,304, , , ,000 Selling & Marketing 4,393,489 1,394,883 1,700, , ,044 General & Administrative 3,594,673 1,141,268 1,390, , ,581 Property Taxes & Other 751, , ,000 70,000 25,000 Total Uses of Funds $73,588,543 $41,712,294 $20,653,867 $9,229,305 $1,993,088 Source: Shea Homes. Although Shea Homes expects to have sufficient funds available to complete its development activities in Improvement Area No. 1 in accordance with the development timing described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining development and home construction costs will be available from Shea Homes or any other source when needed. For example, borrowings under the Shea Homes Revolving Facility may not be available, and home sales revenue, which is accumulated daily for use in operations by Shea Homes, including to fund costs of other direct and indirect subsidiaries, to pay debt service on outstanding debt and for other corporate purposes, may be diverted to pay costs other than the costs of completing Shea Homes activities in Improvement Area No. 1 at the discretion of Shea Homes management. Shea Homes, its lenders, or any of their related entities are not under any legal obligation of any kind to expend funds for the development of and construction of homes on Shea Homes

53 property in Improvement Area No. 1. Any contributions by Shea Homes to fund the costs of such development and home construction are entirely voluntary. KB Home California Development and Financing Plan General. KB HOME California LLC (previously defined as KB Home California), is a whollyowned subsidiary of KB Home, a Delaware corporation ( KB Home ), whose principal executive offices are located in Los Angeles, California. KB Home is a publicly traded company listed on the New York Stock Exchange (the NYSE ) under the ticker symbol KBH. KB Home files annual, quarterly and current reports, proxy statements and other information with the SEC. KB Home s SEC filings are available to the public at the SEC s website at and at KB Home s website at Such Internet address is included for reference only, and the information on such Internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement. Founded in 1957, KB Home constructs and sells homes through its operating divisions under the name KB Home. KB Home s ongoing principal operations are in seven states, including California, Arizona, Nevada, Colorado, Texas, Florida, and North Carolina within 36 major markets. KB Home first developed homes in California in KB Home s homebuilding operations offer a variety of homes designed primarily for first-time, move-up and active adult homebuyers, including attached and detached single-family homes, townhomes and condominiums. Development Plan. In 2017, KB Home California purchased Lot 14 of Tract No (totaling approximately 7.3 acres) within Improvement Area No. 1 from SLF for a purchase price of $7,265,000. KB Home California plans to develop this property to include 79 detached condominiums in a neighborhood being marketed as Skylar at Millenia. As of February 1, 2018, KB Home California owned two completed model homes, six homes under construction (one of which was in escrow) and 71 partially finished lots (two of which were in escrow). As shown in the table below, between February 1, 2018 and April 1, 2018, KB Home California commenced construction of additional homes within Improvement Area No. 1. KB Home California expects to complete construction and convey all homes within its development to individual homeowners by the end of The commencement of construction of Strata Park by SLF (as described above under The Development Infrastructure Requirements and SLF Financing Plan ) is required prior to the occupancy of the 65 th home within KB Home California s project. KB Home California s project will be limited to 65 certificates of occupancy until the commencement of construction of Strata Park. Other than the foregoing, all approvals and permits required for development of property within the KB Home California s project within Improvement Area No. 1 have been secured except for the issuance of building permits for residential construction and other approvals required in the normal course of development. KB Home California has recorded final condominium plans for the first phase of its project (consisting of nine units). With respect to the balance of its project, KB Home California has recorded final condominium plans for five phases of its project (consisting of 37 units). KB Home California expects to record final condominium plans for the final five phases (consisting of 42 units) by the end of June As of February 1, 2018, in-tract improvements remaining to be completed within KB Home California s development consisted primarily of street paving, curbs, gutters, dry utilities and landscaping. KB Home California expects to begin home construction on the remaining finished lots that it owns within Improvement Area No. 1 once the remaining in-tract infrastructure for such lots is complete. KB Home California s Skylar at Millenia project is planned to consist of 79 detached condominiums. The table below summarizes, as of April 1, 2018, the product mix and development status of KB Home California s Skylar at Millenia project within Improvement Area No

54 (1) (2) Plan Total Units Planned TABLE 10 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) KB HOME CALIFORNIA SKYLAR AT MILLENIA Estimated Home Square Footage Closings as of April 1, 2018 Completed Homes/Homes Under Construction (1) Finished Lots Homes in Escrow Base Home Prices (2) , $596, , ,490 Total Includes two completed model homes. Base home prices shown exclude lot premiums, options and extras and any incentives or price reductions. Base sales prices are subject to change. Source: KB Home California. Financing Plan. Through March 1, 2018, KB Home California had spent approximately $12,814,646 on land acquisition, design and construction costs on its project within Improvement Area No. 1. KB Home California expects to spend approximately $33,742,348 in additional site development, permit and impact fees, and direct and indirect construction costs between March 1, 2018 and full build-out of the homes proposed to be constructed (exclusive of internal financing repayment, sales and marketing, corporate overhead and other carrying costs), which is expected to occur by the end of To date, KB Home California has financed its land acquisition costs and various site development and home construction costs related to its property within Improvement Area No. 1 through internally generated funds. KB Home California expects to use internal funding (which may include home sales revenues from its project within Improvement Area No. 1) to complete its development activities within Improvement Area No. 1. The following table shows KB Home California s estimated sources and uses of funds for developing the property that it owns within Improvement Area No. 1: (1) TABLE 11 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) KB HOME CALIFORNIA ESTIMATED CASH FLOW Total Budget Through March 1, 2018 March 1, 2018 to December 31, 2018 January 1, 2019 Through Buildout Sources of Funds KB Home Corporate (Internal Funds) $ 46,556,994 $ 12,814,646 $ 22,872,372 $ 10,869,977 Uses of Funds Land $ 7,265,000 $ 7,265, Site Construction (In-tracts) 3,242,937 2,000,000 $ 1,242,937 $ 1,000,000 Direct Construction 21,236,000 1,173,717 12,741,600 7,320,683 Fees & Technical & Permits 5,033,327 1,286,000 3,019, ,331 Service & Warranty 432, , ,147 Field Expenses 1,200, , , ,806 Selling & Marketing 509,000 50, , ,600 General & Administrative 2,800, ,001 1,680, ,999 Property Taxes & Other 4,837,864 72,734 2,902,715 1,862,411 Total Uses of Funds $ 46,556,994 $ 12,814,646 $ 22,872,372 $ 10,869,977 KB Home California does not anticipate obtaining any loan financing for its project in Improvement Area No. 1. Source: KB Home California. 46

55 Although KB Home California expects to have sufficient funds available to complete its development activities in Improvement Area No. 1 in accordance with the development timing described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining development and home construction costs will be available from KB Home California or any other source when needed. For example, home sales revenue, which is accumulated daily for use in operations by KB Home California, including to fund costs of other direct and indirect subsidiaries, to pay debt service on outstanding debt and for other corporate purposes, may be diverted to pay costs other than the costs of completing KB Home California s activities in Improvement Area No. 1 at the discretion of KB Home California s management. KB Home California, its lenders, or any of their related entities are not under any legal obligation of any kind to expend funds for the development of and construction of homes on KB Home California s property in Improvement Area No. 1. Any contributions by KB Home California to fund the costs of such development and home construction are entirely voluntary. CalAtlantic Development and Financing Plan General. CalAtlantic Group, Inc., a Delaware corporation (previously defined as CalAtlantic), merged with Lennar Corporation, a Delaware corporation ( Lennar Corporation ) in February 2018 and operates as a wholly-owned subsidiary of Lennar Corporation. CalAtlantic does not expect that its merger with Lennar Corporation will have an adverse material impact on CalAtlantic s development in Improvement Area No. 1 as described herein. Lennar Corporation, founded in 1954 and publicly traded under the symbol LEN since 1971, is one of the nation s largest home builders, operating under a number of brand names, including Lennar Homes and U.S. Home. The company primarily develops residential communities both within the Lennar family of builders and through consolidated and unconsolidated partnerships in which the company maintains an interest. Lennar Corporation is subject to the informational requirements of the Exchange Act and in accordance therewith files reports, proxy statements and other information with the SEC. Such filings, particularly the Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q, may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C at prescribed rates. Such filings set forth, among other things, certain data relative to the consolidated results of operations and financial position of Lennar and its subsidiaries (including CalAtlantic). Such files can also be accessed over the internet at the SEC s website at Copies of Lennar Corporation s Annual Report and related financial statements, prepared in accordance with generally accepted accounting standards, are available from Lennar Corporation s website at The foregoing internet addresses are included for reference only and the information on the internet sites are not a part of this Official Statement and are not incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on such internet sites. Development Plan. In 2017, CalAtlantic purchased Lot 17 of Tract No (totaling approximately 3.7 acres) within Improvement Area No. 1 from SLF for a purchase price of $3,510,000. CalAtlantic plans to develop this property to include 78 attached townhomes in a neighborhood expected to be marketed as Boulevard at Millenia. CalAtlantic expects to record the final condominium plan for the Boulevard at Millenia project by the end of June All approvals and permits required for development of property within CalAtlantic s project in Improvement Area No. 1 have been secured except for the issuance of building permits for residential construction and other approvals required in the normal course of development. As of February 1, 2018, CalAtlantic had begun grading the lot that it owns within Improvement Area No. 1 and in March 2018, CalAtlantic commenced construction of the in-tract improvements on its property, which include street grading and paving, curbs, gutters, wet and dry utilities and landscaping. Initial trenching for model homes and the first phase of production homes began in March and April 2018, respectively. 47

56 CalAtlantic projects that it will complete and convey 25 homes in 2018, 40 homes in 2019, and the final 13 homes in 2020 to individual homeowners. CalAtlantic s Boulevard at Millenia project is expected to include three floor plans with home sizes ranging from approximately 1,681 square feet to 2,046 square feet with initial base sales prices projected to range from approximately $408,000 to $453,000. Actual base sales prices may vary from the foregoing prices. Financing Plan. Through March 1, 2018, CalAtlantic had spent approximately $4,807,000 in land acquisition, site improvement costs, indirect construction costs, permit and impact fees, and other indirect construction and finance costs on its development within Improvement Area No. 1. As of such date, CalAtlantic estimated that it would spend approximately $27,305,000 in additional site improvement costs, direct and indirect construction costs, permit and impact fees, finance costs, sales general and administrative costs, and other carrying costs (including the payment of property taxes and warranty expense) between March 1, 2018 and full buildout of the homes proposed to be constructed in Improvement Area No. 1, which is expected to occur by the end of Through March 1, 2018, CalAtlantic had financed its land acquisition costs and various site development costs related to its property within Improvement Area No. 1 through internally generated funds. CalAtlantic expects to use internal funding (which may include home sales revenues from its project within Improvement Area No. 1) to complete its development activities within Improvement Area No. 1. The following table shows CalAtlantic s estimated sources and uses of funds for developing the property that it owns within Improvement Area No. 1: TABLE 12 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) CALATLANTIC BUDGET AND COSTS INCURRED AS OF MARCH 1, 2018 Sources of Funds CalAtlantic Corporate (Internal Funding) Total Budget Actual Costs Incurred Through March 1, 2018 Projected March 1, 2018 Through December 31, 2018 Projected January 1, 2019 Through Build-Out $32,112,000 $4,807,000 $9,978,000 $17,326,000 Uses of Funds Land $3,560,000 $3,537,000 $23, Site Improvements 3,902, ,000 2,834, ,000 Permits & Fees 3,792, , ,000 2,282,000 Indirect Construction 1,271, , , ,000 Direct Construction & Option Costs 14,704, ,411,000 10,293,000 Finance Costs 699, , , ,000 Property Taxes 139, ,000 97,000 Warranty 113, ,000 79,000 Sales, General & Admin. 3,932, ,180,000 2,752,000 Total Uses of Funds $32,112,000 $4,807,000 $9,978,000 $17,326,000 (1) CalAtlantic expects to fund future costs from internal working capital funds and homes sales proceeds. CalAtlantic does not anticipate obtaining any loan financing for its project in Improvement Area No. 1. Source: CalAtlantic. Although CalAtlantic expects to have sufficient funds available to complete its development activities in Improvement Area No. 1 in accordance with the development timing described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining development and home 48

57 construction costs will be available from CalAtlantic or any other source when needed. Neither CalAtlantic, nor any of its related entities are under any legal obligation of any kind to expend funds for the development of and construction of homes on CalAtlantic s property in Improvement Area No. 1. Any contributions by CalAtlantic to fund the costs of such development and home construction are entirely voluntary. If and to the extent that internal funding, including but not limited to home sales revenues, is inadequate to pay the costs to complete the planned development by CalAtlantic within Improvement Area No. 1 and other financing by CalAtlantic is not put into place, there could be a shortfall in the funds required to complete the planned development by CalAtlantic within Improvement Area No. 1. Recent Litigation Against Lennar Corporation. A lawsuit was filed in the state court of California against Lennar Corporation relating to Lennar Corporation and LandSource Communities Development, LLC, a Delaware limited liability company ( LandSource ), in which the California Public Employees Retirement System ( CalPers ) invested in LandSource filed for bankruptcy on June 8, 2008 ( LandSource Bankruptcy Matter ), and a plan for reorganization was approved by the bankruptcy court on July 20, (In re: LandSource Communities Development LLC, et al, Case No , United States Bankruptcy Court, District of Delaware.) The complaint, which is filed as a qui tam action by a newly created limited liability company, makes a number of claims related to Lennar Corporation s actions regarding LandSource and the related bankruptcy and seeks injunctive relief and damages (including statutory and treble) relating to CalPers alleged $970 million loss. Lennar Corporation has filed a petition to remove the complaint to federal court (Citizens Against Corporate Crime v. Lennar Corporation (9 th Circuit, California Eastern District Court, Case No. 2:2018cv01269). Lennar has also filed a Motion to Reopen the Chapter 11 Bankruptcy Cases for the Limited Purpose of Enforcing the Injunction and Release in the Debtors Joint Chapter 11 Plan and Confirmation Order. Persons released in the LandSource Bankruptcy Matter include Lennar Corporation. Lennar Corporation contends that in addition to the complaint being barred by the release and injunction in the LandSource Bankruptcy Matter, the complaint is meritless and barred by applicable statutes of limitation and other defenses. CalAtlantic is not a party to the complaint. CalAtlantic believes that even if, in the unlikely event, the complaint is successful against Lennar Corporation, CalAtlantic will be able to complete the development and sale of its project within Improvement Area No. 1 as described in this Official Statement and pay Special Taxes and ad valorem tax obligations on the property that it owns within Improvement Area No. 1 prior to delinquency during CalAtlantic s period of ownership, before any adverse impact could occur from the lawsuit. LMC Millenia Company Development and Financing Plan General. LMC-Millenia Investment Company, L.P. (previously defined as LMC Millenia Company), is a limited partnership with LMC-Millenia GP, LLC as its sole general partner. Both entities are solely owned and controlled by Lee M. Chesnut. Mr. Chesnut is a San Diego-based investor/developer, specializing in the development and management of commercial real estate. Over the last 25 years, Mr. Chesnut has acquired, repositioned and/or constructed commercial properties totaling over 1.25 million square feet. Development Plan. In 2016, LMC Millenia Company purchased Lot 7 of Tract No (totaling approximately 7 acres) within Improvement Area No. 1 from SLF for a purchase price of $2,568,633. LMC Millenia Company plans to develop this property into a Class A (generally regarded as buildings with higher-end finishes and above-average rental prices for its market) office campus consisting of two four-story office buildings, an amenity building and a parking garage. The two office buildings are expected to include approximately 150,000 square feet and 168,000 square feet of leasable space, respectively. The campus is also expected to include an amenity building of approximately 6,100 square feet. A parking garage, contained in a separate structure, totaling approximately 401,760 square feet is expected to serve the office campus. As of February 1, 2018, the parcel owned by LMC Millenia Company had been finish graded, including the below-grade excavation for a proposed parking structure. LMC Millenia Company expects to commence vertical construction of the office campus buildings in late 2018 and expects to complete 49

58 construction in early LMC Millenia Company expects to retain ownership of the property that it plans to develop within Improvement Area No. 1 and to lease the office space to be developed thereon to one or more tenants. LMC Millenia Company has begun pre-leasing activities for the office buildings to be developed on the property that it currently owns within Improvement Area No. 1, however, no assurances can be made that any leases will be executed. As of April 1, 2018, no leases have been entered into for such office space, however, LMC Millenia Company had entered into a non-disclosure agreement with a potential lessee of one of the planned office buildings. LMC Millenia Company expects that lease terms for its projects could include a combination of triple-net leases and gross/modified gross arrangements. See The Development Entitlements for the Overall Millenia Planned Community for information with respect to the potential of a library site which may be owned by the City and located on the property currently owned by LMC Millenia Company. Financing Plan. Through March 1, 2018, LMC Millenia Company had spent approximately $7.0 million in land acquisition, site improvement and design costs on its development within Improvement Area No. 1. As of such date, LMC Millenia Company expected that it would spend approximately $130,000,000 in additional site development, permit and impact fees, and direct and indirect construction costs until full buildout of the project proposed to be constructed on its property within Improvement Area No. 1 (exclusive of internal financing repayment, sales and marketing, corporate overhead and other carrying costs). The following table shows LMC Millenia Company s estimated sources and uses of funds for developing the property that it owns within Improvement Area No. 1. LMC Millenia Company is currently considering financing options for a portion of its remaining costs to develop the property that it owns within Improvement Area No. 1. Such sources may be loans from banks and/or private investors. Such financing sources have not been secured and LMC Millenia Company can make no assurances as to the availability or the timing that such financing sources will be available. The amounts in Table 13 below do not include the acquisition price or development costs relating to the property under contract to be conveyed to LMC Millenia Company by SLF, as described under Additional Property Under Contract to be Acquired below. 50

59 TABLE 13 COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) (IMPROVEMENT AREA NO. 1) LMC MILLENIA COMPANY CASH FLOW Total Budget Through March 1, 2018 March 1, 2018 to December 31, 2018 January 1, 2019 to December 31, 2019 January 1, 2020 Through Build-Out Sources of Funds LMC Millenia Company (Internal Funding) $ 14,089,973 $ 3,023, $ 11,066,633 SD Private Bank (1) 1,300,000 1,300, Trinity Mortgage (1) 3,000,000 3,000, Financing Source Building 1 (2) 62,000,000 $ 32,014,147 $ 29,985, Financing Source Balance (2) 49,466,530 39,847,404 9,619,126 Total Sources of Funds $ 129,856,503 $ 7,323,340 $ 32,014,147 $ 69,833,257 $ 20,685,759 Uses of Funds Land $ 2,608,467 $ 2,608, Site Construction (In-tracts) 350, , Roadway and Frontage (Water Included) Direct Construction (3) $ 105,878, $ 28,189,791 $ 57,688,406 $ 20,000,000 Soft Costs 5,200, ,000,000 3,200, Fees & Permits 157, , Service & Warranty 3,285,483 3,285, Selling & Marketing 5,280, , ,875, General & Administrative 450, , Property Taxes & Other 6,644,613 64,647 1,824,356 4,069, ,759 Total Uses of Funds $ 129,856,503 $ 7,323,340 $ 32,014,147 $ 69,833,257 $ 20,685,759 (1) The SD Private Bank loan has been retired in full. As of April 1, 2018, the outstanding balance under the Trinity Mortgage was approximately $1 million, which is secured by a first deed of trust on LMC Millenia Company s property within Improvement Area No. 1. (2) LMC Millenia Company is currently considering financing options for a portion of its remaining costs to develop the property that it owns within Improvement Area No. 1. LMC Millenia Company has not secured such financing and no assurances can be made as to the availability or the timing that such financing sources will be available. (3) Includes debt service on the SD Private Bank loan and the Trinity Mortgage. Source: LMC Millenia Company. Although LMC Millenia Company expects to have sufficient funds available to complete its development activities in Improvement Area No. 1 in accordance with the development timing described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining development and home construction costs will be available from LMC Millenia Company or any other source when needed. LMC Millenia Company, its lenders, or any of their related entities are not under any legal obligation of any kind to expend funds for the development of and construction of buildings on LMC Millenia Company s property in Improvement Area No. 1. Any contributions by LMC Millenia Company to fund the costs of such development and construction activities are entirely voluntary. Additional Property Under Contract to be Acquired. SLF and LMC Millenia Company entered into a purchase agreement in October 2015, as amended, with respect to the acquisition of property within Millenia by LMC Millenia Company, including the property currently owned and being developed by LMC Millenia Company. Under such purchase agreement, LMC Millenia Company has agreed to purchase one additional project area within Improvement Area No. 1 which is planned for an office campus with four buildings totaling approximately 700,000 square feet of leasable space. The purchase price for such property is approximately $3,923,000. LMC Millenia Company has extended the original closing date with respect to the acquisition of such property and has paid extension fees agreed upon with SLF in connection with such extensions. The current closing date is scheduled to occur on July 1, LMC Millenia has not secured financing for the acquisition of such property and if financing is not secured in order to close on July 1, 2018, LMC Millenia 51

60 Company expects to pursue an additional extension of the closing date with SLF (although there is no assurance that such an extension will be granted). SPECIAL RISK FACTORS The purchase of the Bonds involves significant risks that are not appropriate investments for certain investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. The Bonds have not been rated by a rating agency. This discussion does not purport to be comprehensive or definitive and does not purport to be a complete statement of all factors which may be considered as risks in evaluating the credit quality of the Bonds. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in Improvement Area No. 1 to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the District 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 Improvement Area No. 1. See Property Values and Limited Secondary Market. Risks of Real Estate Secured Investments Generally The Bond owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of Improvement Area No. 1, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes, fires and floods), which may result in uninsured losses. No assurance can be given that SLF, the builders or any future homeowners within Improvement Area No. 1 will pay Special Taxes in the future or that they 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. Tax Cuts and Jobs Act H.R. 1 of the 115th U.S. Congress, known as the Tax Cuts and Jobs Act, was enacted into law on December 22, 2017 (the Tax Act ). The Tax Act makes significant changes to many aspects of the Internal Revenue Code of 1986, as amended (the Code ). For example, the Tax Act reduces the amount of mortgage interest expense and state and local income tax and property tax expense that individuals may deduct from their gross income for federal income tax purposes. These changes could increase the cost of home ownership within Improvement Area No. 1 and could slow the pace of home sales by Shea Homes, KB Home California and CalAtlantic and the builder selected for the final residential site or result in price reductions from the current expected levels. However, neither the City nor the District can predict the effect that the Tax Act may have on the cost of home ownership or the price of homes in Improvement Area No. 1, the pace at which homes in Improvement Area No. 1 are sold to individual homeowners by the builders within Improvement Area No. 1, or the ability or willingness of homeowners to pay Special Taxes or property taxes. Concentration of Ownership Based on the ownership status of the property within Improvement Area No. 1 as of February 1, 2018 and the number of building permits issued as of March 1, 2018, assuming no additional conveyance of property by SLF or any transfer of property by homebuilders to individual homeowners within Improvement Area No. 1, approximately 23.57% of the Special Taxes estimated to be levied in Fiscal Year would 52

61 be payable by SLF, approximately 33.32% would be payable by Shea Homes, approximately 4.86% would be payable by KB Home California, approximately 16.62% would be payable by CalAtlantic and approximately 6.64% would be payable by LMC Millenia Company. See Table 5 above. Failure of SLF, any of the builders, or any of their successors, to pay the annual Special Taxes when due could result in a draw on the Reserve Fund, and ultimately a default in payments of the principal of, and interest on, the Bonds, when due. No assurance can be given that SLF, the builders or any of their successors, will complete the remaining intended construction and development in Improvement Area No. 1 or to pay their Special Taxes when due. See Failure to Develop Properties. In Fiscal Year , the District will levy Special Taxes on property within Improvement Area No. 1 classified as Undeveloped Property which is owned by SLF, CalAtlantic and LMC Millenia Company. Undeveloped Property is defined in the Rate and Method as property not classified as Developed Property or Provisional Property. In the event that SLF, entities affiliated with SLF, or any of the builders fail to complete the remaining intended construction and development in Improvement Area No. 1, Special Taxes will continue to be levied on Undeveloped Property and the risk of concentration of ownership would continue. LMC Millenia Company expects to retain ownership of its property so it is expected that it will continue to be a taxpayer within Improvement Area No. 1 beyond the development period. No assurance can be given that SLF, the builders, or any successors, will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See Bankruptcy and Foreclosure for a discussion of certain limitations on the District 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 faith and 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 Indenture, 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 County 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 Net Taxes and other amounts pledged under the Indenture. Insufficiency of Special Taxes Under the Rate and Method, the annual amount of Special Tax to be levied on each taxable parcel in Improvement Area No. 1 will generally be based on the land use class to which a parcel of Developed Property is assigned. See APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX and SOURCES OF PAYMENT FOR THE BONDS Special Taxes Rate and Method of Apportionment of Special Tax. In order to pay debt service on the Bonds, it is necessary that the Special Taxes be paid in a timely manner. Should the Special Taxes not be paid on time, the District will establish and fund upon the issuance of the Bonds a Reserve Fund in an amount equal to the Reserve Requirement to pay debt service on the Bonds to the extent other funds are not available. See SOURCES OF PAYMENT FOR THE BONDS Reserve Fund. The District will covenant to maintain in the Reserve Fund an amount equal to the Reserve Requirement subject, however, to the limitation that the District may not levy the Special Tax in Improvement Area No. 1 in any fiscal year at a rate in excess of the maximum amounts permitted under the Rate and Method. As a result, if a significant number of delinquencies occurs, the District could be unable to replenish the Reserve Fund to the Reserve Requirement due to the limitations on the maximum Special Tax. If such defaults were to continue in successive years, the Reserve Fund could be depleted and a default on the Bonds could occur. 53

62 The District will covenant in the Indenture that, under certain conditions, it will institute foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to protect its security interest. See SOURCES OF PAYMENT FOR THE BONDS Special Taxes Proceeds of Foreclosure Sales for provisions which apply in the event of such foreclosure and which the District is required to follow in the event of delinquencies in the payment of the Special Tax. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to owners of the Bonds (if the Reserve Fund has been depleted) pending such sales or the prosecution of such foreclosure proceedings and receipt by the District of the proceeds of sale. The District may adjust the future Special Tax levied on taxable parcels in Improvement Area No. 1, subject to the limitation on the maximum Special Tax, to provide an amount required to pay interest on, principal of, and redemption premiums, if any, on the Bonds, and the amount, if any, necessary to replenish the Reserve Fund to an amount equal to the Reserve Requirement and to pay all current expenses; provided, however, that the Act and the Rate and Method provide that under no circumstances will the Special Tax levied in a Fiscal Year against any Assessor s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) above the amount that would have been levied in that Fiscal Year as a consequence of delinquency or default by the owner of any other Assessor s Parcel within Improvement Area No. 1. There is, however, no assurance that the total amount of the Special Tax that could be levied and collected against taxable parcels in Improvement Area No. 1 will be at all times sufficient to pay the amounts required to be paid by the Indenture, even if the Special Tax is levied at the maximum Special Tax rates. See Bankruptcy and Foreclosure for a discussion of potential delays in foreclosure actions. The Rate and Method governing the levy of the Special Tax provides that no Special Tax shall be levied on public property, property owner association property, property which is used as places of worship and are exempt from ad valorem property taxes because they are owned by a religious organization, and parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement; provided however, that no such classification of tax-exempt status shall reduce the sum of all Taxable Property in Improvement Area No. 1 to less than 9.53 Acres for Zone A, Acres for Zone B, or Acres for Zone C. See Section 5 of APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX. See The Development Entitlements for the Overall Millenia Planned Community for information with respect to the potential of a library site which may be owned by the City and located on the property currently owned by LMC Millenia Company. If for any reason property within Improvement Area No. 1 becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government or another public agency, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within Improvement Area No. 1. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due. The Act provides that, if any property within Improvement Area No. 1 not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. Due to problems of collecting taxes from public agencies, if a substantial portion of land within Improvement Area No. 1 was to become owned by public agencies, collection of the Special Tax might become more difficult and could result in collections of the Special Tax which might not be sufficient to pay principal of and interest on the Bonds when due and a default could occur with respect to the payment of such principal and interest. 54

63 Failure to Develop Properties Development of property within Improvement Area No. 1 may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of SLF, the builders, or any property owner 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. Development of land in Improvement Area No. 1 is also subject to the availability of water. Finally, development of land is subject to economic considerations. 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. In-tract improvements are expected to be constructed by the current or future homebuilders and LMC Millenia Company as development within their respective projects is completed. A majority of the property owned by SLF and the builders within Improvement Area No. 1 is in a mass graded or a finished lot condition. No assurance can be given that the remaining proposed development will be partially or fully completed; and for purposes of evaluating the investment quality of the Bonds, prospective purchasers should consider the possibility that such parcels will remain unimproved. 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 District to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development of the required infrastructure for development in Improvement Area No. 1 as planned, or substantial delays in the completion of the development or the required infrastructure for the development due to litigation or other causes may reduce the value of the property within Improvement Area No. 1 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 property within Improvement Area No. 1 to pay the Special Taxes when due. There can be no assurance that land development operations within Improvement Area No. 1 will not be adversely affected by future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, an increase in mortgage interest rates, the income tax treatment of real property ownership, or the national economy. 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 due. Bondowners should assume that any event that significantly impacts the ability to develop land in Improvement Area No. 1 would cause the property values within Improvement Area No. 1 to decrease substantially from those estimated by the Appraiser and could affect the willingness and ability of the owners of land within Improvement Area No. 1 to pay the Special Taxes when due. The District will levy Special Taxes on Undeveloped Property for Fiscal Year and expects to levy Special Taxes on Undeveloped Property in future fiscal years until the Special Taxes levied on Developed Property are sufficient to fund the Special Tax Requirement. Undeveloped Property is less valuable per unit of area than Developed Property, 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 District to foreclose on Undeveloped Property due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within Improvement Area No. 1 as currently proposed will make the Bondowners dependent upon timely payment of the Special Taxes levied 55

64 on Undeveloped Property. A slowdown or stoppage in the continued development of Improvement Area No. 1 could reduce the willingness and ability of SLF, the builders, or any 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 Property Values. Natural Disasters Improvement Area No. 1, like all California communities, may be subject to unpredictable seismic activity, fires, floods, or other natural disasters. No known active or potentially active faults, as defined in the Alquist-Priolo Earthquake Fault Zone Act, cross the property within Improvement Area No. 1, and Improvement Area No. 1 is not located in an Alquist-Priolo Earthquake Study Zone. However, Southern California is a seismically active area; and active faults exist within the vicinity of Improvement Area No. 1. Seismic activity represents a potential risk for damage to buildings, roads, and property within Improvement Area No. 1. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event. Improvement Area No. 1 is not located in a flood plain area. In recent years, wildfires have caused extensive damage throughout the State, including within the County. Certain of these fires have burned thousands of acres and destroyed hundreds and in some cases thousands of homes. In some instances entire neighborhoods have been destroyed. Several fires which occurred in 2017 damaged or destroyed property in areas that were not previously considered to be at risk from such events. Some commentators believe that climate change will lead to even more frequent and damaging wildfires in the future. The Millenia project, including the property within Improvement Area No. 1, is not located in an area which the Department of Forestry and Fire Protection of the State of California has designated as a very high fire hazard severity zone. However, vacant areas which are adjacent to the Millenia project with brush that is not controlled could pose a fire risk to the development within the Millenia project. In the event of a severe earthquake, wildfire, flood or other natural disaster, there may be significant damage to both property and infrastructure in Improvement Area No. 1. 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 Improvement Area No. 1 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. Endangered/Threatened Species During the 1990s, there was an increase in activity at the State and federal level related to the possible listing of certain plant and animal species found in the Southern California area as endangered or threatened species. In response to this activity, several large landowners began an effort to move away from species by species entitlement to multiple species entitlement, in order to minimize the risk of future species listings and maximize the certainty of development. The Final EIR found that mitigation measures would reduce all potentially direct and indirect impacts of the Millenia project to plant and wildlife to less than significant. All open space dedications for the property in Improvement Area No. 1 have been completed. Hazardous Substances The presence of hazardous substances on a parcel may result in a reduction in the value of a parcel. 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 56

65 costs of remedying the condition, because the purchaser, upon becoming the 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 such substance. All of these possibilities could significantly affect the value of a parcel that is realizable upon a delinquency and the willingness or ability of the owner of any parcel to pay the Special Tax installments. The value of the taxable property within Improvement Area No. 1, as set forth in the various tables in this Official Statement, does not reflect the presence of any hazardous substance or the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the property. Although due to the use of pesticides in connection with the prior agricultural use of portions of the land within Improvement Area No. 1, the grading of the land included special handling and reuse of soil on site pursuant to a soil reuse plan, SLF has represented to the District that it is not aware of any hazardous substance condition of the property within Improvement Area No. 1. The District has not independently verified, but is not aware, that any owner (or operator) of any of the parcels within Improvement Area No. 1 has such a current liability with respect to any such parcel. However, it is possible that such liabilities do currently exist and that the District is not aware of them. Payment of the Special Tax is not a Personal Obligation of the Property Owners An owner of a taxable parcel 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 District has no recourse against the property owner. Property Values The value of the property within Improvement Area No. 1 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 District s only remedy is to commence foreclosure proceedings against the delinquent parcel 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, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Taxes. See IMPROVEMENT AREA NO. 1 Appraised Value-to-Lien Ratios. The Appraiser has estimated, on the basis of certain definitions, contingencies, assumptions and limiting conditions contained in the Appraisal Report that as of February 1, 2018, the market value of the land and improvements within Improvement Area No. 1 was approximately $62,228,054. The Appraisal Report is based on a number of assumptions and limiting conditions as stated in APPENDIX B-1 APPRAISAL REPORT. The Appraisal Report does not reflect any possible negative impact which could occur by reason of future slow or no growth voter initiatives, an economic downturn, any potential limitations on development occurring due to time delays, an inability of any landowner to obtain any needed development approval or permit, the presence of hazardous substances or other adverse soil conditions within Improvement Area No. 1, the listing of endangered species or the determination that habitat for endangered or threatened species exists within Improvement Area No. 1, or other similar situations. Prospective purchasers of the Bonds should not assume that the land and improvements within Improvement Area No. 1 could be sold for the amount stated in the Appraisal Report at a foreclosure sale for 57

66 delinquent Special Taxes. In arriving at the estimate of market value, the Appraiser assumes that any property will be sold in a competitive market after a reasonable exposure time, and assuming that neither the buyer or seller is under duress, which is not always present in a foreclosure sale. See APPENDIX B-1 APPRAISAL REPORT for a description of other assumptions made by the Appraiser and for the definitions and limiting conditions used by the Appraiser. Any event which causes one of the Appraiser s assumptions to be untrue could result in a reduction of the value of the land within Improvement Area No. 1 from that estimated by the Appraiser. The assessed values set forth in this Official Statement do not represent market values arrived at through an appraisal process and generally reflect only the sales price of a parcel when acquired by its current owner, adjusted annually by an amount determined by the County Assessor, generally not to exceed an increase of more than 2% per fiscal year. No assurance can be given that a parcel could actually be sold for its assessed value. 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 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE MISCELLANEOUS CONDITIONS Covenants. See IMPROVEMENT AREA NO. 1 Expected Tax Burden; Potential Special Tax Prepayment for a description of the requirement for a homebuilder to prepay a portion of the Special Tax, or overlapping special taxes and assessments, at the time a completed home is sold, if, based on the actual sales price of such home, the annual total effective tax rate on such parcel would exceed 2.00% of the actual sales price. Such prepaid Special Taxes would be applied to redeem Bonds. See THE BONDS Redemption Extraordinary Redemption from Special Tax Prepayments. Parity Taxes and Special Assessments Property within Improvement Area No. 1 is subject to taxes and assessments imposed by other public agencies also having jurisdiction over the land within Improvement Area No. 1. See IMPROVEMENT AREA NO. 1 Direct and Overlapping Indebtedness for a description of the public agencies that have issued debt secured by taxes and assessments levied on property within Improvement Area No. 1 and the School District CFDs, which may issue debt secured by special taxes levied on property within Improvement Area No. 1 in the future. 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 other agencies and is co-equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. 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 or other federal agencies. See FDIC/Federal Government Interest in Properties and Bankruptcy and Foreclosure. Neither the District nor the City has control over the ability of other entities and districts to issue indebtedness secured by special taxes, ad valorem taxes or assessments payable from all or a portion of the property within Improvement Area No. 1. In addition, the landowners within Improvement Area No. 1 may, without the consent or knowledge of the District, petition other public agencies to issue public indebtedness secured by special taxes and ad valorem taxes or assessments. Any such special 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 the property within Improvement Area No. 1 described herein. See SOURCES OF PAYMENT FOR THE BONDS and IMPROVEMENT AREA NO. 1 Direct and Overlapping Indebtedness and Appraised Value to Lien Ratios. 58

67 Disclosures to Future Purchasers The willingness or ability of an owner of a parcel to pay the Special Tax even if the value is sufficient 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 and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The City has caused a notice of the Special Tax to be recorded in the Office of the Recorder for the County against each parcel. 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 Improvement Area No. 1 or lending of 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 special tax under the Act of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section b 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. 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, will be billed to the properties within Improvement Area No. 1 on the regular ad valorem property tax bills sent to owners of such properties by the County Tax Collector. 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 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE MISCELLANEOUS CONDITIONS Covenants for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Indenture, in the event of delinquencies in the payment of Special Taxes. See Bankruptcy and Foreclosure for a discussion of the policy of the Federal Deposit Insurance Corporation regarding the payment of special taxes and assessment and limitations on the District s ability to foreclosure on the lien of the Special Taxes in certain circumstances. FDIC/Federal Government Interests in Properties General. The ability of the District 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 ), the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest. The supremacy clause of the United States Constitution reads as follows: This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding. This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes within Improvement Area No. 1 but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. 59

68 Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government s mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association ( FNMA ) is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States. The District has not undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels subject to the Special Taxes within Improvement Area No. 1, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. FDIC. In the event that any financial institution making any loan which is secured by real property within Improvement Area No. 1 is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the District 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 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 Ninth Circuit has issued a ruling on August 28, 2001 in which it determined that the FDIC, as a federal agency, is exempt from special taxes under the Act. The District 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 Improvement Area No. 1 in which the FDIC has or obtains an interest, although prohibiting the lien of the Special Taxes 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, if enough property were to become owned by the FDIC, a default in payment on the Bonds. 60

69 Bankruptcy and Foreclosure Bankruptcy, insolvency and other laws generally affecting creditors 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 District 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. See SOURCES OF PAYMENT FOR THE BONDS Special Taxes Proceeds of Foreclosure Sales. 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 Acquisition and Construction Fund from being applied to pay interest on the Bonds and/or to redeem Bonds if bankruptcy proceedings were brought by or against a landowner or other party and if the court found that the landowner or other party had 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. 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. On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed after the filing of the bankruptcy petition were declared to be administrative expenses of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all the proceeds of the sale except the amount of the pre-petition taxes. The Bankruptcy Reform Act of 1994 (the Bankruptcy Reform Act ) included a provision which excepts from the Bankruptcy Code s automatic stay provisions, the creation of a statutory lien for an ad valorem property tax imposed by... a political subdivision of a state if such tax comes due after the filing of the petition [by a debtor in bankruptcy court]. This amendment effectively makes the Glasply holding inoperative as it relates to ad valorem real property taxes. However, it is possible that the original rationale of the Glasply ruling could still result in the treatment of post-petition special taxes as administrative expenses, rather than as tax liens secured by real property, at least during the pendency of bankruptcy proceedings. According to the court s ruling, as administrative expenses, post-petition taxes would be paid, assuming that the debtor had sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise), it would at that time become subject to current ad valorem taxes. The Act provides that the Special Taxes are secured by a continuing lien which is subject to the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect to how a bankruptcy court would treat the lien for Special Taxes levied after the filing of a petition in bankruptcy court. Glasply is controlling precedent on bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Taxes, the amount of Special Taxes received from parcels whose owners declare bankruptcy could be reduced. 61

70 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. No Acceleration Provision The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Indenture or in the event interest on the Bonds becomes included in gross income for federal income tax purposes. Pursuant to the Indenture, an owner is given the right for the equal benefit and protection of all owners of the Bonds similarly situated to pursue certain remedies described in APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE EVENT OF DEFAULT. Loss of Tax Exemption As discussed under the caption TAX MATTERS herein, interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued as a result of future acts or omissions of the District in violation of its covenants in the Indenture with respect to compliance with certain provisions of the Internal Revenue Code of Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed under the redemption provisions contained in the Indenture. 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 such Bonds can be sold for any particular price. Although the District has committed to provide certain statutorily required financial and operating information, there can be no assurance that such information will be available to Bondowners on a timely basis. See CONTINUING DISCLOSURE. Any failure to provide annual financial information, if required, does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating for the Bonds 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 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. The provisions of the Initiative as they may relate to community facilities district are subject to interpretation by the courts. The Initiative could potentially impact the Special Taxes available to the District to pay the principal of and interest on the Bonds as described below. Among other things, Section 3 of Article XIIIC 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 62

71 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. 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 District will covenant that it will not initiate proceedings under the Act to reduce the maximum Special Tax rates on parcels within Improvement Area No. 1 other than as authorized under the Indenture. The District will also covenant 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. The interpretation and application of Article XIIIC and Article XIIID 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. Shapiro Decision The California Court of Appeal, Fourth Appellate District, Division One, issued its opinion in City of San Diego v. Melvin Shapiro, et al. (D063997) (the San Diego Decision ). The case involved a Convention Center Facilities District (the CCFD ) established by the City of San Diego ( San Diego ). The CCFD is a financing district much like a community facilities district established under the provisions of the Act. The CCFD is comprised of all of the real property in San Diego. However, the special tax to be levied within the CCFD was to be levied only on hotel properties located within the CCFD. The election authorizing the special tax was limited to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was modeled after Section 53326(c) of the Act, which generally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special tax election was invalid under the California Constitution because Article XIIIA, Section 4 thereof and Article XIIIC, Section 2 thereof require that the electors in such an election be the registered voters within the district. The facts of the San Diego Decision show that there were thousands of registered voters within the CCFD (viz., all of the registered voters in San Diego). The election held in Improvement Area No. 1 had less than 12 registered voters at the time of the election to authorize the Special Tax. In the San Diego Decision, 63

72 the Court expressly stated that it was not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where there are fewer than 12 registered voters. Thus, by its terms, the Court s holding does not apply to the Special Tax election in Improvement Area No. 1. Moreover, Section of the Act provides that any action or proceeding to attack, review, set aside, void or annul the levy of a special tax shall be commenced within 30 days after the special tax is approved by the voters. Similarly, Section of the Act provides that any action to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving the issuance of such bonds. Based on Sections and of the Act and analysis of existing laws, regulations, rulings and court decisions, Bond Counsel is of the opinion that no successful challenge to the Special Tax being levied in accordance with the Rate and Method may now be brought. Ballot Initiatives Articles XIII A, XIII B, XIII C and XIII D were adopted pursuant to measures qualified for the ballot pursuant to California s constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. On March 6, 1995, in the case of Rossi v. Brown, the State Supreme Court held that an initiative can repeal a tax ordinance and prohibit the imposition of further such taxes and that the exemption from the referendum requirements does not apply to initiatives. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the legislature. The adoption of any such initiative or legislation 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 SLF or the builders within Improvement Area No. 1 to complete the remaining proposed development within Improvement Area No. 1. 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 Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditor s rights, by equitable principles and by the exercise of judicial discretion and by limitations on remedies against public agencies in the State of California. The Bonds are not subject to acceleration. 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. District Continuing Disclosure CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement (the District Continuing Disclosure Agreement ), the District will agree to provide, or cause to be provided, to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access (EMMA) website, or other repository authorized under Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission, certain annual financial information and operating data concerning Improvement Area No. 1. The District Reports are to be filed not later than March 31 of each year, beginning March 31, The District Reports will include the audited financial statements of the District, if any are prepared. The District does not currently prepare audited financial statements and does not anticipate doing so in the future. The full text of the District Continuing Disclosure Agreement is set forth in APPENDIX F FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT. 64

73 Notwithstanding any provision of the Indenture, failure of the District to comply with the District Continuing Disclosure Agreement shall not be an event of default under the Indenture. However, any Owner or Beneficial Owner of the Bonds may take such action as is necessary and appropriate, including seeking mandate or a judgment for specific performance, to cause the District to comply with its obligations with respect to the District Continuing Disclosure Agreement. The District has not entered into any prior continuing disclosure obligations. During the last five years, the City and certain of its related entities, have failed to comply in certain respects described below with continuing disclosure undertakings related to outstanding bonded indebtedness. The City and certain other entities related to the City, including the former Redevelopment Agency of the City of Chula Vista ( Former Agency ), various community facilities districts and joint powers authorities (together, the City Entities ), have entered into previous undertakings pursuant to the Rule. Within the last five years, the City and certain of the City Entities have failed to comply with their respective prior undertakings in the following respects: (i) notice of certain ratings changes relating to several issues resulting from changes in ratings on municipal bond insurance companies were not promptly filed and one notice of an underlying rating change was filed 37 days after the rating change occurred; (ii) with respect to the annual report due for Fiscal Year 2014 related to certain certificates of participation, the annual report was timely filed but did not include certain Fiscal Year 2015 budgeted information; and (iii) in certain cases information was timely filed on EMMA under the applicable base CUSIP number for the issuer but not linked to all of the individual CUSIP numbers for a series of bonds. The City has adopted policies and procedures regarding compliance with undertakings made by the City and the City Entities pursuant to the Rule and has retained the services of outside consultants to assist in the reporting process. The City s Finance Department has assigned a specific person to coordinate with the outside consultants and to monitor compliance. Developer Continuing Disclosure To provide updated information with respect to the developments within Improvement Area No. 1, each of Shea Homes, KB Home California, CalAtlantic and LMC Millenia Company will execute a Continuing Disclosure Certificate and SLF will execute a Continuing Disclosure Certificate with respect to each project area that it currently owns within Improvement Area No. 1 (each a Developer Continuing Disclosure Certificate ). In each Developer Continuing Disclosure Certificate, the applicable property owner will covenant to provide separate annual reports and semiannual reports until satisfaction of certain conditions set forth therein. Such periodic reports to be provided by such entities at such times and will contain updates regarding their respective development within Improvement Area No. 1 as provided in Section 3 and Section 4 of each Developer Continuing Disclosure Certificate attached as APPENDIX G. In addition to the periodic reports, each of such entities will agree to provide notices of certain events set forth in its Developer Continuing Disclosure Certificate. The termination of such reporting requirements varies among such continuing disclosure undertakings. See APPENDIX G hereto. SLF and LMC Millenia Company have not been subject to any continuing disclosure undertakings within the last five years in connection with the issuance of municipal obligations. Such entities expect to assign appropriate staff to prepare the periodic reports and notices, if any, as required by their respective Developer Continuing Disclosure Certificate. While Shea Homes and KB Home California and its parent company, have been subject to continuing disclosure undertakings in the last five years in connection with the issuance of municipal obligations, the divisions of Shea Homes and KB Home California that will be assigned responsibility for complying with their respective Developer Continuing Disclosure Certificate have not been responsible for any continuing disclosure undertakings within the last five years. Such entities expect to assign appropriate staff to prepare 65

74 the periodic reports and notices, if any, as required by their respective Developer Continuing Disclosure Certificate. CalAtlantic has been subject to continuing disclosure undertakings in the last five years in connection with the issuance of municipal obligations. CalAtlantic reports that in the last five years, CalAtlantic s San Diego division failed to comply with one of its continuing disclosure undertakings by failing to timely file a notice of termination of reporting requirement, which it subsequently filed. CalAtlantic expects to assign appropriate staff within its San Diego division to prepare the periodic reports and notices, if any, as required by its Developer Continuing Disclosure Certificate. Neither the District nor the Underwriter makes any representation as to compliance by Shea Homes, KB Home California and CalAtlantic or any of their respective affiliates with their prior continuing disclosure undertakings. 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. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. Bond Counsel notes that interest on the Bonds is not an item of tax preference for purposes of calculating the federal alternative minimum tax. 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 District, the Underwriter and others and is subject to the condition that the District complies with all requirements of the Code and the regulations adopted pursuant to the Code (the Treasury Regulations ) 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 and the Treasury Regulations 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 District will covenant in the Indenture and the Tax Certificate to be delivered in connection with the issuance of the Bonds 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 Indenture. Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Bond Owners from realizing the full current benefit of the tax status of such interest. For example, legislative proposals are announced from time to time which generally would limit the exclusion from gross income of interest on obligations like the Bonds to some extent for taxpayers who are individuals and whose income is subject to higher marginal income tax rates. Other proposals have been made that could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on obligations like the Bonds. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. 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 66

75 adversely affect the value or tax treatment of a Bond, and Bond Counsel expresses no opinion with respect thereto. Although Bond Counsel will render an opinion that interest on the Bonds is excluded from gross income for federal income tax purposes provided the District 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. A copy of the proposed form of Bond Counsel opinion is attached hereto as APPENDIX C. SUBSEQUENT TO THE ISSUANCE OF THE BONDS THERE MIGHT BE FEDERAL, STATE, OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY CHANGES TO OR INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE, OR LOCAL TAX TREATMENT OF THE BONDS. THESE CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE BONDS. IT IS POSSIBLE THAT LEGISLATIVE CHANGES WILL BE INTRODUCED WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME OR STATE TAX BEING IMPOSED ON OWNERS OF TAX- EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE BONDS STATUTORY CHANGES WILL NOT BE INTRODUCED OR ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT OCCUR HAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF THE BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE BONDS. LEGAL MATTERS The legal opinion of Best Best & Krieger LLP, San Diego, California, Bond Counsel, approving the validity of the Bonds in substantially the form set forth as APPENDIX C hereto, will be made available to purchasers at the time of original delivery. Certain legal matters will be passed upon for the District by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel and for the Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California, as counsel to the Underwriter. Bond Counsel expresses no opinion to the Owners of the Bonds as to the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the Bonds and expressly disclaims any duty to do so. ABSENCE OF LITIGATION No litigation is pending or, to the knowledge of the District, threatened concerning the validity of the Bonds and a certificate of the District to that effect will be furnished to the Underwriter at the time of the original delivery of the Bonds. Neither the City nor the District is aware of any litigation pending or threatened which questions the existence of the District or the City or contests the authority of the District to levy and collect the Special Taxes or to issue and retire the Bonds. NO RATING The District has not made and does not contemplate making application to any rating agency for the assignment of a rating to the Bonds. 67

76 UNDERWRITING The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the Underwriter ). The Underwriter has agreed to purchase the Bonds at a price of $12,945, (being $12,280, aggregate principal amount thereof, plus net original issue premium of $800, and less Underwriter s discount of $134,780.00). The purchase contract relating to the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the purchase contract, the approval of certain legal matters by counsel and certain other conditions. Under certain circumstances, the Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the offering prices stated on the page immediately following the cover page hereof. The offering prices may be changed from time to time by the Underwriter. FINANCIAL INTERESTS The fees being paid to the Underwriter, the Municipal Advisor to the City, the Fiscal Agent and Underwriter s Counsel are contingent upon the issuance and delivery of the Bonds. The fees being paid to Bond Counsel, Disclosure Counsel, the Appraiser, the Market Absorption Analyst and the Special Tax Consultant are not contingent upon the issuance and delivery of the Bonds. From time to time, Bond Counsel and Disclosure Counsel represent the Underwriter on matters unrelated to the Bonds. PENDING LEGISLATION The District is not aware of any significant pending legislation which would have material adverse consequences on the Bonds or the ability of the District to pay the principal of and interest on the Bonds when due. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations and summaries and explanations of the Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements and their provisions. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The execution and delivery of this Official Statement by the Director of Finance/Treasurer has been duly authorized by the City Council of the City of Chula Vista acting in its capacity as the legislative body of the District. COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) By: /s/ David Bilby Director of Finance/Treasurer 68

77 APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO. 1 A Special Tax shall be levied on all Taxable Property within the boundaries of Improvement Area No. 1 of Community Facilities District No. 16-I (Millenia) of the City of Chula Vista ( IA1 ) and collected each Fiscal Year commencing in Fiscal Year , in an amount determined by the CFD Administrator through the application of the procedures described below. All of the real property within IA1, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent, and in the manner herein provided. 1. DEFINITIONS The terms hereinafter set forth have the following meanings: 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. An Acre means 43,560 square feet of land. If the preceding maps for a land area are not available, the Acreage of such land area shall be determined by the City Engineer. 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 Expense Requirement means an annual amount equal to $75,000, or such lesser amount as may be designated by written instruction from an authorized representative of the City to the Fiscal Agent, to be allocated as the first priority of Special Taxes received each Fiscal Year for the payment of Administrative Expenses. Administrative Expenses means the following actual or reasonably estimated costs related to the administration of IA1 including, but not limited to: the costs of preparing and computing the Annual Special Tax (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 Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs to the City, CFD No. 16-I, 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. 16-I, or any designee thereof complying with disclosure or reporting requirements of the City or CFD No. 16-I, 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. 16-I, 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. 16-I for any other administrative purposes of CFD No. 16-I, including attorney s fees and other costs related to commencing and pursuing any foreclosure of delinquent Special Taxes. Annual Special Tax means the Special Tax actually levied in any Fiscal Year on any Assessor s Parcel. Assessor means the Assessor of the County of San Diego. Assessor s Parcel means a lot or parcel shown on an Assessor s Parcel Map with an assigned Assessor s Parcel Number. A-1

78 Assessor s Parcel Map means an official map of the Assessor designating parcels by Assessor s Parcel Number. Assessor s Parcel Number means the number assigned to an Assessor s Parcel by the County for purposes of identification. Assigned Special Tax means the Special Tax of that name described in Section 3.A below. Backup Special Tax means the Special Tax of that name described in Section 3.B below. Bonds means any bonds or other debt of CFD No. 16-I issued or incurred for IA1, whether in one or more series, secured by the levy of Special Taxes. Building Permit means a building permit for construction of a Residential Unit or non-residential structure within IA1 issued by the City. Building Square Footage means all of the square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, or similar area. The determination of Building Square Footage shall be made by the CFD Administrator by reference to the Building Permit(s) issued for such Assessor s Parcel and/or by reference to appropriate records kept by the City. Building Square Footage for a Residential Unit will be based on the Building Permit(s) issued for such Residential Unit prior to it being classified as Occupied Residential Property, and shall not change as a result of additions or modifications made to such Residential Unit after such classification as Occupied Residential Property. Calendar Year means the period commencing January 1 of any year and ending the following December 31. CFD Administrator means an authorized representative of the City, or designee thereof, responsible for determining the Special Tax Requirement, for preparing the Annual Special Tax roll and/or calculating the Backup Special Tax. CFD No. 16-I means the Community Facilities District No. 16-I (Millenia) of the City of Chula Vista. City means the City of Chula Vista, California. City Council means the City Council of the City acting as the legislative body of CFD No. 16-I under the Act. Condominium means a unit, whether attached or detached, meeting the statutory definition of a condominium contained in the California Civil Code Section County means the County of San Diego, 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 Provisional Property, for which a Building Permit was issued prior to March 1 of the previous Fiscal Year. An Assessor s Parcel classified as Developed Property but for which the Building Permit that caused such Assessor s Parcel to be classified as Developed Property has been cancelled and/or voided prior to the Fiscal Year for which Special Taxes are being levied shall be reclassified as Undeveloped Property, provided that the levy of the Annual Special Tax after such reclassification shall not be less than 1.1 times the annual Debt Service less Administrative Expenses on all Outstanding Bonds. If Bonds have not been issued, an Assessor s Parcel A-2

79 classified as Developed Property for which such a Building Permit has been cancelled and/or voided shall be reclassified as Undeveloped Property. Development Agreement means that certain Development Agreement by and between the City of Chula Vista and McMillin Otay Ranch LLC adopted October 6, 2009 and recorded with the County of San Diego s Recorder s office on October 27, 2009 as Document Number , as may be amended and/or supplemented from time to time. Exempt Property means for each Fiscal Year, all Assessor s Parcels designated as being exempt from Special Taxes pursuant to Section 5 below. Final Map means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section et seq.) or recordation of a condominium plan pursuant to California Civil Code 4285 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. Fiscal Agent means the fiscal agent, trustee, or paying agent under the Fiscal Agent Agreement. Fiscal Agent Agreement means the fiscal agent agreement, indenture, 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. IA1 means Improvement Area No. 1 of CFD No. 16-I. Land Use Class means any of the classes listed in Table 1, 2, or 3 under Section 3A below. Note: Land Uses Class is not in reference to a property s zoning designation. Lot(s) means an individual legal lot created by a Final Map for which a building permit for residential construction has been or could be issued. Notwithstanding the foregoing, in the case of an individual legal lot created by such a Final Map upon which Condominiums are entitled to be developed, the number of Lots allocable to such legal lot for purposes of calculating the Backup Special Tax applicable to such Final Map shall equal the number of Condominiums which are permitted to be constructed on such legal lot as shown on such Final Map. Master Developer means SLF IV-Millenia, LLC or its successors or assignees with as defined in the Development Agreement. Maximum Special Tax means for each Assessor s Parcel, the maximum Special Tax, determined in accordance with Sections 3.C and 3.D below, which may be levied in a given Fiscal Year on such Assessor s Parcel of Taxable Property. Non-Residential Property means all Assessor s Parcels of Developed Property for which a Building Permit has been issued for the purpose of constructing one or more non-residential units or structures. Occupied Residential Property means all Assessor Parcels of Residential Property for which title is held by an end user (homeowner). Outstanding Bonds means all Bonds which are deemed to be outstanding under the Fiscal Agent Agreement. A-3

80 Prepayment Amount means the amount required to prepay the Special Tax Obligation in full for an Assessor s Parcel as described in Section 8.A below. Property Owner Association Property means any Assessor s Parcel within the boundaries of IA1 owned in fee by a property owner association, including any master or sub-association. Proportionately or Proportionate means for Developed Property, that the ratio of the actual Special Tax levy to the applicable Assigned Special Tax or Backup Special Tax is equal for all Assessor s Parcels of Developed Property. For Undeveloped Property, Proportionately means that the ratio of the actual Special Tax levy per Acre to the Maximum Special Tax per Acre is equal for all Assessor s Parcels of Undeveloped Property. Proportionately may similarly be applied to other categories of Taxable Property as listed in Section 3 below. Provisional 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 5, 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 5. Public Property means any property within the boundaries of IA1, 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 of the Act shall be taxed and classified in accordance with its use. Residential Property means all Assessor s Parcels of Developed Property for which a Building Permit has been issued for the purpose of constructing one or more Residential Units. Residential Unit means each separate residential dwelling unit that comprises an independent facility capable of conveyance or rental, separate from adjacent residential dwelling units. Special Tax means any special tax levied within IA1 pursuant to the Act and this Rate and Method of Apportionment of Special Tax. Special Tax Obligation means the total obligation of an Assessor s Parcel of Taxable Property to pay the Special Tax for the remaining life of IA1. Special Tax Requirement means that amount required in any Fiscal Year to: (i) pay regularly scheduled Debt Service on all Outstanding Bonds; (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 an increase in the Special Tax to be levied on Undeveloped Property; and (vi) pay for reasonably anticipated delinquent Special Taxes based on (a) the average delinquency rate for special taxes levied in the previous Fiscal Year in all community facilities districts within the portion of the City commonly known as Otay Ranch for the first Fiscal Year in which Special Taxes are levied and (b) the delinquency rate for Special Taxes levied in the previous Fiscal Year within IA1 for all subsequent Fiscal Years in which Special Taxes are levied; less (vii) a credit for funds available to reduce the Annual Special Tax levy, as determined by the CFD Administrator pursuant to the Fiscal Agent Agreement. State means the State of California. Taxable Property means all of the Assessor s Parcels within the boundaries of CFD, which are not exempt from the levy of the Special Tax pursuant to law or Section 5 below. A-4

81 Undeveloped Property means, for each Fiscal Year, all Taxable Property not classified as Developed Property or Provisional Property. Zone A means the specific geographic area designated as such within IA1 and as depicted in Exhibit A attached hereto. Zone B means the specific geographic area designated as such within IA1 and as depicted in Exhibit A attached hereto. Zone C means the specific geographic area designated as such within IA1 and as depicted in Exhibit A attached hereto. 2. LAND USE CLASSIFICATION Each Fiscal Year, beginning with Fiscal Year , each Assessor s Parcel within IA1 shall be classified as Taxable Property or Exempt Property. In addition, all Taxable Property shall further be classified as Developed Property, Undeveloped Property or Provisional Property, and all such Taxable Property shall be subject to the levy of Special Taxes in accordance with this Rate and Method of Apportionment of Special Tax determined pursuant to Sections 3 and 4 below. Furthermore, each Assessor s Parcel of Developed Property shall be classified according to its applicable Land Use Class based on its Building Square Footage. For Assessor s Parcels of Non-Residential Property developed with Condominiums (e.g., office or industrial condos), the Acreage applicable to each such Condominium for purposes of levying Special Taxes shall be computed from the Acreage of the legal lot created by the Final Map upon which such Condominiums are entitled to be developed, with the Acreage of such lot allocated to each Condominium on a pro-rata basis using the building square footage of such Condominium relative to the total building square footage of all Condominiums entitled to be developed on such lot. The determination of building square footage for each non-residential Condominium shall be made by reference to the applicable Building Permit, and to the extent a Building Permit has not been issued for all Condominiums to be located on the applicable legal lot, the building square footage attributable to any such Condominiums shall be determined from the recorded condominium plan, or applicable site plan, plot plan, or other appropriate records kept by the City as reasonably determined by the CFD Administrator. In the event the City takes ownership of a Condominium within IA1 and such property in all other respects meets the definition of Public Property as set forth in Section 1, such property shall be exempt from Special Taxes pursuant to Section SPECIAL TAX RATES A. Assigned Special Tax for Developed Property The Assigned Special Tax applicable to an Assessor s Parcel classified as Developed Property commencing Fiscal Year shall be determined pursuant to Table 1, 2, or 3 below, as applicable. A-5

82 Land Use Class Table 1 Assigned Special Tax Rates for Developed Property within Zone A Land Use Type Building Square Footage Assigned Special Tax 1 Residential Property < 1,500 $1,352 per Residential Unit 2 Residential Property 1,500 2,200 $1,661 per Residential Unit 3 Residential Property > 2,200 $1,799 per Residential Unit 4 Non-Residential Property N/A $6,000 per Acre Land Use Class Table 2 Assigned Special Tax Rates for Developed Property within Zone B Land Use Type Building Square Footage Assigned Special Tax 1 Residential Property < 1,500 $1,350 per Residential Unit 2 Residential Property 1,500 2,200 $1,451 per Residential Unit 3 Residential Property > 2,200 $1,649 per Residential Unit 4 Non-Residential Property N/A $6,000 per Acre Land Use Class Table 3 Assigned Special Tax Rates for Developed Property within Zone C Land Use Type Building Square Footage Assigned Special Tax 1 Residential Property < 1,500 $1,350 per Residential Unit 2 Residential Property 1,500 2,200 $1,451 per Residential Unit 3 Residential Property > 2,200 $1,649 per Residential Unit 4 Non-Residential Property N/A $6,000 per Acre On each July 1, commencing July 1, 2017, the Assigned Special Tax for Developed Property shall be increased by two percent (2.00%) of the amount in effect in the prior Fiscal Year. A-6

83 B. Backup Special Tax for Developed Property When a Final Map or a condominium plan is recorded within Zone A, Zone B, or Zone C the Backup Special Tax for Assessor s Parcels of Developed Property classified as Residential Property shall be determined as follows: For each Assessor s Parcel of Residential Property or for each Assessor s Parcel of Undeveloped Property to be classified as Residential Property upon its development within the Final Map area, the Backup Special Tax for Fiscal Year shall be the rate per Lot calculated according to the following formula: Zone A $27,502 x A B = L Zone B $29,057 x A B = L Zone C $6,316 x A B = L The terms have the following meanings: B = A = L = Backup Special Tax per Lot Acreage classified or to be classified as Residential Property in such Final Map. The land area applicable to a Condominium shall be computed from the Acreage of the Lot on which the Condominium is located, with the Acreage for such Lot allocated equally among all of the Condominiums located or to be located on such Lot. For a Final Map, the number of Lots which are classified or to be classified as Residential Property. For each Assessor s Parcel of Developed Property classified as Non-Residential Property or for each Assessor s Parcel of Undeveloped Property to be classified as Non-Residential Property within the Final Map area, the Backup Special Tax for Fiscal Year shall be determined by multiplying $27,502 for Zone A, $29,057 for Zone B and $6,316 for Zone C by the total Acreage of any such Assessor s Parcel. Notwithstanding the foregoing, if Assessor s Parcels of Residential Property, Non-Residential Property or Undeveloped Property for which the Backup Special Tax has been determined are subsequently changed or modified by recordation of a new or amended Final Map, then the Backup Special Tax applicable to such Assessor s Parcels shall be recalculated to equal the total amount of Backup Special Tax that would have been generated if such change did not take place. On each July 1, commencing July 1, 2017, the Backup Special Tax applicable to each Assessor s Parcel of Taxable Property shall be increased by two percent (2.00%) of the amount in effect in the prior Fiscal Year. A-7

84 C. Maximum Special Tax for Developed Property Each Fiscal Year, the Maximum Special Tax for an Assessor s Parcel of Developed Property shall be the greater of the applicable Assigned Special Tax or Backup Special Tax. D. Maximum Special Tax for Provisional Property and Undeveloped Property The Maximum Special Tax for Provisional Property and Undeveloped Property commencing in Fiscal Year shall be $27,502 per Acre for Zone A, $29,057 per Acre for Zone B, and $6,316 per Acre for Zone C. On each July 1, commencing July 1, 2017, the Maximum Special Tax for Provisional Property and Undeveloped Property shall be increased by two percent (2.00%) of the amount in effect in the prior Fiscal Year. E. Multiple Land Use Classes In some instances an Assessor s Parcel of Developed Property may contain more than one Land Use Class. The Maximum Special Tax that may be levied on such an Assessor s Parcel shall only be levied on the Residential Property Land Use Class located on such Assessor s Parcel. F. Administrative Special Tax Reduction Prior to the issuance of Bonds, the Assigned Special Tax, Backup Special Tax, and Maximum Special Tax (collectively the Special Tax Rates ) on Taxable Property may be reduced in accordance with, and subject to the conditions set forth in this paragraph. Upon the City s receipt of a written request from Master Developer and the CFD Administrator, the Special Tax Rates on Taxable Property may be reduced to a level which will provide not less than the sum of estimated Administrative Expense Requirement and one hundred ten percent (110%) of the estimated debt service with respect to the amount of Bonds requested to be issued in such written request. If it is reasonably determined by the CFD Administrator that the total effective tax rate on Residential Property, as determined in accordance with the Development Agreement, exceeds the maximum level allowed in the Development Agreement, the Special Tax Rates may be reduced to the amount necessary to satisfy the maximum allowable effective tax rate requirement on Residential Property with the written consent of Master Developer, which consent shall not be unreasonably withheld, and the CFD Administrator. It shall not be required that reductions among each Building Square Footage range of Residential Property be proportional. Additionally, the CFD Public Facilities Costs amount in Section 8 shall be reduced commensurate with any reductions to the Special Tax Rates pursuant to this paragraph, as reasonably determined by the CFD Administrator. A certificate in substantially the form attached hereto as Exhibit B shall be used for purposes of evidencing the required written consent and effectuating the reduction to the Special Tax Rates. The reductions permitted pursuant to this paragraph shall be reflected in an amended Notice of Special Tax Lien which the City shall cause to be recorded. 4. METHOD OF APPORTIONMENT For each Fiscal Year, commencing Fiscal Year , the CFD Administrator shall levy the Special Tax on all Taxable Property in accordance with the following steps: Step 1: The Special Tax shall be levied Proportionately on each Assessor s Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax to satisfy the Special Tax Requirement; A-8

85 Step 2: If additional monies are needed to satisfy the Special Tax Requirement after Step 1 has been completed, the Special Tax shall be levied Proportionately on each Assessor s Parcel of Undeveloped Property up to 100% of the Maximum Special Tax for Undeveloped Property; Step 3: If additional monies are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then the Special Tax amount determined in Step 1 shall be increased Proportionately on each Assessor s Parcel of Developed Property up to 100% of the Maximum Special Tax for Developed Property. Step 4: If additional monies are needed to satisfy the 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 Property up to 100% of the Maximum Special Tax for Provisional Property; Notwithstanding the above, under no circumstances will the Special Tax levied in any Fiscal Year against any Assessor s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased as a result of a delinquency or default in the payment of the Special Tax applicable to any other Assessor s Parcel within IA1 by more than ten percent (10%) above what would have been levied in the absence of such delinquencies or defaults. 5. EXEMPTIONS 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 which are used as places of worship and are exempt from ad valorem property taxes because they are owned by a religious organization, and (iv) Assessor s Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement, provided that no such classification would reduce the sum of all Taxable Property in IA1 to less than 9.53 Acres for Zone A, Acres for Zone B, or Acres for Zone C. Assessor s Parcels which cannot be classified as Exempt Property because such classification would reduce the sum of all Taxable Property in IA1 to less than 9.53 Acres for Zone A, Acres for Zone B, or Acres for Zone C, shall be classified as Provisional Property and will continue to be subject to the IA1 Special Taxes accordingly. Tax exempt 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. 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 5 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. 6. APPEALS Any landowner who pays the Special Tax and claims the amount of the Special Tax levied on his or her Assessor s Parcel is in error shall first consult with the CFD Administrator regarding such error not later than thirty-six (36) months after first having paid the first installment of the Special Tax that is disputed. If following such consultation the CFD Administrator determines that an error has occurred, then the CFD Administrator shall take any of the following actions, in order of priority, in order to correct the error: (i) (ii) Amend the Special Tax levy on the landowner s Assessor s Parcel(s) for the current Fiscal Year prior to the payment date, Require the CFD to reimburse the landowner for the amount of the overpayment to the extent of available CFD funds, or A-9

86 (iii) Grant a credit against, eliminate or reduce the future Special Taxes on the landowner s Assessor s Parcel(s) in the amount of the overpayment. If following such consultation and action by the CFD Administrator the landowner believes such error still exists, such person may file a written notice of appeal with the City Council. Upon the receipt of such notice, the City Council or designee may establish such procedures as deemed necessary to undertake the review of any such appeal. If the City Council or designee determines an error still exists, the CFD Administrator shall take any of the actions described as (i), (ii) and (iii) above, in order of priority, in order to correct the error. The City Council or designee thereof shall interpret this Rate and Method of Apportionment of Special Tax for purposes of clarifying any ambiguities and make determinations relative to the administration of the Special Tax and any landowner appeals. The decision of the City Council or designee shall be final and binding as to all persons. 7. COLLECTION OF SPECIAL TAXES Collection of the Annual Special Tax shall be made by the County in the same manner as ordinary ad valorem property taxes are collected and the Annual 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 City 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 Annual Special Taxes. 8. PREPAYMENT OF SPECIAL TAX OBLIGATION A. Prepayment in Full Property owners may prepay and permanently satisfy the Special Tax Obligation by a cash settlement with the City as permitted under Government Code Section The following definitions apply to this Section 8: CFD Public Facilities Costs means $12,550,000 or such lower number as (i) shall be determined by the CFD Administrator as sufficient to acquire or construct the facilities to be financed under the Act and financing program for IA1, or (ii) shall be determined by the City Council concurrently with a covenant that it will not issue any more Bonds (except refunding bonds). Construction Fund means the fund (regardless of its name) established pursuant to the Fiscal Agent Agreement to hold funds, which are currently available for expenditure to acquire or construct the facilities or pay fees authorized to be funded by CFD No. 16-I for IA1. Future Facilities Costs means the CFD Public Facilities Costs minus (i) costs previously paid from the Construction Fund to acquire or construct the facilities, (ii) monies currently on deposit in the Construction Fund, and (iii) monies currently on deposit in an escrow or other designated fund that are expected to be available to finance CFD Public Facilities Costs. Outstanding Bonds means all Previously Issued Bonds, which remain outstanding as of the first interest and/or principal payment date following the current Fiscal Year excluding Bonds to be redeemed at a later date with proceeds of prior Special Tax prepayments. Previously Issued Bonds means all Bonds that have been issued prior to the date of prepayment. The Special Tax Obligation applicable to an Assessor s Parcel of Developed Property, or Undeveloped Property for which a Building Permit has been issued may be prepaid and the obligation to pay the Special Tax for such Assessor s Parcel permanently satisfied as described herein, provided A-10

87 that a prepayment may be made with respect to a particular Assessor s Parcel only if there are no delinquent Special Taxes with respect to such Assessor s Parcel at the time of prepayment. An owner of an Assessor s Parcel eligible to prepay the Special Tax Obligation shall provide the CFD Administrator with written notice of intent to prepay, and designate or identify the company or agency that will be acting as the escrow agent, if any. The CFD Administrator shall provide the owner with a statement of the Prepayment Amount for such Assessor s Parcel within thirty (30) days of the request, and may charge a reasonable fee for providing this service. Prepayment must be made at least 60 days prior to any redemption date for the Bonds to be redeemed with the proceeds of such prepaid Special Taxes, unless a shorter period is acceptable to the Fiscal Agent and the City. The Prepayment Amount (defined below) shall be calculated for each applicable Assessor s Parcel or group of Assessor s Parcels as summarized below (capitalized terms as defined below): Bond Redemption Amount plus Redemption Premium plus Future Facilities Prepayment Amount plus Defeasance Amount plus Prepayment Administrative Fees and Expenses less Reserve Fund Credit less Capitalized Interest Credit Total: equals Prepayment Amount As of the proposed date of prepayment, the Prepayment Amount (defined in Step 14 below) shall be calculated as follows: Step No.: 1. Confirm that no Special Tax delinquencies apply to such Assessor s Parcel. 2. For Assessor s Parcels of Developed Property, determine the Maximum Special Tax. For Assessor s Parcels of Undeveloped Property for which a Building Permit has been issued, compute the Maximum Special Tax for that Assessor s Parcel as though it was already designated as Developed Property, based upon the Building Permit which has already been issued for that Assessor s Parcel. 3. Divide the Maximum Special Tax computed pursuant to paragraph 2 by the total expected Maximum Special Tax revenue for IA1 assuming all Building Permits have been issued (build-out) within IA1, excluding any Assessor s Parcels for which the Special Tax Obligation has been previously prepaid. 4. Multiply the quotient computed pursuant to paragraph 3 by the Outstanding Bonds and round that number up to the nearest $5,000 increment to compute the amount of Outstanding Bonds to be retired and prepaid for all applicable Assessor s Parcels (the Bond Redemption Amount ). 5. Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium (expressed as a percentage), if any, on the Outstanding Bonds to be redeemed at the first available call date (the Redemption Premium ). 6. Compute the Future Facilities Costs. A-11

88 7. Multiply the quotient computed pursuant to paragraph 3 by the amount determined pursuant to paragraph 6 to compute the amount of Future Facilities Costs to be prepaid (the Future Facilities Prepayment Amount ). 8. Compute the amount needed to pay interest on the Bond Redemption Amount from the first bond interest and/or principal payment date following the current Fiscal Year until the expected redemption date for the Outstanding Bonds which, depending on the Fiscal Agent Agreement, may be as early as the next interest payment date. 9. Compute the amount the CFD Administrator reasonably expects to derive from the reinvestment of the Prepayment Amount less the Future Facilities Prepayment Amount and the Prepayment Administrative Fees from the date of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the prepayment. 10. Subtract the amount computed in paragraph 9 from the amount computed in paragraph 8 (the Defeasance Amount ). 11. Calculate the administrative fees and expenses of CFD No. 16-I for IA1, including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming the Outstanding Bonds to be redeemed with the prepayment, and the costs of recording any notices to evidence the prepayment and the redemption (the Prepayment Administrative Fees ). 12. If reserve funds for the Outstanding Bonds, if any, are at or above 100% of the reserve requirement (as defined in the Fiscal Agent Agreement) on the prepayment calculation date, a reserve fund credit shall be calculated as a reduction in the applicable reserve fund for the Outstanding Bonds to be redeemed pursuant to the prepayment (the Reserve Fund Credit ). No Reserve Fund Credit shall be granted if, after the Prepayment Amount is calculated, reserve funds are below 100% of the reserve requirement after taking into account such prepayment. 13. If any capitalized interest for the Outstanding Bonds will not have been expended at the time of the first interest and/or principal payment following the current Fiscal Year, a capitalized interest credit shall be calculated by multiplying the quotient computed pursuant to paragraph 3 by the expected balance in the capitalized interest fund after such first interest and/or principal payment (the Capitalized Interest Credit ). 14. The amount to prepay the Special Tax Obligation is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 10, and 11, less the amounts computed pursuant to paragraphs 12 and 13 (the Prepayment Amount ). 15. From the Prepayment Amount, the sum of the amounts computed pursuant to paragraphs 4, 5, and 10, less the amounts computed pursuant to paragraphs 12 and 13 shall be deposited into the appropriate fund as established under the Fiscal Agent Agreement and be used to retire Outstanding Bonds or make Debt Service payments. The amount computed pursuant to paragraph 7 shall be deposited into the Construction Fund. The amount computed pursuant to paragraph 11 shall be retained by CFD No. 16-I. The Prepayment Amount may be sufficient to redeem an amount other than a $5,000 increment of Bonds. In such cases, the increment above $5,000 or integral multiple thereof will be retained in the appropriate fund established under the Fiscal Agent Agreement to redeem Bonds to be used with the next prepayment of Bonds. A-12

89 The CFD Administrator will confirm that all previously levied Special Taxes have been paid in full. With respect to any Assessor s Parcel for which the Special Tax Obligation is prepaid in full, once the CFD Administrator has confirmed that all previously levied Special Taxes have been paid, the City Council shall cause a suitable notice to be recorded in compliance with the Act, to indicate the prepayment of the Special Tax Obligation and the release of the Special Tax lien on such Assessor s Parcel, and the obligation of the owner of such Assessor s Parcel to pay the Special Tax shall cease. Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the aggregate amount of Maximum Special Taxes less the Administrative Expense Requirement that may be levied on Taxable Property, respectively, after the proposed prepayment is at least 1.1 times the Debt Service on all Outstanding Bonds in each Fiscal Year. B. Partial Prepayment The Special Tax on an Assessor s Parcel of Developed Property or Undeveloped Property for which a Building Permit has been issued may be partially prepaid. The amount of the prepayment shall be calculated as in Section 8.A.; except that a partial prepayment shall be calculated according to the following formula: These terms have the following meaning: PP = (PE-A) x F+A PP = the partial prepayment PE = the Prepayment Amount calculated according to Section 8.A F = the percentage by which the owner of the Assessor s Parcel(s) is partially prepaying the Special Tax Obligation A = the Prepayment Administrative Fees and Expenses from Section 8.A The owner of any Assessor s Parcel who desires such partial prepayment shall notify the CFD Administrator of (i) such owner s intent to partially prepay the Special Tax Obligation, (ii) the percentage by which the Special Tax Obligation 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 owner with a statement of the amount required for the partial prepayment of the Special Tax Obligation for an Assessor s Parcel within sixty (60) days of the request and may charge a reasonable fee for providing this service. With respect to any Assessor s Parcel that is partially prepaid, the City shall (i) distribute the funds remitted to it according to Section 8.A., and (ii) indicate in the records of CFD No. 16-I for IA1 that there has been a partial prepayment of the Special Tax Obligation and that a portion of the Special Tax with respect to such Assessor s Parcel, equal to the outstanding percentage ( F) of the Maximum Special Tax, shall continue to be levied on such Assessor s Parcel. Notwithstanding the foregoing, no partial prepayment shall be allowed unless the aggregate amount of Maximum Special Taxes less the Administrative Expense Requirement that may be levied on Taxable Property, respectively, after the proposed partial prepayment is at least 1.1 times the Debt Service on all Outstanding Bonds in each Fiscal Year. 9. TERM OF SPECIAL TAX The Special Tax shall be levied as long as necessary to meet the Special Tax Requirement for a period not to exceed forty (40) Fiscal Years commencing with Fiscal Year A-13

90 EXHIBIT A A-14

91 EXHIBIT B CITY OF CHULA VISTA AND CFD NO. 16-I CERTIFICATE 1. Pursuant to Section 3F of the Rate and Method of Apportionment of Special Tax (the RMA ), the City of Chula Vista (the City ) and Community Facilities District No. 16-I of the City of Chula Vista ( CFD No. 16-I ) hereby agree to a reduction in the Special Tax for Developed Property, Undeveloped Property, and/or Provisional Property: (a) The information in the RMA relating to the Special Tax for Developed Property, Undeveloped Property, and Provisional Property shall be modified as follows: [insert Table 1, 2, and/or 3 showing revised Assigned Special Tax rates for Developed Property, insert revised Backup Special Tax rates for Developed Property by Zone, and insert change to Maximum Special Tax rates for Undeveloped Property and Provisional Property by Zone] (b) The CFD Public Facilities Costs in Section 8 shall be changed to $. 2. Special Tax rates for Taxable Property may only be modified prior to the issuance of Bonds. 3. Upon execution of the Certificate by the City and CFD No. 16-I the City shall cause an amended Notice of Special Tax Lien for IA1 to be recorded reflecting the modifications set forth herein. By execution hereof, the undersigned acknowledges, on behalf of the City of Chula Vista and CFD No. 16-I, receipt of this Certificate and modification of the RMA as set forth in this Certificate. CITY OF CHULA VISTA By: CFD Administrator Date: COMMUNITY FACILITIES DISTRICT NO. 16-I OF THE CITY OF CHULA VISTA By: Date: A-15

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93 APPENDIX B-1 APPRAISAL REPORT

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95 APPRAISAL REPORT COMMUNITY FACILITIES DISTRICT 16-I IMPROVEMENT AREA NO. 1 (MILLENIA) OTAY RANCH, CHULA VISTA Chula Vista, California (Appraisers File No ) Prepared For City of Chula Vista 276 Fourth Avenue Chula Vista, California Prepared By Kitty Siino & Associates, Inc. 115 East Second Street, Suite 100 Tustin, California 92780

96 KITTY SIINO & ASSOCIATES, INC. REAL ESTATE APPRAISERS & CONSULTANTS May 23, 2018 David Bilby, Director of Finance/Treasurer City of Chula Vista 276 Fourth Avenue Chula Vista, California Reference: Appraisal Report Community Facilities District No. 16-I Improvement Area 1 (Portion of) Millenia, Otay Ranch Northwest Corner of Hunte and Eastlake Parkways Chula Vista, California Dear Mr. Bilby: At the request and authorization of the City of Chula Vista, we have completed an Appraisal Report of Improvement Area No. 1 of Community Facilities District No. 16-I of the City of Chula Vista ( CFD No. 16-I IA 1 ) which consists of a portion of the residential neighborhoods and commercial land known as Millenia in Otay Ranch. The master developer of Millenia is a related entity to Meridian Development with active on-site builders/developers being Shea Homes, Cal Atlantic Homes, KB Home and a related entity to Chesnut Properties. Millenia is proposed for a total of about 3,000 multi-family high density residential units and 75 acres of commercial use. Improvement Area No. 1, which is the subject of this appraisal, consists of 393 proposed residential units, 53 of which have closed to individuals as of February 1, 2018, with the remaining residential lands ranging from builder-owned model homes and standing inventory to homes under construction to mass graded pads. In addition, there are two commercial sites within Improvement Area 1. The valuation methods used in this report are the Sales Comparison Approach and a Discounted Cash Flow Analysis along with a mass appraisal technique for the existing homes as defined within this report. The fee simple estate of the subject property has been valued subject to the lien of CFD No. 16-I IA 1. This report is written with the special assumption that the subject properties are enhanced by the improvements to be funded by and the fee credits to be received as a result of the issuance of the Special Tax Bonds of CFD No. 16-I IA East Second Street, Suite 100, Tustin, California (714) Phone, (714) Fax, kssiino@msn.com

97 David Bilby City of Chula Vista May 23, 2018 Page Two As a result of our investigation, the concluded minimum market value for the subject property is: (Portion of) Millenia: SLF-IV-Millenia, LLC Ownership $ 6,030,000 LMC-Millenia Inv. Company, L.P. Ownership 4,000,000 CalAtlantic Ownership 3,900,000 KB Home Ownership 8,750,000 Shea Homes Ownership 14,520,500 Individually Owned Homes Minimum Market Value $ 25,027,554 Aggregate Value for CFD No. 16-I IA 1 $ 62,228,054 The values are stated subject to the Assumptions and Limiting Conditions, the Hypothetical Condition and the Extraordinary Assumptions of this report, the Appraiser s Certification and are as of February 1, Some supporting documentation concerning the data, reasoning and analyses may be retained in the appraiser s files. The information contained in this report is specific to the needs of the client and for the intended use stated in this report. This Appraisal Report is intended to comply with both the Uniform Standards of Professional Appraisal Practice ( USPAP January 2016) and with the Appraisal Standards of the California Debt and Investment Advisory Commission ( CDIAC ). The appraiser is not responsible for unauthorized use of this report. This letter of transmittal is part of the attached report, which sets forth the data and analyses upon which our opinion of value is, in part, predicated. Respectfully submitted, KITTY SIINO & ASSOCIATES, INC. Larry W. Heglar, MAI Kitty S. Siino, MAI California State Certified General Real Estate Appraiser (AG004793)

98 TABLE OF CONTENTS Assumptions and Limiting Conditions... i Hypothetical Condition and Extraordinary Assumptions...iii Aerial Photo of Millenia including CFD No I Improvement Area 1...iv Purpose of the Appraisal... 1 The Subject Property... 1 Intended Use of the Report... 2 Definitions... 2 Property Rights Appraised... 6 Effective Date of Value... 7 Date of Report... 7 Scope of Appraisal... 7 Regional Area Map County of San Diego Area Description City of Chula Vista Area Description Otay Ranch and Immediate Area Surroundings Description Community Facilities District No. 16-I Subject Property Descriptions San Diego County Housing and Office Markets Highest and Best Use Analysis Valuation Analyses and Conclusions Appraisal Report Summary Appraiser s Certification ADDENDA CFD No. 16-I Improvement Area 1 Boundary Map Map Nos , 15942, 16150, Adjustment Plat and Shea and KB Site Plans Builder-Owned Homes Discounted Cash Flow Analyses Finished Lot Land Sales Map and Summary Chart Commercial Land Sales Map and Summary Chart Improved Residential Sales Map and Summary Chart Appraisers Qualifications

99 ASSUMPTIONS AND LIMITING CONDITIONS 1. This report might not include full discussions of the data, reasoning and analyses that were used in the appraisal process to develop the appraiser s opinion of value. Some supporting documentation concerning the data, reasoning and analyses may be retained in the appraiser s files. The information contained in this report is specific to the needs of the client and for the intended use stated in this report. The appraiser is not responsible for unauthorized use of this report. 2. No responsibility is assumed for legal or title considerations. Title to the property is assumed to be good and marketable unless otherwise stated in this report. 3. It is assumed that the subject property is subject to the special tax lien of CFD No. 16-I IA Responsible ownership and competent property management are assumed unless otherwise stated in this report. 5. The information furnished by others is believed to be reliable; however, no warranty is given for its accuracy. 6. All engineering is assumed to be correct. Any plot plans and illustrative material used in this report are included only to assist the reader in visualizing the property and may not be to scale. 7. It is assumed that there are no hidden or unapparent conditions of either property, subsoil or structures that would render them more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them. 8. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws unless otherwise stated in this report. 9. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless nonconformity has been stated, defined and considered in this appraisal report. 10. It is assumed that all required licenses, certificates of occupancy or other legislative or administrative authority from any local, state or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report are based. 11. Any sketch or photograph included in this report may show approximate dimensions and is included only to assist the reader in visualizing the properties. Maps, photographs and exhibits found in this report are provided for reader reference Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page i

100 purposes only. No guarantee regarding accuracy is expressed or implied unless otherwise stated in this report. No survey has been made for the purpose of this report. 12. It is assumed that the utilization of the land and improvements (if any) are within the boundaries or property lines of the property described and that there is no encroachment or trespass unless otherwise stated in this report. 13. The appraiser is not qualified to detect hazardous waste and/or toxic materials. Any comment by the appraiser that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualified expert relating to asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials that may affect the value of the property. The appraiser s value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value unless otherwise stated in this report. No responsibility is assumed for any environmental conditions or for any expertise or engineering knowledge required to discover them. The appraiser s descriptions and resulting comments are the result of the routine observations made during the appraisal process. 14. Proposed improvements, if any, are assumed to be completed in a good workmanlike manner in accordance with the submitted plans and specifications. 15. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings, if any, must not be used in conjunction with any other appraisal and are invalid if so used. 16. The Americans with Disabilities Act ( ADA ) became effective on January 26, 1992 and has been updated several times since then. The appraiser has made no specific compliance survey and analysis of the property to determine whether they conform to the various detailed requirements of the ADA, nor is the appraiser a qualified expert regarding the requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the ADA. If so, this fact could have a negative effect upon the value of the property. Since the appraiser has no direct evidence relating to this issue, a possible noncompliance with requirements of the ADA in estimating the value has not been considered. 17. It is assumed there are no environmental concerns that would slow or thwart development of the subject properties and that the soils are adequate to support the highest and best use conclusions. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page ii

101 18. It is assumed that the sales information provided by Shea Homes is true and accurate. We have reviewed and analyzed the sales along with checking samples on various public record documents and the information appears to be correct. 19. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser, and in any event, only with proper qualification and only in its entirety. Permission is given for this appraisal to be published as a part of the Official Statement or similar document for the San Diego County CFD No. 16-I IA 1 Special Tax Bonds. HYPOTHETICAL CONDITION 1. It is assumed that all improvements and benefits to the subject properties, which are to be funded by the City of Chula Vista CFD No. 16-I IA 1 Special Tax Bond proceeds, are completed and in place. EXTRAORDINARY ASSUMPTIONS 1. It is assumed that the remaining costs to develop the various neighborhoods and the planned non-residential property within the subject property are true and correct. We have received summarized remaining costs provided by Meridian, the master developer and the builders and/or their consultants. We have reviewed these costs and they appear reasonable, however, we are not experts in the cost estimating field and are relying on these costs in the valuation. If actual remaining costs differ, it may change the value conclusions. 2. It is assumed that the master developer commences construction on Orion Park and Strata Park prior to the builders reaching their applicable occupancy thresholds. This is anticipated per the master builder. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page iii

102 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page iv

103 PURPOSE OF THE APPRAISAL The purpose of this appraisal report is to estimate the value of the fee simple interest of the subject property, subject to the special tax lien of the City of Chula Vista CFD No. 16- I Improvement Area No. 1 Special Tax Bonds. THE SUBJECT PROPERTY The subject property consists of 393 proposed residential units and two commercial parcels within Millenia, a village within Otay Ranch in the City of Chula Vista. The entire Millenia project is expected to include about 3,000 proposed residential units and 75 acres of proposed commercial development. Chula Vista CFD 16-I Improvement Area 1, the subject of this report includes six planning areas within Millenia, four designated for residential use and two designated for commercial use. Within the residential parcels, Lot 1 of Map has been subdivided into separate Assessor Parcels; however, Lots 11, 14 and 17 of Tract have not been subdivided by the Assessor at this time. The ownership and condition of the lands is detailed below. Description No. Lots Ownership Condition/Status Element by Shea Homes (portion of Lot 1 of Map 16150) Units , 171, Individuals Completed Houses / Closed Units of Tract 4 Shea Model Homes Units 170, 172, 175 & Shea Homes over 95% Complete (4 In escrow) Units Shea Homes U/C (12 In escrow) Units and of Tract 20 Shea Finished Lots (5 in escrow) Subtotal Element 70 Z by Shea Homes (portion of Lot 1 of Map 16150) Units 41-42, 44-50, and Individuals Complete Houses / Closed Units Shea Model Homes Unit 43 and Shea Homes over 95% complete (0 in escrow). Lot 93/94 in model complex and not released Unit Shea Homes U/C (10 in escrow) Unit 1-40, 51-60, 71-74, and Shea Finished Lots (0 in escrow) Subtotal Z 106 Skylar by KB Home (generally Lot 14 of Tract No ) Units Unit 5 and 6 2 KB Home Model Homes Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 1

104 Units 8-10 and KB Home Homes U/C (1 in escrow) Units 1-4, 7, 11-61, KB Home Partially F/L (2 in escrow Subtotal KB Home 79 CalAtlantic (generally Lot 17 of Tract Map 16081) Units CalAtlantic Land under development Meridian Lot 11 of Tract SLF IV- Superpad Millenia LLC Commercial Parcels Lot 7 of Tract N/A LMC Acre Superpad Millenia Inv. Co. LP Lot 1 of Tract N/A SLF IV Acre Superpad Millenia LLC Total Lots 393 INTENDED USE OF THE REPORT It is the appraiser s understanding that the client, the City of Chula Vista, will utilize this report in disclosure documents related to the sale of the Special Tax Bonds of CFD No. 16-I IA 1. This report may be included in the Official Statement or similar document to be distributed in connection with the marketing and offering of the bonds. It is the appraiser s understanding that there are no other intended uses of this report. DEFINITIONS Market Value The term Market Value as used in this report is defined as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; 3. a reasonable time is allowed for exposure in the open market; Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 2

105 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. 1 Inherent in the Market Value definition is exposure time or the time the subject property would have been exposed on the open market prior to the appraisal in order to sell at the concluded values. In the case at hand and considering current market conditions the exposure time for each individually owned property, each builder s owned property or the master developer owned property in a bulk sale, is less than one year. Aggregate Retail Proceeds As used in the Discounted Cash Flow Analysis, Aggregate Retail Proceeds is defined: The sum of the appraised values of the individual units, as if all of the units were completed and available for retail sale, at date of value. The sum includes an allowance for lot premiums, when applicable. This is not the market value of the project in bulk. Bulk Value Bulk Value is defined as: The value of a group of lots, parcels, or homes to a single purchaser, on a specified date, under the terms and conditions of the definition of market value. Discounted Cash Flow (DCF) Analysis A Discounted Cash Flow Analysis is: The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analysis specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate. Subdivision Development Method The Subdivision Development Method is: 1 The Appraisal of Real Estate, 13 th Edition Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 3

106 A method of estimating land value when subdivision and development are the highest and best use of the parcel of land being appraised. When all direct and indirect costs and entrepreneurial incentive are deducted from an estimate of the anticipated gross sales price of the finished lots, the resultant net sales proceeds are then discounted to present value at a market-derived rate over the development and absorption period to indicate the value of the raw land. Exposure Time The Definition of Exposure Time within this report is: The time a property remains on the market. It is the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. Finished Lot The term Finished Lot is defined as: A parcel which has legal entitlements created by a recorded subdivision map, whose physical characteristics are a fine graded level pad per lot with infrastructure contiguous to each individual lot, asphalt paved roads and the necessary utilities. This term assumes the payment of all applicable development fees with the exception of building permit and plan check fees. Finished Pad The term Finished Pad is defined as: A parcel which has legal entitlements created by a condominium map, whose physical characteristics are a fine graded level pad with infrastructure contiguous to each individual unit, asphalt paved roads and the necessary utilities. This term assumes the payment of all applicable development fees with the exception of building permit and plan check fees. Gross Site Area Gross Site Area is defined as: The area that typically includes the entire boundary of a parcel, including future dedication, slopes and easements. Sometimes includes to the centerline of adjacent public roadways even though purchase of the parcel may be to the sidelines. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 4

107 Minimum Market Value The term Minimum Market Value as used in this report is defined as: The base market value of a new home. That is, most buyers purchase some upgrades, options and/or lot premiums when purchasing a new home. The sales price for the new home typically includes the base price for the plan, plus any upgrades, options or lot premiums, less concessions, if any, which were given or paid for by the builder. The concluded minimum market value is for the base value of the plan only, not taking into consideration any upgrades, options or premiums. Mass Appraisal The term Mass Appraisal as used in this report is defined as: The process of valuing a universe of properties as of a given date using standard methodology employing common data and allowing for statistical testing 2 In the case at hand, the statistical testing included reviewing all original builder sales and reviewing the Multiple Listing Service ( MLS ) for any re-sales and/or listings of each plan type. In addition, we have determined the actual range of sales prices for each plan type which will be utilized in the valuation process. The search of the MLS resulted in no current listings and no re-sales within the subject property other than builder listings. Super Pad A superpad is defined within this report as: A mass graded pad which is created in order to create earthwork balances within future subdivision parcels. Requires additional grading prior to building construction, may require additional mapping and may require additional entitlements. A rough-graded site with roads and utility lines extended to the boundary of the parcel. Hypothetical Condition The Term Hypothetical Condition is defined by USPAP as: That which is contrary to what exists but is supposed for the purpose of the analysis 2 USPAP Edition Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 5

108 The Hypothetical Condition within this report is that subject property is enhanced by the improvements and/or fee credits to be funded by bonds issued by CFD No. 16-I IA 1. Extraordinary Assumptions The term extraordinary assumption is defined by USPAP as: An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser s opinions or conclusion There are two extraordinary assumptions in this report. The first extraordinary assumption in this report is that the reported remaining costs as received from the builders and master developer or their consultants are true and accurate. We have reviewed the costs and they appear reasonable, however, we are not experts in the field of cost estimating. It should be noted that these costs were relied upon in the valuation of the subject property and if the costs change, the values may change. The second extraordinary assumption is that the master developer commences construction of Orion Park and Strata Park in a timely manner which does not limit occupancy on the Shea Homes or KB Home parcels. Until the parks are complete, Shea Homes is limited to 100 certificates of occupancy and KB Home is limited to 65 certificates of occupancy. Per the master developer, they expect to commence construction prior to the respective merchant builders reaching the applicable occupancy thresholds which appears reasonable. PROPERTY RIGHTS APPRAISED The property rights being appraised are of a fee simple estate interest, subject to easements of record and subject to CFD No. 16-I IA 1. The definition of fee simple estate is defined as: Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 6

109 absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. 3 EFFECTIVE DATE OF VALUE The subject properties are valued as of February 1, The date of this report is May 23, DATE OF REPORT SCOPE OF APPRAISAL The purpose of this appraisal is to report the appraiser s best estimate of the market value for the subject property, CFD No. 16-I IA 1, which is known as a portion of Millenia. Millenia is being developed by SLF-IV Millenia LLC into a mixed-use master planned community previously known as the Otay Ranch Eastern Urban Center (EUC) which is a portion of Otay Ranch Village 12. Meridian Development has been contracted to manage all aspects of the remaining lands. The entire Millenia project is proposed for about 3,000 residential units, 75 acres of commercial use and 80 acres of public use while the subject property includes four proposed residential neighborhoods totaling 393 units and two commercial parcels. Three of the four residential parcels are sold to builders, one of the commercial parcels is sold and the other in escrow. This appraisal will be presented in the following format: County of San Diego Description Otay Ranch Description Immediate Surroundings / Millenia Description Brief Description of City of Chula Vista CFD 16-I IA 1 Subject Property Descriptions San Diego County Residential and Commercial Market Analysis Highest and Best Use Analysis 3 The Appraisal of Real Estate, 13 th Edition Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 7

110 Valuation Procedure, Analyses and Conclusions Appraisal Report Summary In valuing the subject property, the value estimates will be based upon the highest and best use conclusion using the Sales Comparison Approach along with a Development Analysis (also known as Subdivision Development Method). The Sales Comparison Approach to value is defined as: a set of procedures in which a value indication is derived by comparing the property being appraised to similar properties that have been sold recently, then applying appropriate units of comparison and making adjustments to the sales prices of the comparables based on the elements of comparison. The Sales Comparison Approach may be used to value improved properties, vacant land or land being considered as though vacant; it is the most common and preferred method of land valuation when an adequate supply of comparable sales is available. 4 In the Sales Comparison Approach, market value is estimated by comparing properties similar to the subject that have recently been sold, are listed for sale or are under contract. Neither a cost or income approach was utilized as they were not considered necessary to arrive at credible results. A Discounted Cash Flow Analysis will also be completed for the builder-owned homes. Finally, we will also utilize a mass appraisal technique which included reviewing all builder sales and searching the MLS for any re-sales and/or listings. The due diligence of this appraisal report included the following: 1. Compiled demographic information and related that data to the subject properties to perform a feasibility/demand analysis. 2. Gathered and analyzed information on the subject marketplace, reviewed several real estate brokerage publications on historical and projected growth in the subject market and researched the micro and macro-economic outlook within San Diego County and the Harmony Grove area. 3. Inspected the subject properties between January 15, 2018 and February 7, Had the site flown by an aerial photographer on January 28, Dictionary of Real Estate Appraisal, Fourth Edition, 2002 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 8

111 5. Interviewed representatives and or consultants from Meridian Development in order to obtain Millenia information. 6. Reviewed the Eastern Urban Center Sectional Planning Area ( SPA ) Plan. 7. Reviewed the Millenia Bond Issue Request Letter dated October 31, 2017 for status of other projects within Millenia. 8. Reviewed a Preliminary Title Report on Lots 1, 7, 11, 14 and 17 of Tract No (Lots 14 and 17 adjusted by Chula Vista Adjustment Plat No ) and a Preliminary Title Report on Lot 9 of Map Reviewed a Final EIR for the subject property. 10. Searched the area for relevant comparable residential land sales, inspected and verified each sale with a buyer or seller or broker familiar with the transaction. 11. Searched the area for relevant comparable commercial land sales, inspected and verified each sale with a buyer or seller or broker familiar with the transaction. 12. Searched the area for relevant comparable new home residential projects, including sales prices and concessions and interviewed representatives from each comparable project. 13. Reviewed sales brochures on the subject neighborhoods. 14. Reviewed developer sales information on each home. 15. Reviewed Multiple Listing Service information to determine if there are any re-sales, pending sales or listings of existing homes. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 9

112 Regional Map Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 10

113 COUNTY OF SAN DIEGO AREA DESCRIPTION General Surroundings The subject property is located in the City of Chula Vista in the southwestern most portion of the County of San Diego (the County ). The County is located in the southwest corner of the State of California bordering Mexico on the south, Imperial County is to the east, and Riverside and Orange Counties are to the north. The Pacific Ocean is its western border. The County has approximately 4,525 square miles (325 square miles of which is water) and includes terrain from ocean beaches to foothills to mountains and deserts. San Diego County has 70 miles of coastline and the climate ranges from Mediterranean to semi-arid. Population The San Diego region experienced faster growth rates than most of California during the past several decades. In 2009 the County had a larger population than 20 of the 50 states. The County has experienced an increasing growth pattern for the past fifty years. Between January 1990 and January 2000, the population grew from 2,480,072 to 2,813,833 or an annual average growth of approximately 1.15 percent per year. According to the California Department of Finance, the January 2017 population for the County is estimated at 3,316,192 suggesting an average annual increase of 0.97 percent for these seventeen years, which displays a slightly slower rate of population growth than the previous 10 years. The slowdown in growth appears to be due to the recession which began in the mid-2000s. Current projections from San Diego Association of Governments (SANDAG) estimates the county population will increase to 3,435,713 by 2020 (a 1.18 percent annual increase over the next three years), and 3,853,698 by 2035 (a percent annual increase over the following fifteen years). Transportation Four major interstate freeways bisect the County; these are Interstate 5, Interstate 15, Interstate 8 and Interstate 805. Interstate 5 is the major north/south arterial throughout Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 11

114 the State of California. It generally follows the coastal route in the San Diego County area. Interstate 15 is also a north/south arterial; however, it is located inland and through the more mountainous regions of the County. Interstate 8 provides east/west access through the southern portion of the County, while Interstate 805 generally parallels Interstate 5 beginning near Del Mar providing a third north/south route between I-15 and I-5. The subject area is served by State Route 125, a toll road giving access to the inland areas of southern San Diego County east of I-15 beginning in Santee about 15 miles north through the communities of El Cajon, La Mesa, Lemon Grove, La Presa and Chula Vista and on to the national border with Mexico where it becomes State Route 905. The County is well served with train service by Amtrak, Metrolink and the regional Coaster. In addition, downtown San Diego has a trolley which provides access around the downtown area and to the Mexican border. Air service is provided by San Diego International Airport (approximately 15 miles northwest), Palomar Airport in Carlsbad (approximately 40 miles north) and Brown Field, three miles south of the subject in Otay Mesa near the Mexican border. Economy As with the rest of the nation, San Diego County experienced a strong multi-year recession, now referred to as the Great Recession, between 2006 and The County, which had strong employment over the ten previous years saw unemployment rates increase significantly between December 2006 and early 2010 at which time a leveling off occurred followed by continued decreases which began in July The unemployment rate for the County was estimated at 3.3 percent (per the Employment Development Department December 2017), which reflects a rate lower than the low peak prior to the recession, however a significant decrease from the peak during the recession of 11.0 percent in The current unemployment rate for the County of 3.3 percent is lower than the California rate of 4.2 percent and lower than the December 2017 national rate of 3.9 percent. Below is a table depicting San Diego County in relationship to unemployment rates of the surrounding counties: Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 12

115 Jurisdiction As of Unemployment Rate Los Angeles County 12/17 4.2% Riverside County 12/17 4.3% San Bernardino County 12/17 3.9% Orange County 12/17 2.8% San Diego County 12/17 3.3% Source: State of California E.D.D. Over the past 20 years, the San Diego County economy has had significant cycles with home prices almost doubling from 1995 to 2005, then falling by over 50 percent during the Great Recession taking prices back to 2002/03 levels. Home values appeared to hit bottom in 2009 then remained essentially flat for two to three years with the majority of the San Diego County housing market seeing an improvement beginning in mid-2012 with 2013 showing significant appreciation in both the number of sales and pricing. Between 2014 and 2016 the San Diego County housing market saw a slight slowdown in the double-digit growth seen in 2013 with sales of homes appearing to stabilize while prices of homes are still enjoying growth within the County, however at more normal rates in the annual single-digit range. The past year has seen exceptional growth in building permits being issued in San Diego County for single-family detached homes. The Federal Government attempted to correct the struggling economy by implementing several economic stimulus packages during the Great Recession. The Federal Reserve Board ( Board ) has kept interest rates below historical averages dropping rates to zero in December 2008 until the December 2015 Board meeting when interest rates were raised one quarter of a percent. In 2017, the Board increased its benchmark interest rate by a total of three quarters of a point, raising it one quarter point each hike. Most economists opine that there will be three interest rate increases in This signifies the possibility for robust growth nationally. Unlike the 2008 to 2015 decisions to maintain the rates at zero, hikes are anticipated for the foreseeable future depending on the U.S. economy and global growth. While the U.S. economy has been growing, concerns of global weakness have emerged. The European Central Bank began its own quantitative easing in the summer of 2015 while growth in China had been slowing for a couple years with a correction in China s stock market of 40 percent followed by a devaluation of their Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 13

116 currency, also in summer of The summer of 2016 brought BREXIT (Britain s exit of the European Union) which created some volatility in the stock market. In addition, oil prices plunged between 2013 and 2016, then rose in While lower oil prices give U.S. consumers more money, lower prices affect U.S. oil companies and their workers along with other oil dependent countries. Until these global concerns stabilize, it appears the Board will not raise interest rates to more normal levels but rather stay near historical lows. The 2016 election of Donald Trump into the United States Presidency is anticipated to have a profound effect on the economy. While the Trump Administration aims to positively affect the national economy with plans to roll back financial regulations, implement tax cuts, enact new taxes on imports, and increase infrastructure spending, the national and international skepticism of the new Administration s economic policy is abundant. While the new Administration is suggesting there will be immediate economic changes, time will tell how quickly these changes occur. With the December 2017 adoption of the Tax Cuts and Job Act ( TCJA ), uncertainty is proliferating as the Country enters While the TCJA aims to save taxes and spur the economy, there are some limitations which may negatively affect real estate, particularly in California. It is too early to know how the TCJA will affect homeowners at this time. California s labor markets make it easy to understand why the mid-2000s downturn is being called the Great Recession. After peaking at million non-farm jobs in June 2007, the state shed over 1.33 million non-farm positions by February Since hitting bottom, California has now added back million jobs for a total of million nonfarm jobs as of December 2017, per the California Employment Development Department. This well surpasses the previous peak, however, there are a high number of part-time jobs included in this number. According to the most recent UCLA Anderson Forecast ( Forecast December 6, 2017), there is a mixed outlook on the economy. For the nation, the near-term outlook is optimistic anticipating 3.0 percent growth in 2018, however by the end of 2019 it is Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 14

117 believed real GDP growth could be running at a rate below 1.5 percent. The Forecast states the momentum coming from the recent strength in 2017 of strong equipment spending, the likelihood (now certainty) of a tax cut and consumer confidence, will carry through The Forecast also discusses that defense spending will likely be on the rise over the next several years, increasing by 2.7 percent in 2018 and 2019 respectively. Possible risks include the consequences of the Fed s reducing its balance sheet and the potential failure of the ongoing NAFTA negotiations (which would hit the U.S. automobile industry). If the US leaves NAFTA, the outlook would deteriorate and the chance of a recession in late 2018 or 2019 would increase. The Forecast states that in order to Make America Great Again, we need to solve three problems: (1) how to increase the rate of growth of the working age population; (2) how to increase the rate of growth of hours by making more of the new jobs full-time and not part-time; and (3) how to increase the rate of growth of productivity in the nation. In discussing the national housing outlook, the Forecast notes that the housing industry continues to slowly grind higher as it has since the cyclical bottom in The puzzling thing about the slow recovery is that it is occurring against a backdrop of modest economic and employment growth as well as a sustained period of very low mortgage interest rates. Explanations for the long, slow recovery in housing include slow income growth, much tighter credit standards and the millennial generation s reluctance to making long-term commitments. In addition, regressive zoning and environmental regulations have played a role in reducing the overall supply of housing. The Forecast anticipated household formations averaged 1.2 million per year from 2012 to 2017, and are forecast to accelerate to about 1.5 million in 2018 and 2019, well above the forecast of the number of units. The UCLA California Forecast for December 2017 explains the State Forecast differs from the National Forecast in two ways. First, the new tax bill may dampen the California housing market which would reduce economic growth in the state. Second the investment incentive (bringing forward investment because of expensing) increases the forecasted growth rate for employment and income in 2018, though reduces it slightly by Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 15

118 the end of The Forecast states California s unemployment rate will fall to 4.6 percent by the end of the forecast period (2019), however the current rate is below that benchmark at 4.2 percent. The Forecast states that homebuilding in California will continue at about 118,000 units per year. Southern California s increasingly expensive and unaffordable home prices (particularly for first-home buyers) is making it tough for both buyers and renters. Housing market research suggests that limited supply is one of the major causes of high home prices in coastal California. According to the Forecast, despite its stronger economic recovery, California has relatively limited housing supply because of its stringent regulations (such as CEQA California Environmental Quality Act as well as a NIMBY- not in my back yard culture). Also, it should be noted that the December Forecast was done prior to the approval of the Tax Cuts and Jobs Act. Brad Kemp, Beacon Economics Director of Regional Research says Southern California was hit harder during the Great Recession due to the impact of housing. Median housing prices (all types) increased over 100 percent in San Diego County changing from $250,000 in 1997 to $517,500 in November Now median existing single-family home sale prices have surpassed the pre-recession high and are $605,000 for December 2017 per the California Association of Realtors. New home prices are significantly higher than existing sales with the average new San Diego County home in the subject s submarket $860,660 and the average new condominium price in the submarket is $671,577. Foreclosures, which played a big part in housing sales during the Great Recession, are no longer playing a noticeable part in the San Diego real estate market. Commercial real estate appears to have hit bottom in 2010 with local absorption levels returning to positive territory in 2012 and generally growth since that time. Office vacancy rates appear to have stabilized in 2012 with rents rising since Retail vacancies which grew during the Great Recession have generally leased up with retail construction occurring once again. This is evidenced by the successful Otay Ranch Town Center Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 16

119 adjacent to the north of Millenia along with commercial land sales and escrows within Millenia. Conclusion Population in the County has increased over the past 30 years with predictions for continued population growth. The nation s economy stalled starting in 2006 due to the housing downturn, unemployment and the credit crisis. The housing market saw a resurgence beginning the second half of 2012 with prices and sales increasing by double digits thru 2013 with pricing growth slowing to more normal levels and sales essentially flat until 2017 when both sales and prices began increasing substantially once again. The economy typically has cycles and most signs are suggesting the U.S. economy is on an upswing. However, unlike previous recovering economies housing growth has been slow to come back. While the new Administration is suggesting there will be changes in the economy, time will tell how fast the changes actually occur. The year 2017 brought a new optimism from economists in terms of Southern California s housing market with single family building permits increasing substantially over 2016 with 2018 projected for an even larger increase. In conclusion, the County is expected to continue to grow in population due to its Southern California location and the availability of land. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 17

120 CITY OF CHULA VISTA The subject property is located in the City of Chula Vista ( City ), located in the southern portion of San Diego County. Chula Vista is the second largest city in San Diego County, bordered by the San Diego Bay and Coronado to the west, Imperial Beach to the southwest, the California-Mexico border to the south, unincorporated area to the East, Lemon Grove to the north, and National City to the northwest. The City contains an estimated 50.1 square miles of land with Mediterranean and semi-arid climates. San Diego County averages 10 inches of precipitation annually. Rain occurs mainly between the months of December and March. Elevation ranges from sea level to 1,591 feet. The City is located 7 miles southeast of downtown San Diego. The City of Chula Vista was incorporated in In 1997, the City annexed 9,100 acres, the largest annexation in County history. Below is a map outlining the City with the black star representing the approximate site of the subject property. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 18

121 The City began as a 5,000-acre development with the first house being built in 1887 and by 1889, having 10 homes on the development. The completion of the Sweetwater Dam in 1888 permitted irrigation after which Chula Vista became, for a while, the largest lemongrowing center in the world. This agriculture base helped the city get through the Great Depression. Agriculture does not continue to be as important to the City as it once was as now over 250,000 people reside in Chula Vista. Population Chula Vista is the second largest City in San Diego County. As of January 1, 2017, the City had a population of 267,917, which is a 1.1 percent increase from the January 2016 estimate of 264,911. Since the year 2000 Chula Vista has experienced almost a 50 percent population increase indicating a very rapid growth in the population over the past 15 years, although it appears to be slowing. Between 2000 and 2010 the City population increased an average annual growth rate of 3.46 percent while between 2010 and 2016 the rate slowed to just over one percent per year showing the effects of the Great Recession. In 2016 Chula Vista was one of California s top 10 cities with the largest numerical change of cities with a population under 300,000. The City of Chula Vista has a median age of 34 years old with roughly 60% of the homes in the area owner-occupied. Economy Chula Vista has been undergoing business expansion and attraction while collaborating with Baja California officials to create an environment for economic growth and prosperity. The City established economic development initiatives that have created quality infrastructure, a strong consumer base and a well-educated and experienced workforce. The City has two major malls besides the Otay Ranch Town Center and the historic downtown shopping district. Otay Ranch Town Center has more than 100 top specialty stores. According to the City s 2015/2016 Comprehensive Annual Financial Report (latest available for review), the top employers in the City are as reported on the following page. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 19

122 Employer No. of Employees Sweetwater Union High School District 4,385 Chula Vista Elementary School District 3,245 Rohr Inc./Goodrich Aerostructures 2,468 Sharp Chula Vista Medical Center 2,131 Southwestern College 1,409 Wal-Mart 1,239 City of Chula Vista 1,195 Scripps Mercy Hospital Chula Vista 1,098 Costco 760 Aquatica 513 Education The City is home to two school districts, one elementary level and one high school level. The Chula Vista Elementary School District is the largest kindergarten through sixth grade district in the State of California with 49 campuses. Wolf Canyon Elementary will be serving the subject property. Sweetwater Union High School District serves as the primary secondary school district. In addition Mater Dei Catholic High School is located within Otay Ranch (two miles east of subject) along with the Chula Vista Academy of the Arts Charter School (K-8 th on Mater Dei campus). Southwestern College is a community college in the city located about two and one-half miles north of the subject. It serves approximately 19,000 students annually. Transportation The City is served by a large network of freeways and highways that include I-5 along the western edge of the City, which runs south to Tijuana and north to Los Angeles and onto Northern California. The I-805 serves as a bypass to the I-5. State Route 54 and State Route 125 serve as highways to East County cities. The San Diego International Airport serves as the city s primary commercial airport. The airport is twelve miles northwest of the city. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 20

123 Summary In summary, the City of Chula Vista experienced substantial growth in the last 20 years with future growth predicted. The City will play a significant role in the region s growth and is emerging as the hub of civic and cultural activity in South San Diego County. As the second largest City in the County and historically one of the fastest growing cities in the nation coupled with the business-friendly atmosphere, the are many opportunities for both growing businesses and growing families in the City of Chula Vista. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 21

124 OTAY RANCH AND IMMEDIATE SURROUNDINGS The Otay Ranch is a 5,300-acre pedestrian friendly master planned community located in the eastern portion of the City of Chula Vista. Otay Ranch and the City planned a village planning concept which provides urban villages that are approximately one-mile square with distinct features defined by an open space system and major arterial streets. The village planning promotes pedestrian-oriented villages providing essential facilities and services to be located in each village core. The highest density residential is located in each core and residential densities decrease towards each village perimeter. Below is a map showing the overall Otay Ranch with the black star showing the location of the project property. The Millenia project in Otay Ranch consists of approximately 206 acres of mixed-use development that is bounded by Birch Road on the north, Eastlake Parkway on the east, Hunte Parkway on the south and the State Route 125 Freeway (South Bay Expressway) on the west. It is fully entitled for about 3,000 residential uses and up to 3.4 million square Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 22

125 feet of commercial and civic uses. Commercial development is to consist of retail, office and hospitality land uses. Current, existing development within the Millenia Village consists of a variety of residential and commercial projects. Below is an artist rendition of Millenia with the subject sites identified by blue stars and proposed development summarized on the table. Name Product Status DU/SF Acres Density Pulse Apts. Fully 273 DU 9.28 Ac 29.4/Ac Leased Volta & Duetta Affordable Open 210 DU 4.02 Ac 52.2/Ac Apts. Evo, Metro & Trio Townhome Open 217 DU 12.8 Ac 17.0/Ac Element by Shea Homes SFD Open 70 DU Ac* 17.2/Ac* Z by Shea Homes SFA Open 106 DU Ac* 17.2/Ac* Skylar by KB Home SFA Open 79 DU 7.27 Ac 10.9/Ac CalAtlantic Homes SFA Under 78 DU 3.74 Ac 20.9/Ac Const. Lot 11 SFA Proposed 60 DU 3.07 Ac 19.54/Ac Alexan by Trammel Crow Apts. Under 309 DU 9.25 Ac 33.4/Ac Const. Sudberry Retail Retail Proposed 131,000 SF 9.85 Ac N/A Ayres Hotel Hotel Under 2.51 Ac N/A Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 23

126 Const. Invent Office Proposed 700,000 SF Ac N/A Think Office Proposed 324,100 SF 7.06 N/A Civic District Proposed N/A 8.54 Ac N/A Esplanade, Trammell Crow Apts. Proposed 253 DU 8.27 Ac 30.6/Ac Future Development Sites N/A Future N/A N/A N/A *Combined Acreage. Immediately north of Millenia, on the north side of Birch Road is a large retail center known as the Otay Ranch Town Center. Major tenants include Macy s, Anthropologie, DSW Shoes, AMC Theatres, H & M, Victoria s Secret, Bath & Body Works, Barnes & Noble, Aldo, Sephora, Jos. A. Bank, Best Buy and REI. Restaurants include Panera Bread, Cheesecake Factory, Panda Express and Jersey Mike s Subs. North of this retail area and along the northerly side of Olympic Parkway is another retail center with Home Depot, Walmart, Walgreens, Chase Bank and Chevron. Also, at this location, on the south side of Olympic Parkway is a new, Residence Inn by Marriott. Further north are residential neighborhoods consisting of both single family detached and attached product along with Eastlake High School, Eastlake Country Club and other community related facilities. Southwestern College (the local community college) is located about two miles northwest. North of Chula Vista are the communities of Lemon Grove, Springs Valley, Rancho San Diego and El Cajon. Most areas east of Millenia consist of existing residential neighborhoods with both single family detached and attached homes. The Summit at Eastlake is a neighborhood retail center at the southeast corner of Eastlake Parkway and Birch Road. It is anchored by a Von s market with supporting tenants that include a Denny s restaurant, In-and-Out Burger and Bank of America. Windingwalk at Otay Ranch is an attached residential project located adjacent to the retail center and there is a large vacant land parcel at the northeast corner of Eastlake Parkway and Hunte Parkway. Approximately two miles to the east and adjacent of Lower Otay Lake is the U.S. Olympic Training Center. It is on 155 acres and includes living and dining facilities with almost 300 beds as well as the training facilities. There are six, natural grass athletic fields as well as other training facilities for athletes. It is one of three such facilities in the country. Most of the land east Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 24

127 of Otay Lakes consists of vacant unincorporated land. An ecological preserve totaling 11,375 acres is located just east of Otay Lakes. Land southerly of Millenia is also vacant and proposed for the future Otay Ranch Villages 8 and 9 immediately to the south. Immediately to the southeast is a university site containing 375 acres of land owned by the City of Chula Vista that are also within the Otay Ranch master plan. This proposed university is projected for 20,000 students and would offer cross border programs. The Otay River basin is just over one mile south and Brown Field Municipal Airport about two miles south. The international border with Mexico is about 4.5 miles south and the Tijuana Airport, known as General Abelardo I. Rodriguez International Airport, is adjacent to the border and parallels Brown Field. There are two international border crossings nearby. One at the termination of Interstate 805 and the other at the termination of State Route 905. State Route 125, known as the South Bay Expressway, is a toll road that forms the westerly boundary of Millenia. On and off-ramps at Birch Road provide immediate access to Millenia as well as areas to the east and west. Just west of the toll road are existing residential neighborhoods of Village 6 and Village 7 of Otay Ranch in Chula Vista. Several schools are located just west of SR 125 including Olympic High School, East Hills Academy and Mater Dei Catholic High School. Otay Ranch Village 2 is also located west of SR 125 with seven new home neighborhoods and Village 3 which is also known as Escaya is about three miles west and has twenty-seven new home models offered for sale within nine neighborhoods. Of the nine projects currently offering product for sale seven are larger, single family detached programs that don t compete directly with the subject product. The remaining two projects are attached products. Interstate 805 is about 4.5 miles to the west and is a major freeway connecting with the international border to the south and combining with Interstate 5 to the north. I-5 travels through the City of San Diego, and the cities of Imperial Beach and National City. Major U.S. Navy facilities including North Island Naval Air Station are located in San Diego Bay. San Diego International Airport, also known as Lindbergh Field, is less than twelve miles northwest. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 25

128 Millenia is in the path of growth in inland area of southwestern San Diego County. It is in the heart of the Otay Ranch Master Plan Community with an urbanized development plan that will be within walking distance to employment, retail shopping and recreation. Immediate Surroundings As described, Millenia is a village within the larger master planned community of Otay Ranch. The community is accessible via SR 125, Birch Road, Olympic Parkway and Eastlake Parkway, all major improved streets providing access into Millenia. Adjacent to the north is the Freeway Commercial area within Otay Ranch which has been developed into the Otay Ranch Town Center. Adjacent to the west is Village 11 which was developed in the early 2000s while to the south are the future villages of Otay Ranch Village 8 and 9. SR 125 forms the western border of Millenia beyond which is the existing Otay Ranch Village 7 which is nearing build-out. Within Millenia there are existing apartments, new homes, both attached and detached for sale, over 1,000,000 planned square feet of office space, a new hotel and a 135,000 square foot retail center under construction. Millenia is master planned as a walking neighborhood making walking to restaurants, shops, parks, the library, on scenic trails the emphasis of the community. As discussed and shown under the previous section, the subject property refers to six parcels that are scattered throughout the community. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 26

129 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I A Resolution of Intention to form City of Chula Vista CFD No. 16-I (Millenia) was approved via Resolution No by the City Council on August 26, At that time a CFD Report was prepared by Willdan Financial Services which included a brief description of CFD No. 16-I; a brief description of the facilities required at the time of formation to meet the needs of CFD No. 16-I; a brief description of the boundaries of CFD 16-I and an estimate of the cost of financing the bonds used to pay for the facilities. The types of facilities eligible to be financed by CFD 16-I include street and bridge improvements, sidewalks, trails, medians, traffic signalization and signage, street lights, utilities, storm water collection and conveyance facilities, off-site storm detention and treatment facilities, park and recreation facilities, fire facilities and equipment, library facilities and equipment, transit facilities, fiber optic telecommunication system facilities, general governmental office, administrative and meeting facilities, bus and rapid transit facilities and land, rights of way and easements necessary for any of such facilities. The proposed maximum authorized bonded indebtedness for CFD No. 16-I is $20,000,000 for Improvement Area No. 1 (subject of this report) and $21,000,000 for Improvement Area No. 2 (anticipated future bonds). The proceeds of CFD No. 16-I will be used to fund public facilities as described above. At time of the CFD Report, the estimated cost of such facilities was approximately $94.4 million, thus the CFD will not generate sufficient funds to finance all of the costs. Any facilities costs not covered by CFD bond proceeds and special taxes will remain the responsibility of the developer. The CFD Report also included the Rate and Method of Apportionment (RMA) which provides sufficient information to allow a property owner within CFD No. 16-I to estimate the Maximum Special Tax for his or their property. Per the latest sources and uses report (dated February 13, 2018), CFD No. 16-I Improvement Area 1 bonds are anticipated to fund $11,616,514 in Project Fund Deposits by a bond par amount estimated at $13,240,000 with $1,197,961 in capitalized interest and debt service reserve fund and $415,000 in issuance costs and underwriter s discount. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 27

130 SUBJECT PROPERTY DESCRIPTIONS The subject property consists of a portion of the community known as Millenia in the master planned community of Otay Ranch in the City of Chula Vista. Below is a map showing all of Millenia with the six subject parcels identified by different colored stars. Color ID Lot/Tract Number Ownership Acres Units Black Star Lot 1/16081 SLF IV Millenia N/A LLC(Meridian) Lt. Blue Star Lot 7/16081 LMC-Millenia Inv N/A Company L.P. Orange Star Lot 11/16081 SLF IV Millenia LLC(Meridian) Green Star Lot 1/16150 Shea Homes Yellow Star Lot 14/16081 KB Home Dk Blue Star Lot 17/16081 CalAtlantic Each of the ownerships will be described on the following pages. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 28

131 SLF IV - Millenia LLC Ownership SLF IV Millenia LLC is the master developer ownership entity and has contracted with Meridian Development to act as development manager. SLF IV Millenia LLC holds title to the two parcels shown below which are described in this section. Location: Legal Property Description: Parcel 1 (Black Star): North side of Optima Street between Millenia Avenue and SR 125, Millenia, Otay Ranch, Chula Vista, California. Parcel 2 (Orange Star): Northeast corner of Optima Street and Orion Avenue, Millenia, Otay Ranch, Chula Vista, California. Parcel 1: Lot 1 of Tract Map 16081, City of Chula Vista. Parcel 2: Lot 11 of Tract Map 16081, City of Chula Vista Thomas Guide: San Diego 1331 F&G - 2 Property Owner: Both Lot 1 and Lot 11 of Tract are owned by SLF IV Millenia LLC, a Delaware limited liability company. Assessors Parcel Nos.: Lot 1 of Tract 16081: Lot 11 of Tract 16081: Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 29

132 Property Taxes: Lot 1 of Tract 16081: Per the San Diego County Assessor s Office, the assessed value for APN is $2,208,883 and the 2017/18 property taxes are $32, The total property tax invoice includes $22, for the basic levy, $3, for voter approved bonds and fixed charged assessments of $7, which includes City of Chula Vista CFD 14M in the amount of $4, and City of Chula Vista CFD 97-2 in the amount of $2, and $ in miscellaneous charges. Lot 11 of Tract 16081: Per the San Diego County Assessor s Office, the assessed value for APN is $852,937 and the 2017/18 property taxes are $10, The total property tax invoice includes $8, for the basic levy, $1, for voter approved bonds and fixed charged assessments of $1, which includes City of Chula Vista CFD 14M in the amount of $ and City of Chula Vista CFD 97-2 in the amount of $ and $ in miscellaneous charges. Three-Year Sales History: It should be noted that the subject CFD 16-I is not yet listed or included in the 2017/18 property tax bill. Per the Rate and Method of Apportionment for CFD 16-I Lot 1 (located in Zone C) is estimated to have an assigned tax of $6,000 per Acre (annual) and Lot 11 (located in Zone B) is estimated to have an assigned tax of between $1,350 to $1,649 per unit depending on house size. SLF IV-Millenia LLC has held title to the subject property for more than three years. Lot 1 of Tract is under contract to be sold to LMC-Millenia Investment Company L.P., a California limited partnership for $3,923, We have reviewed several amendments to the purchase and sale agreement which included increased grading costs at buyers request to be passed on to the buyer along with extension payments. Per Amendment 3 it appears the Lot 1 closing is extended to July 1, 2018, however there have been several extensions to date. Included in the Purchase and Sales Agreement is Lot 19 which is not located within CFD 16-I Improvement Area 1 and thus not a part of this appraisal. Size and Shape: Lot 1 of Tract is irregular in shape and totals acres per Tract Map Lot 11 of Tract is generally square in shape and contains 3.07 acres per Tract Map Zoning: The subject property is designated Eastern Urban Center (Millenia) per the current City of Chula Vista Zoning Map. Per the Otay Ranch Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 30

133 Eastern Urban Center (EUC) Sectional Planning Area (SPA) Plan, Lot 1 is shown as a portion of the Business District, and Lot 11 is shown as a portion of the Eastern Gateway Neighborhood District. The Business District which covers Lots 1 and 19 of Tract 16081, allows for a low of 500,000 square feet and a high of 1,900,000 square feet with a target of 1,362,000 square feet. In addition, the Business District allows for a lot of 0 dwelling units, a high of 150 dwelling units and a target of 100 dwelling units. The Eastern Gateway Neighborhood District, which covers Lots 5, 10, 11 and 12 of Tract 16081, allows for a low of 150 dwelling units and a high of 750 dwelling units with a target of 400 dwelling units. There is also some service commercial allowed within the Eastern Gateway Neighborhood District with a low of 5,000 square feet, a high of 250,000 square feet and a target of 50,000 square feet. Entitlements: The subject property is encompassed by Chula Vista Tract No (Otay Ranch Millenia Eastern Urban Center) with further mapping under Tract Map No which is known as Otay Ranch Millenia Phase 2. A copy of the Tract Map is located in the Addenda. Tract Map subdivides the property into 22 buildable lots. Per the marketing documents Lot 1 is proposed for 700,000 square feet of office space and Lot 11 is proposed for 60 residential units suggesting a density of dwelling units per acre. Topography: The subject property has been partially developed with both Lot 1 and Lot 11 mass graded into generally level superpads with the majority of surrounding infrastructure in place. Drainage for both lots is proposed within an in-street storm drain system. Soils Condition: We have reviewed an Updated Geotechnical Report by Geocon Incorporated prepared for all of Millenia dated February 7, The report concluded that it was the opinion of Geocon that the subject property could be developed as planned provided that the recommendations made in the report were followed. We also reviewed the final Report of Testing and Observation Services Performed During Site Grading for Millenia Phase 2 prepared by Geocon and dated June 13, The report states the subject property was graded during the period of December 2015 through June The report documents that the grading of Millenia Phase 2 (covers Lot 1 and Lot 11) has been performed in a substantial conformance with the recommendations of the project update geotechnical report and addenda. It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 31

134 Seismic Information: Environmental Concerns: recommendations made relating to soil conditions within the reports were adhered to during construction. This is evidenced by City inspectors on site throughout construction as well as Certificates of Occupancy permits being obtained within the Millenia project. Per the California Department of Conservation, the subject property is not located within an Alquist Priolo Earthquake Study Zone. We have reviewed a Phase I Environmental Site Assessment for the entire Millenia project prepared by Coast 2 Coast Environmental, Inc. of Del Mar, California and dated May 22, Based on Coast 2 Coast s observations, the following recognized environmental conditions were observed: Three sites within one-half mile radius of the perimeter of Millenia appear on the State of California Department of Toxic Substances Control s EnviroStor and School databases and/or the State Water Resources Control Board s SLIC database. These sites were listed following soil testing for past pesticide use associated with agricultural row crops which were located on these sites from at least mid-1930s through Previous Phase I Environmental Site Assessments of the site have stated that it shared a similar agricultural history with the adjoining and nearby sites which were listed in the regulatory databases. In 2006 and 2007 soil sampling was conducted on the property for organochlorine pesticides and arsenic. Toxophene, an insecticide, was found in concentrations above the U.S. EPA Region IX s Preliminary Remediation Goals for residential use in the upper one foot of soil in three areas within Millenia. The following recommendations were made: A soil reuse plan was prepared which recommended special handling in three areas with all soil reused onsite and no recommendations for offsite soil disposal necessary. Further environmental assessment of the site, beyond what is listed above, is not warranted at this time. Flood Information: It is an assumption of this report that the subject property is free and clear of any environmental issues which would slow or thwart development of the site and that all recommendations contained in the FEIR were adhered to. This is suggested by City inspectors on site throughout construction. Per the City of Chula Vista Website, the subject property is not located within a FEMA Flood Zone. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 32

135 Easements and Encumbrances: We have reviewed a Preliminary Title Report prepared by First American Title Company dated December 15, 2017 which covers Lots 1, 7, 11, 13 and 17 of Tract 16081, five of the six subject parcels. The exceptions are as follows: Utilities: Items Nos. 1-7 and 11 refer to property taxes on the subject property. Item Nos. 8 and 9 refer to a special tax lien for CFD No. 18 of the Chula Vista Elementary School District (not showing on tax invoices at this time). Item No. 10 refers to the subject CFD No. 16-I Improvement Area 1 (again, not showing on the tax invoices at this time). Item No. 12 is in regards to an agreement regarding indemnification, implementation of mitigation and payment of certain fees in connection with the approval of the General Plan Amendment for Otay Ranch in Item No. 13 is in regards to a Development Agreement recorded on the property. Item No. 14 is in regards to a Parks Agreement. Item No. 15 pertains to Resolution No recorded on the site in Item Nos. 16, 17 and 21 refer to Subdivision Improvement Agreements and a Supplemental Subdivision Improvement Agreement recorded on the property. Item Nos. 18, 24, 34 and 37 refer to CC & Rs recorded on the property. Item No. 19 pertains to a Grant of Easements, License and Maintenance for Millenia. Item No. 20 refers to a Maintenance Agreement for Interim Drainage Improvements. Item No. 22, 23, 25 and 31 refer to easements. Item Nos. 26, 35 and 38 refer to right of first refusals on the property. Item Nos. 27, 36 and 39 refer to options in favor of the master developer. Item Nos. 28 and 32 pertain to two deeds of trust on Lot 7 of Tract totaling $4,300,000. Item Nos. 29 and 30 pertain to a document entitled Declaration of Restrictions, Grant of Reciprocal Easements, Joint Use and Maintenance. Item No. 33 refers to an Encroachment Maintenance Agreement. Item No. 40 is in regards to a Construction, Easement and Maintenance Agreement. Item No. 41 pertains to a Joint Use, Easement and Maintenance Agreement. Item No. 42 refers to water rights while Item 43 refers to the rights of parties in possession of the lands. Item Nos. 44, 45 and 46 refer to the items the Title Company will require prior to the issuance of a policy of title insurance. It is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than CFD 16- I IA 1 and the aforementioned existing CFDs. The appraisers are not title experts and it is recommended that any concerns relating to title should be addressed to the appropriate experts. All normal utilities serve or will serve the subject property by the following companies: Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 33

136 Electrical: Natural Gas: Sewer: Water: Schools: San Diego Gas & Electric Company San Diego Gas & Electric Company City of Chula Vista Otay Water District Chula Vista Elementary School District Sweetwater Union High School District Streets/Access: Access to Millenia is via SR 125, exit Birch Road and east to the subject property. SR 125 is accessible via I-5 or I-805 east on SR 54. Millenia is bounded by SR 125 on the west, Birch Road on the north and Eastlake Parkway on the east. Lot 1 of Tract has frontage along SR 125 with access via Birch Road to Millenia Avenue (paved the entire length of Millenia) and south to Lot 1. Lot 11 of Tract has access via Birch Road to Orion Avenue which is paved to the subject site. Current Condition: Lot 1 of Tract is highlighted on the aerial map below. It has been mass graded to a pad with a basement area for future buildings graded into the south side of the site. The construction immediately to the north is an Ayres Hotel while the construction to the northeast is an apartment complex by Trammel Crow. It should be noted that the development to the north and northeast are not a part of the subject properties. Lot 11 of Tract is highlighted on the aerial map on the following page. It has been mass graded and surrounding streets are in place. It appears the site is being used as a storage area for surrounding construction. Adjacent to the north is an affordable housing project developed by Chelsea consisting of 210 apartment units. Adjacent to the east is the currently selling Trio, Evo and Metro, small lot and attached neighborhoods being developed by Meridian Development (master developer). It should be noted that the surrounding development is not a part of the subject property. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 34

137 Remaining Costs: We have received remaining costs from the master developer associated with the offsite development of the six parcels within CFD 16-I Improvement Area 1. The remaining development costs are summarized below. Description Amount Signals/Final Lift $500,000 Pedestrian Corridors $453,750 Total $953,750 The above costs are associated with the master developer and will not be passed through to the various builders. For purposes of this analysis, the costs will be spread evenly on a per-acre basis over the two remaining master developer owned parcels. Lot 1 contains acres while Lot 11 is 3.07 acres for a total acreage of Dividing the total remaining master development costs over the 14 acres equates to a per acre amount of $68,125. Lot 1 of Tract Commercial lands are typically sold either as raw land or in a superpad condition. This valuation is for the lands in their as is condition. As the property has already been mass graded and is in a superpad condition, there are no remaining costs to complete. The additional grading will be taken into consideration under the valuation section later within this report. As discussed above there are remaining master developer costs of $68,125 per acre. Lot 1 contains acres, thus is responsible for $744,606 (say) $745,000 in remaining development costs. Lot 11 of Tract Residential lands are typically sold in either a finished lot or a superpad condition. We have reviewed cost estimates to develop Lot 11 into 60 finished lots. The estimate includes $9,000 per unit for Design and Engineering, $29,000 per unit for land development and $40,600 per unit for development fees Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 35

138 for a total estimate of $78,600 per unit or $4,715,000 for the proposed 60 units. As discussed above there are remaining master developer costs of $68,125 per acre. Lot 11 contains 3.07 acres, thus is responsible for $209,143 (say) $210,000 in remaining development costs. There is a master developer monthly HOA fee of $45 per residence and $1,080 per acre for the commercial property. Proposed Improvements: Lot 1 of Tract is proposed for 700,000 square feet of office/life Science/High Tech space which can be expandable to over one million square feet. Current marketing is for Invent, Phase II of the Think, Invent and Discover commercial area on Lot 7 (sold to Chesnut), Lot 1 (this parcel) and Lot 19 (not a part of the subject property). Lot 11 of Tract is proposed for 60 residential units. LMC-Millenia Investment Company, L.P. Ownership (Proposed Think Office Campus) LMC-Millenia Investment Company, L.P. is a related entity to Chesnut Properties. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 36

139 Location: Legal Property Description: Northeast corner of Optima Street and Millenia Avenue, Millenia, Otay Ranch, Chula Vista, California. Identified above by the light blue star. Lot 7 of Tract Map 16081, City of Chula Vista Thomas Guide: San Diego 1331 F&G - 2 Property Owner: LMC-Millenia Investment Company, L.P., a limited partnership Assessors Parcel Nos.: Property Taxes: Three-Year Sales History: Size and Shape: Zoning: Per the San Diego County Assessor s Office, the Assessed value for APN is $2,620,005 and the 2017/18 property taxes are $17, The total property tax invoice includes $26, for the basic levy, $3, for voter approved bonds and fixed charged assessments of $4, which includes City of Chula Vista CFD 14M in the amount of $3, and City of Chula Vista CFD 97-2 in the amount of $1, and $ in miscellaneous charges. It should be noted that the subject CFD 16-I is not yet listed or included in the 2017/18 property tax bill. Per the Rate and Method of Apportionment for CFD 16-I the estimated assigned special tax for Lot 7 (located in Zone C) is $6,000 per acre annually. LMC-Millenia Investment Company L.P. purchased the property in February 2016 (per the master developer) from SLF IV-Millenia LLC for $2,568, per the purchase and sale agreement. Lot 7 of Tract is irregular in shape and totals 7.06 acres per Tract Map The subject property is designated Eastern Urban Center (Millenia) per the current City of Chula Vista Zoning Map. Per the Otay Ranch Eastern Urban Center (EUC) Sectional Planning Area (SPA) Plan, Lot 7 is shown as a portion of the Mixed Use Civic/Office Core District. The Mixed Use Civic/Office Core District covers lots 7 and 16 of Tract 16081, allows for a low of 100,000 square feet and a high of 1,000,000 square feet with a target of 900,000 square feet. In addition, the Mixed Use Civic/Office Core District allows for a low of 0 dwelling units, a high of 300 dwelling units and a target of 200 dwelling units. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 37

140 Entitlements: The subject property is encompassed by Chula Vista Tract No (Otay Ranch Millenia Eastern Urban Center) with further mapping under Tract Map No which is known as Otay Ranch Millenia Phase 2. A copy of the Tract Map is located in the Addenda. Tract Map subdivides the property into 22 buildable lots. Per the proposed plans Lot 7 is planned for a 318,000 square feet office campus with a 6,100 square foot free-standing amenity building and a parking garage. Topography: Soils Condition: Seismic Information: Environmental Concerns: The subject property has been partially developed with Lot 7 mass graded into a generally level superpad with a below-ground graded area for the underground parking for a proposed parking garage. Drainage is proposed within an in-street storm drain system. The subject parcel was covered in the Soils Report that was discussed under the previous property description section. It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all recommendations made relating to soil conditions within the reports were adhered to during construction. This is evidenced by City inspectors on site throughout construction as well as Certificates of Occupancy permits being obtained within the Millenia project. Per the California Department of Conservation, the subject property is not located within an Alquist Priolo Earthquake Study Zone. The subject parcel was covered in the Phase I Site Assessment discussed under the previous property description section. It is an assumption of this report that the subject property is free and clear of any environmental issues which would slow or thwart development of the site and that all recommendations contained in the FEIR were adhered to. This is suggested by City inspectors on site throughout construction. Flood Information: Easements and Encumbrances: Per the City of Chula Vista Website, the subject property is not located within a FEMA Flood Zone. The subject parcel was covered in the Title Report discussed under the previous property description section. It is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than CFD 16- I IA 1 and the aforementioned existing CFDs. The appraisers are not Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 38

141 title experts and it is recommended that any concerns relating to title should be addressed to the appropriate experts. Utilities: All normal utilities serve or will serve the subject property by the following companies: Electrical: Natural Gas: Sewer: Water: Schools: San Diego Gas & Electric Company San Diego Gas & Electric Company City of Chula Vista Otay Water District Chula Vista Elementary School District Sweetwater Union High School District Streets/Access: Access to Millenia is via SR 125, exit Birch Road and east to the subject property. SR 125 is accessible via I-5 or I-805 east on SR 54. Millenia is bounded by SR 125 on the west, Birch Road on the north and Eastlake Parkway on the east. Access to the subject parcel is via Birch Road to Millenia Avenue, south to the subject site. Current Condition: Lot 7 is highlighted on the aerial map below. It has been mass graded to a pad with a basement area for the proposed parking structure for the future building. Construction is anticipated to begin in Fall The construction immediately to the northwest is an Ayres Hotel while the construction to the north is a mixed-use project including apartments by Trammel Crow. It should be noted that the development to the northwest and north are not a part of the subject properties. Remaining Costs: Commercial lands are typically sold in either a raw land or a superpad condition. This valuation is for the lands in their as is condition. As the property has already been mass graded, there are no remaining costs to complete. The additional grading will be taken into consideration under the valuation section later within this report. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 39

142 There is a master HOA fee of $1,080 per acre per month for commercial property. Proposed Improvements: Lot 7 is proposed for 318,000 square feet of Medical/Office buildings including a 150,000 square foot building and a 168,000 square foot building along with a 6,100 square foot amenity space building and a parking garage. Current marketing is for Think, Phase I of the Think, Invent and Discover commercial area on Lot 7 (subject site), Lot 1 and Lot 19. Per Chesnut Properties representatives, the following has been expended on the site through December 29, Description Amount Architect $2,110,286 Capitalized Interest 372,923 Carry Cost 32,585 Civil Engineering 326,905 Closing Costs 7,334 Construction Documents 88,017 Consultants 93,458 DRB 69,903 Engineers 47,430 Landscape Architects 370,537 LEED 293,072 Legal Fees 42,428 Grading 350,000 Land Cost 2,568,633 Marketing 324,964 Property Tax 64,647 Total $7,163,122 While some of the above costs add value to the subject parcel, items like interest, carrying costs, closing costs and property taxes do not add value to the land. The above expenditures will be considered in the final valuation of the site later within this report. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 40

143 CalAtlantic Ownership (Boulevard) Location: Legal Property Description: Southeast corner of Strata Street and Millenia Avenue, Millenia, Otay Ranch, Chula Vista, California. Identified above by the dark blue star. Lot 17 of Tract Map 16081, City of Chula Vista. In addition there was a lot line adjustment recorded (Adjustment Plat No recorded 10/20/17) which changed Lot 17 to a total of acres. Per the Adjustment Plat Lot 17 is known as Parcel B. Thomas Guide: San Diego 1331 F&G - 2 Property Owner: CalAtlantic Group Inc., a Delaware Corporation. (CalAtlantic has merged with Lennar since this purchase). Assessors Parcel Nos.: (formerly ) Property Taxes: The San Diego County Assessor s Office does not have information for APN however they do have information on the former APN number. Per the San Diego County Assessor s Office the Assessed value for APN is $1,250,234 and the 2017/18 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 41

144 property taxes are $18, The total property tax invoice includes $12, for the basic levy, $1, for voter approved bonds and fixed charged assessments of $3, which includes City of Chula Vista CFD 14M in the amount of $2, and City of Chula Vista CFD 97-2 in the amount of $ and $ in miscellaneous charges. The San Diego County Assessor s Office does not yet reflect the June 2017 sale of the property to CatAtlantic Homes. It appears there will be a supplemental tax bill. Three-Year Sales History: Size and Shape: Zoning: It should be noted that the subject CFD 16-I is not yet listed or included in the 2017/18 property tax bill. Per the Rate and Method of Apportionment of CFD 16-I the estimated assigned special tax for Lot 17 (located in Zone B) is between $1,350 and $1,649 per unit per year based on the house square footage. CalAtlantic Group Inc., a Delaware Corporation purchased the property June 9, 2017 from SLF IV Millenia LLC, the master developer, for $3,510,000. Lot 17 of Tract with lot line adjustment per Adjustment Plat No , is irregular in shape and totals acres. The subject property is designated Eastern Urban Center (Millenia) per the current City of Chula Vista Zoning Map. Per the Otay Ranch Eastern Urban Center (EUC) Sectional Planning Area (SPA) Plan, Lot 17 is shown as a portion of the Central Southern Neighborhood District. The Central Southern Neighborhood District covers a portion of lots 15 and 22 along with Lots 14 and 17 of Tract 16081, and allows for a low of 300 dwelling units and a high of 700 dwelling units with a target of 500 dwelling units. In addition, the Central Southern Neighborhood District allows for a low of 2,000 square feet of commercial space, a high of 200,000 square feet of commercial space and a target of 50,000 square feet of commercial space. Entitlements: The subject property is encompassed by Chula Vista Tract No (Otay Ranch Millenia Eastern Urban Center) with further mapping under Tract Map No which is known as Otay Ranch Millenia Phase 2. A copy of the Tract Map is located in the Addenda. In addition, Adjustment Plat No was recorded on the property which adjusted the lot line between Lot 17 and Lot 14 of Tract Tract Map subdivides the property into 22 buildable lots. Per the proposed plans Lot 17 is proposed for 78 attached townhomes suggesting a density of dwelling units per acre. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 42

145 Topography: Soils Condition: Seismic Information: Environmental Concerns: The subject property has been mass graded with Lot 17 mass graded into a generally level superpad with surrounding streets on the north and west (Strata Street and Millenia Avenue) in place. Currently CalAtlantic is grading the site. Drainage is proposed within an instreet storm drain system. The subject parcel was covered in the Soils Report that was discussed under the previous property description section. It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all recommendations made relating to soil conditions within the report were adhered to during construction. This is evidenced by City inspectors on site throughout construction as well as Certificates of Occupancy permits being obtained within the Millenia project. Per the California Department of Conservation, the subject property is not located within an Alquist Priolo Earthquake Study Zone. The subject parcel was covered in the Phase I Site Assessment discussed under the previous property description section. It is an assumption of this report that the subject property is free and clear of any environmental issues which would slow or thwart development of the site and that all recommendations contained in the FEIR were adhered to. This is suggested by City inspectors onsite during construction. Flood Information: Easements and Encumbrances: Per the City of Chula Vista Website, the subject property is not located within a FEMA Flood Zone. The subject parcel was covered in the Title Report discussed under the previous property description section. Utilities: It is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than CFD 16- I IA 1 and the aforementioned existing CFDs. The appraisers are not title experts and it is recommended that any concerns relating to title should be addressed to the appropriate experts. All normal utilities serve or will serve the subject property by the following companies: Electrical: San Diego Gas & Electric Company Natural Gas: San Diego Gas & Electric Company Sewer: City of Chula Vista Water: Otay Water District Schools: Chula Vista Elementary School District Sweetwater Union High School District Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 43

146 Streets/Access: Access to Millenia is via SR 125, exit Birch Road and east to the subject property. SR 125 is accessible via I-5 or I-805 east on SR 54. Millenia is bounded by SR 125 on the west, Birch Road on the north and Eastlake Parkway on the east. Access to the subject parcel is via Birch Road to Millenia Avenue, south to the subject site. Current Condition: CalAtlantic has just begun grading its site to be developed into 78 townhome units. Below is an aerial photo of the CalAtlantic site highlighted in yellow (boundaries approximate) showing the current status of the lands. Costs to Complete: We have reviewed the land development costs prepared by CalAtlantic and/or its consultants. The total project costs along with the spent to date amounts are shown on the table below. Total Costs Actuals Thru 1/31/18 Grading $653,050 $27,034 Wet Utilities $1,015,575 $0 Dry Utilities $231,500 $0 Streets (Curb/Gutter/Storm Drain/etc) $343,007 $0 Engineering/Soils, Plan Check & Inspec. $829,543 $205,993 Development Fees $3,298,582 $0 Total $6,371,257 $233,027 According to the above information, in order to develop the subject property into a true finished lot condition, an additional $6,138,230 needs to be spent. This amount will be taken into account in the Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 44

147 valuation section for the CalAtlantic owned property later within this report. HOA: Proposed Improvements: We have not received the estimated HOA costs for the CalAtlantic proposed product. The master developer HOA monthly fee is $45 per residence. Lot 17 is proposed for 78 attached townhome units with models slated to begin construction in March Underground work and grading is now underway on the site. The project is anticipated to be known as Boulevard with home sizes ranging from 1,681 to 2,046 square feet and pricing anticipated to be in the $445,000 to $495,000 range. KB Home Ownership (Skylar) Location: Legal Property Description: Southwest corner of Strata Street and Orion Avenue, Millenia, Otay Ranch, Chula Vista, California. Identified above by the yellow star. Lot 14 of Tract Map 16081, City of Chula Vista. In addition there was a lot line adjustment recorded (Adjustment Plat No Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 45

148 recorded 10/20/17 copy located in Addenda) which changed Lot 14 to a total of acres. Per the Adjustment Plat Lot 14 is known as Parcel A. Thomas Guide: San Diego 1331 F&G - 2 Property Owner: KB Home California LLC. Assessors Parcel Nos.: (formerly ) Property Taxes: The San Diego County Assessor s Office does not have information for APN however they do have information on the former APN number. Per the San Diego County Assessor s Office, the Assessed value for APN is $1,808,673 and the 2017/18 property taxes are $26, The total property tax invoice includes $18, for the basic levy, $2, for voter approved bonds and fixed charged assessments of $5, which includes City of Chula Vista CFD 14M in the amount of $2, and City of Chula Vista CFD 97-2 in the amount of $1, and $ in miscellaneous charges. The San Diego County Assessor s Office does not yet reflect the June 2017 sale of the property to KB Home California. It appears there will be a supplemental tax bill. Three-Year Sales History: Size and Shape: Zoning: It should be noted that the subject CFD 16-I is not yet listed or included in the 2017/18 property tax bill. Per the Rate and Method of Apportionment of CFD 16-I the estimated assigned special tax for Lot 17 (located in Zone B) is between $1,350 and $1,649 per unit per year based on the house square footage. KB Home California LLC purchased the land on June 7, 2017 from SLF IV Millenia LLC, the master developer, for $7,265,000. Lot 14 of Tract with lot line adjustment per Adjustment Plat No , is irregular in shape and totals acres. The subject property is designated Eastern Urban Center (Millenia) per the current City of Chula Vista Zoning Map. Per the Otay Ranch Eastern Urban Center (EUC) Sectional Planning Area (SPA) Plan, Lot 14 is shown as a portion of the Central Southern Neighborhood District. The Central Southern Neighborhood District covers a portion of lots 15 and 22 along with Lots 14 and 17 of Tract 16081, and allows for a low of 300 dwelling units and a high of 700 dwelling units with a target of 500 dwelling units. In addition, the Central Southern Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 46

149 Neighborhood District allows for a low of 2,000 square feet of commercial space, a high of 100,000 square feet of commercial space and a target of 45,000 square feet of commercial space. Entitlements: The subject property is encompassed by Chula Vista Tract No (Otay Ranch Millenia Eastern Urban Center) with further mapping under Tract Map No which is known as Otay Ranch Millenia Phase 2. A copy of the Tract Map is located in the Addenda. In addition, Adjustment Plat No was recorded on the property which adjusted the lot line between Lot 17 and Lot 14 of Tract Tract Map subdivides the property into 22 buildable lots. Per the proposed plans Lot 14 is proposed for 79 detached homes on small lots suggesting a density of dwelling units per acre). Topography: Soils Condition: Seismic Information: Environmental Concerns: The subject property has been mass graded with Lot 14 mass graded into a generally level superpad with surrounding streets on the north and west (Strata Street and Millenia Avenue) in place. KB Home further graded the property adding finished pads for its proposed homes. Drainage is proposed within an in-street storm drain system. The subject parcel was covered in the Soils Report that was discussed under the previous property description section. It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all recommendations made relating to soil conditions within the reports were adhered to during construction. This is evidenced by City inspectors on site throughout construction as well as Certificates of Occupancy permits being obtained within the Millenia project. Per the California Department of Conservation, the subject property is not located within an Alquist Priolo Earthquake Study Zone. The subject parcel was covered in the Phase I Site Assessment discussed under the previous property description section. It is an assumption of this report that the subject property is free and clear of any environmental issues which would slow or thwart development of the site and that all recommendations contained in the FEIR were adhered to. This is suggested by City inspectors onsite during construction. Flood Information: Per the City of Chula Vista Website, the subject property is not located within a FEMA Flood Zone. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 47

150 Easements and Encumbrances: The subject parcel was covered in the Title Report discussed under the previous property description section. It is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than CFD 16- I IA 1 and the aforementioned existing CFDs. The appraisers are not title experts and it is recommended that any concerns relating to title should be addressed to the appropriate experts. Utilities: All normal utilities serve or will serve the subject property by the following companies: Electrical: Natural Gas: Sewer: Water: Schools: San Diego Gas & Electric Company San Diego Gas & Electric Company City of Chula Vista Otay Water District Chula Vista Elementary School District Sweetwater Union High School District Streets/Access: Access to Millenia is via SR 125, exit Birch Road and east to the subject property. SR 125 is accessible via I-5 or I-805 east on SR 54. Millenia is bounded by SR 125 on the west, Birch Road on the north and Eastlake Parkway on the east. Access to the subject parcel is via Birch Road to Millenia Avenue, south to Strata Street and east to the subject entrance. Current Condition: Skylar is currently being developed into 79 single family detached homes on small detached lots. Below is an aerial photo of the Skylar site highlighted in yellow (boundaries approximate) showing the current status of the lands. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 48

151 There are two completed models at the northeast corner of the site and six production units are under construction. Most of the grading is complete along with wet utilities. The dry utilities are being installed as the pads get completed. Internal streets have not been paved yet due to the utilities not being finalized. Costs to Complete: We have reviewed the land development costs prepared by KB Home and/or its consultants. The total project costs along with the spent to date amounts are shown on the table below. Total Costs Actuals Thru 1/31/18 Grading $140,000 $120,000 Wet Utilities $1,200,000 $950,000 Dry Utilities $604,229 $30,000 Streets (Curb/Gutter/Storm Drain/etc) $750,000 $0 Plan Check & Inspec. $177,000 $177,000 Engineering/Soils $371,708 $283,433 Development Fees $4,089,406 $93,783 Total $7,332,343 $1,654,216 According to the above information, in order to develop the subject property into a true finished lot condition, an additional $5,678,127 needs to be spent. This amount will be taken into account in the valuation section for the KB Home owned property later within this report. HOA: Per KB Home s marketing information the HOA fees will be $146 per month at completion which covers walls, fencing, recreation area and common area maintenance. In addition there is a master developer HOA fee of $45 per residence per month. Improvement Description: KB Home is developing detached homes on small lots (under 2,000 square feet). The homes are three-story with a two-car attached garage, a bonus room and bathroom (can be converted to a fourth bedroom) on the first floor; a great room and kitchen with a powder room on the second floor; and, three bedrooms and two bathrooms on the third floor. The homes are angled with a modern design with an entrance pathway between the homes. Exteriors are stucco finish with some decorative stone or wood siding, automatic garage doors and porches on the first floor and a balcony on the second floor. Interiors include a walk-in closet in the master bedroom, a separate water closet in master bath, laundry rooms on the third floor, tankless water heaters and energy efficient appliances throughout. There are two plans. The model homes are completed and the first phase of construction of six homes is underway. The below chart shows the various plan sizes. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 49

152 Plan Room Count Floors/ Parking Sq. Ft. Ind. Owned Bldr. Owned 1 4 / / 2 2, * 2 4 / / 2 2, * Total 0 2 *One of each of these plans is a model home. Shea Homes Ownership (Element and Z) Location: Legal Property Description: South side of Strata Street between Orion Avenue and Eastlake Parkway, Millenia, Otay Ranch, Chula Vista, California. Identified above by the green star. Lot 1 of Map 16150, City of Chula Vista. The property was previously known as Lot 9 of Map prior to the current map. These two lots are generally contiguous. Thomas Guide: San Diego 1331 F&G - 2 Property Owner: Shea Homes LP as to Units 1-40, 43, 51-60, , , 170, 172, 175 and 176 on Lot 1 of Map 16150; Individuals as to Units 41-42, 44-50, 61-70, , , 171 and on Lot 1 of Map Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 50

153 Assessors Parcel Nos.: thru 92; thru 84.. Property Taxes: The San Diego County Assessor s Office does not have information available for each APN as they are too new. We have pulled up tax information on the underlying APN which is Per the San Diego County Assessor s Office, the Assessed value for APN is $10,557,000 and the 2017/18 property taxes are $255, The total property tax invoice includes $109, for the basic levy, $15, for voter approved bonds and fixed charged assessments of $130, which includes Chula Vista Elementary School CFD in the amount of $46,335.76, Sweetwater High School CFD in the amount of $81,276.18, City of Chula Vista CFD 14M in the amount of $2, and City of Chula Vista CFD 97-2 in the amount of $ and $ in miscellaneous charges. Three-Year Sales History: It should be noted that the subject CFD 16-I is not yet listed or included in the 2017/18 property tax bill. Per the Rate and Method of Apportionment of CFD 16-I the estimated assigned special tax for Lot 1 of Map (located within Zone A) between $1,352 and $1,799 per unit per year based on the house square footage. Shea Homes Limited Partnership purchased the lands in December 2016 from SLF IV Millenia LLC, the master developer, for $10,350,000. Fifty-three homes have closed to individual Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 51

154 homeowners. Size and Shape: Zoning: Per Lot 1 of Map the subject site is irregular in shape and totals acres with entitlements for 176 units. The subject property is designated Eastern Urban Center (Millenia) per the current City of Chula Vista Zoning Map. Per the Otay Ranch Eastern Urban Center (EUC) Sectional Planning Area (SPA) Plan, Lot 9 of Tract is shown as a portion of the Southeastern Neighborhood District. The Southeastern Neighborhood District covers Lots 8 and 13 of Map along with Lot 9 of Map (subject generally contiguous to Lot 1 of 16150),and allows for a low of 200 dwelling units and a high of 450 dwelling units with a target of 200 dwelling units. In addition, the Southeastern Neighborhood District allows for a low of 2,000 square feet of commercial space, a high of 200,000 square feet of commercial space and a target of 150,000 square feet of commercial space Entitlements: The subject property is encompassed by Chula Vista Tract No (Otay Ranch Millenia Eastern Urban Center) with further mapping under Map No which is known as Otay Ranch Millenia. A copy of the Map is located in the Addenda. Map subdivides a portion of Millenia about seven buildable lots and some larger lots which were further subdivided by Tract Map Lot 1 of Map was then recorded on Lot 9 of Map on November 30, 2016 creating the usable pad for 176 proposed condominium units. In addition, two condominium plans were recorded. Document recorded June 27, 2017 allowing for 70 units known as Element which are numbered lots Document recorded June 26, 2017 allowing for 106 units known as Z which are numbered lots Topography: Soils Condition: The subject property has been mass graded into a generally level superpad with surrounding streets on the north and east (Strata Street and Eastlake Parkway) in place. The entire Orion Avenue along the west boundary is not yet paved. The superpad is above street level of Eastlake Parkway and the southern portion of Orion Avenue with landscaped berms along the slopes. Shea Homes further graded the property adding finished pads for their proposed homes. Drainage is proposed within an in-street storm drain system. The subject parcel was covered in the Soils Report that was discussed under the previous property description section. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 52

155 Seismic Information: Environmental Concerns: It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all recommendations made relating to soil conditions within the reports were adhered to during construction. This is evidenced by City inspectors on site throughout construction as well as Certificates of Occupancy permits being obtained within the Millenia project. Per the California Department of Conservation, the subject property is not located within an Alquist Priolo Earthquake Study Zone. The subject parcel was covered in the Phase I Site Assessment discussed under the previous property description section. It is an assumption of this report that the subject property is free and clear of any environmental issues which would slow or thwart development of the site and that all recommendations contained in the FEIR were adhered to. This is suggested by City inspectors onsite during construction. Flood Information: Easements and Encumbrances: Per the City of Chula Vista Website, the subject property is not located within a FEMA Flood Zone. We have reviewed a Preliminary Title Report prepared by First American Title covering Millenia Lot 9 of Map (generally contiguous with Lot 1 of Map 16150) which refers to the subject property. The report is dated November 16, 2017 (prior to any home closings). The exceptions are as follows: Item Nos. 1 thru 7 refer to property taxes including CVESD CFD 18, CFD No. 18 (Sweetwater), and CFD 16-I. Item No. 7 (a, b and c) refer to an agreement in connection with the approval for the General Plan Amendment recorded in Item No. 8 pertains to a recorded Development Agreement recorded in Item No. 9 pertains to a Parks Agreement. Item No. 10 and 10a refer to Resolution No an Amended and Restated Interim Desilation and Maintenance Agreement. Item No. 12 and 13 refer to the subdivision improvement agreement. Item No. 14 pertains to CC & Rs on the property. Item No. 15 is in regards to a grant of easements, license and maintenance agreement. Item Nos. 15a, 17, 22a and 22e refer to easements. Item Nos. 16 and 25 refer to CC & Rs. Item Nos. 18 and 19 are in regards to an option and a right of first refusal on the property. Item No. 20 is for a Maintenance Agreement for Interim Drainage Improvements. Item Nos. 21, 22b, 22c, pertain to the Subdivision Improvement Agreement. Item Nos. 22d and 23 pertain to Storm Water Management Agreements. Item No. 24 refers to the Condominium Plan for Z@ Millenia. Item Nos. 26 and 27 refer to the Condominium Plan for Millenia and Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 53

156 the supplemental declaration of Covenants and Restrictions and Agreement Establishing Dispute Resolution Procedures for Element & Z. Item No. 28 pertains to water rights and Item No. 29 refers to the rights of parties in possession. Item 30 refers to items the title company will need from Shea Homes before issuing title insurance. It is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than CFD 16- I IA 1 and the aforementioned existing CFDs. The appraisers are not title experts and it is recommended that any concerns relating to title should be addressed to the appropriate experts. Utilities: All normal utilities serve or will serve the subject property by the following companies: Electrical: Natural Gas: Sewer: Water: Schools: San Diego Gas & Electric Company San Diego Gas & Electric Company City of Chula Vista Otay Water District Chula Vista Elementary School District Sweetwater Union High School District Streets/Access: Access to Millenia is via SR 125, exit Birch Road and east to the subject property. SR 125 is accessible via I-5 or I-805 east on SR 54. Millenia is bounded by SR 125 on the west, Birch Road on the north and Eastlake Parkway on the east. Access to the subject parcel is via Birch Road to Eastlake Parkway, south to Strata Street and west to the subject entrance. Current Condition: Element and Z are currently being marketed. Element consists of 70 proposed single family detached condos while Z consists of 106 proposed attached homes. Below is an aerial photo of Lot 1 of Mapt highlighted in yellow (boundaries approximate) showing the current status of the lands. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 54

157 Combining Z & Element there are 53 homes which have closed to homeowners, six models, seven production homes over 95 percent complete, 27 units under construction and 83 remaining finished lots. Costs to Complete: We have reviewed the land development costs prepared by Shea Homes and/or its consultants. The total project costs along with the spent to date amounts are shown on the table below. Total Costs Actuals Thru 1/31/18 Grading $474,866 $464,912 Wet Utilities $1,461,664 $1,447,179 Dry Utilities $789,756 $733,844 Streets (Curb/Gutter/Storm Drain/etc) $2,296,321 $885,446 Plan Check & Inspec. $928,895 $928,895 Engineering/Soils $1,697,193 $1,115,518 Development Fees $7,528,195 $2,762,659 Total $15,176,890 $8,338,453 According to the above information, in order to develop the subject property into a true finished lot condition, an additional $2,072,901 in land development costs needs to be spent. In addition, there are an estimated $4,765,536 in land development fees. These amount will be taken into account in the valuation section for the Shea Homes owned property later within this report. HOA: The Element Homeowner s Association dues are estimated at $210 per month while the Z homeowners will pay $327 per month. The HOA covers landscaping in common areas, tot lot, dog park, trails, pool and jacuzzi, BBQ area, restrooms and shower with exterior insurance for all Z buildings included. In addition there is a master developer HOA of $45 per month per residence. Improvement Description: Shea Homes is developing two products within Lot 1 of Map The first product is known as Element, cluster detached units while the second product is known as Z and are attached homes. Both products are three-story with a two-car attached garage. Plans vary with some living space on the bottom floor within Element and a patio and entry on the bottom floor along with the garage for Z. The homes are built for modern families with open living spaces and decks and patios. Exteriors are stucco finish with some decorative stone or wood siding and automatic garage doors. Interiors include a walk-in closet in the master bedroom, laundry hook-ups on the second or third floor, tankless water heaters and energy efficient appliances throughout. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 55

158 There are four plans within Element and three plans within Z. The below chart shows the various plan sizes. Plan Room Count Floors/ Parking Sq. Ft. Ind. Owned Bldr. Owned Z-1 2 / / 2 1, Z-2 3 / / 2 1, * Z-3 3 / / 2 1, * E-1 3 / / 2 1, * E-2 3 / / 2 1, * E-3 4 / / 2 2, * E-4 4 / / 2 2, * Total *One of each of these homes is a model home. Plan 1 of Z is not modeled.. One each of the Builder-Owned Plan E2 and E3 are within the model complex, however are production homes and not fully upgraded like a model home. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 56

159 SAN DIEGO COUNTY HOUSING AND OFFICE MARKETS In reviewing the County s housing and office market, a study of population and economic growth needs to be conducted. As of January 1, 2017, the County had a population of 3,316,192, which indicates an average annual growth rate of 0.9 percent over the past year and an average rate of 0.97 percent over the past 15 years. It should be noted this includes the slowdown during the Great Recession. Projections are for the County to continue at an annual 1.2 percent growth rate for the next three years. Over the past twenty years the County has seen a rocky cycle in the housing market as with most of Southern California. The recession of the early 1990s impacted San Diego County; however, the recovery was quicker than inland areas due to the coastal influence. Median housing prices (all types) in the County increased over 100 percent (from $250,000 in 1997 to $600,000 in November 2005) then decreased over 50 percent to the July 2009 low of $290,000. Since bottoming out the market has seen an increase of 77 percent to the current median home price of $605,000 (per the California Department of Real Estate as of December 2017), which has now surpassed the previous peak. Economic growth in the San Diego area had been strong between 2000 and 2007 with job losses occurring during the Great Recession in 2008 through 2010 with an upturn beginning in Below is a table depicting job growth in the County over this time period. USSan Diego Job Growth UYear UEmployment UIncrease U% Increase ,525,400 27, % ,498,000 12, & ,485,900 22, % ,463,200 16, % ,447,100 21, % ,425,800 22, % ,403,600 34, % ,368,700 15, % ,353,100 (55,200) (3.92%) Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 57

160 2009 1,408,300 (44,500) (3.06%) ,452,800 6, % ,446,300 9, % ,436,800 11, % ,425,700 16, % ,408,900 26, % ,382,300 13, % ,369,200 19, % ,349,500 26, % ,323,200 N/A N/A *Based on Preliminary December 2017 numbers per EDD The unemployment rate for the County was 3.3 percent in December 2017, well below the high of 11 percent in early 2010 and lower than the current California unemployment rate of 4.2 percent. The housing market was a significant factor in increasing the impact of the Great Recession. Due to increased interest rates and rising home prices between June 2004 and mid-2006, the mortgage lender reaction was to create non-conventional financing alternatives such as sub-prime and non-conventional mortgages to artificially maintain the boom housing market of 2004 and In 2007 the housing market saw a shakeup due to the problems in the sub-prime and non-conventional mortgage markets. In March 2007 the Federal Government initiated efforts to stop or limit sub-prime mortgages. Unfortunately, the damage had already been done with sub-prime mortgages playing a role in the 2008 shake out of the housing market and contributing significantly to the U.S. economic downturn. Due to stricter income verification on new loans and the lack of available credit, coupled with job losses and declining home prices, sales of both new and existing homes slowed for the next few years. With the exception of a small increase in 2010, primarily due to government offered homebuyer credits, prices/sales essentially remained flat until mid-2012 when prices began a steady climb with double-digit increases into 2013 and a slower appreciation since that time. Over the past year overall home prices in Chula Vista have increased an average of 6.5 percent on a year over year basis. There were several factors aiding the recent price appreciation which include limited supply and constrained lending. The main factor in prices rising is an imbalance in supply and demand. Near the bottom of this past real estate cycle it was not financially feasible Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 58

161 to develop land and build a house in portions of San Diego County. Thus, land development slowed, significantly restricting new housing supply. In addition to limited supply, home ownership across the U.S. declined to 64.2 percent (Fourth Quarter 2017) from a high of 69.2 percent in This downward trend in home ownership was anticipated to continue to decrease until stabilization which is estimated to occur at 63 percent. It appears the downward trend of home ownership may be stabilizing as home ownership was 62.9 percent in 2 nd quarter The December 2017 approval of the Tax Cuts and Job Act ( TCJA ) by the Federal Government is causing concern that home sales may slow once again. The two largest changes for home owners is the limitation at $10,000 for the deduction for state income, sales taxes and property taxes (SALT) along with a limitation on the mortgage deduction for loans that exceed $750,000. While this amount does not affect most people looking at subject-type homes (generally in the $380,000 to 600,000 range), the SALT deduction may limit their deductions. It is still too early to tell how much the TCJA will actually affect the new home market, however it is thought that it won t affect the inland Chula Vista market as much as some other coastal cities where mortgages are generally larger due to higher home costs and therefore may be affected. Home loan mortgage rates are a large factor in the housing market. The Federal Reserve had held mortgage rates at all-time lows for several years in an attempt to assist the housing market. Low rates appeared to help for quite a while; however, first time buyers are now having an extremely hard time entering the housing market. The Federal Reserve Board ( Board ) has kept interest rates below historical averages dropping rates to zero in December 2008 until the December 2015 Board meeting when interest rates were raised one quarter of a percent. Future rate hikes are anticipated to be gradual and will depend on how the U.S. economy and global growth is occurring. In March, June, and December of 2017, the Board increased its benchmark interest rate one quarter point. This signifies the possibility for robust growth nationally. Unlike the 2008 to 2015 decisions to maintain the rates at zero, regular hikes are anticipated for the foreseeable future. The current quoted rates for a 30-year fixed mortgage per FRED (Federal Reserve Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 59

162 Economic Data) as of December 21, 2017 are 3.94 percent. This is up from an average of 3.65 percent over 2016, possibly due to the 2017 increases which occurred, plus the Board suggesting additional future increases. Chula Vista is benefiting from the new FHA loan limits. FHA financing allows a three percent down payment which allows first time homebuyers to enter the housing market. In order to qualify for FHA loans, a mortgage needs to be within the published FHA loan limits which is currently $649,750 in San Diego County, up from the 2017 amount of $612,950. While in some coastal areas in San Diego County this severely limits new home financing, the new homes in Millenia are generally under the approximate $670,000 purchase price limit for FHA financing. Residential Land Development While there had been little land development going on in most of San Diego County during the years , the second half of 2012 saw a resurgence. This was clearly visible in Otay Ranch. The increase in housing prices coupled with the limited availability of supply, made land development feasible once again for homebuilders. San Diego and Otay Ranch saw land development in 2012 and 2013 with a bit of a lull in 2014, then beginning again in 2015 with Otay Ranch Village Two selling homes and in 2016 and 2017 with Millennia and Otay Ranch Village Three selling homes. Otay Ranch has three areas currently developing, Millennia (subject property) at the southeast corner of Birch Road and SR 125, the southern portion of Otay Ranch Village Two (Montecito) which is nearing build-out and Village Three, located about two miles west of Millenia. Village Two was developed in two main phases with the northern portion generally built out and sold in 2015/16 while the southern portion has several new home projects currently offered for sale. The northern portion of Village Two also houses a new Elementary School while Village Three has a proposed school on site. Otay Ranch Village Three began grading in 2016 and is now offering nine new home projects. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 60

163 Home Sales and Pricing The housing market in San Diego County appears to be on the upswing of a cycle. Per the Case-Shiller index, San Diego has seen either flatness or increases in home values for the past 72 months. Below is a chart showing median home prices in the County including both new and existing homes (both detached and attached) over the past decade. With the current median home price at $540,000 (per Corelogic as of December 2017), the increases are continuing. Home Price In $000's San Diego County Median Home Prices Year It should be noted that the above home prices relate to overall home prices including existing homes. Our search for comparable new home projects within Chula Vista resulted in eight new home projects currently selling in Otay Ranch Village Two, nine additional new home projects selling in Otay Ranch Village Three and six currently selling in Millennia. All projects are experiencing good sales rates. According to CoreLogic, within Southern California (Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties) the median price paid for a home (both new and existing) in December 2017 was $507,500, up 8.2 percent from one-year prior. The current median existing home price has recently surpassed the peak in mid-2007 when the median price was $505,000 and up more than 100 percent from the low point of the cycle which was a $247,000 median price in April Home sales in Southern California were down 3.8 percent overall in Southern California in December 2017 based on a year-over-year change. Per CoreLogic the drop off in activity is due to the Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 61

164 constrained supply of homes for sale. Shown below is a table comparing December 2016 to December 2017 for both new and existing home sales and pricing in Southern California by county and for Southern California as a whole. County Southern California (New and Used) Home Sales No. Sold No. Sold Percent Median Dec 16 Dec 17 Change Dec 16 Median Dec 17 Percent Change Los Angeles 6,885 6, % $520,000 $570, % Orange 3,230 3, % $667,500 $698, % Riverside 3,605 3, % $345,000 $365, % San Bernardino 2,462 2, % $299,000 $323, % San Diego 3,448 3, % $495,000 $540, % Ventura % $519,000 $559, % SoCal 20,534 19, % $469,000 $507, % Source: CoreLogic December 2017 Data Brief Based on December 2017 median new and existing homes prices, in comparison to the majority of the surrounding counties, San Diego County is higher than the Inland Empire and lower than Ventura, Orange and Los Angeles Counties with a median home price of $540,000 reflecting a 9.1 percent year over year increase. In a separate attempt to capture the increase in home prices, the resale activity of existing homes in the subject area (per CoreLogic) has been reviewed. The number of sales and sale prices of existing homes within zip codes in the immediate area of the subject are shown in the table shown below. Sales of SFD Homes Dec Dec 2017 Price Median Dec 2017 Median Price/ Price % Change from Dec 2016 Community Name ZIP Code Border To Subject 2017 SFD Sq. Ft. Otay Ranch West Subject 30 $572,000 $ % Northeastern Chula Vista North 11 $675,000 $ % Northwest Chula Vista Northwest 23 $550,000 $ % Southwest Chula Vista Southwest 25 $486,000 $ % South Otay Mesa South 24 $505,000 $ % Otay Ranch East East 19 $620,000 $ % Source: CoreLogic July 2017 The table above depicts price changes over the past year on existing single-family detached home sales prices. The above price increases relate to CoreLogic s overall San Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 62

165 Diego County increase of 9.1 percent increase year over year suggesting the subject area is having higher price increases than other areas of San Diego County. According to London Moeder Advisors (December 17, 2017) there is a tsunami of demand now rising from young families for homes in San Diego County. They propose that, in the County, 17,000 housing units need to be built per year for the next 10 years in order to meet that demand. In 2015 and 2016 approximately 10,000 units were built each year with the previous six years ranging between 2,500 and 7,500 units creating a shortage of over 40,000 units. Another problem which occurred is that most of the units built in the current cycle have been multi-family rental units. London Moeder advises that two to three level townhomes, rowhomes and granny flats are what is needed for the current shortage. This is what is being built in Millenia, which is enjoying good sales and absorption rates. Commercial Market In reviewing the County s commercial market, a study of housing growth, vacancy rates and competition needs to be conducted. As discussed above the County population is growing and housing growth is gaining strength in the South Bay area which includes Chula Vista. We have reviewed several studies prepared by commercial brokers in the area in regards to San Diego s commercial real estate market including CBRE and Meyers Group. CBRE reports that the San Diego unemployment fell to 3.3% in Q4, 2017 and office rents fell slightly by -$0.01 quarter over quarter but increased by 2.3% year over year. Average asking rent was $2.79 per square foot county wide with an average rate of $2.52 in the subject, South San Diego market. CBRE defines the South San Diego market as the area south and southeast of the downtown market southerly of State Route 54. Average asking rent was $2.61 per square foot in downtown San Diego. Central San Diego County had the highest average asking rent of $2.99 per square foot. Central San Diego includes many of the newer office locations along the interstate 5 and Interstate 805 corridors including the Sorrento Valley area. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 63

166 San Diego s office market has experienced a wide fluctuation in vacancy over the past 18 years. In 2000 county-wide vacancy was only 5.4% with 2009 showing the highest vacancy rate at 19.2%, decreasing just about every year to 2016 at 10.7%. Current vacancy increased slightly to 11.3% but has remained below 12% for five quarters. South San Diego reports total vacancy at 11.9% including sub-lease space. Net absorption in the last quarter of 2017 was down slightly by 154,006 square feet but up by 482,241 square feet year over year. The subject South San Diego market had positive absorption of 12,487 square feet according to CBRE. In addition to reviewing CBRE statistics we have also reviewed the draft marketing study completed by Meyers Research on the Millenia community. Meyers indicates that market conditions are tight for office space in San Diego County and the South Bay. They project average rent levels below what is projected by CBRE at a high of $2.23 in the South Bay area. They report vacancy rates decreasing from 9.1% in Q1 of 2014 down to 5.0% in late This is a very low vacancy rate and not reflected in the CBRE statistics. However, similar to CBRE, they indicate that 2016 was a particularly strong year with 245,000 square feet absorbed versus no new deliveries. Meyers Research projects an average of 85,564 square feet of annual office absorption for the subject office projects to fully absorb million square feet by the year They project the initial phase to be absorbed in roughly four years. The Meyers Research projections are based on analyses completed by CalTrans on office-oriented employment growth and also projections of job growth from Woods and Poole Economics. They project absorption of office space will accelerate at the subject location as this area of Chula Vista continues to grow. In summary, although both San Diego County and the subject submarket saw decreases in housing prices and sales during the recession, prices have now been increasing over the past 72 months with substantial appreciation over this time period. While home price growth has slowed in the past three years, prices are still increasing, however at a more Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 64

167 normal rate of appreciation. The economy appears to be on an upswing and the subject submarket is attracting homebuyers, builders and land developers. In 2014 the land developers increased density within Otay Ranch Village Two in answer to the higher demand for lower priced starter homes. Millenia is being built out with higher density, small lot and attached units in order to meet buyer demand. There are currently 25 new home neighborhoods in Otay Ranch with average to good absorption. Office development has been minimal in Otay Ranch. Millenia is proposing the first office campus in the immediate area. While the need appears positive, absorption of the projected development in the entire community of Millenia (the subject and additional lands) is estimated at over 20 years. In conclusion, although uncertainty is still clouding the current economy, the housing market in South San Diego County appears to be a growing at a sustainable rate. Population is predicted to continue to increase, thus housing growth will continue. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 65

168 HIGHEST AND BEST USE ANALYSIS The highest and best use is a basic concept in real estate valuation due to the fact that it represents the underlying premise (i.e., land use) upon which the estimate of value is based. In this report, the highest and best use is defined as: "the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value 5 Proper application of this analysis requires the subject properties to first be considered As If Vacant in order to identify the ideal improvements in terms of use, size and timing of development. The existing improvements (if any) are then compared to the ideal improvements to determine if the use should be continued, altered or demolished preparatory to redevelopment of the site with a more productive or ideal use. As If Vacant In the following analysis, we have considered the site s probable uses, or those uses which are physically possible; the legality of use, or those uses which are allowed by zoning or deed restrictions; the financially feasible uses, or those uses which generate a positive return on investment; and the maximally productive uses, or those probable permissible uses which combine to give the owner of the land the highest net return on value in the foreseeable future. Physically Possible Uses Millenia has the physical characteristics suitable for a master-planned community. The site s topography is generally level, adjacent to SR 125 (to the west) and the successful Otay Ranch Town Center (to the north). The property was previously used for agriculture use as row crops. CFD No. 16-I IA 1 consists of six parcels ranging in size from 3 to 10 acres which are being developed into 393 single family homes and two commercial sites proposed for 5 The Appraisal of Real Estate, 11 th Edition Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 66

169 over 1,000,000 square feet of office use. The six parcels have all been mass graded and are generally level with the majority of surrounding streets in place. Three of the residential sites have been further graded for residential lots and pads. We have reviewed Geotechnical Reports which cover the subject property and it appears soil conditions are satisfactory for development. This is further suggested by development on some of the lands. We have reviewed a Phase One Environmental Site Assessment on the subject property which concludes that the property is feasible to develop from an environmental standpoint. It is an assumption of this report that the soils are adequate to support the highest and best use conclusion, that any environmental concerns have been mitigated as recommended by technical reports, and that there are no environmental issues which would slow or thwart development of the site. This is evidenced by City approvals along with City inspectors on site during construction. An engineered drainage system is being designed into a street drainage system to alleviate any potential flooding problems and to control project water runoff. All standard utilities serve or are available to serve the subject property. The site has good access from SR 125 and Birch Road. Based on the physical analysis, the size, access and topography make the subject property physically suited for numerous types of development; however, the grading and development that has occurred on each parcel suggests residential use or a use consistent with the surrounding master-planned community. Legality of Use The subject property is located in the master planned community of Millenia (formerly known as a portion of the Eastern Urban Center EUC ), in Otay Ranch in the City of Chula Vista, County of San Diego. Pursuant to the EUC Sectional Planning Area Plan, the subject six parcels are a portion of the entire 206+ acre property which has approvals for about 3,000 residential units, 25 acres of parks, 12 acres of Community Purpose Facility, 35 acres of schools, 76 acres of commercial land use, 1.5 acres of open space and 8 acres for cultural use. The subject six parcels have been approved for 393 residential units on four parcels and up to 1,030,200 square feet of office use on two Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 67

170 parcels. Map recorded on all of Millenia with further mapping of Maps 15942, and covering the subject six parcels. Based on the legality of use analysis, the type of development for which the subject property can be utilized is narrowed to residential and commercial land uses. This is consistent with the findings of the physically possible uses. Feasibility of Development The third and fourth considerations in the highest and best use analysis are economic in nature, i.e., the use that can be expected to be most profitable. First residential land use will be discussed followed by a discussion on commercial land use. As discussed under the San Diego County Housing and Office Market section earlier within this report, the San Diego market has showed good price increases and good absorption. According to the Market Absorption Study for CFD No. 16-I, IA 1 by Meyers Research, dated February 2018, there is good demand for ownership housing options, particularly to family households and empty nester/retirees. New home sales have increased and are anticipated to continue to do so although they are still below historical averages. Population growth is still occurring in the area and will continue to create the need for housing. Most importantly job growth, the primary driver of growth in the new home market, is still occurring both in San Diego County as well as the more local employment center in Chula Vista and the City of San Diego. County-wide unemployment is reported at 3.3%. There are currently six active, new home communities within Millenia with sales beginning in late 2016 and 84 units within CFD No. 16-I IA 1 sold. Generally home prices within the community range from $300,000 to $700,000. Since opening, average sales rates have ranged from about 1.8 to 3.8 sales per project per month with sales increasing more recently. All of the open neighborhoods have been well received in the marketplace. Sales have increased in 2017 suggesting absorption may increase. Meyers Research projects an average 85,564 square feet of office space will be absorbed per year suggesting the initial phase of development of 324,100 square feet will be Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 68

171 absorbed in three to four years. This suggests the second phase will be needed prior to that time. Based on the above analysis, the highest and best use for the subject property appears to be for both residential and commercial development. Maximum Productivity The current housing market has stabilized and is forecasted to improve in both sales prices and pace of sales. Job growth is relatively strong with unemployment at a rate comparable to prior to the Great Recession. While home sales are still below historic rates, prices are rising. High prices, limited financing choices and limited credit availability are making it hard for first time buyers to enter the housing market. However the limited availability of homes for sale, population growth and low interest rates all point to demand for new housing in the subject area with upward pressure still being placed on prices. Based on the current active projects in the area, coupled with population growth projected in the subject marketplace, it is our opinion that the subject property is feasible for residential and commercial development. Highest and Best Use Conclusion As If Vacant The final determinant of highest and best use, as vacant, is the interaction of the previously discussed factors (i.e., physical, legal, financial feasibility and maximum productivity considerations). Based upon the foregoing analysis, it is our opinion that the highest and best use for the subject property As if Vacant is for residential neighborhoods at the correct price points and commercial land use. Highest and Best Use As Improved As earlier detailed, the subject property consists of four residential neighborhoods, two that are currently being marketed with model homes open. Shea Homes opened its Element and Z products for sale in December They have sold 84 homes suggesting an absorption rate of 6.46 homes per month for the combined projects. KB Home opened for sale in December 2017 and has sold three suggesting a sales rate of about 2.0 units Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 69

172 per month. Both absorption rates are considered to be good sales rate for homes in the South County market. Our search of the local MLS revealed there are no current listings and no re-sales within the subject property. The homes appear in excellent condition with no physical depreciation of structures visually apparent. The sales rates within the subject and competitive projects in the immediate area suggests there is demand for new homes in the market at the right price points with current financing rates. This is confirmed by the Meyers Research absorption study. All of the homes are of good design and appear to be of good quality workmanship. Based on the subject neighborhood s sales rates, it is our conclusion that the highest and best use for the subject property is for the continued use, as improved. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 70

173 VALUATION ANALYSES AND CONCLUSIONS The Sales Comparison Approach will be the primary approach used to value the subject property. This approach compares similar properties that have recently sold or are in escrow to the subject parcels. In determining the value for the property, a unit of comparison needs to be addressed. For detached single-family lots, the lots are typically sold on a finished lot basis while for attached product, the lands are typically sold on a per unit basis with the condition of the land taken into consideration. That is, the sales price is determined by a finished lot value or a per unit value in a superpad condition, then the remaining costs to develop the property to a finished lot or superpad condition are taken into account in the sales price. Therefore, in determining a current market value for the lands, the current condition of the lots will be considered. The same approach will be used for the commercial properties which are typically sold in a superpad condition based on a per square foot price. In the case of the existing home valuations, a single new-home sale is the unit of comparison. Our search will include all new home projects within Otay Ranch to find comparable new homes for sale. In determining the value for each house, a base value will be concluded for each plan which will be considered a minimum market value as most buyers typically purchase some premiums, upgrades or options which increase the price of the home. In the case of the completed (over 95 percent complete) builder-owned models and production units, the homes will be valued using the Sales Comparison Approach to value to conclude on a retail value for each plan, followed by a Discounted Cash Flow ( DCF ) Analysis due to the single ownership for each neighborhood. The DCF will take into account the fair market value of the completed homes (utilizing the Sales Comparison Approach), remaining development costs (if any), the marketing and carrying costs associated with selling off the homes, a profit due to the developer of the homes, and a discount rate reflecting both the risk associated with selling off the homes along with the time value of money during the estimated absorption period. In the case of the individually owned homes, a concluded base value will be used for each plan and a mass appraisal technique will be used. In determining the concluded base value, new home sales in the Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 71

174 area will be reviewed and compared with sales of the subject completed homes using standard methodology and statistical testing. All of the value conclusions will assume that the improvements funded by the CFD No. 16-I IA 1, Special Tax Bonds are completed and in place and that the property is subject to the Special Tax Lien. The valuation will be presented as follows: First, a discussion of the comparable residential market data will be given. Each of the transactions will be detailed along with a comparison discussion of their relationship to the subject property based on a per lot or per unit price. A value conclusion for the residential lands will then be concluded. Next a discussion of the comparable commercial market data will be given. Again each transaction will be detailed along with a comparison discussion of their relationship to the subject property. A value conclusion for commercial land will be concluded. Following the land value conclusions, a value conclusion for each ownership will be completed. A summary of the final value conclusions will be reported at the end of this valuation section. Market Data Discussion and Valuation Analysis of Residential Land The area surrounding the subject was searched for recent sales in this submarket of San Diego County as well as other locations considered comparable to the South Bay area. Eleven transactions summarized in the Addenda that have been found to be most comparable to the subject property. Six of the sales found are located within the subject Millenia master planned community. Each transaction is discussed in relationship to the subject property below. Land Sale No. 1 refers to a recent purchase of an apartment site within the Millenia master planned community. The site is located just to the west of the CalAtlantic site and is currently vacant. The buyer, Trammel Crow, is approaching the completion of another apartment project within Millenia totaling 309 units (outside of subject area) that is expected to have move-ins starting this May. This project, to be known as Esplanade is expected to soon start construction of 253 units. This is the most recent residential land sale within the Millenia community as it closed in December It sold at a total purchase price of $9,200,000 which is equivalent to $36,364 per dwelling unit with the project having an overall density of 30.6 dwelling units per acre. In addition to the Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 72

175 purchase price, the buyer is to pay a Master Marketing Fee of $379,500 ($1,500 per unit) to go towards the marketing and advertising of the overall community. Land Sale No. 2 is the sale/acquisition of one of the subject properties located directly across from Land Sale No. 1. CalAtlantic is a large, publicly held builder that has recently merged with Lennar now becoming the largest builder in the country. The land purchase price at $3,510,000 is equivalent to $45,000 per dwelling unit. This transaction closed in June, 2017 and has an overall density of 20.9 dwelling units per acre. CalAtlantic had started in-tract infrastructure work at the time of our inspection and will soon be starting models for an attached townhome product to be called Boulevard at Millenia. Units are expected to range from 1,681 to 2,046 square feet with prices starting at about $445,000. In addition to the land purchase price, the buyer will pay to the master developer a Master Marketing Fee based on 1.5% of sale price of the units, as well as profit participation depending on the profitability of the project. Land Sale No. 3 is also the sale/acquisition of one of the subject parcels. It is located adjacent on the east side of Land Sale No. 2, the CalAtlantic project. KB Home purchased the site which is proposed for 79 single family detached small lots for $7,265,000 or $91,962 per dwelling unit. The overall density of this project is 10.9 dwelling units per acre. The sale closed at the same time as Land Sale No. 2 but the builder, KB Home, has completed the models and homes are currently offered for sale. The product is known as Skylar at Millenia and is a small lot detached program with two floor plans of 2,602 and 2,659 square feet. Current prices, at time of inspection, range from $596,490 to $630,990. Similar to Land Sale No. 2 the builder will be paying a Master Marketing Fee of 1.5% of the sale price of units along with profit participation. Land Sale No. 4 refers to the March 2017 purchase of a 3.14 acre site located at 1630 S. Melrose Drive in the City of Vista, about 45 miles north of the subject. Lennar Homes purchased the site from Warmington Land Associates who optioned the site from the First Church of Christ Scientist, Carlsbad-Vista, per an agreement dated August 26, Warmington mapped the site and initiated both engineering and architectural plans for 47 townhomes (3-story) on the site suggesting a dwelling unit per acre density. The map was ready to record and the engineering and architectural plans were in final plan Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 73

176 check at time of closing to Lennar. The site has an access easement from Melrose and has frontage on Live Oak, however the site is above grade of Live Oak. Lennar purchased the site for $4,300,000 or $91,489 per unit. In comparison to the subject, this site is considered to be slightly superior in location (Vista median home price of $476,250 versus Chula Vista median home price of $465,000), while inferior due to condition (existing church on site needing to be demolished). Land Sale No. 5 pertains to the purchase of a 6.3 acre parcel located in Oceanside approximately 50 miles northwest of the subject. City Ventures Homebuilding purchased the site for $6,405,000 which equates to $110,431 per unit. There are 58 townhomes proposed for the site suggesting a density of 9.2 dwelling units per acre. The site was a previously graded superpad with surrounding infrastructure in place, across the street from an existing motel and gas station and adjacent to a vacant Fresh and Easy Market. Per a broker knowledgeable with the transaction, the price was based on a $230,000 finished lot. In comparison to the subject property this site is considered to be slightly superior in location (Oceanside median home price is $474,500 versus Chula Vista s median home price of $465,000). Land Sale No. 6 refers to the sale of 9.43 acres within the Millennia master planned community, across the street from one of the subject commercial parcels. Trammell Crow purchased the site on March 3, 2016 for $15,350,000 or $49,676 per unit. This site is entitled for 309 units for a density of 32.8 dwelling units per acre. It is close to being completed with move-ins expected starting in May, This site is directly across Birch Road from the Otay Ranch Town Center. The project is known as Alexan, a luxury apartment complex. This project also has a master marketing fee based on $1,500 per unit. In comparison to the subject, this site is higher in density to the subject residential sites. Land Sale No. 7 refers to the February 2016 closing on a parcel within Otay Ranch Village Two. The site is located west of the subject property by approximately two miles. The 5.18 acre site is entitled for 94 multi-family units per the SPA Plan suggesting a density of dwelling units per acre. The property is generally level with frontage along Santa Carolina Road (turns in to Santa Diana Road just east of this site) which is fully improved Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 74

177 with utilities in the street. RV Management purchased the site for $4,000,000 which equates to $42,553 per unit. The property was previously foreclosed on during the recession. The site is not in a superpad condition but rather in a raw land condition which is considered to be inferior to the superpad condition. The subject sites have the majority of all surrounding infrastructure in place, are mass graded with utilities stubbed into the sites. This transaction has a similar density compared to some of the subject parcels. Other factors of this transaction are considered to be similar to the subject sites. Land Sale No. 8 refers to the sale of another subject site. It was delivered in a superpad condition and is located in Millennia at the northwest corner of Hunte and Eastvale Parkways. Shea Homes purchased the acres from the master developer, SLF IV- Millennia LLC in December The site has entitlements for 176 units resulting in an average density of dwelling units per acre. Shea Homes paid $10,350,000 which equates to a blended price of $58,807 per dwelling unit for the two products. Shea has completed models and is currently marketing two products on the site; Element (larger product with cluster detached units) and Z (smaller product with attached units). At the time of inspection base prices for Element started at $498,000 for detached homes that range from 1,775 to 2,248 square feet. Z is an attached, townhome product that ranges from 1,288 to 1,475 square feet and base prices starting at $386,000. The site was purchased in a superpad condition with other factors similar including master marketing fee and profit participation. It is an older sale having closed over two years prior to date of value. Land Sale No. 9 pertains to a sixth residential sale located in Millennia although not one of the subject properties. Genesis New Homes LLC (dba Meridian Development) purchased the acres from the master developer, SLF IV-Millennia LLC (a related entity) in June, 2015 for $12,000,000 or $55,300 per unit. The site has entitlements for 217 attached homes. This was the first closing of a for sale product within Millennia. Typically the first land sale closing is a bit lower than later sales, once the project gets the momentum of new home sales. The 217 homes suggest an overall density of dwelling units per acre. Meridian is currently marketing three projects on the site, Metro, Trio and Evo with homes ranging in size from 1,300 to 1,950 square feet. This is an older Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 75

178 land sale and was the first for sale product in Millennia. Similar to the other Millenia projects the buyer pays a Master Marketing Fee based on 1.5% of product sales price. Land Sale No. 10 refers to the sale of a small infill parcel located in Chula Vista in May This site is located along Dorothy Street near the I-5 in an older section of the City. The buyer, Muraoka Enterprises, Inc. purchased the property without entitlements and is processing the maps on the property now. The property was zoned for multi-family residential so the proposed project was allowed with existing zoning. There were old buildings on the site (a few small rental homes) which will be torn down in order to build condominiums. The buyer is processing a map for 39 units and a clubhouse on the site. It was purchased for $2.4 million or $93,600 per unit. The density on the property is units per acre. In comparison to the subject property this site is considered to be superior in location as it is an infill product near the major freeways, however inferior in condition. It should be noted that per public record the property sold for $1,350,000, however per both the listing and selling broker and other information obtained on the property, the sales price was $2.4 million. Land Sale No. 11 pertains to the sale of the old Marion Catholic High School site located in San Diego adjacent to the City of Imperial Beach about six miles southwest of Chula Vista. The site is an infill parcel that was sold to Shea Homes for $16,250,000 in February The acre site is under construction with 175 homes on small lots with a density of dwelling units per acre. The sales price equates to $92,857 per unit. Shea is currently selling the neighborhood known as Sea Glass on the property with home sizes from 1,662 to 1,999 square feet on small lots with pricing from $439,000 to $472,000. In comparison to the subject property this sale is considered superior in location and inferior due to the time elapse since the sale. The market data and comparisons to the subject are summarized on the following page: Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 76

179 Data No Acres/ Units Density 8.27 / / / / / / / / / / / Date of Sale Price/Unit Comparison to Subject 12/17 6/17 6/17 3/17 1/17 3/16 2/16 12/15 6/15 5/15 2/15 $36,364 $45,000 $91,962 $91,489 $110,431 $50,000 $42,553 $58,807 $55,300 $61,538 $92,857 Similar, Higher Density Subject Parcel, Recent Sale Subject Parcel, Recent Sale Superior - Location Inferior Condition Superior in location Similar, Higher Density Inferior Condition Subject Parcel, Older Sale Similar, Older Sale Inferior Condition Superior Location, Older Sale Three of the land sales summarized include subject parcels. These sales reflect prices per acre that are consistent with the other Millenia sales as well as other market data researched. Without making adjustments, the market data has an overall per unit range from $36,364 to $110,431. This wide range is mainly influenced by density as the various project densities range from 9.2 to 32.8 dwelling units per acre. Lower density product land typically sells at higher prices per unit and higher density product generally sells at lower per unit prices with other factors being equal. Subject parcels range in density from 10.9 to 20.9 dwelling units per acre all within the densities of the comparable market data. Land Sale Nos. 3 (Subject, KB Home), 5 and 11 are the lower density sales (from 9.2 to 11.1 dwelling units per acre) and sold for between $91,962 and $110,431 per unit, the three highest sales on a per unit basis. These sales provide the best value indications for Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 77

180 the lower density, single family detached program known as Skylar being developed by KB Home. Land Sale Nos. 4, 7, 8 (Subject, Shea Homes) and 9 have a density range from to 18.1, and sold on a per unit basis between $42,553 and $91,489. In our opinion these sales best represent the land value for the Shea Homes project (Data No. 8) which is a combination of cluster single family detached (Element at Millenia) and townhome (Z at Millenia) product. This subject site has a merged density of dwelling units per acre which would suggest a per unit value in the mid-range of the sales data between $55,000 and $65,000 per unit, similar to the actual purchase price of $10,350,000 or $58,807 per unit. This land sale closed in December, 2015 and an adjustment to the upper end of the range is appropriate reflecting increases in value over the past two years. Land Sale Nos. 1, 2 (Subject, CalAtlantic), 6 and 10 are the higher density land sales from the data researched and range from 20.9 to 32.8 units per acre. Sales prices for these data items range from $36,364 and $61,538 per unit. Data No. 2 ($45,000 per unit) is the subject property that is being developed by CalAtlantic Homes with a density of 20.9 dwelling units per acre at the lower end of the data densities. Market Data Nos. 7, 8 and 9 have a density from and 18.1 dwelling units per acre and range from $42,553 to $58,807 per unity in price. These sales also relate to this subject property. Based on this comparable data it appears that the purchase price of this subject site represents market value. As a secondary review we have looked at the market data on a density basis by inserting the eleven comparables into a graph and extracting a trend line to suggest the subject properties value ranges. The chart is shown on the following page. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 78

181 Price/Unit Price/Unit Density Using the above graph suggests the following ranges of value for the subject properties in a raw land condition. Lot No. Builder/Developer Density Price Range based on graph 1 Map Shea Homes $60,000 - $80,000 per unit 11 Map SLF IV-Millenia, LLC $50,000 - $70,000 per unit 14 Map KB Home $80,000- $100,000 per unit 17 Map CalAtlantic Homes $50,000 - $70,000 per unit The sale of the individual subject parcels is a very good indication of market value, in our opinion, with the comparable market data backing up the value conclusions. Data No. 8 represents the acquisition by Shea Homes over two years ago and suggests an increase over the purchase price to date of value range due to time. With the exception of Lot 11 of Map 16081, the subject residential parcels all have had land development occur. We have reviewed costs to develop proposed attached units on Lot 11 with finishing costs estimated at $78,600 per unit. Based on the market data, we have concluded that Lot 11 has a per unit value of $45,000. This suggests the finished pads would have a value in the $125,000 per unit range. Lot 17 of Map refers to the CalAtlantic owned property proposed for 78 attached homes to be built-out as Boulevard. The site is currently being graded meaning engineering is complete on the site. The total land development costs are estimated as $6,371,257 with $233,027 spent to date. This leaves $6,138,230 or $78,695 per lot in remaining costs. We have concluded that Lot 17 has a per unit value of $50,000. This suggests the finished pads would have a value in the $130,000 range. While the Lot 17 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 79

182 and Lot 11 have similar densities, Lot 17 has engineering complete and has begun grading suggesting that some of the risk to the builder has been alleviated. Lot 14 of Map refers to the KB Home owned property proposed for 79 single family detached units on small, condominium lots known as Skylar. The site has been graded and underground utilities are being installed. KB Home has completed two model homes (valued separately) and six production homes recently began construction. While the six production homes have begun construction, we will value these as lots rather than give value to a partially complete improvement. The total land development costs are estimated at $7,332,343 with $1,654,216 spent to date leaving $5,678,127 or $71,875 per lot in remaining costs. It should be noted that a portion of the costs spent to date are attributed to the two completed model homes which are valued later within this report. We have concluded that the Skylar lots have a per lot value of $100,000. This suggests the finished lots would have a value in the $170,000 range. Lot 1 of Map refers to the Shea Homes owned property which is currently being developed as Element (70 cluster detached units) and Z (106 attached units). Shea has developed the property into physically finished lots (actually a finished pad for a unit to be built on), with the streets and utilities stubbed to each pad. While the pads are in a physically finished condition, there are remaining development fees which need to be paid at certificate of occupancy in order to make them true finished pads. The total land development costs are $15,176,890 with $8,338,453 spent to date leaving $6,838,437 in remaining costs. This is broken out as $2,072,901 in remaining development costs and $4,765,536 in remaining fees. We have concluded that the blended price for the Shea owned pads is $145,000 for the lots in a true finished condition. The concluded values are shown below. Lot No. Builder/Developer Product Price/DU 1 Map Shea Homes Cluster & Attached $145, Map SLF IV-Millenia, LLC Attached $45, Map KB Home Detached $100, Map CalAtlantic Homes Attached $50,000 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 80

183 Commercial Land Valuation In addition to revenues generated from residential land uses, there are two commercial sites located within the subject area of the Millenia master planned community. These properties along, with proposed development, have been described earlier in this report. Our search for commercial land sales resulted in eight land transactions consisting of six sales and two current escrows which have been summarized in the Addenda and are discussed below. Land Sale Nos. 1, 2 and 6 refer to three commercially zoned properties located in Millenia which are planned for a large medical/office campus. Phase I is to be a medical office project with a proposed total of 324,100 square feet based on marketing information. This development will be located on Lot 7 of Final Map (APN: ). The site is one of the subject properties and sold about two years ago at a price equivalent to $8.35 per square foot (Date No. 6). According to the seller, this price was discounted due to the early close, prior to when development on the site could occur. In addition, the buyer has paid $350,000 ($1.14 per square foot) for additional grading on the site which included removing fill dirt for the below-ground floors of a future parking garage. The buyer has been processing plans through the City on this site. Phase II is proposed to be an office, life science, high tech campus consisting of four buildings and totaling over 700,000 square feet according to marketing materials. It will be located on Lot 1 of Final Map (APN: ). The property is under contract at a purchase price equivalent to $8.24 per square foot (Data No. 1). Per the seller this price was negotiated over two years earlier. In addition to the agreed upon amount, the buyer had expended upwards of $500,000 ($1.05 per square foot) out of escrow for additional grading on the site completed by the master developer which included removing fill dirt for the below ground floors of a future parking garage. Data No. 2 refers to a parcel within Millenia, however not a subject property but is planned for Phase III of the Millenia Office Campus. This escrow refers to Lot 19 of Final Map (APN: ). This site is under contract at a purchase price equivalent to $12.91 per square foot. It should be noted that Data No. 2 includes the possibility of a residential component of 150 units which we believe may Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 81

184 have affected the sales price. When reviewing the three land sales, which are all being purchased by LMC-Millenia Investment. Company L.P. (Chesnut Properties) for their Think, Invent and Discover campuses, the blended price of for the three parcels is $9.69 per square foot. It should be noted that the transactions were all negotiated about two years ago. Land Sale Nos. 3 and 5 refer to two additional commercial land sales within Millenia. Land Sale No. 3 pertains to a retail site (two parcels) that is under construction at this time. The parcels are located along the south side of Birch Road. MCV23, LLC purchased the site from SLF-IV Millenia LLC, the master developer, a related entity to Meridian. Plans on the site are for 135,000 square feet of retail, services and restaurant space. The property sold in April 2017 for $5,459,725 which suggests a per square foot amount of $ The lands were sold in a mass graded condition with surrounding streets in place. Land Sale No. 5 is the sale of a 2.5 acre parcel located adjacent to Data No. 1 to the north. Ayres Millenia LP purchased the site and is now under construction with a 135- room hotel. The site closed in April 2016 for $1,400,000 or $12.83 per square foot. The site is smaller than Data No. 3 or the subject parcels, which typically commands a higher price per square foot. Land Sale No. 4 pertains to the sale of a 15-acre commercial designated parcel located near the 905 (Otay Mesa) Freeway about five miles southwest of the subject site. The site was unimproved at time of sale in April 2017 when Blue Merced R 1414 LLC purchased it from the Roman Catholic Bishop of San Diego for $4,500,000 or for $5.12 per square foot. Raw land is significantly inferior when compared to a superpad within a development such as Millenia with entitlements in place. Land Sale Nos. 7 and 8 refer to two land sales within the Village of Eastlake approximately two and one-half miles northeast of the subject properties. The area is the commercial section of the Village of Eastlake which includes Eastlake Business Park, several retail centers along SR 125 and a new development known as the District at Eastlake, a health and entertainment center. This area has generally been built out over the last 10 years. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 82

185 These are two of the three or four final lots within the neighborhood. Land Sale No. 7 sold in May 2015 for $3,300,000 or $19.53 per square foot to a hotel user. There is a Hampton Inn Suites currently under construction on the 3.88-acre site. Land Sale No. 8 refers to a smaller (1.55-acre) infill site which was purchased for a self-storage site for $1,800,000 or $16.66 per square foot. Surrounding lands are built-out with the existing community of Eastlake. In comparison to the subject property these are considered to be superior due to the build-out of surrounding lands and the minimal amount of land left for development along with the smaller size in comparison to the subject lands. That is, typically smaller commercial lots sell on a higher per square foot basis. The sales are summarized below Data No. Location 1 W/S Millenia Ave., S/O Stylus St., Millenia MPC 2 W/S Millenia Ave., N/O Strata St., Millenia MPC 3 SE & SWC Birch Rd. & Millenia Ave., Millenia MPC 4 W/S Ocean View Hills; N/O SR 905, Otay Mesa 5 W/S Millenia Stylus St., Millenia MPC 6 E/S Millenia Ave., S/O Stylus St., Millenia MPC 7 S/S Fenton Harold Pl., Chula Vista 8 SEC Fenton St. & Hale Pl, Chula Vista Commercial Land Sale Summary Sale Size Price/ Date Acres Price Sq. Ft. Comments Esc $3,923,555 $8.24 Invent project Esc $4,623,890 $12.91 Discover project 4/ $5,459,725 $10.03 Retail site 4/ $3,500,000 $5.12 Raw Comml land 4/ $1,400,000 $12.83 Ayres Hotel 2/ $2,568,663 $8.35 Think project 5/ $3,300,000 $19.53 Hotel, adjacent to business park & retail 4/ $1,800,000 $16.66 Multi Tenant Self-storage The market data has a wide range from $5.12 to $19.53 per square foot. The highest price refers to a sale in the Eastlake Business area which is reaching build-out. The lowest price refers to a raw land sale which is significantly inferior in condition to the subject parcels. Data Nos. 7 and 8 are some of the last sales in the Otay Business area where the remaining finished sites have asking prices at $30.00 per square foot. In addition to the land sale data summarized above, we have also investigated six commercial land sales and listings around Brown Field about four miles to the southwest. Sale prices are Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 83

186 in the $12.00 per square foot range with asking prices slightly above. In our opinion, this location is inferior to the subject with land uses generally more industrial in character. Other land sales were reviewed that are located in northern portions of San Diego County in the Carlsbad area. These sales range in unit prices from just under $16.00 to $18.00 per square foot. In our opinion these locations are superior to the subject but are good indications of commercial land values for office locations. The two subject commercial sites are located on both sides of Millenia Avenue, one of the main arterial streets through the community and have prominent visibility within the development as well as from State Route 125 toll road. The commercial sites are proposed to be medical and high-tech office uses that should enhance the adjacent properties. Based on the comparable data and summarized considerations we have estimated the retail value of the commercial sites at $13.00 per square foot. SLF-IV Millenia Ownership Valuation SLF-IV Millenia owns Lot 1 and Lot 11 of Tract Lot 1 consists of a acre commercial parcel and Lot 11 consists of a 3.07 acre residential parcel entitled for 60 attached dwelling units. As previously discussed under the property description for the ownership, there are remaining land development costs of $745,000 associated with Lot 1 and $210,000 associated with Lot 11. It is the appraisers understanding that these remaining costs are the responsibility of the master developer, thus they will be included in the valuation of the master developer owned lands. As discussed above the commercial parcels have a concluded market value of $13.00 per square foot. Using the Meyers Research absorption tables for office, and assuming Lot 7 is developed as proposed, it will be leased up in three or four years. This suggests that Lot 1 will not be developed for approximately three to four years. Using the concluded current market value of $13.00 per square foot and discounting it for a three to four-year period at 10 percent per year suggests the parcel s current market value is $8.88 to $9.77 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 84

187 per square foot range. We have concluded that the subject Lot 1 has a current market value of $9.00 per square foot. Lot 1 Value Conclusion: Acres or 476,111 square feet x $9.00 = $4,284,997 Less: Remaining Development Costs (745,000) Lot 1 Value $3,539,997 (say) $3,540,000 As concluded above, Lot 11 has a current market value of $45,000 per unit with $210,000 in remaining costs associated with Lot 11. The value calculated as follows: Lot 11 Value Conclusion: 60 units x $45,000 = $2,700,000 Less: Remaining Development Costs (210,000) Lot 11 Value $2,490,000 Total SLF-IV Millenia Ownership Value Conclusion: Commercial Parcel (Lot 1) $3,540,000 Residential Lands (Lot 11) $2,490,000 Total SLF-IV Millenia Value $6,030,000 LMC-Millenia Investment Company L.P. Ownership Valuation LMC-Millenia Investment Company, L.P. owns Lot 7 of Tract Lot 7 consists of a acre commercial parcel. As concluded above the commercial parcels have a concluded current market value of $13.00 per square foot. The final value calculation for Lot 7 is as follows: Acres or 307,621 square feet x $13.00 = $3,999,073 (say) $4,000,000 CalAtlantic Ownership Valuation CalAtlantic owns Lot 17 of Tract Lot 17 consists of a acre residential parcel currently under land development for 78 attached homes. As concluded above Lot 17 has a per lot value of $50,000 per unit. The final value calculation is as follows: 78 units x $50,000 per unit = $3,900,000 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 85

188 KB Home Ownership Valuation KB Home owns two model homes and 77 lots which are currently under development. First the two model homes will be valued followed by the final calculation of the lots. Retail House Valuation Due to the single ownership of multiple houses by KB Home, a Discounted Cash Flow ( DCF ) analysis is needed in order to arrive at a bulk value for the homes. First, a retail value for each plan will be concluded followed by a DCF for the builder which will take into account the absorption time to sell off the builder owned houses, the costs associated with selling off the homes and any remaining costs owed by the builder within each neighborhood. The resulting revenue will be discounted using an appropriate rate to determine the builder owned bulk value. Skylar by KB Home consists of 79 proposed single family detached homes. There are two completed model homes with the remaining lands under development. In this analysis we will value each plan within Skylar and then use a discounted cash flow analysis to conclude at a bulk value for the builder owned homes. Below is a summary of the floor plans within Skylar. A listing of the improved residential comparable properties is located in the Addenda of this report. Skylar by KB Home Floors/ Ind. Bldr. Plan Bd/Ba Parking Sq. Ft. Owned Owned 1 4 / / 2 2, * 2 4 / / 2 2, * Total 0 2 *One of each of these plans is a model home. The most appropriate new home comparable data for Skylar Plan 1 are shown below. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 86

189 Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 1 4 / / 2 2, / / 2 2,248 $ / / 2 2,659 $ / / 2 2,438 $ / / 2 2,788 $ / 3 2 / 2 2,314 $ All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data Nos. 7, 10 and 11 are in more conventional neighborhoods without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. While there have been three sales within Skylar, we were unable to obtain the information on the sales prices. As they are not yet closed sales, we are not able to pull from public records. The new home comparables have a base price range from $ to $ per square foot. Skylar is a new design of a detached home with a zig-zag site plan. While there have been no closings within the project, the asking price for Plan 1 is $ per square foot. It should be noted that most homebuyers purchase some upgrades, premiums and options and builders typically offer some concessions. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The two homes appear to be in excellent condition with no depreciation visible. It has been concluded that Plan 1 has a base current market value of $ per square foot. This calculates as follows: 2,602 sf x $ = $585,450 The most appropriate new home comparable data for Skylar Plan 2 are shown below. Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 2 4 / / 2 2, / / 2 2,248 $ / / 2 2,602 $ / / 2 2,438 $ / / 2 2,788 $ / 3 2 / 2 2,314 $ Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 87

190 All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data Nos. 7, 10 and 11 are in more conventional neighborhoods without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. As they are not yet closed sales, we are not able to pull from public records. The new home comparables have a base price range from $ to $ per square foot. Skylar is a new design of a detached home with a zig-zag site plan. While there have been no closings within the project, the asking price for Plan 2 is $ per square foot. It should be noted that most homebuyers purchase some upgrades, premiums and options and builders typically offer some concessions. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The two homes appear to be in excellent condition with no depreciation visible. It has been concluded that Plan 2 has a base current market value of $ per square foot. This calculates as follows: 2,659 sf x $ = $598,275 Builder Owned Retail Value Within Skylar both builder-owned homes are model homes. Per interviews with builders, upgrades and landscape/hardscape of up to $100,000 are installed in the model homes, however, the builders generally consider this a marketing cost and do not anticipate recovering this investment on a dollar for dollar basis. Based on historical information, home sizes and fixtures, actual model home sales within the subject area and the current real estate market, a consideration of a $40,000 premium has been included with each of the model homes. The retail base value conclusions for the builder-owned homes are calculated as follows: Plan 1 (1 x $585,450) $ 585,450 Plan 2 (1 x $598,275) 598,275 Model Upgrades (2 x $40,000) 80,000 Total Skylar $ 1,263,725 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 88

191 Absorption Period In order to arrive at an absorption period for the builder owned homes within Skylar, the absorption rates for the comparable projects have been reviewed. The sales rates within Millenia range from 1.8 to 3.5 per month. In addition to reviewing actual sales rates, we have reviewed Meyers Research Market Absorption Study on Skylar which projects a sales rate in the 2.5 per month range. It is our understanding there were three homes sold between December 2017 when the project opened and February 1, We have concluded that the two model homes will be absorbed over a two-month time period. Remaining Costs There are no land development costs associated with the two existing model homes. Expenses In determining an expense rate, several builders in the subject area have been interviewed as to their expenses on selling existing inventory. Expenses include marketing and general administrative costs. These costs typically range from six to ten percent depending on varying factors such as absorption period, intensity of marketing, etc. Six percent has been estimated for marketing expenses and two percent for general and administrative costs for a total of eight percent in expenses for the subject neighborhoods analyses. Profit Several interviews with merchant builders in the area were conducted in order to determine an appropriate profit percentage for the subject properties. In the early 2000s, developers typically attempted to achieve a 10 to 12 percent profit based on gross sales proceeds. During the Great Recession, this range was lowered considerably to six to eight percent with some builders drastically lowering their profit margins in order to maintain their work force. As the market improved, so did the profits. This appears to be occurring once again as prices have increased in the past year. An eight percent profit is considered appropriate in the analysis for these neighborhoods. Discount Rate In selecting a discount rate, the following was completed: Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 89

192 1. Interviews with merchant builders in the South San Diego market area 2. Review of current market conditions including current market rates as well as yields reflected in other markets (i.e., municipal bonds, corporate bonds, etc.) 3. The quality, construction, historical sales and product on the subject properties 4. Discussed the project with equity investors and master plan community developers The homes within Millenia have been well received in the marketplace with average to good absorption rates. Due to the good sales rates and minimal supply, a ten percent discount rate is considered appropriate for the subject neighborhoods. Discounted Cash Flow Summary The discounted revenue (see DCF Analyses in Addenda) for the builder owned homes resulted in the value of $1,048,406 (say) $1,050,000. KB Homes Ownership Final Valuation KB Home owns two model homes and 77 partially finished lots within Skylar at Millenia located on Lot 14 of Tract In the valuation of the residential lands above, the land improvements to date were considered in the conclusion per lot value of $100,000. The final value conclusion for the KB Home owned property is shown below. 77 partially finished lots $7,700,000 Two model homes $1,050,000 Total KB Home Ownership Valuation $8,750,000 Shea Homes Ownership Valuation Shea Homes owns six model homes, seven production homes over 95 percent complete, 27 homes under construction and 83 partially finished lots located on Lot 1 of Map The homes are being built out as Element and Z at Millenia with Element being a cluster product of detached homes and Z being attached homes. First each plan within the builder owned homes will be valued followed by the final calculation of the lot value in order to arrive at a Shea Homes Ownership total valuation. Next the concluded value for each plan will be used to arrive at a minimum market value for the individually owned homes. That is, typically a homebuyer purchases some upgrades, options or premiums when purchasing a new home. Our value will be for the base value of the home not taking into consideration any upgrades, options or premiums. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 90

193 Retail House Valuation Element and Z consist of 176 proposed homes, 53 which are individually owned, 13 (including six models) which are over 95 percent complete and owned by the builder (four in escrow), 27 homes under construction and 83 remaining lots. In this analysis we will value each plan within Element and Z and then use a discounted cash flow analysis to conclude at a bulk value for the builder owned homes. Due to the single ownership of multiple houses by Shea Homes, a Discounted Cash Flow ( DCF ) analysis is needed in order to arrive at a bulk value for the homes. First, a retail value for each plan will be concluded followed by a DCF for the builder which will take into account the absorption time to sell off the builder owned houses, the costs associated with selling off the homes and any remaining costs owed by the builder within each neighborhood. The resulting revenue will be discounted using an appropriate rate to determine the builder owned bulk value. The DCF analyses will be followed by a reporting of the concluded values for the individually owned homes within each neighborhood using the concluded base retail value for each plan with a separate check of the analysis utilizing a mass appraisal technique based on actual sales prices of the homes. Below is a summary of the floor plans within Element and Z. A listing of the improved residential comparable properties is located in the Addenda of this report. All of the improved residential properties are located within Otay Ranch. Element and Z by Shea Homes Plan Bd/Ba Floors/ Parking Sq. Ft. Ind. Owned Bldr. Owned Z-1 2 / / 2 1, Z-2 3 / / 2 1, * Z-3 3 / / 2 1, * E-1 3 / / 2 1, * E-2 3 / / 2 1, * E-3 4 / / 2 2, * E-4 4 / / 2 2, * Totals *One of each of these plans is a model home. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 91

194 The most appropriate new home comparable data for Z Plan 1 are shown on the following page. Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 1 2 / / 2 1, / / 2 1,430 $ / / 2 1,475 $ / / 2 1,298 $ / / 2 1,384 $ / / 2 1,653 $ / / 2 1,278 $ All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data No. 8 is in a more conventional neighborhood without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $ to $ per square foot. Plan 1 within Z has a current base asking price of $ per square foot. There have been three closings of Plan 1 with sales prices ranging from $ to $ per square foot. It should be noted that the actual sales prices include upgrades, options and premiums which were purchased from the builder along with any concessions given by the builder. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The homes appear to be in excellent condition with no depreciation visible. It has been concluded that the Z Plan 1 has a base current market value of $ per square foot. This calculates as follows: 1,288 sf x $ = $373,520 The most appropriate new home comparable data for Z Plan 2 are shown below. Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 2 3 / / 2 1, / / 2 1,288 $ / / 2 1,475 $ / / 2 1,384 $ / / 2 1,495 $ / / 2 1,653 $ / / 2 1,278 $ Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 92

195 All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data No. 8 is in a more conventional neighborhood without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $ to $ per square foot. Plan 2 within Z has a current base asking price of $ per square foot. There have been ten closings of Plan 2 with sales prices ranging from $ to $ per square foot. It should be noted that the actual sales prices include upgrades, options and premiums which were purchased from the builder along with any concessions given by the builder. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The homes appear to be in excellent condition with no depreciation visible. It has been concluded that the Z Plan 2 has a base current market value of $ per square foot. This calculates as follows: 1,430 sf x $ = $400,400 The most appropriate new home comparable data for Z Plan 3 are shown below. Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 3 3 / / 2 1, / / 2 1,288 $ / / 2 1,430 $ / / 2 1,384 $ / / 2 1,495 $ / / 2 1,653 $ / / 2 1,278 $ All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data No. 8 is in a more conventional neighborhood without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $ to $ per square foot. Plan 3 within Z has a current base asking price of $ per square foot. There have been 12 Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 93

196 closings of Plan 3 with sales prices ranging from $ to $ per square foot. It should be noted that the actual sales prices include upgrades, options and premiums which were purchased from the builder along with any concessions given by the builder. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The homes appear to be in excellent condition with no depreciation visible. It has been concluded that the Z Plan 3 has a base current market value of $ per square foot. This calculates as follows: 1,475 sf x $ = $413,000 The most appropriate new home comparable data for Element Plan 1 are shown below. Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 1 3 / / 2 1, / / 2 1,915 $ / / 2 2,157 $ / / 2 2,602 $ / / 2 2,014 $ / 3 2 / 2 1,950 $ / 3 2 / 2 1,988 $ All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data Nos. 7, 9 and 11 are in more conventional neighborhoods without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $ to $ per square foot. Plan 1 within Element has a current base asking price of $ per square foot. There have been eight closings of Plan 1 with sales prices ranging from $ to $ per square foot. It should be noted that the actual sales prices include upgrades, options and premiums which were purchased from the builder along with any concessions given by the builder. In a larger product, such as Element, the buyer typically purchases more upgrades and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The homes appear to be in excellent condition with no depreciation visible. It has been concluded that the Element Plan 1 has a base current market value of Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 94

197 $ per square foot. This calculates as follows: 1,775 sf x $ = $488,125 The most appropriate new home comparable data for Element Plan 2 are shown below. Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 2 3 / / 2 1, / / 2 1,775 $ / / 2 2,157 $ / / 2 2,602 $ / / 2 2,014 $ / 3 2 / 2 1,950 $ / 3 2 / 2 1,988 $ All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data Nos. 7, 9 and 11 are in more conventional neighborhoods without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $ to $ per square foot. Plan 2 within Element has a current base asking price of $ per square foot. There have been six closings of Plan 2 with sales prices ranging from $ to $ per square foot. It should be noted that the actual sales prices include upgrades, options and premiums which were purchased from the builder along with any concessions given by the builder. In a larger product, such as Element, the buyer typically purchases more upgrades and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The homes appear to be in excellent condition with no depreciation visible. It has been concluded that the Element Plan 2 has a base current market value of $ per square foot. This calculates as follows: 1,915 sf x $ = $517,050 The most appropriate new home comparable data for Element Plan 3 are shown on the following page. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 95

198 Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 3 4 / / 2 2, / / 2 1,915 $ / / 2 2,248 $ / / 2 2,602 $ / / 2 2,014 $ / 3 2 / 2 2,165 $ / 3 2 / 2 2,021 $ All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data Nos. 7, 9 and 11 are in more conventional neighborhoods without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $ to $ per square foot. Plan 3 within Element has a current base asking price of $ per square foot. There have been seven closings of Plan 3 with sales prices ranging from $ to $ per square foot. It should be noted that the actual sales prices include upgrades, options and premiums which were purchased from the builder along with any concessions given by the builder. In a larger product, such as Element, the buyer typically purchases more upgrades and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The homes appear to be in excellent condition with no depreciation visible. It has been concluded that the Element Plan 3 has a base current market value of $ per square foot. This calculates as follows: 2,157 sf x $ = $556,506 The most appropriate new home comparable data for Element Plan 4 are shown below. Data Plan Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. 4 4 / / 2 2, / / 2 1,915 $ / / 2 2,157 $ / / 2 2,602 $ / 3 2 / 2 2,177 $ / 3 2 / 2 2,165 $ / 3 2 / 2 2,314 $ Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 96

199 All new home comparables are located within Otay Ranch. All are of similar quality, design and appeal; however, Data Nos. 7, 9 and 11 are in more conventional neighborhoods without the urbanization within Millenia. Adjustments were considered (when applicable) for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new home comparables have a base price range from $ to $ per square foot. Plan 4 within Element has a current base asking price of $ per square foot. There have been seven closings of Plan 4 with sales prices ranging from $ to $ per square foot. It should be noted that the actual sales prices include upgrades, options and premiums which were purchased from the builder along with any concessions given by the builder. In a larger product, such as Element, the buyer typically purchases more upgrades and options. Our concluded price is based on the base price of the home with no upgrades, premiums or options. The homes appear to be in excellent condition with no depreciation visible. It has been concluded that the Element Plan 4 has a base current market value of $ per square foot. This calculates as follows: 2,248 sf x $ = $577,736 Builder Owned Retail Value Within Z & Element there are six builder-owned model homes and an additional seven production homes over 95 percent complete. Per interviews with builders, upgrades and landscape/hardscape of up to $100,000 are installed in the model homes, however, the builders generally consider this a marketing cost and do not anticipate recovering this investment on a dollar for dollar basis. Based on historical information, a consideration of a $40,000 premium has been included with each of the model homes. The retail base value conclusions for the builder-owned homes are calculated as shown below. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 97

200 Plan Z-1 (1 x $373,520) $ 373,520 Plan Z-2 (2 x $400,400) 800,800 Plan Z-3 (2 x $413,000) 826,000 Plan E-1 (1 x $488,125) 488,125 Plan E-2 (3 x $517,050) 1,551,150 Plan E-3 (2 x $556,506) 1,113,012 Plan E-4 (2 x $577,736) 1,155,472 Model Upgrades (6 x $40,000) 240,000 Total Z & Element $ 6,548,079 Absorption Period In order to arrive at an absorption period for the builder owned homes within Z and Element, the absorption rates for both Z and Element have been reviewed along with the comparable project s absorption rates. Z and Element opened for sale in December Z at Millenia has sold 35 homes suggesting an average sales rate of 2.69 homes per month while Element has sold 49 homes suggesting an average sales rate of 3.7 sales per month. The two projects together have sold 84 homes suggesting an average of 6.46 sales per month for the two projects combined. The other new home project sales rates within Millenia range from 1.8 to 3.5 per month. In addition to reviewing actual sales rates, we have reviewed Meyers Research Market Absorption Study on Z and Element which projects a sales rate in the 3.5 per month for each project or in the 7.0 sales per month range for the combined projects. We have concluded that the 13 builder-owned homes (including six model homes) will be absorbed over a three-month time period. Remaining Costs As discussed earlier within this report the Shea Homes owned property has some remaining costs associated with the land development. There are an additional $2,072,901 in land development costs and an additional $4,765,536 in development fees. The land development costs should be spread across all builder owned property which includes the 13 builder-owned homes, the 27 homes under construction and the 83 remaining lots for a total of 123 lots. Dividing the $2,072,901 by the 123 lots suggests a per lot remaining cost of $16,853 (say) $16,900 per lot. The remaining fees are associated with the lots only and will be considered in the land valuation below. There Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 98

201 are 13 houses which suggests there are $219,700 ($16,900 x 13) in remaining land development costs associated with the builder owned completed homes. For purposes of this analysis we are estimating the remaining land development costs will be spread evenly over the absorption period. Expenses In determining an expense rate, several builders in the subject area have been interviewed as to their expenses on selling existing inventory. Expenses include marketing and general administrative costs. These costs typically range from six to ten percent depending on varying factors such as absorption period, intensity of marketing, etc. Six percent has been estimated for marketing expenses and two percent for general and administrative costs for a total of eight percent in expenses for the subject neighborhoods analyses. Profit Several interviews with merchant builders in the area were conducted in order to determine an appropriate profit percentage for the subject properties. In the early 2000s, developers typically attempted to achieve a 10 to 12 percent profit based on gross sales proceeds. During the Great Recession, this range was lowered considerably to six to eight percent with some builders drastically lowering their profit potential in order to maintain their work force. As the market improved, so did the profits. This appears to be occurring once again as prices have increased in the past year. An eight percent profit is considered appropriate in the analysis for these neighborhoods. Discount Rate In selecting a discount rate, the following was completed: 1. Interviews with merchant builders in the South San Diego market area 2. Review of current market conditions including current market rates as well as yields reflected in other markets (i.e., municipal bonds, corporate bonds, etc.) 3. The quality, construction, historical sales and product on the subject properties 4. Discussed the project with equity investors and master plan community developers Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 99

202 The homes within Millenia have been well received in the marketplace with average to good absorption rates. Due to the good sales rates and minimal supply, a ten percent discount rate is considered appropriate for the subject neighborhoods. Discounted Cash Flow Summary The discounted revenue (see DCF Analyses in Addenda) for the builder owned homes resulted in the value of $5,193,882 (say) $5,195,000. Shea Home Ownership Shea Homes owns 13 homes over 95 percent complete (including six models), 27 homes under construction and 83 generally finished lots. The homes under construction will be valued on the basis of a finished lot rather than give value to a partially completed improvement, therefore, 110 lots will be valued. We have concluded on a value for the finished lots of $145,000, however there are some outstanding land development costs to get to a true finished lot ($16,900 per lot per above discussion). In addition, there are remaining development fees which need to be paid at building permit or occupancy permit which total $4,765,536. The land valuation for the Shea Homes owned lots is as follows: 110 Lots x $145,000 $15,950,000 Less: Remaining Development Costs ( 1,859,000) Remaining Development Fees ( 4,765,536) Shea Homes Ownership Lot Valuation $9,325,464 (say) $9,325,500 The final value conclusion for the Shea Homes owned property is shown below. 110 partially finished lots $ 9,325, Builder Owned Houses $ 5,195,000 Total Shea Homes Ownership Valuation $14,520,500 Individual Owners Value Conclusion In determining the value for the individually owned homes, we have considered the concluded base price value for the homes which is considered a minimum market value. This is due to homebuyers typically purchasing some upgrades and options or paying Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 100

203 premiums for the lot. Within Element and Z there are 53 individually owned homes. The concluded values are shown below: Z and Element Individual Owned Homes Plan Z-1 (3 x $373,520) $ 1,120,560 Plan Z-2 (10 x $400,400) 4,004,000 Plan Z-3 (12 x $413,000) 4,956,000 Plan E-1 (8 x $488,125) 3,905,000 Plan E-2 (6 x $517,050) 3,102,300 Plan E-3 (7 x $556,506) 3,895,542 Plan E-4 (7 x $577,736) 4,044,152 Total Z & Element Individual Ownership $25,027,554 In an additional analysis, we have reviewed the actual builder sales prices for the homes within Z and Element. Sales occurred between late November 2016 and December 18, 2017 with closings occurring in December The builder reported closing prices for the individually owned homes totals $25,547,590. The actual sales prices include any upgrades, premiums or options purchased by the homeowner while our concluded value is for the base value of the homes. The actual sales prices further substantiate the concluded minimum market values for the Z and Element individually owned homes. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 101

204 APPRAISAL REPORT SUMMARY The appraisal assignment was to value the subject property within the City of Chula Vista CFD No. 16-I Improvement Area No. 1 which includes 393 proposed residential units and two commercial parcels being developed within the master planned community known as Mellenia. There are currently two builders selling new homes within Improvement Area No. 1 with a third builder beginning land development. The parcels have all been mass graded with the currently selling neighborhoods ranging from completed, individually owned homes to builder owned homes, to homes under construction and finally to partially finished lots. Closings began in December 2017 with 53 homes closed to individuals as of February 1, The currently selling projects are experiencing average to good sales rates. All structures appear to be in excellent condition with no visible depreciation. We have reviewed builder sales and reviewed the MLS for re-sales. The subject property was valued utilizing the Sales Comparison Approach to value to ascertain the retail values of the lands, then using a Discounted Cash Flow for the homes owned by the builders that are over 95 percent complete and a mass appraisal technique for the individually owned homes. A minimum value was determined by concluding at a base value for the homes. The valuation took into account the improvements/benefits to be funded by the Special Tax CFD 16-I IA 1 Bond proceeds along with the CFD 16-I IA 1 special tax lien. The concluded aggregate value for the subject properties, subject to their respective special tax lien, is: (Portion of) Millenia: SLF-IV-Millenia, LLC Ownership $ 6,030,000 LMC-Millenia Inv. Company, L.P. Ownership 4,000,000 CalAtlantic Ownership 3,900,000 KB Home Ownership 8,750,000 Shea Homes Ownership 14,520,500 Individually Owned Homes Minimum Market Value $ 25,027,554 Aggregate Value for CFD No. 16-I IA 1 $ 62,228,054 The above values are stated as of said date of value and subject to the attached Assumptions and Limiting Conditions, Hypothetical Condition and Extraordinary Assumptions herein, and the attached Appraiser s Certification. Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 100

205 APPRAISERS CERTIFICATION The appraiser certifies that to the best of his knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased, professional analyses, opinions and conclusions. 3. The appraisers have no present or prospective interest in the property that is the subject of this report, and no personal interest or bias with respect to the parties involved. 4. The appraisers compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result or the occurrence of a subsequent event. 5. This appraisal was not based on a requested minimum valuation, a specific valuation or the approval of a loan. 6. The analyses, opinions and conclusions were developed, and this report was prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. 7. Kitty Siino and Larry Heglar have made a personal inspection of the property that is the subject of this report. 8. Kitty Siino and Larry Heglar have performed appraisal services on the subject property in the past three years. This report is an update to the original report which had a June 28, 2017 date of value. 9. No other appraisers have provided significant professional assistance to the persons signing this report. 10. The reported analyses, opinions and conclusions were developed, and this report was prepared, in conformity with the requirements of the Appraisal Institute s Code of Professional Ethics and Standards of Professional Appraisal Practice, which include the Uniform Standards of Professional Appraisal Practice. 11. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 12. As of the date of this report, both Larry Heglar and Kitty Siino have completed the requirements of the continuing education program of the Appraisal Institute. Larry W. Heglar, MAI Kitty S. Siino, MAI State Certified General Real Estate Appraiser (AG004793) Appraisal Report City of Chula Vista CFD 16-I, Improvement Area No. 1 (Millenia) Kitty Siino & Associates, Inc. Page 101

206 ADDENDA

207 CFD NO. 16-I IMPROVEMENT AREA A BOUNDARY MAP

208

209 TRACT MAP 16081, 15942, 16150, ADJUSTMENT PLAT , SHEA AND KB SITE PLANS

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211

212

213

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216 BUILDER-OWNED HOMES DISCOUNTED CASH FLOW ANALYSES

217 Skylar at Millenia Discounted Cash Flow Analysis MONTH MONTH 1 MONTH 2 TOTAL INCOME: Retail Sales $631,863 $631,863 $1,263,725 TOTAL INCOME $631,863 $631,863 $1,263,725 EXPENSES: Remaining Costs Marketing & Carrying Expenses ($50,549) ($50,549) ($101,098) Profit ($50,549) ($50,549) ($101,098) TOTAL EXPENSES ($101,098) ($101,098) ($202,196) NET CASH FLOW $530,765 $530,765 $1,061,529 Discount Factor DISCOUNTED CASH FLOW $526,378 $522,028 $1,048,406 CUMULATIVE DISCOUNTED $526,378 $1,048,406 $1,048,406 CASH FLOW

218 Z & Element at Millenia Discounted Cash Flow Analysis MONTH MONTH 1 MONTH 2 MONTH 3 TOTAL INCOME: Retail Sales $2,182,693 $2,182,693 $2,182,693 $6,548,079 TOTAL INCOME $2,182,693 $2,182,693 $2,182,693 $6,548,079 EXPENSES: Remaining Costs ($73,233) ($73,233) ($73,233) ($219,700) Marketing & Carrying Expenses ($174,615) ($174,615) ($174,615) ($523,846) Profit ($174,615) ($174,615) ($174,615) ($523,846) TOTAL EXPENSES ($422,464) ($422,464) ($422,464) ($1,267,393) NET CASH FLOW $1,760,229 $1,760,229 $1,760,229 $5,280,686 Discount Factor DISCOUNTED CASH FLOW $1,745,681 $1,731,254 $1,716,946 $5,193,882 CUMULATIVE DISCOUNTED $1,745,681 $3,476,936 $5,193,882 $5,193,882 CASH FLOW

219 FINISHED LOT LAND SALES MAP & SUMMARY CHART

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221 RESIDENTIAL SALES SUMMARY CHART Location/Seller W/S Millenia Strata St., Millenia, Otay Ranch, Chula Vista/ SLF IV-Millenia, LLC SEC Millenia Ave. & Strata St., Millenia, Otay Ranch, Chula Vista / SLF IV-Millenia, LLC SWC Orion Ave. & Strata St., Millenia, Otay Ranch, Chula Visa / SLF IV- Millenia, LLC 1630 S. Melrose Drive, Vista / Warmington (Christian Science Church) W/S Vine, N/O Oceanside Blvd, Oceanside / Weseloh Grosse LLC S/S Birch Road between Millenia & Orion Avenues, Millennia, Otay Ranch, Chula Vista / SLF IV-Millenia LLC S/S Santa Carolina at Santa Christina, Village Two Planning Area R-28, Montecito Village at Otay Ranch / Golden Trust et al NWC Eastlake Parkway & Hunte Parkway, Millennia, Otay Ranch, Chula Vista / SLF IV Millennia LLC W/S Eastlake Parkway between Stylus and Strata Streets, Millennia, Otay Ranch, Chula Vista / SLF IV Millennia LLC South side Dorothy Street between I- 5 and Industrial Blvd, Chula Vista / MAR Group V LLC / & 09 Buyer Trammel Crow Sales Date Acres / Units 12/19/ / 253 CalAtlantic Homes 6/9/ / 78 KB Home 6/9/ / 79 Lennar 3/09/ / 47 City Ventures 1/5/ / 58 Trammel Crow 3/23/ / 309 RV Management 2/2/ / 94 Shea Homes 12/10/ / 176 Genesis (Meridian) 6/30/ / 217 Muraoka Enterprises 5/27/ / th Street, San Diego / MCP Ventures Llc / , 17, 18 Shea Homes 2/2/ / 175 Use/ Density MF / 30.6 MF / 20.9 SFD / 10.9 SFA / SFA / 9.2 MF / 32.8 MF / 18.1 MF / MF / SFA / SFD / 11.1 Sales Price/ Price-Unit $9,200,000 / $36,364 $3,510,000 / $45,000 $7,265,000 $91,962 $4,300,000 / $91,489 $6,405,000 / $110,431 $15,350,000 / $49,676 $4,000,000 / $42,553 $10,350,000 / $58,807 $12,000,000 $55,300 $2,400,000 / $61,538 $16,250,000 / $92,857 Comments Apartment site sold in superpad condtion. Construction scheduled to start 1 st Qtr, Buyer to pay Master Marketing Fee of $379,500. Located just east of CalAtlantic project. Site delivered in mass-graded condition & fine grading in process at time on inspection. Master Marketing 1.5% of product price. Builder also to pay profit participation. Site delivered in mass-graded condition. Models open for Skylar product with homes 2,602 & 2,659 SF. Master Marketing 1.5% of product price. Profit participation based on builder profit to be paid. Warmington optioned property mapped and began architectural and engineering plans before selling to Lennar. Existing Church on site which needs to be demolished. Site in previously graded superpad condition with surrounding streets in place. Across from existing motel and gas station and adjacent to empty market. Site sold in superpad condition. Buyer currently under construction with a 309 unit apartment site to be known as Alesan. First units anticipate delivery in March Adjacent to Otay Ranch Town Center. Property sold for $42,553 per unit with estimated finishing costs of $70,000 per unit. The site was raw land with some of the surrounding streets in place. Sold in superpad condition. Shea homes is now marketing their Element product (SFD) and Z project (attached) on the site. Meridian Development, is developing the site which was purchased in a superpad condition. First residential for sale product in Millennia. Meridian now marketing three products, Metro, Trio and Evo. Property had old homes at time of sale with all of the value attributed to the land. Buyer has processed entitlements for 39 townhomes; 3-4 bedroom with a community clubhouse. The old Marion High School (Catholic High School) site. Land sat vacant since 2007 and became a nuisance. Entitled for 175 SFD homes on small lots. Project now under construction.

222 COMMERCIAL LAND SALES MAP AND SUMMARY CHART

223

224 Commercial Land Sale Summary Data No. Location / APN / Seller Buyer Sale Date Size Acres Price Price/ Sq. Ft. Comments (expand) West side of Millenia Ave., south of Stylus St., Millenia, Chula Vista / / SLF IV Millenia LLC West side of Millenia Ave., north of Strata St., Millenia, Chula Vista / / SLF IV Millenia LLC South side of Birch Rd. between Orion and Millenia Avenues, Millenia, Chula Vista / amd 56 / SLF IV Millenia LLC West side of Ocean View Hills Parkway at Otay Mesa Road, Otay Mesa, City of San Diego / / Roman Catholic Bishop of S.D. West side of Millenia Ave. at Stylus St., Millenia, Chula Vista / / SLF IV Millenia LLC East side of Millenia Ave., south of Stylus St., Millenia, Chula Vista / / SLF IV Millenia LLC South side of Fenton St. at Harold Pl., Eastlake, Chula Vista / / Eastlake Corporate Center Southeast corner of Fenton St & Hale Place, Eastvale, Chula Vista / / Fenton Street LLC LMC-Millenia Inv. Co. LP (Chesnut) LMC-Millenia Inv. Co. LP (Chesnut) Esc $3,923,555 $8.24 Esc $4,623,890 $12.72 Invent project proposed for 700,000 square feet of Class A Office Space in four 4-7 story buildings along with a 6,100 square foot amenity building. A six-level parking structure is planned with a four-level additional structure. Some marketing materials suggest Office/Life Science/High Tech space expandable to over 1 million square feet. Discover project. Marketing materials include a proposed 407,100 square foot office space with a 13,250 sf accessory space and a five-level parking garage. Some marketing materials propose a Hospital/Life Science building for 400,000 square feet expandable to 700,000 square feet.(10-stories)/ Site has entitlements to house 150 residential units (not in current plans). MCV23 LLC 4/ $5,459,725 $10.03 Retail site Under construction with 135,000 square feet of retail, services and restaurants. Within Millenia to provide commercial for surrounding residences. Blue Merced R 1414 Llc 4/ $3,500,000 $5.12 Commercial zoned parcel adjacent to the Playa del Sol residential planned development consisting of over 1,500 condominiums. Ayers Millenia LP 4/ $1,400,000 $12.83 LMC-Millenia Inv. Co. LP (Chesnut) Sethi Family Trust / Baz Family Trust Pacific EastLake LLC In Millenia with frontage on SR 125. Ayres purchased for to build a boutique 135-room hotel. Currently under construction. 2/ $2,568,663 $8.35 Think project. Building plans in to city for 424,100 square feet of medical office and amenity building. 5/ $3,300,000 $ / $1,800,000 $26.66 In Eastlake Business area which is generally built-out. Frontage on Otay Lakes Road. Hampton Suites Inn and Homewood Suites by Hilton planning a dual hotel on site. Located adjacent to business park & retail. In Eastlake Business area which is generally built-out. Self Storage project currently under construction.

225 IMPROVED RESIDENTIAL SALES MAP & SUMMARY CHART

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227 IMPROVED RESIDENTIAL SALES SUMMARY CHART Data No. Project Name Location/Developer Plan Room Count Size (SF) Floors/ Parking Lot Size/ Base Sales Price Price/SF 1 Element, Millenia, Solstice Avenue and Strata Street, Otay Ranch, Chula Vista / Shea / / / / 3.5 1,775 1,915 2,157 2,248 3 / 2 3 / 2 3 / 2 3 / 2 Cluster $498,000 $523,000 $564,000 $587,000 $ $ $ $ Z, Millenia, Solstice Avanue and Strata Street, Otay Ranch, Chula Vista / Shea Skylar, Millenia, Orion Avenue and Strata Street, Otay Ranch, Chula Vista / KB Home Metro, Millenia, Eastlake Parkway and Optima Street, Otay Ranch, Chula Vista / Meridian / / / / / / / / / 2.5 1,288 1,430 1,475 2,602 2,659 1,298 1,384 1,495 1,694 3 / 2 3 / 2 3 / 2 3 / 2 3 / 2 2 / 2 2 / 2 2 / 2 2 / 2 Att. $386,000 $409,000 $426,000 2,000 $596,490 $613,490 Att. $390,000 $412,000 $429,000 $465,000 $ $ $ $ $ $ $ $ $ Trio, Millenia, Eastlake 5 Parkway and Optima Street, Otay Ranch, Chula Vista / Meridian Parc Place, Village Two, 6 Otay Ranch, Chula Vista / Heritage 7 Aventine, Village Two, Otay Ranch, Chula Vista / Cornerstone 8 Flora at Escaya, Village Three Otay Ranch, Chula Vista / Brookfield Homes / / / 3 2 / 2 2 / / / / 3 5 / / / / 2.5 1,653 1,662 1,880 1,116 1,583 1,587 2,014 2,177 2,438 1,278 1,495 1,710 2 / 2 2 / 2 2 / 2 2 / 1 2 / 1 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 Att. $451,000 $468,000 $499,000 Att. $357,900 $399,000 $421,900 2,975 $521,990 $541,990 $587,990 Att. $371,000 $394,000 $438,000 $ $ $ $ $ $ $ $ $ $ $ $ Indigo at Escaya, Village Three Otay Ranch, Chula Vista / CalAtlantic 10 Seville at Escaya, Village Three Otay Ranch, Chula Vista / Shea 11 Valencia at Escays, Village Three Otay Ranch, Chula Vista / CalAtlantic / 3 4 / 3 4 / 3 4 / 3 4 / / / 3 4 / 3 4 / 3 1,950 2,011 2,165 2,498 2,788 2,949 1,988 2,021 2,314 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2,940 $541,900 $569,900 $585,900 3,600 $621,000 $655,000 $662,000 2,700 $570,900 $563,900 $610,000 $ $ $ $ $ $ $ $ $263.61

228 APPRAISERS QUALIFICATIONS

229 QUALIFICATIONS OF KITTY S. SIINO, MAI Education Bachelor of Arts in Business Administration, Financial Investments, California State University, Long Beach, California (1980) Post-Graduate Study, Real Estate Development, University of California, Irvine, California Appraisal Institute Classes: Uniform Standards of Professional Appraisal Practice, A & B; Appraisal Principles; Appraisal Procedures; Basic Income Capitalization; Advanced Income Capitalization; Narrative Report Writing; Advanced Applications, Case Studies. Successfully completed all classes in addition to successfully completing the writing of a Demonstration Report and taking the Comprehensive Exam. Became a Member of the Appraisal Institute in December Have completed over 100 hours of continuing education through the Appraisal Institute every five years. Employment Present: Self-Employed Real Estate Appraiser. Duties include the appraisal of various types of properties such as commercial, retail, industrial and vacant land. More complex assignments include easements, right-of-ways and special assessment districts. From 1996 to present, specialized in special assessment districts and community facilities districts appraisals for public entities, including Jurupa Community Services District, Corona Norco Unified School District, City of Corona, City of Chula Vista, City of San Marcos and City of Moreno Valley : Project Manager of Development for Ferguson Partners, Irvine, California. Duties included land acquisitions; review of fee appraisals and valuations; analysis of proposed development; planning and design; and management of development, construction and lease-up. The types of properties developed were commercial and industrial. Duties ranged from raw, vacant site development through property management of recently developed projects Manager of Finance, Construction for Community Development Division, The Irvine Company, Irvine, California. Duties included originating and managing a newly formed division of finance to bridge between the accounting functions and project management functions. Worked with analysis and budgets for Community Development Division. Coordinated with cities in forming new Assessment Districts and Community Facilities Districts to finance major infrastructure improvements. Types of properties were apartments and single-family residential lots on a for sale basis to apartment and homebuilders Investment Counselor, Newport Equity Funds, Newport Beach, California. Duties included obtaining private financing for residential properties, working with appraisals of properties and analyzing the investments.

230 Licenses Real Estate Sales Person, State of California, 1980 Certified General Appraiser, State of California (#AG004793) Organizations MAI # The Appraisal Institute Public Financing CASTOFF Meetings, 2006, 2007, 2008, 2009, 2010, 2011, 2013, 2014, 2015 and 2016 Speaker, Mello-Roos & Special Assessment Financing, UCLA Extension Public Policy Program, February 2009 and March 2011

231 PROFESSIONAL QUALIFICATIONS LARRY W. HEGLAR, MAI Professional Experience Appraisal Mr. Heglar has experience in the appraisal of various residential and income-producing properties including master-planned communities, commercial, industrial, office, medical buildings, apartment buildings, planned unit developments, shopping centers, hotels and motels, post office buildings, corporate headquarters and multi-use projects. He has more than 40 years of real estate experience. Consulting Professional Employment Mr. Heglar s experience has included acquisitions and dispositions of residential subdivision property, master planned communities, portfolio advice/strategies planning, highest and best use studies, project feasibility and marketing studies. Nov, 2012 to Present-Principal/Owner, Larry W. Heglar & Associates, Huntington Beach, CA Orange County based appraisal and consulting firm providing a broad scope of real estate services including appraisals, market studies and litigation support. Projects included master planned communities, subdivisions and large investment properties. Locations included properties mainly in Southern California. Mar, 2007 to November 2012-Sage Community Group, Consultant, Newport Beach, CA Develops strategy/methodology for disposition of land assets in California, Nevada and Arizona. Assists in developing strategy for institutional investors in the acquisition of land assets during economic slow-down. Assists in management of land assets for Sage Community Group and for financial institutions on REO assets. Feb 2001 to Oct Pulte Homes, Vice-President of Land Acquisition, Irvine CA Oversaw the purchase and sale of land for Orange County/South Riverside County Division, as well as North Inland Empire Division. Transactional experience throughout Southern California in most major markets. Responsibilities included seeking development opportunities, analysis of potential acquisitions, negotiation of terms, coordination of legal documentation and internal land purchase approvals. Hired and trained professional land personnel. Jan 1993 to Feb Principal/Owner, Larry W. Heglar & Associates, Irvine CA Orange County based appraisal and consulting firm providing a broad scope of real estate services including appraisals, market studies and feasibility analyses. Projects included master planned communities, military bases, subdivisions, large investment properties and portfolio properties. Locations included properties mainly in Southern California as well as Northern California, Colorado, Florida. Office and associated with Institutional Housing Partners, a CalPers advisor. April 1984 to Jan The Irvine Company, Vice-President Land Sales, Newport Beach CA Responsible for managing and conducting the analysis, negotiations and documentation of residential subdivision and institutional land sales for The Irvine Company. Negotiated more that 80 transactions for over $660 million in land revenue. Oversaw escrow process and collection of builder payment of price and profit participation. Jan 1983 to April Appraiser, John S. Adams & Associates, Newport Beach CA Appraisal assignments specializing in income properties located in Southern California Jan 1979 to Jan Manager of Appraisals, The Irvine Company, Newport Beach CA Coordinated the appraisal requirements with outside valuation consultants and recommended strategies to upper management. Feb 1978 to Jan Regional Appraiser, United California Mortgage Company, Tustin CA Chief staff appraiser for the mortgage banking operations of UCB/First Interstate Bank in Orange County. Responsible for all loan appraisals on income properties. July 1971 to Feb Real Estate Analyst, Coldwell Banker, Los Angeles CA Conducted appraisals on all major types of real estate including residential, commercial, industrial and special use properties mainly in California but also in Maryland, Washington, New Jersey and Illinois.

232 Education San Diego State University - Bachelor of Arts in Geography. Appraisal Institute Courses Professional Affiliations Course IA (AIREA) Principles of Real Estate Appraising, 1972 Course IB (AIREA) - Principles of Real Estate Appraising, 1974 Course II (AIREA) Urban Real Estate Appraisal, 1975 Course VI (AIREA) Techniques and Mathematics of Capitalization, 1977 Course IV (AIREA) Condemnation Appraisal Practice, 1978 Standards of Professional Practice, 1990 Course 410 & 420, Standards of Professional Practice, (Appraisal Institute), 1995 Continuing Education The Appraisal Institute and California Office of Real Estate Appraisers provides numerous seminars and workshops to satisfy continuing education requirements. The Urban Land Institute and other real estate organizations also provide programs that Mr. Heglar has attended for continuing education requirements. Urban Land Institute, Associate Member Lambda Alpha International, Honorary Land Economics Society, Former Chapter President and International Board of Governors Officer BIA, Orange County Board of Directors, Irvine Campus Housing Authority, 1999 to 2008 Appraisal Institute, MAI Designation, (Member No. 6602) Representative Appraisal Assignments (within past ten years) Income Property Appraisals Industrial- Apartments- Retail Centers Main Street, Gardena, 186,000 square feet in three buildings on 9.40 Acres. Leased to three tenants Alondra Boulevard, Cerritos, 128,000 square feet on 5.42 acress. Single tenant LAMBERT PALM BUSINESS CENTER, La Habra, 188,644 square foot, multi-tenant business park AIRPORT DISTRIBUTION CENTER, Las Vegas, 69,592 square foot, multi-tenant business park 240 SPECTRUM BOULEVARD, Las Vegas, 45,394 square foot, multi-tenant business park COMMERCE CENTER, Santa Fe Springs, 81,117 square foot, multi-tenant business park PUMICE CARMENITA INDUSTRIAL PARK, 29,808 square foot, multi-tenant business park CLAUSET INDUSTRIAL PARK, 103,546 square foot, multi-tenant business park 1350 Philadelphia Street, Pomona, 85,851 square foot trucking facility on Acres 3561 Philadelphia Street, Chino, 14, 360 square foot trucking facility on Acres 1090 E. Belmont Street, Ontario, 128,552 square foot distribution facility on Acres 1773 Whittier Avenue, Costa Mesa, 20,800 square foot, multi-tentant business park on Acres Gilead Sciences, San Dimas, Four bio-med/office buildings totalling 191,100 square feet on Acres THE THE IRVINE SPECTRUM, 762 unit apartment project on Acres SAN CARLO APARTMENTS, Irvine, 354 unit apartment project on Acres SANTA CLARA APARTMENTS, Irvine, 378 unit apartment project on Acres HERITAGE POINT APARTMENTS, Irvine, 342 unit apartment project on Acres ALTON SQUARE SHOPPING CENTER, Irvine, 35,451 square foot shopping center on acres and achored by Ralph s Market and CVS Drug Store 17 th St. & Newport Blvd., 28,468 square foot leasehold shopping center in Costa Mesa on 2.6 acres.

233 Office Buildings- ONE GOLDEN SHORE, Long Beach, 32,000 square foot office building on 2.42 Acres 1601 Avocado Avenue, Newport Beach, 12,547 square foot medical office building on 0.90 acres 1928 S. Grand Avenue, Santa Ana. 210,000 square foot, single story building lease to County of Orange Hotel Properties- Land Appraisals- Portfolio of six hotel properties with following locations: Seal Beach (115 rooms), Corona (171 rooms), Redlands (107 rooms), Moreno Valley (127 rooms), Chino Hills (124 rooms) & Diamond Bar (125 rooms) CAPISTRANO UNIFIED SCHOOL DISTRICT, proposed 14 acre school site in Rancho Mission Viejo MORENO VALLEY, 52 acres of unentitled land adjacent to freeway MOTTE RANCH, 638 acres of unentitled land near San Jacinto, Riverside County UCI APARTMENT SITE, Ground lease land valuation of 72.5 acres site improved with 1,753 student apartment units ROWLAND HEIGHTS OPEN SPACE, acres of vacant land CANYON VIEW, proposed 92 lot residential subdivision in Palm Springs 1926 PACIFIC COAST HIGHWAY, proposed 52 unit condominium plus 10,000 square feet of retail in Redondo Beach SOUTH COAST BUILDERS, proposed 28 lot subdivision in Costa Mesa on Harbor Boulevard LAKESIDE, RIVERSIDE COUNTY, Master planned community, 450 acres and 334 residential homes WEST COYOTE HILLS SPECIFIC PLAN, FULLERTON, Master planned community, 510 acres, approximately 750 residential units Land for proposed hotel on UCI Campus LOST VALLEY, 1,353 acre property owned by Boy Scounts of America in eastern San Diego County LAMB SCHOOL SITE, HUNTINGTON BEACH, new residential subdivision WARDLOW SCHOOL SITE, HUNTINGTON BEACH, new residential subdivision UNIVERSITY OF CALIFORNIA, IRVINE, Proposed Hotel Site MOUNTAIN PARK, ANAHEIM, Portion of Master Planned Community CHRISTOPHER DEVELOPMENT GROUP, WESTMINSTER, 80 Lot Subdivision HIGHLAND HILLS, SAN BERNARDINO, 543 acres entitled for 1,516 residential units/lots. VAIL LAKE RANCHO CALIFORNIA, LLC, 497 acres of vacant, unentitled land. Purpose for bankruptcy proceedings. PARK PLACE, SANTA CLARITA, LOS ANGELES CO., 522 acres of raw land with Approved Tentative Tract Map for 492 residential lots. JP RANCH, CALIMESA, RIVERSIDE CO., 38 acres dedicated for open space/wildlife corridor NAKASE NURSERY, LAKE FOREST, ORANGE CO., 120 unentitled land, General Plan for business park use. TUSTIN LEGACY, acre apartment site developed with 758 units CHINO HILLS, CHINO, SAN BERNARDINO CO., 400 acres of open space. UNIVERSITY PARK, PALM DESERT, RIVERSIDE CO., 165 Acres partially improved land with Approved Tentative Tract Map for 169 lots ADAMS CANYON RANCH, SANTA PAULA, VENTURA CO., 4,714 acres of vacant land adjacent to the City of Santa Paula. DOS VIENTOS, THOUSAND OAKS, VENTURA CO., 1,000 acres of vacant, raw land. CHINO PRESERVE, CHINO, CA-Southerly portion of master planned community consisting of approximately 614 acres and entitlements for 4,566 residential units and commercial development. Purpose was for estate planning. MESA VERDE ESTATES SPECIFIC PLAN, CALIMESA, CA-Master planned community with 1,492 acres and entitlements for 3,450 units plus commercial development. Purpose was for bankruptcy proceedings. SUNSET RIDGE, WILDOMAR, CA-Master planned community consisting of approximately 792 aces and proposed for about 1,180 residential units. Purpose was for buy-out of partner. SHEA TRILOGY, RIVERSIDE CO., CA-Approximately 250 acres of vacant land surrounding an active adult community and golf course adjacent to Corona in unincorporated Riverside County. Purpose was for dedication of Open Space Conservation land and dedication of Wetlands Conservation Easement.

234 ONTARIO FESTIVAL, ONTARIO, CA-Proposed mixed-use development on approximately 24 acres consisting of 311 residential units and 2.5 acres of commercial entitlements. Purpose was for bankruptcy proceedings. TALEGA VALLEY, SAN CLEMENTE, CA-Orange County, coastal master planned community consisting of 3,479 acres and more than 4,000 residential lots with commercial, support institutional and recreational uses. MCAS TUSTIN, CA-Former Tustin Marine Corps Base master planned for a 1,288 acre community to be improved with more than 1,500 residential units/lots with industrial, commercial support institutional and recreational uses. DANA POINT HEADLANDS, DANA POINT, CA-Raw land with potential for approximately 200 ocean oriented residential lots plus hotel and commercial site. FORSTER RANCH, SAN CLEMENTE, CA-Master planned community with about 534 acres and 1,037 residential lots plus recreational uses. PORTA BELLA, SAUGUS/NEWHALL, CA-Specific plan for approximately 2,900 lots along with retail, commercial & industrial land uses on 996 acres. BEL MARIN KEYS V, MARIN COUNTY, CA-Specific plan for approximately 800 residential lots on more than 1,600 acres with access to San Francisco Bay. EL DORADO HILLS, EL DORADO COUNTY, CA-Specific plan for approximately 2,700 lots/units on 2,245 acres including about 200 acres of commercial/industrial uses. SADDLEBACK MEADOWS, ORANGE COUNTY, CA-Planned for approximately 705 lots on 222 acres. SERRANO HEIGHTS, ORANGE COUNTY, CA-Specific plan for 1,210 lots/units on 533 acres including recreational uses. MISSION OAKS RANCH, BUELTON AREA, SANTA BARBARA COUNTY, CA-Approximately 3,900 acres of raw grazing land planned for ranchet development. PARADISE HILL, SAN BERNARDINO, CA-Specific plan for 504 lots on approximately 402 acres. Two single family subdivisions in the Village of Northwood, Irvine. Stonecrest Village, San Diego. Single family residential subdivision with 88 lots with average size of 4,500 square feet. Orangecrest Hills, Riverside. Single family residential subdivision with 132 lots with minimum lot size of 7,200 square feet. Laguna Beach/Crystal Cove State Park. Total of approximately 40 acres for possible exchange of land between State of California, school district and private land owner. Peninsula Pointe, Rancho Palos Verdes. Residential subdivisión with 37 lots ranging from 12,000 to 25,000 square feet. Single family subdivision in Tustin Ranch. 162 lots with 6,390 square foot minimum lots sizes. Single family subdivision in Aliso Viejo. 154 lots with 5,100 square foot minimum lot size. Canyon Vista, Oceanside. Approximately 55 acres approved for 93 lot single family subdivision. Santa Rosa Colony II, Ventura Co. Approximately 50 acres of raw land. Potential for development with low density subdivision. Rancho San Clemente. 84 lot single family subdivision with lots 5,000 square foot minimum size. Brentwood project in Rancho Cucamonga. Proposed, 90 lot residential subdivision with 9,000 square foot minimum lot size. Willowbrook project in Mountain Gate Planned Community, Corona. Lots in an existing subdivision totaling 51 with a minimum lot size of 7,200 square feet. Heather Ridge project in Mountain Gate Planned Community, Corona. Lots in an existing subdivision totaling 58 with a minimum lot size of 4,750 square feet. Long Canyon, Simi Valley. Total of 1,813 acres with entitlement for 652 residential units, all single family detached. One Park Place, Irvine. Remaining 26 acre site which is a portion of an existing apartment project. Las Flores Planned Community, South Orange County. Proposed 147 lot subdivision with 2,464 square foot minimum lot size. Las Flores Planned Community, South Orange County. Proposed 48 lot subdivision with 6,000 square foot minimum lot size. Twenty mile corridor for Foothill/Eastern Transportation Corridor. Right-of-way runs through unincorporated Orange County territory and through the cities of Anaheim, Orange and Irvine. Total land area of 468 acres acquired for right-of-way and approximately 28,800 acres appraised.

235 Land Dispositions Responsible for managing and conducting the analysis and negotiations for residential subdivision and institutional land sales for the Irvine Company. Mr. Heglar negotiated more than 80 transactions for over $660 million in Irvine, Newport Beach, Tustin and Orange, CA. Westpark Northwood Newport Coast Tustin Ranch Santiago Hills Land Acquisitions Responsible for managing and conducting the analysis and negotiations of residential subdivision land for Pulte Homes in Orange, Riverside and San Diego Counties, CA. A total of 27 transactions for more than 7,300 lots/units and a total land purchase of more than $433 million. ALDERBROOK, LAKE ELSINORE, CA-Canyon Hills Master Plan Community, 143 SFD lots on approximately 28.6 acres. ASHTON HILLS, RIVERSIDE COUNTY, CA-196 SFD lots on approximately 140 acres. ST. AUSTELL II, PERRIS, CA-117 SFD lots on approximately 15.6 acres. ST. CROIX, PERRIS, CA-155 SFD lots on approximately 20.7 acres. AVERLY LANE, SAN DIEGO COUNTY, CA-4S Ranch Master Planned Community, 75 SFD lots on approximately 20 acres. WINCHESTER HILLS, RIVERSIDE COUNTY, CA-Approximately 500 SFD lots & SFA units within Winchester Hills Specific Plan on about 127 acres. BELLA ROSA, IRVINE, CA-104 SFD lots on 14.0 acres on The Irvine Ranch. BREMERTON, RIVERSIDE COUNTY, CA-108 SFD lots on approximately 21.6 acres. CACHETTE, IRVINE, CA-110 SFD lots in Irvine Ranch master planned community of Woodbury on approximately 16.9 acres. STELLAN RIDGE, RIVERSIDE, CA-104 SFD lots on 204 acres. CHASE RANCH, CORONA, CA-217 SFD lots on 160 acres. Approximately 90 lots subsequently sold to another builder. KUNNEY RANCH, RIVERSIDE, CA-149 SFD lots on 143 acres. KUO RANCH, RIVERSIDE, CA-23 SFD lots on 49.1 acres. CLAIBORNE, LADERA RANCH, MISSION VIEJO, CA-75 SFD lots on approximately 14.8 acres. MORGAN VALLEY, TEMECULA, CA-67 SFD lots on approximately 16.8 acres. MURRIETA HILLS, MURRIETA, CA-Approximately 1,000 lots for a proposed Del Webb active adult community on acres. RANCHO DIAMANTE, HEMET, CA-Joint venture for approximately 3,000 SFD lots on about 700 acres. Approximately half of the project to be a Del Webb active adult community. SABELLA, SAN CLEMENTE, CA-75 SFD lots on approximately 16.7 acres in the Talega Valley master planned community. SAN ELIJO RIDGE, SAN DIEGO COUNTY, CA-131 SFD lots in the San Elijo Master Plan on approximately 32.8 acres. SOLSTICE, IRVINE, CA-68 SFD lots in the Irvine Ranch master planned community of Quail Ridge on approximately 20 acres. ST. AUSTELL, PERRIS, CA-117 SFD lots in the Avalon master planned community on approximately 17.4 acres. STONES THROW, LAKE ELSINORE, CA-126 SFD view lots on approximately 28 acres. TIFFANY HILLS, MURRIETA, CA-180 SFD lots on approximately 305 acres. VINEYARD ESTATES, MURRIETA, CA-41 lots on approximately 8.2 acres. WATERMARK, LAKE ELSINORE, CA-133 SFD view lots on approximately 29.6 acres. CANYON HILLS, LAKE ELSINORE, CA-131 SFD lots on approximately 23.8 acres within master planned community of Canyon Hills. RANCHO HIGHLANDS, TEMECULA, CA-210 SFA units on approximately 21.1 acres.

236 Representative Clients: Attorneys: Allen, Matkins, Leck, Gamble, Mallory & Natsis, LLP Friedman, Stroffe & Gerard, P.C. Jackson, De Marco, Peckinpaugh & Titus Miller, Morton, Caillat & Nevis, LLP Palmieri, Tyler, Wiener, Wilhelm & Waldron Paul, Hastings, Janofsky & Walker Rutan & Tucker, LLP Songstad & Randall, LLP Winthrop Couchot Professional Corporation Paul Minerich Professional Corporation Financial Institutions, Real Estate Management & Development Companies: Bank of America First Interstate Mortgage Housing Capital Company Wells Fargo Bank Prudential Insurance Company Westcap Corportation Lewis Operating Company BETEK The Shopoff Group Presley Homes John Laing Homes Richmond American Homes Pulte Homes Standard Pacific Homes Taylor Woodrow Homes The Irvine Company William Lyon Homes William Lyon Asset Management Governmental Agencies/Institutions: Capistrano Unified School District City of Fullerton City of Irvine City of Tustin City of Los Angeles Federal Deposit Insurance Corporation County of Orange Irvine Ranch Water District Metropolitan Water District of Southern California United States Department of Navy University of California, Irvine

237 APPENDIX B-2 SUPPLEMENT TO APPRAISAL REPORT

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239 SUPPLEMENT TO APPRAISAL REPORT COMMUNITY FACILITIES DISTRICT NO. 16-I IMPROVEMENT AREA NO. 1 (portion of) MILLENIA IN OTAY RANCH City of Chula Vista, California (Appraisers File No S) Prepared For City of Chula Vista 276 Fourth Avenue Chula Vista, California Prepared By Kitty Siino & Associates, Inc. 115 East Second Street, Suite 100 Tustin, California 92780

240 KITTY SIINO & ASSOCIATES, INC. REAL ESTATE APPRAISERS & CONSULTANTS April 30, 2018 David Bilby, Director of Finance/Treasurer City of Chula Vista 276 Fourth Avenue Chula Vista, California Reference: Supplement to Appraisal Report Community Facilities District No. 16-I Improvement Area 1 (Portion of) Millenia, Otay Ranch Northwest Corner of Hunte and Eastlake Parkways Chula Vista, California Dear Mr. Bilby: At the request and authorization of the City of Chula Vista, we have completed a Supplement to the Appraisal Report ( Supplement ) for City of Chula Vista Community Facilities District No. 16-I Improvement Area 1 ( CFD No. 16-I IA 1 ). This Supplement is to be used in conjunction with the Original Appraisal Report for the above referenced property dated April 11, 2018 with a date of value of February 1, 2018 which encompasses a portion of the mixed-use community known as Millenia in Otay Ranch ( Original Appraisal ). In lieu of updating the entire appraisal, the purpose of this Supplement is to bring forward the date of value to April 1, 2018 and conclude if the property has a value not less than the value concluded in the Original Appraisal. It should be noted that this report may not be understood properly on its own, but rather should be used only in conjunction with the Original Appraisal. The purpose of this Supplement is to ascertain and discuss changes in the subject property along with any changes that have occurred in the real estate market between February 1, 2018 (date of value of Original Appraisal) and April 1, INTENDED USE OF APPRAISAL - It is the appraiser s understanding that the client, the City of Chula Vista, will utilize this Supplement in disclosure documents related to the sale of the Special Tax Bonds of CFD No. 16-I IA 1. This Supplement may be included in the Official Statement or similar document to be distributed in connection with the marketing and offering of the bonds. It is the appraiser s understanding that there are no other intended uses of this report. Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 1

241 SUBJECT PROPERTY - The subject property consists of 393 proposed single-family homes and two commercial parcels within the community known as Millenia in the area known as Otay Ranch in the City of Chula Vista. The subject property consists of four residential neighborhoods in varying degrees of development and two commercial parcels. Please refer to the Addenda of this Supplement to view a table showing the ownership and condition by parcel or unit as of February 1, 2018 (date of value in Original Appraisal) and as of April 1, 2018 (date of value of this Supplement). OWNER OF RECORD AS OF APRIL 1, 2018 Lot 1 and Lot 11 of Map are owned by SLF IV Millenia LLC, a Delaware limited liability company. Lot 7 of Map is owned by LMC-Millenia Investment Company, L.P., a limited partnership. Lot 17 of Map is owned by CalAtlantic Group Inc., a Delaware Corporation (CalAtlantic has merged with Lennar since this purchase). Lot 14 of Map is owned by KB Home California LLC. Shea Homes LP as to Units 1-40, 51-60, , and 176 on Lot 1 of Map 16150; Individuals as to Units 41-50, 61-70, , on Lot 1 of Map PROPERTY RIGHTS APPRAISED - The property rights being appraised are of a fee simple estate interest, subject to easements of record and subject to the lien of the CFD No. 16-I IA 1 special tax. The definition of fee simple estate is included in the Original Appraisal. DEFINITIONS - The term Market Value as used in this report is defined as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. 1 1 The Appraisal of Real Estate, 13 th Edition Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 2

242 For all other definitions please refer to Original Appraisal. DATE OF VALUE April 1, 2018 DATE OF SUPPLEMENT April 30, 2018 SCOPE OF WORK The following items were completed in the scope of work for this assignment. Identify additional builder home sales and closings within the subject property and ascertain if the sales prices have increased, stayed the same or decreased. Identify additional construction on the subject property and report additional expenditures resulting in less remaining costs to complete. Review and report on the subject real estate market conditions and identify any changes since the Original Appraisal. Determine if the value is not less than the value conclusion in Original Appraisal. DISCUSSION On April 12, 2018 an inspection of the subject property and surrounding lands was made by the appraiser. In addition, sales offices were contacted and reviews of current information was conducted. This information included additional sales and/or closings within the active projects within the subject property. We observed the following changes in the subject property between February 1, 2018 (date of value within Original Appraisal) and April 1, 2017 (date of value of Supplement). 1. An additional four homes have closed escrow to individual homebuyers within Shea Homes Element and Z neighborhoods. As of the Original Appraisal there were 53 homes closed to individual homebuyers and as of April 1, 2018 there were 57 homes closed to individual homebuyers. 2. An additional 23 homes were constructed to over 95 percent complete within Shea Homes Element and Z neighborhoods and an additional 30 homes began construction. Within Element and Z, as of the Original Appraisal, there were 27 homes under construction (under 95 percent complete) and 83 remaining finished lots. As of April 1, 2018, there were 30 homes under construction (under 95 percent complete) and 53 remaining finished lots. 3. An additional 14 homes were sold (closed and under contract) within Shea Homes Element and Z neighborhoods. As of the Original Appraisal there were 84 homes sold and as of April 1, 2018 there were 98 homes sold. Note that sold homes include closed homes and homes over 95 percent complete and builder-owned, homes under construction and finished lots that are in escrow. 4. An additional nine homes were sold within the neighborhood of Skylar by KB Home. As of the Original Appraisal there were three homes sold and in escrow and, as of April 1, 2018, there were 12 homes sold and in escrow. Also, an additional 10 homes began construction within Skylar. Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 3

243 5. Within CalAtlantic s project they began construction on five model homes. In addition, the 14 first production homes are due to begin construction the first week in April According to LMC-Millenia Investment Company L.P. they are negotiating with two large users for space in their proposed commercial building. While there are no signed leases at this date, this suggests activity that office space is in demand in the subject area. 7. Within each neighborhood additional hard costs and fees were expended. The master developer spent an additional $291,000 on its backbone development costs. As of the Original Report, there were $953,750 in remaining backbone costs associated with Improvement Area 1 while as of April 1, 2018 there were $662,750 in remaining costs. Shea Homes spent an additional $1,281,749 in land development costs and development fees. As of the Original Report Shea Homes had $6,838,437 in remaining costs while as of April 1, 2018 Shea Homes had $5,556,688 in remaining costs. KB Home spent an additional $610,576 in land development costs and development fees. As of the Original Report there were $5,678,127 in remaining costs for KB Home, while as of April 1, 2018, there were $5,067,551 in remaining costs. Cal Atlantic Homes spent an additional $704,662 in land development costs and development fees. As of the Original Report CalAtlantic had $6,138,230 in remaining costs and as of April 1, 2018 had $5,433,568 in remaining costs. It is the appraiser s understanding that LMC-Millenia Investment Company, L.P. spent additional dollars on the planning for Lot 7 of Map 16081; however, we have not received the accounting for these dollars. In total, as reported above, an additional $2,887,987 has been spent on land development and development fees on the subject property between February 1, 2018 and April 1, While we were not able to review these expenditures in detail, the amounts appear reasonable per our visual inspection of changes that have occurred on the sites. 8. Within the actively selling projects, Element, Z and Skylar, prices have either stayed the same or had increased. Within Element base asking prices were $498,000 - $587,000 as of February 1, 2018 while current base asking prices are $512,420 - $592,000 suggesting an increase in the 0.8 to 2.8 percent range over the nine-week period. Within Z and Skylar, base asking prices have remained the same since February 1, The fact that each plan within each active project has either had a price increase or had prices stay the same suggests that prices are not declining within the subject area. 9. Our physical inspection of the entire Millenia Project (includes the subject property and additional lands) showed several signs of progress with the following changes noted between February 1, 2018 and April 1, Lot 2 of Map (not a part of the subject) is the retail site that now has vertical construction underway. Lot 20 of Map (not a part of the subject) is the Ayres Hotel site and the third floor of the hotel is now being framed. Lot 18 of Map (not a part of the subject) is proposed for a new residential project by Trammel Crow and construction has begun on the site. Additional new homes within Trio, Metro and Evo (not a part of the subject property) Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 4

244 have begun construction. Further construction has occurred at Alexan by Trammel Crow (not a part of the subject property). While these projects are not included in the subject property, they are all located within Millenia and show progress and major activity in the subject s neighborhood. SUBJECT REAL ESTATE MARKET - The overall regional real estate market has seen minimal changes over the past nine weeks. Most projects in Otay Ranch are enjoying slight price increases approximately every three months. We have reviewed CoreLogic s monthly update on Southern California which includes the number of sales and median prices within each County. The reporting of this information lags about six weeks; thus, for the Original Appraisal, we were able to obtain information through December 2017 while the most current information is through February In overall Southern California sales were up 0.6 percent on a year over year basis from February 2017 to February 2018 and up 2.3 percent over the same time period in San Diego County. According to CoreLogic, February 2018 sales were the highest February sales in five years. Sales prices in overall Southern California were up 10.2 percent in February 2018 on a year over year basis while within San Diego County sales prices were up 8.7 percent on a year over year basis. In reviewing sales prices in December 2017 to sales prices in February 2018 prices were down 1.4 percent in overall Southern California and down 0.9 percent in San Diego County. It is believed the slight downturn is due to the uncertainty of the tax changes which occurred in December. Some buyers appear to be waiting to see how the tax changes will affect the market before buying or listing their homes. It should be noted that within the subject property, this has not happened and prices have been increasing. As we are only in the fourth month of 2018, it is still too early to tell the actual effects of the Federal tax cuts passed in 2017 on new homes. Builders are anxious that some of the proposed tax cuts may slow new home sales due to the possible decreases in deductible mortgage interest and sales and property tax right-offs. The mortgage interest deduction tax change affects mortgages over $750,000 which does not appear to affect the subject homes directly due to their pricing. Finally, we have reviewed the Improved Residential Sales Market Data which was used in the Original Appraisal (please refer to Addenda of Original Appraisal). Our review included 34 home plans within the eleven projects surveyed and considered comparable. One project within Otay Ranch that included three plans (or nine percent) was unavailable in our updated survey. Out of the remaining ten projects in Otay Ranch, 16 plans (or 47 percent) had price increases, 12 plans (or 35 percent) had the prices stay the same and three plans (or nine percent) had slight price decreases. The increases ranged from $2,000 to $14,420 while the decreases were in the $2,000 range. This review of the subject real estate market suggests that the market is still in an upward cycle as projects are selling homes and the majority of prices are either staying the same or increasing. CONCLUSION This Supplement is intended to be used in conjunction with the Original Appraisal Report prepared with a February 1, 2018 date of value. This Supplement is to ascertain whether the value that was concluded as of February 1, 2018 is still valid. While Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 5

245 we have not concluded at a new value, it is evident that further land development has occurred and almost $3,000,000 in additional dollars have been spent to develop the subject property. Also, additional homes have closed, additional homes have been constructed and more homes are in escrow, all suggesting the subject s value has not decreased. In addition, it has been determined that the subject real estate market has not experienced any significant negative changes since February 1, Based upon our investigation, we have determined that the current market value is not less than the concluded value as of February 1, This Supplement is to be used in conjunction with the Original Appraisal and subject to the attached Assumptions and Limiting Conditions and the Appraiser s Certification. Respectfully submitted, KITTY SIINO & ASSOCIATES, INC. Kitty S. Siino, MAI California State Certified General Real Estate Appraiser (AG004793) Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 6

246 ASSUMPTIONS AND LIMITING CONDITIONS 1. This report might not include full discussions of the data, reasoning and analyses that were used in the appraisal process to develop the appraiser s opinion of value. Some supporting documentation concerning the data, reasoning and analyses may be retained in the appraiser s files. The information contained in this report is specific to the needs of the client and for the intended use stated in this report. The appraiser is not responsible for unauthorized use of this report. 2. No responsibility is assumed for legal or title considerations. Title to the property is assumed to be good and marketable unless otherwise stated in this report. 3. It is assumed that the subject property is subject to the special tax lien of CFD No. 16-I. 4. Responsible ownership and competent property management are assumed unless otherwise stated in this report. 5. The information furnished by others is believed to be reliable; however, no warranty is given for its accuracy. 6. All engineering is assumed to be correct. Any plot plans and illustrative material used in this report are included only to assist the reader in visualizing the property and may not be to scale. 7. It is assumed that there are no hidden or unapparent conditions of either property, subsoil or structures that would render them more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them. 8. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws unless otherwise stated in this report. 9. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless nonconformity has been stated, defined and considered in this appraisal report. 10. It is assumed that all required licenses, certificates of occupancy or other legislative or administrative authority from any local, state or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report are based. 11. Any sketch or photograph included in this report may show approximate dimensions and is included only to assist the reader in visualizing the properties. Maps, photographs and exhibits found in this report are provided for reader reference Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 7

247 purposes only. No guarantee regarding accuracy is expressed or implied unless otherwise stated in this report. No survey has been made for the purpose of this report. 12. It is assumed that the utilization of the land and improvements (if any) are within the boundaries or property lines of the property described and that there is no encroachment or trespass unless otherwise stated in this report. 13. The appraiser is not qualified to detect hazardous waste and/or toxic materials. Any comment by the appraiser that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualified expert relating to asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials that may affect the value of the property. The appraiser s value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value unless otherwise stated in this report. No responsibility is assumed for any environmental conditions or for any expertise or engineering knowledge required to discover them. The appraiser s descriptions and resulting comments are the result of the routine observations made during the appraisal process. 14. Proposed improvements, if any, are assumed to be completed in a good workmanlike manner in accordance with the submitted plans and specifications. 15. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings, if any, must not be used in conjunction with any other appraisal and are invalid if so used. 16. The Americans with Disabilities Act ( ADA ) became effective on January 26, 1992 and have been updated several times since then. The appraiser has made no specific compliance survey and analysis of the property to determine whether they conform to the various detailed requirements of the ADA, nor is the appraiser a qualified expert regarding the requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the ADA. If so, this fact could have a negative effect upon the value of the property. Since the appraiser has no direct evidence relating to this issue, a possible noncompliance with requirements of the ADA in estimating the value has not been considered. 17. It is assumed there are no environmental concerns that would slow or thwart development of the subject properties and that the soils are adequate to support the highest and best use conclusions. Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 8

248 18. It is assumed that the sales information provided by Shea Homes, KB Homes and CalAtlantic Homes is true and accurate. We have reviewed and analyzed the sales along with checking samples on various public record documents, when available, and the information appears to be correct. 19. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser, and in any event, only with proper qualification and only in its entirety. Permission is given for this appraisal to be published as a part of the Official Statement or similar document for the CFD No. 16-I IA 1 Special Tax Bonds. HYPOTHETICAL CONDITION 1. It is assumed that all improvements and benefits to the subject properties, which are to be funded by the City of Chula Vista CFD No. 16-I IA 1 Special Tax Bond proceeds, are completed and in place. EXTRAORDINARY ASSUMPTIONS 1. It is assumed that the remaining costs to develop the various neighborhoods and the planned non-residential property within the subject property are true and correct. We have received summarized remaining costs provided by Meridian, the master developer and the builders and/or their consultants. We have reviewed these costs and they appear reasonable, however, we are not experts in the cost estimating field and are relying on these costs in the valuation. If actual remaining costs differ, it may change the value conclusions. 2. It is assumed that the master developer commences construction on Orion Park and Strata Park prior to the builders reaching their applicable occupancy thresholds. This is anticipated per the master builder. Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 9

249 APPRAISER S CERTIFICATION The appraiser certifies that to the best of his knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased, professional analyses, opinions and conclusions. 3. The appraiser has no present or prospective interest in the property that is the subject of this report, and no personal interest or bias with respect to the parties involved. 4. The appraiser s compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result or the occurrence of a subsequent event. 5. This appraisal was not based on a requested minimum valuation, a specific valuation or the approval of a loan. 6. The analyses, opinions and conclusions were developed, and this report was prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. 7. Kitty Siino has made a personal inspection of the property that is the subject of this report. 8. Kitty Siino has performed appraisal services on the subject property in the past three years as described within this Supplement. An Original Appraisal of the property was completed with a February 1, 2018 date of value was completed. 9. No other appraisers have provided significant professional assistance to the persons signing this report. 10. The reported analyses, opinions and conclusions were developed, and this report was prepared, in conformity with the requirements of the Appraisal Institute s Code of Professional Ethics and Standards of Professional Appraisal Practice, which include the Uniform Standards of Professional Appraisal Practice. 11. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 12. As of the date of this report, Kitty Siino has completed the requirements of the continuing education program of the Appraisal Institute. Kitty S. Siino, MAI State Certified General Real Estate Appraiser (AG004793) Supplement to Appraisal Report City of Chula Vista CFD 16-I Improvement Area 1 (portion of Millenia) Kitty Siino & Associates, Inc. 10

250 ADDENDA

251 Subject Property as of February 1, 2018 (from Original Report) No. Lots Ownership Condition/Status Description Element by Shea Homes (portion of Lot 1 of Map 16150) Units , 171, Individuals Completed Houses / Closed Units Shea Model Homes Units 170, 172, 175 & Shea Homes over 95% Complete (4 In escrow) Units Shea Homes U/C (12 In escrow) Units and Shea Finished Lots (5 in escrow) Subtotal Element 70 Z by Shea Homes (portion of Lot 1 of Map 16150) Units 41-42, 44-50, and Individuals Complete Houses / Closed Units Shea Model Homes Unit 43 and Shea Homes over 95% complete (0 in escrow). Lot 93/94 in model complex and not released Unit Shea Homes U/C (10 in escrow) Unit 1-40, 51-60, 71-74, and Shea Finished Lots (0 in escrow) Subtotal Z 106 Skylar by KB Home (generally Lot 14 of Map 16081) Units Unit 5 and 6 2 KB Home Model Homes Units 8-10 and KB Home Homes U/C (1 in escrow) Units 1-4, 7, 11-61, KB Home Partially F/L (2 in escrow Subtotal KB Home 79 CalAtlantic (generally Lot 17 of Map 16081) Units CalAtlantic Land under development SLF IV Millenia LLC Lot 11 of Map SLF IV- Millenia LLC Commercial Parcels Lot 7 of Map N/A LMC- Millenia Inv. Co. LP Lot 1 of Map N/A SLF IV- Millenia LLC Total Lots 393 Superpad 7.06 Acre Superpad Acre Superpad

252 Subject Property as of April 1, 2018 Description No. Lots Ownership Condition/Status Element by Shea Homes (portion of Lot 1 of Map 16150) Units Individuals Completed Houses / Closed Units Shea Model Homes Units and Shea Homes over 95% Complete (13 In escrow) Units and Shea Homes U/C (8 In escrow) Not applicable 0 Shea Finished Lots Subtotal Element 70 Z by Shea Homes (portion of Lot 1 of Map 16150) Units 41-50, and Individuals Complete Houses / Closed Units Shea Model Homes Unit and Shea Homes over 95% complete (13 in escrow). Lot 93/94 in model complex and not released Unit and Shea Homes U/C (7 in escrow) Unit 1-22, 27-34, 51-60, 71-74, and 53 Shea Finished Lots (0 in escrow) Subtotal Z 106 Skylar by KB Home (generally Lot 14 of Map 16081) Units Unit 5 and 6 2 KB Home Model Homes Units 7-12 and KB Home Homes U/C (11 in escrow) Units 1-4, 13-60, KB Home Partially F/L (1 in escrow Subtotal KB Home 79 CalAtlantic (generally Lot 17 of Map 16081) Units CalAtlantic Land under development SLF IV Millenia LLC Lot 11 of Map SLF IV- Millenia LLC Commercial Parcels Lot 7 of Map N/A LMC- Millenia Inv. Co. LP Lot 1 of Map N/A SLF IV- Millenia LLC Total Lots 393 Superpad 7.06 Acre Superpad Acre Superpad

253 APPENDIX C FORM OF OPINION OF BOND COUNSEL Bond Counsel will deliver an opinion for the Bonds substantially in the form set forth below: [Closing Date] Mayor and City Council City of Chula Vista 276 Fourth Avenue Chula Vista, California Re: $12,280,000 City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by Community Facilities District No. 16-I (Millenia) of the City of Chula Vista, County of San Diego, State of California (the District ), of $12,280,000 aggregate principal amount of City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds (the Bonds ). The Bonds are issued pursuant to the provisions of 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 Chula Vista on May 15, 2018 (the Resolution ), and a Bond Indenture, dated as of June 1, 2018 (the Bond Indenture ), by and between the District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). We have examined the Act, the Resolution, the Bond Indenture 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 District and the City of Chula Vista contained in the Bond Indenture 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, and the Bond Indenture having been duly authorized and executed by the proper official, constitute the legally valid and binding obligations of the District enforceable in accordance with their terms subject to the qualifications specified below and the Bonds, 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 Improvement Area No. 1 of the District and other funds available therefor held under Bond Indenture. 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 C-1

254 date of issuance of the Bonds. Pursuant to the Bond Indenture, the District 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 District 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 an item of tax preference for purposes of calculating the alternative minimum tax provisions of the Code. 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 opinions expressed herein may be affected by action which may be taken (or not taken) or events which may occur (or not occur) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or occur or are not taken or do not occur. The rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent 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, C-2

255 APPENDIX D GENERAL ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY OF CHULA VISTA AND SAN DIEGO COUNTY Set forth below is certain demographic information regarding the City of Chula Vista (the City ) and the County of San Diego (the County ). This information is provided for informational purposes only and general background. The information set forth herein has been obtained from third party sources believed to be reliable, but such information is not guaranteed by the District, the City or the Underwriter as to accuracy or completeness. Neither the delivery of this Official Statement nor any sale thereafter of the securities offered hereby shall under any circumstances create any implication that there has been no change in any information contained in this Appendix D since the date of the Official Statement. The Bonds are not a debt of the City, the County, the State, or any of its political subdivisions, and none of the City, the County, the State nor any of its political subdivisions is liable thereon. The District believes the information and data within this Appendix D to be the latest data available; however, the current state of the economy at City, County, State and national levels may not be reflected in the data discussed below because more up-to-date publicly available information is not available to the District. General Information The City is located on San Diego Bay in Southern California, 8 miles south of the City of San Diego and 7 miles north of the Mexico border, in an area generally known as South Bay. Chula Vista s city limits cover approximately 50 square miles. Neighboring communities include the City of San Diego and National City to the north and the City of Imperial Beach and the communities of San Ysidro and Otay Mesa to the south. The City, with a total population of approximately 267,917, is the second largest city in the County. Population The following table provides a comparison of population growth for the City and the County between 2013 and Year (January 1) TABLE NO. D-1 POPULATION Chula Vista San Diego County ,366 3,195, ,416 3,231, ,028 3,266, ,911 3,286, ,917 3,316,192 Source: State of California, Department of Finance, CA; E-4 Population Estimates for Cities, Counties and the State, , with 2010 Benchmark, Sacramento, CA D-1

256 Employment and Industry The following table summarizes the civilian labor force, civilian employment and civilian unemployment figures over the period from 2013 through 2017 in the City, the County, the State of California and the United States. TABLE NO. D-2 City of Chula Vista, County of San Diego, State of California and United States Labor Force, Employment and Unemployment Yearly Average Year and Area Civilian Labor Force Civilian Employment (1) Civilian Unemployment (2) Civilian Unemployment Rate (3) Chula Vista 121, ,300 11, % San Diego County 1,543,200 1,422, , California 18,625,000 16,958,400 1,666, United States (4) 155,389, ,929,000 11,460, Chula Vista 120, ,900 9, % San Diego County 1,544,300 1,445,100 99, California 18,758,400 17,351,300 1,407, United States (4) 155,922, ,305,000 9,617, Chula Vista 121, ,200 7, % San Diego County 1,564,900 1,474,200 80, California 18,896,500 17,724,800 1,171, United States (4) 157,130, ,834,000 8,296, Chula Vista 122, ,000 7, % San Diego County 1,570,300 1,496,200 74, California 19,093,700 18,048,800 1,044, United States (4) 159,187, ,436,000 7,751, Chula Vista 117, ,500 5, % San Diego County 1,585,000 1,521,500 63, California 19,312,000 18,393, , United States (4) 160,320, ,337,000 6,982, Note: Data is not seasonally adjusted. (1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. (4) Not strictly comparable with data for prior years. Source: California Employment Development Department and U.S. Department of Labor, Bureau of Labor Statistics. D-2

257 The following table sets forth the industry employment and the labor force estimates for the years 2013 through 2017 for the San Diego Carlsbad MSA. Annual industry employment information is not compiled by sector for the City. TABLE D-3 SAN DIEGO CARLSBAD MSA INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE 2013 through Civilian Labor Force 1,543,200 1,544,300 1,554,900 1,570,300 1,585,000 Civilian Employment 1,422,400 1,445,100 1,474,200 1,496,200 1,521,500 Civilian Unemployment 120,800 99,200 80,700 74,700 63,500 Civilian Unemployment Rate 7.8% 6.4% 5.2% 4.7% 4.0% Total Farm 9,800 9,400 9,100 8,900 8,600 Total Nonfarm 1,317,700 1,346,600 1,386,800 1,424,600 1,453,200 Total Private 1,088,200 1,114,700 1,150,700 1,182,400 1,205,200 Goods Producing 160, , , , ,600 Mining & Logging Construction 61,000 63,900 69,900 76,300 79,300 Manufacturing 99, , , , ,000 Service Providing 1,157,000 1,180,100 1,210,400 1,240,000 1,264,700 Trade, Transportation & 214, , , , ,800 Utilities Wholesale Trade 46,400 46,200 46,700 47,600 48,200 Retail Trade 141, , , , ,700 Transportation, Warehousing 26,200 26,100 26,900 26,600 26,500 & Utilities Information 24,700 24,800 24,200 24,100 24,400 Financial Activities 70,800 69,400 71,200 72,700 74,100 Professional & Business 218, , , , ,500 Services Educational & Health Services 181, , , , ,500 Leisure & Hospitality 168, , , , ,400 Other Services 49,300 52,000 53,200 54,400 54,900 Government 229, , , , ,100 Total, All Industries 1,327,500 1,356,000 1,395,900 1,433,500 1,461,800 Note: Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households and persons involved in labor-management trade disputes. Employment reported by place of work. Items may not add to total due to independent rounding. The Total, All Industries data is not directly comparable to the employment data found in this Appendix C. Source: State of California, Employment Development Department, San Diego Carlsbad MSA (San Diego County) Industry Employment & Labor Force - by Annual Average, March 2017 Benchmark. D-3

258 The following tables lists the largest employers operating within the City and their respective number of employees as of June 30, 2017: TABLE NO. D-4 LARGEST EMPLOYERS JUNE 30, 2017 Name of Company No. of Employees Type of Business/Product Sweetwater Union High School District 4,371 Education Chula Vista Elementary School District 3,370 Education Rohr Inc./Goodrich Aerospace 2,468 Aerospace Manufacturing Sharp Chula Vista Medical Center 2,131 Hospital Wal-Mart 1,523 General Merchandise Southwestern Community College 1,411 Education City of Chula Vista 1,202 Government Scripps Mercy Hospital Chula Vista 1,045 Hospital Costco Wholesale Group 685 General Merchandise Aquatica 566 Water Park Source: City of Chula Vista, Comprehensive Annual Financial Report for the year ended June 30, Income The following table summarizes per capita personal income for San Diego County, California and the United States for 2007 through TABLE NO. D-5 PER CAPITAL PERSONAL INCOME Year San Diego County State of California United States 2007 $44,912 $43,692 $39, ,383 44,162 41, ,269 42,224 39, ,995 43,323 40, ,397 45,854 42, ,004 48,359 44, ,017 48,555 44, ,439 51,317 46, ,963 54,664 48, ,168 56,308 49,204 Source: U.S. Department of Commerce, Bureau of Economic Analysis. D-4

259 Commercial Activity The following table summarizes the volume of retail sales and taxable transactions for Chula Vista for 2012 through first quarter of Year TABLE NO. D-6 CITY OF CHULA VISTA TOTAL TAXABLE TRANSACTIONS (in Thousands) Retail Sales $(000 s) Retail Sales Permits Total Taxable Transactions $(000 s) Issued Sales Permits 2012 $2,258,846 2,778 $2,501,497 4, ,689,367 2,835 1,879,316 4, ,395,041 2,914 2,667,866 4, ,394,868 2,974 2,687,701 4, ,381,364 2,976 2,676,901 4,896 Source: California State Board of Equalization, Taxable Sales in California (Sales and Use Tax). Building Activity The following table summarizes building activity valuations for Chula Vista for the years 2012 through TABLE NO. D-7 CITY OF CHULA VISTA BUILDING ACTIVITY AND VALUATION (in Thousands) Residential $ 206,328,697 $ 167,858,912 $ 206,642,544 $ 143,176,844 $ 171,212,179 Non-Residential 19,841,124 54,727,472 38,198,063 61,066,094 86,935,526 Total Valuation $ 226,169,821 $ 222,586,384 $ 244,840,607 $ 204,242,938 $ 258,147,505 Total Permits , ,045 Source: California Homebuilding Foundation and Construction Industry Research Board. D-5

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261 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE The following is a summary of certain definitions and provisions of the Indenture which is not described elsewhere in the Official Statement. This Summary does not purport to be comprehensive and reference should be made to the Indenture for a full and complete statement of its provisions. Definitions DEFINITIONS As used in the Indenture, the following terms have the following meanings: Acquisition/Financing Agreement means that certain Acquisition/Financing Agreement dated as of February 6, 2018 by and between the City, Community Facilities District No. 16-I (Millenia), and SLF IV- Millenia, LLC, a Delaware limited liability company, as such agreement may be amended from time to time. Act means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California. Administrative Expense Fund means the fund by that name established pursuant to the Indenture. Administrative Expenses means the expenses directly related to the administration of the District, including, but not limited to, the following: the costs of computing the Improvement Area No. 1 Special Taxes and preparing the annual Improvement Area No. 1 Special Tax collection schedules (whether by the City or a designee thereof or both); the costs of collecting the Improvement Area No. 1 Special Taxes (whether by the County, the City or otherwise); the costs of remitting the Improvement Area No. 1 Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties of the Fiscal Agent required under the Indenture; the costs of the City, the District or any designee thereof of complying with the arbitrage rebate requirements or incurred in participating in and responding to an audit by the Internal Revenue Service; the costs of the City, the District, or any designee thereof of complying with City or District disclosure requirements associated with applicable federal or state securities laws and of the Act or otherwise agreed to by the City or property owners developing within Improvement Area No. 1 ; the costs associated with preparing Improvement Area No. 1 Special Tax disclosure statements and responding to public inquiries regarding the Improvement Area No. 1 Special Taxes; the costs of the City, District or any designee thereof related to an appeal of the Improvement Area No. 1 Special Tax; and the costs of any credit enhancement obtained by the City or the District (but excluding the costs of any credit enhancement required to be provided by SLF IV Millenia, LLC and/or its successor). Administrative Expenses shall also include Delinquency Collection Expenses. Administrative Expense Requirement means an annual amount equal to $75,000, or such lesser amount as may be designated by written instruction from an Authorized Representative to the Fiscal Agent, to be allocated as the first priority of Improvement Area No. 1 Special Taxes received each Fiscal Year for the payment of Administrative Expenses. Annual Debt Service means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds in such Bond Year, and (b) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year, including from mandatory sinking fund payments. Assistant Director of Finance means the Assistant Director of Finance of the City. E-1

262 Authorized Representative means the City Manager, Director of Finance/Treasurer or Assistant Director of Finance of the City, acting on behalf of the District, or any other person designated in writing by the City Manager or the Director of Finance/Treasurer and authorized to act on behalf of the District under or with respect to the Indenture and all other agreements related to the Indenture. Average Annual Debt Service means the average annual debt service on the Bonds based upon a Bond Year during the term of the Bonds. Bond Counsel means an attorney or firm of attorneys, selected by the District, of nationally recognized standing in matters pertaining to the tax treatment of interest on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of the State. Bondowner or Owner, or any similar term, means any person who shall be the registered owner or his duly authorized attorney, trustee, representative or assign of any Outstanding Bond which shall at the time be registered. Bonds means the $12,280,000 City of Chula Vista Community Facilities District 16-I (Millenia) Improvement Area No Special Tax Bonds issued pursuant to the Indenture. Bond Year means each twelve-month period extending from September 2 in one calendar year to September 1 of the succeeding calendar year, except in the case of the initial Bond Year which shall be the period from the Delivery Date to and including September 1, Business Day means a day that is not a Saturday or a Sunday or a day of the year on which banks in New York, New York and Los Angeles, California, or where the Principal Corporate Trust Office is located, are not required or authorized to remain open. Capitalized Interest Sub-Account means the sub-account by that name within the Interest Account of the Debt Service Fund established pursuant to the Indenture. City means the City of Chula Vista, California. City Manager means the City Manager of the City, acting for and on behalf of the District. Code means the Internal Revenue Code of 1986, as amended. Costs of Issuance means all of the costs of formation of the District and the costs of issuing the Bonds, including but not limited to, all printing and document preparation expenses in connection with the Indenture and any supplemental indenture, the Bonds, and any and all other agreements, instruments, certificates or other documents issued in connection therewith; any computer and other expenses incurred in connection with the Bonds; the initial fees and expenses of the Fiscal Agent (including without limitation, acceptance fees and first annual fees payable in advance); and other fees and expenses incurred in connection with the formation of the District and the issuance of the Bonds, to the extent such fees and expenses are approved by the District. Costs of Issuance Fund means the fund by that name established pursuant to the Indenture. Comptroller of the Currency shall mean the Comptroller of the Currency of the United States. Debt Service Fund means the fund created and established pursuant to the Indenture. Debt Service on Parity Refunding Obligations means the gross debt service due in any Bond Year on any refunding bonds or other refunding obligations which have, or purport to have, a lien upon the Net Improvement Area No. 1 Special Tax Revenues on a parity with the lien of the Bonds. E-2

263 Delinquency Collection Expenses means those fees and expenses of the District incurred by or on behalf of the District in or related to the collection of delinquent Improvement Area No. 1 Special Taxes. Delinquency Proceeds means the amounts collected from the redemption of delinquent Improvement Area No. 1 Special Taxes including the penalties and interest thereon and from the sale of property sold as a result of the foreclosure of the lien of the Improvement Area No. 1 Special Tax resulting from the delinquency in the payment of Improvement Area No. 1 Special Taxes due and payable on such property. Delivery Date means the date on which the Bonds are issued and delivered to the initial purchaser thereof. Depository shall mean DTC and its successors and assigns or if (a) the then Depository resigns from its functions as securities depository of the Bonds, or (b) the District discontinues use of the Depository pursuant to the Indenture, any other securities depository which agrees to follow procedures required to be followed by a securities depository in connection with the Bonds and which is selected by the Treasurer. Director of Finance/Treasurer means the Director of Finance/Treasurer of the City, acting for and on behalf of the District. District means Community Facilities District No. 16-I (Millenia) situated in and formed by the City of Chula Vista, California. DTC shall mean The Depository Trust Company, New York, New York, and its successors and assigns. Fiscal Agent means U.S. Bank National Association, and any successor thereto. Fiscal Year means the 12 month period beginning July 1 of each year and terminating on June 30 of the following year, or any other annual accounting period selected and designated by the District as its fiscal year in accordance with applicable law. Government Obligations means obligations described in Paragraph 1 of the definition of Permitted Investments. Gross Proceeds has the meaning ascribed to such term in Section 148(f)(6) of the Code. Improvement Area No. 1 means Improvement Area No. 1 of the District. Improvement Area No. 1 Special Tax means the Improvement Area No. 1 Special Tax authorized to be levied in the District pursuant to the Act and the Improvement Area No. 1 Special Tax RMA. Improvement Area No. 1 Special Tax Revenues means (a) the proceeds of the Improvement Area No. 1 Special Tax levied by the District within Improvement Area No. 1 of the District pursuant to the Improvement Area No. 1 Special Tax RMA and received by the District, and (b) the Delinquency Proceeds. Improvement Area No. 1 Special Tax RMA means the rate and method of apportionment of the Improvement Area No. 1 Special Tax originally authorized to be levied on property within Improvement Area No. 1 of the District as approved at the special election held within Improvement Area No. 1 of the District on September 13, 2016, and as it may be modified from time to time in accordance with the Act. Indenture means the Bond Indenture, as amended or supplemented pursuant to the terms of the Bond Indenture. E-3

264 Independent Accountant means any certified public accountant or firm of such certified public accountants appointed and paid by the District, and who, or each of whom - 1. is in fact independent and not under domination of the District or the City; 2. does not have any substantial interest, direct or indirect, in the District or the City; and 3. is not an officer or employee of the District or the City, but who may be regularly retained to make annual or other audits of the books of or reports to the City or the District. Information Services the Electronic Municipal Market Access System (referred to as EMMA ), a facility of the Municipal Securities Rulemaking Board (at and, in accordance with then current guidelines of the Securities and Exchange Commission, and such other addresses and/or such other services providing information with respect to called bonds as the District may designate in writing to the Fiscal Agent Interest Payment Date means March 1 and September 1 of each year, commencing September 1, Investment Agreement means any investment satisfying the requirements of Paragraph 11 of the definition of Permitted Investments. Legislative Body means the City Council of the City, acting as the legislative body of the District. Maximum Annual Debt Service means, as of the date of any calculation, the largest Annual Debt Service during the current or any future Bond Year. Moody s means Moody s Investors Service, Inc., its successors and assigns. Net Improvement Area No. 1 Special Tax Revenues means the Improvement Area No. 1 Special Tax Revenues minus amounts applied annually to fund the Administrative Expense Requirement. Nominee shall mean the nominee of the Depository which may be the Depository, as determined from time to time by the Depository. Outstanding means as to the Bonds, all of the Bonds, except: 1. Bonds theretofore canceled or surrendered for cancellation in accordance with the Indenture; 2. Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Fiscal Agent pursuant to the terms of the Indenture; and 3. Bonds for the payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds). Participant shall mean a member of or participant in the Depository. Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (the Fiscal Agent shall be entitled to rely upon any written investment direction from an Authorized Representative of the District as a certification to the Fiscal Agent that such investment constitutes a Permitted Investment): 1. A. Direct obligations (other than an obligation subject to variation in principal payment) of the United States of America ( United States Treasury Obligations ); E-4

265 B. Obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America; C. Obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or D. Evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. 2. Federal Housing Administration debentures. 3. The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America: A. Federal Home Loan Mortgage Corporation (FHLMC) (1) Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) (2) Senior Debt obligations B. Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) (1) Consolidated system-wide bonds and notes C. Federal Home Loan Banks (FHL Banks) (1) Consolidated debt obligations D. Federal National Mortgage Association (FNMA) (1) Senior debt obligations (2) Mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) E. Student Loan Marketing Association (SLMA) (1) Senior debt obligations (excluded are securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) F. Financing Corporation (FICO) (1) Debt obligations G. Resolution Funding Corporation (REFCORP) (1) Debt obligations E-5

266 4. Unsecured certificates of deposit, time deposits, and bankers acceptances (having maturities of not more than 30 days) of any bank the short-term obligations of which are rated A-1 or better by S&P. 5. Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million. 6. Commercial paper (having original maturities of not more than 270 days rated A-1 by S&P and Prime-1 by Moody s. 7. Money market funds rated AAm-1 or AAm-G by S&P, or better. 8. State Obligations, which means: A. Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated A3 by Moody s and A by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. B. Direct general short-term obligations of any state agency or subdivision or agency thereof described in (A) above and rated A-1+ by S&P and Prime-1 by Moody s. C. Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in A. above and rated AA or better by S&P and AA or better by Moody s. 9. Pre-refunded municipal obligations rated AAA by S & P and AAA by Moody s meeting the following requirements: A. the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; B. the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations; C. the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ( Verification ); D. the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; E. no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and F. the cash or United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. 10. Repurchase agreements: With (1) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least A by S&P and Moody s; or (2) any broker-dealer with retail customers or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long- E-6

267 term debt rated at least A by S&P and Moody s, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation, or (3) any other entity rated A or better by S&P and Moody s, provided that: A. The market value of the collateral is maintained at levels and upon such conditions as would be acceptable to S&P and Moody s to maintain an A rating in an A rated structured financing (with a market value approach); B. The Fiscal Agent or a third party acting solely as agent therefor or for the District (the Holder of the Collateral ) has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor s books); C. The repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); D. The repurchase agreement shall provide that if during its term the provider s rating by either Moody s or S&P is withdrawn or suspended or falls below A- by S&P or A3 by Moody s, as appropriate, the provider must, at the direction of the District or the Fiscal Agent, within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the District or Fiscal Agent. Notwithstanding the above, collateral levels need not be as specified in A above, so long as such collateral levels are 103% or better and the provider is rated at least A by S&P and Moody s, respectively. 11. Investment agreements with a domestic or foreign bank or corporation the long-term debt or financial strength of which, it or its guarantor is rated at least AA- by S&P and Aa3 by Moody s; provided that, by the terms of the investment agreement: A. the invested funds are available for withdrawal without penalty or premium, upon not more than seven days prior notice; the District and the Fiscal Agent agree to 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 paid; B. the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof; or, in the case of a bank, that the obligation of the bank to make payments under the agreement ranks pari passu with the obligations of the bank to its other depositors and its other unsecured and unsubordinated creditors; C. the District and the Fiscal Agent receives the opinion of domestic counsel that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms and of foreign counsel (if applicable); D. the investment agreement shall provide that if during its term (1) the provider s rating by either S&P or Moody s falls below AA- or Aa3, respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (a) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider s books) to the District, the Fiscal Agent or a Holder of the Collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody s to maintain an A rating in an A rated structured E-7

268 financing (with a market value approach); or (b) transfer and assign the investment agreement to a then qualifying counterparty with ratings specified above; and (2) the provider s rating by either S&P or Moody s is withdrawn or suspended or falls below A- or A3, respectively, the provider must, at the direction of the District or the Fiscal Agent, within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment; E. The investment agreement shall state 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 has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); F. the investment agreement must 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 District or the Fiscal Agent, be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or 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 repaid to the District or Fiscal Agent, as appropriate. 12. The Local Agency Investment Fund (LAIF) administered by the treasurer of the State to the extent such deposits remain in the name of and control of the Fiscal Agent. Whenever reference is made in the definition of Permitted Investments to collateral, collateral shall be limited to (i) cash and securities issued or guaranteed by the United States Government, including United States Treasury obligations and any other obligations the timely payment of the principal of and interest on which are guaranteed by the United States Government, and (ii) bonds, notes, debentures, obligations or other evidences of indebtedness issued or guaranteed by the Government National Mortgage Association, Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, or any other agency or instrumentality of the United States or America including but not limited to, mortgage participation certificates, mortgage pass-through certificates, and other mortgage-backed securities. Prepayments means Improvement Area No. 1 Special Tax Revenues identified to the Fiscal Agent by an Authorized Representative as representing a prepayment of the Improvement Area No. 1 Special Tax. Principal Corporate Trust Office means the office of the Fiscal Agent at 633 West Fifth Street, 24 th Floor, Los Angeles, California or such other offices as may be specified to the District by the Fiscal Agent in writing; provided, however for transfer, registration, exchange, payment and surrender of Bonds means care of the corporate trust office of U.S. Bank National Association in St. Paul, Minnesota or such other address specified by the Fiscal Agent to the District in writing. Project means the public improvements as set forth and described in Exhibit A to the Acquisition/Financing Agreement. Project Costs means all expenses of and incidental to the construction, acquisition, or both, of the Project. Project Fund means the fund by that name established pursuant to the Indenture. E-8

269 Rebate Fund means the fund by that name established pursuant to the Indenture. Record Date shall mean the fifteenth (15th) calendar day of the month immediately preceding an Interest Payment Date. Redemption Fund means the fund by that name established pursuant to the Indenture. Registration Books shall have the meaning given such term in the Indenture. Regulations means the regulations promulgated under the Internal Revenue Code of 1986, as amended. Reserve Fund means the fund by that name established pursuant to the Indenture. Reserve Requirement means an amount initially equal to $1,028, which amount shall, as of any date of calculation, be equal to the least of (i) Maximum Annual Debt Service for the Bonds, (ii) one hundred twenty-five percent (125%) of Average Annual Debt Service for the Bonds, (iii) ten percent (10%) of the original issue price of the Bonds calculated in accordance with Treasury Regulations Section (f)(1) and (iv) $1,028, Securities Depository means, as of the Delivery Date, The Depository Trust Company, 711 Stewart Avenue, Garden City, New York and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addressees providing depository services with respect to bonds as the District may designate in writing to the Fiscal Agent. Special Tax Consultant means any person or firm possessing demonstrated experience and expertise in the preparation of special tax formulas and/or the administration of special taxes levied for community facilities districts. Any such person or firm shall be appointed and paid by the District and who, or each of whom 1. is in fact independent and not under domination of the District or the City; 2. does not have any substantial interest, direct or indirect, in the District or the City; and 3. is not an officer or employee of the District or the City, but who may be regularly retained by the City or other community facilities districts formed by the City to administer the levy of special taxes within such community facilities districts. Special Tax Fund means the fund by that name established pursuant to the Indenture. Standard & Poor s or S&P means S&P Global Ratings, its successors and assigns. State means the State of California. Supplemental Indenture means any bond indenture then in full force and effect which has been duly approved by resolution of the Legislative Body under and pursuant to the Act at a meeting of the Legislative Body duly convened and held, at which a quorum was present and acted thereon, amendatory or supplemental; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture. Tax Certificate means the certificate delivered by the District on the Delivery Date relating to the requirements of Section 148 of the Code, as it may be amended and supplemented from time to time. E-9

270 Tax Exempt means, with reference to a Permitted Investment, a Permitted Investment the interest earnings on which are excludable from gross income for federal income tax purposes pursuant to Section 103(a) of the Code, other than one described in Section 57(a)(5)(C) of the Code. Term Bonds means the Bonds maturing on September 1, 2043 and on September 1, Treasurer means the Treasurer of the City acting for and on behalf of the District. Yield has the meaning assigned to such term for purposes of Section 148(f) of the Code. Amount, Issuance and Purpose GENERAL AUTHORIZATION AND TERMS Pursuant to the provisions of the Act, the Legislative Body has authorized the issuance of the Bonds in an aggregate principal amount of $12,280,000. The Bonds shall be designated City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds. The purpose of the Bonds shall be to (a) pay for the acquisition or construction of the Project, (b) fund the Reserve Fund, (c) fund capitalized interest on a portion of the Bonds through September 1, 2019 and (d) pay the Costs of Issuance. Type and Nature of Bond The Bonds and interest thereon, together with any premium paid thereon upon redemption, are not obligations of the City, but are limited obligations of the District secured by and payable from an irrevocable first lien on the Net Improvement Area No. 1 Special Tax Revenues and on the monies in the funds and accounts established in the Indenture (including the investment earnings thereon) with the exception of the Project Fund, the Rebate Fund and the Administrative Expense Fund. Except for the Net Improvement Area No. 1 Special Tax Revenues, neither the faith and credit nor the taxing power of the District or the City is pledged for the payment of the Bonds or the interest thereon, and no Owner of the Bonds may compel the exercise of taxing power by the District, except as to the Improvement Area No. 1 Special Taxes, or the City or the forfeiture of any of their property. The principal of and interest on the Bonds and premiums upon the redemption thereof, if any, are not a debt of the District or the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory limitation or restriction. The Bonds are not a legal or equitable pledge, charge, lien or encumbrance, upon any of the District s property, or upon any of its income, receipts or revenues, except the amounts which are, under the Indenture and the Act, set aside for the payment of the Bonds and interest thereon and neither the members of the Legislative Body, the City Council of the City, nor any persons executing the Bonds are liable personally on the Bonds by reason of their issuance. Notwithstanding anything contained in the Indenture, the District shall not be required to advance any money derived from any source of income other than the Net Improvement Area No. 1 Special Tax Revenues for the payment of the interest on or the principal of the Bonds or for the performance of any covenants contained in the Indenture. Nothing in the Indenture or in any Supplemental Indenture shall preclude the redemption prior to maturity of any Bonds subject to call and redemption or the payment of the Bonds from proceeds of the refunding bonds issued under the Act or under any other law of the State. Description of Bonds; Interest Rates The Bonds shall be issued in fully registered form in denominations of $5,000 or any integral multiple thereof within a single maturity and shall be numbered as desired by the Fiscal Agent. The Bonds shall be dated as of the Delivery Date, and shall mature and be payable on September 1 in the years and in the aggregate principal amounts and shall bear interest at the rates set forth in the Indenture. The Bonds shall E-10

271 mature and be payable in the years and in the aggregate principal amounts and shall bear interest at the rates set forth in the Indenture. Interest shall be payable with respect to each Bond on each Interest Payment Date (commencing September 1, 2018), until the principal sum of that Bond has been paid; provided, however, that if at the maturity date of any Bond (or if the same is redeemable and shall be duly called for redemption, then at the date fixed for redemption) funds are available for the payment or redemption thereof, in full accordance with the terms of the Indenture, such Bond shall then cease to bear interest. Payment The principal of and interest on the Bonds shall be payable in lawful money of the United States of America. The principal of the Bonds and any premium due upon the redemption thereof shall be payable upon presentation and surrender thereof at maturity or the earlier redemption thereof at the Principal Corporate Trust Office of the Fiscal Agent. Interest on any Bond shall be payable from the Interest Payment Date next preceding the date of authentication of that Bond, unless (i) such date of authentication is an Interest Payment Date, in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest shall be payable from the date of the Bonds; provided, however, that if at the time of authentication of a Bond, interest is in default, interest on that Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment. Interest on any Bond shall be paid to the person whose name shall appear in the books of registration as required by the Indenture as the owner of such Bond as of the close of business on the Record Date immediately preceding such Interest Payment Date. Such interest shall be paid by check of the Fiscal Agent mailed to such Bondowner at his or her address as it appears on the books of registration as required by the Identure or, upon the request in writing prior to the Record Date of a Bondowner of at least $1,000,000 in aggregate principal amount of Bonds, by wire transfer in immediately available funds to an account in the United States designated by such Owner. Interest with respect to each Bond shall be computed using a year of 360 days comprised of twelve 30-day months. Execution of Bonds The Bonds shall be executed manually or in facsimile by the Mayor of the City and countersigned by the City Clerk of the City, acting on behalf of the District. The Bonds shall then be delivered to the Fiscal Agent, for authentication and registration. In case an officer who shall have signed or attested to any of the Bonds by facsimile or otherwise shall cease to be such officer before the authentication, delivery and issuance of the Bonds, such Bonds nevertheless may be authenticated, delivered and issued, and upon such authentication, delivery and issue, shall be as binding as though those who signed and attested the same had remained in office. Order to Print and Authenticate Bonds The Director of Finance/Treasurer is instructed to cause Bonds in the form as set forth in the Indenture, to be printed, and to proceed to cause said Bonds to be authenticated and delivered to an authorized representative of the purchaser, upon payment of the purchase price as set forth in the purchase contract for the sale of the Bonds. Books of Registration; Book Entry System There shall be kept by the Fiscal Agent, sufficient books for the registration and transfer of the Bonds (the Registration Books ) and, upon presentation for such purpose, the Fiscal Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said register, Bonds as provided in the Indenture. The ownership of the Bonds shall be established by the Bond E-11

272 registration books held by the Fiscal Agent. Whenever any Bond or Bonds shall be surrendered for registration of transfer or exchange, the Fiscal Agent shall authenticate and deliver a new Bond or Bonds of the same maturity, for a like aggregate principal amount of authorized denominations; provided that the Fiscal Agent shall not be required to register transfers or make exchanges of (i) Bonds for a period of 15 days next preceding the date of any selection of the Bonds to be redeemed, or (ii) any Bonds chosen for redemption. The Bonds shall be initially issued in the form of a single, fully registered Bond for each maturity (which may be typewritten). Upon initial issuance, the ownership of such Bonds shall be registered in the name of the Nominee identified below as nominee of the Depository. Except as provided in the Indenture, all of the Outstanding Bonds shall be registered in the name of the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture. With respect to the Bonds registered in the name of the Nominee, neither the District nor the Fiscal Agent shall have any responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, neither the District nor the Fiscal Agent shall have any responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in the Bonds (ii) the delivery to any Participant or any other person, other than an Owner of a Bond as shown in the Registration Books, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the District redeems the Bonds in part, or (iv) the payment to any Participant or any other person, other than an Owner of a Bond as shown in the Registration Books, of any amount with respect to principal of or interest on the Bonds. The District and the Fiscal Agent may treat and consider the person in whose name each Bond is registered as the holder and absolute Owner of such Bond for the purpose of payment of principal and interest with respect to such Bond for the purpose of giving notices or prepayment if applicable, and other matters with respect to such Bond for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The District shall pay all principal of and interest on the Bonds only to or upon the order of the respective Owner of a Bond, as shown in the Registration Books, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the District s obligations with respect to payment of principal of and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner of a Bond, as shown in the Registration Books, shall receive a Bond evidencing the obligation of the District to make payments of principal and interest pursuant to the Indenture. Upon delivery by the Depository to the Owners of the Bond, and the District of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions in the Indenture with respect to Record Dates, the word Nominee in the Indenture shall refer to such nominee of the Depository. In the event (i) the Depository determines not to continue to act as securities depository for the Bonds, or (ii) the Depository shall no longer so act and gives notice to the District of such determination, then the District will discontinue the book-entry system with the Depository. If the District determines to replace the Depository with another qualified securities depository, the District shall prepare or direct the preparation of a new, single, separate, fully registered Bond, per maturity, registered in the name of such successor or substitute qualified securities depository or its nominee. If the District fails to identify another qualified securities depository to replace the Depository, then the Bonds shall no longer be restricted to being registered in the register in the name of the Nominee, but shall be registered in whatever name or names Owners of the Bonds transferring or exchanging Bonds shall designate, in accordance with the provisions hereof and the District shall prepare and deliver Bonds to the Owners thereof for such purpose. In the event of a reduction in aggregate principal amount of Bonds Outstanding or a refunding of part of the Bonds Outstanding, DTC, in its discretion, (a) may request the District to prepare and issue a new Bond or (b) may make an appropriate notation on the Bond indicating the date and amounts of such reduction in principal, but in such event the Registration Books maintained by the Fiscal Agent shall be conclusive as to what amounts are Outstanding on the Bond, except in the case of final maturity, in which case the Bond must be presented to the Fiscal Agent prior to payment. E-12

273 Notwithstanding any other provision of the Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments of principal and interest with respect to such Bond and all notice with respect to such Bond shall be made and given respectively, as instructed by the Depository and acceptable to the District. The initial Nominee shall be Cede & Co., as Nominee of DTC. Exchange of Bonds Bonds may be exchanged at the Principal Corporate Trust Office, for a like aggregate principal amount of Bonds of authorized denominations, interest rate and maturity, subject to the terms and conditions of the Indenture, including the payment of certain charges, if any, upon surrender and cancellation of a Bond. Upon such transfer and exchange, a new registered Bond or Bonds of any authorized denomination or denominations of the same maturity and for the same aggregate principal amount will be issued to the transferee in exchange therefor. Negotiability, Registration and Transfer of Bonds The transfer of any Bond may be registered only upon the Registration Books upon surrender thereof to the Fiscal Agent, together with an assignment duly executed by the Owner or his attorney or legal representative, in satisfactory form. Upon any such registration of transfer, a new Bond or Bonds shall be authenticated and delivered in exchange for such Bond, in the name of the transferee, of any denomination or denominations authorized by the Indenture, and in an aggregate principal amount equal to the principal amount of such Bond or Bonds so surrendered. In all cases in which Bonds shall be exchanged or transferred, the Fiscal Agent shall authenticate the Bonds in accordance with the provisions of the Indenture. All Bonds surrendered in such exchange or transfer shall forthwith be canceled. The Fiscal Agent may make a charge for every such exchange or registration of transfer of Bonds sufficient to reimburse it for any tax or other governmental charge required to be paid with respect to such exchange or registration or transfer. Authentication Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form set forth in the Indenture, manually executed by the Fiscal Agent, shall be valid or obligatory for any purpose or entitled to the benefits of the Indenture, and such certificate of the Fiscal Agent shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered under the Indenture, and are entitled to the benefits of the Indenture. Establishment of Special Funds FUNDS AND ACCOUNTS The following funds and accounts are created and established under the Indenture and shall be maintained by the Fiscal Agent: A. Special Tax Fund; B. Debt Service Fund, and within the Debt Service Fund, the Interest Account, and within the Interest Account, the Capitalized Interest Sub-Account, and the Principal Account; C. Rebate Fund; D. Redemption Fund; E. Project Fund; E-13

274 F. Reserve Fund; G. Administrative Expense Fund; and H. Costs of Issuance Fund. The District may, through written instructions from an Authorized Representative, direct the Fiscal Agent to establish such other accounts or sub-accounts, as may be necessary to carry out the administration of the Bonds and the proceeds of the Bonds. Special Tax Fund A. The District shall, no later than the tenth (10th) Business Day after which Improvement Area No. 1 Special Tax Revenues have been received by the District and in any event not later than February 15th and August 15th of each year, transfer such Improvement Area No. 1 Special Tax Revenues to the Fiscal Agent and, except as set forth in the following sentence, such amounts shall be deposited in the Special Tax Fund. Improvement Area No. 1 Special Tax Revenues representing Prepayments shall be deposited into the Redemption Fund and the Administrative Expense Fund as set forth in written instructions from an Authorized Representative. B. The Improvement Area No. 1 Special Tax Revenues deposited in the Special Tax Fund shall be held in trust and deposited in the following accounts of the Special Tax Fund or transferred to the following other funds and accounts on the dates and in the amounts set forth in the following paragraphs and in the following order of priority: 1. The Fiscal Agent shall each Fiscal Year transfer to the Administrative Expense Fund from the Improvement Area No. 1 Special Tax Revenues received by the Fiscal Agent during such Fiscal Year an amount equal to the Administrative Expense Requirement. 2. The Fiscal Agent shall transfer to the Interest Account of the Debt Service Fund, on each Interest Payment Date and date for redemption of the Bonds, an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest due or becoming due and payable on such Interest Payment Date on all Outstanding Bonds or to be paid on the Bonds being redeemed on such date. 3. The Fiscal Agent shall transfer to the Principal Account of the Debt Service Fund, on each September 1, an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of, and premium (if any) on the Bonds coming due and payable on such September 1, whether at maturity or by mandatory sinking fund payments on the Term Bonds. 4. On or after September 2 of each year after making the deposits and transfers required under 1. through 3. above, the Fiscal Agent shall transfer the amount, if any, necessary to replenish the amount then on deposit in the Reserve Fund to an amount equal to the Reserve Requirement. 5. On or after September 2 of each year after making the deposits and transfers required under 1. through 4. above, upon receipt of written instructions from an Authorized Representative, the Fiscal Agent shall transfer from the Special Tax Fund to the Rebate Fund the amount specified in such request. 6. On or after September 2 of each year after making the deposits and transfers required under 1. through 5. above, upon receipt of a written request of an Authorized Representative, the Fiscal Agent shall transfer from the Special Tax Fund to the Administrative Expense Fund the amounts specified in such request to pay those Administrative Expenses which the District reasonably expects will become due and payable during such Fiscal Year or the cost of which Administrative Expenses have previously been incurred and paid by the District from funds other than the Administrative Expense Fund in excess of the Administrative Expense Requirement for such Fiscal Year. E-14

275 7. If, on or after September 2 of each year, after making the deposits and transfers required under 1. through 6. above, monies remain in the Special Tax Fund, such monies shall be transferred to the Project Fund until the Project Fund is closed. C. The Fiscal Agent shall, upon receipt of Improvement Area No. 1 Special Tax Revenues representing Prepayments, immediately transfer Prepayments to the Redemption Fund and utilize such funds to redeem Bonds pursuant to the Indenture as set forth in written instructions to be delivered to the Fiscal Agent by an Authorized Representative; provided, however, that any portion of a Prepayment constituting Administrative Expenses shall be deposited into the Administrative Expense Fund as set forth in such written instructions. The Fiscal Agent may conclusively rely upon such instructions. D. When there are no longer any Bonds Outstanding, any amounts then remaining on deposit in the Special Tax Fund shall be transferred to the District and used for any lawful purpose under the Act. Debt Service Fund A. Interest Account. All moneys in the Interest Account, including the Capitalized Interest Sub- Account, shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity). All funds in the Capitalized Interest Sub-Account shall be used and withdrawn to pay interest on the Bonds prior to using any other funds on deposit in the Interest Account for such purpose. B. Principal Account. 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 the Term Bonds upon the mandatory sinking fund redemption thereof pursuant to the Indenture. Costs of Issuance Fund The Fiscal Agent shall, upon receipt of a payment request in the form set forth in the Indenture duly executed by an Authorized Representative, disburse money from the Costs of Issuance Fund, if any, on such dates and in such amounts as specified in such requisition to pay the Costs of Issuance related to the Bonds. Any amounts remaining on deposit in the Costs of Issuance Fund on the earlier of the date on which all Costs of Issuance have been paid as stated in writing by an Authorized Representative delivered to the Fiscal Agent or six months after the Delivery Date of the Bonds shall be transferred to the Project Fund. Project Fund The Fiscal Agent shall, from time to time, disburse monies from the Project Fund to pay the Project Costs. Upon receipt of a payment request in the form set forth in the Indenture duly executed by an Authorized Representative (which payment request shall not exceed the corresponding payment request provided to the City under the Acquisition/Financing Agreement), the Fiscal Agent shall pay the Project Costs from amounts in the Project Fund directly to the contractor(s) or such other person(s), corporation(s) or entity(ies) specified in the payment request (including reimbursements, if any, to the District). The Fiscal Agent may rely on an executed payment request as complete authorization for said payments. After the final payment or reimbursement of all Project Costs, as certified by delivery of a written notice from an Authorized Representative to the Fiscal Agent, the Fiscal Agent shall transfer excess monies, if any, on deposit in, or subsequently deposited in, the Project Fund to the Special Tax Fund and the Fiscal Agent shall apply the amount so transferred in accordance with the Indenture. Upon such transfer the Project Fund shall be closed. Notwithstanding anything in the Indenture to the contrary, if on the date which is three (3) years from the Delivery Date of the Bonds, any funds derived from the Bonds remain on deposit in the Project Fund, the E-15

276 Fiscal Agent shall, upon the receipt of written instructions from an Authorized Representative, immediately restrict the yield on such amounts so that the Yield earned on the investment of such amounts is not in excess of the Yield on the Bonds, unless in the written opinion of Bond Counsel delivered to the Fiscal Agent such restriction is not necessary to prevent an impairment of the exclusion of interest on the Bonds from gross income for federal income tax purposes. Reserve Fund Moneys on deposit in the Reserve Fund shall be used solely for the purpose of paying the principal of and interest on the Bonds as such amounts shall become due and payable in the event that the moneys in the Special Tax Fund and the Debt Service Fund for such purpose are insufficient therefor or redeeming Bonds as described below. The Fiscal Agent shall, when and to the extent necessary, withdraw money from the Reserve Fund and transfer such money to the Debt Service Fund or the Redemption Fund for such purpose. All Permitted Investments in the Reserve Fund shall be valued at their fair market value semi-annually on March 1 and September 1 and on any other date as requested in writing by an Authorized Representative. On any date after the transfers required by the Indenture have been made for any Bond Year, if the amount on deposit in the Reserve Fund is less than the Reserve Requirement, the Fiscal Agent shall transfer to the Reserve Fund from the first available monies in the Special Tax Fund an amount necessary to increase the balance therein to the Reserve Requirement. If on September 1 of each year following the payment of scheduled debt service due and payable on such date, or the first Business Day thereafter if September 1 is not a Business Day, the amount on deposit in the Reserve Fund is in excess of the Reserve Requirement, the Fiscal Agent shall transfer such excess to the Special Tax Fund. In connection with any optional or extraordinary mandatory redemption of Bonds from Prepayments or a partial defeasance of Bonds, amounts in the Reserve Fund may be applied to such redemption or partial defeasance so long as the amount on deposit in the Reserve Fund following such redemption or partial defeasance equals the Reserve Requirement. The District shall set forth in a written request of an Authorized Representative the amount in the Reserve Fund to be transferred to the Redemption Fund on a redemption date or to be transferred pursuant to the Indenture to partially defease Bonds, and the Fiscal Agent shall make such transfer on the applicable redemption or defeasance date, subject to the limitation in the preceding sentence. Upon receipt of written instructions from an Authorized Representative instructing the Fiscal Agent to transfer certain moneys representing a Reserve Fund credit for the prepayment of a Special Tax obligation, the Fiscal Agent shall transfer the amount specified in such instructions from the Reserve Fund to the Redemption Fund for the purpose of redeeming Bonds pursuant to such instructions. Whenever the balance in the Reserve Fund 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 transfer the amount in the Reserve Fund to the Redemption Fund to be applied, on the next succeeding Interest Payment Date, to the payment and redemption, in accordance with the Indenture of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Redemption Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the District to be used for any lawful purpose of the District as set forth in the Act. Rebate Fund The District shall calculate Excess Investment Earnings as defined in, and in accordance with, the Tax Certificate, and shall, in writing, direct the Fiscal Agent to transfer funds to the Rebate Fund from funds furnished by the District as provided for in the Indenture and the Tax Certificate. Notwithstanding the foregoing, the Tax Certificate, including the method of computing Excess Investment Earnings (as defined in the Tax Certificate) may be modified, in whole or in part, without the consent of the Owners of the Bonds, upon receipt by the District of an opinion of Bond Counsel to the effect E-16

277 that such modification shall not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds then Outstanding. The Fiscal Agent shall not be responsible for calculating rebate amounts or for the adequacy or correctness of any rebate report or rebate calculations. The Fiscal Agent shall be deemed conclusively to have complied with the provisions of the Indenture regarding calculation and payment of rebate if it follows the directions of the District and it shall have no independent duty to review such calculations or enforce the compliance by the District with such rebate requirements. Redemption Fund Monies may be deposited by the District or the Fiscal Agent pursuant to the terms of the Indenture into the Redemption Fund and shall be set aside and used solely for the purpose of redeeming Bonds in accordance with the Indenture, as applicable. Following the redemption of any Bonds, if any funds remain in the Redemption Fund, such funds shall be transferred to the Special Tax Fund. Administrative Expense Fund The Fiscal Agent shall deposit from time to time the amounts authorized for deposit therein pursuant to the Indenture. The moneys in the Administrative Expense Fund shall be used to pay Administrative Expenses from time to time upon receipt by the Fiscal Agent of a written request executed by an Authorized Representative specifying the name and address of the payee and the amount of the Administrative Expense and a description thereof and further stating that such request has not formed the basis of any prior request for payment. Investment of Funds Unless otherwise specified in the Indenture, monies in the Special Tax Fund, the Debt Service Fund, the Project Fund, the Reserve Fund, the Costs of Issuance Fund and Administrative Expense Fund shall, at the written direction of an Authorized Representative given at least two (2) days prior, be invested and reinvested in Permitted Investments (including investments with the Fiscal Agent or an affiliate of the Fiscal Agent or investments for which the Fiscal Agent or an affiliate of the Fiscal Agent acts as investment advisor or provides other services so long as the investments are Permitted Investments). Monies in the Redemption Fund and the Rebate Fund shall, at the written direction of an Authorized Representative, be invested in Government Obligations. Notwithstanding anything in the Indenture to the contrary, in the absence of written investment instructions, the Fiscal Agent shall invest solely in investments identified in paragraph 7 of the definition of Permitted Investments. The District acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of security transactions as they occur, the District specifically waives receipt of such confirmations to the extent permitted by law. The Fiscal Agent will furnish the District periodic cash transaction statements, which include detail for all investment transactions made by the Fiscal Agent under the Indenture. Obligations purchased as investments of monies in any fund or account shall be deemed at all times to be a part of such fund or account. Except as provided otherwise in the Indenture, any income realized on or losses resulting from investments in any fund or account shall be credited or charged to such fund or account. Subject to the restrictions set forth in the Indenture and/or any written investment instructions received by Fiscal Agent pursuant to the Indenture, monies in said funds and accounts may be from time to time invested by the Fiscal Agent in any manner so long as: (1) Monies in the Project Fund, Administrative Expense Fund and Rebate Fund shall be invested in obligations which will by their terms mature as close as practicable to the date the District estimates the monies represented by the particular investment will be needed for withdrawal from such fund; and E-17

278 (2) Monies in the Special Tax Fund, the Debt Service Fund, the Redemption Fund and the Reserve Fund shall be invested only in obligations which will by their terms either mature or allow for withdrawals at par on such dates so as to ensure the payment of principal and interest on the Bonds as the same become due; provided, however, that except for Permitted Investments which permit withdrawal at par at any time, investment of monies on deposit in the Reserve Fund shall have an average aggregate weighted term not greater that five (5) years. The Fiscal Agent shall sell or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide monies to meet any payment or transfer for such funds and accounts or from such funds and accounts. The Fiscal Agent shall not be liable for any loss from any investments made or sold by it in accordance with the provisions of the Indenture. Amendments or Supplements SUPPLEMENTAL INDENTURES The Legislative Body may, by adoption of a resolution from time to time, and at any time but without notice to or consent of any of the Bondholders, approve a Supplemental Indenture for any of the following purposes: (a) (b) (c) (d) to cure any ambiguity, to correct or supplement any provision in the Indenture which may be inconsistent with any other provision in the Indenture, or to make any other provision with respect to matters or questions arising under the Indenture or in any Supplemental Indenture, provided that such action shall not be materially adverse to the interests of the Bondowners; to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in the Indenture, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with the Indenture as theretofore in effect; to modify, alter, amend or supplement the Indenture in any other respect which is not materially adverse to the interests of the Bondowners; and to amend any provision of the Indenture relating to the Code as may be necessary or appropriate to assure compliance with the Code and the exclusion from gross income of interest on the Bonds. Exclusive of the Supplemental Indentures provided for in the Indenture, the Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding shall have the right to consent to and approve the adoption by the District of such Supplemental Indentures as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture; provided, however, that nothing in the Indenture shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal of, or the payment date of interest on, any Bond, or (b) a reduction in the principal amount of, or redemption premium on, any Bond or the rate of interest thereon without the consent of the affected Bondowner(s), or permit, or be construed as permitting, (x) a preference or priority of any Bond or Bonds over any other Bond or Bonds, (y) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplemental Indenture, or (z) creating of a pledge of or lien or charge upon the Net Improvement Area No. 1 Special Tax Revenues superior to the pledge provided for in the Indenture, without the consent of the Owners of all Bonds then Outstanding. If at any time the District shall desire to approve a Supplemental Indenture, which pursuant to the terms of the Indenture shall require the consent of the Bondowners, the District shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemental Indenture. The District shall, at the E-18

279 expense of the District, cause notice of the proposed Supplemental Indenture to be mailed, postage prepaid, to all Bondowners at their addresses as they appear in the Registration Books. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the principal office of the District for inspection by all Bondowners. The failure of any Bondowner to receive such notice shall not affect the validity of such Supplemental Indenture when consented to and approved as provided in the Indenture. Whenever at any time within one year after the date of the first mailing of such notice, the District shall receive an instrument or instruments purporting to be executed by the Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding, which instrument or instruments shall refer to the proposed Supplemental Indenture described in such notice, and shall specifically consent to the approval thereof by the Legislative Body substantially in the form of the copy thereof referred to in such Notice as on file with the District, such proposed Supplemental Indenture, when duly approved by the Legislative Body, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of 60% of the aggregate principal amount of the Bonds have consented to the approval of any Supplemental Indenture, Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District, shall be disregarded and shall be treated as though they were not outstanding for the purpose of any such determination. Upon the approval of any Supplemental Indenture and the receipt of consent to any such Supplemental Indenture from the Owners of the appropriate aggregate principal amount of Bonds in instances where such consent is required pursuant to the provisions of the Indenture, the Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the District and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced under the Indenture, subject in all respects to such modifications and amendments. Notwithstanding anything in the Indenture to the contrary, no Supplemental Indenture shall be entered into which would modify the duties of the Fiscal Agent under the Indenture, without the prior written consent of the Fiscal Agent. Ownership of Bonds MISCELLANEOUS CONDITIONS The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute Owner thereof for all purposes, and payment of or on account of the principal and redemption premium, if any, of any such Bond, and the interest on any such Bond, shall be made only to or upon the order of the registered Owner thereof or his legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond, including the redemption premium, if any, and interest thereon, to the extent of the sum or sums so paid. Mutilated, Lost, Destroyed or Stolen Bonds If any Bond shall become mutilated, the Fiscal Agent shall authenticate and deliver a new Bond of like tenor, date and maturity in exchange and substitution for the Bond so mutilated, but only upon surrender to the Fiscal Agent of the Bond so mutilated. Every mutilated Bond so surrendered to the Fiscal Agent shall be canceled. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Fiscal Agent and, if such evidence is satisfactory to the Fiscal Agent and, if an indemnity satisfactory to the Fiscal Agent shall be given, the Fiscal Agent shall authenticate and deliver a new Bond of like tenor and maturity, numbered and dated as the Fiscal Agent shall determine in lieu of and in substitution for the Bond so lost, destroyed or stolen. Any Bond issued under the provisions of the Indenture in lieu of any Bond alleged to have been lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of the Indenture with all other Bonds secured by the Indenture. The Fiscal Agent shall not treat both the original Bond and any replacement Bond as being Outstanding for the purpose of determining the principal amount of Bonds which may be executed, authenticated and delivered under the Indenture or for the purpose E-19

280 of determining any percentage of Bonds Outstanding under the Indenture, but both the original and replacement Bond shall be treated as one and the same. Cancellation of Bonds All Bonds paid or redeemed, either at or before maturity, shall be canceled upon the payment or redemption of such Bonds, and shall be delivered to the Fiscal Agent when such payment or redemption is made. All Bonds canceled under any of the provisions of the Indenture shall be destroyed by the Fiscal Agent, which shall execute and provide the District with a certificate of destruction. Covenants As long as the Bonds are Outstanding and unpaid, the District shall (through its proper members, officers, agents or employees) faithfully perform and abide by all of the covenants and agreements set forth in the Indenture; provided, however, that said covenants do not require the District to expend any funds other than the Net Improvement Area No. 1 Special Tax Revenues. A. The District will review the public records of the County of San Diego, California, in connection with the collection of the Improvement Area No. 1 Special Taxes not later than July 1 of each year to determine the amount of the Improvement Area No. 1 Special Tax collected in the prior Fiscal Year and will commence and diligently pursue to completion, judicial foreclosure proceedings against (i) properties under common ownership with delinquent Improvement Area No. 1 Special Taxes in the aggregate of $5,000 or more by October 1 following the close of the Fiscal Year in which the Improvement Area No. 1 Special Taxes were due, and (ii) against all properties with delinquent Improvement Area No. 1 Special Taxes in the aggregate of $5,000 or more by October 1 following the close of any Fiscal Year if the amount of the Reserve Fund is less than the Reserve Requirement. B. The District shall preserve and protect the security of the Bonds and the rights of the Bondowners and defend their rights against all claims and demands of all persons. Until such time as an amount has been set aside sufficient to pay Outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior to maturity, the District will faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture or in any Bond issued under the Indenture. C. The District will not issue any other obligations payable, principal or interest, from the Improvement Area No. 1 Special Taxes which have, or purport to have, any lien upon the Improvement Area No. 1 Special Taxes superior to or, except as permitted in the following sentence, on a parity with the lien of the Bonds authorized in the Indenture. Nothing in the Indenture shall prevent the District from issuing and selling, pursuant to law, refunding bonds or other refunding obligations payable from and having a first lien upon the Improvement Area No. 1 Special Taxes on a parity with the Outstanding Bonds so long as the issuance of such refunding bonds or other refunding obligations results in a reduction in each Bond Year on the Annual Debt Service on the Bonds when combined with the Debt Service on Parity Refunding Obligations following the issuance of such refunding bonds or other refunding obligations. D. The District will duly and punctually pay or cause to be paid the principal of and interest on each of the Bonds issued under the Indenture on the date, at the place and in the manner provided in said Bonds, but only out of Net Improvement Area No. 1 Special Tax Revenues and such other funds as may be provided in the Indenture. E. The District shall comply with all requirements of the Act so as to assure the timely collection of the Improvement Area No. 1 Special Taxes in an amount sufficient to pay the Annual Debt Service on the Bonds when due, Administrative Expenses when due and amounts, if any, to replenish the Reserve Fund to the Reserve Requirement. Prior to July 1 of each year, the District shall ascertain the parcels on which the Improvement Area No. 1 Special Taxes are to be levied in the following Fiscal Year, taking into account any E-20

281 subdivisions of parcels during the current Fiscal Year. The District shall effect the levy of the Improvement Area No. 1 Special Tax in accordance with the Improvement Area No. 1 Special Tax RMA and the Act each Fiscal Year so that the computation of such levy is complete and transmitted to the Auditor of the County of San Diego before the final date on which the Auditor of the County of San Diego will accept the transmission of the Improvement Area No. 1 Special Tax for the parcels within Improvement Area No. 1 for inclusion on the next real property tax roll. Upon completion of the computation of the amount of the Improvement Area No. 1 Special Tax levy, the District shall prepare or cause to be prepared, and shall transmit or cause to be transmitted to the Auditor of the County of San Diego, such data as such Auditor requires to include the levy of the Improvement Area No. 1 Special Tax on the next real property tax roll. The District finds and determines that, historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community facilities districts in Southern California have from time to time been at levels requiring the levy of special taxes at the maximum authorized rates in order to make timely payment of principal of and interest on the outstanding indebtedness of such community facilities districts. For this reason, the District has determined that, absent the certification described below, a reduction in the Maximum Special Tax (as such term is defined in the Improvement Area No. 1 Special Tax RMA) authorized to be levied below the levels provided would interfere with the timely retirement of the Bonds. The District has determined it to be necessary in order to preserve the security for the Bonds to covenant, and, to the maximum extent that the law permits it to do so, the District does covenant, that it shall not initiate proceedings to reduce the Maximum Special Tax rates (as set forth in the Improvement Area No. 1 Special Tax RMA), unless, in connection therewith, (i) the District receives a certificate from one or more Special Tax Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in Improvement Area No. 1 as of the July 1 preceding the reduction, the Maximum Special Tax which may be levied on all Assessor s Parcels (as such term is defined in the Improvement Area No. 1 Special Tax RMA) of taxable property on which a completed structure is located in each Fiscal Year will equal at least 110% of the largest sum of the Annual Debt Service on the Bonds to remain Outstanding and the Debt Service on Parity Refunding Obligations outstanding ( Maximum Debt Service ) after the reduction is approved and will not reduce the Maximum Special Tax payable from parcels on which a completed structure is located or to be located at buildout of Improvement Area No. 1 as proposed to less than 110% of the Maximum Debt Service, and (ii) the City Council, acting as the legislative body of the District, finds pursuant to the Indenture that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. Any reduction in the Maximum Special Tax approved pursuant to the preceding sentence may be approved without the consent of the Owners of the Bonds. The District covenants that, in the event that any initiative is adopted by the qualified electors which purports to reduce the Maximum Special Tax below the levels authorized pursuant to the Improvement Area No. 1 Special Tax RMA or to limit the power or authority of the District to levy Improvement Area No. 1 Special Taxes pursuant to the Improvement Area No. 1 Special Tax RMA, the District shall, from funds available under the Indenture, commence and pursue legal action in order to preserve the authority and power of the District to levy Improvement Area No. 1 Special Taxes pursuant to the Improvement Area No. 1 Special Tax RMA. F. The District will at all times keep, or cause to be kept, proper and current books and accounts (separate from all other records and accounts) in which complete and accurate entries shall be made of all transactions relating to the Improvement Area No. 1 Special Tax Revenues and other funds provided for in the Indenture. G. The District will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the District or take or omit to take any action that would cause the Bonds to be private activity bonds within the meaning of Section 141 of the Code, or obligations which are federally guaranteed within the meaning of Section 149(b) of the Code. The District will not allow five percent (5%) or more of the proceeds of the Bonds to be used in the trade or business of any non-governmental units and will not loan five percent (5%) or more of the proceeds of the Bonds to any non-governmental units. E-21

282 H. The District covenants that it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest on the Bonds under Section 103 of the Code. The District will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the District, or take or omit to take any action, that would cause the Bonds to be arbitrage bonds within the meaning of Section 148(a) of the Code. To that end, the District will comply with all requirements of Section 148 of the Code to the extent applicable to the Bonds. In the event that at any time the District is of the opinion that for purposes above it is necessary to restrict or limit the yield on the investment of any monies held under the Indenture or otherwise the District shall so instruct the Fiscal Agent in writing, and the Fiscal Agent shall take such action as may be necessary in accordance with such instructions. Without limiting the generality of the foregoing, the District agrees that there shall be paid from time to time all amounts required to be rebated to the United States of America pursuant to Section 148(f) of the Code and any temporary, proposed or final Treasury Regulations as may be applicable to the Bonds from time to time. This covenant shall survive payment in full or defeasance of the Bonds. The District specifically covenants to pay or cause to be paid to the United States of America at the times and in the amounts determined under Section Notwithstanding any provision listed above, if the District shall obtain an opinion of Bond Counsel to the effect that any action required under this covenant is no longer required, or to the effect that some further action is required, to maintain the exclusion from gross income of the interest on the Bonds pursuant to Section 103 of the Code, the Fiscal Agent may rely conclusively on such opinion in complying with the provisions of the Indenture, and the covenant under the Indenture shall be deemed to be modified to that extent. I. The District shall not directly or indirectly extend the maturity dates of the Bonds or the time of payment of interest with respect thereto. J. Not later than October 30 of each year, commencing October 30, 2019, and until October 30 following the final maturity of the Bonds, the District shall supply or cause to be supplied the information, if any, then required by Government Code Section to the California Debt and Investment Advisory Commission. K. The District covenants that it will not adopt any policy pursuant to Section of the Act permitting tender of Bonds in full payment or partial payment of any Improvement Area No. 1 Special Taxes unless it first receives a certificate of a Special Tax Consultant that accepting such tender will not result in the District having insufficient Net Improvement Area No. 1 Special Tax Revenues to pay the principal of and interest on the Bonds when due. L. The District shall do and perform or cause to be done and performed all acts and things required to be done or performed by or on behalf of the District under the provisions of the Indenture. The District warrants that upon the date of execution and delivery of the Bonds, the conditions, acts and things required by law and the Indenture to exist, to have happened and to have been performed precedent to and in the execution and delivery of such Bonds do exist, have happened and have been performed and the execution and delivery of the Bonds shall comply in all respects with the applicable laws of the State. Arbitrage Certificate On the basis of the facts, estimates and circumstances now in existence and in existence on the date of issue of the Bonds, as determined by the Treasurer, said Treasurer is authorized to certify that it is not expected that the proceeds of the Bonds will be used in a manner that would cause the Bonds to be arbitrage bonds. Such certification shall be delivered to the purchaser together with the Bonds. E-22

283 Defeasance If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Indenture, then the Owner of such Bond shall cease to be entitled to the pledge of the Net Improvement Area No. 1 Special Tax Revenues, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond under the Indenture shall thereupon cease, terminate and become void and discharged and satisfied. In the event of the defeasance of all Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the District all money or securities held by it pursuant to the Indenture which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds. Any Outstanding Bond shall be deemed to have been paid within the meaning expressed in the preceding paragraph if such Bond is paid in any one or more of the following ways: (a) (b) (c) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds established pursuant to the Indenture (exclusive of the Rebate Fund) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or by depositing with the Fiscal Agent or an escrow bank appointed by the District, in trust, noncallable Permitted Investments of the type described in subparagraph 1 of the definition thereof, in such amount as an Independent Accountant shall determine (as set forth in a verification report from such Independent Accountant) will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the funds established under the Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the District under the Indenture with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District to preserve the exclusion of the interest on the Bonds from gross income for federal income tax purposes. Notice of such election shall be filed with the Fiscal Agent not less than ten (10) days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Fiscal Agent. In connection with a defeasance under (b) or (c) above, there shall be provided to the District and the Fiscal Agent (i) a report of the Independent Accountant verifying the determination made pursuant to paragraph (b) or (c) above, as applicable (the Verification Report ) stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank, together with the interest to accrue thereon and moneys then on deposit in the funds established under the Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon to pay and discharge the principal of, premium, if any, and interest on all such Bonds to be defeased in accordance with the Indenture as and when the same shall become due and payable, and (ii) an opinion of Bond Counsel (which may rely upon the opinion of the Independent Accountant) to the effect that the Bonds being defeased have been defeased in accordance with the Indenture and are no longer Outstanding. The Verification Report and opinion of Bond Counsel shall be acceptable in form and substance to the District, and addressed to the District and the Fiscal Agent. E-23

284 Fiscal Agent The District appoints U.S. Bank National Association as Fiscal Agent for the Bonds. The Fiscal Agent is authorized to and shall mail or otherwise provide for the payment of interest payments to the Bondholders, and upon written instruction of the District shall select Bonds for redemption, give notice of redemption of Bonds and maintain the Bond Register. The Fiscal Agent is authorized to pay the principal of and premium, if any, on the Bonds when the same are duly presented to it for payment at maturity or on call and redemption, to provide for the registration of transfer and exchange of Bonds presented to it for such purposes, to provide for the cancellation of Bonds all as provided in the Indenture, and to provide for the authentication of Bonds, and shall perform all other duties assigned to or imposed on it as provided in the Indenture. The Fiscal Agent shall keep accurate records of all Bonds paid and discharged by it. The District shall from time to time, subject to any agreement between the District and the Fiscal Agent then in force, pay to the Fiscal Agent compensation for its services, reimburse the Fiscal Agent for all its advances and expenditures, including, but not limited to, advances to and fees and expenses of independent accountants or counsel employed by it in the exercise and performance of its powers and duties under the Indenture, and indemnify and hold the Fiscal Agent, its officers, directors, agents and employees, harmless from and against losses, claims, expenses and liabilities not arising from its own negligence or willful misconduct which it may incur in the exercise and performance of its powers and duties under the Indenture. Such obligations shall survive the termination or discharge of the Indenture. The District may at any time at its sole discretion remove the Fiscal Agent initially appointed, and any successor thereto, by delivering to the Fiscal Agent a written notice of its decision to remove the Fiscal Agent and may appoint a successor or successors thereto, provided that any such successor, other than the Treasurer, shall be a bank or trust company having a combined capital (exclusive of borrowed capital) and surplus of at least fifty million dollars ($50,000,000), and subject to supervision or examination by Federal or State authority. Any removal shall become effective only upon acceptance of appointment by the successor Fiscal Agent or the Treasurer. If any bank or trust company appointed as a successor publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of the Indenture the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Fiscal Agent may at any time resign by giving written notice to the District and by giving to the Owners notice of such resignation, which notice shall be mailed to the Owners at their addresses appearing in the Registration Books. Upon receiving such notice of resignation, the District shall promptly appoint a successor Fiscal Agent by an instrument in writing. Any resignation or removal of the Fiscal Agent and appointment of a successor Fiscal Agent shall become effective only upon acceptance of appointment by the successor Fiscal Agent. Liability of Fiscal Agent The recitals of fact and all promises, covenants and agreements contained in the Indenture and in the Bonds shall be taken as statements, promises, covenants and agreements of the District, and the Fiscal Agent assumes no responsibility for the correctness of the same and makes no representations as to the validity or sufficiency of the Indenture or of the Bonds, and shall incur no responsibility in respect thereof, other than in connection with its duties or obligations in the Indenture or in the Bonds or in the certificate of authentication on the Bonds. The Fiscal Agent shall be under no responsibility or duty with respect to the issuance of the Bonds. The Fiscal Agent shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. The Fiscal Agent shall have no responsibility with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. E-24

285 The Fiscal Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Fiscal Agent may consult with counsel, who may be counsel to the District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered under the Indenture in good faith and in accordance therewith. Whenever in the administration of its duties under the Indenture, the Fiscal Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof be specifically prescribed in the Indenture) may, in the absence of bad faith on the part of the Fiscal Agent, be deemed to be conclusively proved and established by a written certificate of the District, and such certificate shall be full warrant to the Fiscal Agent for any action taken or suffered under the provisions of the Indenture upon the faith thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence of such matter or may require such additional evidence as to it may seem reasonable. The Fiscal Agent shall have no duty or obligation to enforce the collection of funds to be deposited with it under the Indenture or as to the correctness of any amounts received, and its liability shall be limited to the proper accounting for such funds as it actually receives. No provision of the Indenture or any other document related to the Indenture shall require the Fiscal Agent to risk or advance its own funds or otherwise incur any financial liability in the performance of its duties or the exercise of its rights under the Indenture. The permissive right of the Fiscal Agent to do things enumerated in the Indenture shall not be construed as a duty. The Fiscal Agent may execute any of the duties of the Fiscal Agent or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and shall not be answerable for the conduct of the same if appointed by it with reasonable care. The Fiscal Agent shall be responsible for only those duties expressly set forth in the Indenture and no implied duties or obligations shall be read into the Indenture against the Fiscal Agent. Provisions Constitute Contract The provisions of the Indenture shall constitute a contract between the District and the Bondowners and the provisions of the Indenture shall be enforceable by any Bondowner for the equal benefit and protection of all Bondowners similarly situated by mandamus, accounting, mandatory injunction or any other suit, action or proceeding at law or in equity that is now or may hereafter be authorized under the laws of the State in any court of competent jurisdiction. Said contract is made under and is to be construed in accordance with the laws of the State. No remedy conferred upon any Bondowner by the Indenture is intended to be exclusive of any other remedy, but each such remedy is cumulative and in addition to every other remedy and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law of the State. No waiver of any default or breach of duty or contract by any Bondowner shall affect any subsequent default or breach of duty or contract or shall impair any rights or remedies on said subsequent default or breach. No delay or omission of any Bondowner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed as a waiver of any such default or acquiescence therein. Every substantive right and every remedy conferred upon the Bondowners may be enforced and exercised as often as may be deemed expedient. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and should said suit, action or proceeding be abandoned or be determined adversely E-25

286 to the Bondowners then, and in every such case, the District and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. After the issuance and delivery of the Bonds, the Indenture shall be irrevocable, but shall be subject to modification to the extent and in the manner provided in the Indenture, but to no greater extent and in no other manner. CUSIP Numbers CUSIP identification numbers, if available, will be imprinted on the Bonds, but such numbers shall not constitute a part of the contract evidenced by the Bonds and no liability shall hereafter attach to the District or the Fiscal Agent, or any of the officers or agents thereof because of or on account of said numbers. Severability If any covenant, agreement or provision, or any portion thereof, contained in the Indenture, or the application thereof to any person or circumstance, is held to be unconstitutional, invalid or unenforceable, the remainder of the Indenture and the application of any such covenant, agreement or provision, or portion thereof, to any other persons or circumstances, shall be deemed severable and shall not be affected, and the Indenture and the Bonds issued pursuant to the Indenture shall remain valid and the Bondholder shall retain all valid rights and benefits accorded to them under the Indenture and the Constitution and laws of the State of California. If the provisions relating to the appointment and duties of a Fiscal Agent are held to be unconstitutional, invalid or unenforceable, said duties shall be performed by the Treasurer. Unclaimed Money All money which the Fiscal Agent shall have received from any source and set aside for the purpose of paying or redeeming any of the Bonds shall be held in trust for the respective owners of such Bonds, but any money which shall be so set aside or deposited by the Fiscal Agent and which shall remain unclaimed by the Owners of such Bonds for a period of one year after the date on which any payment or redemption with respect to such Bonds shall have become due and payable shall be transferred to the District; provided, however, that the Fiscal Agent, before making such payment, shall cause notice to be mailed to the Owners of such Bonds, by first-class mail, postage prepaid, not less than 90 days prior to the date of such payment to the effect that said money has not been claimed and that after a date named therein any unclaimed balance of said money then remaining will be transferred to the District. Thereafter, the Owners of such Bonds shall look only to the District for payment and then only to the extent of the amount so received without any interest thereon. Nonpresentment of Bonds Except as otherwise provided in the Indenture, in the event any Bonds shall not be presented for payment when the principal thereof becomes due, if funds sufficient to pay such Bonds shall be held by the Fiscal Agent for the benefit of the Owners thereof, all liability of the District to the Owners thereof shall forthwith cease and be completely discharged and thereupon it shall be the duty of the Fiscal Agent to hold such funds (subject to the Indenture), without liability for interest thereon, for the benefit of the Owners of such Bonds, who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on, or with respect to, such Bonds. Continuing Disclosure The District covenants and agrees that it will comply with and carry out all of the provisions of that certain Continuing Disclosure Agreement dated as of June 1, 2018 between the District and Willdan Financial Services (the Continuing Disclosure Agreement ). Notwithstanding any other provision of the Indenture, failure of the District to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default under the provisions of the Indenture. E-26

287 Execution of Documents and Proof of Ownership by Owners Any request, consent, declaration or other instrument which the Indenture may require or permit to be executed by Owners may be in one or more instruments of similar tenor, and shall be executed by Owners in person or by their attorneys appointed in writing. Except as otherwise expressly provided in the Indenture, the fact and date of the execution by any Owner or his attorney of such a request, consent, declaration or other instrument, or of a writing appointing such an attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the person signing such request, declaration or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such a notary public or other officer. Any request, consent, declaration or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the District or the Fiscal Agent in good faith and in accordance therewith. Applicable Law The Indenture shall be governed by and enforced in accordance with the laws of the State of California applicable to contracts made and performed in the State of California. Payment on Business Day In any case where the date of the payment of interest on or of principal (and premium, if any) of the Bonds or the date fixed for redemption is other than a Business Day, the payment of interest or principal (and premium, if any) need not be made on such date but may be made on the next succeeding day which is a Business Day with the same force and effect as if made on the date required, and no interest shall accrue for the period from and after such date. Counterparts The Indenture may be executed in counterparts, each of which shall be deemed an original. Events of Default EVENT OF DEFAULT The following events shall be Events of Default under the Indenture. (a) (b) (c) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise. Default in the due and punctual payment of interest on any Bond when and as such interest shall become due and payable. Default by the District in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of thirty (30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the District by the Fiscal Agent or to the District and the Fiscal Agent by the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding; provided that such default (other than a default arising from nonpayment of the Fiscal Agent s fees and E-27

288 expenses, which must be cured within such 30-day period unless waived by the Fiscal Agent) shall not constitute an Event of Default under the Indenture if the District shall commence to cure such default within said thirty (30) day period and thereafter diligently and in good faith shall cure such default within a reasonable period of time; or (d) The filing by the District of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the District, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property. Application of Revenues and Other Funds after Default If a default in the payment of the Bonds shall occur and be continuing, all revenues and any other funds then held or thereafter received under any of the provisions of the Indenture shall be applied as follows and in the following order: A. To the payment of any expenses necessary in the opinion of the District to protect the interest of the owners of the Bonds and payment of reasonable charges and expenses of the Fiscal Agent (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; B. To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows: First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity of redemption, and if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without discrimination or preference. E-28

289 APPENDIX F FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement dated as of June 1, 2018 (the Disclosure Agreement ) is executed and delivered by Community Facilities District No. 16-I (Millenia) (the District ) and Spicer Consulting Group, LLC (the Dissemination Agent ) in connection with the execution and delivery of $12,280,000 City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds (the Bonds ). The Bonds are being executed pursuant to a Bond Indenture dated as of June 1, 2018 (the Indenture ), by and between the District and U.S. Bank National Association, as trustee (the Trustee ). The District covenants as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (defined below). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement 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 District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. Beneficial Owner shall mean any person which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). City means the City of Chula Vista, County of San Diego, California. Disclosure Representative shall mean the City Manager, Assistant City Manager, Deputy City Manager, Chief Financial Officer, Director of Finance/Treasurer of the City or the designee of any one of such officers, or such other officer or employee as the City Manager shall designate in writing from time to time. Dissemination Agent shall mean Spicer Consulting Group, LLC, or any successor dissemination agent designated in writing by the City Manager or the Director of Finance/Treasurer of the District and which has filed with the District a written acceptance of such designation. EMMA shall mean the Electronic Municipal Market Access system of the MSRB. Improvement Area No. 1 shall mean Improvement Area No. 1 of the District. Listed Events shall mean any of the events listed in Sections 5(a) and 5(b) of this Disclosure Agreement. MSRB shall mean the Municipal Securities Rulemaking Board and any successor entity designated under the Rule as the repository for filings made pursuant to the Rule. Official Statement shall mean the Official Statement relating to the Bonds dated June 6, Participating Underwriter shall mean Stifel, Nicolaus & Company, Incorporated. F-1

290 Repository shall mean the MSRB or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Unless otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the EMMA website of the MSRB, currently located at 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. State shall mean the State of California. SECTION 3. Provision of Annual Reports. (a) The District shall, or, upon delivery of the Annual Report to the Dissemination Agent shall cause the Dissemination Agent to, not later than March 31 of each year, commencing March 31, 2019, provide to the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the District, if any are prepared, may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(d). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. (b) Not later than five (5) days prior to the date for the filing of an Annual Report, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by five (5) days prior to such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to inquire if the District is in compliance with subsection (a). (c) If the District is unable to provide to the Repository an Annual Report by the date required in subsection (a), the Dissemination Agent, in a timely manner, shall send a notice to the Repository in the form required by the Repository stating that the Annual Report has not been filed and, if provided by the District, the date the District anticipates the filing to be made. (d) The Dissemination Agent shall: (i) determine each year prior to date for providing the Annual Report the name and address of the Repository if other than the MSRB; and (ii) file a report with the District certifying that the Annual Report has been provided to the Repository pursuant to this Disclosure Agreement and stating the date it was provided to the Repository. SECTION 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: (a) Financial Statements. The audited financial statements of the District for the prior fiscal year, if any have been prepared and which, if prepared, shall be prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board; provided, however, that the District may, from time to time, if required by federal or state legal requirements, modify the basis upon which its financial statements are prepared. In the F-2

291 event that the District shall modify the basis upon which its financial statements are prepared, the District shall provide the information referenced in Section 8(b) below regarding such modification. If the District is preparing audited financial statements and such audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available (b) the following: Financial and Operating Data. The Annual Report shall contain or incorporate by reference (i) the principal amount of the Bonds outstanding as of the September 2 preceding the filing of the Annual Report; (ii) the balance in each fund under the Indenture and the Reserve Requirement as of the September 2 preceding the filing of the Annual Report; (iii) any changes to the Improvement Area No. 1 Special Tax RMA approved or submitted to the qualified electors for approval prior to the filing of the Annual Report; (iv) an update of the estimated assessed value-to-lien ratio for Improvement Area No. 1 substantially in the form of Table 4 in the Official Statement based upon the most recent Special Tax levy preceding the date of the Annual Report and on the assessed values of property for the current fiscal year; (v) a statement regarding the amount of Special Tax prepayments, if any, in the Fiscal Year for which the Annual Report is prepared; (vi) the status of any foreclosure actions being pursued by the District in Improvement Area No. 1 with respect to delinquent Special Taxes; (vii) a statement as to whether the District participates in the Teeter Plan (as defined in the Official Statement) and whether the City or the District has entered into an agreement to sell delinquent installments of Special Taxes to a third party; (viii) a table showing the total Special Taxes levied and the total Special Taxes collected for the prior fiscal year and the total Special Taxes that, as of December 31, remain unpaid for each prior fiscal year in which Special Taxes were levied and the number of delinquent parcels in Improvement Area No. 1; (ix) a list of the property owners within Improvement Area No. 1 responsible for 5% or more of the Special Tax levy for the current Fiscal Year, if any, the percentage of the Special Tax levy for which each such property owner is responsible, and whether any of such owners, as of December 31 preceding the Annual Report, was delinquent in the payment of Special Taxes; and (x) any information not already included under (i) through (viii) above that the District is required to file in its annual report pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended, with the California Debt and Investment Advisory Commission. 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 District or related public entities, which have been submitted to each of the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference. F-3

292 In the event that the District shall modify the basis upon which its financial statements are prepared, the Dissemination Agent shall provide a notice of such modification to the Repository, including the information set forth in Section 8(b) below. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause the Dissemination Agent to give, notice to the Repository of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) business days after the occurrence of the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form TEB); 6. tender offers; 7. defeasances; 8. ratings changes; and 9. bankruptcy, insolvency, receivership or similar proceedings. Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not more than ten (10) business days after the occurrence of such event: 1. unless described in paragraph 5(a)(5) above, notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. the consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to F-4

293 undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; 3. appointment of a successor or additional trustee or the change of the name of a trustee; 4. nonpayment related defaults; 5. modifications to the rights of Owners of the Bonds; 6. Bond calls; and 7. release, substitution or sale of property securing repayment of the Bonds. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event under 5(b) above, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If a Listed Event under Section 5(a) has occurred, or if the District determines that knowledge of the occurrence of a Listed Event under 5(b) above would be material under applicable federal securities laws, the District shall file a notice of such Listed Event with the Repository in a timely manner not more than 10 business days after the event. Notwithstanding the foregoing, notice of the Listed Event described in subsection (b)(6) need not be given under this section any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Indenture. (e) The District hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the District and that the Dissemination Agent shall not be responsible for determining whether the District s instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule. SECTION 6. Termination of Reporting Obligation. The District s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty days written notice to the District and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the District and shall have no duty to review any information provided to it by the District. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the District in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. (a) Notwithstanding any other provision of this Disclosure Agreement, the District may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (1) If the amendment or waiver related to the provisions of Sections 3(a), 4, or 5, 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 the type of business conducted; F-5

294 (2) The undertaking hereunder, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (3) The amendment or waiver either (i) is approved by the Owners of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture 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. (b) In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment is related to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(a), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Format of Filings with Repository. Any report or filing with the Repository pursuant to this Disclosure Agreement must be submitted in electronic format, accompanied by such identifying information as is prescribed by the Repository. SECTION 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation hereunder to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 11. Default. In the event of a failure of the District to comply with any provision of this Disclosure Agreement, 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 District to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the District to comply with this Disclosure Agreement shall be an action to compel performance and the District shall have no monetary liability to any person as a result of any failure to comply with the terms of this Disclosure Agreement. SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees, to the extent permitted by law, 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 costs and expenses (including attorney s 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 be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be F-6

295 acting in any fiduciary capacity for the District, the Owners, or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 13. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the District: To the Dissemination Agent: Community Facilities District No. 16-I (Millenia) City of Chula Vista 276 Fourth Avenue Chula Vista, CA Attention: Director of Finance/Treasurer Spicer Consulting Group, LLC Margarita Road, Suite 101 Temecula, CA SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, 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. SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. SECTION 16. Signatures. This Disclosure Agreement has been executed by the undersigned on the date hereof, and such signature by the District binds the District to the undertaking herein provided and such signature by the Dissemination Agent binds the Dissemination Agent to the terms hereof applicable to it. COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) By: Director of Finance/Treasurer SPICER CONSULTING GROUP, LLC, as Dissemination Agent By: Authorized Officer F-7

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297 APPENDIX G FORMS OF DEVELOPERS CONTINUING DISCLOSURE CERTIFICATES

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299 APPENDIX G-1 CONTINUING DISCLOSURE CERTIFICATE (CALATLANTIC GROUP, INC.) $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Continuing Disclosure Certificate (CalAtlantic Group, Inc.) (this Disclosure Certificate ) is executed and delivered by the undersigned (the Property Owner ) and Spicer Consulting Group as dissemination agent (the Dissemination Agent ) in connection with the issuance of the bonds captioned above (the Bonds ) by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. The Bonds are being issued pursuant to a resolution adopted by the City Council of the City, acting as legislative body of the District on May 15, 2018, and a Bond Indenture, dated as of June 1, 2018, (the Indenture ), by and between the District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). The Property Owner covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, 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 means any person presently directly (or indirectly through one or more intermediaries) currently under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the Property or the Property Owner s ability to pay the Special Taxes related to the Property prior to delinquency). Assumption Agreement means an undertaking of an Obligated Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Obligated Owner s development and financing plans with respect to the Property), whereby such Obligated Owner or Affiliate agrees to provide Periodic 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 owned by such Obligated Owner and its Affiliates and, at the option of the Property Owner or such Obligated Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 11 hereof. Dissemination Agent means Spicer Consulting Group, or any successor Dissemination Agent designated in writing by the Property Owner, and which has filed with the Property Owner, the 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. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, G-1-1

300 or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Obligated Owner means, as of any Report Date, an owner of all or a portion of the Property that represents more than 50% of the single family residential units in the Planned Development. Official Statement means the final official statement executed by the District in connection with the issuance of the Bonds. Participating Underwriter means Stifel, Nicolaus & Company, Incorporated, the original Underwriter of the Bonds. Periodic Report means any Periodic Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. 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. Planned Development means the development plan for the Property described in the Official Statement under PROPERTY OWNERSHIP AND THE DEVELOPMENT - CalAtlantic Development and Financing Plan - Development Plan as such information has been updated, if any, in a prior Periodic Report. Property means Lot 17 of Tract No Report Date means December 31 and June 30 of any fiscal year. 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. Special Taxes means the special taxes of the District levied on taxable property within the Improvement Area. Section 3. Provision of Periodic Reports. (a) The Property Owner shall, or, upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing December 31, 2018, file with the MSRB a Periodic Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 calendar days prior to the Report Date, the Property Owner shall provide the Periodic Report to the Dissemination Agent (if different from the Property Owner). The Property Owner shall provide a written certification with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if different from the Property Owner) to the effect that such Periodic Report constitutes the Periodic Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Periodic Report. The Periodic 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. (b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Periodic Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Property Owner 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 G-1-2

301 in the same manner as for a Listed Event (pursuant to Section 5 below). If the Property Owner does not provide, or cause the Dissemination Agent to provide, a Periodic Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the District, the Participating Underwriter and the Property Owner. (c) With respect to the Periodic Report, the Dissemination Agent shall, to the extent the Periodic Report has been furnished to it, file the Periodic Report with the MSRB and file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the District and the Participating Underwriter certifying that the Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to and filed with the MSRB. Section 4. Content of Periodic Reports. The Property Owner s Periodic 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 Property Owner or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Property Owner shall clearly identify each such other document so included by reference. In addition to any of the information expressly required to be provided in Exhibit B, the Property Owner s Periodic 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. Section 5. Reporting of Significant Events. (a) The Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Property Owner which is reasonably likely to have a significant impact on the Property Owner s ability to pay Special Taxes or to sell or develop the Property; (ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property on or prior to the delinquency date to the extent that such failure is not promptly cured by the Property Owner upon discovery thereof; (iii) filing of a lawsuit of which the Property Owner is aware against the Property Owner or an Affiliate of the Property Owner seeking damages, which is reasonably likely to have a significant impact on the Property Owner 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; and (v) any payment default or other material default by the Property Owner on any loan with respect to the construction of improvements on the Property. (b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Property Owner shall, or shall cause the Dissemination G-1-3

302 Agent to, promptly file a notice of such occurrence with the MSRB, with a copy to the Fiscal Agent, the District and the Participating Underwriter. Section 6. Duration of Reporting Obligation. (a) All of the Property Owner 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, or (ii) at such time as the Property Owner owns fewer than 50% of parcels reflected in the final tract map for the Property, or (iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to 50% or more of the Property. The Property Owner 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. Nothing herein shall require any person (including, without limitation, the District and the Participating Underwriter) to confirm the satisfaction of any condition for termination of the Property Owner s obligations hereunder pursuant to this Section 6. (b) If a portion of the Property owned by the Property Owner, or any Affiliate of the Property Owner, is conveyed to a Person that, upon such conveyance, will be an Obligated Owner, the obligations of the Property Owner hereunder with respect to the property in the Improvement Area owned by such Obligated Owner and its Affiliates may be assumed by such Obligated Owner or by an Affiliate thereof, and the Property Owner s obligations hereunder with respect to such property will be terminated. In order to effect such assumption, such Obligated Owner or Affiliate shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the District and the Participating Underwriter. Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist the Property Owner 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 Spicer Consulting Group. The Dissemination Agent may resign by providing thirty days written notice to the District, the Property Owner and the Fiscal Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner 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; and (b) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in G-1-4

303 this Disclosure Certificate or any other means of communication, or including any other information in any Periodic Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses to include any information in any Periodic Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Periodic Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Property Owner 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 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 Property Owner 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 Indenture, and the sole and exclusive remedy under this Disclosure Certificate in the event of any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance. 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 Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (each, an Indemnified Party ), harmless against any loss, expense and liability 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 claim of liability, but excluding losses, liabilities, costs and expenses due to an Indemnified Party s negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder from the Administrative Expense Fund established under the Indenture in accordance with the Dissemination Agent s 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 District, the Property Owner, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Property Owner 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: To the Fiscal Agent: Community Facilities District No. 16-I (Millenia) c/o City of Chula Vista 276 Fourth Avenue Chula Vista, California Attention: Director of Finance RE: Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds U.S. Bank National Association 633 W. Fifth Street, 24th Floor Los Angeles, California Attn: Corporate Trust Department RE: Chula Vista CFD G-1-5

304 To the Participating Underwriter: Stifel, Nicolaus & Company, Incorporated One Montgomery Street, 35th Floor San Francisco, California Attention: Public Finance To the Dissemination Agent: To the Property Owner: Spicer Consulting Group Margarita Road, Suite 101 Temecula, California Attention: Shane Spicer CalAtlantic Group, Inc. c/o Lennar Corporation Via Esprillo, Suite 150 San Diego, California provided, however, that all such notices, requests or communication may be made by telephone and promptly confirmed by writing. Any person may, by notice given as aforesaid 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 District, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders 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 Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner 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. Date: June 27, 2018 CALATLANTIC GROUP, INC., A Delaware corporation By: Name: Title: ACCEPTED AND AGREED TO: SPICER CONSULTING GROUP, as Dissemination Agent By: Authorized Signatory G-1-6

305 EXHIBIT A NOTICE OF FAILURE TO FILE PERIODIC REPORT Name of Issuer: Name of Bond Issue: Community Facilities District No. 16-I (Millenia) City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds Date of Issuance: June 27, 2018 NOTICE IS HEREBY GIVEN that CalAtlantic Group, Inc. (the Obligated Owner ) has not provided a Periodic Report with respect to the above-named bonds as required by that certain Continuing Disclosure Certificate (CalAtlantic Group, Inc.), dated June 27, The Obligated Owner anticipates that the Periodic Report will be filed by. Dated: Spicer Consulting Group, as Dissemination Agent By: Its: cc: Fiscal Agent District Participating Underwriter Property Owner/Obligated Owner G-1-7

306 EXHIBIT B PERIODIC REPORT $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (the Disclosure Certificate ) dated June 27, 2018 executed by the undersigned (the Property Owner ) in connection with the issuance of the above-captioned bonds by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. Capitalized terms used in this Periodic Report but not otherwise defined have the meanings given to them in the Disclosure Certificate. I. Property Ownership and Development The information in this section is provided as of (this date must be not more than 30 days before the date of this Periodic Report). A. Property currently owned by the Property Owner (the Property ) in Improvement Area No. 1 of the District (the Improvement Area ): Development name: Number of lots (acreage): B. Status of land development, intract improvements, or construction activities with respect to the Property: C. Status of building permits and any significant amendments or material changes to the description of land use or development entitlements for the Property described in the Official Statement or the Periodic Report last filed in accordance with the Disclosure Certificate: G-1-8

307 D. Status of Special Tax payments on all parcels of Property owned by the Property Owner or its Affiliates: E. Aggregate property in the Improvement Area sold (closed escrows) by the Property Owner to end users: Since the Date of Issuance of the Bonds Since the Last Periodic Report Acres* Acres* SF Units SF Units * For bulk land sales only (excluding sales of finished lots or completed buildings). F. Status of any land purchase contracts with other merchant builders or owners other than end users, with regard to the Property. II. Legal and Financial Status of Property Owner Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any change in the legal structure of the Property Owner or its Affiliates or the financial condition and financing plan of the Property Owner or its Affiliates that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement. III. Change in Development or Financing Plans Unless such information has previously been included or incorporated by reference in a Periodic Report, and other than as provided in Section I, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement; provided, however, that the Property Owner s obligation to provide information on the table of the Official Statement titled Community Facilities District No. 16-I (Millenia) (Improvement Area No. 1) CalAtlantic Budget and Costs Incurred (Table 12) shall be limited to significant changes to the total estimate of the sources and uses of funds for development of the Property. G-1-9

308 IV. 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 Property Owner hereby certifies that this Periodic Report constitutes the Periodic Report required to be furnished by the Property Owner under the Disclosure Certificate. ANY STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER S FINANCING PLAN OR FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS. THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS PERIODIC REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE. Dated: CalAtlantic Group, Inc., A Delaware corporation By: Name: Title: G-1-10

309 APPENDIX G-2 CONTINUING DISCLOSURE CERTIFICATE (LMC MILLENIA INVESTMENT COMPANY, L.P. - COMMERCIAL) $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Continuing Disclosure Certificate (LMC Millenia Investment Company, L.P. - Commercial) (this Disclosure Certificate ) is executed and delivered by the undersigned (the Property Owner ) and Spicer Consulting Group as dissemination agent (the Dissemination Agent ) in connection with the issuance of the bonds captioned above (the Bonds ) by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. The Bonds are being issued pursuant to a resolution adopted by the City Council of the City, acting as legislative body of the District on May 15, 2018, and a Bond Indenture, dated as of June 1, 2018, (the Indenture ), by and between the District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). The Property Owner covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, 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 means any person presently directly (or indirectly through one or more intermediaries) currently under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the Property or the Property Owner s ability to pay the Special Taxes related to the Property prior to delinquency. Assumption Agreement means an undertaking of an Obligated Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Obligated Owner s development and financing plans with respect to the Improvement Area), whereby such Obligated Owner or Affiliate agrees to provide Periodic 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 owned by such Obligated Owner and its Affiliates and, at the option of the Property Owner or such Obligated Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 11 hereof. Building means a permanent enclosed non-residential structure on the Property. Certificate of Occupancy means the first certificate, including any temporary certificate of occupancy, issued by the City to confirm that a Building or a portion of a Building has met all of the building codes and can be occupied for residential and/or non-residential use. City means the City of Chula Vista, California. G-2-1

310 Dissemination Agent means Spicer Consulting Group, or any successor Dissemination Agent designated in writing by the Property Owner, and which has filed with the Property Owner, the 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. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Obligated Owner means, as of any Report Date, an owner of all or a portion of the Property that represents more than 50% of the developments consisting of for-lease office space in the Planned Development. Official Statement means the final official statement executed by the District in connection with the issuance of the Bonds. Participating Underwriter means Stifel, Nicolaus & Company, Incorporated, the original Underwriter of the Bonds. Periodic Report means any Periodic Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. 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. Planned Development means the development plan for the Property described in the Official Statement under PROPERTY OWNERSHIP AND THE DEVELOPMENT - LMC Millenia Company Development and Financing Plan - Development Plan as such information has been updated, if any, in a prior Periodic Report. Property means Lot 7 of Tract No Report Date means March 31 and September 30 of any fiscal year. 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. Special Taxes means the special taxes of the District levied on taxable property within the Improvement Area. Taxable Property has the meaning given to such term in the Improvement Area No. 1 Special Tax Rate and Method of Apportionment. Section 3. Provision of Periodic Reports. (a) The Property Owner shall, or, upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing September 30, 2018, file with the MSRB a Periodic Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 calendar days prior to the Report Date, the Property Owner shall provide the Periodic Report G-2-2

311 to the Dissemination Agent (if different from the Property Owner). The Property Owner shall provide a written certification with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if different from the Property Owner), to the effect that such Periodic Report constitutes the Periodic Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Periodic Report. The Periodic 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. (b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Periodic Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Property Owner 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 Property Owner does not provide, or cause the Dissemination Agent to provide, a Periodic Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the District, the Participating Underwriter and the Property Owner. (c) With respect to the Periodic Report, the Dissemination Agent shall, to the extent the Periodic Report has been furnished to it, file the Periodic Report with the MSRB and file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the District and the Participating Underwriter certifying that the Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to and filed with the MSRB. Section 4. Content of Periodic Reports. The Property Owner s Periodic 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 Property Owner or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Property Owner shall clearly identify each such other document so included by reference. In addition to any of the information expressly required to be provided in Exhibit B, the Property Owner s Periodic 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. Section 5. Reporting of Significant Events. (a) The Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Property Owner which is reasonably likely to have a significant impact on the Property Owner s ability to pay Special Taxes or to sell or develop the Property; (ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property on or prior to the delinquency date to the extent that such failure is not promptly cured by the Property Owner upon discovery thereof; (iii) filing of a lawsuit of which the Property Owner is aware against the Property Owner or an Affiliate of the Property Owner seeking damages, which is reasonably likely to have a G-2-3

312 significant impact on the Property Owner 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; and (v) any payment default or other material default by the Property Owner on any loan with respect to the construction of improvements on the Property. (b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Property Owner shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the MSRB, with a copy to the Fiscal Agent, the District and the Participating Underwriter. Section 6. Duration of Reporting Obligation. (a) All of the Property Owner 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, or (ii) at such time as a Certificate of Occupancy has been issued by the City with respect to 50% of Buildings proposed to be built (as described in the Official Statement and any changes to the development plans of the Property as described in any submitted Periodic Reports) on Taxable Property in the Improvement Area, or (iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to 50% or more of the Property. The Property Owner 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. Nothing herein shall require any person (including, without limitation, the District and the Participating Underwriter) to confirm the satisfaction of any condition for termination of the Property Owner s obligations hereunder pursuant to this Section 6. (b) If a portion of the Property owned by the Property Owner, or any Affiliate of the Property Owner, is conveyed to a Person that, upon such conveyance, will be an Obligated Owner, the obligations of the Property Owner hereunder with respect to the property in the Improvement Area owned by such Obligated Owner and its Affiliates may be assumed by such Obligated Owner or by an Affiliate thereof, and the Property Owner s obligations hereunder with respect to such property will be terminated. In order to effect such assumption, such Obligated Owner or Affiliate shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the District and the Participating Underwriter. Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist the Property Owner 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 Spicer Consulting Group. The Dissemination Agent may resign by providing thirty days written notice to the District, the Property Owner and the Fiscal Agent. G-2-4

313 Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner 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; and (b) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner 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 Periodic Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses to include any information in any Periodic Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Periodic Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Property Owner 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 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 Property Owner 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 Indenture, and the sole and exclusive remedy under this Disclosure Certificate in the event of any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance. 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 Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (each, an Indemnified Party ), harmless against any loss, expense and liability 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 claim of liability, but excluding losses, liabilities, costs and expenses due to an Indemnified Party s negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder from the Administrative Expense Fund established under the Indenture in accordance with the Dissemination Agent s 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 District, the Property Owner, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. G-2-5

314 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: To the Fiscal Agent: To the Participating Underwriter: To the Dissemination Agent: To the Property Owner: Community Facilities District No. 16-I (Millenia) c/o City of Chula Vista 276 Fourth Avenue Chula Vista, California Attention: Director of Finance RE: Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds U.S. Bank National Association 633 W. Fifth Street, 24th Floor Los Angeles, California Attn: Corporate Trust Department RE: Chula Vista CFD Stifel, Nicolaus & Company, Incorporated One Montgomery Street, 35th Floor San Francisco, California Attention: Public Finance Spicer Consulting Group Margarita Road, Suite 101 Temecula, California Attention: Shane Spicer LMC Millenia Investment Company, L.P. 505 Lomas Santa Fe Drive, Suite 200 Solano Beach, California provided, however, that all such notices, requests or communication may be made by telephone and promptly confirmed by writing. Any person may, by notice given as aforesaid 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 District, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders 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 Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization. G-2-6

315 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. Date: June 27, 2018 LMC-MILLENIA INVESTMENT COMPANY, L.P., a California limited partnership By: Name: Title: ACCEPTED AND AGREED TO: SPICER CONSULTING GROUP, as Dissemination Agent By: Authorized Signatory G-2-7

316 EXHIBIT A NOTICE OF FAILURE TO FILE PERIODIC REPORT Name of Issuer: Name of Bond Issue: Community Facilities District No. 16-I (Millenia) City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds Date of Issuance: June 27, 2018 NOTICE IS HEREBY GIVEN that LMC Millenia Investment Company, L.P. (the Obligated Owner ) has not provided a Periodic Report with respect to the above-named bonds as required by that certain Continuing Disclosure Certificate (LMC Millenia Investment Company, L.P. - Commercial), dated June 27, The Obligated Owner anticipates that the Periodic Report will be filed by. Dated: Spicer Consulting Group, as Dissemination Agent By: Its: cc: Fiscal Agent District Participating Underwriter Property Owner/Obligated Owner G-2-8

317 EXHIBIT B PERIODIC REPORT $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (the Disclosure Certificate ) dated June 27, 2018 executed by the undersigned (the Property Owner ) in connection with the issuance of the above-captioned bonds by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. Capitalized terms used in this Periodic Report but not otherwise defined have the meanings given to them in the Disclosure Certificate. I. Property Ownership and Development The information in this section is provided as of (this date must be not more than 30 days before the date of this Periodic Report). A. Property currently owned by the Property Owner (the Property ) in Improvement Area No. 1 of the District (the Improvement Area ): Development name: Number of lots (acreage): B. Status of land development or construction activities with respect to the Property: C. Status of building permits and any significant amendments or material changes to the description of land use or development entitlements for the Property described in the Official Statement or the Periodic Report last filed in accordance with the Disclosure Certificate: D. Status of Special Tax payments on all parcels of Property owned by the Property Owner or its Affiliates: G-2-9

318 E. Status of any land purchase contracts with regard to the Property, whether acquisition of land in the Improvement Area by the Property Owner or sales (closed escrows) of land in the Improvement Area to other property owners, distinguishing between (i) end users (e.g., condominiums), (ii) Property Owners and (iii) merchant builders. II. Legal and Financial Status of Property Owner Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any change in the legal structure of the Property Owner or its Affiliates or the financial condition and financing plan of the Property Owner or its Affiliates that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement. III. Change in Development or Financing Plans Unless such information has previously been included or incorporated by reference in a Periodic Report, and other than as provided in Section I, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement; provided, however, that the Property Owner s obligation to provide information on the table of the Official Statement titled Community Facilities District No. 16-I (Millenia) (Improvement Area No. 1) LMC Millenia Company Cash Flow (Table 13) shall be limited to significant changes to the total estimate of the sources and uses of funds for development of the Property. IV. 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 Property Owner hereby certifies that this Periodic Report constitutes the Periodic Report required to be furnished by the Property Owner under the Disclosure Certificate. ANY STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER S FINANCING PLAN OR FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR G-2-10

319 THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS. THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS PERIODIC REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE. Dated: LMC-MILLENIA INVESTMENT COMPANY, L.P., a California limited partnership By: Name: Title: G-2-11

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321 APPENDIX G-3 CONTINUING DISCLOSURE CERTIFICATE (SLF IV-MILLENIA, LLC - COMMERCIAL) $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Continuing Disclosure Certificate (SLF IV-Millenia, LLC - Commercial) (this Disclosure Certificate ) is executed and delivered by the undersigned (the Property Owner ) and Spicer Consulting Group as dissemination agent (the Dissemination Agent ) in connection with the issuance of the bonds captioned above (the Bonds ) by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. The Bonds are being issued pursuant to a resolution adopted by the City Council of the City, acting as legislative body of the District on May 15, 2018, and a Bond Indenture, dated as of June 1, 2018, (the Indenture ), by and between the District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). The Property Owner covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, 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 means any person presently directly (or indirectly through one or more intermediaries) currently under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the Property or the Property Owner s ability to pay the Special Taxes related to the Property prior to delinquency. Assumption Agreement means an undertaking of an Obligated Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Obligated Owner s development and financing plans with respect to the Property), whereby such Obligated Owner or Affiliate agrees to provide Periodic 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 owned by such Obligated Owner and its Affiliates and, at the option of the Property Owner or such Obligated Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 11 hereof. Building means a permanent enclosed non-residential structure on the Property. Certificate of Occupancy means the first certificate, including any temporary certificate of occupancy, issued by the City to confirm that a Building or a portion of a Building has met all of the building codes and can be occupied for residential and/or non-residential use. City means the City of Chula Vista, California. G-3-1

322 Dissemination Agent means Spicer Consulting Group, or any successor Dissemination Agent designated in writing by the Property Owner, and which has filed with the Property Owner, the 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. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Obligated Owner means, as of any Report Date, an owner of all or a portion of the Property that represents more than 50% of the Planned Development. Official Statement means the final official statement executed by the District in connection with the issuance of the Bonds. Participating Underwriter means Stifel, Nicolaus & Company, Incorporated, the original Underwriter of the Bonds. Periodic Report means any Periodic Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. 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. Planned Development means the development plan to build an office campus with four Buildings totaling up to 700,000 square feet of leasable space, as described in the Official Statement, as such information has been updated, if any, in a Periodic Report. Property means Lot 1 of Tract No Report Date means December 31 and June 30 of any fiscal year, commencing with the Report Date of December 31, 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. Special Taxes means the special taxes of the District levied on taxable property within the Improvement Area. Taxable Property has the meaning given to such term in the Improvement Area No. 1 Special Tax Rate and Method of Apportionment. Section 3. Provision of Periodic Reports. (a) The Property Owner shall, or, upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing December 31, 2018, file with the MSRB a Periodic Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 calendar days prior to the Report Date, the Property Owner shall provide the Periodic Report to the Dissemination Agent (if different from the Property Owner). The Property Owner shall provide a G-3-2

323 written certification with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if different from the Property Owner), to the effect that such Periodic Report constitutes the Periodic Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Periodic Report. The Periodic 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. (b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Periodic Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Property Owner 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 Property Owner does not provide, or cause the Dissemination Agent to provide, a Periodic Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the District, the Participating Underwriter and the Property Owner. (c) With respect to the Periodic Report, the Dissemination Agent shall, to the extent the Periodic Report has been furnished to it, file the Periodic Report with the MSRB and file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the District and the Participating Underwriter certifying that the Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to and filed with the MSRB. Section 4. Content of Periodic Reports. The Property Owner s Periodic 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 Property Owner or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Property Owner shall clearly identify each such other document so included by reference. In addition to any of the information expressly required to be provided in Exhibit B, the Property Owner s Periodic 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. Section 5. Reporting of Significant Events. (a) The Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Property Owner which is reasonably likely to have a significant impact on the Property Owner s ability to pay Special Taxes or to sell or develop the Property; (ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property on or prior to the delinquency date to the extent that such failure is not promptly cured by the Property Owner upon discovery thereof; (iii) filing of a lawsuit of which the Property Owner is aware against the Property Owner or an Affiliate of the Property Owner seeking damages, which is reasonably likely to have a G-3-3

324 significant impact on the Property Owner 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; and (v) any payment default or other material default by the Property Owner on any loan with respect to the construction of improvements on the Property. (b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Property Owner shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the MSRB, with a copy to the Fiscal Agent, the District and the Participating Underwriter. Section 6. Duration of Reporting Obligation. (a) All of the Property Owner 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, or (ii) at such time as a Certificate of Occupancy has been issued by the City with respect to one or more Buildings consisting of a total of 350,000 square feet of leasable space or more within the Property, or (iii) if there have been substantial changes to the development plans for the Property as described previously in the Official Statement, which changes have been described in any submitted Periodic Report, a Certificate of Occupancy has been issued by the City for Buildings representing 50% or more of the Planned Development of the Property; or (iv) the date on which the Property Owner prepays in full all of the Special Taxes attributable to 50% or more of the Property. The Property Owner 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. Nothing herein shall require any person (including, without limitation, the District and the Participating Underwriter) to confirm the satisfaction of any condition for termination of the Property Owner s obligations hereunder pursuant to this Section 6. (b) If a portion of the Property owned by the Property Owner, or any Affiliate of the Property Owner, is conveyed to a Person that, upon such conveyance, will be an Obligated Owner, the obligations of the Property Owner hereunder with respect to the property in the Improvement Area owned by such Obligated Owner and its Affiliates may be assumed by such Obligated Owner or by an Affiliate thereof, and the Property Owner s obligations hereunder with respect to such property will be terminated. In order to effect such assumption, such Obligated Owner or Affiliate shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the District and the Participating Underwriter. Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist the Property Owner 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 Spicer Consulting Group. The Dissemination G-3-4

325 Agent may resign by providing thirty days written notice to the District, the Property Owner and the Fiscal Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner 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; and (b) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner 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 Periodic Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses to include any information in any Periodic Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Periodic Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Property Owner 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 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 Property Owner 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 Indenture, and the sole and exclusive remedy under this Disclosure Certificate in the event of any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance. 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 Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (each, an Indemnified Party ), harmless against any loss, expense and liability 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 claim of liability, but excluding losses, liabilities, costs and expenses due to an Indemnified Party s negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder from the Administrative Expense Fund established under the Indenture in accordance with the Dissemination Agent s 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 District, the Property Owner, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. G-3-5

326 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: To the Fiscal Agent: To the Participating Underwriter: To the Dissemination Agent: To the Property Owner: With a copy to: Community Facilities District No. 16-I (Millenia) c/o the City of Chula Vista 276 Fourth Avenue Chula Vista, California Attention: Director of Finance RE: Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds U.S. Bank National Association 633 W. Fifth Street, 24th Floor Los Angeles, California Attn: Corporate Trust Department RE: Chula Vista CFD Stifel, Nicolaus & Company, Incorporated One Montgomery Street, 35th Floor San Francisco, California Attention: Public Finance Spicer Consulting Group Margarita Road, Suite 101 Temecula, California Attention: Shane Spicer SLF IV-Millenia, LLC c/o Meridian Development 9988 Hibert Street, Suite 210 San Diego, California Attention: Todd Galarneau SLF IV-Millenia, LLC c/o Stratford Land 5949 Sherry Lane, Suite 800 Dallas, Texas Attention: Heather Shannon provided, however, that all such notices, requests or communication may be made by telephone and promptly confirmed by writing. Any person may, by notice given as aforesaid 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 District, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders 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 Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization. G-3-6

327 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. Date: June 27, 2018 SLF IV-MILLENIA, LLC, a Delaware limited liability company By: Name: Title: ACCEPTED AND AGREED TO: SPICER CONSULTING GROUP, as Dissemination Agent By: Authorized Signatory G-3-7

328 EXHIBIT A NOTICE OF FAILURE TO FILE PERIODIC REPORT Name of Issuer: Name of Bond Issue: Community Facilities District No. 16-I (Millenia) City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds Date of Issuance: June 27, 2018 NOTICE IS HEREBY GIVEN that SLF IV-Millenia, LLC (the Obligated Owner ) has not provided a Periodic Report with respect to the above-named bonds as required by that certain Continuing Disclosure Certificate (SLF IV-Millenia, LLC - Commercial), dated June 27, The Obligated Owner anticipates that the Periodic Report will be filed by. Dated: Spicer Consulting Group, as Dissemination Agent By: Its: cc: Fiscal Agent District Participating Underwriter Property Owner/Obligated Owner G-3-8

329 EXHIBIT B PERIODIC REPORT $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (the Disclosure Certificate ) dated June 27, 2018 executed by the undersigned (the Property Owner ) in connection with the issuance of the above-captioned bonds by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. Capitalized terms used in this Periodic Report but not otherwise defined have the meanings given to them in the Disclosure Certificate. I. Property Ownership and Development The information in this section is provided as of (this date must be not more than 30 days before the date of this Periodic Report). A. Property currently owned by the Property Owner (the Property ) in Improvement Area No. 1 of the District (the Improvement Area ): Development name: Number of lots (acreage): B. Status of land development or construction activities with respect to the Property: C. Status of building permits and any significant amendments or material changes to the description of land use or development entitlements for the Property described in the Official Statement or the Periodic Report last filed in accordance with the Disclosure Certificate: D. Status of Special Tax payments on all parcels of Property owned by the Property Owner or its Affiliates: G-3-9

330 E. Status of any land purchase contracts with regard to the Property, whether acquisition of land in the Improvement Area by the Property Owner or sales (closed escrows) of land in the Improvement Area to other property owners, distinguishing between (i) end users (e.g., condominiums), (ii) Property Owners and (iii) merchant builders. II. Legal and Financial Status of Property Owner Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any change in the legal structure of the Property Owner or its Affiliates or the financial condition and financing plan of the Property Owner or its Affiliates that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement. III. Change in Development or Financing Plans Unless such information has previously been included or incorporated by reference in a Periodic Report, and other than as provided in Section I, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement. IV. 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 Property Owner hereby certifies that this Periodic Report constitutes the Periodic Report required to be furnished by the Property Owner under the Disclosure Certificate. ANY STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER S FINANCING PLAN OR FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS. G-3-10

331 THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS PERIODIC REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE. Dated: SLF IV-MILLENIA, LLC, a Delaware limited liability company By: Name: Title: G-3-11

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333 APPENDIX G-4 CONTINUING DISCLOSURE CERTIFICATE (SLF IV-MILLENIA, LLC - RESIDENTIAL) $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Continuing Disclosure Certificate (SLF IV-Millenia, LLC - Residential) (this Disclosure Certificate ) is executed and delivered by the undersigned (the Property Owner ) and Spicer Consulting Group as dissemination agent (the Dissemination Agent ) in connection with the issuance of the bonds captioned above (the Bonds ) by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. The Bonds are being issued pursuant to a resolution adopted by the City Council of the City, acting as legislative body of the District on May 15, 2018, and a Bond Indenture, dated as of June 1, 2018, (the Indenture ), by and between the District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). The Property Owner covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, 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 means any person presently directly (or indirectly through one or more intermediaries) currently under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the Property or the Property Owner s ability to pay the Special Taxes related to the Property prior to delinquency. Assumption Agreement means an undertaking of an Obligated Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Obligated Owner s development and financing plans with respect to the Property), whereby such Obligated Owner or Affiliate agrees to provide Periodic 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 owned by such Obligated Owner and its Affiliates and, at the option of the Property Owner or such Obligated Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 11 hereof. Certificate of Occupancy means the first certificate, including any temporary certificate of occupancy, issued by the City to confirm that a residential unit has met all of the building codes and can be occupied for residential use. Dissemination Agent means Spicer Consulting Group, or any successor Dissemination Agent designated in writing by the Property Owner, and which has filed with the Property Owner, the 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. G-4-1

334 Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Obligated Owner means, as of any Report Date, an owner of all or a portion of the Property that represents more than 50% of the Planned Development. Official Statement means the final official statement executed by the District in connection with the issuance of the Bonds. Participating Underwriter means Stifel, Nicolaus & Company, Incorporated, the original Underwriter of the Bonds. Periodic Report means any Periodic Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. 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. Planned Development means the development plan to build 60 residential units on the Property described in the Official Statement, as such information has been updated, if any, in a Periodic Report. Property means Lot 11 of Tract No Report Date means December 31 and June 30 of any fiscal year, commencing with the Report Date of December 31, 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. Special Taxes means the special taxes of the District levied on taxable property within the Improvement Area. Section 3. Provision of Periodic Reports. (a) The Property Owner shall, or, upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing December 31, 2018, file with the MSRB a Periodic Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 calendar days prior to the Report Date, the Property Owner shall provide the Periodic Report to the Dissemination Agent (if different from the Property Owner). The Property Owner shall provide a written certification with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if different from the Property Owner) to the effect that such Periodic Report constitutes the Periodic Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Periodic Report. The Periodic 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. G-4-2

335 (b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Periodic Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Property Owner 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 Property Owner does not provide, or cause the Dissemination Agent to provide, a Periodic Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the District, the Participating Underwriter and the Property Owner. (c) With respect to the Periodic Report, the Dissemination Agent shall, to the extent the Periodic Report has been furnished to it, file the Periodic Report with the MSRB and file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the District and the Participating Underwriter certifying that the Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to and filed with the MSRB. Section 4. Content of Periodic Reports. The Property Owner s Periodic 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 Property Owner or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Property Owner shall clearly identify each such other document so included by reference. In addition to any of the information expressly required to be provided in Exhibit B, the Property Owner s Periodic 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. Section 5. Reporting of Significant Events. (a) The Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Property Owner which is reasonably likely to have a significant impact on the Property Owner s ability to pay Special Taxes or to sell or develop the Property; (ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property on or prior to the delinquency date to the extent that such failure is not promptly cured by the Property Owner upon discovery thereof; (iii) filing of a lawsuit of which the Property Owner is aware against the Property Owner or an Affiliate of the Property Owner seeking damages, which is reasonably likely to have a significant impact on the Property Owner 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; and (v) any payment default or other material default by the Property Owner on any loan with respect to the construction of improvements on the Property. G-4-3

336 (b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Property Owner shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the MSRB, with a copy to the Fiscal Agent, the District and the Participating Underwriter. Section 6. Duration of Reporting Obligation. (a) All of the Property Owner 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, or (ii) at such time as building permits have been issued by the City and construction of more than 50% of the Planned Development of the Property has been completed, as evidenced by Certificates of Occupancy, or (iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to 50% or more of the Property. The Property Owner 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. Nothing herein shall require any person (including, without limitation, the District and the Participating Underwriter) to confirm the satisfaction of any condition for termination of the Property Owner s obligations hereunder pursuant to this Section 6. (b) If a portion of the Property owned by the Property Owner, or any Affiliate of the Property Owner, is conveyed to a Person that, upon such conveyance, will be an Obligated Owner, the obligations of the Property Owner hereunder with respect to the property in the Improvement Area owned by such Obligated Owner and its Affiliates may be assumed by such Obligated Owner or by an Affiliate thereof, and the Property Owner s obligations hereunder with respect to such property will be terminated. In order to effect such assumption, such Obligated Owner or Affiliate shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the District and the Participating Underwriter. Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist the Property Owner 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 Spicer Consulting Group. The Dissemination Agent may resign by providing thirty days written notice to the District, the Property Owner and the Fiscal Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner 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; and G-4-4

337 (b) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner 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 Periodic Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses to include any information in any Periodic Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Periodic Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Property Owner 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 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 Property Owner 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 Indenture, and the sole and exclusive remedy under this Disclosure Certificate in the event of any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance. 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 Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (each, an Indemnified Party ), harmless against any loss, expense and liability 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 claim of liability, but excluding losses, liabilities, costs and expenses due to an Indemnified Party s negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder from the Administrative Expense Fund established under the Indenture in accordance with the Dissemination Agent s 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 District, the Property Owner, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Property Owner 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: Community Facilities District No. 16-I (Millenia) c/o City of Chula Vista 276 Fourth Avenue Chula Vista, California Attention: Director of Finance RE: Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds G-4-5

338 To the Fiscal Agent: To the Participating Underwriter: U.S. Bank National Association 633 W. Fifth Street, 24th Floor Los Angeles, California Attn: Corporate Trust Department RE: Chula Vista CFD Stifel, Nicolaus & Company, Incorporated One Montgomery Street, 35th Floor San Francisco, California Attention: Public Finance To the Dissemination Agent: To the Property Owner: With a copy to: Spicer Consulting Group Margarita Road, Suite 101 Temecula, California Attention: Shane Spicer SLF IV-Millenia, LLC c/o Meridian Development 9988 Hibert Street, Suite 210 San Diego, California Attention: Todd Galarneau SLF IV-Millenia, LLC c/o Stratford Land 5949 Sherry Lane, Suite 800 Dallas, Texas Attention: Heather Shannon provided, however, that all such notices, requests or communication may be made by telephone and promptly confirmed by writing. Any person may, by notice given as aforesaid 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 District, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders 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 Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization. G-4-6

339 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. Date: June 27, 2018 SLF IV-MILLENIA, LLC, a Delaware limited liability company By: Name: Title: ACCEPTED AND AGREED TO: SPICER CONSULTING GROUP, as Dissemination Agent By: Authorized Signatory G-4-7

340 EXHIBIT A NOTICE OF FAILURE TO FILE PERIODIC REPORT Name of Issuer: Name of Bond Issue: Community Facilities District No. 16-I (Millenia) City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds Date of Issuance: June 27, 2018 NOTICE IS HEREBY GIVEN that SLF IV-Millenia, LLC (the Obligated Owner ) has not provided a Periodic Report with respect to the above-named bonds as required by that certain Continuing Disclosure Certificate (SLF IV-Millenia, LLC - Residential), dated June 27, The Obligated Owner anticipates that the Periodic Report will be filed by. Dated: Spicer Consulting Group, as Dissemination Agent By: Its: cc: Fiscal Agent District Participating Underwriter Property Owner/Obligated Owner G-4-8

341 EXHIBIT B PERIODIC REPORT $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (the Disclosure Certificate ) dated June 27, 2018 executed by the undersigned (the Property Owner ) in connection with the issuance of the above-captioned bonds by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. Capitalized terms used in this Periodic Report but not otherwise defined have the meanings given to them in the Disclosure Certificate. I. Property Ownership and Development The information in this section is provided as of (this date must be not more than 30 days before the date of this Periodic Report). A. Property currently owned by the Property Owner (the Property ) in Improvement Area No. 1 of the District (the Improvement Area ): Development name: Number of lots (acreage): B. Status of land development, intract improvements, or construction activities with respect to the Property: C. Status of building permits, backbone infrastructure, and any significant amendments or material changes to the description of land use or development entitlements for the Property described in the Official Statement or the Periodic Report last filed in accordance with the Disclosure Certificate: G-4-9

342 D. Status of Special Tax payments on all parcels of Property owned by the Property Owner or its Affiliates: E. Aggregate property in the Improvement Area sold (closed escrows) by the Property Owner to end users: Since the Date of Issuance of the Bonds Since the Last Periodic Report Acres* Acres* SF Units SF Units * For bulk land sales only (excluding sales of finished lots or completed buildings). F. Status of any land purchase contracts with other merchant builders or owners other than end users, with regard to the Property. II. Legal and Financial Status of Property Owner Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any change in the legal structure of the Property Owner or its Affiliates or the financial condition and financing plan of the Property Owner or its Affiliates that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement. III. Change in Development or Financing Plans Unless such information has previously been included or incorporated by reference in a Periodic Report, and other than as provided in Section I, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement. G-4-10

343 IV. 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 Property Owner hereby certifies that this Periodic Report constitutes the Periodic Report required to be furnished by the Property Owner under the Disclosure Certificate. ANY STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER S FINANCING PLAN OR FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS. THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS PERIODIC REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE. Dated: SLF IV-MILLENIA, LLC, a Delaware limited liability company By: Name: Title: G-4-11

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345 APPENDIX G-5 CONTINUING DISCLOSURE CERTIFICATE (SHEA HOMES LIMITED PARTNERSHIP) $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Continuing Disclosure Certificate (Shea Homes Limited Partnership) (this Disclosure Certificate ) is executed and delivered by the undersigned (the Property Owner ) and Spicer Consulting Group as dissemination agent (the Dissemination Agent ) in connection with the issuance of the bonds captioned above (the Bonds ) by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. The Bonds are being issued pursuant to a resolution adopted by the City Council of the City, acting as legislative body of the District on May 15, 2018, and a Bond Indenture, dated as of June 1, 2018, (the Indenture ), by and between the District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). The Property Owner covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, 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 means any person presently directly (or indirectly through one or more intermediaries) currently under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the Property or the Property Owner s ability to pay the Special Taxes related to the Property prior to delinquency. Assumption Agreement means an undertaking of a Obligated Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Obligated Owner s development and financing plans with respect to the Property), whereby such Obligated Owner or Affiliate agrees to provide Periodic 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 owned by such Obligated Owner and its Affiliates and, at the option of the Property Owner or such Obligated Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 11 hereof. Dissemination Agent means Spicer Consulting Group, or any successor Dissemination Agent designated in writing by the Property Owner, and which has filed with the Property Owner, the 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. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. G-5-1

346 MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Obligated Owner means, as of any Report Date, an owner of all or a portion of the Property that represents more than 50% of the single family residential units in the Planned Development. Official Statement means the final official statement executed by the District in connection with the issuance of the Bonds. Participating Underwriter means Stifel, Nicolaus & Company, Incorporated, the original Underwriter of the Bonds. Periodic Report means any Periodic Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. 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. Planned Development means the development plan for the Property described in the Official Statement under PROPERTY OWNERSHIP AND THE DEVELOPMENT - Shea Homes Development and Financing Plan - Development Plan as such information has been updated, if any, in a prior Periodic Report Property means Lot 1 of Map Report Date means December 31 and June 30 of any fiscal year, commencing with the Report Date of December 31, 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. Special Taxes means the special taxes of the District levied on taxable property within the Improvement Area. Section 3. Provision of Periodic Reports. (a) The Property Owner shall, or, upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing December 31, 2018, file with the MSRB a Periodic Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 calendar days prior to the Report Date, the Property Owner shall provide the Periodic Report to the Dissemination Agent (if different from the Property Owner). The Property Owner shall provide a written certification with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if different from the Property Owner) to the effect that such Periodic Report constitutes the Periodic Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Periodic Report. The Periodic 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. (b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Periodic G-5-2

347 Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Property Owner 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 Property Owner does not provide, or cause the Dissemination Agent to provide, a Periodic Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the District, the Participating Underwriter and the Property Owner. (c) With respect to the Periodic Report, the Dissemination Agent shall, to the extent the Periodic Report has been furnished to it, file the Periodic Report with the MSRB and file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the District and the Participating Underwriter certifying that the Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to and filed with the MSRB. Section 4. Content of Periodic Reports. The Property Owner s Periodic 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 Property Owner or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Property Owner shall clearly identify each such other document so included by reference. In addition to any of the information expressly required to be provided in Exhibit B, the Property Owner s Periodic 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. Section 5. Reporting of Significant Events. (a) material: The following are Listed Events with respect to the Property Owner or the Property, if (i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Property Owner which is reasonably likely to have a significant impact on the Property Owner s ability to pay Special Taxes or to sell or develop the Property; (ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property on or prior to the delinquency date to the extent that such failure is not promptly cured by the Property Owner upon discovery thereof; (iii) filing of a lawsuit of which the Property Owner is aware against the Property Owner or an Affiliate of the Property Owner seeking damages, which is reasonably likely to have a significant impact on the Property Owner 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; and (v) any payment default or other material default by the Property Owner on any loan with respect to the construction of improvements on the Property. (b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as reasonably possible determine if such Listed Event would be material under applicable Federal securities law. G-5-3

348 (c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Property Owner shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the MSRB, with a copy to the Fiscal Agent, the District and the Participating Underwriter. Section 6. Duration of Reporting Obligation. (a) All of the Property Owner 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, or (ii) at such time as the Property Owner owns fewer than 50% of units reflected in the condominium plans for the Property (i.e., fewer than 88 units), or (iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to 50% or more of the Property. The Property Owner 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. Nothing herein shall require any person (including, without limitation, the District and the Participating Underwriter) to confirm the satisfaction of any condition for termination of the Property Owner s obligations hereunder pursuant to this Section 6. (b) If a portion of the Property owned by the Property Owner, or any Affiliate of the Property Owner, is conveyed to a Person that, upon such conveyance, will be a Obligated Owner, the obligations of the Property Owner hereunder with respect to the property in the Improvement Area owned by such Obligated Owner and its Affiliates may be assumed by such Obligated Owner or by an Affiliate thereof, and the Property Owner s obligations hereunder with respect to such property will be terminated. In order to effect such assumption, such Obligated Owner or Affiliate shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the District and the Participating Underwriter. Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist the Property Owner 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 Spicer Consulting Group. The Dissemination Agent may resign by providing thirty days written notice to the District, the Property Owner and the Fiscal Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner 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; and (b) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. G-5-4

349 Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner 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 Periodic Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses to include any information in any Periodic Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Periodic Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Property Owner 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 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 Property Owner 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 Indenture, and the sole and exclusive remedy under this Disclosure Certificate in the event of any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance. 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 Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (each, an Indemnified Party ), harmless against any loss, expense and liability 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 claim of liability, but excluding losses, liabilities, costs and expenses due to an Indemnified Party s negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder from the Administrative Expense Fund established under the Indenture in accordance with the Dissemination Agent s 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 District, the Property Owner, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Property Owner 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: Community Facilities District No. 16-I (Millenia) c/o City of Chula Vista 276 Fourth Avenue Chula Vista, California Attention: Director of Finance RE: Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds G-5-5

350 To the Fiscal Agent: To the Participating Underwriter: To the Dissemination Agent: To the Property Owner: U.S. Bank National Association 633 W. Fifth Street, 24th Floor Los Angeles, California Attn: Corporate Trust Department RE: Chula Vista CFD Stifel, Nicolaus & Company, Incorporated One Montgomery Street, 35th Floor San Francisco, California Attention: Public Finance Spicer Consulting Group Margarita Road, Suite 101 Temecula, California Attention: Shane Spicer Shea Homes Limited Partnership 9990 Mesa Rim, Suite 200 San Diego, California Attention: Sarah Morrell provided, however, that all such notices, requests or communication may be made by telephone and promptly confirmed by writing. Any person may, by notice given as aforesaid 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 District, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders 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 Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization. G-5-6

351 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. Date: June 27, 2018 SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership By: Name: Title: ACCEPTED AND AGREED TO: SPICER CONSULTING GROUP, as Dissemination Agent By: Authorized Signatory G-5-7

352 EXHIBIT A NOTICE OF FAILURE TO FILE PERIODIC REPORT Name of Issuer: Name of Bond Issue: Community Facilities District No. 16-I (Millenia) City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds Date of Issuance: June 27, 2018 NOTICE IS HEREBY GIVEN that Shea Homes Limited Partnership (the Obligated Owner ) has not provided a Periodic Report with respect to the above-named bonds as required by that certain Continuing Disclosure Certificate (Shea Homes Limited Partnership), dated June 27, The Obligated Owner anticipates that the Periodic Report will be filed by. Dated: Spicer Consulting Group, as Dissemination Agent By: Its: cc: Fiscal Agent District Participating Underwriter Property Owner/Obligated Owner G-5-8

353 EXHIBIT B PERIODIC REPORT $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (the Disclosure Certificate ) dated June 27, 2018 executed by the undersigned (the Property Owner ) in connection with the issuance of the above-captioned bonds by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. Capitalized terms used in this Periodic Report but not otherwise defined have the meanings given to them in the Disclosure Certificate. The statements and information in this Periodic Report are being made to the Property Owner s actual knowledge. I. Property Ownership and Development The information in this section is provided as of (this date must be not more than 30 days before the date of this Periodic Report). A. Property currently owned by the Property Owner (the Property ) in Improvement Area No. 1 of the District (the Improvement Area ): Development name: Number of lots (acreage): B. Updated information regarding development status described in the tables of the Official Statement entitled: (i) Community Facilities District No. 16-I (Millenia) (Improvement Area No. 1) Shea Homes Element at Millenia (Table 7) and (ii) Community Facilities District No. 16-I (Millenia) (Improvement Area No. 1) Shea Homes Z at Millenia (Table 8): C. Status of any significant amendments or material changes to the description of land use or development entitlements for the Property described in the Official Statement or the Periodic Report last filed in accordance with the Disclosure Certificate: G-5-9

354 D. Status of Special Tax payments on all parcels of Property owned by the Property Owner or its Affiliates: E. Aggregate property in the Improvement Area sold (closed escrows) by the Property Owner to end users: Since the Date of Issuance of the Bonds Since the Last Periodic Report Acres* Acres* SF Units SF Units * For bulk land sales only (excluding sales of finished lots or completed buildings). F. Status of any land purchase contracts with other merchant builders or owners other than end users, with regard to the Property. II. Legal and Financial Status of Property Owner Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any change in the legal structure of the Property Owner or its Affiliates or the financial condition and financing plan of the Property Owner or its Affiliates that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement. III. Change in Development or Financing Plans Unless such information has previously been included or incorporated by reference in a Periodic Report, and other than as provided in Section I, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement; provided, however, that the Property Owner s obligation to provide information on the table of the Official Statement titled Community Facilities District No. 16-I (Millenia) (Improvement Area No. 1) Shea Homes Estimated Cash Flow (Table 9) shall be limited to significant changes to the total estimate of the sources and uses of funds for development of the Property. G-5-10

355 IV. 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 Property Owner hereby certifies that this Periodic Report constitutes the Periodic Report required to be furnished by the Property Owner under the Disclosure Certificate. ANY STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER S FINANCING PLAN OR FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS. THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS PERIODIC REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE. Dated: SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership By: Name: Title: G-5-11

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357 APPENDIX G-6 CONTINUING DISCLOSURE CERTIFICATE (KB HOME CALIFORNIA LLC) $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Continuing Disclosure Certificate (KB Home California LLC) (this Disclosure Certificate ) is executed and delivered by the undersigned (the Property Owner ) and Spicer Consulting Group as dissemination agent (the Dissemination Agent ) in connection with the issuance of the bonds captioned above (the Bonds ) by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. The Bonds are being issued pursuant to a resolution adopted by the City Council of the City, acting as legislative body of the District on May 15, 2018, and a Bond Indenture, dated as of June 1, 2018, (the Indenture ), by and between the District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). The Property Owner covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, 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 means any person presently directly (or indirectly through one or more intermediaries) currently under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decision regarding the Bonds (including without limitation information relevant to the proposed development of the Property or the Property Owner s ability to pay the Special Taxes related to the Property prior to delinquency. Assumption Agreement means an undertaking of an Obligated Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Obligated Owner s development and financing plans with respect to the Improvement Area), whereby such Obligated Owner or Affiliate agrees to provide Periodic 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 owned by such Obligated Owner and its Affiliates and, at the option of the Property Owner or such Obligated Owner, agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 11 hereof. Dissemination Agent means Spicer Consulting Group, or any successor Dissemination Agent designated in writing by the Property Owner, and which has filed with the Property Owner, the 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. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, G-6-1

358 or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Obligated Owner means, as of any Report Date, an owner of all or a portion of the Property that represents more than 50% of the single family residential units in the Planned Development. Official Statement means the final official statement executed by the District in connection with the issuance of the Bonds. Participating Underwriter means Stifel, Nicolaus & Company, Incorporated, the original Underwriter of the Bonds. Periodic Report means any Periodic Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. 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. Planned Development means the development plan for the Property described in the Official Statement under PROPERTY OWNERSHIP AND THE DEVELOPMENT - KB Home California Development and Financing Plan - Development Plan as such information has been updated, if any, in a prior Periodic Report. Property means Lot 14 of Tract No Report Date means March 31 and September 30 of any fiscal year. 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. Special Taxes means the special taxes of the District levied on taxable property within the Improvement Area. Section 3. Provision of Periodic Reports. (a) The Property Owner shall, or, upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing September 30, 2018, file with the MSRB a Periodic Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 calendar days prior to the Report Date, the Property Owner shall provide the Periodic Report to the Dissemination Agent (if different from the Property Owner). The Property Owner shall provide a written certification with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if different from the Property Owner) to the effect that such Periodic Report constitutes the Periodic Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Periodic Report. The Periodic 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. (b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Periodic Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Property Owner to determine whether its obligations under this Disclosure Certificate have terminated G-6-2

359 (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 Property Owner does not provide, or cause the Dissemination Agent to provide, a Periodic Report to the MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the District, the Participating Underwriter and the Property Owner. (c) With respect to the Periodic Report, the Dissemination Agent shall, to the extent the Periodic Report has been furnished to it, file the Periodic Report with the MSRB and file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the District and the Participating Underwriter certifying that the Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to and filed with the MSRB. Section 4. Content of Periodic Reports. The Property Owner s Periodic 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 Property Owner or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Property Owner shall clearly identify each such other document so included by reference. In addition to any of the information expressly required to be provided in Exhibit B, the Property Owner s Periodic 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. Section 5. Reporting of Significant Events. (a) The Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Property Owner which is reasonably likely to have a significant impact on the Property Owner s ability to pay Special Taxes or to sell or develop the Property; (ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property on or prior to the delinquency date to the extent that such failure is not promptly cured by the Property Owner upon discovery thereof; (iii) filing of a lawsuit of which the Property Owner is aware against the Property Owner or an Affiliate of the Property Owner seeking damages, which is reasonably likely to have a significant impact on the Property Owner 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; and (v) any payment default or other material default by the Property Owner on any loan with respect to the construction of improvements on the Property. (b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Property Owner shall, or shall cause the Dissemination G-6-3

360 Agent to, promptly file a notice of such occurrence with the MSRB, with a copy to the Fiscal Agent, the District and the Participating Underwriter. Section 6. Duration of Reporting Obligation. (a) All of the Property Owner 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, or (ii) at such time as the Property Owner owns fewer than 50% of parcels reflected in the final tract map for the Property, or (iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to 50% or more of the Property. The Property Owner 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. Nothing herein shall require any person (including, without limitation, the District and the Participating Underwriter) to confirm the satisfaction of any condition for termination of the Property Owner s obligations hereunder pursuant to this Section 6. (b) If a portion of the Property owned by the Property Owner, or any Affiliate of the Property Owner, is conveyed to a Person that, upon such conveyance, will be a Obligated Owner, the obligations of the Property Owner hereunder with respect to the property in the Improvement Area owned by such Obligated Owner and its Affiliates may be assumed by such Obligated Owner or by an Affiliate thereof, and the Property Owner s obligations hereunder with respect to such property will be terminated. In order to effect such assumption, such Obligated Owner or Affiliate shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the District and the Participating Underwriter. Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist the Property Owner 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 Spicer Consulting Group. The Dissemination Agent may resign by providing thirty days written notice to the District, the Property Owner and the Fiscal Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner 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; and (b) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in G-6-4

361 this Disclosure Certificate or any other means of communication, or including any other information in any Periodic Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses to include any information in any Periodic Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Periodic Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Property Owner 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 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 Property Owner 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 Indenture, and the sole and exclusive remedy under this Disclosure Certificate in the event of any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance. 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 Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (each, an Indemnified Party ), harmless against any loss, expense and liability 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 claim of liability, but excluding losses, liabilities, costs and expenses due to an Indemnified Party s negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder from the Administrative Expense Fund established under the Indenture in accordance with the Dissemination Agent s 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 District, the Property Owner, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Property Owner 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: To the Fiscal Agent: Community Facilities District No. 16-I (Millenia) c/o the City of Chula Vista 276 Fourth Avenue Chula Vista, California Attention: Director of Finance RE: Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds U.S. Bank National Association 633 W. Fifth Street, 24th Floor Los Angeles, California Attn: Corporate Trust Department RE: Chula Vista CFD G-6-5

362 To the Participating Underwriter: To the Dissemination Agent: To the Property Owner: Stifel, Nicolaus & Company, Incorporated One Montgomery Street, 35th Floor San Francisco, California Attention: Public Finance Spicer Consulting Group Margarita Road, Suite 101 Temecula, California Attention: Shane Spicer KB Home California LLC 9915 Mira Mesa Blvd., Suite 100 San Diego, California provided, however, that all such notices, requests or communication may be made by telephone and promptly confirmed by writing. Any person may, by notice given as aforesaid 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 District, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders 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 Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner 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. Date: June 27, 2018 KB HOME CALIFORNIA LLC, a Delaware limited liability company By: Name: Title: ACCEPTED AND AGREED TO: SPICER CONSULTING GROUP, as Dissemination Agent By: Authorized Signatory G-6-6

363 EXHIBIT A NOTICE OF FAILURE TO FILE PERIODIC REPORT Name of Issuer: Name of Bond Issue: Community Facilities District No. 16-I (Millenia) City of Chula Vista Community Facilities District No. 16-I (Millenia) Improvement Area No Special Tax Bonds Date of Issuance: June 27, 2018 NOTICE IS HEREBY GIVEN that KB Home California LLC (the Obligated Owner ) has not provided a Periodic Report with respect to the above-named bonds as required by that certain Continuing Disclosure Certificate (KB Home California LLC), dated June 27, The Obligated Owner anticipates that the Periodic Report will be filed by. Dated: Spicer Consulting Group, as Dissemination Agent By: Its: cc: Fiscal Agent District Participating Underwriter Property Owner/Obligated Owner G-6-7

364 EXHIBIT B PERIODIC REPORT $12,280,000 CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 16-I (MILLENIA) IMPROVEMENT AREA NO SPECIAL TAX BONDS This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (the Disclosure Certificate ) dated June 27, 2018 executed by the undersigned (the Property Owner ) in connection with the issuance of the above-captioned bonds by Community Facilities District No. 16-I (Millenia) (the District ), situated in the City of Chula Vista, County of San Diego, State of California. Capitalized terms used in this Periodic Report but not otherwise defined have the meanings given to them in the Disclosure Certificate. I. Property Ownership and Development The information in this section is provided as of (this date must be not more than 30 days before the date of this Periodic Report). A. Property currently owned by the Property Owner (the Property ) in Improvement Area No. 1 of the District (the Improvement Area ): Development name: Number of lots (acreage): B. Updated information regarding development status described in the table of the Official Statement entitled Community Facilities District No. 16-I (Millenia) (Improvement Area No. 1) KB Home Skylar at Millenia (Table 10): C. Status of building permits and any significant amendments or material changes to the description of land use or development entitlements for the Property described in the Official Statement or the Periodic Report last filed in accordance with the Disclosure Certificate: G-6-8

365 D. Status of Special Tax payments on all parcels of Property owned by the Property Owner or its Affiliates: E. Aggregate property in the Improvement Area sold (closed escrows) by the Property Owner to end users: Since the Date of Issuance of the Bonds Since the Last Periodic Report Acres* Acres* SF Units SF Units * For bulk land sales only (excluding sales of finished lots or completed buildings). F. Status of any land purchase contracts with other merchant builders or owners other than end users, with regard to the Property. II. Legal and Financial Status of Property Owner Unless such information has previously been included or incorporated by reference in a Periodic Report, describe any change in the legal structure of the Property Owner or its Affiliates or the financial condition and financing plan of the Property Owner or its Affiliates that would materially and adversely interfere with its ability to complete its development plan described in the Official Statement. III. Change in Development or Financing Plans Unless such information has previously been included or incorporated by reference in a Periodic Report, and other than as provided in Section I, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan described in the Official Statement; provided, however, that the Property Owner s obligation to provide information in the table of the Official Statement titled Community Facilities District No. 16-I (Millenia) (Improvement Area No. 1) KB Home California Cash Flow (Table 11) shall be limited to significant changes to the total estimate of the sources and uses of funds for development of the Property. G-6-9

366 IV. 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 Property Owner hereby certifies that this Periodic Report constitutes the Periodic Report required to be furnished by the Property Owner under the Disclosure Certificate. ANY STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER S FINANCING PLAN OR FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS. THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS PERIODIC REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE. Dated: KB HOME CALIFORNIA LLC, a Delaware limited liability company By: Name: Title: G-6-10

367 APPENDIX H BOOK-ENTRY ONLY SYSTEM The information in this section concerning DTC and DTC s book-entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC to the District which the District believes to be reliable, but the District and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. The Depository Trust Company ( DTC ), New York, New York, 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 fullyregistered Bond will be issued for each annual maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of DTC. DTC, the world s largest securities 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 DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 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 bookentry 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 is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. 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 a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at 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 Bond ( 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 interests 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 H-1

368 such Bonds are credited, which may or may not be the Beneficial Owners. 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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as prepayments, 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 prepaid, 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. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s MMI 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 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 District or the Fiscal Agent, on payable 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, 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 District or 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 Bond 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 in 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 certificates 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, Bonds will be printed and delivered to DTC. THE FISCAL AGENT, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. H-2

369 APPENDIX I EXECUTIVE SUMMARY OF MARKET ABSORPTION STUDY

370 [THIS PAGE INTENTIONALLY LEFT BLANK]

371 February 2018 City of Chula Vista Millenia Master Plan, Chula Vista, CA MARKET ABSORPTION ANALYSIS Executive Summary Chula Vista CFD 16-I (Millenia IA No. 1)

372 Overall Conclusions Millenia Master Plan, Chula Vista, CA February 2018 City of Chula Vista Millenia, Chula Vista, CA 2

373 Boundaries of CFD No. 16-I (Millenia, Improvement Area No. 1) The Millenia master plan is actively in development, with residential, rental, retail and commercial developments underway. The areas that are included in Improvement Area No. 1 are noted below, with Residential areas market with a RED star and Commercial areas marked with a BLUE star. February 2018 City of Chula Vista Millenia, Chula Vista, CA 3

374 Residential and Office Absorption Summary Our research indicates that the buildout and absorption of +/-393 planned residential units within Improvement Area No. 1 of Millenia could occur by early 2021, as shown on the table below (the numbers shown for 2016 and 2017 are actual sales, the numbers are projected). The first phase of the Millenia office project is expected to start construction in October 2018, with estimated completion in January The office absorption projection outlined below includes 2 years of pre-leasing in Our conclusion is that the 1,018,000 square feet of office planned in Improvement Area No. 1 of Millenia could be pre-leased/absorbed in the period and that pre-leased space will start to be occupied in early 2019 when the first completion occurs. YEAR Residential Units Office SF , , , , , , , , , , , ,525 TOTAL 393 1,018,000 February 2018 City of Chula Vista Millenia, Chula Vista, CA 4

375 Residential Market Analysis Millenia Master Plan, Chula Vista, CA February 2018 City of Chula Vista Millenia, Chula Vista, CA 5

376 Key Findings The Millenia master plan is an active mixed-use project in the South County submarket of San Diego County. Improvement Area No. 1 comprises a portion of the Millenia master planned community that is expected to include over 2,500 for-sale and rental units and over 1.8 million square feet of commercial space at buildout. The Improvement Area No. 1 development will consist of 393 residential units and just over 1.0 million square feet of office in the Think (318,000 SF) and Invent (700,000 SF) projects. Of the 393 Millenia residential units that are included in Improvement Area No. 1, at the end of January units had been released with 98 units sold and 53 units closed escrow. The sale of for-sale products in the overall Millenia master plan started in mid 2016 with +/-217 units at Evo, Metro and Trio (which are not included in Improvement Area No. 1) and additional projects by Shea Homes, KB Home and CalAtlantic/Lennar in Improvement Area No. 1 (sales have started for the Shea and KB Home projects and the CalAtlantic/Lennar project will start sales later in 2018). There are also completed and in-development rental projects (market-rate and affordable), a hotel and retail development in Millenia (but not in Improvement Area No. 1). A significant office project is planned in Improvement Area No. 1, with campus office space targeted to the technology, life sciences and medical sectors. The Millenia project is elevated and offers views of the surrounding area, mountains and distant lake/ocean. Some areas of the site will offer orientations to canyon and open space areas. Millenia is located right off a major north-south freeway (the 125 Toll Road) and is close to a wide array of existing services, retail, schools, parks, etc. There is good demand potential in the South County market for ownership housing options, particularly those targeted to family households of all ages and to empty nester/retirees. South County new home sales increased in 2017 to +/-1,000 units per year and market capture of County new home sales jumped to 30%. Going forward, South County, which has in the past decade had more active home building operations, is likely to see increased development and market capture in a region with quite limited residential land options elsewhere. The majority of active new homes are selling in the $300,000 to $700,000 price categories that are largely unavailable elsewhere in the region and new projects are selling well. Development of the 393 residential units in the Improvement Area No. 1 began in late 2016 and 84 units had sold by the end of 2017 (and 98 units had sold at the end of January 2018). The remaining units in Improvement Area No. 1 are projected to be largely absorbed by early 2021, with current pricing ranging from the high $300,000s to the mid $600,000s. February 2018 City of Chula Vista Millenia, Chula Vista, CA 6

377 Millenia IA No. 1 Product Array The detailed floorplan pricing for the Millenia Improvement Area IA No. 1 product array is outlined below. For the active projects (Z, Element and Skylar) the pricing is based on actual sales prices offered by the respective builders. For the upcoming Boulevard project, pricing indicated is our projection based on the other market comparables in Millenia and the overall South County market. COMMUNITY SPECIFICS FLOORPLANS ACTUAL/EXPECTED PRICING Subject Property Name Mo Base Incentives Net Base Net Base Assumptions Total Payment Assumptions 80.0% Location Size Sales Base Price/ Options / Price Price ($ Price/ Options / Estimated Total Price/ Monthly Base Addl Tax 4.0% Product Details Sales Summary Mix SF Bed Bath Level Pkg Pace Price SF Upgrades Reduction Impacting) SF Upgrades Premiums Price SF HOA Tax Rate Assess. Mo. Pmt. Z at Millenia Shea Homes 14 1, $386,000 $300 $0 $0 $386,000 $300 $15,000 $0 $401,000 $311 $ % 0.75% $2,364 Chula Vista Millenia 44 1, $409,000 $286 $0 $0 $409,000 $286 $15,000 $0 $424,000 $297 $ % 0.75% $2,481 Product: Townhomes Total Units: , $426,000 $289 $0 $0 $426,000 $289 $15,000 $0 $441,000 $299 $ % 0.75% $2,567 Configuration: ATT Units Sold: 41 Lot Dimensions: ATT 3 Months Sold: 7 Lot 9 Units Remaining: 65 % Remaining: 61% Summary Statistics: 1, $413,660 $289 $0 $0 $413,660 $289 $15,000 $0 $428,660 $299 $ % 0.75% $2,504 Element at Millenia Shea Homes 18 1, $498,000 $281 $0 $0 $498,000 $281 $20,000 $10,000 $528,000 $297 $ % 0.75% $2,892 Chula Vista Millenia 16 1, $523,000 $273 $0 $0 $523,000 $273 $20,000 $10,000 $553,000 $289 $ % 0.75% $3,019 Product: Single Family Total Units: , $554,246 $257 $0 $0 $554,246 $257 $20,000 $10,000 $584,246 $271 $ % 0.75% $3,178 Configuration: 2,000 Units Sold: , $587,000 $261 $0 $0 $587,000 $261 $20,000 $10,000 $617,000 $274 $ % 0.75% $3,344 Lot Dimensions: n/a 3 Months Sold: 0 Lot 9 Units Remaining: 22 % Remaining: 31% Summary Statistics: 2, $541,063 $267 $0 $0 $541,063 $267 $20,000 $10,000 $571,063 $282 $ % 0.75% $3,111 Skylar at Millenia KB Home 39 2, $596,490 $229 $0 $0 $596,490 $229 $35,000 $7,500 $638,990 $246 $ % 0.75% $3,392 Chula Vista Millenia 40 2, $613,490 $231 $0 $0 $613,490 $231 $35,000 $7,500 $655,990 $247 $ % 0.75% $3,478 Product: Single Family Total Units: 79 Configuration: 3,250 Units Sold: 9 Lot Dimensions: n/a 3 Months Sold: 9 Lot 14 Units Remaining: 70 % Remaining: 89% Summary Statistics: 2, $605,098 $230 $0 $0 $605,098 $230 $35,000 $7,500 $647,598 $246 $ % 0.75% $3,435 Boulevard at Millenia CalAtlantic Homes 24 1, $444,990 $265 $0 $0 $444,990 $265 $15,000 $8,900 $468,890 $279 $ % 0.75% $2,709 Chula Vista Millenia 26 1, $464,990 $256 $0 $0 $464,990 $256 $15,000 $9,300 $489,290 $269 $ % 0.75% $2,812 Product: Townhomes Total Units: , $494,990 $242 $0 $0 $494,990 $242 $15,000 $9,900 $519,890 $254 $ % 0.75% $2,968 Configuration: ATT Units Sold: 0 Lot Dimensions: ATT 3 Months Sold: 0 Lot 17 Units Remaining: 78 % Remaining: 100% Summary Statistics: 1, $469,605 $253 $0 $0 $469,605 $253 $15,000 $9,392 $493,997 $266 $ % 0.75% $2,836 Boulevard at Millenia II TBD 20 1, $444,990 $265 $0 $0 $444,990 $265 $15,000 $4,450 $464,440 $276 $ % 0.75% $2,686 Chula Vista Millenia 20 1, $464,990 $256 $0 $0 $464,990 $256 $15,000 $4,650 $484,640 $267 $ % 0.75% $2,789 Product: Townhomes Total Units: , $494,990 $242 $0 $0 $494,990 $242 $15,000 $4,950 $514,940 $252 $ % 0.75% $2,943 Configuration: ATT Units Sold: 0 Lot Dimensions: ATT 3 Months Sold: 0 Lot 11 Units Remaining: 60 % Remaining: 100% Summary Statistics: 1, $468,323 $253 $0 $0 $468,323 $253 $15,000 $4,683 $488,007 $264 $ % 0.75% $2,806 February 2018 City of Chula Vista Millenia, Chula Vista, CA 7

378 Millenia IA No. 1 Product Array The detailed floorplan pricing for the Millenia Improvement Area IA No. 1 product array is outlined below. $650,000 $600,000 $550,000 Z at Millenia - Townhomes, Shea Homes, 3.5 sls per mo Element at Millenia - 2,000 sq ft, Shea Homes, 3.5 sls per mo Net Base Price $500,000 $450,000 $400,000 Skylar at Millenia - 3,250 sq ft, KB Home, 2.5 sls per mo Boulevard at Millenia - Townhomes, CalAtlantic Homes, 3.0 sls per mo $350,000 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 Unit Size (Square Feet) Boulevard at Millenia II - Townhomes, TBD, 3.0 sls per mo BASE PRICE NET BASE PRICE $ ASSUMPTIONS AVERAGE PRICE Project/Subdivision Type Configuration # of Units Est % of Total Units Average Unit Size Base Price $/SF Price Impacting Incentives Net Base Price $/SF Options Premiums Average Price $/SF Estimated Sales/Month Z at Millenia Townhomes ATT % 1,432 $413,660 $289 $0 $413,660 $289 $15,000 $0 $428,660 $ Element at Millenia Single Family 2, % 2,027 $541,063 $267 $0 $541,063 $267 $20,000 $10,000 $571,063 $ Skylar at Millenia Single Family 3, % 2,631 $605,098 $230 $0 $605,098 $230 $35,000 $7,500 $647,598 $ Boulevard at Millenia Townhomes ATT 78 20% 1,857 $469,605 $253 $0 $469,605 $253 $15,000 $9,392 $493,997 $ Boulevard at Millenia II Townhomes ATT 60 15% 1,848 $468,323 $253 $0 $468,323 $253 $15,000 $4,683 $488,007 $ COMMUNITY SUMMARY % 1,927 $494,284 $261 $0 $494,284 $261 $19,911 $5,868 $520,063 $ February 2018 City of Chula Vista Millenia, Chula Vista, CA 8

379 Millenia IA No. 1 Projected Absorption The projected absorption for the Millenia Improvement Area IA No. 1 product array is outlined below. Z, Element (Shea) and Skylar (KB Home) are open and selling as of early 2018, with +/-84 of the 255 planned units sold at the end of 2017 and remaining units projected to be sold-out in the first half of At the end of January 2018, the sold total was 98 units, with 53 units closed. Boulevard at Millenia (Lot 17) is expected to start sales with 78 units in mid 2018 and is projected to sell-out in 2020 (based on that start date). It is planned to offer 3-story row townhomes and will be developed by CalAtlantic/Lennar. Boulevard II (Lot 11) will be similar to the Boulevard product and will come online when that area is largely absorbed. Per product absorptions of 2.50 to 3.50 units per month are assumed given the performance to-date of the currently selling programs and expected market conditions. The actively selling attached and detached projects in South County are typically selling in the +/-3.0 sales per month range. HYPOTHETICAL COMMUNITY SELL OUT Project/Subdivision Type Configuration # of Units Z at Millenia Townhomes ATT Element at Millenia Single Family 2, Skylar at Millenia Single Family 3, Boulevard at Millenia Townhomes ATT Boulevard at Millenia II Townhomes ATT COMMUNITY SUMMARY February 2018 City of Chula Vista Millenia, Chula Vista, CA 9

380 Millenia Product Conclusion: Total Prices (SFD Only) Looking at just the detached product types, the Subject s total pricing is in-line with other new construction detached for-sale products in the market. Millenia s detached products are relatively high-density 3-story detached for-sale products that are selling well in the competitive market. $800,000 Element at Millenia - 2,000 sq ft, Shea Homes, 3.5 sls per mo Total Price $775,000 $750,000 $725,000 $700,000 $675,000 $650,000 $625,000 $600,000 Skylar at Millenia - 3,250 sq ft, KB Home, 2.5 sls per mo Signature - 5,000 sq ft, Heritage Building and Development, 3.1/2.0 sls per mo Cantamar - 5,000 sq ft, Pacific Coast Communities, 2.7/2.7 sls per mo Monte Villa - 3,053 sq ft, Pacific Coast Communities, 2.3/2.7 sls per mo Aventine - 2,975 sq ft, Cornerstone Communities, 1.9/1.9 sls per mo Indigo at Escaya - 2,940 sq ft, CalAtlantic Homes, 4.2/3.7 sls per mo Seville at Escaya - 3,600 sq ft, Shea Homes, 4.2/5.7 sls per mo Valencia at Escaya - 2,728 sq ft, CalAtlantic Homes, 4.2/2.7 sls per mo $575,000 $550,000 $525,000 $500,000 1,500 2,000 2,500 3,000 3,500 4,000 Unit Size (Square Feet) Source: Meyers Research; Individual Community Sales Offices Sierra at Escaya - 2,900 sq ft, Shea Homes, 4.8/4.7 sls per mo Prado at Escaya - 3,120 sq ft, Brookfield Residential, 4.2/4.7 sls per mo Castellena at Escaya - 4,500 sq ft, CalAtlantic Homes, 1.8/0.7 sls per mo Haciendas at Escaya - 4,950 sq ft, Brookfield Residential, 3.4/3.7 sls per mo Absorption = Historical/3 Month February 2018 City of Chula Vista Millenia, Chula Vista, CA 10

381 Millenia Product Conclusion: Total Prices (ATT Only) Looking at the attached products, the Millenia products are positioned in-line with other new construction 2 and 3-story attached projects in the Otay Ranch and South County market. Attached units in the high $300,000s to low $500,000s are selling well as an affordable product alternative in a market where new detached options are generally $550,000+. $575,000 Z at Millenia - Townhomes, Shea Homes, 3.5 sls per mo $550,000 Boulevard at Millenia - Townhomes, CalAtlantic Homes, 3.0 sls per mo Boulevard at Millenia II - Townhomes, TBD, 3.0 sls per mo $525,000 Metro - ATT, Meridian Communities, 2.3/3.7 sls per mo $500,000 Trio - ATT, Meridian Communities, 1.8/2.0 sls per mo Total Price $475,000 $450,000 Evo - ATT, Meridian Communities, 2.5/2.0 sls per mo Parc Place - ATT, Pacific Coast Communities, 4.1/4.3 sls per mo Lovina - ATT, Heritage Building and Development, 4.2/2.7 sls per mo $425,000 $400,000 Aviare - ATT, Sunrise Company, 4.1/3.7 sls per mo Tosara II - ATT, Pacific Coast Communities, 2.4/0.0 sls per mo Flora at Escaya - ATT, Brookfield Residential, 2.6/3.0 sls per mo $375,000 Strata at Escaya - ATT, Shea Homes, 1.9/4.3 sls per mo $350,000 1,000 1,250 1,500 1,750 2,000 2,250 2,500 Unit Size (Square Feet) Source: Meyers Research; Individual Community Sales Offices Azul at Playa Del Sol - ATT, Pardee Homes, 8.3/10.7 sls per mo Luna at Playa Del Sol - ATT, Pardee Homes, 7.8/3.7 sls per mo Absorption = Historical/3 Month February 2018 City of Chula Vista Millenia, Chula Vista, CA 11

382 Millenia Product Comparison vs. Competitive Projects The active competitive projects in South County are again expanding with new development, but are generally selling well with new home sales in this submarket increasing 108% from 2016 to 2017 and market capture of County new home sales increasing from 20% in 2015/2016 to 30% in 2017 and matches the peak capture of County sales seen in South County s market capture is now once again expanding considerably because it is the only area of the County with large amounts of developable residential land and able to offer relatively affordable new home products. UNIT COUNT SUMMARY SALES PACE AVERAGE MONTHLY BUILDER / COMMUNITY DEVELOPER CITY LOT SIZE TOTAL RLSD SOLD AVAIL. REMAIN ALL 3 MO. SF NET PRICE $/SF HOA TAX PAYMENT Z at Millenia Shea Homes Chula Vista ATT ,432 $428,660 $299 $ % $2,504 Element at Millenia Shea Homes Chula Vista 2, ,027 $571,063 $282 $ % $3,111 Skylar at Millenia KB Home Chula Vista 3, ,631 $647,598 $246 $ % $3,435 Boulevard at Millenia CalAtlantic Homes Chula Vista ATT ,857 $493,997 $266 $ % $2,836 Boulevard at Millenia II TBD Chula Vista ATT ,857 $489,353 $264 $ % $2,813 Metro Meridian Communities Chula Vista ATT N/Av ,535 $436,000 $284 $ % $2,415 Trio Meridian Communities Chula Vista ATT N/Av ,732 $487,667 $282 $ % $2,665 Evo Meridian Communities Chula Vista ATT N/Av ,824 $508,000 $279 $ % $2,764 Parc Place Pacific Coast Communi Chula Vista ATT N/Av ,429 $408,233 $286 $ % $2,388 Lovina Heritage Building and D Chula Vista ATT N/Av ,986 $482,567 $243 $ % $2,726 Aviare Sunrise Company Chula Vista ATT N/Av ,592 $445,525 $280 $ % $2,681 Tosara II Pacific Coast Communi Chula Vista ATT N/Av ,114 $465,233 $220 $ % $2,650 Signature Heritage Building and D Chula Vista 5, N/Av ,481 $780,045 $224 $ % $4,067 Cantamar Pacific Coast Communi Chula Vista 5, N/Av ,768 $677,900 $245 $ % $3,541 Monte Villa Pacific Coast Communi Chula Vista 3, N/Av ,814 $606,795 $216 $ % $3,175 Aventine Cornerstone Communiti Chula Vista 2, N/Av ,210 $578,190 $262 $ % $3,139 Flora at Escaya Brookfield Residential Chula Vista ATT N/Av ,494 $413,500 $277 $ % $2,489 Strata at Escaya Shea Homes Chula Vista ATT N/Av ,608 $450,667 $280 $ % $2,707 Indigo at Escaya CalAtlantic Homes Chula Vista 2, N/Av ,042 $588,600 $288 $ % $3,143 Seville at Escaya Shea Homes Chula Vista 3, N/Av ,745 $672,500 $245 $ % $3,573 Valencia at Escaya CalAtlantic Homes Chula Vista 2, N/Av ,108 $621,900 $295 $125 #REF! $3,329 Sierra at Escaya Shea Homes Chula Vista 2, N/Av ,970 $561,000 $285 $ % $2,999 Prado at Escaya Brookfield Residential Chula Vista 3, N/Av ,417 $629,333 $260 $ % $3,368 Castellena at Escaya CalAtlantic Homes Chula Vista 4, N/Av ,021 $750,900 $249 $ % $3,994 Haciendas at Escaya Brookfield Residential Chula Vista 4, N/Av ,414 $774,000 $227 $ % $4,113 Azul at Playa Del Sol Pardee Homes San Diego ATT N/Av ,740 $458,500 $264 $ % $2,503 Luna at Playa Del Sol Pardee Homes San Diego ATT N/Av ,822 $470,167 $258 $ % $2,560 NEW HOME AVERAGE: 2,248 1, , ,176 $557,601 $261 $ % $3,045 February 2018 City of Chula Vista Millenia, Chula Vista, CA 12

383 Commercial Market Analysis Millenia Master Plan, Chula Vista, CA February 2018 City of Chula Vista Millenia, Chula Vista, CA 13

384 Millenia s Locational Attributes Create Desirable Office Development Millenia is a mixed-use, urban oriented community located at Birch Road and SR-125 in Chula Vista, California. The location is proximate to established residential communities of Eastlake and Otay Ranch as well as parks, schools and retail options the Otay Ranch Town Center is located just north of the Millenia Site and offers several Class A restaurant and retail tenants (Best Buy, Macy s, H&M, Cheesecake Factory, PF Chang s). Further, the Otay border crossing is just 5 miles to the south, and Downtown San Diego is 18 miles to the north. Tijuana Imperial Beach Coronado San Diego Olympian High School All Season Park Mater Dei Catholic High School SR-125 Millenia Office Campus (artist projection) Birch Road Otay Ranch Town Center Source: Chesnut Development, Gensler February 2018 City of Chula Vista Millenia San Diego County, California 14

385 Millenia Calls For Office, Retail and Residential Uses Millenia consists of multiple parcels in an integrated design concept with multifamily units, office space, retail/hospitality, civic and mixed-use projects. In addition there will be six themed parks and a variety of tree-lined promenades, gathering places, bikeways and plazas. The three planned office phases are outlined below, the first of which is Think, which will include two office buildings totaling 318,000 leasable square feet as well as a parking structure and amenity building. Think and Invent (1,018, 000 SF total) are the only office space included in Improvement Area No. 1. Think Campus 001: Two buildings totaling 318,000 Sq. Ft. designed to facilitate a new generation of higher education, a collaborative of multiple domestic and international universities. Invent Campus 003: With four buildings totaling 700,000 Sq. Ft. and the ability to expand to 1,000,000 Sq. Ft., Invent is the largest campus at Millenia Office. Discover Campus 002: One building of over 400,000 Sq. Ft., programmed for research and life science (the Discover building is not included in Improvement Area No. 1). Source: Chesnut Development, Gensler February 2018 City of Chula Vista Millenia San Diego County, California 15

386 Millenia Planned for Three Phases of Office Development Images of the design concepts for the Think, Invent and Discover campuses are below. Think consists of two office buildings of 150,000 and 168,000 square feet, an amenity building with a cafe and fitness center, and a 1,373-car parking garage. The Think campus is targeting LEED Platinum certification, and also a Gold Rating under the new WELL Building Standard which places emphasis on increasing well-being, health, and ultimately productivity of the people inside the space. Think Campus 318,000 SF Artist projection Artist projection Source: Chesnut Development, Gensler Artist projection Artist projection February 2018 City of Chula Vista Millenia San Diego County, California 16