$4,355,000 COMMUNITY FACILITIES DISTRICT NO OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT 2014 SPECIAL TAX BONDS

Transcription

1 NEW ISSUE NOT RATED In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however, to certain qualifications described herein, under existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In the further opinion of Bond Counsel, interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations, although Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liabilities. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income taxation. Bond Counsel expresses no other opinion regarding or concerning any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See LEGAL MATTERS Tax Exemption herein. $4,355,000 COMMUNITY FACILITIES DISTRICT NO OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT 2014 SPECIAL TAX BONDS Dated: Date of Delivery Due: September 1, as shown on inside cover The 2014 Special Tax Bonds (the Bonds ) are being issued under the Mello-Roos Community Facilities Act of 1982 (the Act ); the Resolution of Issuance (as defined herein) and a Fiscal Agent Agreement, dated as of September 1, 2014 (the Fiscal Agent Agreement ), by and between Community Facilities District No of the Temecula Valley Unified School District (the Community Facilities District ) and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). The Bonds are payable from Net Taxes (as defined herein) levied on property within the Community Facilities District according to the first amended rate and method of apportionment of special tax, approved by the qualified electors within the Community Facilities District and by the Governing Board (the Board ) of the Temecula Valley Unified School District (the School District ), acting as the Legislative Body of the Community Facilities District. The Bonds are being issued (i) to finance, either directly or indirectly, the acquisition and construction of certain school facilities (the Facilities ), (ii) to fund a Reserve Fund for the Bonds, (iii) to pay certain administrative expenses of the Community Facilities District and (iv) to pay the costs of issuing the Bonds. See ESTIMATED SOURCES AND USES OF FUNDS and FACILITIES TO BE FINANCED WITH PROCEEDS OF THE BONDS herein. Interest on the Bonds is payable on March 1, 2015, and semi-annually thereafter on each September 1 and March 1. The Bonds will be issued in denominations of $5,000 or integral multiples thereof. The Bonds, when delivered, will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). DTC will act as securities depository for the Bonds as described herein under THE BONDS Book-Entry and DTC. The Bonds are subject to optional redemption, mandatory redemption from prepayment of Special Taxes and mandatory sinking fund redemption prior to maturity as described herein. MATURITY SCHEDULE (See Inside Cover) Please refer to the inside cover page for a summary of the principal amounts, interest rates and reoffering yields for the Bonds. THE BONDS, THE INTEREST THEREON, AND ANY PREMIUMS PAYABLE ON THE REDEMPTION OF ANY OF THE BONDS, ARE NOT AN INDEBTEDNESS OF THE SCHOOL DISTRICT, THE STATE OF CALIFORNIA (THE STATE ) OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN), THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS IS LIABLE FOR THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. OTHER THAN THE NET TAXES OF THE COMMUNITY FACILITIES DISTRICT, NO TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE NET TAXES AS MORE FULLY DESCRIBED HEREIN. This cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Bonds involves risks which may not be appropriate for some investors. See BONDOWNERS RISKS herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the School District and the Community Facilities District by Bowie, Arneson, Wiles & Giannone and by McFarlin & Anderson LLP, Laguna Hills, California, Disclosure Counsel and for the Underwriter by Nossaman LLP, Irvine, California. It is anticipated that the Bonds, in book-entry form, will be available through the services of DTC on or about September 11, Dated: August 27, 2014

2 MATURITY SCHEDULE $4,355,000 COMMUNITY FACILITIES DISTRICT NO OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT 2014 SPECIAL TAX BONDS $2,360,000 Serial Bonds Base CUSIP No H Maturity (September 1) Principal Amount Interest Rate Yield/ Price CUSIP No. Maturity (September 1) Principal Amount Interest Rate Yield/ Price CUSIP No $95, % 0.470% KU $115, % 3.380% LE , KV , LF , KW , LG , KX , LH , KY , LJ , KZ , LK , LA , LL , LB , LM , LC , LN , LD , LP8. $895, % 2014 Term Bonds due September 1, 2039, Yield 4.230% CUSIP No H LQ6 $1,100, % 2014Term Bonds due September 1, 2044, Price 4.250% CUSIP No H LR4 CUSIP is a registered trademark of the American Bankers Association. CUSIP data is provided by CUSIP Global Services (CGS) which is managed on behalf of the American Bankers Association by S&P Capital IQ. CUSIP data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP numbers are provided for convenience of reference only. Neither the School District nor the Underwriter take any responsibility for the accuracy of such numbers.

3 TEMECULA VALLEY UNIFIED SCHOOL DISTRICT GOVERNING BOARD Vincent O Neal, President Dr. Allen Pulsipher, Clerk Richard Shafer, Member Bob Brown, Member Dr. Kristi Rutz-Robbins, Member DISTRICT ADMINISTRATION Timothy Ritter, District Superintendent Lori Ordway-Peck, Assistant Superintendent of Business Support Services Jodi McClay, Assistant Superintendent of Educational Support Services BOND COUNSEL Bowie, Arneson, Wiles & Giannone Newport Beach, California DISCLOSURE COUNSEL McFarlin & Anderson LLP Laguna Hills, California UNDERWRITER S COUNSEL Nossaman LLP Irvine, California APPRAISER Kitty Siino & Associates, Inc. Tustin, California SPECIAL TAX CONSULTANT AND ADMINISTRATOR Special District Financing & Administration, LLC Escondido, California FINANCIAL ADVISOR Fieldman, Rolapp & Associates Irvine, California FISCAL AGENT U.S. Bank National Association Los Angeles, California

4 GENERAL INFORMATION ABOUT THE OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. All information for investors regarding the Community Facilities District and the Bonds is contained in this Official Statement. While the School District maintains an internet website for various purposes, none of the information on this website is 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 School District. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Community Facilities District in any press release and in any oral statement made with the approval of an authorized officer of the Community Facilities District or any other entity described or referenced herein, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend, and similar expressions identify forward-looking statements within the meaning of the 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 subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the Community Facilities District or any other entity described or referenced herein since the date hereof. The Community Facilities District does not plan to issue any updates or revision to the forward-looking statements set forth in this Official Statement. Authorized Information. No dealer, broker, salesperson or other person has been authorized by the Community Facilities District to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Community Facilities District 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. Involvement of Underwriter. The Underwriter has submitted the following statement 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. The information and expressions of opinions herein are subject to change without notice and neither 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 Community Facilities District or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement 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. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the 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 Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

5 TABLE OF CONTENTS INTRODUCTION...1 General...1 The School District...1 The Community Facilities District...2 Purpose of the Bonds...2 Sources of Payment for the Bonds...2 Appraisal Report...4 Tax Exemption...5 Risk Factors Associated with Purchasing the Bonds..5 Professionals Involved in the Offering...5 Other Information...6 CONTINUING DISCLOSURE...6 ESTIMATED SOURCES AND USES OF FUNDS...7 FACILITIES TO BE FINANCED WITH PROCEEDS OF THE BONDS...7 THE BONDS...8 Authority for Issuance...8 General Provisions...8 Debt Service Schedule...9 Redemption...10 Registration, Transfer and Exchange...13 Book-Entry and DTC...14 SECURITY FOR THE BONDS...14 General...14 Special Taxes...15 First Amended Rate and Method...15 Proceeds of Foreclosure Sales...18 Special Tax Fund...20 Bond Fund...21 Reserve Fund...22 Administrative Expense Fund...22 Investment of Moneys in Funds...23 Payment of Rebate Obligation...23 Additional Bonds for Refunding Purposes Only...23 COMMUNITY FACILITIES DISTRICT NO General Information...24 Authority for Issuance...24 No Concentration of Ownership...26 Delinquency History...26 Appraised Property Values...28 Direct and Overlapping Debt...29 Value-to-Lien Ratios...30 Overlapping Assessment and Community Facilities Districts...33 BONDOWNERS' RISKS...33 Risks of Real Estate Secured Investments Generally...33 Economic Uncertainty Risks Related to Current Real Estate Market Conditions Special Taxes Are Not Personal Obligations The Bonds Are Limited Obligations of the Community Facilities District Appraised Values Value-to-Lien Ratios Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property Disclosure to Future Purchasers Hazardous Substances Insufficiency of the Special Tax Exempt Properties Depletion of Reserve Fund Potential Delay and Limitations in Foreclosure Proceedings Bankruptcy and Foreclosure Delay Payments by FDIC and Other Federal Agencies Factors Affecting Parcel Values and Aggregate Value No Acceleration Provisions Community Facilities District Formation Billing of Special Taxes Inability to Collect Special Taxes Right to Vote on Taxes Act Ballot Initiatives and Legislative Measures Limited Secondary Market Loss of Tax Exemption IRS Audit of Tax-Exempt Bond Issues Impact of Legislative Proposals, Clarifications of the Code and Court Decisions on Tax Exemption Backup Withholding Limitations on Remedies LEGAL MATTERS Legal Opinion Tax Exemption Original Issue Discount; Premium Bonds Absence of Litigation No General Obligation of School District or Community Facilities District NO RATINGS UNDERWRITING PROFESSIONAL FEES MISCELLANEOUS i-

6 APPENDIX A General Information About the Temecula Valley Unified School District...A-1 APPENDIX B First Amended Rate and Method of Apportionment of the Special Tax Temecula Valley Unified School District Community Facilities District No B-1 APPENDIX C Appraisal Report C-1 APPENDIX D Summary of Certain Provisions of the Fiscal Agent Agreement...D-1 APPENDIX E Form of Continuing Disclosure Certificate... E-1 APPENDIX F Form of Opinion of Bond Counsel...F-1 APPENDIX G Book-Entry System......G-1 APPENDIX H Boundary Map of the Community Facilities District...H-1 -ii-

7

8

9 OFFICIAL STATEMENT $4,355,000 COMMUNITY FACILITIES DISTRICT NO OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT 2014 SPECIAL TAX BONDS INTRODUCTION 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, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. General This Official Statement, including the cover page and appendices hereto, is provided to furnish information regarding the Community Facilities District No of the Temecula Valley Unified School District 2014 Special Tax Bonds (the Bonds ). The Bonds are issued pursuant to the Act (as defined below), Resolution No /02 adopted on August 19,2014 (the Resolution of Issuance ), by the legislative body of Community Facilities District No of the Temecula Valley Unified School District (the Community Facilities District ) and a Fiscal Agent Agreement, dated as of September 1, 2014 (the Fiscal Agent Agreement ), by and between the Community Facilities District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). See THE BONDS Authority for Issuance herein. The Community Facilities District may issue additional bonds payable on a parity with the Bonds for refunding purposes only. See SECURITY FOR THE BONDS Additional Bonds for Refunding Purposes Only. The School District The Temecula Valley Unified School District (the School District ), a political subdivision of the State of California, was organized as a unified school district of the State of California (the State ) in 1989 and provides public education for grades kindergarten through twelve within an area of approximately 213 square miles located in the southwest portion of Riverside County (the County ). As of June 24, 2014, for Fiscal Year , the School District maintained 31 school facilities, including 17 elementary schools with an enrollment of approximately 12,217, 6 middle schools with an enrollment of approximately 6,445, 3 comprehensive high schools with an enrollment of approximately 9,423, and 3 alternative education programs with an enrollment of approximately 178, 1 continuation high school with an enrollment of approximately 224, a K-12 preparatory school with an enrollment of approximately 1,047, a K-8 charter school with an enrollment of approximately 496 and non-public schools with an enrollment of approximately 35. Total enrollment was approximately 30,065 students as of the California Basic Educational Data System ( CBEDS ) of October 6,

10 The Community Facilities District The Community Facilities District was formed and established by the School District on December 13, 2011, pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section et seq. of the California Government Code, the Act ), following a public hearing. At a landowner election held on December 13, 2011, the qualified electors of the Community Facilities District, by more than a two-thirds vote, authorized the Community Facilities District to incur bonded indebtedness for school facilities in the aggregate not-to-exceed amount of $10,000,000 (later reduced to $4,500,000 as described in COMMUNITY FACILITIES DISTRICT NO Authority for Issuance Change Proceedings below) and approved the levy of Special Taxes (as defined herein). Once duly established, a community facilities district is a legally constituted governmental entity established for the purpose of financing specific facilities and services within defined boundaries. Subject to approval by a two-thirds vote of the qualified voters within a community facilities district and compliance with the provisions of the Act, a community facilities district may issue bonds and may levy and collect special taxes to repay such bonded indebtedness, including interest thereon. The Community Facilities District is located in the French Valley unincorporated area of Riverside County, California. The Community Facilities District is adjacent to and within the sphere of influence of the City of Temecula, east of the City of Murrieta and south of the City of Menifee. The property is a portion of the master planned community known as Rancho Bella Vista. Homes in the Community Facilities District were developed by Lennar Homes of California, Inc. ( Lennar Homes ). The Community Facilities District is located west of Pourroy Road, approximately ½ mile north of Murrieta Hot Springs Road, at the northwest corner of Promontory Drive and Pacific Park Drive. The Community Facilities District encompasses approximately gross acres and approximately 56.4 net acres. The Community Facilities District encompasses 249 single-family detached homes owned by individual homeowners. As of June 23, 2014 (the date of value of the Appraisal Report as later defined herein), all 249 homes have been sold to individual homeowners. Detailed information about the location of, property ownership and land uses in the Community Facilities District is set forth in COMMUNITY FACILITIES DISTRICT NO herein. Purpose of the Bonds Proceeds of the Bonds will be used (i) to finance, either directly or indirectly, the acquisition and construction of certain school facilities, (ii) to fund a Reserve Fund for the Bonds, (iii) to pay certain administrative expenses of the Community Facilities District and (iv) to pay the costs of issuing the Bonds. See FACILITIES TO BE FINANCED WITH PROCEEDS OF THE BONDS and COMMUNITY FACILITIES DISTRICT NO herein. Sources of Payment for the Bonds The Bonds are secured by and are payable from a first pledge of Net Taxes, which is defined within the Fiscal Agent Agreement as Gross Taxes minus an amount equal to the Administrative Expense Requirement of $45,000 (the Administrative Expense Requirement ). Gross Taxes are defined in the Fiscal Agent Agreement as the amount of all Special Taxes collected within the Community Facilities District and net proceeds from the sale of property collected pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes. Special Taxes as defined in the First Amended Rate and Method of Apportionment of Special Tax (the First Amended Rate and Method ) levied within the 2

11 Community Facilities District pursuant to the Act, the Resolution of Formation (as defined below), the voter approvals obtained at the December 13, 2011, special election held within the Community Facilities District and Ordinance No , adopted by the Legislative Body of the Community Facilities District on January17, 2012 (the Ordinance ), providing for the levyof the Special Taxes. Administrative Expenses generally include the administrative costs with respect to the calculation and collection of the Special Taxes and any other costs related to the Bonds, including the fees and expenses of the Fiscal Agent (including its legal counsel) and any persons, parties, consultants or attorneys employed pursuant to the covenants of the Fiscal Agent Agreement, costs and legal expenses of foreclosure actions or costs otherwise incurred by the Community Facilities District in order to carry out the authorized purposes of the Bonds. Pursuant to the Act, the First Amended Rate and Method, the Resolution of Formation, the Ordinance and the Fiscal Agent Agreement, so long as the Bonds are Outstanding, the Community Facilities District will, subject to the Annual Maximum Special Tax, annually fix and levy the amount of Special Taxes within the Community Facilities District required for the payment of principal of and interest on Outstanding Bonds becoming due and payable during the ensuing calendar year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds, an amount equal to the Administrative Expense Requirement and any additional amounts necessary for Administrative Expenses, including expenses incurred in connection with administration or enforcement of delinquent Special Taxes. See SECURITY FOR THE BONDS Special Taxes herein. Pursuant to the Act, all lands owned by a public entity within the Community Facilities District are exempt from the levy of the Special Tax, unless the public entity acquires the property after the recordation of the Notice of Special Tax Lien, in which case the public entity will be obligated to pay the Special Tax, subject to certain limitations. As of June 23, 2014, building permits for all 249 single-family detached units in the Community Facilities District were issued and such units will be levied in Fiscal Year as Developed Property, (i.e., property for which a building permit has been issued for the construction of a residential unit by March 1 prior to each Fiscal Year). See SECURITY FOR THE BONDS First Amended Rate and Method and BONDOWNERS RISKS Exempt Properties. The Bonds are secured by a first pledge of all moneys deposited in the Reserve Fund. See SECURITY FOR THE BONDS. The Reserve Fund will be established out of the proceeds of the sale of the Bonds, in an amount equal to the Reserve Requirement. The Fiscal Agent Agreement defines the Reserve Requirement with respect to the Bonds as an amount, as of any date of calculation, equal to the least of (i) 10% of the original principal amount of the Bonds, (ii) Maximum Annual Debt Service on the Bonds (as defined in the Fiscal Agent Agreement), or (iii) 125% of average Annual Debt Service on the Bonds. The ability of the Governing Board of the School District (the Board ), in its capacity as Legislative Body of the Community Facilities District, to increase the Special Taxes levied to replenish the Reserve Fund is subject to the maximum annual amount of Special Taxes authorized by the qualified voters of the Community Facilities District and the limitation imposed by Section of the Act as applied to the Community Facilities District. The moneys in the Reserve Fund will only be used for payment of principal of, interest and any redemption premium on, the Bonds, and at the direction of the Community Facilities District, for payment of rebate obligations related to the Bonds and making transfer for principal of and interest on the Bonds in connection with prepayments of the Special Taxes. Except for Excess Investment Earnings amounts required for payment of rebate obligations, moneys in the Reserve Fund in excess of the Reserve Requirement will be annually transferred to the Interest Account of the Bond Fund, and any remaining excess shall be transferred to the Principal Account of the Bond Fund, or to the Sinking Fund Redemption Account of the Redemption Fund, to the extent required to make any principal payment or Mandatory Sinking Payments on the next following September 1. See SECURITY FOR THE BONDS Reserve Fund. 3

12 The Community Facilities District has also covenanted in the Fiscal Agent Agreement to cause foreclosure proceedings to be commenced and prosecuted against certain parcels with delinquent installments of the Special Taxes. For a more detailed description of the foreclosure covenant, see SECURITY FOR THE BONDS Proceeds of Foreclosure Sales. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. OTHER THAN THE NET TAXES OF THE COMMUNITY FACILITIES DISTRICT, NO TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE NET TAXES AS MORE FULLY DESCRIBED HEREIN. Appraisal Report An appraisal of the land and existing improvements for the development within the Community Facilities District dated July 3, 2014 (the Appraisal Report ), has been prepared bykittysiino & Associates, Inc., Tustin, California (the Appraiser ), in connection with issuance of the Bonds. The purpose of the Appraisal Report was to estimate the market value of the property within the Community Facilities District subject to the Community Facilities District Special Tax lien, which consists of 249 completed homes. The Appraisal Report reflects the Community Facilities District financing, including the Special Taxes. The subject property consists of 249 single-family detached units. The Appraisal Report is based on certain assumptions. Subject to these assumptions, the Appraiser estimated that the fee-simple market value of the Taxable Property within the Community Facilities District (subject to the lien of the Special Taxes) as of June 23, 2014, was as follows: Community Facilities District No (249 units) $89,344,315 The market values reported in the Appraisal result in an approximate value-to-lien ratio of 19.73:1, with respect to the Taxable Property within the Community Facilities District calculated with respect to the Bonds and other direct and overlapping bonded debt based on a direct and overlapping debt report, dated as of June 5, 2014, other than general obligation bonds issued by the Metropolitan Water District of Southern California and Temecula Valley Unified School District. The value-to-lien ratios of individual parcels will differ from the foregoing aggregate values. See COMMUNITY FACILITIES DISTRICT NO Appraised Property Values and Value-to-Lien Ratios and BONDOWNERS RISKS Appraised Values, Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property and APPENDIX C Appraisal Report appended hereto for further information on the Appraisal Report and for limiting conditions relating to the Appraisal Report. 4

13 Tax Exemption In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however, to certain qualifications described herein, under existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In the further opinion of Bond Counsel, interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations, although Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liabilities. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income taxation. Bond Counsel expresses no other opinion regarding or concerning any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See LEGAL MATTERS Tax Exemption herein. Set forth in APPENDIX F is the form of opinion Bond Counsel is expected to deliver 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 LEGAL MATTERS Tax Exemption. Risk Factors Associated with Purchasing the Bonds Investment in the Bonds involves risks that may not be appropriate for some investors. See the section of this Official Statement entitled BONDOWNERS RISKS for a discussion of certain risk factors which should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Bonds. Professionals Involved in the Offering U.S. Bank National Association, Los Angeles, California, will serve as the paying agent, registrar, authentication and transfer agent for the Bonds and will perform the functions required of it under the Fiscal Agent Agreement for the payment of the principal of and interest and any premium on the Bonds and all activities related to the redemption of the Bonds. Bowie, Arneson, Wiles & Giannone, Newport Beach, California is serving as Bond Counsel to the Community Facilities District and as Special Counsel to the School District. McFarlin & Anderson LLP, Laguna Hills, California, is acting as Disclosure Counsel. Stifel, Nicolaus & Company, Incorporated is acting as Underwriter in connection with the issuance and delivery of the Bonds. Nossaman LLP, Irvine, California, is acting as Underwriter s Counsel. Fieldman, Rolapp & Associates, Irvine, California, is acting as Financial Advisor. The appraisal work was done and the Appraisal Report was provided by Kitty Siino & Associates, Inc., Tustin, California. Special District Financing & Administration, LLC, Escondido, California, is acting as special tax consultant, administrator and Dissemination Agent to the Community Facilities District. Payment of the fees and expenses of Bond Counsel, Special Counsel to the School District, Disclosure Counsel, the Underwriter and the Fiscal Agent is contingent upon the sale and delivery of the Bonds. 5

14 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, certain sections of the Fiscal Agent Agreement, security for the Bonds, special risk factors, the Community Facilities District, the School District and other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Bonds, the Fiscal Agent Agreement and other resolutions and documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Bonds, the Fiscal Agent Agreement, such resolutions and other documents. All such descriptions are further qualified in their entirety by reference to laws and to principles of equity relating to or affecting generally the enforcement of creditors rights. Copies of such documents may be obtained from the Office of the Clerk of the Governing Board of the Temecula Valley Unified School District, Rancho Vista Road, Temecula, California CONTINUING DISCLOSURE The Community Facilities District. The Community Facilities District will covenant in the Continuing Disclosure Certificate, substantially in the form set forth in APPENDIX E Form of Continuing Disclosure Certificate (the Continuing Disclosure Certificate ), for the benefit of Owners and beneficial owners of the Bonds, to provide annually certain financial information and operating data relating to the Community Facilities District and the Bonds by not later than February 15 in each year commencing on February 15, 2015 (the Community Facilities District Annual Report ), and to provide notices of the occurrence of certain enumerated events. The Annual Report and any notices of enumerated events will be filed by the Community Facilities District, or Special District Financing & Administration, LLC, as Dissemination Agent on behalf of the Community Facilities District, with the Municipal Securities Rulemaking Board (the MSRB ) through the Electronic Municipal Market Access System (the EMMA System ), in an electronic format and accompanied by identifying information as prescribed by the MSRB, with a copy to the Fiscal Agent. The specific nature of the information to be contained in the Community Facilities District Annual Report or any notice of a listed event is set forth in the Continuing Disclosure Agreement. The covenants of the Community Facilities District in the Continuing Disclosure Agreement have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the Rule ); provided, however, a default under the Continuing Disclosure Agreement will not, in itself, constitute an event of default under the Fiscal Agent Agreement, and the sole remedy under the Continuing Disclosure Agreement in the event of any failure of the Community Facilities District or the Dissemination Agent to comply with the Continuing Disclosure Agreement will be an action to compel performance. The Community Facilities District has no prior disclosure undertakings. A review of prior undertakings by the School District and other community facilities districts formed by the School District indicates that on a few occasions during the past five years the School District or a community facilities district has not fully complied with its prior continuing disclosure undertakings under the Rule. For example, the School District s annual audited financial statements for the year ended June 30, 2010, and the School District s budgets for Fiscal Years , and were initially provided by a link to the School District s website. In addition, the School District or the applicable community facilities district did not file notices with respect to rating downgrades of municipal bond insurers which insured bonds issued by the School District or a community facilities district formed by the School District and a notice regarding the downgrade of the underlying rating of the School District s general obligation bonds was not filed in a timely manner. The School District or the applicable community facilities district has made subsequent filings to 6

15 correct known instances of non-compliance and the Community Facilities District believes the School District and its community facilities districts are currently in compliance with their respective undertakings pursuant to the Rule. The School District believes it has established procedures to facilitate making required filings on a timely basis in the future. ESTIMATED SOURCES AND USES OF FUNDS The proceeds from the sale of the Bonds will be deposited into the following respective accounts and funds established by the Community Facilities District under the Fiscal Agent Agreement, as follows: (1) Sources: Principal Amount of Bonds $4,355, Less: Net Original Issue Discount (39,880.35) Less: Underwriter s Discount (76,212.50) Uses: Total Sources $4,238, Deposit into the School Facilities Account of the $3,783, Construction Fund Deposit into the Reserve Fund 250, Deposit into Administrative Expense Fund 20, Deposit into the Costs of Issuance Account of the Construction Fund (1) 185, Total Uses $4,238, Includes, among other things, the fees and expenses of Bond Counsel, Special Counsel, Disclosure Counsel, the cost of printing the preliminary and final Official Statements, fees and expenses of the Fiscal Agent, the cost of the Appraisal Report and the fees of the Special Tax Consultant and the Financial Advisor. FACILITIES TO BE FINANCED WITH PROCEEDS OF THE BONDS The Community Facilities District is authorized to finance facilities with a five year estimated useful life or longer, including any elementary, middle and high school facility, including sites and site improvements (including landscaping, access roadways, drainage, sidewalks and gutters, utility lines, playground areas and equipment), classrooms, recreational facilities, on-site facilities, on-site office space at a school, central support and administrative facilities, interim housing and transportation facilities needed by the School District in order to serve the student population to be generated as a result of development of the property within the Community Facilities District. School Facilities also includes the attributable costs of engineering, design, planning, materials testing, coordination, construction, staking and construction, together with the expense related to issuance and sale of the Bonds. It is anticipated that Bond proceeds will be used, together with other available funds, in connection with construction of a permanent two-story classroom building at Temecula Valley High School replacing 28-year old modular, metal-clad classroom facilities. Bond proceeds may also be used, together with other available funds, for new instructional facilities for the School District s Hospitality Career Technical Education program. 7

16 THE BONDS Authority for Issuance The Bonds will be issued pursuant to the Act, the authorizations approved by the electors within the Community Facilities District, the Fiscal Agent Agreement and the Resolution of Issuance. See COMMUNITY FACILITIES DISTRICT NO Authority for Issuance herein. General Provisions The Bonds will be dated their date of delivery and will bear interest at the rates per annum set forth on the cover page hereof, payable semi-annually on each March 1 and September 1, commencing on March 1, 2015 (each, an Interest Payment Date ), and will mature in the amounts and on the dates set forth on the cover page hereof. The Bonds will be issued in fully-registered form in denominations of $5,000 each or any integral multiple thereof and when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). DTC will act as securities depository for the Bonds. Ownership interests in the Bonds may be purchased in book-entry form only, in denominations of $5,000 or any integral multiple thereof within a single maturity. So long as the Bonds are held in book-entry form, principal of, premium, if any, and interest on the Bonds will be paid directly to DTC for distribution to the beneficial owners of the Bonds in accordance with the procedures adopted by DTC. See THE BONDS Book-Entry and DTC. The Bonds will bear interest at the rates set forth on the cover hereof payable on the Interest Payment Dates in each year. Interest will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Each Bond will bear interest from the Interest Payment Date next preceding the date of authentication 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 (as defined below) but prior to the immediately succeeding Interest Payment Date, in which event interest will be payable from such Interest Payment Date, 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 dated date of such Bonds; provided, however,thatifatthetime of authentication of a Bond, interest is in default, interest on that Bond shall be payable from the last date on which the interest has been paid or made available for payment, or if no interest has been paid or made available for payment, interest shall be payable from the dated date of such Bond. Record Date means the 15 th day of the calendar month preceding an Interest Payment Date whether or not such day is a Business Day. Interest on the Bonds shall be paid by check of the Fiscal Agent mailed to the registered Bondowner by first class mail at his or her address as it appears on the Bond Register (as defined in the Fiscal Agent Agreement) as of the Record Date; provided that, in the case of an Owner of $1,000,000 or more in aggregate principal amount of the Bonds, upon the Fiscal Agent s receipt of written request of such Owner prior to the Record Date accompanied by wire transfer instructions, such interest shall be paid on the Interest Payment Date in immediately available funds by wire transfer to an account in the United States of America. The principal of the Bonds and any premium due upon redemption on the Bonds are payable by check in lawful money of the United States of America upon presentation of the Bonds at the principal corporate trust office of the Fiscal Agent (currently in Los Angeles, California). 8

17 Debt Service Schedule The following table presents the annual debt service on the Bonds (including sinking fund redemptions), assuming that there are no optional redemptions or mandatory redemptions from prepayment of Special Taxes. Year Ending September 1 Principal Interest Total Debt Service 2015 $95,000 $151, $246, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 96, , ,000 90, , ,000 83, , ,000 76, , ,000 69, , ,000 62, , ,000 54, , ,000 46, , ,000 38, , ,000 29, , ,000 19, , ,000 10, , $4,355,000 $3,085, $7,440,

18 Redemption Optional Redemption. The Bonds may be redeemed prior to maturity at the option of the Community Facilities District on any Interest Payment Date commencing March 1, 2015, and continuing thereafter, in whole, or in part from such maturities as are selected by the Community Facilities District in writing in accordance with the Fiscal Agent Agreement, and by lot within a maturity, at the redemption prices set forth below, which are expressed as a percentage of the principal amount thereof, together with accrued interest to the date fixed for redemption. Redemption Redemption Dates Price Any Interest Payment Date through and including 103% March 1, 2022 September 1, 2022 and March 1, September 1, 2023 and March 1, September 1, 2024 and any Interest Payment Date thereafter Mandatory Sinking Fund Redemption. The Term Bond maturing on September 1, 2039, is subject to mandatory redemption prior to maturity on September 1, 2035, and on each September 1 thereafter to and including September 1, 2039, in accordance with the schedule set forth below. The Term Bond shall be redeemed from Mandatory Sinking Payments that have been deposited into the Sinking Fund Redemption Account of the Redemption Fund pursuant to the Fiscal Agent Agreement, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the redemption date, without premium, as follows: Redemption Year (September 1) Principal Amount 2035 $165, , , , (maturity) 195,000 The Term Bond maturing on September 1, 2044, is subject to mandatory redemption prior to maturity on September 1, 2040, and on each September 1 thereafter to and includingseptember 1, 2044, in accordance with the schedule set forth below. The Term Bond shall be redeemed from Mandatory Sinking Payments that have been deposited into the Sinking Fund Redemption Account of the Redemption Fund pursuant to the Fiscal Agent Agreement, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the redemption date, without premium, as follows:

19 Redemption Year (September 1) 11 Principal Amount 2040 $200, , , , (maturity) 240,000 The amounts in the foregoing tables shall be reduced as a result of any prior partial redemption of the Bonds pursuant to an optional redemption or mandatory redemption from Prepaid Special Taxes as provided in the Fiscal Agent Agreement. Special Mandatory Redemption from Prepaid Special Taxes. The Bonds are subject to special mandatory redemption prior to their stated maturities, in whole, or in part from such maturities as are selected by the Community Facilities District in writing in accordance with the Fiscal Agent Agreement, and by lot within a maturity, on any Interest Payment Date, commencing March 1, 2015, for which timely notice can be given, in integral multiples of $5,000 from moneys on deposit in the Prepayment Account of the Special Tax Fund, plus amounts transferred from the Reserve Fund pursuant to the Fiscal Agent Agreement, upon payment of the redemption prices set forth below, which are expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption. Redemption Redemption Dates Price Any Interest Payment Date through and including 103% March 1, 2022 September 1, 2022 and March 1, September 1, 2023 and March 1, September 1, 2024 and any Interest Payment Date thereafter Purchase In Lieu of Redemption. In lieu of, or partially in lieu of, any optional redemption or special mandatory redemption from Prepaid Special Taxes, moneys in the applicable account of the Redemption Fund may be used to purchase the Outstanding Bonds that were to be redeemed with such funds in the manner provided in the Fiscal Agent Agreement. Purchases of Outstanding Bonds may be made by the Community Facilities District prior to the selection of Bonds for redemption, at public orprivatesaleasand when and at such prices as the Community Facilities District may in its discretion determine but only at prices (including brokerage or other expenses) not more than par plus accrued interest, and in the case of funds in the Optional Redemption Account or the Mandatory Redemption Account, the applicable premium to be paid in connection with the proposed redemption. Any accrued interest payable upon the purchase of Bonds may be paid from the Interest Account of the Bond Fund for payment of interest on the next following Interest Payment Date. Notice of Redemption. When the Fiscal Agent shall receive notice from the Community Facilities District of its election to redeem Bonds, or when the Fiscal Agent is required to redeem Bonds, the Fiscal Agent shall give notice, in the name of the Community Facilities District of the redemption of such Bonds. Such notice of redemption shall: (i) specify the CUSIP numbers and serial numbers of the Bonds selected for 100

20 redemption, except that where all the Bonds or all Bonds of a single maturity are subject to redemption, the serial numbers thereof need not be specified; (ii) state the original issue date, the interest rate and the maturity date of the Bond selected for redemption; (iii) state the date fixed for redemption; (iv) state the redemption price; (v) state the place or places where the Bonds are to be redeemed; and (vi) in the case of Bonds to be redeemed only in part, state the portion of such Bond which is to be redeemed. Such notice shall further state that, on the date fixed for redemption, there shall become due and payable on each Bond or portion thereof called for redemption the principal thereof, together with any premium, and interest accrued to the redemption date, and that, from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days, but no more than 60 days, prior to the redemption date, the Fiscal Agent shall mail by first class mail a copy of such notice, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register (as defined in the Fiscal Agent Agreement). The actual receipt by the Owner of any Bond of notice of such redemption shall not be a condition precedent thereto, and neither failure to receive such notice nor any defect therein shall affect the validity of the proceedings for the redemption of such Bond, or the cessation of interest on the redemption date. Partial Redemption. Upon surrender of any Bond to be redeemed in part only, the Community Facilities District shall execute and the Fiscal Agent shall authenticate and deliver to the Bondowner, at the expense of the Community Facilities District, a new Bond or Bonds of authorized denominations equal in aggregate principal amount and maturity to the unredeemed portion of the Bond surrendered. Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in the Fiscal Agent Agreement, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (a) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in the Fiscal Agent Agreement, anything in the Fiscal Agent Agreement, or in the Bonds, to the contrary notwithstanding; (b) Upon presentation and surrender thereof at the Principal Corporate Trust Office of the Fiscal Agent, or such other location as may be designated by the Fiscal Agent, such Bond shall be redeemed at the said redemption price; (c) From and after the redemption date, the Bonds or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds or portions thereof shall cease to bear further interest; and (d) From and after the date fixed for redemption, no Owner of any of the Bonds or portions thereof so designated for redemption shall be entitled to any of the benefits of this Fiscal Agent Agreement, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. Contingent Redemption; Rescission. Any notice of optional redemption may specify that redemption of the Bonds designated for redemption on the specified date will be subject to the receipt by the Community Facilities District and/or the Fiscal Agent, as applicable, of moneys sufficient to cause such redemption, and neither the Community Facilities District nor the Fiscal Agent will have any liability to the Owners of any Bonds, or any other party, as a result of the Community Facilities District s failure to redeem the Bonds designated for redemption as a result of insufficient moneys therefor. 12

21 Any notice of redemption under the Fiscal Agent Agreement may be cancelled and annulled if for any reason funds are not, or will not, be available on the date fixed for redemption for the payment in full of the Bonds then called for redemption. Such cancellation and annulment is not a default under the Fiscal Agent Agreement. The Community Facilities District will not have any liability to the Bondowners, or any other party, as a result of the Community Facilities District s failure to redeem the Bonds designated for redemption as a result of insufficient moneys therefore. Additionally, the Community Facilities District may rescind any optional redemption of the Bonds, and notice thereof, for any reason on any date prior to the date fixed for such redemption by causing written notice of the rescission to be given to the Owners of the Bonds so 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 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. Neither the Community Facilities District nor the Fiscal Agent shall have any liability to the Owners of any Bonds, or any other party, as a result of the Community Facilities District s decision to rescind redemption of any Bonds pursuant to the provisions of the Fiscal Agent Agreement. Registration, Transfer and Exchange Registration. Subject to the provisions relating to book-entry bonds, the Fiscal Agent will keep or cause to be kept, at its principal corporate trust office, sufficient records for the registration and transfer of the Bonds, which shall be open to inspection during regular business hours and upon reasonable notice by the Community Facilities District; and, upon presentation for such purpose, the Fiscal Agent shall, under reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds. The Community Facilities District and the Fiscal Agent may treat and consider the person in whose name each Bond is registered in the Bond Register as the holder and absolute Owner of such Bond for the purpose of payment of principal, interest and premium, if any, with respect to such Bond, for the purpose of giving notices of redemption, 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. Registration of Exchange or Transfer. Subject to the provisions relating to book-entry bonds, the registration of any Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the Principal Corporate Trust Office of the Fiscal Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Fiscal Agent and duly executed by the Bondowner or his or her duly authorized attorney. Bonds may be exchanged at the Principal Corporate Trust Office of the Fiscal Agent for a like aggregate principal amount and maturity of Bonds of other authorized denominations. The Fiscal Agent may charge the Bondowner any tax or other governmental charge required with respect to such transfer or exchange. Whenever any Bonds shall be surrendered for registration of transfer or exchange, the Community Facilities District shall execute, and the Fiscal Agent shall authenticate and deliver, a new Bond, for like aggregate principal amount and maturity; 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 established by the Fiscal Agent for selection of the Bonds to be redeemed or (ii) any Bonds chosen for redemption. 13

22 Book-Entry and DTC DTC 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 fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See APPENDIX G Book-Entry System. General SECURITY FOR THE BONDS The Bonds are secured by a first pledge of all of the Net Taxes of the Community Facilities District and all moneys deposited in the accounts in the Bond Fund, the accounts in the Redemption Fund, the Reserve Fund and, until disbursed as provided in the Fiscal Agent Agreement, in the Special Tax Fund (exclusive of the Administrative Expense Requirement). Pursuant to the Act and the Fiscal Agent Agreement, the Community Facilities District will annuallylevythe Special Taxes on taxable property within the Community Facilities District in an amount required for the payment of principal of and interest on any Outstanding Bonds of the Community Facilities District becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds and an amount estimated to be sufficient to pay the Administrative Expenses during such year. The Net Taxes of the Community Facilities District and all moneys deposited into the accounts in said funds (exclusive of the Administrative Expense Requirement) (until disbursed as provided in the Fiscal Agent Agreement) are pledged to the payment of the principal of, and interest and any premium on, the Bonds as provided in the Fiscal Agent Agreement and in the Act until all of the Bonds have been paid and retired or until moneys or Federal Securities (as defined in the Fiscal Agent Agreement) have been set aside irrevocably for that purpose. The First Amended Rate and Method establishes levying Special Taxes first on Developed Property at the Annual Maximum Special Tax Developed Property and second on Undeveloped Property levied proportionately on each Assessor s Parcel of Undeveloped Property atupto100% oftheannualmaximum Special Tax Undeveloped Property. See Special Taxes and First Amended Rate and Method. Notwithstanding any provision contained in the Fiscal Agent Agreement to the contrary, Net Taxes deposited in the Administrative Expense Fund and the Rebate Fund shall no longer be considered to be pledged to the Bonds and the Administrative Expense Fund, the Construction Fund and the Rebate Fund shall not be construed as trust funds held for the benefit of the Bondowners. The Facilities constructed and acquired with the proceeds of the Bonds are not in any way pledged to pay, or security for, the debt service on the Bonds. Any proceeds of condemnation or destruction of any facilities financed with the proceeds of the Bonds are not pledged to pay the debt service on any Bonds and are free and clear of any lien or obligation imposed under the Fiscal Agent Agreement. 14

23 Special Taxes The Community Facilities District has covenanted in the Fiscal Agent Agreement to comply with all requirements of the Act so as to assure the timely collection of Special Taxes, including, without limitation, the enforcement of delinquent Special Taxes. The Fiscal Agent Agreement provides that the Special Taxes are payable and will be collected in the same manner and at the same time and in the same installment as the general taxes on real property, and will have the same priority, become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property; provided the Community Facilities District may provide for direct collection of the Special Taxes in certain circumstances. The Special Tax levy is limited to the Annual Maximum Special Tax rates set forth in the First Amended Rate and Method. The Special Tax levied on Developed Property ranges from approximately $1, to $1, per unit. There is no levy of Special Tax on Undeveloped Property. No assurance can be given that, in the event of Special Tax delinquencies, the receipt of Special Taxes will, in fact, be collected in sufficient amounts in any given year to pay debt service on the Bonds. Fiscal Year was the first year in which Special Taxes were levied on property within the Community Facilities District. Although the Special Taxes, when levied, will constitute a lien on parcels subject to taxation within the Community Facilities District, it does not constitute a personal indebtedness of the owners of property within the Community Facilities District. There is no assurance that the owners of real property in the Community Facilities District will be financially able to pay the Special Tax or that they will pay such tax even if financially able to do so. See BONDOWNERS RISKS herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. OTHER THAN THE NET TAXES, NO TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE NET TAXES AS MORE FULLY DESCRIBED HEREIN. First Amended Rate and Method General. On December 13, 2011, pursuant to the request of the landowners at such time and the provisions of the Act, the School District established Community Facilities District No The qualified electors of the Community Facilities District approved the First Amended Rate and Method on December 13, Pursuant to such proceedings, the Special Tax may be levied and collected against all Taxable Property (as defined below) within the Community Facilities District according to the First Amended Rate and Method, a copy of which is set forth in APPENDIX B First Amended Rate and Method of Apportionment of the Special Tax Temecula Valley Unified School District Community Facilities District No Capitalized terms used in the following paragraphs but not defined herein have the meanings given them in the First Amended Rate and Method. First Amended Rate and Method. The First Amended Rate and Method provides the means by which the Board may annually levy the Special Taxes within the Community Facilities District up to the applicable Annual Maximum Special Tax. The Bonds are to be issued (i) to finance, either directly or indirectly, the 15

24 Facilities, (ii) to fund a Reserve Fund for the Bonds, (iii) to pay certain administrative expenses of the Community Facilities District and (iv) to pay the costs of issuing the Bonds. The Bonds are secured by the Net Taxes. The First Amended Rate and Method provides that the Special Tax shall be levied on Developed Property for a period not to exceed thirty-five (35) years for each Dwelling Unit classified as Developed Property. A copy of the First Amended Rate and Method is included in APPENDIX B hereto. Developed and Undeveloped Property; Exempt Property. The First Amended Rate and Method declares that for each Fiscal Year, all Assessor s Parcels of Taxable Property within the Community Facilities District shall be classified as Developed Property, Undeveloped Property or Exempt Property and shall be subject to Special Taxes in accordance with the First Amended Rate and Method. (i) Developed Property means Assessor Parcels for which a building permit has been issued by the applicable agency on or before the March 1 prior to each Fiscal Year which is not Exempt Property and for which the Annual Maximum Special Tax Developed Property obligation has not been fully prepaid and/or permanently satisfied. Assessor Parcels for which a building permit has been issued by the applicable agency on or behalf March 1 shall be designed as Developed Property and subject to the levy of the Annual Maximum Special Tax Developed Property in the following Fiscal Year. If a building permit has been issued for which the improvements to be constructed by the building permit, together with previously issued building permits, if applicable, does not constitute the ultimate development of the entire Assessor s Parcel, as reasonably determined bythe Community Facilities District, the remaining undeveloped portion of the Assessor s Parcel will be classified as Undeveloped Property and will be subject to the levy of the Annual Maximum Special Tax Undeveloped Property pursuant to the First Amended Rate and Method. (ii) Undeveloped Property means all Assessor Parcels that are not classified as Developed Property or Exempt Property. (iii) Taxable Property means all Assessor Parcels, except Exempt Property, that are subject to the levy of the Special Taxes. Assessor s Parcels within the boundaries of the Community Facilities District may prepay Special Taxes pursuant to Section 7 of the First Amended Rate and Method or, be exempt from the Special Tax pursuant to law or Section 8 of the First Amended Rate and Method. (iv) Exempt Property means all Assessor Parcels which are exempt from the Special Tax pursuant to law or Section 8 of the First Amended Rate and Method. Maximum Special Tax Rate. Developed Property. The Annual Maximum Special Tax for each Assessor s Parcel of Residential Property that is classified as Developed Property shall be the amount derived by application of the Annual Maximum Special Tax. The Annual Maximum Special Tax for each Assessor s Parcel of Developed Property ranges from approximately $1, to $1, per Unit. See APPENDIX B First Amended Rate and Method of Apportionment of the Special Tax Temecula Valley Unified School District Community Facilities District No Table 2 therein for a listing of the Annual Maximum Special Tax rates for Developed Property for various sizes of Units. As indicated above, under the Rate and Method, the Community Facilities District levies on Developed Property in an amount equal to the Annual Maximum Special Tax. A portion of the Special Tax Requirement may be utilized for acquisition and/or construction of School Facilities. In the event the 16

25 Community Facilities District were to levy Special Taxes on Developed Property at less than the Annual Maximum Special Tax, pursuant to Section of the Act and a resolution adopted by the Community Facilities District, under nocircumstances will the Special Tax leviedinanyfiscalyearagainstanyparcelused for private residential purposes be increased as a consequence of delinquency or default by the owner of any other parcel or parcels within 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. For such purposes, a parcel will be considered used for private residential purposes not later than the date on which an occupancy permit for private residential use is issued. Undeveloped Property. The Annual Maximum Special Tax for Undeveloped Property within the Community Facilities District is $11, per Acre. The CommunityFacilities District is built out and there is no Undeveloped Property. Method of Apportionment. The School District shall levy the Special Tax as follows: First: The Special Tax shall be levied on each Assessor s Parcel of Developed Property at the Annual Maximum Special Tax; and Second: If additional moneys are needed to satisfy the Special Tax Requirement after the Bonds have been issued and after taking into account moneys to be levied on Developed Property pursuant to the first step above, the Special Tax shall be levied proportionately on each Assessor s Parcel of Undeveloped Property at up to 100% of the Annual Maximum Special Tax for Undeveloped Property. Prepayment of Special Taxes in Part. The Annual Maximum Special Tax on an Assessor s Parcel of Developed Property for which a building permit has been issued or a Certificate of Compliance is requested, by notifying the Community Facilities District in writing, may be partially prepaid, provided an Assessor s Parcel of Developed Property may only be partially prepaid prior to or concurrent with the close of escrow of a sale to the initial home buyer. The amount of the prepayment shall be determined as specified in APPENDIX B First Amended Rate and Method of Apportionment of the Special Tax Temecula Valley Unified School District Community Facilities District No Section 6 hereto. No Special Taxes have been partially prepaid prior to close of escrow of the sale to the initial home buyer. Prepayment of Special Taxes in Full. The Annual Maximum Special Tax obligation may only be prepaid and permanently satisfied by an Assessor s Parcel of Developed Property pursuant to Section 7 of the First Amended Rate and Method. The Annual Maximum Special Tax obligation applicable to such Assessor s Parcel may be fully prepaid and the obligation of the Assessor s Parcel to pay the Special Tax permanently satisfied as described in the First Amended Rate and Method; provided that a prepayment may be made only if the property owner also pays the current year s fiscal year levy and all delinquent Special Taxes, interest and penalties, if any, owing on the applicable parcel on which prepayment is being made. In addition, no prepayment will be allowed unless the amount of the authorized Annual Maximum Special Taxes that may be levied on all Taxable Property within the Community Facilities District after the proposed prepayment is at least 1.1 times the annual debt service on the then-outstanding Bonds. As of August 20, 2014, no Special Taxes have been prepaid with respect to any homes within the Community Facilities District. The Prepayment Amount for an Assessor s Parcel shall be determined as specified in APPENDIX B First Amended Rate and Method of Apportionment of the Special Tax Temecula Valley Unified School District Community Facilities District No Section 7 hereto. 17

26 Proceeds of Foreclosure Sales Pursuant to Section of the Act, in the event of any delinquency in the payment of the Special Tax, the Community Facilities District may order the institution of a Superior Court action to foreclose the lien therefor within specified time limits. In such an action, thereal propertysubject totheunpaid amount maybe sold at judicial foreclosure sale. Under the provisions of the Act, such judicial foreclosure action is not mandatory. Under the Fiscal Agent Agreement, in order to determine if there are delinquencies with respect to the payment of the Special Taxes, no later than March 1 and July 1 in every year ( reconciliation date ) commencing March 1, 2015, the Community Facilities District shall reconcile or cause to be reconciled the amount of Special Taxes levied to the amount of Special Taxes theretofore reported by the County as paid and received. No later than forty-five (45) days after the reconciliation date, commencing on the first reconciliation date in 2015, the Community Facilities District shall send or cause to be sent a notice of delinquency to all property owners reported to be delinquent in the payment of the Special Taxes as of the reconciliation date. The fees and expenses of the Independent Financial Consultant retained by the Community Facilities District to assist in computing the levy of the Special Taxes pursuant to the Fiscal Agent Agreement and any reconciliation of amounts levied to amounts received, as well as the costs and expenses of the Community Facilities District (including a charge for School District staff time) in conducting its duties pursuant to the Fiscal Agent Agreement shall be an Administrative Expense pursuant to the Fiscal Agent Agreement. In addition, under the Fiscal Agent Agreement, not later than August 1 of each Fiscal Year, commencing August 1, 2015, the Community Facilities District will compare the amount of Special Taxes theretofore levied in the prior Fiscal Year in the Community Facilities District to the amount of Special Taxes theretofore reported by the County as paid and received and proceed as follows: Individual Delinquencies. If the Community Facilities District determines that (i) any single parcel is subject to a Special Tax delinquency in the aggregate amount of $3,000 or more or (ii) any owner owns one or more parcels subject to a Special Tax delinquency in an aggregate amount of $5,000 or more, then the Community Facilities District shall send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings shall be commenced by the Community Facilities District within 120 days of such determination to the extent permissible under applicable law and shall thereafter diligently pursue such proceedings. Aggregate Delinquencies. If the Community Facilities District determines that the total amount of delinquent Special Taxes for the prior fiscal year exceeds 5% of the total Special taxes due and payable for the prior fiscal year, the Community Facilities District shall notify or cause to be notified property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within 45 days of such determination, and (if the delinquency remains uncured) shall commence foreclosure proceedings within 120 days following such determination against each such parcel of land within the Community Facilities District with a Special Tax delinquencyto the extent permissible under applicable law and shall thereafter diligently pursue such proceedings. Pursuant to the Fiscal Agent Agreement, the Community Facilities District reserves the right to elect to accept payment from a property owner of at least the enrolled amount of the Special Taxes for a parcel(s) but less than the full amount of the penalties, interest, costs and attorneys fees related to the Special Tax delinquency for such parcel(s). The Bondowners are deemed to have consented to the foregoing reserved right 18

27 of the Community Facilities District, notwithstanding any provision of the Act or other law of the State, or any other term or covenant set forth in this Fiscal Agent Agreement to the contrary. The Fiscal Agent Agreement provides that the Bondowners, by their acceptance of the Bonds, consent to such payment for such lesser amounts. Subject to the preceding paragraph, pursuant to the Fiscal Agent Agreement, the Community Facilities District covenants that the Community Facilities District will not, in collecting the Special Taxes or in processing any such judicial foreclosure proceedings, exercise any authority which it has pursuant to the Act regarding waiver of Special Tax delinquency penalties and redemption penalties or acceptance of bonds tendered in satisfaction of an obligation arising from a delinquent Special Taxes in any manner which would be inconsistent with the interests of the Owners and, in particular, will not permit the tender of Bonds in full or partial payment of Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the Community Facilities District having insufficient Net Taxes to pay the principal of and interest on the Bonds remaining Outstanding following such tender. It should be noted that any foreclosure proceedings commenced as described above could be stayed by the commencement of bankruptcy proceedings by or against the owner of the delinquent property. See BONDOWNERS RISKS Bankruptcy and Foreclosure Delay. No assurances can be given that a judicial foreclosure action, once commenced, will be completed or that it will be completed in a timely manner. See BONDOWNERS RISKS Potential Delay and Limitations in Foreclosure Proceedings. If a judgment of foreclosure and order of sale is obtained, the judgment creditor (the Community Facilities District) must cause a Notice of Levy to be issued. Under current law, a judgment debtor (property owner) has 120 days (or in some cases a shorter period) from the date of service of the Notice of Levy and 20 days from the subsequent notice of sale in which to redeem the property to be sold. If a judgment debtor fails to so redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such action, a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made. The constitutionality of the aforementioned legislation, which repeals the former oneyear redemption period, has not been tested; and there can be no assurance that, if tested, such legislation will be upheld. Any parcel subject to foreclosure sale must be sold at the minimum bid price unless a lesser minimum bid price is authorized by the Owners of 75% of the principal amount of Bonds Outstanding. No assurances can be given that the real property subject to sale or foreclosure will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the School District or the Community Facilities District to purchase or otherwise acquire any lot or parcel of property offered for sale or subject to foreclosure if there is no other purchaser at such sale. The Act does specify that the Special Tax will have the same lien priority in the case of delinquency as for ad valorem property taxes. If the Reserve Fund is depleted and delinquencies in the payment of Special Taxes exist, there could be a default or delay in payments to the Bondowners pending prosecution of foreclosure proceedings and receipt by the Community Facilities District of foreclosure sale proceeds, if any. Within the limits of the First Amended Rate and Method and the Act, the Community Facilities District may adjust the Special Taxes levied on all property within the Community Facilities District in future Fiscal Years to provide an amount, taking into account such delinquencies, required to pay debt service on the Bonds and to replenish the Reserve Fund. However, the Special Taxes are currently levied at the Annual Maximum Special Tax rates and there is no assurance that the Annual Maximum Special Taxes collected will be at all times sufficient to pay the amounts required to be paid on the Bonds by the provisions of the Fiscal Agent Agreement. The levy of Special Taxes 19

28 is subject to the maximum annual amount of Special Taxes authorized by the qualified voters and by the limitation imposed by Section of the Act as applied to the Community Facilities District. See SECURITY FOR THE BONDS First Amended Rate and Method. Special Tax Fund Pursuant to the Fiscal Agent Agreement, the Special Taxes and other amounts constituting Gross Taxes collected by the Community Facilities District at any time (exclusive of Prepaid Special Taxes received which shall be deposited into the Prepayment Account of the Special Tax Fund), shall be transferred no later than 10 days after receipt thereof to the Fiscal Agent and shall be held in trust in the Special Tax Fund (exclusive of the Administrative Expense Requirement) for the benefit of the Bondowners and shall, exclusive of Prepaid Special Taxes held in the Prepayment Account, be transferred or applied to thefunds and accounts set forth below, in the priority set forth below and at the times and in the amounts and in accordance with the provisions of the Fiscal Agent Agreement: (i) To the Administrative Expense Fund, an amount specified in writing by the Community Facilities District, up to the Administrative Expense Requirement of $45,000. (ii) To the Interest Account of the Bond Fund, an amount such that the balance in the Interest Account one Business Day prior to each Interest Payment Date shall be equal to the installment of interest due on the Bonds on such Interest Payment Date. Moneys in the Interest Account shall be used for the payment of interest on the Bonds as the same become due. (iii) To the Principal Account of the Bond Fund, an amount up to the amount needed to make the principal payment due on the Bonds during the current Bond Year (as defined in the Fiscal Agent Agreement). (iv) To the Sinking Fund Redemption Account of the Redemption Fund, an amount up to the amount needed to make the Mandatory Sinking Payments due on the Bonds during the current Bond Year. (v) To the Reserve Fund, the amount, if any, necessary to replenish the Reserve Fund to the Reserve Requirement. (vi) Provided all the amounts due in the current Bond Year are funded under (ii), (iii), (iv) and (v) above, to the extent there are additional Administrative Expenses to the Administrative Expense Fund in the amount specified in writing by the Community Facilities District required to bring the balance therein to the amount needed to pay such expenses. (vii) Any remaining Special Taxes and other amounts constituting Gross Taxes shall remain in the Special Tax Fund subject to the provisions of (viii) below. (viii) Any remaining Special Taxes and other amounts constituting Gross Taxes, if any, shall remain in the Special Tax Fund until the end of the Bond Year. Any remaining funds in the Special Tax Fund, which are not required to cure a delinquency in the payment of principal and interest on the Bonds (including payment of Mandatory Sinking Payments due during the current Bond Year), to restore the Reserve Fund as provided for in (v), above, or to pay current or pending Administrative Expenses as provided for in (i) and (vi) above, shall be without further action by any party, transferred by the Fiscal Agent to the District free and clear of any lien thereon and applied by 20

29 the Community Facilities District for any lawful purpose permitted under the Rate and Method and the Community Facilities District proceedings. Any funds which are required to cure any such delinquency described above shall be retained in the Special Tax Fund and expended or transferred, at the earliest possible date, for such purpose. At the date of the redemption, defeasance or maturity of the last Bond and after all principal and interest then due on any Bond has been paid or provided for, all other covenants are complied with and all fees and expenses of the Fiscal Agent have been paid, moneys in the Special Tax Fund will be transferred to the Community Facilities District by the Fiscal Agent and may be used by the Community Facilities District for any lawful purpose under the Community Facilities District proceedings. Prepayment Account of the Special Tax Fund. Prepaid Special Taxes collected by the Community Facilities District (net of any costs of collection) shall be transferred, no later than 10 days after receipt thereof, to the Fiscal Agent and the Community Facilities District shall direct the Fiscal Agent to deposit the Prepaid Special Taxes in the Prepayment Account of the Special Tax Fund. The Prepaid Special Taxes shall be held in trust in the Prepayment Account for the benefit of the Bonds and shall be transferred by the Fiscal Agent to the Mandatory Redemption Account of the Redemption Fund to call Bonds on the next Interest Payment Date for which notice can be given in accordance with the special mandatory redemption provisions of the Fiscal Agent Agreement and shall be applied to call Bonds pursuant to the Fiscal Agent Agreement. Moneys representing the Prepaid Special Taxes shall be invested in accordance with the provisions of the Fiscal Agent Agreement. Investment earnings on amounts in the Prepayment Account not needed to redeem the Bonds pursuant to special mandatory redemption provisions of the Fiscal Agent Agreement shall be transferred to the Special Tax Fund by the Fiscal Agent at the time of transfer of the Prepaid Special Taxes to the Mandatory Redemption Account of the Redemption Fund. Investment. Moneys in each account in the Special Tax Fund will be invested and deposited by the Community Facilities District as described in Investment of Moneys in Funds below. Interest earnings and profits resulting from such investment and deposit will be retained in the applicable account in the Special Tax Fund to be used for the purposes thereof. Bond Fund One Business Day prior to each Interest Payment Date, commencing with the March 1,2015,Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund, or the Reserve Fund in the event that sufficient moneys are unavailable in the Special Tax Fund, and deposit in the Principal Account and the Interest Account of the Bond Fund an amount equal to all of the principal and all of the interest due and payable on the Bonds on the ensuing Interest Payment Date, less amounts on hand in the Bond Fund available to pay principal and/or interest on such Bonds. Notwithstanding the foregoing, amounts in the Bond Fund resulting from transfers from the Construction Fund pursuant to the provisions of the Fiscal Agent Agreement shall be used to pay the principal of and interest on such Bonds prior to the use of any other amounts in the Bond Fund for such purpose. The Fiscal Agent shall apply moneys in the Interest Account and Principal Account to the payment of interest and principal, respectively, on the Bonds on each Interest Payment Date. Moneys in the Bond Fund shall be invested in accordance with the provisions of the Fiscal Agent Agreement. All investment earnings and profits resulting from such investment shall be retained in the accounts established for the Bonds in the Bond Fund and used to pay principal of and interest on the Bonds. Upon final maturity of the Bonds and the payment of all principal of and interest on the Bonds, any moneys remaining in the Bond Fund shall be transferred to the Special Tax Fund. 21

30 Reserve Fund In order to further secure the payment of principal of and interest on the Bonds, certain proceeds of the Bonds will be deposited into the Reserve Fund in an amount equal to the Reserve Requirement (see ESTIMATED SOURCES AND USES OF FUNDS herein). Reserve Requirement is defined in the Fiscal Agent Agreement to mean with respect to the Bonds, an amount, as of any date of calculation, equal to the least of (i) 10% of the original principal amount of the Bonds, (ii) Maximum Annual Debt Service on the Bonds, or (iii) 125% of average Annual Debt Service on the Bonds. A draw on the Reserve Fund could occur as a result of Special Tax delinquencies. See SECURITY FOR THE BONDS First Amended Rate and Method. If Special Taxes are prepaid and Bonds are to be redeemed with the proceeds of such prepayment, a proportionate amount in the Reserve Fund (determined on the basis of the principal of Bonds to be redeemed and the original principal of the Bonds but not in excess of the amount of funds available as a result of the redetermination of the Reserve Requirement) will be applied to the redemption of the Bonds. Moneys in the Reserve Fund will be invested and deposited as described in Investment of Moneys in Funds below. Moneys in the Reserve Fund in excess of the Reserve Requirement (exclusive of Excess Investment Earnings) shall be withdrawn on each March 1 and applied to the Interest Account of the Bond Fund as provided in the Fiscal Agent Agreement. The Fiscal Agent shall transfer Excess Investment Earnings from Reserve Fund earnings upon written direction of the Community Facilities District pursuant to the provisions of the Fiscal Agent Agreement. See APPENDIX D Summary of Certain Provisions of the Fiscal Agent Agreement for a description of the timing, purpose and manner of disbursements from the Reserve Fund. Administrative Expense Fund The Fiscal Agent will receive the transfer of Special Taxes from the Community Facilities District from the Special Tax Fund and deposit in the Administrative Expense Fund amounts to pay Administrative Expenses as described above in Special Tax Fund. Pursuant to the Fiscal Agent Agreement, moneys in the Administrative Expense Fund will not be construed as a trust fund held for the benefit of the Owners of the Bonds and will not be available for the payment of debt service on the Bonds. 22

31 Investment of Moneys in Funds Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent will be invested by the Fiscal Agent in Authorized Investments (as defined below or in the Fiscal Agent Agreement), as directed by an Authorized Representative, that mature prior to the date on which such moneys are required to be paid out under the Fiscal Agent Agreement. Moneys in the Reserve Fund shall be invested in Authorized Investments which provide liquidity needed to satisfy any calls on funds in the Reserve Fund. Such liquidity shall provide that at least one half of the moneys in the Reserve Fund shall be available for draw in advance of any Interest Payment Date, except in the case of guaranteed investment contracts which may have a longer term. Such Authorized Investments shall not have a final maturity of greater than three years (except for guaranteed investments contracts). No such investment shall mature later than 15 days prior to the final maturity of the Bonds. In the absence of any direction from an Authorized Representative, subject to any limitations on investment yield or other limitations set forth in the Fiscal Agent Agreement, the Fiscal Agent will invest, to the extent reasonably practicable, any such moneys in a taxable or tax-exempt government money market portfolio mutual fund as described in clause (j) of the definition of Authorized Investments (including funds for which the Fiscal Agent or its affiliates or subsidiaries provide investment advisory or other management services). See APPENDIX D Summary of Certain Provisions of the Fiscal Agent Agreement for a definition of Authorized Investments. Payment of Rebate Obligation The Community Facilities District is required to calculate excess investment earnings in accordance with the requirements set forth in the Fiscal Agent Agreement. If necessary, the Community Facilities District may use amounts in the Reserve Fund not otherwise required to pay debt service or to maintain the Reserve Requirement, amounts on deposit in the Administrative Expense Fund and other funds available to the Community Facilities District to satisfy rebate obligations. Additional Bonds for Refunding Purposes Only The Community Facilities District shall not issue any additional bonds, notes or other similar evidences of indebtedness payable, in whole or in part, from Net Taxes except: (i) bonds issued to fully or partially refund the Outstanding Bonds; or (ii) subordinate bonds, notes or other similar evidences of indebtedness. 23

32 COMMUNITY FACILITIES DISTRICT NO General Information The Community Facilities District is located in the French Valley unincorporated area of Riverside County, California. The Community Facilities District is adjacent to and within the sphere of influence of the City of Temecula, east of the City of Murrieta and south of the City of Menifee. The property is a portion of the master planned community known as Rancho Bella Vista. Homes in the Community Facilities District were developed by Lennar Homes. The Community Facilities District is located west of Pourroy Road, approximately ½ mile north of Murrieta Hot Springs Road, at the northwest corner of Promontory Drive and Pacific Park Drive. The Community Facilities District encompasses approximately gross acres and approximately 56.4 net acres. The Community Facilities District encompasses 249 single-family detached homes owned by individual homeowners. Rancho Bella Vista is a 798-acre master planned community located in the southwestern portion of Riverside County, 35 miles south of the City of Riverside and 30 miles north of Escondido. The site is east of Interstate 215, north of Interstate 15 and north of the boundary of the City of Temecula in unincorporated Riverside County. The Rancho Bella Vista Specific Plan was originally adopted in 1986 with a proposed 2,580 dwelling units, open space, commercial and public facility uses. Subsequent amendments to the Specific Plan have reduced the number of allowed units to 1,829. Utility services for parcels in the Community Facilities District will be provided by EMWD (water and sewer), Southern California Edison Company (electricity), The Gas Company (natural gas) and Verizon (telephone). Authority for Issuance The Bonds are issued pursuant to the Act, the Resolution of Issuance and the Fiscal Agent Agreement. In addition, as required by the Act, the Board of the School District has taken the following actions with respect to establishing the Community Facilities District and authorizing issuance of the Bonds: Resolution of Intention: On November 8, 2011, the BoardadoptedResolutionNo /11 stating its intention to establish the Community Facilities District and to authorize the levy of a special tax therein pursuant to a Rate and Method for the Community Facilities District. On the same day the Board adopted Resolution No /12 stating its intention to incur bonded indebtedness in an amount not to exceed $10,000,000 with respect to the Community Facilities District. The Community Facilities District will finance school facilities. See FACILITIES TO BE FINANCED WITH PROCEEDS OF THE BONDS herein. Resolution of Formation: December 13, 2011, the Board conducted the public hearings regarding the proposed formation of the Community Facilities District, the levy of special taxes and the incurring of bonded indebtedness. Immediately following the noticed public hearings, on December 13,2011,the Board adopted Resolution No /19 (the Resolution of Formation ), which established the Community Facilities District and authorized the levy of a special tax within the Community Facilities District pursuant to the First Amended Rate and Method. Bond Authorization Resolution: On December 13, 2011, the Board adopted Resolution No /20 declaring the necessity to incur bonded indebtedness in an amount not to exceed $10,000,000 within the Community Facilities District and submitting the proposition to the qualified electors of the Community Facilities District. 24

33 Landowner Election and Declaration of Results: On December 13, 2011, an election was held within the Community Facilities District in which the qualified electors approved the applicable ballot propositions authorizing the issuance of a maximum of $10,000,000 in bonds to finance the acquisition and construction of the school facilities. The propositions approved the levy of a special tax in accordance with the First Amended Rate and Method and the establishment of an appropriations limit for the Community Facilities District. Canvass of Votes: On December 13, 2011, the Board adopted Resolution No /21 pursuant to which the Board approved the canvass of the votes for the election. Special Tax Lien and Levy: The Notice of Special Tax Lien for the Community Facilities District providing notice of the First Amended Rate and Method as a result of the December 13, 2011, proceedings was recorded in the real property records of Riverside County on December 21, 2011, as Instrument No Ordinance Levying Special Taxes: On January 17, 2012, the Board adopted Ordinance No levying the special tax within the Community Facilities District. Prior Proceedings. The property within the Community Facilities District was originally within Improvement Area No. 4 of Community Facilities District No of the Temecula ValleyUnified School District. A Notice of Cessation of Special Tax and Extinguishment of Lien for Specific Parcels within Improvement Area No. 4 of CFD No was recorded on December 22, Change Proceedings: The Board reduced the maximum bond authorization of the Community Facilities District as provided under the Bond Authorization Resolution and the Election from$10,000,000 to $4,500,000 by adoption of Resolution No /02 on August 19, Resolution Authorizing Issuance of the Bonds: On August 19, 2014, the Board adopted Resolution No /02 approving issuance of the Bonds. The table below summarizes the estimated Fiscal Year CommunityFacilities District Special Tax levy made in accordance with the First Amended Rate and Method. As of June 23, 2014, all 249 homes have been constructed and sold to individual homeowners. 25

34 Table 1 Community Facilities District No of the Temecula Valley Unified School District Fiscal Year Special Tax Levy by Land Use Category Land Use Classification Number of Parcels Special Tax Rate Total Special Taxes Levied Fiscal Year 2014/15 Percent of Total 1 - Less than 2,000 Sq. Ft. 56 $1, $61, % 2-2,000 Sq. Ft. to 2,249 Sq. Ft. 29 1, , % 3-2,250 Sq. Ft. to 2,499 Sq. Ft. 61 1, , % 4-2,500 Sq. Ft. to 2,749 Sq. Ft. 0 1, % 5-2,750 Sq. Ft. to 2,999 Sq. Ft. 59 1, , % 6-3,000 Sq. Ft. to 3,249 Sq. Ft. 23 1, , % 7-3,250 Sq. Ft. to 3,499 Sq. Ft. 21 1, , % 8-3,500 Sq. Ft. and Greater 0 1, % Total (1) 249 $320, % (1) Totals may not sum due to rounding. Source: Special District Financing & Administration, LLC. No Concentration of Ownership As of June 23, 2014, all 249 homes are owned by individual homeowners. No homeowner owns more than two homes. Delinquency History Fiscal Year was the first year in which Special Taxes were levied. The table below sets forth information regarding historical Special Tax levies and collections. 26

35 Fiscal Year Number of Parcels Levied Total Tax Levied Table 2 Community Facilities District No of the Temecula valley Unified School District Historical Delinquency and Collection Rates Fiscal Year Amount Delinquent as of June 30 (1) % Delinquent June 30 Amount Due & Collected as of 6/30/14 (2) Remaining Delinquency as of 6/30/14 Remaining Delinquency Rate as of 6/30/ $280, $ % $280, $ % $96, $ % $96, $ % (1) Amount delinquent as of June 30 th in the fiscal year in which the Special Taxes were levied. (2) Per the County of Riverside Fiscal Year End Delinquency Report. Source: Special District Financing & Administration, LLC. 27

36 Appraised Property Values An appraisal of the land and existing improvements for the development within the Community Facilities District, dated July 3, 2014 (defined above as the Appraisal Report ), has been prepared by Kitty Siino & Associates, Inc., Tustin, California (defined above as the Appraiser ), in connection with the issuance of the Bonds. The purpose of the Appraisal Report was to provide the Appraiser s estimate of market value of the property within the Community Facilities District subject to the Community Facilities District Special Tax lien, which consists of 249 completed homes. The Appraisal Report reflects the Community Facilities District financing, including the Special Taxes. The Appraisal Report is based on certain assumptions. Subject to these assumptions, the Appraiser estimated that the fee-simple market value of the Taxable Property within the Community Facilities District (subject to the lien of the Special Taxes) as of the June 23, 2014 Appraisal Report Date of Value, was as follows: Community Facilities District No (249 units) $89,344,315 The market values reported in the Appraisal Report result in an estimated aggregate value-to-lien ratio of 19.73:1 as set forth in Table 4 under the caption COMMUNITY FACILITIES DISTRICT NO Value-to-Lien Ratios, calculated with respect to estimated direct and overlapping tax and assessment debt for Fiscal Year , excluding overlapping general fund obligations. The value-to-lien ratios of individual parcels will differ from the foregoing aggregate values. See COMMUNITY FACILITIES DISTRICT NO Appraised Property Values and BONDOWNERS RISKS Appraised Values, Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property and APPENDIX C Appraisal Report appended hereto for further information on the Appraisal Report and for limiting conditions relating to the Appraisal Report. See also Table 4 in Value-to-Lien Ratios below. The Appraisal Report estimated the value of the property in the Community Facilities District based on the estimated value of 249 completed homes owned by individual homeowners. In the valuation of the 249 homes, a sales comparison approach along with a mass appraisal technique was used. The estimate of value was based on fee-simple ownership, subject only to easements of record and the lien of the Special Taxes. The Appraiser used a sales comparison approach, in which market value is estimated by comparing properties similar to the subject property that have recently been sold, are listed for sale or are under contract. The homes in the CommunityFacilities District are generallyundertwoyearsold. TheAppraisernotesthat the Appraiser s survey of new home projects within the French Valley area resulted in most offering some sort of incentive and/or concessions. These may include interest buydowns, upgrades, closing costs, price reductions and payment of closing costs. The concessions were considered in the concluded values of the houses in the project. The School District and the Underwriter make no representation as to the accuracy or completeness of the Appraisal Report. See APPENDIX C hereto for more information relating to the Appraisal Report. 28

37 Direct and Overlapping Debt Table 3 below sets forth the existing authorized indebtedness payable from taxes and assessments that may be levied within the Community Facilities District prepared by California Municipal Statistics, Inc. and dated June 5, 2014 (the Debt Report ). The Debt Report is included for general information purposes only. In certain cases, the percentages of debt calculations are based on assessed values, which will change significantly as County assessed value records increase to reflect housing values. Five parcels included within the Community Facilities District are not subject to the levy of Special Taxes because they are exempt under the Rate and Method. Some of such parcels are subject to levy by other jurisdictions. The Community Facilities District believes the information is current as of its date, but makes no representation as to its completeness or accuracy. Other public agencies, such as the County, may issue additional indebtedness at any time, without the consent or approval of the School District or the Community Facilities District. See The Debt Report generally includes long term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the Community Facilities District in whole or in part. Such long term obligations generally are not payable from property taxes, assessment or special taxes on land in the Community Facilities District. In many cases, long term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Additional indebtedness could be authorized by the Community Facilities District, the School District, the County or other public agencies at any time. The Community Facilities District has not undertaken to commission annual appraisals of the market value of property in the Community Facilities District for purposes of its Annual Reports pursuant to the Continuing Disclosure Agreement and information regarding property values for purposes of a direct and overlapping debt analysis which may be contained in such reports will be based on assessed values as determined by the County Assessor. See APPENDIX E hereto for the form of the Continuing Disclosure Certificate. 29

38 Table 3 Community Facilities District No of the Temecula Valley Unified School District Detailed Direct and Overlapping Debt Report (As of June 5, 2014) TEMECULA VALLEY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO Local Secured Assessed Valuation: $52,136,058 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 6/1/14 Metropolitan Water District General Obligation Bonds 0.002% $ 3,135 Temecula Valley Unified School District General Obligation Bonds ,737 Temecula Valley Unified School District Community Facilities District No (1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $173,872 OVERLAPPING GENERAL FUND DEBT: Riverside County General Fund Obligations 0.025% $171,666 Riverside County Pension Obligations ,626 Riverside County Board of Education Certificates of Participation Mt. San Jacinto Community College District General Fund Obligations ,965 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $263,924 Less: Riverside County supported obligations 2,495 TOTAL NET OVERLAPPING GENERAL FUND DEBT $261,429 GROSS COMBINED TOTAL DEBT $437,796 (2) NET COMBINED TOTAL DEBT $435,301 (1) Excludes Mello-Roos Act bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt... - % Total Direct and Overlapping Tax and Assessment Debt % Gross Combined Total Debt % Net Combined Total Debt % Source: California Municipal Statistics, Inc. Value-to-Lien Ratios Table 4 below sets forth the value-to-lien analysis for the Community Facilities District as of June 23, 2014, the Appraisal Report Date of Value. The market values reported in the Appraisal Report result in an estimated aggregate value-to-lien ratio of 19.73:1, calculated with respect to estimated direct and overlapping tax and assessment debt set forth in Table 3 in the section captioned COMMUNITY FACILITIES DISTRICT NO Direct and Overlapping Debt. See Table 4 below. The value-to-lien ratios of individual parcels will differ from the aggregate values presented below. See COMMUNITY FACILITIES DISTRICT NO Appraised Property Values and BONDOWNERS RISKS Appraised Values, Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property and APPENDIX C Appraisal Report appended hereto for further information on the Appraisal Report and for limiting conditions relating to the Appraisal Report. 30

39 Property Owner (2) Table 4 Community Facilities District No of the Temecula Valley Unified School District Value-to-Lien Analysis (As of the June 23, 2014, Appraisal Report Date of Value) (1) Number of Lots (2) Total Appraised Overlapping Value (2) Bonds (3) Debt (4) Total Lien Value-to- Lien Ratio (5) Individual Homeowners 249 $89,344,315 $4,355,000 $173,872 $4,528, :1 (1) As of June 23, 2014, the Appraiser indicates that there were 249 completed homes owned by individual homeowners. (2) Source: Appraisal Report. (3) Includes Bonds to be issued by the Community Facilities District; debt has been allocated equally to each lot. The actual Fiscal Year special tax levy will vary based on the square footage of the production home. (4) Source: Table 3 Detailed Direct and Overlapping Debt Report provided by California Municipal Statistics, Inc. Direct and overlapping tax and assessment debt has been allocated equally to each lot, actual allocation of debt per lot may vary. Excludes overlapping general fund debt. (5) Average value-to-lien per lot; actual value-to-lien may vary by lot. Sources: Appraiser, California Municipal Statistics, Inc. and Special District Financing & Administration, LLC. 31

40 Table 5 below sets forth the estimated tax rates for Fiscal Table 5 Community Facilities District No of the Temecula Valley Unified School District Estimated Fiscal Year Tax Rates ASSESSED VALUATION AND PROPERTY TAXES Total Appraised Value (1) $89,344,315 Number of Dwelling Units with Improvement Value 249 Average Assessed Valuation $358,813 Average Home Size 2,473 Land Use Classification 3 Percent of Total Assessed Valuation Expected Amount to be Levied AD VALOREM PROPERTY TAXES (2) General Purpose % $3, Temecula Unified B&I % $ Metro Water East % $ ASSESSMENTS, SPECIAL TAXES, AND PARCEL CHARGES (2) Flood Control Stormwater / Cleanwater $3.60 L&LMD NO 89-1-C Zone 162 $24.10 CSA #103 Street Lights $48.32 CSA #152 NPDES $68.80 V-Wide Regional Fac. LMD 88-1 $5.54 V-Wide LMD French Valley $ MWD Standby East $6.94 EMWD Standby-Combined Charge $40.00 Temecula Valley USD CFD $1, PROJECTED TOTAL PROPERTY TAXES (2) $5, Percent of Property Taxes to Average Assessed Value: % (1) Source: Appraisal. (2) These amounts are based on Fiscal Year charges. Fiscal Year data will not be available until approximately October 1, Source: Special District Financing & Administration, LLC. 32

41 Overlapping Assessment and Community Facilities Districts Currently, there are overlapping taxes or assessments by the Metropolitan Water District for water facilities. The amounts will increase from those presented in Table 3 above, as the assessed value increases to reflect completion of homes. The Community Facilities District has no control over the amount of additional debt payable from taxes or assessments levied on all or a portion of the property within a special district which may be incurred in the future by other governmental agencies, including, but not limited to, the County, the City, or any other governmental agency having jurisdiction over all or a portion of the property within the Community Facilities District. Furthermore, nothing prevents the owners of property within the Community Facilities District from consenting to the issuance of additional debt by other governmental agencies which would be secured by taxes or assessments on a parity with the Special Taxes. To the extent such indebtedness is payable from assessments, other special taxes levied pursuant to the Act or taxes, such assessments, special taxes and taxes will be secured by liens on the property within a district on a parity with a lien of the Special Taxes. Accordingly, the debt on the property within the Community Facilities District could increase, without any corresponding increase in the value of the property therein, and thereby severely reduce the ratio that exists at the time the Bonds are issued between the value of the property and the debt secured by the Special Taxes and other taxes and assessments which may be levied on such property. The incurring of such additional indebtedness could also affect the ability and willingness of the property owners within the Community Facilities District to pay the Special Taxes when due. Moreover, in the event of a delinquency in the payment of Special Taxes, no assurance can be given that the proceeds of any foreclosure sale of the property with delinquent Special Taxes would be sufficient to pay the delinquent Special Taxes. See BONDOWNERS RISKS Appraised Values. BONDOWNERS RISKS In addition to the other information contained in this Official Statement, the following risk factors should be carefully considered in evaluating the investment qualityof thebonds. TheCommunity Facilities District and the Underwriter caution prospective investors that 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 ormore of the events discussed herein could adversely affect the ability or willingness of property owners in the Community Facilities District to pay their Special Taxes when due. Any such failure to pay Special Taxes could result in the inability of the Community Facilities 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 the Community Facilities District. Risks of Real Estate Secured Investments Generally The Bondowners 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 the Community Facilities District, the supply of or demand for competitive properties in such area, and the market value of residential property in the event of sale or foreclosure; (ii) changes in real estate tax rate and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal 33

42 policies; and (iii) natural disasters (including, without limitation, earthquakes, landslides, wildfires and floods), which may result in uninsured losses. Economic Uncertainty The Bonds are being issued at a time of recovery from prior local economic uncertainty and volatility. Unemployment rates have decreased from prior periods. The Community Facilities District cannot predict how the economic recovery will proceed or whether to what extent the status of the local economy may affect the ability of homeowners to pay Special Taxes or the marketability of the Bonds. UNEMPLOYMENT RATE (not seasonally adjusted) Menifee Murrieta Temecula Riverside County 2013 (Annual Avg.) 11.0% 6.7% 7.0% 10.3% 2014 (as of July 18) Source: State of California, Employment Development Department, March 2013 Benchmark Risks Related to Current Real Estate Market Conditions The housing market in southern California experienced significant price appreciation and accelerating demand since 2002 and recent trends indicate this housing market has weakened, with changes from the recent pattern of price appreciation and a slowdown in demand for new housing. In 2006, home developers, appraisers and market absorption consultants began to report weakening new home market conditions due to factors such as (i) lower demand for new homes, (ii) significant increase in cancellation rates for homes under contract, (iii) the exit of speculators from the new home market, (iv) a growing supply of new and existing homes available for purchase, (v) increase in competition for new homes orders, (vi) prospective home buyers having a more difficult time selling their existing homes in the more competitive environment, and (vii) higher incentives required to stimulate new home orders or to induce home buyers not to cancel purchase contracts. Special Taxes Are Not Personal Obligations The current and future owners of land within the Community Facilities District are not personally liable for the payment of the Special Taxes. Rather, the Special Tax is an obligation only of the land within the Community Facilities District. If the value of the land within the Community Facilities District is not sufficient to fully secure the Special Tax, then the Community Facilities District has no recourse against the landowner under the laws by which the Special Tax has been authorized and levied and the Bonds have been issued. The Bonds Are Limited Obligations of the Community Facilities District The Community Facilities District has no obligation to pay principal of and interest on the Bonds in the event Special Tax collections are delinquent, other than from amounts, if any, on deposit in the Reserve Fund or funds derived from the tax sale or foreclosure and sale of parcels on which levies of the Special Tax are delinquent, nor is the CommunityFacilities District obligated to advance funds topaysuchdebtserviceon the Bonds. 34

43 Appraised Values The Appraisal Report summarized in APPENDIX C hereto estimates the fee-simple interest market value of the Taxable Property within the Community Facilities District. This value is merely the present opinion of the Appraiser, and is qualified by the Appraiser as stated in the Appraisal Report. The Community Facilities District has not sought the present opinion of any other appraiser of the value of the Taxable Property. A different present opinion of such value might be rendered by a different appraiser. The opinion of value relates to a sale by a willing seller to a willing buyer, each having similar information and neither being forced by other circumstances to sell nor to buy. Consequently, the opinion is of limited use in predicting the selling price at a foreclosure sale, because the sale is forced and the buyer may not have the benefit of full information. In addition, the opinion is a present opinion. It is based upon present facts and circumstances. Differing facts and circumstances may lead to differing opinions of value. The appraised market value is not evidence of future value because future facts and circumstances may differ significantly from the present. No assurance can be given that if any of the Taxable Property in the Community Facilities District should become delinquent in the payment of Special Taxes, and be foreclosed upon, that such property could be sold for the amount of estimated market value thereof contained in the Appraisal Report. Value-to-Lien Ratios Value-to-lien ratios have traditionally been used in land-secured bond issues as a measure of the collateral supporting the willingness of property owners to pay their special taxes and assessments (and,in effect, their general property taxes as well). The value-to-lien ratio is mathematically a fraction, the numerator of which is the value of the property (usually either the assessed value or a market value as determined by an appraiser) and the denominator of which is the lien of the assessments or special taxes. A value-to-lien ratio should not, however, be viewed as a guarantee of credit-worthiness. Land values are especially sensitive to economic cycles. A downturn of the economy may depress land values and hence the value-to-lien ratios. Further, the value-to-lien ratio cited for a bond issue is an average. Individual parcels in a community facilities district may fall above or below the average, sometimes even below a 1:1 ratio. (With a 1:1 ratio, the land is worth less than the debt on it.) Although judicial foreclosure proceedings can be initiated rapidly, the process can take several years to complete, and the bankruptcy courts may impede the foreclosure action. Finally, local agencies may form overlapping community facilities districts or assessment districts. They typically do not coordinate their bond issuances. Debt issuance by another entity can dilute value-to-lien ratios. See COMMUNITY FACILITIES DISTRICT NO Direct and Overlapping Debt. Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property While the Special Taxes are secured by the Taxable Property, the security only extends to the value of such Taxable Property that is not subject to priority and parity liens and similar claims. Table 4 in the section entitled COMMUNITY FACILITIES DISTRICT NO Value-to-Lien Ratios presents information regarding the tax or assessment obligations which are an obligation of one or more of the parcels of Taxable Property. 35

44 In addition, other governmental obligations may be authorized and undertaken or issued in the future, the tax, assessment or charge for which may become an obligation of one or more of the parcels of Taxable Property and may be secured by a lien on a parity with the lien of the Special Tax securing the Bonds. In general, as long as the Special Tax is collected on the county tax roll, the Special Tax and all other taxes, assessments and charges also collected on the tax roll are on a parity, that is, are of equal priority. Questions of priority become significant when collection of one or more of the taxes, assessments or charges is sought by some other procedure, such as foreclosure and sale. In the event of proceedings to foreclose for delinquency of Special Taxes securing the Bonds, the Special Tax will be subordinate only to existing prior governmental liens, if any. Otherwise, in the event of such foreclosure proceedings, the Special Taxes will generally be on a parity with the other taxes, assessments and charges, and will share the proceeds of such foreclosure proceedings on a pro rata basis. Although the Special Taxes will generally have priority over nongovernmental liens on a parcel of Taxable Property, regardless of whether the non-governmental liens were in existence at the time of the levy of the Special Tax or not, this result may not apply in the case of bankruptcy. While governmental taxes, assessments and charges are a common claim against the value of a parcel of Taxable Property, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to pay the Special Tax is a claim with regard to a hazardous substance. See Hazardous Substances below. Disclosure to Future Purchasers The Community Facilities District has recorded a Notice of Special Tax Lien in the Office of the Riverside County Recorder on December 21, 2011, as Instrument No 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 parcel of land or a home in the Community Facilities District or the 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 Mello-Roos special tax 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. 36

45 Hazardous Substances While governmental taxes, assessments, and charges are a common claim against the value of Taxable Property, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to pay the Special Tax is a claim with regard to hazardous substances. In general, the owners and operators of parcels within the Community Facilities District may be required by law to remedy conditions of the parcels related to the 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 State 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 substances condition of a property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any parcel within the Community Facilities District be affected by a hazardous substance, would be to reduce the marketability and value of the parcel by the costs of remedying the condition, because the owner (or operator) is obligated to remedy the condition. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling or disposing of it. All of these possibilities could significantly affect the financial and legal ability of a property owner to develop the affected parcel or other parcels, as well as the value of the property that is realizable upon a delinquency and foreclosure. The value of the property within the Community Facilities District, as set forth in the appraised values in the Appraisal Report, do not take into account the possible reduction in marketability and value of any of the parcels of Taxable Property by reason of the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the parcel. The Community Facilities District has not independently verified and is not aware that the owner (or operator) has such a current liability with respect to any of the parcels of Taxable Property, except as expressly noted. However, it is possible that such liabilities do currently exist and that the Community Facilities District is not aware of them. Further, it is possible that liabilities may arise in the future with respect to any of the parcels of Taxable Property 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 or disposing of it. All of these possibilities could significantly affect the value of a Taxable Property that is realizable upon a delinquency. Insufficiency of the Special Tax The principal source of payment of principal of and interest on the Bonds is the proceeds of the annual levyand collection of the Special Tax against property within the Community Facilities District. The annual levy of the Special Tax is subject to the annual maximum Special Tax rates authorized. The levy cannot be made at a higher rate even if the failure to do so means that the estimated proceeds of the levy and collection of the Special Tax, together with other available funds, will not be sufficient to pay debt service on the Bonds. Other funds which might be available include funds derived from the payment of penalties on delinquent Special Taxes and funds derived from the tax sale or foreclosure and sale of parcels on which levies of the Special Tax are delinquent. The levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of particular Taxable Property and the amount of the levy of the Special Tax against such parcels. Thus, there 37

46 will rarely, if ever, be a uniform relationship between the value of such parcels and the proportionate share of debt service on the Bonds, and certainly not a direct relationship. The Special Tax levied in any particular tax year on a Taxable Property is based upon the revenue needs and the application of the First Amended Rate and Method including the effects of the Minimum Special Tax Requirement. Application of the First Amended Rate and Method will, in turn, be dependent upon certain development factors with respect to each Taxable Property by comparison with similar development factors with respect to the other Taxable Property within the Community Facilities District. Thus, in addition to annual variations of the revenue needs from the Special Tax, the following are some of the factors which might cause the levy of the Special Tax on any particular Taxable Property to vary from the Special Tax that might otherwise be expected: (1) Reduction in the amount of Taxable Property, for such reasons as acquisition of Taxable Property by a government and failure of the government to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property; or (2) Failure of the owners of Taxable Property to pay the Special Tax and delays in the collection of or inability to collect the Special Tax by tax sale or foreclosure and sale of the delinquent parcels, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property. Except as set forth above under SECURITY FOR THE BONDS Special Taxes and First Amended Rate and Method herein, the Fiscal Agent Agreement provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described in SECURITY FOR THE BONDS Proceeds of Foreclosure Sales and in the Act, is subject to the same penalties and the same procedure, sale and lien priority in case of delinquencyas is provided for ad valorem property taxes. Pursuant to these procedures, if taxes are unpaid for a period of five years or more, the property is subject to sale by the County. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to Owners of the Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the Community Facilities District of the proceeds of sale if the Reserve Fund is depleted. See SECURITY FOR THE BONDS Proceeds of Foreclosure Sales. In addition, the First Amended Rate and Method limits the increase of Special Taxes levied on parcels of Developed Property to cure delinquencies of other property owners in the Community Facilities District. See SECURITY FOR THE BONDS First Amended Rate and Method herein. 38

47 Exempt Properties Certain properties are exempt from the Special Tax in accordance with the First Amended Rate and Method (see SECURITY FOR THE BONDS First Amended Rate and Method herein). In addition, the Act provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property within the Community Facilities District acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. It is possible that property acquired by a public entity following a tax sale or foreclosure based upon failure to pay taxes could become exempt from the Special Tax. In addition, although 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, the constitutionality and operation of these provisions of the Act have not been tested, meaning that such property could become exempt from the Special Tax. In the event that additional property is dedicated to the School District or other public entities, this additional property might become exempt from the Special Tax. The Act further provides that no other properties or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate or method of apportionment of an existing special tax. Depletion of Reserve Fund The Reserve Fund is to be maintained at an amount equal to the Reserve Requirement (see SECURITY FOR THE BONDS Reserve Fund herein). Funds in the Reserve Fund may be used to pay principal of and interest on the Bonds in the event the proceeds of the levy and collection of the Special Tax against property within the Community Facilities District is insufficient. If funds in the Reserve Fund for the Bonds are depleted, the funds can be replenished from the proceeds of the levy and collection of the Special Tax that are in excess of the amount required to pay all amounts to be paid to the Bondowners pursuant to the Fiscal Agent Agreement. However, no replenishment from the proceeds of a Special Tax levy can occur as long as the proceeds that are collected from the levy of the Special Tax against property within the Community Facilities District at the annual maximum Special Tax rates, together with other available funds, remains insufficient to pay all such amounts. Thus it is possible that the Reserve Fund will be depleted and not be replenished by the levy of the Special Tax. Potential Delay and Limitations in Foreclosure Proceedings The payment of property owners taxes and the ability of the Community Facilities 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 SECURITY FOR THE BONDS Proceeds of Foreclosure Sales and BONDOWNERS RISKS Bankruptcy and Foreclosure Delay herein. In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. The ability of the Community Facilities District to collect interest and penalties specified by State law and to foreclose against properties having delinquent Special Tax installments may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the FDIC ) has or obtains an interest. The FDIC would obtain such an interest by taking over a financial institution which has 39

48 made a loan which is secured by property within the Community Facilities District. See BONDOWNERS RISKS Payments by FDIC and Other Federal Agencies. Other laws generally affecting creditors rights or relating to judicial foreclosure may affect the ability to enforce payment of Special Taxes or the timing of enforcement of Special Taxes. For example, the Soldiers and Sailors Civil Relief Act of 1940 affords protections such as a stay in enforcement of the foreclosure covenant, a six-month period after termination of such military service to redeem property sold to enforce the collection of a tax or assessment and a limitation on the interest rate on the delinquent tax or assessment to persons in military service if the court concludes the ability to pay such taxes or assessments is materially affected by reason of such service. The Community Facilities District and the School District are unable to predict what effect the application of a policy statement by the FDIC regarding payment of state and local real property taxes would have in the event of a delinquency on a parcel within the Community Facilities District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would likely reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. In addition, potential investors should be aware that judicial foreclosure proceedings are not summary remedies and can be subject to significant procedural and other delays caused by crowded court calendars and other factors beyond the control of the Community Facilities District or the School District. Potential investors should assume that, under current conditions, it is estimated that a judicial foreclosure of the lien of Special Taxes will take up to two or three years from initiation to the lien foreclosure sale. At a Special Tax lien foreclosure sale, each parcel will be sold for not less than the minimum bid amount which is equal to the sum of all delinquent Special Tax installments, penalties and interest thereon, costs of collection (including reasonable attorneys fees), post-judgment interest and costs of sale. Each parcel is sold at foreclosure for the amounts secured by the Special Tax lien on such parcel and multiple parcels may not be aggregated in a single Abulk@ foreclosure sale. If any parcel fails to obtain a minimum bid, the Community Facilities District may, but is not obligated to, seek superior court approval to sell such parcel at an amount less than the minimum bid. Such superior court approval requires the consent of the Owners of 75% of the aggregate principal amount of the Outstanding Bonds. Delays and uncertainties in the Special Tax lien foreclosure process create significant risks for Bondowners. High rates of special tax payment delinquencies, which continue during the pendency of protracted Special Tax lien foreclosure proceedings, could result in the rapid, total depletion of the Reserve Fund prior to replenishment from the resale of property upon foreclosure. In that event, there could be a default in payment of the principal of and interest on the Bonds. See Concentration of Ownership above. Bankruptcy and Foreclosure Delay The payment of Special Taxes and the ability of the Community Facilities District to foreclose the lien of delinquent Special Taxes, as discussed in thesection herein entitled SECURITY FOR THE BONDS, may be limited by bankruptcy, insolvency, or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. In addition, the prosecution of a judicial foreclosure may be delayed due to congested local court calendars or procedural delays. 40

49 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. Although bankruptcy proceedings would not cause the obligation to pay the Special Tax to become extinguished, bankruptcy of a property owner or of a partner or other equity owner of a property owner, could result in a stay of enforcement of the lien for the Special Taxes, a delay in prosecuting superior court foreclosure proceedings or adversely affect the ability or willingness of a property owner to pay the Special Taxes and could result in the possibility of delinquent Special Taxes not being paid in full. In addition, the amount of any lien on property securing the payment of delinquent Special Taxes could be reduced if the value of the property were determined by the bankruptcy court to have become less than the amount of the lien, and the amount of the delinquent Special Taxes in excess of the reduced lien could then be treated as an unsecured claim by the court. Any such stay of the enforcement of the lien for the Special Tax, or any such delay or nonpayment, would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds and the possibility of delinquent Special Taxes not being paid in full. Moreover, amounts received upon foreclosure sales may not be sufficient to fully discharge delinquent installments. To the extent that a significant percentage of the property in the Community Facilities District is owned by any property owner, and such owner is the subject of bankruptcy proceedings, the payment of the Special Tax and the ability of the Community Facilities District to foreclose the lien of a delinquent unpaid Special Tax could be extremely curtailed by bankruptcy, insolvency, or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. 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. The court upheld the priority of unpaid taxes imposed after the filing of the bankruptcy petition as administrative expenses of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was to foreclose on the property and retain all of the proceeds of the sale except the amount of the prepetition taxes. According to the court s ruling, as administrative expenses, post-petition taxes would have to be paid, assuming that the debtor has 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 the Special Taxes levied after the filing of a petition in bankruptcy. Glasply is controlling precedent for bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Tax, the amount of Special Tax received from parcels whose owners declare bankruptcy could be reduced. 41

50 It should also be noted that on October 22, 1994, Congress enacted 11 U.S. C. Section 362(b)(18), which added a new exception to the automatic stay for ad valorem property taxes imposed by a political subdivision after the filing of a bankruptcy petition. Pursuant to this new provision of law, in the event of a bankruptcy petition filed on or after October 22, 1994, the lien for ad valorem taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bondowners should be aware that the potential effect of 11 U.S. C. Section 362(b)(18) on the Special Taxes depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem taxes for this purpose. Payments by FDIC and Other Federal Agencies The ability of the Community Facilities District to collect interest and penalties specified by State law and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to properties in which the Fannie Mae, Freddie Mac, Federal Deposit Insurance Corporation (the FDIC ), the Drug Enforcement Agency, the Internal Revenue Service or other similar federal governmental agencies has or obtains an interest. Specifically, with respect to the FDIC, on June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Property Taxes (the 1991 Policy Statement ). The 1991 Policy Statement was revised and superseded by new Policy Statement effective January 9, 1997 (the Policy Statement ). The Policy Statement provides that real 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 Community Facilities District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency on a parcel within the Community Facilities District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume that the Community Facilities District will be unable to collect Special Taxes or to foreclose on any parcel owned by the FDIC. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment on the Bonds. Based upon the secured tax roll as of January 1, 2006, the FDIC does not presently own anyof the property in the Community Facilities District. 42

51 The Community Facilities District expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are Outstanding. Mortgage Interests. Similarly, in the event a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or a private deed of trust secured by a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution ( 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 ), in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of taxable property 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. Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the Community Facilities 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. For a discussion of risks associated with taxable parcels within the Community Facilities District becoming owned by the federal government, Factors Affecting Parcel Values and Aggregate Value Geologic, Topographic and Climatic Conditions. The value of the Taxable Property in the Community Facilities District in the future can be adversely affected by a variety of additional factors, particularly those which may affect infrastructure and other public improvements and private improvements on the parcels of Taxable Property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes and volcanic eruptions, topographic conditions such as earth movements, landslides, liquefaction, floods or fires, and climatic conditions such as tornadoes, droughts, and the possible reduction in water allocation or availability. It is possible that one or more of the conditions referenced above may occur and may result in damage to improvements of varying seriousness, that the damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the Taxable Property may well depreciate or disappear. Seismic Conditions. The Community Facilities District, like all California communities, may be subject to unpredictable seismic activity. The occurrence of seismic activity in the Community Facilities District could result in substantial damage to properties in the Community Facilities District which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special Taxes. Any major damage to structures as a result of seismic activity could result in greater reliance on Undeveloped Property in the payment of Special Taxes. Legal Requirements. Other events which may affect the value of a parcel of Taxable Property in the Community Facilities District include changes in the law or application of the law. Such changes may include, 43

52 without limitation, local growth control initiatives, local utility connection moratoriums and local application of statewide tax and governmental spending limitation measures. No Acceleration Provisions 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 Fiscal Agent Agreement. Pursuant to the Fiscal Agent Agreement, a Bondowner is given the right for the equal benefit and protection of all Bondowners similarly situated to pursue certain remedies (see APPENDIX D Summary of Certain Provisions of the Fiscal Agent Agreement herein). So long as the Bonds are in book-entry form, DTC will be the sole Bondowner and will be entitled to exercise all rights and remedies of the Bondowners. Community Facilities District Formation California voters, on June 6, 1978, approved an amendment ( Article XIIIA ) to the California Constitution. Section 4 of Article XIIIA, requires a vote of two-thirds of the qualified electorate to impose special taxes, or any additional ad valorem, sales or transaction taxes on real property. At an election held within the Community Facilities District pursuant to the Act, more than two-thirds of the qualified electors within the Community Facilities District, consisting of the landowners within the boundaries of the Community Facilities District, authorized the Community Facilities District to incur bonded indebtedness to finance the Facilities and approved the First Amended Rate and Method. The Supreme Court of the State of California has not yet decided whether landowner elections (as opposed to resident elections) satisfy requirements of Section 4 of Article XIIIA, nor has the Supreme Court decided whether the special taxes of a community facilities district constitute a special tax for purposes of Article XIIIA. Section of the Act requires that any action or proceeding to attack, review, set aside, void or annul the levy of a special tax or an increase in a special tax pursuant to the Act shall be commenced within 30 days after the special tax is approved by the voters. No such action has been filed with respect to the Special Tax. Billing of Special Taxes A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn can lead to problems in the collection of the special tax. In some community facilities districts the taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the community facilities district. Under provisions of the Act, the Special Taxes are billed to the properties within the Community Facilities District which were entered on the Assessment Roll of the County Assessor by January 1 of the previous fiscal year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. These Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See SECURITY FOR THE BONDS Proceeds of Foreclosure Sales, for a discussion of the provisions which apply, and procedures which the Community Facilities District is obligated to follow, in the event of delinquencyin the payment of installments of Special Taxes. 44

53 Inability to Collect Special Taxes In order to pay debt service on the Bonds, it is necessary that the Special Tax levied against land within the Community Facilities District be paid in a timely manner. The Community Facilities District has covenanted in the Fiscal Agent Agreement under certain conditions to institute foreclosure proceedings against property with delinquent Special Tax in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were 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. In the event such superior court foreclosure is necessary, there could be a delay in principal and interest payments to the Owners of the Bonds pending prosecution of the foreclosure proceedings and receipt of the proceeds of the foreclosure sale, if any. 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. Although the Act authorizes the Board, as the Legislative Body of the Community Facilities District, to cause such an action to be commenced and diligently pursued to completion, the Act does not specify the obligations of the Board with regard to purchasing or otherwise acquiring any lot or parcel of property sold at the foreclosure sale if there is no other purchaser at such sale. See SECURITY FOR THE BONDS Proceeds of Foreclosure Sales. Right to Vote on Taxes Act An initiative measure commonly referred to as the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State of California at the November 5, 1996, general election. The Initiative added Article XIIIC ( 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 districts are subject to interpretation by the courts. 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 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. 45

54 It may be possible, however, for voters or the Community Facilities 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. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. 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. The Act also establishes time limits for initiating any challenge to the validity of special taxes levied pursuant to the Act and any challenge to the validity of bonds issued pursuant to the Act. Section of the Act provides that: Any action or proceeding to attack, review, set aside, void, or annul the levy of a special tax or an increase in a special tax pursuant to this chapter shall be commenced within 30 days after the special tax is approved by the voters. Any appeal from a final judgment in that action or proceeding shall be perfected within 30 days after the entry of judgment. Section of the Act provides that: An action to determine the validity of bonds issued pursuant to this chapter or the validity of any special taxes levied pursuant to this chapter may be brought pursuant to Chapter 9 (commencing with Section 860) of Title 10 of Part 2 of the Code of Civil Procedure but shall, notwithstanding the time limits specified in Section 860 of the Code of Civil Procedure, be commenced within 30 days after the voters approve the issuance of the bonds or the special tax if the action is brought by an interested person pursuant to Section 863 of the Code of Civil Procedure. Any appeal from a judgment in that action or proceeding shall be commenced within 30 days after entry of judgment. Based on the forgoing, with respect to any challenge to the validity of the Special Taxes or the Bonds, the District believes that under current State law the time for initiating any such challenge has expired. Like its antecedents, the Initiative is likely to undergo both judicial and legislative scrutiny before its impact on the Community Facilities District and its obligations can be determined. Certain provisions of the Initiative may be examined by the courts for their constitutionality under both State and federal constitutional law. For example, on August , in City of San Diego. v. Shapiro, an Appellate Court ruled that an election held by the City of San Diego to authorize the levying of special taxes on hotels City-wide pursuant to a City ordinance which created a convention center facilities district, and which specifically defined the electorate to consist solely of (1) the owners of real property in the City on which a hotel is located, and (2) the lessees of real property owned by a governmental entity on which a hotel is located, was invalid under the California Constitution because such landowners and lessees are neither qualified electors of the City for purposes of Articles XIII A, Section 4 of the California Constitution nor do they comprise a proper electorate under Article XIIIC, Section 2(d). The Court specifically noted that the decision did not require the Court to consider the distinct question of whether landowner voting to impose special taxes pursuant to Section 53326(b) of the Act is constitutional under Article XIII A, Section 4 and Article XIIIC, Section 2(d) in districts that lack sufficient registered voters to conductanelectionamongregisteredvoters, andthusdoesnotaffectthe validity of the levy of the Special Taxes by the Community Facilities District. In addition, the provisions of the Act described above that establish time limits for initiating any challenge to the validity of the Special Taxes levied pursuant to the Act or the issuance of Bonds pursuant to the Act described above would provide obstacles to any party which sought to present a legal challenge to the validity of the Special Taxes or the Bonds based on the City of San Diego v. Shapiro case. The Community Facilities District is not able to predict 46

55 the outcome of any examination of the Initiative in relation to community facilities districts formed under the Act. The foregoing discussion of the Initiative, and related matters, should not be considered an exhaustive or authoritative treatment of such issues. The Community Facilities District does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of the Initiative on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of the Initiative. Ballot Initiatives and Legislative Measures The Initiative was adopted pursuant to a measure 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. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the State Legislature. The adoption of any such initiative or enactment of legislation might place limitations on the ability of the State, the County, the School District or local districts to increase revenues or to increase appropriations or on the ability of a property owner to complete the development of the property. 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 School District and the Community Facilities District have 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. The failure to provide the required annual financial information 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 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. Loss of Tax Exemption As discussed under the caption LEGAL MATTERS Tax Exemption, the interest on the Bonds could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds as a result of an act or omission of the Community Facilities District and the School District in violation of certain provisions of the Code and the covenants of the Fiscal Agent Agreement. In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the Community Facilities District has covenanted in the Fiscal Agent Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of theinternal RevenueCodeof 1986, as amended. 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 acts or omissions of the Community Facilities District in violation of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain Outstanding to maturity or until redeemed under the optional redemption or mandatory sinking fund redemption provisions of the Fiscal Agent Agreement. See THE BONDS Redemption. 47

56 IRS Audit of Tax-Exempt Bond Issues The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of taxexempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar bonds). Impact of Legislative Proposals, Clarifications of the Code and Court Decisions on Tax Exemption 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 Owners of the Bonds from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may also affect the market price for, liquidity of or marketability of, the Bonds. In 2013 and 2014, legislative changes were proposed in Congress that, if enacted, would result in additional federal income tax being imposed on certain owners of tax-exempt state or local obligations such as 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 as to which Bond Counsel expresses no opinion. As discussed in this Official Statement, under the caption LEGAL MATTERS, 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 Community Facilities District in violation of its covenants in the Fiscal Agent Agreement. Should such an event of taxability occur, the Bonds are not subject to special redemption or acceleration and will remain outstanding until maturity or until redeemed under one of the other redemption provisions contained in the Fiscal Agent Agreement. Backup Withholding Interest paid with respect to tax-exempt obligations such as the Bonds is subject to information reporting to the IRS in a manner similar to interest paid on taxable obligations. In addition, interest with respect to the Bonds may be subject to backup withholding if such interest is paid to a registered owner that (a) fails to provide certain identifying information (such as the registered owner s taxpayer identification number) in the manner required by the IRS, or (b) has been identified by the IRS as being subject to backup withholding. Limitations on Remedies Remedies available to the Bondowners 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 the Bonds. See Payments by FDIC and other Federal Agencies, No Acceleration Provisions and Billing of Special Taxes herein. The Board has not evaluated the foregoing risks. Since these are largely business risks of the type that landowners customarily evaluate individually, and inasmuch as changes in land ownership may well mean changes in the evaluation with respect to any particular parcel of Taxable Property, the Board has undertaken financing of the acquisition and construction of the Facilities without regard to any such evaluation, as an incident to the orderly, planned development of the project site. Thus, formation of the Community Facilities District by the Board in no way implies that the Board has 48

57 evaluated these risks or the reasonableness of these risks, but to the contrary, the Board has made no such evaluation and is undertaking acquisition and construction of the Facilities even though such risks may be serious and may ultimately halt or slow the progress of land development and forestall the realization of Taxable Property values. Legal Opinion LEGAL MATTERS The legal opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, approving the validity of the Bonds will be made available to purchasers at the time of original delivery and is attached hereto as Appendix F. A copy of the legal opinion will be printed on each Bond. McFarlin & Anderson LLP, Laguna Hills, California is serving as Disclosure Counsel. Bowie, Arneson, Wiles & Giannone will also pass upon certain legal matters for the School District and the Community Facilities District as Special Counsel to these entities. Tax Exemption In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however, to the qualifications described herein, under existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In the further opinion of Bond Counsel, interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations; although Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liabilities. The opinions of Bond Counsel set forth in the preceding paragraph are subject to the condition that the Community Facilities District complies with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Community Facilities District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. The Fiscal Agent Agreement and other related documents refer to certain requirements, covenants and procedures that may be changed and certain actions that may be taken, upon the advice or with an approving opinion of nationally recognized bond counsel. No opinion is expressed by Bond Counsel as to the effect on any Bond or any interest thereon if such change is made or action is taken upon the advice and approval of counsel other than Bond Counsel. Bond Counsel expresses no other opinion regarding or concerning any other tax consequences relating to the ownership or disposition of the accrual or receipt of interest on the Bonds. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income taxation. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on the Bonds may have federal or state tax consequences other than as described 49

58 above. Bond Counsel expresses no opinion regarding or concerning any other tax consequences relating to the ownership or disposition of the accrual or receipt of interest on the Bonds other than as expressly set forth above. See Appendix F for the proposed form of the opinion of Bond Counsel. Bond Counsel s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the School District or the Community Facilities District, as applicable, or the Owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the Internal Revenue Service. Under current procedures, parties other than the School District or the Community Facilities District, as applicable, and their respective appointed counsel, including the Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt Bonds is difficult, obtaining an independent review of Internal Revenue Service positions with which the Community Facilities District legitimately disagrees may not be practicable. An action of the Internal Revenue Service, including but not limited selection of the Bonds for audit, or the course or result of such audit, or an audit of the Bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Community Facilities District, School District, as applicable, or the Owners to incur significant expense. Original Issue Discount; Premium Bonds To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each Owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semi-annually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption or payment on maturity) of such Bonds. Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of the Bonds with original issue discount, including the treatment of purchasers who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. The Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a purchaser s basis in a Premium Bond, and under United States Treasury Regulations, the amount of tax-exempt interest received will be reduced by the amount of amortizable bond premium properly allocable to such purchase. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. 50

59 Absence of Litigation No litigation is pending or threatened concerning the validity of the Bonds. There is no action, suit or proceeding known by the Community Facilities District or the School District to be pending at the present time restraining or enjoining the delivery of the Bonds or in any way contesting or affecting the validity of the Bonds or any proceedings of the Community Facilities District or the School District taken with respect to the execution thereof. A no litigation certificate executed by the School District on behalf of the Community Facilities District will be delivered to the Underwriter simultaneously with the delivery of the Bonds. No General Obligation of School District or Community Facilities District The Bonds are not general obligations of the School District or the Community Facilities District, but are limited obligations of the Community Facilities District payable solely from the Net Taxes and certain proceeds of the Bonds, includingamountsinthereservefund, thespecialtaxfundandthebondfundand investment income on certain funds held pursuant to the Fiscal Agent Agreement (other than as necessary to be rebated to the United States of America pursuant to Section 148(f) of the Code and any applicable regulations promulgated pursuant thereto). Any tax levied for the payment of the Bonds shall be limited to the Special Taxes to be collected within the jurisdiction of the Community Facilities District. NO RATINGS The Bonds have not been rated by any securities rating agency. UNDERWRITING The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated at a purchase price of $4,238, (which represents the aggregate principal amount of the Bonds of $4,355,000.00, less a net original issue discount of $39, and less an underwriter s discount of $76,212.50). The purchase agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase agreement. The Underwriter may offer and sell Bonds to certain dealers and others at prices lower than the offering price stated on the cover page hereof. The offering prices may be changed from time to time by the Underwriter. PROFESSIONAL FEES Fees payable to certain professionals, including the Underwriter, Nossaman LLP, as Underwriter s Counsel, McFarlin & Anderson LLP, as Disclosure Counsel, Bowie, Arneson, Wiles & Giannone, as Bond Counsel, Fieldman, Rolapp & Associates, as Financial Advisor, and U.S. Bank National Association, as the Fiscal Agent, are contingent upon the issuance of the Bonds. The fees of Special District Financing & Administration, LLC, as Special Tax Consultant and Dissemination Agent, are in part contingent upon the issuance of the Bonds. The fees of Kitty Siino & Associates, Inc., as Appraiser, are not contingent upon the issuance of the Bonds. 51

60 MISCELLANEOUS References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statement of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representatives of fact. This Official Statement is not to be construed as a contract or agreement between the Community Facilities District and the purchasers or Owners of any of the Bonds. The execution and delivery of the Official Statement by the Community Facilities District has been duly authorized by the Temecula Valley Unified School District on behalf of the Community Facilities District. COMMUNITY FACILITIES DISTRICT NO OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT By: /s/ Lori Ordway-Peck Lori Ordway-Peck, Assistant Superintendent of Business Support Services, Temecula Valley Unified School District, on behalf of Community Facilities District No of the Temecula Valley Unified School District 52

61 APPENDIX A GENERAL INFORMATION ABOUT THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT General Information The Temecula Valley Unified School District (the School District ), a political subdivision of the State of California, was organized as a unified school district of the State of California (the State ) in 1989 and provides public education for grades kindergarten through twelve within an area of approximately 213 square miles located in the southwest portion of Riverside County (the County ). As of June 24, 2014, for Fiscal Year , the School District maintained 31 school facilities, including 17 elementary schools with an enrollment of approximately 12,217, 6 middle schools with an enrollment of approximately 6,445, 3 comprehensive high schools with an enrollment of approximately 9,423, and 3 alternative education programs with an enrollment of approximately 178, 1 continuation high school with an enrollment of approximately 224, a K-12 preparatory school with an enrollment of approximately 1,047, a K-8 charter school with an enrollment of approximately 496 and non-public schools with an enrollment of approximately 35. Total enrollment was approximately 30,065 students as of the California Basic Educational Data System ( CBEDS ) of October 6, Governing Board The School District is governed by a five-member Governing Board (the Board ), each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions. The management and policies of the School District are administered by a Superintendent appointed by the Board who is responsible for day-to-day School District operations, as well as the supervision of the School District s other personnel. Mr. Timothy Ritter was appointed Superintendent effective July See Key Personnel herein. If a Board vacancy arises during any term, the vacancy is filled by an appointment by a majority vote of the remaining Board members and, if there is no majority, by a special election. The following table sets forth each Board member s name, position and term expiration date. TEMECULA VALLEY UNIFIED SCHOOL DISTRICT GOVERNING BOARD Name Position Term Expires Vincent O Neal President December 2014 Dr. Allen Pulsipher Clerk December 2016 Richard Shafer Member December 2014 Robert Bob Brown Member December 2014 Dr. Kristi Rutz-Robbins Member December 2016 Source: Temecula Valley Unified School District. A-1

62 Key Personnel The Superintendent of the School District is appointed by the Board and reports to the Board. The Superintendent is responsible for management of the School District s day-to-day operations of and supervises the work of other District administrators and supervisors. A brief background of the Superintendent and key administrative personnel are set forth herein. Mr. Timothy Ritter, Superintendent. Mr. Timothy Ritter was appointed as Superintendent effective July 1, Mr. Ritter began his career in education in 1985 as a high school Biology teacher for the Chaffey Joint Union High School District. He obtained his Bachelor of Science degree in Biology from Cal Poly Pomona and holds Master s Degrees in Biology and Education from Cal State San Bernardino. Mr. Ritter began his administrative career with the School District in 2001, when he was named Principal of Chaparral High School. In 2004, he was appointed Principal of the newly opened Great Oak High School. In 2007, Mr. Ritter was promoted to Assistant Superintendent of Educational Support Services (ESS) and a year later to Deputy Superintendent of ESS. After leading the ESS division for three years, Mr. Ritter waspromoted tosuperintendent. In May2013, Mr. Ritter was named Certificated Administrator of the Year by the Riverside County Office of Education. Ms. Jodi McClay, Assistant Superintendent, Educational Support Services. Ms. McClay graduated from Chapman University in Orange in 1991 and received a bachelor s degree in legal studies, as well as her multiple-subject teaching credential. She earned a master s degree and administrative credential from Chapman University in 1991 and 1993, respectively. In 2010, Ms. McClay was appointed as the Assistant Superintendent of Educational Support Services in the School District and was honored as the Riverside County Certificated Administrator of the Year. Prior to that, she served as Director of Curriculum, Instruction and Assessment K-12, Principal of Nicolas Valley Elementary School, and Assistant Principal at Rancho Elementary, all within the School District. Before coming to the School District, Ms. McClay was a mentor teacher in a multi-age classroom, grades K-3 for the Lake Elsinore Unified School District. Ms. McClay is the author of eight books about teaching theories and classroom learning, and has lectured on those subjects to school districts throughout the country. Ms. McClay is the author of eight books about teaching theories and classroom learning, and has lectured on those subjects to school districts throughout the country. Mrs. Lori Ordway-Peck, Assistant Superintendent, Business Support Services. Mrs. Ordway-Peck holds a Master s Degree in Business Administration from Claremont Graduate School. Mrs. Ordway-Peck was hired as the Assistant Superintendent, Business Support Services in December Mrs. Ordway-Peck came to the School District with 20 years of education experience that includes work in business, accounting, risk management and negotiations. Prior to joining the School District, Mrs. Ordway-Peck served as the Assistant Business Superintendent for the Burbank Unified School District for more than three years. Previously, she served as Deputy Superintendent for the Palmdale School District for two years and as Assistant Business Superintendent for the Westside Union School District for the prior eight years. A-2

63 Population Separate population statistics are not maintained for the School District. The School District believes that the statistics for the City of Temecula area are indicative of population trends within the School District. POPULATION CALENDAR YEARS 2005 THROUGH 2014 Calendar Year City of Temecula County of Riverside State of California ,808 1,895,695 35,869, ,120 1,975,913 36,116, ,122 2,049,902 36,399, ,332 2,102,741 36,704, ,741 2,140,626 36,966, ,757 2,179,692 37,223, ,255 2,205,731 37,427, ,404 2,234,209 37,668, ,907 2,255,653 37,984, ,289 2,279,967 38,340,074 Source: State of California, Department of Finance, as of January 1, based on a 2010 Benchmark. Average Daily Attendance and Growth The School District has experienced growth and then decline in enrollment and new residential construction over the past 10 years. From Fiscal Year to Fiscal Year , average attendance declined by approximately 18.78%. The following table sets forth the average daily attendance in the School District for the Fiscal Years as described in the table heading. A-3

64 TEMECULA VALLEY UNIFIED SCHOOL DISTRICT AVERAGE DAILY ATTENDANCE FISCAL YEARS THROUGH Fiscal Year Average Daily Attendance % Increase/ Decrease , , , , , ,516 (0.79) ,347 (0.61) ,780 (2.07) ,652 (4.21) ,089 (6.09) 2014 * 22,163 (8.00) * Estimated, Budget. Source: California Department of Education, EdData. Employees As of June, 2014, the School District employed approximately 1,274 certificated employees and approximately 1,259 classified employees. The following table sets forth the number of certificated and classified employees (both full-time and part-time) employed bythe SchoolDistrictforFiscalYears through Fiscal Year TEMECULA VALLEY UNIFIED SCHOOL DISTRICT DISTRICT EMPLOYEES FISCAL YEARS THROUGH Certificated Employees Classified Employees Total Employees , , ,235 1,014 2, ,302 1,088 2, ,395 1,213 2, ,408 1,282 2, ,395 1,258 2, ,394 1,249 2, ,293 1,241 2, ,331 1,282 2, ,277 1,265 2, ,274 1,259 2,634 Source: California Department of Education, EdData. A-4

65 APPENDIX B FIRST AMENDED RATE AND METHOD OF APPORTIONMENT OF THE SPECIAL TAX TEMECULA VALLEY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO

66 [THIS PAGE INTENTIONALLY LEFT BLANK]

67 FIRST AMENDED RATE AND METHOD OF APPORTIONMENT OF THE SPECIAL TAX TEMECULA VALLEY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO The Governing Board ("Board") of the Temecula Valley Unified School District ("District"), acting as the Legislative Body of Community Facilities District No ("CFD") of the Temecula Valley Unified School District, shall levy and collect special taxes ("Special Taxes") applicable to each Assessor's Parcel (as defined below) of Taxable Property located within the boundaries of the CFD. The Special Taxes will be levied as herein specified. All property located within the boundaries of the CFD shall be taxed, to the extent and in the manner herein set forth, unless exempted by law or as herein provided. Section 1. Definitions The following terms shall, unless otherwise defined herein, have the meaning(s) set forth below: "Acre(s)" applies only to Undeveloped Property and means the acreage of an Assessor's Parcel as set forth on the most current Riverside County assessor's map if such acreage is shown thereon. If such acreage is not shown on such map, the acreage shall be the acreage information shown upon any recorded subdivision map, parcel map, record of survey, or other recorded document describing the property. If none of the above information is available, or is in conflict, the determination of the acreage shall be made by the District on behalf of the CFD. "Act" means the Mello-Roos Community Facilities Act of 1982, as amended, being Section 53311, et seq. of the California Government Code. "Administrative Expense" means any actual or estimated ordinary and necessary expense incurred by the CFD or the District on behalf of the CFD related to the determination, tracking, levy and collection of Special Taxes including, but not limited to, the expenses of collecting delinquencies, the administration of Bonds, the appropriate allocation of salaries and benefits of any District employee whose duties are directly related to the administration of the CFD, and costs otherwise incurred in order to carry out the authorized purposes of the CFD, including, not by way of limitation, applicable legal costs. "Annual Maximum Special Taxes" means the Annual Maximum Special Tax - Developed Property and the Annual Maximum Special Tax - Undeveloped Property which may be levied annually as described herein. FINAL 11/17/2011 CFD Page 1

68 "Annual Maximum Special Tax - Developed Property" means the maximum Special Tax which may be annually levied on an Assessor's Parcel that has been classified as Developed Property. The Annual Maximum Special Tax - Developed Property is not subject to the Index. "Annual Maximum Special Tax - Undeveloped Property" means the maximum Special Tax which may be annually levied on an Assessor's Parcel that has been classified as Undeveloped Property as described in Section 3(B). The Annual Maximum Special Tax - Undeveloped Property is not subject to the Index. "Assessor's Parcel" means a parcel of land as designated on an official map of the County Assessor and for which a discrete identifying parcel number has been assigned. "Available Funds" means the following sources in those Fiscal Years in which the levy of Special Taxes on Undeveloped Property is required to satisfy the Special Tax Requirement. These sources are (i) earnings from investment of funds in the reserve fund in excess of the reserve requirement and (ii) Special Taxes and the proceeds of collections of delinquent Special Taxes through foreclosure proceedings or otherwise not required to fund Administrative Expenses, replenish the reserve fund or pay past due debt service. "Board" means the Governing Board of the District. "Bonds" means bonds or equivalent securities authorized and issued or to be issued on behalf of the CFD, including but not limited toj. certificates of participation or leases issued and sold by or on behalf of the CFD or which are to be funded by proceeds of Special Taxes of the CFD, or to which all or a portion of the Special Taxes have been pledged to finance or construct School Facilities. "Building Square Footage" means for any Assessor's Parcel of Residential Property the square footage of each Dwelling Unit determined by calculating the habitable space of the improvement (exclusive of garages, carports, overhangs or patios). For purposes of this determination, the CFD may rely on the square footage as identified on the building permit(s) issued by the applicable issuing agency. The Building Square Footage will be based upon the building permit(s) issued for each Dwelling Unit prior to it being classified as Occupied Residential Property, and shall not change as a result of additions or modifications made after such classification as Occupied Residential Property. "Certificate of Compliance" means the document prepared by the District or other public agency and signed off by the District to allow for the issuance of a building permit pursuant to Education Code or any successor section thereto. "CFD" means Community Facilities District No of the Temecula Valley Unified School District. "County" means the County of Riverside. FINAL 11/17/2011 CFD Page 2

69 "Developed Property" means Assessor Parcels for which a building permit has been issued by the applicable agency on or before the March 1 prior to each Fiscal Year which is not Exempt Property and for which the Annual Maximum Special Tax - Developed Property obligation has not been fully prepaid and/or permanently satisfied. Assessor Parcels for which a building permit has been issued by the applicable agency on or before March 1 shall be designated as Developed Property and subject to the levy of the Annual Maximum Special Tax - Developed Property in the following Fiscal Year. If a building permit has been issued for which the improvements to be constructed by the building permit together with previously issued building permits, if applicable, does not constitute the ultimate development of the entire Assessor's Parcel, as reasonably determined by the CFD, the remaining undeveloped portion of the Assessor's Parcel will be classified as Undeveloped Property and will be subject to the levy of the Annual Maximum Special Tax - Undeveloped Property as herein provided. "District" means the Temecula Valley Unified School District. "Dwelling Unit" means one residential unit of any configuration, including, but not limited to, a single family attached or detached dwelling unit, Second Dwelling Unit, condominium, an apartment unit, mobile home, or otherwise, but excludes therefrom hotels and motels. "Exempt Property" means all Assessor Parcels which are exempt from the Special Tax pursuant to law or Section 8, hereof. "Fiscal Year" means the period of time commencing on July 1 of any year and ending the following June 30. "Index" means the Marshall and Swift Class "0" Wood Frame Construction Cost Index as shown in the index titled, "Current Building Cost Indexes, Western Division, Class on for the month of January or such other index as the Board shall determine if the Index herein ceases publication. The Index shall be utilized as prescribed in Section 4 to calculate the escalation of the One-Time Special Tax - Developed Property - Mitigation Payment Index. "Land Use Classification" means the land use classifications listed in Table 1. "Mitigation Payment" means (i) through and including February 28, 2015, an amount per Dwelling Unit of $12,894 and (ii) on and after March 1, 2015, an amount per Dwelling Unit of $12,894 as annually escalated as prescribed in Section 4. "Non-Residential Property" means property within the CFD for which a Certificate of Compliance is requested or has been issued for the purpose of constructing commercial (including hotels and motels), industrial or any other non-residential use. "Occupied Residential Property" means all Assessor's Parcels of Residential Property which have closed escrow to an end user (homeowner) for the first time. FINAL 11/17/2011 CFD Page 3

70 "One-Time Special Tax - Developed Property - Mitigation Payment Index" means the Special Tax which may be levied at the time of issuance of a Certificate of Compliance pursuant to Section 4. "Residential Property" means property for which a Certificate of Compliance is requested or has been issued for the purpose of constructing one or more Dwelling Units. "School Facilities" means the design, planning, acquisition, installation, construction and/or financing of interim and permanent facilities, including, but not limited to, classrooms, multi-purpose, administration and auxiliary space at a school, central support and administrative facilities and special education facilities, together with furniture, equipment and technology, in addition to all land or interests in land required for the construction of such on-site or off-site facilities and all land or interests in land required to be provided by the District as mitigation of impacts associated with the development of such School Facilities all with a useful life of five years or longer. "Second Dwelling Unit" means a Dwelling Unit that is determined by the criteria of the County from time to time to be classified as a second dwelling unit. The requirements are 1) the unit is a detached secondary building, and 2) the unit is larger than 1/50 th of the entire parcel, and 3) the unit has its own cooking facilities. Second Dwelling Units are subject to the Annual Maximum Special Tax - Developed Property as classified in Table 1 and Table 2. "Special Tax" or "Special Taxes" means the special tax to be levied in each Fiscal Year on each Assessor Parcel of Developed Property and Undeveloped Property pursuant to Section 3, and the One-Time Special Tax - Developed Property - Mitigation Payment Index collected pursuant to Section 4, if any, of this First Amended Rate and Method of Apportionment. "Special Tax Requirement" means the total amount required in any Fiscal Year to: (1) Pay annual debt service on all then outstanding Bonds, (2) Pay periodic costs on the Bonds including, but not limited to, credit enhancement and rebate payments on the Bonds, (3) Pay Administrative Expenses, (4) Pay any amounts required to replenish any reserve fund related to all then-outstanding Bonds, and (5) Pay for pay-as-you-go School Facilities, less (6) Available Funds. The addition of any of the amounts added pursuant to item (5) is only to the extent that it does not increase or cause the levy of the Annual Maximum Special Tax - Undeveloped Property. "Taxable Property" means all Assessor Parcels, except Exempt Property, that are subject to the levy of the Special Taxes. "Undeveloped Property" means ai/ Assessor Parcels that are not classified as Developed Property or Exempt Property. FINAL 11/17/2011 CFD Page 4

71 Section 2. Assignment to Land Use Classifications The CFD shall annually classify all Assessor Parcels within the boundaries of the CFD as Developed Property, Undeveloped Property or Exempt Property. Such classification shall be made on or before July 1 of each year. All Developed Property shall be assigned to one of the applicable designated Land Use Classifications listed in Table 1 and taxed as set forth in Table 2. For purposes of this determination, the CFD may rely on the Building Square Footage as identified on the building permit(s) issued by the applicable issuing agency. Undeveloped Property shall be taxed as set forth in Section 3(B) below. Land Use Classification Table 1 Land Use Classifications for Developed Property Type of Development Description Building Square Footage 1 Residential Dwelling Unit Less than 2,000 square feet 2 Residential Dwelling Unit 2,000 to 2,249 square feet 3 Residential Dwelling Unit 2,250 to 2,499 square feet 4 Residential Dwelling Unit 2,500 to 2,749 square feet 5 Residential Dwelling Unit 2,750 to 2,999 square feet 6 Residential Dwelling Unit 3,000 to 3,249 square feet 7 Residential Dwelling Unit 3,250 to 3,499 square feet 8 Residential Dwelling Unit 3,500 square feet or greater Section 3. Annual Maximum Special Taxes A. Annual Maximum Special Tax - Developed Property The Annual Maximum Special Tax - Developed Property for each Assessor Parcel classified as Developed Property shall be the amount determined by reference to Table 2 as applicable. FINAL 11/17/2011 CFD Page 5

72 Table 2 Annual Maximum Special Tax - Developed Property Per Land Use Classification Land Use Classification Annual Maximum Special Tax - Developed Property 1 $1, Qer Dwelling Unit 2 $1, per Dwelling Unit 3 $1, J:>er Dwelling Unit 4 $1, per Dwelling Unit 5 $1, per Dwelling Unit 6 $1, per Dwelling Unit 7 $1, per Dwelling Unit 8 $1, per Dwelling Unit B. Annual Maximum Special Tax - Undeveloped Property The Annual Maximum Special Tax - Undeveloped Property for each Assessor Parcel classified as Undeveloped Property shall be $11, per Acre. Section 4. One-Time Special Tax - Developed Property - Mitigation Payment Index Commencing March 1, 2015, the One-Time Special Tax - Developed Property - Mitigation Payment Index is to be collected at the issuance of each Certificate of Compliance for each Dwelling Unit within the CFD. The effective Mitigation Payment is calculated by multiplying the then current Mitigation Payment by the percentage increase, if any, in the Index determined annually on or before each March 1 st. The percentage increase applicable on March 1, 2015, if any, is determined by calculating the change in the Index as published for the January 2015 I ndex from the January 2014 Index. The percentage increase is annually calculated in the same manner for the same twelve month period (i.e. January to January) on March 1 of each year following. The One Time Special Tax - Developed Property - Mitigation Payment Index due at the time of Certificate of Compliance is equal to the current Mitigation Payment less $12,894. Section 5. Levy of the Special Tax Commencing in Fiscal Year , the Board shall levy the Annual Maximum Special Tax - Developed Property on each Assessor's Parcel which is classified as Developed Property. If additional monies are needed to satisfy the Special Tax Requirement after FINAL 11/17/2011 CFD Page 6

73 Bonds have been issued and after taking into account monies to be levied on Developed Property pursuant to the preceding sentence, the Board shall then levy such additional amount by proportionately levying the Annual Maximum Special Tax - Undeveloped Property on each Assessor's Parcel which is classified as Undeveloped Property up to 100% of the Annual Maximum Special Tax - Undeveloped Property for such Undeveloped Property. Under no circumstances shall Special Taxes be levied on Undeveloped Property prior to the issuance of Bonds and, once Bonds are issued, the total amount of the Special Tax levied on Assessor Parcels or portions thereof classified as Undeveloped Property for a Fiscal Year shall not exceed 20% of the Special Tax Requirement for such Fiscal Year. Section 6. Partial Prepayment of the Annual Maximum Special Tax - Developed Property A property owner may make a one-time election to prepay a portion of the Annual Maximum Special Tax - Developed Property on an Assessor Parcel for which a Building Permit has been issued or a Certificate of Compliance is requested by notifying the District in writing of such intention no less than thirty (30) calendar days prior to such Assessor Parcel initially being classified as a Occupied Residential Property. The written notification shall include such owner's intent to partially prepay the Annual Maximum Special Tax - Developed Property, the date the Assessor Parcel is expected to be classified as a Occupied Residential Property, a copy of the final map, the acres of each lot, the lot number(s) and Assessor Parcel Number(s) for which partial prepayment is requested, the Building Square Footage of the Dwelling Unit(s) and the percentage by which the Annual Maximum Special Tax - Developed Property shall be prepaid. If partial prepayment is requested on a limited number of Assessor Parcels of a group which will be requesting Certificates of Compliance, the above required information must be supplied on all Assessor Parcels which will be requesting Certificates of Compliance. The partial prepayment formula per dwelling unit is defined as follows: Partial Prepayment Formula per Dwelling Unit: PP = (PVT x PCT) + F + RP The variables are defined as: PP, meaning the partial prepayment amount per Dwelling Unit. PVT, meaning the present value of the current Annual Maximum Special Tax - Developed Property using a 6.00% interest rate, prior to the issuance of Bonds, and a term of 35 years. After the issuance of Bonds the interest rate used to calculate the present value will be based on the lesser of 6.0% or the average coupon on the Bonds. PCT, meaning the partial prepayment percent. F, meaning all prepayment fees, and RP, meaning redemption premium on the Bonds, if applicable. The partial prepayment percent shall be indicated in the notification described above. The District administrator shall provide the owner with a statement of the amount required per Dwelling Unit for the partial prepayment of the Annual Maximum Special Tax - Developed Property within ten (10) business days of the request and may charge a reasonable fee for providing this service. The payment of the partial prepayment of the Annual Maximum Special Tax - Developed Property is payable only by cashier's FINAL 11/17/2011 CFD Page 7

74 check, money order or wire transfer and must be received prior to the property initially being classified as Occupied Residential Property. Notwithstanding the foregoing, no partial prepayment will be allowed unless the amount of the authorized Annual Maximum Special Taxes that may be levied on all Taxable Property within the CFD after the proposed partial prepayment is at least 1.1 times the annual debt service on the then-outstanding Bonds. Partial prepayment will not adjust the current Fiscal Year levy as denoted by the receipt of funds. Section 7. Prepayment of the Annual Maximum Special Tax - Developed Property An Assessor Parcel classified as Developed Property which is subject to the Annual Maximum Special Tax - Developed Property may prepay the entire outstanding Special Tax obligation at any time. The prepayment formula per Dwelling Unit is defined as follows: Prepayment Formula: P = PVT + F + RP The variables are defined as: P, meaning the prepayment amount, PVT, meaning the present value of taxes, F, meaning all prepayment fees, and RP, meaning redemption premium on the Bonds if applicable. The PVT or present value of taxes means the present value of the Annual Maximum Special Tax - Developed Property applicable to the Assessor Parcel in each remaining Fiscal Year that such Special Taxes may be levied subsequent to the Fiscal Year in which the calculation is made. The present value of the Annual Maximum Special Tax - Developed Property is calculated by using an interest rate of 6.0% prior to the issuance of Bonds. After the issuance of Bonds the interest rate used to calculate the present value will be based on the lesser of 6.0% or the average coupon on the Bonds. The remaining Fiscal Years, or the term for the present value calculation, is calculated by subtracting the number of years, including the present Fiscal Year, the Assessor Parcel has been subject to the Annual Maximum Special Tax - Developed Property from thirty-five (35). The current year's Special Taxes must be paid directly to the County and will not be accepted by the District with the prepayment. Prepayment fees or F means the fees of the District, the fiscal agent and any consultants retained by the District in connection with the prepayment calculations and redemption of the Bonds. Redemption premium on the Bonds or RP means a prepayment premium as set forth in the Bond issuance documents for a mandatory redemption of the Bonds as of the prepayment date (if any). Bonds shall be redeemed in a manner such that the yield on the Bonds outstanding after the completion of the prepayment is as close as possible to the original yield on all of the Bonds. FINAL 11/17/2011 CFD Page 8

75 Prepayments must be received prior to June 1 to be effective in the following Fiscal Year. In addition, any property owner prepaying his or her Annual Maximum Special Tax - Developed Property must also pay the present Fiscal Year levy and all delinquent Special Taxes, interest and penalties, if any, owing on the Assessor Parcel to the County of Riverside on which prepayment is being made. Notwithstanding the foregoing, no prepayment will be allowed unless the amount of the authorized Annual Maximum Special Taxes that may be levied on all Taxable Property within the CFD after the proposed prepayment is at least 1.1 times the annual debt service on the then-outstanding Bonds. Prepayment will not adjust the current Fiscal Year levy as denoted by the receipt of funds. Section 8. Limitations The CFD shall not levy any Special Taxes on properties conveyed or irrevocably dedicated to a public agency, land which is in the public right-of-way, unmanned utility easements which make utilization for other than the purpose set forth in the easement impractical, common areas, homeowners association property, private streets, school, parks, and open space lots. Except as set forth above, the Board shall not levy any Special Taxes on properties which are owned by the State of California, Federal or other local governments, except as otherwise provided in Sections and of the Act. Nonresidential Property shall not be subject to the levy of Special Taxes but are subject to applicable statutory fees. Section 9. Manner of Collection The Annual Maximum Special Taxes will be collected in the same manner and at the same time as ordinary ad valorem real property taxes. The Annual Maximum Special Taxes shall be subject to the same penalties, procedures, sale and lien priority in any case of delinquency as provided for with ad valorem taxes. The collection of the Annual Maximum Special Taxes shall otherwise be subject to the provisions of the Act. The Board reserves the power to provide for alternative means of collection of Special Taxes as permitted by the Act. Section 10. Term of the Special Taxes The Annual Maximum Special Tax - Developed Property shall be levied for a period not to exceed thirty-five (35) years for each Dwelling Unit classified as Developed Property. FINAL 11/17/2011 CFD Page 9

76 Section 11. Review/Appeals Panel The Board shall establish, as part of the proceedings and administration of CFD No , a Review/Appeals Panel. Any landowner who feels that the amount of the Special Tax, as to his or her Assessor's Parcel(s), is in error may file a notice with the Review/Appeals Panel appealing the amount of the levy. The Review/Appeals Panel shall interpret this First Amended Rate and Method of Apportionment of the Special Taxes and make determinations relative to the annual administration of the Special Taxes and any landowner appeals, as herein specified. The time period used for calculating any refund shall be limited to the current fiscal year of the appeal. FINAL 11/17/2011 CFD Page 10

77 APPENDIX C APPRAISAL REPORT

78 [THIS PAGE INTENTIONALLY LEFT BLANK]

79 SUMMARY APPRAISAL REPORT COMMUNITY FACILITIES DISTRICT NO OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT French Valley, Unincorporated Riverside County, California (Appraisers File No ) Prepared For Temecula Valley Unified School District Ranch Vista Road Temecula, California Prepared By Kitty Siino & Associates, Inc. 115 East Second Street, Suite 100 Tustin, California 92780

80 KITTY SIINO & ASSOCIATES, INC. REAL ESTATE APPRAISERS & CONSULTANTS July 3, 2014 Ms. Janet Dixon, Director of Facilities TEMECULA VALLEY UNIFIED SCHOOL DISTRICT Ranch Vista Road Temecula, California Reference: Summary Appraisal Report Complete Appraisal Community Facilities District No of the Temecula Valley Unified School District (Portion of Ranch Bella Vista by Lennar Homes) West of Pourroy Road; North of Promontory Parkway French Valley, Unincorporated Riverside County Dear Ms. Dixon: At the request and authorization of the Temecula Valley Unified School District, we have completed a Summary Appraisal Report for Community Facilities District No of the Temecula Valley Unified School District ( TVUSD CFD No ). TVUSD CFD No consists of 249 single family detached house located in the area known as the French Valley in Riverside County. Lennar Homes of California, Inc. ( Lennar Homes ) has developed the property into a portion of the Rancho Bella Vista master planned community. Lennar Homes began construction in 2011 and has sold and closed all of the 249 homes to individuals. The valuation method used in this report is the Sales Comparison Approach along with a mass appraisal technique as defined within this report. The fee simple estate of the property has been valued subject to the TVUSD CFD No special tax lien. This report is written with the special assumption that the subject property is enhanced by the improvements and/or fee credits to be funded by the Special Tax Bonds of TVUSD CFD No The concluded market value for the subject property, as a result of our investigation is: Eighty-Nine Million Three Hundred Forty-Four Thousand Three Hundred Fifteen Dollars ($89,344,315) The above values are stated subject to the Assumptions and Limiting Conditions of this report, the Appraiser s Certification and as of June 23, This Summary Appraisal Report is intended to comply with the reporting requirements set forth under Standard Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report. As such, it 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. 115 East Second Street, Suite 100, Tustin, California (714) Phone, (714) Fax, kssiino@msn.com

81 Ms. Janet Dixon Temecula Valley Unified School District July 3, 2014 Page Two Supporting documentation concerning the data, reasoning and analyses is 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 report is intended to comply with the appraisal standards of the California Debt and Investment Advisory Commission. 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. Kitty S. Siino, MAI California State Certified General Real Estate Appraiser (AG004793)

82 TABLE OF CONTENTS Assumptions and Limiting Conditions... i Aerial Photo of TVUSD CFD No iv Purpose of the Appraisal... 1 The Subject Property... 1 Intended Use of the Report... 1 Definitions... 1 Property Rights Appraised... 3 Effective Date of Value... 3 Date of Report... 4 Scope of Appraisal... 4 Regional Area Map... 6 County of Riverside Area Description... 7 French Valley Area Map French Valley Area Description Immediate Surroundings Rancho Bella Vista Map Specific Plan 184 Rancho Bella Vista Riverside County Housing Market Community Facilities District No Subject Property Description Highest and Best Use Analysis Valuation Analysis and Conclusion Appraisal Report Summary Appraiser s Certification ADDENDA TVUSD CFD No Boundary Map Tract Map No Improved Residential Sales Map and Summary Chart Listing of Resales of Homes Appraiser s Qualifications

83 ASSUMPTIONS AND LIMITING CONDITIONS 1. This report is a Summary Appraisal Report that is intended to comply with the reporting requirements set forth under Standard Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report. As such, it 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. Supporting documentation concerning the data, reasoning and analyses is 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. The property is appraised subject to the special tax lien of TVUSD CFD No 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 the property, subsoil or structures that would render it 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. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page i

84 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 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, 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 that all improvements and benefits to the subject property, which are to be funded by the TVUSD CFD No Special Tax Bond proceeds are completed and in place. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page ii

85 18. It is assumed there are no environmental concerns that would slow or thwart development of the subject property and that the soils are adequate to support the highest and best use conclusion. 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 TVUSD CFD No Special Tax Bonds. Extraordinary Assumption We have not received a soils report or an environmental report to review on the subject property. It is an extraordinary assumption of this report that the soils are adequate to support the highest and best use conclusion and that there are no environmental issues which would thwart development of the site. This is suggested by certificates of occupancies being obtained on all 249 homes and due to Riverside County inspector s on-site during construction. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page iii

86 TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page iv

87 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 TVUSD CFD No Special Tax Bonds. THE SUBJECT PROPERTY The subject property consists of 249 single-family detached homes encompassed by Lots of Tract which have been developed into a portion of the master planned community known as Rancho Bella Vista by Lennar Homes. Tract is located in the French Valley unincorporated area of Riverside County, California. The subject 249 single family detached homes have all been developed, sold and closed to individual homebuyers. While there is a acre open space lot and a 3.47-acre park within the boundaries of TVUSD CFD No , these lots are not subject to the special tax lien and are not considered in this appraisal report. The majority of the home closings occurred in 2012 and INTENDED USE OF THE REPORT It is the appraiser s understanding that the client, the Temecula Valley Unified School District, will utilize this report in disclosure documents related to the sale of special tax bonds for TVUSD CFD No This report may be included in the Official Statement or similar document to be distributed in connection with the offering of the bonds. It is the appraiser s understanding that there are no other intended uses of this report. Market Value 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 TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 1

88 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 Inherent in the Market Value definition is exposure time or the time the developer-owned property would have had to have been exposed on the open market prior to the appraisal in order to sell at the concluded values. There is no developer owned property within this CFD. Individual home sales exposure time is estimated at under six months. 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 1 The Appraisal of Real Estate, 13 th Edition 2 USPAP Edition TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 2

89 In the case at hand, the statistical testing included reviewing all original builder sales and Multiple Listing Service re-sales and/or listings (if any) of each plan type applicable along with determining the actual range of sales prices for each plan type which will be utilized in the valuation process. Extraordinary Assumption 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 The extraordinary assumption of this report is that the soils are adequate to support the highest and best use conclusion and that there are no environmental issues that would thwart development of the site. This is suggested by certificates of occupancies being obtained on all 249 homes and due to Riverside County inspectors on-site during construction. PROPERTY RIGHTS APPRAISED The property rights being appraised are of a fee simple estate interest, subject to easements of record and TVUSD CFD No The definition of fee simple estate is defined as: 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 property is valued as of June 23, The Appraisal of Real Estate, 13 th Edition TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 3

90 The date of this report is July 3, DATE OF REPORT SCOPE OF APPRAISAL As previously stated, the purpose of this appraisal is to report the appraiser s best estimate of the market value for the subject property. This appraisal will be presented in the following format: County of Riverside Description French Valley/Temecula Area Description Immediate Surroundings Description Specific Plan 184 Rancho Bella Vista Brief Description Riverside County Housing Market Analysis Brief Description of TVUSD CFD No Subject Property Description Highest and Best Use Analysis Valuation Procedure, Analyses and Conclusions Appraisal Report Summary The subject property consists of 249 single-family homes, all which are individually owned. The property was developed into three neighborhoods, Alicante, Paloma and Montelena. The homes were built in phases from 2011 to 2013 with the majority of closings in 2012/2013 with a few final builder sales in In valuing the subject property, the value estimates will be based upon the highest and best use conclusion using the Sales Comparison Approach. 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 comparables is available. 4 4 Dictionary of Real Estate Appraisal, Fourth Edition, 2002 TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 4

91 In the Sales Comparison Approach, market value is estimated by comparing properties similar to the subject property that have recently been sold, are listed for sale or are under contract. The subject homes are generally under two years old. Neither a cost or income approach was utilized as they were not considered necessary to arrive at credible results. The due diligence of this appraisal report included the following: 1. Compiled demographic information and related that data to the subject property 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 Riverside County and the French Valley area. 3. Inspected the subject property between June 13, 2014 and July 1, Had the site flown by an aerial photographer June 19, Interviewed representatives from Lennar Homes and their consultants to obtain project information. 6. Reviewed a Title Report on the subject property. 7. Searched the area for relevant comparable new home residential projects, including sales prices and concessions and interviewed representatives from each comparable project. 8. Reviewed sales brochure and asking prices on Lennar s newest portion of Rancho Bella Vista (currently under construction) and interviewed sales representatives. 9. Reviewed developer sales information and public records on all closed homes. 10. Reviewed Multiple Listing Service information to review re-sales and listings of existing homes (if any) within the subject project. 11. Reviewed public records to verify home square footages and other relevant information. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 5

92 TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 6

93 COUNTY OF RIVERSIDE AREA DESCRIPTION Location The subject property is located in the southern portion of Riverside County (the County ) northeast of the merging of Interstate 15 ( I-15 ) and Interstate 215 ( I-215 ) and east of State Route 79 (Winchester Road) and the French Valley Airport. The area is unincorporated within Riverside County, adjacent to (and within the sphere of influence of) the City of Temecula, east of the City of Murrieta and south of the City of Menifee in the area also known as the French Valley. The County encompasses approximately 7,300 square miles, which includes large expanses of undeveloped deserts, valleys, canyons and mountains. The County is the major recipient of outward urban pressure from Orange and Los Angeles Counties as well as northerly growth from San Diego County. Although located at the periphery of most urban activity in Southern California, Riverside County, in particular the south and westerly region, is clearly perceived by most observers as a major growth area well into the foreseeable future. Because of mountain ranges limiting road access into Los Angeles and Orange Counties, Riverside and San Bernardino Counties belong to the same Metropolitan Statistical Area ( MSA ). This MSA is designated as (and commonly referred to as) the Inland Empire. Transportation The subject property is situated north of I-15 and east of I-215 and State Route 79 north of the City of Temecula. The County has several major freeways. The 91 Freeway travels in a northeasterly/westerly direction, provides access to Orange and Los Angeles Counties to the west and connects with the 60 Freeway and I-215 to the north in San Bernardino County. I-15 travels in a northerly/southerly direction and provides access to Barstow and Nevada to the north and San Diego to the south. I-215 travels in a northerly/southerly direction in the County and generally parallels I-15 to the east. The State Highway 60 Freeway provides access to the west (Los Angeles) and to the east where it combines with Interstate 10 ( I-10 ) providing access to Arizona. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 7

94 The County is served by Amtrak and Metrolink as well as several rail freight lines. The Ontario International Airport provides major air service and is located approximately fortyfive miles northwest of the subject property while the French Valley Airport is located one mile west of the subject. The County has extensive trucking corridors along the aforementioned Interstates and State freeways. Population The County has experienced population growth for several decades and is anticipated to continue to do so in the foreseeable future. There has, however, been a slowdown in growth during the past seven years. Per the California Department of Finance, the January 1, 2014 County population was 2,279,967. This represents a one-year increase of 1.1 percent and an average annual growth rate of approximately 2.8 percent for the previous fourteen-year period. The slowdown in recent population growth is primarily due to the 2000s economic recession which hit the Inland Empire particularly hard. Per current County projections, the population is anticipated to reach approximately 2.59 million by 2020, indicating an average annual increase of approximately 2.1 percent. This most recent 2020 projection, completed in 2013, was decreased 250,000 from prior County projections dated Economy As with the rest of the nation, the Inland Empire experienced a strong multi-year recession beginning in The MSA had a strong employment record between 1995 and However, unemployment rates increased significantly between April 2007 and summer of 2011 with unemployment generally declining since that time. The seasonally adjusted unemployment rate for the MSA was estimated at 8.3 percent (per April 2014, Employment Development Department). This reflects a significant increase from April 2007 when unemployment rates were 4.8 percent, however a significant decrease since July 2010 when unemployment rates were 15.1 percent. As of April 2014, Riverside County has an 8.3 percent unemployment rate while San Bernardino County also has a 8.3 percent rate. This MSA unemployment rate of 8.3 percent is higher than both the TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 8

95 California statewide rate of 7.3 percent and the April 2014 national rate of 5.9 percent. Unemployment rates generally had been dropping between July 2010 and mid-2013 when rates appeared to stabilize to a certain extent with rates increasing/decreasing within an approximate 1.5 percent range since that time. The past month resulted in a larger than typical decrease of 0.9 percent. Below is a table comparing Riverside County s unemployment rates to the unemployment rates of the surrounding counties as of April Across all counties the unemployment rate showed a drop of approximately one whole percentage point over the past month. This significant decrease is partially due to the reallocation of home health care workers by the Employment Development Department. Jurisdiction As of Unemployment Rate Los Angeles County 4/14 7.6% Riverside County 4/14 8.3% San Bernardino County 4/14 8.3% Orange County 4/14 5.0% San Diego County 4/14 6.0% Source: State of California E.D.D. Over the past 15 years, the Riverside County economy has had significant cycles. From 1997 through 2000, the economy grew at a rapid pace. In 2001 the national economy entered a slight recession but rebounded in 2002 due to low interest loans and home sales being a strong force in the economy between 2002 and During this period, home values increased almost 100 percent in Riverside County. However, beginning in 2005 there were significant decreases in the new home market with sales and prices falling up to 50 percent, taking prices back to 2002 levels. Home values appeared to hit bottom in 2009 then remained essentially flat for three years with the exception of certain pockets of development where stabilization and improvement in home prices and sales began around the end of The remainder of the Riverside County housing market saw an improvement beginning in mid-2012 with 2013 showing significant appreciation in both the number of sales and pricing. Over the past few months pricing has stabilized and/or decreased slightly while sales numbers have declined. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 9

96 In the fall of 2008 the national economy was shaken by the failure of several national banks and insurance companies. These were caused by loan failures primarily related to sub-prime mortgage financing. The federal government attempted to correct the struggling economy by implementing several economic stimulus packages, the current one being Quantitative Easing 3 ( QE3 ). In this effort the Federal Reserve buys treasury bonds and mortgage backed securities in order to keep interest rates low to try to stimulate the economy. This appears to be working, however most economists opine that the creation of jobs will be the real catalyst in re-charging the economy. The economy is still struggling with some glimmers of light (i.e. stock market strength and housing price increases), however job creation appears slower than needed to spark the economy back to a normal rate of growth. The Federal Reserve Board began a tapering of the QE3 bond buying near the end of At the most recent meeting of the Federal Reserve Board it was determined to continue the tapering off of QE3. Some board members appear to be more cautious of the possible side effects of QE3 which include inflation, instability and a sudden rise in interest rates. 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 1.29 million non-farm positions by February Since hitting bottom, California added back 1,170,000 jobs through January Per the latest reports from the California Employment Development Department the April 2014 nonfarm employment in the state has almost reached the peak at million non-farm jobs. This is good news as that several economists were forecasting as late as November 2013 that total non-farm employment wouldn t reach its pre-recession peak of million until mid According to the most recent UCLA Anderson Forecast (April 2, 2014), the U.S. economy is growing. Due to the poor national weather this past winter, growth was slower than projected however this created pent up demand which will create a rebound in the spring. This appears to be happening as seen in the significant unemployment drop in April and the total non-farm jobs nearing the peak. Projections are for the economy creating between 200, ,000 jobs a month with the national unemployment rate dropping TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 10

97 to 5.4 percent by late They expect payroll employment to surpass the prior 2007 peak, however the economy is anticipated to remain well below its pre-great Recession growth path. The UCLA Forecast on California, written by Senior Analyst Jerry Nickelsburg, calls for total employment growth of 1.8 percent in 2014, 2.2 percent in 2015 and 2.1 percent in Beacon Economics, a Southern California company providing research and economic analysis, completed a 1st quarter 2014 Regional Outlook for the Inland Empire. According to their study, the State s employment rate ended up performing much better in 2013 than originally believed. While it was reported 555,800 non-farm jobs were added statewide, this included roughly 400,000 healthcare in-home workers that were previously not included in non-farm employment. However the state still added over 150,000 new jobs during the year. The Inland Empire was reported to have a new 34,400 non-farm jobs, however this included almost 6,000 home health-care workers which moved to nonfarm suggesting 28,800 actual new non-farm jobs. The Inland Empire s unemployment rate has dropped to 8.3 percent as of April Beacon Economics is forecasting the unemployment rate in the Inland Empire to drop below 8 percent in Also noted in their previous outlook, forty percent of employed Riverside/San Bernardino residents currently go outside of the counties for their primary job. This creates the possibility of economic expansion for the area by analyzing the skills of this commuting population and looking for economic development opportunities to bring employers to the area. This suggests a positive employment outlook for the region. One of the main reasons the MSA has not yet emerged from the broader economic downturn is related to housing. Both Riverside and San Bernardino Counties saw a considerably steeper rise and then fall of housing prices than almost anywhere else in the state. Inland Empire median housing prices went from $388,000 at the peak of the market in 2006 to $155,100 in The current median price is $286,250. Foreclosures, which constituted a large number of housing sales over the past five years, have decreased significantly increasing the median price. As of April 2014 an estimated 5.9 percent of home sales in Southern California were of distressed properties. This is down 12.4 TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 11

98 percent from one year prior and down 56.7 percent from the peak of the cycle in February One current unknown in the housing market is the reduction of FHA loan limits. In Riverside County, the 2013 FHA loan limit was $500,000 for a single family home. As of January 2014, this limit was reduced to $355,350. However, there are also Jumbo loans which are easier to obtain then they have been since the recession and, for the first time in recent history, have equal or lower interest rates. Commercial real estate appears to have hit bottom in 2010 with Inland Empire absorption levels returning to positive territory. Anemic job growth coupled with restrictive financing is still affecting both commercial vacancies and lease rates. Office vacancy rates appear to have stabilized with rents beginning to increase. Retail vacancies have been declining as housing gains strength. As a final indicator of overall economic activity for the region we have reviewed the rise or fall of TEUs (Twenty-foot Equivalent Units i.e., containers) being processed in the local ports. This is especially important for the inland communities as it represents much of the growth in development of West Coast distribution centers and warehouses linked to supply-chain nodes in the Pacific Rim. The chart on the following page shows TEU activity at the Port of Long Beach, a key economic indicator for Southern California. The activity resulted in a flattening of TEUs during 2006 and 2007, decreases occurring in 2008 and 2009, and an increase in 2010 followed by stabilization until 2013 when an increase of 6 percent occurred. Thus far 2014 is running 2.8 percent above the 2013 pace. It is interesting to note that even with the 2.8 percent increase, the estimated 2014 pace is between 2005 and 2006 levels. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 12

99 Port of Long Beach TEUs TEUs Year Government The County is overseen by a Board of Supervisors as the governing body of the County, certain County special districts and the County Housing Authority. The Board enacts ordinances and resolutions, adopts the annual budget, approves contracts and appropriates funds, determines land use zoning for unincorporated areas, appoints certain County officers and members of various boards and commissions. The Board of Supervisors are elected from five different districts within the County. The County reduced development impact fees in an attempt to stimulate housing construction during the recession. Certain development fees were reduced by up to 50 percent for a savings of over $2,500 per single-family home. However as of July 1, 2013 the fee is back to 100 percent at $5,185 for a single-family home. In addition, the Western Riverside Council of Governments adopted a temporary reduction of the Traffic Uniform Mitigation Fee ( TUMF ) from $8,873 to $4,437 per single-family residence. The County began TUMF fee phase increases in early 2013 and as of April 2013 the TUMF fees were back at 100 percent. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 13

100 Education The subject area is served by the Temecula Valley Unified School District which operates seventeen elementary schools and six middle schools, three high schools and four alternative schools. The alternative schools include an adult school, a continuation school, a virtual school and an independent study school. In addition there are two charter schools within the boundaries including the Temecula Valley Charter School (K-8) and the Temecula Preparatory School (K-12). Higher education is available within an hour s drive at the University of California campuses at Riverside and Irvine or California State University campuses in San Bernardino, San Marcos, Fullerton and Pomona along with several additional private colleges. The closest community college is Mt. San Jacinto College. Conclusion Population in the County has increased over the past 30 years. Predictions are for continued population growth in the County through The nation s economy stalled starting in 2006 due to the housing downturn, unemployment and the credit crisis. The federal government s attempts to stabilize the national economy with stimulus packages and government bail-outs may have assisted the housing market in late 2009 and early However, 2011 saw a flattening due to global economic instability and slow growth coupled with historically slow housing sales. The housing market saw a resurgence beginning the second half of 2012 with prices and sales increasing steadily in 2013 suggesting the economy is turning, however the last few months are seeing a slowing once again. The economy typically has cycles and most signs are suggesting that the U.S. economy is on an upswing. However, unlike previous recovering economies, slow growth is anticipated over the near term with projections for the U.S. economy to grow at a slightly better rate overall in 2014 than was achieved in In addition, the County is expected to continue to grow in population due to its Southern California location, the availability of land and the relative lower land prices in comparison to adjacent Orange, Los Angeles and San Diego Counties. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 14

101 TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 15

102 CITY OF TEMECULA / FRENCH VALLEY AREA DESCRIPTION The subject property is located in the area known as the French Valley which is adjacent to the north of the City of Temecula ( City or Temecula ). The French Valley area encompasses an area of 10.9 square miles per the United States Census Bureau. The subject property is within Temecula s sphere of influence, thus the City will be discussed. Temecula is located 40 miles southeast of Riverside, 85 miles southeast of Los Angeles, 465 miles south of San Francisco and 60 miles north of San Diego. Temecula is known as a commuter city due to its ideal location with respect to the I-15 and its proximity to San Diego, Los Angeles and Orange Counties. Temecula, originally a home to Native Americans, was popularized by Americans in 1857 when a stagecoach line passed through the town. In the early 1900s the valley was owned by the Vail family and used as cattle ranching and for agricultural farming. In 1947 the Temecula Valley was sold to land developers and with the completion of the I-15 freeway connecting the valley to Los Angeles and San Diego, the subdivision land boom began. The City is surrounded by unincorporated areas to the east, west and south and the City of Murrieta to the north. The City currently contains square miles of land with an additional 21 square miles within its sphere of influence. Temecula has a Mediterranean climate that has attracted golf courses and wine growers to the area. Temecula has been branded the Southern California Wine Country with currently 35 wineries (including Callaway, Thornton and Ponte) that produce over 50 different varietals. The City is also known for its championship golf courses and beautiful climate. Population As of January 1, 2014 per the Economic Development Department, Temecula had an estimated population of 106,289, which is a 1.3 percent increase from January In 1970 the population estimate for the Temecula area was 2,770 with a growth of 8,300 by In 1987 a period of explosive growth began. By 1990 the population was 27,099. In 2000 the population was estimated at 53,791, an increase of over 98 percent since TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 16

103 1990 or an average annual rate of over seven percent. Since the year 2000 Temecula has experienced over a 54 percent population increase. Within the City s sphere of influence is a portion of the French Valley which would increase the population of the City significantly. As noted above, the growth rate has slowed dramatically which is the product of economic turmoil and the building out of developed land within the City limits. The population has a median age estimated at 34 years old. Over the next five years, Temecula is projected to grow 8.7 percent or an average of 1.74 percent annually. Economy The City of Temecula s key businesses include high-tech manufacturing, biomedical/biotech, health technology/manufacturing, telecommunications, electronics, semiconductors, manufacturing, retail and tourism. Over the past 10 years, Temecula s retail sector has out-performed statewide growth trends with current retail sales tax generation of $28.9 million, ranked 44 out of 539 cities in California. The average household income is estimated at $80,729 as compared to the average household income in the United States of $71,320. The unemployment rate for Temecula was estimated at 6.1 percent at the end of 2013 as compared to a 8.9 percent unemployment rate for the MSA as of the same time period. The major employers in the Temecula are shown on the following table. Summary of Major Employers Employer No. of Employees Temecula Valley USD 2,594 Abbott Labs 2,000 Professional Hospital Supply 1,700 International Rectifier 653 Costco Wholesale Corporation 343 Macy s 300 Millgard Manufacturing 280 EMD Millipore 275 Norm Reeves Auto Group/DCH 274 Temecula Creek Inn 230 Southwest Traders 228 Channell Commercial 211 FFF Enterprises 205 Housing There are an estimated 33,535 households in the area which resulted in an increase of 5.5 percent since Over the next five years, the number of households is projected TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 17

104 to increase by 7.6 percent. According to Trulia, the median sales price of a home in Temecula (including existing single family detached and attached) is $375,000 as of June 2014 which reflects an increase of 4.2 percent from one year prior ($360,000) and a 50 percent increase from five years ago when the median sales price in the City was $250,000. Over 69.6 percent of the homes are estimated to be owner occupied for Transportation Interstate 15 and I- 215 provide access to the communities of Temecula, Murrieta and Menifee. State Route 79, also known as Winchester Road, provides the major access into the French Valley. Within Temecula there are limited on/off ramps to the I-15 which causes some congestion at commuter times. On/off ramps within the City include Winchester (State Route 79 North), Rancho California road and Temecula Parkway (State Route 79 South). State Route 79 is also a main commercial corridor through the City and into the French Valley. The unincorporated area of French Valley houses a general aviation airport, one of the largest in southwest Riverside County. Education The French Valley area is served by several different school districts including Temecula Valley Unified School District, Menifee Union School District, Murrieta Valley Unified School District, Perris Elementary School District, Perris Union High School District and the Romoland School District. The subject property is served by the Temecula Valley Unified School District. In addition there is the private Temecula Preparatory School serving kindergarten through high school located three miles northeast of the subject property. Conclusion In summary, the City of Temecula continues to grow and thrive due to its excellent location, climate and growing economy. Temecula experienced significant growth over the past two decades. Future growth of the City is estimated to continue. The City s location and excellent climate make it a prime area for future growth. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 18

105 IMMEDIATE SURROUNDINGS The subject property is located west of Pourroy Road, approximately ½ mile north of Murrieta Hot Springs Road in unincorporated Riverside County north of the City of Temecula however within its sphere of influence. The subject property is located in the master planned community of Rancho Bella Vista, a community proposed for 1,829 homes that is over half built-out. The subject property encompasses 249 of the 1,829 total homes. Rancho Bella Vista began to develop in the early 2000s, however economic conditions slowed and eventually halted construction within the master planned community for a few years. Once the economy began showing signs of improvement, the subject property was purchased by Lennar Homes and began development. The subject is more specifically located at the northwest corner of Promontory Drive and Pacific Park Drive. Along the east side of Pacific Park Drive across from the subject is Alamos Elementary School. To the north and west are some open space lands beyond which is rural residential development to the northwest and new residential development to the northeast and the south-end of the French Valley Airport to the west. There is an industrial area located south of the airport. The open space lands act as a buffer between the airport and the residential area. Northeast of the subject is the next phase of Rancho Bella Vista which is being marketed by Lennar with Paloma, Alilcante and Cambria as the three currently selling neighborhoods. Beyond Rancho Bella Vista to the north is Crown Valley Village, another master planned community adjacent to the northwest to Rancho Bella Vista. Crown Valley Village is nearing build-out with the final homes being developed by Beazer nearing close out. West of Crown Valley Village is rural houses and the Southwest Justice Center (along the south side of Auld Road, east of Leon Road). South and east of the subject site is the developed portion of Rancho Bella Vista with existing homes, schools and parks. The Bella Vista Middle School is located along the east side of Pourroy at Pacific Park Drive, within ½ mile of the subject property. Southwest of the subject is an existing residential development. The southern border of Rancho Bella Vista is Murrieta Hot Springs Road which is also the current city limits of Temecula. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 19

106 The French Valley Airport, located approximately one mile west of the subject is a public airport run by the Riverside County Economic Development Agency ( RCEDA ). The RCEDA operates five airports within Riverside County: Chiriaco Summit, French Valley, Hemit-Ryan, Jacqueline Cochran and Blythe. Each of these airports offers a variety of services including hanger rentals, flight schools, fueling, ground services and restaurants. The French Valley Airport houses 203 aircraft, boasts one asphalt paved runway which had an average of 269 aircraft operations per day during 2009 (most recent information available per RCEDA. The aircraft operations are 60 percent local general aviation and 40 percent transient general aviation. The French Valley Airport covers an estimated 261 acres. Southwest of the subject is the built-out residential portion of the master planned community of Silverhawk which was developed by Pulte Homes. The Silverhawk Business Park is essentially undeveloped and consists of finished lots along the north side of Murrieta Hot Springs Road southwest of the subject. South of Murrieta Hot Springs Road is the Roripaugh Ranch, another master planned community that is located within the City of Temecula. Roripaugh Ranch s development stalled during the recession, however has now recovered and is under development with several new housing neighborhoods currently marketed by KB Home and Standard Pacific. Shopping is available approximately two and one-half miles southwest of the subject property along Murrieta Hot Springs Road at Winchester Road. There are two neighborhood centers anchored by super markets. The Plaza at Silverhawk is anchored by Von s and Walgreens while Silverhawk Center is anchored by Albertson s and McDonalds. In addition there is a commercial center with industrial and commercial buildings located at the northeast quadrant of Murrieta Hot Springs Road and Winchester Road which wraps around the shopping center. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 20

107 TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 21

108 SPECIFIC PLAN NO. 184 RANCHO BELLA VISTA Rancho Bella Vista is a 798-acre master planned community located in the southwestern portion of Riverside County, five miles north of the old town area of Temecula, 35 miles south of the City of Riverside and 30 miles north of Escondido. The site is east of Interstate 215, north of I-15 and north of the boundary of the City of Temecula in unincorporated Riverside County. The development of Rancho Bella Vista was instrumental in the construction of a major section of Pourroy Road which connects Temecula to the French Valley. The Rancho Bella Vista Specific Plan was originally adopted in 1986 with a proposed 2,580 dwelling units, open space, commercial and public facility uses. In 1988 Specific Plan Amendment No. 1 was approved that reduced the number of approved units from 2,580 to 2,571 and increased open space, realigned roadways to conform more closely to the subject s topography. Amendment No. 2 was approved by the Riverside County Board of Supervisors on October 7, Amendment No. 2 reduced the allowed units from 2,571 to 1,998 and increased open space areas, reduced commercial and high density residential uses. There have been subsequent minor revisions which have reduced the number of allowed units to 1,829, the current number of allowed units within the Specific Plan. Below is a table showing the land use for Rancho Bella Vista along with the current condition of the each Planning Area. The subject property is shaded in the table below. Dwelling Density # of DUs Land Use P.A. Acres Comments Residential Medium Under Construction Medium Under Construction Medium Subject Property/Complete Medium Complete Medium Complete Medium Complete Medium Complete Medium High Under Construction TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 22

109 Medium High Complete Subtotal ,829 Non-Residential Schools Elem. School Complete Schools Middle School Complete Active Parks Under Construction Active Parks Complete Active Parks 8A 3.5 Complete (NAP Subject) Biological 8B 24.8 Natural State (NAP Preserve Subject) Biological Preserve Natural State w/emwd reservoir Biological Natural State Preserve Open Space Complete Landscaped Open Space Natural Drainage Roads All major complete Totals 798 It should be noted that the subject non-residential property is not subject to the TVUSD CFD No Special Tax and therefore considered Not A Part (NAP) of this appraisal. Planning Areas 9, 10, and 17 were built out by Centex Homes prior to the recession and include approximately 62 percent of the units in Rancho Bella Vista. The two schools (Planning Areas 3 and 12) are complete. The subject property includes Planning Areas 7 and 8 however Planning Area 8 encompasses a park site and a biological preserve site which are not included in this appraisal. Planning Areas 2, 5, 1 and 4 include the last phases which are currently under development. Planning Area 1 has three neighborhoods currently being marketed by Lennar homes while Planning Areas 5, 1 and 4 are in the land development stage. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 23

110 RIVERSIDE COUNTY HOUSING MARKET Population As of January 1, 2014, the County had an estimated population of 2,279,967, which is a 1.1 percent increase from January 1013, which is less than the 2.8 percent average annual percentage increase of the previous fourteen years. The slowdown in population growth is primarily due to the sluggish national economy. This slowdown is similar to other Southern California counties during this time period. Economic Conditions Over the past twenty years the Inland Empire has seen various cycles in the housing market. The recession of the early 1990s impacted the Inland Empire significantly and included a longer recovery period than in other areas of Southern California. The rise and then fall of housing prices in the Inland Empire between 2004 and 2009 was considerably steeper than almost anywhere in the State. Unfortunately, this means that the people who bought near the peak of the market likely faced significant negative equity. The recent increases in the housing market is helping alleviate the negative equity situation in the Inland Empire. Economic growth in the Inland Empire was strong between 2003 and Job losses occurred between 2007 and 2009, with a leveling out in 2010, a slight upturn in 2011, an increase in 2012 of 3.93 percent and an increase of just over one percent in Thus far 2014 is showing higher job growth. Inland Empire Job Growth Year Employment Increase % Increase ,653,500 17, % ,635,700 16, % ,619,100 61, % ,557,800 17, % ,540,500 (800) (0.01%) ,541,300 (88,200) (5.41%) ,629,500 (34,500) (2.07%) ,664,000 4, % ,659,700 43, % ,616,600 60, % ,555,900 67, % ,488,200 43, % *Based on Preliminary April 2014 numbers per Employment Development Department TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 24

111 The unemployment rate for the MSA was 8.3 percent in April 2014, significantly lower than the high of 15.1 percent in July This rate, however, was higher than both the current California unemployment rate of 7.3 percent and the April 2014 national rate of 5.9 percent. Estimates are for employment not to reach the previous peak until 2015, however it is now believed this may occur sooner. The Federal Reserve increased interest rates multiple times between June 2004 and mid In reaction to the rate increases, coupled with increasing housing prices, the market reaction was to create non-conventional financing alternatives such as 40-year amortized loans, variable loans, teaser rate loans and 100 percent loans to artificially maintain the boom housing market of 2004 and New home price appreciation hit highs in mid-to-late 2005 which began a slowing of sales. Higher interest rates began making an impact on home sales in 2006 when sales prices began to decline in some areas and a significant sales slowdown began to occur. In 2007 the housing market saw a shake-up due to sub-prime and non-conventional mortgages. Non-conventional mortgages include home loans which were obtained for 100 percent of the sales price or which used teaser rates or buy-down rates. Sub-prime mortgage companies used these buy-down rates to qualify buyers that could not have qualified for a conventional mortgage or could not verify income. Many homes purchased in 2005, 2006 and the first few months of 2007 utilized sub-prime mortgages with purchasers assuming the market would continue to appreciate and borrowers would then be able to re-finance before their payment obligations increased. This appreciation did not occur however and home prices began dropping. 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 Wall Street and contributing significantly to the 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 new homes slowed for the next few years. With the exception of a small increase in 2010 due to government offered homebuyer credits, prices and sales essentially remained flat until mid-2012 when prices began a steady climb through This appreciation helped TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 25

112 many homeowners out of a negative equity position where they owed more on their home than the home was worth. As of January 2014 approximately 23 percent of all mortgages in the Inland Empire exceed the corresponding value of the home which is a significant improvement since the peak of underwater mortgages at 55 percent in While this is good news it does not mean the Inland Empire housing market is healed. As of January 2014 there were still an estimate 220,400 mortgaged homes underwater. According to Realty Trac s Dana Blomquist ( Underwater Mortgages Equity on the Rise in Inland Homes Press Enterprise, January 8, 2014), while it is good that the negative situation is improving, nearly one of every four homeowners in the area is still stuck with negative equity. There were several factors adding to the recent price appreciation including limited supply, investor purchases and constrained lending. The main factor in prices rising is an imbalance in supply and demand. Over the past few years it was not financially feasible to develop land and build a house to sell in portions of Riverside County. Thus land development slowed significantly restricting supply. A second factor is the amount of investor direct purchases of foreclosed homes which increased demand. Early in 2012 the government approved a foreclosure to rental program. Wall Street investment firms issued securities and amassed billions in funding to buy foreclosed homes. While in 2009 investors were purchasing approximately 15 percent of foreclosures, in March 2013 over 57 percent of foreclosed homes were purchased by direct investors before they reached the open market. In addition, these Wall Street funds began purchasing new homes across the country ( New Homes Get Built with Renters in Mind Wall St. Journal November 3, 2013). In 2012 an estimated 5.8 percent of new homes were purchased by investors for rentals while in 2013 this number is estimated at 14 percent. Home ownership across the U.S. has declined to 65 percent from a high of 69.2 percent in This downward trend in home ownership is anticipated to continue to decrease until stabilization which is estimated to occur at 63 percent. The housing market in Riverside and San Bernardino had momentum in 2013 for the first time in the past few years. However the amount of the 2013 price hikes caused some to TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 26

113 question whether it s sustainable or whether it s a bubble. Thus far in 2014 the appreciation appears to be leveling off. According to US News ( Home Builders Boost Incentives, Upgrades as Sales Sag October 13, 2013) near the end of 2013 home builders had to bring back or boost incentives in order to soften the sticker shock as prices and mortgage rates rose. The share of builders offering increased incentives rose to upwards of 30 percent after dipping below five percent summer of According to Lennar Chief Executive Stuart Miller, as the market goes through minor gyrations and corrections on a road to a broader recovery, Lennar will be using incentives on a perproject need or a select basis. KB Home has reduced pricing of all homes selling in the Inland Empire by a minimum of $10,000 per home. Their project in Roripaugh Ranch in Temecula has seen the builder drop base prices by about $30,000 per home over the last four to six months. Our survey of new home projects within the French Valley area resulted in most offering some sort of incentive and/or concessions. Home loan rates are playing a large part in the housing market. The Federal Reserve has held mortgage rates at all-time lows for the past few years in an attempt to assist the housing market. Thirty-year fixed rate mortgages were as low as 3.31 percent in November 2012 rose to 4.57 percent in September 2013 with current rates in the fourpercent range. The Federal Reserve had stated rates will be kept low until 2015, however at summer 2013 meetings there were discussions that the market was healing and the Fed may let interest rates increase. Towards the end of 2013, home sales sagged and the economy lost some steam. The Federal Reserve is making it clear to investors and consumers that it will link its actions to specific economic markers such as employment and inflation. As a result at the most recent Fed meeting, QE3 was continued, albeit at a lessening pace. Another policy change that is expected to affect home sales is the FHA lowering the maximum loan amounts in the Inland Empire from $500,000 to $355,350 as of January 1, It is too early to see how this is affecting buyers in the subject area. Currently there is an anomaly in the lending market with jumbo loans having similar and in some cases lower interest rates than FHA loans which is alleviating the lowering of the FHA requirements negatively affecting housing sales. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 27

114 Residential Land Development While there had been little land development going on in most of the Inland Empire during the years , the second half of 2012 saw a resurge in land development. This was clearly visible in pockets of development or areas close in to economic areas. The increase in housing prices coupled with the limited availability of supply made land development feasible once again for homebuilders. On a national front, it appears the slowdown in home sales may curb the growth of residential lot prices. Per Zelman & Associates as reported in the Wall St. Journal ( Land Investors Brace for Slowdown February 25, 2014) prices for residential lots ready for construction have slowed in growth the past three quarters. According to Larry Seay, chief financial officer of Meritage Homes Corp., it is good for the industry to take a little breather, let the land market moderate and get to a more normal rate of growth and house-price appreciation suggesting prices have been moving too fast to sustain. The national average of finished lot price increases (decreases) are shown on the chart below. Residential Lot Value Percentage Change from Previous Quarter % Increase 8% 6% 4% -2% 0% 2% -4% -6% 1st Q nd Q rd Q th Q st Q nd Q rd Q th Q st Q nd Q rd Q th Q st Q nd Q rd Q th Q 2013 % Increase Quarter Source: Zelman & Associates, Wall St. Journal Within the subject market there are several land development projects underway or in the planning stages. Audie Murphy Ranch is grading new lots and Pacific Mayfield has recently begun new development. In the French Valley area adjacent to Temecula, Heritage Ranch was originally graded prior to the recession and is again underway with two new neighborhoods by Beazer Homes recently opening. Morningstar Ranch is another large master plan under development in the French Valley with two new neighborhoods anticipated to open in the near future. Mahogany Hills is being developed by KB Home in the French Valley and currently has two new home neighborhoods selling. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 28

115 Spencer s Crossing is nearing build-out of its current phases, however has a future planning phase which will add more new homes to the French Valley area. New Home Sales and Pricing Sales of new detached homes within the County rose beginning in 2000 until 2005, declined between 2006 and 2011 followed by increases beginning in Below is a graph showing Riverside County detached new home sales over the past ten years. While new detached home sales have increased, they are still well below the peak of the past cycle. Riverside County New SFD Sales No. of Sales Year Source: John Husing Quarterly Economic Report New single-family detached home pricing in Riverside County has also seen changes, however, not as drastic as the changes in sales numbers. The median new home price changed from $520,152 in 3rd quarter 2006 to $275,000 in 1 st quarter 2009 (decrease of 47 percent) while the current new home median price is $311,500, an increase of over 13 percent. New home sales prices fluctuate based on the land value more than the cost of building the home. While finishes and sizes of homes can change, the basic costs on a per square foot basis do not fluctuate as much as land values. Within Riverside County new home square footage rose along with prices between 2003 and Originally a first-time buyer location with home sizes in the 1,500 to 2,500 square foot range, in 2005, 2006 and 2007 construction and sales of executive size TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 29

116 homes over 3,000 square feet became typical. Between 2007 and 2010 new home construction in the Menifee area shifted to smaller square footage homes. According to the Press Enterprise (New Home Size Bump - July 27, 2012) new homes in the Inland Empire are growing in square footage once again. Per KB Home, the average home size in Riverside County was 1,758 in 2010 and was 2,126 in 2011, a 21 percent increase. This is twice the national average increase. According to KB Home demand for bigger homes started again in Some of the increase is due to multi-generation suites for Gen-X buyers. Existing Home Sales and Pricing The median existing home price in the Inland Empire of $280,060 (as of May 2014 per the California Association of Realtors) is up over 70 percent from the low in second quarter 2009 ($155,100) and up 17.6 percent from the previous year ($238,240). However, the median existing home price in the Inland Empire is still down 31.9 percent from the median price at the peak in 2006 ($388,000) and is down 2.7 percent on a month over month basis from March Thus, even though the housing market generally has been recovering, it is still below the previous cycle s peak as shown below. Inland Empire Median Existing Home Prices Source: DataQuick According to DataQuick, 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 May 2014 ($410,000) is up 11.4 percent from the previous year. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 30

117 Such median existing home price is 18.8 percent below the peak in mid-2007 when the median price was $505,000; however up 66 percent from the low point of the cycle which was a $247,000 median price in April It should be noted however that the growth has slowed with some recent months. Home sales in Southern California were down 15.1 percent in May 2014 (19,556 new and existing home sales) as compared to one-year prior (23,034 new and existing home sales). County sales numbers were reduced across the spectrum on a year over year basis ranging from a 10.3 percent decline in San Bernardino to an 18.3 percent decline in Orange County. According to DataQuick the recent downshifting in sales numbers is due to constrained supply, higher prices and higher mortgage rates which has resulted in lower affordability. Shown below is a table comparing May 2013 to May 2014 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 May 13 No. Sold May 14 Percent Change Median May 13 Median May 14 Percent Change Los Angeles 7,707 6, % $410,000 $450, % Orange 3,648 2, % $540,000 $595, % Riverside 3,855 3, % $252,000 $295, % San Bernardino 2,655 2, % $203,000 $245, % San Diego 4,236 3, % $406,500 $440, % Ventura % $425,000 $462, % SoCal 23,034 19, % $368,000 $410, % Source: DataQuick Based on May 2014 median new and existing homes prices, in comparison to the majority of the surrounding counties, Riverside County has a definite price advantage. The Riverside County Advantage (price difference between Riverside and surrounding counties) is $145,000 as compared to San Diego County, $155,000 as compared to Los Angeles County, $167,000 as compared to Ventura County and $300,000 as compared to Orange County. That is, in May 2014, the median priced home in Riverside County was $300,000 or almost 50 percent less than the median priced home in Orange County. However, San Bernardino County has a $50,000 price advantage over Riverside County. In a separate attempt to capture the increase in home prices, the resale activity of existing homes in the subject area (per DataQuick) has been reviewed. The number of sales and TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 31

118 sale prices of existing homes within zip codes in the immediate area of the subject are shown in the table below. Note that the resale activity includes foreclosure properties. However, foreclosures are playing a decreasing part in today s housing market than in the past few years. Community Name ZIP Code Border To Subject Sales of SFD Homes May 2014 May 2014 Price Median SFR May 2014 Median Price/ Sq. Ft. Price % Change from May 2013 French Valley Subject 88 $340,000 $ % Menifee North 69 $285,000 $ % Winchester Northeast 34 $319,000 $ % Temecula Southeast 117 $397,000 $ % Temecula South 50 $374,000 $ % Murrieta West 74 $355,000 $ % Wildomar Northwest 26 $315,000 $ % Source: DataQuick/L.A. Times The table above depicts price changes over the past year on existing single-family detached home sales prices. It should be noted that the subject s zip code shows the price per square foot near the mid-point of the range of the varying neighborhoods. The above price increases relate to DataQuick s overall Riverside County increase of 17.1 percent year over year. Subject Property Sales The homes within the subject project sold between February 2012 and October This timing suggests that the homes began selling near the bottom of the market and have enjoyed the upswing in the current cycle. The subject property had an overall closing rate of homes per month which is considered excellent. Our MLS search resulted in eight resales within the community, one pending sale and one active listing. The resales of homes purchased after the bottom of the market show increases in pricing ranging from 7.5 to 28 percent between early 2012 and TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 32

119 Our search of the subject area resulted in 11 active single-family home projects selling in the area which are considered to be comparable to the subject. A listing of these projects is located in the Addenda. Summary Riverside County saw a substantial increase in both sales and pricing between mid-2012 and late It appears the significant appreciation of homes is slowing to a more normal, sustainable rate. New home sales numbers are still below the previous peak and also below historical averages. The French Valley area market has seen an increase in projects over the past two years creating a higher supply to meet demand, however the increase in pricing and the stricter financing appear to be limiting sales thus far in While uncertainty is still clouding the remainder of the 2014 housing market, most observers are in agreement that the housing market is still gaining strength. It is believed that as population continues to increase, housing growth will continue. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 33

120 COMMUNITY FACILITIES DISTRICT NO We have reviewed the Community Facilities District Report for TVUSD CFD No which refers to the Resolution of Intention, Resolution No /11, which was adopted by the Governing Board of the Temecula Valley Unified School District. The below information is taken from the Community Facilities District Report dated December 13, The report was based upon information available at the time with school facilities cost estimates based on a proposed 249 residential dwelling units. TVUSD CFD No encompasses 249 single family detached units. The proposed facilities to be financed include elementary, middle and high school buildings, central administration and support facilities as well as interim facilities, as necessary, including modernization thereof, if necessary, together with land and all necessary equipment with an estimated useful life of five years or longer to serve the properties within the District ( School Facilities ). The School Facilities were determined to be necessary to meet the increased demands placed upon TVUSD as a result of the development occurring within the boundaries of the District. A copy of the TVUSD CFD No Boundary Map is located in the Addenda. Per the Community Facilities District Report the cost estimate for the School Facilities to be financed by the District are estimated at $4,351,164. This amount does not include incidental expenses and is subject to change as more current estimates become available. It is the appraiser s understanding that the subject property was originally within CFD Improvement Area No. 4 of the Temecula Valley Unified School District. A Notice of Cessation of Special Tax and Extinguishment of Lien for Specific Parcels within Improvement Area No. 4 of TVUSD CFD No was recorded December 22, It appears the subject TVUSD CFD No essentially replaced TVUSD CFD Improvement Area No. 4. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 34

121 SUBJECT PROPERTY DESCRIPTION The subject property consists of Tract which has been developed into 249 single family detached homes. Location: Legal Property Description: Thomas Guide: Property Owner: Northwest corner of Promontory Parkway and Pacific Park Drive, in the French Valley area of unincorporated Riverside County, within the sphere of influence of the City of Temecula. Lots of Tract located in Unincorporated Riverside County. The property is known as a portion of the Rancho Bella Vista master planned community being developed by Lennar Homes. Riverside County 929 C-D/4-5. Individual owners as to each of the lots. Assessors Parcel Nos.: thru 009; thru 018; thru 020; thru 025; thru 024; thru 013; thru 009; thru 054, 057 and 059; thru 031; thru 003; thru 017; thru 030 and thru 005. It should be noted that APN No and are detention basins. Property Taxes: We have reviewed the 2013/2014 property tax invoices for two sample houses within the project. The first sample is APN which pertains to an Alicante Plan 3 home with 2,277 square feet. Per the County of Riverside Tax Assessor s Office, the parcel has an assessed value of $322,475. The parcel has 2013/14 total taxes of $5, This amount includes general levy taxes of $3, and special assessments and fixed charges of $1, including $1, for TVUSD CFD No Based on assessed value the overall tax rate equates to 1.63 percent. The second sample is APN which pertains to a Montelena Plan 3 with 3,105 square feet. The assessed value is $282,821. The overall taxes total $5, The overall taxes include $2, in general levy and $2, in special assessments and fixed charges including $1, for MUSD CFD Based on the assessed value the overall tax rate equates to 1.81 percent. Both overall tax rates appear to by typical for the area and a little lower than some of the overall tax rates. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 35

122 Three-Year Sales History: Size and Shape: Zoning: Lennar Homes of California, Inc., a California corporation purchased the property from Rancho Bella Vista, LLC, a California limited liability company on January 22, 2010, over three years ago per public record. Between February 2012 and April 2014 all 249 homes were sold and escrows closed to individual homeowners. The subject property is encompassed by Tract Map No (copy located in Addenda) which includes gross acres and is divided into 249 single family detached lots along with a acre passive park (Lot 250), two detention basins (1.18 acres for Lot 252 and 2.10 acres for Lot 254) and a 3.47-acre park site (Lot currently a developed park) along with internal streets and set-back areas (Lot 253). The tract map is irregular in shape. The subject property is designated Community Development Medium High Density Residential (CD:MHDR) and Open Space Conservation (OS:C) per the County of Riverside General Plan. MHDR allows for 8-14 dwelling units per acre for single family detached homes. Per the County of Riverside Zoning Map, the property is shown as Planning Areas No. 7 and 8 of Specific Plan 184A2 which is also known as the Rancho Bella Vista Specific Plan. Per the Specific Plan Planning Area 7 consists of 56.4 acres zoned for Medium Density Residential development (2-5 density range) and is allowed a maximum 249 dwelling units. Planning Area 8 consists of 28.3 acres and is designated as an active park (3.5 acres) and a biological preserve (24.8 acres) The Open Space Conservation area (Planning Area 8) includes the passive park and a developed park located within the boundaries of TVUSD CFD No , however these lands are not levied a special tax by this CFD and thus, are not included in this appraisal. Entitlements: The subject property is covered by Tract Map which recorded July 14, Tract Map divided the property into 249 single family detached lots with a minimum lot size of 4,500 square feet. The map is divided into 85 lots with a minimum size of 4,500 square feet, 101 lots with a minimum lot size of 5,000 square feet and 63 lots with a minimum lot size of 6,000 square feet. The subject approved mapping is consistent with the current zoning designation on the property. A copy of the Tract Map is located in the Addenda. Topography: The subject property originally consisted of hilly topography with some scattered rock outcroppings. The subject area has been mass graded and is above street grade of Promontory Drive (southern boundary) and Pacific Park Drive (east boundary) due to the hilly TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 36

123 topography. The site was graded into level, terraced single family lots. The drainage for the lots has been designed to flow into an engineered storm drainage system. There are two detention basins on site to help with water runoff. Soils Condition: We have not received a soils report to review on the subject property. It is suggested that soils are adequate by certificate of occupancies being obtained from Riverside County on all 249 homes within the subject property. It is an extraordinary assumption of this appraisal report that the soils are adequate to support the highest and best use conclusion and that all recommendations made within any soils reports were adhered to during construction. This is evidenced by County inspectors on site throughout construction as well as Certificates of Occupancy permits being obtained on site. Seismic Information: Environmental Concerns: The property is not located within an identified earthquake study zone. There are no known active or potentially active faults on the site were found on the subject property per the geotechnical reports. We have not received an environmental report to review on the subject property. It is suggested that all environmental issues (if any) were addressed and mitigated throughout construction. This is suggested by certificate of occupancy permits being obtained from Riverside County on all 249 homes within the subject property. It is an extraordinary assumption of this appraisal report that the subject property is free and clear of any environmental issues which would slow or thwart development of the site. This is suggested by (1) the developer obtaining all required construction permits and (2) County inspectors on site throughout construction as well as Certificate of Occupancy permits being obtained on all of the property. Flood Information: Easements and Encumbrances: Per County of Riverside the subject property does not require a flood plain review, thus the subject property is not located within a flood zone. We have reviewed North American Title Company s Preliminary Title Report on Tract (Order No ). The report is dated October 27, 2011 and was ordered for a subdivision guarantee. The exceptions are as follows: TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 37

124 Items Nos, 1, 11, 14, 19-24, 27, 30, 32, 35, 38 and 39 refer to items that have been deleted. Item Nos. 2 9 refer to property taxes including supplemental taxes, if any. Item No. 10 refers to TVUSD CFD Improvement Area 4 which recorded a notice of cessation when the TVUSD CFD No was formed. Data No. 12 refers to the rights of the public in public roads and streets. Item No. 13, 15, 25, 33, 40, 41, and refer to easements. Item No. 16 is an agreement between a previous property owner and the Rancho California Water District. Item No. 17 refers to a development agreement with the County of Riverside. Item No. 18 is in regards to a cable television agreement. Item No. 26 is in regards to an agreement between TVUSD and a previous owner. Item Nos. 28, 34 and 42 refer to CC & Rs recorded on the property. Item No. 29 pertains to the fact that the property is within Improvement District No. U-25 of EMWD. Item No. 31 is in regards to a recorded agreement. Item No. 36 pertains to an offer of dedication for flood control and drainage purposes. Item No. 37 pertains to a Notice of Slope Protection, Restrictions sand Agreement. Item No. 43 is in regards to abutters rights of ingress and egress. Item Nos. 48 refers to the Passive Park agreement for lots Item Nos. 49 refers to a Landscape Easement while Item No. 50 is in regards to a Drainage Easement. Item No. 51 pertains to ingress and egress for Lot 252 (open space). Item No. 59 states there is a recorded document entitled Notice Low Water Pressure Condition. Item No. 60 states there are no known matters that were appropriate but deleted from the report. It is an assumption of this appraisal report that the subject lands are free and clear of any liens and/or encumbrances other than TVUSD CFD No and other existing special districts. Utilities: Streets/Access: All normal utilities serve the subject site by the following companies: Electrical: Southern California Edison Company Natural Gas: The Gas Company Sewer/Water: Eastern Municipal Water District Schools: Temecula Valley Unified School District Access to the subject project is via I-15 or I-215, east on Murrieta Hot Springs Road to Pourroy Road, north to Promontory Drive and west to the subject property. Additional access is via I-15 north on Winchester Road to Murrieta Hot Springs Road, east to Pourroy Road, north to Promontory Drive and west to the subject property. I-15 is a major northeast/south freeway providing access to Nevada to the northeast and to San Diego to the south. I-15 continues northeast to the Canadian border. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 38

125 I-215 is a major interstate which provides an alternate access to the I-15 through the more populated portions of Riverside and San Bernardino Counties. Near Murrieta Hot Springs Road I-215 combines with I-15. Murrieta Hot Springs Road provides major access through the City of Murrieta and provides access to the French Valley area and on to the City of Temecula via Butterfield Stage Road. Murrieta Hot Springs Road is varied between commercial and residential land uses. Winchester Road is also known as State Route 79 and begins at I- 15 in Temecula and travels through Riverside County merging with State Route 74 in Hemet and providing access into the Idyllwild Mountains. From I-15 to the subject property Winchester Road is a main commercial corridor providing access through the communities of Temecula, Murrieta, Murrieta Hot Springs, French Valley and Winchester. Pourroy Road is a main north/south access road beginning at Murrieta Hot Springs Road and heading north through the French Valley generally terminating at Winchester Road. Pourroy Road was developed into a major access road in the past 10 years as the French Valley developed. Promontory Drive is an access road within Rancho Bella Vista providing access to the Alamos Elementary School from Pourroy Road. Promontory Drive also provides access into the subject residential neighborhood and an earlier phase of Rancho Bella Vista. Internal streets within Tract include Spring Canyon Drive, Rose Arbor Court Turning Leaf Court, Old Cypress Drive, Fairbrook Drive, Summer Ridge Drive, Waterton Court, Bella Rosa Drive, Ivy Hill Court, Olive Knoll Court, Creek Bluff Drive and Wild Meadow Drive. Current Condition: The subject property has been developed into 249 single family detached homes with a minimum lot size of 4,500 square feet. All 249 homes are complete and have been sold and closed to individual owners. All of the structures appear to be in excellent condition with little to no depreciation visible. The homes were constructed in 2012 and Costs to Complete: The subject property has been developed into 249 completed homes. All offsite work appears to be complete with no remaining development costs for the project. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 39

126 Improvement Description: The subject property was marketed in 2012 and 2013 as three neighborhoods known as Alicante, Paloma and Montelena, all developed by Lennar Homes. Out of the total 249 homes, there are 92 homes within Alicante, 95 homes within Paloma and 62 homes within Montelena. Alicante has three plans with home sizes ranging from 1,782 to 2,277 square feet which were built on Lots 1-50; 65-74, 86-96, 103, , 155 and The closings occurred between January 2012 and February The homes are of Spanish, Craftsman and Traditional architecture. The homes are either one or two story with attached two-car garages. All homes have concrete tile roofs, front yard landscaping and roll-up garage doors. Interiors include tile entry flooring, ceramic tile flooring in kitchen, baths and laundry rooms and carpet in remaining areas. There are bullnose drywall corners, granite kitchen countertops, and recessed panel cabinets in the kitchen and stainless steel appliances. Builder sales prices ranged from $253,790 to $419,090, however the highest priced home was for a model which included significant upgrades with the next highest price at $396,990. There have been three re-sales within Alicante with price increases from the original builder sale between 10 and 28 percent with prices ranging from $303,000 to $365,000. There are four Alicante plans currently listed with asking prices from $360,000 to $389,000. It should be noted that the builder sales prices include lot premiums, options and upgrades as well as take into consideration concessions, if any. The plans are detailed below. Plan Room Count Floors/ Parking Sq. Ft. Ind. Owned 1 3 / 2 1 / 2 1, / / 2 2, / 3 2 / 2 2, Totals 92 Paloma has four plans with home sizes ranging from 1,940 to 2,831 square feet which were built on Lots 51-64, 75-85; ; ; and The closings occurred between February 2012 and February The homes are of Spanish, Craftsman and Traditional architecture. The homes are either one or two story with attached two or three-car garages. All homes have concrete tile roofs, front yard landscaping and roll-up garage doors. Interiors include tile entry flooring, ceramic tile flooring in kitchen, baths and laundry rooms and carpet in remaining areas. There are bullnose drywall corners, granite kitchen countertops, recessed- TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 40

127 panel cabinets in the kitchen and stainless steel appliances. Builder sales prices ranged from $265,000 to $475,747, however the highest priced home was for a model which included significant upgrades with the next highest price at $419,090. There have been two resales within Paloma with price increases from the original builder sale between 15 and 24 percent with prices ranging from $350,000 to $369,000. There is one Paloma plan currently listed with an asking price of $420,000 suggesting a 15 percent increase from the original builder sale price. It should be noted that the builder sales prices include lot premiums, options and upgrades as well as take into consideration concessions, if any. The plans are detailed below. Plan Room Count Floors/ Parking Sq. Ft. Ind. Owned 1 3 / 2 1 / 2 1, / 3 2 / 2 2, / 3 2 / 2 2, / / 3 2, Totals 95 Montelena has five plans with home sizes ranging from 2,129 to 3,404 square feet which were built on Lots ; ; The closings occurred between February 2012 and May The homes are of Spanish, Craftsman and Traditional architecture. The homes are either one or two story with attached two to four-car tandem garages. All homes have concrete tile roofs, front yard landscaping and roll-up garage doors. Interiors include tile entry flooring, ceramic tile flooring in kitchen, baths and laundry rooms and carpet in remaining areas. There are bullnose drywall corners, granite kitchen countertops, recessed- panel cabinets in the kitchen and stainless steel appliances. Builder sales prices ranged from $281,990 to $475,136, however the highest priced home was for a model which included significant upgrades with the next highest price at $395,990. There have been three re-sales within Montelena with price increases from the original builder sale between 7 and 11 percent with prices ranging from $408,000 to $420,000. There are two Montelena plans currently listed with asking prices of $368,000 and $479,000 suggesting a 23 to 29 percent increase from the original builder sale price. It should be noted that the builder sales prices include lot premiums, options and upgrades as well as take into consideration concessions, if any. The plans are detailed on the following page. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 41

128 Plan Room Count Floors/ Parking Sq. Ft. Ind. Owned 1 3 / 2 1 / 2 2, / 4 2 / 3 2, / 3 2 / 3 3, / / 3 3, / 3 2 / 4 3, Totals 62 It should be noted that the Montelena Plan 2 has reported square footages on the building permits of 2,986 and 2,994. This appraisal has considered all of the Plan 2s to be 2,986 square feet. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 42

129 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 property 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 use, 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 use, or those uses which generate a positive return on investment; and the maximally productive use, 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 The subject property consists of acres of land. The site is located in an unincorporated area of Riverside County known as the French Valley, however within the sphere of influence of the City of Temecula. The site is above street grade of Promontory Drive and Pacific Park Drive due to original hilly topography. The site has a acre passive park, two detention basins totaling 3.28 acres to alleviate project water run-off, a 3.47 acre active park site and internal streets and set-back areas included in the total acreage. The property is not located within a flood zone or Alquist Priolo Earthquake 5 The Appraisal of Real Estate, 11 th Edition TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 43

130 study zone. The developed portion of the site has been graded and constructed into 249 single-family detached homes. No soils or environmental reports were available for our review. It is an extraordinary assumption of this report that the soils are adequate to support the highest and best use conclusion and that there are no environmental issues which would slow or thwart development of the site as evidenced by County approvals along with County inspectors on site during construction. An engineered drainage system along with two storm drain detention basins have been designed to alleviate any potential flooding problems and to control project water runoff. All standard utilities serve the subject property. The property is surrounded by existing residential, schools or vacant lands proposed for residential use. Access is via I-15 or the I-215 with the major access streets being Murrieta Hot Springs Road, Winchester Road, Pourroy Road and Promontory Drive, all completed and paved to the site. Based on the physical analysis, the size, access and topography make the subject parcel physically suited for numerous types of development; however, the grading and development that has occurred on the site suggests single-family residential use. In addition, the surrounding uses of residential development appear to make the subject property more suitable for residential use. Legality of Use The subject property is located within an unincorporated area of the County of Riverside which is the entity responsible for general plan and zoning of the site. Per the County the subject property is designated as Medium High Density Residential (8-14 dwelling units per acre) and Open Space Conservation per the General Plan. The Open Space designation is for the non-developed area that is a passive park. The developable portion of the property (designated MHDR per General Plan) is zoned SP 184A2 which more specifically shows the subject property as Planning Areas 7 and 8. Planning Area 7 consists of 56.4 acres zoned for Medium Density Residential development (2-5 density range) and is allowed a maximum 249 dwelling units. Planning Area 8 consists of 28.3 acres and encompasses the 3.5 acre active park and the passive park/biological preserve which include the undevelopable lands. In addition to the above, Tract Map was TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 44

131 recorded July 14, 2011 and divides the property into 249 single family detached lots with a minimum lot size of 4,500 square feet. The approved mapping is consistent with the current zoning and general plan designation on the property. Based on the legality of use analysis, the type of development for which the subject property can be utilized is narrowed to residential use. 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. As discussed under the Riverside County Housing Market section earlier within this report, the market had shown strong increases in the past 18 months with a leveling off thus far in Within TVUSD CFD No , all of the 249 homes have sold and closed to individual homebuyers. All structures appear to be in good to excellent condition with little to no physical depreciation apparent. Within the new home market in the French Valley area, home prices that had fallen over 40 percent have seen an increase with a slowing the past few months. Current pricing is still below the peak of the market. While sales numbers are increasing, they are still below average. The foreclosure market which had affected the new home market in the French Valley appears to have worked through the issues and there are limited short sales or foreclosure homes on the market in the immediate area. Population growth is still occurring in the area and will continue to create the need for housing. This is evidenced by several new housing developments under construction in the French Valley. Finished lot prices within the French Valley decreased over 50 percent (as compared to home prices decreasing up to 40 percent), however in 2011 and 2012 sales of lots increased with price increases following the sales due to the limited amount of land ready to develop. In 2011 the price of a finished lot was less than the cost to finish the lot and investors were the main buyers in the undeveloped land market. However, as finished lots became scarce and homes continued selling (even at a slower pace) supply dropped to a point where land prices began increasing. Builders are once again purchasing land TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 45

132 for development as the cost of a finished lot is now higher than the costs of development. In the subject neighborhood there are future phases of Rancho Bella Vista with land development occurring. Based on the above analysis, the subject property s highest and best use appears to be for single-family detached residential development. Maximum Productivity The current housing market is giving some mixed messages. Market conditions of high unemployment and limited credit availability suggest that demand for residential development is low. 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 being placed on prices for the first time in over five years. Based on the recent land sales and land development in the area coupled with population growth projected in the subject marketplace, it is our opinion that the subject property is feasible for residential development at the right price points. 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 development. Highest and Best Use As Improved The subject property was developed into 249 single family detached homes which were marketed by Lennar Homes as three separate communities known as Alicante, Paloma and Montelena. Home closings occurred between January 2012 and February 2014 with all except three homes closing prior to The overall sales rate between the three projects suggests an average sales rate of 9.57 homes per month over the 26 month time period. This is considered to be a good to excellent sales rates during this time period. The subject neighborhood appears in good condition with little to no physical depreciation of structures visually apparent. We have also reviewed the resales within the subject TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 46

133 project. Due to the increasing prices in the current housing market, some original homebuyers have decided to sell their homes in order to move up to a larger or different home. There have been eight resales and there are seven current listings and two pending sales within the subject 249 homes. The resale amounts evidence price increases between 7.5 and 28.7 percent between original builder sales prices and the resale price. This suggests the subject homes are in demand in the current market at the right price points. Lennar Homes is currently marketing a continuation of the Alicante and Paloma projects along with a new project known as Cambria within a newer phase of Rancho Bella Vista. To date, within the newer neighborhood out of a total 297 proposed homes (within three projects) they have released 139 and sold 117 homes in the past 8 months suggesting an average sales rate of 14.6 homes per month. This is considered to be an excellent sales rate. The sales rates of the subject project and the new projects within Rancho Bella Vista suggest that there is good demand for new homes in the current market with current financing rates. All of the homes are of good design and appear to be of good quality workmanship. Based on the subject neighborhood s new home sales rates, coupled with the resale activity, it is our conclusion that the highest and best use for the subject property is for the continued use, as improved. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 47

134 VALUATION ANALYSES AND CONCLUSIONS The Sales Comparison Approach will be used to value the subject property. This approach compares similar properties that are available for sale, have recently sold or are currently in escrow. In determining the value for the currently active projects, a unit of comparison needs to be addressed. In the case of the existing home valuations, our search will include all new home projects within the French Valley/Temecula area to find comparable new homes for sale. In addition, we will research and analyze all resales within the subject property. In determining the value for the completed homes, a base value will be concluded for each plan which will be considered a minimum market value as most buyers typically purchase some upgrades or options which increase the price of the home. All of the value conclusions will take into consideration improvements funded by the Special Tax Bonds of TVUSD CFD No and the special tax lien of TVUSD CFD No The valuation will be presented as follows. Each plan within each of the three communities will be discussed, analyzed and valued in order to determine a minimum market value for each plan. Next, the concluded base value will be used for each plan and a mass appraisal technique will be addressed. In determining the concluded base value, both new home sales in the area will be reviewed along with the resales of homes within the subject property using standard methodology employing comparable data and using statistical testing. All of the value conclusions will take into consideration improvements funded by the TVUSD CFD No Special Tax Bonds and the special tax lien. A summary of the final value conclusions for the subject property will be reported at the end of this valuation section. Retail House Valuation Below is a summary of the plans within each of the three neighborhoods. In searching for comparable market data we searched the area and found the nine projects detailed in the Addenda to be most comparable to the subject homes. In addition, we have reviewed TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 48

135 re-sales and current listings of homes within the subject property which will be taken into consideration in the valuation. The communities and their plans are detailed as follows. Alicante Room Count Floors/ Parking Sq. Ft. Ind. Owned Plan Alicante A-1 3 / 2 1 / 2 1, A-2 4 / / 2 2, A-3 5 / 3 2 / 2 2, Subtotal 92 Paloma P-1 3 / 2 1 / 2 1, P-2 4 / 3 2 / 2 2, P-3 5 / 3 2 / 2 2, P-4 4 / / 3 2, Subtotal 95 Montelena M-1 3 / 2 1 / 2 2,129 9 M-2 5 / 4 2 / 3 2,986 9 M-3 5 / 3 2 / 3 3, M-4 5 / / 3 3,152 5 M-5 5 / 3 2 / 4 3, Subtotal 62 Total 249 The most appropriate new home comparables for Alicante Plan 1 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj A-1 3 / 2 1 / 2 1, / 2 1 / 2 1,672 $ / 2 1 / 2 1,940 $ / 2 1 / 2 1,940 $ /2.5 1 / 2 2,196 $ / 2 1 / 2 1,691 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in September 2013 sold for $326,290 and $350,699 or $ to $ per square foot. It should be noted that the actual builder sales prices include TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 49

136 upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There have been two resales of Alicante Plan 1s which sold for $ and $ In addition there are two current listings with asking prices of $ and $ per square foot. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 1 has a current market value of $ per square foot. This calculates as follows: 1,782 sf x $ = $311,850 The most appropriate new home comparables for Alicante Plan 2 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj A-2 4 / / 2 2, / / 2 2,017 $ / 3 2 / 2 2,277 $ / 3 2 / 2 2,409 $ / / 2 2,320 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in September 2013 sold for $347,090 and $364,241 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There have been no resales of Alicante Plan 2s and none are currently listed. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 2 has a current market value of $ per square foot. This calculates as follows: 2,017 sf x $ = $332,805 The most appropriate new home comparables for Alicante Plan 3 are: TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 50

137 Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj A-3 5 / 3 2 / 2 2, / / 2 2,017 $ / 3 2 / 2 2,277 $ / 3 2 / 2 2,409 $ / / 2 2,320 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in September/October 2013 sold for $389,012 and $396,990 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There has been one resale of Alicante Plan 3 which sold for $133.07, however it should be noted that this resale occurred in August 2012, prior to a significant amount of appreciation in the subject marketplace. There are currently two Plan 3s listed with asking prices of $ and $ per square foot. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 3 has a current market value of $ per square foot. This calculates as follows: 2,277 sf x $ = $341,550 Paloma The most appropriate new home comparables for Paloma Plan 1 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj P-1 3 / 2 1 / 2 1, / 2 1 / 2 1,672 $ / 2 1 / 2 1,940 $ / 2 1 / 2 1,940 $ /2.5 1 / 2 2,196 $ / 2 1 / 2 1,691 $ TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 51

138 All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in August and October 2013 sold for $347,990 and $355,490 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There has been one resale of Paloma Plan 1 which sold for $ per square foot. There are no current listings of Paloma Plan 1s. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 1 has a current market value of $ per square foot. This calculates as follows: 1,940 sf x $ = $329,800 The most appropriate new home comparables for Paloma Plan 2 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj P-2 4 / 3 2 / 2 2, / 3 2 / 2 2,277 $ / 3 2 / 2 2,409 $ / / 2 2,692 $ / / 2 2,320 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in July and October 2013 sold for $361,840 and $376,940 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There has been one resale of Paloma Plan 2 which sold for $ per square foot. There are none currently listed. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 52

139 The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 2 has a current market value of $ per square foot. This calculates as follows: 2,409 sf x $ = $356,532 The most appropriate new home comparables for Paloma Plan 3 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj P-3 5 / 3 2 / 2 2, / 3 2 / 2 2,809 $ / / 2 2,823 $ / / 2 2,692 $ / / 2 3,009 $ / / 3 2,789 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in October 2013 and January 2014 sold for $404,490 and $405,269 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There have been no resales of Paloma Plan 3 and there are none currently listed for sale. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 3 has a current market value of $ per square foot. This calculates as follows: 2,809 sf x $ = $379,215 The most appropriate new home comparables for Paloma Plan 4 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj P-4 4 / / 3 2, / 3 2 / 2 2,809 $ / / 3 3,153 $ TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 53

140 5 3 5 / / 3 3,059 $ / / 2 3,009 $ / / 3 2,789 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in September 2013 and February 2014 sold for $400,990 and $419,090 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There have been no resales of Paloma Plan 4 however there is one current listing with an asking price of $ per square foot. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 4 has a current market value of $ per square foot. This calculates as follows: 2,831 sf x $ = $382,185 Montelena The most appropriate new home comparables for Montelena Plan 1 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj M-1 3 / 2 1 / 2 2, / 2 1 / 2 1,940 $ / 2 1 / 2 1,940 $ /2.5 1 / 2 2,196 $ / 3 1 / 2 2,399 $ / 2 1 / 3 2,092 $ / 2 1 / 3 2,343 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 54

141 range from $ to $ The final few sales of the production homes of the subject plan which closed in January and April of 2013 sold for $310,490 and $322,936 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There have been no resales of Montelena Plan 1 however there is one currently listed for sale with an asking price of $ per square foot. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 1 has a current market value of $ per square foot. This calculates as follows: 2,129 sf x $ = $351,285 The most appropriate new home comparables for Montelena Plan 2 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj M-2 5 / 4 2 / 3 2, / 3 2 / 2 2,809 $ / 3 2 / 2 3,187 $ / / 2 2,823 $ / / 3 3,059 $ / / 2 3,009 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in July and August 2012 (prior to the recent appreciation in the subject marketplace) sold for $348,000 and $350,990 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There have been no resales of Montelena Plan 2 and there are none currently listed. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 2 has a current market value of $ per square foot. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 55

142 This calculates as follows: 2,986 sf x $ = $397,138 The most appropriate new home comparables for Montelena Plan 3 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj M-3 5 / 3 2 / 3 3, / / 3 3,153 $ / 3 2 / 2 3,187 $ / / 3 3,059 $ / / 2 3,009 $ / / 3 2,789 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in March and April 2013 (prior to appreciation in subject marketplace) sold for $378,490 and $383,990 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There has been one resale of a Montelena Plan 3 which sold for $ per square foot in March There are none of this plan currently listed for sale. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 3 has a current market value of $ per square foot. This calculates as follows: 3,105 sf x $ = $403,650 The most appropriate new home comparables for Montelena Plan 4 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj M-4 4 / / 3 3, / / 3 3,153 $ / 3 2 / 2 3,187 $ / / 3 3,059 $ TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 56

143 6 2 5 / / 2 3,009 $ / / 3 3,258 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in March 2013 (prior to recent appreciation in the marketplace) sold for $382,490 and $395,990 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There has been one resale of Montelena Plan 4 at $ per square foot and there are no current listings of this plan. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 4 has a current market value of $ per square foot. This calculates as follows: 3,152 sf x $ = $406,608. The most appropriate new home comparables for Montelena Plan 5 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj M-5 5 / 3 2 / 4 3, / / 3 3,153 $ / 3 2 / 2+ 3,823 $ / / 2 3,679 $ / / 3 3,469 $ / / 3 3,258 $ All new home comparables are located within or nearby the French Valley area. All are of similar quality, design and appeal. Adjustments were considered (when applicable) for lot size, school districts, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The new homes have a base price range from $ to $ The final few sales of the production homes of the subject plan which closed in May 2013 (prior to some of the recent appreciation in the marketplace) TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 57

144 sold for $394,636 and $395,990 or $ to $ per square foot. It should be noted that the actual builder sales prices include upgrades, options, premiums which are offset by any concessions that were offered at time of sale. There has been one resale of Montelena Plan 5 at $ per square foot in April There is one current listing of this Plan with an asking price of $ per square foot. The homes appear to be in good to excellent condition with no physical depreciation visible. It has been concluded that Plan 5 has a current market value of $ per square foot. This calculates as follows: 3,404 sf x $ = $408,480 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 addition upgrades, options or pay some premiums for the lot. The concluded values are as follows: Alicante Plan 1 (25 x $311,850) $ 7,796,250 Plan 2 (20 x $332,805) 6,656,100 Plan 3 (47 x $341,550) 16,052,850 Paloma Plan 1 (31 x $329,800) $ 10,223,800 Plan 2 (14 x $356,532) 4,991,448 Plan 3 (33 x $379,215) 12,514,095 Plan 4 (17 x $382,185) 6,497,145 Montelena Plan 1 (9 x $351,285) $ 3,161,565 Plan 2 (9 x $397,138) 3,574,242 Plan 3 (18 x $403,650) 7,265,700 Plan 4 (5 x $406,608) 2,033,040 Plan 5 (21 x $408,480) 8,578,080 Total Individual Owners Value $ 89,344,315 In an additional review, we have reviewed the original builder sales prices for the homes. The builder s actual sales prices for the homes within TVUSD CFD No total $81,810,034. The concluded minimum value of $89,344,315 is 9.2 percent over the TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 58

145 actual sales prices. The sales occurred between January 2012 and February As discussed under the Riverside County Housing Market home prices increased 17.1 percent over the past 12 months in Riverside County and 13.3 percent within the subject Zip Code over the past 12 months. The actual builder sales prices include premiums and upgrades while the concluded minimum value refers to the minimum market value which does not take into account these increases. Therefore the increase due to appreciation is offset by the premiums and upgrades which are not taken into account in the valuation. The concluded minimum market value appears reasonable after reviewing builder s actual sales prices and economic changes in the marketplace. It is our conclusion that the original builder sales prices further substantiate the concluded minimum market value for the individually owned homes. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 59

146 APPRAISAL REPORT SUMMARY The appraisal assignment was to value the property within TVUSD CFD No The subject property encompasses the a portion of the master planned community of Rancho Bella Vista which encompasses three communities built out by Lennar Homes as Alicante, Paloma and Montelena. Rancho Bella Vista is located in unincorporated Riverside County in the area known as the French Valley and within the sphere of influence of the City of Temecula. The subject property consists of 249 homes, all completed and closed to individual homeowners. The homes were sold between January 2012 and February 2014 with a significant number of the sales prior to the recent appreciation that the subject market has seen. It should be noted that the communities of Alicante and Paloma are being continued in another phase of Rancho Bella Vista that is not included in this appraisal assignment. All of the homes appear to be in good to excellent condition with no visible depreciation. The subject property was valued utilizing the Sales Comparison Approach to value and utilized a mass appraisal technique. A minimum value was determined by concluding at a base value for the new homes. The valuation took into account the improvements/benefits to be funded by TVUSD CFD No bond proceeds along with the TVUSD CFD No special tax lien. The concluded aggregate minimum value for the subject property, subject to the special tax lien, is: Eighty-Nine Million Three Hundred Forty-Four Thousand Three Hundred Fifteen Dollars ($89,344,315) The above values are stated as of said date of value and subject to the attached Assumptions and Limiting Conditions and Appraiser s Certification. TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 60

147 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. No other appraisers have provided significant professional assistance to the persons signing this report. 9. 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. 10. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 11. 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) TVUSD CFD No Temecula Valley Unified School District Kitty Siino & Associates, Inc. Page 61

148 ADDENDA

149 TVUSD CFD NO BOUNDARY MAP

150

151 TRACT MAP 31871

152

153 IMPROVED RESIDENTIAL SALES MAP & SUMMARY CHART

154