$6,165,000 COMMUNITY FACILITIES DISTRICT NO. 15 OF RIVERSIDE UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA NO. 3) SPECIAL TAX BONDS, 2013 SERIES C

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1 NEW ISSUE BOOK-ENTRY-ONLY NO RATING In the opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, subject to certain qualifications described in the Official Statement, under existing statutes, regulations, rules and court decisions, and assuming certain representations and compliance with certain covenants and requirements described in the Official Statement, the interest on the 2013 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See TAX MATTERS herein. $6,165,000 COMMUNITY FACILITIES DISTRICT NO. 15 OF RIVERSIDE UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA NO. 3) SPECIAL TAX BONDS, 2013 SERIES C Dated: Delivery Date Due: September 1, as shown below This Official Statement describes bonds that are being issued by Community Facilities District No. 15 of the Riverside Unified School District (the District ). The Community Facilities District No. 15 of the Riverside Unified School District Improvement Area No. 3 Special Tax Bonds, 2013 Series C (the 2013 Bonds ) are being issued by the District to finance certain school and other public facilities, to fund a reserve account securing the 2013 Bonds and to pay costs of issuance of the 2013 Bonds. The 2013 Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections et seq. of the Government Code of the State of California) (the Act ), and pursuant to Resolution No. 2012/13-41 adopted by the Board of Education of the Riverside Unified School District (the School District ) on behalf of the District on March 18, 2013, and a Fiscal Agent Agreement by and between the District and U.S. Bank National Association, as Fiscal Agent for the 2013 Bonds (the Fiscal Agent ), dated as of August 1, 2012, as supplemented by a First Supplement to Fiscal Agent Agreement dated as of April 1, 2013 to be entered into by and between District and the Fiscal Agent (collectively, the Fiscal Agent Agreement ). The 2013 Bonds are payable from Special Tax Revenues derived from an annual Special Tax to be levied on taxable property within Improvement Area No. 3 (but not Special Taxes on taxable property within any other Improvement Area in the District) and from certain other funds pledged under the Fiscal Agent Agreement, all as further described herein. The Special Taxes are to be levied according to the rate and method of apportionment for Improvement Area No. 3 approved by the Board of Education of the School District and the qualified electors within Improvement Area No. 3 of the District. See SOURCES OF PAYMENT FOR THE 2013 BONDS and APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX herein. The 2013 Bonds are secured under the Fiscal Agent Agreement on a parity with the District s outstanding Special Tax Refunding Bonds, 2012 Series B, originally issued and currently outstanding in the aggregate principal amount of $4,400,000 (the 2012 Bonds ), and any additional Parity Bonds issued in the future under the Fiscal Agent Agreement. See SOURCES OF PAYMENT FOR THE 2013 BONDS Issuance of Parity Bonds. The 2013 Bonds are issuable in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). Individual purchases of the 2013 Bonds may be made in principal amounts of $5,000 and integral multiples thereof and will be in book-entry form only. Purchasers of 2013 Bonds will not receive certificates representing their beneficial ownership of the 2013 Bonds but will receive credit balances on the books of their respective nominees. Interest on the 2013 Bonds will be payable commencing September 1, 2013 and semiannually thereafter on each March 1 and September 1. The 2013 Bonds will not be transferable or exchangeable except for transfer to another nominee of DTC or as otherwise described herein. Principal of and interest on the 2013 Bonds will be paid by the Fiscal Agent to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the 2013 Bonds. See THE 2013 BONDS General Provisions and APPENDIX G BOOK-ENTRY ONLY SYSTEM herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE CITY OF RIVERSIDE, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2013 BONDS. EXCEPT FOR THE SPECIAL TAX REVENUES OF IMPROVEMENT AREA NO. 3 (BUT NOT ANY OTHER IMPROVEMENT AREA OF THE DISTRICT), NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2013 BONDS. THE 2013 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE SCHOOL DISTRICT OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM SPECIAL TAX REVENUES TO BE LEVIED IN IMPROVEMENT AREA NO. 3 (BUT NOT THE SPECIAL TAX REVENUES OF ANY OTHER IMPROVEMENT AREA) AND OTHER AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. The 2013 Bonds are subject to optional redemption, extraordinary redemption from prepaid Special Taxes and mandatory sinking fund redemption prior to maturity as set forth herein. See THE 2013 BONDS Redemption herein. THE 2013 BONDS ARE NOT RATED BY ANY RATING AGENCY, AND INVESTMENT IN THE 2013 BONDS INVOLVES SIGNIFICANT RISKS THAT ARE NOT APPROPRIATE FOR CERTAIN INVESTORS. CERTAIN EVENTS COULD AFFECT THE ABILITY OF THE DISTRICT TO PAY THE PRINCIPAL OF AND INTEREST ON THE 2013 BONDS WHEN DUE. SEE THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED SPECIAL RISK FACTORS FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED, IN ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN EVALUATING THE INVESTMENT QUALITY OF THE 2013 BONDS. This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. MATURITY SCHEDULE (See Inside Cover Page) The 2013 Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Best Best & Krieger LLP, Riverside, California, Bond Counsel, and subject to certain other conditions. Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, is serving as Disclosure Counsel to the District with respect to the 2013 Bonds. Certain legal matters will be passed on for the District and the School District by Best Best & Krieger LLP, Riverside, California and for the Underwriter by its counsel, Nossaman LLP, Irvine, California. It is anticipated that the 2013 Bonds in book-entry form will be available for delivery to DTC or its agent on or about April 25, Dated: April 10, 2013

2 MATURITY SCHEDULE COMMUNITY FACILITIES DISTRICT NO. 15 OF RIVERSIDE UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA NO. 3) SPECIAL TAX BONDS, 2013 SERIES C Maturity Date (September 1) $3,590,000 Serial Bonds Principal Amount Interest Rate Yield Price CUSIP No $170, % 0.750% ZP , ZQ , ZR , ZS , ZT , ZU , ZV , ZW , ZX , ZY , ZZ , C A , A , A , A , A , A , A , A , B , B38 $2,575,000 Term Bonds $690, % Term Bonds due September 1, 2036, Yield: 4.750% Price: CUSIP No B46 $1,885, % Term Bonds due September 1, 2041, Yield: 4.750% Price: C CUSIP No B53 C Price to call on September 1, CUSIP is a registered trademark of the American Bankers Association. Copyright 2013 Standard & Poor s, A Division of the McGraw Hill Companies, Inc. All rights reserved. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau. This 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 District nor the Underwriter take any responsibility for the accuracy of such numbers.

3 RIVERSIDE UNIFIED SCHOOL DISTRICT COUNTY OF RIVERSIDE STATE OF CALIFORNIA RIVERSIDE UNIFIED SCHOOL DISTRICT BOARD OF EDUCATION Gayle Cloud, President Charles L. Beaty, Ph.D., Vice President Kathy Y. Allavie, Clerk Tom Hunt, Member Patricia Lock-Dawson, Member DISTRICT STAFF Richard L. Miller, Ph.D., Superintendent Michael H. Fine, Deputy Superintendent, Business Services and Governmental Relations Sandra L. Meekins, Director of Business Services PROFESSIONAL SERVICES BOND COUNSEL Best Best & Krieger LLP Riverside, California DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California FINANCIAL ADVISOR Fieldman, Rolapp & Associates, Inc. Irvine, California SPECIAL TAX CONSULTANT David Taussig & Associates, Inc. Newport Beach, California FISCAL AGENT AND DISSEMINATION AGENT U.S. Bank National Association Los Angeles, California APPRAISER Kitty Siino & Associates, Inc. Tustin, California MORTGAGE CONSULTANT Empire Economics, Inc. Capistrano Beach, California

4 Except where otherwise indicated, all information contained in this Official Statement has been provided by the School District and the District. No dealer, broker, salesperson or other person has been authorized by the School District, the District, the Fiscal Agent or the Underwriter to give any information or to make any representations in connection with the offer or sale of the 2013 Bonds other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the School District, the District, the Fiscal Agent or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2013 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or owners of the 2013 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as representations of fact. This Official Statement, including any supplement or amendment to this Official Statement, is intended to be deposited with the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at The information set forth in this Official Statement which has been obtained from third party sources is believed to be reliable but is not guaranteed as to accuracy or completeness by the School District or the District. The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the School District or the District or any other parties described in this Official Statement since the date of this Official Statement. All summaries of the Fiscal Agent Agreement or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is made by this Official Statement to such documents on file with the School District for further information. While the School District maintains an internet website for various purposes, none of the information on that website is incorporated by reference herein or intended to assist investors in making any investment decision or to provide any continuing information with respect to the 2013 Bonds or any other bonds or obligations of the School District. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, project, budget or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption THE DISTRICT AND IMPROVEMENT AREA NO. 3. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE SCHOOL DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN CONNECTION WITH THE OFFERING OF THE 2013 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH 2013 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 2013 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2013 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

5 TABLE OF CONTENTS Page INTRODUCTION... 1 The School District... 2 The District and Improvement Area No Forward Looking Statements... 3 Sources of Payment for the 2013 Bonds... 3 Appraisal Report... 5 Mortgage Study... 6 Description of the 2013 Bonds... 6 Redemption... 6 Tax Exemption... 6 Professionals Involved in the Offering... 6 Continuing Disclosure... 7 Bond Owners Risks... 7 Other Information... 7 ESTIMATED SOURCES AND USES OF FUNDS... 8 THE 2013 BONDS... 8 General Provisions... 8 Debt Service Schedule... 9 Redemption Registration, Transfer and Exchange SOURCES OF PAYMENT FOR THE 2013 BONDS Limited Obligations Special Taxes Bonds Account of the Reserve Fund Issuance of Parity Bonds THE DISTRICT AND IMPROVEMENT AREA NO General Description of the District and Improvement Area No Direct and Overlapping Indebtedness Appraisal Report Estimated Value-To-Lien Ratios Mortgage Study Largest Taxpayers Delinquency History PROPERTY OWNERSHIP AND THE DEVELOPMENT General Description of the Development Standard Pacific Development Plan Financing Plan History of Property Tax Payments; Loan Defaults; Litigation; Bankruptcy THE RIVERSIDE UNIFIED SCHOOL DISTRICT SPECIAL RISK FACTORS Risks of Real Estate Secured Investments Generally Risks Related to Current Market Conditions Economic Uncertainty Concentration of Ownership Limited Obligations Insufficiency of Special Taxes i

6 TABLE OF CONTENTS (continued) Page Failure to Develop Properties Natural Disasters Endangered Species Hazardous Substances Payment of the Special Tax is not a Personal Obligation of the Property Owners Land Values Parity Taxes, Special Assessments and Land Development Costs Disclosures to Future Purchasers Special Tax Delinquencies FDIC/Federal Government Interests in Properties Bankruptcy and Foreclosure No Acceleration Provision Loss of Tax Exemption Limited Secondary Market Proposition Ballot Initiatives Limitations on Remedies CONTINUING DISCLOSURE TAX MATTERS LEGAL MATTERS ABSENCE OF LITIGATION NO RATING UNDERWRITING FINANCIAL INTERESTS PENDING LEGISLATION ADDITIONAL INFORMATION APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX... A-1 APPENDIX B APPRAISAL REPORT... B-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL... C-1 APPENDIX D GENERAL INFORMATION CONCERNING THE REGION... D-1 APPENDIX E SUMMARY OF THE FISCAL AGENT AGREEMENT AND FIRST SUPPLEMENT TO FISCAL AGENT AGREEMENT... E-1 APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT... F-1 APPENDIX G BOOK-ENTRY ONLY SYSTEM... G-1 APPENDIX H MORTGAGE STUDY... H-1 ii

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9 $6,165,000 COMMUNITY FACILITIES DISTRICT NO. 15 OF RIVERSIDE UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA NO. 3) SPECIAL TAX BONDS, 2013 SERIES C INTRODUCTION The purpose of this Official Statement, which includes the cover page, the table of contents and the appendices (collectively, the Official Statement ), is to provide certain information concerning the issuance by Community Facilities District No. 15 of the Riverside Unified School District (the District ) of its Improvement Area No. 3 Special Tax Bonds, 2013 Series C (the 2013 Bonds ). The proceeds of the 2013 Bonds will be used to (i) finance certain school facilities (the School Facilities ) for the Riverside Unified School District (the School District ), certain public facilities (the City Facilities ) of the City of Riverside (the City ), and certain public facilities (the Water District Facilities ) of Western Municipal Water District of Riverside County (the Water District ), (ii) fund a reserve account for the 2013 Bonds and (iii) pay costs of issuance on the 2013 Bonds. See ESTIMATED SOURCES AND USES OF FUNDS. The 2013 Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections et seq. of the Government Code of the State of California) (the Act ), and pursuant to Resolution No. 2012/13-41 adopted by the Board of Education of the School District on behalf of the District on March 18, 2013, and a Fiscal Agent Agreement by and between the District and U.S. Bank National Association, as Fiscal Agent for the 2013 Bonds (the Fiscal Agent ), dated as of August 1, 2012, as supplemented by a First Supplement to Fiscal Agent Agreement dated as of April 1, 2013 to be entered into by and between District and the Fiscal Agent (collectively, the Fiscal Agent Agreement ). The 2013 Bonds are secured under the Fiscal Agent Agreement by a pledge of and lien upon Special Tax Revenues (as defined herein) levied on parcels within Improvement Area No. 3 of the District (the Improvement Area or Improvement Area No. 3 ), but not from Special Taxes levied on parcels within any other Improvement Area of the District, and all moneys in the Special Tax Fund (other than the Surplus Account), all moneys in the Principal Account and Interest Account of the Bond Fund and all moneys deposited in the 2013 Bonds Account of the Reserve Fund, as described the Fiscal Agent Agreement. The 2013 Bonds are not secured by any other moneys on deposit in the Reserve Fund. See SOURCES OF PAYMENT FOR THE 2013 BONDS. The 2013 Bonds are secured under the Fiscal Agent Agreement on a parity with the District s outstanding Special Tax Refunding Bonds, 2012 Series B, originally issued and currently outstanding in the aggregate principal amount of $4,400,000 (the 2012 Bonds ). The 2012 Bonds were issued to refund the District s Special Tax Bonds, 2009 Series A, originally issued in the aggregate principal amount of $5,465,000 (the 2009 Bonds ). The 2009 Bonds were issued to finance certain public facilities of the School District, the City and the Water District. The 2013 Bonds, the 2012 Bonds and any additional Parity Bonds (as defined in the Fiscal Agent Agreement) that may be issued in the future are sometimes referred to in this Official Statement as the Bonds. The 2013 Bonds are being issued and delivered pursuant to the provisions of the Act and the Fiscal Agent Agreement. The 2013 Bonds are being sold pursuant to a Bond Purchase Agreement between Stifel, Nicolaus & Company, Incorporated (the Underwriter ) and the School District. For more complete information, see THE 2013 BONDS General Provisions herein. This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of 2013 Bonds to potential investors is made only by means of the entire 1

10 Official Statement. All capitalized terms used in this Official Statement and not defined shall have the meaning set forth in APPENDIX E SUMMARY OF THE FISCAL AGENT AGREEMENT AND FIRST SUPPLEMENT TO FISCAL AGENT AGREEMENT DEFINITIONS herein. The School District The School District is a unified school district, governed by a five member, elected, Board of Education. The School District encompasses an area of about 92 square miles located in the northwestern portion of Riverside County approximately 47 miles east of the Los Angeles civic center. The School District encompasses major portions of the City of Riverside. The School District was established in 1963 through the unification of the Riverside City School District and the Riverside City High School District. The School District serves approximately 42,000 students. The School District operates thirty elementary schools, seven middle schools, five high schools, two alternative high schools, one virtual school, one adult school and one special education preschool. See THE RIVERSIDE UNIFIED SCHOOL DISTRICT. The District and Improvement Area No. 3 The District and Improvement Area No. 3 therein were formed on April 19, 2004 by the Board of Education of the School District (the Board ) pursuant to the Act. The Act was enacted by the California legislature to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State. Any local agency (as defined in the Act) may establish a community facilities district to provide for and finance the cost of eligible public facilities and services. Generally, the legislative body of the local agency which forms a community facilities district acts on behalf of such district as its legislative body. Subject to approval by two-thirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district and may levy and collect a special tax within such district to repay such indebtedness. Pursuant to the Act, in forming the District, the Board adopted resolutions on March 1, 2004 stating its intention to establish the District and to designate three improvement areas, to authorize the levy of special taxes on property within the District and such improvement areas ( Special Taxes, as used in this Official Statement, refers to the Special Taxes to be levied by the District in Improvement Area No. 3 only) pursuant to a rates and method of apportionment (the Original Rates and Method ), and to authorize the District to incur bonded indebtedness. Following public hearings conducted pursuant to the Act, on April 19, 2004, the Board adopted resolutions establishing the District and calling consolidated special elections to submit the levy of the Special Taxes and the incurring of bonded indebtedness to the qualified voters of the District. At a special election held on May 11, 2004, the owners of the property within the District, and each Improvement Area therein, authorized the District to incur a bonded indebtedness for the purpose of financing public facilities for each Improvement Area of the District as follows: Improvement Area No. 1 $20,000,000; Improvement Area No. 2 $16,000,000; and Improvement Area No. 3 $14,000,000. On June 11, 2004 a Notice of Special Tax Lien was recorded in the official records of the County of Riverside (the County ). On May 16, 2005, the Board adopted resolutions initiating proceedings (i) to amend the Original Rates and Method to increase the rates of Special Taxes to be levied on property in Improvement Area No. 2 and Improvement Area No. 3 of the District, (ii) to modify the types of public facilities authorized to be financed by the District to include additional facilities for the City and (iii) to increase the amount of authorized bonded indebtedness of the District for Improvement Area No. 2 and Improvement Area No. 3 of the District. On June 20, 2005, following public hearings, the Board of Education adopted resolutions which called special elections for June 28, 2005 on propositions with respect to (i) increasing the authorized bonded indebtedness to be incurred by the District for Improvement Area No. 2 and Improvement Area No. 3 of the District, (ii) revising the Original Rates and Method, and (iii) modifying the types of public facilities to be financed by the District. On June 28, 2005, the owners of the property located within Improvement Area No. 2 and Improvement Area No. 3 voted ballots in favor of all such propositions. The effect of that vote is that (i) the District is authorized to incur bonded indebtedness in 2

11 an aggregate principal amount not to exceed $60,000,000, to incur bonded indebtedness in an aggregate principal amount not to exceed $21,000,000 to finance public facilities for Improvement Area No. 2 and in an aggregate principal amount not to exceed $18,000,000 to finance public facilities for Improvement Area No. 3, (ii) the Amended and Restated Rates and Method of Apportionment of Special Tax (the Rates and Method ) was approved, and (iii) the authorized types of public facilities were modified to include additional public facilities of the City. On July 19, 2005, an Amendment to the Notice of Special Tax Lien with respect to such changes was recorded in the official records of the County. Improvement Area No. 3 contains approximately acres located in the northwestern portion of the County and in the southeastern portion of the City. The property within Improvement Area No. 3 includes two Final Tract Maps and one Tentative Tract Map in a community known as Mission Ranch: Final Tract Map Nos and 29596, and Tentative Tract Map No Final Tract Map No was developed by Centex Homes in 2007 and 2008 into 136 single family detached homes. The Centex Homes development is built out with the final completed homes conveyed to individual homebuyers in April, Tentative Tract Map No contains approximately acres containing 92 lots owned by KM Investments LLC. Tentative Tract Map No is currently in a raw land condition and is not currently being developed. Standard Pacific Corp., a Delaware corporation ( Standard Pacific ), is developing the property within Final Tract Map No within Improvement Area No. 3. Final Tract Map No contains approximately acres which Standard Pacific is developing into 116 single family detached homes in a development known as Mission Grove. As of February 13, 2013, in Standard Pacific s Mission Grove development in Improvement Area No. 3, there were 59 completed production homes which had been conveyed to individual homeowners, three completed model homes owned by Standard Pacific, eight production homes over 95% completed, 12 additional production homes under construction and 34 lots in a finished lot condition. As of March 23, 2013, an additional eight production units had been conveyed to individual homeowners. See PROPERTY OWNERSHIP AND THE DEVELOPMENT. Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a plan, expect, estimate, project, budget or similar words. Such forwardlooking statements include, but are not limited to certain statements contained in the information under the captions THE DISTRICT AND IMPROVEMENT AREA NO. 3, PROPERTY OWNERSHIP AND THE DEVELOPMENT and APPENDIX B APPRAISAL REPORT. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. Sources of Payment for the 2013 Bonds As used in this Official Statement, the term Special Tax is that tax which has been authorized to be levied against taxable property within Improvement Area No. 3 pursuant to the Act and in accordance with the Rates and Method to satisfy the Special Tax Requirement for Improvement Area No. 3 (as defined in the Rates and Method). Special Tax Revenues are defined to mean the proceeds of the Special Taxes received by the School District, including any scheduled payments and any prepayments thereof, interest and penalties and 3

12 proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes in the amount of said lien and interest and penalties. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes and APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX. Under the Fiscal Agent Agreement, the District has pledged to repay the 2013 Bonds from the Special Tax Revenues and amounts on deposit in the Principal Account and Interest Account of the Bond Fund on a parity with the Outstanding 2012 Bonds and any future Parity Bonds, and the 2013 Bonds Account of the Reserve Fund established under the Fiscal Agent Agreement. The 2013 Bonds will not be secured by Special Taxes levied on property in Improvement Area No. 1 or Improvement Area No. 2 of the District. Correspondingly, the outstanding bonds of Improvement Area No. 1 and Improvement Area No. 2 are not secured by Special Taxes levied on property in Improvement Area No Bonds Account of the Reserve Fund. Pursuant to the Fiscal Agent Agreement, the initial Reserve Requirement for the 2013 Bonds is an amount equal to $488, which is equal to the least of (i) 10% of the stated principal amount of the 2013 Bonds, (ii) Maximum Annual Debt Service on the 2013 Bonds or (iii) 125% of average Annual Debt Service on the 2013 Bonds, as determined by the School District (the Reserve Requirement ). See SOURCES OF PAYMENT FOR THE 2013 BONDS 2013 Bonds Account of the Reserve Fund. Subject to the maximum annual amounts of Special Taxes contained in the Rates and Method, if the amount in the 2013 Bonds Account of the Reserve Fund is less than the Reserve Requirement, the School District has covenanted to restore the amount in the 2013 Bonds Account of the Reserve Fund to the Reserve Requirement by the inclusion of a sufficient amount in the next annual Special Tax levy within Improvement Area No. 3. The ability of the Board to increase the annual Special Taxes levied in the District to replenish the 2013 Bonds Account of the Reserve Fund is subject to the maximum annual amounts of Special Taxes authorized for the District. The moneys in the 2013 Bonds Account of the Reserve Fund will be used only for payment of the principal of, and interest and any redemption premium on, the 2013 Bonds and at the direction of the School District, for deposit in the Rebate Fund. The 2013 Bonds are not secured by any moneys on deposit in the Reserve Fund other than the 2013 Bonds Account of the Reserve Fund. See SOURCES OF PAYMENT FOR THE 2013 BONDS 2013 Bonds Account of the Reserve Fund. The Special Tax Revenues are the primary security for the repayment of the Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Principal Account and Interest Account of the Bond Fund and the Reserve Fund, including the 2013 Bonds Account of the Reserve Fund with respect to the 2013 Bonds, to the limited extent described in the Fiscal Agent Agreement. See SOURCES OF PAYMENT FOR THE 2013 BONDS 2013 Bonds Account of the Reserve Fund. Foreclosure Proceeds. The School District has covenanted with and for the benefit of the Owners of the Bonds as follows: (i) it will order, and cause to be commenced, judicial foreclosure proceedings against properties with delinquent Special Taxes in excess of $5,000 by the October 1 following the close of the Fiscal Year in which such Special Taxes were due, and (ii) it will commence judicial foreclosure proceedings against all properties with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Taxes levied, and diligently pursue to completion such foreclosure proceedings. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Proceeds of Foreclosure Sales. There is no assurance that the property within Improvement Area No. 3 can be sold for the appraised value described in this Official Statement, or for a price sufficient to pay the principal of and interest on the Bonds in the event of a default in payment of Special Taxes by the current or future landowners within Improvement Area No. 3. See RISK FACTORS Land Values and APPENDIX B APPRAISAL REPORT. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE CITY OF RIVERSIDE, THE COUNTY OF RIVERSIDE, STATE OF CALIFORNIA 4

13 OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2013 BONDS. EXCEPT FOR THE SPECIAL TAXES OF IMPROVEMENT AREA NO. 3 (BUT NOT THE SPECIAL TAXES OF ANY OTHER IMPROVEMENT AREA OF THE DISTRICT), NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE 2013 BONDS. THE 2013 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE SCHOOL DISTRICT OR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM SPECIAL TAXES OF IMPROVEMENT AREA NO. 3 (BUT NOT THE SPECIAL TAXES OF ANY OTHER IMPROVEMENT AREA) AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. Parity Bonds and Liens. Under the terms of the Fiscal Agent Agreement, the District may issue additional bonds secured by Special Tax Revenues on a parity with the 2012 Bonds and the 2013 Bonds ( Parity Bonds ) if certain conditions are met. See SOURCES OF PAYMENT FOR THE 2013 BONDS Issuance of Parity Bonds. Parity Bonds may be issued by means of a supplemental Fiscal Agent Agreement and without any requirement for the consent of any 2012 Bond owners or 2013 Bond owners. See APPENDIX E SUMMARY OF THE FISCAL AGENT AGREEMENT AND FIRST SUPPLEMENT TO FISCAL AGENT AGREEMENT. Other taxes and/or special assessments with liens equal in priority to the continuing lien of the Special Taxes have been levied and may also be levied in the future on the property within Improvement Area No. 3 which could adversely affect the willingness of the landowners to pay the Special Taxes when due. See SPECIAL RISK FACTORS Parity Taxes, Special Assessments and Land Development Costs herein. Appraisal Report An MAI appraisal of the land and existing improvements within Improvement Area No. 3 was prepared by Kitty Siino & Associates, Inc., Tustin, California (the Appraiser ). The appraisal is dated February 18, 2013, and entitled Summary Appraisal Report Community Facilities District No. 15 Improvement Area No. 3 of the Riverside Unified School District (the Appraisal Report ). See APPENDIX B APPRAISAL REPORT. The Appraisal Report provides an estimate of the aggregate market value of the as is condition of the taxable property within Improvement Area No. 3 as of the date of value, February 13, As of February 13, 2013, of the 344 lots within Improvement Area No. 3, 195 completed single family detached homes had been completed and conveyed to individual homeowners, 11 single family detached homes (including three model homes) had been completed or were 95% complete and owned by Standard Pacific, 12 lots were in various stages of construction by Standard Pacific, 34 vacant lots owned by Standard Pacific were in finished lot condition, and 92 vacant lots owned by KM Investments LLC were in a raw land condition. As of February 13, 2013, the Appraiser estimated the market value of the fee simple interest of the property within Improvement Area No. 3 to be $76,606,918, consisting of (i) $62,561,918 for the 195 completed homes owned by individual homeowners within Improvement Area No. 3 as of February 13, 2013, (ii) $10,605,000 for the 57 completed or 95% completed homes, lots in various stages of construction and finished lots owned by Standard Pacific as of February 13, 2013, and (iii) $3,440,000 for 92 vacant lots of raw land owned by KM Investments LLC. The Appraisal Report is based upon a variety of assumptions and limiting conditions that are described in APPENDIX B. The School District and the District make no representation as to the accuracy of the Appraisal Report. See THE DISTRICT AND IMPROVEMENT AREA NO. 3 Appraisal Report and Estimated Value-to-Lien Ratios. There is no assurance that the property within Improvement Area No. 3 can be sold for the prices set forth in the Appraisal Report or that any parcel can be sold for a price sufficient to pay the Special Tax for that parcel in the event of a default in payment of Special Taxes by the landowner. See THE DISTRICT AND IMPROVEMENT AREA NO. 3, SPECIAL RISK FACTORS Land Values and APPENDIX B APPRAISAL REPORT herein. 5

14 Mortgage Study The District engaged Empire Economics, Inc., Capistrano Beach, California (the Mortgage Consultant ) to study the mortgage loan characteristics for some of the current individual homeowners within Improvement Area No. 3. Homeowners in Improvement Area No. 3 who purchased their homes from 2007 through 2009 may have high levels of negative equity which may affect their ability or willingness to pay Special Taxes levied on their property when due. See THE DISTRICT AND IMPROVEMENT AREA NO. 3 Mortgage Study and APPENDIX H MORTGAGE STUDY. Description of the 2013 Bonds The 2013 Bonds will be issued and delivered as fully registered 2013 Bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to actual purchasers of the 2013 Bonds (the Beneficial Owners ) in the denominations of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the 2013 Bonds. In the event that the book-entry-only system described herein is no longer used with respect to the 2013 Bonds, the 2013 Bonds will be registered and transferred in accordance with the Fiscal Agent Agreement. See APPENDIX G BOOK-ENTRY ONLY SYSTEM. Principal of, premium, if any, and interest on the 2013 Bonds is payable by the Fiscal Agent to DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. See APPENDIX G BOOK-ENTRY ONLY SYSTEM. Redemption The 2013 Bonds are subject to optional redemption, extraordinary redemption and mandatory sinking fund redemption as described herein. See THE 2013 BONDS Redemption. For a more complete descriptions of the 2013 Bonds and the basic documentation pursuant to which they are being sold and delivered, see THE 2013 BONDS and APPENDIX E SUMMARY OF THE FISCAL AGENT AGREEMENT AND FIRST SUPPLEMENT TO FISCAL AGENT AGREEMENT herein. Tax Exemption In the opinion of Bond Counsel, under existing statutes, regulations, rulings and court decisions, the interest on the 2013 Bonds is exempt from personal income taxes of the State of California and, assuming compliance with certain covenants described in the Official Statement, is excluded from gross income for federal income tax purposes, and is not a specific preference item for purposes of the federal alternative minimum tax; however, it should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of corporations. Set forth in APPENDIX C is the form of opinion of Bond Counsel expected to be delivered in connection with the issuance of the 2013 Bonds. For a more complete discussion of such opinion and certain other tax consequences incident to the ownership of the 2013 Bonds, including certain exceptions to the tax treatment of interest, see TAX MATTERS. Professionals Involved in the Offering U.S. Bank National Association will act as Fiscal Agent under the Fiscal Agent Agreement and initial dissemination agent under the Continuing Disclosure Agreement (as defined herein). Stifel, Nicolaus & Company, Incorporated, is the Underwriter of the 2013 Bonds. Certain proceedings in connection with the issuance and delivery of the 2013 Bonds are subject to the approval of Best Best & Krieger LLP, Riverside, California, Bond Counsel. Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, 6

15 California, is serving as Disclosure Counsel to the District. Fieldman Rolapp & Associates is acting as Financial Advisor to the School District in connection with the 2013 Bonds. Certain legal matters will be passed on for the School District and the District by Best Best & Krieger LLP, and for the Underwriter by Nossaman LLP, Irvine, California, as Underwriter s Counsel. Other professional services have been performed by David Taussig & Associates, Inc., Newport Beach, California, Special Tax Consultant, Kitty Siino & Associates, Inc., Tustin, California, as Appraiser, and Empire Economics, Inc., Capistrano Beach, California, as Mortgage Consultant. For information concerning the respects in which certain of the above-mentioned professionals, advisors, counsel and agents may have a financial or other interest in the offering of the 2013 Bonds, see FINANCIAL INTERESTS. Continuing Disclosure The District has agreed to provide, or cause to be provided, to the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board (the MSRB ), which can be found at ( EMMA ), certain financial information and operating data on an annual basis. The District has further agreed to provide notice to EMMA of certain listed events. Notices of Listed Events will also be filed with the MSRB. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) (the Rule ) adopted by the Securities and Exchange Commission (the SEC ). See CONTINUING DISCLOSURE and APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT herein for the form of the District s Continuing Disclosure Agreement. Other than as described in this Official Statement under the heading CONTINUING DISCLOSURE, the District and the School District have not failed to comply in all material respects with any previous undertakings with regard to Rule 15c2-12 to provide annual reports or notices of significant events in the last five years. Bond Owners Risks Certain events could affect the ability of the District to pay the principal of and interest on the 2013 Bonds when due. See the section of this Official Statement entitled SPECIAL RISK FACTORS for a discussion of certain factors which should be considered, in addition to other matters set forth herein, in evaluating an investment in the 2013 Bonds. The 2013 Bonds are not rated by any nationally recognized rating agency. The purchase of the 2013 Bonds involves significant risks, and the 2013 Bonds may not be appropriate investments for certain investors. See SPECIAL RISK FACTORS herein. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the 2013 Bonds and the Fiscal Agent Agreement are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Fiscal Agent Agreement, the 2013 Bonds and the constitution and laws of the State as well as the proceedings of the Board, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the 2013 Bonds, by reference to the Fiscal Agent Agreement. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Fiscal Agent Agreement. Copies of the Fiscal Agent Agreement, the Appraisal Report and other documents and information are available for inspection and (upon request and payment to the District of a charge for copying, mailing and handling) for delivery from the office of the Superintendent of Riverside Unified School District, th Street, Riverside, California

16 (1) ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the expected sources and uses of 2013 Bond proceeds. Sources of Funds: Principal Amount of 2013 Bonds $ 6,165, Less Underwriter s Discount (80,145.00) Plus Net Original Issue Premium 2, Total Sources $ 6,087, Uses of Funds: Improvement Fund (1) $ 5,445, Bonds Costs of Issuance Fund (2) 153, Bonds Account of the Reserve Fund 488, Total Uses $ 6,087, Includes $2,357,480 for School District Facilities, $899,008 for City Facilities and $2,188,725 for Water District Facilities. (2) Includes Bond Counsel fees, Disclosure Counsel fees, Special Tax Consultant fees, Financial Advisor fees, Fiscal Agent and Dissemination Agent fees, Appraiser fees, Mortgage Consultant fees, printing costs and other issuance costs. Source: The Underwriter. General Provisions THE 2013 BONDS The 2013 Bonds will be dated as of their date of delivery and will bear interest at the rates per annum set forth on the inside cover page hereof, payable semiannually on each September 1 and March 1, commencing on September 1, 2013 (each, an Interest Payment Date ), and will mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. The 2013 Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. Interest will be calculated on the basis of a 360 day year comprised of twelve 30 day months. Interest on any 2013 Bond will be payable from the Interest Payment Date next preceding the date of authentication of that 2013 Bond, unless (i) such date of authentication is an Interest Payment Date, in which event interest will be payable from such date of authentication; (ii) the date of authentication is after the 15th day of the month next preceding the applicable Interest Payment Date whether or not such day is a Business Day (a Record Date ) but prior to the immediately succeeding Interest Payment Date, in which event interest will be payable from the Interest Payment Date immediately succeeding the date of authentication; or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest will be payable from the date of the 2013 Bonds; provided, however, that if at the time of authentication of a 2013 Bond, interest is in default, interest on that 2013 Bond will be payable from the last Interest Payment Date to which the interest has been paid or made available for payment. Interest on any 2013 Bond will be paid to the person whose name appears as its owner in the registration books held by the Fiscal Agent on the close of business on the Record Date. Interest will be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, to the 2013 Bondowner at its address on the registration books. Pursuant to a written request prior to the Record Date of a 2013 Bondowner of at least $1,000,000 in aggregate principal amount of 2013 Bonds, payment will be made by wire transfer in immediately available funds to an account in the United States of America designated by the 2013 Bondowner in the United States. Principal of the 2013 Bonds and any premium due upon redemption is payable upon presentation and surrender of the 2013 Bonds at the principal corporate trust office of the Fiscal Agent in Los Angeles, California. 8

17 The 2013 Bonds will be issued as fully registered bonds and will be registered in the name of Cede & Co., as nominee DTC. DTC will act as securities depository of the 2013 Bonds. Ownership interests in the 2013 Bonds may be purchased in book-entry form only in denominations of $5,000 and any integral multiple thereof. So long as DTC is the securities depository all payments of principal and interest on the 2013 Bonds will be made to DTC and will be paid to the Beneficial Owners in accordance with DTC s procedures and the procedures of DTC s Participants. See APPENDIX G BOOK-ENTRY-ONLY SYSTEM. Debt Service Schedule The following table presents the annual debt service on the 2013 Bonds (including mandatory sinking fund redemption), assuming there are no optional or extraordinary redemptions. See SOURCES OF PAYMENT OF THE 2013 BONDS and THE 2013 BONDS Redemption. Date (September 1) (1) 2012 Bonds Debt Service 2013 Bonds Principal 2013 Bonds Interest 2013 Bonds Total Debt Service Total Debt Service (1) 2013 $ 288, $ 170, $ 89, $ 259, $ 547, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total $8,000, $ 6,165, $ 4,919, $ 11,084, $ 19,085, Calculated by adding the 2012 Bonds Debt Service Column and the 2013 Total Debt Service column. Source: The Underwriter. The 2013 Bonds have been sized so that 85% of the Assigned Special Taxes that could be levied on Parcels of property classified as Detached Residential Property under the Rates and Method (i.e., taxable property within Improvement Area No. 3 for which a building permit for a Detached Dwelling Unit (as defined in the Rates and Method) has been obtained by March 1 of the prior Fiscal Year), assuming no delinquencies, produces at least 110% of the Maximum Annual Debt Service on the 2012 Bonds and the 2013 Bonds, collectively, plus Administrative Expenses of at least $28,000. Parity Bonds may be issued in the future under 9

18 certain circumstances, but the District has covenanted not to issue Parity Bonds unless the above coverage calculation is met with respect to the Bonds, including such proposed Parity Bonds. See SOURCES OF PAYMENT OF THE 2013 BONDS Issuance of Parity Bonds. Notwithstanding that the maximum Special Taxes that may be levied in the District exceeds debt service due on the Bonds, the Special Taxes collected could be inadequate to make timely payment of debt service either because of nonpayment or because property becomes exempt from taxation as permitted in the Rates and Method. See SPECIAL RISK FACTORS Insufficiency of Special Taxes. Pursuant to the Rates and Method and the Act, under no circumstances may the Special Tax levied against any parcel used for private residential purposes be increased as a consequence of delinquency or default by owner of any other parcel or parcels within the District by more than 10% in any fiscal year. Thus, the School District may not be able to increase Special Tax levies in future fiscal years by enough to make up for delinquencies for prior fiscal years. This would result in draws on the Reserve Fund, including the 2013 Bonds Account therein, and if delinquencies continue and in the aggregate exceed the Reserve Fund balance, defaults would occur in the payment of principal and interest on the Bonds. See SPECIAL RISK FACTORS Insufficiency of Special Taxes. Redemption Optional Redemption. The 2013 Bonds are subject to redemption prior to maturity at the option of the District from such maturity or maturities as selected by the School District and from any available funds on any Interest Payment Date on and after March 1, 2014, in whole or in part, at the following redemption prices, expressed as a percentage of the principal amount of the 2013 Bonds to be redeemed, together with accrued interest to the date of redemption: Redemption Dates Redemption Price March 1, 2014 through March 1, % September 1, 2021 and March 1, September 1, 2022 and March 1, September 1, 2023 and any Interest Payment Date thereafter 100 Extraordinary Redemption from Special Tax Prepayments. The 2013 Bonds are subject to mandatory redemption prior to their stated maturity dates on any Interest Payment Date on and after March 1, 2014, as selected among maturities by the School District (and by lot within any one maturity), in integral multiples of $5,000, from moneys derived by the School District from Special Tax Prepayments, at redemption prices (expressed as percentages of the principal amounts of the Bonds to be redeemed), together with accrued interest to the date of redemption, as follows: Redemption Dates Redemption Price March 1, 2014 through March 1, % September 1, 2021 and March 1, September 1, 2022 and March 1, September 1, 2023 and any Interest Payment Date thereafter

19 Mandatory Sinking Fund Redemption. The outstanding 2013 Bonds maturing on September 1, 2036 are subject to mandatory sinking fund redemption, in part, on September 1, 2034, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, and from sinking payments as follows: 2013 Bonds Maturing September 1, 2036 Sinking Fund Redemption Date (September 1) Sinking Fund Payments 2034 $260, , (Maturity) 220,000 The outstanding 2013 Bonds maturing on September 1, 2041 are subject to mandatory sinking fund redemption, in part, on September 1, 2037, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, and from sinking payments as follows: 2013 Bonds Maturing September 1, 2041 Sinking Fund Redemption Date (September 1) Sinking Fund Payments 2037 $225, , , , (Maturity) 630,000 The amounts in the foregoing schedules shall be reduced by the School District pro rata among redemption dates, in order to maintain substantially level Debt Service, as a result of any prior or partial optional or mandatory redemption of the 2013 Bonds. Purchase of 2013 Bonds. In lieu of payment at maturity or redemption under the Fiscal Agent Agreement, moneys in the Bond Fund may be used and withdrawn by the Fiscal Agent for purchase of Outstanding 2013 Bonds, upon the filing with the Fiscal Agent of an Officer s Certificate requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such Officer s Certificate may provide, but in no event may 2013 Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of purchase. Notice to Fiscal Agent. An Authorized Officer shall give the Fiscal Agent written notice of the School District s intention to redeem 2013 Bonds not less than 45 days prior to the applicable redemption date. Such written notice shall specify whether 2013 Bonds are to be redeemed by optional redemption or mandatory redemption from special tax prepayments. The provisions of this subsection shall not apply to mandatory sinking fund redemption of the 2013 Bonds. Redemption Procedure by Fiscal Agent. The Fiscal Agent shall cause notice of any redemption to be mailed by first class mail, postage prepaid, at least 30 days but not more than 60 days prior to the date fixed for redemption, to the Securities Depositories and to one or more Information Services selected by an Authorized Officer, and to the respective registered Owners of any 2013 Bonds designated for redemption, at their addresses appearing on the 2013 Bond registration books maintained by the Fiscal Agent at its Principal Office; but such mailing shall not be a condition precedent to such redemption and failure to mail or to receive 11

20 any such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of such 2013 Bonds. The Fiscal Agent shall also cause notice of any redemption to be mailed, in such manner and within such time, to the Underwriter. Such notice shall state the date of such notice, the date of issue of the 2013 Bonds, the place or places of redemption, the redemption date, the redemption price and, if less than all of the then Outstanding 2013 Bonds are to be called for redemption, shall designate the CUSIP numbers and 2013 Bond numbers of the 2013 Bonds to be redeemed, by giving the individual CUSIP number and 2013 Bond number of each 2013 Bond to be redeemed, or shall state that all 2013 Bonds between two stated 2013 Bond numbers, both inclusive, are to be redeemed or that all of the 2013 Bonds of one or more maturities have been called for redemption, shall state as to any 2013 Bond called for redemption in part the portion of the principal of the 2013 Bond to be redeemed, shall require that such 2013 Bonds be then surrendered at the Principal Office of the Fiscal Agent for redemption at the said redemption price, and shall state that further interest on such 2013 Bonds will not accrue from and after the redemption date. The cost of the mailing of any such redemption notice shall be paid by the District. Upon the payment of the redemption price of 2013 Bonds being redeemed, each check or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUSIP number identifying, by issue and maturity, the 2013 Bonds being redeemed with the proceeds of such check or other transfer. In the event of an optional redemption or mandatory redemption from Special Tax Prepayments pursuant to the Fiscal Agent Agreement, the School District shall transfer or cause to be transferred to the Fiscal Agent for deposit in the Bond Fund moneys in an amount equal to the redemption price of the 2013 Bonds being redeemed on or before the Interest Payment Date upon which such 2013 Bonds are to the redeemed. If less than all the 2013 Bonds Outstanding are to be redeemed, the portion of any 2013 Bond of a denomination of more than $5,000 to be redeemed shall be in integral multiples of $5,000, and, in selecting portions of such 2013 Bonds for redemption, the Fiscal Agent shall treat each such 2013 Bond as representing the number of 2013 Bonds of $5,000 denominations which is obtained by dividing the principal amount of such 2013 Bond to be redeemed in part by $5,000. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the 2013 Bonds of a maturity or any given portion thereof, the Fiscal Agent shall select the 2013 Bonds of such maturity to be redeemed, from all 2013 Bonds of such maturity or such given portion thereof not previously called for redemption, by lot within a maturity in any manner which the Fiscal Agent in its sole discretion shall deem appropriate. Upon surrender of 2013 Bonds redeemed in part only, the School District shall execute and the Fiscal Agent shall authenticate and deliver to the Owner, at the expense of the District, a new 2013 Bond or 2013 Bonds, of the same maturity, of authorized denominations in an aggregate principal amount equal to the unredeemed portion of the 2013 Bond or 2013 Bonds. The District will have the right to rescind any notice of redemption for any optional or mandatory redemption pursuant to the Fiscal Agent Agreement on or prior to the date fixed for redemption. Any notice of optional redemption will be cancelled and annulled if for any reason funds will not be or are not available on the date so fixed for redemption for the payment in full of the 2013 Bonds then called for redemption, and such cancellation will not constitute an Event of Default under the Fiscal Agent Agreement. The School District and the Fiscal Agent will have no liability to the 2013 Bondowners or any other party related to or arising from such rescission of redemption. The Fiscal Agent will mail notice of such recession of redemption in the same manner as the original notice of redemption. 12

21 Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the redemption prices of the 2013 Bonds called for redemption shall have been deposited in the Bond Fund, such 2013 Bonds shall cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and interest shall cease to accrue on the 2013 Bonds to be redeemed on the redemption date specified in the notice of redemption. All 2013 Bonds redeemed and purchased by the Fiscal Agent pursuant to the Fiscal Agent Agreement shall be cancelled by the Fiscal Agent. Registration, Transfer and Exchange Registration. The Fiscal Agent will keep sufficient books for the registration and transfer of the 2013 Bonds. The ownership of the 2013 Bonds will be established by the 2013 Bond registration books held by the Fiscal Agent. Transfer or Exchange. Whenever any 2013 Bond is surrendered for registration of transfer or exchange, the Fiscal Agent will authenticate and deliver a new 2013 Bond or 2013 Bonds of the same maturity, for a like aggregate principal amount of authorized denominations; provided that the Fiscal Agent will not be required to register transfers or make exchanges of (i) 2013 Bonds for a period of 15 days next preceding the date established by the Fiscal Agent for selection of 2013 Bonds for redemption, or (ii) with respect to 2013 Bonds selected for redemption. Limited Obligations SOURCES OF PAYMENT FOR THE 2013 BONDS The 2013 Bonds are special, limited obligations of the District payable on a parity with the 2012 Bonds and any future Parity Bonds only from amounts pledged under the Fiscal Agent Agreement and from no other sources. The Special Taxes are the primary security for the repayment of the 2013 Bonds. Under the Fiscal Agent Agreement, the District has pledged to repay the 2013 Bonds from the Special Tax Revenues (which are the proceeds of the Special Taxes received by the School District, including any scheduled payments, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes) and all moneys deposited in Principal and Interest Accounts of the Bond Fund and the 2013 Bonds Account of the Reserve Fund. The 2013 Bonds are secured on a parity with the 2012 Bonds and any future Parity Bonds of the District. See Issuance of Parity Bonds. In the event that the Special Tax Revenues are not received when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Principal and Interest Accounts of the Bond Fund for the exclusive benefit of the Owners of the Bonds. Amount held by the Fiscal Agent in the 2013 Bonds Account of the Reserve Fund are held for the exclusive benefit of the Owners of the 2013 Bonds. Other moneys on deposit in the Reserve Fund are not held for the benefit of the Owners of the 2013 Bonds. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE CITY OF RIVERSIDE, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2013 BONDS. EXCEPT FOR THE SPECIAL TAX REVENUES OF IMPROVEMENT AREA NO. 3 (BUT NOT SPECIAL TAXES OF ANY OTHER IMPROVEMENT AREA OF THE DISTRICT), NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2013 BONDS. THE 2013 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE SCHOOL DISTRICT OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE 13

22 SOLELY FROM SPECIAL TAXES TO BE LEVIED IN IMPROVEMENT AREA NO. 3 (BUT NOT SPECIAL TAX REVENUES OF ANY OTHER IMPROVEMENT AREA OF THE DISTRICT) AND OTHER AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. Special Taxes Authorization and Pledge. In accordance with the provisions of the Act, the School District established the District and Improvement Areas 1, 2 and 3 therein on June April 19, 2004 for the purpose of financing the various public improvements required in connection with the proposed development within the District. On May 11, 2004, elections were held within each Improvement Area of the District at which the landowners eligible to vote approved the issuance of bonds for Improvement Area No. 3 of the District in an amount not to exceed $14,000,000, secured by special taxes levied on property within Improvement Area No. 3 of the District to finance the Facilities. The landowners within Improvement Area No. 3 also voted to approve the Original Rates and Method which authorize the Special Tax to be levied to repay indebtedness of Improvement Area No. 3, including the 2013 Bonds. On May 16, 2005, the Board of Education adopted Resolution No. 2004/05-80 determining the necessity to increase the authorized bonded indebtedness of the District for Improvement Area No. 2 and Improvement Area No. 3, revise the Rates and Method of Apportionment of Special Tax, and modify the types of authorized public facilities to include additional facilities of the City. The Board of Education also adopted Resolution No. 2004/05-81 which declared the necessity to increase the authorized bonded indebtedness of the District, for the purpose of issuing bonds for Improvement Area No. 2 and Improvement Area No. 3 to $60,000,000, and to increase the amounts of the authorized bonded indebtedness to be incurred by the District for Improvement Area No. 2 to $21,000,000 and Improvement Area No. 3 to $18,000,000. On June 20, 2005, the Board of Education conducted consolidated public hearings with respect to the proposed changes. On that date, the Board of Education adopted Resolution No. 2004/05-87 and Resolution No. 2004/05-88 which called special elections for June 28, 2005 on propositions with respect to (i) increasing the authorized bonded indebtedness to be incurred by the District for Improvement Area No. 2 and Improvement Area No. 3, (ii) revising the Rates and Method of Apportionment of Special Tax for the District and (iii) modifying the types of public facilities to be financed by the District. On June 28, 2005, the owners of the property located within Improvement Area No. 2 and Improvement Area No. 3 voted ballots in favor of all such propositions. The effect of that vote is that (i) the District was authorized to incur bonded indebtedness in an aggregate principal amount not to exceed $60,000,000, to incur bonded indebtedness in an aggregate principal amount not to exceed $21,000,000 to finance public facilities for Improvement Area No. 2 and in an aggregate principal amount not to exceed $18,000,000 to finance public facilities for Improvement Area No. 3, (ii) the Amended and Restated Rates and Method of Apportionment of Special Tax was approved, and (iii) the authorized types of public facilities were modified to include additional public facilities of the City. On July 19, 2005, an Amendment to the Notice of Special Tax Lien with respect to such changes was recorded in the official records of the County. The District has covenanted in the Fiscal Agent Agreement that each year it will levy Special Taxes up to the maximum rates permitted under the Rates and Method in an amount sufficient, together with other amounts on deposit in the Special Tax Fund, to pay (i) the principal of and interest on any Outstanding 2012 Bonds, 2013 Bonds and Parity Bonds, (ii) any amounts necessary to replenish the Reserve Fund, including the 2013 Bonds Account therein, to the Reserve Requirement, and (iii) the Administrative Expenses (the Special Tax Requirement ). Beginning in Fiscal Year , the District has levied Special Taxes in Improvement Area No. 3 at 85% of the Assigned Special Tax rate. Prior to that fiscal year, Special Taxes were levied by the District on Developed Property in Improvement Area No. 3 at 100% of the Assigned Special Tax rate. The District expects to continue to levy Special Taxes on Developed Property in Improvement Area No. 3 at 85% of the Assigned Special Tax rate. 14

23 The Special Taxes levied in any fiscal year may not exceed the maximum rates authorized pursuant to the Rates and Method. See APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX hereto. There is no assurance that the Special Tax proceeds will, in all circumstances, be adequate to pay the principal of and interest on the 2013 Bonds when due. See SPECIAL RISK FACTORS Insufficiency of Special Taxes herein. Rates and Method of Apportionment of Special Tax. The District is legally authorized and has covenanted to cause the levy of the Special Taxes in an amount determined according to a methodology, i.e., the Rates and Method which the Board and the electors within Improvement Area No. 3 have approved. The Rates and Method apportion the total amount of Special Taxes to be collected among the taxable parcels in the Improvement Area No. 3 as more particularly described below. The following is a synopsis of the provisions of the Rates and Method for Improvement Area No. 3, which should be read in conjunction with the complete text of the Rates and Method which is attached as APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX. The meaning of the defined terms used in this section are as set forth in APPENDIX A. This section provides only a summary of the Rates and Method, and is qualified by more complete and detailed information contained in the entire Rates and Method attached as APPENDIX A. Pursuant to the Rates and Method, Special Taxes will first be levied on all Parcels of Detached Residential Property in the Improvement Area at up to 100% of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for the Improvement Area (i.e., annual debt service on the outstanding 2012 Bonds and 2013 Bonds and Administrative Expenses). If the amount of Special Taxes levied on such Parcels of Detached Residential Property is sufficient to satisfy the Special Tax Requirement, no Special Taxes will be levied on parcels of Undeveloped Property. The 2013 Bonds have been sized so that 85% of the Assigned Special Taxes that could be levied on Parcels of property classified as Detached Residential Property under the Rates and Method, assuming no delinquencies, produces at least 110% of the Maximum Annual Debt Service on the 2012 Bonds and the 2013 Bonds, collectively, plus Administrative Expenses of at least $28,000. It will not be necessary for the School District to levy Special Taxes on parcels of Undeveloped Property in the Improvement Area unless there are significant delinquencies in the payment of Special Taxes levied on parcels of Detached Residential Property. See SPECIAL RISK FACTORS Special Tax Delinquencies and Insufficiency of Special Taxes. Parity Bonds may be issued in the future under certain circumstances, but the District has covenanted not to issue Parity Bonds unless the above coverage calculation is met with respect to the Bonds, including such proposed Parity Bonds. See Issuance of Parity Bonds herein. The following is a summary of the salient provisions of the Rates and Method, as applicable to the Improvement Area. Classification of Parcels. For each Fiscal Year all Parcels within Improvement Area No. 3 shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association Property, Undeveloped Property or Exempt Property and shall be subject to the levy of Special Taxes in accordance with the Rates and Method of Apportionment of Special Taxes. Parcels of Developed Property in the Improvement Area shall be assigned to the appropriate Land Use categories, as listed in the table below. Maximum Special Tax Rates. Developed Property. The Maximum Special Tax for each Parcel of Developed Property classified as Detached Residential Property in Improvement Area No. 3 shall be the greater of (i) the 15

24 amount determined by multiplying the Dwelling Unit(s) on or to be constructed on the Parcel by the applicable Assigned Special Tax Rate per Dwelling Unit specified in the following table, or (ii) the Alternate Special Tax. The Maximum Special Tax for each Parcel of Developed Property classified as Attached Residential Property or Non-Residential Property shall be determined by multiplying the Net Taxable Acreage of the Parcel by the applicable Assigned Special Tax Rate for Non-Residential Property as specified in the following table. Assigned Special Tax Rates for Developed Property Improvement Area No. 3 Land Use Category Description Residential Floor Space Assigned Special Tax Rate 1 Detached Residential Property > 3,700 sq. ft. $4,326 per Dwelling Unit 2 Detached Residential Property > 3,400 and 3,700 sq. ft. $4,231 per Dwelling Unit 3 Detached Residential Property > 3,100 and 3,400 sq. ft. $3,697 per Dwelling Unit 4 Detached Residential Property > 2,800 and 3,100 sq. ft. $3,514 per Dwelling Unit 5 Detached Residential Property > 2,500 and 2,800 sq. ft. $3,435 per Dwelling Unit 6 Detached Residential Property 2,500 sq. ft. $3,276 per Dwelling Unit 7 Attached Residential Property N/A $17,011 per Net Taxable Acre 8 Non-Residential Property N/A $17,011 per Net Taxable Acre Taxable Property Owner Association Property, Taxable Public Property and Undeveloped Property. The Maximum Special Tax for each Parcel of Taxable Property Owner Association Property, Taxable Public Property or Undeveloped Property in Improvement Area No. 3 shall be determined by multiplying the Net Taxable Acreage of the Parcel by $17,011. Method of Apportionment and Levy of the Special Tax. For each Fiscal Year, the Board shall determine the Special Tax Requirement for Improvement Area No. 3 and shall levy the Special Tax as follows. First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property in Improvement Area No. 3 at up to 100 percent of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No. 3. Second: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property in Improvement Area No. 3 at up to 100 percent of the Maximum Special Tax for Undeveloped Property. Third: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first two steps have been completed, the Special Tax to be levied on all Parcels of Developed Property in Improvement Area No. 3, whose Maximum Special Tax is determined by application of the Alternate Special Tax, shall be Proportionately increased from the applicable Assigned Special Tax Rate up to 100 percent of the Maximum Special Tax. Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Parcels of Taxable Property Owner Association Property and Taxable Public Property in Improvement Area No. 3, up to 100 percent of the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. Exemptions. The Board shall not levy Special Taxes on: (i) an acreage of Parcels of Public Property and Property Owner Association Property that will not reduce the Net Taxable Acreage of Parcels of Taxable 16

25 Property within Improvement Area No. 3 to less than Net Taxable Acres, and (ii) any Parcels for which the obligation to pay the Special Taxes has been prepaid in full Pursuant to Section G of the Rates and Method of Apportionment of Special Tax. Tax-exempt status for Parcels or portions of Parcels of Public Property and Property Owner Association Property will be irrevocably assigned by the School District in the chronological order in which such Parcels or portions of Parcels become Exempt Property. Term of Special Tax. For each year that any 2013 Bonds are outstanding the Special Tax shall be levied on all Parcels subject to the Special Tax. No Special Tax shall be levied on any Parcel after the Fiscal Year. Relief From Alternate Special Tax. The School District has determined that the conditions specified in Section J of the Rates and Method for relieving all Parcels in the Improvement Area from the obligation to pay the Alternate Special Tax have occurred and that all such Parcels have, therefore, been relieved of such obligation. Prepayment of Annual Special Taxes. The Annual Special Tax obligation for an Assessor s Parcel may be prepaid in full, or in part, provided that the terms set forth under the Rates and Method are satisfied. The Prepayment Amount is calculated based on the Bond Redemption Amount plus Redemption Premium plus the Future Facilities Amount plus the Defeasance Amount and other costs, less a credit for the resulting reduction in the Reserve Requirement for the 2013 Bonds (if any) and less capitalized interest (if any), all as specified in APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX Section H. Collection of Special Taxes. The Special Taxes are levied by the District and collected by the Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes. The District may, however, collect the Special Taxes at a different time or in a different manner if necessary to meet its financial obligations. The District has made certain covenants in the Fiscal Agent Agreement for the purpose of ensuring that the current maximum Special Tax rate and method of collection of the Special Taxes are not altered in a manner that would impair the District s ability to collect sufficient Special Taxes to pay debt service on the 2013 Bonds and Administrative Expenses when due. First, the District has covenanted that, to the extent it is legally permitted to do so, it will not reduce the maximum Special Tax rates in Improvement Area No. 3 and will oppose the reduction of maximum Special Tax rates by initiative. See SPECIAL RISK FACTORS Proposition 218. Second, the District has covenanted not to permit the tender of 2013 Bonds in payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the District having insufficient Special Tax revenues from Improvement Area No. 3 to pay the principal of and interest on the 2013 Bonds and any Parity Bonds of Improvement Area No. 3 remaining Outstanding following such tender. Although the Special Taxes constitute liens on taxed parcels within Improvement Area No. 3, they do not constitute a personal indebtedness of the owners of property within Improvement Area No. 3. Moreover, other liens for taxes and assessments already exist on the property located within Improvement Area No. 3 and others could come into existence in the future in certain situations without the consent or knowledge of the School District or the landowners in Improvement Area No. 3. See SPECIAL RISK FACTORS Parity Taxes, Special Assessments and Land Development Costs herein. There is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described in the section of this Official Statement entitled SPECIAL RISK FACTORS. 17

26 Proceeds of Foreclosure Sales. The net proceeds received following a judicial foreclosure sale of land within Improvement Area No. 3 resulting from a landowner s failure to pay the Special Taxes when due are included within the Special Tax Revenues pledged to the payment of principal of and interest on the Bonds under the Fiscal Agent Agreement. Pursuant to Section of the Act, in the event of any delinquency in the payment of any Special Tax or receipt by the District of Special Taxes in an amount which is less than the Special Tax levied, the Board, as the legislative body of the District, may order that Special Taxes be collected by a superior court action to foreclose the lien within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at a judicial foreclosure sale. Under the Act, the commencement of judicial foreclosure following the nonpayment of a Special Tax is not mandatory. However, the School District has covenanted with and for the benefit of the Owners of the Bonds as follows: (i) it will order, and cause to be commenced, judicial foreclosure proceedings against properties with delinquent Special Taxes in excess of $5,000 by the October 1 following the close of the Fiscal Year in which such Special Taxes were due, and (ii) it will commence judicial foreclosure proceedings against all properties with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Taxes levied, and diligently pursue to completion such foreclosure proceedings. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Proceeds of Foreclosure Sales herein. If foreclosure is necessary and other funds (including amounts in the Reserve Fund, including the 2013 Bonds Account therein) have been exhausted, debt service payments on the Bonds could be delayed until the foreclosure proceedings have ended with the receipt of any foreclosure sale proceeds. Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the federal government and other factors beyond the control of the School District and the District. See SPECIAL RISK FACTORS Bankruptcy and Foreclosure herein. Moreover, no assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. See SPECIAL RISK FACTORS Land Values herein. Although the Act authorizes the District to cause such an action to be commenced and diligently pursued to completion, the Act does not impose on the District or the School District any obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale if there is no other purchaser at such sale. The Act provides that, in the case of a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem taxes Bonds Account of the Reserve Fund In order to secure further the payment of principal of and interest on the 2013 Bonds, the District is required, upon delivery of the 2013 Bonds, to deposit in the 2013 Bonds Account of the Reserve Fund for the 2013 Bonds and thereafter to maintain in such 2013 Bonds Account, an amount equal to the Reserve Requirement for the 2013 Bonds, initially $488, The Fiscal Agent Agreement provides that the amount in the 2013 Bonds Account shall, as of any date of calculation, equal the least of (i) 10% of the initial principal amount of the Outstanding 2013 Bonds; (ii) the Maximum Annual Debt Service on the then Outstanding 2013 Bonds; or (iii) 125% of average annual debt service on the then Outstanding 2013 Bonds. Subject to the limits on the maximum annual Special Tax which may be levied within Improvement Area No. 3, as described in APPENDIX A, the School District has covenanted to levy Special Taxes in an amount that is anticipated to be sufficient, in light of the other intended uses of the Special Tax proceeds, to maintain the balance in the 2013 Bonds Account at the Reserve Requirement for the 2013 Bonds. Amounts in the 2013 Bonds Account are to be applied to (i) pay debt service on the 2013 Bonds, to the extent other monies are not available therefor; (ii) redeem the 2013 Bonds in whole or in part; and (iii) pay the principal and interest due in the final year of maturity of the 2013 Bonds. See APPENDIX E SUMMARY OF THE FISCAL AGENT AGREEMENT AND FIRST SUPPLEMENT TO FISCAL AGENT AGREEMENT herein. 18

27 The moneys in the 2013 Bonds Account of the Reserve Fund will be used only for payment of the principal of, and interest and any redemption premium on, the 2013 Bonds and at the direction of the School District, for deposit in the Rebate Fund. The 2013 Bonds are not secured by any moneys on deposit in the Reserve Fund other than the 2013 Bonds Account of the Reserve Fund. Issuance of Parity Bonds The School District may sell one or more additional series of bonds for Improvement Area No. 3 secured on a parity with the 2012 Bonds and the 2013 Bonds (the Parity Bonds ) if certain conditions precedent are met. Debt service on the Parity Bonds will be secured by a pledge of and lien upon Special Tax Revenues that will be on a parity with the pledge of and lien upon the Special Tax Revenues that secure the payment of debt service on the 2012 Bonds and the 2013 Bonds. The timing of the sale of these additional bonds will depend on the progress of development and residential construction within Tract No and Tract No See PROPERTY OWNERSHIP AND THE DEVELOPMENT in this Official Statement for information concerning the current development and future planned developments within Improvement Area No. 3. The Bonds are only secured by Special Taxes levied within Improvement Area No. 3 and are not payable from Special Taxes of any other Improvement Area within the District. The Parity Bonds may be issued in an aggregate principal amount which shall not exceed $6,370,000 for the purpose of financing the construction and acquisition of additional Facilities. Capitalized terms not defined in this section, or elsewhere in this Official Statement, have the meanings set forth in the Fiscal Agent Agreement. See Appendix E SUMMARY OF THE FISCAL AGENT AGREEMENT AND FIRST SUPPLEMENT TO FISCAL AGENT AGREEMENT. In order to issue Parity Bonds, the Improvement Area Value shall be at least five times the sum of: (i) the aggregate principal amount of all Bonds and Parity Bonds then Outstanding, plus (ii) the aggregate principal amount of the series of Parity Bonds proposed to be issued, plus (iii) the aggregate principal amount of any fixed assessment liens on the parcels in Improvement Area No. 3 subject to the levy of Special Taxes, plus (iv) a portion of the aggregate principal amount of any and all other community facilities district bonds then outstanding and payable at least partially from special taxes to be levied on parcels of property in the Improvement Area (the Other CFD Bonds ) equal to the aggregate principal amount of the Other CFD Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for the Other CFD Bonds on parcels of property in Improvement Area No. 3, and the denominator of which is the total amount of special taxes levied for the Other CFD Bonds on all parcels of property that are subject to the levy of such special taxes to pay the Other CFD Bonds (such fraction to be determined based upon the maximum special taxes that could be levied in the year in which maximum annual debt service on the Other CFD Bonds occurs), based upon information that is available for the then current Fiscal Year. Additionally, if the proposed Parity Bonds are being issued for the purpose of financing the construction and acquisition of additional Facilities: (1) The School District shall obtain a certificate from the Special Tax Consultant to the effect the amount of the maximum Special Taxes that could be levied in each Fiscal Year on all Parcels (as defined in the Rates and Method of Apportionment of Special Tax) of Developed Property in Improvement Area No. 3 that are not delinquent in the payment of any Special Taxes then due and owing is at least 110% of the total Annual Debt Service for each such Fiscal Year on the Outstanding Bonds and the proposed Parity Bonds, plus Administrative Expense in the amount of $28,000; (2) There shall be no delinquencies in the payment of any installment of Special Taxes levied on any Parcels (as defined in the Rates and Method) in Improvement Area No. 3 that are owned by any developer(s) that is/are identified in the official statement for the Parity Bonds as building or intending to build single family residences on lots in the Improvement Area; and 19

28 (3) All requirements imposed by the County or the City as a precondition to the issuance of building permits (other than the payment of fees associated with such permits) for the construction of single family residences on lots in the Tract or Tracts in Improvement Area No. 3 for which the Parity Bonds are proposed to be issued shall have been satisfied. If the Parity Bonds are proposed to be issued to finance public facilities for a single Tract in Improvement Area No. 3, this paragraph (3) is applicable only to the Tract for which the Parity Bonds are proposed to be issued. THE DISTRICT AND IMPROVEMENT AREA NO. 3 General Description of the District and Improvement Area No. 3 The District, and Improvement Area Nos. 1, 2 and 3 therein, were formed on April 19, 2004 by the Board. Pursuant to the Act, in forming the District, the Board adopted resolutions on March 1, 2004 stating its intention to establish the District and to designate three improvement areas, to authorize the levy of special taxes on property within the District and the Improvement Areas, and to authorize the District to incur bonded indebtedness. Following public hearings conducted pursuant to the Act, on April 19, 2004, the Board adopted resolutions establishing the District and calling consolidated special elections to submit the levy of the Special Taxes and the incurring of bonded indebtedness to the qualified voters of the District. At a special election held on May 11, 2004, the owners of the property within the District, and each Improvement Area therein, authorized the District to incur a bonded indebtedness for the purpose of financing public facilities for each Improvement Area of the District as follows: Improvement Area No. 1 $20,000,000; Improvement Area No. 2 $16,000,000; and Improvement Area No. 3 $14,000,000. On June 11, 2004 a Notice of Special Tax Lien was recorded in the official records of the County. On May 16, 2005, the Board adopted resolutions initiating proceedings (i) to amend the Original Rates and Method to increase the rates of Special Taxes to be levied on property in Improvement Area No. 2 and Improvement Area No. 3 of the District, (ii) to modify the types of public facilities authorized to be financed by the District to include additional facilities for the City and (iii) to increase the amount of authorized bonded indebtedness of the District for Improvement Area No. 2 and Improvement Area No. 3 of the District. On June 20, 2005, following public hearings, the Board of Education adopted resolutions which called special elections for June 28, 2005 on propositions with respect to (i) increasing the authorized bonded indebtedness to be incurred by the District for Improvement Area No. 2 and Improvement Area No. 3 of the District, (ii) revising the Original Rates and Method, and (iii) modifying the types of public facilities to be financed by the District. On June 28, 2005, the owners of the property located within Improvement Area No. 2 and Improvement Area No. 3 voted ballots in favor of all such propositions. The effect of that vote is that (i) the District is authorized to incur bonded indebtedness in an aggregate principal amount not to exceed $60,000,000, to incur bonded indebtedness in an aggregate principal amount not to exceed $21,000,000 to finance public facilities for Improvement Area No. 2 and in an aggregate principal amount not to exceed $18,000,000 to finance public facilities for Improvement Area No. 3, (ii) the Amended and Restated Rates and Method of Apportionment of Special Tax was approved, and (iii) the authorized types of public facilities were modified to include additional public facilities of the City. On July 19, 2005, an Amendment to the Notice of Special Tax Lien with respect to such changes was recorded in the official records of the County. Improvement Area No. 3 contains approximately acres located in the northwestern portion of the County and in the southeastern portion of the City. The property within Improvement Area No. 3 includes two Final Tract Maps and one Tentative Tract Map in a community known as Mission Ranch: Final Tract Map Nos and 29596, and Tentative Tract Map No Final Tract Map No was developed by Centex Homes in 2007 and 2008 into 136 single family detached homes. The Centex Homes development is built out with the final completed homes conveyed to individual homebuyers in April, Tentative Tract Map No contains approximately acres containing 92 lots owned by KM Investments LLC. Tentative Tract Map No is currently in a raw land condition and is not currently being developed. 20

29 Standard Pacific is developing the property within Final Tract Map No within Improvement Area No. 3. Final Tract Map No contains approximately acres which Standard Pacific is developing into 116 single family detached homes in a development known as Mission Grove. As of February 13, 2013, in Standard Pacific s Mission Grove development in Improvement Area No. 3, there were 59 completed production homes which had been conveyed to individual homeowners, three completed model homes owned by Standard Pacific, eight production homes over 95% completed, 12 additional production homes under construction and 34 lots in a finished lot condition. As of March 23, 2013, an additional eight production units had been conveyed to individual homeowners. See PROPERTY OWNERSHIP AND THE DEVELOPMENT. Water and sewer service to the property within Improvement Area No. 3 is supplied by Western Municipal Water District. Electricity is supplied by Riverside Public Utilities, gas is supplied by The Gas Company, and police services and fire services by the City. Although, like all of Southern California, the land within Improvement Area No. 3 is subject to seismic activity, it is not located in a designated Earthquake Study Zone as determined by the California State Geologist. However, as with all of Southern California, the property within Improvement Area No. 3 will be subject to ground shaking in the event of earthquakes. See SPECIAL RISK FACTORS Natural Disasters. The Federal Emergency Management Agency has determined that Improvement Area No. 3 is not located in a flood area and flood insurance will not be required. See SPECIAL RISK FACTORS Natural Disasters. Direct and Overlapping Indebtedness The ability of an owner of land within Improvement Area No. 3 to pay the Special Taxes could be affected by the existence of other taxes and assessments imposed upon the property. These other taxes and assessments consist of the direct and overlapping debt in Improvement Area No. 3 as set forth in Table 1 below, (the Debt Report ). The Debt Report sets forth those entities which have issued debt and does not include entities which have not issued debt and only levy or assess fees, charges, ad valorem taxes or special taxes. See Tables 2A and 2B for information regarding other entities levying taxes, assessments or other charges on property in Improvement Area No. 3. The Debt Report includes the principal amount of the 2013 Bonds. The Debt Report has been derived from data assembled and reported to the District by David Taussig & Associates, Inc. as of March 11, 2013, updated to include the principal amount of the 2013 Bonds. Neither the District, the School District nor the Underwriter have independently verified the information in the Debt Report and do not guarantee its completeness or accuracy. The allocation of total debt outstanding will change as additional development occurs. 21

30 Overlapping District TABLE 1 RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 DIRECT AND OVERLAPPING DEBT Actual Fiscal Year Total Levy Amount of Levy on Parcels in District Percent of Levy on Parcels in District Total Debt Outstanding (1) District Share of Total Debt Outstanding Riverside Unified School District G.O. Bonds $ 9,743,383 $ 31, % $ 145,790,000 $ 476,958 City of Riverside G.O. Bonds 1,217,195 3, ,135,000 42,720 Metropolitan Water District G.O. Bonds 92,246,662 2, ,085,000 3,762 Riverside City Community College G.O. Bonds 12,140,251 10, ,362, ,138 Estimated Share of Overlapping Debt Allocable to the District $ 716,578 Plus the 2012 Bonds (1) 4,400,000 Plus the 2013 Bonds 6,165,000 Estimated Share of Direct and Overlapping Debt Allocable to the District $ 11,281,578 (1) As of March 2, Principal for City of Riverside General Obligation Bonds and Community College Bonds is made on August 1 of each year. Principal for Metropolitan Water District General Obligation Bonds is made on March 1 of each year. Principal of all other bonds is payable on September 1 of each year. Source: David Taussig & Associates, Inc. 22

31 Tables 2A and 2B below set forth the estimated total effective tax rates for typical single family homes within Improvement Area No. 3, based upon Fiscal Year tax rates and estimated assessed values. Tables 2A and 2B set forth those entities with fees, charges, ad valorem taxes and special taxes regardless of whether those entities have issued debt. TABLE 2A RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 ESTIMATED FISCAL YEAR SAMPLE TAX BILL SINGLE FAMILY RESIDENTIAL PROPERTY: TAX CLASS 6 ( 2,500 SF) Assessed Valuation and Property Taxes Percent of Net Assessed Value Expected Amount Maximum Amount TOTAL ASSESSED VALUE (1) $263,320 Average Unit Size for Developed Property: (2) 2,400 Square Feet Average Lot Size for Residential Property (3) 10,019 Square Feet AD VALOREM PROPERTY TAXES (4) Basic Levy % $ 2, Metropolitan Water District G.O. Bonds City of Riverside G.O. Bonds Riverside Unified School District G.O. Bonds Riverside City Community College G.O. Bonds Total General Property Taxes and Overrides % $ 2, ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES Flood Control Stormwater/Cleanwater (5) $ 3.77 County Service Area Riverside Stormwater (6) 5.22 Metropolitan Water District West Standby Charge (7) 9.22 City of Riverside Lighting District (8) City of Riverside Library Services (9) Riverside Unified School District CFD No. 15, Improvement Area No. 3 (10) 2, $ 3, Total Assessments and Parcel Charges $ 2, $ 3, PROJECTED TOTAL PROPERTY TAXES $ 5, $ 6, Projected Total Effective Tax Rate (as % of Assessed Value) % % (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Based on average net assessed value plus $7,000 homeowner s exemption for 14 Tax Class 6 units in Tract No in Improvement Area No. 3 as of January 1, 2012 provided by the Riverside County Assessor. Total Assessed Value used to determine the Total Effective Tax Rate. Based on the average unit size for 14 Tax Class 6 units in Tract No Based on the average lot size for 14 Tax Class 6 units in Tract No Estimated based on actual Fiscal Year ad valorem rates. Estimated based on the Fiscal Year rate of $3.75 per benefit assessment unit (BAU). For small parcels (less than 1/6 acre), a BAU is equal to the total lot size in SF/7,200. For large parcels (1/6 acre to 2.5 acres), a BAU is equal to 1+ (0.1* (total lot size in SF-7,200)/43,560). Estimated based on the Fiscal Year rate of $5.22 per benefit unit. Estimated based on the Fiscal Year rate of $9.22 per parcel or per acres, whichever is greater. Estimated based on the Fiscal Year rate of $31.44 per benefit unit. Estimated based on the Fiscal Year rate of $19.00 per parcel. Based on the Fiscal Year estimated Special Tax rate of $2, per unit for Tax Class 6 property. Assigned Special Tax rate is $3, per unit for Tax Class 6 property. The assigned Special Tax rate does not escalate. Beginning in Fiscal Year , the District has levied Special Taxes in Improvement Area No. 3 at 85% of the Assigned Special Tax rate. Prior to that fiscal year, Special Taxes were levied by the District on Developed Property in Improvement Area No. 3 at 100% of the Assigned Special Tax rate. Source: David Taussig & Associates, Inc. 23

32 TABLE 2B RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 ESTIMATED FISCAL YEAR SAMPLE TAX BILL SINGLE FAMILY RESIDENTIAL PROPERTY: TAX CLASS 5 (>2,500-2,800 SF) Assessed Valuation and Property Taxes Percent of Net Assessed Value Expected Amount Maximum Amount TOTAL ASSESSED VALUE (1) $307,562 Average Unit Size for Developed Property: (2) 2,541 Square Feet Average Lot Size for Residential Property (3) 11,108 Square Feet AD VALOREM PROPERTY TAXES (4) Basic Levy % $ 3, Metropolitan Water District G.O. Bonds City of Riverside G.O. Bonds Riverside Unified School District G.O. Bonds Riverside City Community College G.O. Bonds Total General Property Taxes and Overrides % $ 3, ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES Flood Control Stormwater/Cleanwater (5) $ 3.78 County Service Area Riverside Stormwater (6) 5.22 Metropolitan Water District West Standby Charge (7) 9.22 City of Riverside Lighting District (8) City of Riverside Library Services (9) Riverside Unified School District CFD No. 15, Improvement Area No. 3 (10) 2, $ 3, Total Assessments and Parcel Charges $ 2, $ 3, PROJECTED TOTAL PROPERTY TAXES $ 6, $ 6, Projected Total Effective Tax Rate (as % of Assessed Value) % % (1) Based on average net assessed value plus $7,000 homeowner s exemption for 2 Tax Class 5 units in Tract No in Improvement Area No. 3 as of January 1, 2012 provided by the Riverside County Assessor. Total Assessed Value used to determine the Total Effective Tax Rate. (2) Based on the average unit size for 2 Tax Class 5 units in Tract No (3) Based on the average lot size for 2 Tax Class 5 units in Tract No (4) Estimated based on actual Fiscal Year ad valorem rates. (5) Estimated based on the Fiscal Year rate of $3.75 per benefit assessment unit (BAU). For small parcels (less than 1/6 acre), a BAU is equal to the total lot size in SF/7,200. For large parcels (1/6 acre to 2.5 acres), a BAU is equal to 1+ (0.1* (total lot size in SF-7,200)/43,560). (6) Estimated based on the Fiscal Year rate of $5.22 per benefit unit. (7) Estimated based on the Fiscal Year rate of $9.22 per parcel or per acres, whichever is greater. (8) Estimated based on the Fiscal Year rate of $31.44 per benefit unit. (9) Estimated based on the Fiscal Year rate of $19.00 per parcel. (10) Based on the Fiscal Year estimated Special Tax rate of $2, per unit for Tax Class 5 property. Assigned Special Tax rate is $3, per unit for Tax Class 5 property. The assigned Special Tax rate does not escalate. Beginning in Fiscal Year , the District has levied Special Taxes in Improvement Area No. 3 at 85% of the Assigned Special Tax rate. Prior to that fiscal year, Special Taxes were levied by the District on Developed Property in Improvement Area No. 3 at 100% of the Assigned Special Tax rate. Source: David Taussig & Associates, Inc. Appraisal Report The net estimated assessed value of the property within Improvement Area No. 3, as shown on the County s assessment roll for Fiscal Year , is approximately $60,063,848. However, as a result of the 24

33 requirements of Article XIIIA of the California Constitution, a property s assessed value is not necessarily indicative of its market value. In order to provide information with respect to the value of the property within Improvement Area No. 3, the School District engaged Kitty Siino & Associates, Inc., the Appraiser, to prepare the Appraisal Report. The purpose of the Appraisal Report was to estimate the aggregate market value of the as is condition, subject to special tax and special assessment liens, of the taxable property within Improvement Area No. 3. Subject to the contingencies, assumptions and limiting conditions set forth in the Appraisal Report, the Appraiser concluded that, as of February 13, 2013, the market value of the property within Improvement Area No. 3 was $76,606,918, consisting of (i) $62,561,918 for the 195 completed homes owned by individual homeowners within Improvement Area No. 3 as of February 13, 2013, (ii) $10,605,000 for the 57 completed or 95% completed homes, lots in various stages of construction and finished lots owned by Standard Pacific as of February 13, 2013, and (iii) $3,440,000 for 92 vacant lots of raw land owned by KM Investments LLC. Reference is made to APPENDIX B for a complete list of the assumptions and limiting conditions and a full discussion of the appraisal methodology and the basis for the Appraiser s opinions. In the event that any of the contingencies, assumptions and limiting conditions are not actually realized, the value of the property within Improvement Area No. 3 may be less than the amount reported in the Appraisal Report. In any case, there can be no assurance that any portion of the property within Improvement Area No. 3 would actually sell for the amount indicated by the Appraisal Report. The Appraisal Report merely indicates the Appraiser s opinion as to the market value of the property referred to therein as of the date and under the conditions specified therein. The Appraiser s opinion reflects conditions prevailing in the applicable market as of the date of value. The Appraiser s opinion does not predict the future value of the subject property, and there can be no assurance that market conditions will not change adversely in the future. The Appraiser has an MAI designation from the Appraisal Institute and has prepared numerous appraisals for the sale of land-secured municipal bonds. The Appraiser was selected by the School District and has no material relationships with the School District, the District or the owners of the land within Improvement Area No. 3 other than the relationship represented by the engagement to prepare the Appraisal Report and other similar engagements for the School District. The School District instructed the Appraiser to prepare its analysis and report in conformity with District-approved guidelines and the Appraisal Standards for Land Secured Financings published in 1994 and revised in 2004 by the California Debt and Investment Advisory Commission. A copy of the Appraisal Report is included as APPENDIX B to this Official Statement. It is a condition precedent to the issuance of the 2013 Bonds that the Appraiser deliver to the District a certification to the effect that, while the Appraiser has not updated the Appraisal Report since the date of the Appraisal Report and has not undertaken any obligation to do so, nothing has come to the attention of the Appraiser subsequent to the date of the Appraisal Report that would cause the Appraiser to believe that the value of the property in Improvement Area No. 3 is less than the value of Improvement Area No. 3 reported in the Appraisal Report. However, the Appraiser notes that acts and events may have occurred since the date of the Appraisal Report which could result in both positive and negative effects on market value within Improvement Area No. 3. Estimated Value-To-Lien Ratios Table 3 below incorporates the values assigned to parcels in the Appraisal Report, the estimated principal amount of the Bonds allocable to each category of parcels and the estimated appraised value-to-lien ratios for various categories of parcels based upon land values and property ownership in Improvement Area No. 3 as updated by the Appraisal Report to February 13, Table 3 calculates the appraised value-to-lien ratios based upon the principal amount of the 2012 Bonds and the 2013 Bonds and other overlapping general 25

34 obligation debt described in Table 1. The estimated appraised Improvement Area No. 3 wide value-to-lien ratio including all Developed Property and Undeveloped Property as of February 13, 2013, and including the 2012 Bonds and the 2013 Bonds and other overlapping general obligation debt in such calculation is 6.79-to-1. However, the estimated appraised value-to-lien ratio within Improvement Area No. 3 including only property classified as Developed Property as of February 13, 2013 and including the 2012 Bonds and the 2013 Bonds and other overlapping general obligation debt in such calculation is 6.49-to-1. See Table 4 below. In the Annual Reports provided pursuant to the Continuing Disclosure Agreement, Tables 3 and 4 will not be updated based on appraised value, but similar information will be provided based on current assessed value. 26

35 Property Type/Owner (1)(2) Number of Lots/ Units Projected Fiscal Year Special Tax Levy (3) TABLE 3 RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 ESTIMATED APPRAISED VALUE-TO-LIEN RATIOS Percent of Total Special Tax Levy Outstanding 2012 Bonds and 2013 Bonds Amount (4) Riverside Unified School District G.O. Outstanding Bonds Amount (5) City of Riverside G.O. Outstanding Bonds Amount (5) Metropolitan Water District G.O. Outstanding Bonds Amount (5) RCCD G.O. Outstanding Bonds Amount (5) Total Direct and Overlapping Debt Developed Property (6) Residential Standard Pacific 57 $ 180, % $ 2,393,548 $ 34,935 $ 3,129 $ 276 $ 14,146 $ 2,446,035 $ 10,605, Individual Owners , ,171, ,468 39,004 3, ,337 8,825,695 62,561, Subtotal 252 $ 798, % $ 10,565,000 $ 470,403 $ 42,133 $ 3,710 $ 190,483 $ 11,271,730 $ 73,166, Undeveloped Property (7) KM Investments LLC 3 (8) $ % $ 0 $ 6,555 $ 587 $ 52 $ 2,654 $ 9,848 $ 3,440, Subtotal 3 $ % $ 0 $ 6,555 $ 587 $ 52 $ 2,654 $ 9,848 $ 3,440, Total 255 $ 798, % $ 10,565,000 $ 476,958 $ 42,720 $ 3,762 $ 193,138 $ 11,281,578 $ 76,606, Appraised Value (3) Average Value-to- Lien Ratios (1) Property types pursuant to the Rates and Method. (2) Ownership and values based on the Appraisal Report, as of the date of value of February 13, (3) Assumes Special Taxes levied on Developed Property at 85% of the Assigned Special Tax rate. (4) Includes the outstanding 2012 Bonds and the 2013 Bonds. Allocated based on share of the projected Fiscal Year Special Tax levy. (5) As of March 2, Allocated based on share of Fiscal Year ad valorem property tax levy. (6) As of date of value of February 13, For actual Fiscal Year Special Tax levy, Developed Property is property for which a building permit has been issued as of March 1, (7) As of date of value of February 13, For actual Fiscal Year Special Tax levy, Undeveloped Property is property for which a building permit has not been issued as of March 1, (8) There are currently three Assessor s Parcel Numbers for the undeveloped property owned by KM Investments LLC. The parcels are expected to be subdivided into 92 lots in the future. Source: David Taussig & Associates, Inc. 27

36 Property Type/Owner (1)(2) Number of Parcels Projected Fiscal Year Special Tax Levy (3) TABLE 4 RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 ESTIMATED APPRAISED VALUE-TO-LIEN RATIOS (DEVELOPED PROPERTIES ONLY) Percent of Total Special Tax Levy Outstanding 2012 Bonds and 2013 Bonds Amount (4) Riverside Unified School District G.O. Outstanding Bonds Amount City of Riverside G.O. Outstanding Bonds Amount Metropolitan Water District G.O. Outstanding Bonds Amount RCCD G.O. Outstanding Bonds Amount Total Direct and Overlapping Debt Value to Lien Less Than 5:1 Developed Property Standard Pacific 46 $ 145, % $ 1,923,571 $ 22,644 $ 2,028 $ 179 $ 9,169 $ 1,957,591 $ 7,130, Value to Lien 5:1 to 10:1 (5) Developed Property Standard Pacific 11 $ 35, % $ 469,978 $ 12,291 $ 1,101 $ 97 $ 4,977 $ 488,443 $ 3,475, Individual Owner , ,171, ,468 39,004 3, ,337 8,825,695 62,561, Subtotal 206 $ 653, % $ 8,641,429 $ 447,759 $ 40,105 $ 3,532 $ 181,314 $ 9,314,138 $ 66,036, Total 252 $ 798, % $ 10,565,000 $ 470,403 $ 42,133 $ 3,710 $ 190,483 $ 11,271,730 $ 73,166, Appraised Value (2) Average Value-to- Lien Ratios (1) Property types pursuant to the Rates and Method. (2) Ownership and values based on the Appraisal Report, as of the date of value of February 13, The table does not include the three undeveloped parcels owned by KM Investments LLC as of February 13, The 2012 Bonds and the 2013 Bonds are allocated to individual parcels based on the percentage of estimated Fiscal Year Special Taxes. The three undeveloped parcels owned by KM Investments LLC as of February 13, 2013 are not expected to be taxed by the District until such parcels are developed. (3) Assumes Special Taxes levied on Developed Property at 85% of the Assigned Special Tax rate. (4) Includes the outstanding 2012 Bonds and the 2013 Bonds. (5) No properties within Improvement Area No. 3 have value-to-liens which exceed 10-to-1. Source: David Taussig & Associates, Inc. 28

37 Mortgage Study The District engaged Empire Economics, Inc., the Mortgage Consultant, to study the mortgage loan characteristics for some of the then current individual homeowners within Improvement Area No. 3. The Mortgage Consultant prepared a report entitled Characteristics of Mortgage Loans and Estimated Current Equity Levels for the Current Homeowners dated March 12, 2013 (the Mortgage Study ). The Mortgage Consultant obtained information available from public sources about the mortgage loan characteristics for some of the current individual homeowners within Improvement Area No. 3. The Mortgage Consultant reported in the Mortgage Study that mortgage information was available on 175 of the then 195 homeowners that had closed escrow as of the date of the Mortgage Study within Improvement Area No. 3 (such 175 homeowners for which the Mortgage Consultant had information are referred to in this Official Statement as the Mortgage Study Homeowners ). According to the Mortgage Consultant, housing prices have declined significantly during the time that a majority of homes were sold within Improvement Area No. 3. According to the Mortgage Consultant, the homes in Improvement Area No. 3 reached a peak level of approximately $458,856 on average in 2007 and then declined to approximately $334,221 on average, or approximately 27%, in During 2009 to 2011, housing prices in Improvement Area No. 3 were relatively stable, then decreasing to approximately $314,256 in Based on the estimated home values as of the date of the Mortgage Study, on average the Mortgage Study Homeowners had negative equity of approximately $16,133. Moreover, 108 of the 175 Mortgage Study Homeowners had negative equity of approximately $90,441 on average, and 67 of the 175 Mortgage Study Homeowners had positive equity of approximately $103,648 on average as of the date of the Mortgage Study. Homeowners in the District with negative equity or high loan-to-value ratios may be more likely to become delinquent in the payment of Special Taxes levied on their property. See Appendix H MORTGAGE STUDY. However, Special Tax delinquency levels are relatively low in recent history. See THE DISTRICT AND IMPROVEMENT AREA NO. 3 Delinquency History. Largest Taxpayers 252 parcels classified as Developed Property are expected to be levied for Fiscal Year Special Taxes. Based on ownership within Improvement Area 3 as of March 23, 2013, Standard Pacific is calculated to be responsible for approximately 19.42% of the projected Fiscal Year Special Tax levy, and individual homeowners are calculated to be responsible for approximately 80.58% of the projected Fiscal Year Special Tax levy. See PROPERTY OWNERSHIP AND THE DEVELOPMENT and SPECIAL RISK FACTORS Concentration of Ownership. Delinquency History Special Taxes within Improvement Area No. 3 were first levied in Fiscal Year , and have only been levied on Developed Property in each successive fiscal year. Table 5 below summarizes the annual Special Tax levies within Improvement Area No. 3 and the amount delinquent as of June 30 for the previous five Fiscal Years. Future delinquencies could increase as a result of factors such as changes in the local or national economy, increases in the mortgage rates and/or increases in the unemployment rate in the area. See SPECIAL RISK FACTORS Special Tax Delinquencies. 29

38 Fiscal Year Total Amount Levied TABLE 5 RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 SPECIAL TAX LEVY AND DELINQUENCY HISTORY Total Number of Parcels Levied Total Delinquent Special Taxes at Fiscal Year End (1) Delinquency Rate at Fiscal Year End Total Number of Parcels Delinquent as of 2/12/2013 Delinquent Amount as of 2/12/2013 Delinquent Rate as of 2/12/ $505, $45,228 (2) 8.96% 0 $ % , , , , (5) 429, , , ,460 (3) , NA NA 2 (4) 2,886 (4) 0.91 (4) (1) (2) (3) (4) (5) Amount delinquent as of June 30 of the fiscal year in which Special Taxes were levied. Amount delinquent as of October 7, Amount delinquent as of June 25, Represents number of parcels delinquent, delinquent amount, and delinquency rate for first installment only. Beginning in Fiscal Year , the District has levied Special Taxes in Improvement Area No. 3 at 85% of the Assigned Special Tax rate. Prior to that fiscal year, Special Taxes were levied by the District on Developed Property in Improvement Area No. 3 at 100% of the Assigned Special Tax rate. Source: David Taussig & Associates, Inc. PROPERTY OWNERSHIP AND THE DEVELOPMENT The following information about Standard Pacific and its proposed development in Improvement Area No. 3 has been provided by Standard Pacific. No assurance can be given that the proposed development will occur as described herein or that it will be completed in a timely manner, if at all, or that Standard Pacific will continue to own its property in Improvement Area No. 3. Neither the Bonds nor the Special Taxes securing the Bonds are personal obligations of Standard Pacific or any affiliate thereof and, in the event that Standard Pacific defaults in the payment of its Special Taxes, the District may proceed with judicial foreclosure but has no direct recourse to the assets of Standard Pacific or any affiliate thereof. See SPECIAL RISK FACTORS herein. General Description of the Development The School District formed the District and each of Improvement Area Nos. 1, 2 and 3 therein, in April, Special Taxes levied in Improvement Area Nos. 1 and 2 are not pledged to the repayment of the Bonds. Improvement Area No. 3 is located in the City of Riverside north of Krameria Avenue, south of Babbitt Avenue, west of Cresta Alta Avenue (formerly known as Chicago Avenue) and east of Hayden Street. Improvement Area No. 3 is located approximately eight miles east of the 91 Freeway via Van Buren Avenue and three miles west of Interstate 215. Improvement Area No. 3 contains approximately acres in three Tracts in a community known as Mission Ranch : Final Tract Map Nos and 29596, and Tentative Tract Map No Final Tract Map No was developed by Centex Homes in 2007 and 2008 into 136 single family detached homes ranging in size from approximately 2,400 square feet to approximately 4,063 square feet. The Centex Homes development is built out with the final completed homes conveyed to individual homebuyers in April,

39 KM Investments LLC owns the property within Tentative Tract Map No Tentative Tract Map No contains approximately acres containing 92 lots. Tentative Tract Map No is currently in a raw land condition and KM Investments LLC is holding the land for investment and is not actively developing the property itself. KM Investments LLC is a passive property owner in Improvement Area No. 3. KM Investments LLC has not provided any information for this Official Statement and is not obligated to provide any information on a continuing basis. Standard Pacific is the only property owner within Improvement Area No. 3 which is currently developing its property. Final Tract Map No contains approximately acres which Standard Pacific is developing into 116 single family detached homes ranging in size from approximately 2,541 square feet to approximately 3,480 square feet in a development known as Mission Grove. As of February 13, 2013, in Standard Pacific s Mission Grove development in Improvement Area No. 3, there were 59 completed production homes which had been conveyed to individual homeowners, three completed model homes owned by Standard Pacific, eight production homes over 95% completed, 12 additional production homes under construction and 34 lots in a finished lot condition. As of March 23, 2013, an additional eight production units had been conveyed to individual homeowners. Standard Pacific acquired its property in Improvement Area No. 3 from Corona Mission Ranch LLC in several transactions between May, 2010 and May, Standard Pacific Standard Pacific is the developer of a portion of the property within Improvement Area No. 3, the only portion which is currently being developed. Standard Pacific was incorporated in Delaware in 1991 and is a publicly traded company with its stock listed on the New York Stock Exchange under the symbol SPF. Standard Pacific s principal executive offices are located in Irvine, California. Standard Pacific has been building homes and neighborhoods since its founding in Southern California in Standard Pacific is currently offering new homes for sale in major metropolitan areas in California, Texas, Arizona, Colorado, Florida, North Carolina and South Carolina. Standard Pacific is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and in accordance therewith files reports, proxy statements and other information, including financial statements, with the Securities and Exchange Commission (the SEC ). Such filings, particularly Standard Pacific s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed by Standard Pacific with the SEC on February 22, 2013, set forth certain data relative to the consolidated results of operations and financial position of Standard Pacific and its subsidiaries as of such date. The SEC maintains an Internet web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC, including Standard Pacific. The address of such Internet web site is All documents subsequently filed by Standard Pacific pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in such manner as the SEC prescribes. Copies of Standard Pacific s Annual Report and each of its other quarterly and current reports, including any amendments, are available from Standard Pacific s website at The Internet address and references to filings with the SEC are included for reference only, and the information on these Internet sites and on file with the SEC are not a part of this Official Statement and are not incorporated by reference into this Official Statement. Development Plan Standard Pacific currently plans to develop 116 single family detached homes on its property within Improvement Area No. 3 ranging in size from approximately 2,541 square feet to approximately 3,480 square 31

40 feet on minimum lot sizes of 7,700 square feet in a development known as Mission Grove. All of Standard Pacific s property within Improvement Area No. 3 is within Final Tract Map No The first homes were completed by Standard Pacific and conveyed to individual homeowners in November, As of February 13, 2013, in Standard Pacific s Mission Grove development in Improvement Area No. 3, there were 59 completed production homes which had been conveyed to individual homeowners, three completed model homes owned by Standard Pacific, eight production homes over 95% completed, 12 additional production homes under construction and 34 lots in a finished lot condition. As of March 23, 2013, an additional eight production units had been conveyed to individual homeowners. All government approvals and permits required for development of Standard Pacific s property within Improvement Area No. 3 have been secured except as otherwise described in this Official Statement and except for approvals and permits required in the normal course of development. Based on its current development plan, assuming current absorption rates, Standard Pacific expects to complete construction of all 116 homes planned within Improvement Area No. 3 by April 30, Standard Pacific s development expectations could be altered due to softening of the housing market, changes in economic and market conditions, or other factors. No assurances can be given that home construction will be carried out on the schedule or according to the plans described in this Official Statement or that Standard Pacific s construction plans will not change after the date of this Official Statement. A summary of Standard Pacific s planned units in Improvement Area No. 3 and the estimated sizes and base prices is set forth below. Plan No. Bedrooms TABLE 6 RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 SUMMARY OF STANDARD PACIFIC S PLANNED UNITS IN IMPROVEMENT AREA NO. 3 (As of February 13, 2013) Approximate Square Feet Completed Individual Owned Completed Standard Pacific Owned (1) 32 Under Construction Vacant Finished Lots Total Units Planned Permits Obtained Base Prices (2) 1 4 2, $365, , , , , , ,900 Total (1) Includes completed model homes for Plan Nos. 2, 3 and 4. Also includes completed or 95% completed production homes. As of March 23, 2013, an additional eight production units had been conveyed to individual homeowners. (2) Base home prices shown exclude the builder s estimate of lot premiums, the sales of options and any incentives or price reductions. Based on base home sale price as of February 13, Source: Standard Pacific. The development summary shown above is based on Standard Pacific s current plans. These plans are subject to change. Financing Plan Through February 1, 2013, Standard Pacific has expended approximately $28,550,000 on the acquisition and development of its property within Improvement Area No. 3. Standard Pacific estimates it will

41 require an additional $9,300,000 to complete its development within Improvement Area No. 3 through buildout, estimated to occur by April 30, To date, Standard Pacific has financed its land acquisition and various site development and home construction costs related to its property in Improvement Area No. 3 through home sales and internally generated funds. Standard Pacific expects to use home sales, internal funding and funding under its revolving credit facility to complete its development in Improvement Area No. 3. However, home sales revenues for Standard Pacific s project in Improvement Area No. 3 are not segregated and set aside for completing its project in Improvement Area No. 3. Home sales revenue is swept up daily from Standard Pacific s divisions for use in operations, to pay down debt and for other corporate purposes and might get diverted to other Standard Pacific needs at the discretion of Standard Pacific management. Notwithstanding the foregoing, Standard Pacific believes that it will have sufficient funds available to complete its proposed development in Improvement Area No. 3, commensurate with the development timing described in this Official Statement. On October 19, 2012, Standard Pacific amended and restated its unsecured revolving credit facility to increase the amount of the facility to $350 million and to extend the maturity date of $320 million of the facility to October 19, 2015 (the Credit Facility ). The Credit Facility contains an option which allows Standard Pacific to increase the total aggregate commitment up to $550 million, subject to certain conditions including the availability of additional bank lending commitments. The Credit Facility contains certain covenants and conditions which may limit the amount Standard Pacific may borrow or have outstanding at any time. At December 31, 2012, Standard Pacific had no borrowings outstanding against the Credit Facility. Standard Pacific s ability to renew the Credit Facility in the future is dependent upon a number of factors including the state of the commercial lending environment, the willingness of banks to lend to homebuilders and Standard Pacific s financial condition and strength. Although Standard Pacific expects to have sufficient funds available to complete its development in Improvement Area No. 3, commensurate with the development timing described in this Official Statement, there can be no assurance, however, that amounts necessary to finance the remaining development and home construction costs will be available from Standard Pacific or any other source when needed. For example, borrowing under the Credit Facility may not be available and home sales revenue, which is swept up daily from the division for use in operations, to pay down debt and for other corporate purposes, might get diverted to other Standard Pacific needs at the discretion of Standard Pacific management. Neither Standard Pacific, nor its lenders, nor any of its related entities are under any legal obligation of any kind to expend funds for the development of and construction of homes on its property in Improvement Area No. 3. Any contributions by Standard Pacific to fund the costs of such development and home construction are entirely voluntary. If and to the extent that internal funding, including but not limited to home sales revenues and borrowings under the Credit Facility, are inadequate to pay the costs to complete the planned development by Standard Pacific within Improvement Area No. 3 and other financing by Standard Pacific is not put into place, there could be a shortfall in the funds required to complete the proposed development by Standard Pacific in Improvement Area No. 3 and portions of the projects may not be developed. History of Property Tax Payments; Loan Defaults; Litigation; Bankruptcy Standard Pacific. Standard Pacific has represented to the District as follows: 1. Except as described in this Official Statement, there is no material indebtedness of Standard Pacific or its Affiliates (defined below) that is secured by an interest in the Property (defined below). Neither Standard Pacific nor, to the Actual Knowledge of Standard Pacific (defined below), any of its Affiliates is in default on any obligation to repay borrowed money, which default is reasonably likely to materially and adversely affect Standard Pacific s ability to develop the Property as proposed in this Official Statement or to pay the Special Taxes when due with respect to the Property. 33

42 2. Except as set forth in this Official Statement, no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body is pending against Standard Pacific (with proper service of process or proper notice to Standard Pacific having been accomplished) or, to the Actual Knowledge of Standard Pacific, is pending against any current Affiliate (with proper service of process to such Affiliate having been accomplished) or to the Actual Knowledge of Standard Pacific is threatened in writing against Standard Pacific or any such Affiliate (a) to restrain or enjoin the collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds (e.g., the 2013 Bonds Account of the Reserve Fund established under the Fiscal Agent Agreement), (b) to restrain or enjoin the development of the Property as proposed in this Official Statement, (c) in any way contesting or affecting the validity of the Special Taxes, or (d) which if successful, is reasonably likely to materially and adversely affect Standard Pacific s ability to complete its development planned within Improvement Area No. 3 as described in this Official Statement or to pay the Special Tax or ad valorem tax obligations on its Property when due. 3. As a large, nation-wide developer of residential projects, Standard Pacific cannot represent with assurance that neither it nor any Affiliate has ever been delinquent in the payment of ad valorem property taxes; however, to the actual knowledge of the employees of Standard Pacific involved in the issuance of the Bonds, neither it nor any Affiliate has been delinquent to any material extent in the payment of any ad valorem property tax, special assessment or special tax on property included within the boundaries of a community facilities district or an assessment district that would have (a) caused a draw on a reserve fund relating to such assessment district or community facilities district or (b) resulted in a foreclosure action being commenced. 4. To the Actual Knowledge of Standard Pacific, Standard Pacific is able to pay its bills as they become due and no legal proceedings are pending against Standard Pacific (with proper service of process to Standard Pacific having been accomplished) or, to the Actual Knowledge of Standard Pacific, threatened in writing in which Standard Pacific may be adjudicated as bankrupt or discharged from any and all of its debts or obligations, or granted an extension of time to pay its debts or obligations, or be allowed to reorganize or readjust its debts, or be subject to control or supervision of the Federal Deposit Insurance Corporation. 5. To the Actual Knowledge of Standard Pacific, Affiliates of Standard Pacific are able to pay their bills as they become due and no legal proceedings are pending against any Affiliates of Standard Pacific (with proper service of process to such Affiliate having been accomplished) or to the Actual Knowledge of Standard Pacific, threatened in writing in which the Affiliates of Standard Pacific may be adjudicated as bankrupt or discharged from any or all of their debts or obligations, or granted an extension of time to pay their debts or obligations, or be allowed to reorganize or readjust their debts or obligations, or be subject to control or supervision of the Federal Deposit Insurance Corporation. As used in the above representations of Standard Pacific, the following defined terms and phrases have the following meanings: Actual Knowledge of Standard Pacific shall mean the knowledge of the authorized officer of Standard Pacific signing the certificate containing the above representations (the Standard Pacific Letter of Representations ) as of the date of the Standard Pacific Letter of Representations obtained from interviews with such current officers and responsible employees of Standard Pacific and its Affiliates as the authorized officer signing the Standard Pacific Letter of Representations has determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth in the Standard Pacific Letter of Representations. The authorized officer of Standard Pacific signing the Standard Pacific Letter of Representations has not conducted any extraordinary inspection or inquiry other than such inspections or inquiries as are prudent and customary in connection with the ordinary course of Standard Pacific s current business and operations. Affiliate means, with respect to a Person (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person, and (ii) for whom 34

43 information, including financial information or operating data, concerning such Person referenced in clause (i) is material to an evaluation of Improvement Area No. 3 and the Bonds (i.e., information relevant to Standard Pacific s development plans with respect to its Property and its payment of Special Taxes, or such Person s assets or funds that would materially affect Standard Pacific s ability to develop its Property as described in this Official Statement or to pay its Special Taxes). Person means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. For purposes of the Standard Pacific Letter of Representations, the term control (including the terms controlling, controlled by or under common control with ) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Property means the property within Improvement Area No. 3 held in the name of Standard Pacific. THE RIVERSIDE UNIFIED SCHOOL DISTRICT The following information relating to the School District is included only for the purpose of supplying general information regarding the School District. Neither the faith and credit nor taxing power of the School District have been pledged to the payment of the 2013 Bonds and the 2013 Bonds will not be payable from any of School District s revenues or assets. The School District is a unified school district, governed by a five member, elected, Board of Education. The School District encompasses an area of about 92 square miles located in the northwestern portion of Riverside County approximately 47 miles east of the Los Angeles civic center. The School District encompasses major portions of the City of Riverside. The District was established in 1963 through the unification of the Riverside City School District and the Riverside City High School District. The District serves approximately 42,000 students. The District operates thirty elementary schools, seven middle schools, five high schools, two alternative high schools, one virtual school, one adult school and one special education preschool. The management and policies of the School District are administered by a Superintendent of Schools and a staff which provides business, pupil, personnel, administrative personnel, and instruction support services. SPECIAL RISK FACTORS The purchase of the 2013 Bonds involves significant risks that are not appropriate investments for certain investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the 2013 Bonds. The 2013 Bonds have not been rated by a rating agency. This discussion does not purport to be comprehensive or definitive and does not purport to be a complete statement of all factors which may be considered as risks in evaluating the credit quality of the 2013 Bonds. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in Improvement Area No. 3 to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the District to make full and punctual payments of debt service on the 2013 Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in Improvement Area No. 3. See Land Values and Limited Secondary Market below. Risks of Real Estate Secured Investments Generally The 2013 Bond Owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the 35

44 market value of real property in the vicinity of Improvement Area No. 3, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes, fires and floods), which may result in uninsured losses. No assurance can be given that the individual homeowners will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See Bankruptcy and Foreclosure below, for a discussion of certain limitations on the School District s ability to pursue judicial proceedings with respect to delinquent parcels. Risks Related to Current Market Conditions The housing market in southern California experienced significant price appreciation and accelerating demand from approximately 2002 to 2006 but subsequently the housing market weakened substantially, with changes from the prior pattern of price appreciation and a slowdown in demand for new housing and declining prices. Since 2006, home developers, appraisers and market absorption consultants have reported weak new home market conditions due to factors including but not limited to the following: (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) increasing mortgage defaults and foreclosures, (v) a growing supply of new and existing homes available for purchase; (vi) increase in competition for new homes orders; (vii) prospective home buyers having a more difficult time selling their existing homes in the more competitive environment; (viii) reduced sales prices and/or higher incentives required to stimulate new home orders or to induce home buyers not to cancel purchase contracts, (ix) more stringent credit qualification requirements by home loan providers and (x) increased unemployment levels. Any such factors may affect the willingness or ability of taxpayers to pay their Special Tax payment prior to delinquency. Economic Uncertainty The 2013 Bonds are being issued at a time of economic uncertainty and volatility. Although unemployment rates have decreased to approximately 12.3% for the City area for calendar year 2012 (not seasonally adjusted) as compared to approximately 14.5% for calendar year 2011 (not seasonally adjusted) and decreased to approximately 12.2% (not seasonally adjusted) for the County for calendar year 2012 as compared to approximately 13.6% for calendar year 2011 (not seasonally adjusted), current unemployment rates continue to be higher than in previous years. The District cannot predict how long these conditions will last or whether to what extent they may affect the ability of homeowners to pay Special Taxes or the marketability of the Bonds. Concentration of Ownership As of February 13, 2013, the date of value for the Appraisal Report, there were 195 completed single family detached homes which had been conveyed to individual homeowners. Additionally, as of February 13, 2013, within Final Tract Map No in Improvement Area No. 3, Standard Pacific owned three completed model homes, eight production homes over 95% completed, 12 additional production homes under construction and 34 lots in a finished lot condition, all of which are classified as Developed Property for purposes of the Fiscal Year Special Tax levy. Based on such ownership as of March 20, 2013, Standard Pacific is calculated to be responsible for approximately 21.47% of the projected Fiscal Year Special Tax levy, and individual homeowners are calculated to be responsible for approximately 78.53% of the projected Fiscal Year Special Tax levy. Additionally, as of February 13, 2013, KM Investments LLC owns the property within Tentative Tract Map No Tentative Tract Map No contains approximately acres containing 92 lots. 36

45 Tentative Tract Map No is currently in a raw land condition and KM Investments LLC is holding the land for investment and is not actively developing the property itself. Pursuant to the Rates and Method, parcels become Developed Property and subject to the levy of Special Taxes if a building permit is issued as of March 1 of the prior fiscal year. No building permits have been issued for construction of homes on the land owned by KM Investments LLC. If KM Investments LLC obtains building permits for the construction of homes on lots, those lots will become Developed Property and the Special Tax will be levied on them pursuant to the Rates and Method for the size of homes that are described in such building permits. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Rates and Method of Apportionment of Special Tax and APPENDIX A. KM Investments LLC is a passive property owner in Improvement Area No. 3. KM Investments LLC has not provided any information for this Official Statement and is not obligated to provide any information on a continuing basis. The levy of Special Taxes on additional lots for which building permits are issued would subject the lots for which building permits were issued to the levy of Special Taxes at a time when these lots were owned by Standard Pacific or KM Investments LLC or future home builders who may have purchased such lots from Standard Pacific or KM Investments LLC. The inability of Standard Pacific or KM Investments LLC or any such builder to build and sell homes on the lots that it owns could lessen its incentive to pay Special Taxes that are levied on those lots. Neither Standard Pacific nor KM Investments LLC is delinquent in the payment of any installment of ad valorem property taxes that were levied on the land that it owns in Improvement Area No. 3. Special Taxes have not been levied on the property in the Improvement Area that is owned by KM Investments LLC. The 2013 Bonds have been sized so that 85% of the Assigned Special Taxes that could be levied on Parcels of property classified as Detached Residential Property under the Rates and Method (i.e., taxable property within Improvement Area No. 3 for which a building permit for a Detached Dwelling Unit (as defined in the Rates and Method) has been obtained by March 1 of the prior Fiscal Year), assuming no delinquencies, produces at least 110% of the Maximum Annual Debt Service on the 2012 Bonds and the 2013 Bonds, collectively, plus Administrative Expenses of at least $28,000. Parity Bonds may be issued in the future under certain circumstances, but the District has covenanted not to issue Parity Bonds unless the above coverage calculation is met with respect to the Bonds, including such proposed Parity Bonds. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Rates and Method of Apportionment of Special Tax and Issuance of Parity Bonds. Until the construction and sale of the remaining homes within the Improvement Area No. 3 to individual homeowners, the receipt of the Special Taxes is dependent in part on the willingness and the ability of Standard Pacific to pay the Special Taxes when due. Failure of Standard Pacific, or any successor(s) (or KM Investment LLC, if building permits are obtained for its property within Improvement Area No. 3 and/or Special Taxes are levied thereon), to pay the annual Special Taxes when due could result in a draw on the 2013 Bonds Account of the Reserve Fund, and ultimately a default in payments of the principal of, and interest on, the 2013 Bonds, when due. No assurance can be given that Standard Pacific, KM Investments LLC, or their successors, will complete the remaining intended construction and development in Improvement Area No. 3. See Failure to Develop Properties. While the District does not expect to levy Special Taxes on property within Improvement Area No. 3 classified as Undeveloped Property, in the event that (a) there are significant individual homeowner delinquencies in Improvement Area No. 3, or (b) Standard Pacific fails to complete the remaining intended construction and development in Improvement Area No. 3 and Standard Pacific does not pay Special Taxes on property owned by Standard Pacific as of February 13, 2013, Special Taxes may be levied on Undeveloped Property. No assurance can be given that individual homeowners, Standard Pacific, KM Investments LLC, or their successors, will pay Special Taxes in the future or that it will be able to pay such Special Taxes on a timely basis. See Bankruptcy and Foreclosure for a discussion of certain limitations on the District s ability to pursue judicial proceedings with respect to delinquent parcels. See PROPERTY OWNERSHIP AND THE DEVELOPMENT and SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes. 37

46 Limited Obligations The 2013 Bonds and interest thereon are not payable from the general funds of the School District. Except with respect to the Special Taxes, neither the faith and credit nor the taxing power of the District or the School District is pledged for the payment of the 2013 Bonds or the interest thereon, and, except as provided in the Fiscal Agent Agreement, no Owner of the 2013 Bonds may compel the exercise of any taxing power by the District or the School District or force the forfeiture of any School District or District property. The principal of, premium, if any, and interest on the 2013 Bonds are not a debt of the School District or a legal or equitable pledge, charge, lien or encumbrance upon any of the School District s or the District s property or upon any of the School District s or the District s income, receipts or revenues, except the Special Tax Revenues and other amounts pledged under the Fiscal Agent Agreement. Moreover, special taxes of Improvement Areas within the District other than Improvement Area No. 3 are not pledged to the repayment of the 2013 Bonds. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes. Insufficiency of Special Taxes The Rates and Method governing the levy of the Special Taxes expressly exempt up to acres within Improvement Area No. 3 in the chronological order in which such property becomes property that lies within dedications for public streets, publicly owned surface drainage channels or other public property or Property Owner Association Property. Under the Rates and Method, the annual amount of Special Tax to be levied on each taxable parcel in Improvement Area No. 3 will generally be based on the land use class to which a parcel of Developed Property is assigned. See APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX and SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Rates and Method of Apportionment of Special Tax. In order to pay debt service on the 2013 Bonds, it is necessary that the Special Taxes be paid in a timely manner. Should the Special Taxes not be paid on time, the District has established a 2013 Bonds Account of the Reserve Fund in an amount equal to the Reserve Requirement for the 2013 Bonds to pay debt service on the 2013 Bonds to the extent other funds are not available. See SOURCES OF PAYMENT FOR THE 2013 BONDS 2013 Bonds Account of the Reserve Fund. The District has covenanted to maintain in the 2013 Bonds Account of the Reserve Fund an amount equal to the Reserve Requirement for the 2013 Bonds subject, however, to the limitation that the District may not levy the Special Tax in Improvement Area No. 3 in any fiscal year at a rate in excess of the maximum amounts permitted under the Rates and Method. As a result, if a significant number of delinquencies occur, the District could be unable to replenish the 2013 Bonds Account of the Reserve Fund to the Reserve Requirement for the 2013 Bonds due to the limitations on the maximum Special Tax. If such defaults were to continue in successive years, the 2013 Bonds Account of the Reserve Fund could be depleted and a default on the 2013 Bonds could occur. The School District has covenanted that, under certain conditions, it will institute foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to protect its security interest. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Proceeds of Foreclosure Sales for provisions which apply in the event of such foreclosure and which the School District is required to follow in the event of delinquencies in the payment of the Special Tax. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to owners of the 2013 Bonds (if the 2013 Bonds Account of the Reserve Fund has been depleted) pending such sales or the prosecution of such foreclosure proceedings and receipt by the School District on behalf of the District of the proceeds of sale. The District may adjust the future Special Tax levied on taxable parcels in Improvement Area No. 3, subject to the limitation on the maximum Special Tax, to provide an amount 38

47 required to pay interest on, principal of, and redemption premiums, if any, on the Bonds, and the amount, if any, necessary to replenish the 2013 Bonds Account of the Reserve Fund to an amount equal to the Reserve Requirement for the 2013 Bonds and to pay all current expenses. There is, however, no assurance that the total amount of the Special Tax that could be levied and collected against taxable parcels in Improvement Area No. 3 will be at all times sufficient to pay the amounts required to be paid by the Fiscal Agent Agreement, even if the Special Tax is levied at the maximum Special Tax rates. See Bankruptcy and Foreclosure for a discussion of potential delays in foreclosure actions. The Rates and Method governing the levy of the Special Tax expressly exempts up to Acres of property owned by public agencies and other exempt entities in Improvement Area No. 3. See Section E of APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX. If for any reason property within Improvement Area No. 3 becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within Improvement Area No. 3. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due. The Rates and Method governing the levy of the Special Tax provides that, once a parcel is classified as taxable property, it will remain subject to a Special Tax levy even if subsequently it is acquired by a public agency. The Act provides that, if any property within Improvement Area No. 3 not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. Due to problems of collecting taxes from public agencies, if a substantial portion of land within Improvement Area No. 3 was to become owned by public agencies, collection of the Special Tax might become more difficult and could result in collections of the Special Tax which might not be sufficient to pay principal of and interest on the Bonds when due and a default could occur with respect to the payment of such principal and interest. Failure to Develop Properties Development of property within Improvement Area No. 3 may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of Standard Pacific, KM Investments LLC or any property owner to pay the Special Taxes when due. Land development is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect planned land development. Development of land in Improvement Area No. 3 is also subject to the availability of water. Finally, development of land is subject to economic considerations. As of February 13, 2013, within Improvement Area No. 3, there were 195 completed single family detached homes which had been conveyed to individual homeowners. Additionally, as of February 13, 2013, within Improvement Area No. 3, Standard Pacific owned three completed model homes, eight production homes over 95% completed, 12 additional production homes under construction and 34 lots in a finished lot condition. However, significant infrastructure improvements remain to be completed in order to complete construction of all 344 of the single family detached homes currently planned within Improvement Area No. 3. No assurance can be given that the remaining proposed residential development will be partially or fully 39

48 completed; and for purposes of evaluating the investment quality of the 2013 Bonds, prospective purchasers should consider the possibility that such parcels will remain vacant and unimproved. Undeveloped or partially developed land is inherently less valuable than developed land and provides less security to the 2013 Bondowners should it be necessary for the School District to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development of the required infrastructure for development in Improvement Area No. 3 as planned, or substantial delays in the completion of the development or the required infrastructure for the development due to litigation or other causes may reduce the value of the property within Improvement Area No. 3 and increase the length of time during which Special Taxes will be payable from undeveloped property, and may affect the willingness and ability of the owners of property within Improvement Area No. 3 to pay the Special Taxes when due. There can be no assurance that land development operations within Improvement Area No. 3 will not be adversely affected by a future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, an increase in mortgage interest rates, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the 2013 Bonds when due. In addition to the foregoing, a substantial portion of projects within the City are historically occupied by commuters to employment centers in the neighboring counties of Los Angeles and Orange, and such projects may be adversely affected by circumstances affecting such commuters, including but not limited to rising gasoline prices Bondowners should assume that any event that significantly impacts the ability to develop land in Improvement Area No. 3 would cause the property values within Improvement Area No. 3 to decrease substantially from those estimated by the Appraiser and could affect the willingness and ability of the owners of land within Improvement Area No. 3 to pay the Special Taxes when due. While the District does not expect to levy Special Tax on Undeveloped Property, if delinquencies are high it may be necessary in the future to levy on Undeveloped Property within Improvement Area No. 3. Undeveloped Property is less valuable per unit of area than Developed Property, especially if there are no plans to develop such land or if there are severe restrictions on the development of such land. The Undeveloped Property also provides less security to the 2013 Bondowners should it be necessary for the District to foreclose on Undeveloped Property due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within Improvement Area No. 3 as currently proposed will make the 2013 Bondowners dependent upon timely payment of the Special Taxes levied on Undeveloped Property. A slowdown or stoppage in the continued development of Improvement Area No. 3 could reduce the willingness and ability of Standard Pacific or KM Investments LLC to make Special Tax payments on Undeveloped Property and could greatly reduce the value of such property in the event it has to be foreclosed upon. See Land Values below. Natural Disasters Improvement Area No. 3 is located in a seismically active region in Southern California. There is significant potential for destructive ground-shaking during the occurrence of a major seismic event. In addition, land along the aforementioned fault lines may be subject to liquefaction during the occurrence of such an event. While the property within Improvement Area No. 3 subject to the lien of Special Taxes is not located in a known fault zone, such property may nevertheless be subject to unpredictable seismic activity. In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage to both property and infrastructure in Improvement Area No. 3. As a result, Standard Pacific or KM Investments LLC or a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in Improvement Area No. 3 could be diminished in the 40

49 aftermath of such a natural disaster, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes. Endangered Species During the 1990s, there was an increase in activity at the State and federal level related to the possible listing of certain plant and animal species found in the Southern California area as endangered species. An increase in the number of endangered species would curtail development in a number of areas. At present, the property within Improvement Area No. 3 is not known to be inhabited by any plant or animal species which is on the endangered species list or which either the California Fish and Game Commission or the United States Fish and Wildlife Service has proposed for addition to the endangered species list. Notwithstanding this fact, new species are proposed to be added to the State and federal protected lists on a regular basis. Any action by the State or federal governments to protect species located on or adjacent to the property within Improvement Area No. 3 could negatively impact Standard Pacific s ability to complete its the development as planned, or KM Investment LLC s or its successor(s) ability to develop its property within Improvement Area No. 3 as planned. This, in turn, could reduce the likelihood of timely payment of the Special Taxes and would likely reduce the value of the land estimated by the Appraiser and the potential revenues available at a foreclosure sale for delinquent Special Taxes. Standard Pacific has represented to the District that they are not aware of any endangered species located on their property within Improvement Area No. 3. See Failure to Develop Properties and Land Values herein. Hazardous Substances The presence of hazardous substances on a parcel may result in a reduction in the value of a parcel. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or the Superfund Act, is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming the owner, will become obligated to remedy the condition just as is the seller. The value of the property within Improvement Area No. 3, as set forth herein and in the Appraisal Report, does not reflect the presence of any hazardous substance or the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the property. Standard Pacific has represented to the District that it is not aware of any state or federally classified hazardous substances located on its property within Improvement Area No. 3, and does not believe that such a current liability exists with respect to any parcel owned by Standard Pacific in Improvement Area No. 3. However, it is possible that such liabilities do currently exist and that neither Standard Pacific nor the District is aware of them. Further, it is possible that liabilities may arise in the future with respect to any of the parcels resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence currently on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel and the willingness or ability of the owner of any parcel to pay the Special Tax installments. 41

50 Payment of the Special Tax is not a Personal Obligation of the Property Owners An owner of a taxable parcel is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the value of a taxable parcel is not sufficient, taking into account other liens imposed by public agencies, to secure fully the Special Tax, the District has no recourse against the property owner. Land Values The value of the property within Improvement Area No. 3 is a critical factor in determining the investment quality of the 2013 Bonds. If a property owner is delinquent in the payment of Special Taxes, the District s only remedy is to commence foreclosure proceedings against the delinquent parcel in an attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the economy, physical events such as earthquakes, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Taxes. See THE DISTRICT AND IMPROVEMENT AREA NO. 3 Estimated Value-to-Lien Ratios. The Appraiser has estimated, on the basis of certain definitions, assumptions and limiting conditions contained in the Appraisal Report, that as of February 13, 2013, the value of the land and improvements within Improvement Area No. 3 was approximately $76,606,918. The Appraisal Report is based on a number of assumptions and limiting conditions as stated in APPENDIX B APPRAISAL REPORT. The Appraisal Report does not reflect any possible negative impact which could occur by reason of future slow or no growth voter initiatives, an economic downturn, any potential limitations on development occurring due to time delays, an inability of any landowner to obtain any needed development approval or permit, the presence of hazardous substances or other adverse soil conditions within Improvement Area No. 3, the listing of endangered species or the determination that habitat for endangered or threatened species exists within Improvement Area No. 3, or other similar situations. Prospective purchasers of the 2013 Bonds should not assume that the land and improvements within Improvement Area No. 3 could be sold for the amount stated in the Appraisal Report at a foreclosure sale for delinquent Special Taxes. In arriving at the estimate of market value, the Appraiser assumes that any sale will be sold in a competitive market after a reasonable exposure time, and assuming that neither the buyer or seller is under duress, which is not always present in a foreclosure sale. See APPENDIX B for a description of other assumptions made by the Appraiser and for the definitions and limiting conditions used by the Appraiser. Any event which causes one of the Appraiser s assumptions to be untrue could result in a reduction of the value of the land within Improvement Area No. 3 from that estimated by the Appraiser. The assessed values set forth in this Official Statement do not represent market values arrived at through an appraisal process and generally reflect only the sales price of a parcel when acquired by its current owner, adjusted annually by an amount determined by the County Assessor, generally not to exceed an increase of more than 2% per fiscal year. No assurance can be given that a parcel could actually be sold for its assessed value. No assurance can be given that any bid will be received for a parcel with delinquent Special Taxes offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Proceeds of Foreclosure Sales. Parity Taxes, Special Assessments and Land Development Costs Property within Improvement Area No. 3 is subject to taxes and assessments imposed by other public agencies also having jurisdiction over the land within Improvement Area No. 3. See THE DISTRICT AND IMPROVEMENT AREA NO. 3 Direct and Overlapping Indebtedness. 42

51 The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is co-equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property except, possibly, for liens or security interests held by the Federal Deposit Insurance Corporation. See Bankruptcy and Foreclosure below. Neither the District nor the School District have control over the ability of other entities and districts to issue indebtedness secured by special taxes, ad valorem taxes or assessments payable from all or a portion of the property within Improvement Area No. 3. In addition, the landowners within Improvement Area No. 3 may, without the consent or knowledge of the District, petition other public agencies to issue public indebtedness secured by special taxes and ad valorem taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes and could reduce the estimated value-to-lien ratios for the property within Improvement Area No. 3 described herein. See SOURCES OF PAYMENT FOR THE 2013 BONDS and THE DISTRICT AND IMPROVEMENT AREA NO. 3 Direct and Overlapping Indebtedness and Estimated Value-to-Lien Ratios. Disclosures to Future Purchasers The willingness or ability of an owner of a parcel to pay the Special Tax even if the value is sufficient may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and the risk of such a levy and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The School District has caused a notice of the Special Tax to be recorded in the Office of the Recorder for the County against each parcel. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a property within Improvement Area No. 3 or lending of money thereon. The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a 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. Special Tax Delinquencies Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the Bonds are derived, will be billed to the properties within Improvement Area No. 3 on the regular ad valorem property tax bills sent to owners of such properties by the County Tax Collector. The Act currently provides that such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do ad valorem property tax installments. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Proceeds of Foreclosure Sales for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquencies in the payment of Special Taxes. See Bankruptcy and Foreclosure below, for a discussion of the policy of the Federal Deposit Insurance Corporation regarding the payment of special taxes and assessment and limitations on the District s ability to foreclosure on the lien of the Special Taxes in certain circumstances. 43

52 FDIC/Federal Government Interests in Properties The ability of the District to collect interest and penalties specified by the Act and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to parcels in which the FDIC, or other federal government entities such as Fannie Mae, Freddie Mac, the Drug Enforcement Agency, the Internal Revenue Service or other federal agency, has or obtains an interest. In the case of FDIC, in the event that any financial institution making a loan which is secured by parcels is taken over by the FDIC and the applicable Special Tax is not paid, the remedies available to the District may be constrained. The FDIC s policy statement regarding the payment of state and local real property taxes (the Policy Statement ) provides that taxes other than ad valorem taxes which are secured by a valid lien in effect before the FDIC acquired an interest in a property will be paid unless the FDIC determines that abandonment of its interests is appropriate. The Policy Statement provides that the FDIC generally will not pay installments of non-ad valorem taxes which are levied after the time the FDIC acquires its fee interest, nor will the FDIC recognize the validity of any lien to secure payment except in certain cases where the Resolution Trust Corporation had an interest in property on or prior to December 31, Moreover, the Policy Statement provides that, with respect to parcels on which the FDIC holds a mortgage lien, the FDIC will not permit its lien to be foreclosed out by a taxing authority without its specific consent, nor will the FDIC pay or recognize liens for any penalties, fines or similar claims imposed for the non-payment of taxes. The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings brought against Orange County in United States Bankruptcy Court and in Federal District Court. The Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that ruling, and the FDIC cross-appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a ruling favorable to the FDIC except with respect to the payment of pre-receivership liens based upon delinquent property tax. The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to parcels in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale would prevent or delay the foreclosure sale. In the case of Fannie Mae and Freddie Mac, 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, anything 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 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 Improvement Area No. 3 becoming 44

53 owned by the federal government, federal government entities or federal government sponsored entities, see Insufficiency of Special Taxes. The District s remedies may also be limited in the case of delinquent Special Taxes with respect to parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement Administration) have or obtain an interest. Bankruptcy and Foreclosure Bankruptcy, insolvency and other laws generally affecting creditors rights could adversely impact the interests of owners of the Bonds in at least two ways. First, the payment of property owners taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings may be limited by bankruptcy, insolvency or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. See SOURCES OF PAYMENT FOR THE 2013 BONDS Special Taxes Proceeds of Foreclosure Sales In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. Although a bankruptcy proceeding would not cause the Special Taxes to become extinguished, the amount and priority of any Special Tax lien could be modified if the value of the property falls below the value of the lien. If the value of the property is less than the lien, such excess amount could be treated as an unsecured claim by the bankruptcy court. In addition, bankruptcy of a person or entity with an interest in the applicable property could result in a delay in prosecuting Superior Court foreclosure proceedings. Such delay would increase the likelihood of a delay or default in payment of delinquent Special Tax installments and the possibility of delinquent Special Tax installments not being paid in full. Secondly, the Bankruptcy Code might prevent moneys on deposit in the Special Tax Fund and the Improvement Fund for Improvement Area No. 3 from being applied to pay interest on the applicable Bonds and/or to redeem Bonds if bankruptcy proceedings were brought by or against Standard Pacific, KM Investments LLC or successors and if the court found that any landowners had an interest in such moneys within the meaning of Section 541(a)(1) of the Bankruptcy Code. The various legal opinions to be delivered concurrently with the delivery of the 2013 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. Moreover, the ability of the District to commence and prosecute enforcement proceedings may be limited by bankruptcy, insolvency and other laws generally affecting creditors rights (such as the Soldiers and Sailors Relief Act of 1940) and by the laws of the State relating to judicial foreclosure. No Acceleration Provision The 2013 Bonds do not contain a provision allowing for the acceleration of the 2013 Bonds in the event of a payment default or other default under the terms of the 2013 Bonds or the Fiscal Agent Agreement or in the event interest on the 2013 Bonds becomes included in gross income for federal income tax purposes. Pursuant to the Fiscal Agent Agreement, an owner is given the right for the equal benefit and protection of all owners of the 2013 Bonds similarly situated to pursue certain remedies described in APPENDIX E SUMMARY OF THE FISCAL AGENT AGREEMENT AND FIRST SUPPLEMENT TO FISCAL AGENT AGREEMENT and Limitations on Remedies. 45

54 Loss of Tax Exemption As discussed under the caption TAX MATTERS herein, interest on the 2013 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2013 Bonds were issued as a result of future acts or omissions of the District in violation of its covenants in the Fiscal Agent Agreement with respect to compliance with certain provisions of the Internal Revenue Code of In addition, it is possible that future changes in applicable federal tax laws could cause interest on the 2013 Bonds to be included in gross income for federal income taxation or could otherwise reduce the equivalent taxable yield of such interest and thereby reduce the value of the 2013 Bonds. Should such an event of taxability occur, the 2013 Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed under the redemption provisions contained in the Fiscal Agent Agreement. Limited Secondary Market There can be no guarantee that there will be a secondary market for the 2013 Bonds or, if a secondary market exists, that such 2013 Bonds can be sold for any particular price. Although the District has committed to provide certain statutorily required financial and operating information, there can be no assurance that such information will be available to Bondowners on a timely basis. See CONTINUING DISCLOSURE. Any failure to provide annual financial information, if required, does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating for the 2013 Bonds or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Proposition 218 An initiative measure commonly referred to as the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the Title and Summary of the Initiative prepared by the California Attorney General, the Initiative limits the authority of local governments to impose taxes and property-related assessments, fees and charges. The provisions of the Initiative as they may relate to community facilities district are subject to interpretation by the courts. The Initiative could potentially impact the Special Taxes available to the District to pay the principal of and interest on the 2013 Bonds as described below. Among other things, Section 3 of Article XIIIC states that... the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. The Act provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On 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. 46

55 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 2013 Bonds. It may be possible, however, for voters or the Board, acting as the legislative body of the District, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the Bonds. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Nevertheless, to the maximum extent that the law permits it to do so, the District has covenanted that it will not initiate proceedings under the Act to reduce the maximum Special Tax rates on parcels of Developed Property within Improvement Area No. 3. In connection with the foregoing covenant, the Board has made a legislative finding and determination that any elimination or reduction of Special Taxes below the foregoing level would interfere with the timely retirement of the 2013 Bonds. The District also has covenanted that, in the event an initiative is adopted which purports to alter the Rates and Method, it will commence and pursue legal action in order to preserve its ability to comply with the foregoing covenant. However, no assurance can be given as to the enforceability of the foregoing covenants. The interpretation and application of Article XIIIC and Article XIIID will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts. See SPECIAL RISK FACTORS Limitations on Remedies. Ballot Initiatives Articles XIII A, XIII B, XIII C and XIII D were adopted pursuant to measures qualified for the ballot pursuant to California s constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. On March 6, 1995, in the case of Rossi v. Brown, the State Supreme Court held that an initiative can repeal a tax ordinance and prohibit the imposition of further such taxes and that the exemption from the referendum requirements does not apply to initiatives. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the School District, or local districts to increase revenues or to increase appropriations or on the ability of Standard Pacific or KM Investments LLC or its successors to complete the remaining proposed development within Improvement Area No. 3. Limitations on Remedies Remedies available to the owners of the 2013 Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the 2013 Bonds or to preserve the tax-exempt status of interest on the 2013 Bonds. Bond Counsel has limited its opinion as to the enforceability of the 2013 Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or others similar laws affecting generally the enforcement of creditor s rights, by equitable principles and by the exercise of judicial discretion and by limitations on remedies against public agencies in the State of California. The 2013 Bonds are not subject to acceleration. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners. 47

56 CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement with U.S. Bank National Association, as dissemination agent, the District has agreed to provide, or cause to be provided, to the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at on an annual basis by February 1 of each fiscal year beginning February 1, 2014 certain financial information and operating data concerning the District. The District has further agreed to provide notice to EMMA of certain listed events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12 adopted by the SEC. The inclusion of this information does not mean that the Bonds are secured by any resources or property of the School District or the District other than Special Tax Revenues and other amounts held under the Fiscal Agent Agreement. See SOURCES OF PAYMENT FOR THE 2013 BONDS and SPECIAL RISK FACTORS Limited Obligations. The annual report that was due March 1, 2010 with respect to Community Facilities District No. 2 of the Riverside Unified School District 1999 Special Tax Refunding Bonds was posted to EMMA March 10, The annual report that was due March 1, 2012 for the School District s General Obligation Refunding Bonds, Series 2011, and the School District s Election of 2001 General Obligation Bonds, Series B and Series C, was filed with EMMA July 11, Such annual reports were prepared and dated February 22, 2012 but may have been originally filed under the wrong CUSIP numbers. Other than as disclosed in this Official Statement, the School District and the District have not failed to comply in all material respects with any previous undertakings with regard to Rule 15c2-12 to provide annual reports or notices of significant events in the last five years. The full text of the Continuing Disclosure Agreement is set forth in APPENDIX F. TAX MATTERS In the opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the 2013 Bonds is excluded from gross income for federal income tax purposes. In the further opinion of Bond Counsel, interest on the 2013 Bonds is exempt from State of California personal income tax. Bond Counsel notes that interest on the 2013 Bonds is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. Bond Counsel further notes, however, that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of corporations. Bond Counsel s opinion as to the exclusion from gross income for federal income tax purposes of interest on the 2013 Bonds is based upon certain representations of fact and certifications made by the School District, the Underwriter and others and is subject to the condition that the School District complies with all requirements of the Internal Revenue Code of 1986, as amended (the Code ) that must be satisfied subsequent to the issuance of the 2013 Bonds to assure that interest on the 2013 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2013 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2013 Bonds. The School District has covenanted to comply with all such requirements. Should the interest on the 2013 Bonds become includable in gross income for federal income tax purposes, the 2013 Bonds are not subject to early redemption as a result of such occurrence and will remain outstanding until maturity or until otherwise redeemed in accordance with the Fiscal Agent Agreement. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2013 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 2013 Bond Owners from realizing the full current benefit of the tax status of such interest. As one example, the Obama Administration recently announced a legislative proposal which, for tax years beginning on or after January 1, 2013, generally would limit the exclusion from gross income of interest on obligations like the 2013 Bonds to some extent for 48

57 taxpayers who are individuals and whose income is subject to higher marginal income tax rates. Other proposals have been made that could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on obligations like the 2013 Bonds. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the 2013 Bonds. Prospective purchasers of the 2013 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. Bond Counsel s opinion may be affected by action taken (or not taken) or events occurring (or not occurring) after the date of issuance of the 2013 Bonds. Bond Counsel has not undertaken to determine, or to inform any person, whether any such action or events are taken or do occur, or whether such actions or events may adversely affect the value or tax treatment of a 2013 Bond, and Bond Counsel expresses no opinion with respect thereto. The Internal Revenue Service (the IRS ) has initiated an expanded program for auditing tax-exempt bond issues, including both random and targeted audits. It is possible that the 2013 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2013 Bonds might be affected as a result of such an audit (or by an audit of similar bonds). Although Bond Counsel has rendered an opinion that interest on the 2013 Bonds is excluded from gross income for federal income tax purposes provided the School District continues to comply with certain requirements of the Code, the accrual or receipt of interest on the 2013 Bonds may otherwise affect the tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient s particular tax status and other items of income or deductions. Bond Counsel expresses no opinion regarding any such consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the 2013 Bonds. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C. LEGAL MATTERS The legal opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, approving the validity of the Bonds in substantially the form set forth as APPENDIX C hereto, will be made available to purchasers at the time of original delivery. Certain legal matters will be passed upon for the District and the School District by Best Best & Krieger LLP, Riverside, California as counsel for the District and the School District and for the Underwriter by Nossaman LLP, Irvine, California, as counsel to the Underwriter. Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, is serving as Disclosure Counsel to the District with respect to the 2013 Bonds. ABSENCE OF LITIGATION No litigation is pending or threatened concerning the validity of the 2013 Bonds and a certificate of the School District and District to that effect will be furnished to the Underwriter at the time of the original delivery of the 2013 Bonds. Neither the School District nor the District is aware of any litigation pending or threatened which questions the existence of the District or the School District or contests the authority of the District to levy and collect the Special Taxes or to issue and retire the 2013 Bonds. 49

58 NO RATING The District has not made and does not contemplate making application to any rating agency for the assignment of a rating to the 2013 Bonds. UNDERWRITING The 2013 Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the Underwriter ). The Underwriter has agreed to purchase the 2013 Bonds at a price of $6,087, (being $6,165,000 aggregate principal amount thereof, plus net original issue premium of $2, and less Underwriter s discount of $80,145.00). The purchase contract relating to the 2013 Bonds provides that the Underwriter will purchase all of the 2013 Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the purchase contract, the approval of certain legal matters by counsel and certain other conditions. The Underwriter may offer and sell the 2013 Bonds to certain dealers and others at prices lower than the offering price stated on the cover page thereof. The offering price may be changed from time to time by the Underwriter. FINANCIAL INTERESTS The fees being paid to the Underwriter, Bond Counsel, Disclosure Counsel, Financial Advisor to the School District, the Fiscal Agent and Underwriter s Counsel are contingent upon the issuance and delivery of the 2013 Bonds. The fees being paid to the Appraiser, the Special Tax Consultant and the Mortgage Consultant are not contingent upon the issuance and delivery of the 2013 Bonds. From time to time, Bond Counsel and Disclosure Counsel represent the Underwriter on matters unrelated to the 2013 Bonds. PENDING LEGISLATION The District is not aware of any significant pending legislation which would have material adverse consequences on the 2013 Bonds or the ability of the District to pay the principal of and interest on the 2013 Bonds when due. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the 2013 Bonds. Quotations and summaries and explanations of the 2013 Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements and their provisions. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. 50

59 The execution and delivery of this Official Statement by the Superintendent of the School District has been duly authorized by the Board of Education of the Riverside Unified School District acting in its capacity as the legislative body of the District. COMMUNITY FACILITIES DISTRICT NO. 15 OF THE RIVERSIDE UNIFIED SCHOOL DISTRICT By: /s/ Richard L. Miller, Ph.D. Superintendent of the Riverside Unified School District 51

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61 APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX The following sets forth the Rates and Method of Apportionment for the levy and collection of Special Taxes of Improvement Area No. 3 of Community Facilities District No. 15 of the Riverside Unified School District (the District ). An Annual Special Tax shall be levied on and collected in Improvement Area No. 3 each Fiscal Year, in an amount determined through the application of the Rates and Method of Apportionment described below. All of the real property in Improvement Area No. 3, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent, and in the manner herein provided. AMENDED AND RESTATED RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR IMPROVEMENT AREAS NOS. 1, 2 AND 3 OF COMMUNITY FACILITIES DISTRICT NO. 15 (MISSION RANCH) RIVERSIDE UNIFIED SCHOOL DISTRICT Special Taxes (defined below) shall be levied on all Parcels (defined below) located within the boundaries of Improvement Area No. 1, Improvement Area No. 2 and Improvement Area No. 3 (defined below) of Community Facilities District No. 15 (Mission Ranch) of Riverside Unified School District ( CFD No. 15 ). The amount of Special Tax to be levied on a Parcel in any Fiscal Year (defined below) shall be determined by the Board of Education of Riverside Unified School District (the Board and the District ), in accordance with the rates and method of apportionment of the Special Taxes described below. All of the property in CFD No. 15, unless exempted by law or Section E shall be taxed for the purposes, to the extent, and in the manner provided herein. A. DEFINITIONS Act means the Mello-Roos Community Facilities Act of 1982, being Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California. Administrative Expenses for IA No. 1 means the following actual or reasonably estimated costs directly related to the administration of IA No. 1: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the District, CFD No. 15, or an agent thereof); the costs of collecting the Special Taxes (whether by the District or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs to the District, CFD No. 15 or any agent thereof in complying with arbitrage rebate requirements; the costs to the District, CFD No. 15 or any agent thereof in complying with District or CFD No. 15 disclosure requirements associated with applicable federal and state securities laws and the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs associated with the release of funds from an escrow account associated with the Bonds issued for IA No. 1; and the District s and CFD No. 15 s annual administration fees and third party expenses associated with IA No. 1. Administrative Expenses shall also include amounts estimated or advanced by the District or CFD No. 15 for any other administrative purposes of the District or CFD No. 15 related to IA No. 1, including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes in IA No. 1. Administrative Expenses for IA No. 2 means the following actual or reasonably estimated costs directly related to the administration of IA No. 2: the costs of computing the Special Taxes and A-1

62 preparing the annual Special Tax collection schedules (whether by the District, CFD No. 15, or an agent thereof); the costs of collecting the Special Taxes (whether by the District or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs to the District or CFD 15 or any agent thereof in complying with arbitrage rebate requirements; the costs to the District, CFD No. 15 or any agent thereof in complying with District or CFD No. 15 disclosure requirements associated with applicable federal and state securities laws and the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs associated with the release of funds from an escrow account associated with the Bonds issued for IA No. 2; and the District s and CFD No. 15 s annual administration fees and third party expenses associated with IA No. 2. Administrative Expenses shall also include amounts estimated or advanced by the District or CFD No. 15 for any other administrative purposes of the District or CFD No. 15 related to IA No. 2 including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes in IA No. 2. Administrative Expenses for IA No. 3 means the following actual or reasonably estimated costs directly related to the administration of IA No. 3: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the District, CFD No. 15, or an agent thereof); the costs of collecting the Special Taxes (whether by the District or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs to the District or CFD 15 or any agent thereof in complying with arbitrage rebate requirements; the costs to the District, CFD No. 15 or any agent thereof in complying with District or CFD No. 15 disclosure requirements associated with applicable federal and state securities laws and the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs associated with the release of funds from an escrow account associated with the Bonds issued for IA No. 3; and the District s and CFD No. 15 s annual administration fees and third party expenses associated with IA No. 3. Administrative Expenses shall also include amounts estimated or advanced by the District or CFD No. 15 for any other administrative purposes of the District or CFD No. 15 related to IA No. 3 including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes in IA No. 3. Alternate Special Tax means the applicable alternate special tax of a Parcel as calculated pursuant to Section C.1.c., Section C.2.c., or Section C.3.c., as applicable. Assessor's Parcel Map means an official map of the Assessor of the County of Riverside designating Parcels by assessor's parcel number. Assigned Special Tax Rate means the applicable assigned special tax rate of a Parcel specified in Table 1, Table 2 or Table 3 in Section C, as applicable. Attached Dwelling Unit means a Dwelling Unit that consists or will consist of a building or buildings in which each of the individual Dwelling Units has at least one common wall with another Dwelling Unit. Attached Residential Property means all Parcels of Developed Property for which a building permit has been issued for purposes of constructing an Attached Dwelling Unit. Bonds means the bonds of CFD No. 15, which are issued for IA No. 1, IA No. 2 or IA No. 3, or any combination thereof. A-2

63 Detached Dwelling Unit means a Dwelling Unit that is not an Attached Dwelling Unit. Detached Residential Property means all Parcels of Developed Property for which a building permit has been issued for purposes of constructing a Detached Dwelling Unit. Developed Property means for any Fiscal Year all Taxable Property, exclusive of Taxable Property Owner Association Property and Taxable Public Property, for which a building permit was issued as of March 1 of the prior Fiscal Year. Dwelling Unit means any residential structure including, but not limited to apartments, condominiums, townhouses, or single-family detached houses, offered for rent or for sale for which a building permit was issued as of March 1 of the prior Fiscal Year. Exempt Property means any Parcel or other property within IA No. 1, IA No. 2, or IA No. 3 that is exempt from the levy of Special Taxes pursuant to Section E or the Act. Final Map means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section et seq.) or recordation of a condominium plan pursuant to California Civil Code Section 1352 that creates individual lots for which building permits may be issued without further subdivision. Fiscal Year means the twelve month period starting on July 1 of any calendar year and ending the following June 30. Improvement Area No. 1 or IA No. 1 means all Parcels included in the area identified as Improvement Area No. 1 on the recorded boundary map for CFD No. 15. Improvement Area No. 2 or IA No. 2 means all Parcels included in the area identified as Improvement Area No. 2 on the recorded boundary map for CFD No. 15. Improvement Area No. 3 or IA No. 3 means all Parcels included in the area identified as Improvement Area No. 3 on the recorded boundary map for CFD No. 15. Fiscal Agent Agreement means the Fiscal Agent Agreement, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing, amending or supplementing the same. Maximum Special Tax means the maximum Special Tax, determined in accordance with Section C that can be levied by the Board in any Fiscal Year on any Parcel. Net Taxable Acre or Acreage means that acreage shown on the Assessor's Parcel Map for each Parcel, exclusive of property exempt from the Special Tax pursuant to the Act or Section E. In the event that the Assessor s Parcel Map shows no acreage for a Parcel, the Net Taxable Acreage for the Parcel shall be as shown on or determined from the Final Map or a functionally equivalent map or document for the Parcel. Non-Residential Property means all Parcels of Developed Property for which a building permit has been issued for the construction of a building that is not a Dwelling Unit. Parcel means a lot or parcel shown on an Assessor's Parcel Map with an assigned assessor s parcel number as of the date of the levy of the Special Taxes for each Fiscal Year. A-3

64 Property Owner Association Property means any property within the boundaries of CFD No. 15 owned by or dedicated to a property owner association, including any master or sub-association. Proportionately means for Parcels of Detached Residential Property that the ratio of the actual Special Tax levy to the Assigned Special Tax Rate is the same for all Parcels of Detached Residential Property. For Parcels of Attached Residential Property, Non-Residential Property, Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property, Proportionately means that the ratio of the actual Special Tax levy per Net Taxable Acre to the Maximum Special Tax per Net Taxable Acre is the same for all Parcels of Attached Residential Property, Non-Residential Property, Undeveloped Property, Taxable Property Owner Association Property or Taxable Public Property. Public Property means any property within the boundaries of CFD No. 15 that is used for public rights-of-way or any other public purpose and is owned by or dedicated or irrevocably offered for dedication to the federal government, the State of California, the County, or any other public agency; provided, however, that any property leased by a public agency; to a private entity and subject to taxation under Section of the Act shall be taxed and classified in accordance with its use. Residential Floor Space means the square footage of a Detached Dwelling Unit, exclusive of garages, as shown on or calculated from the appropriate building records of the County of Riverside Building Department. Special Tax or Special Taxes means the special tax to be levied in each Fiscal Year on each Parcel of Taxable Property to fund the Special Tax Requirement for Improvement Area No. 1, the Special Tax Requirement for Improvement Area No. 2 or the Special Tax Requirement for Improvement Area No. 3. Special Tax Requirement for Improvement Area No. 1 means the amount required in any Fiscal Year to: (i) pay debt service on all outstanding Bonds which is secured by Special Taxes levied on Parcels in IA No. 1; (ii) pay periodic costs with respect to such Bonds including but not limited to, credit enhancement and rebate payments; (iii) pay costs incurred by the District and CFD No. 15 in the annual levy and collection of the Special Taxes in IA No. 1; (iv) pay Administrative Expenses related to IA No. 1; (v) pay any amounts required, to establish or replenish any reserve fund established for such Bonds; and (vi) pay for anticipated delinquent Special Taxes in IA No. 1 based on the delinquency rate for the Special Taxes levied in IA No. 1 in the previous Fiscal Year taking into account any available funds as determined by the District. Special Tax Requirement for Improvement Area No. 2 means the amount required in any Fiscal Year to: (i) pay debt service on all outstanding Bonds which is secured by Special Taxes levied on Parcels in IA No. 2; (ii) pay periodic costs with respect to such Bonds including but not limited to, credit enhancement and rebate payments; (iii) pay costs incurred by the District and CFD No. 15 in the annual levy and collection of the Special Taxes in IA No. 2; (iv) pay Administrative Expenses related to IA No. 2; (v) pay any amounts required, to establish or replenish any reserve fund established for such Bonds; and (vi) pay for anticipated delinquent Special Taxes in IA No. 2 based on the delinquency rate for the Special Taxes levied in IA No. 2 in the previous Fiscal Year taking into account any available funds as determined by the District. Special Tax Requirement for Improvement Area No. 3 means the amount required in any Fiscal Year to: (i) pay debt service on all outstanding Bonds which is secured by Special Taxes levied on Parcels in IA No. 3; (ii) pay periodic costs with respect to such Bonds including but not limited to, credit enhancement and rebate payments; (iii) pay costs incurred by the District and CFD No. 15 in the annual levy and collection of the Special Taxes in IA No. 3; (iv) pay Administrative Expenses related to IA No. 3; (v) pay any amounts required, to establish or replenish any reserve fund A-4

65 established for such Bonds; and (vi) pay for anticipated delinquent Special Taxes in IA No. 3 based on the delinquency rate for the Special Taxes levied in IA No. 3 in the previous Fiscal Year taking into account any available funds as determined by the District. Taxable Property mean all Parcels within IA No. 1, IA No. 2 or IA No. 3 that are not Exempt Property. Taxable Property Owner Association Property means all Parcels of Property Owner Association Property that are not exempt pursuant to Section E. Taxable Public Property means all Parcels of Public Property that are not exempt pursuant to Section E. Fiscal Agent means the Fiscal Agent or fiscal agent under the Fiscal Agent Agreement. Undeveloped Property means all Taxable Property not classified as Developed Property, Taxable Property Owner Association Property or Taxable Public Property. B. CLASSIFICATION OF PARCELS For each Fiscal Year (commencing with the Fiscal Year) all Parcels within IA No. 1, IA No. 2 and IA No. 3 shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association Property, Undeveloped Property or Exempt Property and shall be subject to the levy of Special Taxes in accordance with the rates and method of apportionment of the Special Taxes as set forth in Sections C and D. For purposes of determining the applicable Maximum Special Tax pursuant to Section C, Parcels of Developed Property within IA No. 1, IA No. 2 and IA No. 3 shall be assigned to a Land Use Category as specified in Table 1, Table 2 or Table 3. Within IA No. 1 Parcels of Detached Residential Property shall be assigned to Land Use Category 1, 2, 3, 4, 5, 6, or 7 as specified in Table 1, based upon the Residential Floor Space of the Dwelling Unit(s) on or to be constructed on a Parcel as provided in the most recent building permit issued for such Parcel. Within IA No. 2 and IA No. 3, Parcels of Detached Residential Property shall be assigned to Land Use Category 1, 2, 3, 4, 5, or 6 as specified in Table 2 or Table 3, as appropriate, based upon the Residential Floor Space of the Dwelling Unit(s) on or to be constructed on a Parcel as provided in the most recent building permit issued for such Parcel. Within IA No. 1 Parcels of Attached Residential Property and Parcels of Non-Residential Property shall be assigned to Land Use Category 8 or 9 as specified in such table. Within IA No. 2 and IA No. 3 Parcels of Attached Residential Property and Parcels of Non-Residential Property shall be assigned to Land Use Category 7 or 8 as specified in such tables. C. MAXIMUM SPECIAL TAX RATES 1. Improvement Area No. 1 a. Developed Property The Maximum Special Tax for each Parcel of Developed Property classified as Detached Residential Property in Improvement Area No. 1 shall be the greater of (i) the amount determined by multiplying the Dwelling Unit(s) on or to be constructed on the Parcel by the applicable Assigned Special Tax Rate per Dwelling Unit specified in Table 1, or (ii) the Alternate Special Tax. A-5

66 The Maximum Special Tax for each Parcel of Developed Property classified as Attached Residential Property or Non-Residential Property shall be determined by multiplying the Net Taxable Acreage of the Parcel by the applicable Assigned Special Tax Rate as specified in Table 1. Table 1 Assigned Special Tax Rates for Developed Property Improvement Area No. 1 Land Use Category Description Residential Floor Space Assigned Special Tax Rate 1 Detached Residential Property > 4,000 sq. ft. $3,536 per Dwelling Unit 2 Detached Residential Property > 3,700 and 4,000 sq. ft. $3,386 per Dwelling Unit 3 Detached Residential Property > 3,400 and 3,700 sq. ft. $3,221 per Dwelling Unit 4 Detached Residential Property > 3,100 and 3,400 sq. ft. $3,068 per Dwelling Unit 5 Detached Residential Property > 2,800 and 3,100 sq. ft. $2,898 per Dwelling Unit 6 Detached Residential Property > 2,500 and 2,800 sq. ft. $2,709 per Dwelling Unit 7 Detached Residential Property 2,500 sq. ft. $2,483 per Dwelling Unit 8 Attached Residential Property N/A $14,786 per Net Taxable Acre 9 Non-Residential Property N/A $14,786 per Net Taxable Acre b. Taxable Property Owner Association Property, Taxable Public Property and Undeveloped Property The Maximum Special Tax for each Parcel of Taxable Property Owner Association Property, Taxable Public Property or Undeveloped Property in Improvement Area No. 1 shall be determined by multiplying Net Taxable Acreage of the Parcel by $14,786. c. Alternate Special Tax At the time a Final Map is recorded, the Alternate Special Tax for all Parcels of Developed Property classified or to be classified as Detached Residential Property within such Final Map shall be determined by multiplying the total Net Taxable Acreage of Taxable Property, excluding the Net Taxable Acreage of Attached Residential Property and Non-Residential Property, if any, in such Final Map, by $14,786 and dividing the product by the total number of Dwelling Units within such Final Map. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Alternate Special Tax for each Parcel of Developed Property classified or to be classified as Detached Residential Property in such Final A-6

67 Map that is changed or modified shall be a rate per square foot of Net Taxable Acre calculated as follows: 1. Determine the total Alternate Special Tax anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. 2. Divide the amount determined pursuant to paragraph 1 above by the Net Taxable Acreage of Parcels of Detached Residential Property which are expected to be located in such changed or modified portion of the Final Map, as determined by the District. 3. Divide the quotient derived pursuant to paragraph 2 above by 43,560. The resulting quotient is the Alternate Special Tax per square foot which shall be applicable to Parcels of Detached Residential Property in such changed or modified portion of the Final Map for all remaining Fiscal Years in which the Special Tax may be levied. 2. Improvement Area No. 2 a. Developed Property The Maximum Special Tax for each Parcel of Developed Property classified as Detached Residential Property in Improvement Area No. 2 shall be the greater of (i) the amount determined by multiplying the Dwelling Unit(s) on or to be constructed on the Parcel by the applicable Assigned Special Tax Rate per Dwelling Unit specified in Table 2, or (ii) the Alternate Special Tax. The Maximum Special Tax for each Parcel of Developed Property classified as Attached Residential Property or Non-Residential Property shall be determined by multiplying the Net Taxable Acreage of the Parcel by the applicable Assigned Special Tax Rate for Non-Residential Property as specified in Table 2. A-7

68 Table 2 Assigned Special Tax Rates for Developed Property Improvement Area No. 2 Land Use Category Description Residential Floor Space Assigned Special Tax Rate 1 Detached Residential Property > 3,700 sq. ft. $4,289 per Dwelling Unit 2 Detached Residential Property > 3,400 and 3,700 sq. ft. $4,194 per Dwelling Unit 3 Detached Residential Property > 3,100 and 3,400 sq. ft. $3,665 per Dwelling Unit 4 Detached Residential Property > 2,800 and 3,100 sq. ft. $3,484 per Dwelling Unit 5 Detached Residential Property > 2,500 and 2,800 sq. ft. $3,405 per Dwelling Unit 6 Detached Residential Property 2,500 sq. ft. $3,247 per Dwelling Unit 7 Attached Residential Property N/A $17,871 per Net Taxable Acre 8 Non-Residential Property N/A $17,871 per Net Taxable Acre b. Taxable Property Owner Association Property, Taxable Public Property and Undeveloped Property The Maximum Special Tax for each Parcel of Taxable Property Owner Association Property, Taxable Public Property or Undeveloped Property in Improvement Area No. 2 shall be determined by multiplying the Net Taxable Acreage of the Parcel by $17,871. c. Alternate Special Tax At the time a Final Map is recorded, the Alternate Special Tax for all Parcels of Developed Property classified or to be classified as Detached Residential Property within such Final Map shall be determined by multiplying the total Net Taxable Acreage of Taxable Property, excluding the Net Taxable Acreage of Attached Residential Property and Non-Residential Property, if any, in such Final Map by $17,871 and dividing the product by the total number of Dwelling Units within such Final Map. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Alternate Special Tax for each Parcel of Developed Property classified or to be classified as Detached Residential Property in such Final Map area that is changed or modified shall be a rate per square foot of Net Taxable Acre calculated as follows: 1. Determine the total Alternate Special Tax anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. A-8

69 Land Use Category 2. Divide the amount determined pursuant to paragraph 1 by the Net Taxable Acreage of Parcels of Detached Residential Property which are expected to be located in such changed or modified portion of the Final Map, as determined by the District. 3. Divide the resulting quotient derived pursuant to paragraph 2 above by 43,560. The resulting quotient is the Alternate Special Tax per square foot of Acreage which shall be applicable to Parcels of Detached Residential Property in such changed or modified portion of the Final Map for all remaining Fiscal Years in which the Special Tax may be levied. 3. Improvement Area No. 3 a. Developed Property The Maximum Special Tax for each Parcel of Development Property classified as Detached Residential Property in Improvement Area No. 3 shall be the greater of (i) the amount determined by multiplying the Dwelling Unit(s) on or to be constructed on the Parcel by the applicable Assigned Special Tax Rate per Dwelling Unit specified in Table 3, or (ii) the Alternate Special Tax. The Maximum Special Tax for each Parcel of Developed Property classified as Attached Residential Property or Non-Residential Property shall be determined by multiplying the Net Taxable Acreage of the Parcel by the applicable Assigned Special Tax Rate as specified in Table 3. Table 3 Assigned Special Tax Rates for Developed Property Improvement Area No. 3 Description Residential Floor Space Assigned Special Tax Rate 1 Detached Residential Property > 3,700 sq. ft. $4,326 per Dwelling Unit 2 Detached Residential Property > 3,400 and 3,700 sq. ft. $4,231 per Dwelling Unit 3 Detached Residential Property > 3,100 and 3,400 sq. ft. $3,697 per Dwelling Unit 4 Detached Residential Property > 2,800 and 3,100 sq. ft. $3,514 per Dwelling Unit 5 Detached Residential Property > 2,500 and 2,800 sq. ft. $3,435 per Dwelling Unit 6 Detached Residential Property 2,500 sq. ft. $3,276 per Dwelling Unit 7 Attached Residential Property N/A $17,011 per Net Taxable Acre 8 Non-Residential Property N/A $17,011 per Net Taxable Acre A-9

70 b. Taxable Property Association Property, Taxable Public Property and Undeveloped Property The Maximum Special Tax for each Parcel of Taxable Property Owner Association Property, Taxable Public Property or Undeveloped Property in Improvement Area No. 3 shall be determined by multiplying Net Taxable Acreage of the Parcel by $17,011. c. Alternate Special Tax At the time a Final Map is recorded, the Alternate Special Tax for all Parcels of Developed Property classified or to be classified as Detached Residential Property within such Final Map shall be determined by multiplying the total Net Taxable Acreage of Taxable Property, excluding the Net Taxable Acreage of Attached Residential Property and Non-Residential Property, if any, by $17,011 and dividing the product by the total number of Dwelling Units within such Final Map. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Alternate Special Tax for each Parcel of Developed Property classified or to be classified as Detached Residential Property in such Final Map area that is changed or modified shall be a rate per square foot of Net Taxable Acre calculated as follows: 1. Determine the total Alternate Special Tax anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. 2. Divide the amount determined pursuant to paragraph 1 above by the Net Taxable Acreage of Parcels of Detached Residential Property which are expected to be located in such changed or modified portion of the Final Map, as determined by the District. 3. Divide the quotient derived pursuant to paragraph 2 above by 43,560. The resulting quotient is the Alternate Special Tax per square foot which shall be applicable to Parcels of Detached Residential Property in such changed or modified portion of the Final Map for all remaining Fiscal Years in which the Special Tax may be levied. D. METHOD OF APPORTIONMENT AND LEVY OF THE SPECIAL TAX Commencing with Fiscal Year and for each subsequent Fiscal Year, the Board shall determine the Special Tax Requirement for Improvement Area No. 1, the Special Tax Requirement for Improvement Area No. 2, and the Special tax Requirement for Improvement Area No. 3 and shall levy the Special Tax as follows. 1. Apportionment and Levy of Special Tax for Improvement Area No. 1 First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property in Improvement Area No. 1 at up to 100 percent of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No. 1. Second: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 1 after the first step has been completed, the Special Tax shall be A-10

71 levied Proportionately on each Parcel of Undeveloped Property in Improvement Area No. 1 at up to 100 percent of the Maximum Special Tax for Undeveloped Property. Third: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 1 after the first two steps have been completed, the Special Tax to be levied on all Parcels of Developed Property in Improvement Area No. 1, whose Maximum Special Tax is determined by application of the Alternate Special Tax, shall be Proportionately increased from the applicable Assigned Special Tax Rate up to 100 percent of the Maximum Special Tax. Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 1 after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Parcels of Taxable Property Owner Association Property and Taxable Public Property in Improvement Area No. 1, up to 100 percent of the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. Notwithstanding the above, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquency or default by the owner of any other Parcel within IA No Apportionment and Levy of Special Tax for Improvement Area No. 2 First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property in Improvement Area No. 2 at up to 100 percent of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No. 2. Second: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 2 after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property in Improvement Area No. 2 at up to 100 percent of the Maximum Special Tax for Undeveloped Property. Third: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 2 after the first two steps have been completed, the Special Tax to be levied on all Parcels of Developed Property in Improvement Area No. 2, whose Maximum Special Tax is determined by application of the Alternate Special Tax, shall be Proportionately increased from the applicable Assigned Special Tax Rate up to 100 percent of the Maximum Special Tax. Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 2 after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Parcels of Taxable Property Owner Association Property and Taxable Public Property in Improvement Area No. 2, up to 100 percent of the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. Notwithstanding the above, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquent or default by the owner of any other Parcel within IA No. 2. A-11

72 3. Apportionment and Levy of Special Tax for Improvement Area No. 3 E. EXEMPTIONS First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property in Improvement Area No. 3 at up to 100 percent of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No. 3. Second: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property in Improvement Area No. 3 at up to 100 percent of the Maximum Special Tax for Undeveloped Property. Third: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first two steps have been completed, the Special Tax to be levied on all Parcels of Developed Property in Improvement Area No. 3, whose Maximum Special Tax is determined by application of the Alternate Special Tax, shall be Proportionately increased from the applicable Assigned Special Tax Rate up to 100 percent of the Maximum Special Tax. Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Parcels of Taxable Property Owner Association Property and Taxable Public Property in Improvement Area No. 3, up to 100 percent of the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. Notwithstanding the above, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquent or default by the owner of any other Parcel within IA No Improvement Area No. 1 The Board shall not levy Special Taxes on: (i) an acreage of Parcels of Public Property and Property Owner Association Property that will not reduce the Net Taxable Acreage of Parcels of Taxable Property within IA No. 1 to less than Net Taxable Acres, and (ii) any Parcels for which the obligation to pay the Special Taxes has been prepaid in full pursuant to Section G. Tax-exempt status for Parcels or portions of Parcels of Public Property and Property Owner Association Property will be irrevocably assigned by the District in the chronological order in which such Parcels or portions of Parcels become Exempt Property. 2. Improvement Area No. 2 The Board shall not levy Special Taxes on: (i) an acreage of Parcels of Public Property and Property Owner Association Property that will not reduce the Net Taxable Acreage of Parcels of Taxable Property within IA No. 2 to less than Net Taxable Acres, and (ii) any Parcels for which the obligation to pay the Special Taxes has been prepaid in full Pursuant to Section G. A-12

73 Tax-exempt status for Parcels or portions of Parcels of Public Property and Property Owner Association Property will be irrevocably assigned by the District in the chronological order in which such Parcels or portions of Parcels become Exempt Property. 3. Improvement Area No. 3 The Board shall not levy Special Tax on: (i) an acreage of Parcels of Public Property and Property Owner Association Property that will not reduce the Net Taxable Acreage of Parcels of Taxable Property within IA No. 3 to less than Net Taxable Acres, and (ii) any Parcels for which the obligation to pay the Special taxes has been prepaid in full Pursuant to Section G. Tax-exempt status for Parcels or portions of Parcels of Public Property and Property Owner Association Property will be irrevocably assigned by the District in the chronological order in which such Parcels of portions of Parcels become Exempt Property. Notwithstanding the preceding provisions of this Section E, Parcels or portions of Parcels conveyed or irrevocably offered for dedication to federal, state or local governments after formation of CFD No. 15, and not otherwise exempt pursuant to this Section E, shall be subject to the Special Tax pursuant to Section or of the Act and classified as Taxable Public Property. F. MANNER OF COLLECTION The Special Taxes levied on Parcels of Taxable Property in IA No. 1, IA No. 2 and IA No. 3 will be collected in the same manner and at the same time as regular ad valorem property taxes; provided, however, that prepayments are permitted as set forth in Section G; and provided further that the District may directly bill all or part of the Special Taxes, and may collect the Special Taxes at a different time or in a different manner if necessary to meet the financial obligations of CFD No. 15. Furthermore, the Board may authorize the collection of delinquent Special Taxes by judicial foreclosure proceedings pursuant to Section of the Act. G. PREPAYMENT AND SATISFACTION OF SPECIAL TAX OBLIGATION 1. Prepayment in Full The Special Tax obligation for any Parcel of Developed Property or Undeveloped Property for which a building permit has been issued within IA No. 1, IA No. 2 or IA No. 3 may be prepaid and permanently satisfied as described herein, provided that a prepayment may be made only if at the time of the prepayment there are no delinquent Special Taxes with respect to such Parcel and all other Parcels which are under the same ownership and located within CFD No. 15. An owner of a Parcel intending to prepay the Special Tax obligation shall provide the District with written notice of intent to prepay. Within 30 days of receipt of such written notice, the District shall notify such owner of the prepayment amount for such Parcel and the date through which the amount of such prepayment shall be valid. Prepayment must be made not less than sixty (60) days prior to the next occurring date that notice of redemption of Bonds from the proceeds of such prepayment may be given to the Fiscal Agent pursuant to the Fiscal Agent Agreement. The following additional definitions apply to this section G. 1: IA Future Facilities Cost means the applicable CFD Public Facilities Amount minus (i) public facilities costs previously paid from the applicable IA No. 1, IA A-13

74 No. 2, or IA No. 3 Construction Fund and (ii) moneys currently on deposit in the applicable IA No. 1, IA No. 2, or IA No. 3 Construction Fund; provided that in no event shall the IA Future Facilities Cost for any improvement area be less than zero. CFD Public Facilities Amount means $15,800,000 for IA No. 1, $14,900,000 for IA No. 2, and $12,500,000 for IA No. 3 expressed in 2005 dollars, which shall increase by the annual percentage change, but not less than zero percent, in the Construction Inflation Index on July 1, 2006, and on each July 1 thereafter, or such lower amount as is determined by the District as being sufficient to provide the public facilities. Construction Fund means a fund or account specifically identified in the Fiscal Agent Agreement to hold funds which are available to acquire or construct public facilities for CFD No. 15. Construction Inflation Index means the Marshall and Swift Class D Wood Frame Construction Index, measured as of the calendar year which ends in the previous Fiscal Year. In the event that index ceases to be published, the Construction Inflation Index shall be another index which is determined by the District to be reasonably comparable to that index. Outstanding Bonds means all Bonds secured by the levy of Special Taxes in IA No. 1, IA No. 2 or IA No. 3, as applicable which will remain outstanding after the first interest and/or principal payment date following the then current Fiscal Year, excluding Bonds to be redeemed at a later date with the proceeds of prior prepayments of the Special Tax obligation. Prepayment means an amount equal to the sum of (1) Principal, (2) Premium, (3) Prepaid Future Facilities Cost, (4) Defeasance, and (5) Fees minus (A) Reserve Fund Credit and (B) Capitalized Interest Credit, where the terms Principal, Premium, Prepaid Future Facilities Cost, Defeasance, Fees, Reserve Fund Credit, and Capitalized Interest Credit have the following meanings: Principal means the principal amount of Bonds to be redeemed with the proposed prepayment and equals the quotient derived by dividing (a) the total amount of Special Tax that could be collected if the Special Tax were levied on the Parcel intending to prepay at the Maximum Special Tax for the Parcel by (b) the total amount of Special Tax that could be collected if the Special Tax were levied on all Parcels of Taxable Property in IA No. 1, IA No. 2 or IA No. 3, as applicable at the Maximum Special Tax for all such Parcels assuming full build out as determined by the District, and by multiplying that quotient by the portion of the principal amount of the Outstanding Bonds the debt service on which is payable from Special Taxes levied on Parcels of Taxable Property in IA No. 1, IA No. 2 or IA No. 3, as applicable. Premium means an amount equal to the Principal multiplied by the redemption premium, if any, for the Bonds which will be redeemed with the prepayment. Prepaid Future Facilities Cost means the amount of future facilities to be funded through the proposed Prepayment and equals the product of the applicable IA Future Facilities Cost and the quotient derived by dividing (a) the total amount of Special Tax that could be collected if the Special Tax were levied on the Parcel intending to prepay at the Maximum Special Tax for the Parcel by (b) the total amount of Special A-14

75 Tax that could be collected if the Special Tax were levied on all Parcels of Taxable Property in IA No. 1, IA No. 2, or IA No. 3, as applicable at the Maximum Special Tax for all such Parcels assuming full build out as determined by the District. Defeasance means the amount needed to pay interest on the Principal until the earliest redemption date for the Outstanding Bonds less the earnings from the investment of the amount of the Principal less the Fees until the redemption date for the Outstanding Bonds to be redeemed with the Prepayment. Credit shall also be given for any Special Tax which has been paid for the Parcel intending to prepay but which has not yet been expended for purposes of the Special Tax Requirement for Improvement Area No. 1, Improvement Area No. 2 or Improvement Area No. 3, as applicable. Fees means administrative fees and expenses associated with the prepayment as calculated by or on behalf of the District including, but not limited to, the costs of computing the Prepayment, the costs of removing any Special Taxes from the tax roll, the costs of redeeming the Bonds, and the costs of recording and publishing any notices to evidence the Prepayment and the redemption of Bonds. Reserve Fund Credit means the lesser of (i) the expected reduction in the applicable Reserve Requirement (as defined in the Fiscal Agent Agreement) following the redemption of Bonds with the Prepayment or (ii) the amount derived by subtracting the new Reserve Requirement which will be in effect after the redemption of Bonds with the Prepayment from the amount on deposit in the Reserve Fund (as defined in the Fiscal Agent Agreement) on the prepayment date, but in no event shall such amount be less than zero. Capitalized Interest Credit means the pro rata amount of capitalized interest, if any, on the Bonds which is allocable to the Parcel intending to prepay the Special Tax obligation determined by dividing (a) the total amount of Special Tax revenues that could be collected if the Special Tax were levied on the Parcel in an amount equal to the Maximum Special Tax for the Parcel by (b) the total amount of Special Tax that could be collected if the Special Tax were levied on all Parcels of Taxable Property in IA No. 1, IA No. 2 or IA No. 3, as applicable (except Parcels which have prepaid the Special Tax obligation) in an amount equal to the Maximum Special Tax for all such Parcels, and by multiplying that quotient by the remaining amount of capitalized interest which is allocable to IA No. 1, IA No. 2 or IA No. 3, as applicable. The Prepayment, exclusive of the Future Facilities Cost, shall be paid to the District and shall be used to pay and redeem Bonds in accordance with the Fiscal Agent Agreement and to pay the Fees. The Future Facilities Cost shall be retained in the Construction Fund. Upon the payment of the Prepayment to the District, the obligation to pay the Special Tax for the prepaying Parcel shall be deemed to be permanently satisfied, the Special Tax shall not be levied thereafter on the Parcel, and the District shall cause a notice of cancellation of the Special Tax lien for such Parcel to be recorded. Notwithstanding the foregoing, no Prepayment shall be allowed unless the total amount of the Special Tax that could be levied on all Parcels of Taxable Property in IA No. 1, IA No. 2, or IA No. 3, as applicable, pursuant to Section D after the proposed prepayment would be at least equal to the sum of (i) the Administrative Expenses allocable to IA No. 1, IA No. 2 or IA No. 3 and (ii) an amount equal to one hundred ten percent (110%) of annual debt service on the Bonds issued for IA No. 1, IA No. 2 or IA No. 3, as applicable, which will remain A-15

76 outstanding for, as applicable, which will remain outstanding following the redemption of Bonds with the Prepayment. 2. Prepayment in Part An owner of not less than 15 Parcels of Detached Residential Property and/or Attached Residential Property or the owner of a Parcel of Detached Residential Property or a Parcel of Attached Residential Property upon which not less than 15 Dwelling Units will be constructed may partially prepay the obligation of all such Parcels or such Parcel to pay the Special Tax by the same percentage for each such Parcel or Dwelling Unit (a Partial Prepayment ). An owner of a single Parcel of Detached Residential Property that has been or will be improved with a single Dwelling Unit will not be allowed to make a Partial Prepayment for the Parcel. The owner of a Parcel of Non-Residential Property or the owner of a Parcel of Undeveloped Property for which a building permit has been issued which will not cause the Parcel to be Detached Residential Property may partially prepay the obligation of the Parcel to pay the Special Tax obligation (also a Partial Prepayment ). However, no Partial Prepayment shall be allowed if there are delinquent Special Taxes for the Parcel or any other Parcel which is also owned by the owner of the Parcel or Parcels proposing the Partial Prepayment. An owner of such a Parcel intending to prepay a portion of the Special Tax obligation for the Parcel shall provide the District with written notice of intent to prepay and the percentage of the Special Tax obligation to be prepaid. Within 30 days of receipt of such written notice, the District shall notify such owner of the Partial Prepayment amount for such Parcel and the date through which the amount any such Partial Prepayment shall be valid. The amount of the Partial Prepayment shall be calculated pursuant to Section G. 1. and the following formula: PP= (Pe x F) + A The abbreviated terms in this formula have the following meanings: PP= the Partial Prepayment Pe= the Prepayment amount calculated according to Section G. 1. F= the percent by which the owner of the Parcel is partial prepaying the Special Tax obligation. A= the Fees determined in Section G. 1. The Partial Prepayment, exclusive of the portion thereof attributable to the Future Facilities Cost, shall be paid to the District and shall be used to pay and redeem Bonds in accordance with the Fiscal Agent Agreement and to pay the Fees. The portion of the Partial Prepayment attributable to Future Facilities Cost shall be retained in the Construction Fund. Upon the payment of the Partial Prepayment to the District, the portion of the Special Tax equal to the outstanding percentage (1.00 F) of the remaining Special Tax obligation shall continue to be authorized to be levied on such Parcel pursuant to Section D. Notwithstanding the foregoing, no Partial Prepayment shall be allowed unless the total amount of the Special Tax that could be levied on all Parcels of Taxable Property in IA No. 1, IA No. 2 or IA No. 3, as applicable, pursuant to Section D after the proposed Partial Prepayment would be at least equal to the sum of (i) the Administrative Expenses allocable to IA No. 1, IA No. 2 or IA No. 3 and (ii) an amount equal to one hundred ten percent (110%) of annual debt service on the Bonds, which will remain outstanding for IA No. 1, IA No. 2 or IA No. 3 following the redemption of Bonds with the Partial Prepayment. A-16

77 I. TERM OF SPECIAL TAX For each year that any Bonds are outstanding the Special Tax shall be levied on all Parcels subject to the Special Tax. No Special Tax shall be levied on any Parcel after the Fiscal Year. J. RELIEF FROM ALTERNATIVE SPECIAL TAX All Parcels within IA No. 1, IA No. 2 or IA No. 3 will be relieved simultaneously and permanently from the obligation to pay and disclose the Alternate Special Tax if the Board determines that the total amount of the Special Taxes which could be levied in any Fiscal Year on all Parcels of Developed Property in IA No. 1, IA No. 2 or IA No. 3, as applicable, based on the Assigned Special Tax Rates for such Parcels would be equal to at least 110 percent of maximum annual debt service on the outstanding Bonds which have been issued for IA No. 1, IA No. 2, and IA No. 3, plus estimated Administrative Expenses for IA No. 1, IA No. 2 or IA No. 3, as applicable. A-17

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79 APPENDIX B APPRAISAL REPORT

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81 SUMMARY APPRAISAL REPORT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 RIVERSIDE UNIFIED SCHOOL DISTRICT City of Riverside, California (Appraisers File No ) Prepared For Riverside Unified School District 3070 Washington Street Riverside, California Prepared By Kitty Siino & Associates, Inc. 115 East Second Street, Suite 100 Tustin, California 92780

82 KITTY SIINO & ASSOCIATES, INC. REAL ESTATE APPRAISERS & CONSULTANTS February 18, 2013 Ms. Janet Dixon, Director Planning and Development Riverside Unified School District 3070 Washington Street Riverside, California Reference: Community Facilities District No. 15 Improvement Area 3 Riverside Unified School District (Mission Ranch) City of Riverside, California Dear Ms. Dixon: At the request and authorization of the Riverside Unified School District, we have completed a Summary Appraisal Report for Improvement Area No. 3 of Community Facilities District No. 15 of the Riverside Unified School District ( RUSD CFD No. 15 IA3 ) which consists of three subdivision tracts. The first tract was built out by Centex Homes between 2007 and 2008 as Mission Ranch III. The second tract is nearing completion and is known as Mission Grove by Standard Pacific Homes. The final tract is raw, vacant land. The valuation method used in this report is the Sales Comparison Approach along with utilizing a mass appraisal technique as defined within this report. Although the homes within the first tract are all listed on the Assessor s Roll, due to market volatility over the past few years, the assessed value typically does not equal current market value. The fee simple estate of the property has been valued subject to the RUSD CFD No. 15 IA3 Series 2009 (refunded in 2012 Series B) and 2013 Series C 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 both series of the RUSD CFD No. 15 IA3. As a result of our investigation, the concluded market value for the subject property is: Tract (Mission Ranch III Individual Owners) $40,132,801 Tract Standard Pacific Ownership $10,605,000 Individual Ownerships 22,429,117 Total Tract $33,034, Lots within Tract (KM Investments LLC) 3,440,000 Total Aggregate Value RUSD CFD No. 15 IA3 $76,606,918 The values are stated subject to the Assumptions and Limiting Conditions of this report, the Appraiser s Certification and as of February 13, East Second Street, Suite 100, Tustin, California (714) Phone, (714) Fax, kssiino@msn.com

83 Ms. Janet Dixon Riverside Unified School District February 18, 2013 Page Two 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. 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)

84 TABLE OF CONTENTS Assumptions and Limiting Conditions... i Aerial Photo of RUSD CFD No. 15 IA3...iv Purpose of the Appraisal... 1 The Subject Property... 1 Intended Use of the Report... 2 Definitions... 2 Property Rights Appraised... 3 Effective Date of Value... 3 Date of Report... 4 Scope of Appraisal... 4 General Area Map... 6 County of Riverside Area Description... 7 City of Riverside Area Map City of Riverside Description Immediate Area Map Immediate Surroundings Riverside County Housing Market Community Facilities District No Subject Property Descriptions Highest and Best Use Analysis Valuation Analysis and Conclusions Appraisal Report Summary Appraiser s Certification ADDENDA RUSD CFD No. 15 Boundary Map Discounted Cash Flow Analysis Undeveloped Land Sales Map and Summary Chart Residential Land Sales Map and Summary Chart Improved Residential Sales Summary Chart Tract Re-sales and Current Listings of Existing Homes Appraiser s Qualifications

85 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 RUSD CFD No. 15 IA3. 4. Responsible ownership and competent property management are assumed unless otherwise stated in this report. 5. The information furnished by others is believed to be reliable; however, no warranty is given for its accuracy. 6. All engineering is assumed to be correct. Any plot plans and illustrative material used in this report are included only to assist the reader in visualizing the property and may not be to scale. 7. It is assumed that there are no hidden or unapparent conditions of 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. 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. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page i

86 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 RUSD CFD No. 15 IA3 Special Tax Bond proceeds are completed and in place. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page ii

87 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 RUSD CFD No. 15 IA3 Special Tax Bonds. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page iii

88 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page iv

89 PURPOSE OF THE APPRAISAL The purpose of this appraisal report is to estimate the value of the fee simple interest of the subject property, subject to the special tax lien of the RUSD CFD No. 15 IA3 Special Tax Bonds both Series 2009 (refunded in 2012 as Series B) and 2013 Series C. THE SUBJECT PROPERTY The subject property encompasses three tracts of land within the community known as Mission Ranch. The three tracts are proposed for a total of 344 single-family homes. Centex Homes developed Tract consisting of 136 homes which sold to individuals between 2007 and Standard Pacific Homes has been building out Tract since 2010 with 59 homes closed to individuals to date, 11 homes over 95 percent complete (including three models) which are builder owned, 12 homes under construction and 34 remaining finished lots for a total of 116 homes within the tract. KM Investments, LLC owns Tentative Tract Map 32997, proposed for 92 lots which is currently raw land. The properties are detailed as follows. Lot and Tract Numbers Owner Total Lots Condition Lots of Tract Individual Owners 136 Improved Homes Tract Lots 5-30, 67, 69-98, 107, 109 Lots Lots 63-66, 68, 105, 106, 108 Lots 31-34, Lots 1-4, 35-47, 56-62, 99, 100, 104, Individual Owners Standard Pacific Standard Pacific Standard Pacific Standard Pacific Improved Homes Model Homes Homes 95%+ Complete Homes under Construction Finished Lots Lots 1-8 and of Tentative Tract KM Investments, 92 Raw Land LLC Total 344 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 1

90 INTENDED USE OF THE REPORT It is the appraiser s understanding that the client, the Riverside Unified School District, will utilize this report in disclosure documents related to selling the 2013 Series C of Special Tax Bonds for RUSD CFD No. 15 IA3. This report is to be included in the Official Statement or similar document to be distributed in connection with the offering of the bonds with no other intended uses of this report. DEFINITIONS Market Value The term Market Value as used in this report is defined as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; 3. a reasonable time is allowed for exposure in the open market; 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. In the case at hand and considering current market conditions the exposure time for the developer owned property is estimated at less than twelve months. 1 The Appraisal of Real Estate, 13 th Edition RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 2

91 Minimum Market Value The term Minimum Market Value as used in this report is defined as: The base market value of a new home. That is, most buyers purchase some upgrades, options and/or lot premiums when purchasing a new home. The sales price for the new home typically includes the base price for the plan, plus any upgrades, options or lot premiums, less concessions, if any, which were given or paid for by the builder. The concluded minimum market value is for the base value of the plan only, not taking into consideration any upgrades, options or premiums. Mass Appraisal The term Mass Appraisal as used in this report is defined as: The process of valuing a universe of properties as of a given date using standard methodology employing common data and allowing for statistical testing 2 In the case at hand, the statistical testing included reviewing all original builder sales and Multiple Listing Service re-sales of each plan type and determining the actual range of sales prices for each plan type which is utilized in the valuation process. PROPERTY RIGHTS APPRAISED The property rights being appraised are of a fee simple estate interest, subject to easements of record and RUSD CFD No. 15. 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 February 13, USPAP Edition 3 The Appraisal of Real Estate, 13 th Edition RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 3

92 DATE OF REPORT The date of this report is February 18, 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 City of Riverside Description Discussion of the Immediate Surroundings Riverside County Housing Market Analysis Brief Description of RUSD CFD No. 15 Subject Property Description Highest and Best Use Analysis Valuation Procedure, Analyses and Conclusions Appraisal Report Summary The subject property consists of 344 proposed single family residential lots within three tracts. Tract is totally developed and sold to individuals. Tract is currently marketing with the majority of homes closed to individuals while Tentative Tract Map ( TTM ) is raw land. 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 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 4

93 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. 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 properties to perform a feasibility/demand analysis. 2. Gathered and analyzed information on the subject marketplace, reviewed several real estate brokerage publications on historical and projected growth in the subject market and researched the micro and macro economics within Riverside County and the City of Riverside area. 3. Inspected the subject properties between February 1, 2013 and February 7, Interviewed representatives from Standard Pacific Homes to obtain available information on their Mission Grove project (Tract 29596) which is currently marketing. 5. Reviewed Preliminary Title Reports on the subject properties. 6. Reviewed Geotechnical Reports on the subject properties. 7. Reviewed a First American Title Company Natural Hazards Disclosures Report on Tract Searched the area for relevant comparable new home residential projects, including sales prices and concessions and interviewed representatives from each comparable. 9. Searched the area for relevant comparable mapped, residential land sales (both finished lot sales and raw, mapped land sales) within the subject area and interviewed representatives from each to ascertain details on the transactions. 10. Reviewed sales brochures and asking prices on Mission Grove by Standard Pacific (Tract 29596) which is currently marketing. 11. Reviewed developer sales information and public records on all closed homes. 12. Reviewed Multiple Listing Service information on re-sales of existing homes within Tract and searched for re-sales within Tract RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 5

94 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 6

95 COUNTY OF RIVERSIDE AREA DESCRIPTION Location The subject property is located in the northwestern portion of Riverside County (the County ). 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 growth from San Diego County to the south. Although located at the periphery of most urban activity in Southern California, Riverside County, in particular the westerly region, is 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 consisting of San Bernardino and Riverside Counties is designated as and commonly called the Inland Empire. The subject property is located south of Van Buren Boulevard between the 91 and 215 Freeways in the southeastern portion of the City of Riverside in the western portion of Riverside County. Transportation The subject property is situated approximately eight miles east of the 91 Freeway via Van Buren and three miles west of Interstate-215 ( I-215 ). 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. Interstate 15 ( I-15 ) travels in a northerly/southerly direction and provides access to Barstow and Nevada to the north and San Diego to the south. Interstate 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. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 7

96 The County is served by Amtrak and Metrolink as well as several rail freight lines. The Ontario International Airport provides air service and is located approximately five miles north of the subject property. The County has extensive trucking corridors from the aforementioned interstates and State freeways. Population The County has experienced increasing population for several decades and is anticipated to continue to do so in the foreseeable future. There has, however, been a slowdown in the past five years. Per the California Department of Finance, the January 1, 2012 County population was 2,227,577. This represents a one-year increase of 1.0 percent and an average annual growth rate of approximately 2.7 percent for the previous ten-year period. The slowdown in recent growth is due to the economic recession which hit the Inland Empire particularly hard. Per County current projections, the population is anticipated to reach approximately 2.65 million by 2020, indicating an average annual increase of approximately 2.2 percent. The 2020 projection was recently decreased by 200,000 from the previous 2006 County projections. Economy As with the rest of the nation, the Inland Empire experienced a deep recession. Although the MSA had a strong employment record between 1995 and 2006, unemployment rates increased significantly between April 2007 and summer of 2011 with unemployment dropping since then. The seasonally adjusted unemployment rate for the MSA was estimated at 10.9 percent (per the Employment Development Department December 2012). This reflects a significant increase from April 2007, when rates were 4.8 percent, however generally a decrease since August 2011 when rates were 14.1 percent. Respectively, Riverside County has a 11.1 percent unemployment rate while San Bernardino County has an 10.8 percent rate. The current MSA unemployment rate of 10.9 percent is higher than both the California rate of 9.7 percent and the December 2012 national rate of 7.6 percent. Below is a table depicting Riverside County in relationship to unemployment rates of the surrounding counties: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 8

97 Jurisdiction As of Unemployment Rate Los Angeles County 12/ % Riverside County 12/ % San Bernardino County 12/ % Orange County 12/12 6.8% San Diego County 12/12 8.1% Source: State of California E.D.D. Over the past 15 years, the County economy has had significant ups and downs. From 1997 through 2000, the economy grew at a rapid pace. The year 2001 saw the national economy enter a slight recession which rebounded in 2002 due to low interest loans with home sales a strong force in the economy between 2002 and During this period, home values increased almost 100 percent in the County. As a result, home building was a significant job creator through However, beginning in 2005 there were significant decreases in the new home market with sales and prices falling upwards of 50 percent taking prices back to 2002 levels. Home values appeared to hit bottom in 2009, remained essentially flat for three years with the exception of certain pockets of development. During the second half of 2012 home sales and prices appear to be rising. In the fall of 2008 the national economy was shaken by the failure of several national banks and insurance companies caused by loan failures related to sub-prime mortgage financing. This created a panic not only in the nation s financial markets but also around the world. The Dow Jones Industrial Average ( DJIA ) fell over 40 percent between January 2008 and early 2009 when the market seemed to gain its balance. Since early 2009 the DJIA is up over 50 percent, however the past two years has seen a volatile stock market due to the shaky world economy coupled with a substantial increase in national debt. Within the U.S. some banks are still struggling with the FDIC needing to step in and take over 140 banks in 2009, 157 banks in 2010, 89 banks in 2011, 51 in 2012 and three thus far in 2013 (through February 15, 2013). The federal government attempted to correct the struggling economy by implementing several economic stimulus packages. The main stimulus successes visible to Main RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 9

98 Street America include both Federal and State tax credits for first-time or move-up homebuyers in It is now apparent that these tax credits fueled the housing market in late 2009 and early In November 2010 the Federal Reserve began QE2 (Quantitative Easing Two), which included the expansion of the Fed s balance sheet through the purchase of intermediate-term bonds in an effort to lower long-term interest rates. QE2 was followed by Operation Twist, where the government substituted long term debt for short term debt in its bond portfolio, and then by QE3. QE3 includes the Federal Reserve buying mortgage backed securities in order to keep interest rates low in an effort 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. At a recent conference by the Federal Reserve Chairman (Washington D.C., September 13, 2012), Ben Bernanke stated that economic growth has continued at a moderate rate so far this year, however; even though unemployment rates have fallen, the decline is due to declines in participation rather than an increase in jobs. He opined that inflation will remain close to the Fed s two percent target rate and that the federal funds rate will remain at or near the existing 0 ¼ percent rate until 2015 if needed. He stated that policy makers need to keep several things in mind, keeping rates low; watching inflation, assuring the public that the Feds will not let the economy falter and hopefully all of this will lead to a recovery. Bernanke stated that while the economy is currently on a path of moderate recovery, it isn t growing fast enough to make significant progress in reducing the unemployment rate yet. However, the Federal Reserve will keep a highly accommodative stance on monetary policy for a considerable time after the economy recovery strengthens. At the December meeting the Federal Reserve said it plans to hold short-term interest rates near zero until the unemployment rate reaches 6.5 percent or less as long as expected inflation remains near their two percent target. They also said they will keep spending approximately $85 billion a month on bond purchases to drive down long-term borrowing costs in order to stimulate economic growth (QE3). While the 2012 year-end fiscal cliff was averted, the spending issues still need to be addressed. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 10

99 California s labor markets make it easy to understand why the mid-2000s downturn is being called the Great Recession. After peaking at million jobs in July 2007, the State shed over 1.37 million nonfarm positions by February Since hitting bottom, California added back 556,000 jobs through December With current employment growth forecasts, several economists are forecasting that total nonfarm employment won t reach its pre-recession peak of million until 2015 or According to the most recent UCLA Anderson Forecast ( National and Statewide Outlooks Anticipate Modest Growth in GDP, Housing and Employment Next Year - December 2012), both Gross Domestic Product (GDP) and job formation will grow at less than two percent through mid-2013 followed by a three percent growth rate for most of 2014 with housing activity leading the way. According to Ed Learmer (UCLA Anderson Forecast Director), within the national economy, there has been no real recovery from the Great Recession of 2008/09. In each of the previous 10 recessions, GDP returned to its previous peak within two years while this recession has taken four years. Using current lags in GDP recovery and payroll recovery, Learmer says this recession could take seven or eight years rather than the typical two to two and a half years to return to previous peaks. UCLA economists also write that the average home price in the U.S. has declined by one-third which has lead to home ownership declining from a peak of 69 percent in 2004 to approximately 65 percent at the end of Even with these declines, UCLA states the recovery of the housing market is underway with foreclosures appearing to have peaked and existing home sales on the rise. This is bolstered by a gradually improving labor market, a rebound in household formations and record low mortgage rates. Although these are some positive factors, the recovery will be gradual and uneven per Learmer. The UCLA Forecast on California, written by Senior Analyst Jerry Nickelsburg, states that the economic consequence of Proposition 30, which passed in November, will provide a way forward of funding State investment in education and a funding for the realignment of government services. However, he states on the negative side, the passing of Proposition 30 does not address the issues of the way the State funds government for the long run. Additionally, they are estimating employment to grow 1.3 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 11

100 percent in 2013 and 2.4 percent in 2014 bringing the unemployment rate down to 8.4 percent in Beacon Economics, a Southern California company providing research and economic analysis and financing, completed a Summer 2012 Regional Outlook for the Inland Empire. According to their study, the Inland Empire s labor market is steadily but slowly gaining steam. They believe that the unemployment rate will drop below double digits near the end of 2014 and return to its pre-recession peak in either 2015 or While the labor market is still sluggish, it has been generally positive. Beacon Economics is predicting a faster and more consistent employment growth in Also noted in their outlook on a positive note, forty percent of Riverside/San Bernardino employed 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 saw a considerably steeper rise and fall of prices than almost anywhere else in the State. In July 2012 California ranked No. 1 in total foreclosures, though the numbers have been decreasing since that time. More recently short sales are playing a larger part in the housing market which may have had a hand in slowing the flow of foreclosure activity (Focus Shifts to Short Sales, Press Enterprise December 6, 2012). According to the article foreclosure related sales across California fell 12 percent from the previous year while non-foreclosure short sales in California rose 20 percent from July to August over the same period. In Riverside County foreclosure related sales were down 8.8 percent from the previous year while short sales also increased. The current Mortgage Forgiveness Debt Relief Act, which allows a short sale to occur without the original borrower paying federal taxes on the shortage amount, was extended into 2013 along with the temporary resolution of the fiscal cliff. The average short sale in California is $107,972 below what the short seller owed on the house. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 12

101 Commercial real estate appears to have hit bottom in 2010 with local absorption levels returning to positive territory. However, anemic job growth coupled with restrictive financing is still affecting both commercial vacancies and lease rates. Office vacancy rates appear to have stabilized and are anticipated to stay level with rents not expected to increase until later this year. Retail vacancies remain high due to minimal job growth. The industrial sector is tied to the global marketplace which has been profoundly impacted by declines in retail spending, wholesale distribution and import/export flow. 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 below shows 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, an increase in 2010 followed by slight decreases since that time. It is interesting to note that 2012 activity is still between 2004 and 2005 levels. Port of Long Beach TEUs TEUs ,658,124 5,779,852 6,709,818 7,290,365 7,312,465 6,487,816 5,067,597 6,263,499 6,061,085 6,045, Year RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 13

102 Government The County is overseen by a Board of Supervisors that is 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. In July 2009 the County voted to lower some development fees by 50 percent which reduced the cost to build a single-family home by about $2,100. This reduction was extended and is now set to expire in June 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 TUMF fee began phase increases in January 2013 and are projected to be at 100 percent in April Education The subject area is served by the Riverside Unified School District (the District ), the fourteenth largest school district in California. It serves a 96 square mile area including the City of Riverside (with the exception of the La Sierra area) and approximately 25 percent of unincorporated Riverside County, including the communities of Highgrove, Woodcrest and Mockingbird Canyon. The District operates 30 elementary schools, seven middle schools, five high schools, two alternative high schools and one adult education facility along with a new virtual school and a pre-school. There are approximately 44,000 students enrolled within the District. The District is a unified school district organized under the laws of the State of California and has operated as a school district since The existing unified District was formed on July 1, 1963 through the combining of the Riverside City School District and the Riverside City High School District. The District is a public agency of the State, RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 14

103 reporting its activities to the State through the Riverside County Superintendent of Schools. 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. In addition the area offers community colleges as well as many excellent private colleges. Conclusion Population in the County increased over the past 30 years. Predictions are for continued population growth in the County through The nation s economy stalled 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 2010, however 2011 saw a flattening due to global economic instability and slow growth coupled with historically slow housing sales. While the beginning of 2012 saw a reduction in unemployment, second-half of the year statistics did not show much improvement. It appears however, a possible bottom of the housing market suggests the economy may be turning. The economy typically has cycles and most economists are now predicting that the U.S. economy appears to have hit bottom. Slow growth is anticipated for 2013 with the U.S. economy growing at a better rate 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. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 15

104 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 16

105 CITY OF RIVERSIDE The subject property is located in the southeastern portion of the City of Riverside ( Riverside ). Riverside was incorporated on October 11, 1883 and is located 50 miles east of Los Angeles and 100 miles north of San Diego. Riverside is the largest city in Riverside County with a present land area of approximately 81 square miles. Originally an agricultural (citrus) center, Riverside has evolved into a commercial and governmental center as the City is the County seat. Riverside is surrounded by the cities of Norco and Corona to the west, Jurupa Valley and unincorporated Riverside County to the north, the City of Moreno Valley and unincorporated areas of Riverside County to the east and unincorporated areas to the south. Population Riverside has an estimated population of 308,511 per the California Department of Finance as of January 1, The following chart depicts population growth in Riverside. Year Population Avg. Annual % Increase , , % , % , % , % , % , % The slow down in the past twelve years is due to the essential build-out of Riverside coupled with the recession. The past two years of growth at 0.8 percent in Riverside compares to the County growth rate of 1.4 percent last year. The higher County rate is due to the availability of land for development outside of the City limits. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 17

106 Housing Housing costs within the City decreased over the past five years as with the rest of Southern California and the nation. Residential housing costs within Riverside are still considered moderate in relation to some surrounding counties. Riverside formerly had abundant land, which created a lower housing cost in relationship to more intensely populated areas in Southern California especially when compared to the neighboring counties of Orange, Los Angeles and San Diego. However, Riverside has now essentially been built-out leaving little land for development. According to Dataquick during December 2012 in Riverside there were 390 home sales with an average price of $224,500 which is up 20 percent from one year prior (average price was $187,000) however still down 43.8 percent from September 2007 when the average home price was $399,500. Within the subject ZIP Code (92508) the average price is higher. There were 36 home sales within the ZIP Code during December 2012 with an average price of $298,000 reflecting an increase of 12.3 percent from the previous year. It appears the market has hit bottom and is increasing or at least stabilizing. It should be noted that the subject Zip Code is made up of mostly newer homes which is why they are above the average home price in Riverside. Economy/Commercial Land Uses The economy and labor force for Riverside have changed with growth. Historically hailed as the citrus capital of the world, Riverside has evolved into the business and industrial center of the Inland Empire. There are well over 100 manufacturing firms in the community. Leading group classes or products are aerospace and electronic components; mobile homes and RVs; printing, publishing and foam products. Additionally Riverside offers an impressive choice of industrial sites and buildings. The labor force is divided generally between the manufacturing, retail, services, and construction trades, however the construction trade has slowed considerably along with the housing market slowdown. There are abundant skilled and semi-skilled workers in the local labor pool with a scattering of skills. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 18

107 Transportation Riverside is well served by the California freeway system, being bisected by the 91 and 60 Freeways and by Interstates 10 and 15. The 91 Freeway connects Riverside to Orange County on the southwest and to San Bernardino County on the northeast. The Riverside Freeway (91) is one of the area s busiest freeways with a substantial amount of congestion in the westbound direction during the morning hours and in the eastbound direction during the evening hours. This is due to the number of commuters living in Riverside County and employed in Orange and Los Angeles Counties. Two toll roads (the 91 express lane and 241) opened during the latter half of the 1990s that help alleviate the traffic congestion. I-15 connects Riverside to San Diego County to the south and San Bernardino County to the north. I-10 connects Riverside to Los Angeles County to the west. The Burlington-Santa Fe and the Union Pacific Railroads along with over 20 daily truck carriers serve Riverside. Ontario International Airport is approximately 20 miles to the northwest and is served by most major airlines. The Riverside Municipal Airport is available for general aviation use. Summary In summary, the future growth of Riverside should parallel that of the County, albeit at a lower rate due to the limited availability of land for development within the City limits. The location along with being the County seat has established Riverside as a continuing and prospering City. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 19

108 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 20

109 IMMEDIATE SURROUNDINGS The subject property is located along the both sides of Krameria Avenue between Chicago Avenue and Dauchy Avenue. The neighborhood is made up of new housing, existing housing, vacant lands, a new public middle school and a private Christian high school. The subject lands are a continuation of a larger residential development known as Mission Ranch. The subject area is the western most portion of Mission Ranch. The subject property is bounded to the north by Woodcrest Christian High School and some undeveloped lands beyond which is Van Buren Boulevard, a main commercial corridor in Riverside. The eastern boundary is Dauchy Avenue (beyond which is existing housing) and vacant undeveloped lands. Approximately ½ mile east of the subject is Martin Luther King High School, one of the most prominent high schools in the County. South of the subject are undeveloped lands and two water tanks beyond which is rural existing housing. The western boundary of the subject is Chicago Avenue / Alta Cresta, beyond which is the recently completed Miller Middle School and existing rural housing. Chicago Avenue was realigned in the past few years and becomes Alta Cresta at the subject. The subject property has good access from Interstate 215 with on/off ramps at Van Buren, west approximately three miles to Dauchy Avenue and south to the subject. Dauchy Avenue becomes Taft Street south of Krameria. The subject also has good access from the 91 Freeway with on/off ramps at Van Buren Boulevard approximately eight miles west of the subject. Van Buren Boulevard is a commercial corridor through Riverside. Shopping is available on Van Buren Boulevard and Washington Street at Woodcrest Plaza or at Troutwein Road and Van Buren Boulevard. Downtown Riverside is approximately 10 miles northeast of the subject property. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 21

110 RIVERSIDE COUNTY HOUSING MARKET In reviewing the County s housing market, a study of population and economic growth needs to be conducted. As of January 1, 2012, the County had a population of 2,227,577, which is a 1.0 percent increase from January 2011, which is less than the 2.7 percent average annual percentage increase of the previous ten years. The recent slowdown in population growth is primarily due to the national recession. Over the past twenty years the Inland Empire has seen ups and downs 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 fall of housing prices in the Inland Empire between 2006 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. Currently approximately 43 percent of all mortgages in the Inland Empire exceed the corresponding value of the home. On the positive side the total percentage of underwater mortgages is significantly less than the 55 percent peak in Economic growth in the Inland Empire was strong between 1998 and 2007 with job losses only occurring between 2007 and 2009, a leveling out in 2010 and slight upturns in 2011 and It should be noted that a portion of the increases in 2011 and 2012 were due to a variation in calculating the unemployment rate at the Employment Development Department ( EDD ) due to new reporting guidelines. On the following page is a table depicting job growth in the Inland Empire since RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 22

111 Inland Empire Job Growth Year Employment Increase % Increase ,602,600 44, % ,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, % ,445,000 48, % ,396,600 48,400 3,59% ,348,200 (18,000) (1.32%) ,366,200 70, % ,295,900 N/A N/A *Based on Revised November numbers per Employment Development Department The unemployment rate for the MSA was 10.9 percent in December 2012, significantly lower than the high of 15.1 percent in July This rate however, is higher than both the current California unemployment rate of 9.7 percent and the December 2012 national rate of 7.6 percent. As shown on the above table, employment is near 2004 levels. Estimates are for employment not to reach the previous peak until 2015 or However, it is important to note the current unemployment rate is over four percent below the highest level. 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 created non-conventional financing alternatives such as 40-year amortized loans, variable loans, teaser rate loans and 100 percent loans to maintain the 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 mortgages used these buy down rates to qualify buyers that could not have qualified for a conventional mortgage or could not verify income. Many homes were purchased in 2005, 2006 and the first few months of 2007 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 23

112 utilized 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 remainder of 2007, all of 2008 and the majority of Declining home prices coupled with the government offering homebuyer tax credits and historically low interest rates, led to sales increasing in the second half of 2009 and continued into the first half of However, as prices began to rise and the government tax credit ended, sales for the second half of 2010 slowed once again with sales in 2011 and the first half of 2012 still well under historical averages. Despite this, some homebuilders have indicated improvements with the second half of 2012 showing positive sales and price indications. Foreclosures are still playing a part in the current real estate market; however, foreclosure information is sending mixed signals regarding the strength of the California housing market. Within Southern California in January 2013 an estimated 15.0 percent of home re-sales were foreclosures while short sales were an estimated 25.9 percent of total re-sales. At the peak in 2009 the combined percentage of foreclosures and short sales hovered around 70 percent of the total sales. Absentee buyers (investors and second-home purchasers) bought 30.4 percent of homes in January 2013 while buyers using 100 percent cash accounted for 34.9 percent of the purchases. While the government has tried to help underwater homeowners via HARP2 (Homeowner Assistance Refinance Program) and the settlement between the government and the five major mortgage servicers over robo-signing foreclosure practices, it appears that the new foreclosure to rental program coupled with short sales is partially what has stalled the foreclosure inventories from entering the real estate market at this time. Early in 2012 the government approved a foreclosure to rental RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 24

113 program in an attempt to help keep negative equity homeowners in their homes by signing over the deed to the bank and agreeing to rent the home. Investor demand for this new program was robust. The Federal Housing Finance Agency (FHFA) began a pilot program in February with 2,500 foreclosed homes held by Fannie Mae to be sold in bulk to an investor who could then rent them out. Several banks participated with Citigroup and Bank of America leading the way. It appears that banks are waiting to see how this plays out and have not been releasing the shadow inventory of bankowned properties. While most large banks are adopting pilot programs, it is still unknown if the foreclosure to rental program will succeed. The shadow inventory is made up of homes that were believed to have not hit the market, but probably would soon either because they were already in foreclosure or because the homeowners were behind on payments and foreclosure was imminent. It was thought that as the shadow inventory was released, homes would flood the market. According to CoreLogic, shadow inventory has been dropping with a 12.3 percent decline between October 2011 and October The reduction of shadow inventory is due to investors buying up foreclosed and REO properties coupled with the beginning recovery in the housing market as seen in rising prices. The housing market in Riverside and San Bernardino appears to have momentum for the first time in the past few years. Price hikes are causing some to question whether it s sustainable or whether it s a bubble. It needs to be noted, however, that we are still climbing out of a deep hole from the housing downturn with prices in many areas still percent below their peaks. Home sales in Southern California rose above year-ago levels for twelve months in a row as of January 2013, while the median price paid for a home in the six-county area was $321,000, off $2,000 from the December median price however still near the highest since August 2008 when it was $330,000. As the market continues to rise, more owners are interested in selling and more homeowners will shift from a negative equity position to a positive equity position, enabling them to sell. In contrast, if homebuilders rev up operations and lenders push more distressed properties onto the market, it could tame the recent price appreciation RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 25

114 we have seen. It should be noted that a portion of the median price increases are due to larger homes and non-foreclosure homes selling. The median existing home price in the Inland Empire of $226,000 (as of January 2013 per California Association of Realtors) is up 45.7 percent from the low in second quarter 2009 ($155,100) and up 25.2 percent from the previous year. However, the median existing home price in the Inland Empire is still down 41.7 percent from the median price at the peak in 2006 ($388,000). Thus, even though the housing market appears to be recovering, it still is a long way from the previous peak. Following is a chart that shows median home prices in the Inland Empire over the past decade. Inland Empire Median Existing Home Prices 450 Median Value (in 000s) Year 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 January 2013 ($321,000) is up 23.5 percent from the previous year. Such median existing home price is 36.4 percent below the peak in mid-2007 when the median price was $505,000; however up 30 percent from the low point of the cycle which was a $247,000 median price in April According to DataQuick the median and other price gauges are rising due primarily to two reasons: First, higher demand triggered largely by ultra-low mortgage rates has coincided with a dwindling supply of homes for sale resulting in rising prices. Second, the market is rebalancing with discounted foreclosures becoming a smaller portion of sales while more expensive move-up home sales are growing. Below is a table comparing January 2013 to January RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 26

115 2012 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 Jan 12 No. Sold Jan 13 Percent Change Median Jan 12 Median Jan 13 Percent Change Los Angeles 4,997 5, % $289,000 $340, % Orange 1,872 2, % $392,000 $460, % Riverside 2,684 2, % $180,500 $226, % San Bernardino 2,051 2, % $150,000 $177, % San Diego 2,358 2, % $305,000 $350, % Ventura % $322,500 $365, % SoCal 14,523 16, % $260,000 $321, % Source: DataQuick Based on January 2012 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 $114,000 as compared to Los Angeles County, $124,000 as compared to San Diego County, $139,000 as compared to Ventura County and $234,000 as compared to Orange County. That is, in January 2013, the median priced home in Riverside County was $226,000 (49.1 percent) less than the median priced home in Orange County. However, San Bernardino County has a $48,500 price advantage over Riverside County. 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. Rates are at historical lows with conventional 30-year fixed rates in the 3.0 to 4.0 percent range. The Federal Reserve has stated rates will be kept low until 2015, which appears to be fueling the refinancing market once again while making affordability the highest it s been in decades. The Feds are making it clear to investors and consumers that it will link its actions to specific economic markers such as employment and inflation. While there has been little land development going on in most of the Inland Empire, there are some pockets of development where raw land is once again being developed. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 27

116 These appear to be in areas closer to Orange and Los Angeles Counties such as Eastvale, Corona and Riverside with several builders going forward with projects. Sales of new-detached homes within the County rose between 2000 to 2005 followed by declines in 2006, 2007 and The market was thought to have hit bottom in 2009, however decreases continued through 2011 with an anticipated slight increase in 2012 (based on actual through July sales annualized. Below is a graph showing Riverside County detached new home sales over the past twelve years. Riverside County New SFD Sales No. of Sales Year Source: Beacon Economics, 2013 In a separate attempt to capture the decrease in home prices, the resale activity of existing homes in the subject area (per DataQuick) has been reviewed. The number of sales and sale prices of existing homes within ZIP Codes in the immediate area of the subject are shown in the table on the following page. It should be noted that the resale activity includes foreclosure properties. However, foreclosures are playing a lessening part in today s housing market than in the past few years. Border to SFD Sales Median SFR Price Median SFR Price Community ZIP Code Subject Dec 2012 Dec 2012 Dec 2011 % Change Woodcrest Subject 36 $298,000 $ % Riverside Unincrp West 45 $220,000 $ % Moreno Valley East 27 $149,000 $93-7.5% Riverside West 48 $287,000 $ % Lake Matthews West 76 $225,000 $ % Mead Valley South/Southwest 24 $208,000 $ % Riverside North 25 $210,000 $ % Source: DataQuick Feb. 13 th 2013 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 28

117 The table 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 at the low end of the range of the varying neighborhoods. The above price increases and decreases relate to DataQuick s overall Riverside County increase of 25.2 percent year over year. In summary, both the Inland Empire and the subject sub-market which had seen substantial decreases in pricing and sales more recently is seeing significant increases suggesting that the bottom of the market has been reached. The tightening of financing requirements had depleted the number of buyers in the marketplace and underwater mortgages slowed the move-up buyers; however, it is now apparent this trend is reversing with low interest rates providing for sales and price increases for the first time in over five years. Current economic factors placing a strain on the economy include historically high unemployment and both an uncertain global and national economy. On a positive note, lower priced housing has increased the affordability index with substantially more people being able to afford a home in the area. In conclusion, although uncertainty is clouding the 2013 housing market forecast, most observers are in agreement that both new home sales and pricing are beginning to increase. However, there is caution on the recent significant appreciation with little appreciation anticipated in the near future. Nevertheless, population continues to increase, thus housing growth will continue, however at much slower rates than previous years. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 29

118 COMMUNITY FACILITIES DISTRICT NO. 15 Riverside Unified School District CFD No. 15 was formed in order to fund school facilities, water district facilities and City facilities related to three improvement areas within CFD No. 15. This appraisal refers to CFD No. 15 IA3 and was created in regards to the issuance of the 2013 Series C Special Tax Bonds. CFD No. 15 was established on March 1, 2004 as Resolution No. 2003/04-89 of the Riverside Unified School District. Resolution No. 2003/04-64 (also adopted March 1, 2004) determined the necessity for CFD No. 15 to incur a bonded indebtedness in the aggregate principal amount not to exceed $50,000,000. On December 22, 2004 a first series of bonds of CFD No. 15 was sold in the aggregate principal amount of $18,675,000 for Improvement Area 1 ( IA1 ). At the request of the property owners in Improvement Area 2 ( IA2 ) and Improvement Area 3 ( IA3 ) of CFD No. 15, the Board of Education for Riverside Unified School District conducted change proceedings pursuant to the Mello-Roos Community Facilities Act for the purpose, among others, of increasing the authorized bonded indebtedness for IA2 and IA3. On June 28, 2005 the property owners in both IA2 and IA3 voted in a special election to increase the authorized bonded indebtedness for IA2 to $21,000,000 and for IA3 to $18,000,000. On November 1, 2005 IA2 of CFD No. 15 issued bonds in an aggregate principal amount of $20,155,000. The bonds for IA3 are being sold in multiple series with the first series sold in 2009 in the amount of $5,465,000 which were refunded in 2012 as Series B. Series C within IA3 refers to the subject appraisal. Per the latest bond sizing summary dated February 19, 2013, RUSD CFD IA3 Series 2013 Special Tax Bonds are anticipated to have a par amount of $4,950,000. Uses of the bond proceeds include $2,357,480 for school fees, $895,566 for City of Riverside fees and $994,340 for Western Municipal Water District fees (amounts subject to change). In addition there is a debt service reserve fund, costs of issuance and an underwriter s discount. A map showing the RUSD CFD 15 boundaries is located in the Addenda. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 30

119 SUBJECT PROPERTY DESCRIPTIONS There are three tracts located within CFD 15 IA3. Tract was developed and builtout by Centex Homes in 2007 and 2008 with all 136 homes sold to individuals. Tract was purchased by Standard Pacific Homes in several take-downs beginning in Standard Pacific has built-out 70 of the 116 homes and is currently marketing the remainder of the proposed homes within the tract. TTM is the final of the three tracts and it is currently in a raw land condition. The three tracts are separately described below. TRACT Location: Thomas Guide: Northwest corner of Dauchy Avenue and Krameria Avenue, City of Riverside, Riverside County, California 746-B/C4 Legal Description: Lots of Tract 29222, City of Riverside, Riverside County, California Owner of Record: Individual owners Three-Year Sales History: Centex Homes sold the homes to individuals between March 2007 and April Per the Riverside Multiple Listing Service 22 of the homes have resold within the past three years. Assessor Parcel Nos.: thru 040; thru 016; thru 009; thru 015; thru 027; thru 022; thru 007 Property Taxes: Flood Zone: Using APN (18318 Whitewater Way; Lot 87 of Tract 29222) as a sample, the 2012/13 property taxes were $6, The property taxes include ad valorem taxes of $3, and special taxes and assessments of $3, which includes $3, for RUSD CFD No. 15 IA3. According to the County of Riverside the subject property is not required to have a flood plain review, thus, it is not located within a flood area. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 31

120 Size and Shape: The subject property is generally square in shape and contains acres per the recorded tract map as shown below. Zoning: The subject property is located within the Lake Mathews / Woodcrest Area Plan and located within the City of Riverside. Per the City of Riverside General Plan the subject property is designated as LDR (low density residential). Per the current zoning map, the property is zoned R-1-10,500 which allows for an average 10,500 square foot lot. Entitlements: Topography: The subject property is covered by Tract Map allowing for 136 single-family detached lots. Tract Map recorded September 12, Tract Map No has some lots with a minimum size of 7,700 square feet. Per the City Planning Department, the average lot size within the tract needs to be 10,500 square feet, thus Tract is consistent with the zoning. The subject property is sloping at street level of Dauchy Avenue. Tract has been mass graded and developed into finished lots which have been terraced due to the slope. Drainage is in an engineered street drainage system. Soils Condition: We have reviewed a Geotechnical Report of Rough Grading for Tract dated August 29, 2006 and a Summary of As-Graded Observation and Testing for Tract dated August 14, 2007, both prepared by LGC Inland, Inc. of Murrieta, California. The RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 32

121 Report of Rough Grading presents the summary of observations and testing provided by LGC Inland, Inc. during rough grading of the project between September 2005 and August 2006 and gives construction recommendations. The Summary of As-Graded Observation and Testing concludes that, based on LGC s observation, the sub-grades preparation and backfill, aggregate base and asphalt placement within Tract was performed in accordance and conformance with the recommendations of the geotechnical consultant and the geotechnical requirements of the City of Riverside and the Western Municipal Water District. Seismic Conditions: Environmental Concerns: It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all recommendations made in the above referenced geotechnical reports were incorporated in the project. No active faults were observed during grading operations per the above referenced geotechnical reports. As with all of Southern California, the subject property will be subject to ground shaking due to earthquakes. We have reviewed two environmental reports on Tract The first Phase I Environmental Site Assessment Report was prepared by Orswell & Kasman, Inc. of Pasadena, California and was dated January 29, 2003 and noted the subject property as 40 acres of vacant land at the northwest corner of Krameria Avenue and Taft Street, Riverside, California. This report concluded that their assessment revealed no recognized environmental conditions or historical recognized environmental conditions in connection with the property. The second report is titled a Phase I Environmental Site Assessment Update and Limited Site Characterization for Tract No and was prepared by LOR Geotechnical Group, Inc. of Riverside, California and dated July 28, The report concludes that the site was vacant land from the early to late-1950 s while between 1960 s and 1999 the subject site was a grove. The grove was removed between 1999 and The only possible environmental issue that was mentioned in the report was an area of oil-stained soil which is not a recognized environmental condition and/or of significant size or depth to be a regulatory concern, however it should be removed and transported off-site by a licensed waste hauler. It is assumed this was completed as evidenced by County Inspectors on site throughout construction. The report concluded that the update revealed no evidence of recognized environmental conditions associated with the site. In addition to the environmental reports, we have reviewed a Final Water Quality Mitigation and Monitoring Plan by the U.S. Army RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 33

122 Corps of Engineers pursuant to Section 404 of the Clean Water Act for Tentative Tracts and dated January 28, 2005 and prepared by Glenn Lukos Associates, Inc. of Lake Forest, California. The report describes the proposed mitigation for both tracts due to Corps isolated waters on TTM (0.04 acre) and TTM (0.07 acre), none of which consist of jurisdictional wetlands. The report also describes the water quality mitigation and monitoring of a 0.83 acre first flush basin within TTM and one 0.04-acre bio-swale within TTM Per the developer of TTM the Mission Ranch Homeowner s Association is maintaining the bio-swale and Centex Homes has contracted with a biologist to perform the monitoring and submit the annual reports as required by the Plan for a period of five years which is up to date per representatives. Easements/ Encumbrances: This appraisal assumes that there are no environmental issues that would slow or thwart development of the site as evidenced by existing homes on the site. We have reviewed First American Title Company Preliminary Title Report No. NHRV dated September 26, 2005 which covers Tract The exceptions were as follows: Item Nos. 1 and 2 pertain to property taxes on the site including supplemental taxes, if any. Item No. 3 refers to the subject CFD. Item No. 4 refers to the rights of the public due to Krameria Avenue. Item Nos. 5 and 6 refer to easements for public utilities. Item Nos. 7 and 8 pertain to School Facilities Mitigation Agreements. Item No. 9 refers to an ALTA survey on December 17, Item No. 10 is in regards to a former deed of trust. Item Nos. 11, 12, 13 and 14 refer to items the title company needed prior to issuing title insurance on the site. This appraisal assumes that the subject property is free and clear of any liens and/or encumbrances with the exception of the existing lien of RUSD CFD No. 15 IA3 (subject CFD). Utilities: All normal utilities are available to serve the subject site by the following companies: Electrical: Natural Gas: Water: Sewer: School District: Telephone: Riverside Electric The Gas Company Western Municipal Water District Western Municipal Water District Riverside Unified School District Verizon RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 34

123 Streets/Access: The subject property has access from the Riverside Freeway (91) via Van Buren Boulevard, east to Chicago Avenue (turns in to Alta Cresta at subject) and south to Krameria Avenue and east to the subject property. Additional access is via I-215 to Van Buren Boulevard, west to Dauchy Avenue and south to the subject property. Riverside Freeway (91) is a major east/west freeway providing access to Orange County and Los Angeles to the west with connections to I-10, I-215 and I-15. Van Buren Boulevard is a commercial corridor providing access from the 91 Freeway through the City of Riverside and into unincorporated areas. Chicago Avenue is a north/south access street through portions of the City of Riverside and unincorporated Riverside County. South of Van Buren Avenue, Alta Cresta Avenue branches off from Chicago Avenue due to a new drainage area. A recent traffic signal has been installed at Van Buren Avenue and Chicago Avenue. Krameria Avenue is an east/west arterial providing access through a portion of the City of Riverside and unincorporated lands. Krameria Avenue terminates east of the property at Barton Road and begins again in the City of Moreno Valley. Current Condition: As of the appraisal date of value, the subject property has been developed into 136 single family detached homes on minimum 7,700 square foot lots. All 136 homes have been completed and closed to individual homebuyers. Development Costs: Improvement Description: Upon inspection there was one home with a for sale sign and there were two homes with for lease signs. There were no homes that appear to have been abandoned or appeared in poor condition. After a review of the multiple listing service it was determined that 23 houses had re-sold in the past three years. The property is fully developed, thus there are no remaining development costs. Tract was developed into 136 single family detached homes which were developed into three products; Ardenwood at Mission Ranch III, Fox & Jacobs Homes at Mission Ranch III and Turnbridge at Mission Ranch III. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 35

124 Ardenwood at Mission Ranch III encompasses Lots 1-13, and (26 lots) with homes ranging in size from 3,258 to 3,931 square feet. The plans are detailed as follows: Plan Room Count Floors/ Parking Square Feet Ind. Owned 1 5 / 3 2 / 3 3, / / 3 3, / 4 2 / 4 3, / 4 2 / 3 3,931 8 Fox & Jacobs Homes at Mission Ranch III encompasses Lots and (79 lots) with homes ranging in size from 2,400 to 3,206 square feet. The plans are detailed as follows: Plan Room Count Floors/ Parking Square Feet Ind. Owned 1 4 / / 2 2, / / 2 2, / / 3 2, / 3 2 / 3 3, Turnbridge at Mission Ranch III encompasses Lots and (31 lots) with homes ranging in size from 2,648 to 4,063 square feet. The plans are detailed as follows: Plan Room Count Floors/ Parking Square Feet Ind. Owned 2 5 / / 2 2, / 3 / L 2 / 2 2, / 3 2 / 3 3, / 3 2 / 3 3, / 3 2 / 2 3, / / 3 4, All of the homes are of good design and appear to be of good workmanship. Little to no deterioration of the structures was apparent upon inspection. TRACT Location: Northeast corner of Cresta Alta Avenue (Chicago Avenue) and Krameria Avenue, City of Riverside, Riverside County, California Thomas Guide: 746-B4 Legal Description: Lots of Tract 29596, City of Riverside, Riverside County, California RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 36

125 Owner of Record: Standard Pacific Corp., a Delaware Corporation as to lots 1-4, 31-66, 68, , 108 and of Tract Individual owners as to the remainder of the lots. Three-Year Sales History: Corona Mission Ranch LLC sold Tract to Standard Pacific in several take-downs. We have reviewed grant deeds transferring the majority of the lots between May 10, 2010 and May 11, We have not received the documentation for the transfer of Lots (model complex and final build-out lots) but assume it was prior to the first production lot take-down in May The price paid was $66,000 per lot for a total price paid of $7,656,000. According to Standard Pacific representatives, the price was based on a finished lot estimate near $100,000. In a previous transfer, Corona Mission Ranch LLC purchased Tract from Centex Homes on March 31, Tract was included in a mass purchase of Centexowned property across the nation including over 7,000 residential lots. The appraiser was unable to obtain an allocation of the purchase price for the subject 116 lots. At time of sale the property was in a generally finished condition with some offsite improvements still needed. It is the appraisers understanding that Corona Mission Ranch LLC and Centex completed all offsite improvements. Parcel Nos.: ; thru 015; thru 022; thru 014; thru 007; thru 006; thru 022; thru 021; thru 008 Property Taxes: Flood Zone: Size and Shape: Using APN (Lot 99 of Tract 29596) as a sample, the 2012/13 property taxes were $ based on an assessed value of $67,825. It appears this sample is a finished lot without improvements. There was no special assessment for RUSD CFD No. 15 IA3 as this is considered to be undeveloped property due to no building permits being pulled. We have also reviewed APN as a second sample. The 2012/13 property taxes are $5, which includes $2, of ad valorem property taxes and $2, of special assessments and charges which included $2, for RUSD CFD No. 15 IA3 and $63.42 of other minimal charges. According to the County of Riverside the subject property is not required to have a flood plain review, thus, it is not located within a flood area. The subject property is generally square in shape and contains acres per the recorded tract map as shown on the following page. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 37

126 Zoning: The subject property is located within the Lake Mathews / Woodcrest Area Plan and located within the City of Riverside. Per the City of Riverside General Plan the subject property is designated as LDR (low density residential). Per the current zoning map, the property is zoned R-1-10,500 which allows for an average 10,500 square foot lot. Entitlements: Topography: The subject property is covered by Tract Map allowing for 116 single-family detached lots. Tract Map recorded November 13, Tract Map No has some lots with a minimum size of 7,700 square feet. Per the City Planning Department, the average lot size within the tract needs to be 10,500 square feet. Per the City Tract is consistent with the zoning. The subject property is slightly sloping at street level of Chicago Avenue. Tract has been mass graded and developed into finished lots. Due to the sloping topography the lots are terraced. Drainage is within an engineered street drainage system. There is a detention basin for flood control on site. Soils Condition: We have reviewed a Geotechnical Report of Rough Grading for Tract dated January 10, 2007 and a Summary of As-Graded Observation and Testing for Tract dated November 20, 2008, both prepared by LGC Inland, Inc. of Murrieta, California. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 38

127 The Report of Rough Grading presents the summary of observations and testing provided by LGC Inland, Inc. during rough grading of the project between October 2005 and April 2006 and gives construction recommendations. The Summary of As-Graded Observation and Testing concludes that, based on LGC s observation, the sub-grades preparation and backfill, aggregate base and asphalt placement within Tract was performed in accordance and conformance with the recommendations of the geotechnical consultant and the geotechnical requirements of the City of Riverside and the Western Municipal Water District. Seismic Conditions: Environmental Concerns: It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all recommendations made in the above referenced geotechnical reports are incorporated in the project. No active faults were observed during grading operations per the above referenced geotechnical reports. As with all of Southern California, the subject property will be subject to ground shaking due to earthquakes. We have reviewed an Updated Environmental Site Assessment for Tract prepared by LGC Inland, Inc. of Murrieta, California and dated February 20, 2008 in addition to a Phase I Environmental Site Assessment for 300 acres (subject property and additional lands) prepared by Lawson & Associates Geotechnical Consulting, Inc. of Temecula and dated December 16, The Lawson report concluded there was no evidence of significantly improper hazardous waste disposal on the site with the exception of some smudge pots. In addition, it was noted the property had been utilized for agricultural purposes, thus the soils should be tested for pesticides. Except for the above two items, the Phase I report concluded no further investigation was recommended. The Updated Environmental Site Assessment concluded that environmental threats on the site were interpreted as low and further investigation was not warranted. In addition to the environmental reports, we have reviewed a Final Water Quality Mitigation and Monitoring Plan by the U.S. Army Corps of Engineers pursuant to Section 404 of the Clean Water Act for Tentative Tracts and dated January 28, 2005 and prepared by Glenn Lukos Associates, Inc. of Lake Forest, California. The report describes the proposed mitigation for both tracts due to Corps isolated waters on TTM (0.04 acre) and TTM (0.07 acre), none of which consist of jurisdictional wetlands. The report also describes the water quality mitigation and monitoring of a 0.83 acre first flush basin within TTM RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 39

128 and one 0.04-acre bio-swale within TTM Per the developer of TTM the Mission Ranch Homeowner s Association is maintaining the bio-swale and Centex Homes has contracted with a biologist to perform the monitoring and submit the annual reports as required by the Plan for a period of five years. Easements/ Encumbrances: This appraisal assumes that there are no environmental issues that would slow or thwart development of the site as evidenced by existing homes on adjoining properties. We have reviewed First American Title Company Preliminary Title Report No. OSA (29) dated December 14, 2009 which covers Tract The exceptions are as follows: Item No. 1 pertains to taxes and assessments on the subject site including any lien of supplemental taxes and any special tax assessment. Item Nos. 2 and 3 were intentionally deleted. Item Nos. 4, 5 and 7 refer to easements for HOA or public utilities. Item No. 6 pertains to abutter s rights of ingress and egress to or from Chicago Avenue which were relinquished on the filed map. Item No. 8 in is regards to the School Facilities Mitigation Agreement recorded on the property. Item No. 9 pertains to any facts, rights, interests or claims which would be disclosed by a correct ALTA/ACSM survey. Item No. 10 is in regards to items the title company will need from the previous owner, Corona Mission Ranch LLC prior to issuing title insurance. This appraisal assumes that the subject property is free and clear of any liens and/or encumbrances with the exception of the existing lien of CFD No. 15 IA3 (subject CFD). Utilities: All normal utilities are available to serve the subject site by the following companies: Electrical: Natural Gas: Water: Sewer: School District: Telephone: Riverside Electric The Gas Company Western Municipal Water District Western Municipal Water District Riverside Unified School District Verizon Streets/Access: The subject property has access from the Riverside Freeway (91) via Van Buren Boulevard, east to Chicago Avenue (turns in to Alta Cresta at subject) and south to the subject. Additional access is via Van Buren Boulevard from I-215, west to Dauchy Avenue and south to Krameria Avenue and west to the subject property. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 40

129 Riverside Freeway (91) is a major east/west freeway providing access to Orange County and Los Angeles to the west with connections to I-10, I-215 and I-15. Van Buren Boulevard is a commercial corridor providing access from the 91 Freeway through the City of Riverside and into unincorporated areas. Van Buren Boulevard is a main arterial connecting the I-215 to the 91 Freeway. Chicago Avenue is a north/south access street through portions of the City of Riverside and unincorporated Riverside County. South of Van Buren Avenue, Alta Cresta Avenue branches off from Chicago due to a new drainage area. A recent traffic signal has been installed at Van Buren Avenue and Chicago Avenue. Krameria Avenue is an east/west arterial providing access through a portion of the City of Riverside and unincorporated lands. Krameria Avenue terminates east of the property at Barton Road and begins again in the City of Moreno Valley. Current Condition: The subject property has been developed into 116 single family detached lots. Development Costs: The property is in a physically finished condition; however, there are some remaining development fees to be paid. Per Standard Pacific there are remaining fees of $666,218 for 46 lots that includes $301,510 for City of Riverside impact fees and $358,708 in WMWD fees. The 46 lots include the 12 homes under construction and the 34 remaining finished lots. Improvement Description: The remaining fees are all anticipated to be funded by RUSD CFD 15 IA3 Series 2013 Special Tax Bonds. As this appraisal assumes that the improvements to be funded by the subject CFD have accrued to the subject property, there are no remaining costs of development. Tract has been developed into 116 single family detached lots. Standard Pacific is marketing Mission Grove on the site. There are 59 completed houses that have been sold to individuals. There are three models and eight houses that are over 95 percent complete owned by the builder. All of the eight production homes are in escrow and due to close upon completion. There are an additional 12 homes under construction and 34 remaining finished lots. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 41

130 Mission Grove is a NexGen product by Standard Pacific Homes which integrates resource efficiency and includes energy and water saving features while using innovation in their floorplans to reallocate space to where homebuyers need it most. Mission Grove has contemporary architectural styles. One difference within the space of these homes is there is no formal living room, but rather great rooms and family rooms for the families to congregate. Mission Grove homes include maple cabinetry, enameled wood window sills, 9 ceilings, tankless water heaters, ceramic tile flooring at entry, gourmet kitchen with breakfast nook, interior laundry rooms, custom staircases, oversized baseboards and door casings, fireplaces in family rooms, central air conditioning and heating systems. The kitchens include Whirlpool Gold appliance packages in stainless steel, granite countertops, cookware drawers, cast iron two-compartment sinks and a family sized breakfast nook. The master suites include private water closets, large walk-in closets and separate tubs and showers. Exteriors include 8 raised panel entry door, tile roofs, automatic garage openers on sectional doors, finished drywall garage interiors and front yard landscaping with irrigation on automatic timers. There are also several individualized options each homebuyer can choose. Mission Grove has houses ranging in size from 2,541 to 3,480 square feet. The Plan 4 has an option to increase the square footage to 3,640. There are two of the larger plans with options under construction however none complete to date. The plans are detailed as follows: Plan Room Count Floors/ Parking Square Feet Ind. Owned Bldr. Owned 1 4 / / 3 2, / / 3 2, / / 3 3, / / 3 3, Total *It should be noted that one Builder Owned Plan 2, 3 and 4 are model homes. In addition to the above listed houses, there are twelve lots under construction and 34 remaining finished lots. All of the homes are of good design and appear to be of good workmanship. Little to no deterioration of the structures was apparent upon inspection. TRACT Location: Southeast corner of Cresta Alta Avenue (Chicago Avenue) and Krameria Avenue, City of Riverside, Riverside County, California RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 42

131 Thomas Guide: 746-B4 Legal Description: Lots 1-8 and of Tentative Tract Map No , City of Riverside, Riverside County, California Note: Lots 9-12 of Tentative Tract Map No were sold to RUSD for the adjacent new middle school and although the area is within CFD No. 15 IA3, the area is exempt property and thus, not included in this appraisal. Owner of Record: Three-Year Sales History: KM Investments, LLC KM Investments, LLC purchased the property from East West Bank who sold the buyer the loan that was foreclosed on in the amount of $2,940,000. The seller took back a promissory note for the majority of the loan purchase price which made the purchase more attractive. We were unable to verify the terms and amount of the promissory note. The sales date was September 30, On March 3, 2008 RUSD purchased Lots 9 thru 12 of Tentative Tract Map from the former developer, Century American, for $433,000. According to Standard Pacific Corp. representatives, they recently made an offer to KM Investments to purchase this property for $4,750,000 ($51,630 per lot or $130,137 per acre) which was rejected. Parcel Nos.: , 019 and 023 Property Taxes: Flood Zone: Size and Shape: Per the Riverside County Tax Assessor s Office, the property taxes for TTM for the 2012/13 fiscal year total $9, According to the County of Riverside the subject property is not required to have a flood plain review, thus, it is not located within a flood area. The subject property is irregular shaped and contains 36.5 acres per Tentative Tract Map No It should be noted that the reported acreage includes lots 9 thru 12 (shown as four lots in northwest corner of tentative tract map below) which were purchased by RUSD for the middle school on adjacent lands. The four lots are now considered to be exempt property and are not included in this appraisal report. According to the Assessor s Office, the subject site totals acres (after cut-out of four lots). RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 43

132 Zoning: The subject property is located within the Lake Mathews / Woodcrest Area Plan and located within the City of Riverside. Per the City the zoning on the property is R-1-13,000 while per the City General Plan the property is designated as LDR (Low Density Residential). Entitlements: The subject property is covered by Tentative Tract Map allowing for 96 single-family detached. Four of the lots (Lots 9 thru 12) have been purchased by RUSD for a portion of the new middle school which was recently constructed on adjoining lands to the west. TTM was approved in There has been an extension of the tract map through the General Plan program, two additional requested time extensions, and three automatic time extensions at the State level. Per the City of Riverside Planning Department the current expiration date for TTM is March 15, Topography: The subject property goes from at street grade at the northwest corner of the lot at the intersection of Krameria and Chicago Avenues, to below street grade of Krameria at the eastern most portion of the subject. The site has a rolling to hilly terrain. Drainage is proposed into an engineered street drainage system with a detention basin planned within the tract. Soils Condition: We have reviewed a geotechnical investigation report for TTM dated December 16, 2004, prepared by Converse Consultants of Redlands, California. The report concluded that the project site was suitable for the proposed residential development, provided that the findings and recommendations presented in the RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 44

133 Geotechnical Investigation Report are considered in the planning, design and construction of the project. The geotechnical investigation referred to TTM prior to the four lots being sold to the school district. It should also be noted that the report refers to cut and fill slope heights up to 37.5 feet and 20.0 feet respectively. Seismic Conditions: Environmental Concerns: It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all recommendations made in the above referenced geotechnical reports are incorporated in the project. Within the above referenced geotechnical report, it is stated there are no known faults within the subject project and that the property is not located within an earthquake study zone. As with all of Southern California, the property will be subject to ground shaking due to earthquakes. We have reviewed the Results of Phase I Environmental Site Assessment for TTM dated November 8, 2004, prepared by Proterra Consulting, Inc. of Monterey Park, California. The Phase I Environmental Site Assessment ( ESA ) was performed in accordance with American Society for Testing and Materials Standard E , and included a site reconnaissance, regulatory agency reviews, site use history research and the preparation of the report. Testing of building materials, air, or groundwater was beyond the scope of work. The site assessment methods used were reviewing aerial photography available of the site (1938, 1954, 1967, 1977, 1989, 1994 and 2002), reviewing regulatory records available for the site, and checking title records available for the site. In addition, interviews with local government officials were conducted to ascertain available information on the site. The report found the following. The property was an orchard since at least Due to the fact the property was formerly used as an orchard, the possibility exists that detectable levels of agricultural chemicals including fertilizer and pesticides may be present in the subsurface. However, they found no direct evidence indicating that higher concentrations of chemicals would exist, and accordingly, past farming activities at the property should not pose a significant concern. The report recommended, based on the lack of Recognized Environmental Conditions associated with the property, that additional environmental investigation appears unwarranted at this time. It was noted that some dumped nuisance trash was observed at the property which should be removed as general debris during site clearing and grading at time of construction and development. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 45

134 In addition, we have reviewed correspondence between the Department of the Army Corps of Engineers, the California Regional Water Quality Control Board and a previous owner (Century American Company). The letter from the Army Corps of Engineers is a permit authorization (Nationwide Permit Number 39) for TTM providing certain conditions are complied with. The conditions include the mitigation of the impact of a 0.19-acre non-wetland waters of the U.S. by purchasing 0.57 acres of mitigation credit from a Corps approved Mitigation Bank. It is noted that the permits expire on March 19, 2007 or a re-application will be necessary. The appraiser is unaware of any further extensions. It appears that a re-application will be necessary. The letter from the California Regional Water Quality Control Board ( CRWQCB ) is dated September 20, 2005 and states that the project will be certified if certain criteria are met. These include two detention basins on the site and that 0.57-acres of mitigation credit towards the eradication of Arundo donax ( a tall non-native invasive perennial grass) be purchased. Also discussed in the letter is that the 401 Certification is contingent upon the execution of certain conditions, the majority of which are typical for subject-type construction along with the construction of the aforementioned two detention basins and the 0.57-acre mitigation lands purchase. The letter concludes that they anticipate no further regulatory involvement if all stated conditions are met. The CRWQCB letter does not mention a date upon which this certification expires. Also reviewed was correspondence between the Department of Fish and Game and Century American regarding the notification of a lake or streambed alteration. According to the Department of Fish and Game, the property owner may complete the project described (TTM 32997) without an agreement (due to time elapse). It is noted that the development must be the same as described in the notification and no expiration date is mentioned. The most recent review is a facsimile transmittal from the S. Hall of the US Army Corps of Engineers dated January 13, 2009 to K.M. Investments LLC. According to S. Hall, as far as she can ascertain, all work has been completed under the permit and proof of mitigation payment has been received. She further states that there are no outstanding issues regarding this permit and another CWA Section 404 permit will not be required if all fill in waters of the U.S. has been completed. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 46

135 Easements/ Encumbrances: This appraisal assumes that there are no environmental issues that would slow or thwart development of the site and that all permits and/or certifications will be available. We have reviewed First American Title Company Preliminary Title Report No. NHRV dated July 26, 2007 which covers the subject property. The exceptions are as follows: Item Nos. 1 and 2 pertain to property taxes on the site including supplemental taxes, if any. Item No. 3 refers to an easement for maintenance, operation and repair of feeder line located in Lurin Street along the south border of the subject property. Item No. 4 pertains to a dedication for public and incidental purposes. Item No. 5 refers to a deed of trust from a previous property owner. Item No. 6 refers to the effect of a resolution by the Riverside County Board of Supervisors accepting said offer of dedication for the purposes of vesting title in the County of Riverside on behalf of the public, but not as part of the County-Maintained Road System, recorded May 2, Item No. 7 refers to a School Facilities Mitigation Agreement recorded on the property. Item No. 8 pertains to an easement for public streets recorded April 6, This appraisal assumes that the subject property is free and clear of any liens and/or encumbrances with the exception of the existing lien of CFD No. 15 IA3 (subject CFD). Utilities: All normal utilities are available to serve the subject site by the following companies: Electrical: Natural Gas: Water: Sewer: School District: Telephone: Riverside Electric The Gas Company Western Municipal Water District Western Municipal Water District Riverside Unified School District Verizon Streets/Access: The subject property has access from the Riverside Freeway (91) via Van Buren Boulevard, east to Chicago Avenue (turns in to Alta Cresta at subject) and south to Krameria Avenue. Additional access is via Van Buren Boulevard, east to Dauchy Avenue, south to Krameria Avenue and west to the subject property. Riverside Freeway (91) is a major east/west freeway providing access to Orange County and Los Angeles to the west with connections to I-10, I-215 and I-15. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 47

136 Van Buren Boulevard is a commercial corridor providing access from the 91 Freeway through the City of Riverside and into unincorporated areas. Van Buren Boulevard is a main arterial between the I-215 and the 91 Freeway. Chicago Avenue is a north/south access street through portions of the City of Riverside and unincorporated Riverside County. South of Van Buren Avenue, Alta Cresta Avenue branches off from Chicago due to a new drainage area. A recent traffic signal has been installed at Van Buren Avenue and Chicago Avenue. Krameria Avenue is an east/west arterial providing access through a portion of the City of Riverside and unincorporated lands. Krameria Avenue terminates east of the property at Barton Road and begins again in the City of Moreno Valley. Current Condition: The subject property is in a raw land condition. No apparent physical improvements were noted on the site. Development Costs: We have received cost estimates prepared by the previous owner, Century American Corporation for their proposed Lexington Heights project encompassing Tentative Tract Map dated August At that time the estimated costs of development for the tract were as follows: In-Tract Costs $7,614,128 Indirect Lot Improvement Costs 5,063,994 Off-Site Improvement Costs 1,853,780 Total Lot Development Estimated Costs $14,531,902 It should be noted that the cost estimate includes a potential CFD credit of $3,028,868 which would bring the proposed development costs to $11,503,034. For purposes of this appraisal, it is assumed that only the 2009 and 2013 series of bonds will be sold on developed property, thus the possible future CFD special tax bonds will not be assumed to have been credited or accrued to TTM at this time. The total lot development cost estimate of $14,531,902 equates to $151,374 finishing costs per lot for the original proposed 96 lots. Note: The development costs were estimated in 2007 or over five years ago. Updated costs should be prepared prior to anticipating development of the site. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 48

137 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 three adjoining tracts of land ranging in size from 34 to 40 acres each. Tract has been graded and developed into 136 single family detached homes. Tract has been graded and developed into 116 single family detached lots, the majority of which have houses constructed on them. TTM is in a raw land condition. Surrounding streets are in place with the exception of the southern boundary of the raw parcel where Lurin Avenue is proposed to be improved and the improvement of half width of Chicago Avenue/Alta Cresta at the raw parcel. All 5 The Appraisal of Real Estate, 11 th Edition RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 49

138 three tracts originally were hilly with some rock and some sloping areas. Soils reports and environmental reports on all three tracts have been reviewed. All reports concluded that the proposed development of each tract was feasible. Access to the subject property is considered to be good via either I-215 or the 91 Freeway to Van Buren Boulevard, to Chicago Avenue and south to Krameria Avenue. The neighborhood consists of rural residential development, new homes, vacant lands, a new middle school and a private Christian high school. Van Buren Boulevard is a main commercial corridor with neighborhood shopping available within 2 miles of the subject property. It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that geotechnical recommendations have been or will be adhered to in the development of each tract. It is also assumed that no environmental issues exist which would slow or thwart development of the site. The size, access, and topography of the subject properties makes them physically suited for numerous types of development, however, the grading and development that has occurred on portions of the property suggests single-family residential use. In addition, the surrounding uses of residential development appear to make the subject property more suitable for residential use. The location of the subject property, which is not on a busy commercial corridor, suggests the property is not suitable for commercial development while the surrounding uses of residential land use and a new middle school suggest the property is not suitable for industrial development. Legality of Use The subject property is located within the City of Riverside, the entity responsible for regulating land use through the implementation of general plans and zoning ordinances. Per the City, the property is zoned R-1-10,500 and R-1-13,000 which allow for residential development with an average lot size of 10,500 square feet and 13,000 square feet respectively. Tract Map Nos and were recorded on approximately two-thirds of the property and Tentative Tract Map was approved on the remaining one-third of the property. Tract recorded in 2005 allowing for 136 single family detached lots. The minimum lot size appears to be 7,700 while the average lot size is 10,500 square feet per the City. Tract Map No recorded in RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 50

139 2007 allowing for 116 single family detached lots. The minimum lot size appears to be 7,700 and the average 10,500 square feet. TTM allows for 96 single family lots with an average size of 13,000 square feet (note four lots were previously sold to an adjoining landowner) and has been extended until March 15, These three maps cover the subject property and allow for 344 single-family detached lots. Based on the legality of use analysis, the types of development for which the subject property can be utilized are narrowed to residential use per the general plan and zoning designations along with the approved mapping on the property. Residential use 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. In the housing market, from the late 1990s residential housing prices generally escalated rapidly with good residential sale activity and a strong resale market drawing move-up residential buyers to the Inland Empire. In 2005 home sales volumes began to drop dramatically due to prices becoming unaffordable, however non-conventional mortgage financing and subprime mortgages allowed buyers to continue to purchase homes for a time. From a high of 27,420 new home sales in Riverside County in 2005, sales dropped to 2,717 new home sales during 2011, a reduction of over 90 percent from the peak. The average price of a new single-family detached home in Riverside County fell over 40 percent between its peak in third quarter 2006 and 1 st quarter 2012 (from $520,152 to $303,250). Since 2009 new home building was limited to pockets of development and product was smaller and less expensive than the homes constructed five years ago, however homebuilders are now looking at further out areas and seeing larger homes beginning to sell again. The market appears to have hit bottom with prices stabilizing in 2011 and beginning to increase in In addition to price increases, sales have picked up due to historically low interest rates. Current projections are for sales to remain steady or increase and for prices to continue to increase, however no big appreciation is anticipated in the near future. Within RUSD CFD No. 15 IA3, there are no current new homes available for sale. Within the currently marketing tract there is RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 51

140 one home that has been released, however it is reserved and is off the market. A new release is anticipated in the next two weeks. Within the original tract developed by Centex, there have been 22 re-sales of homes within the past three years and one home is currently offered for sale. All homes appear to be in good condition with little to no physical depreciation apparent. Within the new home market in Riverside, home prices which had fallen up to 50 percent are now increasing once again. Current pricing however is still 30 to 40 percent below the peak of the market. While sales are increasing, they are still hovering at historical lows. The foreclosure market which had affected the new home market in Riverside appears to have worked through the issues and there are limited 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, albeit it at a significantly slower pace than in the past few years. Finished lot prices within Riverside decreased as much as 50 percent, however in late 2009 and early 2010 sales of lots increased with price increases following the sales due to the limited amount of land ready to develop. Tract was developed to physically finished lots prior to the recession and sold in There have been several raw land sales in the past 18 months suggesting that homebuilding may be financially feasible in the area once again. However, Tract is in a raw land state with estimated finishing costs upwards of $150,000 per lot with no CFD bonds funding public improvements. Recent finished lot sales in the subject market area suggest that TTM is not feasible to develop at this time, however the activity of raw land sales with approved mapping and the recent offer on the subject suggest that investors and some builders are considering buying raw land for residential development once again. Based on the above analysis, the subject property s highest and best use appears to be for single-family detached residential development for the existing finished lots and to hold for future residential development for the raw lands. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 52

141 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. However, price points are still of a great concern to new-home buyers due to the competition of under-five year old homes in foreclosure. Based on the recent finished lot land sales and land development in the area coupled with population growth projected in the subject marketplace, it is our opinion that the developed subject property s highest and best use is feasible for residential development at the right price points while the raw land s highest and best use is to hold for future residential development. Highest and Best Use Conclusion As If Vacant The final determinant of highest and best use, as vacant, is the interaction of the previously discussed factors (i.e., physical, legal, financial feasibility and maximum productivity considerations). Based upon the foregoing analysis, it is our opinion that the highest and best use for the subject property As if Vacant is for residential development at the right price points for the finished lots and to hold for future residential development for the raw land. Highest and Best Use As Improved The subject property that is improved consists of two residential tracts, one developed by Centex Homes in 2007 and 2008 and one developed by Standard Pacific Homes. Centex Homes built-out Tract into three products, Ardenwood, Turnbridge and Fox & Jacobs. There were 26 homes built out in Ardenwood, 31 homes built out in Turnbridge and 79 homes built out in Fox and Jacobs. The original sales from the builder in 2007 and 2008 averaged $455,484 per house. In the past three years there have been 22 re-sales of homes within Tract with an average house price of $292,982 suggesting a reduction of about 36 percent. It should be noted that some of these sales were at what has now been determined to be the bottom of the market and included foreclosure sales which can be below market value. Our visual inspection RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 53

142 resulted in one home currently available for sale and two houses available for lease within Tract It appears that the subject neighborhood has worked through the foreclosures and under water properties which occurred in the immediate market. Standard Pacific Homes began marketing Mission Grove (Tract 29596) in 2010, after the recession. To our knowledge there have not been any re-sales of homes within the tract. There is currently one home listed for sale per our visual inspection. The first home in the project closed in November Fifty-nine homes have closed within the project and there are 19 homes in escrow and one which is reserved. There are no new homes currently available for sale. A new release of eight homes is anticipated within the next two weeks. Based on sales within Mission Grove (first sale in July 2010) the sales rate within the project is 2.43 sales per month. The subject neighborhood s sales rate of 2.43 homes per month compares favorably to the Riverside County average of 1.42 sales per month per project for new single-family detached homes. There are currently twelve homes under construction (11 in escrow and one reserved) and 34 remaining finished lots. This sales activity depicts the subject homes are being well received in the subject marketplace. All homes within both Tract and Tract appear in good condition with little to no physical depreciation visually apparent. Based on the currently marketing Mission Grove neighborhood s new home sales rates and the resale activity within Tract coupled with the minimal number of houses currently available for sale, it is our conclusion that the highest and best use for the subject property is for the continued use, as improved. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 54

143 VALUATION ANALYSIS AND CONCLUSIONS The valuation of the subject property will be presented as follows. First, each developed neighborhood (Tract and Tract 29596) will be valued. In the case of the individually owned homes, a concluded base value will be used for each plan. Premiums and upgrades will not be considered in the valuation which will result in a minimum market value for the individually owned new homes. The base value will be determined by the Sales Comparison Approach utilizing new home sales in the area in regards to Tract and focusing on re-sales and listings in regards to Tract In the case of Tract a Discounted Cash Flow Analysis will also be considered due to the builder owning several houses over 95 percent complete along with the model homes. Next, we will analyze the subject market in order to determine a value for a finished lot (within Tract 29596). The Sales Comparison Approach method of valuation will be used. In determining the value for the lands, a unit of comparison needs to be addressed. For finished lots, the lands are typically bought and sold based on a finished lot price, again with the condition of the lots taken into account. The concluded finished lot value will be addressed for the remaining lots within Tract For TTM (undeveloped residential land), the lands are typically reviewed on either a per unit or per acre basis with the condition of the lands and the entitlements taken into account. The Sales Comparison Approach will again be utilized to determine the value for TTM A valuation analysis for TTM will be conducted with a final value conclusion. All of the value conclusions will take into consideration improvements funded by the bonds of RUSD CFD 15 IA3 both series 2009 and series 2013 and their lien. A summary of the final value conclusions for the subject property will be reported at the end of this valuation section. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 55

144 Retail House Valuation Tract Tract consists of 136 individually owned homes. In valuing the existing homes, we have searched the area for comparable new home projects along with reviewing the previous three years of re-sales within Tract There is currently one home available for re-sale and 22 homes have re-sold in this time period. A New Home Residential Sales Summary Chart along with the re-sale information for the past three years is located in the Addenda. Below is a summary of each of the subject floor plans per their sales brochures: Ardenwood Plan Room Count Floors/ Parking Square Feet Ind. Owned Ardenwood: 1 5 / 3 2 / 3 3, / / 3 3, / 4 2 / 4 3, / 4 2 / 3 3,931 8 Fox & Jacobs: 1 4 / / 2 2, / / 2 2, / / 3 2, / 3 2 / 3 3, Turnbridge: 2 5 / / 2 2, / 3 / L 2 / 2 2, / 3 2 / 3 3, / 3 2 / 3 3, / 3 2 / 2 3, / / 3 4, Totals 136 The most appropriate new home data for Ardenwood At Mission Ranch III Plan 1 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. A-1 5 / 3 2 / 3 3, / / 3 3,365 $ / / 3 3,181 $ / 3 2 / 3 3,206 $ All comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 56

145 area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection, however, new homes typically command a premium. Thus, we have reviewed re-sales within the past year for Ardenwood. There have not been any Plan 1 re-sales within the past three years, however there have been three Plan 2 resales. The re-sales are as follows: Data No. Sale Date Sales Price Price/SF 1 6/11 $339,900 $ /12 $347,000 $ /12 $352,000 $98.65 Ardenwood Plan 1 has a square footage of 3,258 while the Plan 2 has a square footage of 3,568. A larger home typically sells for a lower per square foot price due to the economy of scale when constructing the home. Based on the market data, we have concluded that Ardenwood Plan 1 has a concluded minimum current market value of $98.00 per square foot. This calculates as follows: 3,258 sf x $98.00 = $319,284 The most appropriate new home data for Ardenwood At Mission Ranch III Plan 2 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. A-2 6 / / 3 3, / / 3 3,480 $ / 3 2 / 3 3,464 $ / 3 2 / 3 3,426 $ All comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection, however, new homes typically command a premium. Thus, we have reviewed re-sales within the past year for Ardenwood. There have been three resales of Plan 2s. The re-sales are as follows: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 57

146 Data No. Sale Date Sales Price Price/SF 1 6/11 $339,900 $ /12 $347,000 $ /12 $352,000 $98.65 Based on the market data, we have concluded that Ardenwood Plan 2 has a concluded minimum current market value of $95.00 per square foot. This calculates as follows: 3,568 sf x $95.00 = $338,960 The most appropriate new home data for Ardenwood At Mission Ranch III Plan 3 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. A-3 6 / 4 2 / 4 3, / / 3 3,480 $ / / 3 3,788 $ / 3 2 / 3 3,464 $ / 3 2 / 3 3,773 $ Data No. 2 is located in the foothills of Corona and is not located within a CFD making it superior. The remainder of the comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection, however, new homes typically command a premium. Thus, we have reviewed re-sales within the past year for Ardenwood. There has been one re-sale of a Plan 3 and three Plan 2s as follows: Data No. Sale Date Sales Price Price/SF 1 6/11 $339,900 $ /12 $347,000 $ /10 $325,000 $ /12 $352,000 $98.65 Plan 3 has a square footage of 3,808 while Plan 2 has 3,568 square feet. Typically a smaller home sells for a higher per square foot due to economy of scale. Based on the market data, we have concluded that Ardenwood Plan 3 has a concluded minimum current market value of $90.00 per square foot. This calculates as follows: 3,808 sf x $90.00 = $342,720 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 58

147 The most appropriate new home data for Ardenwood At Mission Ranch III Plan 4 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. A-4 6 / 4 2 / 3 3, / / 3 3,480 $ / / 3 3,788 $ / 3 2 / 3 3,464 $ / 3 2 / 3 3,773 $ Data No. 2 is located in the foothills of Corona and is not located within a CFD making it superior. The remainder of the comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection, however, new homes typically command a premium. Thus, we have reviewed re-sales within the past year for Ardenwood. There have been no re-sales of Plan 4s within the past three years, however there has been one re-sale of a Plan 3 and three Plan 2s as follows: Data No. Sale Date Sales Price Price/SF 1 6/11 $339,900 $ /12 $347,000 $ /10 $325,000 $ /12 $352,000 $98.65 Plan 4 has a square footage of 3,931 while Plan 2 has 3,568 square feet and Plan 3 has 3,808 square feet. Typically a smaller home sells for a higher per square foot due to economy of scale. Based on the market data, we have concluded that Ardenwood Plan 4 has a concluded minimum current market value of $88.00 per square foot. This calculates as follows: 3,931 sf x $88.00 = $345,928 Fox & Jacobs Homes The most appropriate new home data for Fox & Jacobs Homes At Mission Ranch III Plan 1 is: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 59

148 Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. FJ-1 4 / / 2 2, / / 3 2,541 $ / / 3 2,936 $ / / 2 2,488 $ / / 3 2,814 $ / 3 2 / 2 2,866 $ Data No. 3 includes homes with views. It should be noted that single story houses typically command a premium on a per square foot basis when compared to two-story houses. The comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year for Fox & Jacob s Plan 1. Our search resulted in four re-sales of Fox & Jacobs Plan 1 within the past three years. The re-sales are as follows: Data No. Sale Date Sales Price Price/SF 9 6/11 $253,000 $ /11 $255,000 $ /12 $270,900 $ Curr. Ltsg. $299,000 $ Fox & Jacobs Plan 1 has three sales ranging from $ to $ per square foot. As discussed under the Riverside County Housing Market section, home prices in the area have been increasing and the subject re-sales suggest this is true. The asking price on the active listing is $ which would set the upper limit of value. Based on the market data, we have concluded that the Fox & Jacob Plan 1 has a concluded minimum current market value of $ per square foot. This calculates as follows: 2,400 sf x $ = $264,000 The most appropriate new home data for Fox & Jacob Homes At Mission Ranch III Plan 2 is: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 60

149 Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. FJ-2 5 / / 2 2, / / 3 2,936 $ / / 3 2,814 $ / 3 2 / 2 2,866 $ Data No. 3 includes homes with views. The comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year for Fox & Jacob s Plan 2. Our search resulted in four re-sales of Fox & Jacobs Plan 2 within the past three years. The re-sales are as follows: Data No. Sale Date Sales Price Price/SF 8 12/11 $250,000 $ /12 $258,000 $ /12 $300,000 $ /10 $300,000 $ Fox & Jacobs Plan 2 has four re-sales ranging from $92.25 to $ per square foot. Data No. 8 closed within two months. Data No. 12 had a price reduction after being on the market for eight months. Based on the market data, we have concluded that the Fox & Jacob Plan 2 has a concluded minimum current market value of $ per square foot. This calculates as follows: 2,710 sf x $ = $271,000 The most appropriate new home data for Fox & Jacob Homes At Mission Ranch III Plan 3 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. FJ-3 5 / / 3 2, / / 3 2,936 $ / / 3 2,814 $ / 3 2 / 2 2,866 $ Data No. 3 includes homes with views. The comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 61

150 room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year for Fox & Jacob s Plan 3. Our search resulted in three re-sales of Fox & Jacobs Plan 3 within the past three years. The re-sales are as follows: Data No. Sale Date Sales Price Price/SF 13 2/12 $260,000 $ /12 $267,697 $ /11 $275,000 $95.65 Fox & Jacobs Plan 3 has four re-sales ranging from $90.43 to $95.65 per square foot. Data No. 13 had a price reduction after being on the market for 41 days. Based on the market data, we have concluded that the Fox & Jacob Plan 3 has a concluded minimum current market value of $95.00 per square foot. This calculates as follows: 2,875 sf x $95.00 = $273,125 The most appropriate new home data for Fox & Jacob Homes At Mission Ranch III Plan 4 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. FJ-4 6 / 3 2 / 3 3, / / 3 3,365 $ / / 3 2,480 $ / 3 2 / 3 3,464 $ / 3 2 / 3 3,206 $ / 3 2 / 3 3,426 $ Data No. 3 includes homes with views. The comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year for Fox & Jacob s Plan 4. Our search resulted in five re-sales of Fox & Jacobs Plan 4 within the past three years. The re-sales are as follows: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 62

151 Data No. Sale Date Sales Price Price/SF 10 4/12 $254,700 $ /12 $280,000 $ /12 $285,000 $ /12 $285,000 $ /12 $290,000 $90.46 Fox & Jacobs Plan 4 has five re-sales ranging from $78.56 to $90.46 per square foot. Data No. 10 closed in two months. Based on the market data, we have concluded that the Fox & Jacob Plan 4 has a concluded minimum current market value of $88.00 per square foot. This calculates as follows: 3,206 sf x $88.00 = $282,128 Turnbridge The most appropriate new home data for Turnbridge At Mission Ranch III Plan 2 (there is no Plan 1 for Turnbridge) is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. T-2 5 / / 2 2, / / 3 2,541 $ / / 3 2,936 $ / / 3 2,814 $ / 3 2 / 2 2,866 $ Data No. 3 includes homes with views. The comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year within Tract for Turnbridge, Ardenwood and Fox & Jacob s. Our search resulted in no Turnbridge Plan 3 resales, however there were three re-sales of Fox & Jacobs Plan 3 which is similar in size. Our search resulted in no Turnbridge Plan 2 resales, however there were three re-sales of Fox & Jacobs Plan 3 which is similar in size and there was one re-sale of a Turnbridge Plan 4 which is approximately 350 square feet RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 63

152 larger. The re-sales are as follows: Data No. Sale Date Sales Price Price/SF 13 2/12 $260,000 $ /12 $267,697 $ /11 $275,000 $95.65 Data No. 13 had a price reduction after being on the market for 41 days. The market data is slightly larger than the subject. Based on the market data, we have concluded that the Turnbridge Plan 2 has a concluded minimum current market value of $ per square foot. This calculates as follows: 2,648 sf x $ = $264,800 The most appropriate new home data for Turnbridge At Mission Ranch III Plan 3 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. T-3 4 / 3 / L 2 / 2 2, / / 3 2,936 $ / / 3 3,365 $ / / 3 2,814 $ / 3 2 / 2 2,866 $ / 3 2 / 3 3,068 $ Data No. 3 includes homes with views. The comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year within Tract for Turnbridge, Ardenwood and Fox & Jacob s. Our search resulted in no Turnbridge Plan 3 re-sales, however there were three re-sales of Fox & Jacobs Plan 3 which is similar in size and there was one re-sale of a Turnbridge Plan 4 which is approximately 350 square feet larger. The re-sales are as follows: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 64

153 Data No. Sale Date Sales Price Price/SF 6 3/12 $300,000 $ /12 $260,000 $ /12 $267,697 $ /11 $275,000 $95.65 Data No. 13 had a price reduction after being on the market for 41 days. Based on the market data, we have concluded that the Turnbridge Plan 3 has a concluded minimum current market value of $95.00 per square foot. This calculates as follows: 2,916 sf x $95.00 = $277,020 The most appropriate new home data for Turnbridge At Mission Ranch III Plan 4 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. T-4 5 / 3 2 / 3 3, / / 3 3,365 $ / / 3 3,181 $ / 3 2 / 3 3,068 $ / 3 2 / 3 3,206 $ / 3 2 / 3 3,426 $ Data No. 3 includes homes with views. The comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year within Tract for Turnbridge, Ardenwood and Fox & Jacob s. Our search resulted in one Turnbridge Plan 4 re-sale and one Turnbridge Plan 6 re-sale (120 square feet larger) and five re-sales of Fox & Jacobs Plan 4 which is similar in size. The re-sales are as follows: Data No. Sale Date Sales Price Price/SF 5 2/12 $292,900 $ /12 $300,000 $ /12 $254,700 $ /12 $280,000 $ /12 $285,000 $ /12 $285,000 $ /12 $290,000 $90.46 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 65

154 Data No. 10 closed within two months. Based on the market data, we have concluded that the Turnbridge Plan 4 has a concluded minimum current market value of $92.00 per square foot. This calculates as follows: 3,242 sf x $92.00 = $298,264 The most appropriate new home data for Turnbridge At Mission Ranch III Plan 5 has 16 square feet more than the Plan 4 and the same number of bedrooms and bathrooms. The concluded value is the same at $92 per square foot. The calculation is as follows: 3,258 sf x $92.00 = $299,736 The most appropriate new home data for Turnbridge At Mission Ranch III Plan 6 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. T-6 6 / 3 2 / 2 3, / / 3 3,365 $ / / 3 3,181 $ / 3 2 / 3 3,068 $ / 3 2 / 3 3,206 $ / 3 2 / 3 3,426 $ Data No. 3 includes homes with views. The comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year within Tract for Turnbridge, Ardenwood and Fox & Jacob s. Our search resulted in one Turnbridge Plan 6 re-sale and one Turnbridge Plan 4 re-sale (120 square feet smaller), five re-sales of Fox & Jacobs Plan 4 which is similar in size and three re-sales of Plan 2 within Ardenwood which is also similar in size. The re-sales are as follows: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 66

155 Data No. Sale Date Sales Price Price/SF 1 6/11 $339,900 $ /12 $347,000 $ /12 $352,000 $ /12 $292,900 $ /12 $300,000 $ /12 $254,700 $ /12 $280,000 $ /12 $285,000 $ /12 $285,000 $ /12 $290,000 $90.46 Data No. 10 closed within two months suggesting the price was low. Based on the market data, we have concluded that the Turnbridge Plan 6 has a concluded minimum current market value of $92.00 per square foot. This calculates as follows: 3,360 sf x $92.00 = $309,120 The most appropriate new home data for Turnbridge At Mission Ranch III Plan 7 is: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj. T-7 7 / / 3 4, / / 3 3,480 $ / / 3 3,788 $ / 3 2 / 3 3,464 $ / 3 2 / 3 3,773 $ Data No. 2 is not located within a CFD which is considered to be superior in overall tax rate to the remainder of the market data. Data No. 3 includes homes with views. The remainder of the comparables are of similar quality design and appeal. Adjustments were considered (when applicable) for location, lot size, sales concessions, CFD special taxes, common area benefits, total square footage, stories, room count, included upgrades, garage space, and other amenities. The subject homes are up to five years old. Little depreciation was noted upon our inspection; however, new homes typically command a premium. Thus, in addition we have reviewed re-sales within the past year within Tract for Turnbridge, Ardenwood and Fox & Jacob s. Our search resulted in one Turnbridge Plan 7 re-sale, one Turnbridge Plan 6 re-sale, one Turnbridge Plan 4 re-sale and one re-sale of an Ardenwood Plan 3 which is similar in size. The re-sales are as follows: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 67

156 Data No. Sale Date Sales Price Price/SF 3 3/10 $325,000 $ /12 $292,900 $ /12 $300,000 $ /12 $398,500 $98.08 Data No. 7 included a pool, spa and several upgrades within the house making it at the top of the value range. With the exception of Data No. 7, the data are all smaller in size. Typically a larger home sells on a lower per square foot basis due to economy of scale. Based on the market data, we have concluded that the Turnbridge Plan 7 has a concluded minimum current market value of $88.00 per square foot. This calculates as follows: 4,063 sf x $88.00 = $357,544 Concluded Valuation for Tract Individually Owned Homes In determining the minimum value for the individual owned homes, we have considered the above concluded base values for the homes which included considering the re-sales within the past 3 years within the subject tract to determine a minimum market value for each plan. This is considered to be a minimum market value as the majority of homeowners pay for some added options or lot premiums in their final value. The concluded values are as follows: Ardenwood: Plan 1 (6 x $319,284) $ 1,915,704 Plan 2 (4 x $338,960) 1,355,840 Plan 3 (8 x $342,720) 2,741,760 Plan 4 (8 x $345,928) 2,767,424 Fox & Jacob Homes: Plan 1 (14 x $264,000) 3,696,000 Plan 2 (14 x $271,000) 3,794,000 Plan 3 (25 x $273,125) 6,828,125 Plan 4 (26 x $282,128) 7,335,328 Turnbridge: Plan 2 (4 x $264,800) 1,059,200 Plan 3 (3 x $277,020) 831,060 Plan 4 (7 x $298,264) 2,087,848 Plan 5 (2 x $299,736) 599,472 Plan 6 (5 x $309,120) 1,545,600 Plan 7 (10 x $357,544) 3,575,440 Total Minimum Value $ 40,132,801 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 68

157 In addition, we have reviewed actual sales prices for the homes. The actual sales prices include lot premiums, options and upgrades. It should be noted that some incentives such as additional lender incentives and upgrades may not be reflected in the reported sales prices as they may have been included in concessions. Builder closings occurred within Tract between March 2007 and April The actual sales prices total $61,945,910. The concluded minimum value for the homes is 35 percent below the reported sales prices. This is due to the declining market. As discussed under the Riverside County Housing Market section earlier within this report, median home prices in the Inland Empire are still down 41.7 percent from the peak in This further substantiates the concluded values for the individually owned homes within Tract Mission Grove Tract Mission Grove by Standard Pacific consists of 116 proposed homes. There are 59 individually owned homes, three completed models and eight production houses over 95 percent complete owned by the builder, 12 houses under construction and 34 remaining finished lots. Rather than give a value to a partially complete improvement, the 12 houses that are under construction will be valued as a finished lot. First, a valuation for each plan within Mission Grove will be conducted. The concluded value for each plan will then be considered the retail value for the builder owned houses and a discounted cash flow analysis will be considered in order to account for the absorption time to sell off the homes, the costs of marketing and carrying costs of the homes and a profit due to the developer in order to sell off the homes. Next the remaining finished lot valuation will be addressed. The comparables will be discussed and compared to the subject property followed by a finished lot value conclusion. Finally, the individually owned homes will be given the base plan concluded value in order to conclude on a minimum market value for the individually owned houses. A summary of values will conclude the section. The valuation of each plan will take into consideration new home sales data within the subject market area. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 69

158 Valuation Analysis for Completed Houses Below is a summary of the floor plans within Mission Grove by Standard Pacific. Sales of homes began in July 2010 with the first closing in November There have been 59 home closings and there are 19 homes under contract that are due to close upon completion suggesting an average sales rate of over 2.5 units per month. Per our review of the MLS, there have not been any re-sales of homes within the projects at this time. There is one home currently available for sale. A review of comparable new home sales prices will be addressed. The homes are of good design and appear to be of quality workmanship. A listing of the Improved Residential comparable properties is located in the Addenda of this report. Plan Room Count Floors/ Parking Square Feet Ind. Owned Bldr. Owned 1 4 / / 3 2, / / 3 2, / / 3 3, / / 3 3, Total The most appropriate new home comparable data for Mission Grove Plan 1 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj 1 3 / / 3 2, / / 3 2,936 $ / 2 1 / 2 2,320 $ / / 2 2,488 $ / 3 2 / 2 2,866 $ Data No. 3 includes view homes making it superior to the subject. Data No. 1 and 4 refer to two-story homes which are typically lower on a per square foot basis due to economies of scale. Adjustments have been considered for these differences along with location, sales concessions, CFD taxes, common area benefits, total square footage, room count, garage space and other amenities. The current base price for a Plan 1 within Mission Grove is $365,900 less a $5,000 concession or $ per square foot. There have been nine sales of Plan 1 with sales prices ranging from $ to $ and averaging $ however these prices include upgrades and premiums. There are four current escrows of Plan 1 which are selling for $ to $ per square foot, again including upgrades and premiums. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 70

159 The homes appear to be in good condition with little to no physical depreciation visible. It has been concluded that the Mission Grove Plan 1 has a current minimum market value of $ per square foot. This calculates as follows: 2,541 sf x $ = $355,740 The most appropriate new home comparable data for Mission Grove Plan 2 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj 2 4 / / 3 2, / / 3 3,365 $ / / 3 3,059 $ / 3 2 / 2 2,866 $ / 3 2 / 3 3,068 $ Data No. 3 includes view homes making it superior to the subject. The remainder of the market data ranges from $ to $ per square foot. Adjustments have been considered for differences including location, sales concessions, CFD taxes, common area benefits, total square footage, number of floors, room count, garage space and other amenities. The current base price for a Plan 2 within Mission Grove is $376,900 less $5,000 concession or $ per square foot. There have been 16 sales of Plan 2 with sales prices ranging from $ to $ and averaging $ however these prices include upgrades and premiums. There are six current escrows of Plan 2 which are selling for between $ and $ per square foot, again including upgrades and premiums. The homes appear to be in good condition with little to no physical depreciation visible. It has been concluded that the Mission Grove Plan 2 has a current minimum market value of $ per square foot. This calculates as follows: 2,936 sf x $ = $358,192 The most appropriate new home comparable data for Mission Grove Plan 3 are: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 71

160 Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj 3 4 / / 3 3, / / 3 2,936 $ / / 3 3,480 $ / 3 2 / 3 3,206 $ / 3 2 / 3 3,426 $ The market data ranges from $ to $ per square foot. Adjustments have been considered for differences including location, sales concessions, CFD taxes, common area benefits, total square footage, number of floors, room count, garage space and other amenities. The current base price for a Plan 3 within Mission Grove is $399,900 less $5,000 concession or $ per square foot. There have been 17 sales of Plan 3 with sales prices ranging from $ to $ and averaging $113.29, however these prices include upgrades and premiums. There are three current escrows of Plan 3 which are selling for between $ and $ per square foot, again including upgrades and premiums. The homes appear to be in good condition with little to no physical depreciation visible. It has been concluded that the Mission Grove Plan 3 has a current minimum market value of $ per square foot. This calculates as follows: 3,365 sf x $ = $393,705 The most appropriate new home comparable data for Mission Grove Plan 4 are: Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF Subj 3 5 / / 3 3, / / 3 3,365 $ / 3 2 / 3 3,206 $ / 3 2 / 3 3,426 $ / 3 2 / 3 3,773 $ The market data ranges from $ to $ per square foot. Adjustments have been considered for factors such as location, sales concessions, CFD taxes, common area benefits, total square footage, room count, number of floors, garage space and other amenities. The current base price for a Plan 4 within Mission Grove is $406,900 less RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 72

161 $5,000 concession or $ per square foot. There have been 17 sales of Plan 4 with sales prices ranging from $ to $ and averaging $111.87, however these prices include upgrades and premiums. There are six current escrows of Plan 4 which are selling for between $ and $ per square foot, again including upgrades and premiums. There is one Plan 4 which is currently listed as a re-sale. The asking price is $410,000 or $ per square foot. The home originally listed in November 2012 at $425,000 with a price reduction in late January 2013 to $410,000. The homes appear to be in good condition with little to no physical depreciation visible. It has been concluded that the Mission Grove Plan 4 has a current minimum market value of $ per square foot. This calculates as follows: 3,480 sf x $ = $400,200 Discounted Cash Flow Analysis First a value for the remaining builder-owned houses will be concluded followed by a final value conclusion for the remaining lots owned by the builder. There are three builder-owned model homes and eight builder owned production homes over 95 percent complete. Seven of the production homes are in escrow and are due to close upon completion while the eighth production home is reserved. Per interviews with builders, upgrades and landscape/hardscape of up to $100,000 are installed in the model homes, however, the builders generally consider this a marketing cost and do not anticipate recovering this investment on a dollar for dollar basis. Based on historical information, home sizes and fixtures, actual model home sales within the subject property and the current real estate market, a consideration of a $30,000 premium has been considered on each of the model homes. The retail base value conclusions for the builder-owned homes within the subject property are calculated as follows: Plan 1 (1 x $355,740) $ 355,740 Plan 2 (4 x $358,192) 1,432,768 Plan 3 (2 x $393,705) 787,410 Plan 4 (4 x $400,200) 1,600,800 Model Upgrades (3 x $30,000) 90,000 Total Retail Value $4,266,718 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 73

162 Absorption Period In order to arrive at an absorption period for the subject homes, the absorption rates for the subject project has been reviewed. The subject Mission Grove project has an overall sales rate of approximately 2.5 houses per month. This compares favorably to the overall Riverside County average of 1.42 sales per month per project. It appears the subject project is priced correctly in the subject market. Within the subject property there are eight production homes and three models which are builder-owned. Seven of the eight production homes are in escrow and due to close upon completion within the next 45 days. The model homes have not been released for sale. It has been concluded that the eleven builder-owned homes will be absorbed within a four-month period at the concluded values. Expenses In determining an expense rate, several builders in the subject area have been interviewed as to their expenses on selling existing inventory. Expenses include marketing and general administrative costs. These costs typically range from six to ten percent depending on varying factors such as absorption period, intensity of marketing, etc. Six percent has been estimated for marketing expenses and two percent for general and administrative costs for a total of eight percent in expenses for this analysis. Profit Several interviews with merchant builders in the area were conducted in order to determine an appropriate profit percentage for the subject property. In the early 2000s, developers typically attempted to achieve a 10 to 12 percent profit based on gross sales proceeds. During the early 1990s recession this range was lowered considerably to six to 10 percent with some builders drastically lowering their profit potential in order to maintain their work force. As the market improved, so did the profits. Current economic conditions once again are forcing builders to take a smaller profit in order to maintain their workforce. An eight percent profit is considered appropriate in the analysis for this project. Discount Rate In selecting a discount rate, the following was completed: RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 74

163 1. Interviews with home builders in the Riverside area 2. Review of current market conditions including current market rates as well as yields reflected in other markets (i.e., municipal bonds, corporate bonds, etc.) 3. The quality, construction, historical sales and product on the subject property The subject homes have been well received in the marketplace with a higher absorption rate than most projects in the Riverside County. Due to the good sales rates within Mission Grove, a 15 percent discount rate is considered appropriate for this analysis on the subject property. Discounted Cash Flow Summary The discounted revenue (see chart in addenda) for the builder owned homes is $3,474,782 (say) $3,475,000. Finished Lot Discussion and Valuation Tract has 34 remaining finished lots and 12 houses under construction. We searched the immediate area and found few comparable sales, thus we expanded our search to include additional areas in Riverside County. The nine transactions summarized in the Addenda are considered to be most comparable to the subject property. The sales are reported on a sales price per lot when available along with the finished lot price. Rarely are lots sold in a true finished lot condition with all fees paid, thus a reconciliation of remaining fees needs to be addressed. Lots that have houses under construction will be valued on the basis of a finished lot rather than attribute value to a partially complete structure. Each transaction will be discussed followed by a comparison to the subject property. The subject lots are in true physical finished condition with all streets completed and utilities stubbed to each lot. Although there are still some remaining fees to be paid, the fees will be funded by RUSD CFD No. 15 IA3 Special Tax Bonds. As this appraisal assumes all benefits of RUSD CFD No. 15 IA3 have accrued to the subject property, it is assumed there are no development fees remaining on the subject property. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 75

164 Market Data No. 1 is in regards to the recent offer by DR Horton on Kunny Ranch, located approximately two miles northwest of the subject property. The property encompasses 82 lots with a minimum size of ½ acre. The property was reportedly in escrow at $8,200,000 or for $100,000 per lot as is and $235,000 estimated for a finished lot. The property is hilly which allows for good view potential. DR Horton cancelled the purchase in December The transaction was intended to close by year-end however DR Horton determined the due diligence period was not long enough to investigate the property and cancelled the transaction. The site was taken off the market and will be offered again in the near future. In comparison to the subject property, based on a finished lot this site is considered to be significantly superior to the subject due to larger lot size and good view potential. The fact that this transaction was cancelled by the buyer suggests this would be the upper limit of the value range. Market Data No. 2 pertains to the April 2011 purchase by CV Communities of 345 proposed lots located near Lake Mathews, approximately two miles west of the subject property in an unincorporated area of Riverside. The property is hilly. At time of purchase there were an allowed 330 lots on the property with an average lot size of approximately 10,000 square feet. The buyer is in the process of remapping the site for 345 lots. The property was purchased for $7,300,000 which was based on a finished lot value of $157,000 per the buyer s representative. In comparison to the subject property this site is considered to be similar in location and average lot size, however inferior due to the number of lots (345 versus the subject s 46) and inferior due to the subject property being in a true physical finished condition which takes any development risk out of the transaction. Market Data No. 3 is located approximately five miles northwest of the subject near the 91 Freeway and La Sierra Avenue. Woodside homes purchased 42 finished lots (with a minimum size of 2,770 square feet) from the lender who had foreclosed on the property located in the master planned community of Riverwalk. Woodside purchased the property in August 2012 based on a finished lot value of $112,000. There were two additional land sales by Tripoint Homes within the Riverwalk Vista project in 2011 however they included some model homes and some partially completed production RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 76

165 homes. We were unable to ascertain the finished lot value of the Tripoint lots due to the structures included in the transaction. In comparison to the subject property Market Data No. 3 is considered to be significantly inferior due to lot size (2,770 square foot lot size versus the subject s 7,700 square foot minimum lot size). Market Data Nos. 4-9 refer to residential land sales located in the communities known as Eastvale and Jurupa Valley which are located along I-15 approximately 15 miles northwest of the subject property. Both Eastvale and Jurupa Valley are recently incorporated cities. The Eastvale sales (Data Nos. 5, 7, 8 and 9) all closed within the past 15 months and have a tight range of value between $175,000 and $180,000 for the lots on a finished lot basis. The Jurupa Valley sales (Data Nos. 4 and 6) both closed based on a finished lot value at $155,000. The Eastvale area has been a pocket of development for the past five years, throughout the recession. While land sales slowed considerably, the area sold out of any physically finished lots by 2009 with land development occurring since As Eastvale land available for residential development is getting scarce, Jurupa Valley now appears to be the next area of development in Riverside. Jurupa Valley does not have the amenities and surroundings that Eastvale does which commands a premium in lot values. Although these sales are located approximately 15 miles from the subject, we have included them to show what finished lots in other areas of Riverside are selling for. We have reviewed home sales within the Eastvale ZIP Code (92880) in comparison to the subject property s ZIP Code (92508). Eastvale had 61 existing home sales in the month of December with an average sales price of $360,000 and an average price per square foot of $130. The subject area in Riverside had 36 sales in December with an average price of $298,000 and an average price of $118 per square foot. This suggests a $62,000 per lot difference for location, however there are several other factors to consider in this difference including home sizes. It is interesting to note that the $62,000 per lot equates to 17 percent difference, however when looking at the price per square foot, the difference is closer to 10 percent. The market data has a wide overall range of value for finished lots from $112,000 to $235,000. The lowest end of the value range pertains to small condominium lots with a RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 77

166 minimum size of 2,770 square feet while the highest end of the range is for minimum 1/2-acre lots with views. The one sale in the immediate area included 345 lots with a finished lot basis of $157,000. Typically when buying larger number of lots a discount would apply as it would be considered a bulk sale with the buyer carrying the property for several years as the lots are developed and sold off. The remainder of the market data is located in another market within Riverside County within the cities of Eastvale and Jurupa Valley. The Eastvale sales sold on the basis of a $175,000 to $180,000 finished lot while the Jurupa Valley sales sold for $155,000 on a finished lot basis. It was determined that Eastvale s existing homes sell for an estimated premium of 10 percent over the subject area. Using a $175,000 finished lot value in Eastvale and applying a 10 percent adjustment suggests a finished lot value for the subject area in the $157,500 range. Based on the market data coupled with the knowledge of the subject market, we have concluded that the subject 46 lots have a value of $155,000 for the property in a true finished lot condition. Builder-Owned Finished Lot Value Conclusion Standard Pacific owns 46 remaining finished lots, twelve with houses under construction. The lots under construction will be valued on the basis of a finished lot rather than attribute value to a partially complete structure. Our finished lot valuation concluded at a Finished Lot Value of $155,000. The remaining builder-owned finished lots value is calculated as follows: 46 lots x $155,000 = $7,130,000 Total Builder-Owned Property The final value conclusions for the builder owned property is: Eleven Houses $ 3,475, Finished Lots 7,130,000 Total Standard Pacific Ownership $10,605,000 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 78

167 Individual Owners Value Conclusion In determining the value for the individually owned homes, we have considered the concluded base price value for the homes within Mission Grove which is considered a minimum market value. The concluded values are as follows: Plan 1 (9 x $355,740) $ 3,201,660 Plan 2 (16 x $358,192) 5,731,072 Plan 3 (17 x $393,705) 6,692,985 Plan 4 (17 x $400,200) 6,803,400 Total Individual Owners Value $22,429,117 In an additional review, we have reviewed the actual builder sales prices for the homes. Closings occurred within Mission Grove between November 2010 and February Sales began after the recent recession. The builder sales prices for the individually owned homes total $21,914,786. The concluded current market value for the homes of $22,423,717 is 2.3 percent above the reported sales prices. As discussed under the Riverside County Housing Market section prices are increasing with a year over year increase in the range of 23 (Southern California) to 25 (Inland Empire) percent. Over one-half of the homes sold in 2010 and 2011, prior to the increase in value. However, this is offset due to the options and premiums that are typically purchased with a home. It is our conclusion that the original builder sales prices further substantiate the concluded minimum market value for the individually owned homes. Tentative Tract Map Undeveloped Property The undeveloped property consists of a acre parcel with entitlements for 92 lots with a 13,000 square foot average lot size resulting in a density of dwelling units per acre. We have searched the area and found the seven undeveloped land transactions summarized in the Addenda to be most comparable to the subject property. The sales are reported both on a price per acre and a price per unit basis. Each transaction will be discussed followed by a comparison to the subject property. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 79

168 Data No. 1 refers to a rejected offer on the subject property. Per Standard Pacific representatives they were considering continuing their Mission Grove product on the adjoining property. They made an unsolicited offer to the landowner of $4,750,000 in late 2012 which was rejected by the owner. The owner declined to discuss the offer other than their planning on listing the property for sale in the next month or so. This rejected offer equates to $51,630 per lot and $135,714 per acre. Data No. 2 pertains to the recent escrow on the Kunny Ranch, a 143-acre property located a few miles north of the subject property in Riverside. Kunny Ranch is located along Overlook Parkway and offers good to excellent views from a significant number of the lots which are ½ acre minimum in size. The property was reportedly in escrow to DR Horton and was due to close by year-end 2012 prior to DR Horton cancelling the transaction. According to sources knowledgeable on the transaction DR Horton originally thought they could close by year-end but the due diligence took longer than anticipated and they cancelled the escrow. The owners took the property off the market and are anticipating listing it again later in The escrow was at $8,200,000 or $100,000 per lot in a raw condition and an estimated $235,000 per finished lot. The sales prices also equated to $57,343 per acre. This site is significantly different from the subject on a per acre basis. The subject is sloping near street grade while this property is hilly to mountainous. The subject TTM allows for average 13,000 square foot lots; significantly smaller than these ½ acre minimum lots with views. In comparison to the subject property this site is significantly superior in lot size and view potential, however inferior as it was a cancelled escrow and not a closed sale. Data No. 3 pertains to the sale of a 20-acre parcel which was previously graded located near the Santa Ana River and Alamo Street approximately 10 miles northwest of the subject property. The property had previously been graded with some lots in a finished condition. There were four model homes and three partially completed production homes. Per the seller, Wells Fargo Bank, they did not attribute value to the improvements as they were considering demolishing them in order to save on security and maintenance costs. The buyer was a foreign investor. There are a total of 79 lots with a minimum size of 7,200 square feet. The property was purchased for $4,400,000 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 80

169 which equates to $55,696 per lot and $220,000 per acre. In comparison to the subject property on a per acre basis this property had been mass graded which is considered to be significantly superior to the subject s raw condition. Data No. 4 refers to the sale of an acre parcel located along the east side of La Sierra in Riverside approximately 10 miles west of the subject property. The seller, One West Bank had taken the property back in foreclosure and sold the property to an investor in May of 2011 for $1,600,000 which equates to $143,369 per acre and $21,053 per lot. The property was in a raw condition with mapping in place. It is an infill parcel surrounded by existing development. The lots have a minimum lot size of 2,150 square feet. In comparison to the subject property, on a per acre basis this site is considered to be superior as it has a higher density than the subject (6.81 dwelling units per acre versus 2.63), however significantly inferior on a per lot basis due to the significantly smaller lots (2,150 square foot minimum versus 13,000 square foot average). Data No. 5 is in regards to the April 2011 sale of 333 acres of land which sold along McAllister Street, approximately one mile west of the subject. This site was purchased from One West Bank by CV Communities for $7,300,000 which equates to $21,922 per acre and $21,159 per lot. The overall density of the site is dwelling units per acre as compared to the subject s 2.63 dwelling units per acre. The site is hilly and will take a considerable amount of grading to develop. At time of purchase there was tentative mapping for 330 lots however the buyer is in the process of remapping the property for 345 lots and now has tentative approval. In comparison to the subject property this transaction is significantly larger in size which makes it inferior to the subject s 92 lots. That is, a typical tract has between 50 and 150 lots, thus this transaction would have been discounted due to the larger number of lots which will require carrying costs for a longer amount of time. In addition, this property is hilly to mountainous which is considered to be inferior to the subject s sloping topography. Data Nos. 6 and 7 refer to two recent closings of raw, mapped lands in the Jurupa Valley, approximately 15 miles west of the subject property. Both parcels are generally RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 81

170 level and near or at street grade of surrounding lands. The two transactions sold between $183,206 - $216,283 per acre and $57,555 - $68,965 per lot. On a per acre basis these two parcels are considered to be superior due to the level land which would require less grading than the subject s sloping terrain. On a per lot basis, again the development costs would typically be less due to less grading needed. The location of the Jurupa Valley varies from the subject s Riverside address however it is interesting to note that the median home sales price within each ZIP Code are within 1 percent with the subject zipcode s December 2012 median price at $298,000 and Jurupa Valley s at $296,000. While there is not a large quantity of market data, the comparable sales do create a picture of the mapped residential land sales within Riverside. The subject property has a current tentative map allowing for 92 single family detached lots. An offer was made by a homebuilder at $135,714 per acre which was rejected by the owner, however the property has not yet been offered on the open market. The market data suggest that the subject property has a value between $100,000 and $150,000 per acre. In reviewing the costs of development for the property this site is nearly financially unfeasible to develop at this time. That is, our concluded finished lot value is $155,000 while the estimated finishing costs are $151,374 per lot leaving little room for profit. The costs, however were estimated in 2007 with no updates per our knowledge. Raw land is still selling in the current market, even though finishing costs are currently higher than some finished lot values. In addition, an offer was made on the subject property. Based on current market conditions, the comparable sales and the subject property s tentative mapping and location, we have concluded that the subject property has an as is value of $100,000 per acre which calculates as follows: acres x $100,000/acre = $3,439,000 (say) $3,440,000 RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 82

171 APPRAISAL REPORT SUMMARY The appraisal assignment was to value the subject property within RUSD CFD No. 15 IA3. The subject property includes three residential tracts. The first, Tract was developed into 136 houses by Centex Homes with all homes originally sold by the builder in 2007 and The second, Tract encompasses 116 proposed houses within Mission Grove by Standard Pacific Homes. Approximately 2/3 of the houses are completed and sold to individuals. The third tract is Tentative Tract Map No which encompasses 92 proposed single family lots and is currently in a raw land condition. The homes appear to be in good 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. Re-sale information was also reviewed and utilized in the analysis. The valuation took into account the improvements/benefits to be funded by RUSD CFD No. 15 IA3 Series 2013 Special Tax Bonds. The concluded value for the subject property, subject to the special tax lien, is: Tract (Mission Ranch III Individual Owners) $40,132,801 Tract Standard Pacific Ownership $10,605,000 Individual Ownerships 22,429,117 Total Tract $33,034, Lots within Tract (KM Investments LLC) 3,440,000 Total Aggregate Value RUSD CFD No. 15 IA3 $76,606,918 The above values are stated as of said date of value and subject to the attached Assumptions and Limiting Conditions and Appraiser s Certification. RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 83

172 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) RUSD CFD No. 15 IA Series C Bonds Riverside Unified School District Kitty Siino & Associates, Inc. Page 84

173 ADDENDA

174 RUSD CFD NO. 15 BOUNDARY MAP

175

176 DISCOUNTED CASH FLOW ANALYSIS

177 Mission Grove Discounted Cash Flow MONTH MONTH 1 MONTH 2 MONTH 3 MONTH 4 TOTAL.... INCOME: Retail Sales $1,066,680 $1,066,680 $1,066,680 $1,066,680 $4,266,718 TOTAL INCOME $1,066,680 $1,066,680 $1,066,680 $1,066,680 $4,266,718 EXPENSES: Marketing & Carrying Expenses (8%) ($85,334) ($85,334) ($85,334) ($85,334) ($341,337) Profit (8%) ($85,334) ($85,334) ($85,334) ($85,334) ($341,337) TOTAL EXPENSES ($170,669) ($170,669) ($170,669) ($170,669) ($682,675) NET CASH FLOW $896,011 $896,011 $896,011 $896,011 $3,584,043 Discount Factor (15%) DISCOUNTED CASH FLOW $884,949 $874,024 $863,233 $852,576 $3,474,782 CUMULATIVE DISCOUNTED $884,949 $1,758,973 $2,622,206 $3,474,782 $3,474,782 CASH FLOW

178 UNDEVELOPED LAND SALES MAP AND SUMMARY CHART

179

180 UNDEVELOPED LAND SALES SUMMARY CHART Data No. Location/Buyer/Seller/APN 1 SWC Alta Cresta and Krameria, Riverside / Standard Pacific / KM Investments / Kunny Ranch; S/O Overlook Parkway and east of Washington Street, Riverside / DR Horton / MPLC Kunny Ranch (Mission Pacific) / thru 004; , 010 and 014; Alamo Street and Santa Ana River Trail, W/O 91 Freeway, Riverside / Sa Athnassia Llc / Wells Fargo Bank / , 331, 332 and various La Sierra Villas, E/S La Sierra between Campbell and Cypress Avenues, Riverside / Prev TMC La Sierra / LMV 10 Land Llc ( One West Bank) / , 044 and 046 and and 031 Lake Mathews Terminus of Harrison Street; W/O McAllister Street and N/O El Sobrante Road, Unincorporated Riverside County / CV Communities / One West Bank / , , 006; , 11, 12, 14 and 15 NEC Etiwanda & Bellegrave, Jurupa Valley / Ws-jse Investments / IDI / , 51 and 52 NS Bellegrave between Wineville & Etiwanda, Jurupa Valley / Lennar Homes / Pharris / Sales Date Rejected Offer Escrow Cancelled in 11/12 # Acres # of Lots / Density / / / / / / / / 0.94 Sales Price Price/Acre Price/Unit / Est. F/L $4,750,000 $135,714 $51,630 / N/A $8,200,000 $57,343 $100,000 / $235,000 $4,400,000 $220,000 $55,696 / N/A Project Name / Comments Unsolicited verbal offer from adjoining landowner. Sellers stated they would take property to open market and see what happens. Was suppose to close by 2012 year end however deal fell apart due to not enough time for due diligence. Purchase included 4 models and 3 partially completed homes. Per seller no value was attributed to completed homes as they were looking at demolishing to save security costs. Purchased by investor. $1,600,000 $143,369 $21,053 / Previously graded site for small lots located in Riverside on La Sierra Ave.. $7,300,000 $22,121 $20,857 / $157,000 12/ $24,000,000 $183,206 $57,555 / 155,000 10/ $14,000,000 $216,283 $68,965 / $155,000 Hillside mountainous property known as Lake Matthews Country Club. Existing drainage channel bisects this property. Mapped and in raw condition. Property has sewer issues. Price assumes CFD on the property. Property purchased in raw land condition with mapping in place. Lennar purchased for new residential development. Price assumes CFD on the property.

181 FINISHED LOT LAND SALES MAP AND SUMMARY CHART

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