LOS ANGELES — A master-planned community in Cathedral City, Calif., has drawn on reserves twice this year to make bond payments on $12.3 million in community facility district special tax bonds, according to an a filing on the Municipal Securities Rulemaking Board's EMMA website.
A $168,367 draw was made on the reserve fund on March 1 to make a $371,720 debt service payment, according to a
Now at $618,670, the reserve fund is below the required $1.2 million, according to the disclosure posting.
Cathedral City Community Facilities District No. 2000-1 sold the bonds to build infrastructure in the Verano tract in 2000. The unrated bonds are not considered a debt of the city.
"The unscheduled draw is due to a higher than anticipated delinquency rate in the district because the major property owners have not been paying taxes for several years," according to a Sept. 9 disclosure notice.
The bonds are not in default, according to Tami Scott, administrative services director for the city of 50,000. She added that the reserves will likely be replenished when Riverside County passes on taxes collected for the city in January.
Despite the tax delinquencies that began with one property in 2006 — and rose to 20 properties behind on taxes as of Aug. 21, 2013 — this is the first time the CCD has drawn on reserves to make bond payments, according to bond documents.
The master developer ran into problems in 2005-06 when the single-family home market began to crater, Scott said. Other developers tried to resuscitate the project, but timing worked against them when the recession hit, she said.
"This is a prime piece of property," Scott said. "It has good homes built by the merchant builders."
Inland Community Corp., more of a newcomer to the project, has been working hard to resuscitate the project, Scott said. Much of the infrastructure is completed, as is the community center and a park. Verano already has an active homeowner's association with a Facebook page.
The Los Angeles-based residential land development company develops everything from raw land to finished lots and also lists non-performing loans secured by distressed residential land assets as a specialty. Verano, rebranded from its original name of Rio Vista Village Project, is among its projects.
Burnett Development Corp. began construction on the project in late 1999 and completed most of the back-bone infrastructure in the first four phases of the master-plan, according to information on IComm's website. Burnett began to have financial troubles in 2002; and World Development took over as master developer the following year. Sections of the project were sold to merchant builders including Ashbrook Communities, Stone Pacific and DR Horton. World Development partnered with Capstone Advisors in 2004 as an equity partner.
Jim Ahmad, IComm's chief executive officer, would not say how much of the master-planned community his company owns, but confirmed that it is acquiring lots and working with the city to try to "save this project from imploding."
The project's delinquency issues arose in 2006-07 when the first of the 342 parcels being levied failed to pay property taxes.
The city has spent the past year going through a foreclosure process on many of the parcels to reclaim owed taxes, according to documents. It hired law firm Green, de Bortnowsky & Quintanilla, LLP to handle the foreclosures.
"We have not defaulted on the debt service," Scott said. "The city has completed the foreclosure process on many of the parcels over the past 90 days."
The foreclosed parcels are being resold to developers. Scott did not know, and the bond documents do not disclose, how many of the planned 1,362 homes have been completed. She said that 342 parcels have tax levies.
The city completed the foreclosure process on 13 of the 20 delinquent parcels. Once that process is completed the parcels can be sold to developers through a foreclosure process conducted by the sheriff.
Voters approved $20 million in the so-called Mello-Roos bonds for the special district. The city had planned to issue a second tranche in the $6 million range.
