BRADENTON, Fla. – When Brenda Taylor bought a home in a development for Florida seniors, she never dreamed of coming out of retirement to fight a bond validation in court.
Taylor and William Mann, who both live in Solivita near Orlando, are contesting plans by the two community development districts that comprise their retirement community to issue up to $102 million of tax-exempt bonds.
The Poinciana CDD and the Poinciana West CDD plan to use $73.7 million of the bond proceeds to purchase 17 existing amenities such as pools, parks, and restaurants that are owned by the developer, Avatar Properties, an affiliate of AV Homes.
Solivita residents will be charged assessments on their tax bills for 30 years to pay debt service on the bonds.
“We came down to retire,” said Taylor, who moved to Florida with her husband from Maryland in November 2015. “Here we are today trying to keep the CDD from paying an illegal profit to AV Homes for these 15-year-old amenities."
Taylor said she and Mann objected to the CDDs purchasing the amenities – most of which are between 10 and 15 years old – after obtaining an appraisal that shows the purchase price is inflated by about $53 million.
“We’re hoping the court will understand what’s going on,” she said.
In addition to buying the existing recreational facilities, the CDDs also inked a deal with AV Homes to build a 500-to-1,000 seat performing arts building and a fitness center.
Documents posted on the CDD websites state that the districts’ deal with the developer will require the issuance of $93.5 million of bonds, including costs of issuance, although the final amount depends on market conditions.
Taylor said she joined about 1,500 residents in signing a petition in an attempt to convince the CDD supervisors to obtain a real estate appraisal for the amenities they planned to purchase.
“They refused to do it,” she said, adding that residents raised money to hire an attorney and Urban Economics Inc., of Tampa, to appraise the existing amenities, which were built between 2000 and 2005, according to court documents.
Urban Economics concluded that the improved properties had a fee simple interest market value of $19.25 million, the firm said in an April 11 opinion.
Court documents and district records paint a different picture of how the amenities are being valued by the CDDs and AV Homes.
The amount to be financed with bonds for the existing amenities was developed in an asset valuation study, “upon which to base an indicated maximum acquisition value,” according to an assessment by Environmental Financial Group Inc., of California.
“EFG was instructed by the [CDD] boards to utilize income-based valuation methods to capitalize net available 2016 club fee revenue into an acquisition value,” the firm said in a September report written on behalf of the CDDs.
The total club fee includes an amount collected by the developer, in addition to funds that pay for operations and maintenance.
Residents plan to argue the income valuation approach is improper because it is based on collecting the club fee over the next three decades, and a portion of the fee structure will end after the bonds are issued, according to court documents.
“Due to the fact that we are in active litigation, I must decline to discuss the bond validation at this time,” said Bob Zimbardi, chairman of the board of supervisors for the Poinciana Community Development District, which will issue the bonds on behalf of both districts.
Poinciana West CDD chairman Charlie Case also declined to comment saying, “The advice of council is to not respond to these inquiries.”
An attorney for Gary Shullaw, the executive vice president and general counsel for AV Homes, said Shullaw was traveling and unavailable to comment for this story.
Polk County Circuit Court Judge Glenn Shelby has scheduled a three-day bond validation hearing to begin Wednesday.
“In the bond validation case, our clients urge the court to deny the CDD’s effort to pay $73.7 million for the community amenities that are appraised for $19.25 million. This amounts to a $54 million excess payment of illegal profit to a developer,” said J. Carter Andersen, an attorney with Bush Ross PA in Tampa, representing Taylor and Mann.
“Our clients intend to prove that the developer convinced the CDD to use an inappropriate valuation method whereby the developer would be paid a lump sum $73.7 million cash payment to terminate the Club Plan based upon an illegal Club Membership Fee, and it is improper for a CDD to use tax-exempt bonds to pay to a developer the present value of 30 years worth of illegal future profits,” Andersen said.
Andersen is also representing Taylor, Mann and a third resident, Norman Gundel, in a separate class-action lawsuit filed April 27 in Polk County Circuit Court.
The class-action complaint argues that an $85 per month club membership fee – a portion of the charge homeowners pay for amenities to AV Homes - violates Florida’s Homeowners' Association Act and the state’s Deceptive and Unfair Trade Practices Act.
AV Homes and Avatar filed a motion to dismiss the complaint, contending they are not homeowners’ associations.
Florida has 631 active community development districts, according to the Florida Department of Economic Opportunity’s Division of Community Development Special District Accountability Program.
CDDs are governed by Chapter 190 of Florida statutes. The law gives developers the authority to establish CDDs and issue tax-exempt bonds to finance infrastructure such as roads, water and sewer systems, and recreational amenities.
If Poinciana’s $102 million of bonds are validated, the deal could be the largest of its kind this year.
So far this year, 12 Florida CDDs have issued bonds – three sold as bank bonds – for a total of $256.3 million, according to Thomson Reuters data.
The largest single deal, $74.06 million, was sold by the Miami World Center CDD in February, the data says.
Poinciana’s two CDDs cover 4,189 acres. AV Homes had sold 4,258 home sites of the 5,589 residences planned as of Dec. 31, according to its annual report filed with the Securities and Exchange Commission.
The Poinciana CDDs entered an agreement with AV Homes to fund some of the studies and professionals involved with the bond deal to be discussed in next week’s validation hearing, according to minutes of district meetings and related documents.
The asset sale and purchase agreement contract establishes a price of $73.7 million for the existing amenities.
The income-approach to valuing the price of the amenities is based on fees the CDD property owners pay “by virtue of master covenants and restrictions” to Avatar Properties Inc., court filings said.
“The amenity fee allows such persons access to the amenities within the districts and pays for the operations and maintenance of the facilities,” the filing said. “The proposed acquisition of the improvements by PCDD will eliminate the amenity fees payable to Avatar Properties Inc. and will replace them with debt service special assessments in substantially the same annual amount payable to the districts.”
Earlier this year, in a joint meeting of the Poinciana CDDs, supervisors heard a presentation from their financial advisor, Public Resources Advisory Group.
Tony Iorio, who attended district meetings representing AV Homes, encouraged board members to adopt property assessments for the planned bond issue using higher figures than were suggested by the district’s consultant, Environmental Financial Group.
Iorio later withdrew the suggestion, and the district agreed to assessments recommended by EFG, according to meeting minutes.
Emails filed with court records also show that at least one district board member was concerned about whether the CDDs should obtain an independent real estate appraisal to support the size of the bond issue.
In a March 25 email to district manager Gary Moyer, Poinciana CDD vice chairman LeRue “Skip” Stellfox wrote that his experience living previously in the central Florida Villages CDD “dictated” that Poinciana should obtain an outside appraisal.
Stellfox’s email included a 2009 Bond Buyer article about the Internal Revenue Service questioning whether the Villages CDD improperly issued tax-exempt bonds in an amount based on overvalued amenities that were purchased from developer Gary Morse, who died in October 2014.
The Villages also used an income-based approach to value the price of its recreational facilities, according to a 1996 opinion on the value of district facilities prepared by the consulting firm Fishkind & Associates.
After an investigation that went on for years, the IRS concluded that the Villages district did not overpay for the amenities it purchased with tax-exempt bonds, although the inquiry led the IRS in 2013 to rule that Florida CDDs are not political subdivisions that can issue tax-exempt bonds.
The decision, handed down in a 12-page technical advice memorandum, was sent to the Village Center CDD calling into question approximately $364 million of bonds that could be declared taxable.
The memorandum also threw into question the status of all Florida CDDs.
In 2015, the Village Center redeemed the tax-exempt bonds in question, and the IRS subsequently closed its audit telling the CDD, “We have concluded that closing this examination without further IRS action supports sound tax administration.”
The IRS has taken no further action since the technical advice memorandum was issued.
In next week’s bond validation hearing, residents challenging Poinciana’s deal said they will ask the court to determine if the districts have properly valued the cost of the amenities being purchased.
Since 2000, the developer has been collecting from all unit owners within the districts “club dues” pursuant to a recorded club plan, according to pre-trial documents filed Monday.
“The districts’ consulting firm calculated the present value of 30 years of unit owners’ club membership fees to be $73.7 million and the districts are proposing to pay the developer this amount for the purported acquisition of real property that has an appraised value of $19.25 million,” the filing said.
“This court should not allow the districts to disguise prepayment of 30 years of club membership fees (which the developer keeps as private profit) as acquisition of real property,” said the filing, which also questions the CDD’s plan to finance an additional $11.2 million for capital improvements “that was not competitively bid.”
Taylor said Tuesday that residents of Solivita paid for an appraisal with the hope of showing the CDD supervisors that they should “pull the deal off the table” and continue negotiations with AV Homes over the price of the amenities.
“I’m hoping that maybe there will be some meeting of the minds on this, and that something can be worked out,” she said. “I just hope the CDD does what’s right by us."
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Corrected June 13, 2017 at 12:00PM: The original version of this article should have said the financial advisor for the Poinciana Community Development Districts is Public Resources Advisory Group, and that AV Homes representative Tony Iorio initially suggested the CDDs adopt higher assessment levels than recommended by the district’s consultant, Environmental Financial Group, before withdrawing the request.