The master-planned community includes Esencia Farm, a community farm where residents can grow vegetables and fruit trees.

LOS ANGELES — An Orange County, Calif., community facilities district plans to issue up to $115 million in unrated bonds in September to pay for infrastructure in one phase of a project that is the last major undeveloped chunk of buildable land in the county.

The bonds will be issued for Phase 2.2 of a multi-phase mixed-use development on 22,818-acres that will bring 14,000 new homes and 5 million square feet of retail, office and light industrial space to the county's southeastern corner.

The county anticipates forming new community facilities districts each year over the next decade that would issue bonds to pay for roads, sewer and water as Rancho Mission Viejo moves through construction phases, officials said.

"The ranch project represents the last major private residential and mixed-use project to be built in Orange County," said Lisa Bartlett, chair of the Orange County Board of Supervisors.

The affluent county, which had more than 3 million residents as of the 2010 census, is nearly built out.

Only 6,000 acres or 25% of the land will be developed over the life of the 20-year project. The remaining 17,000 acres of The Ranch will be retained for cattle grazing and open space preservation as The Reserve at Rancho Mission Viejo, which will grow over time and be combined with county land to form a 33,000-acre reserve.

The land has been owned by the O'Neill/Avery/Moiso family since 1882. It will intersperse walking trails, parks and open space with playgrounds, housing, childcare centers. It will also include community farms for residents.

The master-planned community at build out will include 6,000 homes for 55-plus residents and affordable housing in later phases.

The upcoming $115 million bond issuance planned for September would be issued through Community Facilities District 2016-1, which was formed March 22 through a vote of the county's board of supervisors.

That CFD is phase 2.1 of The Village of Esencia, an 890 acre parcel of the master-planned project that will have 2,810 houses, 262 apartments, a K-8 school and a children's day care center.

Nearly $91 million in bonds were issued for Community Facilities District 2015-1 in October, to support already constructed infrastructure for Esencia's Phase 2.1.

The CFD issues the debt and the Board of Supervisors is the legislative body of the CFD.
Bond payments will eventually come from special taxes added to the property tax bill of homeowners and commercial property owners in the district.

As the CFD administrator, Luster said, the county may exercise the judicial foreclosure provision, if necessary, sell the property and pay off the bonds.

"That is less likely here since we are not dealing with one landowner," Suzanne Luster, Orange County's public finance director.

"We have one master developer landowner and approximately eight home builder landowners, and then eventual residents as homes are sold."

Orange County community facility districts also have a solid track record of making bond payments.

"The 25 community facilities districts created by the county since 1986 have never had defaults or to foreclose on any properties," Luster said.

The finance team will be the same one that issued $90 million in bonds in October for Phase 2.1 of Esencia.

The underwriting team is comprised of Piper Jaffray as bookrunner and Stifel Nicolaus & Co. as co-underwriters. Alamo Securities is the selling group member. Stradling Yocca Carlson & Rauth are disclosure counsel. Fieldman Rolapp & Associates is the financial advisor.

California dirt bonds in general have attracted a lot of interest from investors over the past few years.

Luster said investors like the bonds because of the Orange County name, the county's coastal location, higher yield associated with land-secured bonds and the excellent track record of the county and the developer, over decades, for this type of financing.

The owners also developed Ladera Ranch, another master-planned community located in near Orange County's coastal cities of San Juan Capistrano and Dana Point.


Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.