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04-1 Official Statement
NEW ISSUE NO RATING BOOK-ENTRY ONLY SYSTEM In the opinion of Orrick, Hering[on & Sutcliff LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions and assuming (among other things) wmpliance with certain covenants, interest on the Bonds is excluded from gross income for federal tax purposes and is exempt from State of California persona( income taxes. [n the opinion of Band Counsel, interest on the Bonds is not a specific preference item for purposes of [he federal individual and corporate altema[ive minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences caused by the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See "TAX MATTERS." $4,195,000 - CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. 04-1 (COUNTRYSIDE/`['IIE HOMESTEAD/CHERRY HHSJOLIVE PARK HI) LIMITED OBLIGATION IMPROVEMENT BONDS Dated: Date of Delivery Due: September 2, as shown below The Bonds described herein (the "Bonds") are special, limited obligation bonds being issued by [he City of Bakersfield, California (the "City"), to finance the acquisition of certain public improvements specially benefiting properties located within the boundaries of the City's Assessment District No. 04-1 (Countryside/The HomesteadlCherry HilllOlive Park III) (the "Assessment District"). The Assessment District was formed and Cha acquisition of [he improvements will be undertaken as authorized under the provisions of the Municipal Improvement Act of L913 (bivision 12 of the Califomia Streets artd Highways Code) and Section 13.08.070 of the Municipal Code of the City. The Bonds are being issued pursuant to the provisions of the Improvement Bond Act of 1915 (Division 10 of the Califomia Streets and Highways Code) (the "1915 Act"). The Bonds are issuable only as fully registered Bonds in the denomination of $5,000 each or any integral multiple thereof. Principal, interest at maturity or upon earlier redemption, as applicable, and premium, if any, with respect tc the Bonds will be payable upon presentation and surrender thereof at the corporate trust office of U.S. Bank National Association, the paying agent, registrar, and transfer agent for the Bonds (the "Paying Agent"), in St. Paul, Minnesota. Interest on the Bonds (other than the final payment of interest, which is payable upon surrender of the Bonds) will be payable from their date of delivery, commencing September 2, 2005, and thereafter semiannually on Mazch 2 and Soptember 2 (each an "Interest Payment Date") in each year by check of the Paying Agent mailed on each Interest Payment Date to the persons in whose names such Bonds are registered a[ the close of business on the fifteenth day of the calendar month immediately prior to an Interest Payment Date (or, N the case of an owner of ai least $1,000,000 in principal amount of the Bonds who so requests in writing prior to the close of business on the fifteenth day of the month immediately preceding such Interest Payment Date, by wire transfer). The Bonds will be issued initially in book-entry only form through the book-entry system of The Depository Trust Company, New York, New York. See "BOOK-ENTRY ONLY SYSTEM." The Bonds are subject to redemption on any Interest Payment Date in advance of maturity at the option of the City upon giving at least thirty (30) days prior notice and upon payment of the principal thereof and interest accrued [hereon to the date of redemption, plus any applicable redemption premium, as more fully described herein. Further development of parcels within the Assessment District, transfers of property ownership, and other similar circumstances could result in prepayment of all or part of the assessments. Suoh prepayment would result in redemption of a portion of the Bonds prior to [heir stated maturities. Under the provisions of the 1915 Act, installments of principal and interest sufficient to meet annual debt service requirements with respect to the Bonds shall be included on the regular Kern County taz bills sent to owners of properly against which [here aze unpaid assessments. The portion of the annual installments for the payment of principal of and interest on the Bonds is to be paid into [he Redemption Fund, to be held by [he Finance Directoz, and will be used to pay debt service on the Bonds as it becomes due. To provide funds for payment of the Bonds and the interest thereon as a result of any delinquent assessment installments, the City will establish a Special Reserve Fund and deposit therein Bond proceeds in the original amount of $341,545. Additionally, the City has covenanted that, under certain circumstances, by no later than October 1 in any year, it will file an action in superior court to foreclose the lien on each delinquent assessment, as more particularly described herein. IF A DELINQUENCY OCCURS IN THE PAYMENT OF ANY ASSESSMENT INSTALLMENT, THE C[TY W[LL HAVE A DUTY ONLY TO TRANSFER INTO THE REDEMPTION FUND THE AMOUNT OF THE DELINQUENCY OUT OF THE SPECIAL RESERVE FUND. THIS DUTY OF THE CITY IS CONTINUING DURING THE PERIOD OF DELINQUENCY, ONLY TO THE EXTENT OF FUNDS AVAILABLE FROM THE SPECIAL RESERVE FUND, UNTIL REINSTATEMENT, REDEMPTION, OR SALE OF THE DELINQUENT PROPERTY. THF.RR IS NO ASSURANCE THAT SUFFICIENT FUNDS WILL BE AVAILABLE FROM THE SPECIAL RESERVE FUND FOR THIS PURPOSE. THUS, IF, DURING THE PERIOD OF DELINQUENCY, THERE ARE INSUFFICIENT AVAILABLE FUNDS, A DELAY MAY OCCUR IN PAYMENTS TO THE OWNERS OF THE BONDS. [N ACCORDANCE WITH SECTION 8769(6) OF THE 1915 ACT, THE CITY HAS DETERMINED THAT IT W [LL NOT OBLIGATE ITSELF TO ADVANCE FUNDS FROM ITS TREASURY.TO CURE ANY DEFICIENCY IN THE REDEMPTION FUND. This cover page contains certain information for quick reference only. II is not a summary of the issue. Investors must read the entire Official Statement to obtain inFormatiw essential to the making of an informed investment decision. MATURFI'Y SCHEDULE Maturity Principal hderest Maturity Principal Interest (September 2) Amount Rate Price CUSIPfO Na (September 2) Amount Rate Price CUS~tO No. 2006 $155,000 2.500% 100.606Ta 057510 YMS 2016 $220,000 4.6064'0 100.000 057510 YXl 2007 160,000 2.700 160.000 057510 YN3 2017 230,000 4.700 100.000 057A0 YY9 2008 165,000 3.060 tOO.lHIO 057510 YPB 2018 240,000 4.800 100.060 057510 YZ6 2009 170,000 3.350 100.000 057510 YQ6 2019 250,000 4.906 100.000 057510 ZAO 2010 175,000 3.650 100.0 057510 YR4 2020 265,000 4.950 100.000 057510 ZB8 2011 186,000 3.850 SOO.WO 057510 YS2 2021 280,000 5.050 100.000 057510 ZC6 2012 185,O1H1 4.000 100.000 -057510 YTO 2022 290,000 S.I00 100.000 057510 ZD4 2013 195,000 4150 100.000 051510 YU7 2023 305,000 5.150 100.000 057510 ZE2 2014 200,000 4.300 100.060 057510 YVS 2024 320,000 5.200 160.000 057510 ZF9 2015 210,E 4.450 100.000 057510 YW3 (1) Copyright 2005, American Bankers Association. CUSIP data herein is provided by Standard & Poor's CUSIP Service Bureau,adivisioa of Th"e McGraw-Hill Companies, Inc. This data is not intended to create a database and does no[ serve in any way as a substitute for tha CUSIP services. THE BONDS ARE NOT SECURED BY THE GENERAL TAXING POWER OF THE CITY, THE COUNTY OF KERN (THE "COUNTY"), THE STATE OF CALIFORNIA (THE "STATE"), OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE, AND NEITHER THE CITY, NOR THE COUNTY, NOR THE STATE, NOR ANY OTHER POLITICAL SUBDIVISION OF THE STATE HAS PLEDGED ITS FULL FAITH AND CREDIT FOR THE PAYMENT OF THE BONDS. The Bonds are being o,~ered when, as, and if issued by the City and received by the Underwriter, subject to prior sale and to the approval ojvafidity by Orrick Herrington & Sutcliffe LLP, Sarz Frarscisco, California, Bond Counsel, and the approval of certain matters jor the City by the City Attorney of the City of Bakersfield. Certain other legal matters will be passed an by Pillsbury B tnthrop LLP, Los Angeles, California, as disclosure counsel to the City. Stradfing, Yocca, Carlson & Routh, Newport Beach, Cafifornia, has represented the Underwriter in connection wish the issuance of the Bonds. It is expected that the Bands in definitive form will be available for delivery in New York New York on ac about February 9 2005. UBS FINANCIAL SERVICES INC. Dated: January 27, 2005 No dealer, broker, salesperson, or other person has been authorized by the City or the Underwriter to give any information or to make any representations 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 any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the Bonds, nor shall there be any sale of the Bonds, by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. This Official Statement is not to be construed to be a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts, or matters of opinion, whether or not expressly described herein, are intended solely as such and are not to be construed as representations offact. The information set forth herein has been obtained from the City and other sources which aze believed to be reliable, but it is not guaranteed as to accuracy or completeness, and it is nat to be construed as a representation by the City. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the City or the Assessment District since the date hereof: 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 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. This Official Statement is submitted in connection with the sale of the Bonds ieferred to herein and may not be reproduced or used, in whole or in part, for any other purpose. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERAL,LOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAIN'T'AIN Ti3E MARKET PRICE OF THE BONDS AT A LEVEL ABOVE `T'HAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. .. _ . 4~' ~~ Regola8 -. e ... CITY OF BAKERSFIELD Mavor and Citv Council Harvey L. Hall, Mayor '. Irma Carson, Councilmember First Ward Susan M. Benham, Councilmember Second Ward Mike Maggard, Vice Mayor, Councilmember Third Ward David R. Couch, Councilmember Fourth Ward Harold Hanson, Councilmember Fifth Ward Jacquie Sullivan, Councilmember Sixth Wazd Zack Scrivner, Councilmember Seventh Ward City Staff I Alan Tandy, City Manager Virginia Gennaro, City Attorney ~ Pamela A. McCarthy, City Clerk Raul M. Rojas, Public Works Director ' j Gregory J. Klimko, Finance Director BOND COUNSEL Omck, Herrington & Sutcliffe LLP San Francisco, California ASSESSMENT ENGINEER Wilson & Associates Fresno, California PAYING AGENT, REGISTRAR, AND TRANSFER AGENT U.S. Bank National Association Los Angeles, California ~ PROPERTY APPRAISER Kern Appraisal Company Bakersfield, California DISCLOSURE COUNSEL Pillsbury Winthrop LLP j Los Angeles, California i ,_ _ _. . TABLE OF CONTENTS Page INTRODUCTORY STATEMENT ...............................................................................................................................1 The Bonds ..............................................................................................................................................................1 The Assessment District .........................................................................................................................................1 Property Ownership ................................................................................................................................................1 Improvements ......................................................................................................................................................... 3 Assessments ............................................................................................................................................................3 Appraisal ............................................................................................................. ................................................... 3 Security for the Bonds ......................................................................................... ...................................................4 Special Reserve Fund .......................................................................................... ...................................................4 Foreclosure .......................................................................................................... ...................................................4 Assessment Delinquencies .................................................................................. ...................................................4 Book-Entry Only System .................................................................................... ...................................................5 Continuing Disclosure ......................................................................................... ...................................................5 Forward-Looking Statements .............................................................................. ...................................................5 Miscellaneous ...................................................................................................... ....... :...........................................5 ESTIMATED SOURCES AND USES OF FUNDS .................................................. .........................._....................._6 THE BONDS ................................................................................................... ..............................................................6 Purpose of the Bonds ................................................................................ ..............................................................6 Authority for Issuance .............................................................................. ..............................................................6 General ..................................................................................................... .............................................................. 7 Transfer and Exchange ofBonds .............................................................. ..............................................................7 Bonds Mutilated, Destroyed, or Lost ................................................................................................................. .....8 Redemption ....................................................................................................................................................... .....8 Effect of Redemption; Defeasance .................................................................................................................... .....8 Refunding Bonds ............................................................................................................................................... .....9 Disposition of Surplus from the Improvement Fund ......................................................................................... .....9 Investment of Bond Proceeds ............................................................................................................................ .....9 Security for the Bonds ....................................................................................................................................... ...10 Special Reserve Fund ........................................................................_.............................................................. ...10 Redemption Fund Deficiencies ..............................................................................._........................................ ... I I Covenant to Commence Superior Court Foreclosure ........................................................................................ ...12 Priority of Lien .................................................................................................................................................. ...12 Tax Covenants ................................................................................................................................................... ...13 Debt Service Schedule ....................................................................................................................................... ...14 BOOK-ENTRY ONLY SYSTEM ........................................................................................................................... ...14 THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS .......................................................................... ...16 General .............................................................................................................................................................. ...16 Description of the Community Areas and the Improvements ........................................................................... ...17 Estimated improvement Costs ........................................................................................................................... ...20 Method of Assessment Spread .......................................................................................................................... ...21 OWNERSHIP AND PLANNED FINANCING AND DEVELOPMEri'I' OF THE ASSESSMENT DISTRICT... ...22 Ownership of Property in the Assessment District ............................................................................................ ...22 Centex Homes ................................................................................................................................................... ...23 Gardiner LLC .................................................................................................................................................... ...24 Bakersfield Avalon ............................................................................................................................................ ...25 Olive Park Land Company ................................................................................................................................ ...25 Development and Financing Plans .................................................................................................................... ...26 Assessment Rol1 ................................................................................................................................................ ...31 Utilities .............................................................................................................................................................. ... 31 Flood and Earthquake Zones ............................................................................................................................. ...31 Zoning ............................................................................................................................................................... ...31 Tax Delinquencies ......................................................................................... Envirorunental Issues Affecting Assessment District Property ..................... Bulk Value-to-Assessment Lien Ratio .......................................................... Direct and Overlapping Debt ......................................................................... SPECIAL RISK FACTORS ................................................................................. General .......................................................................................................... Risks of Real Estate Secured Investments Generally .................................... Concentration of Ownership .......................................................................... Property Values ................................................................................................ Availability of Funds to Pay Delinquent Assessment Installments .................. Hazardous Substances ...................................................................................... Endangered and Threatened Species ................................................................ Factors Which May Affect Land Development ................................................ Private Improvements; Increased Debt ............................................................. Subordinate Debt; Payments by FDIC and other Federal Agencies ................. Tax Delinquencies ............................................................................................ Limited Obligation of the City Upon Delinquency .......................................... Rankmntrv and FnrPnlnenre Economic, Political, Social and Environmental Conditions ....................... Articles XIIIA and XIIIB of the California Constitution ............................ Articles XIIIC and XIBD of the California Constitution ............................ Future Initiatives .............................._......................................... Covenant to Commence Superior Court Foreclosure ................. Ptice Realized Upon Foreclosure ............................................... Priority of Lien ................................................ 39 ................................................. 40 .....................................................41 ....................................................41 .................................................... 42 ....................................................43 ..................................................43 ....................................................44 ..................................................................................................................................................... 45 Refunding Bonds ..................................................................................................................................................45 Absence of Market for Bonds ................................................................. Loss of Tax Exemption .......................................................................... ENFORCEABILITY OF REMEDIES .......................................................... NO LITIGATION .......................................................................................... CERTAIN INFORMATION CONCERNING THE CITY ........................... TAX MATTERS ........................................................................................... APPROVAL OF LEGALITY ....................................................................... UNDERWRITING ........................................................................................ NO RATING ...............................................................................................................................................................47 CONTINUING DISCLOSURE ...................................................................................................................................47 MISCELLANEOUS ....................................................................................................................................................48 APPENDIX A -CITY OF BAKERSFIELD ECONOMIC, FINANCIAL, AND DEMOGRAPHIC INFORMATION....._ ........................................................ ..............................A-1 APPENDIX B -APPRAISAL ..................................................................................................... ..............................B-1 APPENDLY C -FORM OF OPINION OF BOND COUNSEL .................................................. .._.......................... C-1 APPENDIX D -ASSESSMENT DIAGRAM ............................................................................. ..............................D-1 APPENDIX E -ASSESSMENT ROLL AND VALUE-TO-LIEN DATA ................................. ..............................E-1 APPENDIX F -CONTINUING DISCLOSURE CERTIFICATES ........................................._ ............................... F-1 ,.. ; , OFFICIAL STATEMENT $4,195,000 CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. 04-1 (COUNTRY5IDEITHE HOMESTEADICHERRY HILL/OLIVE PARK III) LIMITED OBLIGATION IMPROVEMENT BONDS INTRODUCTORY STATEMENT THIS INTRODUCTORY STATEMENT 15 SUBJECT IN ALL RESPECTS TO THE MORE COMPLETE INFORMATION IN THIS OFFICIAL STATEMENT, INCLUDING THE COVER PAGE AND APPENDICES HERETO, AND THE OFFERING OF THE BONDS TO POTENTIAL INVESTORS IS MADE ONLY BY MEANS OF THE ENTIRE OFFICIAL STATEMENT. The Bonds The purpose of this Official Statement, which includes the cover page and the appendices hereto, is to set forth certain information concerning the issuance and sale by the City of Bakersfield, California (the "City"}, of $4,195,000 in principal amount of its City of Bakersfield, Assessment Dis[det No. 04-1 (Countryside/The HomesteadlCherry Hill/Olive Park III), Limited Obligation Improvement Bonds {the "Bonds"), for Assessment District No. O4-I {CountrysidelThe HomesteadlCheny Hill/Olive Park III) {the "Assessment District"). The Bonds are issued pursuant to the Improvement Bond Act of 1915, being Division 10 of the California Streets and Highways Code (the "191 Act"}, the Charter and Municipal Code of the City, and Resolution No. 005-OS adopted by the City Council of the City {the "City Council") on January 12, 2005 (the "Bond Resolution' ). The Assessment District The Assessment District was formed and the assessments are being levied in accordance with the Municipal Improvement Act of 1913, being Division 12 of the California Streets and Highways Code (the "1913 Act"), and Section 13.08.070 of the Municipal Code of the City. Proceedings for the formation of the Assessment District were commenced by the City Council pursuant to property owner petitions filed by Centex Homes, a Nevada general partnership ("Centex Homes"), J&L Gardiner, LLC, a California limited liability company ("Gardiner LLC', Cheny Hill, Inc., a California corporation ("Cherry Hill, Inc."), and Olive Park Land Company, a California corporation {"Olive Park Land Company"), as the owners at the date of the filing thereof of more than 60% of the assessable land within the Assessment District. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Assessment District is comprised of four separate community areas in northwest Bakersfield that are identified as (i} the "Countryside Area," (ii) "The Homestead Area," (iii} the "Cherry Hill Area," and (iv) the "Olive Park III Area" (calleetively, the "Conununity Areas"). The Assessment District boundaries are shown on the assessment diagram, a copy of which is attached hereto as APPENDIX D. For a further description of the Assessment District and the Community Areas, see "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -General." Property Ownership Centex Homes owned approximately 49.02% of the assessed property in the Assessment District at the time petitions to form the Assessment District were filed by the applicable property owners, all of which property comprises the Countryside Area. As of January 14, 2005, Centex Homes has opened escrows to sell 73 homes to individuals, which are expected to close by July 1, 2005. Gardiner LLC currently owns approximately 35.08% of the assessed property in the Assessment District, all of which property comprises The Homestead Area. Gardiner LLC intends to retain one previously developed Y..... ..._ _. _..-.. .. ..:.. residential lot, upon which is located The Gardiner family home and which is exempt from the levy of assessments ', by the Assessment District. Gardiner intends to improve and sell the remainder of its property in The Homestead Area to merchant builders. Gardiner LLC has entered into an Agreement of Purchase and Sale with Escrow Instmctions, dated as of March 29, 2004 (the "Lennar Purchase Agreement"), with Lennar Homes of California, Inc., a California corporation ("Lennar"). Pursuant to the Lennar Purchase Agreement, Lennar has the right to purchase 117 R-I lots (as defined herein) in The Homestead Area, representing approximately 12.41% of the assessed property in the Assessment District, in one or more takedowns. Each takedown is contingent upon Gardiner LLC improving the requisite number of lots to a "finished lot" condition. "Finished lots" are defined in the Lennar Purchase Agreement to mean lots that are subject to a recorded final subdivision map and that have been graded, for which all wet and dry utilities are available, and for which other designated public and private improvements have been completed. If any of the required contingencies set forth in the Lennar Purchase Agreement are not satisfied, Lennar may cancel the Lennar Purchase Agreement. Lennar intends to develop its lots pmchased in The Homestead Area with single- family residential homes far sale to individual homeowners. Gardiner LLC currently anticipates that the first purchase of some or all of the lots by Lennar will occur in Match 2005. There can be no assurance, however, that the transfer and sale of any lots to Lennar will occur. Lennar also has entered into an agreement with Gardiner LLC pursuant to which Lennar has the right to construct model homes within The Homestead Area prior to the time Lennar acquires its property within The Homestead Area from Gardiner LLC. Pursuant to such agreement, Lennar intends to pull the necessary building permits and commence constmetion of three (3) model homes in Febmary 2005. Gardiner LLC has also entered into a Real Property Purchase and Sale Agreement with Escrow Instructions, effective April 17, 2004 {the "Beazer Purchase Agreement"}, with Beazer Homes Holdings Corp., a Delaware corporation {"Beazer Homes"). Pursuant to the Beazer Purchase Agreement, Beazer Homes has the right to purchase an aggregate of up to 211 R- I lots in The Homestead Area, representing approximately 22.67% of the assessed property in the Assessment District, pursuam to foot separate takedowns of 61 lots, 541ots, 47 lots, and 49 lots, respectively. Each takedown is intended to oaeur 90 days after the prior takedown. Each takedown is contingent upon Gardiner LLC improving the requisite number of lots to a "finished lot" condition. "Finished lots" are defined in the Beazer Purchase Agreement to mean lots that are subject to a recorded final subdivision map and that have been graded, for which all wet and dry utilities are available, and for which other designated public and private improvements have been completed. If any of the required contingencies set forth in the Beazer Purchase Agreement for any takedown are not satisfied, Beazer Homes may cancel such takedown and all subsequent takedowns, as well as the Beazer Purchase Agreement. Beazer Homes intends to develop its lots purchased in The Homestead Area with single-family residential homes for sale to individual homeowners. Gardiner LLC currently anticipates that the first takedown by Beazer Homes will occur in March 2005. There can be no assurance, however, that any or all of the intended takedowns by Beazer Homes will occur. Beazer Homes also has entered into an agreement with Gardiner LLC pursuant to which Beazer Homes has the right to construct model homes within The Homestead Area prior to the time Beazer Homes acquires its property within The Homestead Area from Gardiner LLC. Pursuant to such agreement, Beazer Homes has obtained the necessary building permits and commenced the constmc6on of four (4) model homes, which are expected to be completed by Febmary 2005. Cherry Hill, Inc., owned approximately 6.43% of the assessed property in the Assessment District at the time the petitions to form the Assessment District were filed by the applicable property owners, all of which property comprises the Cherry Hill Area. As of January 14, 2005, Cherry Hill, Inc., had sold all of its property in the Cherry Hill Area to Bakersfield Avalon L.L.C., a California limited liability company {"Bakersfield Avalon"), which plans to develop such property with single-family homes for sale to individual homeowners. Olive Park Land Company owned approximately 9.47% of the assessed property in the Assessment District at the time the petitions to form the Assessment District were filed by the applicable property owners, all of which property comprises the Olive Park III Area. Since that time, Olive Park Land Company developed such property into 77 finished R-1 lots and has sold 53 of such R-1 lots to various merchant builders {the "Olive Park Merchant Builders"), who are expected to build homes thereon. As of January 14, 2005, as a result of the aforementioned sale of R-1 lots, Olive Park Land Company owned approximately 2.94% of the assessed property in the Assessment District. Upon the issuance of the Bonds, the Community Areas will, together, bear 100% of the total assessment lien. The property within the Assessment District is involved in various stages of the land development process. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT" for a description of the planned development of the respective Community Areas. Improvements Proceeds from the sate of the Bonds issued pursuant to the Assessment District proceedings will be used to finance (i} the acquisition of certain public infrastructure improvements for each of the four Community Areas, which improvements will be owned by the City and operated and maintained by the City (collectively, the "Improvements"), and (ii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and the Bond issuance, including the establishment of a Special Reserve Fund for the Bonds and the funding of capitalized interest on the Bonds through September 2, 2005. For a further description of the Community Areas and the Improvements, see "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements" The Improvements are proposed to be financed by the City in accordance with the terms and conditions of (i) the Acquisition and Disclosure Agreement, by and between the Ciry and Centex Homes (approved by the City as Agreement No. 04-222 on August 18, 2004, and referred to herein as the "Centex Acquisition Agreement"), (ii) the Acquisition and Disclosure Agreement, by and between the City and Gardiner LLC {approved by the City as Agreement No. 04-223 on August 18, 2004, and referred to herein as the "Gardiner LLC Acquisition Agreement"), (iii) the Acquisition and Disclosure Agreement, by and between the City and Cherry Hill, Ina (approved by the City as Agreement No. 04-224 on August 18, 2004, and referred to herein as the "Cherry Hill, Inc., Acquisition Agreement"}, and (iv) the Acquisition and Disclosure Agreement, by and between the City and Olive Yark Land Company (approved by the City as Agreement No. 04-225 on August 18, 2004, and referred to herein as the "Olive Park Land Company Acquisition Agreement" and, together with the Centex Acquisition Agreement, the Gardiner LLC Acquisition Agreement, and the Cherry Hill, Inc., Acquisition Agreement, the "Acquisition Agreements°'}. Upon their completion, the Improvements are proposed to be acquired by the City using Bond proceeds. Assessments The land within each of the four respective Community Areas in the Assessment District specially benefited by the Improvements has been assessed to pay the estimated cost of the Improvements and certain financing costs related thereto. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Estimated Improvement Costs." The City Council, pursuant to Resolution No. 278-04, adapted on October 20, 2004, confirmed the amount of assessments for the Assessment District in the aggregate amount of $4,410,000. The Bonds are secured by the assessments as hereinafter described under the heading "THE BONDS -Security for the Bonds." The total assessment lien is not less than the aggregate principal amount of the Bonds being issued. Appraisal Kern Appraisal Company, Bakersfield, California (the "Appraiser"), has prepared an appraisal dated as of January 7, 2005 (the "Appraisal"), appraising, as of November I, 2004, the property within the Assessment District that is subject to the lien of the assessments. Based on the Appraisal, the ratio of the aggregate Bulk Value of the Assessment District property to the aggregate assessment lien is 9.73:1. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Bulk Value to Assessment Lien Ratio." The assumptions and limitations regarding the appraised valuations are set forth in the Appraisal, a copy of which is attached hereto as APPENDIX B. Certain considerations relating to the Appraisal are discussed under the heading "SPECIAL RISK FACTORS" Neither the City nor the Underwriter makes any representation as to the accuracy or completeness of the Appraisal. See APPENDIX E for a listing of the ratio of the appraised value of each assessed parcel to the amount of the assessment lien against such parcel. The appraised values of the Assessment District property reflected in the Appraisal have been determined assuming, among other things, the completion of the Band-financed Improvements. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements" and "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT" for descriptions of the plans of Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company for the development of the property within the Assessment District. Security for the Bonds The Bonds are issued upon and secured by the unpaid assessments and, together with interest thereon, constitute security for the redemption and payment of the principal of the Bonds and the interest thereon. All the Bonds are secured by the moneys in the Redemption Fund created pursuant to the Bond Resolution and by the I mipaid assessments levied to provide for payment of said acquisition of the Improvements, and, including principal and interest, ace payable exclusively out of the Redemption Fund. The unpaid assessments represent fixed liens on the parcels of land assessed under the proceedings. They do not, however, constitute the personal indebtedness of the owners of said parcels. Under the provisions of the 1915 Act, assessment installments sufficient to meet annual debt service on the Bonds are to be collected on the regular Kern County tax bills sent to owners of property within the Assessment District against which there are unpaid assessments. These annual installments are to be paid into the Redemption Fund, which will be held by the Finance Director and used to pay Bond principal and interest as they become due. The installments billed against each parcel of property each year represent a pro rata share of the total principal and interest coming due that year, based on the percentage which the unpaid assessment against that property bears to the total of unpaid assessments within the Assessment District. The Bonds are not secured by the general taxing power of the City, the County of Kern (the °County"}, the State of California (the "State"), or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its full faith and credit for the payment of the Bonds. Special Reserve Fund The City will establish a Special Reserve Fund (the "Special Reserve Fund"} in the amount of $341,545 from Bond proceeds, which amount will be transferred to the Redemption Fund in the event of delinquencies in the payment of the assessment installments to the extent of such delinquencies. The Special Reserve Fund will be maintained, from assessment installment payments and from proceeds of redemption or sale of parcels with assessment delinquencies, in an amount equal to the least of (i) 10% of the proceeds of the Bonds, (ii) the maximum annual debt service on the Bonds, or {iii) 125% of the average annual debt service on the Bonds, less any amounts transferred to the Redemption Fund when assessments are paid following the issuance of the Bonds, as determined from time to time (the "Reserve Requirement"). See "THE BONDS -Special Reserve Fund." Foreclosure The City has covenanted That it will, no later than October I in any year, file an action in the Superior Court of the County to foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal yeaz exceeds 5% of the assessment installments posted to the tax roll for that fiscal year and (ii} the amount in the Special Reserve Fund is less than the Reserve Requirement. See "THE BONDS - Covenant to Commence Superior Court Foreclosure" and "SPECIAL RISK FACTORS -Covenant to Commence Superior Court Foreclosure." Assessment Delinquencies If a delinquency occurs in the payment of any assessment installment, the City has a duty t_o transfer into the Redemption Fund the amount of the delinquency out of the Special Reserve Fund. This duty of the City is continuous during the period of delinquency, until reinstatement, redemption, or sale of the delinquent property. There is no assurance that funds will be available for such purpose and if, during the period of delinquency, there are insufficient moneys in the Special Reserve Fund, a delay may occur in payments to the owners of the Bonds. As authorized by the 1915 Act, the City has elected not to obligate itself` to advance available foods from its treasury to cure any deficiency which may occur in the Redemption Fund by reason of the failure of a property owner to pay an assessment installment when due. If there are additional delinquencies after depletion of funds in the Special Reserve Fund, the City is not obligated to transfer into the Redemption Fund the amount of such delinquencies out of any other available moneys of the City. Book-Entry Only System The Bonds will be initially issued and registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Payment of principal of and interest on the Bonds to the Beneficial Owners (as defined below) will be made in accordance with the procedures of DTC, described below. See `BOOK-ENTRY ONLY SYSTEM." Continuing Disclosure The City, Centex Homes, and Gardiner LLC have each covenanted in its respective Continuing Disclosure Certificate for the benefit of Bondholders to provide an annual or semi-annual report, as applicable, containing certain financial infom~ation and operating data relating to the Assessment District and the property ht the Assessment District and to provide notices of the occurrence of certain enumerated events, if material. The form of each such Continuing Disclosure Certificate is attached hereto as "APPENDLY F -CONTINUING DISCLOSURE CERTIFICATES." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5), as it may be amended from time to time. See "CONTINUING DISCLOSURE." None of Bakersfield Avalon, Olive Park Land Company, or any Olive Park III Merchant Builders has an obligation to provide continuing disclosure information and none has entered into a continuing disclosure certificate. However, in the event any of the foregoing entities, or any other entities (including Lennar or Beazer Homes), should acquire property in the Assessment District that, when aggregated with all other property in the Assessment District owned by such owner or its affiliates, is subject to a lien of twenty percent (20%) or more of the annual assessment securing payment of the Bonds, such owner shall be required to enter into a Continuing Disclosure Certificate as described in the preceding paragraph. Forward-Looking Statements This Official Statement contains statements relating to future results that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. When used in this Official Statement, the words "estimate," "forecast,'° "intend," "expect," and similar expressions identify fotwud-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. See also "SPECIAL RISK FACTORS" herein. Miscellaneous Set forth herein are brief descriptions of the Bonds, the Assessment District, the Community Areas, the Improvements, the City, the Bond Resolution, Centex Homes, Gazdiner LLC, Bakersfield Avalon, Olive Park Land Company, and certain other matters. Such descriptions and the discussions and information contained herein do not j purport to be comprehensive or defmitive. All references in this Official Statement to documents, the Bonds, and the Assessment District proceedings are qualified in their entirety by references to such documents and the City's resolutions setting forth the terms and descriptions thereof. Copies of the Bond Resolution and other documents „, _, _, j described in this Official Statement may be obtained from the City. The City's address for such purpose is: City of Bakersfield, 1501 Tmxtun Avenue, Bakersfield, California 93301, Attention: Finance Director; telephone number I (661) 326-3030. ESTII4IATED SOURCES AND USES OF FUND5 ', The proceeds of the sale of the Bonds will be deposited with the Finance Dueetor in trust pursuant to the terms of the Bond Resolution in the amounts set forth below. The moneys in the Improvement Fund established for the Bonds will be used to acquire or otherwise finance the Improvements and to pay certain costs associated with the issuance and delivery of the Bonds. A portion of the net proceeds of the Bonds will be deposited in the Special ', Reserve Fund. Capitalized interest on the Bonds from their dated date to September 2, 2005, will be deposited into the Redemption Fund. The estimated sources and uses of funds for the Bonds are summarized as follows: Sources of Funds Principal Amount of Bonds $4,195,000AO Less: Underwriter's Discount (52,437.50) Total $4,142,562.50 Uses of Funds Improvement Fund $3,696,872.8611 Special Reserve Fund 341,545.04 Redemption Fund 104.144.64 tz1 Total $4,142,562.50 (I) Includes costs of issuance of approximately $273,533.58. (2) Represents capitalized interest on the Bonds from their dated date to September 2, 2005. THE BONDS Purpose of the Bonds Proceeds from the sale of the Bonds will be used to fmance (i) the Improvements, which aze comprised of the acquisition of certain public improvements within the four Community Areas, and (ii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and the Band issuance, including the establishment of a Special Reserve Fund for the Bonds and the funding of capitalized interest on the Bonds through September 2, 2005. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements." Authority for Issuance The Assessment District proceedings are being conducted pursuant to the 1913 Act, Section 13.08.070 of the Municipal Code of the City, and a Resolution of Intention No. 1336, adopted by the City Council of the City on May 26, 2004. The Bonds, which represent the unpaid assessments levied against privately awned property in the Assessment District, are being issued pursuant to the provisions of the 1915 Act and the Bond Resolution approving the issuance of the Bonds under the 1915 Act and the terms thereof. In the proceedings of the City with respect to the Assessment District, all costs either aze estimated or aze ascertained prior to the construction or acquisition of the improvements, right-of--way, or property involved. Under such proceedings, the assessments are then levied, cash collections are made, and bonds are sold to represent unpaid assessments. The money obtained from cash collections and bond proceeds is used by the City as payment for the improvements to be acquired, for the property or rights-of--way (if any) to be acquired, and for incidental expenses and expenses of the Bondtssue. Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company have each waived the cash collection period and no such cash collections were made. Assessment district proceedings can be initiated by either a petition or by The City Council without a petition. Petitions filed with the City Council and signed by Centex Homes, Gardiner LLC, Cherry Hill, Inc., and Olive Park Land Company, respectively, the owners of more than 60% of the assessable land within the Assessment District at the time of such filing, iniiiated the proceedings for the Assessment DistricT. The property owner petitions were accepted by Resolution No. 189-04, adopted by the City Council on May 26, 2004. After the proceedings were initiated, Wilson & Associates, Fresno, California (the "Assessment Engineer"), prepared a written report, which contains, among other things, the list of improvement costs and the amount of the assessments to be levied against the parcels in the Assessment District. The assessments were levied on the basis of the special benefit to be derived by such parcels from the Improvements. (See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Method of Assessment Spread.") The Assessment Engineer's written report was filed with the City Clerk on July 30, 2004, and was approved by the City Council in preliminary form on August 18, 2004. The Assessment Engineer's written report in final form was filed with the City Clerk on October 8, 2004. The public hearing required by law was held on October 20, 2004. The property owners in the Assessment District had the right to protest the levy of the proposed assessments in writing prior to or at the commencement of the hearing and to be heard at the hearing. No such protests were made. In accordance with Article XIIID of the State Constitution, the property owners were also requested to submit ballots, weighted according to the proportional financial obligation of the affected property, in favor of or opposition to the assessment. All ballots submitted by property owners were in favor of the assessment. See "SPECIAL RISK FACTORS -Articles XIIIC and XIIID of the California Constitution." Upon conclusion of the hearing, the City Council tabulated the ballots and adopted its resolution confirming the assessments and ordering the acquisition of improvements. The assessments confirmed by the City were based on the improvement costs listed in the Assessment Engineer's fmal written report (the "Engineer's Report"}. After confirmation, the assessments became liens against the assessed pazcels by recordation of a notice of assessment, which recording was made in the Office of the Superintendent of Streets on October 21, 2004, and in the Office of the County Recorder on October 22, 2004. No cash payments were made by the property owners. General The Bonds will be issued in fully registered form, without coupons, in the denomination of $5,000 each or in any integral multiple thereaf. The Sonds will be dated the date of delivery, and will bear interest at the rates per annum, will mature on the dates (each a "Principal Payment Date"), and will mature in the amounts set forth on the front cover pages of this Official Statement. Interest on the Bonds is payable on September 2, 2005, and thereafter semiannually on March 2 and September 2 {each an "Interest Payment Date'. Principal, interest at maturity or upon earlier redemption, if applicable, and premium, if any, with respect to the Bonds will be payable at the corporate trust office of U.S. Bank National Association, as paying agent, registrar, and transfer agent (the "Paying Agent"), in St. Paul, Minnesota, upon presentation and surrender of the Bonds. Interest {other than at maturity or upon earlier redemption) on the Bonds will be payable by check of the Paying Agent mailed on each Interest Payment Date to the owners of record at the addresses shown. on the registration books maintained by the Paying Agent for such purposes (the "Registration Books") as of the fifteenth day of the month immediately prior Yo an Interest Payment Date (or, in the case of an owner of at least $1,000,000 in principal amount of the Bonds who so requests in writing prior to the close of business on the fifteenth day of the month immediately preceding such Interest Payment Date, by wire transfer). Transfer and Exchange of Sonds Any Bond may be transferred or exchanged upon surrender of such Bond fox cancellation, accompanied by delivery of a written instrument of transfer or authorization for exchange, duly executed in a form approved by the I Paying Agent. The Paying Agent shall not be obligated to make any transfer or exchange of any Bond during the period commencing with the fifteenth day of the month immediately preceding each Interest Payment Date and ending on such Interest Payment Date. The City may require the Bond Owner requesting such transfer or exchange to pay any tax or other governmental charge required to be paid with respect to such transfer or exchange. Bonds Mutilated, Destroyed, or Lost If any Bond becomes mutilated, the City, at the expense of the Owner of such Bond, will execute, and the Paying Agent will authenticate and deliver, a new Bond in exchange and substitution for the Bond so mutilated, but only upon surrender by the owner of the Bond so nmtilated. Every mutilated Bond so surrendered will be canceled. If any Bond becomes lost or destroyed, evidence of such loss or destruction may be submitted to the City and, if such evidence is approved by the City and indermtity satisfactory to the City is given, The City, at the expense of the Owner, will execute, and the Paying Agent wilt authenticate and deliver, a new Bond in lieu of and in replacement for the Bond so lost or destroyed. The owner must pay all costs of issuance of the new Bond. Redemption Optional Redemption and Pre r~ayment of Bonds. Any Bond or portion thereof in the amount of $5,000 or any integral thereof outstanding may be called for redemption prior to maturity on any Interest Payment Date upon payment of the principal, plus accmed interest to the date of redemption, together with a redemption premium (calculated as a percentage of the par value of Bonds being redeemed) as set forth in the following table: Redemption Dates Redemption Premium September 2, 2005, through September 2, 2014 3.0°l0 March 2, 2015 and September 2, 2015 2.0% March 2, 2016 and September 2, 2016 1.0% March 2, 2017 and thereafter 0.0% No interest will accrue on a Bond beyond the Interest Payment Date on which said Bond is called for redemption. Notice of redemption must be given to the registered owner of the Bond by registered or certified mail or by personal service at least thirty {30) days prior to the redemption date, as provided in the 1915 Act. In accordance with the 1915 Act, the Finance Director will select Bonds for redemption in such a way that the ratio of outstanding Bonds to issued Bonds will be approximately the same in each annual series insofar as possible. Within each annual series, Bonds shall be selected for redemption by lot. Further development of the parcels in the Assessment District, a transfer of property ownership, and other similar circumstances could result in prepayment of all or part of the assessments. Such prepayment would result in redemption of a portion of the Bonds prior to their stated maturities. Effect of Redemption; Defeasance From and after the date fixed for redemption pursuant to the Bond Resolution, if funds available for the payment of the principal of and interest (and redemption premium, if any} on the Bonds or portion of Bonds so called for redemption have been duly provided, then Bonds or portion of Bonds so called for redemption will become due and payable at the redemption price therein specified, and from and after such date (unless the City shall default in the payment of the redemption price or interest} such Bonds ar portions of Bonds shall be defeased and shall cease to be entitled to any benefit or security under the Bond Resolution {other than the right to receive payment of the redemption price and interest) and shall cease to bear interest. Receipt of notice of redemption by the owner of a Bond shall not be a condition precedent to redemption and failure by the owner of a Bond to actually receive such notice of redemption shall not affect the validity of the proceedings for the redemption of such Bond or the cessation of interest. ~~ Refunding Bonds Pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds {Division 11.5 of the California Streets and Highways Code), the City may issue refunding bonds for the purpose of redeeming the Bonds. The City may issue and sell refunding bonds without giving notice to and conducting a hearing for the owners of property in the Assessment District, or giving notice to the owners of the Bonds, if the City Council fmds that: (A) Each estimated annual installment of principal and interest on the reassessment to secure the refunding bonds is less than the corresponding annual installment of principal and interest on the portion of the original assessment being superseded and. supplanted by the same percentage for all subdivisions of land within the Assessment District. Any amount added to the annual installments on the reassessment due to a delinquency in payment on the original assessment need not be considered in this calculation; {B) The number of years to maturity of all refunding bonds is not more than the munber of years to the last maturity of the Bonds; and {C) The principal amount of the reassessment on each subdivision of land within the Assessment District is less than the unpaid principal amount of the portion of the original assessment being superseded and supplanted by the same percentage for each subdivision of land within the Assessment District. Any amount added to a reassessment because of a delinquency in payment on the original assessment need not be considered in this calculation. Upon issuing refunding bonds, the City Council could require that the Bonds be exchanged for refunding bonds on any basis which the City Council detemunes is for the City's benefit, if the Bond owners consent to the exchange. As an alternative to exchanging the refunding bonds for the Bonds, the City could sell the refunding bonds and use the proceeds to pay the principal of and interest and redemption premium, if any, on the Bonds as they become due, or advance the maturity of the Bonds and pay the principal of and interest and redemption premium thereon. Disposition of Surplus from the Improvement Fund The amount of any surplus remaining in the Improvement Fund after completion of the acquisition of the Improvements and payment of all claims shall be applied as a credit to the assessments or to call Bonds, all as provided in the 1913 Act. Investment of Bond Proceeds Moneys held itrthe Improvement, Redemption, and Special Reserve Funds created pursuant to the Bond Resolution shall be invested by the Finance Director in accordance with generally applicable City investment policies, subject to State law and federal tax regulations governing the investment of tax-exempt bond proceeds. Investment income on moneys in the Redemption Fund shall be retained therein. Proceeds of the investment of amounts in the Improvement Fund and the Special Reserve Fund will be deposited into an Investment Earnings Fund, to be established and maintained by the Finance Director. Moneys in the Investment Earnings Fund will be rebated, to the extent required by law, to the federal government. To the extent that moneys in the Investment Earnings Fund are not required for rebate to the federal government, as determined by the Finance Director as of June 30 of each year, such moneys shall be transfeaed to the Special Reserve Fund until the balance therein is equal to the Reserve Requirement. The remaining balance, if any, in [he Investment Earnings Fund will be tmnsfetred, first, to the Improvement Fund until the hnprovements are completed and such fund is closed and, thereafter, to the Redemption Fund to be used, in the discretion of the Finance Director, as a credit upon the annual installments of assessments or for the advance retirement of Bonds. Security for the Bonds The Bonds are issued upon and secured by the unpaid assessments against the property in the Assessment District, together with interest thereon, and said unpaid assessments, together with interest thereon, constitute security for the redemption and payment of the principal of the Bonds and the interest thereon. The Bonds are further secured by the moneys in the Redemption Fund and the Special Reserve Fund created pursuant to the Assessment District proceedings. Principal of and interest and redemption premiums, if any, on the Bonds are payable exclusively out of the Redemption Fund. The assessments and each installment thereof and any interest and penalties thereon constimte a lien against the parcels of land on which the assessments are levied until the same are paid. Such lien is subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all existing and future private liens and over all fixed special assessment liens that may thereafter be created against the property. Such lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes created pursuant to the "Mello-Roos Community Facilities Act of 1982" (being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California) (the "Me1lo-Roos Act"), whenever created against the property. Upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any other special assessment lien created under the 1913 Act. The property within The Homestead Area, the Cherry Hill Area, and the Olive Park III Area, and the property within a portion of the Countryside Area, are subject to an existing special tax lien created by Community Facilities District No. 92-1 of the RNR School Financing Authority ("RNR CFD No. 92-I"} pursuant to the Mello-Roos Act. Moreover, the portion of the Countryside Area currently located outside of RNR CFD No. 92-1 is expected to be annexed into RNR CFD No. 42-1 during the 2004-2005 tax year. The amount of special taxes, if any, to which property within RNR CFD No. 92-1 is subject varies based upon the zoning, the entitlements, and the type and level of development of such property. See "THE BONDS -Priority of Lien." The Sonds are not secured by the general taxing power of the City, the County, the State, or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its full faith and credit for the payment thereof. Although the unpaid assessments coustimte Fixed liens on the parcels assessed, they do not constitute the personal indebtedness of the owners of said pazcels. Furthermore, there can be no assurance as to the ability or the willingness of such owners to pay the unpaid assessments. In addition, there can be no assurance that the present owners will continue to own all or any of said parcels. The unpaid assessments will be collected in annual installments, together with interest on the declining balance, on the County tax roll on which general taxes on real property are collected, and are payable and become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do said general taxes. Notwithstanding the City's covenant to commence foreclosure proceedings in connection with delinquent assessments, the property upon which the assessments were levied is subject to the same provisions for sale and redemption as are properties for nonpayment of general taxes. The annual assessment installments are to be paid into the Redemption Fund, which will be held by the Finance Director and used to pay the principal of and interest on the Bonds as they become due. The installments billed against all of the parcels of property in the Assessment District subject to the assessments will be equal to the total principal and interest coming due on all of the Bonds that year, plus, with respect to each parcel in the Assessment District, an additional amount to cover the achninistrative charges of the City. Special Reserve Fund Out of the proceeds of the sale of the Bonds, the City Council will set aside into a Special Reserve Fund the amount of $341,545. The Special Reserve Fund will be maintained, from assessment installment payments and from proceeds of redemption or sale of parcels with assessment delinquencies, in an amount equal to the least of (i) 10% of the proceeds of the Bonds, (ii) the maximum annual debt service on the Bonds, or (iii) 125% of the average to ,: _ _ , annual debt service on the Bonds, less any amounts transferred to the Redemption Fund when assessments are paid following the issuance of the Bonds, as determined from time to time (the "Reserve Requirement"). The Special Reserve Fund will constitute a tmst fund for the benefit of the owners of the Bonds. The Special Reserve Fund will be maintained, used, transferred, reimbursed, and liquidated as follows: ~ (a) Whenever there are insufficient funds in the Redemption Fund to pay the next maturing installment of principal of or interest on the Bonds, an amount necessary to make up such deficiency will be transferred from the Special Reserve Fund, to the extent of available funds, to the Redemption Fund. The amounts so advanced will be j reimbursed from the proceeds of redemption or sale of the parcel for which payment of delinquent installments of i the assessments and interest thereon has been made From the Special Reserve Fund. In the event that the Special Reserve Fund is completely depleted from such advances prior to reimbursement from resales of property or delinquency redemptions, payments to the owners of [he Bonds will be dependent upon reimbursement of the Special Reserve Fund. (b} If any assessment or any portion thereof is prepaid prior to the final maturity of the Bonds, the amount of principal of the assessment to be prepaid will be reduced by an amount which is in the same ratio to the original amount of the Special Reserve Fund as the original amount of the prepaid assessment bears to the total original amount of unpaid assessments originally securing the Bonds. The reduction in the amount of principal prepaid shalt be compensated for by a transfer of like amount from the Special Reserve Fund to the Redemption Fund. (c) All proceeds from the investment of moneys in the Special Reserve Ftmd will be deposited into an Investment Earnings Fund, to be established and maintained by the Finance Director. Moneys in the Investment Eamin.gs Fund will be rebated, to the extent required by law, to the federal government To the extent that moneys in the Investment Earnings Fund are not required for rebate to the federal government, as detemuned by the Finance Director as of June 30 of each year, such moneys shall be transferred to the Special Reserve Fund until the balance therein is equal to, as of the date of calculation, the Reserve Requirement. The remaining balance, if any, in the Investment Earnings Fund will be transferred, first, to the Improvement Fltnd until the Improvements are completed and such Elrod is clased and, thereafter, to the Redemption Fund to be used, in the discretion of the Finance Director, as a credit upon the annual installments of assessments or for the advance retirement of Bonds. Amounts in the Special Reserve Fund in excess of the Reserve Requirement shall be deposited into the Investment Earnings Fund. See "THE BONDS -Investment of Bond Proceeds." (d} When the balance in the Special Reserve Fund is sufficient to retire all Bonds then outstanding (whether by advance retirement or otherwise), the amount of the Special Reserve Fund will be transferred to the Redemption Fund, and the remaining installments of principal and interest not yet due from the assessed property owners will be canceled without payment, and the Special Reserve Fund will be liquidated upon the retirement of the Bonds. (e} Itt the event thatthe balance in the Special Reserve Fund at the time of liquidation exceeds the amount necessary to retire all Bonds then outstanding, the excess will be paid to the owners of the assessed parcels in the Assessment District provided, however, that, if the excess is less than $1,000, such excess may be transferred by the Finance Director to the General Fund of the City. Tha need to make advances from the Special Reserve Fund may result in its total depletion prior to reimbursement from resales of property or delinquency redemptions. In that event, there could be a default in payments to owners of the Bonds, the curing of which would be dependent upon reimbursement of the Special Reserve Fund. Redemption Fund Deficiencies If there are not sufficient funds in the Special Reserve Fund to fully cover a Redemption Fund deficiency and the City Council determines that there is a deficiency in the Redemption Fund to pay the principal of and interest on the Bonds such that there will be an ultimate loss accruing to the owners of the Bonds, the City will pay to the owners of the Bonds a proportionate share of the principal and interest due on the Bonds based on the percentage that the amount on deposit in the Redemption Fund is of the total amount of the unpaid principal of the _, _ _ _ _ Bonds and the interest thereon. Thereafter, as moneys representing payments of the assessments are periodically deposited into the Redemption Fund, similar proportionate payments will be made to the owners of the Bonds, all in accordance with the procedures set forth in the 1915 Act. If there are not sufficient funds in the Special Reserve Fund to fully cover a Redemption Fund deficiency and it is determined by the Finance Director that there will not be an ultimate loss to the owners of the Bonds, the Finance Director is required to direct the Paying Agent to pay matured Bonds as presented and pay interest on the Bonds when due as long as there are available funds in the Redemption Fund, in the following order of priority: (1) all matured interest payments shall be made before the principal of any Bonds is paid; (2) interest on Bonds of earlier maturity shall be paid before interest on Bonds of later maturity; (3) within a single maturity, interest on lower-numbered Bonds shall be paid before interest on higher-numbered Bonds; and (4} the principal of Bonds shall be paid in the order in which the Bands are presented for payment. This procedure could result in some matured Bonds not being redeemed and interest on the Bonds not being fully paid on the due dates. Such matured Bonds would not be fully redeemed and such delayed interest would not be paid until funds are available from a foreclosure sale of the property having the delinquent assessment installments. Covenant to Commence Superior Court Foreclosure The 1915 Act provides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the Tier} of the unpaid assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory. However, in the Bond Resolution, the City has covenanted with the i Bond owners that, in the event any assessment or installment thereof, including any interest thereon, is not paid when due, the City will, no later than October 1 in any year, file an action in the Superior Court of the County to I foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal year exceeds 5°lo of the assessment installments posted m the tax roll for that fiscal year, and (ii) the amount in the Special Reserve Fund is less than the Reserve Requirement. In the event such Superior Court foreclosure or foreclosures aze necessary, there may be a delay in payments to Bond owners pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. See "SPECIAL RISK FACTORS -Covenant to Commence Superior Court Foreclosure." Priority of Lien Each assessment (and any reassessment) and each installment thereof, and any interest and penalties thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. Such a lien is subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all private liens and over all fixed special assessment liens that may thereafter be created against the property. Such a lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes created pursuant to the Mello-Roos Act, whenever created against the property. None of the property in the Assessment District is subject to any other special assessment lien created under the 1913 Act. The property within The Homestead Area, the Cherry Hill Area, and the Olive Park III Area, and the property within a portion of the Countryside Area, however, are subject to an existing special tax lien created by RNR CFD No. 92-1 pursuant to the Mello-Roos Act. Moreover, the portion of the Countryside Area currently located outside of RNR CFD No. 92-1 is expected to be annexed into RNR CFD No. 92-1 during the 2004-2005 tax year. The amount of special taxes, if any, to which property within RNR CFD No. 92-1 is subject varies based upvn the zoning, the entitlements, and the type and level of development of such property. For fiscal year ending June 30, 2005, the property within the aforementioned Community Areas is subject to the following RNR CFD No. 92-1 special taxes: No special taxes aze collected from property for which no fmal tract map has been recorded. Upon recordation of a final tract map and if no building pemtit has been issued for a subdivision lot prior to March I, 2004, an annual special tax of $124.33 (which may be increased by 2% each fiscal year) per subdivision lot acre of subject property is payable. Upon the issuance of a residential building pemut for a lot or parcel prior to March 1, 2004, aone-time special tax payment of $1.25 (which may be increased each fiscal year based upon the percentage change in the designated construction cost index) per building square foot is payable, and iz ,. , such parcel is subject to an annual special tax payment of $487.43 (which may be increased by 2°!o each fiscal year). In the alternative, at the time of issuance of such residential building pernut, the owner of such parcel may prepay a specified amount, in which. case the one-time special tax payment and the annual special tax described above will not be levied on such parcel. The prepayment amount for the fiscal year ending Tune 30, 2005, is $9,122.39 (which may be increased each fiscal year based upon the percentage change in a designated construction cost index). Al] assessed properties in the Assessment Distdet have asingle-family residential land use designation. Therefore, there are no assessed properties within the Assessment District that are subject to the multifamily residential, commercial, or industrial use RNR CFD No. 42-1 special tax rates. Accordingly, the RNR CFD No. 92-1 multifamily residential, commercial, and industrial land use designation parcel special tax rates are not presented herein. Each of Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company has indicated that it does not intend to pay the specified prepayment amount of the special tax for any parcel within the Assessment District that lies within the RNR CFD No. 92-1. Thus, the annual special tax will be payable by all property owners within the Assessment District that lies within the RNR CFD No. 92-I after the parcels therein are developed. Each of Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company has reported that the majority of the building permits required for the planned development in its respective Community Area have not been obtained as of January 14, 2005. Tax Covenants Pursuant m the Bond Resolution, the City has covenanted that it will not make any use of the proceeds of the Bonds which would cause the Bonds to become "arbitrage bonds" subject to Federal income taxation pursuant to the provisions of Section 148(a} of the Internal Revenue Code of 1986, as amended {the "Code"), or to become "Federally-guaranteed obligations" pursuant to the provisions of Section I49(b} of the Code, or to become "private activity bonds" pursuant to the provisions of Section 141(a) of the Coda. To that end, the City will comply with all applicable requirements of the Code and all regulations of the United States Department of Treasury issued thereunder to the extent such requirements are, at the time, applicable and in effect. [Remainder of Page Intentionally Left Blank] 13 Debt Service Schedule Set forth below is the debt service schedule for the Bonds. Annual Bond Debt Service Period Ending Principal Total Bond {Sentember 2) Maturine Interest Debt Service 2005 $104,144,64°i $]04,144.64 2006 $155,000.00 184,690.00 339,690.00 2007 160,000.00 180,815.00 340,815.00 2008 165,000.00 17b,495.00 341,495.00 2009 170,000.00 171,545.00 341,545.00 2010 175,000.00 tb5,850.00 340,850.00 2011 18Q,000.00 159,46230 339,462.50 2012 185,000.00 152,532.50 337,532.50 2013 195,000.00 145,132.50 340,132.50 2014 200,000.00 137,040.00 337,040.00 2015 2!0,000.00 128,440.00 338,440.00 201b 220,000.00 119,095.00 339,095.00 2017 230,000.00 108,975.00 338,975.00 2018 240,000.00 98,165.00 338,165.00 2019 250,000.00 86,645.00 336,645.00 2020 265,000.00 74,345.00 339,395.00 2021 280,000.00 61,27750 341,277.50 2022 290,000.00 47,137.50 337,137.50 2023 305,000.00 32,347.50 337,347.50 2024 320 000.00 16 b40.00 336,640.00 Totals $4,195,00090 $2,350,824.64 $6,545,824.64 p) Capitalized interest on the Bonds has been funded through September 2, 2005 Source: UBS Financial Services inc. BOOK-ENTRY ONLY SYSTEM The Bonds will be initially delivered in the form of one fully registered Bond for each of the maturities of the Bonds, registered in the name of Cede & Co., as nominee of DTC, as registered owner of all the Bonds. The following description of DTC and its book-entry system has been provided by DTC and has not been verified for accuracy or completeness by the City, and the City shall have no liability in respect thereof. The City shall have no responsibility or liability for any aspects of the records maintained by DTC relating to or payments made on account of beneficial ownership, or for maintaining supervising, or reviewing any records maintained by DTC relating to beneficial ownership, of interests in the Bonds. DTC is a limited purpose tmst company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934_ DTC holds securities that its participants {the "Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book- entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust comganies, clearing corporations and certain other organizations. DTC is owned by a number of its Dtrect Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Duect Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. I4 - .: ,_ Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effecT flour time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions and defaults. Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners or in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. REDEMPTION NOTICES SHALL BE SENT BY THE PAYING AGENT TO DTC. IF LESS THAN ALL OF THE BONDS ARE BEING REDEEMED, DTC'S PRACTICE IS TO DETERMINE BY LOT THE AMOUNT OF THE INTEREST OF EACH DH2ECT PARTICIPANT IN SUCH IS5UE TO BE REDEEMED. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments with respect the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of wstomers in bearer fomt or registered in "skreet name," and will be the responsibility of such Participant and not of DTC (or its nominee), the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to Beneficial Owners is the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered in accordance with the terms of the Bond Resolution. 15 THE INFORMATION IPI THIS SECTION CONCERNING DTC AND DTC'S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CITY BELIEVES TO BE RELIABLE, BUT IT TAKES ', NO RESPONSIBILITY FOA THE ACCURACY THEREOF. THE CITY CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC WILL DISTRIBUTE PAYMENTS TO DTC PARTICIPANTS OR THAT ', PARTICIPANT5 OR OTHERS WILL DISTRIBUTE PAYMENTS WITH RESPECT TO THE BONDS RECEIVED BY DTC OR ITS NOMINEES AS THE REGISTERED OWNER, ANY REDEMPTION NOTICES, OR OTHER NOTICES TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY ', BASIS, OR THAT DTC WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS Fhe information under this heading is taken primarily from the Engineer's Report far the Assessment District prepared by Wilson & Associates, Fresno, California, which Engineer's Report is on ftle with the Citn, and ¢om information provided by Centex Homes, Gardiner LLC, Cherry Hill, fnG, Bakersfield Avalon, or Olive Park Land Company, as applicable. General The Assessment District was formed in accordance with the 1913 Act and Section 13.08.070 of the Municipal Code of the City. Proceedings for the formation of the Assessment District were commenced by the City Council pursuant to property owner petitions filed by Centex Homes, Gardiner LLC, Cherry Hill, Inc., and Olive Park Land Company, who, at the time the petition was filed, were the owners of over 60% of the assessable land within the Assessment District. The petitions were accepted by Resolution No. 189-04, adopted by the City Council on May 26, 2004, and the petitions are on file with the City Clerk of the City. The Assessment District is comprised of four separate Community Areas in northwest Bakersfield totaling approximately 292 acres and generally described as (i) the Countryside Atea, containing approximately 146.5 acres and generally bounded by Olive Drive on the south, Allen Road on the west, Snow Road on the north, and Old Farm Road on the east, also identified as Tract No. 6118 (except Phase 1 and lots I 1 through 26 in Phase 2) and Tract No. 6195, (ii} The Homestead Area, containing approximately 100.0 acres and generally bounded by Reina Road on the north, Old Farm Road on the east, and Noriega Road on the south, also identified as Tract No. 6234, (iii) the Cherry Hill Area, containing approximately 17.0 acres and generally located south of Reina Road and approximately one- quarter mile west of Jewetta Avenue, also identified as Tract No. 61.53 Unit Two {except lots 77 and 78), and (iv) the Olive Park III Area, containing approximately 28.5 acres and generally located at the northwest corner of the intersection of Reina Road and Jewetta Avenue, also identified as Tract No. 6117 Unit Three. Final tract maps have been recorded for Tract Nos. 6118-Phases 2 through 5, 6195-Phases 1 through 4, 6153 Unit Two, and 6117 Unit Three. A vesting tentative tract map for Tract No. 6234 has been approved; however, a fmal tract map for Tract No. 6234 (i.e., The Homestead Area) is not expected to be recorded before the issuance of the Bonds. ', The four inegularly shaped Community Areas are located within a rectangular section of northwest ', Bakersfield that has anorth-to-south dimension of approximately one and one-half miles as measured from the north end of the Countryside Area to the south end of The Homestead Area and awest-to-east dimension of approximately one mile as measured from the westerly boundary of the Countryside Area to the easterly boundary of the Olive Park III Area. Each of the four Community Areas is involved in various stages of the land development entitlement and/or site development grocess. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Assessment District boundaries are shown on the assessment diagram, consisting of seven sheets, entitled "ASSESSMENT DIAGRAM OF CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. 04-I {COUNTRYSIDEITHE HOMESTEAD/CHERRY HILL/OLIVE PARK III), COUNTY OF KERN, STATE OF CALIFORNIA," a copy of which is attached hereto as APPENDIX D. Proceeds from the sale of the Bonds issued pursuant to the Assessment District proceedings will be used to finance (i) the Improvements, which are generally described as the acquisition of certain public infrastructure ie improvements for each of the four Community Areas, which Improvements will be owned by the City and operated and maintained by the Ciry, and (ii} the payment of certain incidental costs and expanses related to the acquisition of the Improvements, the Assessment District proceedings, and the Bond issuance, including the establishment of a Special Reserve Fund for the Bonds and the funding of capitalized interest on the Bonds through September 2, 2005. The Improvements are proposed to be financed by the City in accordance with the terms and conditions of the Acquisition Agreements, as applicable. The Acquisition Agreements set forth the procedure by which the Improvements are to be constructed and installed by Centex Homes, Gardiner LLC, Cherry Hill, Inc., and Olive Park Land Company, as applicable, and, upon their completion, acquired by the City using funds provided through the Assessment District proceedings. The scope of The Improvements includes the acquisition by the City of aff--site andtor on-site (in-rtact) subdivision improvements and the payment of incidental costs that are already required or that are expected by Centex Homes, Gardiner LLC, Cheny Hill, Inc., or Olive Park Land Company, as applicable, to be required to be installed as conditions of final subdivision or site plan approvals, as applicable, within the four Community Areas. Each of the four Community Areas is a separate assessment area within the Assessment District. Tha costs financed by the Assessment District for the acquisition of the respective Improvements located within or adjacent to each of the four Community Areas have been allocated only to the parcela that are located within the Community Area to be served by those Improvements. Bond proceeds are not expected to be used for the acquisition of land, easements, or rights-of--way. Description of the Community Areas and the Improvements The infm~nmtion under this subheading has been provided by the Engineer`s Repott, Centex Homes, Gardiner LLC, Cherrv Hilt, Inc., Bakersfreld Avalon, or Olive Park Land Company, as applicable, and has not been verifeed for accuracy or completeness by the Cit)~ or the Underwriter, and neither the City nor the Underwriter shall have liability with respect thereto. The current development plans for the respective Community Areas within the Assessment District are subject to change. Furthermore, the current plans are subject, in large part, to the financial resources and construction and marketing capabilities and efforts of Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company, as applicable, and the other builders or persons to whom the parcels within the Assessment District are sold. There can be no assurance that such development will occur as described herein, or That it will occur at all. Countryside Area The Countryside Area encompasses an approximately 146.5-acre block of land (of which approximately 124.86 acres is assessable}, also identified as Tract No. 6118 (except Phase 1 and lots 11 through 26 in Phase 2) and Tract No. 6195, which land is planned for subdivision into a combined total of 457 R-I lots (as defined in the section entitled "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Zoning"), six equestrian trail lots, three canal lots, and one storm drain sump lot Cenrex Homes is the subdivider of the portion of Tract No. 6118 included in the Countryside Area and of Tract No. 6195 and is responsible for constructing the Improvements therein. The Improvements in the Countryside Area are generally described as improvements in and along Snow Road, Old Farm Road, Olive Drive, and Allen Road that are required to be constructed, or are expected by Centex Homes to be required to be constmcted, as conditions of approval of the applicable portion of Tract No. 6118 and of Tract No. 6195. The general location and extent of the planned Improvements related to Snow Road include completion of the eastbound half of the street (south half of the street) to its full design width, including excavation, paving, curb, gutter, sidewalk, handicap romps, street lights with conduits and pull boxes, and median deposit. The general location and extent of the planned Improvements related to Old Farm Road include completion of the southbound half of The street (west half of the street) to its full design width, including excavation, paving, curb, gutter, sidewalk, handicap ramps, street signs, street lights with conduits and pull boxes, and an 18-inch diameter storm drain pipeline with catch basins and manholes. The general location and extent of the planned Improvements related to Olive Drive include completion of the westbound half of Ute street (north half of the street) to its full design width, including excavation, paving, curb, gutter, sidewalk, handicap 77 s, _._ .. __.. _.-..- ramps, street signs, street lights with conduits and pull boxes, median curb, and an 18-inch diameter storm drain pipeline stub-out with a catch basin and an outlet stmcture at the stomp drain sump located at the sound end of Tract No. 6118. The general location and extent of the planned Improvements related to Allen Road include completion of the northbound half of the street (east half of the sneet) to its full design width, including excavation, paving, curb, gutter, sidewalk, handicap ramps, street signs, and street lights with conduits and pull boxes. Also included in the scope of the Countryside Area Improvements are Centex Homes' incidental costs for design engineering, improvement bonds, construction staking, soils and materials analysis and testing, plan check and inspection fees. Final tract maps have been recorded for Tract No. 6118-Phases 2 through 5 and Tract No. 6195-Phases 1 through 4. As of January 14, 2005, the improvements to Olive Drive have been fully constructed and are operational. The improvements to Old Farm Road are fully constructed and operational up to Phase 6, encompassing approximately two-thirds of the entire required improvement. The remaining portion of Old Farm Road has curbs and gutters installed. Allen Road and Show Road currently have only curbs and gutters installed. The Homestead Area The Homestead Area encompasses an approximately 100.0-acre block of land (of which approximately 89.37 acres is assessable}, also identified as Tract No. 6234, which is planned for subdivision into 328 R-I lots, one storm drain sump lot, and one to-be-abandoned oil well drill site lot. Gardiner LLC is the subdivider of Tract No. 6234 and is responsible for constructing the Improvements therein. The Improvements in The Homestead Area are generally described as improvements in and along Reina Road, Old Farm Road, and Noriega Road, and in-tract/on- site storm drain improvements that are required to be constructed, or are expected by Gardiner LLC to be required to be constmeted, as conditions of appmval for Tract No. 6234. The general location and extent of the planned Improvements related to Reina Road include completion of the eastbound half of the street (south half of the street) to its full design width, including excavation, paving, cwb, gutter, sidewalk, striping, street signs, street lights with it conduits, and a subdivision block wall. The general location and extent of the planned Improvements related to Old ', Farm Road include completion of the southbound half of the street (west half of the street) to its full design width, '. including excavation, paving, curb, gutter, sidewalk, median curb, striping, street signs, street lights with conduits, ', and a subdivision block wall. The general location and extent of the planned Improvements related to Noriega Road include completion of the westbound half of the street (nortkt half of the street) to its full design width, including excavation, paving, curb, gutter, sidewalk, striping, street signs, sheet lights with conduits, and a subdivision block wall. The general location and extent of the planned in-traction-site storm drain Improvements in The Homestead Area trtclude constmetion of a storm drain system, including 36-, 30-, 24-, and 18-inch diameter pipelines with I manholes and catch basins, and a complete storm drain sump with all required excavation, an outlet structure, and a ', block wall. Not included in the scope of the Improvements for The Homestead Area are Gardiner LLC's incidental costs for design engineering improvement bonds, construction staking, soils and materials analysis and testing, plan check fees, and inspection fees. A vesting tentative tract map for Tract No. 6234 has been approved; however, a final tract map for Tract No. 6234 is not expected to be recorded before the issuance of the Bonds. The storm drain system for The Homestead Area, including manholes, catch basins, and stomt drain sump with excavation, outlet structure, and a block wall, as well as the curb and gutter improvements along Reina Road, Noriega Road, and Old Farm Road have all been completed Constmction of the paving, sidewalk, striping, street lights with conduits, street signs, and subdivision block walls for Noriega Road, Reina Road, and Old Farm Road is underway and expected to be completed by July 2005. Cherry Hill Area The Cherry Hill Area encompasses an approximately 17.0-acre block of land (of which approximately 16.39 acres is assessable), also identified as Tract No. 6153 Unit Two (except lots 77 and 78, which are not in the Assessment District), which is planned for subdivision into a total of 76 R-1 lots. Prior to the sale of the Cherry Hill Area property by Cherry Hill, Inc., to Bakersfield Avalon, Cherry Hill, Inc., was the subdivider of the portion of Tract No. 6153 Unit Two that comprises the Cherry Hill Area and was responsible for constructing the Improvements therein, which Improvements are substantially complete. The Improvements in the Cherry Hill Area are generally described as in-traction-site street, sewer, and storm drain improvements that are required to be constmcted, or that were expected by Cherry Hill, Inc., to be required to be constmeted, as conditions of approval is ,: _ ,_ - for the portion of Tract No. 61 S3 Unit Two that comprises the Cherry Hill Area. The general location and extent of the planned in-traction-site street Improvements in the Cherry Hill Area include completion of all in-tract/on-site streets, including excavation, paving, curb, gutter, sidewalk, driveway approaches, and cross gutters. The general location and extent of the planned in-tract/on-site sewer Improvements in the Cherry Hill Area include construction of an in-traction-site sewer system, including 10-, 8-, and 6-inch diameter sewer lines, 4-inch diameter sewer laterals for all 76 R-1 lots, manholes, and clean outs. The general location and extent of the planned in-tract/on-site storm drain Improvements in the Cheny Hill Area include constmction of an in-traetton-site storm drain system, including 36-, 30-, 24-, and 18-inch diameter pipelines with manholes and catch basins. Not included in the scope of the Cherry Hill Area Improvements are the incidental costs of Cherry Hill, Inc., or Bakersfield Avalon for design engineering, improvement bonds, construction staking, soils and material analysis and testing, plan check fees, and inspection fees. A fmal tract map has been recorded For Tract No. 6153 Unit Two. As of January 14, 2005, all of the Improvements described in the preceding paragraph have been completed except the block wall and the landscaping, which are currently under construction and are expected to be completed by March 2005. Olive Park Iff Area The Olive Park III Area encompasses an approximately 28.5-acre block of land (of which approximately 24.11 acres is assessable}, also identified as Tmct No. 6117 Unit Three, which is planne5l for subdivision into 77 R-1 lots. Olive Pazk Land Company is the subdivider of Tract No. 6117 Unit Three and is responsible for constructing the Improvements therein The Improvements in the Olive Park III Area are generally described as improvements in and along Jewetta Avenue and in-tract/on-site street improvements that are required to be constmeted, or are expected by Olive Park Land Company to be required to be constmcted, as conditions of approval for Tract No. 6117 Unit Three. The general location and extent of the planned Improvements on the west side of Jewetta Avenue include constmction of curb, gutter, sidewalk, street signs, street lights with conduits, and a subdivision block wall. The general location and extent of the planned in-traction-site street Improvements in the Olive Park III Area include completion of all in-traction-site streets, including excavation, paving, curb, gutter, sidewalk, driveway approaches, cross gutters, street signs, and street lights. Not included in the scope of the Olive Park III Area Improvements are Olive Park Land Company's incidental costs for design engineering, improvement bonds, construction staking, soils and materials analysis and testing, plan check fees, and inspection fees. A final tract map has been recorded for Tract No. b117 Unit Three. As of January 14, 2005, all of the Improvements to be constructed in the Olive Park III Area have been completed. [Remainder of Page Intentionally Left Blank] ]9 Estimated Improvement Costs Set forth below are the confirmed assessment amounts with regard to the estimated costs of the Improvements and other costs relating to the Assessment District proceedings, as described in the Engineer's Report. A copy of the Engineer's Report is on file with the City. ENGINEER'S ESTIMATE OF TOTAL COST AND ASSESSMENT City of Bakersfield Assessment District No. 04-I (Conntryside/The Homestead/Cherry HilllOlive Park III) CONFIRMF,D ACTIVITY DESCRIPTION ASSESSMENT I. COUNTRYSIDE AREA IMPROVEMENT COST A. IMPROVEMENTS $1,485,694.00 B. INCIDENTALS 747 575 00 C. TOTAL COUNTRYSIDE AREA IMPROVEMENT COST $1,633,269.00 2. THE HOMESTEAD AREA IMPROVEMENT COST A. IM PRO V EMEN"fS $1,036,077.73 B. INCIDENTALS 0.00 C. TOTAL TIIE HOMESTEAD AREA IMPROVEMENT COST $1,036,077.73 3. CHERRY HILI. ARF,A IMPROVEMENT COST ' A. IMPROVEMENTS $313,737.19 B. (NCIDF.NTALS 0.00 C. TOTAL CHERRY HILL AREA IMPROVEMENT COST $313,731.19 4. OLIVE PARK III AREA IMPROVEMENT COST A. IMPRO V EM EMS $438,868.50 B. INCIDENTALS 0.00 G TOTAL OLIVE PARK III AREA IMPROVEMENT COST $435,868.SU 5. ESTIMATED ASSESSMENT DISTRICT PROCEEDING COST AND EXPENSE A. COUNTRYSIDE AREA $120,780.SS B. THE HOMESTEAD AREA 76,618.14 C. CH ERRY HILL AREA 23,200.48 D. OL1VL' PARK 111 AREA 32.454,41 E. TOTAL ESTIMATED ASSESSMENT DISTRICT PROCEEDING COST AND $253,053.58 EXPENSE G. SUBTOTAL COST TO ASSESSMENT A. COUNTRYSIDE AREA $1,754,049.55 B. THE HOMESTEAD AREA I.I 12,695.87 C. CHERRY HILL AREA 336,931.67 D. OLIVE PARK II[AREA Alt 32291 E. SUBTOTAL COST TO ASSESSMENT $3,675,000.00 7. UN DERWRITER'S D[SCOUNT, CAPITALIZED INTEREST, AND RESERVE FUND A. COUNTRYSIDE AREA $35Q,809.92 B. THE HOMESTEAD AREA 222,539.17 C. CHERRY HILL AREA 67,386.33 D. OLIVE PARK III AREA 94.264.58 E. TOTAL UNDERWRITER'S DISCOUNT, CAPITALIZED INTEREST, AND RESERVE FUND $735,000.00 8. TO TAL AMOUNT ASSESSED $4,410,000.00 AL LOCATION OF TOTAL AMOUNT ASSESSED TO EACH DEVELOPMENT AREA 1. COUNTRYSIDE AREA $2,104,859.47 2. THE HOMESTEAD AREA 1,335,235.04 3. CHERRY HILL AREA 404,318.00 4. OLIVE PARK III AREA 565,587.49 Source: Engineer's Report prepared by Wilson & Associates 20 x Method of Assessment Spread Spread of zkeAssessn:ent District Costs w Beneftted Parcels Section 10204 of the 1913 Act requires that the assessments must be levied in proportion to the estimated benefit that the subject properties receive from the works of improvement. The statute does nat provide the specific method or formula that should be used in any particular special assessment district proceeding. That responsibility rests initially with the Assessment Engineer, who is retained by the City for the purpose of making an independent analysis of the facts and recommendations about the apportionment of the assessment obligation. For the proceedings with respect to the Assessment District, the City has retained Wilson & Associates, Fresno, California, to serve as the Assessment Engineer. The 1913 Act provides that the Assessment Engineer makes his recommendations as to the cost and method of apportionment of the assessments in the Engineer's Report, which is then considered at the public hearing on the Assessment District. Final authority and action with respect to the levy of the assessments tests with the City Council after hearing all testimony and evidence presented at the public heating. Upon the conclusion of the public hearing, the City Council must take fmal action in determining the proportionality of the benefits received by the properties assessed. The financed costs will be spread to the assessed pazceis in the Assessment District in the manner set forth in Municipal Code Section 13.08.070 -Benefit Spread, which was added to the City's Municipal Code on April 5, 1945, by City Council adoption of Ordinance No. 3643. The parcel assessment shares for City assessment districts are to be allocated or spread in accordance with the 1913 Act, which requires that the financed cost in a special assessment proceeding be allocated among the benefited parcels of land in proportion to the estimated benefit each parcel can be expected to receive from the work and improvement covered by the assessment. Municipal Code Section 13.08.070 authorizes the "reallocation" to alternate properties of assessments initially allocated to parcels in proportion to their estimated benefit (i.e., initial allocation made in accordance with the 1913 Act cost(benefit requirement), when such reallocation is so requested by the owner of all property to be assessed and upon the written consent of the owner of the property to which assessments are reallocated and approval thereof by the City Council. The Assessment District individual parcel assessment amounts shown on APPENDIX E have been calculated or spread among the assessed parcels pursuant to Municipal Code Section 13.08.070. The alternate method used by the Assessment Engineer to reallocate the benefit based assessment shares initially allocated by the Assessment Engineer to each assessed parcel has been provided by Centex Homes, Gazdiner LLC, Cherry Hill, Inc., and Olive Paxk Land Company. The Assessment Engineer has determined that the spreading of the assessments in accordance with the alternate method conforms to the requirements of Municipal Code Section 13.08.070. To the extent that any assessments are reapportioned after the Bonds have been issued, the City will approv°e the same only if the security for the Bonds is not reduced or impaired. ReaUoeation Spread Method In accordance with Municipal Code Section 13.08.070, Centex Homes, Gardiner LLC, Cherry Hill, Inc., and Olive Park Land Company have submitted a proposed alternate method and rate of assessment. Further, Centex Homes, Gardiner LLC, Cherry Hill, Inc., and Olive Park Land Company have stated that, as of the date of the approval of the alternate method and rate of assessment, they were the oumers of all the property proposed to be reallocated a share of the assessment and, as of such date, they consented to the reallocation. The Assessment Engineer's estimates of the costs of the Improvements is presented above under the heading "THE ASSESSMENT DISTRICT AND TFIE IMPROVEMENTS -Estimated Improvement Costs" The alternate method (the "Reallocation Spread Method") is described as follows: The total improvement acquisition cost within each of the four Community Areas is spread among the developed and undeveloped parcels within each Community Area in direct proportion to parcel net assessable acreage and to each planned or existing R-1 lot within those developed and undeveloped parcels as an equal per R-1 2t lot cost share. There are no exceptions in the Countryside Area, the Cherry Hill Area, or the Olive Park III Area to the equal cost share par acre and equal cost per existing or planned R-1 lot Reallocation Spread Method. The following parcels in The Homestead Area constitute exceptions to the Reallocation Spread Method and will not be apportioned a share of the assessment levied in The Homestead Area: {i) the portion of The Homestead Area currently occupied 6y the Gardiner family home, and (ii) that portion of The Homestead Area currently identified as a "to-be-abandoned oil well drill site." OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT Ownership of Proper#y in the Assessment District Centex Homes owned approximately 49.02% of the assessed property in the Assessment District at the time petitions to form the Assessment District were filed by the applicable property owners, all of which property comprises the Countryside Area. As of January 14, 2005, Centex Homes has opened escrows to sell 73 homes to individuals, which are expected to close by July 1, 2005. See " - Development and Financing Plans -Centex Homes Development Plan" below. Gardiner LLC currently owns approximately 35.08% of the assessed property in the Assessment District, all of which property comprises The Homestead Area. Gardiner LLC intends to retain one previously developed residential lot, upon which is located the Gardiner family home and which is exempt.from the levy of assessments by the Assessment District. Gardiner intends to improve and sell the remainder of its property in The Homestead Area to merchant builders. Gardiner LLC has entered into the Lennar Purchase Agreement, pursuant to which Lennar has the right to purchase 117 R-1 lots in The Homestead Area, representing approximately 12.41°l0 of the assessed property in the Assessment District, in one or more takedowns. Each takedown is contingent upon Gardiner LLC improving the requisite number of lots to a "finished lot" condition. "Finished lots" are defined in the Lennar Purchase Agreement to mean lots that are subject to a recorded final subdivision map and that have been graded, for which all wet and dry utilities are available, and for which other designated public and private improvements have been completed. If any of the required contingencies set forth in the Lermar Purchase Agreement are not satisfied, Lennar may cancel the Lennar Purchase Agreement. Lennar intends to develop its lots purchased in The Homestead Area with single- family residential homes for sale to individual homeowners. Gardiner LLC currently anticipates that the first purchase of some or all of the lots by Lennaz will occur in March 2005. There can be no assurance, however, that the transfer and sale of any lots to Lennar will occur. Lennar also has entered into an agreement with Gardiner LLC pursuant to which Lennar has the right to constmct model homes within The Homestead Area prior to the time Lennar acquires its property within The Homestead Area from Gardiner LLC. Pursuant to such agreement, Lennar intends to pull the necessary building permits and commence constmction of three (3) model homes in February 2005. Gardiner LLC has also entered into the Beazer Purchase Agreement with Beazer Homes, pursuant to which Beazer Homes has the right to purchase an aggregate of up to 211 R-1 lots in The Homestead Area, representing approximately 22.67% of the assessed property in the Assessment District, pursuant to four separate takedowns of 61 lots, 54 lots, 47 lots, and 49 lots, respectively. Each takedown is intended to occur 90 days afrer the prior takedown. Each takedown is contingent upon Gardiner LLC improving the requisite number of lots to a "finished lot" condition. "Finished lots" are defined in the Beazer Purchase Agreement to mean lots that aze subject to a recorded final subdivision map and that have been graded, for which all wet and dry utilities are available, and for which other designated public and private improvements have been completed. If any of the required contingencies set forth in the Beazer Purchase Agreement for any takedown are not satisfied, Beazer Homes may cancel such takedown and all subsequent takedowns, as well as the Beazer Purchase Agreement. Beazer Homes intends to develop its lots purchased in The Homestead Area with single-family residential homes for sale to individual homeowners. Gardiner LLC currently anticipates that the first takedown by Beazer Homes will occur in March 2005. There can be no assurance, however, that any or all of the intended takedowns by Beazer Homes will occur. 22 Beazer Homes also has entered into an agreement with Gardiner LLC pursuant to which Beazer Homes has the righT to constmet model homes within The Homestead Area prior to the time Beazer Homes acquires its property within The Homestead Area from Gardiner LLC. Pursuant to such agreement, Beazer Homes has obtained the necessary building permits and commenced the constmction of four {4) model homes, which are expected to be completed by February 2005. Cherry Hill, Inc., owned approximately 6.43% of the assessed property in the Assessment District at the time the petitions to form the Assessment District were filed by the applicable property owners, all of which property comprises the Cherry Hill Area. As of January 14, 2005, Cheny Hill had sold all of its property in the Cherry Hill Area, which it had developed into 76 R-I lots, to Bakersfield Avalon, which plans to develop such property with single-family homes far sale to individual homeowners. See "- Development and Financing Plans - Bakersfield Avalon Development Plan" below. Olive Park Land Company owned approximately 9.47% of the assessed property in the Assessment District at the time the petitions to form the Assessment District were filed by the applicable property owners, all of which property comprises the Olive Park III Area. Since that time, Olive Park Land Company developed such property into 77 finished R-1 lots and has sold 53 of such R-1 lots to the Olive Park Merchant Builders, who are expected to build homes thereon. As of January 14, 2005, as a result of the aforementioned sale of R-1 lots, Olive Park Land Company owned approximately 2.94% of the assessed property in the Assessment District. See "- Development and Financing Plans -Olive Park Land Company Development Plan" below. None of Centex Homes, Gardiner LLC, Bakersfield Avalon, Olive Park Land Company, or any other owner of property within the Assessment District (each, a "Property Owner"), will be personally liable For payments of the assessments to be applied to pay the principal of and interest on the Bonds. In addition, there is no assaranee that Centex Homes, Gardiner LLC, Bakersfield Avalon, Olive Park Land Company, or any other Property Owner will be able to pay the assessment installments or that Centex Homes, Gardiner LLC, Bakersfield Avalon, Olive Park Land Company, or any other Property Owner will pay such installments even if it is financially able to do so. Furthermore, except Co Che extent expressly set forCh herein, no representation is made that Centex Homes, Gardiner LLC, Bakersfield Avalon, Olive Park Land Company, or any other Property Owner will have moneys available to complete or improve the development of the land within the Assessment District (other than the Improvements) in the manner described herein. Accordingly, no Property Owner's financial statements are included in this Official Statement. Centex Homes The information under this subheading has been provided by Centex Homes and has not been verifaed for accuracy or completeness by the City or the Underwriter, and zhe City and the Underwriter shall leave no liability in respect thereof Centex Homes is a Nevada general partnership, the managing general partner of which is Centex Real Estate Corporation, a Nevada corporation ("Centex Real Estate Corporation"). Centex Homes was formed to purchase real estate and develop and construct improvements thereon. The parent corporation of Centex Homes and Centex Real Estate Corporation is Centex Corporation, a Nevada corporation {"Centex Corporation"). Centex Homes is the primary home building operation of Centex Corporation and it or its related entities have built and sold homes in more than 4$0 neighborhoods in 25 states since its formation. Centex Homes has had a presence in Califonua's Central Valley fox more than a decade. Most recently, Centex Homes has constructed the following residential developments in the Bakersfield area: • Northwoods. A 37-lot single-family development located in the Riverlakes area of the City. Sales for homes in the Northwoods development began in April 2002. The homes in this development range in size from 2,000 square feet to 3,600 square feet, with prices ranging from $180,000 to $275,000. • Montana. A 278-lot single-family residential development located in the northwest area of the City. Sales for the Montana development began in 1999 and were completed in 2004. Homes in this 23 ._ development range in size from 1,800 square feet to 2,800 square feet and were sold at prices ranging from $196,400 to $265,000. i • Belsera. A 257-lot single-family residential development located in the northwest area of the City. ~ Sales for the Belsera development began in 1999 and were completed in 2064. Homes in this ~ development range in size from 1,050 square feet to 1,874 square feet and were sold at prices ranging from $110,000 to $180,000. j Centex Corporation is a Fortune 500 company traded on the New York Stock Exchange and the London Stock Exchange under the symbol "CTX." Centex Corporation employs more than 15,000 people located in more than 1,000 offices and construction job sites in the United States and the United Kingdom. In its 2004 fiscal year (ended March 3l, 2004}, Centex Corporation's net earnings were $828 million, with revenues of $10.4 billion. Subsidiaries of Centex Corporation are involved in home building, manufactured home production, building supplies, home services, financial and title insurance services, contracting and constmetion services, construction products, and real estate investment. The Securities and Exchange Commission ("SEC"} maintains an Internet website that contains reports, proxy, and information statements, and other information regarding registrants that file electronically with the Comtission, including Centex Corporation. The address of such website is httpatwwwsec.gov. This intertaet address is included for reference only, and the informatio» on this Internet site is not a part of this Oj~cial Statement and is not incorporated by reference into this Official Statement. Gardiner LLC The inforrrtation under this subheading has been provided by Gardiner LLG and has not been verified for accuracy or completeness by the City or the Underwriter, and the City grad the Underwriter shalt have no liability in respect thereof. Gardiner LLC is a California limited liability company, the members of which are James B. Gardiner and Lucille C. Gardiner, husband and wife. Gardiner LLC was originally formed in August 2002 to develop the approximately 100 acres of family-owned farmland located in the Assessment District. In 7uly 2003, Gardiner LLC entered into a consulting agreement with Adavco for the purpose of developing the property in The Homestead Area. The principals of Adavco are Annette Davis and Arthur Davis. With more than 25 years of experience in land development, Adavco specializes in the entire residential development cycle, from acquiring and entitling mw land to developing such land for residential housing. Adavco plans to subcontract all entitlement and development work in The Homestead Area on behalf of Gardiner LLC. In addition to the development in The Homestead Area, Gardiner LLC's development consultant Adavco, or its principals or related entities, have constructed, of are in the process of eonstmcting, the following projects in the County: Polo Grounds. Adavco, or its principals or a related entity, developed approximately 320 acres of farmland located in the City called the Polo Grounds. Adavco developed the property from agricultural land to the tentative map stage and then sold the property to Centex and Probuilt Development & Constmetion, Inc., a California corporation {"Probuilt'}. The final sale of the 320 acres was completed in January 2004. • Preiskear Ranch in Santa Maria. Adavco, or its principals or a related entity, developed approximately 120 acres located in the City of Santa Maria, California. This project was developed in two stages over arsine-year period, and sold as finished lots to Probuilt. The Preiskear Ranch included a school lot, a park lot, and a church lot. The sale of the Preiskear Ranch property was completed in December 2003. • Hageman Northwest Adavco, or its principals or a related entity, is the development consultant for a 379-lot single-family residential development located in the County. The lots will be developed as 24 finished lots and contracts have been executed to sell the lots to Richmond American Homes of Califomia, Inc., a Colorado corporation, and Beazer Homes, which entities intend to build single- family residences on such lots and sell them to homeowners. • Saco Ranch. Adavco, or its principals or a related entity, is the development consultant with respect to the development of 750 acres of farmland located in the County, which is intended to be developed as amaster-planned community. It is anticipated that the Saco Ranch development, which is still in the ~ planning stage, will include approximately 100 acres of commercial development, approximately 150 acres of industrial development, and approximately SSO acres of residential development, including single-family and multifamily units. The property on which the Saco Ranch development is located currently consists of unincorporated land within the County, which is expected to be annexed into the City within the next 12 months for entitlement and development purposes. Bakersfield Avalon The information under this subheading has been provided by Bakersfeld Avalon and has not been verified for acctn~acy or completeness by the City or the Underwriter; and the City and the Underwriter shall have no liability in respect thereof Bakersfield Avalon was formed on February 26, 2002, as a Califomia limited liability company for the purpose of developing single-family residences. See "The Bakersfield Avalon Development Plan" below. The managing member of Bakersfield Avalon is Probuilt. Probuilt was incorporated in 1993 and its principals have been engaged in the development of residential and real estate properpies in the Bakersfield area since 1991. Since being incorporated, Probuilt has constructed more than 2,500 single-family homes. Since its inception, Probuilt and its affiliates have constructed an average of 200 single-family housing units per year within the City and an average of 200 single-family housing units per year within the City of Santa Maria. Mark Shuman, the President and Chief Executive Officer of Probuilt, has 15 years of experience in the construction business, 9 of which have been spent with Probuilt. Mr. Shuman has overseen the construction of over 1,000 single-family homes in the Bakersfield and Santa Maria areas. Chris Hayden is Vice President of Probuilt and has 10 years experience in real estate sales and construction. Mr. Hayden holds both. a California broker's license and a California real estate sales license and oversees sales and mazketing for Probuilt. In addition to the development being undertaken in the Cherry Hill Area, Bakersfield Avalon is currently engaged in the following residential developments in the City: • The Cape. A 130-lot single-family development located in the Rtverlakes area of the City. Sales for homes hr The Cape development began on July 1, 2002, and were completed in August 2003. The homes in this development range in size from 1,250 square feet to 2,000 square feet, with prices ranging from $115,000 to $140,000. • Silver Clak Ranch. A 150-lot single-family residential development located in the northwest area of the City. Sales for the Silver Oak Ranch development began on August I, 2002, and were completed in August 2004. Homes in this development range in size from 2,000 square feet to 5,000 square feet, with prices ranging from $250,000 to $500,000. Olive Park Land Company The information under this subheading has been provided by Olive Park Land Company and has not been verified for accuracy or completeness by the Ciry or the Underwriter, and the Ciry and the Underwriter shall have no liability in respect £hereof zs ..: _ ._ Olive Park Land Company is a California corporation. James Bryan Batey and Ben E. Batey are the president and vice president, respectively, of Olive Park Land Company, and each owns 50% of the outstanding stock thereof. Olive Park Land Company was formed to purchase real estate and develop and construct improvements thereon. : James Bryan Batey has more than 20 years of experience in the real estate industry. Mr. Batey has held California real estate broker and{or salesman licenses for more than 10 years and is licensed by the State of California as a general building contractor. Mc Batey is the president of Rosedale Builders, Inc., which is an active builder of custom and semi custom homes in the Bakersfield market. Mr. Batey has also been the managing partner for entities that have constructed residential subdivisions in and around the City. Ben E. Batey, James Bryan Batey's father, has more than 30 years of experience in the real estate industry. Mr. Ben Batey has held California real estate broker and{or salesman licenses for more than 30 years and is licensed by the State of California as a general building contractor. Mr. Ben Batey is the president of Batey Development, Inc., which is an active builder of custom and semi-custom homes in the Bakersfield market. Mr. Ben Batey has also been developer andtor partner in several residential subdivisions in and around the City. Representative subdivisions in which James Bryan Batey and Ben E. Batey have participated include the following: • Dtive Park -Please I. A 110-lot single-family development located at the comer of Olive Drive and Jewena Avenue in the City. Approximately 80% of the prepared residential lots have been sold to merchant builders at prices ranging from $40,000 to $60,000. • Verdugo Lane and Hageman Road. An 80-lot single-family development located at the corner of Verdugo Lane and Hageman Road in Bakersfield. All of the lots have been sold and improved with homes ranging in size from 2,000 to 4,000 square feet. The lots were sold to merchanC builders at prices ranging from $35,000 to $50,000. • Verdugo Lane and Noriega Road A 36-lot single-family residential development located at the corner of Verdugo Lane and Noriega Road in the City of Bakersfield. All of the prepared residential lots have been sold to merchant builders or improved with homes and sold to final customers. Lots ranged in prices from $40,000 to $60,000. Hageman Road and Renfro Road. A 100-lot single-family residential development, part of a larger development known as Westdale North, located at the corner of Hageman Road and Renfro Road in the unincorporated area of Greater Bakersfield. Approximately 50% of the prepared lots were sold to merchant builders and approximately 50% of the prepared Tats were improved with single-family homes by Batey affiliates. All of the lots have been sold and all of the homes are occupied by homeowners. The development is comprised of custom and semi-custom homes ranging in size from 2,000 to 4,000 square feet. Jenkins Road and Hageman Road. A 110-lot single-family residential development, part of a larger development known as Westdale North, located at the corner of Jenkins Road and Hageman Road in the unincorporated area of Greater Bakersfield. All of the lots have been sold and all of the homes are occupied by homeowners. Batey affiliates built approximately 45% of the homes in this project; approximately 55°to of the homes were built by merchant builders. The project includes estate-size lots ranging from 10,900 to 19,000 square feet, containing homes ranging in size from 2,200 to 4,000 square feet. Development and Financing Plans The current development plans and financing plans of Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company for the development of the property within the Assessment District 26 are subject to change. Fttrthermore, the current development plans and financing plans em~isioned for the Assessment District are subject, in large part, to the financial resources and construefion and marketing capabilities and efforts of Centex Homes, Gardiner LLC, Bakersfield Avalon, Olive Park Land Company, and any other merchant builders and other persons to whom the parcels within the Assessment District may be sold. There can be no assurance that such development will occur as described herein, or that it will occur at all. The information under this section has been provided by Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company, as applicable, and has not been verified for accuracy or completeness by the City or the Underwriter, and neither the City nor the Underwriter shall have any liability with respect thereto. Centex Homes Development Plan Centex Homes is developing the Countryside Area, which encompasses approximately 146.5 acres. The project being developed by Centex Homes in the Countryside Area extends beyond the boundaries of the Assessment District and will include 500 single-family homes on 500 R-I lots, to be built in 16 phases. The portion of the Centex Homes project within the boundaries of the Assessment District will consist of 457 single-family homes on 457 R-I lots, plus an equestrian trail covering 6 equestrian trail lots, 3 canal lots, and 1 storm drain sump lot. The residential component of the Countryside Area project consists of two distinct neighborhoods, Fox Run, which consists of 219 R-1 lots (plus another 43 R-1 lots adjacent to, but outside the boundaries of the Assessment District), and Briarwood, which consists of 238 R-1 lots. Construction of homes in the Fox Run neighborhood began in March 2004, with full build-out expected by November 2006. Construction of homes in the Briarwood neighborhood began in October 2004, with full build-out expected by Febmary 2007. Construction of four model homes in the Briarwood neighborhood has commenced, and such models are scheduled to open in May 2005. The model homes for Fox Run are completed and currently open to the public. The Countryside Area has been mass graded and no additional grading operations will occur In Briarwood, (1) wet utilities (sexrer, storm drains, water) have been installed through Phase 3 with Phases 4 and 5 currently under constmction, (2) dry utilities (electricity, gas, cable, and phone} have been installed in Phase I with Phases 2 and 3 currerrtiy under constmction, (3) curbs and gutters have been installed through Phase 3 and sidewalks have been installed in Phase 1, and (4) paving has been installed in Phase 1. In Fox Run, (1) wet and dry utilities have been installed through Phase 5, (2) block walls have been installed through Phase 5, including three ornate entry monuments symbolizing the neighborhood, (3} curbs, gutters, and sidewalks have been installed through Phase 5, (4) the streetscape landscaping has been installed through Phase 5, including approximately two-thirds of the equestrian trail, and (5) Phases I and 2 are paved. Centex Homes began accepting deposits from prospective buyers for homes in the Countryside Area in April 2004. As of January 14, 2005, sales contracts were signed and escrows were opened for 21 homes in the Briarwood Area and 52 homes in the Fox Run neighborhood. Such escrows are expected to close by July 1, 2005. Centex Homes estimates that the homes in the Countryside Area will close escrow at a rate of approximately 20 per month. Homes in the Fox Run neighborhood are expected to range in size from 1,445 to 2,870 square feet and prices are expected to range from $170,490 to $284,990. Homes in the Briarwood neighborhood are expected to range in size from 2,484 to 3,013 square feet and prices aze expected to range from $287,490 to $375,990. The Centex Homes Financing Plan Centex Homes financed the purchase of the land in the Countryside Area with available cash, and plans to finance the development of completed homes in the Countryside Area with available cash. No loans or lines of credit are expected to be used for the financing of the development of the Countryside Area. Centex Homes has estimated the total budget for constmction of its development within the Countryside Area to be $63,570,103, which includes approximately $12,510,103 for land development, $23,214,000 for home constmction in the Fox Run Neighborhood, and $27,846,000 for home constmction in the Briarwood neighborhood. As of January 14, 2005, Centex Homes had expended approximately $5,161,000 on such construction. Centex Homes has represented that the funding sources described above will be sufficient to complete the development of the Countryside Area as described herein. There is no assurance, however, that.. amounts necessary 2a ,;, _ - ; to finance any outstanding development costs will be available from Centex Homes, or any other source, when needed. Neither Centex Homes nor any of its affiliated entities are under any legal obligation of any kind to expend funds for the development of the Countryside Area. Any contributions by Centex Homes to fund the costs of such development are entirely voluntary. Notwithstanding available sources of fmancing, Centex Homes is under no obligation to apply such sources to the completion of its development within the Countryside Area. Gardiner LLC Development Plan Gardiner LLC, with the assistance of its development consultant Adavco, is developing The Homestead Area, which encompasses approximately 100 acres and is expected to consist of 328 single-family homes on 328 R- 1lots, plus 1 storm drain sump lot, and wilt be developed in six phases, designated "Unit One," "Unit Two," "Unit Three," "Unit Four," "Unit Five," and "Unit Six." As of January 14, 2005, the grading, storm drain, and sewer systems, as well as curb and gutter improvements, are complete in all six Units. Water systems are also complete in Units Two, Three, Five, and Six, and are expected to be completed in Units One and Four by May 2005. Utilities and sidewalks are expected to be completed in all Units by May 2005. The Homestead Area project consists of two distinct neighborhoods, one that is expected to be developed by Lennar, which neighborhood consists of 117 R-1 lots in Units One and Four, and another that is expected to be developed by Beazer Homes, which neighborhood consists of 211 R-1 lots in Units Two, Three, Five, and Six. Gardiner LLC expects that constmction of homes in the Lennar and Beazer Homes neighborhoods will commence in the first quarter of 2005. See "INTRODUCTORY STATEMENT -Property Ownership" and "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Ownership of Property in the Assessment District" for discussions of Gardiner LLC's plans with respect to the sale of its property within The Homestead Area to Lennar and Beazer Homes, and the related Beazer Purchase Agreement and Lennar Purchase Agreement. There can be no assurance, however, that any such sales of lots to Lennar or Beazer Homes will occur. Gardiner LLC Financdng Plan All improvements to be undertaken by Gardiner LLC within The Homestead Area that are not financed with proceeds from the sale of the Bonds will be financed through a combination of cash assets and a Credit Agreement (as described and defined in the following paragraph). Gardiner LLC has estimated the totai budget for construction of its development within The Homestead Area to be $6,770,452, which amount is expected to be paid with a combination of Bond proceeds, moneys available under the Credit Agreement (as defined and described below), and available cash. As of January 14, 2005, Gardiner LLC had expended approximately $3,461,749 on such construction, leaving approximately $3,308,703 in remaining budgeted constmction costs. A portion of Gardiner LLC's development costs for The Homestead Area is being financed by a revolving line of credit (the "Line of Credit") issued by Farm Credit West, PCA, to Gardiner LLC. Farm Credit West, PCA, is providing the Line of Credit in the amount of $4,000,000, of which $2,666,748 is due and owing as of i January 14, 2005. Borrowings made by Gardiner LLC from the Line of Credit bear interest at the prevailing federal funds rate at the time of each draw on the Line of Credit. The obligation of Gardiner LLC under the Line of Credit I is not secured by a lien against any property in the Assessment District owned by Gardiner LLC. Gardiner LLC has represented that the funding sources described above will be sufficient to complete the development of The Homestead Area as described herein. There is no assurance, however, that amounts necessary to finance any outstanding development costs will be available from Gardiner LLC, or any other source, when needed. Neither Gardiner LLC nor any of its affiliated entities are under any legal obligation of any kind to expend funds for the development of The Homestead Area. Any contributions by Gardiner LLC to fund the costs of such development are entirely voluntary. Notwithstanding available sources of fmancing, Gardiner LLC is under no obligation to apply such sources to the completion of its development within The Homestead Area. 2a Bakersfield Avatoa Development Plan The Cherry Hill Area encompasses approximately 17 acres. Bakersfield Avalon acquired 76 finished R-1 lots in the Cherry Hill Area from Cherry Hill, Inc., in October 2004 and plans to build 76 single-family homes thereon. The Cherry Hill Area project will be developed in one phase and is expected to be completed by September 2005. Sales of homes have been projected by Bakersfield Avalon to close at the rate of 8 to 10 homes per month, starting in February 2005. Grading for the homes has been completed and the first phase of home construction is scheduled to commence in February 2005 and be completed in June 2005. Each phase of home construction is expected to take approximately four months to complete, with the last phase of home construction to be completed sometime in September 2005. Homes in the Cherry Hill Area are expected to range is size from 1,400 to 2,000 square feet and in price from $180,000 to $250,000. S'akersfzekl Avalon T'inancing Plan Bakersfield Avalon fmanced the purchase of the finished lots in the Cherry Hill Area with a loan from Midstate Bank in the amount of $2,142,000, which bears interest at 6.5°fo per annum and which is payable in June 2006. Bakersfield Avalon is current with respect to its scheduled payments, if any, under the Midstate Loan. As of January 14, 2005, Bakersfield Avalon had not obtained financing for the construction of homes in the Cherry Hill Area. Bakersfield Avalon has estimated the cost to constmct homes in.the Cherry Hill Area to be $7,000,000. Bakersfield Avalon has represented to the City that ii exgects to obtain fmancing for such home constmction from Midstate Bank, in the form of loans, lines of credit, or a combination thereof, and that such fmancing will be sufficient to pay the tatal estimated cost of its planned development in the Cherry Hill Area. Bakersfield Avalon has represented that the funding sources described above will be sufficient to complete the development of the Cherry Hill Area as described herein. There is no assurance, however, that amounts necessary to fmance any outstanding development costs will be available from Bakersfteld Avalon, or any other source, when needed. Neither Bakersfield Avalon nor any of its affiliated entities are under any legal obligation of any kind to expend funds for the development of the Cherry Hill Area. Any contributions by Bakersfield Avalon to fund the costs of such development are entirely voluntary. Notwithstanding available sources of fmancing, Bakersfield Avalon is under no obligation to apply such sources to the completion of its development within the Cherry Hill Area. [Remainder of Page Intentionally Left Blank] 29 -. - _ _ Dlive Park Land Company Development Plan The Olive Park III Area encompasses approximately 28.5 acres. Olive Park Land Company plans to develop the Olive Park III Area as asingle-family subdivision, which is expected to include 77 buildable R-1 lots. Finished R-1 lots are expected to range in size from approximately 10,000 to approximately 18,000 square feet. Olive Park Land Company plans to sell the completed lots to merchant builders. As of January 14, 2005, Olive Park Land Company had sold 53 lots to the following merchant builders (collectively, the "Olive Park III Merchant Builders"), representing approximately 69% of the property in the Olive Park III Area: Olive Park TII MerehanC Builders Date of Purchase Number of R-1 Lots to be Develo ed So er Homes lnc. December 1, 2004 6 John Balfanz Homes December I, 2004 6 Joe Roberson Homes December 1, 2004 7 Ste hen Smith Builder December I, 2004 7 Phoenix Custom Homes December I, 2004 6 B.R. Construction December 1, 2004 5 Gene Roberson December 1, 2004 4 Roberson Buildin Inc. December I, 2004 4 Delfino Land Co. December 1, 2004 2 Bella Custom Homes December I, 2044 2 M.L:'Hitchcock December I, 2004 2 John Rice Sr. December 1, 2004 I Jed Francis Inc. December 1, 2004 1 Total Lots Sold 53 The Olive Park III Merchant Builders are expected to build single-family residences on t1~e property within the Olive Park III Area. Constmction of the homes commenced in November 2004, and the homes are expected to range in size from approximately 2,200 to 3,200 square feet and to range in price from approximately $350,000 to $500,000. As of January 14, 2005, all of the Improvements in the Olive Park III Area that are to be financed with Bond proceeds have been completed. Olive Park Land Company Financing Plan All improvements being undertaken by Olive Park Land Company within the Olive Park III Area not financed with proceeds from the sale of the Bonds will be financed through a combination of cash assets and credit agreements. Olive Park Land Company has estimated the total budget For land acquisition and constmction of its improvements in the Olive Park III Area to be $3,080,000_ As of January 14, 2005, Olive Park Land Company has expended approximately $750,000 on land acquisition and approximately $2,000,000 on constmction, leaving approximately $333,000 in remaining construction costs to Finish the remaining lots within the Olive Park III Area. The officers and shareholders of Olive Park Land Company have agreed to extend credit to Olive Park Land Company in the amount of $3,1OQ000 to compleCe its planned development in the Olive Park III Area. In addition, James Bryan Batey maintains a credit agreement with Wells Fargo Bank (the "JB Batey Credit Agreement"), pursuant to which Wells Fargo Bank provides a revolving credit line of $1,000,000. Under the JB Batey Credit Agreement, James Bryan Batey is required to pay interest to Wells Fargo Bank on outstanding balances at a rate per annum that is adjusted based on Wells Fargo Bank's prime rate. As of January 14, 2005, the total outstanding borrowed balance under the JB Batey Credit Agreement was $0. Ben E. Batey (through Batey Development, Inc.) also maintains a credit agreement with Wells Fargo Bank (the "Batey Development Credit Agreement"), pursuant to which Wells Fargo Bank provides an unsecured revolving credit line of up to $2,000,000. Under the Batey Development Credit Agreement, Ben E. Batey is required to pay interest to Wells Fargo Bank on outstanding balances at a rate per annum that is adjusted based on 30 _, Wells Fargo Bank's prime rate. As of January 14, 2005, the total outstanding borrowed amount under the Batey Development Credit Agreement was S0. Olive Park Land Company has represented that the funding sources described above will be sufficient to complete the development of the Olive Park III Area as described herein. There is no assurance, however, that amounts necessary to finance any outstanding development costs will be available from Olive Park Land Company, or any other sowce, when needed. Neither Olive Park Land Company nor any of its affiliated entities are under any legal obligation of any kind to expend funds for the development of the Olive Park III Area. Any contributions by Olive Park Land Company to fund the costs of such development are entirely voluntary. Notwithstanding available sources of financing, Olive Park Land Company is under no obligation to apply such sowces to the completion of its development within the Olive Park III Area. Assessment Roll Set forth in APPENDIX E is the assessment roll, including Bulk Value (as defined herein) to assessment lien ratio information, for the pazeels of property within the Assessment District that are subject to the lien of the assessments. The assessment roll shows the amount of the total estimated cost of the proposed Improvement acquisition, constmction and incidental cost that is assessed upon each of the lots and parcels within the Assessment District based upon the alternate method and rate of assessment pemritted under Section 13.08.070 of the Municipal Code of the City. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Method of Assessment Spread" above. The assessment numbers that appear on the assessment roll correspond to the assessment numbers j shown on the assessment diagram, attached hereto as APPENDIX D. Utilities Far each Community Area, all utilities, including gas, water, electricity, sewer, storm drains, telephone service, and cable television service are or will be installed in the streets within the Community Area and will connect to existing facilities in the surrounding streets. Natwal gas service is provided by Southern California Gas Campany; water service is provided by California Water Service or Vaughn Water Company; sewer service is provided by North of the River Sanitation District or the City; electricity service is provided by PG&E; telephone service is provided by SBC; and cable television is provided by Bright House Networks or Cox Communications. Flood and Earthquake Zones Pwsuant to the Appraisal, according to the maps prepared by the Federal Emergency Management Agency, the Community Areas are situated in a Zone C flood area. "Zone C" denotes an area that is not considered a flood hazard zone. No flood inswance is required for property in a Zone C flood area, and no flood insurance has been obtained for any property within the Assessment District. Pursuant to the Appraisal, the Assessment District is not located within any Special Studies Zone, as defined in the Alquist-Prialo Special Studies Zone Act. Zoning According to the Planning Deparhnent of the City, alt of the parcels in the Assessment District are zoned R-1. An R-1 zoning designation allows single-family residential land uses, with a minimum lot size of 6,000 square feet for each dwelling unit (referred to herein as "R-1 lots"). Tax Delinquencies The City reports that, based upon the records of the office of the Kem County Tax Collector, there are no delinquent taxes or penalties owed against the parcels in the Assessment District. Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company have each reported that it has never been late on making assessment payments in other assessment districts, defaulted on any bond issue, or lost any property to forecloswe as a result of not paying assessments. 3I _ ,- ,.: ; Environmental Issues Affecting Assessment District Property Pursuant to the Charter and Municipal Code of the Ciry, the formation of an assessment district is exempt from compliance with the California Environmental Quality Act ("CEQA"). Accordingly, a Notice of Exemption from CEQA was filed by the City with the Kern County Clerk for the Assessment District proceedings on July 1, 2004. The City reports that separate environmental review proceedings will be conducted for the improvement projects proposed to be financed by the District as part of the CEQA compliance associated with the land use entitlement and subdivision approval process within each Community Area. Each of Centex Homes, Gardiner LLC, Bakersfield Avalon, and Olive Park Land Company have reported that, to its knowledge, there are no additional environmental issues affecting its respective property within the Assessment District that would impede the development of such property as described in this Official Statement. Bulk Value-fo-Assessment Lien Ratio An Appraisal of the property within each of the four Community Areas in the Assessment District that is subject to the lien of the assessments has been prepared for the City by the Appraiser. The Appraisal, subject to the various limitations and assumptions set forth therein, provides an estimate of the as-is market value (designated in the Appraisal as the "Bulk Value of Recorded Lots or Land" and defined herein as the "Bulk Value") of each parcel of property within the Assessment District. The "Aggregate Finished Lot Value When Complete" is described in the Appraisal as the value of each '.. parcel assuming the completion of the Improvements and taking into account the value added by existing ' improvements, a recorded subdivision map, and the "Completion Costs," which are defined herein as the costs ' associated with the developer-funded improvements necessary to develop such parcel as a finished lot available for ' improving with new housing units. The Completion Costs were presumed by the Appraiser to include direct and ' indirect costs for each lot, taxes during construction, costs associated with school bonds and other applicable direct and overlapping debt, profits, commissions, administrative and miscellaneous expenses, and the time value of money. See "APPENDIX B -Appraisal. Por a discussion of liens encumbering the Assessment District property other than the assessments, see "Direct and Overlapping Debt" below and "TFIE BONDS -Priority of Lien" herein. Based on the Appraisal, the ratio of the aggregate Bullc Value of the Assessment District property to the aggregate assessment lien is 9.73:1. The following table sets forth the Bulk Value of the Assessment District property and the applicable Bulk Value-to-assessment lien ratios. [Remainder of Page Intentionally Lefr Blank] 32 , APPRAISED VALUES AND SULK VALUE-TO-ASSESSMENT LIEN RATIOS CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. Oa-1 {COUNTRYSIDElTHE HOMESTEAD/CHERRY HILLtOLIVE PARK III) Bulk Value-to- Assessment Assessment Lien Avessment No. Net Acres°r Bulk Value Licn Ratio COUNTRYSIDE AREA I-16(TraotNo. G1]8-Phase 2, Lots 1-IOand 27-32) 3.91 $1,459,000(2) $66,761.57 21.8ia 17-48 (Tract No. 6118-Phase 3) 7.89 1,715,000 133,523.19 12.84:1 49-80 (Tract No. b118-Phase 4) 7.89 1,709,000 133,523.19 12.80:1 81-110. (Tract No. 6718-Phase 5) 831 7,781,000 141,868.38 12.55:1 115 (Tract No. 6118-Phase 5, Lo[ 35 - Portion of Future Tract No. 6118-Phase b) 3.75 374,566 62,589.01 5.98:1 122 (LLA No. 722-44, Parcel E -Future Tract No. 6118-Phases 6, 7, and 8) 24.57 2,969,396 375.533.95 7.97:1 Subto[als TraeY No.6118-Fnx Run Neighborhood 55.72 10,007,962 413,799.29 10.95:1 t23-149 (Tract No. 6195-Phase l) 8.40 1,801,000(2) 135,120.28 13.33:1 156-187 (Tract Nn. 6145-Phase 2) 8.76 1,85A,000 ]60,]42.55 11.58:1 188-218 (tract Na. 6195-Phase 3) 8.91 7,800,000 155, (38.09 11.60:1 219-249 (Tract No. 6195-Phase 4) 8.82 1,686.000 155,138.09 10.87:1 250 (Tract No. 6195-Phase A, Lot 32 -Future Tract No. 6195-Phases 5, 6, 7, end 8) 3A.25 4,386,336 185,521.17 7.49;1 Subtotals Tract No.6145-Briarwood Neighborhood 69.14 11,527,336 1,191,060.]8 9.68:1 TOTALSfAVERAGE FOR COUNTRYSIDE AREA 124.86 21,535,298 2,104,859.47 10.23:1 THE HOMESTEAD AREA 251 (Lots 5, 6, 1, 11, and 12 of Sales Map ofi Lands of Kern County Land Company (Furore Tract No. fi234-Phases 1 through 6, excluding 1 R-7 lot and one oil well drill site) 89.37 11,714,078 1,335,235.04 8.77:1 C]IERRY HILL AREA 252-327 (Tract NO. 6153 Unit'fwo, Lots 1-7C>) 16.39 3,419,000 A00.,318.00 9.69:1 OLIVE PARK 111 AREA 328A04 (Treat No. 6]17 Unit Three) 24.11 5,734,000 565,587.49 IO.1Aa ASSESSMENT DISTRICT TOTALS 254.73 $42,402,376 $4,410,000.00 9.73:1 (]) Net Acres does not include offsite streets, equestrian trail lots, storm drain sump lots, an oil well drill site, and canal Tots. (2) Includes contributory value of houses under construction. Source: Appraisal. The assumptions and limitations regarding the appraised valuations are set forth in the Appraisal, a copy of which is attached hereto as APPENDIX B. See APPENDIX E for additional information regarding the appraised value of each assessed parcel and the ratio of such value to the amount of the assessment lien against such parcel. ', The City makes no representations as to the accuracy or completeness of the Appraisal. Certain considerations relating to the Appraisal are discussed under the heading "SPECIAL RISK FACTORS." NO REPRESENTATIONS ARE MADE REGARDING THE APPRAISED VALUATIONS QUOTED IN APPENDIX B OR E, AND PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO RELY ON THE VALUATIONS IN DETER.MININ'G WHETHER OR NOT THE BONDS DESCRHiED HEREIN ARE A SUITABLE 1N VESTMENT. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD NOT ASSUME THAT THE PROPERTY WITHIN THE ASSESSMENT DISTRICT COULD BE SOLD FOR THE VALUATION AMOUNT AT A FORECLOSURE SALE FOR DELINQUENT ASSESSMENTS. 33 +- Direct and Overlapping Debt The following table (the "Direct and Overlapping Debt Table"} details the direct and overlapping debt currently encumbering property within the Assessment District. The Direct and Overlapping Debt Table has been derived from data assembled and reported to the Ciry by California Municipal Statistics, Inc., as of January I, 2005. Neither the City nor the Underwriter has independently verified the information in the Direct and Overlapping Debt Table and neither the City nor the Underwriter guarantees its completeness or accuracy. The Direct and Overlapping Debt Table does not include the special. tax liens described under the heading "TILE BONDS -Priority of Lien" herein. Direct and Overlapping Debt City of Bakersfield Assessment District No. 04-I (CountrysidePl'he HomesteadlCherry Hill/Olive Park III} 2004-Oi Local Secured Assessed Vahtation: $4,280,994 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1705 Kern Community College DisMet School Facilities Improvement District No. I 0.010% $ 7,333 Kem High School District 0.014 12,098 Norris School District 0.292 12,239 Rosedale Union School District 0.048 1,682 City of Bakersfield 0.031 642 Kern Community College District Assessment Distriot 0.010 712 City of Bakersfield Assessment District No. 04-1 7qp, ll) TOTAL GROSS DIRECT AND OVERLAPPING TAX AND ASSESSMBNT DEBT $34,706 Less: City of Bakersfield water bonds 642 TOTAL NET DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $34,064 OVERLAPPING GENERAL FUND OBLIGATION DEBT Kern County General Fund Obligations 0.009% $ 6,422 Kern County Pension Obligations 0.009 44.638 Kern County Baard of Education Certificates of Pat ticipation 0.009 8.751 Kern Community College District Certificates of Participation 0.009 7,740 Kern High School District General Fund 061igations 0.014 13,342 Ciry of Bakersfield Certitcates of Participation 0.031 10'7 8 TOTAL OVERLAPPING GENERAL FUND OBI.IOATiON DEBT $93,631 GROSS COMBINED TOTAL DEBT $128,337 (2) NET COMBINED TOTAL DEBT $127,695 (I) Excludes 1975 Act bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2004-05 Assessed Valuation Direct Debt ...................................................................................................................... .. . °lo Total Gross Direct and Overlapping Tax and Assessment Debt ..................................... ...0.81% Total Ne[ Direct and Overlapping Tax and Assessment Debt ............ _ .......................... ...0.80 Gross Combined Total Deb[ ............................................................................................ ...3.00°l° Net Combined Total Debt._....._....._.._......._ .............................................................__. ._298% STATE SCHOOL BUlLD1NG AID REPAYABLE: AS OF 6/30/04: $0 Source: Celifomia Municipal Statistios, Inc. 34 SPECIAL RISK FACTORS General Under the provisions of the 1915 Act, assessment installments, from which funds for the payment of annual installments of principal and interesT with respect to the Bonds are derived, will be billed to properties against which there are unpaid assessments on the regular property tax bills sent to owners of such properties. Such assessment installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies will likely indicate an unwillingness or inability to make regular property tax payments and assessment installment payments in the future. In order to pay debt service on the Bonds, it is necessary that unpaid installments of assessments on land within the Assessment District are paid in a timely manner. Should the installments net be paid on time, the City has established a Special Reserve Fund in the initial amount of $341,545, which will thereafter be maintained, from assessment installment payments and from proceeds of redemption or sale of parcels with assessment delinquencies, in the amount of the Reserve Requirement, to cover delinquencies in the payment of assessments. The assessments are secured by a lien on the parcels of land and the City can institute foreclosure proceedings to sell land in the Assessment District with delinquent installments for the amount of such delinquent installments in order to obtain funds to pay debt service on the Bonds. Failure by owners of the parcels to pay installments of assessments when due, depletion of the Special Reserve Fund, or the inability of the City to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent installments of assessments levied against such parcels may result in the inability of the City to make full or punctual payments of debt service an the Bonds, and Bond owners would therefore be adversely affected. The Bonds are not secured by the general taxing power of the City, the County, the State, or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its full faith and credit for the payment thereof. Unpaid assessments do not constitute a personal indebtedness of the owners of the lots and parcels within the Assessment District. There is no assttrance the owners will be able to pay the assessment installments or that they will pay such installments even though financially able to do so. Risks of Real Estate Secured Investments Generally Owners of the Bonds-will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, {i) adverse changes in local market conditions, such as changes in the market value of real property in and in the vicinity of the Assessment District, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings andlor sites in rite event of sale or foreclosure; (ii) changes in real estate tax rate and other operating expenses, governmental rules {including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses. Concentration of Ownership As of January 14, 2005, Centex Homes owned approximately 49A2% of the assessed property in the Assessment District, Gardiner LLC owned approximately 35.08°10 of the assessed property in the Assessment District, Bakersfield Avalon owned approximately 6.43% of the assessed property in the Assessment District, Olive Park Land Company owned approximately 2.94% of the assessed property in the Assessment District, and the Olive Park III Merchant Builders collectively owned approximately 6.53% of the assessed property in the Assessment District. 35 Although Gardiner LLC and Olive Park Land Company have each indicated its intention Co sell some or all of its Assessment District property to merchant builders, and the remaining Property Owners have indicated their respective intention to sell homes to individual home owners, there can be no assurance that such sales will occw as planned. Thus, there is no assurance of any degree of further diversification of ownership of the assessed property. Also, unless and until such ownership is further diversified, the inability or refusal of Centex Homes, Gardiner LLC, Bakersfield Avalon, or Oltve Park Land Company to pay is respective assessment installments when due could result in the rapid total depletion of the Special Reserve Fund prior to reimbursement thereof from forecloswe proceedings. Under such circumstances, there would be insufficient moneys with which to pay principal of and/or interest on the Bonds. Failwe of any future pmperty owners to pay installments of assessments when due could also result in a default in payment of the principal of and interest on the Bonds prior to the resales of foreclosed property or delinquency redemptions. In that event, there could be a default in payments of the principal of and interest on the Bonds. Property Values Reference is made to APPENDIX B, which contains the Appraisal and the Appraiser's opinion with respect to the value of the property that is subject to the lien of the assessments and the assumptions made by the Appraiser in connection therewith. Reference is also made to "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Bulk Value-ta-Assessment Lien Ratio" for a summary of the value of the property within each of the fow respective Community Areas in the Assessment District that is subject to the lien of the assessments and the ratio of the appraised value of such property to the total amount of the assessment liens on such property that secure the Bonds. See also APPENDIX E for a lisfrng of the ratio of the appraised value of each assessed parcel to the amount of the assessment lien against such parcel. No assurance can be given that this appraised value to lien ratio u=Ill not decline should subsequent liens be placed on property within the Assessment District. Further, there is no assurance that in the event of a foreclosure sale for a delinquent assessment installment, any bid will be received for any such property within the Assessment District or that any bid received or resale price will be sufficient to pay such delinquent installments (plus costs and penalties). The 1915 Act provides that a parcel be sold for the delinquent installment(s) amount (plus costs and penalties) and not the entire outstanding assessment. The Appraiser has made various assumptions, which may vary from the assumptions made by other parties (including Centex Homes, Gardiner LLC, Cherry HiIl, Inc., Bakersfield Avalon, and Olive Park Land Company), in order to derive the aggregate valuation estimate of the property within the Assessment District to be assessed. See APPENDIX B for an explanation of methodology and a statement of contingent and limiting conditions and assumptions used by the Appraiser to derive the aggregate value of the property. Although these contingent and limiting conditions and assumptions were considered reasonable by the Appraiser based on information available to the Appraiser, neither the Appraiser nor the City can give any assurance that any parcel will be developed in accordance with the uses that the Appraiser has projected. Availability of Funds to Pay Delinquent Assessment Installments The City will establish a Special Reserve Fund out of Bond proceeds in the amount of $341,545, which will thereafter be maintained, fmm assessment installment payments and from proceeds of redemption or sale of parcels with assessment delinquencies, in the amount of the Reserve Requirement. As discussed herein under the heading "THE BONDS -Special Reserve Fund," if a delinquency occurs in the payment of any assessment installment, the City has a duty to transfer to the Redemption Fund the amount of the delinquency out of the Special Reserve Fund. This duty of the City is continuing during the period of delinquency, until reinstatement, redemption, or sale of the delinquent property. There is no asswance that the balance in the Special Reserve Fund will always be adequate to pay all delinquent installments and if, during the period of delinquency, there are insufficient funds in the Special Reserve Fund to pay all delinquent installments, a delay may occur in payments to the owners of the Bonds. 36 AazardousSubstances Although governmental taxes, assessments, and charges are a common claim against the value of an assessed parcel, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to pay the unpaid assessments is a claim with regard to hazardous substances. In general, the owners and operators of parcels within the Assessment District may be required by law to remedy conditions of the parcels related to the releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation, and Liability Act of 198Q 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 substances condition of a property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any parcel within the Assessment District be affected by a hazardous substance, would be to reduce the marketability and value of the parcel by the costs of remedying the condition, because the owner (or operator) is obligated to remedy the condition. Further, such liabilities may arise not simply From the existence of a hazardous substance but from. the method of handling or disposing of it. Al] of these possibilities could significantly affect the financial and legal ability of a property owner to develop the affected parcel or other parcels, as well as the value of the property that is realizable upon a delinquency and foreclosure. The appraised values set forth in the Appraisal do not, unless expressly noted, take into account the possible reduction in marketability and value of any of the parcels by reason of the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the parcel. Centex Homes, Gardiner LLC, Olive Park Land Company, and Bakersfield Avalon, and have each represented to the City that it is not aware of any current liability for hazardous substances with respect to any of its parcels within the Assessment District. Further, it is possible that liabilities may arise in the future with respect to any of the parcels within the Assessment District resulting from the existence, currently, on the parcel of a substance presently classified as hazazdous but which has not been released or the release of which is not presently threatened, ar nay arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazazdous but which may in the future be so classified. Such liabilities may aiise not simply from the existence of a hazardous substance but from the method of handling or disposing of it. All of these possibilities could significantly affect the value of an assessed parcel that is realizable upon a delinquency of an unpaid assessment. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT - Environmental Review." Endangered and Threatened Species No threatened or endangered species (or their respective habitats) have been identified in any of the Community Areas. If, however, any Threatened or endangered species (or their respective habitats) were to be discovered on a parcel within the Assessment District prior to or during development, the ability of the then-current landowner to develop the affected parcel could be severely limited. In such an event, the then-current landowner's willingness or ability to pay assessment installments could be adversely affected. The pmgerty within the Assessment District is subject to the Metropolitan Bakersfield Habitat Conservation Plan ("MBHCP"}, a joint program of the City and the County that was undertaken to assist urban development applicants in complying with State and federal endangered species laws. Under the MBHCP, each development applicant pays to the County a mitigation fee for grading or building permits that funds the purchase and maintenance of habitat land to compensate for the effects of urban development on endangered species habitat. The lands acquired for the MBHCP grogram are generally located outside the metropolitan Bakersfield area. In exchange for the MBHCP mitigation fee, the applicant is relieved of the obligation of demonstrating compliance with the endangered species laws by preparing biological reports, securing compensation lands, and undertaking other measures to avoid impacts to the species. Factors Which May Affect Land Development There is no assurance that the amount to be financed by the assessments will be sufficient to pay for the entire cost of the Improvements. Centex Homes, Gardiner LLC, Cherry Hill, Inc., and Olive Park Land Company 37 ~i will each be obligated to pay all of its costs in excess of the amount financed by the assessments. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements." Future development in the Assessment District may be affected by changes in the general economic conditions, fluctuations in khe real estate market, and other factors. In addition, development may be subject to future federal, state, and local regulations. Approval may be required from various agencies from time to time in connection with the layout and design of any proposed development in the Assessment District, the nature and extent of public improvements, land use, zoning, and other matters. Although no such delays are anticipated, failure to meet any such future regulations or obtain any such approvals in a timely manner could delay or adversely affect any propased development in the Assessment District. The development of property within the Assessment District could be adversely affected if lawsuits or other actions were commenced to restrict or prevent further development within the Assessment District. Private Improvements; Increased Debt The development of the property within the Assessment District depends upon both public and private improvement of land within the Assessment District. The cost of additional private improvements within the Assessme;a' District, together with public improvements financed usth any additional property secured financing, will increaxc the public and private debt for which the land within the Assessment District is the security. Any additional public improvements for which the property owners or their properties might be obligated could reduce the ability or willingness of the property owners within the Assessment District to pay the annual assessment installmenks levied against their property. See "SPECIAL RISK -Priority of Lien" In addition to the assessments being levied to finance the constmction and acquisition of the Improvements, the City intends to include as a part of such levy an annual assessment upon each parcel of land in the Assessment District to cover all administrative costs of the Ciry with respect to the Assessment District. These additional administrative assessment amounts could reduce the ability or willingness of the property owners within the Assessment District to pay the annual assessment installments levied against their property. Subordinate Debt; Payments by FDIC and other Federal Agencies Each of Centex Homes, Gardiner LLC, Olive Pazk Land Company, and Bakersfield Avalon has reported that none of its property within the Assessment District currently serves as security for any of its obligations to third pwrry lenders. All or portions of the Assessment District property may in the future secure additional loans of the owners thereof Any such. loans are subordinate to the lien of the assessments. However, in the event that any of the financial institutions making any loan that is secured by real property within the Assessment District is taken over by The Federal Deposit Insurance Corporation ("FDIC") or if a lien is imposed on the property by the Drug Enforcement Agency, the Internal Revenue Service, or other similar federal governmental agency, and, prior thereto or Thereafter, the loan or loans go into default, the ability of the City to collect interest and penalties specified by state law and to foreclose the lien of a delinquent unpaid assessment may be limited. Specifically, with respect to the FDIC, on June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Property Taxes (the "1991 Policy Statement"). The 1991 Policy Statement was revised and superseded by new Policy Statement effective January 9, 1997 (the `policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien {in effect before the property became owned by the FDIC), the FDJC will pay those claims. The Policy Statement further provides that no groperty of the FDIC is subject to levy, attaclunent, garnishment, foreclosure or 3A ..: _ >: , . sale without the FDIC's consent. In addition, the FDIC will not pemvt a lien or security interest held by the FDIC to be eliminated by foreclosure withouT the FDIC's consent. The Policy Statement is unclear as to whether the FDIC considers assessments such as those levied by the City to be "real property taxes" which they intend [o pay. However, the Policy Statement states that the FDIC generally will not pay non-ad valorem Taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires ITS fee interest in the property, nor will it recogrrize the validity of any lien to the extent it purports to secure the payment of any such amounts. The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency on a parcel within the Assessment District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume that the City will be unable to foreclose on any parcel owned by the FDIC. Such au outcome could cause a draw on the Special Reserve Fund and perhaps, ultimately, a default in payment on the Bonds. Based on the secured tax roll as of January 14, 2005, the FDIC does not presently own any property within the Assessment District. The City expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. Tax Delinquencies Assessment installments, from which funds necessary for the payment of amoral installments of principal of and interest on the Bonds are to be derived, will be billed to each property against which there is an unpaid assessment on the regular property tax bills sent to the owner of such property. Such installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Under certain circumstances, assessment installment payments on parcels of property in Kern County can be made separately from regular property tax payments for such parcels. Property tax payments will not be accepted, however, unless the assessment installments for such parcels have also been paid_ Therefore, the unwillingness or inability of a property owner to pay regular property tax bills, as evidenced by property tax delinquencies, will likely indicate an unwillingness or inability to make regular property tax payments and assessment installment payments in the future. A failure of property owners to pay installmeuts of assessments when due could result in a default in payments of the principal of and interest on the Bonds. The City reports that, based upon the records of the office of the Kern County Tax Collector, none of the parcels in the respective Community Areas within the Assessment District shows delinquencies in the payment of fiscal year 2001-02, 2002-03, 2003-04, or 2004-OS property tax installments. Limited Obligation of the City Upon Delinquency If a delinquency occurs in the payment of any assessment installment, the City has a duty only to transfer into the Redemption Fund the amount of the delinquency out of the Special Reserve Fund and to undertake, under certain circumstances, judicial foreclosure proceedings to recover such delinquencies. This duty of the City is continuing during the period of delinquency, until reinstatement, redemption, or sale of the delinquent property. There is no assurance that funds will be available for this purpose and if, during the period of delinquency, there are j insufficient funds in the Special Reserve Fund, a delay may occur in payments to the owners of the Bonds. If there I are additional delinquencies after exhaustion of funds in the Special Reserve Fund, the City is not obligated to transfer into the applicable Redemption Fund the amount of such delinquency out of any other available moneys of the City. THE CITY'S LEGAL RESPONSIBILITIES WITH RESPECT TO SUCH DELINQUENT INSTALLMENTS ARE LIMITED TO ADVANCING THE AMOUNT THEREOF SOLELY FROM ANY AVAILABLE MONEYS IN THE SPECIAL RESERVE FUND AND TO UNDERTAKING, UNDER CERTAIN CIRCUMSTANCES, JUDICIAL FORECLOSURE PROCEEDINGS TO RECOVER SUCH DELINQUENCIES. THIS DUTY OF THE CITY TO ADVANCE FUNDS IS CONTINUING DURING THE PERIOD OF DELINQUENCY ONLY TO THE EXTENT OF FUNDS AVAILABLE FROM THE SPECIAL RESERVE FUND UNTIL REINSTATEMENT, REDEMPTION, OR SALE OF THE DELINQUENT PROPERTY. IN ACCORDANCE WITH SECTION 8769(b) OF THE 1915 ACT, THE CFfY HAS DETERMINED THAT IT WILL 39 Bankruptcy and Foreclosure The payment of assessment installments and the ability of the City to foreclose on the lien of a delinquent unpaid assessment, as discussed below in the section emitted "SPECIAL RISK FACTORS -Covenant to Commence Superior Court Foreclosure," may be limited by bankuptcy, insolvency, or other laws generally affecting creditors' rights ar by the laws of the State of Califomia relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified, as Yo the enforceability of the various legal instruments, by reference to bankruptcy, insolvency, reorganization, arrangement, moratorium, and other similar laws affecting the rights of creditors generally, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies in the State. On July 3Q 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valarem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for banlavptcy were not entitled to priority over a secured creditor with a prior lien on the property. The court upheld the priority of unpaid taxes imposed after the filing of the bankruptcy petition as "administrative expenses" of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all of the proceeds of the sale except the amount of the pre-petition taxes. According to the court's mling, as administrative expenses, post-petition taxes would have to be paid, assuming that the debtor has sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would at that Yime become subject Yo current ad valorem taxes. Glasply is controlling precedent on bankruptcy courts in the State of California. Pursuant to statute, the lien date for general ad valorem property taxes levied in the State of Califomia is the January I preceding the fiscal year for which the taxes are levied. Therefore, under Glasply, a bankauptcy petition filing would prevent the lien for general ad valorem property taxes levied in subsequent fiscal years from attaching so long as the property was a part of the estate in banluttptey. Under current law, the lien of an assessment, unlike the lien for general ad valorem property taxes, attaches upon recordation of the notice of assessment. The notice of assessment for the Assessment District assessments was recorded in the Official Records of the County on October 22, 2004. Thus, before applying Glasply to a bankruptcy situation involving assessments rather than general ad valarem property taxes, a court would need to consider the differences in the statutory provisions for creation of the applicable assessment lien. If a court were to apply Glasply to eliminate the priority as a secured claim of the assessment lien with respect to post petition levies of the assessments as against property owners within the Assessment District who file for bankruptcy, collections of the assessments from such property owners could be reduced. It should also be noted that on October 22, 1994, Congress enacted 11 U.S.C, Seation 362(b)(18), which added a new exception to the automatic stay for ad valorem property taxes imposed by a political subdivision after the filing of a bankruptcy petition. Pursuant to this new provision of law, in the event of a banlo~uptcy petition filed on or after October 22, 1994, the lien for ad valorem taxes in subsequent fiscal years will attach even if the property is part of the banluvptcy estate. Bond owners should be aware that the potential effect of 11 U.S.C. Section 362(b}(18} on the Assessment District assessments depends upon whether a court were to determine that the assessments should be treated like ad valorem taxes for this purpose. Whether or not bankruptcy proceedings were to cause the assessment liens to become extinguished, bankruptcy of a property owner in all likelihood would result in a delay in prosecuting superior court foreclosure proceedings. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds, and the possibility that delinquent assessment installments might not be paid in full. ao . i ... ...... .... .... ....... .~. .... .:.. '. Economic, PoliGeal, Social and Environmental Condifions Prospective investors are encouraged to evaluate current and prospective economic, political, social, and environmental conditions as part of an informed investment decision. Changes in economic, political, social, or environmental conditions on a local, state, federal and/or international level may adversely affect investment risk generally. Such changes may also adversely affect the va]ue of property within the Assessment District and/or the willingness or ability of the owners of land within the Assessment District to pay their assessments. Such conditional changes may include (but are not limited to) flucntations in business production, consumer prices, or financial markets, unemployment rates, technological advancements, shortages or surpluses in natural resources or energy supplies, changes in law, social unreat, fluctuations in the crime rate, political conflict, acts of war or terrorism, environmental damage, and natural disasters. Articles XIIIA and XIIIB of the California Constitution On June 6, 1978, California voters approved an amendment to the California Constitution, commonly known as Proposition 13 (the JarvislGann Tnitiative) which added Article XIIIA to the Califomia Constitution. The effect of Article XIIIA is to limit ad valorene taxes on real property. On November 7, 197$, California voters approved Proposition 8, which made certain clanfleations to Article XIIIA. Article XIIIA of the California Constitution limits the amount of ad valorem taxes on real property to 1% of "full cash value" as detemuned by the county assessor. Article XIIIA defines "full cash value" to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under `full cash value' or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred afer the 1975 assessment." The "full cash value" is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and allows local governments to raise their property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation debt issued for the acquisition or improvement of real property and approeed by two-thirds of the votes cast by the qualified electorate. Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes on real property, while otherwise generally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues. Enactment of Article XIIIA has reduced the amount of general property tax revenues received by the City. This reduction in such revenues makes it less likely that [he City will have surplus funds, other than the Special Reserve Fund, with which to.advance funds to make any payments or to cure any deficiency in the Redemption Fund, should the City, in the exercise of its discretion, choose to do so. If there are additional delinquencies after exhaustion of funds in the Special Reserve Fund, the City has no obligation to transfer into the Redemption Fund the amount of any such delinquencies out of any surplus moneys of the City. On July 2, 1979, the Fifth District Court of Appeal rendered a 3-0 decision in the case of Countv of Fresno v. Malmstrom (94 Cal. App. 3d 1974) that determined that special assessments are not subject to the limitations of Article XIIIA (Proposition 13}. The Court held the one percent tax limitation imposed by California Constitution Article XIIIA on ad valorem taxes does not apply to special assessments levied pursuant to the Improvement Act of 1911 (Streets and Highways Code, Section 5000 et seq., the relevant portions of which aze incorporated in the 1915 Act) and the 1913 Act. The Court further held that because special assessments pursuant to such acts are not within the definition of "special taxes" in Article XIIIA, the Constitution does not require the levy of assessments and the issuance of bonds to be approved by atwo-thirds vote of the qualified electors in an assessment district. On September 12, 1979, the Califomia Supreme Court refused to hear an appeal of the lower court's decision. At the November 6, 1979, general election, Proposition 4 (the Gann Initiative) was approved by the voters of California. Such proposition added Article XIIIB to the California Constitution. 41 Article XIIIB of the California Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. The "base year" for establishing such appropriation limit is the fiscal year 1978-79 and [he limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cast of services provided by these public agencies. Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i} regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XBIB includes a requirement that if an entity's revenues in any year exceed the amounts permitted to be spent, the excess would have to be allocated to fund schools or be returned by revising tax rates or f'ee schedules over the subsequent two years. On December ]7, 1980, the Third District Court of Appeal rendered a 3-4 decision in the case Coun of Placer v. Corin (113 Cal. App. 3d 443) that determined that special assessments are not subject to the limitation of Article XIIIB (Proposition 4). The Court held that the definition of "proceeds of taxes" imposed by California Constitution Article XIIIB does noY apply to apecial assessments and improvement bonds issued pursuant to the 1915 Act and the 1913 Act. The decision of the Court was noT appealed. The enactment of Article XIIIA of the California Constimtion (Proposition 13) and subsequent legislative enactments effectively repeal the otherwise mandatory duty on the part of the City, under the 1915 Act, to levy and collect a special tax (in an amount necessary to meet delinquencies, but not to exceed ten cents on each $100 of assessable property within the City in any one year) if other funds are not available to cover delinquencies. in early 1990, the U.S. Supreme Court stmck down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar properties. Since Article XIlIA provides that property may only be reassessed up to 2%, per year, except upon change of ownership or new construction, recent purchasers may pay substantially higher property taxes than long-time owners of comparable property in a community. The Supreme Court in the West Virginia case expressly declined to comment in any way on the constitutionality of Article XIIIA. Based on this decision, however, property owners in California brought three suits challenging the acquisition value assessment provisions of Article XIIIA. Two cases involve residential property and one case involves commercial property. In all three cases, State trial and appellate courts have upheld the constitutionality of Article XIIIA's assessment roles and concluded that the West Virginia case did not apply to California's laws. On Tune 3, 1991, the U.S. Supreme Court agreed to hear the appeal in the challenge relating to commercial property, but the plaintiff subsequently decided to drop the case. On October 7, 1991, the U.S. Supreme Court granted the plaintiff s petition for a writ of certiorari and agreed to hear the Nordlinger v. Lvnch case. On June 18, 1992, the U.S. Supreme Court affirmed the Nordlinger decision (112 U.S. 2326) of the California Court of Appeal, Second Appellate District, which previously held that Article XIIIA does not violate the U.5. Constitution. The City cannot predict whether any other pending or future challenges to the State's present system of property tax assessment will be successful, when the ultimate resolution of any challenge will occur, or the ultimate effect any decision regarding the State's present system of property tax assessment will have on the City's revenues or on the State's financial obligations to local governments. Articles XIIIC and XIIID of the California Constitution Proposition 218, a state ballot initiaftve known as the "Right to Vote on Taxes Act," was approved by California voters on November 5, 1996. Proposition 218 added Articles XIIIC and XQID to the State Constitution, and, with the exception of certain provisions, Articles XIIIC and XIIID became effective on November 6, 1996. a2 ,_ _, Article XIIID, entitled "Assessment and Property Related Fee Reform," contains several new provisions '. making it generally more difficult for local agencies to levy and maintain "assessments" for municipal services and programs. Article XIIID requires that, beginning July 1, 1997, the proceedings for the levy of any assessment by the '.. City under the 1913 Act (including, if applicable, any increase in such assessment or any supplemental assessment under the 1913 Act) must be conducted in confoanity with the provisions of Section 4 of Article XIIID. '~ "Assessment" is defined to mean any levy or charge upon real property for a special benefit conferred upon the real property. Article XIIID additionally provides that in levying "assessments" a local government must separate the "general benefits" from the "special benefits" conferred on a parcel and may not impose on any parcel an assessment which exceeds the "reasonable cost of the proportional special benefit conferred on that parcel" Article '; XIIID also contains various notice requirements and a public hearing requirement and prohibits the imposition of an assessment if ballots submitted by property owners, weighted according to the proportional financial obligation of the affected property, in opposition. to the assessment exceed the ballots submitted in favor of the assessment. The ! City believes that it has complied with. all provisions of Article XIIID applicable to the Assessment District j proceedings described herein. All ballots submitted by property owners were in favor of the assessment. Article XIIIC, entitled "Voter Approval for Local Tax Levies," provides, in Section 3 thereof, that the initiative power shall "not be prohibited or otherwise limited in matters reducing or repealing any ... assessment" of the City. Thus, Article XIIIC removes limitations on the initiative power in matters of, among other things, assessments. Consequently, the voters of the City could, by future initiative, repeal, reduce, or prohibit the future imposition or increase of any assessment. "Assessment," is not defined in Article XIIIC and it is not clear whether the definitiou of that term in Article XIIID (which is generally property-related as described above) would be applied to Article XIIIC. No assurance can be given that the voters of the City will not, in the future, approve initiatives that repeal, reduce, or prohibit the future imposition or increase of any assessments. In the case of the unpaid assessments that are pledged as security for payment of the Bonds, the 1915 Act provides a mandatory, stamtory duty of the City and the Kem County Auditor to post installments on account of the unpaid assessments to the Kem Caunty property tax roll each year while any of the Bonds are outstanding in aggregate amounts equal to the principal of and interest on the Bonds coming due in the succeeding calendar year. Although the provisions of Article XIIIC have not been interpreted by the courts, the City believes that the initiative power cannot be used to reduce or repeal the unpaid assessments that are pledged as security for payment of the Bonds or to otherwise interfere with the mandatory, statutory duty of the City and the Kem County Auditor with respect to the unpaid assessments that are pledged as security for payment of the Bonds. The interpretation and application of Proposition 218 will ultimately be deternuned 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 detemtination. Future Initiatives Articles XIIIA, XIHB, XIIIC, and XIIID of the Constitution were each adopted as measures that qualified for the ballot pursuant to California's initiative process. From time to time other initiative measares could be adopted, which may affect the abIlity of the City to levy and maintain assessments. Covenant to Commence Superior Coma Foreclosure The 1915 Act provides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory. However, in the Bond Resolution, the City has covenanted that, in the event any assessment or installment thereof, including any interest thereon, is not paid when due, the City will, no later than October 1 in any year, file an action in the Superior Court of Kem County to foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal year exceeds 5"/0 of the assessment installments posted to the tax roll for that fiscal year and (ii) the amount in the Special Reserve Fund is less than the Reserve Requirement. in the event such Superior Court foreclosure or foreclosures aze necessary, there may be a delay in payments to the owners of the Bonds, pending prosecution of the foreclosure proceedings and 43 ~, receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. ~ Prior to July 1, 1983, the right of redemption from foreclosure sales was limited to a period of one year j from the date of sale. Under legislation effective July 1, 1983, the statutory right of redemption from such ~ foreclosure sales has been repealed. However, a period of 140 days must elapse after a court adjudges and decrees a '. lien against the lot or parcel of land covered by an assessment or reassessment before the sale of such parcel can be given. Furthermore, if the purchaser at the sale is the judgment creditor, i. e., the City, an action may be commenced by the delinquent property owner within ninety (90) days after the date of sale to set aside such sale. Price Realized Upon Foreclosure The 1915 Act provides that, under certain circumstances, property may be sold upon foreclosure at less than the Minimum Price or without a Minimum Price upon petition by the City. "Minimum Price" as used in this section is the amount equal to the delinquent instalhnenCS of principal and interest on the assessment or reassessment, together with all interest, penalties, costs, fees, charges and other amounts more fully detailed in the 1915 Act. The court may authorize a sale at less than the Minimum Price if the court determines, based on the evidence introduced at the required hearing, any of the following: (A) Sale at the lesser Minimum Price or without a Minimum Price will not result in an ultimate loss to the owners of the Bonds. (B} Owners of 75% or more of the outstanding Bonds, by principal amount, have consented to such petition by the City and the sale will not result in an ultimate loss to the non-consenting Bond owners. (C) Owners of 75°l0 or more of the outstanding Bonds, by principal amount, have consented to the petition and all of the following apply: (1) By reason of determination pursuant to the 1915 Act, the City is not obligated to advance funds to cure a deficiency (the City made such a detertninadon nor to be obligated with respect to the Bonds). (2) No bids equal to or greater than the Minimum Price have been received at the foreclosure sale. (3} No funds remain in the Special Reserve Fund. (4} The City has reasonably determined that a reassessment and refunding proceeding is not practicable, or has in good faith endeavored to accomplish a reassessment and refunding and has not been successful, or has completed a reassessment and refunding arrangement which will, to the maximum extent feasible, minimize the ultimate loss to the Bond owners. (5) No other remedy acceptable to owners of 75°fo or more of the outstanding Bonds, by principal amount, is reasonably available. The assessment or reassessment lien upon property sold pursuant to this procedure at a lesser price than the Minimum Price shall be reduced by the difference between the Minimum Price and the sale price. In addition, the court shall pemut participation by the Bond owners in its consideration of the petition as necessary to its determinations. hnplementation of the above-described Minimum Price provision by the court upon foreclosure could result in nonpayment of amounts due to Bond owners who aze not in agreement with the 75% of such Bond owners required to approve the sale at less than the Minimum Price. Reference should be made to the 1915 Act for a complete presentation of this provision. 44 ,.: __.: Priority of Lien Each assessment (and any reassessment) and each installment thereof, and any interest and penalties thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. Such a lien is subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all private liens and over all fixed special assessment liens which may thereafter be created against the property. Such a lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes created pursuant to the Mello-Roos Act, whenever created against the properly. Upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any other special assessment lien created under the 1913 Act. The property within The Homestead Area, the Cherry Hill Area, the Olive Park III Area, and a portion of the Countryside Area is subject to an existing special tax lien created by RNR CFD No. 92-1 pursuant to the Mello-Roos Act. Moreover, the portion of the Countryside Area currently located outside of RNR CFD No. 42-1 is expected to be annexed into RNR CFD No. 92-1 during the 2004-2005 tax year. The amount of special taxes, if any, to which property within RNR CFD No. 92-1 is subject varies based upon the zoning, the entitlements, and the type and level of development of such property. See "THE BONDS -Priority of Lien." Refunding Bonds Pursuant to the Refunding Act of 1984 for 1915 Improvement AcC Bonds (Division 11.5 of the Califomia Streets and Highways Code), the City may issue refunding bonds for the purpose of redeeming the Bonds. Afrer the making of certain required findings by the City Council, the City may issue and sell refunding bonds without giving notice to and conducting a hearing for the owners of property in the assessment district, or giving notice to the owners of the Bonds. See "THE BONDS -Refunding Bonds." Upon issuing refunding bonds, the City Council could require that the Bonds be exchanged for refunding bonds on any basis which the City Council determines is for the City's benefit, if the Bond owners consent to the exchange. As an alternative to exchanging the refunding bonds for the Bonds, the City could sell the refunding bonds and use the proceeds to pay the principal of and interest and redemption premium, if any, on the Bonds as they become due, or advance the maturity of the Bonds and pay the principal of and interest and redemption premium thereon. Absence of Market for Bonds No application has been made fox a rating for the Bonds, and it is not known whether a rating for the Bonds could be secured either now or in the future. There can be no assurance that there will ever be a secondary market for purchase or sale of the Bonds, and from time to time there may be no market for them, depending upon prevailing market conditions and the financial condition or market position of firms who may make the secondary market. Loss of Tax Exemption As discussed under the heading "TAX MATTERS," interest on the Bonds could cease to be excluded from gross income for purposes of federal income taxation, retroactive to the date the Bonds were issued, as a result of ', future acts or omissions of the City. ENFORCEABILITY OF REMEI}IES The remedies available to the Paying Agent, the City, or the owners of the Bonds upon any nonpayment of assessment installments are in many respects dependent upon judicial actions, which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically Title 11 of the United States Code (the federal banlauptcy code) and relevant banking and insurance law, the remedies provided in the 1915 Act and the 1913 Act may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by bardQUptcy, reorganization, insolvency, or other similar laws affecting the rights of creditors generally, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies in the State of California. 45 x-r- ...._ -. .... - .. _ .. .._ _. NO LITIGATION No litigation is pending concerning the validity of the Bonds or the Bond Resolution, and an opinion of the Ciry Attorney to that effect will be furnished to the purchaser at the time of the original delivery of the Bonds. The Ciry is not aware of any litigation pending or threatened questioning the political existence of the City or contesting the City's ability to pay interest on the Bonds. There are a number of lawsuits and claims pendrttg against the City. In the opinion of the City Attorney, the aggregate amount of liability that the City might incur as a result of adverse resolutions in such cases would likely be covered under the City's insurance policies or self-insurance program. CERTAIN INFORMATION CONCERNING THE CITY Certain general information concerning the City is included in APPENDIX A hereto. THE GENERAL FUND OF THE CITY IS NOT LIABLE FOR THE PAYMENT OF THE BONDS OR THE INTEREST THEREON, AND THE TAXING POWER OF THE CITY IS NOT PLEDGED FOR THE PAYMENT OF THE BONDS OR THE INTEREST THEREON. TAX MATTERS In the opinion of Omek, Hemngton & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulaflons, mlings, and court decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current comings in calculating federal corporate alternative minimum taxable income. A complete copy of the opinion of Bond counsel is set forth in APPENDIX C hereto. The Internal Revenue Code of 1986 (the "Code") imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes oI' interest on obligations such as the Bonds. The City has covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to detemune (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring} after the date of issuance of the Bonds may adversely affect the tax status of the interest on the Bonds. Certain requirements and procedures contained or referred to in the Bond Resolution, the tax certificate to be executed by the City at closing, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the temis and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Bonds or the interest thereon if any such change occurs or actions are taken or omitted upon the advice or approval of bond counsel other than Orrick, Herrington & Sutcliffe LLP. However, without limiting the generality of the foregoing, the City has covenanted in the Bond Resolution that, prior to making any change to or taking or omitting to take any action with respect to any of the agreements, requirements, or procedures contained or referred to in the Bond Resolution, the tax certificate, or other relevant documents pertaining to the Bonds, the City will do either of the following. (i} obtain a subsequent opinion of Omck, Herrington & Sutcliffe LLP that such change, action, or omission will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds; or (ii) obtain an opinion of alternative nationally recognized bond counsel to the effect originally delivered by Bond Counsel that, notwithstanding such change, action, or omission, interest on the Bonds is excluded from gross income for federal income tax purposes. Although Bond Counsel will render an opinion that interest on the Bonds is excluded from gross =.~.~ame for federal income tax purposes and is exempt from California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Bondholder's federal tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Bondholder or the Bondholder's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. d6 APPROVAL OF LEGALITY The validity of the Bonds and certain other legal matters are subject to the approving opinion of Omck, Hemng[on & Sutcliffe LLP, Bond Counsel. A complete copy of the proposed form of bond counsel opinion is contained in APPENDIX C hereto and is printed on the Bonds. Bond counsel undertakes no responsibility for the accuracy, completeness, or fairness of this Official Statement. Certain matters will be passed upon for the City by the City Attorney of the City of Bakersfield. Certain other matters will be passed upon by Pillsbury Winthrop LLP, Los Angeles, California, as disclosure counsel to the Ciry. SCCadling, Yocea, Carlson & Rauth, Newport Beach, California, has represented the Underwriter in connection with the issuance of the Bonds. UNDERWRITING Pursuant to a Bond Purchase Contract between the City and the Underwriter, the Bonds are being purchased by the Underwriter at a purchase price equal to the principal amount of Bonds being issued less an Underwriter's discount of $52,437.50. The Bond Purchase Contract provides that The Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase, if made, being subject to certatu terms and conditions set forth in the Bond Purchase Contract, the approval of certain legal matters by counsel, and certain other conditions. The Underwriter may offer and sell Bonds to certain dealers and others at a price other than the offering price. The offerhrg price may be changed from time to time by the Underwriter. NO RATING The City has not made and does not contemplate making application to any rating agency for the assignment of a rating to the Bonds. CONTINUING DISCLOSURE The City, Centex Homes, and Gazdiner LLC have each covenanted for the benefit of Bondholders to provide an annual or semi-annual report, as applicable, containing certain financial information and operating data relating to the Assessment District and the property in the Assessment District, and to provide notices of the occurrence of certain enumerated events, if rnatexial. The specific nature of the information to be contained in each annual or semi-annual report, as applicable, or each notice of material events, if any, and the applicable deadlines, are set forth in the respective Continuing Disclosure Certificates, the forms of which are attached hereto as "APPENDIX F -CONTINUING DISCLOSURE CERTIFICATES." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b}(5), as amended (the "Rule"). Each of the City, Centex Homes, and Gardiner LLC has represented that it has never failed to comply with any previous undertaking to provide annual or semi-annual reports, as applicable, and notices of material events. Bakersfield Avalon, Olive Park Land Company, and the Olive Park III Merchant Builders, as owners of property in the Assessment District that, when aggregated with all other property in the Assessment District owned by each such entity ox its affiliates, is subjecC to a lien of less than twenty percent (20°f°} of the annual assessment securing payment of the Bonds, do not have an obligation to provide continuing disclosure information and therefore have not entered into continuing disclosure certificates. However, in the event any of the foregoing entities, or any other entities (including Lennar or Beazer Homes), should acquire property in the Assessment District that, when aggregated with all other property in the Assessment District owned by such owner of its affiliates, is subject to a lien of twenty percent (20%) or more of the annual assessment securing payment of the Bonds, such owner shall be required to enter into a Continuing Disclosure Certificate as described in the preceding paragraph. a1 MISCELLANEOUS The foregoing summaries or descriptions of provisions of the Bonds, the Bond Resolution, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions Uiereof, and reference is made to said documents for full and complete statements of their provisions. The appendices hereto are a part of this Official Statement. 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. The Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Bonds. The execufion and delivery of this Official Statement has been duly authorized by the City. CITY OF BAKERSFIELD By: .. g ry J Finance it 48 General The City is located at the sauthem end of the San Joaquin Valley, approximately 110 miles north of Los Angeles and 290 miles south of San Francisco. The City includes over 116 square miles of land and an additional 76 square miles of Land area is located within the City's sphere of influence. The City is a regional center for industry, government, transportation, retail trade, medical services, and oil field operations. Major manufacturing activities include iron and steel fabrication, plastic foam products, food pxoduets, petroleum refining, and textiles. Bakersfield is one of the leading convention centers of the state and is the commercial hub of Kern County (the "County"). As the County seat, it is the location of many Bounty, state, and federal offices. The metropolitan area has expanded considerably beyond the City limits. As of January 1, 2004, the estimated population of the County was 724,883 and the estimated population of the City was 279,672, according to '. the California Department of Finance and the City's Finance Department, respectively. The Bakersfield Standazd Metropolitan Statistical Area {SMSA} includes all of Kern County, as defined by the State Department of Employment Development. City Government The City was incorporated on January 11, 1898, under the general laws of the State of California (the "State"). The City is a charter city with a counciUmanager form of government. The City Council is comprised of seven council members, elected by ward on a staggered basis for a term of four years. The mayor is directly elected for afour-year term. The council appoints the City Attorney and the City Manager, who also serves as the Executive Director of the Bakersfield Redevelopment Agency (the "Agency'. There axe approximately 1,245 permanent City employees, including 74 persons in management and 150 persons in supervisory positions. Fire protection is provided by 170 Firefighters, manning 13 stations. The police department has 311 Police Officers. Tax Levies and Delinquencies; Assessed Valuation of Taxable Property The Kern County Tax Collector collects ad valorem property tax levies representing taxes levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding March I. Unsecured taxes are assessed and payable on March 1 and become delinquent August 31, in the next fiscal year. Accordingly, unsecured taxes are levied at the rate applicable to the fiscal year preceding the one in which Yhey are paid. One half of the secured tax levy is due November 1 and becomes delinquent December 10; the second installment is due Febmary 1 and becomes delinquent April 10. A ten percent penalty is added to any late installment- On June 30, delinquent properties are sold to the State. Property owners may redeem property upon payment of delinquent taxes and penalties. Tax-defaulted properties are subject to a redemption penalty of one and one-half percent (1-112%} of the tax due, charged from July 1 following the date on which the property became tax-defaulted to the date of redempton, plus a penalty for every subsequent tax year (i.e., July 1 through June 30) in which the property remains tax-defaulted, at a rate of one and one-half percent {I-1/2%} of the tax due for each such tax yeaz. Properties may be redeemed under an itstallment plan by paying current taxes, plus 20% of delinquent taxes each year for five years, with interest accreting at one and one-half percent (1-Il2%) per month on the unpaid balance. If no payments have been made on delinquent taxes at the end of five fiscal years, the property is deeded to the State. Such properties may thereafter be conveyed to the County Tax Collector as provided by law. A-I ,_ _ _,. ,. The table below summarizes the City's property tax levies, the current amounts delinquent, and total collections for fiscal years 1994-95 through 2003-04. Table A-1 City of Bakersfield Property Tax Levies and Delinquencies oa Fiscal Years 1994-95 through 2003-04 Fiscal Total Total Tax Percent of Levy Percent of Current Year Tax Lew Collections Collected Taxes Collected 1994-95 $16,349,776 $16,239,085 96.7% 99.3% 1995-96 16,856,805 Ib,975,278 96.4 100.7 1996-97 17,175,495 17,464,195 978 101.7 1997-98 17,289,200 17,430,365 97.4 100.8 1998-99 17,864,445 20,488,683 111.7 114.7 1999-00 18,554,717 19,123,448 99.5 103.1 2000-O1 19,093,149 18,199,926 92.9 95.3 2001-02 20,121,528 20,675,415 99.4 102.8 2002-03 21,301,453 23,523,1Ob 107.4 110.4 2003-04 22,792,274 23,18b,177 101.7 105.0 {1) Excludes redevelopme~~ fax increment revenues. Source: City Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2004. The table below summar res the assessed valuations in the City for fiscal years 1994-95 t hrough 2003-04. Table A-2 City of Bakersfield Assessed Value oFTaxable Property (Fiscal Years 1994-93 through 2003-04) Percent Total Assessed Increase Fiscal Year Secured Unsecured Utility Value Decrease 1994-95 $7,6b2,423,762 $342,662,118 $14,097,810 $8,019,183,690 -- 1945-96 8,068,SOb,294 356,616,991 13,232,785 8,438,356,070 523% 1996-97 8,213,247,OSb 350,499,835 13,971,013 8,577,717,934 1.65 1997-98 8,407,516,74b 374,446,012 15,497,196 8,797,459,954 2.56 1998-94 8,628,532,571 453,535,838 17,719,409 9,099,787,818 3.44 1999-00 9,268,459,616 423,862,659 19,424,138 9,711,746,413 6.72 2000-O1 9,809,567,800 432,049,903 19,039,560 10,260,657,263 5.65 2001-02 10,111,103,449 462,192,054 18,851,231 10,592,146,734 3.23 2002-03 10,820,926,790 481,183,430 18,614,866 11,320,725,086 6.88 2003-04 11,947,354,805 483,752,532 26,993,919 12,458,106,256 10.05 Source: City Comprehensive Annual Financial Report for Fiscal Year Ended June 3Q 2004 A-2 The table below shows the assessed valuations of the principal taxpayers in the City as of June 30, 2004. Table A-3 City of Bakersfield Assessed Valuation of Principal Taxpayers (June 30, 2004) 2002-03 Assessed Percentage of Total Taxaaver (D Tvae of Business Valuation Assessed Valuation Castle & Cooke Camm. Inc. Real Estate Development $ 136,181,708 1.09% Bakersfield Mall LLC Shopping Center 115,620,887 0.93 Ice Cream Partners, USA Manufacturing 66,359,323 0.53 State Farm Insurance Company Insurance 60,782,568 0.49 Bear Mountain Limited Cogeneration 53,804,041 0.43 Chevron USA Inc. Oil Company 47,975,958 0.39 Albertsouslnc. Groceries 30,840,700 0.25 Cox Communications Bakersfield Cable 24,115,674 0.19 Hopper Properties Limited Partnership Real Estate Development 20,323,638 0.16 Nakanogumi Corporation SBD Rea] Estate Development 12,500,000 0.10 Group Inc. Total taxable assessed value of ten {10} largest taxpayers $ 568,504,497 4.56 Total taxable assessed value of other taxpayers 11,889,601,759 95_44 Total taxable assessed value of all taxpayers $12.458.106.256 1nn.on% (1) Related parties grouped together on the original source document (County's list of assessed va luations} are included in the total assessed valuation amount for each taxpayor cited. Unitary and ope rating nonunitary are excluded as valuation by parcel is no longer available. Source: City Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2004, citing H DL Corers & Cone and Kem County Assessor 2003104 Combined Tax Rolls. Demographic Statistics The following table sets forth various demographic data regarding the City, including population, estimated median household income, elementary school enrollment, and estimated unemployment rate, from fiscal year 1994- 95through 2003-04. Table A-4 City of Bakersfield Demographic Statistics (Fiscal Years 1994-95 through 2003-04) Elementary Estimated Estimated Median School Unemployment Fiscal Year Population Aoasehold Income Enrollment Rate 1494-45 207,472 $37,449 26,350 12.8% 1995-46 212,715 31,852 2b,903 12.4 1996-97 214,554 31,888 27,126 11.4 1997-98 221,b89 33,339 27,310 10.9 1998-99 230,771 33,754 27,668 11.0 1999-00 237,222 34,343 27,783 12.5 2000-01 254,368 37,573 28,099 10.4 2001-02 257,914 35,153 2.8,267 11.2 2002-03 266,784 42,800 28,179 12.0 2003-04 279,b72 46,000 28,315 12.6 Sources: City Comprehensive Annual Financial Report for Fiscal Year Ended June 3Q, 2004. A-3 Employment The County's total labor force, the number of persons who work or are available for work, is estimated to be 305,400 for 2003, an increase of 2.11% over the preceding yeaz. The number of employed workers in the labor force is estimated to be 267,900 for the same date. The following table sets forth information regarding the size of the labor force, employment and unemployment rates for the County, the State, and the U nited States for the calendar years 1948 through 2003. Table A-5 Employment -Averages Calendar Years 1998 - 2003 1998 1999 2000 2001 2002 2003 Kern County Labor Force (OOOs) 277.9 277.9 287.1 292.0 299.1 305.4 Employment (OOOs) 2442 246.3 254.7 260,9 264.0 267.9 Unemployment Rate 12.1% 11.4% 11.3% 10.6% 11.7% 12.32% State of California Labor Force{OOOs) 16,138.1 16,375.6 16,884.2 17,182.9 1?,404.6 17,629.3 Employment(OOOs) 15,180.9 15,522.3 16,048.9 16,260.1 16,241.8 16,455.4 Unemployment Rate 5.9% 5.2% 4.9% 5.4°l0 6.7% 6.7% United States Labor Force (OOOs) 137,673 {I) 139,368 (1) 142,583 (1) 143,134 144,863 146,510 (1} Employment (OOOs} 131,463 (i) 133,488 (1) 136,891 (I) 136,933 136,485 137,736 Unemployment Rate 4.5°Jo 4.2% 4.0% 4.7% 5.8% 6.0% (1) Not strictly comparable with data for prior years. Source: Califomia Employment Development Department and U.S. Department of Labor Bureau of Labor Statistics The following table sets forth the top twenty employers in the City as of July 2003 Table A-6 CITY OF BAKERSFIELD Principal Employers (As of Jaly 2003) FIRM PRODUCT{SERVICE EMPLOYEES County of Kem Govemment 9,400 Grimmway Enterprises Agriculture 5,000 Giumarra Farms Agriculture 4,000 Wm. Bolthouse Farms Agriculture 2,400 Bakersfield Memorial Hospital Hospital 1,350 City of Bakersfield Govemment 1,21$ Aera Energy LLC Oil and Gas Production 1,150 Mercy Hospitals Hospital 1,100 State Farm Insurance Insurance 1,003 Califomia State University Bakersfield Education 1,003 ChevronTexaco Oil and Gas Production 7,000 Pandol & Sons Agriculture 1,000 San Joaquin Community Hospital Hospital 9$$ ACS Call Center 800 Frito-Lay Inc. Food Production 800 Kaiser Permanente Health Care 729 Sears Logistics Logistics 650 B.A.R.C. Non-Profit $60 Paramount Citrus Association Agriculture $$0 Bakersfield College Education 400 Source: City of Bakersfield A-4 a Building Activity 95. The following table summarizes the City's total annual building permit valuations since Fiscal Year 1994- Table A-7 CITY OF BAKERSFIELD Property Value, Construction, and Bank Deposits (1) Fiscal Years 1994-95 through 2003-04 Commercial Residential Construction Construction Fiscal Number of Number of Year Units Value Units Value 1994-95 39 $65,891 1,571 $150,429 1995-96 SO 26,287 1,909 179,127 1996-97 102 42,352 1,352 132,785 1997-98 147 49,241 1,983 197,773 1998-99 213 78,199 2,088 223,576 1999-00 140 51,251 1,890 218,656 2000-01 133 38,113 2,012 261,522 2001-02 143 70,874 2,445 311,639 2002-03 141 56,b94 2,981 428,534 2003-04 130 82,003 3,677 568,413 (I) Property values and bank deposits ue reported in thousands Sources City Finance Department. Commercial Activity Other Total Construction Constmction Number of Bank Value Units Value Deposits $37,167 1,610 $253,487 $1,563,075 41,962 1,954 247,376 1,678,075 40,459 1,454 2]5,596 2,310,008 67,281 2,130 3]4,295 2,438,004 36,958 2,301 338,733 2,464,202 34,438 2,030 304,245 2,454,280 48,067 2,135 347,702 2,730,107 571)83 2,588 440,496 2,865,985 62,112 3,122 547,340 3,179,623 65,87$ 3,807 716,294 (not available) Consumer spending in calendar year 2002 resulted in approximately $3,828,193 in taxable sales in the City, which is approximately 2.24°lo above calendar year 2001. The following table sets forth information regarding taxable sales in the City for calendar years 1998 through 2002. Table A-8 CITY OF BAKERSFIELD Taxable Retail Sales 1998 - 2002 (000x) 1998 1999 2000 2001 2002 Apparel stores $ 93,522 $ 97,207 $ 109,847 $ 117,059 $ 126,267 General merchandise stores 522,425 564,971 598,519 b33,892 667,344 Food stores 148,581 162,505 176,986 181,300 196,060 Eating and drinking places 250,628 266,476 2$7,815 309,643 330,061 Home fiunishings and appliances 102,108 113,435 123,510 126,$41 142,019 Building materials and farm implmts. 184,458 217,197 244,146 256,506 286,088 Automobile dealers and auto supplies 531,261 623,868 71b,804 845,904 850,364 Service stations 157,046 179,011 209,649 187,497 178,716 Other retail stores 318,548 342.586 372 930 384,538 413.285 Total Retail Outlets 2,308,577 2,567,256 2,840,206 3,043,184 3,190,204 All Other Outlets 588,811 629,476 657574 701,212 637.989 Total All Outlets $2,897,388 $3,196,732 $3,497,780 $3,744,392 $3,828,193 Source: California State Board of Equalization A-5 There are three major shopping centers in the City. Major department stores with Ioeal outlets include Robinsons-May, Macy's, Mervyns, LC. Penney, and Sears. The retail base includes two Wal-Marts, two Targets, one K-Mart, two Home Depots, a Lowe's Home Improvement Store, and a Costco. ', The number of sales permits issued and the valuation of taxable transactions for the years 1998 through 2002 is presented in the following table. Table A-9 CITY OF BAKERSFIELD Number of Permits and Valuation of Taxable Transactions 1998-2002 Retail Stores Total All Outlets Year No. of Permits Taxable Transactions No. of Permits Taxable Transactions 1998 2,838 $2,308,577 5,864 $2,897,388 '~ 1999 2,955 2,567,256 5,887 3,196,732 2000 3,163 2,840,206 5,961 3,497,780 2001 3,422 3,043,180 6,213 3,744,392 2002 3,552 3,190,204 6,359 3,828,193 ~'i Source: State of California, Board o f Equalization. Transportation Well-developed surface and air transportation facilities are available Yo City residents and business fmns. Main lines of both the Union Pacific and the Burlington Northern Santa Fe railroads traverse the area. Amtrak service is available. State Highway 99, the main north-south artery serving the most populous communities along the east side of the Central Valley, runs through the center of the City. State Highway 58 provides east-west linkage between Interstate 5, 20 miles west, and Interstate 1S at Barstow, to the east, Highway 178, heading northeast, is the major route along the Kern River Valley. Highway 65, to the north, provides access to communities east of Highway 99 and to Sequoia National Park. Interurban motor transportation is made available by Orange Belt Stages, Greyhound, and Trailways. Golden Empire Transit provides local bus transportation. Meadows Field (Kern County Airport) adjoins the City to the north. Regularly scheduled passenger and air cargo service is available as well as charter service and general aviation services. The main mnway is 11,000 feet in length. Utilities Elechicity throughout the City is supplied by Pacific Gas and Electric Company. This company, along with Southern California Gas Company, also supplies natural gas. Telephone service is by SBC. Fifreen private water companies serve the City, Sewer service is provided by the City. Education Public education in the City through the secondary grades is provided by a number of elementary school districts, including the Bakersfield City School District and Kern High School District. There are also a number of private schools, nursery schools, and pre-schools within the City. A-G e >:. - , , , The City lies within Kern Community College District, which administers Bakersfield College. This two year institution is located on a 150-acre site in northeast Bakersfield. Vocational and technical courses are offered as well as academic courses designed to equip the student for transfer to afour-year college or university in the third year. Bakersfield College attracts about half the local high school graduating class each year. California State University, Bakersfield opened in 1970. It is one of the newest campuses in the State University system, receiving its university status in 1988. It is on a 375-acre site located in the western portion of the City. Majors offered include anthropology, art, earth sciences, philosophy, mathematics, political science, business and teaching. A graduate program offers the master's degree in a number of fields. The newest campus in the University of California system , UC Merced, is scheduled to open in 2004. UC Merced will serve the entire San Joaquin Valley, with the main campus located in the City of Merced and satellite centers located in the City (which satellite center has already opened) and the Cities of Fresno and Modesto. Financial Services Statewide banking systems serving the City include Bank of America, Washington Mutual Bank, Sanwa Bank California, Union Sank, and Wells Fargo Bank. Their services are supplemented by local and regional banks, and various savings and loan associations. Community Facilities The City has six general hospitals with a total bed capacity of 1,075_ The City is a primary medical center of a region larger than some states. Mercy Hospital and Greater Bakersfield Memorial Hospital are among the largest employers in the City. Kern Medical Center, administered by the County, is affiliated with UCLA Medical Center of Los Angeles. The daily "Bakersfield Californian" and two weekly newspapers provide regional news coverage. Bakersfield has twenty radio stations, four television stations and three cable TV companies. The City has 47 public parks, covering a total of 395 acres. The Bakersfield Centennial Garden and Convention Center contains a 3,250-seat concert hall, a 9,000-seat arena, four meeting halls, and six conference rooms. Memorial Stadium hosts more National AAU track meets than any other city in the country. County-owned golf courses and five private courses offer year-round golf, and tennis is played throughout the year at the Bakersfield Racquet Club. Cultural advantages of the City include a community theater, the Bakersfield Symphony orchestra, a community concert group, and Cunningham Art Gallery. Bakersfield College and California State University, Bakersfield, sponsor plays, concerts, lectures, and special events throughout the year. A-7 (THIS PAGE INTENTIONALLY LEFT BLANK) .. APPENDIX B APPRAISAL al r ,,. 9: -. ~.:. :-. .. ':... (THIS PAGE INTENTIONALLY LEFT BLANK} COMPLETE APPRAISAL SUMMARY REPORT OF Assessment District 04-1 Various locations in the City of Bakersfield known as: The Homestead, Cherry Hill, Olive Park III, and Countryside Areas. For CITY OF BAKERSFIELD 1501 Truxtun Ave Bakersfield, CA 93301 As Of November 1, 2004 Prepared By Randall Franz, MAI, SRA KERN APPRAISAL COMPANY Real Estate Appraisal Services 5401 Business Pazk South, Suite 103, Bakersfield, CA 93309 e (THIS PAGE INTENTIONALLY LEFT BLANK) ~. + ... _ .. F~["t~,t_ Y ~7 A`f`i= ,C,C~I~fitCii~Ai_ SEt~itt~ES t~4RiGtA1Lt~ i°t=tr'?,t*aZ, Ct+tF~i. S;«iF,t J'usti~ry 7, 21113 F~l;_fG"t;.i77t„.Itt F~f,47. FfkF-$~t~~{,~~ fur ~il~; Fvd, 2fk`t~ 4~~r. 2Jetscaat F~:.. ~mieS7 ~siatar7t Fittane~ F~3irectttr I Sll 1 Trutaan Aga Bakers#is:Fci. t"~ 933tF3. ~uSr~c~i; t~csattpFet~ r'1Ftpr~si~n~ uznmtiivltz~sc~xY r~.ssc.ssatrent District flit- .ittntr~=spdiu,'1"}t~ I~trte~~s#~~ct GF7errg €{i€! '~ t3Sav~P~~] t~;~.,a*ss~ntt.lmaa. ', F3~ts~eld, t"alif~arrasa, t 1~trt~7r. 5rnith: ~n canapletraa of our a~reciatett as cutiaaic~f€ itt the rmns~,~tt~ni's agres;ts~~,rat e€ate~ ~rta,^ t 7, k4F47~4,1 srsz taEea^;~~a3 tca tr~nit tSxe frt€Fa~vi€a}; ~asstpicis:. rlppr~ai~7tt S7imrnat}~ F~epct~c. In tFtix rcpcazt, an^ ~~anan mf ntacket ~~alue i;k expra~ss~tt ft~r the fee sattpte isttcrest of tFtcreal ptmtperty ecsastiu~ c7f resi~€ential suhcliaisaaat:l~tis act~3 Lind ir7~tur3id in t~ssessratent T3€strict, t~#~l`icx'at~:~F in .F~aakersfielcl, C"nlifc?ntia. Tlte.anspe~ttxn ~*Fas ut:tcie Eerr thr; psarpca~~, aF a~ port rtf' tFte pra~eess; of di:>e~lcrpiat~ vp'uacaza;; aaf.' vaFue ~t"sar tEi~ s7~rjeet ~r~rtapettie , s saF' ~+1av~mber 1, ~IFF34= _ , Tite ~alu~ rrpiniaas t~ttart~d ~ ~1?a{ifaed by ctatn d!fittitiaats, lattaati?e~ eranditia~in~, and ~ erti ficat€c?aas, which € set fcsrt3t ars tltie regxart. ,aL, ~ nsu€i rzf'y ata~lysis, € tidve, faraatcl eat aprnii€t t6et the attarket +°alues "a~ is";~:sarrrFci;~ tine asnpruc~crtteatta; =t resatt, of F3 G~~-1 are iztstalled {as +icfiatrxF in the. re~carl), subject to tFze cicfuutitxts, certiftet7tiatns, as7aF FFsttitan~ ec~nd7ticrats set Earth in t4ac~ attt}tetF >~~ hvete as refle~kec~ isr the "Value tJfinans --"~is~~ssment ]:listaie:t;tkF-I" table ~~G~rar gaee I d€td "Staattaar,3= of lssesscn~tir I?isttiz~t {3~1-E 4`a€u~s" s~reads3aeeC an the ac§den~la. The st5bjeri ~atesperTy° hies €t~c'tt ~ppraiaecl stabFect tcs the ~p:cial t iiast s~€ Ass~ssrtcnt ~3ist~ci £?~-1 ~itd sc17t ~;1°E3 b~indc~F sataleFtedn€;ss {see the Fan~*4rieer's Ftepact ~irepan:et lty i~Flwaa x~ oassuciatcs atcd Septayattber ~2< flll4, pate l-~ and made e pant itereaf by r~fer~xee~ taking utt~ c:c.~nsadatrat~ttn ibe trnprca~dazaetzt.~~fee~ tlaac acute tat€te: }arcaFterty. This is a ~trplet~ aSprai~aF ~t~rfrtzit,iaiteFer Standard S t~f the L3ui£csrait #sattdards of Pxraft<~sittn~F t~Stpraisa7 1?ractir:e [t.SSPf~ltl, "The rep+?rl is de!?ri~:ci as a Sutnutary a~Ftpas~stal-l~eFtsark, which ls- intended ttt carrtp€y with the eeSre+rtFtt~ regtsiretnents set fartlt under tatttdar~S ~-~{b~ af` ~«`~Sa~S? etstilfe 7anuaz~~ €, ~ far umniary AppraisaF T2epxtrt. St Fxas,alsci meat rvriitezi #v ~salifanela, t3#' ~ttsitt F~ari~ ~attth, Suite "![i3 - ak~rald, €i3ttrtaFa £~ {# ~ 32iui~5~ ~ ~~x {6~1) 32'E-{3935 • aai+~vttittketttsppr~iSaFeetsrat ,., z'v1r. 3~Ielsta3 t<. Sznsth c1T~ c~~ ~~atc~~s~`~c~.~ ~~~~~~ 4 1")eht ~tici Tn~'cstaraertt ~~dwi:+;c~ry C'.cs~nrnissac>n S"tacitlards rtc~i~cd Jtiety ~QCt~. #`i±~ strCh, it re~resetats r~raiv saaan~aaary discussions taf thk. ~l~[~, reastanitag, end ~n.~l}~stss that wee azsu3 ira tae :~~Sprai'safl gross ts~ develop tlae ~~~raist*r's c~~inian of valaa~, 5utslusrtitt dcsctsaraenhatiesn ~~sncetrian~ t3se data; ra~ac~in, azad a~ly~cs is retained an tlpe ~ggttaisei•'s file. Tlie dc~tta of discussisaxa eontua`eaec3 in Chas reg~ar4 is specitff~; to t€ao needs of the cticnt. T~,e aplaraiser as ns~t xescaasital ~t unaudaorired uses taf tE~s repcart. The itatended ttss=cs ©t` t€ss re~xasi srrt;: ("~styT c~#' l3alcera;fteld, ats $ffilates„ disi~a~ates anti. aasi~;nees, r~atin~, a~enci l7~nd laorlexs anti gras~aertic~a hand k€ctders. atld a daxlgr ntathorued Apaprasal 3nstitutc~ per vies" ~aaaas~ittc~. T3ae ta~~prast»z has _~rantc;d penaaissicrn tca {anhlimEa this a~artaisal ixa tfae C7#~ical ~talt;tnersC anr3. ceansencerl #s~r it^s sase saa cnat~enn~ caf tlac. ~ssessrneist 2~istrict t1-I bcraids. This lettr exffranscnittal as dart of the aitFCOhec# r~€rrC, w3ait;h sets fcsrth the tfata xaad £tnaaly~s~c ugcaea ~•hich my utaicsion of value ts; in r~, liredicatt ti. Sncer>vly, P.andall ~raaar, Ivl:Ats ."~Jtt'~ ~adiferrnia C°erti~~ Creaaet~l ~1~agaraiser #fi~ ~CiiQ(343fl9' Ixpirutis~n Bate: 12`i]~It7 ,: _ ; _ TABLE OF CONTENTS INTRODUCTION Value Opinions-Assessment District 04-1 Aerial View of Subject Area PURPOSE AND INTENDED USE .............................................. PROPERTY RIGHTS APPRAISED ............................................ SCOPE OF THE APPRAISAL ..................................................... VALUE DEFINITIONS ................................................................ ASSUMPTIONS AND LIMITING CONDITIONS .................... AREA ANALYSIS ........................................................................ NEIGHBORHOOD ANALYSIS .................................................. SINGLE-FAMILY RESIDENTIAL MARKET OVERVIEW... COUNTRYSIDE AREA ............................................................... THE HOMESTEAD AREA .......................................................... CHERRY HILL AREA ................................................................. OLIVE PARK III AREA ............................................................... HIGHEST AND BEST USE ......................................................... VALUATION PROCEDURE ....................................................... Cost Approach ................................................................... Income Capitalization Approach ...................................... RECONCILIATION AND FINAL VALUE CONCLUSION ... CERTIFICATION .......................................................................... ADDENDUM Summary of Assessment District 04-1 Values Subject Photographs Land Sales Data Sheets Cash Flow Analysis Qualifications ............ 1 ............ 1 ............ 1 ............ 2 ............ 3 ............. 8 ............. 14 ............. 18 ............. 21 ............. 31 ............. 35 ............. 39 ............. 43 ............. 45 ............. 45 ............. 50 ............. 59 ............. 62 :.. __ ,: ' Value Opinions -Assessment District 04-1 BULK VALUE OF RECORDED VALUE ', ASMT LOTS AND ASSCSSMENT TO LIEN ' NO ATNlDESCRIPTION LAND LIEN RATIO COUNTRYSIDE AREA I 1-16 Tract 6118-Ph 2, Lots I-10 & 27-32 1,459,000 66,761.57 21 SS 17-4$ 7tact. 6118-Phase 3 1,715,000 133.523.19 12.84 ~~~ 49-80 Tract 6118-Phase4 1,709,000 133,523.19 12.80 ~, 81-114 Tract 6118-Phase 5 1,781,000 141,868.38 12.55 115 Tract 6118-Ph 5, Lot 35 (Portion of Future Tract 61(8-Phase 6) 374,566 42,589.01 5.98 ' 122 LLA Np. 122-99, Parcel E (FLtore Tract 61 18-Ph 6, 7 & 8) 2,969,39b 375,533.95 791 ! SUBTOTALS TRACT N0.6118 -FOX RUN DEVELOPMENT AREA: 10,007,962 913,799.29 10.95 123-149 I Tract 6145-Phasel 1.801 A00 135,120.28 13.33 0 II 156-187 Tractb195-Phasel I„854,000 160,142.55 ILS8 188-218 Tract 6195-Phase3 1.800.000 155,138.09 11.60 219-249 Tract 6195-Phase4 1.686,000 155,138.09 10.87 250 'lmct 6195-Ph 4, Lnt 72 (Future Tract G 195-Phases 5, b, 7 & 8) 4,386,336 585,521.17 7.49 SUBTOTA LS TRACT N0.6195-BRIARWOOD DEVELOPMENT AREA: 11527,336 1,191,060.18 9.68 TOTALS/AVERAGE FOR COUNTRYSIDE AREA: 21,535,298 2,104,859.47 10.23 THE HOMESTEAD AREA Lots 5,6,7,1 I, & 12 of Sales N7ap of Lands of Kem County Land Company (Ivture Tract G234 Ph I thm 6 excluding residential loc, oil 251 well drill site & storm drain camp lot) 11,714,078 1.335,235.00. 8.77 ~'~ CHERRY HILL AREA 252-327 Tract 6153-Unit 2 (Lott 1-7b) 3,9] 9,000 404,318.00 9.69 I, OLIVE PARK III AREA 328-404 Tract 6I 17-Unit 3 5,734,000 565,587.49 10.14 ASSESSMENT DISTRICT TOTALS 42,402,376 4,410,000.00 9.73 The leader m ay note some discrepancies due ro rounding. 'Includes contributory value ofhouses under conshvchon. e :A: _. .... - _..::. SUBJECT PHOTOGRAPHS Jewetta Avenue facing South Olive Drive Park III at Far Right Reina Road facing West from Jewetta Avenue, Olive Park III at Right Cherry Hill at far Left SUBJECT PHOTOGRAPHS Cherry Hill facing South from Reina Road Olive Park III facing North from Reina Road SUBJECT PHOTOGRAPHS Homestead facing South from Reina Road Reina Road facing East Near Old Farm Road, Cherry Hill at Far Right Olive Park III at Far Left ,; _:, ._ SUBJECT PHOTOGRAPHS Reina Road facing East Near Allen Road, Homestead at Right Noriega Road facing East Near Smokey Mountain Way, Homestead at Left SUBJECT PHOTOGRAPHS Noriega Road facing West Near Old Farm Road, Homestead at Right Homestead facing North from Noriega Road SUBJECT PHOTOGRAPHS Allen Road facing North from South of Olive Drive Tract No. 6195 in Countryside at far Right Tract No. 6195 in Countryside at Left SUBJECT PHOTOGRAPHS Tract No. 6195 facing North from Olive Drive Old Farni Road facing North from Olive Drive Tract No. 6118 in Countryside at Left _y.... :.::. ... _. ... -. -. .__ - .. SUBJECT PHOTOGRAPHS Olive Drive facing West Tract No. 6118 in Countryside at Right Tract No. 6118 in Countryside facing North SUBJECT PHOTOGRAPHS Snow Road facing West Near Old Farm Road Tract No. 6118 in Countryside at Left Tract No. 6195 in Countryside facing North e ...._ ..... ..... ..... .. .... ..... _ ..... _,.: .... SUBJECT PHOTOGRAPHS Tract No. 6118 in Countryside facing South from Snow Road Tract No. 6195 in Countryside facing South from Snow Road SUBJECT PHOTOGRAPHS Snow Road facing East from Allen Road Tract No. 6195 in Countryside at Right Allen Road facing South from Snow Road Tract No. 6195 in Countryside at Le8 1 PURPOSE AND INTENDED USE The purpose of this appraisal is to develop an opinion of the market value of the real property, subject to assumptions and limiting conditions shown herein, as of November 1, 2004. The intended use of this report is to assist in the underwriting for proposed bond financing. The report is intended for use only by: City of Bakersfield, its affiliates, designates and assignees, the underwriter of the proposed bond financing, rating agencies, bond holders and prospective bond holders, and a duly authorized Appraisal Institute peer review committee. PROPERTY RIGHTS APPRAISED The property rights appraised are the fee simple interest subject to restrictions, reservations, and easements of record. Fee simple estate as defined by the Appraisal Institute in the third edition of The Dictionary of Real Estate Ap rp aisal means: 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. SCOPE OF THE APPRAISAL This is a complete appraisal summary report that in my opinion has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and the professional standards and ethics of the Appraisal Institute. It is also my opinion that the report is in accordance with the appraisal standards for land-secured financings (revised July 2004) of the California Debt and Investment Advisory Commission. The appraisal assignment was not based on a specific valuation or any action or event resulting from the analyses. As part of this appraisal a number of independent investigations and analyses have been conducted. The area and neighborhood analyses include collection, assimilation and analysis of demographic data collected from federal, state, county and city government agencies. The neighborhood, site and improvements have been inspected and investigated. Market data including undeveloped residential land sales and single-family residential lot sales have been collected, verified and analyzed. The search for applicable market data was limited to Metropolitan Bakersfield. Sources of this data include public records, assessor's records, buyers, sellers, and real estate agents. ;: .. , 2 I have the knowledge and experience necessary to complete this assignment and have appraised similar property types previously. Please refer to the Appraiser's Qualifications included in the addenda to this report for additional information about the appraiser's education and work experience. VALUE DEFINITIONS Market Value "Market Value" as set forth by the Office of the Comptroller of the Currency under 12 CFR, Part 34, Subpart C-Appraisals, 34.42 Definitions [fJ and the Office of Thrift Supervision under section 564.2f reads as follows: "'Market Value' means 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: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and acting in what they consider their own best interests; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." A~aresate Retail Value Aggregate retail value is defined as the sum of the retail lot values. It does not reflect any appropriate deductions and discounts from the disposition of "for sale" type development properties over time. The most probable price, in a sale of all parcels within a tract or development project, to a single purchaser or sales to multiple buyers, over a reasonable absorption period discounted to present value, as of a specific date, in cash, or in terms equivalent to cash, for which the property rights should sell after reasonable exposure, in a competitive market under all conditions requisite to a fair sale, with buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue stress. The bulk sale is executed in lieu of the seller proceeding with development and/or marketing of the individual parcels or tracts to end users or merchant builders over amarket-oriented absorption period for the type of project. Exposure Time The Appraisal Standards Board of the Appraisal Foundation defines exposure time as: The estimated length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure times for the comparable sales located in the sales comparison approach range from not openly marketed to approximately one year with one to six months being typical. Considering current market conditions for similar type subdivision properties, a six months exposure time was estimated. ASSUMPTIONS AND LIMITING CONDITIONS Standards Rule ("S.R."} 2-1 of the "Standards of Professional Appraisal Practice of the Appraisal Institute" requires the appraiser to "clearly and accurately disclose any extraordinary assumption or limiting condition that directly affects the appraisal and indicate its impact on value." In interpreting this report, such assumptions and limiting conditions are set forth as follows: 1. The conclusions and opinions expressed in this report apply to the date of value set forth in the letter of transmittal accompanying this report. The dollar amount of any value opinion or conclusion rendered or expressed in this report is based upon the purchasing power of the American dollar existing on the date of value. ..6. __ _.... _; _. 4 2. The appraiser assumes no responsibility for economic, physical or demographic factors, which may affect or alter the opinions in this report if said economic, physical or demographic factors I were not present as of the date of the letter of transmittal accompanying this report. The appraiser is not obligated to predict future political, economic or social trends. 3. In preparing this report, the appraiser was required to rely on information furnished by other individuals or found in previously exisfing records and/or documents. Unless otherwise indicated, such information i presumed to be reliable. However, no warranty, either express or implied, is given by the appraiser for the accuracy of such information and the appraiser assumes no responsibility for information relied upon later found to have been inaccurate. The appraiser reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. 4. No opinion as to title of the subject property is rendered. Title is assumed to be marketable and free and clear of all liens, encumbrances, easements and restrictions except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. 5. This appraisal should not be considered a report on the physical items that are a part of this property. Although the appraisal may contain information about the physical items being appraised (including their adequacy and/or condition), it should be clearly understood that this information is only to be used as a general guide for property valuation and not as a complete or detailed physical report. The appraiser is not a construction or engineering expert, and any opinion given on these matters in this report should be considered preliminary in nature. It is assumed that there are no hidden or unapparent conditions of the property, sub-soil, or structures, which would render it more or less valuable. No responsibility is assumed for any such conditions or for any expertise or for arranging any engineering, surveys, soil studies, termite inspections or other special inspections or studies. Since no such tests, studies, or inspections were made, no liability is assumed for matters relating to engineering, architectural, structural, mechanical, or soil conditions which may be required to discover such factors. The structures were ~, 5 not checked for building code violations and it is assumed that all buildings meet the building codes unless so stated in the report. Because no detailed inspection was made, and because such knowledge goes beyond the scope of this appraisal, any observed condition comments given in this appraisal report should not be taken as a guarantee that a problem does not exist. Specifically, no guarantee is made as to the adequacy or condition of the foundation, roof, exterior walls, interior walls, floors, heating system, air conditioning system, plumbing, electrical service, insulation, soils or sub soils. The presence of radon gas, hazardous waste, asbestos or any toxic and potentially dangerous materials and conditions have not been considered and such conditions may or may not be present. If any interested party is concerned about the existence, condition or adequacy of any particular item or condition, it is strongly suggested that the proper expert be hired for a detailed investigation. 6. Unless otherwise stated, the subject property is appraised assuming it to be in full compliance with all applicable zoning and land use regulations and restrictions. The property is appraised assuming that all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national goverrunent or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. No analysis or survey to determine if the property is in compliance with the Americans with Disabilities Act (ADA) has been provided the appraiser or made by the appraiser. Possible noncompliance with ADA was not considered in estimating the value. No responsibility is assumed for determining whether the property is in conformity with the various detailed requirements of the ADA. Z No engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area of the subject property was taken from sources considered reliable and no encroachment of the subject property is considered to exist. $. No opinion is expressed as to the value of subsurface oil, gas, water or mineral rights or whether the property is subject to surface entry for the exploration or removal of such materials, except as is expressly stated. 6 I 9. Maps, plats and exhibits included in this report are for illustration only to serve as an aid in ', visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from the report. - 10. No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. 11. Possession of this report, or a copy of it, does not carry with it the right of publication. Without the written consent of the appraiser, this report may not be used for any purpose by any person other than the party to whom it is addressed. In any event, this report may be used only with proper written qualification and only in its entirety for its stated purpose; provided however, this report may be reproduced in its entirety in the official statement or similar offering document for the sale of the proposed bonds of AD 04-1. 12. The property, which is the subject of this appraisal, is within a geographic area prone to earthquakes and other seismic disturbances. Except as specifically indicated in the report, no seismic or geologic studies have been provided to the appraiser concerning the geologic and/or seismic condition of the subject property. The appraiser assumes no responsibility for the possible effect on the subject property of seismic activity and/or earthquakes. 13. Testimony or attendance in court or at any other hearing is not required by reason of rendering this appraisal, unless such arrangements are made a reasonable time in advance of said hearing. Further, unless otherwise indicated, separate arrangements shall be made concerning compensation for the appraiser's time to prepare for and attend any such hearing. 14. The liability of KERN APPRAISAL COMPANY, its employees, and independent contractors under agreement is limited to the client only and to the fee actually received by the appraiser. Further, there is no accountability, obligation, or liability to any third party. If this report is placed in the hands of anyone other than the client, the client shall make such party aware of all assumptions and limiting condifions of the assignment and related discussions. The appraiser is in .. ,_ _:.; _ _ no way to be responsible for any costs incurred to discover or correct any deficiencies of any type present in the property; physically, financially, and/or legally, 15. The market values "as is" in this appraisal are made assuming the improvements as a result of AD 04-1 are installed in a good workmanlike manner. 1 b. The properties are appraised subject to the assessment lien of AD 04-1 and the special tax lien of school CFD 92-1 and assumes all improvements to be funded by AD 04-1 are in place. ~, ,_ .. ,,, ,: _ :. , : , s AREA ANALYSIS Location Bakersfield is situated in the center of Kem County, which is located at the southern end of the San Joaquin Valley. It is 112 miles north of Los Angeles and 288 miles south of Sacramento. The valley floor is relatively flat and is surrounded by mountain ranges. Bakersfield is the county seat and the metropolitan area includes 60% of the total county population of approximately 702,900 as of January 2003. Accessibility and Transportation Roadway access is provided by Interstate 5 and Freeway 99, major north-south traffic routes that connect to State Route 58 and other east-west highways. Bus and rail services are available to the community. Air passenger service is available at Meadows Field, located four miles northwest of downtown Bakersfield National and regional airlines provide air service to major airline hubs. General aviation usage is available at Bakersfield Airpark located about two-and-one-half miles southeast of downtown. Economic Base Oil, natural gas and mineral extraction combine with agriculture to form the backbone of Kern County's $10 billion economic base. Output of 192 million barrels in 2003 represented approximately 75°10 of the oil produced in the state. Kem County natural resources production including natural gas, petroleum, and other minerals (boron, gypsum, etc.) total over $5 billion annually, easily outdistancing other industries as the largest export commodity. The Kern River crude oil price started 2004 at $26.75 per barrel. At the current price level, oil companies increase investment in exploration and production, which has a ripple affect through the local economy. A spokesperson for ChevronTexaco was quoted in the January 8`h edition of The Bakersfield Californian newspaper saying they have budgeted $350 million for capital expenditures in 2004. This figure is $100 million more than last year. The history of crude oil prices is illustrated in the graph on the following page. During 2004, the price has fluctuated but remained in the $40 per barrel range most of the year. ~. 9 sf,* iu ;ors RC ~' a~'9$ ~s T~ (s #321:~viid~a Kern County has ranked third or fourth in the nation for agricultural production for many years. A wide variety of commodities are grown locally including vegetables; fruits and nuts; field and seed crops; nursery and flower crops; and livestock, poultry and apiary. Total farm. revenue was $2.6 billion in 2002 (most recent available). Production is gravitating toward fruit and nut crops, which now top $1 billion in revenue and away from field crops. This shift in crop type is making agricultural employment slightly less seasonal because of the year-round care given to the permanent plantings. Government, construction, and retail sales are other leading components in the local economic base. Government includes education and military personnel. As discussed later in this section, construction activity is at all-time highs. Taxable retail sales increased 2.2 in 2002 (most recent available). It was the seventh annual increase in a row. The non-farm employment graph that follows displays the monthly change in total non-farm employment as compared to the same month in the previous year. The number of people employed increased from May 1994 through March 2003 pointing to nine years of sustained growth for the local economy. Non-farm employment declined during the second quarter and the month of December in 2003. Cutbacks in local government and education jobs were t3i47s:$;~CY i`` f:7ily Lim&x id:BCt r`sszf~€$`StsPTx3% F1r'e",uxf.aF v, (v~.. _ ,.: ,, to primarily responsible for the decline. Construction and financial sen=ices such as insurance, real estate, and lending, are leading the way in new job creation in 2004. Nonfarm Employment Kern County Through September 2OOa 6 5 pC~,' 4 W 3 2 ~~ ° _, 2 .-~I~~IWY~,I~~~,~I Snurce: EmplOy,nant Development Depa~Lnent Economic growth reduced the unemployment rate in the county. The seasonal nature of agricultural employment causes the unemployment rate to fluctuate but in August 2001, the rate dropped to 8.1% - a 20-year low. The number of unemployed has gradually increased since 2001. The county's unemployment rate is double that of the state. This is typical of counties with a large agricultural employment base Efforts by the government to place welfare recipients into jobs, have been more successful in the local economy than in other areas of the state. This success is due to the unemployment rate being above the state average and the number of Iow-skill jabs available. The state budget crisis ($25 to $35 billion deficit through June 2004) has negatively impacted employment. Schools have reduced staff. The opening of a state prison under construction in Delano may be delayed one year. Several state-funded highway construction projects have been placed on hold. City and county government are reducing expenditures to offset losses in funding from the state. ,~ s, . __.. _._.....::. ._.. .:. ._.. _ 11 Local government entities arc offering incentives to attract new industry to the area and help diversify the economic base. The Kern County Board of Supervisors is offering sales tax rebates on equipment purchases and property tax forgiveness on increases in assessed value over the first five years to new businesses creating jobs. Eligibility is open to non-retail companies that generate a net revenue to the county of $10,000 a year, or $50,000 over five years, and create at least 10 full-time permanent jobs. Local cities offer enterprise zones and industrial parks financed with federal grants to entice new industrial development in their community at a very reasonable cost. An obstacle to economic growth in the San Joaquin Valley is air pollution. The U,S. Environmental i Protection Agency has rated the valley an "extreme nonattainment" area for ozone and particulate pei! °ion. The area is facing sanctions that will bring steeper permitting costs for polluting businesses and a loss of federal highway funding. Agriculture has been exempt from pollution control rules but is likely to have dust control measures imposed. EPA ruled last year that as many as half of the emission reduction credits held by businesses may be invalid. These credits are used j by new or expanding businesses to offset their expected emissions. A ban on wood burning fireplaces in new homes is likely to be enacted this year along with restrictions on use in existing j homes. 12 Pouulation According to the Kern Council Of Govermnents, population for Metropolitan Bakersfield was estimated to be 400,000 as of January 2000. Historical and projected population figures for greater Bakersfield are shown on the chart below. The figures indicate an estimated average annual growth rate of 2.3% between 1990 and 2000. This compares very favorably with the estimated growth rate for the entire state of 1.3% over the same time period. The highest growth areas over the next two or three years are expected to be Northwest and Southwest Bakersfield. Construction Activity The chart that follows indicates the valuation of construction permits issued since 1994 for the City of Bakersfield. These figures are for the City of Bakersfield and do not include the entire Metropolitan Bakersfield area. The 2003 valuation total was $716,294,073. This represents a 31% increase from 2002. Over the last two years the valuation of construction permits has increased 51%. Single-family residences accounted for $544,534,319 or 76% of the total in 2003. Year-to-date through October 2004 the valuation of construction permits was $720,372,756, a 24% increase over the same time period last year. ,~ 13 Construction Permits Valuation City of Bakersfield 2003 2002 2001 2060 1999 1998 199? 1996 1995 1994 100 200 300 400 500 600 700 800 Millions Conclusion The energylminerals and agricultural commodities are the main exports of the area making these industries the foundation. of the economic base. Commodity prices for oil'and farm products can be volatile and are difficult to forecast. An increase in new jobs and a declining unemployment rate have sustained economic growth for over 10 years in Kern County. Economic growth in 2005 is dependent on commodity prices continuing at a profitable level_ The area's population is growing faster than the state as a whole. A significant influx of commuters from Southern California and people looking for lower cost housing has prompted population growth. Residential construction activity and increases in taxable retail sales are a result of population growth. Sustained economic growth in recent years has strengthened real estate values. Most property values have increased in recent years as vacancy rates declined and rental rates increased. The residential and retail market sectors are expected to lead in new real estate development in 2005. A growing economy will have a positive effect on real estate values in the area. An ominous cloud is state budget cuts. County and city governments are working to find ways to lessen the impact of reduced funding without major reductions in their workforce and necessary services. An increase in local government fees for services is likely. P 14 NEIGHBORHOOD ANALYSIS Nei~hbarhood Boundaries The four development areas are located in the northwest Bakersfield neighborhood. The Kern River provides a physical boundary on the south and Freeway 99 creates a defining edge to the east. The north and west boundaries are less obvious but tend to be Seventh Standard Road and Nord Avenue. New residential development continues to push the boundaries north and west. Less than half of the neighborhood is in the incorporated area of the City of Bakersfield. Land Use Characteristics The northwest is one of the most rapidly growing areas of Metropolitan Bakersfield. The neighborhood, as defined, is approximately 50% built-up with ample, room for growth in all directions except east. The area is protected from inharmonious land uses by planned zoning through the Bakersfield City and Kern County Planning Departments. Approximately 40% of the land in the neighborhood is developed to single-family residential, 5°to to multiple-family residential, 15°to to commercial and industrial, and 40% is developed to miscellaneous uses or is vacant. Commercial and industrial land uses are concentrated along Rosedale Highway (State Route 58}, the main east-west route. It is in transition from industrial to retail land uses. Retail uses are pushing west from Highway 49. A cluster of highway commercial uses including motels and restaurants are situated near the interchange. Neighborhood shopping centers on Rosedale Highway are situated at the northwest comer of Calloway Drive and southwest corner of Allen Road. Recent development includes a new regional shopping center at the northwest corner of Coffee Road. Phase one (50 acres} of the Northwest Promenade is anchored by a Wal-Mart store that opened in November 1998. A Foods Ca. (Ralph's) opened in 2000. Several pads fronting Rosedale Highway have been developed to restaurant and other retail uses. A Home Depot store was completed in 2002. Phase two (50 acres) contains a Target, Linen `N Things, Ross and several other stores that opened in the fall of 2001. Gross rentable area in the shopping center is approximately 900,000 square feet. Diagonally across the intersection on the southeast corner of Rosedale Highway and Coffee Road, a Lowe's Home Improvement Warehouse opened in December 1949. A Coco's Restaurant opened in _. -..~.. 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II. - s~"fs ~ ./ir.!. t ~r /y e,~ Y/ / d ...=.R.R--.- _ _.... ... __ _ _ -....~_ £~ i`s -~[~Est :.. ! -Wu r5 xf- ~?: }rte kG fnN[k 3:FL dl.ir,~!yy '!`~~ H{}tf,~`:'T.F~;rsi ,KI;'r`.'A-' ~ .. ., iw .xi;au -:vawt=s E 2 i'v3D P 3z i 1x=.? as ?Wp'r4 36aw. IiA~+'3. 14 TA^3: r ~. w.,.,:.;xs uaw :., a rwr ~ _uc ~~.~au.is.. .y._ _ .3-.-.mw~` cF 3 C<'b'SUS-ft• ~;k` #,> !2, i., - r ~ is i -~. ~` - {r ~ N4 A 4~~~ '15 '~ „ A~,1 F~~-~I~ A ;ScrTEx'~x MAi' uF" ~m,~txs 7777I a~ a~r~:] I~E~OF"+~~E~7 ~C}U~AA£~~E~ ~Y i~rxa'~va~wryirm~e C'{1'i"~JF`?F,..R~:w°~a"r.'kJ,S kS3E»»~i~,~.'£.~F",A`T ~§il~'€ !u«7. +t---~3 I ~~ ~ f~?nTRY~9~ ~ ~:e ~~sus ;t ear a~?~, t 4Wxvr ~~l~ rrp' roa.,,-r r». {m.«r,. .„~.",m ~~mr Ly a,~ h~n~ ~?i~4~ ~; Ca%alara~az~ ~... ~AY'~M`i, `~C iWAULh 4k+e. i*'[FZ _..F _._°._,'o-i°c"{'. ffi completed in the fall of 2002 on Rosedale Highway one block west of Highway 99. Other neighborhood shopping centers are located at Olive Drive and Victor Street, Hageman Road and Coffee Road; Olive Drive and Coffee Road; and Calloway Drive and Hageman Road. Also in the early plarming stages is a shopping center on the northwest comer of A11en Road and Brimhall Road. Industrial (i.e. equipment sales and leasing} and wholesale supply (tools, batteries, paint, etc.) businesses that deal direct with the public are relocating to Rosedale Highway as well. Industrial land uses are located on both sides of Rosedale Highway from Gibson Street west to Calloway Drive. They are also focused along Frnitvale Avenue from Krebs Road south to the Kern River. These areas are situated in the Fruitvale Oil Field that has hundreds of oil wells and is suitable for industrial activities. Two oil refineries are located in this area. Three large subdivisions are located in the neighborhood - RiverLakes Ranch, Polo Grounds, and Briaihall. RiverLakes Ranch contains 1,900 acres and is bound by Norris Road on the north, Coffee Road on the east, Rosedale Highway on the south, Calloway Drive on the west, with 400 of the acres reaching east of Coffee Road to Fruitvale Avenue on the north and south sides of Hageman Road. Development started in the early 19$0's and has been slowed twice by developers losing the property through bankruptcy. Amenities in RiverLakes Ranch include a homeowner's association beach club with clubhouse, swimming pools and other recreation areas; approximately 17-acre man-made lake; neighborhood park and linear park. A public golf course was completed in 2000. The golf course sparked the interest of homebuyers and builders not only in RiverLakes Ranch but also the adjacent Polo Grounds subdivision west of Calloway Drive. Currently, the remaining inventory consists of less than 100 finished and paper lots. The Polo Grounds subdivision is located west of RiverLakes Ranch and is generally bound by Snow Road, Calloway Drive, Hageman Road, and Allen Road. The subdivision encompasses approximately 1,500 acres and involves several landowners. Development began. in approximately 1990 and 100 acres remain undeveloped. The subdivision takes its name from a proposed polo ,: . 16 facility planned at the northwest corner of Hageman Road and Verdugo Lane. Property to the south of the subdivision is zoned residential suburban, which perrnits horses. Equestrian trails were incorporated in the subdivision to permit homeowners to the south access to horse trails north of the subdivision. Residential suburban land uses were originally planned but prior to any development, the polo facility and residential suburban land uses were dropped from the plan. Only the equestrian trails remain. Brimhall consists of approximately 1,300 acres bound by Brirnhall Road, Mondavi Way, Cross Valley Canal, Stockdale Highway, and Allen Road. Development began in 1993 but has been somewhat sporadic. Plans were hampered by Caltrans not adopfing a final alignment for the Westside Parkway that will pass through this project. Developer Castle & Cooke introduced a new master plan "Villages of Brimhail" consisting of five villages or product types with the fast lots completed in Fa112001. These lots (476 total) were nearly sold out by the end of April 2003. Brighton is the newest development in Brimhall. Lots being developed range in size from 10,000 to 20,000 square feet in the area bound by the Westside Parkway alignment, Calloway Drive, Cross Valley Canal, Rio Bravo Canal, and Jewetta Avenue. This phased project contains 343 lots. Merchant builders finished their models in June 2004. Lots are being released on a phased basis and the demand far exceeds the supply of lots. The four development areas that comprise the subject are situated across Jewetta Avenue from the original boundaries of the Polo Grounds and four miles north of the Brimhall subdivision. Their location is illustrated on the facing page map. Currently, Allen Road and Snow Road is the northwest comer of the incorporated city limits of Bakersfield but the city limits are expected to extend north and west over time. Jewetta Avenue is situated four miles west of Freeway 99 which has an interchange at Olive Drive. Freeway 99 provides access to central Bakersfield and provides links to Freeway 58 and Freeway 178 that are major east-west routes in the community. The Kern Union High School District had a groundbreaking for the next high school located on the west side of Allen Road at Kratzmeyer Road (future Olive Drive) in June 2004. This has sparked additional interest in the area by new homebuilders. Construction is underway with planned opening in Fall 2006. ,, _ __ 17 Neiehborhood Demographics Locale Northwest Metro Bakersfield Source: Kem COG Population 1980 1990 1998 14,105 24,398 35,314 248,706 331,147 385,662 Between 1990 and 1998 the neighborhood grew 45% which was equal to a 4.73% compound annual rate. This compares to the metropolitan area. as a whole during the same time period growing 16.5% or at a 1.92% compound annual rate. Conclusion The northwest is a rapidly growing area of Bakersfield with most new development occurring in the southern and western portions, where there is an ample supply of vacant land. This trend is expected to continue in the foreseeable future. Land uses are well planned and inhabitants have above average incomes. These factors indicate a solid base of support for real estate values in the neighborhood. 9 `:: IS SINGLE-FAMILY RESIDENTIAL MARKET OVERVIEW Single-family residence pemvts issued the last six years have been the highest in two decades. Demand for new homes is forecast to remain strong for the next 12 months. Several factors creating demand include: Bakersfield was the second most affordable mazket in California in 2004 according to a study conducted by Coldwell Banker Real Estate Corporation. The Home Price Comparison Index (HPCI) compazes the prices of similar homes sold in typical, middle-management transferee neighborhoods. The price of a 2,200 squaze foot dwelling with four bedrooms, two and a half baths, and two-caz garage was $313,750 compared to La Jolla with the highest price at $1,708,333. Home prices in the major metropolitan areas of the state have escalated in recent years. This gives people a chance who want to sell and take their equity to a less expensive market for retirement or a higher standard of living. The affordable home prices in Bakersfield will attract some of these buyers. Interest rates are expected to ren,a;n low to moderate. The NAHB is forecasting an average fixed interest rate of 6.0% for 2004, 6.$% for 2005, and 7.1% for 2006. New home permits were at a two decade high in 1998 through 2003 which provides momentum. Affordable prices, an increase in the non-farm employment over the last nine years, an influx of people from metropolitan areas, low interest rates, and a high level of constnrction activity in recent years, point to above average demand for new homes. Permits for 4,328 homes were .issued in 2003 compared to 3,563 in 2002 based upon a report prepared by Ticor Title. This represents a 21 % increase in construction activity in the metropolitan area of Bakersfield versus the previous year. Yeaz-to-date through July 2004 a total of 2,998 permits have been issued which equals a pace of over 5,000 for the yeaz. The City of Bakersfield issued permits for 3,626 homes versus 2,94? for 2002, a 23% increase. The graph on the following page plots pernrit activity for Metropolitan Bakersfield. Historically, the permit activity breaks 19 down approximately 85°lo in the city and IS% in the unincorporated area of Metropolitan Bakersfield (2010 General Plan area). The graph illustrates the rise in permits in recent years. Single-Family Housing Permits Metropolitan Bakersfield 4500 --.. _. __.-_- ......._.._...___- 4000 __ _.._ __.._-_ _ _. -. _ ~.__. 3500 _..__ -_- __._ ___ ....____ - __.. ... ,,,3000. __.. ... _.. _- __ ~2 500 _.. ....._.. _- 2000 .... _.. .. _.. .._... _.__ _. 1500 _ _.__ _._-__.__..... 1000 _____ ___... ___....... _..... 500 - .- -. _._. __. _.._..._. 0 _.. __ __._ __... _.._ ___ _.-...... 1995 1996 1997 1998 19~KJ 2000 2001 2002 2003 The average valuation per single-family residence permit (structure only) in 2003 was $150,175. This low average value is due to the continued construction of homes in the entry level price range. According to the California Association of Realtors the average price of a new home in Bakersfield for 2004 is $260,000. According to the Bakersfield Association of Realtors Multiple Listing Service, a total of 5,313 homes were sold by members in 2003. This number is an 8.6% increase over 2002. The median home sale price in the Multiple Listing Service was $119,200 in 2002. It rose to $147,000 in 2003, a 23% (1.9°lolmonth} increase. Year to date through August 2004 the median sale price was $180,000, a 22°/v (2.8%Jmonth} increase. The median average days on the market for 4,191 sales this year is 12 days. Many agents complain of a lack of sufficient listings. The lack of supply has pushed more homebuyers toward the new home market. One reason for the lack of supply is the large number of homeowners refinancing il3eir mortgages with lower interest rates. It will take several months to recoup their refinance costs through lower monthly payments. - _ _ ,_ ~ ~ ~ ~ ~ ~. ` _ t ~ ,.., ~ t rr t ~ ~ } ,~ c:~ ~° ;:~ ~ ~ ~ ~ ~~ _ ~ ~d r, 4 2~ Developers have become more willing to purchase large parcels of land with the increase in sales activity. Lot prices have been increasing the last three years typically ranging from $7.00 to $11.00 per square foot, depending on size and location. The increase in new home construction activity in recent years has placed upward pressure on finished lot and undeveloped land prices. The facing page map shows the location of active tentative tracts in the immediate area oP the subject. Tracts in the dark check shaded areas are active with no recorded phases (future development). The lightly shaded tracts are active with recorded phases (existing development). No tracts pending action by the planning department are located in the subject area. The map was updated August 31S` by the City of Bakersfield Planning Deparhnent. As the map illustrates, the five tract maps in the assessment district are located in an area with active residential development and represent a substantial portion of the planned development in the area. No oversupply of residential lots in the subject area is likely during the next two years. The Countryside Area is being developed with two sepazate tract maps and will be marketed as two separate residential developments, The Fox Run Development Area {Tract No. 6118) has slightly smaller lot sizes and will be developed with smaller houses. The Briarwood Development Area (Tract No. 6195) has slightly larger lot sizes and will be developed with larger houses. The two development areas are discussed separately in this section. FOX RUN DEVELOPMENT AREA (Tract No. 611$) Identification Of Property The Fox Run Development Area is situated in the southwest quadrant of Snow Road and Old Farm Road in Bakersfield, California. Ultimately the development area will be subdivided into eight phases. On the effective date of appraisal five phases (1 - 5) were recorded. Three phases (6 - 8) were at the tentative tract map stage. Only the landscape lots (Lots E, F, G} and equestrian trail lots (Lots H, I, J) from Phase 1 are included in the District. Only Lots 1 through 10 and 27 through 32 in Phase 2 are included in the District. All of the remaining six phases are included in the District. Phases 1 through 5 and a portion of Phase 6 are further described as a portion of Assessor's Parcel Numbers: 528-010-08 & 09. Phases 7 and 8 and a portion of 6 are further described as Assessor's Parcel Number: 528-010-02. The census tract number is 0038.04. Thomas Guide map reference is 2401-A5. Ownership History Of Property According to public records and information provided the appraiser, the current owner is Centex Homes. Centex Homes purchased the property from Batey Development, Inc. and James B. and Marie A. Batey for $2,4b9,120 with grant deed recording April 24, 2003. Terms of sale were all cash to the seller. This is the only sale of the property in the last three years. Assessed Value And Taxes The property is assessed by the Kem County Assessor's office and is identified as Assessor's Parcel Numbers: 528-010-02, 08 & 04. The 2004-2005 general tax rate is 1.100518% of the assessed value. Applicable special assessments are school CFD No. 92-1 and AD 04-1. Both are discussed in the Engineer's Report. - ,-- 22 According to Article XIII A of the California State Constitution (Proposition 13}, the sale or transfer of the property will result in reassessment by the Kem County Assessor at its market value at the time of sale. The taxes utilized in the income capitalization approach of this report are the estimated taxes in the event of sale at the estimated market value shown in this report. Site Analysis Physical Characteristics -According to the Engineer's Report the site size and number of proposed lots for the development areas {Phase 1 & portion of Phase 2 are not in District} are as follows. Size in Acres # of Pronosed Lots Tract 61 ] 8-Ph 2, Lots 1-10 & 27-32 3.91 Acres 16 Lots Tract 6] 18-Phase 3 7.89 Acres 32 Lots Tract 61 I $-Phase 4 7.89 Acres 32 Lots Tract 6118-Ph 5, Lots 1-34 8.31 Acres 34 Lots Tract 6118-Ph 5 Lot 35 (Portion of Ph 6} 3.15 Acres 15 Lots LLA No. 122-99, Parcel E 24.57 Acres 90 Lots (,Future Phases 7 & 8 and a portion of Ph 6) The terrain was rough graded for a future subdivision. Each phase is generally rectangular in shape. The tract map has frontage along the north line of Olive Drive, west line of Old Farm Road, and south line of Snow Road. Each phase has two tiers of lots with frontage on Old Farm Road. All of the Snaw Road frontage (1,325 lf) is in Phase 8. All of the Olive Drive frontage is included in the District and adjacent to Phase 1 which is not in the District. According to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060075 1000 B dated September 29, 1986, the subject property is situated in Zone C. Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone. Tract No. 6118 -The site has a vesting tentative tract map {Tract No. 611$) containing eight phases and totaling 262 buildable lots of which 219 are included in the District. Phases 1 through 5 have a recorded final map. Phase 2 lots included in the District range from 7,454 to 8,552 square -.o_ ... - _ .. ...___ - _. _. ... .:.. -.._ _.. _ _-_ _. ._- 23 feet. The mean lot size is 7,847 square feet and the median lot size is 7,818 square feet. Phase 3 lots range from 7,204 to 13,232 square feet. The mean lot size is 8,195 square feet and the median lot size is 1,242 square feet. Phase 41ots range from 7,203 to 13,406 square feet. The mean lot size is 8,092 square feet and the median lot size is 7,341 square feet. Phase 5 lots range from 7,200 to 8,877 square feet. The mean lot size is 7,532 square feet and the median lot size is 7,470 square feet. Phase 5 Lot 35 is a "super lot" containing 15 lots in Phase & (Lots 1-14 & 32). These lots range from 7,200 to 13,370 square feet, The mean lot size is ?,833 square feet and the median lot size is 7,200 square feet. Lot Line Adjustment No. 122-99 Parcel E is a "super lot" containing 90 lots in future Phases 6, 7 and 8. These lots range from 7,199 to 24,181 square feet. The mean lot size is 9,094 square feet and the median lot size is 7,714 square feet. The majority of lots in all seven phases under appraisal have anorth-south orientation, which is popular in the local market. The map layout is functional in design and contains a total of three cul-de-sacs. Soil and Seismic Conditions -The routine inspection of the subject disclosed no unusual conditions affecting the land. However, no responsibility is accepted for evaluating subsoil or discovery of unapparent or unusual conditions, as I am not an expert in this field. The subject is not located in an Alquist-Priolo seismic special studies zone. Services -Each phase will be served by all public utilities including; gas (So. Calif. Gas), electricity (PG&E), telephone (SBC), water (California Water Service), sewer (North of the River Sanitation District}, cable television (Bright House Networks} and storm drainage (in tract drainage basin). On/Off--Site Improvements - On the date of inspection the on/off--site improvements were being completed in stages, All off-site improvements for Olive Drive and Old Farm Road north through Phase 5 including underground utilities; concrete curb, gutter and sidewalk; asphalt paved streets; street lighting; and perimeter 6-foot concrete block wall with strip landscaping were complete. Partial concrete curb and gutter along the Snow Road frontage were complete. Phases 2 -5 had substantial on-site improvements completed and Phases 6 - 8 were only rough graded. On-site improvements were complete for Phase 2 including underground utilities; concrete curb, gutter, and sidewalk; asphalt paned streets; and street lighting. Phases 3 - 5 on-site improverrlents consisted of ., 24 underground sewer and storm drain utilities in place; partial completion of water, electric and gas utilities; concrete curb and gutter; and rough grading of the site. The cost of developer's improvements to the land is estimated after consultation with their engineer Jeff Martin of McIntosh & Associates at $377,000 for Phase 2, $359,000 for Phase 3, $355,000 for Phase 4, $417,000 for Phase 5, $11,000 for Phase 5 Lot 35 which is a portion of Phase 6, and $221,000 for Phases 7 & 8 and a portion of Phase 6. In addition to the site improvements, Phase 2 had 16 single-family residences under construction as of the date of value. These houses ranged in size from 1,445 to 2,870 square feet with an average building area of approximately 2,000 square feet. These structures typically had a concrete foundation, concrete slab floor, rough plumbing, and were in various stages of wood frame construction of the walls and roof cover. A conservative estimate would be that construction was 15% complete. Houses of this size and quality typically cost $100 per square foot to construct. Utilizing this information I have formed an opinion that the contributory value of the these improvements is $480,000 (2,000 sf x $100 x 15% x 16). This amount is added to the developer's improvements to the land above and to the discounted cash flow in the income capitalization approach. The average finished lot value has been increased $30,000 to reflect the contributory of these improvements when developing the aggregate finished lot value when complete. According to the Engineer's Report all of the Improvement Acquisitions for the Countryside Area including both Fox Run and Briarwood are improvements related to the development of those subdivisions and are generally described as improvements in and along Snow Road, Old Farm Road, Olive Drive, and Allen Road that are required to be constructed, or are expected by this District Proponent to be required to be constructed, as conditions of approval for those subdivisions. The general location and extent of the planned Improvement Acquisitions in Snow Road include completion of the eastbound half of the street (south half of the street) to its full design width, along the frontages of Ten. TR 6118 and Ten. TR 6195, complete with excavation, paving, curb, gutter, sidewalk, handicap ramps, street lights with conduits and pull boxes, and median deposit. The general location and extent of the planned Improvement Acquisitions in Old Farm Road include completion of the southbound half of the street (west half of the street) to its full design width, along frontage of Ten. TR 6118, complete with excavation, paving, curb, gutter, sidewalk, handicap ramps, street signs, street lights with conduits and pull boxes, and 18- inch diameter storm drain pipeline with catch basins and manholes. The general location and 25 extent of the planned Improvement Acquisitions in Olive Drive include completion of the westbound half of the street (north half of the street) to its full design width, along the frontages of Ten. TR 6118 and Ten. TR 6195, complete with excavation, paving, curb, gutter, sidewalk, handicap ramps, street signs, street lights with conduits and pull boxes, median curb, and 18-inch diameter storm drain pipeline stub-out with a catch basin and an outlet structure at the storm drain sump located at the south end of Ten. TR 6118. The general location and extent of the planned Improvement Acquisitions in Allen Road include completion of the northbound half of the st~•eet (east half of the street) to its full design width, along the frontage of Ten. TR 6195, complete with excavation, paving, curb, gutter, sidewalk, handicap ramps, street signs,, and street lights with conduits and pull boxes. Also included in the scope of the Ten. TR 6195 portion of the Countryside Area Improvement Acquisitions are this District Proponent's incidental costs for design engineering, improvement bonds, construction staking, soils and materials analysis and testing, plan check fees, and inspection fees, all as itemized in Table B-II-B in Engineer's Report Exhibit B and as generally shown on Map No. 1 in Engineer's Report Exhibit E, incorporated herein by reference. Easements and Surface Restrictions - A preliminary title report for Tract 6118 prepared by First American Title dated May 27, 2004 and subdivision guarantees for Phases 2 - 5 were provided. A physical inspection of the site and review of the title documents and tract map revealed the 80-foot wide Rosedale Ranch Improvement District Canal along the south line of Snow Road which has been relocated out of the street right-of--way at the developer's cost. Old Farm Road frontage has a 12-foot equestrian trail and 8-foot landscape easements. Snow Road frontage has a 10-foot landscape easement. The trail and landscape easements are amenities of the development. The location of an easement for a pipeline in favor of Union Oil Company dated September 10, 1949 can not be determined from record information and is assumed to be abandoned due to the age. The owner has a waiver for the surface right of entry from the mineral rights ownertlessee. Environmental Issues -Upon visual inspection, it did not appear that there were any hazardous materials in or around the subject. I, however, am not qualified to detect such substances or materials. Any comment 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 deternination would require investigation by a qualified expert in the field of environmental assessment. ' :_, _ _ z6 The value opinion is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observations made during the appraisal process. Zoning -According to the City of Bakersfield Plamung Department the current zoning is R-1, One ~ Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family ', residential development. The minimum lot area is 6,000 square feet. A 25-foot front setback and 5- ~ foot side yard setback are required. The rear yard setback is 25 feet or 20% of the depth of the lot, whichever is less; provided, however, the rear yard may be reduced to 5 feet if not more than 45% of the lot is covered by buildings or structures. ~ Current Use - On the date of inspection, the property had subdivision improvements in progress as described above. The site is well suited for a residential subdivision. BRIARWOOD DEVELOPMENT AREA (Tract No. b19S) I i Identification Of Property ! The subject property is situated north of Olive Drive, south of Snow Road, east of Allen Road, and west of the Fox Run development in Bakersfield, California. The legal description in "as is" condition is as follows: A portion of the northwest quarter of Section 12, Township 29 South, Range 26 East, M.D.M.; also Being a subdivision of Parcels A, B, and F of Lot Line Adjustment No. 122- , ', 99 in the City ofBakersfteld, County of Kern, State of California. It is furdrer described as Assessor's Parcel Numbers: 528-010-O1, 10 & 11. The census tract number is 0038.04. Thomas Guide map reference is 2401-A5. Ownership History Of Property According to public records and information provided the appraiser, the current owner is Centex Homes. Centex Homes purchased the property from Batey Development, Inc. and James B. and .. , ., z7 Marie A. Batey for $3,200,000 with grant deed recording February 17, 2004. Terms of sale were all cash to the seller. This is the only sale of the property in the last three years Assessed Value And Taxes The property is assessed by the Kem County Assessor's office and is identified as Assessor's Parcel Numbers: 528-010-O1, 10 & 11. The 2004-2005 general tax rate is 1.100518°l0 of the assessed value. Applicable special assessments are school CFD No. 92-1 and AD 04-1. Both are discussed in the Engineer's Report. According to Article XIII A of the California State Constitution (Proposition 13}, the sale or transfer of the property will result in reassessment by the Kern County Assessor at its market value at the rime of sale. The taxes utilized in the income capitalization approach of this reporC are the estimated taxes in the event of sale at the estimated market value shown in this report. Site Analvsis Physical Characteristics -According to the Engineer's Report the site size and number of proposed lots for the development areas are as follows. Size in Acres # of Pronosed Lots Tract 6195-Phase 1 8.40 Acres 27 Lots Tract 6195-Phase 2 8.76 Acres 32 Lots Tract 6195-Phase 3 8.91 Acres 31 Lots Tract 6195-Phase 4 8.82 Acres 31 Lots Tract 6145-Ph 4 Lot 32 34.25 Acres 117 Lots (Future Phases 5, 6, 7 & 8} The terrain was rough graded for a future subdivision. Each phase is generally rectangular in shape. The tract map has frontage along the north line of Olive Drive, east line of Allen Road, i and south line of Snow Road. Each phase has two tiers of lots separated by a canal from frontage on Allen Road. All of the Olive Drive frontage (+/-1,300 If} is in Phase 1. All of the Snow Road frontage (+1-1,2001f} is in Phase 8. According to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060075 1000 B dated September 29, 1986, the subject property is situated in zone C. ~, 28 Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone. Proposed Tract No. 6195 -The site has a vesting tentative tract map (Tract No. 6195) containing eight phases and totaling 238 buildable lots. Phases 1 through 4 have a recorded final map. Phase 1 lots range from 8,470 to 16,784 square feet. The mean lot size is 9,833 square feet and the median lot size is 9,047 square feet. Phase 2 lots range from 8,400 to 17,641 square feet. The mean lot size is 9,093 square feet and the median lot size is 8,760 square feet. Phase 3 lots range from 8,400 to 20,031 square feet. The mean lot size is 9,800 square feet and the median lot size is 8,830 square feet. Phase 4 lots range from 8,400 to 18,398 square feet. The mean lot size is 9,462 square feet and the median lot size is 8,914 square feet. Phase 4 Lot 32 is a "super lof' containing 117 lots in future Phases 5, 6, 7 and 8. These lots range from 8,400 to 18,458 square feet. The mean lot size is 9,522 square feet and the median lot size is 8,700 square feet. The majority of lots in all eight phases under appraisal have anorth-south orientation, which is popular in the local market. The map layout is functional in design and contains a total of four cul-de-sacs. Soil and Seismic Conditions -The routine inspection of the subject disclosed no unusual conditions affecting the land. However, no responsibility is accepted for evaluating subsoil or discovery ofunapparent or unusual conditions, as I am not an expert in this field The subject is not located in an Alquist-Priolo seismic special studies zone. Services -Each phase will be served by all public utilities including: gas {So. Calif. Gas Co.), electricity (PG&E), telephone (SBC), water (Cahfomia Water Service), sewer {North of the River Sanitation District), cable television (Bright House Networks) and storm drainage (in tract drainage i basin). On/Off=-Site Improvements - On the date of inspection the ontoff--site improvements were being completed in stages. Off-site improvements included the relocation of the canal along the Allen and Snow Roads frontage and installation of concrete curb and gutter along the Olive Drive and Snow Road frontages. On-site improvements included rough grading for all phases. Phases 1 - 4 will be developed first and had the underground sewer and storm drainage complete. Phase 1 had _. _ - _.--.. 29 underground water, gas and electric utilities complete. Phases 2 and 3 had a portion of the water system complete. Phases 1, 2 and 3 had concrete curb and gutter in place. The cost of developer's improvements to the land is estimated after consultation with their engineer Jeff Martin of McIntosh & Associates at $446,000 for Phase I, $331,000 for Phase 2, $353,000 for Phase 3, $221,000 for Phase 4, $507,000 for Phases 5 - 8. In addition to the site improvements, Phase 1 had seven single-family residences under construction as of the date of value. These houses ranged in size from 1,821 to 2,722 square feet with an average building area of approximately 2,200 square feet. These structures typically had a concrete foundation, concrete slab floor, rough plumbing, and were in various stages of wood frame construction of the walls and roof cover. A conservative estimate would be that construction was 10% complete. Houses of this size and quality typically cost $100 per square foot to construct. Utilizing this information I have formed an opinion that the contributory value of the these improvements is $154,000 (2,200 sf x $100 x 10% x 7). This amount is added to the developer's improvements to the land above and to the discounted cash flow in the income capitalization approach. The average finished lot value for the seven lots has been increased $22,000 to reflect the contributory of these improvements when developing the aggregate finished lot value when complete. According to the Engineer's Report all of the Improvement Acquisitions for the Briarwood Development Area aze improvements related to the development of the subdivision and are discussed in the Fox Run (Tract No. 6118) description above. Easements and Surface Restrictions - A preliminary title report for Tract 6195 prepared by First American Title dated August 10, 2004 and subdivision guarantees for Phases 1 - 4 were provided. A physical inspection of the site and review of the title documents and tract map revealed the 82- foot wide Rosedale Ranch Improvement District Canal along the south line of Snow Road and east line of Allen Road which has been relocated out of the street right-of--way at the developer's cost. Allen Road frontage has an 8-foot landscape easement. Snow Road and Olive Drive frontage has a 10-foot landscape easement. The landscape easements are an amenity of the development. The location of an easement for a pipeline in favor of Union Oil Company dated September 10, 1949 can not be determined from record information and is assumed to be abandoned due to the age. The owner has a waiver for the surface right of entry from the mineral rights ownerJlessee. 30 Environmental Issues -Upon visual inspection, it did not appear that there were any hazardous materials in or around the subject. I, however, am not qualified to detect such substances or materials. Any comment that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste andlor toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. The value opinion is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observations made during the appraisal process Zoning -According to the City of Bakersfield Planning Department the current zoning is R-l, One Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family residential development. The minimum lot area is 6,000 square feet. A 25-foot front setback and 5- foot side yard setback are required. The rear yard setback is 25 feet or 20% of the depth of the lot, whichever is less; provided, however, the rear yard may be reduced to 5 feet if not more than 45% of the lot is covered by buildings or structures. Current Use - On the date of inspection, the property had subdivision improvements in progress as described above. The site is well suited for a residential subdivision. ,_.,. 31 THE HOMESTEAD AREA (Tentative Tract No. 6234} Identification Of Property The subject property is situated at the northwest corner of Noriega Road and Old Farm Road in Bakersfield, California. The legal description is as follows: Lots S, 6, 7, 11, and 12 of Parcel 1 of Sales Map of Land of Kern County Land Company, in Section 13, Township 29 South, Range 26East, M.D.M. in the City ofBakersfaeld, County of Kern, State of California. It is fixrther described as Assessor's Parcel Number: 527-010-03. The census tract number is 0038.04. Thomas Guide map reference is 2401-A7. Ownership History Of Property According to public records and information provided the appraiser, the current owner is J & L Gardiner, LLC. James and Lucille Gardiner as trustees of the James B. and Lucille C. Gardiner Revocable Trust quit claimed the property to the new ownership entity on January 7, 2004. The transfer was between related parties and not a sale of the property. There has been no other change of ownership in the last three years. The Gardiners have owned the property for many years. The property is under contract to be purchased upon completion of the finished lots. The owner has entered into two agreements which are being kept confidential as they are not due to close escrow until 2005 after Assessment District 04-1 is funded. The contract prices of the finished lots do support the "as is" land value in this appraisal. Assessed Value And Taxes The property is assessed by the Kern County Assessor's office and is identified as Assessor's Parcel Number: 527-010-03. The 2004-2005 general tax rate is 1.088098°to of the assessed value. Applicable special assessments are school CFD No. 92-1 and AD 04-1. Both are discussed in the Engineer's Report. According to Article XIII A of the California State Constitution (Proposition l3}, the sale or transfer of the property will result in reassessment by the Kern County Assessor at its market _ ,, 32 value at the time of sale. The taxes utilized in the income capitalization approach of this report are the estimated taxes in the event of sale at the estimated market value shown in this report. Site Analvsis Physical Characteristics -According to the Engineer's Report the site contains 89.37 acres net exclusive of the drill site, home site, and storm drain sump lot that are in the District but not assessed. The terrain was rough graded for a future subdivision. The site is irregular in shape. The perimeter has 1,322 feet frontage along the north line of Noriega Road and 1,980 feet frontage along the south line of Reina Road, and will have approximately 2,600 feet frontage along the west line of Old Farm Road upon development. According to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060075 1000 B dated September 29, 1986, the subject property is situated in zone C. Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone. Tentative Tract No. 6234 -The site has an approved vesting tentative tract map (Tract No. 6234) containing six phases. A total of 328 buildable lots are planned with a median lot size of 9,100 square feet. A drill site, home site, and storm di ~~in sump lot are included in the tract map but not to be assessed when the tract map is recorded. Soil and Seismic Conditions -The routine inspection of the subject disclosed no unusual conditions affecting the land. However, no responsibility is accepted for evaluating subsoil or discovery of unapparent or unusual conditions, as I am not an expert in this field. The subject is not located in an Alquist-Priolo seismic special studies zone. Services -All public utilities are available including: gas (So. Calif. Gas), electricity (PG&E), telephone (SBC), water (Vaughn Water Company), sewer (City of Bakersfield), cable television (Bright House Networks) and storm drainage (in tract drainage basin). OnlOff--Site Improvements - On the date of inspection the onloff--site improvements complete consisted of two lanes of older asphalt paving for Noriega Road and Reina Road and underground utilities sewer and storm drain systems. The site was rough graded and a retaining wall along the ', west boundary was in place. Concrete curb and gutter was completed for approximately the south $1,741,000 in consultation with the owner's representative Annette Davis and Robert Smith of SmithTech*USA licensed land surveyor. Foundations for four single-family residences were trenched on October 21`x'. The contributory value of these improvements is insignificant in comparison to the overall value and no value is given i According to the Engineer's Report all of the Improvement Acquisitions for The Homestead Area are improvements related to the development of that subdivision and are generally described as improvements in and along Reina Road, Old Farm Road, and Noriega Road, and in-tract/on-site storm drain improvements that are required to be constructed, or are expected by this District Proponent to be required to be constructed, as conditions of approval for that subdivision. The general location and extent of the planned Improvement Acquisitions in Reina Road include completion of the eastbound half of the street (south half of the street) to its full design width, along the frontage of Ten. TR 6234, complete with excavation, paving, curb, gutter, sidewalk, striping, street signs, street lights with conduits, and subdivision block wall. The general location and extent of the planned Improvement Acquisitions in Old Farm Road include completion of the southbound half of the street (west half of the street) to its full design width, along the frontage of Ten. TR 6234, complete with excavation paving, curb, gutter, sidewalk, median curb, striping, street signs, street lights with conduits, and subdivision block wall. The general location and extent of the planned Improvement Acquisitions in Noriega Road include completion of the westbound half of the street (north half of the street) to its full design width, along the frontage of Ten. TR 6234, complete with excavation, paving, curb, gutter, sidewalk, striping, street signs, street lights with conduits, and subdivision block wall. The general location and extent of the planned in-tract/on-site storm drain Improvement Acquisitions in The Homestead Area include construction of the in-traction-site storm drain system for Ten. TR 6234, complete with 36-, 30-, 24-, and 18-inch diameter pipelines with manholes and catch basins, and a complete storm drain sump with all required excavation, an outlet structure, and block wall. Not included in the scope of The Homestead Area Improvement Acquisitions are this District Proponent's incidental costs for design engineering, improvement bonds, construction staking, soils and materials analysis and testing, plan check fees, and inspection fees, all as itemized in Table B-II-C in Engineer's Report Exhibit B and as generally shown on Map No. 2 in Engineer's Report Exhibit E, incorporated herein by reference. Title dated July 23, 2003 was provided. A physical inspection of the site and review of the title document and tentative tract map did not reveal any adverse easements or surface restrictions. A 6- foot landscape easement along the Reina Road frontage, 12-foot multi-purpose trail easement along the Noriega Road frontage, and a 10-foot multi-purpose trail easement along the Old Farm Road frontage are amenities of the future subdivision. The owner has a waiver for the surface right of entry from the mineral rights owner/lessee. A drill site was reserved for future petroleum exploration which is common in the area. There are no existing oil wells on the drill site. Environmental Issues -Upon visual inspection, it did not appear that there were any hazardous materials in or around the subject. I, however, am not qualified to detect such substances or materials. Any comment that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste andlor toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. The value opinion is predicated on the assutnption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any envirorunental conditions, or for any expertise or engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observafions made during the appraisal process. Zoning -According to the City of Bakersfield Planning Department the current zoning is R-1, One Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family residential development. The minimum lot area is 6,000 square feet. A 25-foot front setback and 5- foot side yard setback are required. The rear yard setback is 25 feet or 20°t° of the depth of the lot, whichever is less; provided, however, the rear yard may be reduced to 5 feet if not more than 45% of the lot is covered by buildings or structures. Current Use - On the date of inspection, the property had subdivision improvements in progress as described above. The site is well suited for a residential subdivision. 35 CHERRY HILL AREA (Tract No. 6153-Unit 2, Lots 1- 76) Identification Of Properh' The subject property is situated in the southwest quadrant of Reina Road and Jewetta Avenue approximately 890 feet west of the center of that intersection in Bakersfield, California. The legal description is as follows: Lots 1 through 76 in Tract No. 6153 Unit 2 being a division of a portion of Parcels A, B, & C of Lot Line Adjustment No. 367 in the City of Bakersfield, State of Cah; forma, as evidenced by that certain Certificate of Compliance recorded March 22, 1994 in Book 7©©6, page 222 of Official Records It is further described as a portion of Assessor's Parcel Numbers: 527-010-13 & 14. The census tract number is 0038.04. Thomas Guide map reference is 2401-B7. Ownership History Of Property According to public records and information provided the appraiser, the current owner is , Bakersfield Avalon LLC. They purchased the property from Cherry Hill, Inc. for $3,409,500 cash plus assumption of the AD 04-1 assessment bond lien of $404,318. The grant deed recorded October 7, 2004. Bryan Batey, principal in Cheny Hill, Inc. stated the sales agreement was negotiated in February 2004. Cherry Hill, Inc. acquired title from James Bryan Batey and Marie Ann Batey, husband and wife as joint tenants as to an undivided '/4 interest; and Benjamin E. Batey and Ruth Gayle Batey, as Trustees of The Batey Family Trust dated February 25, 1991 as to an undivided X14 interest. This was a transfer between related parties as James Bryan Batey is a member of both the selling and buying entities. These are the only sales of the subject in the last three years. Assessed Valne And Taxes The properly is assessed by the Kem County Assessor's office and is identified as portions of Assessor's Parcel Numbers: 527-010-13 & 14. The 2004-2005 general tax rate is 1.088098% of 36 the assessed value. Applicable special assessments are school CFD No. 92-1 and AD 04-1. ', Both are discussed in the Engineer's Report. ', According to Article XIII A of the California State Constitution (Proposition 13), the sale or transfer of the property will result in reassessment by the Kern County Assessor at its market value at the time of sale. The taxes utilized in the income capitalization approach of this report are the estimated taxes in the event of sale at the estimated market value shown in this report. Site Analysis Physical Characteristics -According to the Engineer's Report the site contains 16.39 acres. The terrain is level slightly above street grade. The site is irregular in shape. The perimeter has 590 feet frontage along the south line of Reina Road According to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060075 1005 B dated September 29, 1986, the subject property is situated in zone C. Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone. Tract No. 6153, Unit 2 -The site is subdivided into 76 buildable lots by Tract No. 6153, Unit 2. The lots range in size from 6,006 to 13,598 square feet. The mean lot size is 6,935 square feet and the median lot size is 6,369 square feet. The majority of lots have anorth-south orientation, which is popular in the local market. The map layout is functional in design and contains three cul-de-sacs. Soil and Seismic Conditions -The routine inspection of the subject disclosed no unusual conditions affecting the land. However, no responsibility is accepted for evaluating subsoil or ', discovery of unapparent or unusual conditions, as I am not an expert in this field. The subject is not located in an Alquist-Priolo seismic special studies zone. Services -The lots are served by all public utilities including: gas (So. Calif. Gas), electricity (PG&E), telephone (SBC), water (Vaughn Water Company), sewer (City of Bakersfield), cable television (Bright House Networks) and storm drainage (in tract drainage basin in another phase outside of District). _- _ . >_.. _ . . 37 On/Off-Site Improvements - do the date of inspection off-site improvements consisted of the grading of Reina Road and installation of the asphalt paved street and concrete curb and gutter. The on-site improvements complete consisted of underground utilities; concrete curb, gutter and sidewalk; street lights, and approximately 90% of the streets were asphalt paved. The cost of developer's improvements to the land is estimated at $1,126,000 in cansultation with the developer Bryan Batey and Robert Smith of SmithTech* USA licensed land surveyor. According to the Engineer's Report all of the Improvement Acquisitions for Cherry Hill Area are improvements related to the development of that subdivision and are generally described as in- tract/on-site street, sewer, and storm drain improvements that are required to be constructed, or are expected by this District Proponent to be required to be constructed, as conditions of approval for that subdivision. The general location and extent of the planned in-traction-site l street Improvement Acquisitions in the Cherry Hill Area include completion of all in-tractlon- site streets in TR 6153-2 Lots I-76, complete with excavation, paving, curb, gutter, sidewalk, driveway approaches, and cross gutters. The general location and extent of the planned in- tract/on-site sewer Improvement Acquisitions in the Cheny Hill Area include construction of the in-tract/on-site sewer system far TR 6153-2 Lots 1-76, camplete with 10-, 8-, and 6-inch diameter sewer lines, 4-inch diameter sewer laterals for all 76 R-1 lots in TR 6153-2 Lots 1-76, manholes, and clean outs. The general location and extent of the planned in-traction-site storm drain Improvement Acquisitions in the Cherry Hill Area include construction of the in-tract/on- site storm drain system for TR 6153-2 Lots 1-76, complete with 36-, 30-, 24-, and 18-inch diameter pipelines with manholes and catch basins. Not included in the scope of the Cherry Hill Area Improvement Acquisitions are this District Proponent's incidental costs for design engineering, improvement bonds, construction staking, soils and materials analysis and testing plan check fees, and inspection fees, all as itemized in Table B-II-D in Engineer's Report Exhibit B and as generally shown on Map No. 3 in Engineer's Report Exhibit E, incorporated herein by reference. Easements and Surface Restrictions - A subdivision guarantee for Tract 6153-2 prepared by Chicago Title dated September 3, 2004 was provided. A physical inspection of the site and review of the title document and tract map did not reveal any adverse easements or surface restrictions. A 38 3-foot landscape easement along the Reina Road frontage is an amenity of the subdivision. The owner has a waiver for the surface right of entry from the mineral rights ownerflessee. Environmental Issues -Upon visual inspection, it did not appear that there were any hazardous materials in or around the subject. I, however, am not qualified to detect such substances or materials. Any comment 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 in the field of enviromnental assessment. The value opinion is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise ar engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observations made during the appraisal process. Zoning -According to the City of Bakersfield Planning Department the current zoning is R-1, One Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family residential development. The minimum lot area is b,000 square feet. A 25-foot front setback and 5- foot side yard setback are required. The rear yard setback is 25 feet or 20°l0 of the depth of the lot, whichever is less; provided, however, the rear yard may be reduced to 5 feet if not more than 45% of the lot is covered by buildings or structures. Current Use - On the date of inspection, the property had subdivision improvements in progress as described above, The site is well suited for a residential subdivision. 39 OLIVE PARK III AREA (Tract No. 6117, Unit 3) Identification Of Property The subject property is situated at the northwest comer of Reina Road and Jewetta Avenue in Bakersfield, California. The legal description is as follows: Lots 1 throngh 77 of Tract No. 6117 Unit 3 being a division of the remainder of Parcel IZ of Pareel Map No. 9786 in the City of Bakersfield, State of California, as per map filed October 16, 1992 in Book 44 of Maps at Pages 131 and 132 in the office of the Kern County Recorder. It is further described as Assessor's Parcel Number: 528-010-26. The census tract number is 0038.04. Thomas Guide map reference is 2401-B6. Ownership History Of Property According to public records and information provided the appraiser, the current owner is Olive Park Land Company. This company is a family owned entity by the Batey family The Batey family has owned the property for over three years. Assessed Value And Taxes The property is assessed by the Kem County Assessor's office and is identified as Assessor's Parcel Number: 528-010-26. The 2004-2005 general tax rate is 1.100518°to of the assessed value. Applicable special assessments are school CFD No. 92-1 and AD 04-1. Both are discussed in the Engineer's Report. According to Article XIII A of the California State Constitution (Proposition 13), the sale or transfer of the property will result in reassessment by the Kern County Assessor at its market value at the time of sale. The taxes utilized in the income capitalization approach of this report are the estimated taxes in the event of sale at the estimated market value shown in this report. Site Analysis Physical Characteristics -According to the Engineer's Report the site contains 24.11 acres. ', The terrain was rough graded for a future subdivision. The site is irregular in shape. The 40 perimeter has 1,293 feet frontage along the west line of Jewetta Avenue and 1,290 feet frontage !, along the north line of Reina Road. According to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060075 1005 B dated September 29, 1986, the subject property is situated in zone C. ', Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone. Tract No. 6117, Unlt 3 -The site has been subdivided into 77 buildable lots by Tract No. b117, Unit 3. The lots range in size from 10,042 to 18,459 square feet. The mean lot size is 11,686 square feet and the median lot size is 10,791 square feet. The majority of lots have anorth-south orientation, which is popular in the local market. The map layout is functional in design and j contains six cul-de-sacs. Soil and Seismic Conditions -The routine inspection of the subject disclosed no unusual conditions affecting the land. However, no responsibility is accepted for evaluating subsoil or discovery of unapparent or unusual conditions, as I am not an expert in this field. The subject is not located in an Alquist-Priolo seismic special studies zone. Services -The lots are served by all public utilities including: gas (So. Calif. Gas}, electricity (PG&E), telephone (SBC), water (California Water Service), sewer (North of the River Sanitation District), cable television (Bright House Networks) and storm drainage (in tract drainage basin in another phase outside of District}. On/Off--Site Improvements - On the date of inspection the off-site improvements complete ', consisted of asphalt paved Reina Road with concrete curb, gutter and sidewalk. Jewetta Avenue was approximately 60°lo asphalt paved and had concrete curb, gutter and sidewalk in place. The perimeter concrete block wall was completed along Jewetta Avenue and Reina Road. On-site improvements complete consisted of rough grading; underground utilities; and concrete curb, gutter and sidewalk. The cost of developer's improvements to the land is estimated at $1,058,000 in ! consultation with the owner Bryan Batey and Robert Smith of SmithTech*USA licensed land surveyor. 41 According to the Engineer's Report all of the Improvement Acquisitions for Olive Park III Area are improvements related to the development of that subdivision and are generally described as improvements in and along Jewetta Avenue, and in-traction-site street improvements that are required to be constructed, or are expected by this District Proponent to he required to be constructed, as conditions of approval for that subdivision. The general location and extent of the planned Improvement Acquisitions on the west side of Jewetta Avenue, along the frontage of TR 6117-3, include construction of curb, gutter, sidewalk, street signs, street lights with conduits and subdivision block wall. The general location and extent of the planned in-traction-site street Improvement Acquisitions in the Olive Park III Area include completion of all in-traction-site streets in TR 6117-3, complete with excavation, paving, curb, gutter, sidewalk, driveway approaches, cross gutters, street signs, and street lights. Not included in the scope of the Olive Park III Area Improvement Acquisitions are this District Proponent's incidental costs for design engineering, improvement bonds, construction staking, soils and materials analysis and testing, plan check fees, and inspection fees, all as itemized in Table B-II-E in Engineer's Report Exhibit B and as generally shown on Map No. 4 in Engineer's Report Exhibit E, incorporated herein by reference. Easements and Surface Restrictions - A subdivision guarantee for Tract 6117-3 prepared by First American Title dated September 8, 2004 was provided. A physical inspection of the site and review of the title document and tract map did not reveal any adverse easements or surface restrictions. A 3-foot landscape easement along the Reina Road frontage and 7-foot landscape easement along the Jewetta Avenue frontage are amenities of the development. The location of an easement for a pipeline in favor of Union Oil Company dated September iQ, 1944 can not be determined from record information and is assumed to be abandoned due to the age. The owner has a waiver for the surface right of entry from the mineral rights owner/lessee. Environmental Issues -Upon visual inspection, it did not appear that there were any hazardous materials in or around the subject. I, however, am not qualified to detect such substances or materials. Any comment that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste andlor toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. _< ,_ _.: _ 42 The value opinion is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observations made during the appraisal process. Zoning -According to the City of Bakersfield Planning Department the current zoning is R-1, One Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family residential development. The minimum lot area is 6,000 square feet. A 25-foot front setback and 5- foot side yard setback are required. The rear yard setback is 25 feet or 20% of the depth of the lot, whichever is less; provided, however, the rear yard may be reduced to 5 feet if not more than 45% of the lot is covered by buildings or structures. Current Use - On the date of inspection, the property had subdivision improvements in progress as described above. The site is well suited for a residential subdivision. the Appraisal Institute is "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. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability". Hiehest and Best Use as Vacant Legal permissibility -The subject property is zoned R-1, One Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family residential development. The most likely use for the site is single-family residential. A zone change is not likely because the current zoning is consistent with surrounding land uses. Physical possibility -Public services availability, topography, shape, soil conditions and size of the site are suitable for all allowable land uses. Financial feasibility -The subject neighborhood has a demand for single-family housing as evidenced by the survey of competing developments in the income capitalization approach discussion of absorption rates. New home developments in northwest Bakersfield have lists of potential homebuyers waiting for an opportunity to purchase a new home. Land development and home construction has not kept pace with demand. The active tentative tracts map in the market overview section illustrates that the subject property in the assessment district represents a substantial portion of the supply of lots in the foreseeable future. As district proponents plan phased development of the lots, no oversupply of lots is forecast. In addition, financial feasibility for subdivision development is evident when the value indicated by the cost approach is compared with the income capitalization approach which subtracts development costs, expenses, and profit from the value of the finished lots and discounts the cash flows to present value. It appears that development to single-family lots is financially feasible. .~ 44 Maximum profitability -Maximum profit is achieved in subdivision development by selling all lots for a reasonable price in the shortest absorption period possible. Maximum profitability would be achieved by preselling the lots to a home builder or an ownerlbuilder developing the lots for his own single-family project. In my opinion, the highest and best use as vacant is development to single-family residential lots for presale to a builder or by an owner/builder. Highest and Best Use as Proposed Legal permissibility - As discussed in the site analysis, single-family lots are under construction in five difference tract map areas as approved by the City of Bakersfield. This residential use is legally permissible. Physical possibility -Public services, soil conditions, size, shape, and topography are suitable for the propased improvements. Financial feasibility - As previously discussed, there is significant demand for single-family residences in the subject area. Conversion to another use other than single-family residential would not be financially feasible. Maximum profitability -Upon completion of the improvements, they will be new finished residential lots and not suffer from depreciation. Lot sizes are suitable for the predominant price range of homes being constructed in the area ($220,000 to $350,000). Maximum profitability would be achieved by constructing single-family residences in the $220,000 and up price range on the finished lots. In my opinion, the highest and best use as proposed is to construct single-family residences in the C $220,000 and up price range. developing an opinion of market value for the subject property in fee simple estate. To apply the cost approach, the depreciated replacement cost of the improvements is added to the value of the land as though vacant to arrive at a value opinion. This approach is most reliable when the improvements are new or nearly new and represent the highest and best use of the site. In this ~, appraisal the developer's improvements to the land to date and the acquisition improvements of the assessment district are added to the undeveloped of "raw" land value. Using the sales comparison approach, an indication of value is derived by comparing recent transactions involving similar, competitive properties on the basis of a common unit of comparison. This approach is not applicable for direct comparison because the subject has partially completed improvements. Sales comparison has been used in the cost approach to develop an opinion of value for the undeveloped land and in the income capitalization approach to develop an opinion of value for the individual or retail value of the finished lots. In the income capitalization approach, potential gross income is estimated by analyzing recent finished lot sales to arrive at an individual value for each lot. Market conditions are evaluated to arrive at a forecasted sellout period. After deducting development costs, expenses and profit, the net sales proceeds are capitalized into an indication of value by yield capitalization using a discount rate. Cost Approach ', In applying the cost approach in this appraisal, I have estimated the cost to construct a replacement for the existing site improvements and assessment district improvement acquisitions, and then deducts all accrued depreciation in the property being appraised from the replacement cost of the site improvements as of the effective appraisal date. No depreciation is applicable to the subject because the improvements are new and put their highest and best use. When the value of the site is added, the result is an indication of value for the property at the current stage of development. 46 The principle of substitution is basic to the cost approach. This principle affirms that no prudent buyer would pay more for a property than the cost to acquire a similar site and constmct ', improvements of equal desirability and utility without undue delay. Land Valuation -The sales comparison approach has been used to value the land as undeveloped or "raw". This method is preferred. when comparables sales are available. To apply this technique, sales of similar parcels of land are analyzed, compared, and adjusted to provide a value indication for the land being appraised. In the comparison process the similarity or dissimilarity of the parcels is considered. Elements of comparison include property rights, legal encumbrances, financing terms, conditions of ' sale (motivation), market conditions (sale date), location, physical characteristics, available utilities, zoning, and highest and best use. Adjustments are made for any significant differences with the subject. This process involves the appraiser's judgment as to the degree of comparability. The four subject development areas are located within close proximity of each other at the edge of development in northwest Bakersfield. They are all within one half mile of having touching boundaries and the perimeter of all four does not stretch over a mile and a half in any direction. These properties have tentafive or recorded final tract maps. They have similar soil conditions, topography, and availability of utilities. These properties are considered together in the discussion of raw land value. My investigation of the subject area has revealed nine sales considered to be similar to the subject property. The unit of comparison utilized in this analysis is the sales price per acre. Specific information. regarding each sale is provided in the addenda. The sales information is summarized in the table below followed by a comparison with the subject and reconciliation of the data into a final value conclusion. The comparables selected are recent land sales west of Freeway 99 in Bakersfield purchased for development of single-family lots. They have similar tax rates and highest and best use as the subject. The sales utilized are considered the most comparable available. Although similar, there are characteristics of these sale properties that differ from the subject and cause the prices paid to vary. These similarities and differences are discussed as follows. Street Atlas USA® 2005 Undeveloped Residential Land Sales ~ ~ ~i ~ r.% bz~ flit 3 ~ r~ ~ a~y„~ _e_e .. - - ., ~ ~.~ ~1 °~~° ~. ~ , ,.~.~. .. ~_ mA,~,e___« .. b, e , ~~ ~. ~. ~ 3~ , ~ a °o ~~' ~ g de r XI ~ ~T .._ ~". . m.. s'Sn ~'.. 4~6R& ~v~ >~ 0 e~. __pp ~ k v3f `~~. w ~ ~ ~r~~j~ ~ "" _ ~ ~ ( ~ ~- ~~ ~ ~. n e ,~ ~ yqm: t, . ....~R..,. - m,.-..,a..a pcv'~a .A ti~ • 05 n °i y~, ti 3 ~ . „153. g 3` ~ i ~ ~ ~ Y s s3... bA4t ~ ~ -S U` i5 ~ ~ T ~~ E ~ ;y . t i~a a ; _. , ., . }y y~q ~'-A~'.~sF3+tia =. .~'~ 4k ' I ~ 3 ~ -amS ' ~ # . ra i ~ ~x -. ~ ne _a< , .. c ,_ _' ~' ° e ,, ..,ra., "~`t~~t aay x w ~e^ .+amm e. ati. av-~.m~m ~ ~ wrc.mnrmnd.va l.lr .TP-" 3~. v..u.. .+ a,a ,~ H ~ ~ - a N E~i ~Si ~Y O p. x .3 ~5 ~ 4 ~ . P ~a ~ ; .Rj~,[$L'1 ~~ _ R3 Y '~ ~'. y 6~s §i {{ ..~ Y ~@ ~ :a ~ ~ A a~tlYh6k& r ~ ag - ,~ ,. _.. ' ~ j s ~~ .:~ ¢ ~ i7Q. t iF b tB ~~ . K.ki Sp:'Y Yi'8 °~'-s~l~» ~ Mwus ».ilnmjjll ~ ~%av+Wm*uo-. x i.Al ~ i ;?~5fPt2 ~r rh 9p I - ? ra ~_ e ~ ° . ." Scale 1: 100,000 I Data use subject to license. # o •R ©2004 DeLOrtne. Street Atlas USA®2005. ""t°°°`t 's o www.delortne.com ~ _-_ __. 1" = 1.58 mi Data Zoom 11-0 W . __ _ __ 47 Summary Of Undeveloped Residential Land Sales Sale Sale Sale Size Price Per No. Location Date Price Acres Zoning Acre Remarks 1 SWC Calloway Dr d 10129104 $2,000,000 37.37 A $53,519 2 parcels owned by separate sellers Etchart Rd purchased by one buyer. Buyer responsible for zone change & en 'eerie . Ne otiated in 02/04. 2 SEC Heath Rd & 04/16!04 $4,950,000 70 E{If2) $70,714 Sale included tentative tract map for Brimhall Rd 99 (I!2) lots. Adjacent to other new devela meet. 3 South Side 06[03104 $3,074,000 26.54 R-I $115,825 Sale included tentative tract map for McCutcheon Rd & 116 lots. Located across the street 600' West of Stine Rd from Rid eview Hi h School. 4 SWC Heath Rd & 06[22[04 $2,450,000 35.0'7 A-1 $69,860 Sale included tentative tract map for Meacham Rd 49 lots {18,000 sf) and a drill island for the mineral rights owners. Zone change to E(I/2) approved subject to recotdin tract ma . 5 Both Sides of Hams Rd 06/22/04 $6,844,450 152.11 R-1 $45,000 Escrow closed on 3 of 4 parcels. No btw Mt. Vista Dr & tract map included. 50-foot wide gas Old River Rd pipeline easement passes diagonally throw site. 6 South Side of Hams Rd 06[30[04 $5,191,284 81.47 R-1 $63,720 2 stage closing second half in 1 year. btw Mt Vista Dr & Old No tract map included. 50-foot wide River Rd gas pipeline easement passes diagonally through site. Portion of Sale 5. 7 North Side of Hams Rd 07102[04 $6,757,500 70.64 R-1 $95,661 3 stage closing over 18 months. Sale btw Mt. Vista Dr & included tentative tract map for 255 ' Old ffiver Rd lots (7,800 sf). 50-foot wide gas pipeline easement passes diagonally throw site. Pomon of Sale 5. 8 NWC Stockdale Hwy 07130[04 $2,950,000 18.77 R-1 $157,166 Sale included tentative tract map for & Renfro Rd 661ots {7,200 sf) with improvements complete & site rough graded. Buyer motivated due to their neazby fast selling develo meet. 9 NW Quadrant Stine Rd 09[16[04 $9,650,000 111.73 A-1 $86,369 Sale included tentative tract map for & Taft Hwy 4031ots. Seller purchased site in 2104 for $2,75Q000 without ma . Sales 1, 2, and 4 are located in outlying suburban areas and are being required to develop with larger 18,000 square feet or larger lots. The lower density of development has a downward influence on the price per acre unit of comparison and upward influence on the price per paper lot. Sale 1 does not include a tentative tract map and is the lowest indicator per acre. A tentative tract map shortens the 6me cycle for development of the site. The City of Bakersfield is currently taking 9 to 12 months to approve tentative tract maps due to a backlog of applicatians_ At tentative map approval, buyer can obtain an estimate of development costs once these requirements are known. Sales 5 and 6 also did not have a tentative tract map included in the sale. Sale 7 is a portion of Sale 5 and across the street from Sale 6. It exhibits a significantly higher price per acre due to having a tentative tract map. These properties are situated in a rapidly developing area of southwest Bakersfield rated similar in location to the subject. The 50-foot natural gas pipeline easement also cuts through a larger portion of Sales 5 and 6 as compared to Sale 7. Sales 3, 7, 8, and 9 are the comparables that sold with a tentative tract map and will develop with a similar density of development (lot size) as the subject. Sale 8 was under development at time of sale with rough grading complete, sewer construction in progress, and all improvement plans completed. This stage of development is superior to the subject as raw land. The buyer of Sale 8 was also motivated because their nearby development was selling homes faster than expected. They are able to capitalize on the success of an existing project and will not be required to initiate a new marketing program ar build new model homes which is a considerable financial saving. Sales 7 and 8 are rated similar in location and Sales 3 and 9 are slightly inferior in location. The nine undeveloped residential land sales indicate a range of $45,000 to $157,166 per acre. Sales 3, 7, 8, and 9 are the comparables that sold with a tentative tract map and will develop with a similar density of development as the subject. They point to a narrower range. Sale 8 was partially developed and had other extenuating circumstances making it a less reliable indicator. Sales 3, 7, and 8 indicate a range of $8b,369 to $115,825 and are given greatest weight in assigning a unit value of $100,000 per acre for the subject. Improvements to the Land -Site development was in progress on the effective date of appraisal but at various stages of completion for each phase. The status of construction is discussed for each phase earlier in the report along with an estimate of the developer's cost of improvements as of the appraisal date. The assessment district improvement acquisitions are discussed as well. The assessment lien for these improvements is provided in the Engineer's Report Exhibit C. The following table provides a summary of the cost approach for property at the stage of development as of the effective date of appraisal and subject to the assessment district improvement acquisitions being in place. 49 Summary of Cost Approach : LAND VALUE WITH RAW DEVELOPER'S IMPROVF.MF,NT AD FINANCED NET PRESENT LAND IMPROVEMENT ACQUISITION INFRASTRUCTURE DEVELOPMENI'AREA DESCRIPTION ACRES VALUE/ACRE VALUE STO LAND COST IN PLACE COUNTRYSIDE AREA Tract 6718-Ph 2, Lots I-10 & 27-32 Residential Lots 3.9) 100,000 391,000 S57,OD0 51,804 1,299,804 Tract 6118-Phase 3 Residential Lots 7.89 100,(100 789,000 359,000 103,608 1,251,608 „~ Tract 6l lS-Phase4 Residential Lots 7,89 100,000 789,000 355,000 103,6(18 1,247,608 Tract 6118-Phase 5 Residential Lots 8.31 100,000 831,00(1 4]7,000 (10,083 1,,358,083 Tract 61 ! 8-Ph 5, Lot 35 {Portion of " Future "tract 61 I8-Phase 6) "Super" Lot 3.15 100,000 315,000 71,000 48,Sbfi 374,566 ' LLA NO. 122A9, Parcel E (Fuure - Tract 61 IS-Ph 6, 7 & 8) i "Super" Lot 24.57 100,060 2,457,000 221,000 291,39b 2,969,396 II SUBTOTALS TRACT N0.6116- EOX RUN: 55.72 100,000 5,572,000 2,220,000 709,065 8,501,065 Tract 6195-Phase 1 Residential Lot 8.40 100,000 840,000 60Q000 104,847 1,544,847 - Tract 6195-Phase 2 Residential Lots 8.76 100,000 896,000 331,000 124,262 1,331,262 Tract 6195- Phase 3 Residential Lots 8.91 !00,000 891,000 353,000 120,380 1.364,380 Tract 6195-Phase 4 Residential Lots 8.82 100,000 882,000 221,OOU 120 i80 1,223,380 Tract 6195-Ph 4, Lot 32 (Future Tract 6195-Phases 5, 6, 7 & 8) "Super" Lot 34.25 100,000 3,425,000 507,000 454,336 4,38G,336 SUBTOTALS 9'IL4CT N0.6145-BRI ARWOOD: 69.14 100,000 6,914,000 2,012,000 924,205 9,850,205 i TOTALS/AVERAGE FOR COUNTRYSIDE AREA: I 124.86 100,000 (2,486,000 4,232,000 1,633,270 18,351,270 - i ~, THE FlOMESTEAD AREA ', Lots 5,6,7,11,&12 of Salcs Map of Lands of Kem County Land Company (Future Tract 6234 Ph I thm 6 excluding residential lot, oil well drill site & storm drain sump lot) "Super" Lot 8937 100,000 8,937,000 1,741,000 1,036,078 11,714,078 . CHERRY HILL AREA I 9'ract 6153-Unit 2 (Lots I-76} Residential Lots 16.39 100,000 I,G39,OOp 1,126,OW 313,?31 3,078,931 ' OLIVE PARK 111 AREA Tract 6117-Unit 3 Residental Lots 24.11 100,000 2,411,000 1,058,000 438,869 3,907,869 I ASSESSMENT DISTRICT TOTALS 254.73 100,000 25,473,OW 8,157,000 3,421,948 37,051,948 The reader may note some discrepancies due to rounding. ',, "Includes contributory value of houses under construction e 50 Income Capitalization Approach The income capitalization approach to value consists of methods, techniques, and mathematical procedures that an appraiser uses to analyze a property's capacity to generate benefits (i.e., usually the monetary benefits of income and reversion) and convert these benefits into an indication of present value. The principle of anticipation is fundamental to this approach. Because value is created by the expectation of benefits to be derived in the future, value may be defined as the present worth of all rights to these future benefits. ', In applying the income capitalizafion approach in this appraisal, the appraiser estimates the potential gross income from the sale of the finished lots as they are forecast to occur over a period of time. The remaining cost to finish construction of the lots; administrative, marketing and property taxes expenses; and entrepreneurial profit are subtracted to arrive at the net cash flow. Yield capitalization is used to convert the series of periodic incomes into an indication of value by discounted cash flow analysis. Each future periodic income or cash flow is discounted to present value. The present value estimates for each period are then totaled to arrive at an indication of the total present value of the property. To select an appropriate discount rate an appraiser must verify and interpret the attitudes and expectations of market participants, including buyers, sellers, advisers, and brokers. The selection of yield rates for discounting cash flows focuses on the prospective or forecast yield rates anticipated by typical buyers and sellers of comparable investments. A discounted cash flow for each recorded phase of the tract maps is provided in the addenda. The components of the discounted cash flow analysis are discussed as follows. Inventory of Lots -The number of units in the discounted cash flow is the number of buildable lots in each recorded tract map. Lots sales begin after the forecasted completion date of the finished lot and the inventory from previous phases is sold out. The number of lots sold per month is based upon the absorption rate for the development. Absorption -Competing developments were surveyed as a method for forecasting the absorption of the subject as well as researching future competition and analyzing economic data. Every new home development in northwest Bakersfield has a waiting list of buyers. The Fox Run development by Centex Homes began marketing homes in Phase 1 in February 2004 from a modular office on site before the streets were paved. They have a waiting list with approximately 250 names. Centex releases eight lots per month. The companion Briarwood 51 development by Centex Homes shares the same modular office. Models and production units started construction in October 2004. They began home sales in August and had 70 names of potential buyers in two weeks. These projects are the Countryside Area located north of Olive Drive between Old Farm Road and Allen Road. Avalon by Probuilt Haines is located across Old Farm. Road to the east of the Countryside Area. They wrote their first sales contract in March 2003 and by mid August 2004 sales totaled 215 homes (closed & pending). This equals an absorption rate of 12.65 home sales per month over a 17 month period. Base prices effective August 3`d ranged from $212,990 fora 1,250 square foot residence to $249,990 fora 2,020 square foot residence. Avalon reportedly has a waiting list of 300 names and releases 16 to 201ots per month. Across Jewetta Avenue to the east along Olive Drive are Celebrations at Westlake by Lennar/Coleman. Homes and Eagle Ranch by Ennis Homes. Celebrations at Westlake has been marketing homes for over a year and had a waiting list of 600 names until Lennar/Coleman Homes initiated a new system of having potential buyers resign up for the waiting list every third week. This new reservation system has reduced the number of names on the waiting list to approximately 100. Eagle Ranch is divided into two series -Sierra and Executive. Marketing started from a modular office on site in October 2003. The model homes were completed in July 2004. The first homes were started in December. They reported a waiting list of over 600 names combined for both series. Ennis Homes and LennarlColeman Homes each release 10 lots per month. Reportedly, they cannot build homes any faster due to constraints with processing building permits, availability of subcontractors, and land development. Based upon my survey in the area in September 2004 with every development having a waiting list, there does not appear to be an oversupply of lots any time soon. In addition to the existing competition, not all of which was discussed here, two active tentative tract maps (with no recorded phases) are situated within one mile of the subject, according to an August 31s` map printed by the City of Bakersfield Plarmhtg Department. One tract at the northwest corner of Allen Road and Noriega Road contains 258 future lots and one at the southeast corner of Snow Road and Jewetta Avenue contains 367 future lots. Considering the existing competition and planned development in the near term, the supply of finished lots in the area will not adversely affect the absorption rate for the subject. _, 52 As discussed in earlier sections of this report, the population of northwest Bakersfield is growing at a rate faster than the city as a whole. The local economy has had positive job growth for a number of years. Interest rates are forecast to rise slightly over the next few years but stay under 8% for home mortgages. Economic conditions indicate that a continuation of current housing market activity is likely for the absorption period. Taking into consideration the lot size and likely product type planned, a survey of competing developments, firture competition, and econanuc conditions, the monthly sales absorption rate for the tracts timder appraisal are shown as follows. Countryside Area Tract No. 6118 Tract No. 6195 Cherry Hill Area Tract No. 6153-2 Olive Park III Area Tract No. 6117-3 8 Lots per month 8 Lots per month I2 Lots per month 11 Lots per month Revenue - In order to determine the gross sales per period, a sales search for residential lot sales to builders was conducted. The number of lot sales per period multiplied by the sale price of the lots is equal to the revenue from lot sales per period. The table below exhibits eight recent finished residential lot sale transactions in northwest Bakersfield. The information was verified with at least one party to the transaction. Where a range of lot sizes is shown the majority of lots are near the smaller size. a www.tletortne.com ~ 1" = 3,125.0 ft Dala Zoom 12-4 . - - _ - _. 53 Summary Of Finished Residential Lot Sales Sale Sale Sale Lot Size Price Per No. Develo mentlLocation Date PricelLot Sq. Ft. Zoning Sq. Ft, Remarks Quail Run 6-7104 $82,000 to 11,760 (E1/4) $5.10 to 471ots were sold to 4 builders in 1 NEC Norris Rd & Quail $84,400 to $6.97 increments of ] 0 to 17 lots. Creek Rd 16,550 Notthtgham Estates 3104 $66,500 10,916 R-1 $3.63 to Bulk sale of 331ots to one 2 NE Quadrant Allen Rd to $6.09 homebuilder & Reina Rd 18,325 Tract No. 6153-2 Lt I-76 10104 $50,182 6,006 to R-1 $3.69 to Bulk sale of 76 lots to one 3 South Line of Reina Rd 13,598 $8.36 homebuilder negotiated in 2104. btw Jewetta & Old Farm Price includes AD bond. Olive Park II 9104 $84,000 to 10,160 R-1 $4.68 to 53 tats sold to vazious 4 NEC Reina Rd & Old $11Q000 to $8.27 homebuilders. Phase 1 lots sold for Farm Rd 23,518 $70,667 to $73,667 in Ol to 03!2004 Hageman Ranch (Ph 2) 7-8104 $90,000 to 8,876 to R-1 $7.96 to 541ots sold to various 5 NEC Allen Rd & $94,000 11,807 $10.14 homebuilders. Phase 1 lots sold for Norie a Rd $58,000 to $67,000 in S rin `04 Tract No. 5966- l 7/04 $49,920 G,000 to R-1 $3.32 to Bulk sale 1751ots in 3 stages. Most 6 NW Quadrant Jewetta 15,022 $8.32' lots are under 6,500 sf. Av & Meacham Rd Tract No. 5966-2 & 5 Pending $75,]47 6,050 to R-1 $6.97 to Most lots are less than 7,000 sf 55 7 SW Quadrant Jewetta 10,783 $12.42 lots are finished & 901ots are Av &. Meacham Rd graded estimated completion cost was added to rice. Brighton Estates Pending $126,874 13,500 R-1 $9.40 to Builder lot price for Cambridge 8 NW Quadrant Callaway to $9.47 series. Gated community. Price Dr & Kem River $127,874 includes AD bond. Sales 1, 2, 4, 5, and 8 consist of lots over 8,800 square feet. They are most comparable to lots in the Olive Park III Area and Briarwaod (Tr. 6195) in the Countryside Area. The price per lot for the smaller lot size most similar to the subject ranges from $66,500 to $127,874. The price per square foot unit of comparison based upon the smaller lot size exhibits a range from $6.09 to $10.14. Sale 2 is the lowest indicator far both units of comparison. This transaction is the most dated. As discussed in the market overview home and lot values have been appreciating at a rapid pace this year. It is also a bulk sale which has a downward influence on value. Sale 4 is an earlier phase in the Olive Park III Area and considered a good indicator of value for that development azea. Sale 1 is the second most dated transaction. If these lots were offered for sale now they would attract a high value. Sale 5 is most similar in size to Briarwood. Lots were sold to multiple builders in this tract. Sale 8 is situated in a more upscale development than the subject. It is a gated community and developing with more expensive homes than expected in the subject area. It is very superior on a price per lot comparison. Due to the large lot size the price per square foot is more reasonable. ` _:. 54 Sales 3, 6, and 7 consist of lots predominately under 7,000 square feet. They are most comparable to the Cherry Hill Area and Fox Run (Tr. 6118) in the Countryside Area. The price per lot for the smaller lot size most similar to the subject ranges from $49,920 to $75,147. The price per square foot unit of comparison based upon the smaller lot size exhibits a range from $8.32 to $12.42. Sale 3 is a previous bulk sale of the Cheny Hill Area that was reportedly negotiated in February 2004 prior to construction of the lots. It requires upward adjustment for market conditions. Sales 6 and 7 represent bulk sales of different phases within the same tract map. Sale 7 is more current and the highest indicator. It is less reliable due to the buyer having to finish construction on 901ots. These comparable finished residential lot sales were considered good indicators of value for the subject property on an individual or retail lot sale basis. Average finished lot values for the development areas with recorded tract maps "upon completion of construction" are as follows. Develoument Area Lot Value Value/Sa. Ft.* Fox Run (Tr. 6118) in the Countryside Area $70,000 $8.95 - $9.67 Briarwood (Tr, 6145) in the Countryside Area $80,000 $8.84 - $9.13 Cherry Hill Area $60,000 $9.42 Olive Park III Area $90,000 $8.34 *Based upon the median square foot lot size for each phase Lot prices have appreciated rapidly in 2004. Sales 4 and 5 in the lot sales table above exhibit appreciation rates of approximately 20% to 55% in less than one year. When surveying competing single-family developments sales agents reported that home prices are increased with each monthly release of lots. The home price increase is typically $4,000 to $6,000 (approximately 2%). However, increases ranged as high as $27,000 at the Avalon development. I am forecasting that the appreciation rate will level off or slow down to 1.5% per month (18% annually) during the relatively short absorption period. The aggregate retail value of the lots "upon completion of construction" is equal to the individual or retail lot sale value shown above multiplied by the number of lots in the phase. required to arrive at an "as is" value for the subject. Construction cost estimates are shown on the cash flow analysis sheet for each tract in the addenda. The estimates were derived based upon cost data provided by the civil engineer/land surveyor for each development area, cost data in the appraiser's files from similar subdivisions in northwest Bakersfield, and Marshall Valuation Cost Handbook. The assessment district improvement acquisition cost (from Engineer's Report) and developer's construction cost to date are deducted from the total constntction cost to arrive at the remaining cost to finish construction of the lots. The developer's improvements to the land were discussed in an earlier section. Expenses -Besides the cost to complete construction, other expenses are sales & marketing, general & administrative, property taxes & special assessments, and entrepreneurial profit. Sales & marketing expenses include sales commission, advertising, escrow and title insurance. In the 2002 edition of the National Investor Survey by CB Richard Ellis market participants (developers, merchant builders, lenders) ware surveyed for their response to "How would they model the acquisition or disposition of a 20+ unit development assuming one sale to a single investor?" Survey responses for sales & marketing were in the range of 2°to to 6%. An estimate of 4% of gross sales is typical and appropriate for this analysis. General & Administrative expenses include administrative, accounting and legal expenses as well as overhead expenses such as office space expenses. The same CB Richard Ellis survey quoted above had a response range of 0.5% to 4% for this category. General & administrative expenses are estimated at 2% of gross sales, Real Estate Taxes & Special Assessments expense is derived by multiplying the tax and special assessment periodic rate times the value of the average inventory of lots for each period in the cash flow. This ownership expense decreases over time as the lots are sold. The Countryside and Olive Park III Areas have a general tax rate of 1.100518%. The Homestead and Cherry Hill Areas have a general tax rate of 1.088098%. All four development areas are subject to a community facilities 56 district special tax lien CFD No. 92-1 as described in the Engineer's Report. Upon recordation of a final tract map an annual spacial tax of $124.33 per subdivision lot net acre is payable. These properties will also be subject to the tax lien created by this assessment district AD 04-1 estimated at half the rate for general taxes as developed lots but prior to constmetion of a residence. The combined rate for real estate and special assessment liens is forecast at 1.8%. The entrepreneurial profit category pertains to the profit incentive anticipated by an owner who proceeds to take the risk of managing and marketing the project. Factors which influence the required profit include the term or time in which the owner is required to be involved in the project. An additional factor is the inherent risk associated with the project. This assignment consists of individual phase tracts consisting of 16 to 77 lots valued separately that have a relatively short sellout period. The same CB Richard Ellis survey quoted above had a response range of 5% to 12% for this category. Considering the positive market conditions and relatively short and limited associated time requirement, a 5% profit as applied to gross sales is considered appropriate for an ~ owner who would incur the risks associated with completing construction of the project. Discount Rate -The rate represents the minimum rate of return necessary to attract investment capital. Selection is influenced by the degree of apparent risk, prospective rates of return for alternative investment opportunities, historical rates of return earned by comparable properties, market attitudes with respect to future inflation or deflation, supply of and demand for mortgage funds, availability of tax shelter as well as other factors. Although the suitability of a particular discount rate cannot be proved on the basis of market ', evidence, the chosen rate should be consistent with the available evidence. Rate selection requires ', appraisal judgment as well as a knowledge of prevailing market attitudes and economic indicators. Two approaches have been employed to determine the appropriate discount rate. One approach considers the general carrying (financing) costs of the project. Generally financing costs are 1 point above a floating prime rate. Based on historical indicators, I forecast that financing costs will be at an average annual rate of 6.0% based on a current prime rate of 5.0%. Snlce the expected rate for financing costs and opportunity cost of equity capital are similar, a corresponding rate would be appropriate on the equity portion of this type of investment. An addifional allocation for risk is required as the aforementioned investments are typically secure, investment quality s7 opportunities. An additional risk assessment of 10% is deemed appropriate. Therefore, in this instance, the conclusion is that 15.0% would be an appropriate discount rate. In a second approach to determining a discount rate, compensations are made for giving up the control over money, which is represented by a riskless rate of interest such as on long term U.S. government bonds. Currently five-year U.S. Treasury bonds have a yield of approximately 3.5%. Based on current single-family market conditions in the subject area and relatively short absorption period required, the exposure to potential market changes and associated risk is moderate to low. A risk premium. of 12% above the safe rate of 3.5% is deemed appropriate, resulting in a discount rate of 15.5%. In conclusion, a discount rate of between 15.0% to 15.5% would be appropriate for the subject. I have reconciled to a 15.0°lo discount rate which is considered appropriate considering entrepreneurial profit was taken as a line item expense. The discounted cash flows for each phase ', are presented in the addenda and indicate values "as is" as follows: Indicated Value by the Income Capitalization Approach Market Value "As Is", "Countryside Area" Tract No. 6118 ', Phase 2, Lots 1-10 & 27-32 Contributory Value of Houses Under Construction Total for Phase 2, Lots 1-10 & 27-32 Phase 3 Phase 4 Phase 5 Indicated Value by the Income Capitalization Approach Market Value "As Is", "Countryside Area" Tract No. 619s Phase 1 Contributory Value of Houses Under Construction Total for Phase 1 Phase 2 Phase 3 Phase 4 RND $979,000 480,000 $1,4s9,000 RND $1,71s,aoo RND $1,709,000 RND $1,781,000 RND $1,647,000 1s4,000 $1,801,000 RND $1,8s4,000 RND $1,800,000 RND $1,686,000 w 58 Indicated Value by the Income Capitalization Approach RND $3,919,000 Market Value "As Is", "Cherry Rill Area" Tract No. 6153, Unit 2 (Lots 1-7~ Indicated Value by the Income Capitalization Approach RND $5,734,000 Market Value "As Is", "Olive Park III Area" Tract No. 6117, Unit 3 .. _:. _< 59 RECONCILIATION AND FINAL VALUE CONCLUSION The cost approach estimates the replacement cost new of the improvements acid then deducts an appropriate allowance for depreciation. The land value as though vacant is then added to reach a value estimate. Estimating depreciation requires considerable judgment and is difficult. Consequently, the cost approach is most reliable on newer properties where there is a minimum of depreciation. The subject has construction in progress. A reliable cost estimate was made based upon cost inforrnafion provided by the property owner's civil engineerlland surveyor; cost estimates on similar tracts in the appraiser's files; and Marshall Valuation Service. Phased construction of large tracts with expensive up front off-site costs can skew the cost figures for an individual phase. The cost approach does not consider the income characteristics of an investment. It is most reliable ', in this appraisal in fomung an opinion for the land without a recorded tract map known as a "super lot". This approach is typically used more for a test of feasibility for a proposed project. It is considered a less reliable indicator than the income capitalization approach in this appraisal. The income capitalization approach considers the income producing capability of the property. Investors place considerable importance on this method for investment properties. The estimate of sales income was supported with comparable builder lot sales data via a sales comparison approach. Appropriate deductions were made for development costs which relies on the cost approach. Expenses and entrepreneurial profit were subtracted to give an indication of net sales proceeds. The net sale proceeds were discounted to present value by deriving amarket-based discount rate. In this appraisal the income capitalization approach draws upon the cost and sales comparison approaches to provided a thorough analysis of the subject and is considered the most reliable indicator in this appraisal. As a result of my investigation and analyses presented in this report, it is my opinion that the market value "as is" or bulls value, assuming the improvements as a result of AD 04-1 are installed, subject to the assumptions and limiting conditions set forth in this report, as of November 1, 2004 were as shown in the following table along side the assessment lien and value to lien ratio. 60 Value Opinions -Assessment District 04-1 BULK VALUE OP RECORDED VALUE ASMT LOTS AND ASSESSMENT TO LIEN NO ATN/DESCRIPTION LAND LIEN RATIO COUNTRYSIDE AREA I -16 Tract 6118-Ph 2, Lors 1-10 & 27-32 17-48 Tract. 6118-Phase3 49-80 Tract 6118-Phase4 81-114 Treet 6118-Phase 5 115 'I'met 6118-Ph 5, Lot 35 (Pottion of Fnrare Tract 61 I S-Phase 6) 122 LLA NO. 122-99, Parcel E (Future Tract 61 I8-Ph 6, 7 & 8) SUBTOTA LS TRACT N0.6118 -POX RUN DE VELOPMENT AREA: 123-149 Tract 6195-Phase 1 156-187 Tmet 6195-Phase 2 188-218 Tract 6195- Phase3 219-20.9 Tracf 619SPhase4 250 Tract 6145-Ph 4, Lot 32 {Fuiure'fract 6195-Phases 5, 6, 7 & 8) SUBTOTALS TRACT NO. 6195 - BRIARWOOD DEVELOPMENT AREA: TOTALBt AVERAGE FOR COUNTRYSIDE AREA: THE HOMESTEAD AREA Lots 5,6,7,11, & 12 of Sales Map of Lands of Kem County Land Company (FUturt'1'raet 6234 Ph I thru 6 excluding residential lot, oil 251 well drill site & startn drain sump loQ CHERRY HILL AREA 252-327 Tract 6753-Unit2(Lats l-76) OLIVE PARK III AREA 328-404 Tact 6l 17-Unit 3 ASSESSMENT DISTRICT TOTALS The reader may note some discrepancies due to rounding. *Includes contributory value of houses under constriction. 1,454,000 1,711,000 1,709,000 1,781,000 374,566 2,969,396 ] 0,007,962 1,801,000 1,854,000 1,800,000 1,686,000 4,386,336 66,761.57 133,523.19 133,523.19 141,868.38 62,589.01 375,533.95 413,799.29 135,120.28 160,142.SS 155,138.09 155,138.09 585,521.19 21.85 12.84 12.80 12.55 5.9R 1.91 10.45 13.33 t 1.58 11.60 10.87 7.49 11,527,336 1,191,p60.18 9.68 r 21,535,298 2,104,859.47 10.23 11,7140.78 1,335,235.04 8.77 3,919,000 404,318.00 9.69 5,734,000 565,587.49 10.10. 42,902,376 4,4]Q,000.00 9.73 Marketine Time Subdivision properties can have considerable variation in marketing times. This is often due to market conditions at time of sale, available financing, property appeal, and the reasonableness of the listing price. Marketing times of the comparable sales range from not openly marketed to Y-.'. _.. _. _ .... _ -. .. 61 approximately one year with one to six months being typical. The bulk sale value assumes lots will sale in an orderly manner by phase and not all offered at the same time. Based upon current trends in the market, interviews with real estate brokers experienced in this property type, and my analysis of marketing times for comparable properties, a marketing time of six months appears reasonable for each phase. ~1 I c~riif}° tCaa€, €o the hest ~~ rn~~, ];noquteatffc n7td Eacli~f`. , . a I'hc ;,tatcrnez#is Csf taci cnn€aincd in #hrs ra:pt-~rt ~xte tree ante ee€rrt;[. Ranzttat[ Franr has ad+; :x Pei~so€5a1 irtstx:e#ion s3°:" ttae STrt'i~mY drat iti.tlta ~t~bjtct rJt sliks :epcat-t. • 7"[rt~ rt'ptattt:ti araa[y~t=s, ttpi€xiuns, anti etsnclusitstts arc Simitect vntl,+ h~~ the retsortdc~ a~,~itmtattctn~ anri li<nitin~ cnrii~€ititans, and tare. na1,4 tscyrscraaal. inxpariirtlx a€r~i unfitts~t~ prcatessional ana[yset:, rapfnieans, art9 ~atac[ats"szrrs. I tta~e rara ~asr#sont tar pr!acltr.^ctiti=e in#erc;;t i#a the larcap.rty tflaal is-Ehc subj~cY ~t [}#is re~nrt; arid. aii~t pt:rsonal ftatc:rtrst tn,~iah r~^s13GS;t to tEa~: p:~tat4 invu9~=rr~, l hat ~ :tt~r taa~ with rtpect to ttic property tYabrt as t)7~ suh~~ec caf this retror# or tv 4arz [,armies in~,~>h.~~t[ with flail ~s~iarrne€xt. ?vty c~n~s~cat}ent in this us.i~xarne#at iu,i~ riot ~otttangcnt tipean atevelcilring tar relarar#in ts~til4ternaiaat r~atiflCs. ,'v1y ~;saraatta;c#s€atiosa car €zttrtplc:tra~ a3at~ asspnment is nca€ ceantit#sxcnt xa[a€an the e~eve[opnat sit or rcaacartin~ caJ'a pr~de~main~d s>~lu~ or dsr~cttoit €ra vtht+~ ttsat ~Ex~~crrs ttrc pause cat"llie ~~tenYz the ansei~ni ra` the r~~l,.tu nptnrctnz the; asia'snnxcnt f,ta stilted rlt, tiir ttc~ s~ curr'nce tit a ~itEastxc:tat ~ucrt clrresz4l}' rt;trxt~l tc> the rn€er3rled use c>f ihi~ a[~Sara~l: ~Sy~ aanaluses; ta~atnltatts, azad ecanilu~i~at>a tiver~: xicu~l~ped, end t4zis rePcart has 4ac;en pryparted„ m €antormi#ywfth the r~uit~#aicSats taf tlx~ ti;ot[c ~f"F'rrrtessictrial ~t(>A~ grid the Sed;arluec9s caf 1?rn£t~ssioraal :Practice: at`the tlp~raica3 lnstittrt~ aaac3 t7atw i.lni:l'orrtt Stanrttarx{s vl T'rtaf~~*±ican~i€ lppr'aisal ~'racttct: • 'C'kact t#se cat th€s report is subjczt kea ttac r~clurremerity ea#' t3te FtPpzais~~a4 t#astita~#ti ec€txtinC Ya revzew° li}~ tlieifduly aastharaz4d r~laresentrt~a s. rls,vf thc; c;xtc cat dhis tt.trctrt. I; ~ansiaEi t~`aanz. have cosxtpleted the rettttirementw un;~~r the L'C}t'~Etnillr4~ t',eh1C[dtFi37ti~'7rt24.`€"'~IIn 4d'tl7e :~ITI}r]$!31 fns#4EtItC. Nis rant prat~itttcl si~ttifatrrtnt rc;~l IZrcalaurt:.` alapra€~al a~€st~t.?fis:c tc~ tia~ person sesiing the T hM~~c th< knoa~icdc and cxpericncc. eta es sa3rv tea eartap€ete this assignnrcn# atatrlaet~:ntl~c, Piea~e refer is taay gpptats~z[ t}ualiticati~ais attacTxed wifih tt3a#; acalcszt. t~'' "" ~azat€;t71 ~~a#ta, ~~~ S~ ~;erti.ti~F~on~rai ~.- .+4tls~i434~ C,~ Eapirutinn: .`tl~?`2b(Jf? ,, . ADDENDA wzo z a - s - <crc ._ - - - m a. _ m °'~ s&8 ~88a _ ii ~ - " ~ - a a Oq g s ~ 2 c~ 8 y p Yp ~ $ n ~O .- _ _ f .. .. _ .. v ~ n n m n .- a wOWW 4 z q 'c 'c o *u 2 2 ° 8 0 0 2 2 2 0 n 2 $ w Wp3~ n ~ ~ $ 3 ~jy p'F - rv r~ m n rv n rv m - o m aLL;~ c n qq WyOG Z } S i., n m m m m m e v u m .. Q4 ~ w _ m ~, m _ o m ~ ~ M m m ,- A v m ~ R „ w pF S ~ o 0 6 w r?` oK~ °zK~ w 5 z ~~ o ~. o ~, ~ m > o s. r ' _ R R P d no re .. __ a e ~ - ~ o , ap U gK ~ i ~0 0 0 ~ 9a rp p rc z 'w'oo yj ~2 >Cr pf N 0 ~ 3$~ $ 4 LL ~~ x' p w m u r m .- rv n ~ ~~ 5 8 0 0 0 0 0 0 0 o S o M W S o o S ~ $ H H E g E S "d 6p ' m ~ N 4 > M 2 (J 6 'n n n m n ~ rv n m- 2 2 m m m m n .~ m _ rv V _ ¢ E V _ _ _ a - S _ _ _ _ a ~ K¢¢¢ ~ w N K w U~¢ tt¢ g ¢ K p ° ~ ~ c o 4w - mE i & -p°8 w -e _ e e° _ ~ n w - - sm R q A ~ agyE - ~ p e n m e e ~ ~ o a ~ a v a m $ c- a% a A E ~ ~ E F n 1- ~- r i- 4 u wy ~- ~- i- 1- F F n~ 6 O < K S Y u 3 n 0 C O w'' Q p- Q W Q 'S M - 2 p w ~ ma X 'p .^. .`. K ¢ 4 ~ C y _ a K b m p MI N m O K K 4 H p ~ 4 w f ° p K u d d a n O u w _ 6 'O ~~ 2 ~ ~ .`ten Z n v7 `V Z p Z t ~ _ ~ o '° Q o a- S s o o 6 a- s '~ '~ `~ e y , w ~ F d s o V~ '° O d N " 3 ~ P + r o ~ ¢ ~ g n 2 v 6 c o " a w n w . 5 i 8 8 a a m ~ a " m ~ ~ 'a ` Y+ < a s 4 < m __ N .. ~ ~ .. ~ n y 0 ro n F_ B LAND SALE 1 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address SWC Galloway Drive & - ? P i Etchart Road . r^ -..... ~ tS ~ ...e .:WY ......... i City, County Bakersfield -Kern k 4 ' r '~ Parcel No. 492-090-51 & 52 s '_ _~ ~ . - s. ~~s r ~ ~~ ~~ Map Page 2401 D4 ~.-~ ~ ~ ~ ~ ~ (,.n_, . , . " ° ' .-__ ~ " ~° , .... Property Rights Fee Simple ~ ~.. ~ ~~ t ~ ~ ~ ~ z PROPERTY INFORMATION r ~ _ ~ r ~sf~ :. a ~. Size(SF) 1,627,837 .~. . ~ ~ a t~~' ~ ~' . (AC) 37.37 ~_ *" ~ ( ~ , Frontage 61 T Calloway Dr ~ ,,, _ ~ ~ r~~_ 2,637 Etchart Rd e Rectangular Sha ~ r ~ "~" ~~~ F P a ~~ rat= a ~^° ~~ - , p ~, ~ ~ - L ~ ~m ~°'~ ' Zoning A, Agriculture -rs am, _~.a.as,,.~,~ ~,,::,~...~ ~ , . ~ ~ ~.~~w . '. Topography Level Utilities Water, Electricity, Gas Street Calloway Dr -Paved SALE DETAILS Seller BUSBY & BOREL FAMILIES Buyer NORRIS ROAD PARTNERS, LLC Sate Date 2!4/2004 PdcelSF $1.23 Sale Price $2,000,000 Price/Acre $53,518.87 Adjustment Adjusted PricelSF Adjusted Sale Price Adjusted PricelAcre RECORDING/CONFIRMATION Date 10!29/2004 By Broker Document No. 265058 With Steve Lantz COMMENTS The property is situated at the northern edge of development in Northwest Bakersfield. It is being purchased for development ofsingle-family lots. The site consists of two parcels owned by separate sellers being purchased by one buyer. The buyer is responsible for obtaining a zoning change and engineering for a tract map. The sale does include a waiver for the surface right of entry from the mineral rights owners. Escrow is not due to close until December 2004 but the buyers have made a $350,000 non-refundable deposit. Terms of sale are all cash to the seller. The buyer is also paying a small commission to the broker (amount not disclosed}. The purchase price is based upon a unit value of $50,000lgross acre for 40 gross acres. The acres shown above are assessed acres. i ~' .. _ -.. LAND SALE 2 GENERAL INFORMATION Item Vacant Land Sale ~ Type Single-Family Residential .~.~~ ..~,~ _.4._ ~ ~ ~ . ~ - I Address SEC Heath Rd &Brimhall `"~"~ ~ ~~.~~~" li Rd ~ ~+ City, County Bakersfield -Kern ~ % ~ ~ ~~ I <, ~~ u Parcel No. 408-012-01 ~~_ .~.~.-~-...,..~ ~ ^' ~` ~r---~----°°-~ ; ;~ " , r , . ~ ~, ~;-- Map Page 2440-F6 ~ '~°' '~~* ' ~. -°~ ~~~ Property Rights Fee Simple r ~„; °~"`~ ° ~'° ~` '_'_ PROPERTY INFORMATION ~ a ~~ ~~~ ~~~~ ~.°~~ ~, Size(SF) 3,Q49,200 ~w9°~~ ~" _~1~'~ ~.'4 ~y ~ ~~_ (A C) 70.00 g } ~ ,~ Frontage +1-1,320' Heath Road ~" ~ j ~ + r#b~ ~ ~ ~ ~ 3~~~~ ' ~ ~ ~ ~ s ~~ Shape Rectangular ,, ~~" ~,~ '° f Zoning E(112) ~~ '~` ~ ~` ~~ I Topography Level ~ Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved - Heath Rd SALE DETAILS k+.i ~~ ~.. °~^ Seller HEATH ROAD PARTNERS LLC Buyer CALLS CERCA INVESTMENTS LLC Safe Date 3!1712004 PricetSF $1.62 Sale Price $4,950,000 PricelAcre $70,714.29 Adjustment Adjusted PricelSF Adjusted Sale Price Adjusted PdcelAcre RECORDING/CONFIRMATION Date 4l16J2004 By Broker Document No. 85148 With Lantz Real Estate COMMENTS The property is situated in the Rosedale area of northwest Bakersfield. It was purchased for development of single family lots. The sale included an approved tentative tract map (6163) for 99 lots (112 acre). A commercial zoned ', corner was not part of the transaction. Brimhall Road was not improved at time of sale. Engineering plans were partially completed and a surface waiver was signed by the mineral rights ownerllessee. Terms of sale were all cash to the seller. i i , LAND SALE 3 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address South Side McCutcheon Rd 600' West of Stine Rd City, County Bakersfield -Kern Parcel No. 497-080-01 Map Page 2512-A4 Property Rights Fee Simple PROPERTY INFORMATION Size (SF) 1,156,082 (A C) 26.54 Frontage +1- 2,000 McCutchen Rd +/- 800 Ryzona Dr Shape quadrilateral i Zoning R-1 I Topography Generally Level ', Utilities Electricity, Gas, Sewer, Water j Street Ryzona (paved); McCutchen (dirt) a ) IE -.re, ...~.~~ ~~ ~~. ter. a._ ~ ~» ~~.~~ , ~• ~ ~ ..,,._._ Fm _.__.__-_.-_ SALE DETAILS Setter RIDGEVIEW POINT, LLC Buyer KB HOME GREATER LOS ANGELES INC Sale Date 5!25!2004 PricetSF $2.66 Sate Price $3,074,000 PricelAcre $115,825.17 Adjustmenf Adjusted PricetSF Adjusted Sale Price Adjusted PricelAcre RECORDING/CONFIRMATION Date 6/3/2004 By Seller Document No. 04-127495 With Bob Smith COMMENTS The property is located in southwest Bakersfield across Ryzona Drive to the north of Ridgeview High School. It was purchased for development to single-family residences. The sale included an approved tentative tract map (6190) for 116 lots. The grading plans had been approved and sewer and street plans were in progress. The sale also included a waiver for the surtace right of entry from the mineral rights owners. Upon development McCutcheon Road will have to be improved from Stine Road west along the north boundary. A canal crossing paid for by the seller was found to be inadequate. $250,000 of the purchase price was being held in escrow to pay for corrections. If the cost is less, the funds will be distributed to the seller. Terms of sale were all cash to the seller. -o-- _ LAND SALE 4 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address SWG Heath Road & Meacham Road City, County Bakersfield -Kern Parcel No. 463-150-04 Map Page 2000-E3 Property Rights Fee Simple PROPERTY INFORMATION Size (SF) 1,527,649 (AC) 35.07 Frontage 656' Heath Rd 1,320' Meacham Rd Shape Irregular Zoning _ A-1 Topography _ Level Utilities Water, Electricity, - Gas Street Heath -Paved; Meacham -dirt w. ., ~ :.,~ _ ~ -m~ ~r _ ~°r ~^`" . -°~ ~ ~ ~ ~~~ ~ ~ , >~ »~ t ~' S', v~r' ~ ~ ° i ae ~ _- ~~ ~ `~ ;t,s~s; ~ n:, .~ .~ . _~, .... p ~ ~~ ,~ -. . ~~rc , ~ '~Ddp:. fa.:K-: ,,, ~t~`°. SALE DETAILS Seller CARTAGENA GROUP LTD. Buyer HEATH 6301 LLC Sale Date Sale Price Adjustment Adjusted Sale Price RECORDING/CONFIRMATION 5/1/2004 PricelSF $2,450,000 PdcelAcre Adjusted PricelSF Adjusted PricelAcre $1.60 $69,860.28 Date 6/22/2004 By Buyer Document No. 04-143294 With Bob Smith COMMENTS The property is located in the Rosedale area of Northwest Bakersfield. It was purchased for development of single-family residential lots. The sale included an approved tentative tract map for 49 lots (18,000 sf lots) and a drill island for the mineral rights owners. The buyer estimated the cost to compete the lots at $40,000 each. Terms of sale were all cash to the seller. The property sold for $1,274,000 in February 2004 and $321,500 in November 2002. ~. LAND SALE 5 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address Both sides Harris Rd btw Mt Vista Dr & Old River Rd City, County Bakersfield -Kern Parcel No. Ptn of 497-010-14 Ptn of 497-010-16 Map Page 2511-D1 Property Rights Fee Simple PROPERTY INFORMATION Size (SF) 6,625,912 (A C) 152.11 Frontage 2,600' Harris & Mt Vista 1,950' Old River Rd Shape Rectangular Less Corner Zoning R-1 Topography Generally Level Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved SALE DETAILS Seller STEVEN ANTONGIOVANNI, ET AL Buyer STERLING OAKS INVESTMENTS, LLC. Sate Date 5!1812004 PricelSF $1.03 Sate Price $6,844,950 Price/Acre $45,000.00 Ad/ustment Adjusted PricelSF Adjusted Sale Price Adjusted PricefAcre RECORDING/CONFIRMATION Date 6122/2004 By Agent Document No. 142864 With Grubb & Ellis/ASU & Associates COMMENTS The property is situated near the edge of development in southwest Bakersfield. It was purchased in speculation of future residential development. No tentative tract map was included in the sale. The transaction consists of four 40 ', +1- acre parcels less a 5 acre commercial site on the northwest corner of Old River Road and Harris Road excluded from the sale. The buyer closed escrow on three of the parcels because the parcel map dividing out the commercial corner had not been recorded (expected within 6 months). The price and size above reflect the entire transaction. A 50-foot easement for ahigh-pressure natural gas pipeline passes diagonally through the site. A 40-foot easement for a canal runs along the west line of Old River Road. Terms of sale were all cash to the seller. :. LAND SALE 6 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address South Side Harris Rd btw Vista Dr & Old River Rd City, County Bakersfield -Kern Parcel No. Ptn of 497-010-16 Map Page 2512-A2 Property Rights Fee Simple PROPERTY INFORMATION Size (SF) 3,548,833 (ACI 81.47 Frontage 2,600' Harris Rd 1,300' Mt Vista/Old River Rd Shape Rectangular Zoning R-1 Topography Generally Level Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved -Old River Rd SALE DETAILS =` x1 ~''' ~,_ Setter STERLING OAKS INVESTMENTS, LLC. Buyer HARRIS ROAD PARTNERS, LLC. Sale Date 6!412004 Price/SF $1.46 Sate Price $5,191,284 PricetAcre $63,720.19 Ad'ustment J Adjusted PricelSF Adjusted Safe Price Adjusted PricetAcre RECORDI NGlCON FI RMATION Date 6/30/2004 BY Agent Document No. 150776 With Grubb 8 Ellis/ASU & Associates COMMENTS The property is situated along the south line of Harris Road between Mt. Vista Drive and Old River Road near the edge of development in southwest Bakersfield. It was purchased for residential subdivision development. No tentative tract map was included in the sale. The transaction consists of two 40+1- acre parcels. Escrow closed on one 41.538-acre parcel at $50,000/acre and the escrow on the second 39.928-acre parcel at $78,000/acre is due to close June 5, 2005. Harris Road and Mt. Vista Drive were not improved at time of sale. A 50-foot easement for a high-pressure natural gas pipeline passes diagonally through the site. A 40-foot easement for a canal runs along the west line of Old River Road. The sale included a waiver for the surtace right of entry from the mineral rights ownedlessee. Terms of sale were all cash to the seller. This property is a portion of a 152.11 acre sale at $45,000/acre that closed escrow June 22, 2004. LAND SALE 7 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address North Side Harris Rd btw Mt Vista Dr R Old River Rd City, County Bakersfield -Korn Parcel No. Ptn of 497-010-14 Map Page 2512-A2 Property Rights Fee Simple PROPERTY INFORMATION Size (SF) 3,077,07$ (AC) 70.64 Frontage 2,000' Harris; 1,320' Mt Vista; 620' Old River Rd Shape Rectangular Less Corner Zoning R-1 Topography Generally Level Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved SALE DETAILS Setter STERLING OAKS INVESTMENTS, LLC. Buyer D.R. HORTON LOS ANGELES HOLDING COMPANY, INC. Sate Date 6/4!2004 PricelSF $2,20 Sate Price $6,757,500 Price/Acre $95,661.10 Adjustment Adjusted PricelSF Adjusted Sale Price Adjusted PricelAcre RECORD IN GICON FI RMATION Date 712!2004 BY Agent Document No. 153688 With Grubb & Ellis{ASU & Associates COMMENTS The property is situated along the north line of Harris Road between Mt. Vista Drive and Old River Road near the edge of development in southwest Bakersfield. It was purchased for residential subdivision development. An approved tentative tract map {6303) with 255 buildable lots {7,800 sf) was included in the sale. Harris Road and Mt. Vista Drive were not improved at time of sale. A 50-foot easement for ahigh-pressure natural gas pipeline passes diagonally through the site near the southwest corner. A 40-foot easement for a canal runs along the west line of Old River Road. The sale included a waiver for the surface right of entry from the mineral rights owner/lessee. This transaction has athree-phase closing. Phase 1 price was $2,592,000 ($20,250i1ot) for 128 lots closing July 2, 2004. Phase 2 price is $2,496,000 ($39,000(lot} for 64 lots due to close with 13 months of the first closing. Phase 3 price is $1,669,500 ($26,500/1ot} for 63 lots due to close within 18 months of the first closing. Terms of sale are all cash. This property is a portion of a 152.11 acre sale at $45,000lacre that closed escrow June 22, 2004. - : _ - ,. LAND SALE 8 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address NWC Stockdale Hwy & ~ _ e ~ ~ ~ Renfro Road ~, ~ " ~ Clty, County Bakorsfield -Kern s *' a ~ `~ s ~ ~ Parcel No. 408-020-16 ~ ~ ~~ ~= aI _ ,~,.~ _"r £. _ t ,-~ ' x ~ ~ ~Fs Map Page 2441-H7 ~ f PropertyRighls Fee Simple -~~ ~---- ~ ~ PROPERTY INFORMATION ,~ ~,~~ ~ , °' [ ' ' """" Size (SF) 817,621 (AC) 18.77 Frontage +1-1,300' Stockdale Hwy r~ 630' Renfro Rd Shape Rectangular Zoning R-1 Topography Level Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved ~~ ,?~; ~. A~-- SALE DETAILS .5; ;~ € r l . e ;, ~ . , - ~^ $ . , ~ „,:~ : 4 ~~" __-- F ~ ~ , ,~w.~~ tt. .._~ ~. 1 ~ 4f~ ~ Seller MAHAN HOMES INC. Buyer LENNAR BAKERSFIELD INC. Sale Date 6122!2004 Price/SF $3.61 Sate Price $2,950,000 PricelAcre $157,165.69 Adjustment Adjusted Price/SF Adjusted Sale Price Adjusted PricelAcre RECORDING/CONFIRMATION Date 7/30/2004 By Buyer Document No. 179163 With Lennar Homes COMMENTS The property is situated in a developing area of west Bakersfield. It was purchased for development of single-family residences. The transaction included an approved tentative tract map {6144} for 66 lots with all improvement plans completed. At time of sale the site was rough graded and sewer improvements were started. The buyer paid any unpaid sewer construction bills direct to the contractor. The final tract map was ready to record. Buyer stated their nearby new home development was selling fast and they were motivated to acquire lots ready for house construction. The finished lot cost was estimated at +/-$64,000 fora 7,200 square foot lot. Terms of sale were all cash to the seller. - __ LAND SALE 9 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential ~ ,~ ~ ° - ~ ~-; Address NW Quadrant Stine Rd & ~` ~~~ Taft Hwy ~, ~ ~ ~ ~: _~ ~~~~,~~~ City, County Bakersfield -Kern ~ r~ ~~ _? ~ ~ , i ,~ - T ~. ~: Parcel No. 497-100-04 & 05 ~ '~ ttl;ve' of C tt 5- 1~~. 497-050-03 ; r ~ ' a ~~ s:~ ~~ ~~ Map Page 2512-B5 ~ a' ~=~ ' Property Rights Fee Simple I°. ~ ~~„ ~~w ~e_. ~~ PROPERTY INFORMATION ~ ~~ Stze (SF) 4,866,959 ~ ~ ~ ~ ~_~~ °~^~ (A C) 111.73 ~, ~' - Frontage 2,200 Stine; 500 Taft Hwy t 2,600 McKee Rd zx, _ '.~ '~ `" '~ s j Shape Irregular ~a ;,~ , ` Zoning R-1 ' ~,r w- `~"~5~_.,n~ 4^=,.,,,.,.,~-,~ T~~~r. Topography Generally Level Utilities Water, Electricity, Gas Street Stine & Taft Hwy {Paved); McKee {dirt) SALE DETAILS Setter STINE PARTNERS LLC Suyer LENNAR HOMES OF CALIFORNIA, INC. Sale Date 912f2004 PricelSF $1.98 Sale Price $9,650,000 PricelAcre $86,368.93 Adjustment Adjusted PricelSF Adjusted Sate Price Adjusted Price/Acre RECORDING/CO N FI RMATI O N Daie 9/1612004 Sy Buyer Document No. 04-224363 With Lennar Homes COMMENTS The property is located in a developing area of southwest Bakersfield near Ridgeview High School. It was purchased for development to single-family residences. The transaction included an approved tentative tract map (6290) for 403 lots. The sale included a waiver for the surface right of entry from the mineral rights owners. The buyer is responsible for extending the sewer line +l-114 mile and realignment of a canal along the west boundary. A water ditch along the Stine Road frontage will be diverted through an underground pipeline. McKee Road will be improved along the north boundary and tie into the existing street to the east. Terms of sale were all cash to the seller. The property previously sold for $2,750,000 recording in February 2004. O~ 0 0 `°. m 0 \° 0 0 O LO O CO O r ~.. O O I~ O ti ~ d ~ N C uJ h-~ d ~M C O . 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W ~ ~ o rn > c a O: Q Z C Q Q ~ O Z LL U > ~ a m~~o ~ ~'~¢a` N ' '~ y W fA Y -O N Q ~ Q txp ~ N~~~> aci Z US cY 'C' W N m O ~ d N c ~ b WtlI U` dW F O -o o Z. LL ~~ Oa p ~ ~ ~ O ~ O m N ~ c f- C N 0- N s Z ~ m '~- ~ rn ` _ ~ ~ -o O m N O C '~ z 0] J W > Q a~Ni fA J J N N C O W m 3 w ~m~m ~ m W m a~i m c w > a~ a~i KQQJCL (D M (+'J M O O t") O d' M r M N N O U U y ~ z O E J W = o_ ~ N O ~' c w ° °~ > in m W O ~ p DU ~I- O N >_ x m m ~ N p CI•~ Q d N ~ ~ ~ N to ~ Q m ~ c N~~SF ~ a Z aS Tu -~ iy a~ °~ d Ni c a ~ m wc`n°C~awr° M ~ M M N rn O rn t0 ti O O O M 7 V O d' ~ V N r N r ~ ~. ... ~ N _O ~ O LL m J Z ~ W N U J x ~ O 'O t0 d ~ U LL c V m O '~ 0 ~ ~ V C ~ ~ N D N iy c c c c ~- 00 00 i6 V (~ N N W ._ ._ O .- ZO~I-O APPRAISAL QUALIFICATIONS OF RANDALLFRANZ Independent Real Estate AppraisertOwner, KERN APPRAISAL COMPANY, Real Estate Appraisal Services, Bakersfield, California, 1193 -Present. Real Estate Appraiser and Analyst, DALLIS HIGDON & ASSOCIATES, Real Estate Analysts and Appraisers, Bakersfield, California, 9182 - 12192. STATE CERTIFICATION State of California: Certified General Real Estate Appraiser OREA Appraiser Identification Number: AG004309 Expiration: 1215!2006 PROFESSIONAL AFFILIATIONS Appraisal Institute Awarded MAI (Member Appraisal Institute) Designation 1989 Awarded SRA (Senior Residential Appmiser) Designation 1989 Bakersfield Chapter President {Society of Real Estate Appraisers) 1990 Bakersfield Association of Realtors Multiple Listing Service Member -Awarded California Real Estate Broker's License, 1992 EDUCATIONAL ACTPViTD;S Awarded B.A. degree in Business Administration from Fresno Pacific College, Fresno, California, 1977 Successful completion of the following real estate courses: American Institute of Real Estate Annraisors Real Estate Appraisal Principles 3188 Basic Valuation Procedures 3188 Standards of Professional Practice 5(88 Capitalization Theory and Technique Part A 6/87 Capitalization Theory and Technique Part B 6187 Case Studies in Real Estate Valuation 10/87 Valuation Analysis and Report Writing 6188 Society of Real Estate Appraisers Coutse 101 - Introduction to Appraising Real Property 12183 Course 102 -Applied Residential Property Valuation 2184 Appraisal Institute Standards of Professional Practice Parts A & B 6/91, 9/97 Standards of Professional Practice Part C, 11/99 National Uniforrn Standards of Professional Appraisal Practice Course 6/04 >:, ::.; College Courses Real Estate Practice -Fresno City College 12/77 Real Estate Appraisal I -Bakersfield College 12!83 Real Estate Appraisal R -Bakersfield College 12!84 Real Estate Law -Bakersfield College 5/84 Real Estate Principles -Bakersfield College 5/87 Real Estate Finance -Bakersfield College 12/89 Serninars(Since 1998) Expert Witness Seminar -Appraisal Institute 6/98 Trends In Real Estate Debt and Equity Markets -Appraisal Institute 8198 The Technical Inspection of Commercial Real Estate -Appraisal Institute 8198 Valuation Of Detrimental Conditions In Real Estate -Appraisal htstitute 3/99 Internet Sources For California Appraisers -Appraisal Institute 7/99 Attacking & Defending An Appraise] In Litigation -Appraisal Institute 8199 Commercial Real Estate Finance For The Z 15t Century -Appraisal Institute 8199 The Economics OfBight-Of--Way Appraisal -Appraisal Institute 8/99 Real Estate Fraud & The Appraiser's Role -Appraisal Institute 3/00 Appraisal Of Nonconforming Uses -Appraisal Institute 5/00 Technology and the Appraisal Process, New Tools for Appraisers -Appraisal Institute - 9/Ol 35`" Annual Litigation Seminar-Appraisal Insfifite 11101 Highest and Best Use Applications-Appraisal Institute-6/02 Scope of Work -Appraisal Institute - 4/04 COURT QUALIFICATIONS Testified as expert witness in Superior Comt of Kem County, California. Qualified as expert witness for Federal Bankmptcy Court, Fresno, California and Federal Tax Court, Los Angeles, California. SCOPE OF Commercial Office buildings, shopping centers, motels, restaurants, convenience stores, banks, retail stores, medical offices Industrial Warehouses, shops, officelwarehouses, self-storage facilities, industrial subdivisions Residential Single farrnly, condamitimns, planned unit developments, apartments, mobile homelrecreational vehicle parks, subdivisions Special Purpose Churches, airplane hangars ,. _ (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX C FORRI OF OPINION OF BOND COUNSEL Closing Date, 2005 City Council City of Bakersfield 1501 Tmxmn Avenue Bakersfield, CA 93301 City of Bakersfield Assessment District No. 04-I (CountrysidelThe Homestead/Cherry HilUOlive Park iII) Linvted Obligation Improvement Bonds (Final Opinion} Ladies and Gentlemen We have acted as band counsel in connection with the issuance by the City of Bakersfield (the "Issuer") of $4,195,000 aggregate principal amount of the City of Bakersfield Assessment District No. 04-1 (Countryside/The Homestead(Cherry HilllOlive Park III} Limited Obligation Improvement Bonds (the `Bonds") pursuant to the provisions of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915 and Resolution No. 005-05, adopted by the City Council on January 12, 2005 (the "Resolution"). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Resolution. In such connection, we have reviewed the Resolution, the Tax Certificate of the Issuer dated the date hereof (the "Tax Certificate"} an opinion of counsel to the Issuer, certifications of the Issuer and others and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Resolution, the Tax Certificate and other relevant documents may be changed and certain actions(including, without limitation, defeasanee of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occumng after the date hereof. We have not undertaken to detemilne, or to inform any person, whether any such actions are taken or omitted or events do occur. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this opinion. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted of certified in the documents, and of the legal conclusions contained in the opinion, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Bonds, the Resolution and the Tax Certificate may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other similar laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against cities in the State of California. c-i We express no opinion on the plans, specifications, maps and other engineering details of the proceedings, or upon the validity of the individual sepazate assessments securing the Bonds which validity depends, in addition to the legal steps required, upon the accuracy of certain of the engineering details. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other affering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute valid and binding special assessment obligations of the Issuer, payable solely from and secured by the unpaid assessments and certain funds held under the Resolution. 2. The Resolution has been duly adopted and constitutes a valid and binding obligation of the Issuer 3. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, FJERRINGTON & SUTCLIFFE LLC per C-2 _: _ - _: APPENDIX D ASSESSMENT DIAGRAM D-1 w .:: ,_ (THIS PAGE INTENTIONALLY LEFT BLANK) ~. _ .. _ ~ ~ ~ I, = I r ~~a=~~ ! ~ sp i ~= iv I o ~ O ~ Y o ' 4 °~ ° mOWpwarc 4 w I WZ 4^W2 I pa 6 a~ ~ ~~_a t I „~°Npo~~ jazz o~o~ j g° w°~~° j w~ c~ ~ o ,~y~1 ~ ~ .G ."'_ ° I oW o'4ao N~ ~€w o~~z ! ¢V wGro ~ ~~ ~ F .. id r+y L1' ~ O i°o ° I one °~ i ~o` i°o zio` r~x m`W~F f~~w a p x V_ ~ "~o s r ~,~ ~ =z~~l I I c~F _a, as ; sd ~ , =a~ z ~ I~~ gam <<°~ ; ~~z ~NYp ~~~~ ~ w a .°~' ~ Q x ~_ z i m ~~m a I ~~ `~ i ° m aim ~~o °:zo m~'s° Q ~ ~ " " ~" i ° is az °°~p ~ ~ in 2 W '` „qv --Ea ` H-I W w O ~ °~ i VOO ?aw~~`d aoa F ~ ~ o ~ ~ "' u I ~ w° I°~ Who :w sm~° .~'+ ~ ° ~' ~ (q~ O~-w ti 5 d ~ ~ ~° '~'' 3oT~~3F°oH a'p ~ ~o~V W ~ Q K m o 0 ow°t~°~~W °° o I ~ NIwM~° ~~ w ~ W w w a° ~° x ~w~ ~ ~~o ~ ~. ~' w ~ U CWU' ~~ ~ .g ~S ~b ~~~o°03 '$ h z ~ J~~~'la ~ o° '~^ m Fes" _ ~a N' ° €zw ~ N gN~°" U TWA W sN- ~ W` rc~ <°g8~atpi~G ~3 o Iao ° ~ oom~o _ V 1 C:. 2 ~ fn"= w ~ o ~ `~~~Pa m&~ ,m s di H '-' yo~4a a~: zy q .~~~^ ='e° "e'~a ~ _` i~ Yak - eE ~E~.. 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W 0 3 W W Q O 4¢¢ Q Q r 4r 4¢ 4 1~ ~ O tt m¢Ug ~Mm ~O4G°a4} ~¢ ¢° h Q 4 Q 4 R 4 R 4 R j j U 2 0 `~¢¢tt ma z12--~~^4~ i n mm 3~~~ m a e m e m~ e~ o 0 W 4p>> m' grn~O wSF2 ~~Y Um F~ ~ O ~2 2 2 2 2 2 2 2~ 2 2 2 2 U~ 0 O W W q y, U$¢ Z~^ m= Q O ymj j j U v CnJ U U V U U U U U ~= " 2 W WOKZy Zn W F (qJ Q ¢ ¢ ¢ ¢ ¢ ¢ ¢ ¢ K ~ ¢ ~~o~o~o ~ar°a°zti~ac°~c°ia~~a~~~p~~~cWiy~ ` ` "` ~`m `IO~`PoO PEA b'i0 CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. 04-1 (COUNTRYSIDElTHE HOMESTEAD/CHERRY HILL(OLIVE PARK III) LIMITED OBLIGATION IMPROVEMENT BONDS CITY CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate"} is executed and delivered by the City of Bakersfield (the "Cit}~~ in connection with the issuance by the City of $4,195,000 in aggregate principal amount of the above-referenced bonds (the "Bonds") for Assessment District No. 04-1 (CountrysidelThe Homestead/Cherry HilUOlive Park IIl) (the "Assessment District"). The Bonds are being issued pursuanC to a resolution authorizing issuance of the Bonds, being Resolution No. 005-OS (the "Resolution"), adopted by the City Council of the Ciry on January 12, 2005. The City covenants and agrees as follows: Section I. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule ISc2-12(b)(5), as amended. Section 2. Definitions. In addition to the definitions set forth above and in the Resolution, which apply to any capitalized term used in this Disclosure Certificate, unless otherwise defined in this section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Beneficial Owner" shall mean any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories, or other intermediaries). "Dissemination Agent" shall mean the Ciry, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Fiscal Year" shall mean the 12-month period beginning on July I and ending on the next following June 30, unless and until changed by the City. "Holder" shall mean either the registered owner of any Bond, or, if the Bonds are registered in the name of DTC or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Events" shall mean any of the events listed in Section 5{a) of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The current National Repositories are listed on the Securities and Exchange Cornrnission website at http:/twwwsec.govlinfo(municipal/nrmsir.htm. "Official Statement" shall mean the final Official Statement, dated January 27, 2005, pertaining to the Bonds. "Participating Underwriter" shall mean UBS Financial Services Inc., and any other original underwriters of the Bonds required to comgly with the Rule in connection with offering of the Bonds. F-1 e "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. ', (a} The City shall, or shall cause the Dissemination Agent to, not latex than nine (9) months after the end of the City's Fiscal Year (i.e., currently not later than April 1 of each year}, commencing with the report for the 2004-OS Fiscal Year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City's Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c}. (b} Not later than fifteen (15) Business Days prior to the date required in subsection (a), the City shall provide the Annual Report to the Dissemination Agen[ (if other than the City}. If the City is unable to provide to each Repository an Annua] Report by the date required in subsection (a}, the Ciry shall send to each Repository a notice in substantially the form attached hereto as Exhibit A. (c} The Dissemination Agent sha1C (i) deternune each year, prior to the date for providing the Annual Report, the name and address of each Repository, and file the Annual Report with each Repository, and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following: (a) The audited financial statements of the City for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financia] statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. Notwithstanding the foregoing, each Annual Report or other filing containing the City's financial statements may include the following or other similar statement: THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED SOLELY TO COMPLY WITH THE SECURITIES AND EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE 15c2-12. NO FUNDS OR ASSETS OF THE CITY OF BAF.ERSFIELD (OTHER THAN THE ASSESSMENTS LEVIED IN THE ASSESSMENT DISTRICT) ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND THE CffY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS FROM THE CITY TREASURY TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL F-2 ,, -. CONDITION OF THE CITY IN EVALUATING RIHETHER TO BUY, HOLD, OR SELL THE BONDS. (b) The following information with respect to the City for the Fiscal Year to which the Annual Report relates, which information may be provided by its inclusion in the audited financial statements of the City for the prior Fiscal Year described in subsection (a} above: (i} The principal amount of Bonds outstanding, including principal amounts and years of maturity of Bonds, if any, called for redemption in advance of maturity. (ii) The balances as of the end of such Fiscal Year in each of the following funds established pursuant Yo [he Resolution: (A) the Improvement Fund; (B} the Redemption Fund; and (C) the Reserve Fund. (iii} Identification of each parcel for which any installment of the unpaid assessment is delinquent, together with the following information respecting each such parcel (A) the amount delinquent (exclusive of late charges and monthly penalties for reinstatement); (B) the date {December 10 or April 10) of the first delinquency; (C} in the event a foreclosure complaint has been filed respecting such delinquent parcel and such ', complaint has not ye[ been dismissed, the date on which the complaint was filed in the Kern County Superior Court; and (D) in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the results of such foreclosure sale. (iv) A current statement of the status of completion or progress toward completion of the public improvements described in the Official Statement under the subheading "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS - Description of the Community Areas and the Improvements." {v} A current statement of the land-secured public financing information summarized in the Official Statement under Che subheading "THE BONDS -Priority of Lien." (vi) A current statement of the parcel information set forth in Columns 5 through 9, inclusive, of APPENDIX E to the Official Statement, for both existing and future parcels. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or a71 of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Boazd. The City shall clearly identify each such other document so included by reference. Section 5. Renortine of Sienificant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events (each, a "Listed Event") with respect m the Bonds, if material: (i) principal and interesC payment delinquencies; (ii) nan-payment related defaults; (iii) modifications to rights of Bond Holders; (iv) optional, contingent, or unscheduled Bond calls; (v) defeasanees; F-3 (vi} (vii) (Nn} (ix} (x) (xi} rating changes; adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds unscheduled draws on the debt service reserves reflecting financial difficulties; unscheduled draws on credit enhancements reflecting fmancial difficulties; substitution of credit or liquidity providers, or their failure to perform; or release, substitution, or sale of property securing repayment of the Bonds. (b} Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly file a notice of such occurrence with either (i} the Municipal Securities Rulemaking Board and the State Repository or (ii} the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(iv} and (v) need not be given under this subsection ', any earlier than the notice (if any} of the underlying event is given to Holders of affected Bonds pursuant to the Resolution. Section 6. Teanination of Reporting Obli ation. The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redempfion, or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Aeent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. Section 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment ar waiver relates to the provisions of Section 3(a), 4, or 5{a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the prinvary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c} the proposed amendment or waiver either (i) is approved by Holders of the Bonds in the manner provided in the Resolution for amendments to the Resolution with the consent of Holders, or (ii} does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended opemting data or fmancial information shall explain, in narrafive form., the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. F-4 >: _ In the evenT of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation} of financial information or operating data being presented by the City. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is niade shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as far a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to [hat which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Cerlifieaie to update such information or include i[ in any future Annual Report or notice of occuaence of a Listed Event. Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any Holder or $eneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any faihue of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees, and agents, harmless against any losses, expenses, and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter, and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] CITY OF BAKERSFIELD By: Finance Director F-5 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Bakersfield, Califomia Name of Bond Issue: Assessment District No. 04-I {Countryside/The HomesteadlCherry Hill/Olive Pazk III) Limited Obligation Improvement Bonds Date of Issuance: [Closing Date] NOTICE IS HEREBY GIVEN that the City of Bakersfield, California {the "City), has not provided an Annual Report with respect to the above-named Bonds as regLUred Secrion 4(a) of the Continuing Disclosure CertiScate executed by the City on [Closing Date]. The City anticipates that the Annual Report will be filed by Dated: CTTY OF BAKERSFIELD By: Finance Direotor F-6 e CITY OF BAKERSFIELD ASSESSMENT DISTRICT N0.04-I (COUNTRYSIDE/THE HOMESTEAD/CHERRY HILLtOLIVE PARK HI) LIMITED OBLIGATION IMPROVEMENT BONDS DEVELOPER'S CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by [APPLICABLE LANDOWNER], a [type of entity] (the `developer"), in connection with the issuance by the City of Bakersfield {the "City") of $4,195,000 in aggregate principal amount of the above- referenced bonds {the "Bonds"} for Assessment District No. 04-1 (Countryside/The HomesteadlCherry Hill/Olive Pazk III) (the "Assessment District"). The Bonds are being issued pursuant to a resolution authorizing issuance of the Bonds, being Resolution No. 005-OS (the "Resolution"), adopted by the City Council of the City on January 12, 2005. The Developer covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Developer for the benefit of the City, UBS Financial Services Inc., as the underwriter of the Bonds (the "Underwriter"), and the Holders and Beneficial Owners (each as defined below) of the Bonds in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5), as amended. SECTION 2. Definitions. Irt addition to the definitions set forth above and in the Resolution, which apply to any capitalized term used in this Disclosure Certificate, unless otherwise defined in this section, the following capitalized terms shall have the following meanings: "Affiliate" of another Person shall mean (a) a Person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of such other Person, {b) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by such other Person, or (c) any Person directly or 'indirectly controlling, controlled by, or under common control with, such other Person. For purposes hereof, "control" means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Assumption Agreement" means an agreement or certificate by a Successor Developer, containing terms substantially similar to this Disclosure Certificate, whereby such Successor Developer shall agree to provide Semi- Annual Reports and notices of Listed Events with respect to the property in the Assessment District owned by such Successor Developer and its Affiliates, if any. `Beneficial Owner" shall mean any person who has the power, directly or htdirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond or Bonds, including persons holding Bonds through nominees, depositories, or other intermediaries. "Development Plan" shall mean the specific improvements the Developer intends to make, or cause to be made, in order for the Community Area to reach the Planned Development Stage, the time frame in which such improvements are intended to be made, and the estimated costs of such improvements. The Developer's Development Plan, as of the date hereof, is described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Disclosure Period" shall mean the six-month period beginning on July 1 or January 1 and ending on the next following June 30 or December 31, as applicable. F-7 "Disclosure Representative" shall mean the president, the managing member, any vice-president, or the chief financial officer of the Developer or his or her designee, or such other officer, employee, or agent as the Developer shall designate in writing to the Dissemination Agent and the City from time to time. "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation, "Event of Bankruptcy" shall mean, with respect to a Person, that such Person files a petition or institutes a proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankmptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby such Person asks, seeks, or prays to be adjudicated a bankmpt, or is to be discharged from any or all of such Person's debts or obligations, or offers to such Person's creditors to effect a composition or extension of time to pay such Person's debts of obligations, or asks, seeks, or prays for reorganization or to effect a plan of reorganization, or For a readjustment of such Person's debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character is filed or instituted or taken against such Person, or if a receiver of the business, property, or assets of such Person is appointed by any court, or if such Person makes a general assignment for the benefit of such Person's creditors. _ "Financing Plan" shall mean the method by which Developer intends to finance its Development Plan, including specific sources of funding for such Development Plan. The Developer's Financing Plan, as of the date hereof, is described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Financial Statements" shall mean the full financial statements, special purpose financial statements, project operating statements, or other reports reflecting the financial position of the Developer's parent company or, if such financial statements are prepared separately for the Developer, reflecting the financial position of the Developer; provided that, if such financial statements or reports are otherwise prepared as audited financial statements or reports, then "Financial Statements" means such audited financial statements or reports. T'he Financial Statements for the Developer or its parent company shall consist of a balance sheet, an income statement, and a statement of cash flows, all prepared in accordance with generally accepted accounting principles. "Holders" shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Tmst Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Event" shall have the meaning given to such term in Section 5 of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The current National Repositories are listed on the Securities and Exchange Commission website at httpalwwwsec.govlinfo(municipaUmmsir.htm. "Official Statement" shall mean the final Official Statement dated January 27, 2005, pertaining to the Bonds. "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a limited liability company, a trust, any unincorporated organization, or a government or a political subdivision thereof. "Planned Development Stage" shall mean, with respect to any property in the Assessment District owned by the Developer or its Affiliates, if any, the stage of development to which the Developer intends to develop such property, as described in the Official Statement, and the Developer has completed construction and/or development as described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Repository" shall mean each National Repository and each State Repository. F-8 ,_, _ ,. , `Rule" shall mean Rule 15c2-12(6)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Semi-Annual Report" shall mean any Semi-Annual Report provided by the Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. "Successor Developer" shall mean any property owner, other than the Developer or its Affiliates, which purchases property in the Assessment District for the purpose of developing the property and not merely as an end- user. SECTION 3. Provision of Semi-Annual Reports. (a) So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Sectian 6 of this Disclosure Certificate, the Developer shall provide, or shall cause the Dissemination Agent to provide, not later than three (3) months after the end of each Disclosure Period (i.e., not later than September 30 or March 31 of each year, as applicable), commencing with the report for the Disclosure Period ending June 36, 2005, to each Repository aSemi-Annual Report relating to the immediately preceding Disclosure Period which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Semi-Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross- reference other information as provided in Section 4 of this Disclosure Certificate; provided, however, that if audited Financial Statements are required to be provided, such audited Financial Statements may be submitted sepazately from the balance of the Semi-Annual Report, and later than the date required above for the filing of the Semi- Annual Report, if not available by that date. (b) So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, not later than fifteen (15) business days prior to the date required in subsection (a) hereof, the Developer shall provide the Semi-Atmual Report to the Dissemination Agent. If the Developer is unable to provide, or cause to be provided, to each Repository aSemi-Annual Report by the date required in subsection (a) hereof, the Dissemination Agent shall, first, confirm that the Developer's obligation hereunder has not been terminated pursuant to Section 6 of this Disclosure Certificate, and, if the Developer is still obligated hereunder, the Dissemination Agent shall send to each Repository a notice in substantially the form attached hereto as Exhibit A. (c) The Dissemination Agent shall: (i} determine each year, prior to the date for providing the Semi-Annual Report, the name and address of each Repository, and file the Semi-Annual Report with each Repository, and (ii} following the tiling of the Semi-Annual Report with each Repository, file a certificate with the City and the Developer certifying that the Semi-Annual Report has been filed with each Repository pursuant to this Disclosure Certificate, stating the date on which the Semi-Annual Report was filed, and listing each Repository (by name and address) with which it was filed. F-9 .: _ _ SECTION 4. Content of Semi-Annual Reports. So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Developer shall provide aSemi-Annual Report for the preceding Disclosure Period with respect to property within the Assessment District owned by the Developer or its Affiliates, if any, which Semi-Annual Report shall contain or incorporate by reference the following: (a} The Developer shall provide a general description of progress made in the Development Plan, and any significant changes in the Development Plan, Financing Plan, or zoning during the prior Disclosure Period. The Developer shall track actual absorption relative to projected absorption according to the framework described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT" The Developer shall identify any material deviations in actual versus expected sale prices, and identify zoning changes, if any. The Developer shall also include information concerning the recordation of final maps, if applicable, and information concerning the sale or transfer of property to Persons that are not Affiliates of the Developer. The Developer shall describe any significant changes in the Financing Plan for its development project including, without limitation, changes in status of the Developer's credit line {or the credit line of any Affiliates of the Developer that own property within the Assessment District), if applicable. The Developer shall descrabe (i) any change in the legal stmcture of the Developer or of any of its Affiliates that own property within the Assessment District-, (ii) any previously undisclosed amendments to the land use entitlements or environmental conditions or other governmental conditions that are necessary to complete its Development Plan; or (iii) any previously undisclosed legislative, administrative, or judicial challenges to the Development Plan, if known. (d) Each fiscal year, one Semi-Annual Report shall make reference to the quarterly and annual financial statements of the Developer, on file with the Securities and Exchange Commission (if applicable). All such references shall contain the following caveat: The quarterly and annual reports of ffie Developer are referred to for informational purposes only. In the event of a failure to pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of the Developer to pay the unpaid assessment installments does not constitute a personal indebtedness of the Developer for which the funds or assets (other than the property in the Assessment Distract) of the Developer may 6e required, by operation of law or otherwise, to be used to pay debt service on the Bonds. It should not be inferred from the reference to the quarterly and annual reports of the Developer that the funds or assets (other than the property in the Assessment District) are available to cure any delinquencies in the payment of assessments. (e) To the extent that Financial Statements are prepued separately for the Developer, Financial Statements prepared in accordance with generally accepted accounting principles, as in effect from time to time, shall be provided. To the extent that audited Financial Statements are prepared separately for the Developer, if audited Financial Statements are required to be provided and such audited Financial Statements aze not available by the time the applicable Semi-Annual Report is required to be provided pursuant to Section 2{a) of this Disclosure Certificate, the applicable Semi-Annual Report shall contain unaudited Financial Statements, and the audited Financial Statements shall be filed in the same manner as the applicable Semi-Annual Report when they become available. Such Financial Statements shall be for the most recently ended fiscal year for the entity covered thereby. To the extent that audited Financial Statements of the Developer are prepared, the Developer shall include such audited Financial Statements in the applicable Semi-Annual Report. To the extent that the provisions of this subsection (e) become applicable, the provisions of subsection (d) above shall cease to be applicable. All such audited Financial Statements of the Developer, if any, shall contain the following caveat: The audited financial statements of the Developer are included for informational purposes only. In the event of a failure to pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of the Developer to pay the unpaid assessment installments does not constitute a personal indebtedness of the Developer for which the funds or assets F-10 - (other than the property in the Assessment District) of the Developer may be required, by operation of law or otherwise, to be used to pay debt service on the Bonds. It should not be inferred from audited financial statements of the Developer that the funds or assets (other than the property in the Assessment District) are available to cure any delinquencies in the payment of assessments. (f) Tn addition to any of Che information expressly required to be provided under this Section, the Developer shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents that have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Developer shall clearly identify each such other document so included by reference. SECTION 5. Developer's Report of Listed Events. (a) So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, pursuant to the provisions of this Section 5, the Developer shall promptly give, or cause to be given notice of the occurrence of any of the following events {each, a "Listed Event"} with respect to Developer and any of its Affiliates YhaY own progeny within the Assessment District: (i} Any conveyance by the Developer or any of its Affiliates to a Successor Developer or its Affiliates, if any, of pragerty that, when aggregated with all other property in the Assessment District then-owned by such Successor Developer and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds. (ii} Any failure of the Developer or any of its Affiliates to pay when due general properly taxes, special Yaxes, or assessments with respect to its property within the Assessment District. (iii) Any termination of a line of credit or loan, any ternination of, or uncured material default under, any line of credit or loan, or any other loss of a source of funds that could have a material adverse affect on the Developer's most recently disclosed Financing Plan or Development Plan, if any, ar on the ability of the Developer or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. {iv} The occurrence of an Event of BardQUptcy with respect to the Developer or any of its Affiliates that could have a material adverse affect on the Developer's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of the Developer or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. (v} Any significant amendments to land use entitlements for the Developer's or its Affiliates' property in the Assessment District, if material. (vi} Any previously undisclosed governmentally-imposed preconditions to commencement or continuation of development on the Developer's or its Affiliates' property in the Assessment District, if material. (vii} Any previously undisclosed legislative, administrative, or judicial challenges to development on the Developer's or its Affiliates' property in the Assessment District, if material. (viii} Any changes, if material, in the alignment, design, or likelihood of completion of significant public improvements, including major thoroughfares, sewers, water conveyance systems, and similar facilities. (ix) The assumption of any obligations by a Successor Developer pursuant to Section 6 of this Disclosure Certificate. F-I1 ,_ . , . _ ,; ;_ {b) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, the Developer shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (c) below. (c} If the Dissemination Agent has been instructed by the Developer to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with either (i} the Municipal Securities Rulemaking Boazd and each State Repository or (ii) the Repositories, with a copy to the Participating Underwriter. SECTION 6. Ternunation of Develoner's Reporting Obli¢ation. The Developer's continuing obligation to provide aSemi-Annual Report and notices of material Listed Events will terminate upon the earlier of (1) the legal defeasance, prior redemption, or payment in full of all of the Bonds, or {2) the date upon which the Developer and its Affiliates, if any, cease to own property in the Assessment District that, when aggregated with all other property in the Assessment District then-owned by the Developer and ita Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds, or (3} when the Developer's Community Area has reached the Planned Development Stage. If the Developer conveys to a Successor Developer property in the Assessment District prior to the time at which such property reaches the Planned Development Stage, and such property conveyed, when aggregated with all other property in the Assessment District then-owned by such Successor Developer and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds, then the Developer shall require a Successor Developer to enter into an Assumption Agreement, but only to the extent and upon the terms, if any, required by the Rule. SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist the Developer in carrying out its obligations under this Disclosure Certificate, and the City may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. SECTION S. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Developer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the City agrees in waiting and the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 3(a), 4, or 5, it may only be made in connection with a change in circumstances that arises from a change in Legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, afrer taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c} the proposed amendment or waiver either (i) is approved by Holders of the Bonds in the manner provided in the Resolution for amendments to the Resolution with The consent of Holders, or {ii} does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. If the annual financial information or operating data to be provided in the Semi-finnual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended opemting data or financial informaton shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Developer shall describe such amendment in the next Senti-Annual Report, and shall include, as applicable, a narrative explanation F-12 of the reason far the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation} of financial information or operating data being presented by the Developer. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the fmancial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial informafion, in order to provide information to investors to enable them to evaluate the ability of the Developer to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Developer from disseminating any other information using the means of dissemination set forth in this Disclosure Certificate or any other means of communication or including any other information in any Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Developer chooses to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is ' specifically required by this Disclosure Certificate, the Developer shall have no obligation under this Disclosure Certificate to update such information or include it in any future Semi-Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Developer to comply with any provision of this Disclosure Certificate, the Underwriter, the City, or any Holder or Beneficial Owner of outstanding Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer to comply with its obligations under this Disclosure Cemficate. A default under this Disclosure Agreement shall not be deemed to be an event of default under the Resolution, and the sole remedy under this Disclosure Certifcate in The event of any failure of the Developer to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Aaent. The Dissemination Agent shall have only such duties as aze specifically set forth in this Disclosure Certificate, and the Developer agrees to indemnify and save the City, the Dissemhtation Agent, and their respective officers, directors, employees, and agents, harmless against any losses, expenses, and liabilities which either or both of them may incur arising out of or in the exercise or performance of the Developer's powers and duties hereunder, including the costs and expenses {including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the City's or the Dissemination Agent's negligence or willful misconduct. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. F-13 '.. SECTION 12. Beneficiaries. li This Disclosure Certificate shall be binding upon the Developer and shall inure solely to the benefit of the i Developer, the Dissemination Agent, the Underwriter, the City, and the Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. ~~, Date: [Closing Date] [APPLICABLE LANDOWNER] a [type of entity] By: _ Title: F-14 e _. _. _ - e _ EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI-ANNU_1I. REPORT Name of Developer: [APPLICABLE LANDOWNER], a [type of entity] Name of Bond Issue: CITY OF BAKERSFIELD, CALIFORNIA ASSESSMENT DISTRICT NO. 04-1 (COUNTRYSIDE/THE HOMESTEAD/CHERRY HILLlOLNE PARK III) LIMTTED OBLIGATION IMPROVEMENT BONDS Date of Issuance: [Closing Date] NOTICE IS HEREBY GIVEN that [APPLICABLE LANDOWNER], a [type of entity] (the "Developer"), has not provided aSemi-Annual Report with respect to the above-named Bonds as required by Section 3 of the Developer's Continuing Disclosure Certificate, dated [Closing Date]. The Developer anticipates that the Semi-Annual Report will be filed by Date: By: THE CITY OF BAKERSFIELD, as Dissemination Agent, on behalf of [APPLICABLE LANDOWNER], a [type of entity] Finance Direcmr F-t5 e (THIS PAGE INTENTIONALLY LEFT BLANK)