Historic bond issue sought for huge Playa Vista plan.

City to go after Mello-Roos development funds

The City of Los Angeles is preparing to go to market with its first-ever Mello-Roos Community Facilities District bond sale - to pay for public improvements at the massive Playa Vista development site near Marina del Rey.

The new special district will sell $45 million to $50 million in bonds initially, but may sell as much as $410 million total. To help pay back the debt, buyers of the new, yet-to-be-constructed homes at Playa Vista would pay taxes averaging more than $2,300 per year to start, increasing 2 to 4 percent each year, for up to 50 years.

Maguire Thomas Partners - Playa Vista is planning mixed-use development for the 1,087-acre Playa Vista site. The special district covers 457 acres in the City of Los Angeles, all of which is owned by the development partnership formed by Maguire Thomas Partners, Howard Hughes Properties and JMB Realty.

Although the city "in no way will guarantee these bonds," many investors are already expressing interest in them, said finance specialist Jerry Miller of the City Administrative Office.

"There is no financial risk to the city," Miller emphasized. "The only risk is (that of) having the city's name on something in default."

Mello Roos bonds are sold by municipalities, thus gaining tax exempt status, but are guaranteed by the value of the property in the district. The property owner(s) - in this case the developer - vote to form the district.

City Administrative Officer Keith Comrie explained that Los Angeles wants to avoid problems that have hit other similar districts in places where property values have plummeted, or where developers have gotten into trouble.

For example, the City of Hawthorne is attempting to foreclose on property once earmarked for a mixed-use project known as the Cloverleaf Development. The project was never built, and the property owners are in default on a $15 million Mello-Roos bond issue.

The bond sale proceeds financed a property purchase, storm drain relocation, sewers, street improvements and other public works.

In order to minimize the chances of a default and guarantee the debt could always be paid by foreclosing on property, the City of Los Angeles is limiting the sale of bonds to 25 percent of the value of the property, for a leverage ratio of 1-to-4, Comrie noted. The Mello-Roos law only requires a ratio of 1-to-3. The Playa Vista property in the assessment district is expected to be worth $1.6 billion when developed.

The initial bond issue is expected to carry an interest rate of 7 to 8 percent and mature in 25 years. Maguire Thomas bond attorney Patti Sinclair of Latham & Watkins said the majority of the roughly $400 million in bonds will be sold within 10 years.

Money set aside

Until homes and other buildings are actually developed and sold, Maguire Thomas Partners - Playa Vista will be responsible for making payments on the bonds, said Miller.

However, a certain percentage of the bond sale proceeds will be set aside in a "capitalized interest account" to pay debt service on the issue during the initial construction phase, which is expected to last about 18 months, explained Sinclair.

Miller said the City Administrative Officer expects to go to the City Council late next month with the final bond sale documents and to actually begin selling bonds in mid- to late September. Sinclair said Maguire Thomas plans to break ground about the same time and to start selling homes in early to mid-1997.

In fiscal 1996, the maximum special tax rate for undeveloped property in the district will be $209,900 per acre.

The 1995-96 tax for single family homes will vary from $1,201 per unit to $9,794 per unit, depending on the value of the home. Miller said the top tax would apply to a $1.5 million home on a man-made island, which the developer plans to situate in a lagoon.

Non-residential property (office, retail and industrial) will be taxed per square foot of building, and hotels will be taxed per room.

Public improvements to be paid for with bond sale proceeds include: streets, bridges, street lights, fire hydrants, bike paths, landscaping, community service buildings (such as fire and police stations and schools) and parks. Some of the improvements may be outside the district and outside the City of Los Angeles but within the Playa Vista site.