WICKENBURG RANCH PROJECT OVERVIEW

Total Acres  2,160Total Entitled Units 2,324Custom 382 lots from ½ to 3 acre lotsSemi‐Custom 252 lots from 9,000 square feet to 22,000 square feet on golfProduction  1,690 single family and attached productsProjected Sales  10 year sellout sales will start in 2010 depending upon 

market conditions.

WICKENBURG RANCH ENTITLEMENT HIGHLIGHTS

M3, through its entitlements:

• Obtained approval for a golf course based upon providing Yavapai County with a             water and reuse management plan for Yavapai County.

• Created eight acres of lakes for storage of Class A+ effluent.

• The 950,000 gpd wastewater treatment plant will produce around 600 acre feet per year of A+ effluent to be used for irrigation of common area and golf course.

• Established public utility companies for the water and sewer facilities.

Wickenburg, Arizona

4/2/2012 9:59:00 PM

Yavapai County Supervisors questionWickenburg Ranch project

1. Scott OrrThe Daily Courier

PRESCOTT - What was planned as a routine request for an extension of time to file a finalplat with Yavapai County nearly turned into a legal battle Monday morning when a countysupervisor asked to have the plan re-evaluated.

Wickenburg Ranch Estates, about three miles northwest of the town of Wickenburg, wasoriginally approved in early 2006 as a development with 2,324 homes on 2,160 acres. It wasto have a golf course, community center, equestrian center and more.

The developer was to provide a final plat and start construction within four years; a one-yearextension to the Planned Area Development plan was granted in 2010.

However, the plat hasn't been filed and, according to a representative for the company, theYavapai County Development Services Department claimed that construction had not been started.

Supervisor Chip Davis, district 3, asked for more information on the project before the boardapproved it.

"This was last approved about six years ago, and my concern is that we've had a lot ofchanges in the last six years," Davis said, "and are we better off to not extend and to allowthis to come back and work through staff and address the changes?"

Noting that the developer had spent "a lot of money" on the project, he said, "I want to be fair."

"It's a very big project, and I agree with Supervisor Davis that we have extended thisalready," said Supervisor Carol Springer, district 1, "obviously because of the economy, andplans have to change. I understand that, too."

"I also feel that, because of the number of changes, this needs to, in effect, start over, so Iwould not agree to extend this any further," she said.

Board Chairman Tom Thurman, district 2, said he was concerned that failing to extend thepermit while it was re-evaluated would mean a fine for the company.

Yavapai County Attorney Jack Fields said that it was his understanding that, while there hadbeen "substantial" work done on the property, "it has been characterized as fairlyrudimentary. There's the golf course and some grading."

That brought a heated response from Bill Brownlee of M3 Companies, who said they had, infact, done a great deal of construction and made a large investment in the project already.

"Over 40 permits have been issued by Yavapai County," he said. "Over 20 have been closedout," meaning the work has been completed. "The issue here is not whether or not we havefiled the final plat, the issue is whether or not we have commenced development inaccordance with the ordinance."

"We have spent over $65 million, moved over eight million (cubic) yards of dirt, built the golfcourse, put in several miles of underground pipe for water and sewer, built a substation forAPS, landscaped close to 800,000 plants, and revegetated 175 acres of slopes," Brownlee said.

"If the Board elects to go this direction, we're going to have a real issue," Brownlee said. "Itwould be very harmful to us both from the perspective of timing, from the perspective ofbeing able to restart this project in this economy with builders that have a significantamount of interest in the project right now, and also financially injure the owner of this property."

"That would probably lead us to a lawsuit with Yavapai County," he said.

Springer wouldn't budge. "I still think we need to take another look at the wholedevelopment," she said.

But after 35 minutes of discussion, Davis, who had brought up the issue, and had votedagainst the project in 2006, had reconsidered.

Had the economy been better, he said, "I imagine you probably would have been a littlemore aggressive in getting this project off and going."

"Our message needs to be that Yavapai County is a good place to do business and we honorour agreements," Davis said.

He moved to extend the project's permit time three years as requested; the vote was 2-1with Springer dissenting.

2015 Closed Sales at Wickenburg RanchBuyer Origin Price Date Primary ResBuckeye $290,530 07/14/2015 pOregon $503,499 08/24/2015Phoenix $429,237 09/04/2015 pMontana $584,955 09/15/2015Peoria $287,473 09/30/2015 pLake Havasu $588,677 10/02/2015Wickenburg $598,982 10/08/2015Sun City West $309,418 10/09/2015 pScottsdale $809,886 10/12/2015 pCalifornia $587,038 10/15/2015 pWisconsin $475,438 10/16/2015Mesa $410,205 10/19/2015 pCalifornia $408,086 11/13/2015 pWyoming $824,407 11/19/2015Scottsdale $501,487 11/30/2015 pWashington $455,432 11/30/2015 pPeoria $606,805 12/07/2015 pPeoria $541,285 12/09/2015 pScottsdale $602,654 12/17/2015 pShow Low $558,138 12/18/2015Scottsdale $399,148 12/22/2015 pWick? $274,333 12/28/2015 pCalifornia $532,314 12/28/2015 pWick? $367,528 12/30/2015 pWisconsin $423,092 12/31/2015Colorado $643,136 12/31/2015

26 $500,507 Average Sale PriceSource: Yavapai County Recorder

1/1/2012 10:16:00 AM

CFDs finance improvements for subdivisions,with homeowners paying in the long run1.

NewYork-basedLexinCapitalrecentlybought138vacantlotsinPrescottValley'sPronghornRanchsubdivisionforabout$2.9million"

New York-based Lexin Capital recently bought 138 vacant lots inPrescott Valley's Pronghorn Ranch subdivision for about $2.9 million.Photo courtesy Matt Hinshaw

The Town of Prescott Valley and other jurisdictions inArizona and throughout the country rely on the formationof community facilities districts to finance publicimprovements in both residential subdivisions andcommercially developed land.

Prescott Valley established CFDs for the StoneRidge,Quailwood and Pronghorn subdivisions as well as fornumerous commercial corridors that include Highway 69.

This three-part series examines the residential CFDs,where bonds issued by the districts finance water andsewer lines, and other improvements. Homeowners pay off

the bonds through property taxes based on the secondaryassessed values of their homes.

The series explores the pros and cons of CFDs from theperspective of town officials, investment bankers,homeowners, developers and other parties.

Ken HedlerSpecial to the Tribune

Developers here and throughout Arizona and the country have relied on forming communityfacilities districts to finance streets, water and sewer lines, and other public improvements.

The CFDs enable developers to sell homes for less than if they built infrastructure costs intothe price of a home, and make it possible for municipalities to obtain public improvements.

However, the track record in Prescott Valley for residential CFDs with bond financing raisesquestions. The original developers of two subdivisions with CFDs went out of business, and athird sold out to another developer. Homeowners in a fourth subdivision formed a CFD aftertheir homes were built.

Homeowners such as Tom Shoemaker in StoneRidge bought their homes when developerswere on more solid footing. StoneRidge is planned for approximately 3,800 lots on 1,880acres located off Stoneridge Drive south of Highway 69, according to the town's General Plan.

"What do you think of the possibility of them going under?" Shoemaker asked rhetorically.

Shoemaker, a real estate broker who bought his home in 2006, recalls the StoneRidge salesoffice contained posters of Pinnacle West as well as its subsidiary, Arizona Public Service,both of Phoenix. Pinnacle West is the parent company of SunCor, which developed StoneRidge.

The sales office staff, he said, gave a "false sense of security and with the impression it wasall backed by Pinnacle West and APS," Shoemaker said. "They made it sound like it wouldnever go bankrupt."

Bill Kauppi, management services director for the town government and CFD treasurer,placed blame on the housing downturn as well.

"If you did not have this housing downturn, you would not hear from anybody," Kauppi said.

Kauppi and Town Manager Larry Tarkowski, who doubles as CFD manager, conducted sixmeetings with StoneRidge homeowners in January 2011 amid fears that their secondaryproperty tax rates could double if SunCor filed for bankruptcy. Homeowners had paid arange of $800 to $1,000 a year.

The developer contributed $972,468 and homeowner contributions amounted to $811,608 inproperty taxes for the fiscal year ending June 30, according to the audited annual financialreports for the CFDs.

The situation changed because Scottsdale-based Univest bought the remaining lots and thegolf course from SunCor in August after another would-be suitor, M3 Cos. of Phoenix, pulled out.

SunCor also agreed to turn over the StoneRidge community center to the CFD, which willcollect about $168,000 a year from leasing the center to the homeowners association untilthe 25-year bond is paid off. SunCor made its final debt service payment of $339,259 inJune, according to Kauppi.

The StoneRidge HOA is negotiating with the new owner on issues that include annualpayments on the bond, HOA board member Walt Nagy said.

While the StoneRidge homeowners did not realize Tarkowski's worst fears, homeownersthere as well as in Quailwood and Pronghorn Ranch saw their secondary property tax ratesincrease when the 2012 fiscal year began July 1. The Town Council, sitting as the CFDboard, raised rates to offset a drop of assessed value of about 20 percent for homes inPrescott Valley because of the lingering housing slump, Kauppi said.

The board raised the rates from $3.30 to $4.23 for every $100 in secondary assessedvaluation for Quailwood, and from $3.30 to $3.90 in StoneRidge and Pronghorn Ranch.

"You got the scenario where the tax rate will continue to go up," Pronghorn Ranchhomeowner Dave Strozewski said. "We are at the mercy of the town. I thought 60 cents per$100 was a hell of an increase."

Pronghorn Ranch, located off Pronghorn Ranch Road and Viewpoint Drive, is zoned for 1,102single-family homes on 641 acres. Quailwood, located off Highway 69 and BradshawMountain Road, contains 987 single-family lots on approximately 280 acres.

The secondary property tax rates for the CFD subdivisions help to pay off the bond issuesthat the Town Council authorized to finance the infrastructure improvements. StoneRidgehad the largest bond issue at $14.8 million because of its hilly terrain and infrastructure thatincludes a bridge, followed by $7 million for Pronghorn Ranch and $6.9 million in Quailwood.

Under residential CFDs, developers go out to bid to hire contractors for the improvementsthat must meet approval from the CFD staff, Tarkowski said. The developers must followstrict rules to complete the specified improvements, and then present paperwork to bereimbursed from the proceeds of bond sales.

Tarkowski said the developer in Quailwood completed improvements while Pronghorn Ranchis two-thirds complete and StoneRidge is about 60 percent finished.

Unlike the CFDs in StoneRidge, Pronghorn Ranch and Quailwood, the CFD in Raven Ridgenear the Prescott Country Club financed improvements through a loan. The CFD, which datesto 2003, obtained a $925,446 loan from the Water Infrastructure Financing Authority, anindependent state agency, to finance hookups to the town's sewer lines and the sewertreatment plant, according to the annual reports.

By obtaining a loan, homeowners "could pay it off at any time without penalty," said RandyPhillips, a 15-resident of Raven Ridge. He added he paid less than $7,000 for the sewer

improvements at Raven Ridge, which has about 80 homes.

The Raven Ridge homeowners followed a process that is similar to annexations because theyobtained the support from a majority of the property owners. They decided to form thedistrict after the developer went out of business, Phillips said.

By contrast, the original developers of StoneRidge (SunCor), Pronghorn Ranch (BrownFamily Communities) and Quailwood (Empire Homes)

were the sole property owners when they went to the Town Council to approve their CFDsand 25-year bond issues. The CFDs date to 2001 for StoneRidge, 2002 for Pronghorn Ranchand 2004 for Quailwood.

Homeowners lacked such participation, except by voting with their feet by choosing to buyhomes elsewhere.

Meanwhile, they are paying the bonded indebtedness off slowly. As of June 30, bondedindebtedness, which includes interest, exceeded $12.9 million in StoneRidge, $6.2 million inPronghorn Ranch and $5.9 million in Quailwood, according to the annual financial reports.The debt for Raven Ridge totaled $232,376.

The debt remains high because no principal payments were required for the first couple ofyears at StoneRidge, Kauppi said, adding "all of them were like that" to allow the developersto build more homes.

Kauppi said secondary tax rates would drop if developers build more homes in StoneRidge,Pronghorn Ranch and Quailwood because more people would pay into the CFD.

Univest plans to build homes in StoneRidge, which has about 1,000 homeowners. Phoenix-based Mandalay Homes bought 138 lots in Pronghorn Ranch in 2009 and is marketing those homes.

Dorn Homes of Green Valley is negotiating to buy an estimated 350 lots in Quailwood,according to Marge Belson, president of the two HOA boards in Quailwood.

1/3/2012 10:36:00 AM

Officials: Prescott Valley has 'no appetite' forresidential CFDs

The Town of Prescott Valley and other jurisdictions inArizona and throughout the country rely on the formationof community facilities districts to finance publicimprovements in both residential subdivisions andcommercially developed land. Prescott Valley establishedCFDs for the StoneRidge, Quailwood and Pronghornsubdivisions as well as for numerous commercial corridorsthat include Highway 69.

This three-part series examines the residential CFDs,where bonds issued by the districts finance water andsewer lines, and other improvements. Homeowners pay offthe bonds through property taxes based on the secondaryassessed values of their homes. The series explores thepros and cons of CFDs from the perspective of townofficials, investment bankers, homeowners, developers andother parties.

Ken HedlerSpecial to the Tribune

Town government officials said they are unlikely to approve community facilities districts for

master-planned communities in the foreseeable future.

"Based on what is happening, I don't see us adding CFDs in the near future," said BillKauppi, management services director for the town and CFD treasurer. He explained thedrawbacks are the continuing housing slump and the issues the Town Council dealt withwhile wearing the hat of CFD board.

Town Manager Larry Tarkowski concurred, saying, "We have been told that the CFD boardhas no appetite to authorize additional bond sales."

A majority of Town Council members, who also serve as the board for the separate CFDs,expressed reluctance about approving any additional CFDs. New districts are unlikely untilthe housing market improves and developers propose master-planned communities.

"The only thought I have is it has been an education for us, or a lesson," Mayor HarveySkoog said. "And, I'd sure look at it a little bit different than we had in the past."

Skoog said CFDs were a "good, solid way to do things" when the economy was healthy.

"I would look at it with more scrutiny," Skoog said.

Skoog and Lora Lee Nye were on the council when the newest residential CFD, in Quailwood,was created in 2004.

Nye said she would examine each CFD request on a case-by-case basis.

"I would have to have all the details, all the circumstances, and then I would have to putthat information all together and I would have to study it carefully," Nye said. "Only thenwould I answer yes or no."

Councilman Rick Anderson said he would "take a real strong look at it. It would go under themicroscope. ... I would not want to be the person coming before us asking for one (CFD)."

Councilwoman Mary Mallory said she would vote against forming a CFD while adding nobodywould have predicted the economic downturn.

She said she bought a home in the Granville subdivision, which lacks a CFD.

Referring to Granville's developer, Mallory said, "I like the way that Joe Contadino does hisdevelopment. Everything is right up front. We know what we are getting into."

She compared CFDs such as the one in StoneRidge to a second mortgage, adding, "Yourproperty is the collateral."

Two council members who own homes in StoneRidge have different views.

"It's hard to speculate on hypotheticals," Vice Mayor Patty Lasker said. "There are so manyfactors to consider when making a decision. You don't rule out any decision on a piece of information."

However, Henry Schmitt said, "I would be opposed to another CFD, whether it would be forresidential, business or industrial. I think in part the track record."

Like Mallory, the other council member elected in March, Schmitt said nobody forecast the recession.

"There has got to be new models and new ways to finance residential developments,"Schmitt said. "I think that is one of the things we have to explore."

Councilman Don Tjiema also raised doubts about additional CFDs.

"It would have to be a very good development and solid financially backed," he said. "Plus,the other thing is the water concerns.

"Right now, with all the vacancies we have in our area, I am not sure...whether it is a goodtime to have a new development," Tjiema said.

Sets of homeowners in StoneRidge and Pronghorn Ranch differed on CFDs.

Dave Strozewski, an eight-year resident of Pronghorn Ranch, said he would not buy a homein a subdivision with a CFD now "unless I was the last person buying a home.

"I would rather have $5,000 added on to the price of the home" than pay into a CFD, saidStrozewski, who is retired from insurance management. He said homeowners can negotiatethe price if they buy a home without a CFD.

Over at StoneRidge, Tom Shoemaker, Richard Newbold, Paul De'Ak, Pat Walsh and HarryRamsey did not express regrets about buying their homes.

"This subdivision would not have been (built) without a CFD because of the cost ofdeveloping on this topography," said Shoemaker, a real estate broker.

A homeowner at StoneRidge since 2006, Shoemaker said taxes are lower where he lives"than anywhere else where I would choose to live."

Ramsey, a homeowner since 2004, said, "I probably would have bought (in StoneRidge)anyway. I like the community. I like what they were building. We like the product."

/2/2012 10:26:00 AM

CFDs provide alternative means for financinginfrastructure

SunCor averted bankruptcy by selling StoneRidge’s remaininglots and the golf course to Scottsdale-based Univest.Photo courtesy Matt Hinshaw

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The Town of Prescott Valley and other jurisdictions inArizona and throughout the country rely on the formationof community facilities districts to finance publicimprovements in both residential subdivisions andcommercially developed land.

Prescott Valley established CFDs for the StoneRidge,

Quailwood and Pronghorn subdivisions as well as fornumerous commercial corridors that include Highway 69.

This three-part series examines the residential CFDs,where bonds issued by the districts finance water andsewer lines, and other improvements. Homeowners pay offthe bonds through property taxes based on the secondaryassessed values of their homes.

The series explores the pros and cons of CFDs from theperspective of town officials, investment bankers,homeowners, developers and other parties.

Ken HedlerSpecial to the Tribune

The Arizona State Legislature in 1988 passed the Arizona Community Facilities District Act toallow the creation of CFDs to finance public infrastructure.

However, the concept dates to the 1930s and the creation of improvement districts, saidCarter Froelich, managing partner of the Phoenix office of Development Planning & FinancingGroup Inc. Cities used improvement districts to pay for building roads.

Froelich, whose company started in Orange County, Calif., said a major push for CFDsoccurred after California voters passed Proposition 13 in 1978. The ballot measure, whichsparked a nationwide tax revolt, slashed property taxes, causing dollars for infrastructure todry up, he explained.

Four years later, the California Legislature approved CFDs known as Mello-Roos, named fortwo lawmakers, to finance infrastructure.

Developers turned to CFDs to finance improvements such as curbs, gutters and sidewalks astheir costs increased, Froelich said. They also used CFDs to finance regional improvementssuch as sewer plants and sewer lines.

CFDs provided an additional financing source, Froelich explained. He added that developersthrough the housing boom in 2005 financed projects with 20 percent of their equity andborrowed 80 percent.

With the credit markets in disarray, "the most you can get from traditional sources toborrow" is 50 percent, Froelich said. They have to come up with more equity, whichincreases their costs.

"In this case, we need to come up with an additional 30 percent, and that is where the CFDscome into play," Froelich said.

Froelich said he works with the private sector to set up CFDs, and goes to underwriters suchas Bob Casillas, who sells the bonds to investors.

A "whole mix" of investors buys the CFD bonds, said Casillas, managing director for publicfinance at Stone & Youngberg LLC in Phoenix. He added the bonds take as long as 20 to 25years to mature.

Casillas and Shawn Dralle of RBC Capital Markets in Phoenix are the main players as CFDunderwriters in Prescott Valley, according to Bill Kauppi, Prescott Valley's managementservices director. Dralle referred comment to her boss, Kevin Foster, in New York City. Hedid not return many calls to his office.

CFD bonds are mostly nonrated, and institutional investors buy them, Casillas said.

The investors could be insurance companies and pension funds, Casillas said, adding, "Hedgefunds were buyers at one time."

As nonrated bonds, CFD bonds pay higher interest rates because risks are perceived to behigher, Casillas said. "Usually, the land is the security."

CFDs are risky because of a possible default on debt payments, said Mark Stapp, professorof practice and executive director of master of real estate development at the W.P. CareySchool of Business at Arizona State University.

"And if a project is not fully developed and a CFD is created, you run the risk that there isnot sufficient capital to pay the bond," Stapp said. "What happened is a community issaddled with whatever is left."

That possibility arose in StoneRidge amid fears that SunCor, the original developer, wouldfile for bankruptcy this year. SunCor averted bankruptcy by selling the remaining lots andthe golf course to Scottsdale-based Univest.

SunCor in 2001 gained approval from the Town Council for a $14.8 million CFD bond issue tofinance Stoneridge Drive, the bridge across it, and sewer lines.

CFDs are a good deal for everybody but the homebuyers, said Joe Contadino, president ofUniversal Homes in Phoenix. He developed Granville, which consists of lots for 3,288 single-family homes and an estimated 114 apartment units off Glassford Hill Road.

Contadino, who has been in the business for 40 years, said he dealt with CFDs dating to the1980s in Colorado.

"The concept of the CFD is certain infrastructure is paid through a bond issue, and you passthat savings along to the homeowner, who then buys the house at a cheaper price, and thenpays his real estate taxes to pay for that portion of the house that he did not pay for upfront," Contadino said.

"What I found is the people did not save any money," Contadino said. "As a matter of fact, itcost them quite a bit more because they had to pay the bonds off after they moved intotheir home."

Contadino said he examined CFDs from a consumer's standpoint.

"My conclusion was if you were going to bond a million (dollars) in costs, the homeownerhad to pay it back, too," he said.

Contadino said a CFD could double the costs of improvements, adding he built in abut

$40,000 a home for the costs of improvements and amenities - such as the communitycenter and swimming pool - at Granville.

"Legal fees are huge," Contadino said. "The underwriting fee, the fee that put it together, ishuge. "All of the accounting, engineering. You basically have a district that is formed."

Stapp of ASU said, "In reality, if it is a CFD that covers all the sidewalks, sewers andeverything else, they (the buyers) are just getting the house and they are continuing to payfor all the infrastructure. And they don't understand why it has to be the case."

One of the biggest complaints from homebuyers is the CFD language does not easily drawtheir attention in lengthy sales documents.

"How many people sit down and read page by page if you have 50 to 100 pages in front ofyou?" Pronghorn Ranch homeowner Dieter Krantz asked rhetorically.

Krantz and his wife, Helga, moved from Prescott and bought their home in Pronghorn Ranchin 2005.

Four years later, Mandalay Homes of Phoenix bought 138 lots in Pronghorn Ranch and ismarketing homes in the subdivision, which contains 1,102 lots. Mandalay's sales officeprovides a detailed public report for buyers and prospective buyers that contains three pagesexplaining the CFD.

A number of homeowners in Pronghorn Ranch and other subdivisions said they areunfamiliar with CFDs, or did not find out about them until they received their property taxbills from the Yavapai County Assessor's Office.

The first buyers in a subdivision with a CFD receive all the paperwork, Stapp said.

"But the next person who buys the house is likely not to get any of the disclosureinformation. What they get is a title report, and they probably don't understand what itmeans. Even the first people in probably don't (understand)."

Stapp said homeowners benefit from moving into a fully serviced subdivision whilemunicipalities gain from "engineered capital for free."

"They would get those anyway if a developer paid for them," Stapp said