Member of 5WS Group - CA.gov

NEW ISSUE-BOOK ENTRY ONLY NOT RATED (See "CONCLUDING INFORMATION - No Ratings on the Bonds" herein)

In the opinion of McFarlin & Anderson LLP, Lake Forest, Calzfornia ("Bond Counsel''), based upon an analysis of existing laws, regulations, rnlings and court decisions, and assuming, among other matters, compliance with certain covenants and agreements, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 as amended, and is exempt from State a/California personal income taxes. In the opinion a/Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See "LEGAL MATTERS- TAX EXEMPTION" herein.

COUNTY OF RIVERSIDE

Dated: Date of Delivery

STATE OF CALIFORNIA

$6,520,000 BEAUMONT FINANCING AUTHORITY 2007 LOCAL AGENCY REVENUE BONDS, SERIES E (IMPROVEMENT AREA NO. SC)

Due: September 1, as shown below

This cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Bonds involves risks. See "BONDOWNERS' RISKS" herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds (as defined herein).

Interest on the Bonds is payable semiannually on March 1 and September 1 of each year, commencing March 1, 2008, until maturity or earlier redemption thereof (see "THE BONDS - GENERAL PROVISIONS" and "THE BONDS - REDEMPTION" herein).

The information contained within this Official Statement was prepared under the direction of the Beaumont Financing Authority (the "Authority") by the following firm serving as Financing Consultant to the Authority.

ROD GUNN ASSOCIATES, INC.

MATURITY SCHEDULE $615,000 SERIAL BONDS

Maturity Date Principal Interest Reoffering Maturity Date Principal Interest Re offering Se~tember 1 Amount Rate Rate Se~tember 1 Amount Rate Rate

2010 $5,000 4.750% 4.250% 2016 $65,000 5.000% 5.000% 2011 15,000 4.750% 4.375% 2017 75,000 5.000% 5.200% 2012 20,000 4.750% 4.500% 2018 90,000 5.100% 5.300% 2013 30,000 4.750% 4.650% 2019 105,000 5.200% 5.400% 2014 40,000 5.000% 4.750% 2020 120,000 5.300% 5.500% 2015 50,000 4.750% 4.900%

$5,905,000 6.250% Term Bond due September 1, 2038, Price 100%

Proceeds from the Bonds will be used, in part, to acquire on the delivery date of the Bonds, the District Bonds (as defined herein) to be issued under the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California). The Bonds are special obligations of the Authority payable solely from and secured by revenues from repayment of the District Bonds, the Reserve Fund held by the Trustee, and under certain circumstances by any available surplus revenues with respect to other series of bonds issued by the Authority as described herein. Repayment of the District Bonds will be from the Special Taxes (as defined herein) to be levied against taxable real property within the City of Beaumont Community Facilities District No. 93-1 Improvement Area No. SC as described herein (see "SOURCES OF PAYMENT FOR THE BONDS" and "BONDOWNERS' RISKS" herein). It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company on or about December 13, 2007 (see "APPENDIX H - BOOK-ENTRY SYSTEM"). The date of the Official Statement is November 29, 2007.

Member of 5WS Group

BEAUMONT FINANCING AUTHORITY BEAUMONT, CALIFORNIA

AUTHORITY BOARD AND CITY COUNCIL

Jeffery Fox, Chairperson and Mayor Brian DeForge, Vice Chairperson and Mayor Pro Tem

Roger Berg, Board Member and Council Member Larry Dressel, Board Member and Council Member

W.M. "Martie" Killough, Board Member and Council Member

AUTHORITY AND CITY STAFF

Alan C. Kapanicas, City Manager, Finance Director David W. Dillon, Director of Economic Development

Karen Thompson, City Clerk

PROFESSIONAL SERVICES

Bond Counsel Mcfarlin & Anderson LLP

Lake Fores!, California

Authority Counsel and City Attorney Aklufi & Wysocki

Riverside, California

Disclosure Counsel Fulbright & Jaworski L.L.P.

Los Angeles, California

Underwriter's Counsel Law Offices of Robert F. Messinger

Irvine, California

Financing Consultant Rod Gunn Associates, Inc.

Huntington Beach, California

Special Tax Consultant General Govermnent Management Services

Rancho Mirage, California

Project Engineer Urban Logic Consultants, Inc.

Temecula, California

Appraiser Harris Realty Appraisal

Newport Beach, California

Market Absorption Consultant Empire Economics, Inc.

Capistrano Beach, California

Trustee Union Bank of California, N.A.

Los Angeles, California

Underwriter Southwest Securities, Inc.

Newport Beach, California

FOR ADDITIONAL INFORMATION

Alan C. Kapanicas, City ofBeaumont, California (951) 769-8520 Southwest Securities, Inc. (949) 717-2000

11

GENERAL INFORMATION ABOUT THE OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District, in any press release and in any oral statement made with the approval of an authorized officer of the City, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend," and similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forwardlooking 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. 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 shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or any other entity described or referenced herein since the date hereof. Neither the Authority nor the District plan to issue any updates or revisions to the forward-looking statements set forth in this Official Statement.

Limited Offering. No dealer, broker, salesperson or other person has been authorized by the Authority or the District to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a 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. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City, the District or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions.

Stabilization of Prices. In connection with this offering, the Underwriter may over allot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

111

TABLE OF CONTENTS

INTRODUCTORY STATEMENT ........................ 1 Effect of Redemption .............................................. 25 THE AUTHORITY ................................................... 1 Partial Redemption ................................................. 25 THE DISTRICT ........................................................ 2 ADDITIONAL OBLIGATIONS ............................. 26 IMPROVEMENT AREA NO. 8C ............................. 2 The Bonds ............................................................... 26 Improvement Area No. 8C Formation ...................... 2 The District Bonds .................................................. 26 Improvement Area No. 8C Location ......................... 5 SCHEDULED DEBT SERVICE ON THE Improvement Area No. 8C Master Developer BONDS ................................................................ 28

and Merchant Builder ............................................. 5 SCHEDULED DEBT SERVICE ON THE Improvement Area No. 8C Planned DISTRICT BONDS ............................................. 30

Development .......................................................... 5 Improvement Area No. 8C Status of

Development .......................................................... 6 SECURITY AND SOURCES OF

REPAYMENT ........................................................ 6 The Bonds ................................................................. 6 The District Bonds .................................................... 7 PURPOSE ................................................................. 8 The Bonds ................................................................. 8 The District Bonds .................................................... 8 THEBONDS ............................................................ 8 Redemption ............................................................... 8 Denominations .......................................................... 9 Registration, Transfer and Exchange ......................... 9

SOURCES OF PAYMENT FOR THE BONDS ..... 32 REPAYMENT OF THE BONDS ............................ 32 General .................................................................... 32 Application of Revenues; Flow of Funds ................ 32 Residual Fund ......................................................... 33 Cash Flow Management Fund ................................ 33 Redemption Fund .................................................... 34 REPAYMENT OF THE DISTRICT BONDS ......... 34 General .................................................................... 34 Special Taxes .......................................................... 34 Application of Special Taxes; Flow of Funds ......... 35 Redemption Fund .................................................... 36 Covenant for Superior Court Foreclosure ............... 36

Payment .................................................................... 9 BONDOWNERS' RISKS ......................................... 39 Notice ........................................................................ 9 THE BONDS .......................................................... 39 LEGALMATTERS ................................................... 9 Early Bond Redemption .......................................... 39 PROFESSIONAL SERVICES ................................ 10 No Liability of the Authority to the Bondowners .... 39 OFFERING OF THE BONDS ................................ 10 LossofTaxExemption ........................................... 39 Authority for Issuance ............................................. 10 IRS Audits ............................................................... 39 Offering and Delivery of the Bonds ........................ 10 Secondary Market ................................................... 40 CONTINUING DISCLOSURE .............................. 10 THE DISTRICT BONDS ...................................... 40 AVAILABILITY OF LEGAL DOCUMENTS ........ 12 Risk Factors Relating to Real Estate Market

SELECTED FACTS ................................................. 14 Conditions ............................................................ 40

Risk Factors Relating to Land Values .................... 41 ESTIMATED SOURCES AND USES OF Risk Factors Relating to the Levying and

FUNDS .................................................................... 20 Collection of the Special Taxes ........................... 45 THEBONDS .......................................................... 20 Risk Factors Relating to Tax Burden ...................... 50 THE DISTRICT BONDS ........................................ 21 Risk Factors Relating to Governmental Rules, INVESTMENT OF FUNDS ................................... 21 Initiatives, Etc ....................................................... 51

THE BONDS ............................................................. 22 AUTHORIZATION ................................................ 22

Risk Factors Relating to Limitations of the Bonds and the District .......................................... 51

The Bonds ............................................................... 22 THE AUTHORITY .................................................. 53 The District Bonds .................................................. 22 GOVERNMENT ORGANIZATION ...................... 53 GENERAL PROVISIONS ...................................... 22 DEBT SERVICE COVERAGE ON THE Repayment of the Bonds ......................................... 22 AUTHORITY BONDS ........................................ 54 Transfer or Exchange of Bonds ............................... 22 Bonds Mutilated, Lost, Destroyed or Stolen ........... 23 REDEMPTION ....................................................... 23 Optional Redemption .............................................. 23 Special Mandatory Redemption .............................. 24 Mandatory Sinking Payment Redemption .............. 24 Mandatory Redemption ........................................... 25 Notice of Redemption ............................................. 25

SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE ............................ 56 ADMINISTRATION OF THE SPECIAL TAX ...... 56 AMENDED AND RESTATED RATE AND

METHOD OF APPORTIONMENT .................... 56 Assigned Special Tax Rates .................................... 57 Backup Special Tax ................................................. 58 Method of Apportionment ...................................... 58

IV

PROPERTY TAXES AND EFFECTIVE TAX RATES ................................................................. 59

Value-to-Lien Ratios ............................................... 59 Effective Tax Rate Tables ....................................... 59 SPECIAL TAX PROJECTIONS ............................. 62 DEBT SERVICE COVERAGE ON THE

DISTRICT BONDS ............................................. 63 DELINQUENCIES ................................................. 66 FORECLOSURE ACTIONS .................................. 66

™PROVEMENT AREA NO. SC ........................... 68 LOCATION AND BOUNDARIES OF

IMPROVEMENT AREANO. 8C ........................ 68 FACILITIES AND FEES ELIGIBLE TO BE

FINANCED BY THE DISTRICT ........................ 70 CRITICALFACILITIE .......................................... 70 JOINT FACILITIES ............................................... 70 INDIVIDUAL FACILITIES ................................... 70 ESTIMATED COSTS ............................................. 70 THE MASTER DEVELOPER AND KB

HOME COASTAL ............................................... 72 PARDEEHOMES .................................................. 72 KB HOME Coastal Inc ............................................ 72 Sale of Property from Pardee Homes to KB

HOME Coastal Inc ............................................... 73 DESCRIPTION OF DEVELOPMENT .................. 73 HOME PRICING .................................................... 76 SALES HISTORY .................................................. 78 ESTIMATED ABSORPTION SCHEDULE ........... 81 FINANCING PLANS OF THE DEVELOPERS .... 82 HISTORY OF PROPERTY TAX PAYMENT;

LOAN DEFAULTS; BANKRUPTCY ................. 83

LEGAL MATTERS .................................................. 85 ENFORCEABILITY OF REMEDIES .................... 85 APPROVAL OF LEGAL PROCEEDINGS ............ 85 TAXEXEMPTION ................................................ 85 ABSENCE OF LITIGATION ................................. 87

CONCLUDING INFORMATION .......................... 88 NO RATINGS ON THE BONDS ........................... 88 UNDERWRITING .................................................. 88 EXPERTS ............................................................... 88 SPECIAL TAX CONSULTANT AND

PROJECT ENGINEER ........................................ 88 THE FINANCING CONSULTANT ....................... 88 FORWARD LOOKING STATEMENTS ................ 89 ADDITIONAL INFORMATION ........................... 89 REFERENCES ........................................................ 89 EXECUTION ......................................................... 89

V

APPENDIX A DEFINITIONS OF CERTAIN TERMS USED IN THE INDENTURE AND THE DISTRICT INDENTURE. ......................... A-1

APPENDIX B SUMMARY OF LEGAL DOCUMENTS ..................................................... B-1

APPENDIX C APPRAISAL REPORT ................. C-1

APPENDIX D MARKET ABSORPTION STUDY .................................................................. D-1

APPENDIX EAMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT ........................................... E-1

APPENDIX F FORMS OF CONTINUING DISCLOSUREAGREEMENTS ........................ F-1

APPENDIX G PROPOSED FORM OF BOND COUNSEL OPINION ......................................... G-1

APPENDIX H BOOK-ENTRY SYSTEM ........... H-1

CITY OF BEAUMONT VICINITY MAP

s.

CITY OF BEAUMONT

OFFICIAL STATEMENT $6,520,000

BEAUMONT FINANCING AUTHORITY 2007 LOCAL AGENCY REVENUE BONDS, SERIES E (IMPROVEMENT AREA NO. SC)

This Official Statement, which includes the cover page and appendices (the "Official Statement"), is provided to furnish certain information concerning the sale of the Beaumont Financing Authority 2007 Local Agency Revenue Bonds, Series E (Improvement Area No. SC) (the "Bonds"), in the aggregate principal amount of $6,520,000.

INTRODUCTORY STATEMENT

This Introductory Statement contains only a brief description of this issue and does not purport to be complete. This Introductory Statement is subject in all respects to more complete information in the entire Official Statement and the offering of the Bonds to potential investors is made only by means of the entire Official Statement and the documents summarized herein. lnvestinent in the Bonds involves risks. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investinent decision with respect to the Bonds.

THE AUTHORITY The Beaumont Financing Authority (the "Authority") is a joint exercise of powers authority organized and existing under and by virtue of the Joint Exercise of Powers Act, constituting Articles I through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title I of the Government Code of the State of California (the "Joint Powers Act"). The City of Beaumont (the "City"), pursuant to Resolution No. 1993-20 adopted on April 12, 1993, and the Beaumont Redevelopment Agency (the "Agency"), pursuant to Resolution No. BRA 93-0 I adopted on April 12, 1993, formed the Authority by the execution of a joint exercise of powers agreement (the "Joint Powers Agreement") (see "THE AUTHORITY" herein). Pursuant to the Joint Powers Act, the Authority is authorized, among other things, to issue revenue bonds to provide funds to acquire local obligations issued to finance or refinance public capital improvements, such revenue bonds to be repaid from the repayment of the local obligations so acquired by the Authority.

On the delivery date of the Bonds, the Authority will acquire the City of Beaumont Community Facilities District No. 93-1, Improvement Area No. SC, Special Tax Bonds, 2007 Series A (the "District Bonds") to be issued by the City of Beaumont Community Facilities District No. 93-1 (the "District"), as described herein, for Improvement Area No. SC ("Improvement Area No. SC"), secured and payable only from Special Taxes levied within Improvement Area No. SC (see "SELECTED FACTS" and "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE" herein).

The Authority has issued other series of bonds. Each series is separately secured under the terms of the supplemental indenture for such other series of bonds. The Authority is not authorized to issue any additional bonds under the Indenture (as defined herein) secured by repayment of the District Bonds except for refunding purposes (see "THE BONDS - ADDITIONAL OBLIGATIONS" and "THE AUTHORITY" herein). However, the District is authorized to issue additional bonds (the "Parity Bonds") secured by the Special Taxes (as defined herein) on a parity with the District Bonds, and the Authority will issue bonds to acquire the Parity Bonds of the District. When and if issued, the Bonds and the new Authority bonds would be secured by separate bonds of the District which in turn will be secured by the same Special Taxes on a parity with each other (see "THE BONDS - ADDITIONAL OBLIGATIONS - The District Bonds -Parity Bonds" herein).

I

THE DISTRICT

The Mello-Roos Community Facilities Act of 1982, as amended, constituting Section 53311 et seq. of the Government Code of the State of California (the "Act"), was enacted by the California Legislature to provide an alternative method of financing certain public facilities, improvements and services. The Act authorizes local governmental entities to establish community facilities districts as legally constituted governmental entities within defined boundaries, with the legislative body of the local applicable governmental entity acting on behalf of such district. Subject to approval by at least a two-thirds vote of the votes cast by qualified electors within such district and compliance with the provisions of the Act, the legislative body may issue bonds for such community facilities district established by it and may levy and collect a special tax within such district to repay such bonds (see "SELECTED FACTS" and "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE" herein).

On June 29, 1993, the City formed the District by the adoption of Resolution No. 1993-06 as part of a master program to finance public improvements within the City. The District at that time consisted of 13 improvement areas ( each an "Improvement Area" and collectively, the "Improvement Areas"). The City has periodically annexed additional Improvement Areas to the District (see "Map of Improvement Areas" on the next page). Each Improvement Area has a separate rate and method of apportionment approved by the qualified electors within such Improvement Area. The qualified electors within each Improvement Area voted in favor of the incurrence of bonded indebtedness and each Improvement Area has a separate bond authorization.

IMPROVEMENT AREA NO. 8C

hnprovementArea No. SC Formation

Improvement Area No. SC was designated by the adoption of Resolution No. 2006-31 on June 6, 2006. On May 1, 2007, the City, pursuant to Resolution No. 2007-25, approved certain amendments to Improvement Area No. SC and the rate and method of apportionment of special taxes (the "Amended and Restated Rate and Method of Apportionment"). On May 1, 2007, the qualified electors within Improvement Area No. SC approved the tax levy of special taxes in accordance with the Amended and Restated Rate and Method of Apportionment and approved issuance of bonds by the District (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE" herein and "APPENDIX E -AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT").

There are two types of special taxes that are levied under the Amended and Restated Rate and Method of Apportionment. The first is the Special Tax for Services ( as such term is defined in the Amended and Restated Rate and Method of Apportionment) which is set at the amount of $265.90 per dwelling unit, increasing by changes in the Consumer Price Index. The second is the Special Tax for Facilities (as defined in the Amended and Restated Rate and Method of Apportionment) which is described herein and is to be used to pay debt service on the District Bonds, Administrative Expenses, and replenishment of the Reserve Fund (if necessary). As used in this Official Statement, the terms "Special Tax," "Special Taxes," "Special Tax for Facilities," and "Special Taxes for Facilities" shall refer exclusively to the Special Tax for Facilities, and all references to the Special Tax Requirement, the Special Tax rates, the Maximum Special Taxes, and the apportionment of the Special Tax shall be a reference to the Special Tax for Facilities only.

The amended bond authorization amount for Improvement Area No. SC approved by the qualified electors on May 1, 2007 is $30,000,000. After issuance of the District Bonds, the District expects to issue one or more additional series of bonds secured by Special Taxes levied in Improvement Area No. SC to finance additional facilities authorized to be financed by the District with respect to Improvement Area No. SC as described herein ( see "THE BONDS -ADDITIONAL OBLIGATIONS - The District Bonds" herein).

2

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hnprovementArea No. SC Location

Improvement Area No. SC is generally located in the western section of the master-planned community of Sundance ("Sundance") and is located westerly of Highland Springs Avenue and north of 8th Street in the City. Improvement Area No. SC consists of approximately 96.57 taxable acres (see "Map of Sundance Residential Community" above).

The master-planned community of Sundance comprises approximately 1,050 acres and at build out is expected to contain approximately 4,716 residential units. To date, approximately 1,400 homes have been built in the Sundance community.

hnprovementArea No. SC Master Developer and Merchant Builder

Pardee Homes ("Pardee Homes" or 'Master Developer") originally owned, and is the master developer of, all of the net assessable acreage of the land within Sundance including Improvement Area No. SC. Pardee Homes is a wholly-owned subsidiary of Weyerhaeuser Real Estate Company. With the exception of Tract Map No. 31468-8, which has been sold to and will be developed by KB HOME Coastal Inc., a California corporation ("KB HOME Coastal"), Pardee Homes plans to build single family residential homes on all the lots in Improvement Area No. SC (see "BONDOWNERS RISKS - THE DISTRICT BONDS -Risk Factors Relating to the Levying and Collection of the Special Taxes - Concentration of Ownership" herein). Pardee Homes and KB HOME Coastal are collectively referred to herein as the "Merchant Builders."

hnprovementArea No. SC Planned Development

The property within Improvement Area No. SC has been divided into six final maps identified as Tract Map Nos. 31468-5 through 31468-8, Tract Map No. 34291 and Tract Map No. 34290. With the exception of Tract Map 34290, which is expected to be recorded by the end of 2007, all the tract maps have been recorded.

Each tract map consists of one planning area ( each a "Planning Area"). Pardee Homes is responsible for the development of the property identified as: Planning Area 18 (Tract No. 31468-5); Planning Area 19 (Tract No. 31468-6); Planning Area 20 (Tract No. 34290); Planning Area 22 (Tract No. 31468-7) and Planning Area 24 (Tract No. 34291). KB HOME Coastal is responsible for the development of the property identified as Planning Area 23 (Tract No. 31468-8). The expected development of the property in Improvement Area No. SC is summarized below.

Planning Area Tract No. Merchant Builder No. of Lots

18 31468-5 Pardee Homes 110


20 34290 Pardee Homes 23


23 31468-8 KB HOME Coastal 155

24 34291 Pardee Homes llQ

Total 689

5

hnprovementArea No. SC Status of Development

With the exception of Planning Area 20, all the land within Improvement Area No. SC is under some level of development. Planning Area 20 has been graded but no other development is currently under way. As of October I, 2007, all of the 689 lots within Improvement Area No. SC were at least in blue top condition.

The table below summarizes the status of the construction and sale of homes in each of the Planning Areas as of October I, 2007.

Homes Completed Homes Sold Homes with Closed

Production Units (including but Escrows Escrows (including Planning Area Total Lots Under Construction models) not closed models)

18 110 10 20 9 12

19 159 0 29 13 7

20 23 0 0 0 0

22 132 0 4 (I) 0 4 (I)

23 155 8 60 8 43

24 llQ 1 72 21 46

Totals 689 25 185 51 112

(I) These are model homes being used for marketing homes in Planning Area 19.

Note: The 7 model homes for the Pardee Homes Planning Areas are owned by Dubose Model Home Investments: the 4 model homes for the KB HOME Coastal Planning Area are owned by KB HOME Coastal.

Source: Pardee Homes as to Planning Areas 18, 19, 20, 22 and 24. KB HOME Coastal as to Planning Area 23.

As is common with sales at this stage of development, the sales are subject to a number of contingencies and Pardee Homes and KB HOME Coastal can provide no assurance that the current sales will result in closed escrows. See "IMPROVEMENT AREA NO. SC" herein for a description of development within Improvement Area No. SC. See also "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" and "IMPROVEMENT AREA NO. SC-SALES HISTORY" herein.

SECURITY AND SOURCES OF REPAYMENT

The Bonds

The Bonds are secured under an Indenture of Trust, dated as of January 15, 1994 (the "Original Indenture"), as previously amended, and a Seventeenth Supplemental Indenture of Trust, dated as of November I, 2007 (the "Supplemental Indenture"), both between the Authority and Union Bank of California, N.A., Los Angeles, California (successor to the previous trustee), as trustee (the "Trustee") (see "APPENDIX B - SUMMARY OF THE LEGAL DOCUMENTS" herein). The Original Indenture, as

6

heretofore amended and supplemented and as supplemented by the Supplemental Indenture, is referred to herein as the ''Indenture."

The Bonds are special obligations of the Authority payable solely from and secured by the proceeds of:

(i) Payment of the District Bonds to be acquired by the Authority with the proceeds of the Bonds;

(ii) The Reserve Fund (as defmed in the Indenture) established with the proceeds of the Bonds and held pursuant to the Indenture;

(iii) Any investment earnings with respect to such moneys except to the extent transferred to or held in the Residual Fund; and

(iv) Any monies that may be available from the Cash Flow Management Fund established and held pursuant to the Supplemental Indenture

( collectively, the "Revenues").

In addition, the Bonds may be payable from any available surplus revenues with respect to other series of local agency revenue bonds issued pursuant to the Indenture to the extent such surplus revenues are available to replenish the Reserve Fund to its requirement and at the election of the Authority to replenish the Cash Flow Management Fund to its requirement (see "SOURCES OF PAYMENT FOR THE BONDS" and "BONDOWNERS' RISKS" herein).

On the date of delivery, the Authority will deliver to the Trustee a Cash Flow Certificate ( as def med in the Indenture) demonstrating that there will be sufficient Revenues, assuming timely receipt from the scheduled repayment of the District Bonds ( with no allowance for delinquencies) and the sources described above to pay debt service on the Bonds (see "BONDOWNERS' RISKS" herein).

The Bonds are special obligations of the Authority. The Bonds do not constitute a debt or liability of the City, State of California (the "State") or of any political subdivision thereof, other than the Authority. The Authority shall only be obligated to pay the principal of the Bonds, or the interest thereon, from the funds described herein, and neither the faith and credit nor the taxing power of the District (except to the limited extent described herein), the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. The Authority has no taxing power.

The District Bonds

The District Bonds are secured under the Original District Indenture, dated as of January 15, 1994 (the "Original District Indenture"), and a Nineteenth Supplemental Indenture between the District and Union Bank of California, N.A., Los Angeles, California, as district trustee (the "District Trustee"), dated as of November 1, 2007 (the "Supplemental District Indenture") ( collectively, the Original District Indenture as heretofore amended and supplemented, and as further supplemented by the Supplemental District Indenture is referred to herein as the "District Indenture") ( see "APPENDIX B - SUMMARY OF THE LEGAL DOCUMENTS" herein). The District has covenanted in the District Indenture to levy in each Fiscal Year the Special Taxes on parcels of land within Improvement Area No. SC pledged to the repayment of the District Bonds ( and any Parity Bonds) in an amount sufficient to pay Annual Debt Service on the District Bonds, including an allowance for delinquencies, and the administrative expenses related to Improvement Area No. SC, subject to the limitation on the Maximum Annual Special Tax that may be levied on such land within Improvement Area No. SC (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE" for a description of the Special Tax within Improvement Area No. SC) (see "SOURCES OF PAYMENT FOR THE BONDS" and "BONDOWNERS' RISKS" herein).

7

The District Bonds are special obligations of the District. The District Bonds do not constitnte a debt or liability of the City, the State or of any political snbdivision thereof, other than the District. The District shall only be obligated to pay the principal of the District Bonds, or the interest thereon, from the fnnds described herein, and neither the faith and credit nor the taxing power of the City, the State or any of its political snbdivisions is pledged to the payment of the principal of or the interest on the District Bonds. The District does not have any ad valorem taxing power (see "SOURCES OF PAYMENT FOR THE BONDS" and "BONDOWNERS' RISKS" herein).

PURPOSE

The Bonds

A portion of the proceeds from the Bonds will be used to acquire the District Bonds on the date of delivery of the Bonds. In addition, Bond proceeds will be used to make a deposit to the Reserve Fund and to pay the expenses of the Authority and the District in connection with the issuance of the Bonds and the District Bonds. The amount of Bond proceeds deposited into the Reserve Fund will be in an amount equal to $581,875 (see "ESTIMATED SOURCES AND USES OF FUNDS" and "SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE BONDS" herein).

The District Bonds

The District Bonds are being issued to provide the District with funds to finance public infrastructure related to Improvement Area No. SC (see "IMPROVEMENT AREA NO. 8C - FACILITIES AND FEES ELIGIBLE TO BE FINANCED BY THE DISTRICT" herein), to fund interest on the District Bonds to and including March 1, 2008, and to pay the expenses of the District in connection with the issuance of the District Bonds (see "ESTIMATED SOURCES AND USES OF FUNDS" herein).

THE BONDS

Redemption

The Bonds are subject to optional redemption prior to maturity, in whole or in part, on a pro rata basis and by lot within a maturity, on September 1, 2008, and on any date thereafter at a redemption price equal to the principal amount thereof, plus accrued interest to the date of redemption, plus a premium, as described herein (see "THE BONDS - REDEMPTION - Optional Redemption" herein).

The Bonds are subject to special mandatory redemption, in whole or in part, on a pro rata basis and by lot within a maturity, on any date on or after March 1, 2008 from redemption of District Bonds from amounts constituting prepayments of Special Taxes, any amounts transferred pursuant to the Authority Indenture for the redemption of District Bonds, and amounts transferred from the Residual Fund under the District Indenture for the redemption of District Bonds at a redemption price equal to the principal amount thereof, plus accrued interest to the date of redemption, plus a premium, as described herein (see "THE BONDS - REDEMPTION - Special Mandatory Redemption" herein).

The Bonds maturing September 1, 2038, are subject to mandatory sinking payment redemption, without premium, prior to their maturity date, in part by lot on September 1 in each year commencing September 1, 2021, from Sinking Account payments under the Indenture (see "THE BONDS - REDEMPTION -Mandatory Sinking Payment Redemption" herein).

The Bonds are subject to mandatory redemption, in whole or in part, on a pro rata basis and by lot within a maturity, on any date without premium from insurance, condemnation proceeds or unused proceeds (see "THE BONDS - REDEMPTION -Mandatory Redemption" herein).

8

Denominations

The Bonds will be issued in the minimum denomination of $5,000 each or any integral multiple thereof (see "THE BONDS - GENERAL PROVISIONS" herein).

Registration, Transfer and Exchange

The Bonds will be issued in fully-registered form without coupons. Any Bond may, in accordance with its terms, be transferred or exchanged, pursuant to the provisions of the Indenture ( see "THE BONDS -GENERAL PROVISIONS - Transfer or Exchange of Bonds" herein). When delivered, the Bonds will be registered in the name of The Depository Trust Company, New York, New York ("DTC"), or its nominee. DTC will act as securities depository for the Bonds. Individual purchases of Bonds will be made in bookentry form only in the principal amount of $5,000 each or any integral thereof. Purchasers of the Bonds will not receive certificates representing their Bonds purchased (see "APPENDIX H - BOOK-ENTRY SYSTEM" herein).

Payment

Principal of the Bonds and any premium upon redemption will be payable in each of the years and in the amounts set forth on the cover page hereof upon surrender at the corporate trust office of the Trustee in Los Angeles, California. Interest on the Bonds will be paid by check of the Trustee mailed by first class mail on the Interest Payment Date to the person entitled thereto ( except as otherwise described herein for interest paid to an account in the continental United States of America by wire transfer as requested in writing no later than the applicable Record Date by owners of $1,000,000 or more in aggregate principal amount of Bonds) (see "THE BONDS- GENERAL PROVISIONS" herein). Initially, interest on and principal and premium, if any, of the Bonds will be payable when due by wire of the Trustee to DTC which will in tum remit such interest, principal and premium, if any, to DTC Participants (as defined herein), which will in tum remit such interest, principal and premium, if any, to Beneficial Owners (as defmed herein) of the Bonds (see "APPENDIX H - BOOK-ENTRY SYSTEM" herein).

Notice

Notice of any redemption will be mailed by first class mail by the Trustee at least thirty (30) but no more than sixty (60) days prior to the date fixed for redemption to the registered owners of any Bonds designated for redemption and to the Securities Depositories and Information Services provided in the Indenture. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest on the redemption date (see "THE BONDS - REDEMPTION - Notice of Redemption" herein).

LEGAL MATTERS

The legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of Mcfarlin & Anderson LLP, Lake Forest, California, as Bond Counsel. Such opinion, and certain tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax treatment of interest, are described more fully under the heading "LEGAL MATTERS" herein. Certain legal matters will be passed on for the Authority and the City by Aklufi & Wysocki, Riverside, California, as Authority Counsel and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel. Certain legal matters will be passed on for the Underwriter by the Law Offices of Robert F. Messinger, Irvine, California, Underwriter's Counsel and for KB HOME Coastal by Goodwin Procter LLP, Los Angeles, California.

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PROFESSIONAL SERVICES

Union Bank of California, N.A., Los Angeles, California, will serve as Trustee under the Indenture. The Trustee will act on behalf of the Bondowners ( as defined in the Indenture) for the purpose of receiving all moneys required to be paid to the Trustee, to allocate, use and apply the same, to hold, receive and disburse the Revenues and other funds held under the Indenture, and otherwise to hold all the offices and perform all the functions and duties provided in the Indenture to be held and performed by the Trustee.

General Government Management Services, Rancho Mirage, California, Special Tax Consultant, prepared the cash flow certificate for Improvement Area No. SC demonstrating that there will be sufficient Special Taxes, assuming timely receipt and no delinquencies, to pay debt service on the District Bonds (see "CONCLUDING INFORMATION - EXPERTS" herein).

Rod Gunn Associates, Inc., Huntington Beach, California, Financing Consultant, advised the Authority as to the financial structure and certain other financial matters relating to the Bonds.

Fees payable to Bond Counsel, Disclosure Counsel, Underwriter's Counsel, Special Tax Consultant and the Financing Consultant are contingent upon the sale and delivery of the Bonds.

OFFERING OF THE BONDS

Authority for Issuance

The Bonds are issued in accordance with the laws of the State, and particularly the Marks-Roos Local Bond Pooling Act of 1985, as amended, constituting Article 4 (commencing with Section 6584), of Chapter 5, Division 7, Title I of the Government Code of the State (the "Bond Law").

The Bonds are one series of revenue bonds being issued by the Authority pursuant to the Indenture. The Indenture authorizes the Authority to issue additional series of revenue bonds from time to time to finance or purchase bonds or other obligations of the City or the Agency. Each such series of Authority bonds will be separately secured under the terms of a supplemental indenture. The District is not authorized to issue additional bonds secured by the Special Taxes levied within Improvement Area No. SC and pledged pursuant to the District Indenture except for refunding purposes (see "THE BONDS - ADDITIONAL OBLIGATIONS" herein).

Offering and Delivery of the Bonds

The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Mcfarlin & Anderson LLP, Lake Forest, California, as Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of DTC on or about December 13, 2007. The Bonds are being sold to Southwest Securities, Inc. (the "Underwriter"), pursuant to a Purchase Contract approved by the Authority by Resolution No. BFA 2007-4, adopted October 2, 2007.

CONTINUING DISCLOSURE

The Authority has determined that, except for information relating to fund balances held by the Trustee with respect to the Bonds, no financial or operating data concerning the Authority is material to any decision to purchase, hold or sell the Bonds and the Authority will not provide any such information. The District has undertaken all responsibilities for any continuing disclosure to Bondowners as described below, and the Authority shall have no liability to the Owners ( as defined in the Indenture) of the Bonds or any other person with respect to such disclosures.

The District, Pardee Homes and KB HOME Coastal have covenanted for the benefit of owners of the Bonds to provide certain financial information, operating data and development information relating to

10

Improvement Area No. SC each year. The District has agreed to make such information available not later than 225 days after the end of the City's Fiscal Year, commencing with Fiscal Year 2007/08, and Pardee Homes and KB HOME Coastal have agreed to make such information available not later than May I of each year, commencing May I, 2008 ( each an "Annual Report" and collectively the "Annual Reports"), and to provide notices of the occurrences of certain enumerated events, if material. The District, Pardee Homes and KB HOME Coastal shall file or cause to be filed the Annual Reports with each Nationally Recognized Municipal Securities Information Repository and with the appropriate State information depository, if any. The notices of material events will be filed by the Dissemination Agent on behalf of the District, with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of information to be contained in the Annual Reports or the notice of material events is summarized in "APPENDIX F - FORMS OF CONTINUING DISCLOSURE AGREEMENTS." These covenants have been made by the District, Pardee Homes and KB HOME Coastal in order to assist the Underwriter in complying with Rule 15c2-12 promulgated by the Securities Exchange Act of 1934, as amended (the "Rule"). Pardee Homes and KB HOME Coastal will be released from their respective obligations under their respective Continuing Disclosure Agreements to provide Annual Reports at such time as the property owned by Pardee Homes or KB HOME Coastal is no longer responsible for payment of20% or more of the Special Taxes in Improvement Area No. SC.

The District filed a report, due November I, 2002, with respect to the 2000 District Bonds on December 21, 2002, and has not otherwise failed to meet its continuing disclosure requirements under the Rule. An officer or representative executing a certificate on behalf of Pardee Homes and KB HOME Coastal will certify that to his or her knowledge, the respective landowner has not previously failed to comply in any material respect with undertakings by it under the Rule to provide periodic continuing disclosure reports or notice of material events in California within the past five years.

Each year until the final maturity of the District Bonds, the District is required to, not later than October 30 of each year, supply the following information to the California Debt and Investment Advisory Commission by mail, postage prepaid:

I. The principal amount of District Bonds outstanding.

2. The balance in any District Bonds reserve fund.

3. The balance in any capitalized interest fund.

4. The number of parcels which are delinquent with respect to their Special Tax payments, the amount that each parcel is delinquent, the length of time that each has been delinquent, and when foreclosure was commenced for each delinquent parcel.

5. The balance in any construction funds.

6. The assessed value of all parcels subject to Special Tax to repay the District Bonds as shown on the most recent equalized roll.

In addition, both the Authority and the District are required to notify the California Debt and Investment Advisory Commission by mail, postage prepaid, within IO days if any of the following events occur:

I. The Authority, the District or its Trustee fails to pay principal and interest due on any scheduled payment date.

2. Funds are withdrawn from any reserve fund to pay principal and interest on the Bonds or the District Bonds.

None of the District, the Authority or the California Debt and Investment Advisory Commission will be liable for any inadvertent error in reporting the required information. The failure by the District to comply with its reporting obligations is not, initially, a default under the District Indenture.

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AVAILABILITY OF LEGAL DOCUMENTS

The summaries and references contained herein with respect to the Original Indenture, the Supplemental Indenture, the Bonds, the District Bonds, the Original District Indenture, the Supplemental District Indenture, and other statutes or documents do not purport to be comprehensive or defmitive and are qualified by reference to each such document or statute, and references to the Bonds and the District Bonds are qualified in their entirety by reference to the forms thereof included in the Indenture and the District Indenture, respectively. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Underwriter, Southwest Securities, Inc., 620 Newport Center Drive, Suite 300, Newport Beach, California 92660, telephone (949) 717-2000. Copies of these documents may be obtained after delivery of the Bonds from the Authority at 550 East Sixth Street, Beaumont, California 92223, telephone (951) 769-8520.

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SELECTED FACTS The following summary does not purport to be complete. Reference is hereby made to the complete Official Statement in this regard. Furthermore, the following summary makes certain assumptions regarding valuation of property within Improvement Area No. 8C. Neither the Authority nor the District makes any representation as to the current value of property in Improvement Area No. 8C or provides any assurance as to the estimated values of property being achieved (see "BONDOWNERS' RISKS" herein).

THE BONDS

Principal Amount of Bonds:

Additional Bonds:

First Optional Redemption Date:

First Special Mandatory Redemption Date:

Primary Source of Revenues for Repayment:

Priority:

Debt Service Coverage from Repayment of District Bonds (see "THE AUTHORITY -

DEBT SERVICE COVERAGE ON THE AUTHORITY BONDS" herein):

$6,520,000

Except for refunding purposes, Additional Bonds are not authorized (see "THE BONDS - ADDITIONAL OBLIGATIONS" herein). However, the District is authorized to issue Parity Bonds secured by the Special Taxes in Improvement Area No. SC on a parity with the District Bonds, and the Authority will issue bonds to acquire the additional bonds of the District. When and if issued, the Bonds and the new Authority bonds would be secured by separate bonds of the District which in tum, will be secured by the same Special Taxes on a parity with each other.[

September I, 2008 at 103% of principal amount (see "THE BONDS - REDEMPTION - Optional Redemption" herein).

On any date on or after March I, 2008 from the special mandatory redemption of District Bonds at a premium, as described herein (see "THE BONDS-REDEMPTION -Special Mandatory Redemption" herein).

The Bonds are payable from Revenues received from the payment of the District Bonds and certain other sources (see "SOURCES OF PAYMENT FOR THE BONDS" and "BONDOWNERS' RISKS" herein).

The Bonds are secured by a first pledge of and lien on the Revenues as described herein (see "SOURCES OF PAYMENT FOR THE BONDS" and "BONDOWNERS' RISKS" herein).

100%

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THE DISTRICT BONDS

Aggregate Principal Amount of District Bonds:

Additional District Bonds:

Maximum Bond Authorization for Improvement Area No. SC:

Primary Sources for Repayment of the District Bonds:

Priority:

First Optional Redemption Date:

PROPERTY OWNERS

Number of Property Owners as of October I, 2007 (see "BONDOWNERS RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes- Concentration of Ownership" herein):

$6,520,000

Parity Bonds on a parity with the District Bonds are authorized (see "THE BONDS -ADDITIONAL OBLIGATIONS" herein). The District currently expects to issue Parity Bonds to finance additional facilities related to Improvement Area No. SC.

$30,000,000

Special Taxes levied within Improvement Area No. SC (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE" and "SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE DISTRICT BONDS" herein).

All District Bonds ( and any Parity Bonds issued) are secured by a first pledge of and lien on all real property and Special Taxes levied within Improvement Area No. SC only (see "SOURCES OF PAYMENT FOR THE BONDS" and "BONDOWNERS' RISKS" herein).

September I, 2008 at 103% of principal amount (see "THE BONDS - REDEMPTION" herein).

7 lots - Dubose Model Home Investments (Pardee Homes model homes).

465 lots - Pardee Homes.

112 lots - KB HOME Coastal (see "IMPROVEMENT AREA NO. 8C - THE MASTER DEVELOPER AND MERCHANT BUILDERS" herein).

105 lots - Individual Homeowners (not including model homes)

IMPROVEMENT AREA NO. 8C VALUE-TO-LIEN RATIOS

Appraised Valuation Improvement Area No. 2007:

of Property within SC as of September I,

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$55,700,000 (see "APPENDIX c - APPRAISAL REPORT" herein).

Ratio of Appraised Value to Principal Amount of the District Bonds:

SPECIAL TAXES

Ratio of Assigned Special Taxes in any Fiscal Year to Annual Debt Service on the District Bonds:

Effective Tax Rate:

Special Tax Delinquency Percentage m Improvement Area No. SC:

8.54 to I (see "BONDOWNERS RISKS - THE DISTRICT BONDS - Risk Factors Relating to Land Values" herein).

Approximately 1.10 to I (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE" herein).

Approximately 1.85% to 2.0% (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE - PROPERTY TAXES AND EFFECTIVE TAX RATES" herein).

None (Special Taxes will be levied for first time for 2007/08 Fiscal Year) (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE" herein).

DESCRIPION OF DEVELOPMENT IN IMPROVEMENT AREA NO. 8C

PLANNING AREA 23

Description of Development in Planning Area 23:

Approximate Acreage in Planning Area 23:

Status of Development as of October I, 2007:

Estimated Price Range of Homes:

16

155-lot subdivision known as "Trillium" comprising Tract No. 31468-8.

29.26 Net Acres.

87 finished or near finished lots.

8 lots with production homes under construction.

4 lots with model homes completed ( owned by KB HOME Coastal)

56 lots with production homes completed of which 43 have closed escrow to individual homeowners.

(see "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" and "IMPROVEMENT AREA NO. SC-SALES HISTORY" herein).

$249,990 to $296,990 as of October I, 2007 (see "IMPROVEMENT AREA NO. 8C - HOME PRICING" herein).

Estimated Home Sizes:

Estimated Absorption Period:

PLANNING AREA 24



Status of Development as of October 1, 2007:




1,670 square feet to 2,456 square feet as of October 1, 2007 (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE - SPECIAL TAX PROJECTIONS" herein).

Escrows estimated to close on all 155 homes by -the middle of 2010 (see "APPENDIX D - MARKET ABSORPTION STUDY" and "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" herein).

110 lot subdivision known as "Solaris II" comprising Tract No. 34291.

14.0 Net Acres.

31 finished or near finished lots.

7 lots with production homes under construction.

72 lots with homes completed of which 46 have closed escrow.

(see "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" and "IMPROVEMENT AREA NO. SC-SALES HISTORY" herein).

$295,900 to $325,900 as of October 1, 2007 (see "IMPROVEMENT AREA NO. 8C - HOME PRICING" herein).


Escrows estimated to close on all 110 homes by early 2009 (see "APPENDIX D - MARKET ABSORPTION STUDY" and "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" herein).

17

PLANNING AREA 18







PLANNING AREA 19




18

110 lot subdivision known as "Larkspur" comprising Tract No. 31468-5.

28. 72 Net Acres.

80 fmished or near finished lots.

IO lots with production homes under construction.

3 lots with completed model homes (sold to Dubose Model Home Investments).


(see "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" and "IMPROVEMENT AREA NO. 8C -SALES HISTORY" herein).

$354,900 to $380,900 as of October I, 2007 (see "IMPROVEMENT AREA NO. 8C - HOME PRICING" herein).

2,409 square feet to 2,80 I square feet as of October I, 2007 (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE - SPECIAL TAX PROJECTIONS" herein).

Escrows estimated to close on all 110 homes by the latter part of 2011 (see "APPENDIX D - MARKET ABSORPTION STUDY" and "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" herein).

159 lot subdivision known as "Copperleaf' comprising Tract No. 31468-6.

34.29 Net Acres.

73 blue top lots

57 fmished or near finished lots.

No homes are currently under construction.


(see "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" and "IMPROVEMENT AREA NO. 8C -SALES HISTORY" herein)




PLANNING AREAS 20 AND 22

Description of Development:

Planning Area 20:

Planning Area 22:

Approximate Acreage in Planning Areas 20 and 22:

Status of Development as of October 1, 2007:

$339,900 to $371,990 as of October 1, 2007 (see "IMPROVEMENT AREA NO. 8C - HOME PRICING" herein).


Escrows estimated to close on all 159 homes by the latter part of 2012 (see "APPENDIX D - MARKET ABSORPTION STUDY" and "IMPROVEMENT AREA NO. 8C - ESTIMATED ABSORPTION SCHEDULE" herein).

23 lot subdivision comprising Tract No. 34290.

132 lot subdivision comprising Tract No. 31468-7.

19

Planning Area 20: 5.0 Net Acres.

Planning Area 22: 28.34 Net Acres.

Home construction has not commenced in Planning Areas 20 and 22 although 4 model homes have been built and sold to Dubose Model Home Investments in Planning Area 22 that are being used as model homes for Planning Area 19.

ESTIMATED SOURCES AND USES OF FUNDS THE BONDS

Proceeds from the sale of the Bonds will be used to provide funds to acquire the District Bonds in the aggregate principal amounts indicated below. Under the provisions of the Indenture, the Trustee will receive the proceeds from the sale of the Bonds and will apply them as follows:

Sources of Funds

Principal Amount of the Bonds

Net Original Issue Discount

Underwriter's Discount

Total

Uses of Funds

2007 Bonds, Series E (Improvement Area No. 8C) Program Fund <1J

2007 Bonds, Series E (Improvement Area No. 8C) Expense Fund <2J

2007 Bonds, Series E (Improvement Area No. 8C) Reserve Fund <3J

Total

(1) To be used to acquire the District Bonds.

$6,520,000.00

(5,911.65)

(130,400.00)

$6,383,688.35

$5,621,813.35

180,000.00

581 875.00

$6,383,688.35

(2) Expenses include fees of the Authority, Bond Counsel, the Financing Consultant, Disclosure Counsel, Underwriter's Counsel, the Trustee, costs of printing the Official Statement and other costs of issuance of the Bonds.

(3) Equal to the Reserve Requirement.

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THE DISTRICT BONDS

The District will deposit the proceeds from the District Bonds as follows:

District Bond Proceeds

Sources

Principal Amount of District Bonds

Bond Purchase Discount

Total Available Funds

Uses -Improvement Area No. 8C Construction Fund <1l

Interest Account (Bond Fund)<2l

Costs oflssuance Fund <3J

Administrative Expense Fund <4J

Total

$6,520,000.00

(898,186.65)

$5,621,813.35

$5,096,673.06

286,790.29

213,350.00

25,000.00

$5,621,813.35

(1) See "IMPROVEMENT AREA NO. 8C - FACILITIES AND FEES ELIGIBLE TO BE FINANCED BY THE DISTRICT" herein.

(2) Capitalized Interest through September I, 2008.

(3) Costs of Issuance include fees of Bond Counsel, the Financing Consultant, Disclosure Counsel, Appraiser, Market Consultant, Special Tax Consultant, Project Engineer, the District Trustee and other costs related to the administration of the District and issuance of the District Bonds.

( 4) First year administration expenses and District formation costs.

INVESTMENT OF FUNDS

All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture or to be held by the District Trustee pursuant to the District Indenture, will be invested solely in Permitted Investments, as directed pursuant to the Written Request of the Authority or the District filed with the Trustee or the District Trustee at least two (2) Business Days in advance of the making of such investments. In the absence of any such Written Request, the Trustee will invest any such moneys in money market funds. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. For the purpose of determining the amount in any fund, the value of Permitted Investments credited to such fund will be calculated at the market value thereof ( excluding any accrued interest).

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THE BONDS

AUTHORIZATION

The Bonds

The Bonds are being issued pursuant to the Indenture. The Bonds are being sold to the Underwriter pursuant to, and subject to the terms and conditions of, the Purchase Contract by and among the Underwriter, the Authority and the District (the "Purchase Contract"). The Indenture and the Purchase Contract were approved by the Authority pursuant to Resolution No. BFA2007-04, adopted on October 2, 2007.

The District Bonds

The District Bonds are being issued pursuant to the District Indenture.

The City Council of the City (the "City Council") on behalf of the District, pursuant to a Resolution adopted on October 2, 2007, approved the issuance of the District Bonds and the Purchase Contract for Purchase and Sale of District Bonds selling the District Bonds to the Authority. The Board of Directors of the Authority, pursuant to Resolution No. BFA 2007-4, adopted on October 2, 2007, authorized the Authority to acquire the District Bonds.

GENERAL PROVISIONS

Repayment of the Bonds

Interest is payable on the Bonds at the rates per annum set forth on the cover page hereof. Interest with respect to the Bonds will be computed on the basis of a year consisting of 360 days and twelve 30-day months.

Each Bond will be dated the Date of Delivery, and interest with respect thereto will be payable from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest with respect thereto will be payable from such Interest Payment Date; (b) it is authenticated on or before February 15, 2008, in which event interest with respect thereto will be payable from the Date of Delivery; or (c) interest with respect to any Outstanding Bond is in default, in which event interest with respect thereto will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date.

Interest with respect to the Bonds will be payable by check of the Trustee mailed by first class mail on the applicable Interest Payment Date to the Owners thereof, provided that in the case of an Owner of $1,000,000 or greater in principal amount of Outstanding Bonds, such payment may, at such Owner's option, be made by wire transfer of immediately available funds to an account in the continental United States of America in accordance with written instructions provided prior to the applicable Record Date to the Trustee by such Owner. The Owners of the Bonds shown on the registration books on the Record Date for the Interest Payment Date will be deemed to be the Owners of the Bonds on said Interest Payment Date for the purpose of the paying of interest. Principal of the Bonds and any premium upon early redemption is payable upon presentation and surrender thereof, at the corporate trust office of the Trustee in Los Angeles, California.

Transfer or Exchange of Bonds

Any Bond may, in accordance with its terms, be transferred or exchanged, pursuant to the provisions of the Indenture, upon surrender of such Bond for cancellation at the corporate trust office of the Trustee.

22

Whenever any Bond or Bonds shall be surrendered for transfer or exchange, the Trustee shall authenticate and deliver a new Bond or Bonds for like aggregate principal amount of authorized denominations. The Trustee may require the payment by the Bondowner requesting such transfer or exchange of any tax or other governmental charge required to be paid with respect to such transfer or exchange. The Trustee is not required to transfer or exchange (a) any Bonds or portions thereof during the period established by the Trustee for selection of Bonds for redemption, or (b) any Bonds selected for redemption.

Bonds Mutilated, Lost, Destroyed or Stolen

If any Bond becomes mutilated, the Authority, at the expense of the Bondowner, will execute, and the Trustee will thereupon authenticate and deliver, a new Bond of like series, tenor and authorized denomination in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee will be canceled by it. If any Bond issued under the Indenture is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and the Authority and, if such evidence is satisfactory to them and indenmity satisfactory to them is given, the Authority, at the expense of the Bondowner, will execute, and the Trustee will thereupon authenticate and deliver, a new Bond of like series and tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen ( or if any such Bond has matured or has been called for redemption, instead of issuing a substitute Bond, the Trustee may pay the same without surrender thereof upon receipt of indenmity satisfactory to the Trustee). The Authority may require payment by the Bondowner of a sum not exceeding the actual cost of preparing each new Bond issued under the provisions of the Indenture described in this paragraph and of the expenses which may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of the Indenture described in this paragraph in lieu of any Bond alleged to be lost, destroyed or stolen will be equally and proportionately entitled to the benefits of the Indenture with all other Bonds secured by the Indenture.

REDEMPTION

Notwithstanding any provisions in the Indenture to the contrary, upon any optional redemption, special mandatory or mandatory redemption, in part, the Authority shall deliver a Written Certificate ( as defined in the Indenture) to the Trustee at least sixty (60) days prior to the proposed redemption date or such later date as shall be acceptable to the Trustee so stating that the remaining payments of principal and interest on the District Bonds, together with other Revenues to be available, will be sufficient on a timely basis to pay debt service on the Bonds.

The Authority is required, in such Written Certificate, to certify to the Trustee that sufficient moneys for purposes of such redemption are or will be on deposit in the Redemption Fund and is required to deliver such moneys to the Trustee together with other Redemption Revenues, if any, then to be delivered to the Trustee pursuant to the Indenture, which moneys are required to be identified to the Trustee in the Written Certificate delivered with the Redemption Revenues.

Optional Redemption

The Bonds are subject to redemption prior to maturity at the option of the Authority on any date on or after September 1, 2008, as a whole or in part, on a pro rata basis and by lot within a maturity, from any available source of funds at the following redemption prices ( expressed as a percentage of the principal amount of the Bonds to be redeemed) together with accrued interest thereon to the date fixed for redemption as follows:

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Redemption Periods

September 1, 2008 tlnough August 31, 2009 September 1, 2009 tlnough August 31, 2010 September 1, 2010 through August 31, 2011 September 1, 2011 tlnough August 31, 2012 September 1, 2012 tlnough August 31, 2013 September 1, 2013 tlnough August 31, 2014 September 1, 2014 and thereafter

Special Mandatory Redemption

Redemption Prices

103.0% 102.5% 102.0% 101.5% 101.0% 100.5% 100.0%

The Bonds are subject to redemption prior to maturity on any date on or after March 1, 2008, in whole or in part, on a pro rata basis and by lot within a maturity from the redemption of District Bonds from amounts constituting prepayments of Special Taxes, amounts transferred from Improvement Area No. SC Residual Fund and amounts transferred by the Authority to the District from the Residual Fund under the Indenture at the following redemption prices (expressed as a percentage of the principal amount of Bonds to be redeemed), together with accrued interest thereon to the date fixed for redemption.

Redemption Periods

March 1, 2008 tlnough August 31, 2009

September 1, 2009 tlnough August 31, 2010


September 1, 2011 tlnoughAugust31, 2012


September 1, 2013 tlnoughAugust31, 2014

September 1, 2014 and thereafter

Mandatory Sinking Payment Redemption

Redemption Prices

103.0%

102.5%

102.0%

101.5%

101.0%

100.5%

100.0%

The Bonds maturing September 1, 2038, are subject to mandatory redemption, in part by lot, on September 1 in each year commencing September 1, 2021, from mandatory sinking payments made by the Authority pursuant to the Indenture at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption in the aggregate principal amounts and on September 1 in the years as set forth in the following schedule; provided, however, that (i) in lieu of redemption thereof, the Bonds may be purchased by the Authority and tendered to the Trustee, and (ii) if some but not all of the Bonds have been redeemed pursuant to optional redemption, special mandatory or mandatory redemption provisions described herein, the total amount of all future sinking payments will be reduced by the aggregate principal amount of the Bonds so redeemed, to be allocated among such sinking payments on a pro rata basis ( as nearly as practicable) in integral multiples of $5,000 as determined by the Authority.

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SCHEDULE OF MANDATORY SINKING PAYMENT REDEMPTIONS BONDS MATURING SEPTEMBER 1, 2038

September 1 Principal September 1 Principal Year Amonnt Year Amonnt 2021 $135,000 2030 $335,000 2022 155,000 2031 355,000 2023 175,000 2032 380,000 2024 195,000 2033 400,000 2025 220,000 2034 430,000 2026 245,000 2035 455,000 2027 270,000 2036 485,000 2028 295,000 2037 515,000 2029 315,000 2038 545,000 (maturity)

Mandatory Redemption

The Bonds are subject to special mandatory redemption on any date to which timely notice of redemption may be given, in integral multiples of $5,000 equal to the principal amount of District Bonds redeemed with unused proceeds of the District Bonds after completion or abandonment of the improvements to be financed with such proceeds, from the deposit of fees with the District by a public agency which has accepted facilities serving an area of Improvement Area No. SC, and from insurance or condemnation proceeds or other mandatory redemption, without premium, plus accrued interest to the redemption date, all as determined by the Authority.

Notice of Redemption

When redemption is authorized or required, the Trustee is required to give written notice of the redemption of Bonds to the Bondowners designated for redemption at their addresses appearing on the bond registration books, to certain Securities Depositories, and to one or more Information Services, all as provided in the Indenture, by first class mail, postage prepaid, no less than thirty (30), nor more than sixty (60), days prior to the date fixed for redemption. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest on the redemption date.

Effect of Redemption

The rights of a Bondowner to receive interest will terminate on the date, if any, on which the Bond is to be redeemed pursuant to a call for redemption. The Indenture contains no provisions requiring any publication of notice of redemption, and Bondowners must maintain a current address on file with the Trustee to receive any notices of redemption.

Partial Redemption

In the event only a portion of any Bond is called for redemption, then upon surrender of such Bond the Authority will execute and the Trustee will authenticate and deliver to the Bondowner thereof, at the expense of the Authority, a new Bond or Bonds of the same series and maturity date, of authorized denominations in an aggregate principal amount equal to the unredeemed portion of the Bond to be redeemed.

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ADDITIONAL OBLIGATIONS

The Bonds

The Bonds are part of an overall program for the financing of public capital improvements. The Authority, by the adoption of Resolution No. BFA 1993-04 on September 27, 1993, approved the Indenture which authorizes the issuance of revenue bonds to be issued in series, from time to time. The Seventeenth Supplemental Indenture is the Supplemental Indenture providing for the issuance of the Bonds. Each series of the bonds, including the Bonds, are separately secured by the local obligations acquired, in whole or in part, with the proceeds of such series and the funds and accounts established with respect to such series of the bonds. Only revenues which are surplus revenues (and which would otherwise be retained by the Authority free and clear of the pledge and lien securing repayment of a series of bonds) are pledged by the Authority to meet any deficiency in a reserve fund established for any other series of the bonds. No other revenues or other moneys derived with respect to a series of the bonds are available for payment of another series of the bonds.

Except for refunding purposes, additional Bonds secured by the Revenues are not authorized. However, the District is authorized to issue Parity Bonds secured by the Special Taxes in Improvement Area No. SC on a parity with the District Bonds, and the Authority will issue bonds to acquire the additional bonds of the District. When and if issued, the Bonds and the new Authority bonds would be secured by separate bonds of the District which in turn, will be secured by the same Special Taxes on a parity with each other.

The District Bonds

The qualified electors within Improvement Area No. SC authorized bonded indebtedness in the amount of $30,000,000. Pursuant to the provisions of the District Indenture, the District is authorized to issue Parity Bonds for Improvement Area No. SC and currently expects to issue one or more series of Parity Bonds to fmance facilities pursuant to the provisions below (see "IMPROVEMENT AREA NO. 8C - FACILITIES AND FEES ELIGIBLE TO BE FINANCED BY THE DISTRICT" herein).

Parity Bonds. The District covenants that any Parity Bonds which shall be issued or incurred which are payable out of the Net Taxes of the Improvement Area No. SC in whole or in part shall be issued in accordance with the following:

(a) The amount of such Parity Bonds shall not, together with all other District Bonds and Parity Bonds then Outstanding with respect to the Improvement Area No. SC, exceed the total amount of District Bonds authorized to be issued by the District with respect to Improvement Area No. SC;

(b) The District shall be in compliance with all covenants set forth in the District Indenture and a certificate of the District to that effect shall have been filed with the City Clerk on behalf of the District; provided, however, that Parity Bonds may be issued notwithstanding that the District is not in compliance with all such covenants so long as immediately following the issuance of such Parity Bonds for Improvement Area No. SC the District will be in compliance with all such covenants; and

( c) The District shall have received the following documents, all of such documents dated or certified, as the case may be, as of the date of delivery of such Parity Bonds by the District Trustee (unless the District Trustee shall accept any of such documents bearing a prior date):

(1) An opinion of Bond Counsel and/or counsel to the City to the effect that (a) the District has the right and power under the Act to execute and deliver the Supplemental District Indenture relating to such Parity Bonds, and such Supplemental District Indenture has been duly and lawfully adopted, executed and delivered by the District, is in full force and effect and is valid and binding upon the District and enforceable in accordance with its terms ( except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors' rights); (b) the District Indenture creates the valid pledge which it purports to create of the Net Taxes of Improvement Area No. SC, as provided in the District Indenture, subject to the application thereof to the purposes and

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on the conditions permitted by the District Indenture; and ( c) such Parity Bonds are valid and binding limited obligations of the District, enforceable in accordance with their terms ( except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement or creditors' rights) and the terms of the District Indenture and all Supplemental District Indentures thereto and entitled to the benefits of the District Indenture and all such Supplemental District Indentures, and such Parity Bonds have been duly and validly authorized and issued in accordance with the Act ( or other applicable laws) and the District Indenture and all such Supplemental District Indentures and further opinion of Bond Counsel to the effect that, assuming compliance by the District with certain tax covenants, the issuance of the Parity Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on any Outstanding District Bonds and Parity Bonds theretofore issued or the exemption from State of California personal income taxation of interest on any Outstanding District Bonds and Parity Bonds theretofore issued; and

(2) A certificate of an Independent Financial Consultant certifying as of the closing date that (a) the ratio of the value (assessed or appraised, or some combination thereof) of the property included within Improvement Area No. SC within the District to the amount of lien which will be on the property after the issuance of the Parity Bonds, including the amount of any assessment bonds or bonds issued under the Act, is not less than 3:1 and (b) the total Net Tax revenues which could be generated by the District within Improvement Area No. SC by the levy of the Special Tax at the Assigned Special Tax (pursuant to the Act and the applicable resolutions of the District) on all then taxable property in any Fiscal Year, is at least I. 10 times Maximum Annual Debt Service on all Outstanding District Bonds relating to Improvement Area No. SC (including Parity Bonds previously issued and the Parity Bonds proposed to be issued).

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SCHEDULED DEBT SERVICE ON THE BONDS

The following is the scheduled debt service (including mandatory sinking fund redemptions) on the Bonds.

Interest Paiment Date Principal Interest Annual Debt Service March 1, 2008 $86,704.04 September 1, 2008 200,086.25 $286,790.29 March 1, 2009 200,086.25

September 1, 2009 200,086.25 400,172.50 March 1, 2010 200,086.25 September 1, 2010 $5,000 200,086.25 405,172.50

March 1, 2011 199,967.50 September 1, 2011 15,000 199,967.50 414,935.00 March 1, 2012 199,611.25

September 1, 2012 20,000 199,611.25 419,222.50 March 1, 2013 199,136.25 September 1, 2013 30,000 199,136.25 428,272.50











March 1, 2029 131,718.75 September 1, 2029 315,000 131,718.75 578,437.50

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Scheduled Debt Service On the Bonds (Continued)

Interest Pa:yment Date Princi~al Interest Annual Debt Service March 1, 2030 $121,875.00 September 1, 2030 $335,000 121,875.00 $578,750.00 March 1, 2031 111,406.25 September 1, 2031 355,000 111,406.25 577,812.50





March 1, 2038 17,031.25 September 1, 2038 545,000 17,031.25 579,062.50

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SCHEDULED DEBT SERVICE ON THE DISTRICT BONDS The following is the scheduled debt service on the District Bonds.

Interest Paiment Date Principal Interest Annual Debt Service March 1, 2008 $86,704.04 September 1, 2008 200,086.25 $286,790.29 March 1, 2009 200,086.25

September 1, 2009 200,086.25 400,172.50 March 1, 2010 200,086.25 September 1, 2010 $5,000 200,086.25 405,172.50













March 1, 2029 131,718.75 September 1, 2029 315,000 131,718.75 578,437.50

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Scheduled Debt Service on the District Bonds (Continued)

Interest Paiment Date Principal Interest Annual Debt Service March 1, 2030 $121,875.00 September 1, 2030 $335,000 121,875.00 $578,750.00






September 1, 2038 545,000 17,031.25 579,062.50

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SOURCES OF PAYMENT FOR THE BONDS

REPAYMENT OF THE BONDS

General

The Bonds are payable solely from and secured by payment of the District Bonds, the Cash Flow Management Fund, the Reserve Fund held pursuant to the Indenture and certain investment earnings on the funds and accounts held under the Indenture and under certain circumstances (for purposes of replenishing any deficiency in the Reserve Fund and at the election of the Authority to replenish the Cash Flow Management Fund to its requirement) by any available surplus revenues with respect to other series of bonds issued pursuant to the Indenture.

The Bonds are special obligations of the Authority. The Bonds shall not be deemed to constitute a debt or liability of the State or of any political subdivision thereof, other than the Authority. The Authority shall only be obligated to pay the principal of the Bonds and the interest thereon from the funds described herein, and neither the faith and credit nor the taxing power of the City or the District, except to the limited extent described herein, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. The Authority has no taxing power.

Application of Revenues; Flow of Funds

Revenue Fund. The Trustee will deposit all Revenues with respect to the Bonds, when received from the District Trustee for the District Bonds, into the Revenue Fund. The Trustee, from time to time pursuant to a Written Certificate of the Authority, will transfer to the Expense Fund an amount, together with any other available amounts in the Expense Fund, necessary to pay Program Expenses due prior to the next succeeding Interest Payment Date. At least five ( 5) Business Days prior to each Interest Payment Date, the Trustee will transfer from the Revenue Fund for deposit into the Bond Fund which consists of the following accounts, the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

(i) The Trustee will deposit into the Interest Account an amount which, together with the amount then on deposit therein, including amounts, if any, transferred by the Trustee from the Reserve Fund, is sufficient to cause the aggregate amount on deposit in the Interest Account to equal the amount then required to make any payment of interest on the Bonds.

(ii) The Trustee will deposit into the Principal Account an amount which, together with the amount then on deposit therein, including amounts, if any, transferred by the Trustee from the Reserve Fund, is sufficient to cause the aggregate amount on deposit in the Principal Account to equal the amount of principal or mandatory sinking account payment coming due and payable on such Interest Payment Date on the Outstanding Bonds upon the stated maturity or redemption thereof.

(iii) The Trustee will deposit into the Reserve Fund an amount, if any, sufficient to restore the amount on deposit in the Reserve Fund to the Reserve Requirement.

Reserve Fund. In order to secure further the timely payment of principal of and interest on the Bonds, the Authority is required, upon delivery of the Bonds, to deposit in the Reserve Fund for the Bonds an amount equal to the Reserve Requirement. The Reserve Requirement means with respect to the Bonds the least of (i) 10% of the stated principal amount (within the meaning of Section 148 of the Internal Revenue Code of 1986 (the "Code")) of the Bonds, (ii) maximum annual debt service on the Outstanding Bonds or (iii) 125% of the average annual debt service on the Outstanding Bonds.

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The amount of Bond proceeds deposited into the Reserve Fund will be in an amount equal to $581,875 (see "ESTIMATED SOURCES AND USES OF FUNDS"). Thereafter, the Authority is required to deposit from the repayment of the District Bonds and, to the extent necessary, from available surplus revenues with respect to other series of bonds issued pursuant to the Indenture and maintain an amount of money equal to the Reserve Requirement in the Reserve Fund at all times while the Bonds are Outstanding. Amounts in the Reserve Fund will be used to pay debt service on the Bonds to the extent other moneys are not available therefor. Amounts in the Reserve Fund in excess of the Reserve Requirement will be deposited into the Interest Account if not allocated to a reserve fund which is not at the applicable reserve requirement. Amounts in the Reserve Fund may be used to pay the fmal year's debt service on the Bonds. Upon mandatory redemption, amounts on deposit in the Reserve Fund shall be reduced (to an amount not less than the Reserve Requirement) and excess money shall be transferred to the Redemption Account and used for the redemption of Bonds.

Surplus. All remaining amounts on September 2 ( or the next Business Day to the extent September 2 is not a Business Day) of each year commencing September 2, 2008, on deposit in the Revenue Fund shall be transferred to the Residual Fund.

Residual Fund

On September 2 of each year ( or the next business day to the extent September 2 is not a business day) commencing September 2, 2008, the Trustee shall transfer any amounts remaining in the Revenue Fund to the Residual Fund. Revenues, if any, deposited into the Residual Fund shall be applied for the following purposes in the following order of priority:

(i) The Trustee will transfer into the Cash Flow Management Fund an amount, if any, required to restore the amount on deposit in the Cash Flow Management Fund to the Cash Flow Management Requirement.

(ii) The Trustee shall transfer, at the written direction of the Authority to the trustee of any other series of local agency revenue bonds issued pursuant to the Indenture an amount required to replenish any Reserve Fund to its requirement with respect to such series of bonds and at the election of the Authority an amount to replenish any cash flow management fund to its requirement with respect to such series of bonds.

(iii) The Trustee shall transfer all remaining amounts to the District Trustee for the District Bonds for deposit in the District Special Mandatory Redemption Account of the Redemption Fund for the redemption of District Bonds unless the Trustee has received written direction from the Authority to expend such remaining funds held in the Residual Fund for any lawful purposes of the Authority including, but not limited to, paying or reimbursing the payment of the costs and expenses incurred by the City or the Authority in administering the Bonds and the District Bonds, paying costs of public capital improvements or reducing the Special Taxes which are to be levied in the current or the succeeding Fiscal Year upon the properties which are subject to the Special Tax within Improvement Area No. SC.

Amounts in the Residual Fund are not pledged as security for the Bonds.

Cash Flow Management Fund

The Cash Flow Management Fund Requirement is 15% of maximum annual aggregate debt service on the Bonds. There will not be an initial deposit of Bond proceeds into the Cash Flow Management Fund. The Cash Flow Management Fund will be funded from surplus Revenues transferred from the Residual Fund and under certain circumstances and at the election of the Authority by any available surplus revenues with respect to other series of local agency revenue bonds issued pursuant to the Indenture. Amounts in the Cash Flow Management Fund will be used, prior to any draw on the Reserve Fund, to pay debt

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service on the Bonds to the extent Revenues are insufficient for such purpose. Amounts, if any, in the Cash Flow Management Fund in excess of the Cash Flow Management Fund Requirement will be transferred on September 2 of each year to the Residual Fund.

Redemption Fund

The Trustee will establish as a separate fund to be called, the "Redemption Fund," to the credit of which the Authority shall deposit, immediately upon receipt, all Redemption Revenues. Moneys in the Redemption Fund shall be held in trust by the Trustee for the benefit of the Authority and the Owners of the Bonds, and shall be used to redeem Bonds ( except for mandatory sinking fund redemption) pursuant to the Indenture.

REPAYMENT OF THE DISTRICT BONDS

General

The principal of, premium, if any, and the interest on the District Bonds ( and any Parity Bonds issued), and the Administrative Expenses of the District related to Improvement Area No. SC, are payable from the Special Taxes collected on real property within Improvement Area No. SC and funds including any amounts available in the Rate Stabilization Fund ( as defined in the District Indenture), held by the District Trustee and available for such purposes pursuant to the District Indenture.

The District Bonds are limited obligations of the District payable from the proceeds of Special Taxes levied on certain parcels within Improvement Area No. 8C. The District Bonds shall not be deemed to constitute a debt or liability of the State or of any political subdivision thereof, other than the District. Neither the faith and credit nor the taxing power of the City, the District, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the District Bonds except for the limited extent provided herein.

Special Taxes

The Special Taxes are excepted from the tax rate limitation of California Constitution Article XIIIA pursuant to Section 4 thereof as a "special tax" authorized by at least a two-thirds vote of the qualified electors as set forth in the Act. Consequently, the City Council of the City on behalf of the District has the power and is obligated by the District Indenture to cause the levy and collection of the Special Taxes.

The District has covenanted in the District Indenture to levy (subject to the Maximum Special Tax for Improvement Area No. SC) in each Fiscal Year the Special Taxes within Improvement Area No. SC in an amount sufficient to pay the debt service on the District Bonds ( and any Parity Bonds issued) and the cost of providing certain Administrative Expenses of the District related to Improvement Area No. SC and the Authority.

The Special Taxes are to be levied and collected according to the Amended and Restated Rate and Method of Apportionment for Improvement Area No. SC described in the section entitled "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE - AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT" herein.

Although the Special Taxes will constitute a lien on parcels of real property within Improvement Area No. SC, they do not constitute a personal indebtedness of the owner(s) of real property within Improvement Area No. SC. There is no assurance that the property owner(s), or any successors and/or assigns thereto or subsequent purchaser(s) of land within Improvement Area No. SC will be able to pay the annual Special Taxes or if able to pay the Special Taxes that they will do so (see "BONDOWNERS' RISKS" herein).

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The Special Taxes initially are required to be collected by the County of Riverside Tax Collector in the same manner and at the same time as regular ad valorem property taxes are collected by the Tax Collector of the County. When received, such Special Taxes will be transferred by the City to the Fiscal Agent as soon as possible after receipt. Monies in the Special Tax Fund are held in trust for the benefit of the District and owners of the District Bonds (and any Parity Bonds issued) and disbursed pursuant to the District Indenture.

Application of Special Taxes; Flow of Funds

At such time as the County Auditor-Controller of the County of Riverside (the "County") makes an apportionment of tax revenues, including Special Taxes of Improvement Area No. SC and other amounts constituting Gross Taxes, if any, and such apportionment is transferred to the District Trustee on behalf of the District (any such apportionment being hereinafter referred to as "Apportionment"), the District Trustee shall deposit such Apportionment and any other amounts constituting Gross Taxes in the Special Tax Fund for Improvement Area No. SC, to be held in trust by the District Trustee and transferred and deposited into the following respective Accounts and Funds ( each of which accounts the Trustee shall establish and maintain within the District Bond Fund) the following amounts in the following order of priority, the requirements of each such Account ( including the making up of any deficiencies in any such Account resulting from lack of Special Taxes for the Improvement Area No. SC sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any Account subsequent in priority:

(a) Administrative Expense Fund. The District Trustee will deposit in the Administrative Expense Fund the amount of Administrative Expenses required to be deposited therein pursuant to the District Indenture. The District Trustee shall apply the moneys on deposit in the Administrative Expense Fund to the payment of Administrative Expenses, as directed by the District.

(b) Interest Account. On February 15 and August 15 preceding each Interest Payment Date, the District Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in such Account to equal the amount of interest becoming due and payable on the March 1 and September 1 Interest Payment Dates on all Outstanding District Bonds and any Parity Bonds. All moneys in such Interest Account will be used and withdrawn by the District Trustee solely for the purpose of paying the interest on the District Bonds and any Parity Bonds as it becomes due and payable (including accrued interest on any District Bonds and Parity Bonds redeemed prior to maturity).

( c) Principal Account. On August 15 of each year the District Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in such Account to equal the principal amount of the District Bonds and any Parity Bonds with respect to Improvement Area No. SC coming due and payable on the following Interest Payment Date. All moneys in such Principal Account will be used and withdrawn by the District Trustee solely for the purpose of paying the principal of District Bonds and Parity Bonds at their respective maturity dates.

( d) Sinking Account. On August 15 of each year the District Trustee will deposit in the Sinking Account an amount equal to the aggregate principal amount of Term District Bonds and any Parity Bonds relating to Improvement Area No. SC required to be redeemed on the following Interest Payment Date, if any. Amounts on deposit in such Sinking Account are required to be used and withdrawn by the District Trustee for the sole purpose of redeeming or purchasing (in lieu of redemption) Term District Bonds or Parity Bonds with respect to Improvement Area No. SC in accordance with the mandatory sinking account redemption thereof.

District Residual Fund. On September 2 of each year the Fiscal Agent shall transfer any amounts remaining in the Special Tax Fund to the District Residual Fund. Special Taxes, if any, deposited into the District Residual Fund shall be applied for the following purposes in the following order of priority:

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(i) The District Trustee will deposit into the Rate Stabilization Fund an amount, if any, required to restore the amount on deposit in the Rate Stabilization Fund to the Rate Stabilization Fund Requirement.

(ii) The District Trustee shall transfer, at the written election of the District, to the Administrative Expense Fund an amount determined by the District to be applied to pay or reimburse the payment of the costs and expenses incurred by the District or the Authority to administer the Bonds and the District Bonds and any Parity Bonds to the extent amounts in the Administrative Expense Fund are insufficient therefor.

(iii) The District Trustee shall transfer all remaining amounts to the Special Mandatory Redemption Account for redemption of the District Bonds and Parity Bonds unless the District Trustee has received written direction from the District to expend such remaining funds held in the District Fund for any lawful purposes of the District including, but not limited to, paying costs of public capital improvements or reducing the Special Taxes which are to be levied in the current or the succeeding Fiscal Year upon the properties which are subject to the Special Tax.

Amounts in District Residual Fund are not pledged as security for the Bonds or the District Bonds.

Rate Stabilization Fund. The Rate Stabilization Fund Requirement is 15% of Maximum Annual Debt Service on the District Bonds and Parity Bonds. The Rate Stabilization Fund will be funded from Special Taxes and investment earnings, to the extent the amounts thereof received by the District Trustee are in excess of the debt service due on the District Bonds and Parity Bonds and all administrative expenses of the District have been paid. Amounts in the Rate Stabilization Fund will be used to pay debt service on the District Bonds to the extent Special Taxes are insufficient for such purpose. Amounts, if any, in the Rate Stabilization Fund in excess of the Rate Stabilization Fund Requirement will be transferred to the District Residual Fund.

Redemption Fund

The District Trustee will establish a "Redemption Fund" (in which there shall be established and created an Optional Redemption Account, a Special Mandatory Redemption Account and a Mandatory Redemption Account), to the credit of which the District or the City, on behalf of the District, will deposit, immediately upon receipt, all Redemption Revenues received by the District or the City on behalf of the District. Moneys in the District Redemption Fund will be disbursed as provided below and, pending any disbursement, shall be subject to a lien in favor of the Owners of the District Bonds and Parity Bonds.

( 1) All prepayments of Special Taxes, any amounts transferred pursuant to the Authority Indenture for the redemption of District Bonds and Parity Bonds, and amounts transferred from the Residual Fund for the redemption of District Bonds and Parity Bonds will be deposited in the Special Mandatory Redemption Account to be used to redeem District Bonds and Parity Bonds on the next date for which notice of redemption can timely be given.

(2) All moneys deposited for the optional redemption of District Bonds and Parity Bonds will be deposited into the Optional Redemption Account to be used to redeem District Bonds and Parity Bonds on the next date for which notice of redemption can timely be given.

(3) All proceeds from insurance or condemnation proceeds will be deposited into the Mandatory Redemption Account to be used to redeem the District Bonds and Parity Bonds on the next date for which notice of redemption can timely be given.

Covenant for Superior Court Foreclosure

Pursuant to Section 533 56.1 of the Act, in the event of a delinquency in the payment of the Special Taxes levied on a parcel, the District may order the institution of a superior court action to foreclose the lien

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therefor, provided such action is brought not later than four years after the final maturity date of the respective District Bonds and any Parity Bonds. In such an action, the real property subject to the unpaid amount may be sold at a judicial foreclosure sale.

The District has covenanted in the District Indenture for the benefit of the owners of the District Bonds and any Parity Bonds that such District will review the public records of the County of Riverside, California, in connection with the collection of the Special Tax not later than July 1 of each year to determine the amount of Special Tax collected in the prior Fiscal Year; and with respect to individual delinquencies, if such District determines that any single property owner subject to the Special Tax is delinquent in the payment of Special Taxes in the aggregate of $2,500 or more or that as to any single parcel the delinquent Special Taxes represent more than 5% of the aggregate Special Taxes within such District, then the District will send or cause to be sent a notice of delinquency ( and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) the District will cause judicial foreclosure proceedings to be filed in the superior court within 90 days of such determination against any property for which the Special Taxes remain delinquent.

Notwithstanding any provision of the Act or other law of the State to the contrary, in connection with any foreclosure related to delinquent Special Taxes:

(A) The City, or the District Trustee, is expressly authorized under the District Indenture to credit bid at any foreclosure sale, without any requirement that funds be placed in the District Bond Fund or otherwise be set aside in the amount so credit bid, in the amount specified in Section 53356.5 of the Act or such lesser amount as determined under clause (B) below or otherwise under Section 53356.6 of the Act.

(B) The District may permit, in its sole and absolute discretion, property with delinquent Special Tax payments to be sold for less than the amount specified in Section 533 56. 5 of the Act (but not for less than the amount of delinquent scheduled principal and interest without written consent of the Bondowners and the owners of the Parity Bonds), if it determines that such sale is in the interest of the Bondowners and the owners of the Parity Bonds. The Bondowners, by their acceptance of the District Bonds, consent to such sale for such lesser amounts (as such consent is described in Section 53356.6 of the Act), and release the District, the City, and their officers and agents from any liability in connection therewith.

( C) The District is expressly authorized under the District Indenture to use amounts in the Special Tax Fund to pay costs of foreclosure of delinquent Special Taxes.

(D) The District may forgive all or any portion of the Special Taxes levied or to be levied on any parcel in such District, so long as the District determines that such forgiveness is not expected to adversely affect its obligation to pay principal of and interest on the District Bonds and the Parity Bonds under the District Indenture.

No assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. Although the Act authorizes the District to cause such an action to be commenced and diligently pursued to completion, the Act does not require the District or the City to purchase or otherwise acquire any lot or parcel of property sold at the execution sale pursuant to the judgment in any such action if there is no other purchaser at such sale, nor does the Act specify the priority relationship, if any, between the Special Taxes and other taxes and assessment liens.

As a result of the foregoing, in the event of a delinquency or nonpayment by the property owners of one or more Special Taxes installments, there can be no assurance that there would be available to the District sufficient funds to pay when due the principal of, interest on and premium, if any, on the District Bonds ( see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection

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of the Special Taxes - Foreclosure and Sale Proceedings," "BONDOWNERS' RISKS - THE DISTRICT BONDS -Risk Factors Relating to the Levying and Collection of the Special Taxes - Bankruptcy and Foreclosure Delays" and BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes - Property Controlled by Federal Deposit Insurance Corporation and other Federal Agencies" herein).

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BONDOWNERS' RISKS BEFORE PURCHASING ANY OF THE BONDS, ALL PROSPECTIVE INVESTORS AND THEIR PROFESSIONAL ADVISORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS, WHICH ARE NOT MEANT TO BE AN EXHAUSTIVE LISTING OF ALL RISKS ASSOCIATED WITH THE PURCHASE OF THE BONDS. MOREOVER, THE ORDER OF PRESENTATION OF THE RISK FACTORS DOES NOT NECESSARILY REFLECT THE ORDER OF THEIR IMPORTANCE.

The purchase of the Bonds involves investment risk. If a risk factor materializes to a sufficient degree, it could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include, but are not limited to, the following matters.

THE BONDS The ability of the Authority to pay the principal and interest on the Bonds depends upon the receipt by the Trustee of sufficient Revenues from repayment of the District Bonds, amounts on deposit in the Cash Flow Management Fund, the Reserve Fund and interest earnings on amounts in the funds and accounts for the Bonds established by the Indenture. A number of risks that could prevent the District from repaying the District Bonds are outlined below.

Early Bond Redemption

The Bonds are subject to optional, special mandatory and mandatory redemption prior to their stated maturities. Special mandatory redemption may occur on any date commencing March 1, 2008 (see "THE BONDS - REDEMPTION" herein).

No Liability of the Authority to the Bond owners

Except as expressly provided in the Indenture, the Authority will not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the District Bonds, or with respect to the observance or performance by the District of other agreements, conditions, covenants and terms required to be observed or performed by it under the District Bonds, the District Indenture or any related documents or with respect to the performance by the Trustee of any duty required to be performed by it under the Indenture.

Loss of Tax Exemption

As discussed under the caption "LEGAL MATTERS - TAX EXEMPTION" herein, interest on the Bonds could become includable in 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 Authority or the District in violation of their covenants contained in the Indenture and the District Indenture. Should such an event of taxability occur, the Bonds are not subject to special redemption or any increase in interest rate and will remain outstanding until maturity or until redeemed under one of the redemption provisions contained in the Indenture.

IRS Audits

The Internal Revenue Service (the "IRS") has initiated an expanded program for the auditing of taxexempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds ( or by an audit of similar bonds).

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Secondary Market

There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.

THE DISTRICT BONDS

Risk Factors Relating to Real Estate Market Conditions

Current Real Estate Market Conditions. Prior to 2006, the housing market in southern California experienced significant price appreciation and accelerated demand. Recent trends indicate the housing market has weakened. Starting in 2006, home developers, appraisers and market absorption consultants began to report weakening of the new home market due to factors such as (i) lower demand for new homes, (ii) significant increases in cancellation rates for homes under contract, (iii) the exit of speculators from the new home market, (iv) a growing supply of new and existing homes available for purchase, (v) increases in competition for new homes orders, (vi) prospective home buyers having a more difficult time selling their existing homes in the more competitive environment, and (vii) higher incentives required to stimulate new home orders or to induce home buyers not to cancel purchase contracts.

Adjustable Rate and Unconventional Mortgage Structures. Since the end of 2002, many persons have financed the purchase of new homes using loans with little or no down payment and with adjustable interest rates that start low and are subject to being reset at higher rates on a specified date or upon the occurrence of specified conditions. Many of these loans allow the borrower to pay interest only for an initial period, in some cases up to 10 years. Currently, in southern California, a substantial portion of outstanding home loans are adjustable rate loans which were obtained at historically low interest rates. In the opinion of some economists, the significant increase in home prices in this time period has been driven, in part, by the ability of home purchasers to access adjustable rate and non-conventional loans. Recent increases in interest rates on new loans and the resetting of adjustable rate loans, which have resulted in increased loan payments, have contributed to a decrease in home sales as purchasers are unable to qualify for loans with higher interest rates. Such decrease in home sales has resulted in a decrease in home prices. Such reduction in home prices has resulted in recent homebuyers having loan balances that exceed the value of their homes, given their low down payments and small amount of equity in their homes.

Furthermore, many borrowers who purchased homes in recent years may not be able to access replacement fmancing for their adjustable rate mortgage loans for a number of reasons. Many borrowers have fmanced 100% of the price of their home with adjustable rate loans. As home values decline, such borrowers may not be able to obtain replacement financing because the outstanding loan balances exceed the value of their homes. In addition, there has been tightening of underwriting criteria for mortgage loans such that lenders no longer offer 100% fmancing or require stricter verification, higher income to loan ratio, higher credit ratios or some combination of such factors. In the event borrowers experience a decline in income or increase in mortgage interest rates, or both, they may not be able to pay their Special Taxes when due.

For the reasons discussed above, homeowners in Improvement Area No. SC who purchase their homes with adjustable rate loans may experience difficulty in making their loan payments and paying the Special Taxes levied on their property. This could result in an increase in the Special Tax delinquency rate in Improvement Area No. SC (see ''sPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE -DELINQUENCIES" herein).

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Some economists have also predicted that, as mortgage loan defaults increase, bankruptcy filings by such homeowners are also likely to increase. Bankruptcy filings by homeowners with delinquent Special Taxes would delay the commencement and completion of foreclosure proceedings to collect delinquent Special Taxes (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes - Foreclosure and Sale Proceedings" and "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes - Bankruptcy and Foreclosure Delays" below).

Land Development. A major risk to the Bondowners is that development by the property owners of undeveloped land in hnprovement Area No. SC may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of the property owners to pay Special Taxes when due. For example, proposed development within Improvement Area No. SC could be adversely affected by unfavorable economic conditions, competing development projects, an inability of the current owners or future owners of the parcels to obtain financing, fluctuations in the real estate market or interest rates, unexpected increases in development costs, changes in federal, State or local governmental policies relating to the ownership of real estate, faster than expected depletion of existing water allocations, the appearance of previously unknown environmental impacts necessitating preparation of a supplemental enviromnental impact report, and by other similar factors. There can be no assurance that land development operations within Improvement Area No. SC will not be adversely affected by the factors described above.

In addition, partially developed land is less valuable than developed land and provides less security for the District Bonds ( and therefore to the owners of the Bonds) should it be necessary for the District to foreclose on undeveloped property due to the non-payment of Special Taxes. Moreover, failure to complete future development on a timely basis could adversely affect the land values of those parcels which have been completed. Lower land values result in less security for the payment of principal of and interest on the District Bonds and lower proceeds from any foreclosure sale necessitated by delinquencies in the payment of the Special Taxes.

Furthermore, an inability to develop the land within Improvement Area No. SC as planned will reduce the expected diversity of ownership of land within Improvement Area No. SC, making the payment of debt service on the District Bonds more dependent upon timely payment of the Special Taxes levied on the undeveloped property. Because of the concentration of undeveloped property ownership, the timely payment of the District Bonds depends upon the willingness and ability of the current owners of undeveloped land to pay the Special Taxes levied on the undeveloped land when due. Furthermore, continued concentration of ownership increases the potential negative impact of a bankruptcy or other fmancial difficulty experienced by the existing landowners (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes - Concentration of Ownership" below).

Risk Factors Relating to Land Values

Land Values. If a property owner defaults in the payment of the Special Tax, the District's only remedy is to commence foreclosure proceedings against the defaulting property owner's real property within Improvement Area No. SC for which the Special Tax has not been paid, in an attempt to obtain funds to pay the delinquent Special Tax. Therefore, the value of the land and improvements within Improvement Area No. SC is a critical factor in determining the investment quality of any series of bonds issued by or for Improvement Area No. SC. Reductions in property values within Improvement Area No. SC due to a downturn in the economy or the real estate market, events such as earthquakes, droughts, or floods, stricter land use regulations, or other events may adversely impact the value of the security underlying the Special Tax.

The District had the following two studies prepared in order to estimate the current bulk market value of land in Improvement Area No. SC.

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1. Market Absorption Study, Community Facilities District No. 93-1 Improvement Area No. SC prepared by Empire Economics, Inc., Capistrano Beach, California, dated July 30, 2007, and modified August 11, 2007 (the 'Market Absorption Study").

2. Appraisal Report City of Beaumont Community Facilities District 93-1 2007 Series E Bonds prepared by Harris Realty Appraisal, Newport Beach, California (the "Appraiser"), with a September I, 2007 date of value (the "Appraisal").

Collectively, the studies are referred to herein as the "Appraisal Documents." The purpose of the Appraisal was to estimate the bulk value of land within Improvement Area No. SC in its "as is" condition ( which assumes sale of the District Bonds and funding of publicly-financed improvements).

On the basis of the assumptions and limitations described in the Appraisal, the Appraiser has estimated the discounted "bulksale"value of the land in Improvement Area No. SC, as of September I, 2007, to be $55,700,000 which is S.54 times the principal amount of the District Bonds.

Value-to-Lien Ratios. Value-to-lien ratios are derived by dividing the appraised value of the property in Improvement Area No. SC by the principal amount of the District Bonds. For example, a 3: I ratio means that the value of the property in Improvement Area No. SC is three times the total bond amount. Pursuant to the current City Goals and Policies for Community Facilities Districts and Assessment Districts (the "Goals and Policies"), the value-to-lien ratio is required to be at least 3 to I (the "Value-to-Lien Requirement"). Upon the issuance of the District Bonds, the value-to-lien ratio will be S.54 to 1.

The value-to-lien ratio of individual parcels may be less or more than the aggregate value-to-lien ratio for Improvement Area No. SC. In particular the value of developed property is substantially more than undeveloped property (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes- Concentration of Ownership" below).

Investors must recognize the uncertainties with respect to the fair market values of the parcels, since the District Bonds are secured by the Special Taxes levied on the parcels.

Potential purchasers of the Bonds should be aware that if a parcel bears a Special Tax liability in excess of its market value, then there may be little incentive for the owner of the parcel to pay the Special Taxes on such parcel and little likelihood that such property would be purchased in a foreclosure sale.

Prospective purchasers of the Bonds should not assume that the land and improvements could be sold for the appraised amount at a foreclosure sale for delinquent Special Taxes. In particular, the values of individual properties in Improvement Area No. SC will vary, in some cases significantly. The actual value of the land is subject to future events which might render invalid some or all of the basic assumptions of the Appraiser. The future value of the land can be expected to fluctuate due to many different, not fully predictable, real estate related investment risk factors, including, but not limited to: general tax law changes related to real estate, changes in competition, general area employment base changes, population changes, changes in real estate related interest rates affecting general purchasing power, advertising, changes in allowed zoning uses and density, natural disasters such as floods, earthquakes and landslides, and similar factors.

Appraisals in general are the result of an inexact process, and estimated market value is dependent, in part, upon assumptions which may or may not be realized and upon market conditions and perceptions of market value, which are likely to change over time. The appraisal valuations represent opinions only and are not intended to be absolutes or assurances of specific resale values. If more than one appraiser were employed, it is reasonable to assume that a reasonable range of value opinions on the land and improvement value within Improvement Area No. SC would be reflected depending upon personal professional interpretation of data, facts and circumstances reviewed and assumptions employed.

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Prospective purchasers should not assume that the land could be sold for the appraised amount at a foreclosure sale for delinquent Special Taxes.

A copy of the Appraisal is included as Appendix C hereto. The summary herein of some of the conclusions in the Appraisal does not purport to be complete. Reference is made to the Appraisal for further information. The District makes no representations as to the value of the real property within Improvement Area No. SC, and prospective purchasers of the Bonds are referred to the Appraisal referred to above in evaluating the value of real property within Improvement Area No. SC.

Earthquakes. Southern California is among the most seismically active regions in the United States of America. The occurrence of seismic activity in Improvement Area No. SC could result in substantial damage to properties in Improvement Area No. SC which, in tum, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special Taxes. Any major damage to structures as a result of seismic activity could result in a greater reliance on Undeveloped Property in the payment of Special Taxes. In the event of a severe earthquake, there may be significant damage to both property and infrastructure in Improvement Area No. SC. As a result, a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in Improvement Area No. SC could be diminished in the aftermath of such an earthquake, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of Special Taxes.

Certain procedures and design standards are required to be followed during the construction of buildings within Improvement Area No. SC to ensure that each building is designed and constructed to meet, at a minimum, the highest seismic standards required by law.

Geologic, Topographic and Climatic Conditions. The value of the Taxable Property in Improvement Area No. SC in the future can be adversely affected by a variety of additional factors, particularly those which may affect infrastructure and other public improvements and private improvements on the parcels of Taxable Property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes and volcanic eruptions, topographic conditions such as earth movements, landslides, liquefaction, floods or fires, and climatic conditions such as tornadoes, droughts, and the possible reduction in water allocation or availability. Some homes lie in a hilly area and grading and slopes are to be constructed in a manner expected to remain stable. It is possible that one or more of the conditions referenced above may occur and may result in damage to improvements of varying seriousness, that the damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the Taxable Property may well depreciate or disappear.

Water Supply Legislation. Legislation passed on October 9, 2001 (Senate Bill No. 221), which prohibits the approval of a tentative tract map or a development agreement for a subdivision of property of more than 500 dwelling units unless the legislative body of a city or county or its planning commission provides written verification from the applicable public water supply system that a sufficient water supply is available for the development project. Sufficient water supply is defmed as the total water supplies available during normal, single-dry, and multiple-dry years within a 20-year projection that will meet the projected demand associated with the proposed development project, in addition to existing and planned future uses, including, but not limited to, agricultural and industrial uses. The legislation became effective on January I, 2002. The legislation provides that it shall not apply to any residential project proposed for a site that is within an urbanized area and has been previously developed for urban uses, or where the immediate contiguous properties surrounding the residential project area are, or previously have been, developed for urban uses. It also provides that it is not intended to change existing law concerning a public water system's obligation to provide water service to its existing customers or to any potential future customers. Nevertheless, the legislation provides for interested parties seeking mandamus

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to compel compliance with its provisions. The application to this legislation will undoubtedly be subject of litigation and ultimate determination by the courts.

Availability of Water. Studies conducted indicate that the groundwater basin has been over drafted by present uses. Development will increase water requirements within the groundwater basin. The San Gorgonio Pass Water Agency (the "Agency") has completed construction of a pipeline which will enable water from the State Water Project to be recharged into the groundwater basin. Beaumont-Cherry Valley Water District (the "Water District") has entered into a water purchase agreement with the Agency and has constructed a water recharge facility to recharge State Water Project water into the groundwater basin on an annual basis in accordance with the Water District's Urban Water Management Plan.

Supply. The City of Beaumont is a member of the San Timoteo Watershed Management Authority which is also in the process of developing a master plan to manage the groundwater basin and sources of water supply including recycled water, storm water, imported water and conjunctive use projects. The groundwater basin, commonly known as the Beaumont Basin, was the subject of a legal proceeding adjudicating groundwater rights in the Beaumont Basin. Pursuant to that judgment (Riverside County Superior Court Case No. 389197, filed February 4, 2004) (the "Judgment"), the Water District was awarded legally-protected groundwater production and storage rights in the Beaumont Basin. The Judgment is administered by a court-appointed Water Master Committee, consisting of representatives of the City of Beaumont, Beaumont-Cherry Valley Water District, the City of Banning, the Yucaipa Valley Water District and the South Mesa Mutual Water Company. Collectively, these agencies, acting as Water Master for the Beaumont Basin, are in the process of preparing the master plan and developing supplemental water supplies.

Local Water Service. All water for Improvement Area No. SC will be provided by the Water District. The Water District has prepared an Urban Water Management Plan that provides a plan for developing a public water supply system based on a 20-year projection in accordance with Senate Bill No. 221. The Water District is negotiating with the Agency to purchase additional imported water and water rights and is a member of the San Timoteo Watershed Management Authority. The Water District is developing supplemental sources of water supply including recycled water and storm water recharge in accordance with the District's Urban Water Management Plan and development impact mitigation program. At this time, no assurances can be given that an adequate water supply will be available to support continued development when drought conditions occur.

Endangered and Threatened Species. During the past several years, there has been an increase in activity at the State and federal level related to the listing and possible listing of certain plant and animal species found in the State as endangered species and in programs designed to set aside additional geographical areas for habitat conservation. A technical memorandum summarizing recommendations regarding areas being considered for conservation under the Western Riverside County Multiple-Species Habitat Conservation Plan (MS HCP) was released. Although none of the areas within Improvement Area No. SC have been included in the MSHCP study area, there is no assurance that such areas will remain excluded from the MSHCP study area or future study areas. An increase in the number of endangered species and/or the designation of additional habitat areas to be subjected to conservation planning similar to areas subject to the MSHCP is expected to curtail development in a number of areas in the State. Improvement Area No. SC is not known to contain any plant or animal species which either the California Fish and Game Commission or the U.S. Fish and Wildlife Service has listed as endangered, or to the knowledge of the Authority, proposed for addition to the endangered species list. Further approval may be required for any planned clearing of land or construction across or impacting waterways, creeks or other drainages. If required, there is no assurance that such approvals will be obtained and that development will be permitted to proceed as projected.

On a regular basis, new species are proposed to be added to the State and federal protected species lists. Regardless of the stage of entitlements and actual development of a particular development, any action by the State or federal govermnents to protect species located on or adjacent to the property within

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Improvement Area No. SC could negatively affect the property owner's ability to complete the development of its property within Improvement Area No. SC as planned. This, in tum, could reduce the ability or the willingness of the property owners to pay the Special Taxes when due and would likely reduce the value of the land and the potential revenues available at a foreclosure sale for delinquent Special Taxes.

Risk Factors Relating to the Levying and Collection of the Special Taxes

Insufficiency of Special Taxes. As discussed herein, the amount of Special Taxes that are collected within Improvement Area No. SC could be insufficient to pay principal of, interest and premium, if any, on the District Bonds due to nonpayment of the Special Taxes levied and insufficient or lack of proceeds received from a foreclosure sale of land within the District.

The District has covenanted in the District Indenture to institute foreclosure proceedings upon delinquencies in the payments of the Special Taxes as described herein and to sell any real property with a lien of delinquent Special Taxes to obtain funds to pay debt service on the District Bonds and the Parity Bonds (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE - DELINQUENCIES" herein). If foreclosure proceedings are ever instituted, any holder of a mortgage or deed of trust could, but would not be required to, advance the amount of delinquent Special Taxes to protect its security interest. See "SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE DISTRICT BONDS -Covenant for Superior Court Foreclosure" herein for provisions which apply in the event foreclosure is required and which the District is required to follow in the event of delinquency in the payment of Special Taxes.

Maximum Rates. Within the limits of the Amended and Restated Rate and Method of Apportionment for Improvement Area No. SC, the District may adjust the Special Tax levied on all property in Improvement Area No. SC to provide an amount required to pay debt service on the District Bonds and other obligations of the District, and the amount, if any, necessary to pay all annual Administrative Expenses and make rebate payments to the United States govermnent. However, the amount of the Special Tax that may be levied against particular categories of property in Improvement Area No. SC is subject to the maximum rates provided in the Amended and Restated Rate and Method of Apportiomnent. There is no assurance that the maximum rates will at all times be sufficient to pay the amounts required to be paid by the District Indenture ( see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE -AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT" and "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE - DEBT SERVICE COVERAGE ON THE DISTRICT BONDS" herein).

No Personal Liability for Special Taxes. No property owner will be personally liable for the payment of the Special Taxes to be applied to pay the principal of and interest on the District Bonds and Parity Bonds. In addition, there is no assurance that any property owner will be able to pay the Special Taxes or that any property owner will pay such Special Taxes even if it is financially able to do so.

Concentration of Ownership. As of October 1, 2007, there were two large property owners and 105 individual homeowners within Improvement Area No. SC that own all of the land within such Improvement Area. Payment of the Special Taxes is dependent upon the current and future property owners' willingness to pay Special Taxes assessed on their respective property in Improvement Area No. SC (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to Real Estate Market Conditions - Land Development" and "No Personal Liability for Special Taxes" above and "IMPROVEMENT AREA NO. SC" herein). The only asset of the current property owners or future property owners which constitutes security for the District Bonds is their property holdings assessed within Improvement Area No. SC. There are expected to be subsequent transfers of ownership of the property within Improvement Area No. SC to individual owners of single family homes during the development of the land within Improvement Area No. SC. During the period of time a significant portion of the land in Improvement

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Area No. SC is owned by a limited number of property owners there is a substantial risk to the BONDOWNERS that such limited number of owners will not pay their Special Taxes.

Special Taxes Are Not Within Teeter Plan. The County has adopted a Teeter Plan as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, under which a tax distribution procedure is implemented and secured roll taxes are distributed to taxing agencies within the County on the basis of the tax levy, rather than on the basis of actual tax collections. However, by policy, the County does not include assessments, reassessments and special taxes in its Teeter program. The Special Taxes are not included in the County's Teeter Program.

Riverside County Property Tax Delinquency Rates. According to data provided by the County, delinquencies in the payment of Fiscal Year 2004-05 and Fiscal Year 2005-06 ad valorem taxes by property owners within the City generally are higher than the reported delinquency levels for prior Fiscal Years.

The City is not aware of the causes for the increased delinquencies in the payment of property taxes for Fiscal Year 2004-05 and Fiscal Year 2005-06 although information available to the City indicates that in recent years the County Assessor's office has experienced (a) delays in processing property ownership transfers that in many cases have led to property tax bills being sent to former, not current, owners and to consequent delays in the actual property owners receiving and paying their property taxes, and (b) delays in processing property tax payments that have led to delays in crediting special taxes toward the accounts of the appropriate community facilities district. To the extent these increases in delinquencies are indicative of a trend toward actual property tax delinquencies by homeowners who received property tax bills, delinquencies in the payment of property taxes ( and, if affecting properties within Improvement Area No. SC, delinquencies in the payment of Special Taxes) may occur and continue at similar levels or increase in the near future.

Under the Amended and Restated Rate and Method of Apportiomnent, the District has the authority and the obligation to increase the levy of Special Taxes against property owners in Improvement Area No. SC if and to the extent required to replenish any reserve fund to its requirement due to Special Tax delinquencies. However, the District's ability to increase Special Tax levies for this purpose is limited by two factors: (a) the Maximum Special Tax rates set forth in the Amended and Restated Rate and Method of Apportionment; and (b) the limitations on such increases set forth in the Act, which provides that under no circumstances may the Special Tax levied against any parcel used for private residential purposes be increased as a consequence of delinquency or default by an owner of any other parcel or parcels within such District by more than 10% in excess of the amount of Special Taxes that would have been levied absent such delinquency of default. Thus, the District may not be able to increase Special Tax levies in future Fiscal Years by enough to make up for delinquencies for prior Fiscal Years (see "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE - DELINQUENCIES" herein).

Foreclosure and Sale Proceedings. In order to pay debt service on the District Bonds, it is necessary that the Special Tax levied against land within Improvement Area No. SC be paid in a timely manner. The District has covenanted in the District Indenture under certain conditions to institute foreclosure proceedings against property with delinquent Special Taxes in order to obtain funds to pay debt service on the District Bonds. If foreclosure proceedings were instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to protect its security interest.

In the event such superior court foreclosure is necessary, there could be a delay in principal and interest payments to the Authority as the owner of the District Bonds pending prosecution of the foreclosure proceedings and receipt of the proceeds of the foreclosure sale, if any. No assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Tax instalhnent. Although the Act authorizes the District to cause such an action to be commenced and diligently pursued to completion,

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the Act does not specify the obligations of the District with regard to purchasing or otherwise acquiring any lot or parcel of property sold at the foreclosure sale if there is no other purchaser at such sale (see "SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE DISTRICT BONDS - Covenant for Superior Court Foreclosure" herein).

Sufficiency of the foreclosure sales proceeds to cover the delinquent amount depends in part upon the market for and the value of the parcel at the time of the foreclosure sale (see "BONDOWNERS' RISKS-THE DISTRICT BONDS - Risk Factors Relating to Land Values" above).

The current assessed value is some evidence of such future value. However, future events may result in significant changes from the current assessed value. Such events could include a downturn in the economy, as well as a number of additional factors. Any of these factors may result in a significant erosion in value, with consequent reduced security of the District Bonds and, consequently, the Bonds.

Sufficiency of foreclosure sale proceeds to cover a delinquency may also depend upon the value of prior or parity liens and similar claims. A variety of governmental liens may presently exist or may arise in the future with respect to a parcel which, unless subordinate to the lien securing the Special Taxes, may effectively reduce the value of such parcel.

Timely foreclosure and sale proceedings with respect to a parcel may be forestalled or delayed by a stay in the event the owner of the parcel becomes the subject of bankruptcy proceedings. Further, should the stay not be lifted, payment of Special Taxes may be subordinated to bankruptcy law priorities.

Bankruptcy and Foreclosure Delays. The payment of the Special Taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax may be limited by bankruptcy, insolvency, or other laws generally affecting creditors' rights or by the laws of the State of California relating to judicial foreclosure.

The various legal opinions to be delivered concurrently with the delivery of the Bonds and the District Bonds (including Bond Counsel's approving legal opinion) will be qualified as to the enforceability of the various legal instruments, by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally.

Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner or of a partner or other owner of a property within the District could result in a delay in prosecuting superior court foreclosure proceedings and could result in loss of priority of the lien securing any Special Taxes with respect to Special Taxes levied while bankruptcy proceedings are pending. In addition, the amount of any lien on property securing the payment of delinquent Special Taxes could be reduced if the value of the property were determined by the bankruptcy court to have become less than the amount of the lien, and the amount of the delinquent Special Taxes in excess of the reduced lien could be treated as an unsecured claim by the court. Such delay or loss of priority or nonpayment, would increase the likelihood of a delay or default in payment of the principal of and interest on the District Bonds and the possibility of delinquent Special Tax installments not being paid in full. To the extent a significant percentage of the property in Improvement Area No. SC continues to be owned by a limited number of property owners, the payment of the Special Taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax installment could be delayed by bankruptcy, insolvency, or other laws generally affecting creditors' rights or by the laws of the State relating to judicial foreclosure.

On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opm10n in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy 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

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petition as "administrative expenses" of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was 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 ruling, 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 time become subject to current ad valorem taxes.

The Act provides that the Special Taxes are secured by a continuing lien, which is subject to the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect to how a bankruptcy court would treat the lien for the Special Taxes levied after the filing of a petition in bankruptcy. Glasply is controlling precedent for bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Tax, the amount of Special Tax received from parcels whose owners declared bankruptcy could be reduced.

It should also be noted that on October 22, 1994, Congress enacted 11 U.S. C. Section 362(b)(l8), 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 bankruptcy 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 bankruptcy estate. Bondowners should be aware that the potential effect of 11 U.S. C. Section 362(b)(l8) on the Special Taxes depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem taxes for this purpose.

Disclosure to Future Land Buyers. A "Notice of Special Tax Lien" (the "Notice") for the District has been recorded pursuant to Section 53328.3 of the Act and Section 3114.5 of the Streets and Highways Code, with the County Recorder for the County (the "County Recorder"). The Notice sets forth, among other things, the Amended and Restated Rate and Method of Apportiomnent, the legal description of property within Improvement Area No. SC as of the date of recording the Notice, and the boundaries of Improvement Area No. SC by reference to the map( s) recorded with the County Recorder. While title insurance and search companies normally refer to such notices in title reports, and sellers of property within Improvement Area No. SC are required to give prospective buyers a notice of special tax in accordance with Sections 53360.2 or 53341.5 of the Act, there can be no assurances that such reference will be made or notice given, or if made or given, that prospective purchasers or lenders will consider such Special Tax obligation in the purchase of land within Improvement Area No. SC or the lending of money thereon. Failure to disclose the existence of the Special Tax may affect the willingness and ability of future landowners within Improvement Area No. SC to pay the Special Tax when due.

Exempt Properties. Certain properties are exempt from the Special Tax in accordance with the Amended and Restated Rate and Method of Apportiomnent and provisions of the Act. The Act provides that properties or entities of the State, federal or local government at the time of formation of Improvement Area No. SC or the District are exempt from the Special Tax; provided, however, that property within Improvement Area No. SC acquired by a public entity through negotiated transactions, or by gift or devise, which is not otherwise exempt from the Special Tax will continue to be subject to the Special Tax. In addition, the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested. If for any reason property subject to the Special Tax becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government, or another public agency, subject to the limitation of the maximum authorized rate of levy, the Special Tax may be reallocated to the remaining taxable properties within the District. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the timely payment of the Special Tax; however, the

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amount of Special Tax to be levied and collected from the property owner is subject to the Maximum Special Tax as set forth in the Amended and Restated Rate and Method of Apportiomnent and to the limitation in the Act that under no circumstances may the Special Taxes levied on any residential parcel be increased by more than ten percent as a consequence of delinquency by the owner of any parcel. If a substantial portion of land within Improvement Area No. SC became exempt from the Special Tax because of public ownership, or otherwise, the maximum Special Tax which could be levied upon the remaining acreage might not be sufficient to pay principal of and interest on the District Bonds when due and a default will occur with respect to the payment of such principal and interest.

The Act further provides that no other properties or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate or method of apportionment of an existing special tax. The Act would prohibit the City Council, acting as the legislative body of the District, from adopting a resolution to reduce the rate of the Special Tax or terminate the levy of the Special Tax unless the City Council, acting as the legislative body of the District, determined that the reduction of termination of the Special Tax "would not interfere with the timely retirement" of the District Bonds ( see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to Government Rules, Initiatives, Etc. - Right to Vote on Taxes Act" below).

Property Controlled by Federal Deposit Insurance Corporation and other Federal Agencies. The District's ability to collect interest and penalties specified by State law and to foreclose the lien of a delinquent Special Tax payment may be limited in certain respects with regard to properties in which the Internal Revenue Service, the Drug Enforcement Agency, the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies has or obtains an interest. Specifically, with respect to the FDIC, on June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Real Property Taxes. The 1991 Policy Statement was revised and superseded by a 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 or 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 FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent.

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 recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the MelloRoos Act and a special tax formula which determines the special tax due each year, are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC's federal immunity. With respect to property in California owned by the FDIC on January 9, 1997, and that was owned by the Resolution Trust Corporation (the "RTC") on December 31, 1995, or that became property of the FDIC through foreclosure of a security interest held by the RTC on that date, the FDIC will continue the RTC's prior practice of paying special taxes imposed pursuant to the Mello-Roos Act if the taxes were imposed prior to the RTC's acquisition of an interest in the property. All other special taxes, including the Special Taxes which secure the District Bonds may be challenged by the FDIC.

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The Authority and the District are unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a parcel in which the FDIC has an interest, although prohibiting the lien of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Bonds should assume that the Authority and the District will be unable to foreclose on any parcel owned by the FDIC. The Authority has not undertaken to determine whether the FDIC currently has, or is likely to acquire, any interest in any of the parcels, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding.

Risk Factors Relating to Tax Burden

Billing of Special Taxes. A special tax can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in tum can lead to problems in the collection of the special tax. In some community facilities district's the taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the district.

Under provisions of the Act, the Special Taxes are billed to the properties within Improvement Area No. SC which were entered on the Assessment Roll of the County Assessor by January I of the previous fiscal year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax instalhnents. These Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and instalhnent payments of Special Taxes in the future. See "SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE DISTRICT BONDS - Covenant for Superior Court Foreclosure" for a discussion of the provisions which apply, and procedures which the District is obligated to follow, in the event of delinquency in the payment of installments of Special Taxes.

Additional Taxation. On June 3, 1986, California voters approved an amendment to Article XIIIA of the California Constitution to allow local govermnents and school District to raise their property tax rates above the constitutionally mandated I% ceiling for the purpose of repaying certain new general obligation debt issued for the acquisition or improvement of real property and approved by at least two-thirds of the votes cast by the qualified electorate. If any such voter-approved debt is issued, it may be on a parity with the lien of the Special Taxes on the parcels within Improvement Area No. SC.

Parity Taxes and Special Assessments. The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land within Improvement Area No. SC on which they will be annually imposed until they are paid in full. Such lien is on a parity with all special taxes and special assessments levied by other public entities, agencies and districts and is co-equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same real property. The Special Taxes have priority over all existing and future private liens imposed on the real property within Improvement Area No. SC. The District, however, has no control over the ability of other public entities, agencies and districts to issue indebtedness secured by special taxes or assessments payable from all or a portion of the real property within Improvement Area No. SC. Any such special taxes or assessments may have a lien on such real property on a parity with the Special Taxes.

Accordingly, the liens on the real property within Improvement Area No. SC could greatly increase, without any corresponding increase in the value of the property within Improvement Area No. SC and thereby severely reduce the value-to-lien ratio of the land secured public debt existing at the time the Bonds are issued. The imposition of such additional indebtedness could also reduce the willingness and ability of the property owners within Improvement Area No. SC to pay the Special Taxes when due.

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Risk Factors Relating to Governmental Rules, Initiatives, Etc.

Right to Vote on Taxes Act. An initiative measure commonly referred to as the "Right to Vote on Taxes Act" ("Proposition 218") was approved by the voters of the State of California at the November 5, 1996, general election. Proposition 218 added Article XIIIC ("Article XIIIC") and Article XIIID to the California Constitution. According to the "Title and Summary" of Proposition 218 prepared by the California Attorney General, Proposition 218 limits "the authority of local governments to impose taxes and property-related assessments, fees and charges." Generally, the provisions of Proposition 218 have not yet been interpreted by the courts, although a number of lawsuits have been filed requesting the courts to interpret various aspects of Proposition 218.

Among other things, Section 3 of Article XIIIC states that "the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge." Proposition 218 provides for a procedure, which includes notice, hearing, protest and voting requirements to alter the rate and method of apportiomnent of an existing special tax. However, Proposition 218 prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to Proposition 218 unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. Although the matter is not free from doubt, it is likely that the exercise by the voters in Improvement Area No. SC of the initiative power referred to in Article XIIIC to reduce or terminate the Special Tax is subject to the same restrictions as are applicable to Improvement Area No. SC, pursuant to the Act. Accordingly, although the matter is not free from doubt, it is likely that Proposition 218 has not conferred on the voters in Improvement Area No. SC the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the District Bonds.

It may be possible, however, for voters of Improvement Area No. SC to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the District Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the District Bonds.

The interpretation and application of Proposition 218 will ultimately be determined 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 determination or the timeliness of any remedy afforded by the courts.

Ballot Initiatives and Legislative Measures. Proposition 218 was adopted pursuant to a measure qualified for the ballot pursuant to California's constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the State Legislature. The adoption of any such initiative or enactment of legislation might place limitations on the ability of the State, the City or local District to increase revenues or to increase appropriations or on the ability of a property owner to complete the development of the property.

Risk Factors Relating to Limitations of the Bonds and the District

Limited Obligation. Neither the faith and credit nor the taxing power of the City, the State or any political subdivision thereof, other than the District, is pledged to the payment of the District Bonds. Except for the Special Taxes derived from the District, no other taxes are pledged to the payment of the District Bonds. The District Bonds are not general or special obligations of the City, the State or any political subdivision thereof or general obligations of the District, but are special obligations of the

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District, payable solely from Special Taxes and the other assets pledged therefor under the District Indenture.

Limitations on Remedies. Remedies available to the Bondowners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the District Bonds or to preserve the tax-exempt status of the Bonds. Bond Counsel has limited its opinion as to the enforceability of the Bonds and the District Bonds and of the Indenture and the District Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or others similar laws affecting generally the enforcement of creditor's rights, by equitable principles and by the exercise of judicial discretion. Additionally, the District Bonds are not subject to acceleration in the event of the breach of any covenant or duty under the Indenture. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Owners.

Enforceability of the rights and remedies of the owners of the District Bonds, and the obligations incurred by the District, may become subject to the federal bankruptcy code and bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its govermnental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against joint powers authorities in the State. See "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes" above.

No Acceleration Provision. The District Indenture for Improvement Area No. SC does not contain a provision allowing for the acceleration of the principal of the District Bonds in the event of a payment default or other default under the terms of the District Bonds or the District Indenture. Accordingly, the Indenture does not contain a provision allowing for acceleration of the Bonds.

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THE AUTHORITY The Authority is a joint exercise of powers authority organized and existing under and by virtue of the Joint Powers Act. The City, pursuant to Resolution No. 1993-20, adopted on April 12, 1993, and the Agency, pursuant to Resolution No. BRA 93-1, adopted on April 12, 1993, formed the Authority by the execution of a Joint Exercise of Powers Agreement (the "Joint Powers Agreement").

The Authority is governed by a five-member Board (the "Governing Board") which consists of all members of the City Council. The Mayor of the City is appointed the Chairperson of the Authority. The City Manager acts as the Executive Director of the Authority.

The Bond Law provides for the issuance of revenue bonds of joint exercise of powers authorities, such as the Authority, to be repaid solely from the revenues of certain public obligations, such as the District Bonds. The Authority has no taxing power. Pursuant to the Bond Law, the Authority is authorized to issue its revenue bonds for the purpose of fmancing, among other things, public capital improvement projects.

The Bonds are being sold to provide moneys to enable the Authority to purchase the District Bonds. The Authority authorized the execution of the Indenture and the purchase of the District Bonds pursuant to Resolution No. BFA 2007-4, adopted October 2, 2007.

GOVERNMENT ORGANIZATION

Pursuant to the Joint Powers Agreement, the City Council of the City acts as the Governing Board of the Authority. The City Council members, their positions at the Authority and term expiration dates are as follows:

Board Member

Jeffrey Fox, Chairperson

Brian DeF orge, Vice Chairperson

Roger Berg, Member

Larry Dressel, Member

WM "Martie" Killough, Member

Term Expires

December, 2008

December, 20 I 0

December, 2010

December, 20 I 0

December, 2008

The City performs certain general administrative functions for the Authority. The costs of such functions, as well as additional services performed by City staff are allocated annually to the Authority. The Authority reimburses the City for such allocated costs out of available revenues. Current City Staff assigned to administer the Authority include:

Alan C. Kapanicas, City Manager and Finance Director and Authority Executive Director

David Dillon, Director of Economic Development

Karen Thompson, City Clerk

As of the Date of Delivery of the Bonds, the District has retained General Government Management Services to assist in the preparation of the Special Tax roll and the determination of the amount of Special Taxes required in each Fiscal Year.

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DEBT SERVICE COVERAGE ON THE AUTHORITY BONDS

The Bonds are special obligations of the Authority payable solely from and secured by revenues from repayment of the District Bonds, and certain funds and accounts established under the Indenture including the Cash Flow Management Fund and the Reserve Fund held by the Trustee. In addition, the Bonds may be payable from any available surplus revenues with respect to other series of local agency revenue bonds issued pursuant to the Indenture to the extent such surplus revenues are available to replenish the Reserve Fund to its requirement and at the election of the Authority to replenish the Cash Flow Management Fund to its requirement (see SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE BONDS -Application of Revenues; Flow of Funds" herein).

The receipt of revenues from repayment of the District Bonds is subject to several variables described herein (see "BONDOWNERS' RISKS- THE DISTRICT BONDS" herein).

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TABLENO.1 BEAUMONT FINANCING AUTHORITY

2007 LOCAL AGENCY REVENUE BONDS SERIES E (IMPROVEMENT AREA NO. SC)

DEBT SERVICE COVERAGE

Bond District Bonds Debt Debt Service Coverage

Year Service Payments On the Bonds Ratio

2008 286,790 286,790 1.00 2009 400,173 400,173 1.00 2010 405,173 405,173 1.00 2011 414,935 414,935 1.00 2012 419,223 419,223 1.00 2013 428,273 428,273 1.00 2014 436,848 436,848 1.00 2015 444,848 444,848 1.00 2016 457,473 457,473 1.00 2017 464,223 464,223 1.00 2018 475,473 475,473 1.00 2019 485,883 485,883 1.00 2020 495,423 495,423 1.00 2021 504,063 504,063 1.00 2022 515,625 515,625 1.00 2023 525,938 525,938 1.00 2024 535,000 535,000 1.00 2025 547,813 547,813 1.00 2026 559,063 559,063 1.00 2027 568,750 568,750 1.00 2028 576,875 576,875 1.00 2029 578,438 578,438 1.00 2030 578,750 578,750 1.00 2031 577,813 577,813 1.00 2032 580,625 580,625 1.00 2033 576,875 576,875 1.00 2034 581,875 581,875 1.00 2035 580,000 580,000 1.00 2036 581,563 581,563 1.00 2037 581,250 581,250 1.00 2038 579,063 579,063 1.00

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SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE

ADMINISTRATION OF THE SPECIAL TAX

The District is required each Fiscal Year to determine the amount of Special Taxes needed to pay debt service on the District Bonds and Parity Bonds and Administrative Expenses of the District related to Improvement Area No. SC. Improvement Area No. SC is expected to incur among other things Administrative Expenses for the levy and collection of the Special Taxes, foreclosure proceedings, Fiscal Agent fees and arbitrage rebate calculations.

The District is required to communicate with the County Auditor to ascertain the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current Fiscal Year. The District is required by resolution to provide for the levy of the Special Taxes within Improvement Area No. SC in the current Fiscal Year. A certified list of all parcels subject to the Special Tax, including the amount of the Special Tax to be levied on each such parcel, is filed by the District with the County Auditor on or before the tenth (10th) day of August of that tax year. The Special Taxes so levied may not exceed the authorized amounts as provided in the Amended and Restated Rate and Method of Apportiomnent for Improvement Area No. SC (see "AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT" below).

The Special Taxes are payable and are collected in the same manner and at the same time and in the same instalhnent as the general taxes on real property are payable and have the same priority, become delinquent at the same times and in the same proportionate amounts, and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property.

Special Taxes are due in two equal instalhnents. Each installment of Special Taxes levied become delinquent if not paid by December 10th

( in the case of the first instalhnent) and April 10th ( in the case of

the second installment). Currently, a 10% penalty is added to each installment of delinquent taxes.

When received, the Special Taxes from Improvement Area No. SC are required to be transferred by the City to the District Trustee as provided in the District Indenture and deposited by the District Trustee in a separate Special Tax Fund for Improvement Area No. SC.

As of the date of delivery of the Bonds, the District has retained General Government Management Services to assist in the preparation of the Special Tax roll and the determination of the amount of Special Taxes required in each Fiscal Year.

AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT

The City Council, acting on behalf of the District, levies the Special Taxes in accordance with the Amended and Restated Rate and Method of Apportiomnent for Improvement Area No. SC (see "APPENDIX E - AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT"). Because the Special Taxes have been authorized by a two-thirds (2/3) vote of those qualified electors that cast votes, the Special Taxes are a special tax imposed within the limitations of Section 4 of Article XIIIA of the State Constitution. The City Council, as the legislative body of the District, has the power and is obligated, pursuant to the covenants contained in the District Indenture, to cause the levy and collection of the Special Taxes within Improvement Area No. SC annually.

The Assigned Special Tax under the Amended and Restated Rate and Method of Apportiomnent were set pursuant to City Policy not to exceed a total tax rate percentage of 2% when taking into account all taxes and assessments on property of all jurisdictions based upon the then-projected home prices. The District may and intends to reduce the Assigned Special Tax rates to maintain the City Policy not to exceed a total

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tax rate percentage of 2% when taking into account all taxes and assessments on property of all jurisdictions. The District has covenanted that no reduction of the Assigned Special Tax rates for Improvement Area No. SC shall be approved unless such new rate could generate Special Taxes in each Fiscal Year after deductions for Administrative Expenses in an amount at least equal to 110% of annual debt service in such Fiscal Year for all series of bonds relating to Improvement Area No. SC.

Assigned Special Tax Rates

When a community facilities district is formed, a special tax may be levied on each parcel of taxable property within the community facilities district to pay for the construction, acquisition and rehabilitation of public facilities, to pay for authorized services or to repay bonded indebtedness or other related expenses incurred by the community facilities district. This special tax may be apportioned in any reasonable manner; however, the tax may not be apportioned on an ad valorem basis. Pursuant to Section 53325.3 of the Act, the tax imposed "is a Special Tax and not a special assessment, and there is no requirement that the tax be apportioned on the basis of benefit to any property."

When more than one type of land use or houses of different sizes are present within a community facilities district, several criteria may be considered when apportioning the special tax. Generally, criteria are based on building square footage or residential floor area, acreage, and land use. Categories based on such criteria are established to differentiate between parcels of property. Specific special tax levels are assigned to each category, with all parcels within a category assigned the same special tax rate.

In the Amended and Restated Rate and Method of Apportiomnent categories have been established for Developed Property, as shown in the table below. The Special Tax for a single family residential property will vary directly with the amount of residential floor area on each parcel and in which Zone ( as defined in the Amended and Restated Rate and Method of Apportiomnent) it is located. The table below shows the Assigned Special Tax rates for Fiscal Year 2007 /08 that are to be levied against Developed Property within Improvement Area No. SC. The Maximum Special Taxes for Developed Property cannot exceed the rates shown for Fiscal Year 2007/08, except when the Backup Special Tax is used as discussed below. The Assigned Special Taxes and Backup Special Taxes will increase at a rate of 2% per year.

Assigned Special Tax for Facilities for Fiscal Year

Land Use Type Building Square Footage 2007/2008

Residential Property Less than 1,901 $1,589.16 per dwelling unit

Residential Property 1,901 -2,150 $1,717.68 per dwelling unit

Residential Property 2,151 - 2,650 $2,047.14 per dwelling unit


Residential Property 2,901-3,150 $2,275.62 per dwelling unit


Residential Property Greater than 3,650 $2,634.66 per dwelling unit

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The District may, and intends to, reduce the Assigned Special Tax rates to maintain the City Policy not to exceed a total tax rate percentage of 2% when taking into account all taxes and assessments on property of all jurisdictions (see "AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT" above).

Each year, the District shall levy the Special Tax, subject to the methodology and Maximum Special Taxes set forth in the Amended and Restated Rate and Method of Apportionment, in an amount sufficient to meet the Special Tax Requirement.

The Assigned Special Tax is levied against Developed Property pursuant to the Amended and Restated Rate and Method of Apportiomnent until the Special Tax Requirement is met. If the Assigned Special Tax is not sufficient to meet the Special Tax Requirement during the period of time there is Undeveloped Property, the Amended and Restated Rate and Method of Apportiomnent provides for the levy of a Special Tax against Undeveloped Property (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes - Concentration of Ownership" herein and "APPENDIX E-AMENDEDAND RESTATED RATE AND METHOD OF APPORTIONMENT").

Backup Special Tax

Pursuant to the Amended and Restated Rate and Method of Apportiomnent, the Maximum Special Tax for Developed Property is the greater of (i) the amount derived by application of the Assigned Special Tax or (ii) the amount derived by application of the Backup Special Tax. The Backup Special Tax will increase at a rate of 2% per year.

Under certain circumstances, the Special Tax for some parcels classified as Developed Property will be increased above the Assigned Special Tax until the Special Tax Requirement is met. However, under no circumstances will the Special Tax on an Assessor's Parcel of Developed Property be increased above the greater of the Backup Special Tax or the applicable Assigned Special Tax.

Method of Apportionment

Commencing Fiscal Year 2006-2007 and for each subsequent Fiscal Year, the City Council shall levy a Special Tax for Facilities on all Taxable Property within Improvement Area No. SC until the amount of Special Tax for Facilities equals the Special Tax Requirement for Facilities in accordance with the following steps ( capitalized terms used below shall have the meanings set forth in the Amended and Restated Rate and Method of Apportiomnent):

Step One:

Step Two:

Step Three:

The Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax for Facilities rates in Table 1 as needed to satisfy the Special Tax Requirement for Facilities.

If additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first step has been completed, the Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Final Map Property, at up to 100% of the Assigned Special Tax for Facilities applicable to each such Assessor's Parcel as needed to satisfy the Special Tax Requirement for Facilities.

If additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first two steps have been completed, the Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property, excluding any Undeveloped Property pursuant to Section J, at up to 100% of the Assigned Special Tax for Facilities applicable to each such Assessor's Parcel as needed to satisfy the Special Tax Requirement for Facilities.

58

Step Four:

Step Five:

If additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first three steps have been completed, then for each Assessor's Parcel of Developed Property whose Maximum Special Tax for Facilities is the Backup Special Tax for Facilities shall be increased Proportionately from the Assigned Special Tax for Facilities up to 100% of the Backup Special Tax for Facilities as needed to satisfy the Special Tax Requirement for Facilities.

If additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first four steps have been completed, the Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property classified as Undeveloped Property pursuant to Section J at up to 100% of the Assigned Special Tax for Facilities applicable to each such Assessor's Parcel as needed to satisfy the Special Tax Requirement for Facilities.

Notwithstanding the above, under no circumstances will the Special Tax levied against any Assessor's Parcel of Developed Property for which an occupancy permit for private residential use has been issued be increased as a consequence of delinquency or default by the owner of any other Assessor's Parcel within Improvement Area No. SC by more than 10% in excess of the amount that could have been levied against such assessor's parcel absent such delinquency or default.

PROPERTY TAXES AND EFFECTIVE TAX RATES

Value-to-Lien Ratios

The total amount of property taxes and assessments levied on a parcel are considered a significant factor in evaluating the security for the District Bonds and therefore the Bonds. One tool is to measure the ratio of the value of the property and the outstanding debt secured by the Special Taxes and other taxes and assessments which may be levied on such property. City Policies require that the minimum value-to-lien ratio be 3 to 1. The value-to-lien ratio of individual parcels may be less or more than the aggregate valueto-lien ratio for Improvement Area No. SC. In particular, the value of developed property is substantially more than undeveloped property (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to Land Values- Value-to-Lien Ratios" herein and "APPENDIX C -APPRAISAL REPORT"). On the basis of the assumptions and limitations described in the Appraisal, the Appraiser has estimated the discounted "bulk sale" value of the land and improvements in Improvement Area No. SC as shown below:

Total Appraised Value District Bonds Value-to-Lien Ratio

Improvement Area No. 8C $55,700,000 $6,520,000 8.54 to I

Effective Tax Rate Tables

Another tool for evaluating the tax burden is the ratio of total taxes, special taxes and assessments as a percentage of property value (the "Effective Tax Rate"). The size of the Effective Tax Rate could affect the ability and willingness of the property owners to pay the Special Taxes when due (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to Tax Burden" herein). The Effective Tax Rates shown in the tables below are based upon sales prices provided by the applicable Merchant Builder and in certain circumstances a reduction in the Assigned Special Tax rate to maintain the City Policy not to exceed a total Effective Tax Rate percentage of 2% when taking into account all taxes and assessments on property of all jurisdictions.

59

TABLENO.2 CITY OF BEAUMONT

COMMUNITY FACILITIES DISTRICT NO. 93-1 IMPROVEMENT AREA NO. SC

PLANNING AREA NO. 24 TOTAL EFFECTIVE TAX RATE 2007/08 FISCAL YEAR

Horne Square Footage (See Table 6)

CFD Tax Category

Base Horne Price (See Table 8)

Estimated Taxes Per Unit

Ad Valorern

General Purpose

Beaumont Unified School District

San Gorgonio Pass Water Agency

San Gorgonio Pass Memorial Hospital AD

Fixed Charges

Flood Control Storrnwater/Cleanwater

San Gorgonio Pass Memorial Hospital AD

CFD 93-1 (IA 8C) Services

Total

Special Taxes

CFD 93-1 (IA 8C) Facilities (Assigned Rate)

Total Taxes and Assessments

Estimated Effective Tax Rate

Tax Rate

1%

0.01293%

0.17%

0.03272%

$3.75

$45.86

$277.20

60

Plan 1

1,683 Sq. Ft

Less than 1,90 I Sq.Ft

$295,900

$2,959.00

$38.26

$503.03

$96.82

$3.75

$45.86

$277.20

$3,923.92

$1 589.16

$5,513.08

1.86%

Plan2

1,918 Sq. Ft

1,901 Sq. Ft to 2,150 Sq. Ft

$310,900

$3,109.00

$40.20

$528.53

$101.73

$3.75

$45.86

$277.20

$4,106,27

$1 717.68

$5,823.95

1.87%

Plan3

2,105 Sq. Ft

1,901 Sq. Ft to 2,150 Sq. Ft

$325,900

$3,259.00

$42.14

$554.03

$106.63

$3.75

$45.86

$277.20

$4,288.61

$1 717.68

$6,006.29

1.84%

TABLE NO. 2 (CONTINUED) CITY OF BEAUMONT


PLANNING AREA 23 TOTAL EFFECTIVE TAX RATE 2007/08 FISCAL YEAR

Tax Rate Plan5 Plan 1 Plan2 Plan3 Plan4

Horne Square Footage (See Table 6) 1,670 Sq. Ft 1,853 Sq. Ft 2,180 Sq. Ft 2,337 Sq. Ft 2,456 Sq. Ft

Less than 1,90 I Less than 1,901 2,151 Sq. Ft to 2,151 Sq. Ft to 2,151 Sq. Ft to CFD Tax Category Sq.Ft Sq. Ft 2,650 Sq. Ft 2,650 Sq. Ft 2,650 Sq. Ft

Base Horne Price (See Table 8) $249,990 $274,990 $279,990 $289,990 $296,990

Estimated Taxes Per Unit

Ad Valorern

General Purpose 1% $2,499.90 $2,749.90 $2,799.90 $2,899.90 $2,969.90

Beaumont Unified School District 0.01293% $32.32 $35.56 $36.20 $37.50 $38.40

San Gorgonio Pass Water Agency 0.17% $424.98 $467.48 $475.98 $492.98 $504.88

San Gorgonio Pass Memorial Hospital AD 0.03272% $81.80 $89.98 $91.61 $94.88 $97.18

Fixed Charges

Flood Control Stormwater/Cleanwater $3.75 $3.75 $3.75 $3.75 $3.75 $3.75

San Gorgonio Pass Memorial Hospital AD $45.86 $45.86 $45.86 $45.86 $45.86 $45.86

CFD 93-1 (IA 8C) Services $277.20 $277.20 $277.20 $277.20 $277.20 $277.20

Total $3,365.81 $3,669.73 $3,730.51 $3,852.07 $3,937.17

Special Taxes

CFD 93-1 (IA 8C) Facilities (Assumed Assigned Rate)I $1 589.16 $1 589.16 $1,869.29 (I) $1,869.29 (I) $1,869.29 (I)

Total Taxes and Assessments $4,954.97 $5,258.89 $5,599.80 $5,721.36 $5,806.46

Estimated Effective Tax Rate (1) 1.98% 1.91% 2.00% 1.97% 1.96%

( 1) Assigned Rate assumed to be reduced to maintain 2% Effective Tax Rate; lowest rate assumed for plans in the same tax rate category.

61

SPECIAL TAX PROJECTIONS

Table No. 3 shows the projected total special taxes that may be collected in Improvement Area No. SC based on the Assigned Special Tax rates for Fiscal Year 2007-08 specified in Table 2 and assuming full build out based on the currently estimated number of units within each residential floor plan projected by Pardee Homes and KB HOME Coastal for their respective product lines.

The District expects to issue two or more series of bonds secured by Special Taxes levied in Improvement Area No. SC. Although the District Bonds are secured by Special Taxes levied on all the property in Improvement Area No. SC, the District has elected to structure the first series of bonds based only on the amount of Special Taxes that would be levied in Planning Areas 23 and 24 within Improvement Area No. SC at expected buildout. Table No. 3 shows the projected total special taxes that may be collected in Planning Areas 23 and 24 based on the Assigned Special Tax rates for Fiscal Year 2007-08 specified in Table 2.

62

Rate Category (Square Feet)

2,151-2,650

1,901 - 2,150

Less than 1,901

SUBTOTAL

Rate Category (Square Feet)

1,901 - 2,150

Less than 1,901

SUBTOTAL

TOTAL

TABLENO.3

CITY OF BEAUMONT

COMMUNITY FACILITIES DISTRICT NO. 93-1

IMPROVEMENT AREA NO. SC

PROJECTION OF THE ASSIGNED SPECIAL TAX

FISCAL YEAR 2007 /08

TRACT NO. 31468-8 (PA 23)

Assumed Assigned Special Tax See Table 2

$1,869.29

$1,717.68

$1,589.16

Assumed Number of Homes per Rate

Category See Table 6

91

0

64

155

TRACT NO. 34291 (PA24)

Assumed Number of Assigned Special Homes per Rate

Tax Category See Table 2 See Table 6

$1,717.68 72

$1,589.16 38

110

265

Total Assigned Special Taxes

$170,105.39

000

$101 706.24

$271,811.63

Total Assigned S[!ecial Taxes

$123,672.96

$60 388 08

$184,061.04

$455,872.67

DEBT SERVICE COVERAGE ON THE DISTRICT BONDS

The following table presents the projected annual debt service coverage on the Bonds based upon the realization of certain assumptions and the aggregate projected Assigned Special Tax for Planning Area 23 and Planning Area 24 (see "SPECIAL TAX PROJECTIONS" above). No allowance was made for delinquencies.

Pursuant to the Amended and Restated Rate and Method of Apportionment, under no circumstances will the Special Tax levied against any parcel of Developed Property for which an occupancy permit for private residential use has been issued be increased by more than ten ( 10) percent as a consequence of delinquency or default by the owner of any other parcel within Improvement Area No. SC. Accordingly, the District may not be able to levy the Maximum Special Tax in certain circumstances.

63

The total Assigned Special Tax for Planning Area 23 and Planning Area 24 projected in Table 3 is approximately 110% of the projected debt service on the District Bonds after an allowance for Administrative Expenses. The Assigned Special Tax, as well as the debt service on the District Bonds and the Bonds, increases at a rate of two percent per year.

Although the District Bonds ( and therefore the Bonds) were sized to be serviced from the Assigned Special Taxes levied in Planning Areas 23 and 24, Special Taxes will be levied in accordance with the Amended and Restated Rate and Method of Apportiomnent on all of the property in the District, including both the Developed Property and Undeveloped Property in Planning Areas 18, 19, 20, and 22. Furthermore, the Appraisal valued all of the property in the District, not just the property in Planning Areas 23 and 24.

Until such time as the receipt of Special Taxes from the levy of the Assigned Special Tax is sufficient to pay debt service on the District Bonds, the Amended and Restated Rate and Method of Apportionment provides for the levy of an undeveloped property tax (see "APPENDIX E-AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT" and "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes - Concentration of Ownership").

The receipt of Special Taxes is subject to several variables described herein. The District provides no assurance that the Assigned Special Tax and the coverage ratios shown will be achieved.

64

TABLENO.4 COMMUNITY FACILITIES DISTRICT NO. 93-1

IMPROVEMENT AREA NO. SC DISTRICT BONDS DEBT SERVICE COVERAGE

Assumed Assigned Special Administrative Net Assumed Assigned District Bonds Coverage

Fiscal Year Taxes Expense Special Taxes Debt Service Ratio

2008 $455,873 ($25,000) $430,873 $286,790 NA

2009 464,990 (25,500) 439,490 400,173 1.10

2010 474,290 (26,010) 448,280 405,173 1.11

2011 483,776 (26,530) 457,246 414,935 1.10

2012 493,451 (27,061) 466,390 419,223 1.11

2013 503,320 (27,602) 475,718 428,273 1.11

2014 513,387 (28,154) 485,233 436,848 1.11

2015 523,654 (28,717) 494,937 444,848 1.11

2016 534,127 (29,291) 504,836 457,473 1.10

2017 544,810 (29,877) 514,933 464,223 1.11

2018 555,706 (30,475) 525,231 475,473 1.10

2019 566,820 (31,084) 535,736 485,883 1.10

2020 578,157 (31,706) 546,451 495,423 1.10

2021 589,720 (32,340) 557,380 504,063 1.11

2022 601,514 (32,987) 568,527 515,625 1.10

2023 613,545 (33,647) 579,898 525,938 1.10

2024 625,815 (34,320) 591,496 535,000 1.11

2025 638,332 (35,006) 603,326 547,813 1.10

2026 651,098 (35,706) 615,392 559,063 1.10

2027 664,120 (36,420) 627,700 568,750 1.10

2028 677,403 (37,149) 640,254 576,875 1.11

2029 690,951 (37,892) 653,059 578,438 1.13

2030 704,770 (38,649) 666,120 578,750 1.15

2031 718,865 (39,422) 679,443 577,813 1.18

2032 733,243 (40,211) 693,032 580,625 1.19

2033 747,907 (41,015) 706,892 576,875 1.23

2034 762,866 (41,835) 721,030 581,875 1.24

2035 778,123 (42,672) 735,451 580,000 1.27

2036 793,685 (43,526) 750,160 581,563 1.29

2037 809,559 (44,396) 765,163 581,250 1.32

2038 825,750 (45,284) 780,466 579,063 1.35

65

DELINQUENCIES Under the District Indenture, the District has the authority to increase the levy of Special Taxes against property owners in Improvement Area No. SC to the extent required to replenish any reserve fund to its requirement. However, the District's ability to increase Special Tax levies for this purpose is limited by two factors:

(a) The maximum Special Tax rates set forth in the Amended and Restated Rate and Method of Apportionment, and

(b) The limitations on such increases set forth in the Act, which provides that under no circumstances may the Special Tax levied against any parcel used for private residential purposes be increased as a consequence of delinquency or default by an owner of any other parcel or parcels within the such District by more than 10% in excess of the amount of Special Taxes that would have been levied absent such delinquency or default.

Delinquencies in the payment of property taxes and the Special Taxes may result from any of a number of factors affecting individual property owners. See "BONDOWNERS' RISKS" for discussions of certain potential causes of property tax delinquencies. Thus, without mitigation measures, the District may not receive sufficient Special Taxes in a Fiscal Year to pay the then current debt service on the District Bonds and Parity Bonds. The District and the Authority have taken several actions to assist in mitigating against future delinquencies including the following:

(a) An allowance for delinquencies in the annual Special Tax levy.

(b) The District maintaining a Rate Stabilization Fund under the District Indenture in the amount ofup to 15% of Maximum Annual Debt Service. The Rate Stabilization Fund will not be funded from Bond proceeds and is dependent upon the transfer and deposit of funds from the Residual Fund (see "SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE DISTRICT BONDS -Application of Special Taxes; Flow of Funds").

( c) The Authority maintaining a Cash Flow Management Fund under the Indenture of up to 15% of Maximum Annual Debt Service. The Cash Flow Management Fund will not be funded from Bond proceeds and is dependent upon the transfer and deposit of funds from the Residual Fund ("SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE BONDS - Application of Revenues; Flow of Funds."

(d) In addition, the Bonds may be payable from any available surplus revenues with respect to other series of local agency revenue bonds issued pursuant to the Indenture to the extent such surplus revenues are available to replenish the Reserve Funds to its requirement and at the election of the Authority to replenish the Cash Flow Management Fund to its requirement.

FORECLOSURE ACTIONS

Pursuant to Section 533 56.1 of the Act, in the event of any delinquency in the payment of the Special Tax, the District may order the institution of a superior court action to foreclose the lien therefor within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at judicial foreclosure sale. Under the provisions of the Act, such judicial foreclosure action is not mandatory. The District has covenanted to initiate foreclosure action in the superior court against parcels with delinquent Special Taxes as provided in the District Indenture (see "SOURCES OF PAYMENT FOR THE BONDS- REPAYMENT OF THE DISTRICT BONDS - Covenant for Superior Court Foreclosure" herein).

Foreclosure proceedings are directed by the District through a notification to foreclosure counsel as to the delinquent assessor parcel numbers for which foreclosure proceedings are to be initiated. The District

66

first removes the delinquent Special Taxes from the County Tax Roll, as required by law. Foreclosure counsel then initiates a request for a title search to identify the current legal owner of a delinquent parcel. Foreclosure counsel also sends a written demand for payment to the owner shown on the Tax Roll, followed by the filing of a complaint with the Superior Court in Riverside County ( the "Court") and recording a /is pen dens against the property at the office of the County Recorder.

Each legal owner and all holders of any other interest in the land must file an answer to the complaint within 30 days following the completion of service of process on them. If no answer is filed within such 30-day period, foreclosure counsel files a request that a default judgment be entered by the Court. If any party files an answer, then the case must be litigated, and foreclosure counsel will typically file a motion for summary judgment.

Following the entry of a judgment, whether by default or otherwise, against all defendants, foreclosure counsel requests a writ of sale from the Court for delivery to the Riverside County Sheriff's Department (the "Sheriff"). The writ of sale is delivered to the Sheriff with instructions to execute on the delinquent parcel. Levy by the Sheriff consists of posting notice on the delinquent property, followed by mailing of notice to the last known address of the legal owner and publication of the notice of levy.

Thereafter, the delinquent property owner is entitled to a redemption period of 120 days. Following such 120-day period, foreclosure proceedings can continue following the publication and mailing of a notice of sale of the delinquent parcel or parcels, which sale must be at least 20 days following such notice. The foreclosure process described above typically takes at least six months from the date on which a judgment is entered and can take substantially longer. It should be noted that any foreclosure proceedings commenced as described above could be stayed by the commencement of bankruptcy proceedings by or against the owner of the delinquent property (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes - Foreclosure and Sale Proceedings" and "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to the Levying and Collection of the Special Taxes - Bankruptcy and Foreclosure Delays" herein).

No assurances can be given that the real property subject to sale or foreclosure will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the City or the District to purchase or otherwise acquire any lot or parcel of property offered for sale or subject to foreclosure if there is no other purchaser at such sale. The Act does specify that the Special Tax will have the same lien priority in the case of delinquency as for ad va/orem property taxes (see "BONDOWNERS' RISKS - THE DISTRICT BONDS - Risk Factors Relating to Land Values" herein).

The District reserves the right to elect to accept payment from a property owner of at least the enrolled amount of the Special Taxes for a parcel(s) but less than the full amount of the penalties, interest, costs and attorneys' fees related to the Special Tax delinquency for such parcel(s ). The Bondowners are deemed to have consented to the foregoing reserved right of the District, notwithstanding any provision of the Act or other law of the State, or any other term set forth in the District Indenture to the contrary. The Bondowners, by their acceptance of the Bonds, consent to such payment for such lesser amounts.

Further, notwithstanding any provision of the Act or other law of the State, or any other term set forth in the District Indenture to the contrary, in connection with any judicial foreclosure proceeding related to delinquent Special Taxes, the District or the Fiscal Agent is expressly authorized to credit bid at any foreclosure sale, without any requirement that funds be set aside in the amount so credit bid, in the amount specified in Section 53356.5 of the Act or otherwise under Section 53356.6 of the Act.

67

IMPROVEMENT AREA NO. SC The information set forth herein regarding current ownership of real property in Improvement Area No. 8C and any proposed development of property in Improvement Area No. 8C was provided by Pardee Homes and KB HOME Coastal and has not been independently verified. The information regarding KB HOME Coastal set forth herein was not obtained from Pardee Homes and has not been independently verified by the Pardee Homes. Similarly, the information regarding Pardee Homes set forth herein was not obtained from KB HOME Coastal and has not been independently verified by KB HOME Coastal. The Authority makes no representation as to the accuracy or completeness of any such information. This information has been included because it is considered relevant to an informed evaluation of the District Bonds. As development of property in Improvement Area No. 8C has not been completed, no assurance can be given that it will occur, that it will occur as described herein, or that it will occur in a timely manner. This information should not be construed to suggest that the District Bonds or the Special Taxes that will be used to pay the District Bonds are personal obligations of Pardee Homes and KB HOME Coastal.

The owners of property within Improvement Area No. 8C will not be personally liable for payments of the Special Taxes to be applied to pay the principal of and interest on the District Bonds. Accordingly Pardee Homes sand KB HOME Coastals financial statements have not been included in this Official Statement. Furthermore, no representation is made that Pardee Homes and KB HOME Coastal will have funds available to complete their respective proposed development within Improvement Area No. 8C.

The following section provides a brief description of Pardee Homes and KB HOME Coastal which own property in Improvement Area No. 8C. In addition, a brief discussion of the type of project, the status of land use entitlements, and the experience and plans of Pardee Homes and KB HOME Coastal are included. There can be no assurance that the development plans described herein will be completed or will not be modified in the future. In addition, there can be no assurance that sufficientfands will or can be made available to complete the development plans or pay Special Taxes as described herein.

Any websites included herein are included for reference only and the information on such websites is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information included in such internet sites.

Publicly traded companies are subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith file reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Such filings, particularly the Annual Report on Form 10-K and the most recent Quarterly Report on Form 10-Q, may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, NW, Washington, DC 20549 and at the SEC s regional office at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 at prescribed rates. Such filings can also be accessed over the internet at the SEC s website at www.sec.gov. In addition, the aforementioned material may also be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. All documents subsequently filed pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in such manner as the SEC prescribes.

LOCATION AND BOUNDARIES OF IMPROVEMENT AREA NO. 8C

Improvement Area No. SC is generally located in the western section of the master-planned community of Sundance ("Sundance") and is located westerly of Highland Springs and north of 8th Street in the City. Improvement Area No. SC consists of approximately 96.57 taxable acres (see "Boundary Map" below). It was recorded in the Office of the Riverside County Recorder in the Maps of Assessment and Community Facilities District.

68

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PARDEE SUNDANCE IMPROVEMENT AREA NO. 8-C

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FACILITIES AND FEES ELIGIBLE TO BE FINANCED BY THE DISTRICT

The adopted District resolutions authorize the issuance of District Bonds to finance the planning, design, permitting and construction of certain public facilities consisting of street, sewer, water and storm drain improvements and contributions to the City sewage treatment plant and planning of watershed management. The authorized public facilities proposed for funding through the issuance of District Bonds include the following:

CRITICAL FACILITIES

Transportation facilities, domestic water facilities, recycled water facilities, sewer transmission and treatment facilities, traffic signals and street lighting facilities, public safety, public works and administrative facilities, watershed management and storm drain facilities, regional park, open space and trail facilities and appurtenant facilities, including planning, engineering and enviromnental reports and studies, utilities, fees and permits in connection therewith.

JOINT FACILITIES

Upper Potrero sewer system and appurtenant facilities, including engineering reports and studies, utilities, fees and permits in connection therewith.

INDIVIDUAL FACILITIES

Transportation facilities, sewer treatment plant, domestic water facilities, recycled water facilities, sewer transmission and treatment facilities, traffic signals and street lighting facilities, public safety, public works and administrative facilities, watershed management and storm drain facilities, community parks and multipurpose trails and appurtenant facilities, including planning, engineering and enviromnental reports and studies, utilities, fees and permits in connection therewith.[

ESTIMATED COSTS

The following table summarizes the authorized District facilities which are currently expected to be fmanced with proceeds of the District Bonds. Other facilities may be substituted for those described below with the consent of the City and Master Developer or as provided in an agreement between the City and the Master Developer.

70

TABLENO.5 CITY OF BEAUMONT


ESTIMATED COSTS OF AUTHORIZED FACILITIES

Facility/Description Estimated Cost

Critical Facilities

City Program

TUMF Facilities

Regional Park Facilities

Westside Fire Station

Sewage Treatment Facilities

Recycled Water Facilities

Engineering and Geotechnical Reports

San Timoteo Watershed Management Projects

Subtotal

Domestic Water Facilities

Facility Engineering, Fees and Permits

Subtotal Critical Facilities

Joint Facilities

Southern Trunk Main

Individual Facilities

Prepaid Engineering and Formation Cost

Prepaid Citywide Fees

Subtotal

Cherry Storm Drain Channel

Subtotal Individual Facilities

Total

Source: Urban Logic Consultants

71

$2,409,840

611,047

124,709

345,516

250,000

75,000

25 000

$3,841,112

$200,000

$595,611

$4,636,723

$60,701

$250,000

396 000

$646,000

$2,366,782

$3,012,782

$7,710,206

THE MASTER DEVELOPER AND KB HOME COASTAL

Pardee Homes ("Pardee Homes" or 'Master Developer") originally owned and is the master developer of all of the net assessable acreage of land within Improvement Area No. SC. The property within Improvement Area No. SC has been and is expected to be divided into six final maps identified as Tract Map Nos. 31468-5 through 31468-8, Tract Map No. 34291 and Tract Map No. 34290. All the Tract Maps, with the exception of Tract Map No. 34290, have been recorded and Tract Map No. 34290 is expected to be recorded by the end of 2007.

Each final map consists of one planning area ( each a "Planning Area"). Pardee Homes is responsible for the development of the property identified as: Planning Area 18 (Tract No. 31468-5); Planning Area 19 (Tract No. 31468-6); Planning Area 20 (Tract No. 34290); Planning Area 22 (Tract No. 31468-7); and Planning Area 24 (Tract No. 34291). KB HOME Coastal is responsible for the development of the property identified as Planning Area 23 (Tract No. 31468-8). The development of the property is summarized below.

Planning Area Tract No. Merchant Builder No. of Lots





23 31468-8 KB HOME Coastal 155


689

PARDEE HOMES

Pardee Homes is a California corporation based in Los Angeles, California. Established in 1921, Pardee Homes brings more than 80 years experience to building homes and communities. Pardee Homes is a developer of new-home neighborhoods, master-planned communities, multi-family developments and business parks throughout southern California and southern Nevada. The Nevada operations are a wholly-owned subsidiary of Pardee Homes. In 1969, Pardee Homes became a wholly-owned subsidiary of Weyerhaeuser Real Estate Company. Weyerhaeuser Real Estate Company (WRECO) is a whollyowned subsidiary of Weyerhaeuser Company. Weyerhaeuser Company is listed on the New York Stock Exchange under the symbol "WY." The internet website address for Pardee Homes Homes is www.pardeehomes.com. This internet address is included for reference only and the information on this internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement.

KB HOME Coastal Inc.

KB HOME Coastal is a California corporation and a wholly-owned subsidiary of KB HOME, a Delaware corporation ("KB Home Corporation"). KB Home Corporation is one of Southern California's largest homebuilders. KB Home Corporation has domestic operating divisions in California, Arizona, Nevada, New Mexico, Colorado, Illinois, Florida, Louisiana, Texas, Georgia, North Carolina, South Carolina, Virginia and Maryland.

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http://www.pardeehomes.com

Founded in 1957, KB Home Corporation is a Fortune 500 company listed on the New York Stock Exchange under the ticker symbol "KBH." Financial information about KB Home Corporation is included in documents filed with the Securities and Exchange Commission (SEC), particularly in its Annual Report on Form 10-K and its most recent quarterly report on Form 10-Q. KB Home Corporation's internet address is www.kbhome.com. This internet address is included for reference only and the information on such internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement.

Sale of Property from Pardee Homes to KB HOME Coastal Inc.

On March 20, 2006, Pardee Homes and KB HOME Coastal entered into a purchase and sale agreement (the "Purchase Agreement") for the property in Tract 31468-8 (the "Property"). Pursuant to the Purchase Agreement, Pardee Homes sold the Property to KB HOME Coastal in consideration for, among other things, (a) the payment of the purchase price for the Property and (b) KB HOME Coastal's representations that it is acquiring the Property to build 155 single family residences (the "Project Unit") in accordance with an approved project plan and that it does not intend to transfer the Property to another developer ( except to individual homeowners). In addition, the Purchase Agreement requires KB HOME Coastal to build certain improvements for the Property and the Project Unit in accordance with the Purchase Agreement. Subject to the terms of the Purchase Agreement, if KB HOME Coastal fails to commence and complete the work as required by the Purchase Agreement, Pardee Homes has the right to repurchase some or all of the lots then owned by KB HOME Coastal (the "Option"). The Option expires with respect to any lot upon the completion of a Project Unit on such lot. Moreover, Pardee Homes has a right of first refusal to the Property if KB HOME Coastal sells the lots to another party prior to the construction of a Project Unit on each lot by KB HOME Coastal.

As an additional consideration for the Property, Pardee Homes and KB HOME Coastal entered into a profit participation agreement (the "Participation Agreement"), whereby KB HOME Coastal agreed to pay to Pardee Homes a percentage of the profits derived from the sales to individual homeowners for each phase of the project (the "Profit Participation"). The obligation of KB HOME Coastal to pay the Profit Participation is secured by a deed of trust encumbering the Property in favor of Pardee Homes. The portion of the Property transferred may be released from the lien of the deed of trust at the time of such transfer; provided that, KB HOME Coastal is not then in default of any of its monetary obligations under the Participation Agreement. As of the date of this Official Statement, KB HOME Coastal is not in default under the terms and conditions of the Purchase Agreement and the Participation Agreement.

DESCRIPTION OF DEVELOPMENT

Shown below are the expected home sizes and current development status of the lots in Improvement Area No. SC. Construction of production units in Planning Area 20 and Planning Area 22 have not started. In changing market conditions builders will often revise their product line and, therefore, the expected home sizes are subject to change (see "BONDOWNERS' RISKS" and "APPENDIX D - MARKET ABSORPTION STUDY" herein). See "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE -SPECIAL TAX PROJECTIONS" herein for the square footage assumptions used in projecting the Special Taxes.

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http://www.kbhome.com

Floor Plan

Plan 1

Plan 2

Plan 3

Plan 4

Plan 5

Total

TABLENO.6 COMMUNITY FACILITIES DISTRICT NO. 93-1 ™PROVEMENT AREA NO. SC

STATUS OF DEVELOPMENT TRACT NO. 31468-8 (PLANNINGAREA23) TRILLIUM

AS OF OCTOBER 1, 2007

Production and Finished Lots Production Units Model Homes

Square Footage Without Homes Under Construction Completed

1,853 Sq. Ft 15 2 13

2,180 Sq. Ft 24 2 14

2,337 Sq. Ft 16 7

2,456 Sq. Ft 14 0 13

1,670 Sq. Ft 12. ,!_ 11

87 8 60

Source: KB HOME Coastal

Floor Plan

Plan 1

Plan 2

Plan 3

Total

TRACT NO. 34291 (PLANNING AREA24) SO LARIS II AS OF OCTOBER 1, 2007

Finished Lots Production Units Square Footage Without Homes Under Construction Completed

1,683 Sq. Ft 10 3 25

1,918 Sq. Ft 10 2 23

2,105 Sq. Ft 11 2 24

31 7 72

Source: Pardee Homes

74

30

40

24

27

155

38

35

37

110[

Floor Plan

Plan I

Plan 2

Plan 3

Total

Floor Plan

Plan I

Plan 2

Plan 3

Plan 4

Total

TABLE NO. 6 (CONTINUED) COMMUNITY FACILITIES DISTRICT NO. 93-1 IMPROVEMENT AREA NO. SC

STATUS OF DEVELOPMENT

TRACT NO. 31468-5 (PLANNING AREA 18) LARKSPUR AS OF OCTOBER 1, 2007

Blue Top Lots / Finished Lots Production Units Under

Sguare Footage Without Homes Construction Com11leted

2,409 Sq. Ft 25 4

2,659 Sq. Ft 26 3

2,801 Sq. Ft 29 ,!_

80 10

TRACT NO. 31468-6 (PLANNING AREA 19) COPPERLEAF AS OF OCTOBER 1, 2007

Blue Top Lots / Finished Lots Production Units Under

7

7

§_

20

Sguare Footage Without Homes Construction Com11leted

1,893 Sq. Ft 30 0 7

2,181 Sq. Ft 33 0 6

2,505 Sq. Ft 35 0 7

2,799 Sq. Ft 32 0 9

130 0 29


75

Total

36[

36

38

110

Total

37[

39

42

41

159

Set forth below is the status of the infrastructure improvements (i.e., water, sewer, streets, storm drain and street improvements and dry utilities) as of October I, 2007. Grading and construction of infrastructure in Planning Area 20 and Planning Area 22 has not yet started.

TABLE NO. 7 COMMUNITY FACILITIES DISTRICT NO. 93-1 IMPROVEMENT AREA NO. SC

STATUS OF PUBLIC IMPROVEMENTS

PERCENTAGE COMPLETION OF INFRASTRUCTURE

Facilities Planning Area 23 Planning Area 24 Planning Area 18 Planning Area 19

Water Improvements I 00% Completed I 00% Completed I 00% Completed I 00% Completed

Sewer Improvements I 00% Completed I 00% Completed I 00% Completed I 00% Completed

Storm Drain I 00% Completed I 00% Completed I 00% Completed I 00% Completed Improvements

Street Improvements 95% Completed I 00% Completed 50% Completed 50% Completed

Dry Utilities I 00% Completed I 00% Completed I 00% Completed 50% Completed

Source: KB HOME Coastal for Planning Area 23 and Pardee Homes for Planning Areas 18, 19 and 24

HOME PRICING Shown below is the current base price and the lowest and highest price for each plan type that have closed escrow. Home prices were last adjusted October I, 2007 for Planning Area No. 23, August 2007[ for Planning Area 24, Planning Area 18 and Planning Area 19.

TABLENO.8 COMMUNITY FACILITIES DISTRICT NO. 93-1 IMPROVEMENT AREA NO. SC

HOME PRICING AS OF OCTOBER 1, 2007 TRACT NO. 31468-8 (PLANNINGAREA23) TRILLIUM

Number of Current Base Low est Sales Highest Sales Escrows Closed Price (1) Price/ Date (2) Price/Date

Plan 1 10 $274,990 $272,500 I 8-30-07 $331,990 I 3-26-07

Plan2 9 279,990 325,990 I 2-2-07 337,990 I 3-6-07

Plan3 4 289,990 335,990 / 2-18-07 342,990 I 2-28-07

Plan4 8 296,990 286,085 / 6-9-07 355,990 I 2-6-07

Plan5 12 249,990 279,042 I 8-26-07 321,990 I 11-26-06

I. Subsequent to November 19, 2007, the City was notified that KB HOME Coastal published revised base prices for each plan in Tract 31468-8 effective after October I, 2007. The current base prices for each plan are $10,000 less than shown above and are now as follows: Plan I - $264,990; Plan 2 - $269,990; Plan 3 - $279,990; Plan 4 - $286,990; and Plan 5 - $239,990.

2. Subsequent to November 19, 2007, the City was notified that KB HOME Coastal sold and closed homes after October I, 2007 at prices lower than shown above in the following plans, as follows: Plan I - $261,000; Plan 2 - $265,000; Plan 3 - $262,000; and Plan 5 - $250,000.


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TRACT NO. 34291 (PLANNING AREA 24) SOLARlS II

Number of Current Base Lowest Sales Price/ Highest Sales Escrows Closed Price Date Price/Date

Plan 1 19 $295,900 $300,000 I 7-26-07 $332,552 / 6-14-07

Plan2 14 310,900 319,900/8-17-07 350,965 I 6-22-07

Plan3 13 325,900 337,900 I 9-28-07 370,376 I 6-29-07


TRACT NO. 31468-5 (PLANNING AREA 18) LARKSPUR


Plan 1 3 $354,900 $357,900 I 8-17-07 $437,000 I 3-28-07

Plan2 5 370,900 380,526 I 8-17-07 460,750 I 3-28-07

Plan3 4 380,900 415,350 I 6-22-07 489,250 I 3-28-07


TRACT NO. 31468-6 (PLANNlNGAREA 19) COPPERLEAF


Plan 1 2 $339,900 $357,441 I 7-13-07 $363,175 / 8-01-07

Plan2 349,900 373,125 I 7-19-07 373,125 /7-19-07

Plan3 2 354,900 373,538 / 9-14-07 380,000 I 8-31-07

Plan4 2 371,990 443,233 I 7-27-07 451,413 I 7-20-07


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SALES HISTORY

The actual sales record of Pardee Homes and KB HOME Coastal in Improvement Area No. SC as of October I, 2007 are shown below. As is common with sales at this stage of development, the sales are subject to a number of contingencies and Pardee Homes and KB HOME Coastal can provide no assurance that the current sales will result in closed escrows. Pardee Homes has not commenced selling homes at the present time in Planning Area 20 and Planning Area 22.

Sales for Tract No. 31468-8 commenced in November 2006. Model Homes for Tract No. 31468-8 were opened in February 2007.

TABLENO.9A COMMUNITY FACILITIES DISTRICT NO. 93-1 IMPROVEMENT AREA NO. SC

SALES IDSTORY

TRACT NO. 31468-8 (PLANNINGAREA23) TRILLIUM

Cumulative Number of Number of Number of Escrows Number of Homes

Sales Cancellations Closed in Escrow

Prior 10 4 0 6

January 2007 6 3 0 9

February 2007 15 5 0 19

March 2007 23 12 0 30

April 2007 6 5 0 31

May2007 9 4 6 30

June 2007 12 4 0 38

July 2007 5 2 12 29

August2007 2 0 18 13

September 2007 5 3 7 8


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Sales for Tract No. 34291 commenced in September 2006.

TABLENO.9B COMMUNITY FACILITIES DISTRICT NO. 93-1

IMPROVEMENT AREA NO. SC SALES HISTORY

TRACT NO. 34291 (PLANNING AREA 24) SO LARIS II

Prior

January 2007

February 2007

March2007

April 2007

May2007

June 2007

July2007

August 2007

September 2007

Number of Sales

41

11

13

4

8

3

3

4

0

2

79

Number of Cancellations

7

3

3

2

0

Number of Escrows Closed)

0

0

0

0

0

0

18

13

9

6[

Sales for Tract No. 31468-5 commenced in February 2007. Model Homes for Tract No. 31468-5 were opened in February 2007.

TABLENO.9C COMMUNITY FACILITIES DISTRICT NO. 93-1

IMPROVEMENT AREA NO. SC SALES HISTORY

TRACT NO. 31468-5 (PLANNING AREA 18) LARKSPUR

Number of Escrows Closed

Number of Number of (including 3 model Sales Cancellations homes)

February 2007 11 3 0

March2007 3 3

April 2007 0 0 0

May2007 2 0

June 2007 3 2

July2007 7 2 4

August 2007 5 3

September 2007 3 o[

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Sales for Tract No. 31468-6 commenced in February 2007. Model Homes for Tract 31468-6 were opened in February 2007.

TABLENO.9D CITY OF BEAUMONT

COMMUNITY FACILITIES DISTRICT NO. 93-1 ™PROVEMENT AREANO. SC

SALES IDSTORY

TRACT NO. 31468-6 (PLANNING AREA 19) COPPERLEAF

Number of Number of Number of Sales Cancellations Escrows Closed

February 2007 24 6 0

March2007 4 0

April 2007 3 0

May2007 2 0

June 2007 0 0 0

July2007 0 0 4

August2007 0 0 2

September 2007 2

ESTIMATED ABSORPTION SCHEDULE

The District had a market absorption study prepared by Empire Economics, Inc., Capistrano Beach, California, in order to estimate the absorption rate within Improvement Area No. SC. Please refer to "APPENDIX D - MARKET ABSORPTION STUDY" herein for the potential market and financial risk factors that are expected to influence the absorption of homes within Improvement Area No. SC. Empire Economics, Inc. expects that as interest rates on new loans increase and as the interest rates on existing adjustable rate loans are reset ( and payments are increased) there will be a decrease in home sales due to the inability of purchasers to qualify for loans with higher interest rates. The estimated absorption rates for Improvement Area No. SC contained in the Market Study are shown below.

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TABLENO.10 ESTIMATED ABSORPTION SCHEDULES

Calendar PA23 PA24 PA18 PA19 & 20 Year (Trillium) (Solaris II) (Larks11ur) (Co1111erleaf) PA22 Prior 8 22 5 3 0

2007 45 35 15 20 0

2008 40 45 20 25 15

2009 40 8 20 25 35

2010 22 25 30 40

2011 25 35 42

2012 44

Total 147 88 105 179 132 Remaining Homes

Source: Market Absorption Study - see "APPENDIX D - MARKET ABSORPTION STUDY" herein.

FINANCING PLANS OF THE DEVELOPERS

As of October 15, 2007, the Master Developer's cost to develop the 689 lots to the stage of finished lots ready to build homes or in the case of Planning Area 23, to the stage it was in when sold to KB HOME Coastal, was estimated as follows:

Description

Infrastructure

Local in-tract improvements & grading costs

Fees, including school fees

Total

Estimated Cost

$9,886,211

7,939,642

14 499 060

$32,324,913

Fees are paid by the Master Developer or the Merchant Builders as building permits or certificates of occupancy are issued.

As of October 1, 2007, the Master Developer has initially funded approximately $15,433,863 of the foregoing costs and approximately $20,000,000 of such costs are expected to be paid with the proceeds of the District Bonds, provided, however, that initially, only approximately $5,400,000 will be available in the Construction Fund to pay project costs, with additional funds to become available only if the planned additional series of District Bonds are issued. 1f Parity Bonds are not issued, then the Master Developer, or its successors, will need to finance its remaining project costs from other sources in order to complete its development within Improvement Area No. SC. The balance of the foregoing costs will be fmanced

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by the Master Developer or by the Merchant Builders in accordance with purchase and sale agreements which may be entered into between the Master Developer and each Merchant Builder.

Pardee Homes. Pardee Homes plans to fmance the balance of site development costs and additional home construction costs from home sales, District Bond proceeds and internal sources, including funds provided by its parent company, Weyerhaeuser Real Estate Company. There is no assurance that amounts necessary to finance Pardee Homes 's remaining site development and home construction costs will be available from Pardee Homes or any other source, when needed. Neither Pardee Homes or Weyerhaeuser Real Estate Company nor any of their affiliates, is under any legal obligation of any kind to expend funds for the development of the property in Improvement Area No. SC. Any internal funding by Weyerhaeuser Real Estate Company or Pardee Homes or any of their affiliates, or borrowing under any loan arrangement, to finance such development and home construction costs is entirely voluntary.

If and to the extent that home sales revenue, internal funding and Bond proceeds are inadequate to pay the costs to complete the planned development in Improvement Area No. SC and other fmancing is not put into place, there could be a shortfall in the funds required to complete the proposed development in Improvement Area No. SC and portions of the project in Improvement Area No. SC may not be developed.

KB HOME Coastal. KB HOME Coastal has financed and will continue to finance the cost of land acquisition, infrastructure improvements and home construction costs through internal corporate fmancing ( which, generally, consists of working capital provided by KB Home Corporation and revenues from home sale proceeds). KB HOME Coastal intends to use internal corporate fmancing to finance all carrying costs for the property (including property taxes and any Special Taxes levied against property it owns) until full sell-out of its single-family homes within Improvement Area No. SC. However, if and to the extent this source of financing is inadequate to pay the cost to complete the planned development of the property, there can be no assurance of the willingness or ability of KB Home Corporation or KB HOME Coastal to make such funds available in the future, or the ability ofKB HOME Coastal to obtain financing from other sources. There is no legal obligation to the owners of the Bonds or the District Bonds to make any such funds available for construction or development, or the payment of ad valorem property taxes or any Special Taxes levied against property it owns.

HISTORY OF PROPERTY TAX PAYMENT; LOAN DEFAULTS; BANKRUPTCY

Authorized representatives of Pardee Homes and KB HOME Coastal each have made the following representations, to their actual know ledge, with respect to their respective entity:

(a) Other than with respect to affiliates of KB HOME Coastal as set forth below, Pardee and KB HOME Coastal have not within the past five years defaulted to a material extent in payment of, and are not currently delinquent in the payment of, any ad valorem property taxes, special taxes or assessments in connection with Improvement Area No. SC that was not either cured within the fiscal year in which the special tax or assessment was levied or prior to a foreclosure action being commenced,

(b) Pardee and KB HOME Coastal are not in breach of or in default under any applicable judgment or decree or any loan agreement, option agreement, development agreement, indenture, bond, note, resolution, agreement, or other instrument to which it is, or will upon issuance of the Bonds be, a party or otherwise subject which breach or default would materially and adversely affect its ability to perform its obligations under its respective continuing disclosure agreement or its ability to pay the Special Taxes, and no event has occurred and is continuing that with the passage of time or giving of notice, or both, would constitute such a breach or default,

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( c) Except as described herein and except for credit that may be extended by contractors, subcontractors, tradesmen or suppliers in the ordinary course of development, it has no loans outstanding and unpaid secured by their respective properties in Improvement Area No. SC and no lines of credit which are secured by their respective properties in Improvement Area No. SC, and

(d) There is no litigation pending against Pardee and KB HOME Coastal (with proper service of process to Pardee or KB HOME Coastal, as applicable, having been accomplished), or, to the actual knowledge of the person executing the certificate, threatened against Pardee and KB HOME Coastal, which if successful, would materially adversely affect the ability of Pardee and KB HOME Coastal to develop the property they own in Improvement Area No. SC, or the ability of Pardee and KB HOME Coastal to pay Special Taxes or ad valorem tax obligations on their respective property within Improvement Area No. SC prior to delinquency.

Affiliates of KB HOME Coastal, KB Home Greater Los Angeles Inc. ("KB Greater Los Angeles") and KB Home Holdings Inc. ("KB Home Holdings"), owned or formerly owned approximately 500 acres of undeveloped land in the Rosamond area of southern Kem County, California. The property is within two assessment districts formed by the Rosamond Community Services District (Assessment District No. 1990-2 and Assessment District No. 1991-3). Bonds were issued for both assessment districts. In approximately 1995, KB Greater Los Angeles and KB Home Holdings determined that, based upon changed market conditions, the value of the property did not support the tax burden on the property and KB Greater Los Angeles and KB Home Holdings stopped paying the ad valorem property taxes and the instalhnents of the special assessments on the property. The Rosamond Community Services District obtained a foreclosure judgment against the property and a sheriff's sale was held on July 30, 2002. There were no bidders at the sheriff's sale. Kem County held a tax sale on March 3, 2003, and four parcels totaling approximately 480 acres were sold at the tax sale to two buyers. The sale of these four parcels was later rescinded and title to these four parcels reverted back to KB Greater Los Angeles or KB Home Holdings, as the case may be. Kern County held two tax sales in 2005 that resulted in the sale of five parcels. As of May 31, 2007, KB Greater Los Angeles and KB Home Holdings owned two parcels containing a total of approximately 25 acres which had delinquent assessment installments.

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LEGAL MATTERS

ENFORCEABILITY OF REMEDIES

The remedies available to the Trustee and the Owners of the Bonds upon an event of default under the Indenture, the District Indenture or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents 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 to the extent that the enforceability of certain legal rights related to the Indenture is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.

APPROVAL OF LEGAL PROCEEDINGS

Mcfarlin & Anderson LLP, Lake Forest, California, as Bond Counsel, will render an opinion which states that the Indenture and the Bonds are valid and binding contracts of the Authority and are enforceable in accordance with their terms. Mcfarlin & Anderson LLP will render an opinion which states that the District Indenture and the District Bonds are valid and binding contracts of the District and are enforceable in accordance with their terms. The legal opinions of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights and to the exercise of judicial discretion in accordance with general principles of equity.

The Authority has no knowledge of any fact or other information which would indicate that the Indenture is not so enforceable against the Authority, except to the extent such enforcement is limited by principles of equity and by State and federal laws relating to bankruptcy, reorganization, moratorium or creditors' rights generally.

Certain legal matters will be passed on for the Authority and the District by Aklufi & Wysocki, Riverside, California, as Authority Counsel. In addition, certain legal matters will be passed on by Fulbright & Jaworski L.L.P, Los Angeles, California, Disclosure Counsel. Certain legal matters will be passed on for the Underwriter by the Law Offices of Robert F. Messinger, Irvine, California, Underwriter's Counsel.

Fees payable to Bond Counsel, Disclosure Counsel and Underwriter's Counsel are contingent upon the sale and delivery of the Bonds.

TAX EXEMPTION

In the opinion of Mcfarlin & Anderson LLP, Lake Forest, California ("Bond Counsel"), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, compliance with certain covenants and agreements, 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. Bond Counsel is further of the opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. However, Bond Counsel observes that interest on the Bonds is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in "APPENDIX G" hereto.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority and the District have 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 gross income for federal income tax purposes, possibly from the

85

date of original issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine ( or to inform any person) whether any action taken ( or not taken) or event occurring ( or not occurring) after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Further, no assurance can be given that pending or future legislation or amendments to the Code, if enacted into law, or any proposed legislation or amendments to the Code, will not adversely affect the value of, or the tax status of interest on, the Bonds. Prospective Owners of the Bonds are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax.

Should interest on the Bonds become includable in gross income for federal income tax purposes, the Bonds are not subject to early redemption as a result of such event and will remain Outstanding until maturity or until otherwise redeemed in accordance with the Indenture.

To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds ( excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public ( excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public.

Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Bonds") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a purchaser's basis in a Premium Bond, and under Treasury Regulations, the amount of tax exempt interest received will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstance.

Certain requirements and procedures contained or referred to in the Indenture, the tax certificate, 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 terms and conditions set forth in such documents. Bond Counsel expresses no opinion 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 Mcfarlin & Anderson LLP.

Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect an owner's federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the owner of the Bond or such owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

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ABSENCE OF LITIGATION

The Authority will furnish a certificate dated as of the date of delivery of the Bonds that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Indenture, the District Indenture or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Indenture and the District Indenture are to be executed or delivered or the Bonds and the District Bonds are to be delivered or affecting the validity thereof.

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CONCLUDING INFORMATION

NO RATINGS ON THE BONDS

The Authority has not made, and does not contemplate making, any application for a rating on the Bonds. No such rating should be assumed based upon any other Authority rating that may be obtained. Prospective purchasers of the Bonds are required to make independent determinations as to the credit quality of the Bonds and their appropriateness as an investment. Should a Bondowner elect to sell a Bond prior to maturity, no representations or assurances can be made that a market will have been established or maintained for the purchase and sale of the Bonds. The Underwriter assumes no obligation to establish or maintain such a market and is not obligated to repurchase any of the Bonds at the request of the owner thereof.

UNDERWRITING

Southwest Securities, Inc., Newport Beach, California (the "Underwriter"), is offering the Bonds at the prices set forth on the cover page hereof. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others.

The Underwriter has purchased the Bonds at a price equal to approximately 97.909331 % ($6,383,688.35) of the aggregate principal amount of the Bonds, which amount represents the principal amount of the Bonds, less the Underwriter's discount of $130,400.00 and a net original issue discount of $5,911.65.

The Underwriter will pay certain of its expenses relating to the offering.

EXPERTS

The Market Absorption Study prepared by Empire Economics, Inc., Capistrano Beach, California, and the Appraisal prepared by Harris Realty Appraisal, Newport Beach, California, as well as the tax spread projections prepared by General Government Management Services, Rancho Mirage, California, Special Tax Consultant, have been included in this Official Statement in reliance on and upon the authority of said firms as experts in the matters covered therein.

SPECIAL TAX CONSULTANT AND PROJECT ENGINEER

The City Manager, as the principal of General Govermnent Management Services, is serving as the District's Special Tax Consultant with respect to Improvement Area No. SC. The Special Tax Consultant, among other things, will be responsible for preparing a cash flow certificate showing that sufficient Special Taxes will be available to pay debt service on all District Bonds. Fees paid to the Special Tax Consultant are contingent upon the sale and delivery of the Bonds.

The City's Public Works Director, as a principal of Urban Logic Consultants, Inc., is serving as the City's Project Engineer with respect to the District. The Project Engineer will be responsible, among other things, for engineering estimates with respect to the Project. The fees paid to the Project Engineer are contingent upon the sale and delivery of the Bonds.

THE FINANCING CONSULTANT

The material contained in this Official Statement was prepared by Rod Gunn Associates, Inc., Huntington Beach, California, an independent fmancial consulting firm, who advised the Authority as to the financial structure and certain other fmancial matters relating to the Bonds. The information set forth herein has been obtained by Rod Gunn Associates, Inc. from sources which are believed to be reliable, but such information is not guaranteed by Rod Gunn Associates, Inc. as to accuracy or completeness, nor has it

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been independently verified. Fees paid to Rod Gunn Associates, Inc. are contingent upon the sale and delivery of the Bonds.

FORWARD LOOKING STATEMENTS

Certain statements included or incorporated by reference in this Official Statement constitute "forwardlooking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27 A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a "plan," "expect," "estimate," "project," ''budget" or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the caption "SPECIAL TAXES AND DISTRICT BONDS DEBT SERVICE COVERAGE" herein.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE AUTHORITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.

ADDITIONAL INFORMATION

The summaries and references contained herein with respect to the Indenture, the District Indenture, the Bonds, statutes and other documents, do not purport to be comprehensive or defmitive and are qualified by reference to each such document or statute and references to the Bonds are qualified in their entirety by reference to the form hereof included in the Indenture. Copies of the Indenture and the District Indenture are available for inspection during the period of initial offering on the Bonds at the offices of the Underwriter, Southwest Securities, Inc., 620 Newport Center Drive, Suite 300, Newport Beach, California 92660, telephone (949) 717-2000. Copies of these documents may be obtained after delivery of the Bonds from the Authority through the City Manager, City of Beaumont, 550 East Sixth Street, Beaumont, California 92223.

REFERENCES

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. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or Owners of any of the Bonds.

EXECUTION

The execution of this Official Statement by the Executive Director has been duly authorized by the Beaumont Financing Authority.

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BEAUMONT FINANCING AUTHORITY

By:

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Alan Kapanicas

Executive Director

APPENDIX A DEFINITIONS OF CERTAINTERMS USED INTHE INDENTURE

AND THE DISTRICT INDENTURE

Unless otherwise defined in this Official Statement, the following terms have the following meanings.

"Act" means 'Mello-Roos" Community Facilities Act of 1982, commencing with Section 53311 of the Govermnent Code of the State of California.

"Administrative Expense Fund" means the fund by that name created and established pursuant to the District Indenture.

"Administrative Expenses" means the ordinary and necessary fees and expenses for creation of the District, issuance of the District Bonds, determination of the Special Tax and administering the levy and collection of the Special Tax and servicing the District Bonds, including any or all of the following: the fees and expenses of the Trustee (including any fees or expenses of its counsel), the expenses of the District in carrying out its duties hereunder (including, but not limited to, annual audits, special tax consultants and attorneys and costs incurred in the levying and collection of the Special Taxes) including the fees and expenses of its counsel, an allocable share of the salaries of staff to the District directly related thereto and a proportionate amount of general administrative overhead related thereto and all other costs and expenses of the District or the Trustee incurred in connection with the discharge of their respective duties hereunder and, in the case of the District, in any way related to the administration of the District.

"Annual Debt Service" means, for each Bond Year, the sum of (i) the interest payable on the Outstanding Bonds in such Bond Year, and (ii) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year, whether at maturity or pursuant to sinking fund redemption.

"Apportionment" means with respect to each Improvement Area the apportiomnent of tax revenues by the Auditor-Controller of the County of Riverside for such Improvement Area.

"Authorized Representative'' means: (a) with respect to the Authority, its Chairperson, Vice Chairperson, Executive Director, Treasurer, Secretary or any other person designated as an Authorized Representative of the Authority by a Written Certificate of the Authority signed by its Chairperson and filed with the Trustee; and (b) with respect to the District, the Mayor, City Manager, Treasurer, Finance Director or any other person designated as an Authorized Representative of the District by a Written Certificate of the District signed by the Mayor or City Manager and filed with the Trustee.

"Board" means the Board of Directors of the Authority.

"Bond Counsel" means (a) Mcfarlin & Anderson LLP, or (b) any other attorney or firm of attorneys appointed by or acceptable to the Authority of nationally-recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Tax Code.

"Bond Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture.

"Bond Law'' means the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title I of the Govermnent Code of the State, as in existence on the Closing Date or as thereafter amended from time to time.

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" Band Year" means each twelve-month period extending from September 2 in one calendar year to September I of the succeeding calendar year, both dates inclusive, except that the first Bond Year shall commence on the Closing Date and end on September I, 2008.

"Business Day" means a day (other than a Saturday or a Sunday) on which banks are not required or authorized to remain closed in the State of California or in the State of New York, or in the city in which the Trustee Office is located.

"Cash FION Certificate" means a certificate or other document of an Independent Accountant or an Independent Financial Consultant showing as of any particular date:

(I) For the current and each future Bond Year the amount of scheduled or estimated amount of Revenues to be received in each such Bond Year and the Annual Debt Service for each such Bond Year with respect to all of a Series of the Bonds then Outstanding;

(2) In each such Bond Year, the difference between (i) the Annual Debt Service referred to in (I) above, and (ii) the Revenues referred to in (I) above;

(3) That such scheduled and estimated Revenues and any other revenues, investment income or funds reasonably estimated by such Independent Accountant or Independent Financial Consultant, as applicable, to be available for the payment of such Annual Debt Service referred to in (I) above are in each such Bond Year in excess of such Annual Debt Service for each such Bond Year; and

( 4) If applicable, a schedule of Permitted Investments purchased or to be purchased by or on behalf of the Authority for investment of moneys to be deposited in the Reserve Fund.

"City Clerk" means the City Clerk of the City, acting on behalf of the District.

"Closing Date" means the date of delivery of the Bonds to the Original Purchaser.

"Completion of the Prqj ect" means certification by the District to the District Trustee that (i) all Project Costs have been paid and (ii) the filing and recordation of a notice of completion by the District with respect to the facilities.

"Construction Fund" means the fund by that name established pursuant to the District Indenture.

" Debt Service" means, during any period of computation, the amount obtained for such period by totaling the following amounts: (a) the principal amount of Outstanding Bonds scheduled to mature or to be redeemed by operation of mandatory sinking account deposits in such period; and (b) the interest which would be due during such period on the aggregate principal amount of Bonds which would be Outstanding in such period if the Bonds are retired as scheduled, but deducting and excluding from such aggregate amount the amount of Bonds no longer outstanding.

"District Bond Fund" means the fund by that name established and held by the District Trustee pursuant to the District Indenture.

"District Bonds" means City of Beaumont Community Facilities District No. 93-1 Special Tax Bonds, 2007 Series E (Improvement Area No. 8C) and the Parity District Bonds, as applicable.

"District Indenture" means the Indenture of Trust, by and between the District and the District Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture pursuant to the provisions hereof.

"District Special Tax Fund" means the fund by that name created and established pursuant to the District Indenture.

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"District Trustee" means Union Bank of California, N.A., Los Angeles, California, a national banking corporation organized and existing under the laws of the United States of America, or its successor, as Trustee.

"Federal Securities" means any direct general obligation of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the payment of principal of and interest on which are directly or indirectly unconditionally guaranteed by the United States of America and direct obligations of any department, agency or instrumentality of the United States of America the timely payment of principal and interest on which are fully guaranteed by the United States of America.

"Fiscal Year" means any twelve-month period extending from July I in any one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority, or the District, or the City, as applicable, as its official fiscal year period.

"Gross Taxes'' means, with respect to each Series of District Bonds and the related Improvement Area, the amount of all Special Taxes for such Improvement Area and proceeds from the sale of the property collected pursuant to the foreclosure provisions of the District Indenture for the delinquency of such Special Taxes and proceeds from any security for payment of Special Taxes for such Improvement Area taken in lieu of foreclosure.

"I mprcwementArea" means such Improvement Area of the District, heretofore or hereafter existing.

"Independent Financial Consultant" means either the Original Purchaser or any financial consultant or firm of such financial consultants appointed by the Authority and who, or each of whom: (a) is judged by the Authority to have experience with respect to the fmancing of public capital improvements projects, (b) is in fact independent and not under the domination of the Authority, the City or the District, ( c) does not have any substantial interest, direct or indirect, with the Authority, the City or the District, and ( d) is not connected with the Authority, the City or the District as an officer or employee of the Authority, the City or the District, but who may be regularly retained to make reports to the Authority, the City or the District.

"Information Services" means Financial Information, Inc. 's "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, New York 10006; Moody's Investors Service "Municipal and Government," 5250-77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; Standard & Poor's "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004 and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/ or such services providing information with respect to called bonds as the Authority may designate in a Certificate of the Authority delivered to the Trustee.

"Interest Account" means the account by that name in the Bond Fund established pursuant to the Indenture.

"Interest Payment Date" means March I and September I, commencing March I, 2008.

"Joint Financing Agreement" means the Joint Financing and Construction Agreement between the District and such public agency, including but not limited to, the Beaumont-Cherry Valley Water District or the San Gorgonio Pass Water Agency, and the Memorandum of Understanding between the District and the California Department of Transportation, as the case may be.

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"Maximum Annual Debt Service'' with respect to the Bonds, means as of the date of any calculation, the largest Annual Debt Service during the current or any future Bond Year, and with respect to any Series of District Bonds means, as of the date of any calculation, the largest Annual Debt Service on the applicable Series of District Bonds during the current or any future Bond Year.

"Maximum Special Tax" shall have the meaning given to such term in the Rate and Method of Apportiomnent for the applicable Improvement Area approved by the City Council as the legislative body of the District, as it may be amended by the qualified electors of the applicable Improvement Area.

"Minimum Rating'' means a rating of Baa or better by Moody's or BBB or better by S&P, without regard to plus ( +) or minus (-) designations. In the event the rating system of Moody's or S&P with respect to any particular Permitted Investment does not include any such rating categories, the Minimum Rating with respect to Permitted Investment shall mean one of the two highest general rating categories applicable to such Permitted Investment (determined without regard to any refinement or gradation of such rating category by a numerical modifier, a plus or minus sign, or otherwise) assigned by Moody's or S&P, as applicable.

"M c:xx:fy's" means Moody's Investors Service, Inc., its successors and assigns.

"Net Taxes" means, with respect to an Improvement Area, the amount of all Gross Taxes of such Improvement Area minus Administrative Expenses relating to said Improvement Area.

"Ordinance" means Ordinance No. 721 and subsequent ordinances adopted by the legislative body of the District providing for the levying of the Special Tax in each Improvement Area.

"Outstanding'' when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liabilities of the Authority shall have been discharged in accordance with the Indenture, including Bonds ( or portions thereof) defeased as described in the Indenture; and ( c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture.

"Owner" or" Bondcwner" whenever used with respect to a Bond, means the person in whose name the ownership of such Bond is registered on the Registration Books.

"Parity District Bonds" means, with respect to any Improvement Area, all bonds, notes or other similar evidences of indebtedness hereafter issued, payable out of the Net Taxes of such Improvement Area and which, as provided in the District Indenture or any Supplemental District Indenture, rank on a parity with the District Bonds relating to the same Improvement Area.

"Permitted Investments" means:

(a) Federal Securities;

(b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: (i) Export-Import Bank; (ii) Farmers Home Administration; (iii) General Services Administration; (iv) U.S. Maritime Administration; (v) Small Business Administration; (vi) Govermnent National Mortgage Association ("GNMA"); (vii) U.S. Department of Housing and Urban Development (viii) Federal Housing Administration; (ix) Student Loan Marketing Association; (x) Federal Financing Bank; and (xi) Federal Farm Credit Bank;

( c) bonds, debentures, notes or other evidences of indebtedness issued or fully unconditionally guaranteed by and of the following United States Goverrnnent non-full faith and credit agencies: Federal Home Loan Bank and Federal Land Bank;

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( d) bonds, notes or other evidences of indebtedness rated "Aaa" by Moody's or "AAA" by S&P and issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation;

(e) U.S. dollar denomination deposit accounts, federal funds and bankers acceptances and certificates of deposit (whether negotiable or non-negotiable) with domestic commercial banks; pro.tided that either: (a) the obligations of such bank are rated in one of the three highest rating categories (without regard to plus ( +) or minus (-) designations) by Moody's or S&P (the ratings of the holding company of a bank are not considered the rating of such bank); or (b) such deposits are fully insured by the Federal Deposit Insurance Corporation, pro.tided, however that the portion of any certificates of deposit in excess of the amount insured by the Federal Deposit Insurance Corporation, if any, shall be secured at all times in the manner provided by law by collateral security having a market value not less than the amount of such excess, consisting of securities described in paragraphs (a) through (d);

(f) commercial paper which is rated at the time of purchase in the single highest classification, "P-l" by Moody's and "A-1 +" by S&P and which mature not more than 270 days after the date of purchase;

(g) investments in a money market fund registered with the Securities and Exchange Commission rated in the highest rating category (without regard to plus(+) or minus(-) designations) by Moody's or S&P;

(h) pre-refunded municipal obligations defined as follows: Any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local govermnental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instruction have been given by the obligor to call on the date specified in the notice: and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody's or any successors thereto; or (ii) (A) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or obligations described in paragraph (a) above, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate;

(i) tax-exempt obligations rated in either of the two highest rating categories (without regard to plus ( +) or minus ( -) designations) by Moody's or S&P, including money market funds comprised solely of such obligations;

(j) investment agreements, guaranteed investment contracts, funding agreements, or any other form of corporate debt representing the unconditional obligations of an investment provider rated AA or above by Moody's or S&P, provided that the investment agreement shall provide that if during its term (a) the provider's rating by either S&P or Moody's falls below AA-/AA3, respectively, the provider must, at the direction of the Authority or the Trustee within 10 days of receipt of such direction collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws ( other than by means of entries on the provider's books) to a third party custodian (i) collateral which is at one hundred two percent (102%), computed weekly, consisting of such securities as described in clauses (a) through (d); (ii) the Trustee shall have perfected at first priority security interest in such obligations; and (iii) failure to maintain the requisite collateral percentage will require the Trustee to liquidate the collateral; and (b) the provider's rating by either S&P or Moody's is withdrawn, suspended, or falls below A-/ A3, respectively, the provider must within 5 Business Days repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the Authority or the Trustee;

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(k) Program Fund Investment Agreements and Reserve Fund Investment Agreements as shall be specified in an applicable Supplemental Indenture;

(I) Repurchase and Sale Agreements with fmancial institutions insured by the FDIC, or any broker-dealer with "retail customers" which falls under the jurisdiction of the Securities Investors Protection Corporation (SIPC), pro.tided that: (a) the over-collateralization is at one hundred two percent (102%), computed weekly, consisting of the securities described in paragraphs (a) through (d) of the definition of Permitted Investments: (b) a third party custodian, the Trustee or the Federal Reserve Bank shall have possession of such obligations; ( c) the Trustee shall have perfected a first priority security interest in such obligations; and (d) failure to maintain the requisite collateral percentage will require the Trustee to liquidate the collateral; and

(m) local obligations purchase in accordance with the Indenture.

"Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a govermnental entity or any agency or political subdivision thereof.

"Principal Account" means the account by that name in the Bond Fund established pursuant to the Indenture.

"Proceeds" when used with respect to the Bonds, means the face amount of a Series of the Bonds, plus accrued interest and original issue premium, if any, less original issue discount, if any.

"Program Expenses'' means all costs and expenses of the Authority incurred in connection with the issuance and administration of the Bonds, including but not limited to (a) all items of expense directly or indirectly payable by or reimbursable to the Authority relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to capitalized interest on the Bonds, underwriter's discount, printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges and first annual administrative fee of the Trustee and fees and expenses of its counsel, fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds, and any other cost, charge or fee in connection with the original issuance of the Bonds, (b) the fees and expenses payable to the Trustee, the Authority and their respective counsel, and other Persons for professional services rendered in connection with the administration of the Bonds, ( c) fees and expenses of Independent Accountants for preparation of annual audits required by the Indenture and ( d) fmancial losses determined by the Authority to have been sustained for any reason whatsoever as a result of the liquidation of any Permitted Investment.

"Prqj ect" means the construction, acquisition and equipping of certain real and other tangible property with an estimated useful life of five years or longer, which is to be acquired or constructed within and without the District, including certain roadways, storm drain facilities, flood control facilities, water facilities and fire protection facilities, as more particularly described in the approving Resolution of the District with respect to the Improvement Area.

"Prqj ect Costs" means the amounts necessary to finance the Project, to create and replenish any necessary reserve funds to pay the annual costs associated with the Bonds, including, but not limited to, District Trustee and other fees and to pay any "incidental expenses" of the District, as such term is defined in the Act, including, until such time as Special Taxes are levied and proceeds of the Special Tax are available therefor, Administrative Expenses.

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"Qualified Bank" means a state or national bank or trust company or savings and loan association or a foreign bank with a domestic branch or agency which is organized and in good standing under the laws of the United States or any state thereof or any foreign country, which has a capital and surplus of $50,000,000 or more and which has a short-term debt rating of the highest ranking or of the highest letter and numerical rating as provided by Moody's Investors Service or Standard & Poor 's Ratings Group.

"Qualified Reserve Fund Credit Instrument" means a policy of insurance or surety bond issued by an insurance company, obligations insured by which have a rating by Moody's Investors Service and Standard & Poor's Ratings Services of "A" or better (without regard to plus (+) or minus (-) designations), or an irrevocable letter of credit, line of credit or similar arrangement issued by a Qualified Bank, to satisfy all or a portion of the Reserve Requirement.

"Record Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month immediately preceding such Interest Payment Date, whether or not such day is a business day.

"Redemption Account" means the applicable account by that name in the Bond Fund established pursuant to the Indenture.

"Registration Books" means the record maintained by the Trustee pursuant to the Indenture for the registration and transfer of ownership of the Bonds.

" Reserve Fund" means the Fund by that name established pursuant to the Indenture.

"Reserve Requirement" means with respect to the Bonds the least of (i) 10% of the stated principal amount (within the meaning of Section 148 of the Code) of the Bonds, (ii) maximum annual debt service on the Outstanding Bonds or (iii) 125% of the average annual debt service on the Outstanding Bonds.

"Revenues" means, with respect to a Series of the Bonds: (a) all amounts derived from or with respect to an issue of local obligations acquired or, if used with reference to a Cash-Flow Certificate, to be acquired with the proceeds of such Series of the Bonds, other than amounts in payment of Program Expenses or indemnity against claims payable to the Authority and the Trustee; (b) investment income with respect to any moneys held by the Trustee in the funds and accounts established under the Indenture providing for the issuance of such Series of the Bonds; and ( c) any other investment income received under the Indenture providing for the issuance of such Series of the Bonds.

"S& P" means Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc., its successors and assigns.

"Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax - (516) 227-4039 or 4190; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/ or such other securities depositories as the Authority may designate in an Certificate of the Authority delivered to the Trustee.

"Series of the Bonds" means the Bonds and any other series of bonds issued pursuant to a Supplemental Indenture.

"Special Tax" or "Special Taxes" means, with respect to each Improvement Area, the special taxes authorized to be levied by the District in such Improvement Area in accordance with the Act, including any scheduled payments and any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes.

" State" means the State of California.

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"Supplemental Indenture" means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending the Indenture.

"Tax Code" means the Internal Revenue Code of 1986, as amended.

"Tax Regulations" means temporary and permanent regulations promulgating under or with respect to Sections 103 and 141 through 150, inclusive, of the Tax Code.

"Trust Office" means the corporate trust office of the Trustee at 120 South San Pedro, 4th Floor, Los Angeles, California 90012 or at such other or additional offices as may be specified in writing to the Authority and the City.

"Written Certificate," "Written Request" and "Written Requisition" of the Authority, the District or the City mean, respectively, a written certificate, request or requisition signed in the name of the Authority, the District or the City by its Authorized Representative. Any such certificate, request or instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

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APPENDIX B SUMMARY OF LEGAL DOCUMENTS

THE INDENTURE The follONing is a sumrary of certain prcwisions of the Indenture applicable to the Bonds and does not purport to be a corrplete restaterrent thereof. Reference is hereby rrade to the Indenture for further inforrration in this regard. Copies of the Indenture are available from the Authority upon request upon payrrent of a charge for copying, handling and rrailing. For convenience in the discussion belON, references are rrade to certain funds and accounts relating to the Bonds. Under the Indenture, there are established separate Accounts and Funds relating to the Bonds, and for those bonds issued in 1994, 1996, 2CXXl, 2002, 2003, 2004, 2005, 2cn; and 2007. In the e..rent other series of bonds are issued in the future, separate funds and accounts with sinilar narres, but appropriate bond series designation, have been or wil I be established with respect to such series of bonds.

Pledge and Assignment; Revenue Fund

(a) Subject only to the provisions of the Indenture, all of the Revenues with respect to the Bonds and any other amounts held in any fund or account established pursuant to the Indenture with respect to the Bonds are pledged by the Authority to secure the payment of the principal of and interest, and premium, if any, on the Bonds in accordance with their terms and the provisions of the Indenture. Said pledge shall constitute a lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after delivery of the Bonds by the Trustee, upon the physical delivery thereof.

(b) Subject to the provisions of the Indenture, the Authority assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the right, title and interest of the Authority in the District Bonds. The Trustee shall collect and receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as agent of the Trustee and shall be paid by the Authority to the Trustee as provided in the Indenture. The Trustee also shall be entitled to and may take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the District under and with respect to the District Bonds.

I nvestment of Moneys

Except as otherwise provided in the Indenture, all moneys in any of the funds or accounts established pursuant to the Indenture are required to be invested by the Trustee solely in Permitted Investments (as defined in the Indenture), and solely as directed in writing by the Authority two (2) Business Days prior to the making of such investment. Permitted Investments may be purchased at such prices as the Authority shall determine. All Permitted Investments are required to be acquired subject to any restrictions provided in the Indenture and such additional limitations or requirements consistent with the Indenture as may be established by the Written Request of the Authority. Moneys in all funds and accounts are required to be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Indenture. Absent timely written direction from the Authority, the Trustee is required to invest any funds held by it in Permitted Investments as described in clause (g) of the definition thereof ( consisting of certain money market funds).

The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the Authority, or as required for the purposes of the provisions of the Indenture, the Trustee is

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required to sell or present for redemption, any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to the Indenture.

Debt Service Reserve Fund Surety. The Authority may obtain a policy of insurance or surety bond issued by an insurance company, obligations insured by which have a rating by Moody's Investors Service and Standard & Poor's Ratings Services of "A" or better (without regard to plus ( +) or minus (-) designations), or an irrevocable letter of credit, line of credit or similar arrangement issued by a Qualified Bank, to satisfy all or a portion of the Reserve Requirement. A "Qualified Bank" is a state or national bank or trust company or savings and loan association or a foreign bank with a domestic branch or agency which is organized and in good standing under the laws of the United States or any state thereof or any foreign country, which has a capital and surplus of $50,000,000 or more and which has a short-term debt rating of the highest ranking or of the highest letter and numerical rating as provided by Moody's Investors Service or Standard & Poor's Ratings Services.

Sale of the District Bonds

Notwithstanding anything in the Indenture to the contrary, the Authority may arrange for the sale of the District Bonds and cause the Trustee to sell, from time to time, all or a portion of the District Bonds, prCNided that the Authority is required to deliver (i) a Cash Flow Certificate to the Trustee demonstrating that the annual debt service and Program Expenses will be met ( or will continue to be met) upon application of the proceeds of sale of the District Bonds to the special mandatory redemption of Bonds pursuant to the Indenture, as directed in a Written Certificate of the Authority delivered (together with the annual debt service) to the Trustee not less than sixty (60) days prior to the applicable redemption date, and (ii) an opinion of Authority Bond Counsel to the effect that such sale will not adversely impact the exclusion from gross income, for federal income tax purposes, of interest payable on the Bonds.

Upon compliance with the foregoing conditions, the Trustee is required to deposit such proceeds in the Redemption Account and to provide for the special mandatory redemption of Bonds.

Additional Bonds

Under the Indenture, the Authority may issue from time to time, additional series of bonds upon delivery of a Supplemental Indenture providing for the issuance of such series of bonds and the delivery to the Trustee of (i) a Cash-Flow Certificate with respect to such series of the bonds and (ii) if any issue of District Bonds to be acquired with the proceeds of such series of bonds does not otherwise meet the Minimum Credit Requirements, then with the approval of an Independent Financial Consultant with respect to acquisition of such issue of District Bonds, the Authority may execute, and upon the Written Request of the Authority, the Trustee shall authenticate and deliver such series of bonds. Except with respect to certain investment earnings on the Reserve Fund, these new bonds may not be secured on a parity with the Bonds.

Certain Co.renants of the Authority

Punctual Payment. The Authority shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture and received by the Authority or the Trustee.

Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the

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time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default thereunder, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in the Indenture shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.

Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Bond Law, and reserves the right to issue other obligations for such purposes.

Paver to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into the Indenture and to pledge and assign the Revenues, the District Bonds and other assets purported to be pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee shall at all times, subject to the provisions of the Indenture and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under the Indenture against all claims and demands of all persons whomsoever.

Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the Bond proceeds, the Revenues, the District Bonds and all funds and accounts established with the Trustee pursuant to the Indenture. Such books of record and account shall be available for inspection by the Authority and the City, during regular business hours and upon reasonable notice and under reasonable circumstances as agreed to by the Trustee.

The Authority shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with generally accepted accounting principles, in which complete and accurate entries shall be made of all transactions relating to the Bond proceeds, the Revenues, the District Bonds and all funds and accounts established pursuant to the Indenture. Such books of record and account shall be available for inspection by the Trustee, the Independent Financial Consultant and the District, during regular business hours and upon twenty-four (24) hours' notice and under reasonable circumstances as agreed to by the Authority.

No Arbitrage. The Authority shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused any of the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Tax Code.

Private Business Use Limitation. The Authority shall assure that:

(a) not in excess often percent of the proceeds of the Bonds is used for Private Business Use if, in addition, the payment of the principal of, or the interest on, more than ten percent of the proceeds of the Bonds is (under the terms of the Bonds or any underlying arrangement) directly or indirectly, (i) secured by any interest in property, or payments in respect of property, used or to be used for a Private Business Use, or (ii) to be derived from payments (whether or not to the Authority) in respect of property, or borrowed money, used or to be used for a Private Business Use; and

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(b) in the event that in excess of five percent of the proceeds of the Bonds is used for a Private Business Use, and, in addition, the payment of the principal of, or the interest on, more than five percent of the proceeds of the Bonds is (under the terms of the Bonds or any underlying arrangement), directly or indirectly, secured by any interest in property, or payments in respect of property, used or to be used for said Private Business Use or is to be derived from payments (whether or not to the Authority) in respect of property, or borrowed money, used or to be used for a Private Business Use, then, (A) said excess over five percent of the proceeds of the Bonds which is used for a Private Business Use shall be used for a Private Business Use related to a govermnent use of such proceeds and (B) each such Private Business Use over five percent of the proceeds of the Bonds which is related to a govermnent use of such proceeds shall not exceed the amount of such proceeds which is used for the government use of proceeds to which such Private Business Use is related.

Federal Guarantee Prohibition. The Authority shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Tax Code.

Collection of Re.tenues Under the District Bonds. The Authority shall cause to be collected and paid to the Trustee all Revenues payable with respect to the District Bonds promptly as such Revenues become due and payable, and shall vigorously enforce and cause to be enforced all rights of the Authority and the Trustee under and with respect to the District Bonds.

Events of Default

Events of Default. The following events shall be Events of Default under the Indenture:

(a) if default shall be made in the due and punctual payment of the principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise;

(b) if default shall be made in the due and punctual payment of any instalhnent of interest on any Bonds when and as the same shall become due and payable; and

(c) if default shall be made by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall be continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee or the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding affected thereby, prCNi ded, however, that if in the reasonable opinion of the Authority provided to the Trustee in writing the default stated in the notice can be corrected, but not within such sixty (60) day period, such default shall not constitute an Event of Default under the Indenture if the Authority shall commence to cure such default within such sixty (60) day period and thereafter diligently and in good faith cure such failure in a reasonable period of time.

Remedies U pan Event of Default.

The Bonds are not subject to acceleration if an Event of Default occurs with respect to the District Bonds.

(a) (i) If any Event of Default shall occur because of an event of default with respect to an issue of District Bonds for which acceleration is a remedy (the District Bonds are not subject to acceleration), then, and in each and every such case during the continuance of such Event of Default and upon the occurrence of any Event of Default described in subsections (a) or (b), above, the Trustee may, or at the written direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, as determined pursuant to the Indenture, the Trustee shall, upon notice in writing to the Authority, cause redemption of Bonds in accordance with the applicable provisions of the Indenture.

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(ii) If any Event of Default shall occur because of an event of default with respect to an issue of the District Bonds (such as the District Bonds) for which acceleration is not a remedy, then, and in each and every such case during the continuance of such Event of Default and upon the occurrence of any Event of Default described in (a) and (b), above, the Trustee may, or at the written request of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, as determined pursuant to the Indenture, the Trustee shall, upon notice in writing to the Authority, exercise any and all remedies available pursuant to law or granted with respect to such issue of the District Bonds.

(b) Any such declaration of an Event of Default is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority or the District shall deposit with the Trustee a sum sufficient to pay all the principal of, premium, if any, and instalhnents of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds to the extent permitted by law, and the reasonable fees, charges, and expenses of the Trustee, including without limitation those of its counsel, and any and all other defaults known to the Trustee ( other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, as determined pursuant to the Indenture, affected thereby, by written notice to the Authority, the District and the Trustee, or the Trustee if such declaration was made by the Trustee, may, on behalf of the Owners of all of the Bonds affected thereby, rescind and annul such declaration and its consequences and waive such default but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

Other Remedies of Bond Owners. Subject to the provisions of the Indenture limiting a Bond Owner's right to sue, any Bond Owner shall have the right, for the equal benefit and protection of all Bond Owners similarly situated:

(a) by mandamus, suit, action or proceeding, to compel the Authority and its members, officers, agents or employees to perform each and every term, provision and covenant contained in the Indenture and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the Authority and the fulfillment of all duties imposed upon it by the Bond Law;

(b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Bond Owners' rights; or

( c) upon the happening of any Event of Default, by suit, action or proceeding in any court of competent jurisdiction, to require the Authority and its members and employees to account as if it and they were the trustees of an express trust.

Application of Revenues and Other Funds After Default. If an Event of Default shall occur and be continuing, all Revenues and any other funds than held or thereafter received by the Trustee in the Bond Fund, and all Revenues and any other funds then held or thereafter received by the Authority or the Trustee under any of the provisions of the Indenture shall be applied by the Trustee as follows and in the following order:

(a) To the payment of any fees and expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and payment of reasonable fees, charges, and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture;

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(b) To the payment of the principal of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows:

First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such instalhnents, and, if the amount available shall not be sufficient to pay in full any instalhnent or instalhnents maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption (to the extent permitted by law), and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference.

Trustee to Represent Bond Owners. Pursuant to the Indenture, the Trustee is irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to the Owners under the provisions of the Bonds, the Indenture, the Bond Law and applicable provisions of any other law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding affected thereby, as determined pursuant to the Indenture, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained therein, or in aid of the execution of any power therein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the Bonds, the Indenture, the Bond Law or any other law and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action of proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of the Owners of such Bonds, subject to the provisions of the Indenture.

Bond Owners' Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, as determined pursuant to the Indenture affected thereby, shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture, provided that such direction shall not be otherwise then in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Bond Owners not parties to such direction.

Limitation on Bond Owners' Right to Sue. No Owner of any Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the Bond Law or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default; (b)

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the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, as determined pursuant to the Indenture affected thereby, shall have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name; ( c) such Owner or Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such requests; (d) the Trustee shall have refused or failed to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and ( e) no direction inconsistent with such written request shall have been given to the Trustee during such sixty (60) day period by the Owners of a majority, in aggregate principal amount, of the Series of Bonds then Outstanding affected thereby.

Such notification, request, tender of indemnity and refusal or omission are declared in the Indenture, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture or under law, it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, the Indenture, the Bond Law or other applicable law with respect to the Bonds, except in the manner therein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner therein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Indenture.

The Trustee

Duties, Immunities and Liabilities of Trustee.

(a) The Trustee shall, prior to an Event of Default,. and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture and no implied duties or covenants shall be read into the Indenture against the Trustee. The Trustee shall, during the existence of any Event of Default (which has not been cured), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

(b) The Authority may, and upon written request of the Local Agencies representing a majority in aggregate principal amount of the Local Obligations then outstanding shall, remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing, and the Authority shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less then a majority in aggregate principal amount of all the Bonds then Outstanding ( or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with paragraph (d) below, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and the Authority and thereupon shall appoint a successor Trustee by an instrument in writing.

( c) The Trustee may at any time resign by giving written notice of such resignation by first class mail, postage prepaid, to the Authority and to the Bond Owners at the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Authority shall promptly appoint a successor Trustee by an instrument in writing.

( d) Any Trustee appointed under the Indenture shall be a corporation or association organized and doing business under the laws of any state or the United States of America or the District of Columbia, authorized under such laws to exercise corporate trust powers, which shall have ( or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a

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combined capital and surplus of at least Fifty Million Dollars ($50,000,000), and subject to supervision or examination by federal or State agency, so long as any Bonds are Outstanding. If such corporation publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this paragraph ( d), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this paragraph, the Trustee shall resign immediately in the manner and with the effect specified above.

Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank or trust company shall be eligible under paragraph ( d) above, shall be the successor to such Trustee, without the execution or filling of any paper or any further act, anything in the Indenture to the contrary notwithstanding.

Liability of Trustee.

(a) The Trustee makes no representations as to the validity or sufficiency of the Indenture or of any Bonds, or any District Bonds or in respect of the security afforded by the Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to: (i) the issuance of the Bonds for value; (ii) the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee; or (iii) the application of any moneys paid to the Authority or others in accordance with the Indenture except as the application of any moneys paid to it in its capacity as Trustee. The Trustee shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct.

(b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.

(c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture.

( d) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture.

(e) No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Indenture, or in the exercise of any of its rights or powers, if it is not assured to its satisfaction that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of Owners pursuant to the Indenture, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee under the Indenture shall be construed to impose a duty to exercise such power, right or remedy.

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Modification or Amendment of the Indenture or the District Bonds

(a) The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the Authority and the Trustee may enter into when the written consent of the Owners of a majority in aggregate principal amount of all Series of Bonds then Outstanding affected thereby, as determined pursuant to the Indenture, shall have been filed with the Trustee. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each Bond so affected, (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture or deprive the Owners of the Bonds of the lien created by the Indenture on such Revenues and other assets ( except as expressly provided in the Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Authority and the Trustee of any supplemental indenture, the Trustee shall cause to be mailed a notice (the form of which shall be furnished to the Trustee by the Authority), by first class mail postage prepaid, setting forth in general terms the substance of such supplemental indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.

(b) The Indenture and the rights and obligations of the Authority, of the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by an indenture or indenture supplemental thereto, which the Authority and the Trustee may enter into without the consent of any Bond Owners for any one or more of the following purposes:

( i) to add to the covenants and agreements of the Authority in the Indenture, containing other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds ( or any portion thereof), or to surrender any right or power therein reserved to or conferred upon the Authority;

(ii) to make such prov1s1ons for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Indenture, or as to any other provisions of the Indenture as the Authority may deem necessary or desirable, pro.tided that such modification or amendment does not materially adversely affect the interests of the Bond Owners;

( iii) to modify, amend or supplement the Indenture in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute;

(iv) to modify, amend or supplement the Indenture in such manner as to cause interest on the Bonds to remain excludable from gross income for purposes of federal income taxation by the United States of America under the Code;

(v) to modify any of the requirements of the Indenture with respect to the terms and provisions of any issue of Local Obligations, pro.tided that any such modification shall apply only to a series of the bonds issued and delivered subsequent to the execution and delivery of the applicable supplemental indenture;

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(vi) to modify or amend any provision of the Indenture with any effect and to any extent whatsoever permissible by law, prCNi ded that any such modification or amendment shall apply only to a series of bonds issued and delivered subsequent to the execution and delivery of the applicable supplemental indenture; and

(vii) to issue from time to time additional series of the bonds.

Endorsement of Bonds: Preparation of New Bonds. Bonds delivered after the execution of any supplemental indenture may, and if the Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the Authority and the Trustee as to any modification or amendment provided for in such supplemental indenture, and, in that case, upon demand on the Owner of any Bonds Outstanding at the time of such execution and presentation of such Bonds for the purpose at the trust office of the Trustee a suitable notation shall be made on such Bonds. If the supplemental indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such supplemental indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand of the Owners of any Bonds then Outstanding shall be exchanged (without cost to any Bond Owners) for any Bonds then Outstanding, upon surrender of such Bonds for cancellation at the Trust Office.

Amendment of Particular Bonds. The provisions of the Indenture shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner.

Amendment of the District Bonds. Nothing in the Indenture shall prohibit the Authority from consenting to the amendment, supplement or other modification of the District Bonds, or the proceedings providing for the issuance thereof pro.tided that the Authority shall first deliver to the Trustee a Written Certificate describing such amendment, supplement or other modification, together with (i) a certificate of an Independent Financial Consultant stating that such amendment, supplement or other modification will not adversely impact the Authority's ability to pay principal and interest of the Bonds and (ii) an opinion of Authority Bond Counsel that such amendment, supplement or other modification will not impair the exclusion from gross income of interest on the Bonds for purposes of federal income taxation by the United States of America. The Trustee shall take such actions as shall be directed by the Authority in implementation of such amendment, supplement or other modification, including, without limitation, the acceptance by the Trustee of revised District Bonds in exchange for the amended, supplemented or otherwise modified District Bonds.

Defeasance

Discharge of Indenture. The Bonds, or any portion thereof, may be paid by the Authority in any of the following ways, pro.tided that the Authority also pays or causes to be paid any other sums payable under the Indenture by the Authority:

(a) by paying or causing to be paid the principal of and interest and premium, if any, on the Bonds or any portion thereof as and when the same become due and payable;

(b) by irrevocably depositing with the Trustee, in trust (pursuant to an escrow agreement), at or before maturity, money or Federal Securities in the amount and in the manner required by the Indenture necessary to pay or redeem all, or any portion thereof, of the Bonds then Outstanding; or

(c) by delivering to the Trustee, for cancellation by it, all, or any portion thereof, of the Bonds then Outstanding.

If the Authority shall also pay or cause to be paid all other sums payable under the Indenture by the Authority including without limitation any compensation due and owing the Trustee under the Indenture, then and in that case, at the election of the Authority ( evidenced by a Written Certificate of the Authority,

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filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and the Indenture), and notwithstanding that any of such Bonds shall not have been surrendered for payment, the Indenture and the pledge of Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the Authority under the Indenture with respect to such Bonds shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the Authority, and upon receipt of a Written Certificate of an Authorized Representative of the Authority and an opinion of Bond Counsel acceptable to the Trustee, each to the effect that all conditions precedent therein provided for relating to the discharge and satisfaction of the obligations of the Authority have been satisfied, the Trustee shall cause an accounting for such period or periods as may be requested by the Authority to be prepared and filed with the Authority and shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture, which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption, to the Authority.

Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any Bonds and remaining unclaimed for two (2) years after the principal of all of the Bonds has become due and payable ( whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date or two (2) years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Authority free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the Authority and the Trustee indemnifying the Trustee with respect to claims of Owners of Bonds which have not yet been paid, and all liability of the Trustee with respect to such moneys shall thereupon cease; prCNi ded, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee shall at the cost of the Authority, mail, by first class mail, postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof.

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THE DISTRICT INDENTURE The follONing is a brief sumrary of the prcwisions of the District Indenture relating to the District Bonds and does not purport to be a cCJ111)1ete restaterrent thereof. Such sumrary is not intended to be definitive, and reference is rrade to the corrplete District Indenture for the corrplete term; thereof, copies of which are available upon request sent to the Authority upon payrrent of a charge for copying, handling, and rrailing.

Establishment of Funds and Accounts; Flow of Funds

Costs of Issuance Fund. A portion of the proceeds of the District Bonds will be deposited by the Trustee in the Costs of Issuance Fund on the Closing Date. The moneys in the Costs of Issuance Fund will be disbursed to pay costs of issuing the District Bonds and other related financing costs from time to time upon receipt of written requests of the District. Six months after issuance of the Bonds, or upon the earlier request of the District, all amounts remaining in the Costs oflssuance Fund are required to be transferred by the Trustee to the Construction Fund.

Construction Fund. A portion of the proceeds of the District Bonds will be deposited by the District Trustee in the Construction Fund on the Closing Date. The District Trustee will disburse moneys in the Construction Fund on the Closing Date to pay Project Costs ( or to reimburse the District for payment of Project Costs) of the Project upon receipt by the District Trustee of requisitions of the District. Upon the filing with the District Trustee of a certificate of the District stating that the Project has been completed, the District Trustee is required to withdraw all amounts then on deposit in the Construction Fund and transfer such amounts to the applicable Accounts in the Bond Fund.

Bond Fund: Deposit and Transfer of Amounts Therein. At such time as the County Auditor-Controller of the County of Riverside makes an apportiomnent of tax revenues, including Special Taxes of any Improvement Area and other amounts constituting Gross Taxes, if any, and such apportiomnent is transferred to the District Trustee on behalf of the District (any such apportiomnent being hereinafter referred to as "Apportiomnent"), the District Trustee shall deposit such Apportionment and any other amounts constituting Gross Taxes in the applicable Special Tax Fund for such Improvement Area, to be held in trust by the District Trustee and transferred and deposited into the following respective Accounts and Funds ( each of which accounts the District Trustee shall establish and maintain within the District Bond Fund) the following amounts in the following order of priority, the requirements of each such Account (including the making up of any deficiencies in any such Account resulting from lack of Special Taxes for the applicable Improvement Area sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any Account subsequent in priority:

(a) Administrative Expense Fund. The District Trustee will deposit in the applicable Administrative Expense Fund the amount of Administrative Expenses required to be deposited therein pursuant to the District Indenture. The District Trustee shall apply the moneys on deposit in the Administrative Expense Fund to the payment of Administrative Expenses, as directed by the District.

(b) Interest Account. On February 15 and August 15 preceding each Interest Payment Date, the District Trustee will deposit in the applicable Interest Account an amount required to cause the aggregate amount on deposit in such Account to equal the amount of interest becoming due and payable on the March 1 and September 1 Interest Payment Dates on all Outstanding District Bonds of the applicable Series. All moneys in such Interest Account will be used and withdrawn by the District Trustee solely for the purpose of paying the interest on the District Bonds as it becomes due and payable (including accrued interest on any District Bonds redeemed prior to maturity).

(c) Principal Account. On August 15 of each year the District Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in such Account to equal the principal amount of the District Bonds with respect to the applicable Improvement Area coming due and

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payable on the following Interest Payment Date. All moneys in such Principal Account will be used and withdrawn by the District Trustee solely for the purpose of paying the principal District Bonds at their respective maturity dates.

(d) Sinking Account. On August 15 of each year the District Trustee will deposit in the applicable Sinking Account an amount equal to the aggregate principal amount of Term District Bonds relating to the applicable Improvement Area required to be redeemed on the following Interest Payment Date, if any. Amounts on deposit in such Sinking Account are required to be used and withdrawn by the District Trustee for the sole purpose of redeeming or purchasing (in lieu of redemption) Term District Bonds with respect to the applicable Improvement Area in accordance with the mandatory sinking account redemption thereof.

( e) R eserveAccount. There is no Reserve Account established with respect to the District Bonds.

Investment of Funds

All moneys in any of the funds or accounts held by the District Trustee under the District Indenture will be invested by the District Trustee solely in Permitted Investments as directed by the District in advance of the making of such investments. In the absence of any such direction of the District, the District Trustee will invest any such moneys in Permitted Investments described in clause (f) of the defmition thereof ( consisting of certain commercial paper or money market funds). Obligations purchased as an investment of moneys in any fund or account shall be deemed to be part of such fund or account.

Prior to completion of the Project, all interest or gain derived from the investment amounts in any of the funds or accounts established under the District Indenture shall be deposited in the Construction Fund. Following the Completion Date, all interest or gain derived from the investment of amounts in any of the funds or accounts shall be deposited in the applicable Special Tax Fund from time to time on or before each Installment Payment Date. For purposes of acquiring any investments under the District Indenture, the District Trustee may commingle funds held by it thereunder. The District Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor.

Co.renants of the District

Punctual Payment. The District covenants that it will receive all Gross Taxes in trust and will, consistent with the District Indenture deposit the Gross Taxes with the District Trustee in trust and the District shall have no beneficial right or interest in the amounts so deposited except as provided by the District Indenture. All such Gross Taxes, whether received by the District in trust or deposited with the District Trustee in trust, all as provided in the District Indenture shall nevertheless be disbursed, allocated and applied solely to the uses and purposes therein set forth, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the District.

The District covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every District Bond issued under the District Indenture, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the District Bonds and in accordance with the District Indenture to the extent Net Taxes of the Improvement Area and interest earnings transferred to the Special Tax Fund are available therefor, and that the payments into the applicable Accounts in the Special Tax Fund, District Bond Fund, Redemption Fund and Administrative Expense Fund will be made, all in strict conformity with the terms of the District Bonds of each Series and the District Indenture, and that it will faithfully observe and perform all of the conditions, covenants and requirements of the District Indenture.

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The District will not mortgage or otherwise encumber, pledge or place any charge upon any of the Gross Taxes of the Improvement Area and will not issue any obligation or security superior to or on a parity with the District Bonds of any Series payable in whole or in part from the Net Taxes of the applicable Improvement Area except as provided in and in accordance with the District Indenture.

Le.;y of Special Tax. The City Council, on behalf of the District, shall levy the Special Tax in the Improvement Area in an amount sufficient to pay the principal of and interest on the applicable Series of the District Bonds as provided in the proceedings and the Administrative Expenses relating to the Improvement Area due or coming due, so long as any District Bonds relating to the Improvement Area are Outstanding prCNi ded; that the amount of the Special Tax shall not exceed the maximum amounts specified in the Rate and Method of Apportionment.

Payment of Claims. To the extent moneys are available therefor in the Construction Fund, the District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon any portion of the Project owned by the District or upon the Gross Taxes or any part thereof, or upon any funds in the hands of the District Trustee or which might impair the security of the District Bonds; prCNided that nothing contained in the District Indenture shall require the District to make any such payments so long as the District in good faith shall contest the validity of any such claims.

Extension of Payment of Bonds. The District shall not directly or indirectly extend or assent to the extension of the maturity of any of the District Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the District Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default under the District Indenture, to the benefits of the District Indenture, except subject to the prior payment in full of the principal of all of the District Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this section shall be deemed to limit the right of the District to issue District Bonds for the purpose of refunding any Outstanding District Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the District Bonds.

Against Encumbrances. The District shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Special Taxes of the Improvement Area and other assets pledged or assigned under the District Indenture while any of the District Bonds are Outstanding, except the pledge and assignment created by the District Indenture. Subject to this limitation, the District expressly reserves the right to enter into one or more other District Indentures for any of its corporate purposes, and reserves the right to issue other obligations for such purposes.

Paver to Issue District Bonds and Make Pledge and Assignment. The District is duly authorized pursuant to law to issue the District Bonds and to enter into the District Indenture and to pledge and assign the Special Taxes of the Improvement Area and other assets purported to be pledged and assigned, respectively, under the District Indenture in the manner and to the extent provided in the District Indenture. The District Bonds of each Series and the provisions of the District Indenture are and will be legal, valid and binding special obligations of the District in accordance with their terms, and the District and the District Trustee shall at all times, subject to the provisions of the District Indenture and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Special Taxes with respect to the Improvement Area and other assets and all the rights of the District Bond Owners under the District Indenture against all claims and demands of all persons whomsoever.

Accounting Records and Financial Statements. The District Trustee will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of District Bonds, the Special Taxes received by the District Trustee, and all funds and accounts established pursuant to the District Indenture and the District shall keep proper books of record of the levy of the Special Taxes and of the assessed value of parcels of land within the boundaries of the District. Such

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books of records and account of the District Trustee will be available for inspection by the District and the City, during business hours and under reasonable circumstances.

No Arbitrage. The District shall not take, or permit or suffer to be taken by the District Trustee or otherwise, any action with respect to the proceeds of the District Bonds of any Series which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the District Bonds of a Series would have caused such Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code.

Rebate Requirement. The District shall take any and all actions necessary to assure compliance with Section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government.

Private Activity Bond Limitation. The District shall assure that the proceeds of the District Bonds of each Series are not so used as to cause such Bonds to satisfy the private business tests of Section 14l(b) of the Code.

Private Loan Financing Limitation. The District shall assure that the proceeds of the District Bonds are not so used as to cause the District Bonds to satisfy the private loan fmancing test of Section 141( c) of the Code.

Federal Guarantee Prohibition. The District shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the District Bonds of any Series to be "federally guaranteed" within the meaning of section 149(b) of the Code.

Maintenance of Tax Exemption. The District shall take any and all actions necessary to assure the exclusion of interest on the District Bonds of each Series from the gross income of the Owners of such District Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of such District Bonds.

Waiver of Laws. The District shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in the District Indenture or in the District Bonds of any Series, and all benefit or advantage of any such law or laws is hereby expressly waived by the District to the extent permitted by law.

Further Assurances. The District will make, execute and deliver any and all such further District Indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the District Indenture and for the better assuring and confinning unto the Owners of the District Bonds of each Series of the rights and benefits provided in the District Indenture.

Modification of Maximum Authorized Special Tax. The District covenants that no modification of the maximum authorized Special Tax for any Improvement Area shall be approved by the District which would prohibit the District from levying the Special Tax in any Fiscal Year at such a rate as could generate Special Taxes in each Fiscal Year after deductions for Administrative Expenses in an amount at least equal to 110% of annual debt service in such Fiscal Year for the Series of District Bonds relating to such Improvement Area.

Amendment of District Indenture

The District Indenture may be modified or amended from time to time and at any time by a supplemental District Indenture with the written consent of the Owners of a majority in aggregate principal amount of the District Bonds of the applicable Series then Outstanding. No such modification or amendment may (a)

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extend the maturity of or reduce the amount of principal or change the method of computing the rate of interest or extend the time of payment of the interest on any Bond, without the written consent of the Owner of such Bond, (b) reduce the percentage of District Bonds of any Series required for the written consent to any such amendment or modification, or ( c) without its written consent thereto, modify any of the rights or obligations of the District Trustee.

The District Indenture may also be modified or amended at any time by a supplemental indenture, without the consent of any Bond Owners, to the extent permitted by law, but only for any one or more of the following purposes:

(a) to add to the covenants and agreements of the District contained in the District Indenture, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the District Bonds of any Series ( or any portion thereof), or to surrender any right or power reserved to or conferred upon the District;

(b) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the District Indenture, or in any respect whatsoever, as the District may deem necessary or desirable, prCNi ded that such modification or amendment does not materially adversely affect the interests of the District Bond Owners;

( c) to modify, amend or supplement the District Indenture in such manner as to permit the qualification of the District Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute;

(d) to modify, amend or supplement the District Indenture in such manner as to cause interest on the District Bonds to remain excludable from gross income under the Tax Code; or

( e) to facilitate the issuance of Parity Bonds by the District.

Events of Default

Events of Default Defined. The following events constitute events of default under the District Indenture:

(a) Default in the due and punctual payment of the principal of any District Bonds of any Series when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption by acceleration (the District Bonds are not subject to acceleration), or otherwise;

(b) Default in the due and punctual payment of any instalhnent of interest on any District Bonds when and as the same shall become due and payable; or

( c) Default by the District in the observance of any of the other covenants, agreements or conditions on its part in the District Indenture or in the District Bonds contained, if such default has continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, has been given to the District by the District Trustee; pro.tided, however, that if in the reasonable opinion of the District the default stated in the notice can be corrected, but not within such sixty (60) day period, such default shall not constitute an event of default under the District Indenture if the District commences to cure such default within such sixty (60) day period and thereafter diligently and in good faith cures such failure in a reasonable period of time.

Remedies. The District Trustee is irrevocably appointed (and the successive respective Owners of the District Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the

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District Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the District Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the District Bonds, the District Indenture and applicable provisions of any law. Upon the occurrence and continuance of an occasion giving rise to a right in the District Trustee to represent the District Bond Owners, the District Trustee in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the District Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, the District Trustee shall, proceed to protect and enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceeding as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the District Indenture, or in aid of the execution of any power therein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the District Trustee or in such Owners under the District Bonds, the District Indenture or any other law and upon instituting such proceeding, the District Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Special Taxes and other assets pledged under the District Indenture, pending such proceedings. All rights of action under the District Indenture or the District Bonds or otherwise may be prosecuted and enforced by the District Trustee without the possession of any of the District Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the District Trustee shall be brought in the name of the District Trustee for the benefit and protection of all the Owners of such District Bonds, subject to the provisions of the District Indenture.

Limitation on Bond Owners' Right to Sue. No Owner of any District Bond shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under the District Indenture, unless (a) such Owner has previously given to the District Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all the District Bonds of the applicable Series then Outstanding have requested the District Trustee in writing to exercise its powers under the District Indenture; (c) said Owners have tendered to the District Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; ( d) the District Trustee shall have failed to comply with such request for a period of sixty (60) days after such written request has been received by the District Trustee and said tender of indemnity is made to the District Trustee; and ( e) no direction inconsistent with such written request has been given to the District Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the District Bonds of the applicable Series then Outstanding.

Remedies of Bond Owners. The District Bonds do not contain a provision allowing for the acceleration of the District Bonds in the event of a payment default or other default under the terms of the District Bonds or the District Indenture.

Duties, Immunities and Liabilities of District Trustee; Merger or Consolidation; Liability of District Trustee

The duties, immunities and liabilities of the District Trustee with respect to each Series of the District Bonds are substantially the same as those which apply to the Trustee with respect to the Bonds. In addition, the requirements relating to merger or consolidation of the District Trustee and the authority of the District to replace the District Trustee and the liabilities of the District Trustee are substantially the same as those which apply to the Trustee. For a description of these rights as they apply to the Trustee, see "SUMMARY OF LEGAL DOCUMENTS -The Indenture -The Trustee."

Discharge of the District Indenture

The District may pay and discharge the indebtedness on any or all of the Outstanding District Bonds in any one or more of the following ways:

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(a) by paying or causing to be paid the principal of and interest on the District Bonds, as and when the same become due and payable;

(b) by irrevocably depositing with the District Trustee, in trust, at or before maturity, cash and/or non-callable federal securities which, together with the investment earnings to be received thereon, have been verified by an independent accountant to be sufficient to pay or redeem such District Bonds when and as the same become due and payable; or

( c) by delivering such District Bonds to the District Trustee for cancellation.

Upon such payment, and notwithstanding that any District Bonds have not been surrendered for payment, the pledge of the Special Taxes of the applicable Improvement Area and other assets and other funds provided for in the District Indenture with respect to such District Bonds, and all other obligations of the District under the District Indenture with respect to such District Bonds, shall cease and terminate, except only the obligation of the District to pay or cause to be paid to the Owners of such District Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose. Any funds thereafter held by the District Trustee, which are not required for said purposes, shall be paid over to the District.

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APPENDIX C APPRAISAL REPORT

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(THIS PAGE LEFT BLANK INTENTIONALLY)

APPRAISAL REPORT


2001 LOCAL AGENCY REVENUE BONDS. SERIES E

Prepared for:

CITY OF BEAUMONT · • 550 East Sixth Street .. Beaumont, CA92223

. James 8. Harris, MAI Berti Cannon Harris

Harris Realty Appraisal · 5100Hirch Street, Suite 200. Newport Beach, CA 92660

September 2007

Harris Realty Appraisal

Mr. Dave Dillon Director of Economic Development 550 East Sixth Street . Beaumont, CA 92223

Re: . Community Facilities District No. 93-1; 2007 Local Agency Revenue Bonds Series E

· Dear Mr. Dillon:

5100 Birch Street, Suite 200 Newport Beach, California 92660 949-851-1227 FAX 949-851-2055

www.harris~appraisal.com

September 7, 2007

In response to your authorization, we have prepared a self-contained appraisal report which. addresses all of the property within the boundaries of Community Facilities District.(CFD) No .. 93-1, 2007 Local Agency Revenue Bonds Series E in the City of B.eaurriont. The property within the District includes. Improvement Area 8C, which

· consists of 155.63.:t gross acres proposed for 6139 dwelling units, according to the.City's ··Engineers Report. The land includes flve recorded tract maps proposed for 666 units

and one unrecordf;!d tract map proposed for 23 units. The merchant builders within the · District include Pardee. Homes Wh_o is currently planning to build 534 dwelling units and · KB Home Coastal, Ilic. who is planning to build 155 dwelling units. As of the date of value, 7 model homes have-transferred to Dubose Model Investments, Ltd. (please see Addenda for the exact ownerships ofthe model homes). In addition, 91 production homes within 4 subdivisions have transferred to individual homeowners. The appraisal report will value the. "as is" condition of ·the land within the District, as of September 1, 2007. This appraisal includes an el:ltimate of Market Value of the land under site and unit construction subject to the specialtax. ·

According to the specific guidelines of the California Debt and Investment Advisory Commission (CDIAC), each oWtiership is valued in bulk, representing a discounted value

· to that ownership as of the date of value.

Based on the investigation and analyses undertaken, our experience as real. estate appraisers, and subjectto all the premises, assumptions and limiting conditions set forth in this report, the following opinions of Market Value are formed as of September 1, 2007.

http://www.harris-sppraisal.com

Mr. pave Dillon September 7, 2007 Page Two

CFD NO. 93-1 2007 LOCAL AGENCY REVENUE BONDS SERIES E

FlfTYsflVE MILLION

SEVEN HUNDRED THOUSAND DOLLARS

$55,700,000

. The estimated value assumes bond proceeds of approximately $5,600,000 for . eligible facilities, as described in the· Community Facilities Report, are available at the time ofsale . . ··.

. the self-contained narrative report that follows sets forth the results .of the data · and analyses upon .which our opinions of value are, in part, predicated. This report has been prepared. fqr the City of· Beaumont for use in the sale · of Community Facilities

· . District bonds. The. intended users of this .report are the City of Beaumont, its underwriter, legal counsel, consultants, and potential bond investors. This appraisal has been prepared. in accordaQbe '.with and is subject .to the requirements of The Appraisal Standards for land s.ecured financing as published by the California Debt and Investment Advisory_ Commission; the Uniform Standards of Professiona/Appraisa/Practice (USPAP) · .of the Appraisal Foundation; arid the Code of Professional Ethics and the Standards of . Proft,ssi9[1al Appraisal Practice of the Appraisal Institute.

W~ meet the requirements of the Competency Provision of the Uniform Standards of Professional Appraisal Practice. A statement of our qualifications appears in the Addenda.. . . . . .

RespectfuUy submitted,

~~·~ Berri Cannon Harris Vice President AG009147

J mes B. Harris, MAI resident

AG001846

SUMMARY OF FACTS AND CONCLUSIONS

EFFECTIVE DATE OF APPRAISAL

DATE OF REPORT

INTEREST APPRAISED ..

OWNERSHIP & ·· · LEGAL DESCRIPTION

. September 1, 2007

September 7, 2007

Fee Simple Estate, subject to special tax liens

· Pardee Homes: Solaris - Tr 34291 Lots 1-32, 42, 54-59, 65; 69, 71, 79, 80, 82, 83 & 87-110 .(70 lots); Larkspur - Tr 31468-5 Lots 1-31, 37-43,. 47-51, 53 & 57-110 (98 ·· lots); Copperleaf I""" Tr 31468.,6 Lots 1-16, 18-21, 23-26, 2.8, 29, 31 & 34-159 (153 lots) and TT Tr 34290 Lots 1c23 .(23 lots); Copperleaf II -Tr 31468~7 Lots 1, 2, 3 & 8°132 (128 lots). · ·

KB Home Coastal Inc.: Trillium - Tr 13468-8 . Lots 1c8, t9, 21, 22, 26°125, 127, 129, 130,. 134, 136, 138, 14(? & 144 (119 lots).

Dubose Model Home Investments, L.P. Lots · 4, 5, 6 & T of Tract 31486.-7 (Copperleaf I ·

project) and Lots 44, 45 & 46 ofTract 31468-5 (Larkspur project). Please refer to the · · Addenda for the ei<act ownership for each

• model home, as tliey do differ slightly. ·

Individual Homeowners:.· ·

iii

Solaris Project: Lots 33-41, 43-53, 60-64, 66-68, 70, 72-78, 81, 84, 85 & 86 Tract 34291 (40 home.s)

Larkspur Project: Lots 32-36, 52, 54, 55, & 56Tract 31486-5 (9 homes)

.Copp.erleaf I Project: Lots 17, 22, 27, 30, 32 & 33 Tract 31486-6 (6 homes)

Trillium Project: Lots 9-18, 20, 23, 24, 25,. 126, 128, 131-133, 135, 137, 139 · 141c143, 145-155 Tract 31468-8 (36 homes). · ·


OWNERSHIP& LEGAL DESCRIPTION Continued

PROPOSED IMPROVEMENTS

. The subject of this appraisal includes lmprovernent Area 8C within CFD No. 93-1, 2007 Local Agency Revenue Bonds Series E. The project is located in the City of Beaumont

· and according to the City's Engineer's Report is described as: a portion of APN 419-020-043.

155.63.:!: gross acres proposed for 689 singlefamily detached units to be developed with 5 products.

The District is divided into six planning areas · with four actively selling projects. The product being built on PA 18 is known as Larkspur and is proposed for 110 dwelling units between 2,409 .and 2,801 .square feet with

· base prices between $354,900 and $380;900 .. The product being built cm PA .19 (and to Cllntinue on PA 20) is known asCopperleaf l and · is proposed for 182 dwelling · units between 1,893 and 2,799 square feet. Current prices range from $339,9_QO . to $371.,900. The product being built on PA 24 is • known as Soiaris II and .is proposed for 11 O

· dwelling units · between 1,683 arid 2,105 .square feet. Base prices currently range from

· $295,900 to $325,900. These three products · . are being built by Pardee Homes. ·

PA 23 is being built by KB Home. The product · . is known as Trillium and ranges from 1 ;670 to · • 2,456 square feetwith prices from $249,990 · to $296,990. Trillium is proposed for 155

dwelling units. ·

PA 22 is undeveloped arid currently planned for Copperleaf II, with a total of 132 lots. The

· niodel homes for Copperleaf I are located within this planning. area. However, there is· some discussion about changing the · proposed product for this planning area.

iv


SITE CONDITION

HIGHEST AND BEST USE

VALUATION. CONCLUSION

. Land improved from blue-top lot condition . with erosion to finished lot condition. Planning

Areas 23. and 24 are in finished lot condition. There are 11 model homes complete and 213 dwelling units are built and sold or under unit construction as of the date of value.

Co.ntinued development of the Larkspur, . Copperleaf I, Solaris II and Trillium products. Change in product for Copperleaf II, to a smaller product with less amenities and lower s.ales prices, to better meet current market demand.

$55,700,000 MARKET VALUE

.Pardee Homes -$21,300,000

·. KB Home Coastal, Inc, - $5,300,00()

. 98 Individual Homeowners• $29,100,000

· PA 23 & 24 - $33,000,000 (Value included above)

V

TABLE OFCONTENTS

Section

Transmittal Letter .... , ..... , ............... , .........................•....................... , .............................. .

Summary of Facts and Conclusions ............................. ,................................................. iii

Aerial :........................................................................................................................... Vi ' . '

Table of Contents •........ •................................................................................................. vii

. Introduction .............................. · ... :................................................................................... 1

Area Description ....•...................... :.................................................................................. 12

Market Overview· ........... : . ., ................. : ...... : .........•....... : .................................................... 33

S~ Analysis., ...................... '. ......... , ........ , ... , .................. , .................................................. 43

·. Proposed'lmprovem:entDescription ··········································;··············· ................ :... 52

, Hi~hest and Best Use: ................ : ... , .............................................. ,............................... 54

Valuation Methodology ... ,,.: ... : .......... : ........................ : ........................ , ......................... ·.. 61.

• Valuation ofltnprovementArea 88 ....... , ....................... , .. : .............................. , ........ ,..... 63

Valuation Conclusion .............................................................. : ........................... :.......... 95

Certification .................... , .... : ......... , ............................... ,.•·····························'··············'"· 96.

· , Addenda

Qualifications Empire Economics Study (Portion)·

· TractMaps · Summary of Sold Dwelling Units

vii

HRA INTRODUCTION

Pumose of the Report

The purpose of this appraisal is to estimate the "As Is" Market Value of the fee

. simple estate, subject to special tax liens for all the taxable land and improvements within

the participating project, Improvement Area BC, of Community Facilities District No. 93-1

2007 Local Agency Revenue Bonds Series E for the City of Beaumont.

The opinions set forth are subject to the assumptions and limiting conditions set

forth in this appraisal,. and the appraisal guidelines as set forth by the City of Beaumont . .

for Community Facilities District financing. . . .

Function of the Report and Intended Use ·

It is our understanding that ·this .appraisal report is to be us~d for Community

Facilities District bond financing purposes only. The subject property is described more

particularly within this report: The bonds are issued pursuant to the Mello-Roos

Community Facilities District Act of 1982, as amended. The maximum authorized bond

indebtedness for the District is $30,000,000, according to the Amended and Restated . . . ' .

Rate and Method of Apportionment.

· . Client and Intended Users of the Report

'This report was prepared for our client, the City of Beaumont. The intended users

-of the report include the City of Beaumont, its underwriter, legal counsel, consultants, and . . .

potential bond purchasers.

Scope of the Assignment

According to the CDIAC.guidelines, the total value conclusion includes the "As ls"

estimate of Market Value according to each ownership within the District. This is a fully

documented self-contained appraisal report. Any lands designated for park, open space

or civic uses within this CFD and not subject to special tax are not included in this

assignment.

CONSULTING REAL ESTATE APPRAISERS

1

HRA We have analyzed the subject property based upon the proposed uses and our

opinion of its highest and best use. The following paragraphs summarize the process of

collecting, confirming and reporting of data used in the analysis.

1. Gathered and analyzed demographic data from sources including the California Department of Finance (population data), Employment Development Department of the State of California (employment data), City of Beaumont (zoning information, building permit trends), City of Beaumont Chamber of Commerce (local demographic trends), Hanley Wood Market Intelligence (housing sales, inventory levels, and absorption), and sales personnel of comparable projects (market trends of individual home sales). Subject information was gathered from the developer/ builder and thei~ consultants.

2. Inspected the subject's neighborhood and reviewed the proposed products and similar products for consideration of the Highest and Best Use ofthe lots.

3. Gathered and analyzed comparable merchant builder land sales within the Beaumont market area, and residential detached unit

. sales, within the subject's primary market area. Data was gathered from sources including, Comps.com, brokers, appraisers; builders active in the area and developers within . the Southern California area. Wh.ere feasible, data was confirmed with both the buyer and selier. The data gathered are presented on summary data sheets within this report.

Date of Value and Report

The opinions of Market Value expressed in this report are stated as of September

1, 2007. The date of the appraisal report is September 7, 2007.

Date of Inspection

The subject property was inspected on numerous occasions, with the most recent

on September 10, 2007.

Property Rights Appraised

The property rights appraised are those of the fee simple estate subject to special

,tax liens of the real estate described herein.


2

HRA Property Identification

The subject property consists of six tracts within the City of Beaumont. The

District is generally located at the southwest section of the master planned community

of Sundance; at the southwest corner of Starlight Avenue and Oak Valley Parkway. The

District and Sundance are located north of 1-10 between Highland Springs Avenue and

Cherry Avenue in the City of Beaumont.

Tract Map No. 31468-5 is being developed by Pardee Homes with the Larkspur

product proposed for 110 dwelling units. Tract Map No. 31468-6 is being developed by

Pardee Homes with the Copperleaf I product. Unrecorded Tract Map No. 34290 is also

proposed to be a part of the Copperfeafl product and together with Tract Map No. 314{?8-

6 is proposed for 182 dwelling units. Tract Map No. 34291, a condominium map, is being

developed by Pardee Homes with the Solaris II product and is proposed for 11 0 dwelling

units. Tract Map No. 34168-8 is being developed by KB Home with the Trillium product . .

and is proposed for 155 dwelling units. Tract Map No. 31468-7 is currently proposed to be

·· a continuation of the Copperleaf I product, referred to as Copperfeaf II, however recent

discussions have begun regarding changing the product to better meet current market

demand.

Legal Description and.Ownership

According to a review of the title reports prepared by Chicago Title Company,

grant deeds and interview, curre_nt ownership for the District is: Pardee Homes: Solaris

- Tr 34291 Lots 1-32, 42, 54s59, 65, 69, 71, 79; 80, 82, 83 & 87-110 (70 lots); Larkspur

- Tr 31468-5 Lots f-31, 37-43, 47-51, 53 & 57-110 (98 lots); Copperleaf 1- Tr 31468-6

Lots 1-16, 18-21, 23-26, 28, 29, 31 & 34-159 (153 lots) and TT Tr 34290 Lots 1-23 (23

lots); Copperleaf II -Tr 31468-7 Lots 1, 2, 3 & 8-132 (128 lots). KB Home Coastal Inc.:

Trillium -Tr 13468-8 Lots 1-8, 19, 21, 22, 26-125, 127, 129, 130, 134, 136, 138, 140 &

144 (119 lots). In addition, 7 model homes have .sold and 91 production homes have

sold to individual. homeowners. Please refer to the Addenda of this report for the lot and

tract numbers and ownership of the 98 sold homes as of September 1, 2007.


3

i c:; z G)

~ .,.. rn j;! ;:;:1

I

NTS

CITY OF BEAUMONT COMMUNITY FACILITIES DISTRICT NO. 93.,..1

PARDEE SUNDANCE IMPROVEMENT AREA NO. 8-C

l~, ... ,.

i <C •

iJ w, n

IMPROVEMENT AREA BOUNDARY

f • I I ! . X

I I g • f ' I ' t i I !

~-----------11 llr6an £opic C,msu/lanu I , ~ .,,,.....,/11,,,.-,,,..._., " ~ ~A=::-,.1#-MN

:::c :IJ >

HRA Property History

The land under the ownership of KB Home Coastal Inc. was purchased from

Pardee Homes on March 23, 2006 for a reported price of $11,600,150, which equates

to $74,840 per proposed lot. The price was based on a blue-top lot condition.

According fo the land developer; Pardee Homes, Improvement Area BC was a

portion of a- larger acquisition purchased 7 to 8 years ago, by Pardee Homes. The

appraisers are not aware of any other transfers of the subject property over the past

three years.

Definitions

Market Value 1

The most probable price in terms of money 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)

(b)

(c)

(d)

(e)

Buyer and seller are typically motivated.

Both parties are well informed or well advised, and each acting in what he considers.his own best interest.

A reasonable time is allowed for exposure in the open market.

Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto.

The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Fee Simple Estate2 .

Absolute ownership unencumbered by any other interest or estate subject only to the four powers of government.

1 Part 563, subsection 563.17-1a(b)(2), Subchapter D, Chapter V, Title 12, Code of Federal Regulations.

2 The Dictionary of Real Estate Appraisal, Third Edition, published by The Appraisal Institute, 1993, Page 140


5

HRA Fee Simple Estate Subject to Special Tax and Special Assessment Liens

Empirical evidence (and common sense) suggests that the selling prices of properties encumbered by such liens are discounted compared to properties free and clear of such liens. In new development projects, annual special tax and/or special assessment payments can be substantial, and prospective buyers take this added tax burden into account when formulating their bid prices. Taxes, including special taxes, are legally distinct from assessments.

The Market Value included herein, reflects the value potential buyers would consider given the special tax and encumbrances of Community Facilities District No. 93-1 2007 Local Agency Revenue Bonds Series E in the City of B.eaumont · ·

Retail Value

.· Retail value should be estimated for all fully improved and sold properties. Retail Value. is an estimate of what an end user would pay for a finished property under the. conditions requisite to a fair sale.

Blue-Top Graded Parcel

Blue-top graded parcel includes streets cut and padded lots to blue-top with utilities stubbed to the parcei and perimeter streets in.

Finished Site3

Land that is improved so that it is ready to be used for a specific purpose. (Improvements include padded lot, streets and utilities to the lot, and all fees required to issue a building permit paid.)

Mass-Graded Parcels

Mass-graded parcel with utilities stubbed to the site and perimeter streets in.

Critical. Facilities.

Critical Facilities are those which have the highest priority in terms of the City of Beaumont's Comprehensive Public Facilities Financing Program. Critical Facilities represent programs and improvements that have highest priority in terms of the City Program. Included in the Critical Facilities are City Program costs related to the domestic water system, the transportation

3 Ibid, Page 334


6

HRA system and program facilities which include upgrades to the City wastewater treatment plant and San Timoteo watershed improvements.

Joint Facilities

Joint Facilities are those facilities which have the second highest priority in terms of the City Program. Joint Facilities represent improvements which benefit multiple Improvement Areas within the District. Included in Joint Facilities is the Upper Potrero sewer system.

Individual Facilities

Individual Facilities are those facilities which have the lowest priority in terms of the City Program. Individual Facilities represent improvements that generally benefit individual Improvement Areas within the District. Included in Individual Facilities are master planned, in tract water, sewer and park improvements. Included in the financing are improvements to the local streets, sanitary sewer and storm drain system.

Assumptions and Limiting Conditions

The analyses and opinions set forth in this report are subject to the following

assumptions and limiting conditions:

Standards Rule ("S.R.") 2-1(c) of the "Standards of Professional Appraisal

Practice" of the Appraisal Institute requires the appraisers to. "clearly and accurately ·

disclose any extraordinary assumption or limiting condition that directly affects an

appraisal analysis, opinion, or conclusion." In compliance with S.R. 2-1(c) and to assist

the reader in interpreting the report, the following contingencies, assumptions and limiting

conditions are set forth as follows:

Contingencies of the Appraisal . The appraisal is contingent upon the successful issuance and funding of Community Facilities District No. 93-1 2007 Local Agency Revenue Bonds Series E for the City of Beaumont. This appraisal assumes reimbursement fo Pardee Homes as outlined in the Valuation section of this report. If there is a change in the amount of reimbursements or fee credits, the valuation included in this report would likely change.

The on-site and off-site infrastructure costs and fees have been provided for our review by the builders. The costs were reportedly prepared, in part, by the builder's engineers. It is assumed that · all conditions for site development as indicated in the Conditions of Approval are included in the

CONS.ULTTNG REAL ESTATE APPRAISERS

7

HRA infrastructure costs. The costs to complete have been compared with other projects in the area and appear reasonable. However, it is a specific contingency and assumption of this appraisal report that the costs reported are accurate. Any variance in costs could impact the value conclusions reported in this appraisal report.

Assumptions and Limiting Conditions No responsibility is assumed by your appraisers for matters which are legal in nature. No opinion of title is rendered, and the property is appraised as though free of all encumbrances (other than the lien of the special tax) and the tiUe marketable. No survey of the boundaries of the property was undertaken by your appraisers. All areas and dimensions furnished to your appraisers are presumed to be correct.

The date of value for which the opinions of Market Value are expressed in this report is September 1, 2007. The dollar amount of this value opinion is based on the purchasing power of the United States dollar on that date.

The appraisers have not been provided with plans or specifications for the proposed dwellings in the proposed subdivisions within the District. For purposes of this appraisal, we have assumed that the quality of construction, functional utility., amenities and features will meet market demand for new product in the market area in which the subject is located. This is a specific assumption of the value estimate included in the report.

Maps, plats, and exhibits included herein.are for illustration only, as an aid for the reader 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 this report.

Oil, gas, mineral rights and subsurface rights were not considered in making this appraisal unless otherwise stated and are not a part of the appraisal, if any exist.

The appraisers have been provided with six preliminary title policies prepared by Chicago Title Company, dated January 12, 2007, March 6, 2007, March 12, 2007, June 3, 2007, June 20, 2007, and June 28, 2007, which cover the District. For purposes of this appraisal, it is assumed that there are no easements, encroachments or restrictions that would adversely affect the value of the subject property.

Information contained in this report has been gathered from sources which are believed to be reliable, and, where feasible, has been verified. No responsibility is assumed for the accuracy of information supplied by others.


8

HRA

Since earthquakes are common in the area, no responsibility is assumed for their possible effect on individual properties, unless detailed geologic reports are made available.

Your appraisers have inspected, as far as possible by observation, the land; however, it was impossible to personally inspect conditions beneath the soil. Therefore, no representations are made as to these matters unless specifically considered in the report.

The appraisers assume no responsibility for economic or physical factors which may occur after the date of this appraisal. The appraisers, in rendering these opinions, assume no responsibility for subsequent changes in management, tax laws, environmental regulations, economic, or physical factors which may or may not affect said conclusions or opinions.

No engineering survey, legal, or engineering analysis· has been made by us of this propeftY. It is assumed that the legal description and area computations furnished are reasonably accurate. However, it is recommended that an analysis be made for exact verification through appropriate professionals before demising, hypothecating, purchasing or lending occurs.

Unless otherwise .. stated in this report, the existence of hazardous .substances, including without limitation asbestos, polychlorinated biphenyls, petroleum leakage, or agricultural chemicals, which · may or may not be present on the property, or other environmental conditions, were not called to the attention of not did the appraisers become aware of such during the appraisers' inspection. The appraisers have no knowledge of the existence of such materials on or in the property unless otherwise stated. The appraisers, however, are not qualified to test for such substances or

. conditions. ·

The presence of such substances such as asbestos, urea formaldehyde, foam insulation, or other hazardous substances or environmental conditions may affect the value of the property. · The value estimated herein is predicated on the assumption that there is no such condition on or in the propeftY or in such proximity thereto that it would cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in the field of environmental impacts upon real estate if so desired.

The cost and availability of financing help determine the demand for and supply of real estate and therefore affect real estate values and prices. The transaction price of one property may differ frorri that of an identical property because financing arrangements vary.


9

HRA The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used.

The forecasts of future events which influence the valuation process are predicated on the continuation of historic and current trends in the market.

The property appraised is assumed to be in full compliance with all applicable federal, state, and local environmental regulations and laws, and the property is in conformance . with all applicable zoning and use ordinances/restrictions, unless otherwise stated.

The Americans with Disabilities Act ("ADA'J became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a. detailed analysis of the requirements of the ADA, could reveal thatthe property. is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect on the value of the property. Since we have. no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of the. ADA in estimating the value of the property.

We shall not be required, by reason of this appraisal, to give testimony or to be in attendance in court or any governmental or other hearing with · reference to the property without prior arrangements having first been made with the appraisers relative to such additional employment.

ln the event the appraisers are subpoenaed for a deposition, judicial, or administrative proceeding, and are ordered to produce their appraisal report and files, the appraisers will immediately notify the client.

The appraisers will appear at the deposition, judicial, or administrative hearing with their appraisal report and files and will answer all questions unless the client provides the appraisers with legal counsel who then instructs them not · to ·. appear, instructs them not to produce certain documents, . or instructs them not to answer certain questions. These instructions will be overridden by a court order which the appraisers will follow if legally required to do so. Ushall be the responsibility of the client to obtain a protective order.

The appraisers have personally inspected the subject property; however, no opinion as to structural soundness of existing improvements or conformity to City, County, or any other agency building code is made. No responsibility for undisclosed structural deficiencies/conditions is assumed by the appraisers. No consideration has been given in this appraisal to


10

HRA personal property located on the premises; only the real estate has been considered unless otherwise specified.

James B. Harris is a Member and Berri J. Cannon Harris is an Associate Member of the Appraisal Institute. The Bylaws and Regulations of the Institute require each Member and Associates to control the uses and distribution of each appraisal report signed by such Member or Associates. · Except as hereinafter provided, possession of this report, or a copy of it, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraisers and in any event only with properly written qualification and only in its entirety. The City of Beaumont, its underwriter and legal counsel may publish this report in the Official Statement for the Community Facilities· District No. 93-1 2007 Local

. A1;1ency Revenue Bonds Series E for the City of Beaumont

Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers or the firm with which

· they are connected, or any reference to the Appraisal Institute or the MAI designation) shall be disseminated to the public through advertising media, public relations, news media or any other public means of communication without the prior consent and approval of the undersigned.

The acceptance of and/or use of this appraisal report by the client or any third part constitutes acceptance of the following conditions:

The liability of Harris Realty Appraisal and the appraisers responsible for this report is limited to the client only and to the fee actually received by the appraisers. Further, there is no accountability, obligation or liability to ariy third party. If the appraisal report is placed in the hands of anyone other than the client for whom this report was prepared, the client shall make such party and/or parties aware of all limiting conditions and assumptions of this assignment and related discussions. Any party who uses or relies upon any information in this report, without the preparer's written consent, does so at his own risk.

If the client or any·third party brings legal action against Harris Realty Appraisal or the signer of this report and the appraisers prevail, the party initiating such legal action shall reimburs_e Harris Realty Appraisal and/or the appraisers for any and all costs -of any nature,

. including attorneys' fees, incurred in their defense.


11

HRA AREA DESCRIPTION

The following section of this report will summarize the major demographic and

economic characteristics such as population, employment, income and other pertinent

characteristics for the Southern California region, Riverside County, the City of Beaumont

and the subject market area.

Southern California Regional Overview

The Southern California region, as defined in this report, encompasses six

individual counties including Los Angeles, Orange, Riverside, San Bernardino, Sari

Diego, and Ventura Counties. The Southern California region extends from the California

Mexico border on the south to the Tehachapi mountain range on the north and from the

Pacific Ocean on the west to the California-Arizona border on the east. The region covers

an estimated 38,242 square miles and embodies a diverse spectrum of climates,

topography, and level of urban development. Please refer to the following page for a

location map.

Population

The s·outhem California region has added about 8.1 million new residents since

1980 as indicated in the table. shown on page 15. According to the California Department

of Finance, the most recent data available indicate that as of January 2007, the regional

population stood at over 21.4 million. If the region were an individual state, it would rank

as one of the most populous in the nation .

. Since 1981, annual population gains from natural increase and immigration have

ranged from a low of 87,300 persons in 1995 up to 568,645 persons in 1990. These

figures represent annual gains of 0.5% to 3.5%. During the past five years, the population

of the six-county Southern California region grew by 1.2% · to 1.9% per annum.

As of January 2007 the population of the six-county area stood at 21,413,300

persons. Looking toward the future it is estimated that the region's population Will continue


12

HRA

CONSULllNG REAL ESTATE APPRAISERS

13

HRA to climb as new residents seek out the southern California area. During the economic

downturn from 1992 through 1996, and continuing through 2007, the population growth

rate declined compared to the growth experienced in the .late 1980s.

Population Trends 1980-2007

Average Annual Chahge . Number. . P.eroent Population

1.6%, J2,~

. ,2,2%:,, ·'~;J,~< .,· '

••'.':.

1 April 1, 1980, 1990, and 2000, all other years January 1 Source: California Oepartmentof Finance. 5/07

The future rate of growth will depend on a number of factors that may dramatically

affect the region. Some of the major factors include availability of developable land,

availability of water, national economic climate, and public policy toward growth and the

assimilation of a large number of new foreign immigrants. The continued growth of the


14

HRA population within the region, even during periods of economic slow down, provides a

positive indicator as to the desirability of the Southern California region.

Employment

In conjunction with the population growth, a key indicator of the region's economic

vitality is the trend in employment. The most common measure of employment growth is

the change in non-agricultural wage employment. The table below illustrates the non°

agricultural wage employment trends in Southern California.

' 2005 benchmark

Southern California Region Employment Trends

1983-20061

Source: Employmant Developmant Department. 3/07

In the Southern California region, average annual non-agricultural employment has

grown from 5,691,000 jobs in 1983, to a then peak employment of 8,015,300 in 2001.

Employment declined to 8,007,500 in 2002. This decline was mostly caused by a 46,800


15

HRA job decrease in Los Angeles County. Each year between 2003 and 2006, Southern

California employment climbed to a new record level, 8,481,600 in 2006. This was in spite

of Los Angeles County only adding an additional 20,000± net jobs in six years. This

represents an increase of over 469,000 new jobs over the past five years in Southern

California.

As the economy entered into an economic recession during the latter part of 1990,

· employment growth slowed. The average annual gain in 1990 was approximately

192,100 jobs or 2.7%. In 1992 when the full weight of the recession was felt, area

employment suffered the highest annual decline in jobs registered in the last decade,

losing nearly 204,000 jobs or a percentage decrease of 2.9%. This was followed by

further employment dee.lines of 102,600 jobs in 1993. II appears that by the middle of

1994, the economic recovery finally began to take hold in the Southern California region.

The adverse employment issues· experienced in the prior three years had abated. In

1998, total non-agricultural employment stood at 7.4 million, finally exceeding the prior

·. high in 1990. As of year-end 2002, employment was over 8.0 million. Forecasts prior to

. September 11, 2001, indicate that job growth would continue to be positive in 2001 and

increase moderately over the next one to two years. Howeve~. with the terrorist attack on

the United States and the conflict with. Iraq, most economists are saying we were in a .flat

· to slightly declining economy, during 2002 and first half of 2003, but that we began

recovery during the seC()lld half-0f 2003. 2003 showed a small increase over the previous

high mark in 2001. 2004 had a moderate gain over 2003. Employment gains have

recovered in 2005 with an additional 150,800 new jobs or a· 1.8% increase. 2006 showed

an even stronger economy with a gain of 171,100 jobs, or a 2.1% increase.

Employment among 'the individual industry categories reflects some fundamental

regional changes in the economy during the past decade. The level of mining activity in

Southern California continues to steadily decline as reflected in the consistent decrease in

mining employment. Construction employment, as of 1989, was at a high level in

response to the level of construction activity that had occurred in the region during the

previousfive years. During the period from 1991 through 1994, construction employment


16

HRA declined in response to decreased residential and commercial construction activity. From

1994 through 2006, as the economy rebounded, residential construction increased

bringing back more than the construction jobs lost during the recession. Construction jobs

have declined in the first quarter of 2007 as the residential market has weakened.

Total manufacturing employment in the region has exhibited little gain from the

levels recorded in 1980. Due to the high labor, land, and capital costs in most of the

Southern Calffornia region, some manufacturing firms have expanded or relocated their

manufacturing operations outside of the area.

The Southern California economy, which historically depended h~avily on

aerospace and defense related employment, has been dealt a double blow. First from the

. reduction of the space program and .reduced defense spending which affected

manufacturers and .suppliers, and second from the closure of several military bases which

has had a ripple effect throughout the local economy. Areas heavily dependent on military

· spending will be impacted as the units are deployed abroad.

The finance, insurance, and real estate ("FIRE") employment category grew

rapidly as the economy recovered from the 1981-1982 national recession. As the

economy entered a new recessionary cycle, the FIRE employment sector exhibited little

growth from 1991 .through 1995. Over the last ten years, job growth in this sector has

been significant. However, jobs declined· in 2006 and continue to decline in 2007 as real

estate loan demand declines.. Some of the manufacturing and aerospace jobs

permanently displaced from the e9onomy were slowly being replaced with administrative,

marketing and research empioyment. · It is reasonable to assume that similar stagnant

growth in this area will be experienced during the current economy.

The employment group that has contributed most to the employment growth in the

region is the service sector.. Since 1980, the majority of all new jobs have been created in

the·service category. The service sector was the leader in new job growth during the last

ten years.

CONSULTING REAL ESTATE APPRAISERS 17

HRA Government employment tends to mirror the growth of the · population that it

services. It is expected that government employment will grow at a rate similar to the area

population. The future employment growth in the Southern California region is expected

to continue but at a level moderately lower than recent years. Factors that will affect

employment growth include the direction of the national economy, wage levels, housing

prices, and population trends. Given the national disaster of September 11, 2001,

government should not experience layoffs; on the contrary, growth particularly in the

defense sector 11hould occur. However, the California state budget deficit has negatively

impacted both state and local government employment.

Riverside County

Riverside County consists of 24 individual cities and numerous. unincorporated

communities. Riverside County is typically grouped with adjacent San Bernardino County

to form the Riverside-San Bernardino Metropolitan Statistical Area ("MSA"). This area is

commonly called the lnl.and Empire. Riverside County is bounded by Orange County to

the west, San Bemardino to the north, the state of Arizona to the east, and San Diego

County to the south.

The major urbanized areas are located in the western portion of the County. The

major incorporated cities include the cities of Riverside, Corona, and Moreno Valley.

These areas were the most active areas for new growth during the mid 1980's until the

recession took hold during 1990. The area which encompasses Lake Elsinore, Murrieta,

Menifee Valley and Temecula has also experienced rapid growth since the mid .1980's.

The areas that have experienced the most active growth during the 1980s also suffered

the most during the lengthy recession. However, since 1996, residential activity has

increased due. to downsizing of product with more affordable pricing, and the general

improvement in the regional economy.

Population

Riverside County has more than tripled its population, adding approximately

1,368,400 new residents since 1980 as illustrated in the following table. As of the 2000

CONSULllNG REAL ESTATE APPRAISERS

18

HRA Census, the countywide population stood at 1,545,387 residents. The 2007 estimate by

the State of California indicates that the County had 2,031,600 residents on January 1,

2007. Annual population gains, from natural increase and immigration, have ranged from

44,813 persons in 2001 up to 81,300 persons in 2004. From 1991 to 1997, the rate of

growth in population declined moderately each year. Recent gains of 44,813 to 81,300

persons represent annual changes of 2.9% to 4.7% since 1998.

The future rate of growth within the County will depend on a number of factors.

Some of the. major factors include availability of developable land, availability of water,

national and regional economic climate and public policy toward growth.

The areas within the County that will continue to experience the largest share of

the new population growth will be the Corona-Riverside area and the area between Lake

. Elsinore, Sun City and Temecula.

Riverside County Population Trends

1980-2007

April 1, 1980, 1990, 2000; all other years January 1. Source: Calffomia Department of Finance, U.S. Census 5/07

CONSI.JLTING REAL ESTATE APPRAISERS

19

HRA Employment

Employment data for Riverside County are compiled for the entire MSA, which

includes San Bernardino and Riverside Counties. These counties have a diverse

economy, with manufacturing, construction and tourism being the major industry groups.

In conjunction with the rapid population growth experienced in the past two decades, the

employment base has continued to grow and diversify. The Inland Empire's

unemployment rate is moderately above the Southern California average and similar to

the State. The higher. unemployment rate is due to the seasonal nature of agricultural

employment in the area. The following exhibit illustrates the area's unemployment

compared to California as of June 2007. Unemployment rates have declined 54% from

the recession high of 12.2% in 1993.

California Inland Empire

Labor Force

18,216,300 1;834,800

Unemployment

5.2% 5.6%

The most common measure of employment growth is the increase in

nonagricultural employment. Nonagricultural employment is outlined in the following

exhibit. During the 1980's the Inland Empire's employment base expanded rapidly as the

area moved away from its military and government oriented employment base to a more

fully diversified economy.

Nonagricultural employment has grown from an annual average of 443,100 jobs in

1983 to 1,271,200 jobs in 2006 This represents an increase of over 828,000 new jobs

created in San Bernardino and Riverside Counties during the past 23 years: Job gains

peaked in 1990 with 67,00.0 new jobs. Since 2000, job increases have ranged from

34,800 new jobs to a nearrecord increase of 62,000 new jobs in 2005. The percentage

increases have ranged. from 3.3% to 5.5%. The following table illustrates the annual

employment trends from 1983 through 2006. In June 2007, the non-agricultural

employment had increased to 1,321,800, a 3.5% increase from June 2006.


20

HRA Employment among the individual industry categories reflects changes in the

Inland Empire economy during the past decade. Construction employment gains

generally mirror the regional economy. In response to the high level of construction

activity that occurred in the County during the period from 1984 to 1989, construction

employment reached nearly three times the level recorded in 1982. From 1992 through

. 1995_, construction employment declined in response to decreased building activity. The

2006 levels were more than double the 1993 low.

2006 Benchmark

San Bernardino-Riverside MSA Employment Trends

1983-2006

Source: Employment Development Department 3/07

The number of manufacturing jobs in the Inland Empire has increased over 45%

from the levels recorded in 1991. However, manufacturing jobs declined 5.5% from the


21

HRA 2000 high of 120,000 jobs to 113,400 jobs by 2003, but increased back to 124,000 in

2006, Due to the high labor and capital costs in Los Angeles and Orange Counties,

manufacturing firms have expanded or relocated some of their manufacturing operations

to Riverside and· San Bernardino counties to take advantage of the labor force and lower

land costs. The following table lists the largest employers in San Bernardino and

Riverside Counties. ·

Inland Empire

Major Empl.oyers

Name of Compl!lly . ·Lgcal Employ$ .. Type of Business or.Entity County.of San Bern!irdino ··. 1~.t99 .. Local Government CountyofRiv~~ ·· .. · .. · . C .··, ·. . 17;942i L-OdalGovetnment · M11nheAirGrollri\1 'rjR''Fii:~'. · 12,346 Mi~iry < •• ·. ·.· L<>mauri.ila Unlwrsi(y'j\(ly,ritfieal!f 12,000 . !::==Education . =:~:!s:: t:}21·•. . 1

~::;/ e~Fy:~;talle~ .· .Ol)lvers1ty.otca11foti?ratAM1nlide .. · . e,astf · ·· Hlgtier l!tliic;itk>n ,i;~.-:urtdaOn~@',.,:;:c. ; ,, . ·· · a.~9 . ''H19ner:$J(lciitiori .

t".•· =.~.\~~ ... ra.··.·•.f~i·.••.~.ll'ill.,.f.·.m.!.r.i,~.·'.·6e6.':~.,.·.1 .•. S¢.} .. ;;,.•~.:~i.•~·;":' . ·a.ooo,'.," , .:td~or .. · ...

. ~. ·· ·>: I::"',.::~sir::::: .. • ·~d[Mfedil~carlt.~l.~.-':.. . }Ii . :;e~ 1'11\Ntl..-d ue,,,,.,. 4,000: . ·•l'lealltn:;,aie ' Riverside UnifiedSchcxitnlstrfilt .··. 3,869 . . . F'ubli<: Edacatk:m l=onta~llnified~:Di~tl6t· 3,524 · l'ub!i<:EducatiOn · Guidant Corp. sears

· T:emeM:iva1~i~iiitre/j. ~b\,cl1;01stri/# R~~degt1ii!'111M~~~J.f} .

3,000 2;600 ...

Medical Technology Reta(ll3r Public; Education

••· . Jtigh•r Edi:ication . Based on ranking of total local employees for businesses that qualify for Book of List Rankings Source: The Business Press, 2005 Book of Lists ·

Transportation and public utilities employment tend to mirror population growth. In

the Inland Empire the fmance, insurance and real estate ("FIRE") category is still a small

segment of the employment picture.


22

HRA A significant number of the new jobs created in the last 15 years have been

created. in the service sector. The service sector will continue to play a major role in

employment growth during the next few years. Government employment is a major

employment sector in the Inland Empire due to the rapid growth.

The future employment growth in the Inland Empire is expected to continue as

more firms relocate to the area to take advantage of lower•land prices and the abundant

labor pool. Factors that will affect' employment growth include the direction of the state

and national economy, and consumer confidence. Due to the terrorist attack on

September 11, 2001 and the Iraq conflict, consumer confidence has been negatively

impacted. Most economists report that we were in a flat economy in 2002 and the first

half of 2003, but that we began recovery during the second half of 2003. The recovery

has continued into 2007 .

.Income

The average household income in Riverside County for 2007 is estimated to be

$67,800. The median household income for 2007 stands at $51,954. These figures are

moderately below the Southem·califomia region average. The lower income level is due

to the Iower wages in agricu.lture, manufacturing, service and government.employment.

The household income distribution for Riverside County is illustrated in the following table.

County of Riverside Household Income Distribution

20b7 Income Ran(je ·

... L~itian $1&,0@ , .• ·$15 000•.$24 999. · 1~s)ooo;~~m "

.. • . : .t~;g;t}~ ...•• g~Oll0\~9l,~••· · ····•. · $~0Q;l'l!IO•,ifl,i~9 . . :, $ilill,GOO:bi:.i:llf>!'l't '

Tola! '

.. Meiiian•H~~1cf~C<>r11e . · .· AveiageHOU\lflhbl<i .ln!lOt(ie

11 Percent of total distribution Source: Claritas 5/07

Households 17;:333

· 7~.785 . · 71',21~

j~;~:·· . 83'924 , .. ·''·.:·

:.86046 . 41;487

657;807


23

Percent 11 .· 11;76%·.·. •10Jitl¾> .

. · lo'.t\3% . . .. }4Ji)/!% ··••• 1ll/31% ·' ·>:{~j~~··•· .

i.6]l1l¼ . · . '100{0%·.

$s1,11i4 · ~:soo

HRA Retail Sales

Retail demand continues to be fueled by the growth in population as outlined

previously. For Riverside County, taxable retail sales have increased from $3.9 billion in

1985 to over $7.1 billion by 1994 and to over $20.8 billion by 2005. During the past seven

years, annual changes have ranged from an increase of $768 million in 1998 to an

increase of $2.7 billion in 2004, as shown on the next table. Data for 2006 are not

available as of the date of this report, although on a statewide basis, retail sales were

reportedly up over 8% in 2006.

The increases in retail sales are due to the exceptionally high County population

growth rates experienced during the period from 1983 through 1990. During the period

from 1991. through 1993,. retail sales were stagnant due to the economic recession. From . . '

1994, and continuing through 2005, there was a significant rebound in retail sales. Official

state reports for 2006 will not be released until later this year. In the future, retail sales

growth. should mirror the population growth in the County.


24

HRA Riverside County

Retail Sales Trends 1/ 1985-2005

1/ Taxable Retail Sales Total(not adjusted for inflation) . · Source: State Board of Equalization 1 /07

Transportation .

l~t · 1¼,12'!$ ·

.J:z.!t% f4i0% 5i4%

, • (3,1%) . 4!6%'• o.~% .6:2%

·. 4:$,% .. i.!,%.

6.3% Mi.' · '.• 1t'21'/4

14:0'¾'• · ·· 's:1%· . 8.2%

... -. •12!5% · .•. 16.7% ., ff:3~,t

Riverside County is served by a major airport,• Ontario International, located in

adjoining San Bernardino County. Sever.ii major airlines have flights into Ontario, while

international flights can be booked out of Los Angeles International Airport.

A network of freeways links most urbanized areas of the County. The major north

south arterials are the Corona {15) and Escondido {215) Freeways. The Pomona

Freeway {60) provides east-west access to the Los Angeles area and the desert areas of

. Riverside County. The Riverside Freeway (91) provides access to Orange and Los

Angeles Counties.

Environmental Concerns

The Endangered Species Act of 1973 precludes any activity that constitutes a

taking of a federally listed endangered species except by permit. Numerous areas within


25

HRA Riverside County have been identified as containing potential habitat of the Stephen's

Kangaroo Rat, a listed species. The evidence of habitation by this rat has resulted in

delays or substantial revisions of proposed developments. The. Caiifornia Department of

Fish and Game is currently reviewing the status of additional wildlife for possible inclusion

on a list of endangered or threatened species. A Multiple Species Habitat Conservation

Plan (MSHCP) was approved by the County Board of Supervisors on June 17, 2003. The

MSHCP is a comprehensive, multi-jurisdictional effort that includes the County and 14

cities. This plan focuses on the conservation of 146 species. The MSHCP consists of a

reserve system of approximately 500,000 acres of which 347,000 acres are within public

ownership and approximately 153,000 acres are in private ownership. The purchase of

the privately owned lands will be funded by an adopted fee. A MSHCP fee of $1,651 per

dwelling unit is imposed for housing built in the MSHCP area.

In summary, the region exhibited very strong population and employment growth

during the 1980 to 198.9 period. Tbe recession of the early 1990s had significantly

·slo~d population growth and resulted io•overall job losses from 1990 to 1995. Over the

past seven years, as the economy recovered, population and employmentgrowth have

been stronger than during the prior growth years of the 19.B0s. The long-term outlook

for the· region remains positive as the elements of abundant affordable land and labor

still ~xist. Future growth will, however, continue to be affected by the trends in the

overall economy. Riverside Co1-1nty's economic environment should follow a path similar

to that of the other Southern California counties.

City of Beaumont

The su.bject property is lo<;ated in the City of Beaumont. Beaumont is a small,

outlying residential community in the San Gorgonio Pass area of Riverside County.

Please refer to the location map on the following page.. The City has developed on

. either side of the San Bernardino (1-10) Freeway, south of the San Gorgonio Mountains.

The pass area includes the communities of Cherry Valley, Beaumont, Banning,

Cabazon and the Morongo Indian Reservation. The area has seenUmited growth since


26

HRA

Omi 1 2 Copyright O 1'88-2005 Mlc:rolOft Colp. andlor Its tupplleta. Al1 rtgt:itt ruer:ved, ttt1p:IM'WW.mia'otoft.COffll'ttrut11 0 2004 NAVTEQ. All rlghtl relervect Thia data lndudu li"lfOrrNltlor taken v.flh peqnlalon from c.n.dltil autl'lol'lllin O Her Majetty the Queen In Right of Canada. ' CoP)'l'IOhC 2004 by TefeAIIQ NorUI _Amenca, Inc. All rights _ruerved. '


27

3

HRA the early 1940s and 1950s with only a few new infill residential areas built. However,

over the past five years, residential development has increased significantly.

Beaumont is located just south of Calimesa and the San Bernardino County line.

Banning is located immediately to the east and reports a population of 27,200 in 2004.

Banning and Beaumont are often referred to together due to their proximity and similar

nature. The City of Beaumont reports a current population of 30,000 persons.

The average estimated household income for the City of Beaumont for 2007 is

$47,488 with .$35,674 being the median household income. The average household

income is projected to increase to $52,873 by 2012, according to a Claritas report

prepared in September 2007. This projection represents an annual 2%± increase over

the five year period .. The estimated 2007 income report indicates that almost 63% of the

households earn less than $50,000 per year. About 17% have incomes between

$50,000 and $75,000 annually and approximately 20% of households have income

over $75,000 annually.

The San Bernardino (1-10) Freeway and the Moreno Valley (SH-60) Freeway

merge in Beaumont. These two major arterials provide access to Los Angeles and Palm

· Springs as well as Moreno Valley and San Diego. The· City has a size of approximately

30 square miles and a current population of 30,000 persons. A growth wave in the City

began in 2002, and.continued through 2005. Population.increased 6±% between 200.1

and 2002 and over 13% annually in 2003 and 2004. During 2005 population increased

significantly; over 20%. The total population growth for the decade from 1990 to 2000

was only 13.6% or 1.3% annually, which reflects the stable condition of the community

in previous years. Population growth for the City is expected to increase significantly

due to the current development of many new residential tracts in the area. The demand

for homes prior to the current downturn in the residential market, was fueled by the

rapidly increasing housing .prices in areas to the west, increased local economic growth

and development of recreational amenities which are attracting retirees.


28

HRA New growth in the City as reported by the City of Beaumont, includes the following

major projects already under construction or in an active sale program.

• Sundance (the District is a part), 4,716 residential units, a 15-acre shopping center site, 242 acres for a school and parks being built by Pardee Homes, Woodside Homes, William Lyon Homes and KB Home, homes under construction, in an active sales program.

• Seneca Springs, 955 homes, several builders, homes under construction, in an active sales program.

• Fairway Canyon, 3,566 homes, several builders, developed by SunCal, homes under construction, in a sales program.

• Solera at Oak Valley Greens, 1,290 homes being built by Pulte/Del Webb, homes under construction, in a sales program.

• Shadow Creek, Tract NO. 30891, 241 homes, homes under construction.

• K. Hovnanian's Four Seasons at Beaumont, 2,041 residential units, designed for. retirees to be built around an 18-hole golf course, homes under constn,Iction, in an

· active sales program .

. • Tournament Hills, 1,094 homes by Pardee Homes, in a sales program, homes under construction.

• Heartland, 922 residential units, now grading.

The City of Beaumont also reports that it has approved the following master

planned projects which;are not yet under construction:

• · Kirkwood Ranch, 403 homes, Specific Plan and approved Tentative Tract Map.

• Potrero Creek Estates, 700 residential units, Specific Plan (1989).

• Hidden Canyon, 411- dwernng units, Tracts 31843 & 32747, annexation approved.

• Noble Creek, 648 residential units, Specific Plan approved annexation pending.

• Jack Rabbit Trail, 2,000 homes, Specific Plan, annexation pending.

• The Preserve (formally Willow Springs), 3,412 homes, Specific Plan filed, annexation pending.


29

HRA • Sunny-Cal Specific Plan, 907 homes proposed, Specific Plan, annexation filed.

The planned community of Sundance, where the District is located, has been

under development and six projects are sold-out. Four were built by Pardee Homes,

known as Aurora, Capella, Meridian and Carina. Woodside Homes built a project known

as Orion and William Lyon Homes built a project known as Terresa. Home sizes ranged

from 1,287 square feet to 3,073 square feet. Two projects being built by Pardee Homes

are continuations of Capella and Carina in a different location within Sundance. Base

.sales prices at Capella and Carina range from $286,000 to $434,000. Other than the

· projects in the District, the most recent project known as Solaris I opened for sales on

June 11, 2005 and .has sold out. Solaris II, in the District, is a continuation of Solaris I and

o~rs homes from 1,613 to 2,105 square feet, priced from $295,900 to $325,900. The

other currently selling projects within the District are known as Larkspur and Copperleaf I,

by Pardee Homes and Trilli.um by KB Home. Unit sizes range from 1,670 to 2,801 square

· feet and current sales prices range from $249,990 to $380,900.

There are several actively selling planned communities within the City of

· Beaumont. Seneca Springs offers 8 different products built by several builders. Fai{Way

Canyon has 4 products currently selling by several builders. K. Hovnanian at Four

Seasons offers 6 actively selling· products for residents 55 years old and older. There is

one product with significant inventory within the Tournament Hills community, which is

also built by Pardee Homes.

The existing commercial development in the area is characterized as older,

grade C properties which have suffered from age, stagnant population growth . and . .

limited income levels of the existing residents. An this has started changing as new

development reached the San Gorgonio Pass area. The first of two major commercial

changes was the development of the Desert Hills Outlet Mall, a 474,000 square foot

discount mall that has 118 stores and employs approximately 1,500 workers.

The .second major change, further to the east, was the 1,000± acre Morongo

Indian Reservation and its Casino. This was one of the first and most successful


30

HRA casinos in California. it is currently over 100,000 square feet in size and employs

approximately 1,600 people.

A Wal-Mart has recently opened in the Beaumont area, south of the San

Bernardino (1-10) Freeway and west of Highland Springs Avenue, approximately one

mile south of the District. The location of the store is within a proposed "Supercenter" in

Beaumont. In addition, a Home Depot has recently been completed. Home Depot is

located in the same center as Wal-Mart. The Oak Valley Town Center is under

, construction and Walgreens is open for business. A Stater Bros. supermarket opened

on November 17, 2004.

In, addition to the development of the Wal-Mart cent~r. a Holiday Inn Express is

under construction at the northwest comer of Oak Valley Parkway and Golf Club Drive. A

mini storage facility, Aim All Storage, is under construction west of 1-10, at the terminus of

Desert Lawn Drive, south of Oak Valley Parkway. On Second Street, west of Highland

Springs Avenue several retails stores are under development including a Chili's

Restaurant, Dollar Tree, Wells Fargo Bank and Wicks Furniture.

About 200 acres at the intersection oflnterstate 10 and Highway 60 are planned . . . '

for a regional shopping center. Developers are in the process of acquiring the land for

the retail center. More than one million square feet of retail space are planned for the

site. The current vision is for a significant portion of the center to be open air and

recreate . the look of an old-fashioned small town with quaint streets similar to

developments in the 1940's and 19S0's. Construction is not anticipated to begin for

several years .. This significant commercial interest supports the idea that Beaumont's·

economy is expanding as an influx of consumers occupy. Beaumont's larger supply of

new homes.

The outlook for Beaumont and the San Gorgonio Pass area is for a period of

long-awaited growth. The short term expansion is already underway with new homes

and golf courses under construction, New homes, families and employment are bringing


31

HRA new life into the community, a process that continued during the period of strong

housing growth. The area has attracted residents due to the large numbers of

affordable homes and the relocation of employers from Los Angeles and Orange

counties, where real estate and labor . costs are higher. As long as the general

economy continues to grow, employment opportunities improve closer to the subject

area, and the cities close to the more urbanized areas become even more expensive

areas to live and operate a business in, the City of Beaumont and the District are

anticipated to continue to experience growth.


32

HRA MARKET OVERVIEW

The attractiveness of residential development anywhere in Riverside County is

evidenced by market activity which has taken place .over the last 7 to 8 years. Beginning

in 1996/1997 and continuing through 2005, significant price increases occurred and

incentives and concessions disappeared. The general consensus was that demand for

residential land exceeded supply over the 10± year period. Both land sales and home

sales showed annual double-digit appreciation from 1996/1997 through 2005.

The current condition of the housing market is that there has been a decline in

.sales and appreciation over the past 22± months. There have. been significant

increases in cancellation rates particularly by investors; significant decreases in sales,

significant increase in inventory and rising interest rates. Incentives and concessions

appear to have returned in most markets. First concessions were seen, which were

. difficult to quantify as most sales agents were often not forthright in this information. It

appears that the amount of concessions and/or incentives can vary for a home that may

have just fallen out of escrow and is now standing inventory, to homes that may not be

ready. to close escrow for 3 to 4 months. However, in most markets we have seen

actual price reductions, particularly for projects that have. just entered the market. The . . ' '

recent' decline in demand for residential homes appears to have started in November

2005. There is a delay in the time it takes for prices to adjust to reduced sales. The

slowdown in sales activity appears to have hit the higher end markets harder than the

mote affordable markets. Recently,· the· 1ack of sub-prime and ALT-A lenders along with

more restrictive loan underwriting standards has negatively impacted the affordable

market segment. According to sales agents and most builders, incentives, other than

price reductions, have not proven very effective in stimulating sales. However,

incentives are reported to be important, particularly to first time home buyers.

Home sales fell faster in the Inland Empire than anywhere else in Southern

California in August 2007. According to DataQuick, home sales fell more than 46

percent in Riverside County compared to August 2006. Riverside County had the worst


33

HRA August since August 1997, in terms of home sales with 2,834 home sales reported. The

large inventory of homes on the market has continued to negatively impact home

prices. Riverside County saw the biggest percentage of decline, with the median home

price falling 6.1 % to $394,523 from the prior year. Discretionary sales have all but

disappeared. Only those that must sell their homes due to personal or financial

circumstances are currently in the market. One of the reasons for the Inland Empire's

sharp decline .in housing demand is due to the lending that was geared to the marginal

homebuyer. The region also has the most new-home construction in Southern

California where builders are. lowering prices and giving other incentives to sell their

inventories. Riverside County reported 2,509 foreclosures between April and June

2007, which are 8 times the reported foreclosures in 2006. Chapman University is

predicting that sales rates may remain relatively similar as they currently are, but that

sales prices wiU continue to decline through 2008. The current estimate is that prices

will drop 7% in 2007 and a similar decline is expected during 2008 .

. Job creation has been good over the past 4 to 5 years of recovery from the

previous recession and the general economy is still growing at a reasonable pace

· overall. Most experts are predicting that the housing slow down and downward pressure

on price will continue thro(lgh 2008. According to Hanley Wood Market Intelligence, the

price of a single family home in Riverside County decreased 3.5% between June 2006

and June 2007. The current median price of.a new detached home in Riverside County

is reported to be $432,087. It is reported that the slight change in median price could be

skewed due to the greater percentage .of horne sales in the upper price ranges than

was the case a year ago. This is due to the move-up buyers and second home buyers

ability to. still be in the market, while the entry-level families have had to withdrawfrom

the market.

The rate of sales in Riverside County has declined 36.4% between June 2006

and June 2007, according to Hanley Wood Market Intelligence. The general thinking is

that the extreme slowdown in sales is not due to lack of demand, but largely caused by

• overpriced houses and increases in the costs of financing. Once the prices and costs


34

HRA are brought down to a level that is more effectively supported by economic growth,

demand and sales activity is expected to resume.

Inventory of available homes in the Riverside County marketplace has

increased dramatically in the last 12 to 18 months and home prices have been

declining. The rising mortgage rates, tighter loan standards and apparent over priced

homes are considered the main reasons for the slow down in sales and declining

prices. In addition, the investor/speculator has almost disappeared in most markets,

which ha1, also hurt demand. During 2006 and through the present time, sales activity

has continued to slow, causing inventories of unsold -homes to rise. Builders have

slowed down on the pace of construction however, the number of h_omes built but

unsold has not declined in the Inland Empire over the last year. In fact, _Inventories have

increased. The current residential market has now been through two springs with

· . extremely ~luggish sales. Reported sales prices can be very misleading. Incentive,

packages can range from $25,000 to $50,000· or an effective 5% to 7.5% price

decrease.

We are of the opinion. that the housing market will remain slow in Riverside

· County throughout 2007.and 2008, similar to many other markets_. Prices are no longer

appreciating as they did in 2005 and before. Instead incentives are increasing and at

mo.st projects decreases in 1,ales price have occurred. It is our opinion that sales activity

. will continue to be slow throughout 2007 and 2008 with continued price reductions.

The _Southern California market in December 2006, showed home sales pace at . . .

the lowest level since 1998 while prices flattened. The State, as a whole, has lost jobs

in re.al estate related industries as housing prices flatten and sales slow. But the current

consensus is that th.is should not cause the State's economy to enter into a recession,

although there is some concern that a recession might occur.in 2009. Tflis slowdown is

generally expected .to continue through 2008, at which time the market is expected to

be back in balance again, with "normal'' appreciation; slightly more than the rate of

inflation ..

CONSUL.TING REAL ESTATE APPRAISERS

35

HRA Builders within Riverside County sold 6,043 new single-family detached homes

and 637 condominiums during the first six months of 2007. Total sales have significant

declines from 2006. Second quarter sales represent a decrease of 40.2% for new

detached product over the Second .quarter of 2006. Most of the detached homes sold in

Riverside County during the second quarter of 2007 are priced over $350,000, which

comprise 86%.:!:, of the total sales. Sales of homes priced between $350,000 and

$599,999 continue to see the most activity, comprising 75%.:!:, of the detached market.

The number of active detached projects in Riverside County was down 4 projects from

the second quarter of 2006. The submarkets with the greatest number of projects are

the South, Central and Desert submarkets at 103, 100 and 122 projects, respectively.·

Standing (completed, but unsold) detached inventory increased 176% in the

second quarter of 2007 compared to the second quarter of 2006 to 1,008 units in . . .

Riverside County. Atthe current.sales rate, that is about a 1-month supply of detached

. •. homes, Total detached (built, under construction,· planned) unsold inventory consisted

· of 31,327 uriits at the end of the second quarter of 2007, which is. up from 29,048 units

one year ago. At the current sates rates, this level of inventory equates to a 30.0-month

supply, which is up from 18.1-month~ in June 2006. This rapid increase in inventory has

intensified builder competition and price reductions.

According to an interest rate survey published weekly in The Los Angeles Times,

the typical 30-year, fixed rate conforming loan was between 5. 75% and 6.25% as of the

date of this report.· Mortgage rates have been in the 5.50% to 6.00% range over the

past year, following· more than a. year of rates in the 6.00% range. While a slight

· increase in. rates may impact demand, we do not anticipate a significant drop in

demand, due to the interest rate increases, as long as rates remain near or below the

8.00% level.

.Riverside - North Central Submarket.

The Competitive Market Area ("CMA") is defined as .the North Central portion

(Banning, Beaumont, Calimesa, Cherry Valley, Romoland, San Jacinto, Sun City and


HRA Winchester) of Riverside County. The subject's submarket accounted for 573 detached

sales during the first half of 2007, or about a 9.5% market share of the Rive.rside

County market. The median price in the North Central submarket has decreased 2.0%

over the past year to $416,000. Although still one of the most affordable submarkets in

Riverside Countywith a price per square foot ratio of $159.00, the price per square foot

in the subject's submarket .decreased by 5.9%, and the average size of a detached

home increased by 4.2% from the previous year.

During the secc>hd quarter of 2007, the subject's submarket did not sell any

detachedhomes priced under $300,000; the submarket sold 63 detached home priced

between $300,000 and $349,999; 49 detached homes priced between $350,000 and

$399,999; 132 detached homes priced between $400,000 and $499,990; 65 detached

. homes priced between $500,000 and $599,999; and 1 detache.d home sold priced over

$600,000. There were 36 attached units that sold in the subject's submarket during the

second quarter of 2007, priced between $250,000 and $500,000.

Within the North, Central submarket there are 59 active projects, which is 17

more than last year at this · time. The subject's market area reports 29. standing

inventory units and 30 units under construction. This is the lowest inventory level in

Riverside County. Total inventory which includes units built, under construction and

future construction totals 4,650 units which equates to a 43.4 month supply at the

c~rrent·sales rate. One year ago total inventory was at 2,939 units, and the time to

absorb was 16.8 months.

· The .subject's primary market area, Beaumont, emerged as an important new

home market in 200.1~2002. This activity is projected to establish the City as a viable

new home. location throughout the remainder of the decade, once market conditions

stabilize. Continued demand in this market will likely result in the development of one or

more of the several major planned communities that are planned in the market area.

Competition will continue to be strong throughout the build-out of .the District The


HRA subject property is a part of the master planned community of Sundance. Since opening

for sales the various projects have met with good demand from the market place.

Please refer to the market study prepared by Empire Economics that addresses

the micro and macro economic dynamics that affect Riverside County ahd the subject

property. The report prepared for the District is dated July 31, 2007.

Beaumont Competitive Market Survey

Please refer tothetable on pages 40, 41, and 42 that summarize the currently

selling projects in Beaumont. Jhe survey date was September 7, 2007. As indicated on

the table, overall sales activity has been slow in the Beaumont market The sales rates

generally range around 2 to 3 units· per month. The first. four projects are located within

the District. As indicated the more affordable project Solaris has experience the best

absorption rate. Trillium has just recently lowered pri~s by $50,000 per floor plan which

is · now. priced lower tha,n Solaris and sales should increase. The Larkspur and

. Copperleaf products are exp;rience slower absorption rates of around 2 units per

month. Data Nos. 5 through 8 are also located in the Sundance planned community

. and are experiencing overall absorption from over 7 units, per month for the Estrella

· product which opened in June 2007 down to 1.5 units per month for the Selenia product

by KB Home which opened for sale in November 2006. The Estrella product offers the

smallest.units and lowest prices of any product in the City of Beaumont. The Sundance

planned community, in general, has experienced better absorption than other planned

. developments, which is likely due to the more affordable products offered.

There are seven projects that. opened for sales in 2006 within the planned

community of Seneca Springs, located approximately 2 miles south of the District. The

. projects, in general have experienced absorption rates between 2,5 and 4 units per

month.


HRA The first phase of development of Fairway Canyon, is currently offering four

projects. Three of the four projects opened for sales in mid-2005 and have sales rates

around 3 units per month.

The. Four Season's at Beaumont is an age restricted community which will

ultimately include more than 2,000 dwelling units. Five projects are currently offered

and have experienced an overall absorption rate of 2.9 units per month. (Absorption

rates per product were not available.) These projects have been in an active sale.s

program for 34 months and have lowered sales prices during 2006 by 10%±. During

2007, sales prices have generally been adjusted downward between 12% and 20% per

product.

The golf course community of Tournament Hills currently has two projects

available for sale with significant inventory. Both projects open during 2007. The .sales

rates are 1.3 and 1 .. 9 units per month.

The Beaumont market continued to be very strong until the first quarter of 2006.

Since that time, demand has dramatically decreased which has created a downward

pressure on sales prices, . Most· tracts have lowered. prices and offered incentives that . .

typically range .between 25% and 35% of the sales prices achieved in 2005. Current

.absorption is generally around 2± units per month.


HRA

Pro(ect Location

1 Larkspur@ Sundance Pardee Homes Beaumont

2 . Solaria II@ Sundance Pardee Homes · Beaumont ·

3 Copperieafl@,Sundance Pardee Honies Beaumont··.

4 . Trillium. @.Sundance · .. KBHome •

Beaumont ..

5 . Estrella @ SUndance · Pardee Homes Beaumont

6 Selenla@ Sundance KB.Home BeaumQ!lt

7 Carina @ Sundance Pardee Homes Beaumont

8 Cepella@ Sundance Pardee Homes · Beaumont

9 The Hills @ Seneca Springs Centex Homes · Beaumont·

Base fig

Unit Price/ No. Sold Overall Size §.9....f!. Start Dt. Mo. Abs.

110 7,000 $354,900 2,409 $147.32 $370,900 2,659 $139.49 $380,900 2,801 $135.99

110 3,240 $295,900 1,683 $175.82 $310,900 1,911) $162.10 $325,900 2,105 $154.82

182 6,000 $339,900 1,893 $179.56 $349,900 2,181 $160.43 $3.54,900 2,505 $141.68 $371,900 2,799 $132.87

155 5,250 $249,990 1,670 $149.69 $279,990 1,853 $151.10 $282,990 2,180 $129.81 $289,990 2,"337 $124.09 $296,990 2,456 $120.92

271 2,500 $243,000 1,366 $177.89 . $248,090 1,410 $175.89 $273,000 1,755 $155.56 $281,000 1,776 $158.22

113 7,000 $289,990 2,246 $319,990 2,832 $316,990 2,880 $325,990 3,157 $329,990 3,322

209 5,000 $288,000 1,655 s~.ooo 2,292 $388,000 2,800

162 6,000 $320,000 2,329 $378,000 2;900 $434,000 3,500

106 8,250 $388,990 3,320 $392,990 3,446 $404,990 3,808 $423,990 4,134


$129.11 $112.99 $110.07 $103.26 $99.33

$172.81 $130.89 $138.57

$137.40 $130.34 $124.00

$117.17 $114.04 $106.35 $102.56

13 Jan-07

63 Aug-06

15 Jan-07

15 Nov-06

24 Jun-07

15 Nov-06

201 Oct-04

156 Oct-04

57 Jul-06

1.8

4.9

2.1

1.6

7.4

1.5

5.7

4.4

4.1

HRA

No. Pl'Oject Location 1 O . Brentlna @ S.neca Springs

Capital Pacific Homes Beaumont

11 Sutterfield @ Seneca Springs Beazer Homes · Beaumont

12 Valindo @ Seneca Spri11g11 . Meritage Homes Beaumont

13 · ~ardenwatk @ Seneca Springs · ·Richmond American

Beaumont

14 Woodhl!ven @Senec• Springs . Hearthside Hornes

Beaumont

15 · Pa.lrnetto II at Fairway Canyon Lennar Homes Beaumont

16 Crest at Fairway Canyon Standard Pacific Homes Beaumont

17 Medalllo.n at Falrway Canyon MBKHomes BEIBumont

18 Heights at Fairway Canyon Standard Pacific Homes Beaumont

Lot Base Unit YI!.!!! §lll ~ §lll

102 5,000 $359,990 2,650 $369,990 2,821 $384;990 3,090 $409,990 3,323

177 6,000 $369,990 2,145 $379,990 2,800 $389,990 2,961 $409,990 3,239

127 5,200 $318,990 1,940 $328,990 2,230 $342,990 2,406

100 6,000 $314,990 2,372 $324,990 2,788 $324,990 2,855

102 · 5,000 $260,595 1,760 $362,905 2,587 $370,535 2,446 $395,584 2,732

87 6,500 NIA 3,049 $432,000 3,399 $482,000 3,800

9;! 7,000 $412,900 3.,068 $429,900 · 3,324 $440,900 3,800

118 6,000 $304,.490 2,206 $308,990 2,328 $322,990 2,501 $350,990 2,773

132 5,000 $338,990 2,517 $356,990 2,780 $369,990 3,024


Price/ §a.£!, $135.85 $131.16 $124.59 $123.38

$172.49 $135.71 $131.71 $126.58

$164.43 $147.53 $142.56

$132.80 $116.57 $113.83

$148,07 $140.28 $151.49 $144.80

N/A $127:10 $126.84

$134.58 .$129.33 $116.03

$138.03 $132.73 $129.14 $128.57

$134.68 $128.41 $122.35

No. Sold Start Dl

42 May-06

155 Nov-05

92 Nov-05

65 Jan-06

26 Jan-06

65 May-06

36 Oct-06

77 Aug-05

25 Jan-07

Overall Mo.Abs.

2.6

7.2

4.3

3.2

1.3

4.0.

3.3

3.1

3.2

HRA

No. Proiect Location Units Lot Size

K.HOVNANIAN COLLECTIONS 1,900

19. Laurel Colll1ctlon K. Hovnanian Homes Beaumont

20 LaAdmark :collection K. Hovnanian Homes

. Beaumont

.21 . Heritage Collection K. · Hovnanian Homes

·Beaumont

22 Monarch Collection .· K. Hovnanian Homes Beaumont

23 Arbors. Collection K. Hovnanian Homes Beaumont

24 Tumberiy@ toumamenUlills Pardee Homes Beaumont . ,

25 Prestwick@ Tournament Hills Pardee Homes Beaumont

n/a 5,500 $385,990 2,136 $180.71 $362,990 2,193 $165.52 $362,990 2,319 $156.53

nla.. 6,300 $449,990 2,635 $170.77 $433,990 2,775 $156:39

n/a 5,000 $344,990 2,023 $170.53 $335,990 2,037 . $164:94 $370,990 2,102 . $176.49

n/a 3,400 $276,990 1,444 $285,990 1,540

N/A 1,556

n/a 4,300 $285,990 1,790 $294,990 1,847

157 5,000 $302,400 1,900 $345,300 2.415 $363,338 2,385 $372,213 2,887

7,500 $363,900 2,628 $409,900 3,814 $434,900 3,083 $450,900 3,562


$191.82 $185.71

NIA

$159.77 $159.71

$159.16 $142.98 $152.34 . $128.93

$138.47 $107.47 $141.06 $126.59

No.Sold StartOL · 493 Nov-04 AVG. PER

PRODUCT included above

included above

included above

included above

included above

10 Apr-07

10 Jan-07

1.9

1.3

HRA SITE ANALYSIS

Current Site Condition

· The participating project within the boundary of CFD 93-1 2007 Local Agency

Revenue Bonds Series E consists of six tract maps. Final Tract Map No. 31468-5, Lots

1-110, is under the ownership of Pardee Homes and is under site and unit construction.

The 110 proposed lots are in a blue-top lot to finished lot condition with 30 production ·

homes in various states of unit construction and 3 model homes complete. Of the 11 O

proposed dwelling units, 3 model homes have closed escrow and 9 production homes

have closed. This tract is being developed with the Larkspur product.

Final Tract Map No. 31468-6, Lots 1 through 159, is under. site and unit

construction and owned by Pardee Homes. The 159 lots are a part of the proposed

Copperleaf I product, proposed for a total of 182 dwelling units. The site is in at least

blue~top. lot condition with water and sewer installed. A portion of the site is in finished

rot condition, As of the date of value, 29 production homes were in various stages of

unit constru.ction and. of those 6 production homes have closed escrow.

Proposed Final Tract Map No. 34290 is in a mass graded condition with erosion. ·

The site is proposed for 23 lots and .a continuation of the Copperleaf I product. The

current site plan for 182 total dwelling units within the Copperleafl product overlaps

both tracts. Tract Map No. 34290 is owned by Pardee Homes. According to the .. builder,

the tract map is ready to be submitted for final plan check and recordation.

. .

Final Tract Map No. 31468-7, is mostly in a blue-top lot condition with erosion.

This tract is owned by Pardee Homes. The tract had been planned for a continuation of

the Copperleaf I product, to be referred to as Copperleaf 11, however, Pardee Homes is

currently considering changing the product to better meet market demands. Lots 4, 5, 6

and 7 of this tract are improved with the four model homes of the Copperleaf I product.

The rnodel homes have been sold.


HRA Final Tract Map No. 34291, Lots 1 through 110, is under unit construction. The

site is under the ownership of Pardee Homes and in finished lot condition. Forty

production homes are complete and sold and an additional 39 production homes are in

various stages of unit construction. This tract is being developed with a continuation of

the Solaris product, referred to as Solaris 11.

Final TractMap No. 31468-8, is under the ownership of KB Home Coastal Inc. '

and is under unit construction. The. 155 proposed .lots are in a finished lot condition.

Four model homes are complete and 36 production homes have closed escrow. An

additional 28 units are in various stages of unit construction. This tract is being

developed with the Trillium product,

Please refer to the beginning of this report for an aerial photograph of the subject

property. The aerial photograph was flown on September 13, 2007.

Location

The subject property is located in the City of Beaumont in the north central area

of Rive.rside Counly. The unincorporated area of Cherry Valley and the City of Calimesa

are located to .the north a.nd northwest of Beaumont. The City of Banning is located to

the east and unincorporated ·County areas are 1.ocated to the. southeast, south and

southwest. The City of Moreno Valley is .located to the West along the. S-60 Highway.

The subject property is bounded by undeveloped land and the City of Banning to the ' . . .

east. Specifically the subject property is. a part of the master planned community of

Sundance in the City of Beaumont. The District is generally located at the southwest

section of the master planned community of Sundance: at the southwest corner of

Starlight Avenue and Oak Valley.Parkway. The District a.nd Sundance are located·north . . ' ' - '

of 1-10 between Highl~nd Springs Avenue and Cherry Avenue in the City of Beaumont.

To the north and south ofthe District is the undeveloped land within the community.


HRA

Size and Shape

Based on information provide.d by the City's Director of Economic Development,

the total gross area of Improvement Area 8C is 155.63± acres. According to the City's

CFD report, the minimum taxable acres are 96.57 acres which are proposed for 689

single family detached homes.

According to the Amended Notice of Special Tax Lien dated May 23, 2007

(Document No. 2007-0341072) Improvement Area No. 8C is divided into two Zones.

Zone A includes 87.34 acres subject to tax and Zone B includes 9.23 acres subject to

tax. Zone A includes all of the property within IA 8C except the Solaris II subdivision

which is located in Zone B.

The Larkspur project proposed for 110 dwelling units, Traci No. 31468-5, is

lieilig built on _lots with a minimum size of 7,000 square feet. The Copperfeaf project,

Tract Nos. 31468-6 and 34290, is proposed for 182 dwelling units ~th a minimum lot

size c:>f 6,000 square feet. Tra~t 31468-7, currently proposed for a continuation of the

Copperleaf .product, offers minimum lot sizes of 6,000 square feet. The Solaris II project.Tract No. 34291, is b.uill on lots with a minimum size of 3,240 square feetand

is proposed for 110 dwelling units. The KB project Trillium, Tract No. 31468-8, is

proposed for 155 dwelling units on a minimum lot size of 5,250 square feet.

Soils @ild Geology

The appraisers h~e reql!ested soils and geotechnical reports from the builders.

As of the qate of value, the appraisers have not been provided with reports for review. It

is a specif"tc · assumption and · contingency of this appraisal · that · all required

studies have'been completed on the property and the land can be developed as , .

currently propo,;ed.


HRA Topography and Drainage

The City of. Beaumont generally consists of level to rolling topography.

Improvement Area BC is characterized as generally level terrain.

Upon construction of the lots, most on-site run-off will be channeled into the streets

where it is cofiected .by curbs and gutters and carried into storm drains located at various

locations along the streets.

It is a specific assumption of this appraisal that the subdivider/builder will fulfill all

grading and drainage requirements of the City of Beaumont prior to construction of

dwelling !Jnits.

Zoning

The subject property is within the City of Beaumont. The overlying zone

designation is SP, Specific Plan. The Sundance Specific Plan is proposed for 4,279

. dw~lling ur,its when complete. The community contains 1,083± net acres. The taxable

property within the District is identified as Planning Areas 18, 19, 20, 22, 23 and 24 of the .

· Sundance 'Specific Plan. Please refer to the next page for a site plan of the master

planned: community. ·

The subject property is proposed for 689 detached units within 6 tracts. All of the

land within the District is within Approved Tentative Tract Map No. 31.468. Final Tract

Map No. 31468°5 (PA 18) is proposed for 110 single family detached un.its on a

minimum lot size of 7,000 square feet. This tract recorded on December 27, 2.006 as

Document No. 2P06-0946412. Final Tract Map No. 31468-6 (PA 19) is proposed for

159 sin~le family detached units on a minimum lot size of 6,000 square feet. Thfs tract

recorded on March 27, 2007 as Document No. 2007-0206217. Proposed Final Tract

Map No. 34290 (PA 20) is reportedly ready to submit to the City for final plan check and

recordation and is proposed for 23 dwelling units. Final Tract Map No. 31468-7 (PA22} ' '

· is proposed for 132 dwelling units on 6,000 square foot minimum lots. This map

recorded on March 7, 2007 as Document No. 2007-0206218. Final Tract Map No.


46

BROO<S10f AVE.

m N.A.P.

IUH STRCET

47

i 13 i

(NOT PARDEE) I

i i

I.ANDUIIE.,_., ---- - -- ., ' I ti . ! -- i ll",. ~ - ~

,;).'~

~ :=.i- I 52- ii ;r., ..

:,tf, SH!: f, iii .,,,oo

I :i: r::::: -- ~ ...

=~ 5 J: :"'~

~ ~ fnr : !:.'ff

~ m. e-:: ll1l ~·-·-

I llJ: :r .... ii ··-=-· , ..

: ~- r fim

-------•- .... (a-"") --·-""-· ,,_ .. ) .... -.,-... .... _,., --~---------" ---lO'l'IIL 1'4\C:IUl9J

-•a =-.,_~ ... ..---------------- --~-'!OTAl.~TIOM

-l"UN""AI. ---~

BUNDANCE COMMUNITY

PLAN RBf Com,ulti"9

lll 5 if, •. ::;:

~ ll' ~ ! I I .• ii ii §. i

.... ~--::' w•

-= ~

--~

.,

·-=• --

--

HRA 31468-8 (PA 23) recorded on April 11, 2007 as Document No. 2007-0242504 and is

proposed for 155 dwelling units on 5,250 square foot minimum lots. Final Tract Map No.

34291 (PA 24) recorded as a condominium map on March 6, 2007 as Document No .

. 2007-0153346 and is proposed .for 11 O dwelling units on a 3,420 square foot minimum

lot.. The proposed improvements are a legal and conforming use.

Please refer to the Addenda for copies of the Final Tract Maps and Proposed

Final Tract Map.

Access and Circulation

The City of Beaumont's regional access is provided via State Route 60 (Moreno

Valley Freeway) and Interstate 10 in an east/west direction and by State Route 79

(Beaumont . Avenue) in · a nprth/south direction. The subject property is located

approximately one mile north of 1-10, with full interchange facilities· at Highland Springs

Avenue. The 1~10 connects .with .SR-60 approximately three. miles to the west. .These

· transportation corridors connect the City to eastern and southern Riverside Cou,nty as well . ' . . .

as the abutting counties of Orange, Los Angeles, San Diego and San Bernardino.

the proposed subdivisions provide internal residential streets that will be improved

with concrete curbs, gutters and sidewalks and offer one lane in each direction. The

proposed subdivisions will provide similar access to the existing projects within the

Sundance planned community.

Ontario International Airport is .located 40± miles northwest of the City of

Beaumont providing both passenger and freight airline service.

· Easements

The appraisers have received six title policies for the District. The title policies

are dated January 12, 2007, March 6, 2007, March 12, 2007, June 3, 2007, June 20,

2007: and June 28, 2007, and were· prepared by Chicago Title Company of San

Bernardino, The reports indicate that the subject property is within the existing

· CONSULTING REAL ESTATE APPRASERS 48

HRA Community Facilities District No. 93-1, Improvement Area BC. The title policy for the

Trillium project indicates Tract 31468°8 is within CFD 8, BA and BC. The policy also

references a Deed of Trust for $9,179,050 dated March 22, 2006 with KB Home

Coastal, Inc. as Trustor. The title policy for the Larkspur project indicates Tract 31468-5

has a Mechanic's Lien of $28,057.58 with Integrity Concrete as the Claimant, recorded

December 29, 2006. There did not· appear to be any easements, conditions or

restrictions that would negatively impact the property.

It is a specific assumption of this appraisal that all easements and

. encumbrances affecting the subje~t property are not detrimental to value. The title

policies on the subject property are retained in the appraisers work files.

Utilities

The subject property will be served by the following companies/agencies:

Electricity Water, Gas Sewer Telephone Police Fire . Storm Drain

Southern California Edison Company Beaumont Cherry Valley Water District Southern California Gas Company City of Beaumont Verizon City of Beaumont Police Department Riverside County Fire Department City of Beaumont .

Earthquake, Flood Hazards, and Nuisances

The subject property, as of the date of valuation, is not located in a designated

Earthquake. Study Zone as determined by the State Geologist. However, all of Southern

California is subject to seismic activity. According to the geotechnical report, the nearest

active fault is the San Jacinto-San Jacinto Valley fault, located approximately 7 miles

. southwest of the subject property.

· According to Federal Emergency Management Agency Community Panel No .

. · 060245-0815A effective date April 15, 1980, Improvement Area BC is in a Zone C

designated area ttiat references an· area of minimum floqding. Flood insurance is not


HRA required. No other nuisances or hazards were observed on physical inspection of the

subject property as of the date of value.

Environmental Issues

The appraisers have requested a Site Assessment Report for review. As of the

date of value, the appraisers have been provided with a report prepared by Glenn Lukos

Assoeiates dated December 7, 2005. The report was prepared for Santa Ana Regional

Water Quality Control Board regarding the 40.1 permit. The reports referenced the entire

Sundance Specific Plan which covers 1,195 acres, of which the District is a part. We have

reviewed letters fFom the Department of the Army regarding the 404 . permit dated

December 16, 2005 and California Regional Water Quality Control Board regarding the

401 permit dated December 15, 2005. The permits were Amended. The subjeci property

is under site and unit construction and adjacent property has been developed with

dwelling units. ·

· For purposes of this appraisal and values included herein, it Is a specific

assumption.· and · contingency that· the land . is suitable for the proposed

developments, and .all required State and Federal permits have been. issued to

allow development of the property as proposed.

Taxes and Special Assessments

The subject property generally has a base tax rate of around 1.2% of assessed

value. In addition, there are special taxes for CFO No. 93-1 2007 Local Agency

Revenue Bonds Series E which will range between $1,589 and $2,635 per dwelling unit

depending on size, for Tax Year 2007/2008. The overall tax rate is estimated to be·

around 1.9% Of value for the proposed dwelling units. The Assigned Special Tax for the

undeveloped property is $12,844 per acre for Zone A and $20,338 per acre for Zone B

for Tax Year 2007/08. Zone B. is the Solaris II development.

Please refer to the City's CFO report and Amended Notice of Special Tax Lien

recorded May 23, 2007 as Document No. 2007-0341072 prepared by General


HRA Government Management Services, Urban Logic Consultants and McFarlin & Anderson

LLP, which provides specific information on individual taxes.

According to the Utle policies and information from the City's Director of

· Economic Development; the District is a portion of Assessor Parcel No. 419-020·051.

We have searched the County's web site for the current status of real estate tax

payments: The site did not provide access to the APN and related information. We

have requested the current Assessor information, however, as of the date of report,

sufficient information had.not been provided. According to the title po.licies APN 419-

020-051 had property taxes of $27,656.76 for Fiscal Year 2006-2007, which were

reported as paid. It is a specific assumption and contingency of this appraisal

report and estimated values. that the property taxes due as of September 15, 2007

. have been paid in full as of the date of value.


HRA PROPOSED IMPROVEMENT DESCRIPTION

General.

The subject property is proposed for development of 6 tracts with 4 to 5

products. The 689 . proposed units will be developed within the master planned

community of Sundance in the City .of Beaumont. Undeveloped land is adjacent to .the

subject to the south and north. East of the District is the developed portion of the

Sundance community. The community of Sundance has been in a sales program since

February 2003. Seven tracts have been built-out. Two additional tracts are currently in an

active sales program and nearing build-out. Four traqts within the District are in an active

sales p.rogram.

The appraisers have .reviewed floor plans for the actively selling projects within

the District, as provided on the builder's web site. The project manager has provided

th~ unit sizes. Base pricing has been obtained from the sales offices. ·For purposes of . . . . .

this · appraisal. we have assumed that the quality of construction, functional utility,

amenities and. features will be similar to the currently selling projects and will meet

market de!lland for new product in the subject's market area, The following table . ' ' .

represents the proposed number of units, lot . size and home size for the proposed

homes as indicated by the builders. The average base sales price used in the Valuation . . .

section of, this report could be different.


52

HRA

· Ptodlict larkspur

PA18 . ,· .'•,-

. ; '~ -:-

;Col)pl!rie11U ·· .. · 1s2 . PA19&20 .... fi(o.®

Triliiu!T1 PA23"

155 5,250

. FIOOJrPlari 2;409 ·.

. . 2;659 ..... :2;80~ · ..

.t,&9$• .. •. :i}ll1 .·· _ .. 2,!i~

2,199 . t676

1'.s~3-2.180 2/337

·.· '2,456 Sol.iris 11 · .. f1(t · "1 lis3

.< PA24 -L :.f~;*,C ,. < 1;!11~ "' . ', , _ ,,2,'105.

' .,-, ·c:ir.,·'-:';i•)-T,;.,:j,;,,),,:::,,,, __ ', (,,- ·:.:' ... ,,'

Functional Utility

•• Bedroom/ · · Baths

""""412•' 4/2 4/3 '

··I' 413

. 413 · ·

. 212 ~

312½ .. 312½ ;'312½

. 312½ . .. . 3/3 .

$/2½'. .

· Sto'rieef Garage

·1/3 113 113

11:i) .. 1/3 ·

~3_.· 213_ .

• 1/2 1/2 212

. 212, 2/2'

212 .. ·•212::,

. ,~;

Base Price · Sal8$Prlce PerSF

$354:ooo s141 .a2 .$370 990 • . $1;\9.49. . $3811;990 . . $135'.99

==:t .. :!~:= $3§4:900 . ·. . $1,!lt,68 •

· · · · · ··· · · · ·s·· .ks'2• ···"1. · · $;f;'t;900 ·• "' ·( .. _ -.:-:, -_ ' . . '. . $249;99(f . $279990 ·

· J2ai'eoo .. ·" t' ' '

,$:2'69,990· $296,9~0

. $295;900 . $311'8;i!OO ·. '$aasooo

. ;'. ·;. :- ,.. .. \ - -.

:~:~;~ . $12'9:81

. ·. $124:-69 $12Q.92

.. $17'.$:~2 $16lVl:O ·._ . ,,~;~:.•

It is an assumption of this appraisal that all of the floor plans are functional, and ·

competitive with current design standards.

Remaining Economic Life )

· The total/remaining economic life, according to the Marshall Valuation Service, is

considered to be 50 years from date of completion.

Homeowners' Association Dues

There wiJI be a homeowners' association for Improvement Area SC as a part. of

the master planned community of Sundance. The monthly homeowner's association

dues are reported to be $45.00.


53

.HRA

HIGHEST AND BEST USE

The tenn highest and best use is an appraisal concept, which has been defined as

follows:

The reasonably probable and .legal use of vacant land or an improved property, which is physically possible, approfriately supported, financially feasible, and that results in the highest value.

It is implied in these definitions that detenninalion of highest and best use takes

into account the contribution of a specific use to the community and community

development goals as well as the benefits of that use to individual property owners.

Hence, in certain situations, the highest and best use of land may be for parks,

greenbelts, preservation, conservation., wildlife habitats, and the like. A use which does

not meet the needs of the public will not meet the highest and best use criteria.

The detennination of highest and bestuse, therefore, requires a separate analysis

for the land as legally pennitted, as if vacant. Next, the highest and best use of the . . property with its improvements must be analyzed to consider any deviation of the existing

improvements from the ideal. ''The highest and best use of both land as though vacant

and propertyas improved must meet four criteria. The highest iilnd best use must be:

legally permissible, physically possible, financially feasible, and maximally productive.

· These criteria are often considered sequentially."5 The four criteria interact and, therefore,

may also be considered in concert. A use may be financially feasible, but it is irrelevant if ii

is physically impossible or legally prohibited.

. legally Permissible Use

The legal factors affecting the sites and its potential uses are often the most

restrictive. These would typically be government regulations such as zoning and building

codes.

4 The Appraisal of Real. Estate~ 10th Edition, Pub. by the Appraisal Institute, Chicago, IL., p. 275.

5 Ibid,, p. 280 ..


HRA The subject property is within the City of Beaumont in the Sundance master

planned community. The overlying zone designation is SP, Specific Plan. The District

includes five final tract maps and one proposed final tract map which is reportedly ready

to submit to the City for final plan check and recordation. The proposed improvements

are a legal and conforming use.

Physically Possible Use

The subject property is located in the City of Beaumont. Beaumont is located in

Riverside County and is accessed by SR-60 and 1-10. These transportation corridors

connect the City to eastern and western Riverside· County as well as to the abutting

counties of Orange, Los Angles, San Diego and San Bernardino .

. The specific site location of Improvement Area SC is considered good within the

· planned· community of. Sundance. The 689 proposed units will be developed on . . ' . .

155.63± gross acres located north of the 1-10 Freeway, and west of Highland Springs . ' . .

Avenue .. Undeveloped land and the first phase of development within the Sundance

· planned community borders the subject property.

As .previously discussed, four of the six tracts are under unit and site construction

and in an active .sales program. The Solaris II project ha.s been in a sales program since

August 2006, and is a continuation of Solaris I, which was met with good ·response from

the rnarket. The Trillium project by'KBH?me has been offered for sale since November ,

2006. The two projects with larger home sizes, larger lots and higher sales ,prices open

on January 31, 2007. As of the date of value 98 production homes have sold and

closed escrow to individual homeowners or investors of the model homes within the

District. In addition, 115 dwelling units are in various stages of unit construction. It is a

specific assumption and contingency of this appraisal and values included

herein, that. all required studies have been completed on the property and the

land can be developed as currently proposed.

CONSULTiNG REAL ESTATE APPRAISERS 55

HRA The size, access and topography of the subject property make it physically

suited for several types of development; however, the nearby uses of residential

development appear to make the subject property more suitable for residential use.

Based on .the physical analysis, the subject property appears to be best suited

for residential development due to the proximity to the residential planned community of

Sundance.

Financial Feasibility and Market Conditions

The financial feasibility of the development of the subject property is based on its

ability to generate suffi<;ient income and ~alue in excess of the costs to develop the

property to its highest and be~t use. Please refer to the Valuation section of this report,

which gives support to.the financial feasibility of the District.

It is hot in the scope of this appraisal assignment for the appraisers to conduct an

extensive independent marlcet study/absorption analysis, but it is .the appraisers'

responsibility to address the reasonableness of the conclusions of any marlcet study

which has been /J/:f1pared by outside firms for the subject property. For a projectthe size

and complexity of CFO 93-1 2007 Local Agency Revenue Bohds Series E in th.e .City of

Beaumont, there couid be divergent opinions, often based on the same base data, as to

the anticipated absorption time-frame of the undeveloped land within the District. . . .

Unforeseen . n~tional. and regional economic and/or social changes will affect the· time-

frame of real _estate development.

In an attempt to .arrive at reasonable and supportable absorption schedules for the . .. . .

proposed uses.,wlthin. the District,. the appraisers reviewed an independently prepared

absorption analysis that relates to CFO 93-1, 2007 Local Agency Revenue Bonds s_eries

E. This independent study is_ titled Market Absorption Study. Community Facilities District

No. 93-1 Improvement Area No. ac, (Pardee - Sundance) City of Beaomont, prepared by

Empire Economics, Inc., dated July 31, 2007. A copy of a portion of the absorption

analysis svmmliry is included in the Addenda of this report.

CONSULllNG REAL ESTATE APPRAISERS 56

HRA The following paragraphs will examine the assumptions, analysis and conclusions

of the Empire Economics report. It should be noted that the Empire Economics' study is

based on absorption of product by the end-use, the individual homebuyer. This typically is

6 to 12 months later than land absorption to the builders.

Market Absorption Study. Empire Economics

The Empire Economic absorption schedule presented for the subject property is

· predicated on the basic assumption concerning the regional economy and is considered a

· reasonable blending of the cyclical and structural factors that influence the California

economy. The analysis is based on a computer model that uses population and

employment as the generators of residential demand .

. Improvement Are~ BC is proposed for 689 single family detached homes. As of

the dale of value, four ,projects (within 5 tracts) were currently in an active sales . . . ._ '

program. The fifth· proposed project is currently undetermined. The tract was proposed

for a continu1:1tion of the Copperte1;1f I project with homes r1:1nging from 1,893 to '2,799

squ1:1re feet. However, due to current m1:1rket conditions, Pardee Homes is considering a

c:h1:1nge in product to better meet market dem1:1nds. Det1:1iled information of the product ' . ' J .· .

change was not available to the. appraisers. The Empire Economics absorption report

. indicates sales to homeowners-beginning in 2007 through 2012.

As discussed · in the Market Overview section· of this report, the current

projections tor the· hou·sing market indicate that we are seeing a decline In sales and .. · . ''. ' . , ..

price. Most economists.are.predicting a return to a more balanced and no'"!11al market

within the next 24± mor:iths. · Over the past 22± months sales activity has been

drastically reduced along with prices. It takes several months for prices to respond to

declining sales. Similarly, it i$ expected that for prices to stabilize, it will take several

months of a reasonable sales level for the market to adjust.

II/lost projects'throughout Beaumont and similar markets started to plateau during

the first quarter of 2006. Incentives and price reductions were app1;1rent in most tracts in

an attempt to find the "new" equilibrium in absorption and sales price, given current


HRA market conditions Please refer to pages 41, 42, and 43 of this report that summarize

the actively selling projects in the City. As indicated, demand has been slow and

projects similar to that of the subject are generally experiencing sales rates around 2 to

4 units per month.

Given the limited demand for the subject tracts and similar projects in the subject's

market place, the Solaris II project should continue to absorb at a reasonable pace, as

long as prices adjust as needed. The Trillium project recently lowered sales prices by

$50,000 per floor plan. It would be expected that the sales rate would increase. The two

high£lr end projects will likely continue to sell at a lower rate than the more affordable

projects within Beaumont and the planned community of Sundance.

· Given current market conditions and the current proposed products, the cost to

develop the sites -is greater than the estimated finished lot values,_ which indicates that - - -

the proposed developments are not feasible. When a change in market co~ditions

. occurs it is often the case that the current proposed products are not the Highest and

· Best Use of the land. Merchant builders respond to market conditions. In an upward

trending market, the profits realized on existing land tr~nsactions can be double what

was in the original proforma. Similarly, ina downward trending market profit margins are

significantly lower than the proforma ar\d in some cases builders continue to build just

. to cover the general and administrative (G & A) expenses.

In the_ case of the subject tracts, market conditions have deteriorated sharply

over the past 12 months in the ll)land Empire market area. The subdivisions have been

in active sales programs for 8 to 12 months. A significant number of homes have closed

escrow and a significant number of homes are under construction. As of the date of

value, the build out of the existing tracts would be considered pruden!. For Tract 31468-

7, originaUy · envisioned for a continuation -of the Copperleaf project, a redesign of

proposed product is warranted to better meet market demand.


HRA Maximally Productive

In considering what uses would be maximally productive for the subject property,

we must consider the previously stated legal considerations. We are assuming .the land

use allowed under the existing zoning, SP with the City of Beaumont, is the most

. productive use that will be· allowed at the present time. Current demand indicates that

other alternative uses are not feasible at this time.

· Between 2002 and 2005, the Beaumont market area was well received by home

buyers. Builders continued to offer projects with larger and more expensive homes, with

amenities of a pl,mned community. The new development of Seneca Springs began

sales during 2006, when home sales began to slow and projects were offering

incentives · and price reductions. Based on recent interviews with sales agents it

· appears that a current sales. rate of 2± units per month has been sustainable. Given the

current status of development .for 5 of the 6 tracts within the District, it is our opinion that

the proposed projects provide the highest land value and are, therefore, maximally

productive.

Conclusion

Legal, physical, and market considerations have been analyzed to evaluate the

highest and best use of the property. This analysis is presented to evaluate the type of

uses which wiH generate the greatest level of future benefits possible from the land.

After . reviewing the alternatives available and considering this and other

information, it .is the opinion of the appraisers that the highest and best use for the subject

property, as vacant, is for residential development similar to ihat under construction in the

Solaris and Trillium subdivisions. The projects appear to have the location, features, and

pricing structure to obtain a reasonable sales rate under normal financing and market

conditions.

-As Vacant

After . reviewing the alternatives · available and considering this and other

information, ii is these appraisers' opinion that ultimate development of single-family


HRA detached for-sale projects similar to the smaller dwellings under construction in Beaumont

are considered the highest and best use of the property.

As Improved

The proposed use is a legal use of the property as outlined in this report, and the

value of the property as improved will far exceed the value of the site if vacant. This .

means that the proposed improvements will contribute substantial val.ue to the land.

Based on these considerations, it is .our opinion that the proposed improvements

. constitute the highest ahd best use of the subject property.


60

HRA VALUATION METHODOLOGY

Basia of Valuation

Valuation is based upon general and specific background experience, opinions of

qualified informed persons, consideration of all data gathered during the investigative

phase of the appraisal, and analysis of all market data available to the appraiser.

Valuation Approaches

Three basic approaches to value are available to the appraiser:

• Cost ~pproach

This approach entails the preparatio.n of a replacement or reproduction cost estimate · of the. subject prop1;1rty improvements new (maintaining comparable quality and utility) and then deducting for losses in value -sustained through age, wear and tear, functionally obsolescent featur~s. and e<;onomic factors affecting the property. This is then a~ded to the

· estimated land value to provide a value estimate.

In.come Approach

This •approach is based upon. the theory that the value of the property tends to be set by the expected netincome therefrom to the owner. It is, in effect, the capitalization of expected future income into present worth. This

· approach requires an estimate Of net income, an analysis of all expense itenis, the selection of a ~pitalization rate, and the processing of the net income stream into a value estimate.

Direct Comparison Approach .

· · This approach is based upon the principle that the value of a property tends to be set by the priCI;! at. whi!)h comparable properties have recently been sold or for which -they can be acquired. This approach requires a detailed comparison of sales of comparable properties with the subject property. One of the main requisites, therefore, is that sufficient transactions of comparable properties be available to provide an accurate indicator of value and that accurate information regarding price, terms, property description, and proposeduse be obtained through interview and observation.


HRA Static Residual Analysis is used to estimate the merchant builder finished lot value. From the estimated base retail home price, all costs associated with the home construction including direct construction costs, indirect construction costs, financing and profit are deducted. Following the deduction of costs, the residual figure is an estimate of the merchant builder finished lot value.

The Direct Comparison Approach is used for the valuation of land when sufficient

comparable sales are available. The Income Approach is typically used when appraising

income producihg properties. This approach is not applicable in the valuation of land as

land is not typically held to generate monthly income, but rather purchased to construct

an end product that may or _may not generate income. The Cost Approach is not an

appropriate tool in the valuation of land.

For the · land .under the ownership of each·' merchant builder the. Direct

Comparison Approach is used to value .the merchant builder parcel. Valuation of

finished lots is completed by .the Direct Comparison Approach with similar merchant

. builder land sales. The Static Residual Analysis is also used for valuation purposes as it

more closely reflects current market conditions. From the estimated finished lot value, a

deduction fot the remaining costs of site development is made for an indication of the

"as is" value of the lots.

The District is currently under unit construction. The products being built by the

builders are co.nsidered · the highest \ind best use of the land, given the current

development status. Therefore, the partially completed improvements are considered to

add value. The. units under construction· are valued based on a conservative estimate of

their completion. This percentage i$ applied to the estimated average base .sales price of

the average size home'in the project for an indication of value.


HRA VALUATION OF IMPROVEMENT AREA SC

General Information

The District is currently proposed to be built-out by two merchant builders with

four different products. The developer/builder, Pardee Homes, is currently building three

products within the District: Larkspur, Copperleaf I and Solaris II. There is an additional

undeveloped merchant builder site under the ownership of Pardee Homes that is

currently planned to be developed witll the continuation of an existing product,

Copperteaf, although there are current discussions about changing product to better

.· meet current market demand, The fourth product currently in a sales program is being

built by KB Homl:lS known as Trillium .

. Direct Comparison Approach

The Direct Comparison Approach is based upon the premise that, when a property . . ' . .

is repiaceable in the ffiarket, its value .tends to be set by the purchase price necessary to

. acquire an equally desirable substitute property, assuming no costly delay.is encountered . . .

in making the decisiori and the market is reasonably informed. In appraisal practice; this·

. is know_n as the Principle of Substitution.

This approach is a method of analyzing the subject property by comparison of

actual sales.of si.milar .properties, when.available. Ttiese sales are evaluated by weighing

both overall comparability and. the relative importance of such variables as time, terms of

safe, location of sale property, and lot characteristics. For the purpose of this report, the ' ' • • i •

unit of comparison utHized is the price per·unit for the residential land. Please refer to the

· following page. that summariz~ the sales considered. similar to the subject parcels. The

sale to KB Home from Pardee Homes occurred on March 23, 2006 for $74,840 per blue

top lot.


HRA

Data NoJ Proect

!'i!0-1 S/0 Oak Valley Pkwy.

EIS Chetry Avenue

Beaumont

No, 2

SWC Star11ght Avenue & Snapdragon way

Seau,:nont

No.-3 W/0 ChenyVaHey Blvd.

E/0 San Timoteo Beaumont

No. • W/0 ChenyValley Blvd:

E/0:, San 'Timoteo Beaumont

NO, 5

WiO Cheny_ V.lley Blvd. · EJ9 ·s.n Timoteo

Beaumont

N'o.8 W/(J Chem, vaiiey Blvd.

· ,· e6 Si~ rimowo Beaumont

·. No. 7 . -W/0 <;heny Villey Blvd.

·eJo ~•n Timoteo·.

~umbrit

.. No.8

- S/0f1Bt5-Wro Highlan,j Spnngs

· eeaUmont

No .. a S/OFIBt5-

~Highfand SptingS Beaumont

No.10 S/0 first Street

W/0 Hlghl&n~ ~rings Beaumont

No.U S/0 First Shat

W/0 Hlphlalld SJ)rlngs Beaumont

N0.12 S/0 Firat Street

W'trJ Hlghland Springs Beaull'lont

No.13. .S/0 First StrHt

W/0 Hlghl~d Sp~• Baaumont

Lani_ '_ ~• ;aqmrw.rry Buyer/. S'ala Lot No, - -Sales_._ Seller _ -Dalli _ -Size et l,oll! .Pri<1•-

KBHOme March 2006 5,250' 155 $26,952,000 Pardee Homes (baaed on

finilhed lot)

KSHome Mll'ffl2008 7,000 113 $14,916,000 Pardee Homes (baaed on

finished lot)

Fairway Canyon Oewlapment LLC March2008 6,500 02 $15,840,000 LB/L-SunCal Oak Valley, 1.LC (based""

(Pd 2 PM 32776) finished lot)

Fairway Canyon Oeveloptntnt lLC Auguat2006 7,000 87 $16,051,500 LBll.-SUflCal 0ak Valley, LLC (based on

(.Pd 1 PM 32778) finished lot)

Falf'4/&Y ~nyon ~opmttlt LLC AUgust2006 4,200 133 $18,758,000 LB/L...SUnCal 0ak Valley, LLC (baaed on


Falrwar 'etnyon peve1opme111 ½C Auuu.st 2008 5,000 137 $19,728,000 LB/L-SUnCill Oak Valley, LLC (baaed on

(Pd 4 PM 32776) - finished lot)

Fairw.r c'anyon- o.v.Jopmeni LLC . Auguat2008 8,000 74 $10,323,000 LBJL•SunCel Oak Valley, LLC (baaed on


CP.H _February 2006. 5,000 102 s1•,323,:i:so ·senepa Springs l!lV, Co. (baaed on (l'raot 31ffil &31521-4) finished lot)

KB Homes """ 2006

8,000 75 $12,565,275 Seneca Springs Inv. cO. (basedOfl

(Tract31521·1) finilhed lot)

KBHomU Aprtl 2006 7,000 104 $17,990,338 Seneca Springs Inv. CCI, (baaed on

(Tract 31521-21 - finished IOt)

KB Homes May200B 6,000 61 $10,526,709 ~eca Spr1nga Inv •. co. (baaed on

(T111d31521) finished lot)

c·entex Homea March 2008 8,250 106 $20,570,890 Seneca Springs Inv. Co. (based on

(Tract 31521·5.) finished lot)

Beazer Homes Maren 2008 8,000 76 $13,051,880 Seneca Sprlnga l('IV. ·co. (based an

(TOlct 31521-3) finished lot)


Flnhslfed .. #,'fce/tl!t blild C.cin1Ulloi\ _

$173,884 blue-top Iota final map ready to recotd

Infrastructure to site most feea funded thru CFO

$132,000 blue--top lots

final map ready to reCOfd

lnfnlttrueture to site

moat fees funded thru CFO

$170,000 blue-top Iota final map ready to record

Infrastructure to site

moat fees funded thru CFO

$184,500 - blue-top Iota

final map ready to record

infrastructure to Site

moat re.s funded thru CFO

$126,000 blue-top Iota final · map ready to record

lnfrastructuri to site R'loat fen funded thru CFO

$144,000 blue:,top lots

final' map ~ to record

lnfrutructure to site

ffloat fees funded thru CFO

$139,500 · blue-top Iota

final map ~8dy to record lnfraatrudure to site

moat fee"a funded thru CFO

$140,425 blue-top lots-

final fflap ready to record_

infr,aatructure to site

most fees funded thru CFO

$167,537 blue-top lots final map ready to record

Infrastructure to site most fees funded thru CFO

$172,984 blue-top tots-final map ready to record

' lnfrutructure to iite moat fees funded thru CFO

$172,569 blue-top Iota final rnap ready to record

Infrastructure to site moat f,ea funded thru CFO

$19•,065 blu•top lots final i'nap ready to record

Infrastructure to site most fees funded thrv CFD

$171,735 blue-top 1ots final ftl&P· readY to record

infrattruoture to lite moat fee• funded thru CFO

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size.:

No. of Units:

· Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Price/Bll.l&-top Lot:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:

Land Sale Data No. 1

South of Oak Valley Parkway, east side of Cherry Avenue, Beaumont

Lots 1 through 155 TR 31468-8, Planning Area 23

KB Home Coastal, Inc.

Pardee Homes

29.26 gross acres

155

. 5,250 square feet

SP

To construct 155 singlec-family residences between 1,670 and 2,456 square feet, currently selling between $249,990 and $296,990. · ·

March 23, 2006

$12,247,365

$74,840

$174,000.:t

Blue-top lots with Final Tract Map ready to record

All cash to seller

Buyer, Seller, public records

This comparable is a part of the Sundance planned community.


HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

lntend.ed Use:

Date Recorded:

Sale Price:

Price/Blue-top Lot:

Finished Lot Cost:

Site Condition:

Financing:

Verifi<;ation:

Comments:


Southwest comer of Starlight Avenue and Snapdragon Way, Beaumont

Lot 86, TR 31468-3


Pardee Homes

28.432 gross acres

113

7,000 square feet

SP

To construct 113 single-family residences between · 2,246 and 3,322 square feet, currently selling

between $290,000 and $330,000

March 23, 2006

$12,247,365

$108,384

$132,000+


All cash to seller

Buyer, Seller, public records

This comparable is a part of the Sundance planned community.


HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Record.ed:

. Sale Price:

Price/Blue-top lot:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:


West of Cherry Valley Blvd., east of San Timoteo Beaumont

Parcel 2, PM 32776

Fairway Canyon Development, LLC

LB/L-SunCal Oak Valley, LLC

36.93 gross acres

92.

6,500. square feet

SP

. To. construct 92 single-family residences between 3,068 and 3,500 square feet, proposed to sell · between $458,000 and $486,000

March 21, 2006

$12,712,944

$13~.000±

$1.70,000


All cash to seller

Buyer,. Seller, purchase and sale agreement

A condition of the sale is that the CFD is established · and bonds are ·sold that will · pay for approximately

$2~ ,558 of development fees ..

This comparable is located in Phase 2 of the master planned community of Fairway Canyon ..


HRA

Location:

Legal Description:

Buyer:

Setler:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

. Price/Blue-top Lot:

Finished Lot 'Cost:

Site Condition:

Financing:

Verification:

Comments:


West of Cherry Valley Blvd.; east of San Timoteo Beaumont

Parcel 1, PM 32776



31.71 gross acres

87

7,000 square feet

SP.

To construct 87 single-family residences between 2,559' and 3,800 square feet; proposed to sell between $395,000 and $450,000 ·

May 19, 2006

$15,486,462

$178,005

$205,000±


All cash to seller

Buyer, Seller, purchase and sale agreement

A condition of the sale is that the CFO is established and. bonds are sold that will pay for approximately $21,558 of development fees. ·

This comparable is located in Phase 2 of the master planned community of Fairway Canyon .

. CONSULTING REAL ESTATE APPRAISERS

68

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size: ·

Zoning:

· Intended Use:

· Date Recorded:

Sale Price:

Price/Blue-top Lot:

Finished Lot Cost:'

Site Condition:

Financing:

Verification:

Comments:.



Parcel 7, PM 32776


LB/L--SunCal Oak Valley, LLC

31.24 gross acres

133

4,200 square feet

SP

To construct 133 single-family residences between 2, 197 arid 2,474 square feet, proposed to sell between $363,500 and $384,000.

August 18, 2006

$13,956,044

$104,933

$130,000±


AU cash to seller


A condition of the sale is that the CFD is established and bonds are sold that will pay for approximately $21,558 of development fees.

This comparable is located in Phase 2 of the m.aster planned community of Fairway Canyon.

CONSUL1JNG REAL ESTATE APPRAISERS 69

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zonlng:

Intended Use:

· . Date. Recorded:

Sale Price,

Price/Blue-top Lot:

Finished Lot Cost:

Site Condition:

Financing:

Verification:·

Comments:



Parcel 4, PM 32776


LBll-SunCal Oak Valley, LLC

51.05 gross acres

137

5,000 square feet

SP

To construct 137 single-family residences between . 2,492 and 2,977 square feet, proposed to sell between $395,000 and $428,000

. August 18, 2006

$16,956,265

$123,768

$153,000±

Blue-top .lots with Final Tract Map ready to .record

All cash to seller


A condition of the sale is that the CFO is established and· bonds are sold that will pay for approximately

. $21,558 of development fees. ·

This comparable is located in Phase 2 of the master planned community Of Fairway Canyon.

CONSUL:TING REAL ESTATE APPRAISERS 70

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:.

Zoning:

Intended Use:

. Date .Recorded:

·· Sale Price:

Prlce/Blue~top Lot:

Finished Lot Cost: ·

Site Con~itlon:

Financing:

Verification:

Comments:



Parcel 6, PM 32776



22.21 gross acres

74

6,000 square feet

SP

To construct 74 single-family residences· between 2;563 and 2,977 square feet, proposed to sell . between $405,000 and $434,000

Aug11st 18, 2006 a

$8,403,897

$113,566

. $138,500:!:.

· Blue-,top lots with Final Tract Map ready to record

All cash to seller

Buyer; Seller, purchase and sale. agreement

A condition of the sale is that the CFO is established arid bonds are .sold that will pay for approximately $21,558 of development fees.

This· comparable is located in Phase 2 of the. master plan.ned community of Fairway Canyon.


71

HRA

Location:

Legal Description:

Buyer: /

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Price/Unit:

. Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:


South of First Street, west of Highland Springs, Beaumont

Proposed Final Tract.Map No. 31520 and 31521-4

SCC-Canyon II, LLC (Capital Pacific Holdings, LLC)

Seneca Springs lnv. Co.

54.476 gross acres

102

5,000 square feet

SP

To construct 102 single-family residences between 2,650 and 3,323 square feet, proposed. to sell

· between $399,000 and $449,000

February 23, 2006

$12,079,392

$118,425

$140,000.:!:


All cash to seller

· Buyer, Seller, purchase and sale agreernent

· A condition of the sale is that the CFD is established . and bonds are sold that will pay for over $17,000 of

development fees plus school fees and significant infrastructure.

This comparable is located in Phase 2 of the master planned community .of Seneca Springs. The escrow was entered into in April 2005.


HRA

Location:

Legal Description:

Buyer:·

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use: .

· Date Recorded:

Sale Price:

Price/Unit:

Finished LotCost:

Site Condition:

Financing:

Verification:.

Comme.nts:



Proposed Final Tract Map No. 31521-1

KB Home Coastal Inc.

Seneca Springs Inv. Co.

20.153 gross acres

75

6,000 square feet

SP

To construct 75 single-family residences between . 2,957 and 3,633 square feet, proposed to sell

between $424,000 and $459,000

April 7, 2006

$10,502,775

$140,037

$167,537

Blue-top lots with Final Tract Map ready fo record

All cash to seller


A condition of the sale is that the CFD is established and bonds' are sold that will pay for over $17,000 of

. development fees plus school fees and significant infrastructure.

This comparable is located in Phase 2 of the master planned community of Seneca Springs. The escrow was entered into in August 2005.


HRA

Location:

Legal Description:

Buyer:

Seller:

· Parcel Size:

No. of Units:

• Lot Size:

Zoning:

Intended Use:

Date. Recorded:

Sale Price:

Price/Unit:

Finished Lot Cost:

Site Condition:

•Financing:

Verification:

Comments:






34.967 gross acres

104

7,000 square feet

SP

To construct 104 single-family residences between 3,401 and 4,133 square feet, proposed to sell between $455,000 and $495,000 ·

April 7, 2006

$15,130,303

$145,484

$172,984


All cash to seller


A condition of the sale is that the CFD is established and bonds are sold that will pay for over $17,000 of development fees plus school fees and significant infrastructure.

This comparable is located in Phase· 2 of the master planned community of Seneca Springs. The escrow was entered into in April 2005.


HRA

Location:

Legal Description:

. ·Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Price/Unit:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:



Proposed Final Tract Map No. 31521

KB Home Coastal, Inc .


14.320 gross acres

61

6,000 square feet

SP

To construct 61 single-family residences between 2,957 and 3,633 square feet, proposed to sell between $424,000 and $459,000 .

Maya, 2006

$8,849,209

$145,069

$172,569


All cash to seller


A condition of the sale is that the CFD is established and bonds are sold that will pay for over $17,000 of development fees plus school fees and significant infrastructure.

This comparable is located in Phase 2 of the master planned community of Seneca Springs. The escrow was entered into in April 2005.


HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Si;ze:

No. of Units:

Lot Si;ze:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Prlce/Unit:

Finistied Lot Cost:

Site Condition:

Financing:

Verification:

Comments:




Centex Homes


34.462 gross acres

106

8,250 square feet

SP

To construct 106 single-family residences between 3,242 and 4,063 square feet, proposed to sell between $494,200 and $563,800

Mar9h.27, 2006

$17,708,890

$167,065

$194,065


All cash to seller


A condition of the sale is that the CFD is established and bonds.are sold that will pay for over $17,000 of development fees plus school fees and significant infrastructure,

This comparable is located in Phase 2 of the master planned community of Seneca Springs. The escrow was entered into in September 2005.


HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded: ·

Sale Price: .

Price/Unit:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:




Beazer Homes Holding Corp.


20.220 gross acres

76

6,000 square feet

SP

To construct 76 single-family residences be.tween 2, 144 and 3,239 square feet, proposed to sell between $380,000 and $435,000

March 14, 2006

$11,151,860

$146,735

$171,735


All cash to seller


A condition of the sale is that the CFD is established and bonds are sold thatwill pay for over $17,000 of development fees plus school fees and significant infrastructure.

This comparable is located in Phase 2 of the master planned community of Seneca Springs. The escrow was entered into in July 2005.


HRA We have surveyed residential sales in the Beaumont market area. The 13 sales

are the comparables considered most helpful in valuing the subject property. We have

reviewed and inspected all of the data items. The data includes the finished lot prices for

merchant builder parcels. The comparable land sales have sold in a blue-top lot

. condition. Costs to bring the land from the condition at the time .of sale to finished lot

condition were made available by the builders to analyze the data. Therefore, the analysis

will conclude at an indication of finished lot value for the subject parcels, and then a

deduction to bring the subject from a finished lot condition to a blue-top lot condition is

made.

Analysis

Financing

All of the comparable sales were all cash transactions or financing considered to

be cash, therefore, no adjustments for financing were warranted.

Property Rights Conveyed

All of the comparables involved the transfer of the fee simple interest. The

subject's fee simple interest is appraised in this report, and therefore, no adjustment is

warranted.

Time of Sale

. During the past 10±. years, Southern California has sharply rebounded from its

. lengthy recession. Demand for land sales has dramatically exceeded supply. Prices paid

for residential land increased annually by 15% to 20% and more from 1997 to 2003. .. . . . . '

However, the second half of 2004 saw a leveling of land prices, only to increase again in

February 2005. However, from November 2005 to the present time sales activity has

continued to decrease. Incentives and concessions have reappeared and price

reductions have occurred over the past 18±. months. Data Nos. 5 through 7 were in

escrow at the beginning of 2006 and scheduled to close in April and May 2006. Before

closing the sales price was renegotiated down by approximately 10% before closing in

August 2006. Home prices have continued to decline during 2006 and through the first


78

HRA 8 months of 2007. Incentives have continued to increase and prices have typically been

adjusted downward several times over the past 18± months. Trillium within the District

has recently decreased each floor plan by $50,000 and offering an incentive of

$10,000. The $60,000 represents an 18.6% decrease in home price which equates to

over a 43% decrease in land price. Based on current market conditions for home sales,

and the lack of buyers for merchant builder land, we have estimated a 40% downward

adjustment to the sales in 2006.

Conditions of Sale

Typically, adjustments for conditions of sale reflect the motivations of the buyer

and the seller in the transfer of real property. The conditions of sale adjustment reflects

the difference. between the actua.l sales price of the comparable and its probable sales

price if it were sold in . an arms-length transaction with typical motivations. Some·

circumstances of comparable sales that will need adjustment include sales rnade under

dures~.·eminent domain transactions and sales that were not arm's length. All of the.

·• transactions were reported to be arm•~ length· in nature. Accordingly, no adjustment is

indicated.

Location

The location adjustment is based on proximity to existing infrastructure and

. employment. The. 13 sales are located in the City of Beaumont and the first two sales

are within the subject's planned community of Sundance. Data Nos .. 3 through 7 are

located in the Fairway Canyon planned community. Data Nos. 8 through 1.3 are located

in the Seneca Springs planned community .. Based on the sales activity and pricing of

new homes in the planned communities, we have estimated a 15% downward

adjustment for land sales within the. Fairway Canyon planned community and the

Seneca Springs planned community. ,'

Entitlement/Map Status

All of the sales are entitled. No adjustment is required.


HRA Tax Rate

The subject is expected to have an average overall tax rate around 1.85% of base

sales price. Because the comparable sales all have similar CFDs, no adjustment is

required. The merchant builders of the land are aware of the various taxes and have

factored the impact of the higher tax rates into the prices paid for the land.

Lot Size

The comparables have minimum lot sizes that range from 4,200 square feet to

8,250 square feet. The minimum lot sizes for the subject are 3,240 and 7,000 square feet.

Because the subject parcels have varying lot sizes, adjustments have not been made to

the comparables:

Condition of Lots .

All of the data had prices based on a finished condition. Deductions for costs to

bring the subject parcels from finished lot condition to the current "as Is" condition are

made within the valuation of the land without unit construction.

Finished Lot Values by Direct Comparison

Please refer to the next page for the adjustment grid of the 13 comparable land

sales. The adjusted finished lot values range from $66,300 for a 4;200 square foot lot to

$98,973 for an 8,250 square foot lot. Data No. 1 is a part of the Sundance planned . . .

community which indicates a finished lot value of $79,200 for a 7,000 square foot lot.

As previously discussed, the residential market has been changing significantly

over the past 18± months: Sales have slowed dramatically, incentives are being

offered, prices have been reduced several times at the same project and cancellations

are common place. During 2006, merchant builders with land in escrow were

renegotiating the sale price of the land or canceling the escrow. During 2007, land sales

in the Riverside County market, as well as adjacent counties, are virtually non-existent.

In a rapidly changing market the better indication of land val.ue can be estimated by the

Static Residual Analysis which reflects current sales prices and market conditions.

Page 82 begins the discussion of the Static Residual Analysis for the District.


HRA

Data NoJ Location

No.1 S/0 Oak Vallev P•-. EIS Cherry Avenue Beaumont

No.2 '

SWC starliaht Avenue & n!lcdri•mon Wav

Beaumont

No.3 ;o Cherrv Valley Blvd. 1 San Timoteo

Beaumont

· No.4 '

W/O Che= Vallev Blvd. E/O San Timoteo Beaumont

No .. 5 · W/0.Cherrv Valley Blvd. E/O San Timoteo Beaumont

No.6 W/u Chem, Valley Blvd.

·•· E/0 San Timoteo Be8.umonf

No. 7 '

' W/0 Ch~ Vall~ Blvd. . E/O San Timoteo

Beaumont

No.8 '

S/O First Street, Btwn. Manzanita & Hiahland .Spa, Beaumont

No.9 S/OFirs!Street -. Manzanita & Hiahland Sna. Beaumont

No.10 S/0 First Street, Btwn .. Manzanlta & Highland ~-. Beaumont

No.11 S/O First Stree~ Btwn. Manzanita & Hiahland Sos. Beaumont

No.12 S/0 First Street, Btwn. '

Manzanita & Hiohland SPs. ~aumont

No.13 S/0 First Street. Btwn. Manzanita & Highland s-: Beaumont

RESIDENTIAL LAND SALES ADJUSTMENT GRID

Date of No. Finished Lot Adjusted Sale Units Lot Size Sales Price Time Price

March2006 155 5,250 $174,000 -40% $104,400

March 2006 113 7.000 $132 000 -40% $79200 '

March 2006 92 5·500 $170,000 -40% $102,000

Mav2006 87 7.000 $205000 -40% $123 000

.·'

Auoust2006 133 4200 $130 000 -40% $78.000

' '

A•~ust2006 137 5000 $153 000 -40% $91.800

,'

' '

Aunust2006 74 . 6:ooo $138 500 -40% $63100 ' ' .

i=ebruaN·2rvwa 102 5000 $140425 -40% $84 255 . '

•nnl2006 7S 6000 $167 537 -40% $100.522 '

4 "'12006 104 · 7,000 $172,984 -40% $103 790 '

' .

Mav.2006 61 6000' $172 569 -40% $103 541 '·

'

March 2006 106 8.250 $194 065 -40% $116.439

. '

March 2006 76 6.000 $171 735 -40% $103 041


View Adjusted Location Potential Price/Unit

0% 0% $104,400

0% 0% $79 200

-15% 0% $66,700

-15% 0% $104.550

-15% 0% $66,300

'

-15% 0% $78 030

. ' -15% 0% $70,635

.

-15% 0% $71 617

-15% 0% $85444

-15% 0% $88 222

'

-15% 0% $88,010

-15% 0% $98,973

• .

-15% 0% $67,585

HRA Static Residual Analysis to Finished Lot Value

The merchant builder land is valued by the Direct Comparison Approach and by

the Static Residual Analysis. The purpose of this analysis is to estimate a value for the

land assuming no direct construction has taken place. This method is particularly helpful

when development for a subdivision represents the highest and best use and when

competitive house sales are available. Reportedly, this. analysis is by far the most

commonly used by merchant builders when determining price for land.

This analysis is useful for projects that will have a typical holding period of one to

two years which represents the typical holding period sought by merchant builders. The

Static Residual Analysis best replicates the investor's analysis when determining what

can be paid for the land based on proposed product. Purchase of the land is simply

treated as one of the components necessary to build the houses to sell to . the

homeowner. When all the components of the end-product can be identified and

reasonable estimates of costs and profit can be allocated, the Static Residual Analysis

becomes the best indicator of value to a merchant builder fo~ a specific product. Specific

product information is available, which makes this analysis piirticular1y meaningful.

The analysis uses an estimated average base sales price for a specific product,

then deducts the various costs . including direct and indirect costs of . construction,

marketing, taxes and overhead., as well as the required profit margin to attract an investor

in light of the risks and uncertainties of the project and residential market. This analysis is

most heipful when significa,rit lot and or view premiums are not present. When negotiating

land price, builders typically will consider the value of lot premiums when they are

significant,. but typically do not give the premiums full consideration. When a downturn in

the market occurs or a slight stall in a sales program, premiums are typically the first to be

negotiated away.


HRA End-product Sales Prices

The analysis uses the average base sales price without lot premiums. Our

estimate of sales price includes a review of the subject's existing and proposed sales

prices included within the Improvement Description section of this report, review of

actively selling projects in the market area, and a review of Empire Economics market

absorption study. For the valuation, we have used the current base pricing as previously

summarized and deducted the current incentives offered at each project.

Direct Development Costs

The builders have provided direct construction costs to build each product. We

have also intervieWed local builders in. the Riverside County market area for estimates of

direct construction costs for the proposed products. Based on our understanding of the

proposed quality Of construction, home size and functional utility, we have estimated

direct construction costs of between $64.00 and $72.00 per square foot, depending on

unit size and product.·

Indirect construction costs have been estimated at 4% of sales price, which is

found to be an industry standard used for this analysis.

General and Administrative

General and administrative costs are estimated at.3% of retail value. This category

covers such expenses as administrative, professional fees, real estate taxes, HOA dues,

and miscellaneous costs. This estimate is fypical and consistent with the market.

Marketing and Warranty

Marketing and sales expenses plus warranty costs are estimated at 8% of retail

value. This category covers such expenses as advertising and sales commissions and

home warranties. This estimate is typical and consistent.with the market.

Developer Profit

The line item for profit reflects the required margin to attract an investor in light of

the risk and uncertainties of the specific project. This analysis assumes a finished lot

and no on-site construction. Therefore, additional risk of development is unknown.


83

HRA Given the current residential market, and demand for the proposed projects, the risk of

development is more than in a healthy residential market.

Based on surveys of builders, current profit requirements are typically between

8% and 12% of revenues, with occasional responses as high as 15%. These profit

estimates are for projects that can be constructed and sold out in a two year period.

Higher profits can be required for longer· construction/sellout periods and riskier

projects. Lower profits can be liccepted in inexpensive land cost areas where homes

sell quickly. The District is proposed for detached products in an area of decreased

demand over the past 18± months. Based on· a review of the market absorption report

and competing subdivisions, a sales. rate of 2± to 3±. units per month for the detached

products appears reasonable. A slightly higher absorption of 3.75 units per month is

forecast for the smaller product, Solaris II.

The recent trend. in merchant builder land sales is· to purchase the lots in a

phased take down. This is seen both for detached products and attached products.

Therefore, the line item for profit is based on a typical holding period sought by

merchant builders;. that of 1. to 2 years. Based on current market conditions and the

. outlook for the next 12 to 24 months, we have used an 8% line item for profit for the

Trillium site and Solaris site with a shorter expected absorption time. The profit margins

for the Larkspur site and Copperleaf sites have estimated profit margins of 10% and

12%, respectively.

If all of the land. for the Larkspur product and Copperleaf product was purchased

in bulk, it would be expected that the buyer would reflect an even higher profit margin in

their analysis, due to the addition risk assumed and longer holding period, based on

current sales trends.

Interest During Holding Period

A typical allowance for financing during the holding period has been between 4%

and 6%. Due to the lenders requiring a higher equity participation from the builders, the


84

HRA allowance for profit has been decreased: Based on recent interviews with builders in the

subject's market area, we have chosen a 5% deduction for financing during the holding

period.

Site Costs

Because this analysis residuals to a finished lot condition, deductions for costs to

bring to a finished lot condition are not included. The following pages illustrate the Static

Residual Analysis for the four projects within the District.


85

HRA

PARl>E:E'·HdMES'''•' · "LA1ii<si>dtt .

FinalTtact-2,Map N9.a:1468~5 ' .·. Finishett,Lci>t.Vatoe .

Floor Plan 1 2 3

Average

Size 2,409 2,659 2,801 2,623

Incentives 5% of sales price:

110 Proposed Dwelling Units (77 Lots to be'Valued)

7,000 Square Foot Minimum Lot

Averag.e Retail Value of Improvements

Average Dwelfing Size (Sq. Feet) Direct Buifdiog Cost Per Sq. Ft. Indirect Construction Costs Gen.era! & Administrative Costs Marketing and Warranty Costs Builder's Profit Interest During Holding Period Costs to bring to Finished Lot

Finished Lot Estimate of Value

2,623 $64.00

4.00% 3.00% 8.00%

10.00% 5.00%

$350,455

$167,872 · $14,018 $10,514 $28,036 $35,046

. $17,523 . None

$77,447

1zz.aau


Base Price · $354,900 $370;900 $380,900 $368,900

$18;445

$133.61 (Per sq. ft.)

Finished Lot

Land Ratio

0.22

HRA .:·.,;:·1'.'.:_>,,'.', "' :. _;:;::~~ ., ,• ~ .. _,-

. ·_ - . <i/~~~--:';JJ.-?/:::~?/!"l,<·i -){t- · · · . PARD6E:l;(Ol'i6ES •· ,, ·· ... ",.· ;. . ...

· · ·. . COPPERJ,iJ~lf.l•~'CQg.qj.Rt.~F. I(,)· ; '.iic ··.· .. ,.·· Final TractMap,No,314Ui'&,,,n~i;ded •Mli,t/No,,34j§o ·

Final ·Tract Map Noi$1J00-7 ' .· 'FiFll~ed,totvitoe ;ti ' '··. --.. ·- -·.{;J/~~:··;:)}\~tii~/JJ.fai~;<:,f:"l;:Ati)r·: _.: -.

Floor Plan 1 2 3 4

Average

Size 1,893 2,181 2,505 2,799 2,345


182 Proposed Dweillng Units Copperleaf I · (15~ Lots to be Valued)

· 132 Proposed Dwelling .Units Copperleaf 11. (128 Lots to be Valued)


Average Retail Value of improvements

Average Dwelling Size (Sq. l=:eet) Direct Building Cost Per Sq: Ft. Indirect Construction Costs General & Administrative Costs Marketing and Warranty Costs Builder's Profit Interest During Holding Period Costs to bring to Finished Lot


2,345 $66.00 4.00% 3.00% 8.00%

12.00% 5.00%

$336,443

$154,737 $13,458 $10,093 $26,915 $40,373 $16,822

None

$74,044 IZ4,!!!HI'


Base Price $339,900 $349,900 $354,900 $371,900 $354,150

$17,708

$143.50 (Per sq. ft.)

Finished Lot

Land Ratio

0.22

HRA

. 'itli;I t;:; Final Tracti:Ma1t'N6. 314&a..a· ·

Finished LQ1VaTue

Floor Plan 1 2 3 4 5

Average

Incentives:

155 Proposed DweJling Units · (87 Lots to beValued) ·


verage Retail Value of Improvements

Average Dwelling Size {Sq. Feet) · Direct Building Cost Per Sq. Ft.

Indirect Construction Costs · · General & Administrative Costs

Marketing and Warranty Costs Builder's Profit Interest During Holding Period. · Costs to bring to Finished Lot ·


2,099 $69.00 4.00% 3.00% 8.00% 8.00% 5.00%

·Size 1,670 1,853 2,180 2,337 2,456 2,099

$269,990

$144,845 $10,800 $8,100

$21,599 $21,599 $13,500

None

$49,548. 1a.agg


Base Price $249,990 $279,990

·$282,990 $289,990 $296,990 $279,990

$10,000

$128.62 (Per sq. ft.)

Finished Lot

Land Ratio

0.19

HRA

PARDEE HOMES. SQLARIS/1.·

Final Tract Map No. 34291 . Finighedlot:Value; .

: . ~··<j:{ ..... -: - /iS;.-'-:;- -•···

Floor Plan · 1 2 3

Average

Size 1,683 1,918 2,105 1,902


110 Propose(! DWl!lling ti nits (31 Lots to be ValUed)


Average Reta.ilValue of Improvements $295,355

verage Dwelling Size (Sq. Feet) 1,902 Direct Building Cost Per Sq. Ft. $72.00 $136,944 Indirect Construction Costs 4.00% $11,814 General & Administrative Costs 3.00% $8,861

· Marketing and Warranty Costs 8.00% $23,628 Builder's. Profit . 8.00% $23,628 Interest During Holding Period 5.00% $14,768 Costs to bring to Finished Lot None

Finished Lot-Estimate of Value $75,712 IZ5,IHHl


Base Price $295,900 $310,900 $325,900 $310,900

$15,545

$155.29 (Per sq. ft.}

Finished Lot

Land Ratio

0.25

HRA Conclusion of Finished Lot Values

The following ta.ble summarizes the conclusions of finished lot values by the Direct

Comparison Approach, the Static Residual Analysis and the concluded finished lot value.

Due to the recent dynamic changes in the residential market we have given most

consideration to the results of the Static Residual Analyses which reflects current .end

unit pricing and costs .

. . .

·.·~~f:'•••.·.• ' ... , '

·]000SF '· · L~rkspur

61000SF · · Copperleaf

5.2$).SF. . Triilil:llli : .. ·

· 3,240"SF' .. · S<>ransn

oirect ~m;ariSOn .· · ' . Ati12roach.

, .s.eo.obo-s464,soo

$7ll,000 • $88,000 .·. .

·.·.$66;000+ ·.- ., .. --

''As Is" Value of L.and Under Site Construction

Static ~esidual · . . .Aii~tysis ... ··$Tl'OOO '··.

$74;000

$5.0,000.·

$75,000 ..

. Concluded.F'imiil\ed. ·•

. . . ' LofVaillE! \ · .•.. · .. · . · Si:r:ooo •·· ·

$74,QO:0

$50,000.

·. -irs,J~ >•·.· ..

To arrive at an.estimate of value for the "As Is" condition of the land without unit

constriction within the District, a deduction for the costs associated with development of

the land from its current condition to a finished lot condition is made.

The merchant . builders have provided costs to bring the land for each

product/planning area to finished lot condition. In general, the land proposed for the

· Solaris II product (PA 24) and Trillium product (PA 23) are in physically finished lot

· condiUon. An allocation of the major infrastructure per product is made along with

remaining development fees which equate to the costs to complete for each• product.

The Larkspur product (PA 18) is about half improved to finished lot condition and half

improved to blue-top lot with utilities under construction. Costs to complete include

utilities, major infrastructure and development fees. Copperleaf I (PA 19) has about 1/3

of the site improved to finished lot condition and the balance is blue-top lots with utilities


90

HRA under construction. Costs to complete are similar to those for Larkspur. Planning Area

20, proposed for Copperleaf I, is unimproved land. Costs to complete include, grading,

utilities, major infrastructure and development fees. Planning Area 22, proposed for the

continuation of Copperleaf, is in blue~top lot condition with erosion. Costs to complete

include utilities, major infrastructure costs and development fees.

The table on the next page summarizes the number of units without unit

construction, estimated finished lot value, costs to complete and estimated "as is" value

for each merchant builder parcel.

Valuation of the 115 Dwelling Units Under Construction and 98 Sold Homes

There are 115 dwelling units under construction within four products. Only the

dwelling units with material unit construction are given additional value. above a finished

lot value, given current market conditions.

The units under construction were valued based on our inspection of the

propt:1rty; An estimate of completio~ (stated as a percent) of each unit as of the date of

value is used to value the units. The estimate of com1:>letion has been. arrived at with

inputfrom merchant builders, review of finished lot values .and review of numerous cost

estimates. That percenf is then .applied to the estimated base sales price as of the date •

· of value for the average size floor plan within each product. The homes considered

nearly complete are estimated to be 70% complete. The homes with color stucco coat

and roofs· under construction to complete are estimated to be. 40% .complete. The

homes wrapped to brown stucco coat with roofs loaded to .under construction are

considered to be 30% complete. The 9 models and 91 sold homes are valued based on

the current base sales price less incentives. The table on Page 93 summarizes the values

for the sold units and units u.nder construction. Please refer to the Addenda of this report

which summarizes each sale, current ownership, date of sale and sales price. Please

refer to the table on page 94 that summarizes the value estimates for the sold units and

. units under construction according to ownership.


HRA

100% 100% 70% 30% 24%

Co 100% 70% 40%

Co 100%

Trillium b

100% 100% 70% 30% 20%

100% 70% 40% 25%

213 Total Units Built or Under Construction


$350,455 $1,051,365 $350455 $3, 154,09 $350,455 $2,698,504 $350,455 $525,683 $350,455 20,546

7850 192

$3.36,443 $336,443 $336,443

$336,443 $1,345,772

$269,990 $1,079,960 $269,990 $9,71Q,640 $269,990 $2,645,902 $269 990 $647,976 $269, $323,Q88

14417 466

$295,355 $11,814 200 $295,355 $4,961,964 · $295,355 $295,355

8479528

HRA VALUATION SUMMARY OF LAND WITHOUT UNIT CONSTRUCTION

Larkspur- by Pardee Homes (PA 18) 77 Finished Sites @ $77,000 =

Less: Costs to Complete to Finished Sites:

Estimated As Is Value :

Copper/ear I - by Pardee Homes (PA 19 & 20) 153 Finished Sites @ $74,000 =


Estimated As Is Value .:

Copper/ear II - byPardee Homes (PA 22) · .128 Finished Sites@ $74,000 =


.· Estimated As Is Value :

Solaris II - by Pardee Homes (PA 24) 31 Finished Sites @ . $75,000 =


· Estimated As Is Value :

Estimated Bond Proceeds:

/ Estimated Land Value w/o Unit Construction for Pardee Homes:

Tri/iium - by KB Home (PA 23) 87 Finished. Site$ @ $50,000 =

Less: Co.sts to Complete to Finished Sites:

Estimated As Is Value :

Estimated Land Value w/o Unit Construction for KB.Home:

AS IS VALUE ESTIMATE FOR LAND WITHOUT UNIT CONSTRUCTION:

CONSULllNG REAL ESTATE APPRAISERS. 93

$5,929,000

-$4,656,362

$1,272,638

$11,322,000

-$9,981, 793

$1,340,207

$9,472,000

-$10,953,728

-$1,481,728

$2,325,000

-$2 ,405, 133

-$80,133

$5,600,000

$6,650,984

$4,350,000

-$3,731,037

$618,963

$618,963

$7,269,947

HRA Total Value Estima1D for CFD No. 93-1 2007 Local Agency Revenue Bonds Series E

Pardee Homes Ownership:

• As Is" Value Estimate for 389 Lots: "As Is" Value Estimate for 83 Units Under Construction:

KB Home Ownership:

"As Is" Value Estimate for 87lots: "As Is" Value Estimate for 28 Units Under Construction

and 4 Completed Model Homes:

111 Sold Production Hoines & 7 Sold Model Homes

Value Estimate for 98 Sold Dwelling Units:

. TOTALVALUE ESTIMATE:.


$ 6,650,984 $ 14.677.974 $21,328,958

$ 618,963

$ 4.697.826 $ 5,316,789

$29,103,730

$55,749,477

HRA VALUATION CONCLUSION

Based on the investigation and analyses undertaken, our experience as real estate

appraisers, and subject to all the premises, assumptions and limiting conditions set forth

in this report, the following opinions of Market Value are formed as of September 1, 2007. ' .

CFD NO. 93-1 2007 LOCAL AGENCY REVENUE BONDS SERIES E

FIFTY-FIVE MILLION

SEVEN HUNDRED THOUSAND DOLLARS

$55,700,000

PARDEE HOMES

TWENTY-ONE MILLION THREE HUNDRED THOUSAND DOLLARS

$21,300,000

KB HOME COASTAL INC.

FIVE MILLION THREEJiUNDRED THOUSAND DOLLARS

$5,300,000

98 SOLD QWELLING UNITS

TWENTY-NINE MILLION ONE HUNDRED THOUSAND DOLLARS

$~9,100,000

PLANNING AREAS.23 AND 24 (TRILLIUM & SOLARIS II)

THIRTY-THREE MILLION DOLLARS

$33,000,000

The estimated value assumes bond proceeds of approximately $5,600,000 for eligible facilities, as described in the Community Facilities Report, are available at the time of sale.·


HRA CERTIFICATION

We hereby certify that during the completion of this assignment, we personally inspected

the property that is the subject of this appraisal and that, except as specifically noted:

We have no present or contemplated future interest in the real estate or personal interest or bias with respect to the subject matter or the parties involved in this appraisal.

To the best of our knowledge and belief, the statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct.

Our engagement in this assignment was not contingent upon developing or reporting predetermined results. The compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of _the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence ofa subsequent event.

The appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan.

The reported analyses, opinions, and conclusions were developed, and this . report has been prepared, in conformity with the requirements of the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Appraisal Institute., which include the Uniform Standards of Professional Appraisal Practice.

As of the date of this report, James B. Harris has completed . the requirements of the continuing education program of the Appraisal Institute.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analy$es, opinions, and conclusions.

No one provided professional assistance to the persons signing this report.

The use of this report is subject to the requirements of the Appraisal Institute

relating to review by its. duly authorized representatives. In furtherance of the aims of the

Appraisal Institute to . develop higher standards of professional performance by its


96

HRA Members, we may be required to submit to authorized committees of the Appraisal

Institute copies of this appraisal. and any subsequent changes or modifications thereof.

Respectfully submitted,

;,1.._ .. ~ ~ tfe'rriCannon Harris Vice President AG009147

)'¥-~= U~r:~:ent .


97

AG001846

ADDENDA

©J IJ)) 1/4 lL U IF U <G 1/4 'fr U © fM ~

HARRIS REAL TY APPRAISAL 5100 Birch Street, Suite 200 Newport Beach, CA 92660

(949) 851-1227

QUALIFICATIONS OF

JAMES B. HARRIS, MAI

PROFESSIONAL BACKGROUND

Actively engaged as a real estate analyst and consulting appraiser since 1971. President and Principal of Harris Realty Appraisal, with offices at:

5100 Birch Street, Suite 200 Newport Beach, California 92660

Before forming Harris Realty Appraisal, in 1982, was employed with Real Estate Analysts of Newport, Inc. (REAN) as a Principal and Vice President. Prior to employment with REAN was employed with the Bank of America as the Assistant Urban Appraisal Supervisor. Previously, was employed by the Verne Cox Company as a real estate appraiser.

PROFESSIONAL ORGANIZATIONS

Member of the Appraisal Institute, with MAI designation No. 6508 Director, Southern California Chapter - 1998, 1999 Chair, Orange County Branch, Southern California Chapter -1997 Vice-Chair, Orange County Branch, Southern California Chapter - 1996 Member, Region VII Regional Governing Committee-1991 to 1995, 1997, 1998 Member, Southern California Chapter Executive Committee-1990, 1997 to 1999 Chairman, Southern California Chapter Seminar Committee - 1991 Chairman, Southern California Chapter Workshop Committee - 1990 Member, Southern California Chapter Admissions Committee -1983 to 1989 Member, Regional Standards of Professional Practice Committee -1985 - 1997

Member of the International Right-of-Way Association, Orange County Chapter 67.

California State Certified Appraiser, Number AG001846

EDUCATIONAL ACTIVITIES

B.S., California State Polytechnic University, Pomona, 1972.

Successfully completed the following courses sponsored by the Appraisal Institute and the Right-ofWay Association:

Course I-A Course I-B Course II Course IV Course VI Course VIII Course SPP Course 401

Principles of Real Estate Appraisal Capitalization Theory Urban Properties Litigation Valuation Investment Analysis Single-Family Residential Appraisal Standards of Professional Practice Appraisal of Partial Acquisitions

Has attended numerous seminars sponsored by the Appraisal Institute and the International Rightof-Way Association.

TEACHING AND LECTURING ACTIVITIES

Seminars and lectures presented to the Appraisal Institute, the University of California-Irvine, UCLA, California Debt and Investment Advisory Commission, Stone & Youngberg and the National Federation of Municipal Analysts.

MISCELLANEOUS

Member of the Advisory Panel to the California Debt and Investment Advisory Commission, regarding Appraisal Standards for Land Secured Financing (March 2003 through June 2004)

LEGAL EXPERIENCE

Testified as an expert witness in the Superior Court of the County of Los Angeles and the County of San Bernardino and in the Federal Bankruptcy Courts five times concerning the issues of Eminent Domain, Bankruptcy, and Specific Performance. He has been deposed numerous times concerning these and other issues. This legal experience has been for both Plaintiff and Respondent clients. He has prepared numerous appraisals for submission to the IRS, without having values overturned. He has worked closely with numerous Bond Counsel in the completion of 100 Land Secured Municipal Bond Financing appraisals over the last f1Ve years.

SCOPE OF EXPERIENCE

Feaslb/1/ty and Consultive Studies

Feasibility and market analyses, including the use of computer-based economic models for both land developments and investment properties such as shopping centers, industrial parks, mobile home parks, condominium projects, hotels, and residential projects.

Appraisal Projects

Has completed all types of appraisal assignments from San Diego to San Francisco, California. Also has completed out-of-state appraisal assignments in Arizona, Florida, Georgia, Hawaii, Nevada, New Jersey, Oklahoma, Oregon, and Washington.

Residential

Residential subdivisions, condominiums, planned unit developments, mobile home parks, apartment houses, and single-family residences. • Commercial

Office buildings, hotels, motels, retail store buildings, restaurants, power shopping centers, neighborhood shopping centers, and convenience shopping centers.

Industrial

Multi-tenant industrial parks, warehouses, manufacturing plants, and research and development facilities.

Vacant Land

Community Facilities Districts, Assessment Districts, master planned communities, residential, commercial and industrial sites; full and partial takings for public acquisitions.

QUALIFICATIONS OF

BERRI J. CANNON HARRIS

PROFESSIONAL BACKGROUND

Actively engaged as a real estate appraiser since 1982. Vice President of Harris Realty Appraisal, with offices at:

5100 Birch Street, Suite 200 Newport Beach, California 92660

Before joining Harris Realty Appraisal was employed with Interstate Appraisal Corporation as Assistant Vice President. Prior to employment with Interstate Appraisal was employed with Real Estate Analysts of Newport Beach as a Research Assistant.

PROFESSIONAL ORGANIZATIONS

Candidate of the Appraisal Institute for the MAI designation. Co-Chair, Southern California Chapter Hospitality Committee -1994-1998 Chair, Southern California Chapter Research Committee - 1992, 1993

Women in Commercial Real Estate, Member Orange County Chapter. Chair, Special Events-1998, 1999, 2000, 2001, 2002, 2003 Second Vice-President - 1996, 1997 Treasurer-1993, 1994, 1995 Chair, Network Luncheon Committee -1991, 1992

California State Certified Appraiser, Number AG009147

EDUCATIONAL ACTIVITIES

B.S., University of Redlands, Redlands, California

Successfully completed the following courses sponsored by the Appraisal Institute:

Principles of Real Estate Appraisal Basic Valuation Procedures Capitalization Theory and Techniques - A Capitalization Theory and Techniques - B Report Writing and Valuation Analyses Standards of Professional Practice Case Studies in Real Estate Valuation

Has attended numerous seminars sponsored by the Appraisal Institute. Has also attended real estate related courses through University of California-Irvine.

LECTURING ACTIVITIES

Seminars and lectures presented to UCLA, California Debt and Investment Advisory Commission, and Stone & Youngberg.

MISCELLANEOUS

Member of the Advisory Panel to the California Debt and Investment Advisory Commission, regarding Appraisal Standards for Land Secured Financing (March 2003 through June 2004)

SCOPE OF EXPERIENCE

Appraisal Projects

Has completed all types of appraisal assignments from San Diego to San Francisco, California. Also has completed out-of-state appraisal assignments in Arizona and Hawaii.

Residential

Residential subdivisions, condominiums, planned unit developments, mobile home parks, apartment houses, and single-family residences.

Commercial

Office buildings, retail store buildings, restaurants, neighborhood-shopping centers, strip retail centers.

Industrial

Multi-tenant industrial parks, warehouses, manufacturing plants, and research and development facilities.

Vacant Land

Residential sites, commercial sites, industrial sites, large multi-unit housing, master planned unit developments, and agricultural acreage. Specializing in Community Facilities District and Assessment District appraisal assignments.

PARTIAL LIST OF CLIENTS

Bank of America Bank One Commerce Bank Downey S&L Assoc. Fremont Investment and Loan First Los Angeles Bank lnstltutional Housing Partners

Army Corps of Engineers California State University Caltrans City of Aliso Viejo City of Beaumont City of Corona City of Costa Mesa City of Encinitas City of Fontana City of Fullerton City of Hemet City of Hesperia City of Honolulu City of Huntington Beach City of Indian Wells City of Irvine City of Lake Elsinore City of Loma Linda City of Los Angeles City of Moreno Valley City of Newport Beach City of Oceanside

Lending Institutions

Nations Bank Preferred Bank Santa Monica Bank TokaiBank Union Bank Universal S&L Assoc. Wells Fargo Bank

Public Agencies

City of Palm Springs City of Perris City of Riverside City of San Marcos City of Tustin City of Victorville County of Orange County of Riverside County of San Bernardino Eastern Municipal Water District Orange County Sheriff's Department Ramona Municipal Water District Rancho Santa Fe Comm. Services District Capistrano Unified School District Hemet Unified School District Hesperia Unified School District Romoland School District Saddleback Valley Unified School District Santa Ana Unified School District Val Verde Unified School District Yucaipa-Calimesa Unified School District

Developers and Landowners

DMB- Ladera Foothill Ranch Company Hon Development Co. Irvine Apartment Communities The Irvine Company.

Arter & Hadden Bronson, Bronson & McKinnon Bryan, Cave, McPheeters & McRoberts Richard Clements Cox, Castle, Nicholson Gibson, Dunn & Crutcher Hill, Farrer & Burrill

Lennar Homes Rancho Mission Viejo Santa Margarita Company Shapell Industries Sterling Development

Law Firms

MCCiintock, Weston, Benshoof, Rochefort & MacCuish

Palmiri, Tyler, Wiener, Wilhelm, & Waldron Sonnenschein Nath & Rosenthal Strauss & Troy Wyman, Bautzer, Rothman, Kuchel &

Silbert

EMPIRE ECONOMICS MARKET STUDY (PORTION)

SECTION I EXPECTED PRODUCT MIX CHARACTERISTICS FOR CFD NO. 93-1 IA SC (PARDEE - SUNDANCE)

CFO No. 93-1 IA SC (Pardee - Sundance) is expected to have 691 single-family residential units in five projects, four by Pardee and one by KB Home; the number of housing units and their marketing status as well as their characteristics, such as lot sizes, prices and sizes of living area, are as follows:

Pl .. lr Areu » II 1' A 10 " " ,. Toh.ls/A •

• """' ""'" Trillium Solarisll

A A A A B

l"rohctT Sin-\o•Famil"' Oet4ched

B•Udtr ""'" ""'" ""'" KB Home """' N• mMJ'ol'Homes 110 Ill "' m "' "' Ou, : J•"' 200'1 ' ' 0 • 24 ..

Fatare O«aaucle.: J• tv 2007+ '°' '" "' '" .. "' LMa•Areu

Plu#l ""' "" I 650 1670 16U Pl1• #2 '659 l UI '"' 1153 J 911 .... ., , ,01 2 505 ~ 125 21110 l lOS Pl.1• #4 "" 2 375 l 337 ....... 2456 Avera- z 2019 '°" I '

Bue Prkel PIH#l ,,,. 900 $339900 $305 900 """" $295 900 ...... $370 900 $]49900 Sl23900 S129990 $310900 .... ., $380 900 S3S-t900 $334 900 S332990 $325900 1'1•• #4 $371900 S349 900 $33'>990 PIH#5 $34"990 A "" s:,·• 150 ,,.. "" $310900 "391117

V.Jte Rldo: Prlc8'LW .. An• S141 sm $163 $151 $16) $154

S .... W Tues- Edi.mated ,,. .. $~9 "9« $2 19 SI 944 $2 163 Rltlt. S Ill Tue• / Prlus 0.66% 0.63% 0.5')% 0.68% 0.633/. 0.64% /'Nole: A.110 Ad V•lo~'" l,11%1

Therefore, CFO No. 93-1 IA SC (Pardee - Sundance) has single-family detached homes that offering prices that range from some $295,900 to $380,900, an overall average of$339,197, for some 1,650 to 2,80 I, an overall average of 2,200 sq.ft. of living area, for a value ratio (price/living area) of some $154, as an overall average.

Thus far, of the 691 homes, some 40 have closed escrows to homeowners, and so there are another 651 homes for future occupancies.

E Jul 30 2007

TRACT MAPS

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SUMMARY OF SOLD DWELLING UNITS

Sold Production Homes ·.

Proiect/Lot & Tr# Ownershin as of September 1, 2007 Sale Date Sales Prl.ce · Larksnur bv Pardee Homes Tract 31468-5 & Lot Nos. Larksour models

44 Dubose Model Home Investments #118, LP. 3/28/2007 $437,000 45 Dubose Model Home Investments #117, LP. 3/28/2007 $461,000 46 Dubose Model Home Investments #116, Ltd. 3/28/2007 $489,500

Larksour oroduction homes 32 Doran/Markham 7/12/2007 $436,349 33 Sninn 8/17/2007 $357,900 '.'I, ulexa . 7/27/2007 $429,801 3, Martinez/Aauilar 6/22/2007 $415,350 36 Thomas 7/2/2007 $389,000 52 Burrascano 7/17/2007 $380,526 54 French 8/17/2007 $368,277 55 Rabaao 6/28/2007 $409,500 56 Ville 7/23/2007 $390,100 12 TOTAL: $4.964.303

AVG.SIP: $413,692 Solaris II bv Pardee Homes Tract 34291 & Lot Nos. Safaris II nroduction homes

33 Kowalski 8/17/2007 $319,900 34 Alvarado 8/3/2007 $355,125 35 Luna/Toscano 7/27/2007 $315,000 36 Troncales 7/27/2007 $333,560 37 Silva/De Souza 7/19/2007 $310,462 38 Scott 6/29/2007 $332,774 39 Ball 6/22/2007 $315,919 40 Bvrd 8/10/2007 $344,200 41 Bacon 8/29/2007 $342,284 43 Montova/Fuentes 7/6/2007 $333,486 44 Li 7/5/2007 $301,695 45 Anderson 6/22/2007 $350,280 46 Kudehinbu 6/22/2007 $357,390 47 Gamble 6/14/2007 $332,552 48 Schennelmann 6/19/2007 $348,203 49 Chana 6/22/2007 $336,781 50 Ferber/Thacher 8/17/2007 $313,568 51 Camnns 6/14/2007 $326,150 52 Liaw 6/8/2007 $318,319 53 Alfonso 6/29/2007 $370,376 60 Cloud/Patterson 6/14/2007 $315,530 61 Avila 7/20/2007 $348,500 62 Medlev/Rodrinuez 6/21/2007 $348,778 63 Thomas 8/1/2007 $325,350 64 Cardona 6/28/2007 $345,943 66 Waters/Sherman 6/29/2007 $323,150

. .. . .~

Sold Production Homes

Prolect/Lot & Tr# Ow111rsh!o as bf S.ntember 1, 2001 .· Saleb11te· SalesPrl~e 67 Luna 8/15/2007 $342,938 68 Anuiman 6/12/2007 $341,045 70 Tseng 7/26/2007 $300,000 72 Aleo 7/31/2007 $356,615 73 Lai 6/29/2007 $301,900 74 Lee/Kim 7/27/2007 $341,545 75 Montalban 7/20/2007 $314,475 76 Jimenez 7/20/2007 $339,125 77 Dinns/Saolen 7/23/2007 $347,179 78 Medrano 7/25/2007 $306,975 81 Oschman 8/3/2007 $313,899 84 Kim 8/10/2007 $318,025 85 Rilev 8/17/2007 $366,166 86 Gibbs 9/27/2007 $317,175 40 TOTAL: l:13.272337

AVG. S/P: $331,808

Connerleaf bv Pardee Homes Tract & Lot Nos. I Connerfeaf model homes Tract Mao No. 31468-7

4 Dubose Model Home Investments #111, Ltd. 5/2/2007 $404,000 5 Dubose Model Home Investments #119, LP. 5/2/2007 $404,000 6 Dubose Model Home lcome Fund #5, LP. 5/2/2007 $461,000 7 Dubose Model Home Investments #117, LP. 5/2/2007 $484,500

Connerfeaf nroduction homes Tract Man No. 31468-6 32 Lopez 7/20/2007 $446,913 30 Vauahn 7/13/2007 $357,441 17 Winn 7/19/2007 $373,125 27 Widnev 7/27/2007 $443,233 22 Niemi 8/1/2007 $363,175 33 Arana 8/31/2007 $380,000 10 TOTAL: "4117 387

AVG.SIP: $411,739

TOTAL HOMES SOLD BY PARDEE HOMES: 62 TOTAL SALES PRICE: $22,354,027 AVERAGE SALES PRICE: $360,549

· .... . ,:-. ,• --c.

Sold Pro~uctlon Homes .

"

Proiect/Lot& Tr# ... ·· . · Owilershin as ~f Sepbirnber 1, 2007 · ·. Sale Date. · Sales Price • Trillium bv KB Home Tract 31468-8 & Lot Nos. Trill/um oroductlon homes

9 Buchel 5125/2007 $335,000 10 Ramirez/T ovoda 5/25/2007 $351,000 11 Haro 5/25/2007 $355,500 12 Andrews 5/25/2007 $367,500 13 Wazdatskev 7/26/2007 $340,000 14 Alos/TaVJor/McGrath 7/17/2007 $400,000 15 Clem 7/18/2007 $357,000 16 Wikert 7/26/2007 $331,500 17 Emerv 7/20/2007 $401,000 18 Escalante 7/27/2007 $337,500 20 Dovie 7/31/2007 $414,000 23 Johnson 8/31/2007 $285,500 24 Pierre 8/30/2007 $342,000 25 l homas/Olsen 8/30/2007 $328,500

12 her 8/31/2007 $325,500 128 Pena 8/30/2007 $350,000 131 Medina 8/29/2007 $344,500 132 Looez 8/24/2007 $352,000 133 Beaucaire 8/30/2007 $372,500 135 Bonnust 8/22/2007 $354,000 137 Schmidt 8/24/2007 $285,500 139 Goddard/Miller 8/17/2007 $329,500 141 Gonzalez 8/16/2007 $350,500 142 Stewart 8/30/2007 $300,500 143 Hernandez 8/21/2007 $384,500 145 Barbosa-Ornelas 8/10/2007 $353,000 146 Connollv 8/3/2007 $338,500 147 Oralle 8/9/2007 $360,500 148 Weston 7/25/2007 $306,500 149 Avala 7/26/2007 $366,000 150 Felix 8/23/2007 $332,000 151 Scott 7/19/2007 $378,500 152 Estrella 7/31/2007 $392,000 153 Lanalev 7/31/2007 $388,000 154 Romero/Castillo 5/15/2007 $362,500 155 Greer 5/15/2007 $351,000 36 TOTAL: !t12 623 500

AVG. S/P: $350,653

lOTAL HOMES SOLD BY KB HOME: 36 lOTAL SALES PRICE: $12,623,500 AVERAGE SALES PRICE: $350,653

I

TOTAL SALES PRICES: $34,977,527 98 Total Closed Sales

I

APPENDIX D MARKET ABSORPTION STUDY

D-1

MARKET ABSORPTION STUDY

COMMUNITY FACILITIES DISTRICT NO. 93-1

IMPROVEMENT AREA NO. 8C

(PARDEE -SUNDANCE)

CITY OF BEAU MONT

RIVE RS IDE COUNTY, CALIFORNIA

MODEL HOME INA PORTION OF THE CFO

BY EMPIRE ECONOMICS, INC.

J U LY 31 , 2007

THE USE OF THIS MARKETABSORPTION STUDY IS AUTHORIZED ONLY FOR THE CITY OF B EAUMONTCFD NO. 93--l I A NO. 8C

Em ire Economics Jul 31 2007

July 31, 2007

Mr. Alan Kapanicas City Manager City of Beaumont 550 East 6th

Beaumont, CA 92223

EMPIRE ECONOMICS, INC. Economic-Real Estate Consultants

Joseph T. Janczyk, Ph.D. 35505 Camino Capistrano, Suite 200

Capistrano Beach, CA 92624

Phone: (949) 661-7012 Fax: (949) 661-8763

Re: Market Absorption Study for Community Facilities District No. 93-1 IA 8C (Pardee -Sundance)

Dear Mr. Kapanicas:

Empire Economics (Empire) is pleased to provide you with the Market Absorption Study for Community Facilities District (CFD) No. 93-1 IA 8C (Pardee - Sundance), hereafter referred to as CFD No. 93-1 IA 8C, of the City of Beaumont; accordingly, the primary conclusions are set-forth below:

Product Mix Characteristics and Marketing Status

According to Pardee/KB Home, the developer/builders, the projects in CFD No. 93-1 IA 8C have the following characteristics:

• There are expected to five projects, four by Pardee and one by KB Home, that have a total of some 691 single-family detached homes.

• The current home prices amount to some $339,197, on the average, with a range of some $295,900 to $380,990.

• The homes have living areas of some 2,200 sq. ft., on the average, with a range of some 1,650 to 2,801 sq.ft.

• Thus far, as of July 2007, some 40 of the homes have closed escrow, and so there are another 651 homes remaining for future occupancies, July 2007+.


Potential Financial Risk Factors

The housing market is expected to experience some significant adjustments during the foreseeable future, as the current price structure, which is based upon the extensive use of creative financing, is re-aligned with a sustainable price structure, which is based upon the use of more traditional financing structures:

• The majority of home purchasers in recent years have utilized creative financing structures, and this has enabled them to "afford" homes at current market prices; however, such structures are subject to resets that will cause their payments to rise substantially, and so they face the risk of becoming delinquent on their mortgage and tax payments.

• However, if these purchasers instead used traditional financing structures, then the majority of them would NOT be able to "afford" homes at current market prices, and so their inability to do so would have caused the rate of sales to slowdown, unless builders offered them substantial concessions, and eventually lower prices.

Therefore, as the market transitions from the creative fmancing structure to the traditional financing structures, prospective purchasers will encounter challenges in paying the current prices, since their purchasing power with traditional loan structures is significantly below their purchasing power with creative structures. So, the real estate market is expected to encounter some significant adjustments, through a combination of lower prices, enhanced builder incentives, and slower sales rates.

E mpire'sAlqorithm for E stimatinqAbsorption Schedules

Empire Economics has estimated the expected absorption schedules for the homes in CFD No. 93-1 IA 8C, through a comprehensive analysis of the following economic scenario:

The follcwing scenario is based upon the most probable set of economic and financial market conditions; hcwe..rer, this scenario is subject to further adjustments/modifications to the extent that actual conditions vary from the most probable scenario. For example, a significant factor is the le.tel of mortgage rates: to the extent that mortgage rates rise, then further housing market adjustments could be required, including price reductions as well as lcwer le.tels of new housing activity.

Time Periods Phases of Housing Cycle Housing Price Residential Mortgage Year Quarter Appreciation Building Permits Notices-Default

1997.2 1999.4 Prices Start to Recover Moderate Moderate Moderate/High

2000.l 2004.2 New Record Prices Strong Very Strong Moderate Minimal Mortgage Rates Decline

2004.3 2006.4 Further Record Prices Very Strong Very Strong Minimal Creative Financing

2007.l 2008.4 P ricesf-i ales Soften Declining Moderate NV eak Very High Mortgage Resets

New Mortgage Regulations

2009.l 2010.4 Market Stabilizes Declining Weak High Excess Inventory -Cleared

201 l. l »> Market Recovers Recovering Recovering Moderate


• the current housing market cycle began in 2nd-1997, as prices started to recover, and this was followed by strong/very strong housing market conditions, as reflected by record levels of prices and high amounts of new construction activity.

• during 1 "-2007 to 4th-2008 the housing market is expected to undergo a correction, due to significant amounts of mortgage resets for creative fmancing structures and this will be exacerbated by more stringent mortgage loan qualification criteria. The result will be high levels of mortgage loan defaults accompanied by declining prices and low levels of building permit activity.

• during 1"-2009 to 4th-2010 the housing market is expected to stabilize, as the market moves towards a balance of demand-supply at the new, reduced prices, thereby allowing the excess inventory to be cleared.

• starting in l st-2011 the housing market is expected to move into a recovery phase, as prices and new housing activity increase at a moderate rate.

Furthermore, a special potential financial risk factor is that the housing market is expected to experience some significant adjustments during the foreseeable future, as the current price structure, which is based upon the extensive use of creative fmancing, is re-aligned with a sustainable price structure, which is based upon the use of more traditional financing structures.

Estimated Absorption Schedules for CFD No. 93-1 IA 8C

Accordingly, the estimated absorption schedules for the residential projects in CFD No. 93-1 IA 8C (Pardee - Sundance) are as follows:

160

140

:'., 120 --' _,,

i 100 _,, M

~ 80 0

'" µ, 0 60

"' '" ~ 40 :::i z

20

0 July 2007 +

• SolansII 35

IIIITnlhum 45

• Copperleaf II

• Copperleaf I 20

IIIILarkspur 15

Em ire Economics

CFDNO. 93-1 IA 8C (SUNDANCE - PARDEE) ESTIMATED ABSORPTION SCHEDULES

2008 2009

45

40 40 22

15 35 40

25 25 30

20 20 25

2012

42

35 44

25

Jul 31 2007

Aggregate Absorption Schedules:

CFD No. 93-1 IA 8C has some 651 remammg single-family detached homes; the aggregate absorption schedules (escrows closings) for all of the projects, as a whole, are estimated to be as follows:

• J uly - December 2007: 115 homes; most of these are currently in escrow.

• 2008: 145 homes, due to further softening housing market conditions.

• 2CXl9: 128 homes, as the market starts to stabilize.

• 2010: 117 homes, as the market continues to stabilize.

• 2011 : 102 homes, as the market starts to recover.

• 2012: the remaining 44 homes, as the projects are closed-out.

Absorption Schedules for Each of the Prqjects:

CFD No. 93-1 IA 8C has five projects, and their absorption schedules are estimated to be as follows:

• Larkspur: 105 remaining homes by latter 2011.

• Copper leaf I: 179 remaining homes by late 2012.

• Copper leaf 11: 132 remaining homes by late 2011.

• Trillium: 147 remaining homes by mid 2010.

• Solar is 11: 88 remaining homes by early 2009.

Closing Remarks

The estimated absorption schedules for the residential projects in CFD No. 93-1 IA 8C are subject to change due to potential shifts in economic/real estate market conditions and/ or the development strategy by the developer/builders, Pardee/KB Home.

Finally, the estimated absorption schedules, which represent escrow closings to homeowners, are subject to the Assumptions and Qualifications set-forth in the next section.

E moire Economics Julv 31 2007

ESTIMATED ABSORPTION SCHEDULES CITY OF BEAUMONT CFD NO. 93-l lMPROVEMENTAREA 8C

.JULY 30, 2007; SUBJ ECTTO REVISION.

Planing Areas>> 18 19& 20 22 23 24 Tctals/AvEra~

Prtjects Larksour Coooerleaf I C erleaf II Tnlhum Solans II

TaxZme A A A A B

Prcd.Jct Type; Smgle-Family Detached

BuildEr Pardee Pardee Pardee KB Home Pardee

NuniJer cf Hanes 110 182 132 155 112 691

Ocrupied: J uly 2007 5 3 0 8 24 40

Future Occupancies: July 2007+ 105 179 132 147 88 651

LivingAreas Plan-#1 2,409 1,893 1,650 1,670 1,683 Plan-#2 2,659 2,181 1,925 1,853 1,918

Plan-#3 2,801 2,505 2,125 2,180 2,105

Plan-#4 2,799 2,375 2,337

Plan#S 2,456

Average 2,623 2,345 2,019 4099 1,902 '200

Base Prices Plan-#1 $354,900 $339,900 $305,900 $299,990 $295,900

Plan-#2 $370,900 $349,900 $323,900 $329,990 $310,900 Plan-#3 $380,900 $354,900 $334,900 $332,990 $325,900

Plan-#4 $371,900 $349,900 $339,990

Plan#S $346,990 Average $368,900 $354,150 $328,650 $329,990 $31Q900 $339,197

Value Ratio: PriceiL ivingArea $141 $151 $163 $157 $163 $154

Special Taxes-Estimated $2,446 $2,229 $1,944 $2,229 $1,944 $2,163

Ratio: Special Taxes / Prices 0 66% 063% 0 59% 068% 0 63% 064% (Note: Also,AdValcran=lZlYo)

Annually Currulatively

Abscr ptim f) ccupancies - Future

July 2007 + 15 20 0 45 35 115 115

2008 20 25 15 40 45 145 260

2009 20 25 35 40 8 128 388

2010 25 30 40 22 0 117 505

2011 25 35 42 0 0 102 607

2012 0 44 0 0 0 44 651

Tctals 105 179 132 147 88 651


CERTIFICATION OF INDEPENDENCE

EMPIRE ECONOMICS PROVIDES CONSUL TING SERVICES ONLY FOR PUBLIC ENTITIES

The Securities & Exchange Commission has taken action against firms that have utilized their research analysts to promote companies with whom they conduct business, citing this as a potential conflict of interest. Accordingly, Empire Economics (Empire), in order to ensure that its clients, including the City of Beaumont, are not placed in a situation that could cause such conflicts of interest, provides a Certification of Independence. This Certificate states that Empire performs consulting services only for public entities such as the City of Beaumont, in order to avoid potential conflicts of interest that could occur if it also prcwided consulting services for developersft)uilders. For example, if a research firm for a specific Community Facilities District or Assessment District were to provide consulting services to both the public entity as well as the property owner/developer/builders, then a potential conflict of interest could be created, given the different objectives of the public entity versus the property owner/ developer.

Accordingly, Empire Economics certifies that the Market Absorption Study for the CFD No. 93-1 IA SC (Pardee - Sundance) of the City of Beaumont was performed in an independent professional manner, as represented by the following statements:

• Empire was retained to perform the Market Absorption Study by the City of Beaumont, not the District's developer/builders, Pardee/KB Home.

• Empire has not performed any consulting services for the District's property owner or the developer/builders during the past ten years.

• Empire will not perform any consulting services for the District's property owner or the developer/builders during at least the next three years.

• Empire's compensation for performing the Market Absorption Study for the District is not contingent upon the issuance of Bonds; Empire's fees are paid on a non-contingency basis.

Therefore, based upon the statements set-forth above, Empire hereby certifies that the Market Absorption Study for CFD No. 93-1 IA SC (Pardee - Sundance) of the City of Beaumont was performed in an independent professional manner.

Empire Economics, Inc. Joseph T. Janczyk, President


TABLE OF CONTENTS

INTRODUCTION

A. Overvie.voftheBond FinancingProgram ........................................................................................ 1 Location Maps: Southern California Market Region and the Market Area Map of the Neigliborliood

B. Roles of the Market Study for the Bond Financing ............................................................................. .4

C. Methodology Underlying the Market Absorption Study ...................................................................... .5

SECTION I: EXPECTED PRODUCT MIX CHARACTERISTICS

A. Characteristics of the Expected Product Mix for CFD No. 93-1 IA 8C .................................................... 6

SECTION 11: MACROECONOMIC ANALYSIS

A. Methodology Underlying the Macroeconomic Analysis for theCFD No. 93-1 IA 8C Market Area .................. 8

B. Long-Term Empl0yment and Housing SCAG Projections for theCFD MarketArea ................................... 9

C. Recent,£xpected Economic and Real EstateConditions ...................................................................... 10 I. National/State Economic Trends!Patterns 2. Employment Trends!Patterns 3. Housing Starts Trends!Patterns

D. CFD Market Area Empl0yment,'1-lousing Forecasts Modified for Recent,£xpected Economic Conditions ........ 20

SECTION Ill: MICROECONOMIC ANALYSIS

A. Methodology Underlying the M icroeconomicAnalysis of the Projects in CFD No. 93-1 IA SC ..................... 21

B. Residential Da,elopment Patterns in the Central Portion of Riverside County .................................. 22

C. Socioeconomic Characteristics: Crime Levels and Quality ofSchools ...................................................... 24

D. Recent Housing Price Trends and Sales Levels ................................................................................. 26 Southern California Counties CFD Market Area as well as Nearby Competing Areas

E. Competitive Market Analysis of the Projects in thee FD Housing Market Area ....................................... 29 Selection of Currently Active Comparable Projects Competitive Market Analysis of tlie CFD Projects


SECTION IV: POTENTIAL "FINANCIAL" RISK FACTORS

Potential "Financial" Risk Factors Underlying the Credit Quality and Bond Sizing for Land Secured Financings in Southern California .............................................................................. 36

1. Recent Housing Price Appreciation Patterns 2. Structural Shift in the Factors Underlying Housing Price Appreciation 3. Role of Financial Factors Underlying Recent Rates of Housing Price Appreciation 4. Potential Risk Factors for Purchasers Utilizing Creative Financing Structures

Recent Purchasers and Mortgage Loan Resets Simulated Example of Recent Purchasers of Homes in a New Project Delinquency Rates and Types of Loans

5. Concluding Remarks

SECTION V: ABSORPTION

Estimated Absorption Schedules for the Products/l'rojects in CFD No. 93-1 IA SC ...................................... 44 Market Demand and Supply Factors as well as Market/Financial Risk Factors Algorithm for Estimating Absorption Schedules Estimated Absorption Schedules for the Projects in CFD No. 93-1 IA 8C Special Risk Factor: Creative Financing Structures Closing Remarks

SECTION VI: ASSUMPTIONS AND LIMITING CONDITIONS

Assumptions and Limiting Conditions .................................................................................................. .49


INTRODUCTION

A. OVERVIEW OF THE BOND Fl NANCI NG PROGRAM

The City of Beaumont previously formed Community Facilities District No. 93-1 (CFD No. 93-1) as a means of funding the infrastructure that is required for the development of various forthcoming residential, commercial and business projects. Additionally, the City of Beaumont previously authorized Bond Issues for CFD No. 93-1 in order to fund a portion of the infrastructure for some of the properties that are developing their projects. The forthcoming Bond Issue by the City of Beaumont for CFD No. 93-1 Improvement Area (IA) No. SC, hereafter referred to as CFD No. 93-1 IA No. SC, will provide funds for the infrastructure that is associated with the development of a portion of the Planned Community of Pardee - Sundance which is being developed/built by Pardee Homes (Pardee) and KB Home.

According to Pardee/KB Home, the developer/builders, the projects in CFD No. 93-1 IA SC have the following characteristics:

• There are expected to five projects, four by Pardee and one by KB Home, that have a total of some 691 single-family detached homes.

• The current home prices amount to some $339,197, on the average, with a range of some $295,900 to $3S0,990.

• The homes have living areas of some 2,200 sq. ft., on the average, with a range of some 1,650 to 2,S0l sq.ft.

• Thus far, as of July 2007, some 40 of the homes have closed escrow, and so there are another 651 homes remaining for future occupancies, July 2007+.

The City of Beaumont has retained Empire Economics Inc., an economic and real estate consulting firm, to perform a Market Absorption Study for the homes that are yet to be occupied in CFD No. 93-1 IA No. SC. The purpose of the Market Absorption Study for is to conduct a comprehensive analysis of the product mix characteristics, macroeconomic factors, and microeconomic factors as well as the potential risk factors that are expected to influence the absorption of the homes in the CFD, in order to arrive at conclusions regarding the following:

• Estimated absorption schedules for the homes not yet occupied, from market-entry to build-out on an annualized basis, for each of the projects.

• Discussion of potential risk factors that may adversely impact their marketability: o Financial Risk Factors: More Stringent Qualifying Criteria for Mortgage Loans

and also Increasing Mortgage Rates o Market Risk Factors: Higher Gas Prices


•f,t ; !, , .. ,"

-··-· ,.,,., .. .,.. i-• '~ • 'r ,;, ."'\ d . t. • ', •........ r. .•

lj

,:0W ---·-·, ,,

·-

co 0 N

-~ a

L.LJ

CFD NO. 93-1 IMPROVEMENT AREA NO. 8C MARKET AREA

E rnpire E conornics July 31, 2007

B. ROLES OF THE MARKET STUDY FOR THE BOND Fl NANCI NG

The Market Absorption Study for CFD No. 93-1 IA SC (Pardee - Sundance) has a multiplicity of roles with regards to the Bond Financing; accordingly, these are set-forth below:

Marketing Prospects for the Residential Prqjects

* Estimated Absorption Schedules: Escrow Closings of Homes to Future Homeowners,

From Market-Entry to Build-Out

* Potential Risk Factors that may Adversely Impact the Marketability of the Homes

Relationship of the Market Study to the Special Tax Payments

* Maximum Special Taxes for the Residential Projects/Products Conforming to the Issuer's Policies

* Aggregate Levels of Special Tax Revenues for Bond Sizing

* Share of Payments: Developer/Builders vs. Homeowners

Relationship of the Market Study totheAppraisalNaluation

* Appraisal of Property Discounted Cash Flow - Present Value

(The Longer the Absorption Time, the Lower the Present Value)

The Issuing Agency, the City of Beaumont, along with the Finance Team, can utilize the Market Absorption Study as well as the Special Tax Revenues and Appraised Value to structure the Bond Issue for CFD No. 93-1 IA SC.


C. METHODOLOGY UNDERLY! NG THE MARKET ABSORPTION STUDY

The Market Absorption Study performs a comprehensive analysis of the product mix characteristics, macroeconomic factors, and microeconomic factors as well as the potential risk factors that are expected to influence the absorption of the residential projects/homes in CFD No. 93-1 IA SC (Pardee - Sundance).

I. Expected Product Mix Characteristics * Expected Number of Homes and their Prices/Features;

For Each of the Five Projects

II. MacroeconanicAnalysis * Long-term Employment and Housing SCAG Projections

for the CFD Market Area * Recent/Expected Economic and Real Estate Conditions

* CFD Market Area Employment/Housing Forecasts Modified for Recent/Expected Economic Conditions

111. M icroeconanic Canponents * Regional Development Trends/Patterns

* Socioeconomic Factors: Crime Levels and School Quality * Recent Housing Price Trends and Sales Levels

* Competitive Market Analysis of the Projects in the CFD

IV. Potential "Financial" Market Risk Factors *Potential "Financial" Risk Factors Underlying the Credit Quality and

Bond Sizing of Land-Secured Financings in Southern California * Purchasers Using Creative Financing Structures - Mortgage Resets

*Purchasers Using Traditional Financing Structures - Prices Too High

Em ire Economics

V. Estimated Absorption Schedules *Market Demand and Supply Factors * Escrow Closings to Homeowners

* Estimated Capture Rates *Closing Remarks

VI. Assumptions and Limiting Conditions

Jul 31 2007

SECTION I EXPECTED PRODUCT MIX CHARACTERISTICS FOR CFD NO. 93-1 IA OC (PARDEE -SUNDANCE)

CFD No. 93-1 IA SC (Pardee - Sundance) is expected to have 691 single-family residential units in five projects, four by Pardee and one by KB Home; the number of housing units and their marketing status as well as their characteristics, such as lot sizes, prices and sizes ofliving area, are as follows:

PlaningAreas >> 18 19& 20 22 23 24 Totals/Avera~

Prqjects Larkspur Copperleaf I Copperleaf II Tnlhum Solans II

Tax Zone A A A A B

Pr cduct Type; Smc,le-Fam1lv Detached

Builder Pardee Pardee Pardee KB Home Pardee

NurrbEr of Hanes 110 182 132 155 112 691 Ocrupied: J uly 2007 5 3 0 8 24 40

Future Occupancies: July 2007+ 105 179 132 147 88 651

LivingAreas Plan-#1 2,409 1,893 1,650 1,670 1,683

Plan#2 2,659 2,181 1,925 1,853 1,918 Plan#3 2,801 2,505 2,125 2,180 2,105

Plan-#4 2,799 2,375 2,337 Plan#S 2,456

Avera~ 4623 4345 2,019 2,009 1,902 4200

Base Prices Plan-#1 $354,900 $339,900 $305,900 $299,990 $295,900 Plan#2 $370,900 $349,900 $323,900 $329,990 $310,900

Plan#3 $380,900 $354,900 $334,900 $332,990 $325,900

Plan-#4 $371,900 $349,900 $339,990 Plan#S $346,990

Avera~ $368,900 $354,150 $328,650 $329,990 $310,900 $339,197

Value Ratio: PriceiL ivingArea $141 $151 $163 $157 $163 $154

Special Taxes-Estimated $2,446 $2,229 $1,944 $2,229 $1,944 $2,163

Ratio: Special Taxes /Prices 066% 063% 059% 068% 063% 0 64%

(Note: AlsoAdValcran=lZlYo)

Therefore, CFD No. 93-1 IA SC (Pardee - Sundance) has single-family detached homes that offering prices that range from some $295,900 to $3S0,900, an overall average of $339,197, for some 1,650 to 2,S0l, an overall average of 2,200 sq.ft. of living area, for a value ratio (price/living area) of some $154, as an overall average.

Thus far, of the 691 homes, some 40 have closed escrows to homeowners, and so there are another 651 homes for future occupancies.


CFO NO. 93-1 IA SC: LIVING AREAS OF THE PROJ ECTS;'PLANS 3,000 ~----------------------------------~

2,500

f-u.J u.J u.. u.J 2,000

"' <( ::, 0 '1 1,500 V, <( u.J

"' <( 1,000 u

z > ...J

500

0 Plan #1 Plan #2 Plan #3 Plan #4 Plan #5 Average

• Larkspur 2,409 2,659 2,801 2,623

• Copperleaf I 1,893 2,181 2,505 2,799 2,345

Copperleaf II 1,650 1,925 2,125 2,375 2,019

'Ihllium 1,670 1,853 2,180 2,337 2,456 2,099

11111 Solaris II 1,683 1,918 2,105 1,902

CF D NO. 93-1 IA SC: PRICES OF THE PROJ ECTS;'PLANS $400,000

$350,000

Vl WJ u $300,000

"' 0..

u $250,000 z

"' WJ $200,000 u.. u.. 0 u $150,000

z Vl ::::, 0

$100,000

I

$50,000

$0 Plan #1 Plan #2 Plan #3 Plan #4 Plan #5 Average

E!ILarkspur $354,900 $370,900 $380,900 $368,900

• Copperleaf I $339,900 $349,900 $354,900 $371,900 $354,150

• Copperleaf II $305,900 $323,900 $334,900 $349,900 $328,650

• Trillium $299,990 $329,990 $332,990 $339,990 $346,990 $329,990

11111 Solaris II $295,900 $310,900 $325,900 $310,900


SECTION II MACROECONOMIC ANALYSIS

A. METHODOLOGY UNDERLYING THE MACROECONOMIC ANALYSIS FOR THE CFO NO. 93-1 IA 8C MARKET AREA

The macroeconomic section performs a comprehensive analysis of the planning projections, which represent the long-term development potential, and the recent/expected economic conditions, which determine the rate at which such development will actually occur, in order to arrive at the growth prospects for Southern California, as a whole, and the CFD No. 93-1 IA SC Market Area (MA), the north portion of Riverside County.

Based upon Empire Economics' experience in conducting 400+ Market Studies, these macroeconomic factors are regarded as being the most significant determinants of the actual performance of Planned Communities and Business Parks in the marketplace, and, as such, they represent a critical component of the Mark et Absorption Study.

Long-Term Employment and Housing SCAG Projections for the CF D Market Area

* Employment/Housing Projections for the CFD Market Area * Employment vs. Residential Centers

Recenti{:xpected Economic and Real Estate Conditions * United States: Gross Domestic Product, CPI, Productivity Trends,

Mortgage Rates, Oil/Gas Prices and Homebuilder Stocks * Riverside County: Employment and Housing Trends/Patterns

CF D Market Area Employment and Housing Forecasts * Modifications to Projections based upon Recent/Expected

Economic Conditions *Employment/Housing Forecasts

Therefore, the analysis of these macroeconomic factors provides an understanding of the economic and real estate environment within which the developer/builders in CFD No. 93-1 IA SC will be marketing the residential products.


B. LONG-TERM EMPLOYMENT AND HOUSING PROJECTIONS FOR THE CFO MARKET AREA

To arrive at long-term employment and housing planning projections for the CFD No. 93-1 IA SC Market Area (MA), Empire Economics utilizes information from the Southern California Association of Governments (SCAG). These projections are considered to be reasonable estimates of the development potential for the forthcoming commercial-industrial and residential projects since they are based upon probable land-use policies of the governing planning jurisdictions.

Projected empl0yment grcwth in the CFD MA is expected to amount to some 25,509 new positions during the 2000-2020 time period for a capture rate of some 1.19% of all the expected employment growth in Southern California.

CF• N0.93-1 MARKET AREA LONG-TE RM EMPLOYMENT DEVELOPMENT PATTERNS

12,000

' 10,000 z 0

9,390 ,.,.

e

~ 8,000 -a ~ ,

6,000 > -0

" , 4,046

~ 4,000 -

z 2,508

2,000 f-- -

2000-2005 2005-2010 2010-2015 2015-2020

Note: Fiscal Years: For exarrple, 2006 representsJ uly l, 2006 toJ une 30, 2007

Projected housing grCM/1:h in the CFD MA is expected to amount to some 31,925 new homes during the 2000-2020 time period, for a capture rate of some 1. 78% of all the expected housing growth in Southern California; this can be attributed to the Market Area having a significant amount of developable property.

CFO NO. 93---l MARK ET AREA LONG-TE RM HOUSING DEVELOPMENT PATTERNS

12,000

10,921 11,036

10,000 -~ z

8,000 a -0 z a a 6,000 0

:l,968 -" ~ z 4,000

4,000 -

2,000 f-- -

2000-200:l 200:l-2010 2010-201:l 201:l-2020

Note: Fiscal Years: For exarrple, 2006 representsJ uly l, 2006 toJ une 30, 2007

The capture rate for residential growth in the CFD Market Area is higher than the capture rate for employment growth, 1. 78% vs. 1.19%, and so it is slightly stronger as a residential center as compared to an employment center.


C. RECENT ;EXPECTED ECONOMIC AND REAL ESTATE CONDITIONS

The near-term economic and real estate conditions for the United States (US), California (CA), Southern California (SC) and Riverside County (RC) economies are now discussed. These are then utilized to modify the long-term employment and housing growth projections for the CFD No. 93-1 IA SC Market Area (MA).

1. National ;State Economic Trends;Patterns

*Gross Domestic Product (GDP) * Consumer Price Index ( CPI)

*Productivity Trends *Mortgage Rates

*United States Oil Prices *California Gas Prices *Homebuilder Stocks

UNITED STATES REAL GDP AND ITS COMPONENTS

12¾

10¾

" 8¾

~

<( 6¾ ~ -z

4¾ z .... v: ' i - - N5I 4 2¾ 1-- "I&[ w ls ~ Rx! 621 Rx! CJ z O¾ <( I -2¾ u 0 -4¾

w

~ -6¾

-8¾

-10¾

1999 2000 2001 2002 2003 2004 2005 2006

E::::z::::rns Overall 450¾ 370¾ 080¾ 160¾ 253¾ 390¾ 323¾ 333¾

-Consumpl!on 510¾ 470¾ 250¾ 270¾ 273¾ 388¾ 350¾ 318¾

Investment 780¾ 570¾ -790¾ -260¾ 358¾ 980¾ 543¾ 435¾

- •Government 390¾ 210¾ 340¾ 440¾ 248¾ 188¾ 088¾ 210¾

k\d

2007 -Forecast

163¾

301¾

-295¾

146¾

• Overall U.S. Real GDP: The rate of growth moderated from 3.90% (year/year) in 2004 to 3.23% in 2005 and 3.33% in 2006, but it is expected to moderate significantly in 2007, to some 1.63%.

o Consumption: A growth rate of some 3.18% in 2006, but this is expected to moderate, to some 3.01 % in 2007.

o Business Investment: A growth rate of some 4.35% in 2006 but is expected to decline, by some -2.95% in 2007.

o G avernment Purchases: A growth rate of some 2.10% in 2006 and is expected to moderate somewhat, to 1.46% in 2007.

The overall rate of growth for GDP is expected to moderate significantly; additionally, with regards to its composition, the rates of growth for consumption and also government are expected to moderate, while the rate of growth for investment spending is expected to decline.


UNITEDSTATESCONSUMER PRICE INDEX 400¾

350¾

" ~

<( 300¾ --~

wz Uz

~1 250¾ f-f- f- - --oew w CJ :, z 200¾ f- f-- f-f- -f- f- - -- f- - -~ <( ~I zU

8!:c 150¾ f- f-- f-f- -- ->- -f- f- - -- f- - -w u "' w 100¾ f- f-- f-f- -- -f- -f- f- - -- f- - -~

050¾ f- >-- f-f- -- ->- -f- f- - -- f- - -

000¾

1999 2000 2001 2002 2003 2004 2005 2006 2007 -

Forecast

ICJUS CPI Index 221¾ 336¾ 285¾ 158¾ 228¾ 2 66¾ 339¾ 323¾ 256¾

• 1999-2001: A range of some 2.21 % to 3.36% per year, relatively low by historical levels.

• 2002: Rose by only 1. 58%, due to the economic slowdown caused by the terrorist attacks.

• 2003-2005: Rose by successively higher amounts, reaching some 3.39%, in 2005.

• 2CD6-2007: Decline slightly, to some 3.23% in 2006, and then continue to moderate further, to some 2.56% for 2007.

UNITED STATES PRODUCTIVITY TRENDS AND EMPLOYMENT CHANGES

5%

4% >-~ I' ........... ~

<( ~ co 3% z

"r-- I ......... z 1 ...... w 2% 1--

'hJ CJ

' z <( '-I 1% 1-- f-f-

~ --

~ u ~

0 w 0%

I t;c = "'

-1%

-2%

1999 2000 2001 2002 2003 2004 2005 2006 2007 -

Forecast

!=Employ Change 2 44% 220% 000% -113% -026% 113% 142% 140% 100% ,. Prod Change 320% 200% 110% 388% 3 23% 298% 190% 185% 083%

Although GDP growth has been strong in recent years, the rate of change in the CPI has been minimal; this relationship represents an aberration from historical standards. Specifically, this can be attributed primarily to high levels of productivity growth which have enabled firms to increase their levels of output without substantially hiring additional employees, and thereby keeps their costs and prices relatively stable. However, for 2007, the rate of productivity growth is expected to decline due to both lower inflation and also slower employment growth; these, in tum, this will result in a lower rate of GDP growth.


The relatively low levels of CPI changes during 2002 through 2006 have resulted in recent historic lows for both the I 0-year bond, which is the primary driving force behind fixed rate mortgages, and also the federal fund rates, which is the primary driving force behind short-term rates, that also enhances the financial feasibility of creative financing mortgage structures.

UNITED STATES MORTGAGE RATES

9.00%

8.00% ·~ ........ '· . '· 7.00%

"- ·,. ---~ '-.. '•--.,. --- '"-·-·-·

____ ..... 6.00%

~ ·- '· ........ . .

' ' _____ ,..---

>- '&--·-· -· .6.--·-·- / ~ 5.00% -~ " ~ 4'. ~ I'---. z z 4.00% - f-

1 ~ w > 3.00% w - f-~

2.00% - f-

1.00% - f-

0.00% 2000 2001 2002 2003 2004 2005 2006 2007-Forerast

=1•-YrBond 596% 4 97% 4 53% 400% 4 26% 4 27% 4 78% 503%

-!YrAdJustable 7 04% 583% 4 62% 375% 388% 449% 553% 554%

-·•·- 15 Year - Fixed 7 73% 651% 598% 516% 520% 542% 6 07% 630%

30-YearF,xed 806% 697% 6 54% 582% 5 84% 586% 641% 660%

• 2(X)() to 2003: The rates on the JO-year Treasury Bond, the 15 year fixed mortgage, 30 year fixed mortgage, and the I year adjustable mortgage all declined.

• 2004 to 2006: The rates started to rise during 2004 through 2006 as compared to 2003: the I 0-year Treasury Bond rose to 4.78% by +0.78%, the 15 year fixed mortgage increased to 6.07% by +0.91%, the 30 year fixed rate rose to 6.41% by +0.59%, and the I year adjustable mortgage rose to 5.53% by +1.78%.

• 2007: As compared to 2006, the financial rates are expected to rise further. The JO-year Treasury Bond is expected to climb to 5.03% by +0.25%, the 15 year mortgage should increase to 6.30% by +0.23%, the 30 year fixed rate is forecasted to rise to 6.60% by 0.19%, and the I year adjustable is predicted to increase slightly to 5.54% by 0.01 %. So, the JO-year Treasury Bond, 15 year mortgage and 30 year mortgage are expected to rise by similar amounts, ranging from 0.19% to 0.25% while the I year adjustable will increase only slightly.


UNITE DSTATES CRUDE 01 L PR ICES

$70

$60 - ~ -

~ ~

0: $50 -~ - ~ -

C, z z i $40 -~ - ~ -~ w

" " $30 f- f- -0:

"' w u $20 - - - - ~ - ~ ~ ~ ~ -~ - ~ -

°" ~ $10 ~ -~ - - - - ~ - ~ ~ ~ ~ -~ - ~ -

$0

1999 2000 2001 2002 2003 2004 2005 2006 2007-

Forecast

11:'.JUS Oil Prices $19.3 $30.3 $25.9 $26.1 $31.1 $41.4 $56.5 $66.1 $64.3

• 1999-2002: Crude oil prices rose moderately, from $19 a barrel in 1999 to $26 a barrel in 2002. • 2003-2006: Prices rose significantly, from $31 in a barrel 2003 to $66 in 2006, more than

doubling. • 2007: Prices are expected to moderate, to some $64 a barrel.

CALI FORNIAGAS PRICES

$3.50

$3.00 -

$2.50 - - ~ ~ ->-~

~

0: C, $2.00 f- f- - - f- - -z z i w

$1.50 ~ ~ - - ~ ~ - - ~ ~ - - ~ - -" " ~

$1.00 - - - f- f- -

$0.50 - ~ - ~ ~ - - ~ ~ - - ~ ~ - - ~ - -

$0.00

1999 2000 2001 2002 2003 2004 2005 2006 2007-

Forecast

I EJCA Gas Prices $1.47 $1.77 $1.74 $1.62 $1.94 $2.23 $2.57 $2.91 $3.27

• 1999-2001: California gas prices rose moderately, from $1.47 to $1. 77. • 2002-2006: Prices rose dramatically from $1. 62 in 2002 to $2. 91 in 2006, by some 80%, due to

the invasion of Iraq and uncertainty in the Middle East • 2007: Gas prices are expected to rise, to some $3.27, increasing from their 2006 levels.


The recent trends in homebuilder stocks MAY provide a leading indicator of future housing market conditions, since the stock market factors reflect anticipated changes in the profitability of a firm.

MAJ OR HOMEBUILDERS-STOCK INDEX

$300 I I I I I I I • Peak Level of $293 m July 2005

$250

~ ~ w ~ $200 ~ 4'. ~ 0 ' $150

~ 0 ~ ~ $100 u 0

~ $0C

IC ,003-1~ 003-:1, ,003-½< 003-41h,004-k 004-:>, ,004-½< 004-41h,005-k 005-:1, ,005-½< 005-41' ,006-k 006 006-½< 006-41',007-!;t00I-A,

IIHIJKStoch 1110 1130 1147 1175 1187 1186 1100 i,oo 1'40 1'46 im 1'53 1'65 1'38 1'03 im im ""

The recent trends for the homebuilder stock price index, consisting of 19 major builders, referred to as HGX, have been as follows:

• l''-2003 to 3rd-2005: The homebuilder stock index rose dramatically from $ll0 to $267, an increase of some 143% (more than double); the peak level of $293 occurred in July 2005.

• 3rd-2005 to 4th-20CXi: The index declined to $221, some -25% below the prior peak level, as a result of higher mortgage rates and lower demand for housing, thereby reducing the profit margins of homebuilders.

• 1 st-2007 to 2nd-2007: The index increased slightly to $235 before falling to $228.

HOMEBUILDER STOCK-TOLL BROTHERS

'" I I I I I I I - • PeakLevel of$57 inJuly2005

$SC

" ~ w

'" 5' 4'. ~

9 $30 X w 0 ,,: $W ~ u f! ~ '" ij

IC 2003-lrt 003-:h 003-lc 003-4th2004-l~ 004 004-lc 004-4th2005-l~ 005-:h<,005-lc 2005-4112006-1~ 006-h2006-3ri2006-4th2007-l~ 007-:W

i:,TOLstock "' '" '" '" "' "' "' '" '" '" "' "' '" "' '" "' "' '"

The recent stock value trends for Toll Brothers, a homebuilder primarily of luxury homes, have been as follows:

• 1st-2003 to the 3rd-2005: The stock values rose significantly from $10 to $51, an increase of some 400%+.

• 3rd-2005 to the 4th-20CXi: The stock values declined to $30, a decrease of some -47% from the prior peak level, as a result of higher mortgage rates and slower sales reducing the profit margins for the move-up and luxury segments, as compared to the residential market as a whole.

• 1st -2007 to 2nd -2007: The stock rose slightly to $31 before declining to $29. So, based upon the recent declines in homebuilder stocks, Wall Street is anticipating a slowdown in the housing market.


2. Employment Trendsfatterns

The purpose of this section is to discuss the recent/expected trends/patterns of employment activity for the United States (US), California (CA) and Riverside-San Bernardino (R-SB) counties.

EMPLOYMENT TRE NOS IN RIVERS IDE--5AN BERNARDINO COUNTIES

wrm

a 50,000 ; 1 ~/m

0

~ 30,000 u 0

• ~ ,

e ~rm z

~ 4

70,000 ...

n 8 ~

=Lefi:AxJS Change# _R,ghtAXlS Change%

• 1991-1996: Economic recovery, with growth rates of 15,117 or 2.02%/yr. • 1997-2001: Strong expansion, with growth rates of 45,260 or 5.09%/yr. • 2002-2003: Some moderation, growth rates of 34,750 or 3.32%/yr. • 93-1 IA SCOOS: Stronger growth rates of 53,546 or 4.76%/yr. • 2006-2007: Significantly lower growth rates of34,612 or 3.01 %/yr.

UNITED STATES, CALIFORNIA & RIVERSIDE-SAN BERNARDINO COUNTIES RECENT ;EXPECTED EMPLOYMENT TRENDS: ANNUALLY

73/,

I ~

63/, -I

~ 53/, ~ z z 43/, 1 ~ ~ 33/, Ll - ' z ~ 23/, - -~

'-u

il!f i'5 13/,

~ ,..__

- -~ ~ ' ~ ks:] ~ 03/,

'-lx51 ~ ..;:,r--13/,

-23/, 1999 2000 2001 2002 2003 2004 2005 2006 2007-Forecost

=UrutedState, 2443/, 2203/, 0003/, -1133/, -0263/, 1133/, 1 423/. 1 403/, 1003/, -3,hfonuo 2913/, 3553/, 0793/, -0993/, -0453/, 0963/, 1653/, 1863/, 1053/,

"' 6 443/, 5263/, 4183/, 3383/, 3263/, 5533/, 5 343/, 4033/, 2003/,

• 1999-2001: The US, CA, and R-SB economies experienced moderate rates of growth during 1999 to 2000 but in 2001 their rates of growth diminished.

• 2002: Their rates of employment growth all decreased from 2001, US experienced a decline of -1.13%, California declined by-0.99% and R-SB moderated to 3.38%.

• 2003 to 2005: Their rates of employment growth all rose, the US to 1.42%, CA to 1.65% and R-SB to 5.34%.

• 2006: Their rates of growth are expected to moderate, the US to 1.40%, CA to 1.86% and RSB to 4.03%.

• 2007: Their rates of growth are expected to moderate further, the US to 1.00%, CA to 0.1.05% and R-SB to 2.00%.


E conanic Engines Underlying Employment G rCMtth

The recent changes in the aggregate levels of employment reflect the performance of the various underlying sectors, such as manufacturing, services, and government, among others. To identify the performance of each of these sectors, employment information was compiled during the 2002-2006 time period, the most recent economic upturn, from the Economic Development Department, on the major employment sectors for Southern California and its counties, including Riverside - San Bernardino (R-SB).

The total level of wage/salary employment for R-SB counties during 2002-2006 amounted to some 1,167,850 positions, on the average. During the 2002 to 2006 time period, the R-SB counties economy experienced a growth rate of some 2.43% per year for some 51,675 new jobs per year, on the average.

The performance of the various sectors for Southern California, as a whole, during 2002-2006 were classified into three categories: strong, average and weak growth; accordingly, within these categories for Southern California, the performance of the R-SB counties are now discussed:

Southern California Sectors with Relatively Strong G rcwth Rates: Performance of R-SB: • The Construction sector had a growth rate of some 5.3% per year, some 9,650 positions per

year, on the average. • The Transportation/Warehousing sector had a growth rate of some 4. 5% per year, some 4,250

positions per year, on the average. • The Professional and Business Services sector had a growth rate of some 4.1 % per year, some

8,850 positions per year, on the average. • The Financial Activities sector had a growth rate of some 3.9% per year, some 3,075 positions

per year, on the average. • The Wholesale Trade sector had a growth rate of some 3.6% per year, some 2,975 positions per

year, on the average. • The Retail Trade sector had a growth rate of some 3.1 % per year, some 8,500 positions per

year, on the average. • The Educational and Health Services sector had a growth rate of some 1.1 % per year, some

2,575 positions per year, on the average.

Southern California Sectors with Relatively Weak G rcwth Rates: Performance of R-SB: • The Manufacturing Non-Durable Goods sector had a change of some 1.1 % per year, some 750

positions per year, on the average. • The Manufacturing Durable Goods sector had a changes of some 0.9% per year, some 1,400

positions per year, on the average.

Southern California Sectors with Relatively Stable G rCMtth Rates: Performance of R-SB: • The Federal Government sector had a growth rate of some 1.4% per year, some 475 positions

per year, on the average. • The Information sector had a growth rate of some 1.1 % per year, some 275 positions per year,

on the average. • The Local Government sector had a growth rate of some 0.6% per year, some 2,200 positions

per year, on the average. • The State Government sector had a growth rate of some 0.3% per year, some 175 positions per

year, on the average.


Industrial and Office Construction Activity in Riverside County Employment growth 1s the pnmary driving force underlying the levels of industrial and office construction activity.

RIVERSIDE COUNTY: NEW INDUSTRIAL BUILDINGS

$350,000~----------------~100%

90% $300,000 +--------------------d ;

80% 2 $250,000 +--------------------ill70% 3

z

$200,000 +----------H----------¼---"160

% ~ 50% S_

$150,000 +-------~.-----~~----,1---,, c 40% ~

8 $100,000 t----~--fttt-fttt-N-l'Hl----ll-fftl-ff--¼-¼-ll-llf 30% 0

$50,000

20% ~

10%

0%

12SJ!ndustnal Valuation • Share Riverside Co /So Cal - Poly (Share fuvernde Co /So Cal)

• M ajar Cycles: During 1970-2006 industrial construction activity in Riverside County has exhibited two major cycles, with peak levels of activity occurring in 1989 and 2006

• Capture Rates: The capture rate for Riverside County relative to Southern California, has increased, rising from some 3%-4% during the early 1970's to some 26% in 2006.

• 2(X)6: The amount of construction activity for 2006 rose dramatically, as compared to 2006 and the capture rate for Riverside County is also increased as well.

RIVERSIDE COUNTY: NEW OFFICE BUILDINGS

$250,000 100%

90% <

$200,000 +-------------------! 80% ~ ~

70% < u z

" $150,000 +-----n-~------------nH 60% I

~ 50% g

' $100,000 t--,J--ft-i.H1-tt--J'7-.l-vt----------N-i)H C%

e z a 0 u

30% 0 $50,000 tf't--,J--ftt-l-i.H1-tt-tt7'7-.l-vt-N-acf'l-----~~-vt-N-iJH 20% "

~ 10%

0%

• Office Valuahon • Share fuvernde Co /So Cal - Poly (Share Riverside Co /So Cal)

• M ajar Cycles: During the 1980-2006 time period, the level of office construction activity in Riverside County has exhibited two major cycles, with peak levels of activity occurring in 1986 and 2006.

• Capture Rates: The capture rate for Riverside County, relative to Southern California, has demonstrated an increasing trend during early 1980's to 2002, from some 2% to 15%.

• 2(X)6: The levels of office construction activity as well as the capture rates have recently increased during 2003-2006, for 2006 to some $214 million and some 15%, respectively.


3. HousingStartsTrendsfatterns

The purpose of this section is to discuss the recent/expected trends/patterns for the levels of housing activity for the United States (US), California (CA) and Riverside County (RC).

UNITED STATES, CALIFORNIA AND RIVE RS IDE COUNTY HOUSING STARTS ANNUALLY

2,500,000 4il,OOO

~ - 1,.-!!i;. 35,000

z 2,000,000 ~

2 -· ~ ·, 30,000

~ ~ .- -

z - . - . ·- - 25,000 ~ u 1,500,000 ~ ~ ~- 0 0 u z - - - 20,000 ~

~ 9 ~ - ~

~ 1,000,000 ~ ~ ~ ~ ~ ~ 15,000

~

~ - ~ ~ ~

0 10,000

~ 500,000 ~ ~ ~ ~ ~

z 5,000 ~

• 1999--2001: The US residential market experienced relatively stable levels of activity while CA and RC markets experienced a trend of higher levels of activity.

• 2002-2004: The US, CA and RC markets experienced significant increases in their levels of activity.

• 2005: The US market experienced a somewhat higher level of activity while for CA and RC the level of activity declined somewhat.

• 2006-2007: The levels of residential activity for US, CA and RC all declined somewhat, due to higher mortgage rates as well as higher gas prices, and these declines are expected to continue in 2007.

Recent Residential Construction Activity in Riverside County

I 0

RIVERSIDE COUNTY: NEW SINGLE-fAMILY HOMES

35,0[0 100%

90% <

30,0C0+---------------~--;80% i

25,0[0 t-----------;,-u-------~ :::: i6 20,0[0 ~

50% "2.

15,0[0

10,0[0

p 5,0CO [ '

~% ~ n:mf-11-N--1#30% 0

20% ! 10%

fflMIM J ,----------------""40% G'S:JSmgle-FamlyHomes • Share Riverside Co /So Cal -Poly (ShareR1vers1de Co /So Cal)

• M ajar Cycles: During the 1970-2006 time period, the number of new single-family homes in RC exhibited three major cycles, with peak levels of activity occurring in 1977, 1988 and 2003-2005.

• Capture Rates: With regards to the capture rate for RC, relative to Southern California, it has demonstrated an increasing trend, from some 7% in the early 1970's to some 40% in 2005-2006.


10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

RIVERSIDE COUNTY: NEW MUL TIPLE--fAMILY HOMES

C

i ~ i R " - ~· "I Q

o~N~~~~~oo~o~N~~~~~oo~o~N~~~~~oo~o~N~~~~ ~~~~~~~~~~00000000000000000000~~~~~~~~~~0000000

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RRRRRRR

100%

90%

80%

70%

60%

50%

C%

30%

20%

10%

0%

r-:zi1fulhple-Fam1ly Homes • Share fuvers,de Co /So Cal -Poly (Share Riverside Co/So Cal)

• M ajar Cycles: During the 1970-2006 time period, the number of new multiple-family homes in RC exhibited four major cycles, with peak levels of activity occurring in 1972, 1979, 1986 and 2003; of these, the highest annual levels occurred during 1984-86. • Capture Rates: With regards to the capture rate for RC, relative to Southern California, it has demonstrated an increasing trend, from some 4% in the early 1970's to some 12% in recent years.

Retail Cmstruction Activity in Riverside County Retail construction activity is driven primarily by new residential growth, and so its trends/patterns generally reflect the residential construction activity.

RIVERSIDE COUNTY: NEW RETAIL BUILDINGS

$500,000 100%

~ $450,000 90%

c $400,000 80%

" z z $350,000 z 70% s -o $300,000 wZ 60% d Z" c6 $250,000 ZI

50%

"" t; $200,000

~ 40%

z ~ $150,000 30%

~

" $100,000

> Fl 20%

$50,000 10%

IC 11

0Retail Valual!on • Share R1vers1de Co /So Cal -Poly (Share R1vers1de Co /So Cal)

• M ajar Cycles: During the 1980-2006 time period, the level of retail construction activity in RC exhibited four major cycles, with peak levels of activity occurring in 1985, 1992, 2000 and 2004.

• Capture Rates: With regards to the capture rate for RC relative to Southern California, it has demonstrated an increasing trend during the early 1980's to the early 1990's, from some 10% to 18%. Since the early 1990's the capture rate of retail construction activity stabilized at some 18% through 2002 but then attained higher levels of some 29% in 2004 and then 24% in 2005-2006.


D. CFO MARKET AREA EMPLOYMENT AND HOUSING FORECASTS MODI Fl ED FOR RECENT ;EXPECTED ECONOMIC CONDITIONS

The employment and housing planning SCA G proj ectims for the CFD No. 93-1 IA SC Market Area (MA), which are considered to be reasonable estimates of the development potential for the projects, are now modified by taking into account the expected short-run economic conditions, along with the amount of growth that actually occurred recently, in order to arrive at the most probable forecasts for employment and housing growth during the foreseeable future.

CFD NO. 93-1 MARKET AREA FORECAST OF FUTURE EMPLOYMENTDEVELOPMENT

3,000 , 0

' 2,500

2 / e z 2,000

C v ~ 1,500 -0 ...- ,_ ~ 1,000 -

0 -i..-" ,cc -

~ C

2001 I 2002 I 2003 I 2004 I 200s I 2006 I 2007 I 2002 I 2009 I 2010 I CSCAGProJect10ns "' "' "' ,w 1,344 1,878 1,878 1,878 1,878 1,878 _,tua!/Forecast w, ,w rn 1,092 1,204 1,315 1,596 1,878 2,160 2,441

CFD NO. 93-1 MARKET AREA FORECAST OF FUTURE RESIDENTIAL DEVELOPMENT

2,500

e 2,000 -z .,, a

r-.. 0 z

lt 1,500 a ~

~ I'.. ,,; 1,000

0 " ,I

! ,cc

,-. I/

C 2001 I 2002 I 2003 I 2004 I 200s I 2006 I 2007 I 2002 I 2009 I 2010

1:2:lSCAG ProJect10ns 1 ,194 1,194 1,194 1,194 1,689 2,184 2,184 2,184 12,184 2,184 ctual/Forecast 300 I 2n I 485 I 230 11,1n 11,no 11,92711,250 11,000 11,200

Economic Forecasts Years Employment Housing

2007 1,596 1,927 2008 1,878 1,250 2009 2,160 1,000 2010 2,441 1,200

Totals 8,075 5,377 Averages 2,019 1,344

Therefore, during the 2007-2010 time period, as a whole, the CFD No. 93-1 IA SC MA is expected to have employment growth amounting to some S,075 new positions (2,019 per year, on the average) and some 5,377 new housing units (1,344 per year, on the average).


SECTION Ill MICROECONOMIC ANALYSIS

A. METHODOLOGY UNDERLYING THE MICROECONOMIC ANALYSIS OF THE RESIDENTIAL PROJECTS IN CFO NO. 93-1 IA 8C

The microeconomic analysis focuses upon the competitiveness of the residential projects in CFD No. 93-1 IA SC with various regional development factors within Riverside County and also the comparable projects within the Competitive Market Area.

Competitiveness from a Regional Perspective

* Location ofCFD No. 93-1 IA SC Relative to Competing Planned Communities,

Retail Centers and Business Parks

* Socioeconomic Characteristics: Crime Rates and School Quality

* Recent Housing Price Trends/Patterns: Southern California, Riverside County and the CFD Market Area

The existing/active/forthcoming Planned Communities, Retail Centers and Business Parks, in conjunction with the transportation system, determines the locations of the employment centers and residential areas along with retail centers; accordingly, these patterns can then be utilized to gauge the marketing potential of CFD No. 93-1 IA SC from a regional perspective.

Competitive Market Analysis of the Projects in the CFO

* Identification of the Comparable Projects

* Competitive Market Analysis of the CFD Projects - Base Prices

- Living Areas - Special Taxes/ Assessments

The Competitive Market Analysis evaluates the competitiveness of the residential projects in the CFD relative to the currently active projects in comparable Planned Communities as well as other standalone projects.


B. RESIDENTIAL DEVELOPMENT TRENDS;PATTERNS INTHE CENTRAL PORTION OF RIVERSIDE COUNTY

From a regional perspective, the competitiveness of CFD No. 93-1 IA No. SC's residential projects is influenced by the development patterns for employment and housing within the Southern California Market Region (MR) and their interrelationships with the CFD No. 93-1 IA No. SC Market Area (MA). Specifically, Business Parks generate business-office development while Planned Communities generate residential development which, in tum, generates a demand for Retail Centers; additionally, the flow of traffic between them is facilitated by the freeways and transportation corridors.

• Expansion of Employment Centers and Business Parks The currently established major employment centers are Orange, San Diego and Los Angeles (OC/SD/LA) counties as well as the western portions of Riverside (R) and San Bernardino (SB) counties. Furthermore, there has been some expansion from these into various Business Parks located in the central portion of SB County, including the cities of Fontana, Rialto, San Bernardino, Lorna Linda and Redlands. Specifically, the recent growth of these Business Parks can be attributed to their proximity to western San Bernardino County as well as their locations along Routes 10 and 60.

* The Foothill Freeway (Route 210) into the City of Fontana facilitates the expansion of the employment centers from LA into SB County. While the Eastern Transportation Corridor (Route 241) into western Riverside County facilitates the expansion of Business Parks further into Riverside County. As the expansion proceeds further into San Bernardino and Riverside counties, it will eventually benefit the projects in CFD No. 93-1 IA No. SC MA, since Routes 10 and 60 eventually merge in the City of Beaumont.

• Commuting Patterns: Employment Centers to Residential Areas Some of the households employed in the OC/SD/LA and western R/SB employment centers purchase housing in projects that are located further to the east, since these projects, as a result of lower land values, offer more affordably priced entry-level housing. Specifically, these commuting patterns are based upon the freeways that link the employment centers to the housing projects.

* The continuing expansion of the employment centers into R/SB counties result in residential projects in the CFD No. 93-1 IA No. SC MA becoming more competitive in the marketplace, as the distance between the employment centers and the MA continues to diminish. With respect to commuting to the CFD No. 93-1 IA No. SC MA, in particular, this is based upon the use of Routes 10 and 60, major freeways that link the employment centers to the CFD No. 93-1 IA No. SC MA.

Therefore, from a regional perspective, the existing transportation system is regarded as being generally favorable for the future development of Business Parks (BPs) and Planned Communities (PCs) in the CFD No. 93-1 IA No. SC MA, since employment and housing growth are moving in an easterly direction along Routes 10 and 60, and these merge in the City of Beaumont. The development trend is expected to impact PCs first, since commuters are willing to travel additional distances along freeways for lower-priced housing. While for BPs, in general, development prospects will require additional time, since new businesses tend to locate in the vicinity of existing employment centers. However, an exception to this may be for specialized business users that can strategically utilize the Route 10/60 portal into Southern California.

For additional information on the regional development patterns, please refer to the following exhibit.


ECONOMIC BASES SUPPORTING DEVELOPMENT FOR CFO N0.93-1

RESIDENTIAL DEVELOPMENTPATTERNS: 1 ,_v,,v,-.ND

E rnpire E conornics July 31, 2007

C. SOCIOECONOMIC CHARACTERISTICS: CRIME LEVELSANDTHE QUALITY OF SCHOOLS

When households consider the purchase of a home, the primary factors are the location relative to their place of employment and also the price that they can afford; furthermore, secondary socioeconomic factors that are significant include the safety of the neighborhood as well as the quality of the schools.

Crime Levels and Neighborhood Safety

To gauge the safety of Riverside County and the CFD No. 93-1 IA SC Neighborhood Area, information on crime levels was obtained utilizing the most recent data available from the Federal Bureau of Investigation (FBI) Index.

CRIME RATES FOR CALIFORNIAAND SOUTHERN CALIFORNIA COUNTIES

50

"' ~ 45

" See SeS ~e 0 40 f-z SSC "" < , 35 ~ f-a 0 i:: 30 m ~ ~ ~ f-

~ 25 '° I -

- ~ ~ ~ f-

" " 20 - - f-- f-- f-- f-

' ~ <

15 - - f-- f-- f-- f-

" ~ 10 - - f-- f-- f-- f-

a u 5 - - f-- f-- f-- f-

0

/' / / ~/ /' ""✓ /' / / ✓~ / ,/ / # ✓

• California: The overall crime rate is approximately 39.9 per 1,000 people per year. • Southern California: The crime rate is 35.6, slightly lower than the state. • Riverside County: The crime rate is 45.6, a higher crime rate than either California or

Southern California.

RIVERSIDE COUNTY CRIME RATES BY CITY (*DESIGNATES CITY IN THE CFD MARKET AREA)

120

IOI JOO

~

" Riverside County Ave~age: 45.6 0

BO z

~ " ~

a Q 0 m a

" c,

" 60

" - f-

~

* ",. SI SI SI

0 " " " ,, ,, ,, "

40 ,, f- f- - f- - f- - f- - f- - f-

' n • ,c r

" 20 - f- - f- - - f- f- f- f- - f- - f- - f- - f- - f-u B

0 n a ! ' e ' ' ! a l e ' C ] ' 1 i g I t ' ~ ! ' j ~ ' ] a l ' l ' ' ! l ! C 3 i 1 ' ; c a ' ' ' '

• CFO Neighborhood Area: This consists primarily of the City of Beaumont, which has a much lower crime rate, some 38.


Quality of School sand Education

To gauge the quality of schools in Riverside County and the CFD No. 93-1 IA SC Neighborhood Area, information was compiled on educational achievement, specifically SAT II scores (maximum of 2400).

2400

2000

1600 ~

1200 ~

sec ~

"' ~

' [

" j • u

SOUTHERN CALI FORNIAAVERAG E SAT 11 TEST SCORES

1421 1429 ~

- ~

- ~

- ~

1444 ~

-

-

-

-1593 1596

- -

- -

- -

• California: The SAT II scores (with 2400 being the highest possible) amount to some 1506. • Southern California: The SAT II scores amount to some 1485, somewhat less than the state. • Riverside County: The SAT II scores amount to 1,429, somewhat lower than for California

and also Southern California.

c ~ ~' 2400 0

RIVERSIDE COUNTY SAT 11 TEST SCORES (*DESIGNATES SCHOOL DISTRICTINTHE CFD)

Riverside County Average: 1429

• 1416 1418 1448

1212 1249 1280 1::;'-t - r r

- - ~ ~ ~ ~ ~ ~ - - -

- - - - - f- f- f- f- f- f- - - -

- - - - - ~ ~ ~ ~ ~ ~ - - -

* * ,c,, ,,,

- - ~ ~

- - f- f-

- - ~ ~

• CFO Neighborhood Area: The Beaumont Unified High School District has a SAT II score of 1,486 significantly higher than for Riverside County as a whole.

Conclusions From a socioeconomic perspective, Riverside County has a somewhat higher cnme rate and a somewhat lower educational achievement level than California and also Southern California. The CFD Neighborhood has a much lower crime rate and the school district also has a significantly higher educational achievement level than Riverside County, as a whole.


D. RECENT HOUSING PRICE TRENDS AND SALES LEVELS

The recent price and sales trends for homes in Southern California, Riverside County and the CFD Market Area are now discussed, utilizing statistics acquired from Data Quick, which represent the median values of the homes sold. Although these prices are regarded as being reasonably accurate representations of housing market trends, they do not make adjustments for differences in the specific characteristics of the homes sold, such as location, lot sizes and living area.

Southern Califrrnia Counties

RECENT PRICE TRENDS FOR HOMES IN THE SOUTHERN CAL I FORNIA COUNTIES

$800,000

$700,000

$600,000

, /, ;;,a , $500,000 / 0

" ii '---' ~ $400,000 , ~ " .. u /4/ ·' ~ $300,000 --_::_ .,,. ~. ~

I..' $200,000

~ /

~ ~ ., . J I

~

$100,000 . l l

. .

IC N

- - - - - - - - - - - N N N N N N N

= .:z-:;z-J Southern Cahforrua Orange -Ventura

San Diego _._Los Angeles ~fuvers,de - • San Bemardmo

• 1988-1995: The prices for homes in Southern California (SC) previously peaked in 1991, at some $205,500 and then, due to the economic recession, declined during 1992-1995, falling to a trough in 1995, some $174,600.

• 1996-20CXi: With the economic recovery, prices began to rise, surpassing their prior peak level in 1999, and then since 2000, prices have risen to successive new peaks, attaining a level of some $523,855 in 2006.

• Riverside County: A price of some $427,323 for 2006, lower than SC by some -$96,500.

RECENT SALES OF HOM ES IN THE SOUTHERN CALI FOR NIA COUNTIES

400,000

350,000

C 300,000

" 250,000 k

~ ~ Fe 200,000

~ ~ - ~ ~ e----:·

" k 150,000 ~

~ - ~ - ~ ~ ~ ~

~ 100,000 ~ ~

50,000

0

- - - - - - f - - ~ - - N N N N I N N

• Los Angeles • 0-ange • Riverside luSanD1ego • San Bernardmo 0Ventura


• 1988-1995: The sales of homes in Southern California previously peaked in 1988, at some 320,000 units and then, due to the economic slowdown and subsequent recession, declined during 1989-1995, falling to a trough in 1992-1993, some 191,500 units.

• 1996-2001: With the economic recovery starting in 1996, sales rose significantly, to levels of some 277,000.

• 2002-2005: Sales rose to new record levels of some 340,000 to 346,000. • 2006: The level of sales declined to some 268,000, due to higher mortgage rates. • Shares of Sal es: With respect to the market shares of sales for 2006 various SC-Counties, they

are relatively high for Los Angeles (3 8%) moderate for Riverside (16%) and San Bernardino (13%), San Diego (17%) as well as Orange (13%), and relatively low for Ventura (5%).

During 2002-2005, the Southern California Market Region experienced record levels of housing prices and strong levels of housing sales, and so the market conditions are regarded as being robust. However, for 2006, the appreciation rate for homes moderated while the sales level for homes declined.

CFO Market Area and Nearby Competing Areas

The competitiveness of the CFD MA, Central Riverside County, can be gauged by comparing the prices/sales of homes with those of the competing areas, San Bernardino County-East Valley (SBC: East Valley) and Riverside County-Moreno Valley (RC: Moreno Valley).

CFD NO. 93-1 IA NO. 8C COMPETING MARKET AREAS

SAN BERNARDINO


RECENT HOUSING PRICE TRENDS

$4 •• ,ooo~------------------~

$300,000 +------------------/-

$250,000 t------------------t,

$200,000 +----------------

$100,000

$50,000

~ D - N ~ ~ ~ ~ ~ 00 ~ D - N ~ ~ 00 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ D D D D D ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ D D D D D

- - - - - - - - - - - - N N N N N N N

CZZllCFDNo 93-l!ANo 8C -+ •SBC East Valley --0-RC Moreno Valley

• Price Trends: The various market areas attained their prior peak levels in 1990, generally experienced price declines during 1991-1996/1998, but then, surpassed their prior peaks during 2000 to 2002 and went on to attain consecutive new record levels through 2005, along with another record level for 2006.

• Relative Price Levels: The prices of homes in the SBC: East Valley and RC: Moreno Valley have been similar or slightly higher than the CFD MA, since they are in somewhat closer proximity to major employment centers.

• Appreciation Rates: Comparing the prices for homes in 2006 with their levels in 1990 reveals their cumulative rates of appreciation: CFD MA: 221 %, SBC-East Valley: 191 % and RC: Moreno Valley: 164%, and so prices have generally more than doubled since 1990.

16,000

14,000

12,000

~ u 10,000 z a z 0 I 8,000

~

6,000 z z z

4,000

2,000

,,,.... ... ._ ' ' ....

RECENT SALES TRENDS

, , Ill.'

' ' '

- - - --------<

=cFDNo 93-1 IANo 8C -•-SBC EastValley RC Moreno V alley

• 1989: The various market areas attained their prior peak levels of sales activity. • 1990-1993: Due to the economic slowdown, the level of housing sales were generally slower. • 1994-20CX): Sales activity started to recover, although at a slow pace. • 2001-2005: The level of sales rose significantly, attaining new record levels of activity. • 20CXi: The level of sales moderated, due to the softening real estate market.


E. COMPETITIVE MARKET ANALYSIS OF THE PROJECTS IN THE CFD NO. 93-1 IA 8C

A Competitive Market Analysis of the projects in CFD No. 93-1 IA SC is now performed, by comparing their characteristics with the currently active comparable projects in the Competitive Market Area.

Selection of the Currently Active Comparable Projects

Empire Economics, based upon its market surveys, identified the projects in the Competitive Market Area which are considered to be comparable to the project in CFD No. 93-1 IA SC. Specifically, the most comparable projects are situated in Planned Communities that are located in the easterly portion of the City of Beaumont, and these are Sundance and Seneca Springs:

• Sundance: Other Projects Not in SC o Capella - Carina - Estrella - Selenia

• Seneca Springs o California Vista - Gardenwalk - Rancho Vista o Rancho Montana - The Hills - Valindo - Woodhaven

COMPETING PLANNED COMMUNITIES IN THE CFD NO. 93-1 IA SC HOUSING MARKET AREA

The other Planned Communities in the City of Beaumont area are excluded for the following reasons: Four Seasons is oriented towards seniors while the other Planned Communities, such as Fairway Canyon, Tournament Hills and Oak Valley are located in the westerly portion of the City of Beaumont and they also feature golf course orientations as well.


MARKET! NG STATUS

700 ~----------~----------~----------,

600 +---------f'

500 +---------¼(

400 +------

300 +-------<

200 +------<

100 +---------f'

0 CFDNo.93-1 IASC Sundance Seneca Springs

IEI Escrows Closed 40 329 171

• Future Units 651 435 514

The eleven comparable projects as well as the five projects in CFD No. 93-1 IA SC together have a total of some 2,140 housing units of which 540 have had their escrows closed and so there are another 1,600 remaining for future occupancies.

• CFO No. 93-1 IA SC: 5 projects with 691 homes of which 40 are occupied.

• Sundance -Other: 4 active project with 764 homes of which 329 are occupied.

• Seneca Springs: 7 active projects with 685 homes of which 171 are occupied.


PRICESAND LIVI NG AREAS

$450,000 3,000

• $400,000

• f-2,500 u.J

$350,000 u.J u..

V,

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$S0,000

$0 0 CFDNo. 93-1 IA 8C Sundance Seneca Springs Totals/Averages

• LEFf: Price $338,518 $340,883 $381,196 $357,781

• RIGHf: Living Area 2,197 2,289 2,806 2,487

For the comparable projects as well as the projects in CFD No. 93-1 IA SC, their prices (after subtracting incentives offered to purchasers) amount to some $357,781, as a whole, while their living areas are some 2,487 sq.ft., as a whole.

• CF D No. 93-1 I A OC:: Prices of $338,518 for some 2,197 sq.ft. of living area.

• Sundance -Other: Prices of $340,883 for some 2,289 sq.ft. of living area.

• Seneca Springs: Prices of$381,196 for some 2,806 sq.ft. ofliving area.


VALUE RATIOSANDSPECIAL TAXES

$180 $2,700

>-...J

$160 $2,600 ...J

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<( $140 $2,500

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> $120 f-$2,400

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$0 CFDNo. 93-1 IA8C Sundance Seneca Springs Totals/Averages

$1,900

IJLEFT: Value Ratio $155 $151 $140 $148

• RIGHT: Special $2,158 $2,448 $2,583 $2,417

Assmt/Tax

To compare the prices of the comparable projects as well as the projects in CFD No. 93-1 IA SC their value ratios are utilized, the price per sq. ft. of living area, since this effectively makes adjustments for differences in their sizes of living areas. Accordingly, the value ratios amount to $148 per sq. ft. of living area and their Special Taxes/Assessments amount to some $2,417/yr. (0.68% as a ratio to the housing prices):

• CFO No. 93-1 IA OC:: Value Ratio of$155 and Special Taxes of$2,158/yr. (0.64%).

Note: The above statistics for CFD No. 93-1 IA SC assume that prior to the Bond Sale, City of Beaumont reduces the Special Taxes, as maybe necessary, so that the total tax burden for the homeowners conforms to the City's maximum of 2. 00%.

• Sundance-Other: Value Ratio of$151 and Special Taxes of$2,448/yr. (0.73%).

• Seneca Springs: 7 Value Ratio of $140 and Special Taxes of $2,583/yr. (0.68%).


SALES RATESAND FUTURE SUPPLY

2,000 200

>- 1,800 ~ o_ o_ >-::J .,,J v; 1,600 0 z <l'. 1,400 w f-<l'. 164

"' 1,200 v; w

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150 0 147 "' w

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171

0 100

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Ea Escrows Closed • Future Supply Sales-Year

The eleven comparable active projects have an estimated sales rate of some 311 homes per year, for an average of some 28 homes per project per year; additionally, they have a future supply of 949 homes which, at recent sales rates, could take some 3, 1 years to close-out

• Sundance-Other: 4 projects with sales of 164 homes annually (2,7 yrs, to close-out),

• Seneca Springs: 7 projects with sales of 147 homes annually (3,5 yrs, to close-out),


With respect to the "full prices" for homes, the base price plus the Special Tax lien, the projects in CFD No. 93-1 IA SC have "full prices" that are SIMILAR to the comparable projects in the Competitive Market Area.

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FULL PRICES OF HOMES: BASE PRICE +SPECIAL TAX LIEN

$550,000 ~-----------------------------~

$SOO,OOO +----F-U_L_L-PR_I_CE_F_O_R_C_F_D--P-R-0-JE_CT_S ______________ ---1

11 SIMILAR11

TO THE MARKET COMPARABLES $450,000 +------'-"--'-'-"'--"-"-"-=-'---'=====----------::,,.-C:.-------l

$300,000 +---------------------------------1

$250,000 +--~-~-~-~~-~-~-~-~-~~-~-~-~-~----< 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 3,000 3,200 3,400 3,600 3,800 4,000

SIZE OF LIVING AREA

e CFDNo.93-l!ASC Comp arables -Linear (Comparables)


Spe::ial

Proje:t Proje:t Builder La: Sizes Proje:t Size and Sales Housirg Prices/ After I rx:Ef11:ives Size of L ivingArea Value T axes/Assessll1Ef11:s

Locatims T«• Escrows Future Sales L=ff Average Upper L~ff Average UpPff Ratio A"""'/ Ratio/

Closru Rate/Yr. Yffic Price

Estimated

CFDNo.93-1 IA.8C Larkspur Pardee 8,000 110 5 105 NI\ $354.900 $368.900 $380.900 2,409 2.623 2.801 $141 $2.446 0.66%

CFDNo.93-1 IA.8C Copper1eaf I Pardee 7.200 182 3 179 NI\ $339.900 $354.150 $371.900 1.893 2.345 2.799 $151 $2.229 0.63%

CFDNo.93-1 IA.8C Copperleaf II Pardee 6,000 132 0 132 NI\ $305.900 $328.650 $349.900 1.650 2.019 2.375 $163 $1.944 0.59%

CFDNo.93-1 IA.8C Trilli.Jm KB Home 6,000 155 8 147 NI\ $299.990 $329.990 $346.990 1.670 2.(99 2.456 $157 $2.229 0,68%

CFDNo.93-1 IA.8C Solaris II Pardee 4,000 112 24 88 NI\ $295.900 $310.900 $325.900 1.683 1.902 2.105 $163 $1.944 0.63%

Smdance Estrella Pardee 2.500 271 0 271 35 $236.000 $248.275 $260.550 1.366 1.566 1.766 $159 $1.986 0,8'1'

Smdance Carina Pardee 5,400 216 174 42 60 $316.325 $344.938 $373.550 1.655 2,099 2.543 $164 $2.415 0.7rM,

Smdance Selenia KB Home 7.200 115 5 110 15 $329.990 $349.990 $369.990 2.246 2.784 3.322 $126 $2.450 0.7rM,

Smdance Capella Pardee 6.500 162 150 12 54 $371.275 $420.329 $469.382 2.331 2.7C6 3.001 $155 $2.942 0.7rM,

SenecaSplTlgs California Vista KB Home 8,000 180 0 180 25 $284.990 $302.490 $319.990 1.378 1.839 2.300 $164 $1.966 0.65%

SenecaSplTlgs Valilcb Mertage Homes 5.200 127 60 67 "' $326.990 $341.990 $356.990 1.940 2.173 2,406 $157 $2.736 0.8rM,

SenecaSplTlgs Gardenwalk RichmondAmeri:an 6,000 100 47 53 35 $344.990 $349.990 $354.990 2.372 2.614 2.855 $134 $2.450 0.7rM,

SenecaSplTlgs Woodhaven Hearthside Homes 7,000 102 16 86 15 $345.500 $363.000 $380.500 1.760 2.246 2.732 $162 $2.178 0,611'

SenecaSplTlgs Rarx:ho Vista KB Home 7.500 35 17 18 14 $349.990 $371.420 $392.850 2.957 3.295 3.633 $113 $2.414 0.65%

SenecaSplTlgs Rarx:ho Montana KB Home 7.500 35 21 14 16 $437.990 $466.490 $494.990 3.401 3.751 4.101 $124 $3.265 0.7rM,

Sene::aSplTlgs The Hills Certex Homes 9,000 106 10 96 12 $449.990 $472.990 $495.990 3.320 3.727 4.134 $127 $3.074 0.65%

Statistical Sumrrn.ry

Sales /Year Proje:ts

CFD No 93-1 IA SC NIA 5 691 40 651 0 $319.318 $338.518 $355.118 1.861 2.197 2.507 $155 $2.158 0 64%

Sundance 41 4 764 329 435 164 $313.398 $340.883 $368.368 1.900 2.289 2.678 $151 $2.448 073%

Seneca Spnngs 21 7 685 171 514 147 $362.920 $381.196 $399.471 2.447 2.806 3.166 $140 $2.583 0 68%

'T'otals/Averages 28 16 2.140 540 1.600 311 $336.914 $357.781 $377.835 2.127 2.487 2.838 $148 $2.417 0 68%


SECTION IV

POTENTIAL" Fl NANCI AL" RISK FACTORS UNDERLYING THE CREDIT QUALITY AND BOND SIZING FOR LAND SECURED Fl NANCI NGS IN

SOUTHERN CALIFORNIA

There has been a fundarrental shift in the driving force underlying the recent rates of housing price appreciation, from the historical role of ernpl oyrrent grCMll:h as the driving force to the recent role of adjustable rate and creative financing techniques as the driving force. Si nee J anuary 2002, these financial factors have been the prirrary driving force underling the extraordinary rate of housing price appreciation in Southern California, more than 70'/o. Hcwever, the econorric feasibility of creative financing has recently dirrinished, as both short-term and long-terms rates have risen. Consequently the current levels of housing prices and land values are suqject to potentially substantial dcwnward adjustrrents, due to mortgage rate resets (as mortgages are adjusted from teaser rates to rrarket rates) as well as higher short-term rates (due to rate hikes b,' the Federal Reserve Board). These adj ustrrents, in turn, rray cause a softening in housing prices and I and values that could adversely impact the credit quality underlying I and-secured financings.

Financial Risk Factors: New Projects vs. Overall Market New projects with newly developing residential projects have characteristics that make them more vulnerable to a housing market bubble than national or regional markets. Specifically, New projects represent the marketing of new homes to purchasers at current prices that utilize creative financing structures and they are also concentrated in particular geographical locations.

CHARACTER IS TICS OVERALL MARKET COMMUNITY FACILITIES DISTRICT

Geoaraohical Location Broad CFD -Focused Area

Time of Purchase Lonn Time S nan l0-20Years Recentlv

Tuna of F inane inn S true tu re Mostlv Predominantlv

>Fixed Rates >Adjustable & Creative

>Amortization of Principal > Higher Loan Balances

Amount of Equity S iqnificant; Accumulated Over Time Minimal

> Recent Purchase

> Negative Aroortization

Timing of Loan Resets Minimal & Spread Over Time Most & SimilarTime

Definition of Creative Financing Creative financing, as utilized herein, refers to the use of loan structures other than fixed-rate or oneyear adjustable loan structures that provide for amortization of principal; some examples of creative structures are as follows:

• Interest only payments. • Payment option loans (with minimum payment options). • Loans with initial teaser rates (below market rates that are offered only for a limited time

period). Additional factors related to creative loan structures include:

• Less stringent lending standards such as low/no documentation. • Higher mortgage payment to income ratios.


1. Recent Housing Price Appreciation Patterns

A comparison of the price appreciation patterns for the current (2001-2006) and the prior (1986-1993) real estate cycles reveals that there are significant similarities between them:

• The peak rates of appreciation amounted to 32% in 3rd-quarter of 2004 for the current cycle and 24% in the 2nd-quarter of 1989 for the prior cycle.

• For the three years leading to the peak rate of appreciation, the average rates of appreciation amounted to 14% for the prior cycle and 16% for the current cycle,

• For the two years after the peak rate of appreciation, the average rates of apprec1at10n amounted to 23% for the current cycle and 12% for the prior cycle. Furthermore, after two years from the peak, the rates of appreciation stabilized for both cycles,

So a comparison of the price appreciation patterns for the current and the prior real estate cycles reveals that there are significant similarities between them.

v; u 2 0 z 0 u w w

"' 0: 2 w >-co 0 w f-::J o_

2 0 u >-~ ~

<( ::J z z <(

' w l.J z <( I u w u c2 o_

HOUSING PRICE APPRECIATION: PRIOR VS CURRENT CYCLES

40%

35%

30%

25%

20%

15%

10%

5%

0%

-5%

-l 0%

PEAK RATES OF APPRECIATION PRIOR CYCLE 24% ... CURRENTCYCLE 32%

APPRECIATION FOR 3-1/EARS PRIOR TO PEAK PRIOR CYCLE 14%

~ CURRENTCYCLE 16%

1986 2001

~

1987 2002

1988 2003

• Prior Peak: 1989

~

" ~

1989 2004

2-YEARS AFTER PEAK PRICES APPRECIATION STABILIZES

~

I\.

'

r

1990 2005

' '

.. ~ L I u -uuu1111

SOURCE EMPIRE ECONOMICS

1991 2(X)5

1992 1993

CJ Current Peak: 2004

Sources: Errl)ire Econonic and Office of Federal Housing


2. Structural Shift in the Primary F actcrs Underlying Housing Price Appreciation: From Employment G rcwth to Creative Financing

The primary factors underlying the current cycle of housing price appreciation in Southern California, declining mortgage rates as well as the extensive use of adjustable and creative financing, represent a fundamental shift from the prior cycle, employment growth.

• During the prior cycle, housing price appreciation was driven by employment growth, with an average growth rate of some +2.3% per year, along with accommodating financial factors, such as stable or somewhat declining mortgage rates. During this time period financial factors played only a secondary role: for instance, over 1991-1993 when employment decreased, housing prices declined, even though mortgage rates fell by more than two percentage points from their 1989-1990 levels.

• However, for the current cycle, 2001-2006, as housing prices escalated at strong rates, the primary fundamental factor, employment growth, has experienced only minimal growth, some +0.6% per year, on the average. Instead, housing price appreciation has been driven primarily by financial factors, particularly the use of adjustable rate mortgages and creative financing techniques.

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8'/4

6'/4

4%

2"/4

0'/4

-zi/o

-4%

COMPARISON OF EMPLOYMENT GROWTH COMPARISON OF MORTGAGE RATES

TWO REAL ESTATE CYCLES: 1986-1991 AND 2001-2006

FOR THE 1989CYCLE, EMPLOYMENT ROSE PRIOR TO FOR THE 1989CYCLE, MORTGAGE RATES WERE THE PEAK AND THEN DECLINEDTHEREAFTER. RELATIVELY HIGH AND REMAI NE DAT HIGH LEVELS

WHILE FOR THE 2004CYCLE, EMPLOYMENT GROWTH WAS MINIMAL PRIOR TO THE PEAK AND

,.,.a10"

l "'3 1987 1988 1989 l'Hl 1991 2all 2al2 2(X)3 2(X)4 = =

• E rrployrrent: 1989 Peak • Mortgage Rates: 1989 Peak

PRIOR/AFTER THE PEAK

FOR THE 2004CYCLE, MORTGAGE RATES DECLINED TO RECENT HISTORIC LOWS AND THEN CREATIVE

SOURCE: EMPIRE ECONOMICS

1983 1987 1988 1989 ]gg) 1991 2001 2(X)2 2003 2004 2fXJ5 2003

DE rrplo,rrent: 2004 Peak El Mortgage Rates: 2004 Peak

Sources: Erl'l)ire Econonics, Erl1)iO(lrent Developrrent Departrrent, & Freddie Mac


3. Role of Financial Factcrs Underlying Recent Rates of Housing Price Appreciation

Since January 2002, the primary driving forces underlying housing price appreciation have been as follows:

• Households initially taking advantage of recent historically low fixed rates, through June 2003. • A shift to adjustable rate mortgages, through March 2004. • Since April 2004, the use of creative financing structures.

The impacts of creative mortgage financing structures on the price of housing can be gauged by estimating the prices that households could afford to pay utilizing the various structures; the starting price for housing, as of January 2002, was some $278,000, and prices have recently increased to some $475,000, a change of more than 70%.

PRICE OF HOUSING USING ALTERNATIVE MORTGAGE STRUCTURES

$600,000

+2Wo +30!6 +OU%

$500,000 $475,279

0 $400,000 z a

-$362,984

a 0 $330,825 -" ,--~ $300,000 -,,, a ;;/ 1 ~ $200,000 - -

~

$100,000 - -

IC

startmg Pnce - January Current Fixed Rate Current Adjustable Current Creative 2002

• Fixed Rates: Based upon the recent historic low for fixed rates, which occurred in June 2003, the price amounted to some $350,000, an increase of $72,000; however, using current fixed rates, the most recent price amounts to some $331,000, some -$144,000 below current price levels.

• Adjustable Rates: Based upon the recent historic low for adjustable rates, which occurred in March 2004, the price amounted to some $444,000, an increase of $164,000; however, using current adjustable rates, the most recent price amounts to some $363,000, some -$112,300 below current price levels.

• Creative Financing: Based upon the rates for creative financing, the price currently amounts to some $475,000, an increase of $197,000 above the price for housing as of January 2002 of some $278,000.


4. Potential Risk F actcrs frr Purchasers Uti Ii zing Creative Financing Structures

The purchasers of homes that utilize creative financing structures are able to "afford" homes at current market prices; however, their rates are subject to resets that will cause their payments to rise substantially, and so they face the risk of potentially becoming delinquent on their mortgage and tax payments.

4-A. Purchasers Using Creative Financing and Mortgage Loan Resets

Purchasers of homes that utilize creative financing are subject to resets, as their initial teaser rates are re-aligned to the market rates, and so their mortgage payments are likely to increase significantly. The potential for mortgage reset is illustrated below, using a home with a price of $500,000 that is fully financed, with no down payment, something that buyers often do using first and second mortgages:

Fixed Rate Loan Structure: • Mortgage payment of some $32,500 per year. Creative Loan Structure: • First three years, $24,375 per year, using a teaser rate interest only payment. • Starting in the fourth year, when the loan payment is adjusted to the market rate and fully

amortized to pay principal as well, the payment rises to some $34,600 per year.

Therefore, the mortgage payment for the fourth year and thereafter is some 42% higher than for the first three years, an increase of some $10,225 per year.

MORTGAGE PAYMENTS: FIXED RATE VS CREATIVE FINANCING PRESENT VALUE OF LOAN PAYMENTS THE SAME

$40,000----------------------Fl XED RATE LOAN -LEVEL PAYMENT FOR 30Y EARS

'

! $34,000

1 e Z $30,000

" ~

1 2 3 4 :l 6 7 8 9 10 11 12 13 14 l:l 16 17 18 19 20 21 22 23 24 2:l 26 27 28 29 30

-Fixed Rate Creative: 3-Years

With regard to the amount of mortgages that are subject to such resets, based upon data for the United States mortgage market as a whole, these are expected to rise dramatically, from some $0.83 billion in 2005 to more that $1.0 trillion in 2007.

Furthermore, it is worthwhile to note that with regards to New projects in particular, mortgage resets are expected to be significant, since most of the recent purchasers have utilized creative financing.


4-B. Example of Purchasers of Homes in a Residential Project with Mortgage Resets

The following example provides a simulation of the potential impacts of mortgage resets for the recent purchasers of homes in a newly developing residential project:

• PriceofHomes: $500,000 • Household Income: $75,000 • Fully Mortgaged: 100% First of 80% and second of 20% • Creative Structure:

• Interest only for first three years: $20,000 per year • Interest and amortization: next 27 years: $30,000 per year

• Property and Special Taxes: 2.0%, $10,000 per year.

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$80,000

$70,000

$60,000

$50,000

$40,000

$30,000

$20,000 1----

$10,000 1----

$0

HOUSING PAYMENTS FOR HOUSEHOLDS WITHIN A CFD SAMPLE PROJECT MORTGAGE RESETS IN YEAR 3

HOUSEHOLD INCOME = $75.CXXJ

MORTGAGE RESETS RAISE MORTGAGE PAYMENT BY -+SlO,COOOR +SCFii

HOUSEHOLDS NEED TO CUT BACK ON OTHER EXPENDITURES BY $10,COO

2004 - Sales 2005 - Sales 2006 2007 -Resets 2008- Resets -Start Continue

• Phase I: 50 Buyers 5JPhase II: 50 Buyers

2009

f--

f--

Accordingly, the application of these assumptions results in the following scenario:

• Phase I: 50 buyers in 2004 have payments of $30,000 per year until 2007 when the reset cause the payment to escalate to $40,000 per year. (mortgage payment rises by $10,000)

• Phase 11: 50 buyers in 2005 follows a similar pattern, with a year's delay.

• 20CXi: The buyers in both phases have stable payments, and so the delinquency rate is expected to be normal.

• 2007: The first 50 buyers have their payment rise by some $10,000. • 2008: The buyers in Phase II which have their payments also rise.

The delinquency rates resulting from these mortgage payment increases will be determined by a multiplicity of factors, including the financial reserves of the households, their ability to reduce other expenditures, and so forth. Nevertheless, an increase in the mortgage payment by some $10,000 may prove to be beyond the financial capabilities of some of the households. Furthermore, their motivation to re-allocate funds to the mortgage payment may be diminished by their low levels of equity ( 100% financing and negative amortization).


4- C Delinquency Rates and Types of Loans

From an historical perspective, the mortgage delinquency levels for homeowners with adjustable mortgages have traditionally been significantly higher than for homeowners with fixed rate loans. During the 2000-2005 time period, the 5.4% delinquency rate for adjustable rate loans has been above the 3.6% delinquency rate for fixed rate loans by some 50% (5.4% vs. 3.6%.). This is typically attributed to homeowners with adjustable rate loans having difficulty with higher mortgage payments as rates rise as well as such households having "low" equity levels ( due to higher loan to price ratios as well as negative amortization), and hence less of an incentive to "hold-on" to the home.

DELINQUENCY RATES FIXED-RATE VS. VARIABLE-RATE LOANS

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0%

< 0%

3 0 0% ~ ~ -~ - -- - -; 0% ~- ~ ~ - - - -

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2000 2001 2002 2003 2004 200:l

• Fixed-Rate f:JV an able-Rate

;oucc« Eh,prr, E>ononncs& NwomlD,_y

However, the potential delinquency rates for households with creative financing does not have an historical track record, since such loan structures have just become the available recently, and so they have not yet been tested under adverse real estate and economic conditions. Considering that creative loans are subject to substantial increase in mortgage payments when they are reset, as compared to traditional adjustable loans which vary only due to interest rates fluctuations, their delinquency rates are likely to be substantially higher.

A "leading" indicator of higher Special Tax delinquency rates may be "notices of default" that are recorded against homes that are not making their mortgage payments on a timely basis.

RIVERSIDE COUNTY:TRENDS FOR NOTICES OF DEFAULT 7,000

s,ooot-----------------

a< s,ooot-----; ? 4,ooo+---

3,000

1,000

EmpreEconom,cs & Dataq,,ck

Therefore, although a project may initially have lcw delinquency levels, when the resets start to occur several years after the original purchase, then the delinquency rates may rise dramatically, since most of the buyers in the prqject have similar financing structures. Furthermore, these delinquency rate increases may occur despite the higher value of the homes (but minimal equity) and favorable economic grcwth (not a recession).


5. Canel usions

The housing market is expected to experience some significant adjustments during the foreseeable future, as the current price structure, which is based upon the extensive use of creative financing, is realigned with a sustainable price structure, which is based upon the use of more traditional financing structures:

• The majority of home purchasers in recent years have utilized creative financing structures, and this has enabled them to "afford" homes at current market prices; however, such structures are subject to resets that will cause their payments to rise substantially, and so they face the risk of becoming delinquent on their mortgage and tax payments.

• However, if these purchasers instead used traditional financing structures, then the majority of them would NOT be able to "afford" homes at current market prices, and so their inability to do so would have caused the rate of sales to slowdown, unless builders offered them substantial concessions, and eventually lower prices.

Therefore, as the market transitions from the creative financing structure to the traditional financing structures, prospective purchasers will encounter challenges in paying the current prices, since their purchasing power with traditional loan structures is significantly below their purchasing power with creative structures. So, the real estate market is expected to encounter some significant adjustments, through a combination of lower prices, enhanced builder incentives, and slower sales rates.

Finally, these market adjustments are expected to have a much more significant impact on newly developing residential projects in CFDs as compared to the broader market as a whole, since such projects represent the marketing of new homes to purchasers at current prices and they are also concentrated in particular geographical locations.


SECTION V

ESTIMATED ABSORPTION SCHEDULES FOR THE PROJECTS IN CFO NO. 93-1 IA 8C

The purpose of this section is to estimate the absorption schedules for the projects in CFD No. 93-1 IA SC, based upon a consideration of the recent/expected market demand/supply conditions as well as the potential market and financial risk factors.

Market Demand;Supply as well as the M arketf inancial Risk Factors

Em ire Economics

Macroeconomic Components

* Market Demand for Housing Based Upon SCAG Projections Modified for

Recent/Expected Economic Conditions

Microeconomic Components

* Regional Development Trends/Patterns * Socioeconomic Factors: School and Crime

* Housing Price Trends and Patterns * Competitive Market Analysis

Pctential "Market" Risk Factors

* Recent/Expected Increases in Mortgage Rates * Recent/Expected Increases in Gas Prices

* Currently Active Projects: Future Housing Supply

Pctential "Financial" Risk Factors

* Purchasers Utilizing Creative Financing Subject to Mortgage Resets

* Purchasers Using Traditional Financing Structures: Difficult to Qualify at Current Prices

Jul 31 2007

E mpire'sAlcprithm for E stimatingAbscrption Schedules

Empire Economics has estimated the expected absorption schedules for the homes in CFD No. 93-1 IA SC, through a comprehensive analysis of the following economic scenario:

The follcwing scenario is based upon the most probable set of economic and financial market conditions; hcwever, this scenario is subject to further adjustments/modifications to the extent that actual conditions vary from the most probable scenario.For example, a significant factor is the level of mortgage rates: to the extent that mortgage rates rise, then further housing market adjustments could be required, including price reductions as well as I ewer levels of new housing activity.

Time Periods Phases of Housing Cycle Housing Price Residential Mortgage Year Quarter Appreciation Building Permits Notices-Default

1997.2 1999.4 Prices Start to Recover Moderate Moderate Moderate/High

2000.l 2004.2 New Record Prices Strong Very Strong Moderate Minimal Mortgage Rates Decline

2004.3 2006.4 Further Record Prices Very Strong Very Strong Minimal Creative Financing

2007.l 2008.4 P ricesf-i ales Soften Declining Moderate NV eak Very High Mortgage Resets

New Mortgage Regulations

2009.l 2010.4 Market Stabilizes Declining Weak High Excess Inventory -Cleared

201 l. l »> Market Recovers Recovering Recovering Moderate

• the current housing market cycle began in 2nd-1997, as prices started to recover, and this was followed by strong/very strong housing market conditions, as reflected by record levels of prices and high amounts of new construction activity.

• during 1 st-2007 to 4th-2008 the housing market is expected to undergo a correction, due to significant amounts of mortgage resets for creative financing structures and this will be exacerbated by more stringent mortgage loan qualification criteria. The result will be high levels of mortgage loan defaults accompanied by declining prices and low levels of building permit activity.

• during 1st - 2009 to 4th -2010 the housing market is expected to stabilize, as the market moves

towards a balance of demand-supply at the new, reduced prices, thereby allowing the excess inventory to be cleared.

• starting in 1 st-2011 the housing market is expected to move into a recovery phase, as prices and new housing activity increase at a moderate rate.


Furthermore, a special potential financial risk factor is that the housing market is expected to experience some significant adjustments during the foreseeable future, as the current price structure, which is based upon the extensive use of creative financing, is re-aligned with a sustainable pnce structure, which is based upon the use of more traditional financing structures.

EstimatedAbscrption Schedulesfcr CFO No. 93-1 IA SC

Accordingly, the estimated absorption schedules for the residential projects in CFD No. 93-1 IA SC (Pardee - Sundance) are as follows:

160

140

::; 120

:;l :, z 100 ~ "' '" 80 ~ 0

'" µ, 0 60

'" '" "' ~ 40 :, z

20

0 July 2007 +

C:ISolarisll 35

El Trillium 45

• Copperleaf II 0

• Copperleaf I 20

l!!ILarkspur 15

Em ire Economics

CFD NO. 93-1 IA 8C (SUNDANCE - PARDEE) ESTIMATED ABSORPTION SCHEDULES

2008 2009 2010 2011

45 0 0

40 40 22 0

15 35 40 42

25 25 30 35

20 20 25 25

2012

0

0

0

44

0

Jul 31 2007

Aggregate Abscrption Schedules:

CFD No. 93-1 IA SC has some 651 remaining single-family detached homes; the aggregate absorption schedules (escrows closings) for all of the projects, as a whole, are estimated to be as follows:

• July - December 2007: 115 homes; most of these are currently in escrow.

• 2008: 145 homes, due to further softening housing market conditions.

• 2009: 128 homes, as the market starts to stabilize.

• 201 Q 117 homes, as the market continues to stabilize.

• 2011: 102 homes, as the market starts to recover.

• 2012: the remaining 44 homes, as the projects are closed-out.

Absorption Schedules for Each of the Projects:

CFD No. 93-1 IA SC has five projects, and their absorption schedules are estimated to be as follows:

• Larkspur: 105 remaining homes by latter 2011.

• Copperleaf I: 179 remaining homes by late 2012.

• Copperleaf 11: 132 remaining homes by late 2011.

• Trillium: 147 remaining homes by mid 2010.

• Solaris 11: 88 remaining homes by early 2009.

Closing Remarks

The estimated absorption schedules for the residential projects in CFD No. 93-1 IA SC are subject to change due to potential shifts in economic/real estate market conditions and/ or the development strategy by the developer/builders, Pardee/KB Home.

Finally, the estimated absorption schedules, which represent escrow closings to homeowners, are subject to the Assumptions and Qualifications set-forth in the next section.


ESTIMATED ABSORPTION SCHEDULES CITY OF BEAUMONT CFD NO. 93-l lMPROVEMENTAREA 8C

.JULY 30, 2007; SUBJ ECTTO REVISION.

PlaningAreas >> 18 19& 20 22 23 24 Tctals/AvErage;

Prtjects Larksour Coooerleaf I Coooerleaf II Tnlhum Solans II

TaxZme A A A A B

Prcd.Jct Type; Smde-Familv Detached

Builder Pardee Pardee Pardee KB Home Pardee

NurrbEr cf Hornes 110 182 132 155 112 691

Ocrupied: J uly 2007 5 3 0 8 24 40

Future Occupancies: J uly 2007+ 105 179 132 147 88 651

LivingAreas Plan-#1 2,409 1,893 1,650 1,670 1,683 Plan-#2 2,659 2,181 1,925 1,853 1,918

Plan-#3 2,801 2,505 2,125 2,180 2,105

Plan-#4 2,799 2,375 2,337

Plan#S 2,456

Avera~ 2,623 2,345 2,019 4099 1,902 '200

Base Prices Plan-#1 $354,900 $339,900 $305,900 $299,990 $295,900

Plan-#2 $370,900 $349,900 $323,900 $329,990 $310,900

Plan-#3 $380,900 $354,900 $334,900 $332,990 $325,900 Plan-#4 $371,900 $349,900 $339,990

Plan#S $346,990

Avera~ $368,900 $354,150 $328,650 $329,990 $31Q900 $339,197

Value Ratio: Price/living Area $141 $151 $163 $157 $163 $154

Special Taxes -Estimated $2,446 $2,229 $1,944 $2,229 $1,944 $2,163

Ratio: Special Taxes /Prices 066% 0 63% 0 59% 068% 0 63% 064% (Note: Also,AdValcran=l.2'/Yo)

Annually Currulatively

Abscr ption/Occupancies - Future

July 2007 + 15 20 0 45 35 115 115

2008 20 25 15 40 45 145 260

2009 20 25 35 40 8 128 388

2010 25 30 40 22 0 117 505

2011 25 35 42 0 0 102 607

2012 0 44 0 0 0 44 651

Tctals 105 179 132 147 88 651


SECTION VI ASSUMPTIONS AND LIMITING CONDI Tl ONS

The Market Absorption Study is based upon various assumptions and limiting conditions; accordingly, these are as follows:

Property Boundaries No survey or engineering analysis of CFD No. 93-1 IA SC property has been made by the market analyst; the District Engineer's report utilized for the Bond is deemed to be reliable. The market analyst assumes the existing boundaries to be correct, that no encroachments exist and assumes no responsibility for any condition not readily observable from customary investigation and inspection of the premises, which might affect the valuation, excepting those items which were specifically mentioned in the report.

Maps and Exhibits Maps and exhibits included in this report are for illustration only 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.

Title to Property No opinion as to title is rendered. Data related to ownership and legal description, obtained from governmental records related to the formation of the District that forms the basis for identifying the boundaries of CFD No. 93-1 IA SC are considered reliable. 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 evaluated assuming to be under responsible ownership and competent management and available for development to highest and best use.

Earthquakes and Seismic Hazards The property which is the subject of this market analysis is within a geographic area prone to earthquakes and seismic disturbances. Except as specifically indicated in the report, no seismic or geologic studies have been provided to the market analyst concerning the geologic and/or seismic condition of the subject property. The market analyst assumes no responsibility for the possible effect on the subject property of seismic activity and/or earthquakes.

Soil and Geological Studies No detailed soil studies or geological studies or reports were made available to the market analyst. Assumptions employed in this report regarding soils and geologic qualities of the subject property have been provided to the client. However, such assumptions are not conclusive and the market analyst assumes no responsibility for soils or geologic conditions discovered to be different from the conditions assumed unless otherwise stated in this report.

Hidden or Unapparent Conditions The market analyst assumes no responsibility for hidden or unapparent conditions of the property, subsoil, groundwater or structures that render the subject property more or less valuable. No responsibility is assumed for arranging for engineering, geologic or environmental studies that may be required to discover such hidden or unapparent conditions.

Presence and Impact of Hazardous Material Unless otherwise stated in the report, the market analyst did not become aware of the presence of any hazardous material or substance during the market analyst's general inspection of the subject property. However, the market analyst is not qualified to investigate or test for the presence of such materials or substances. The presence of such materials or substances may adversely affect the evaluation of the subject property. The market analyst assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or engineering knowledge required to discover the presence of such substance or material.


Structural Deficiencies of I mpravements The market analyst has not performed a thorough inspection of the subject property, and except as noted in this report has not found obvious evidence of structural deficiencies in any improvements located on the subject property. Consequently, the market analyst assumes no responsibility for hidden defects or nonconformity with specific governmental requirements, such as fire, building and safety, earthquake or occupancy codes, unless inspections by qualified independent professions or governmental agencies were provided to the market analyst. Further, the market analyst is not a licensed engineer or architect and assumes no responsibility for structural deficiencies not apparent to the market analyst at the time of their inspection.

Presence of Asbestos The market analyst is not aware of the existence of asbestos in any existing improvements on the subject property. However, the market analyst is not trained to discover the presence of asbestos and assumes no responsibility should asbestos be found in or at the subject property. For the purposes of this report, the market analyst assumes the subject property is free of asbestos and the subject property meets all federal, state and local laws regarding asbestos abatement.

Environmental and Other Regulations The property is evaluated assuming it to be in full compliance with all applicable federal, state and local environmental regulations and laws, unless otherwise stated.

Required Permits and Other Gavernmental Authority Unless otherwise stated, the property evaluated is assumed to have all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national government or private entity or organization that have been or can be obtained or renewed for any use on which the evaluation analysis contained in this report is based upon.

Designated Economic Scenario The Market Absorption Study focuses upon the expected absorption schedules for the products in CFD No. 93-1 IA SC according to the designated economic scenario. Specifically, this scenario represents the economic and real estate conditions for the Market Region and also the Market Area during the foreseeable future according to the most probable conditions, and this is regarded as being appropriate for the Bond Financing. However, the economic and market conditions which actually materialize on a year by year basis may differ from those presented according to the designated economic scenario, as a result of exogenous factors which are difficult to forecast/quantify. Accordingly, the designated scenario should be utilized as an economic framework for evaluating the marketing prospects of the properties within CFD No. 93-1 IA SC rather than a "literal" representation of what is expected to occur on a year/year basis during the foreseeable future.

Pravision of the Infrastructure The Market Absorption Study assumes that the governmental agencies that supply public facilities and services, including water, provide these in a timely manner so that the proposed products/projects in CFD No. 93-1 IA SC can respond to the expected market demand for their products. Otherwise, if the required infrastructure is not available in a timely manner, then the absorption of the products/projects could be adversely impacted.

Developer ;builders Responsiveness to Market Conditions The Market Absorption Study assumes that the developer/builders in CFD No. 93-1 IA SC responds to the market conditions with products that are competitively priced and have the features/amenities that are desired by the purchasers. Specifically, some of the products in CFD No. 93-1 IA SC have not yet entered the marketplace, and so the specific characteristics of their product types cannot be identified until they actually offer products on the marketplace. Consequently, to the extent that future products/projects have prices/features that differ from the competitive market standards, then their absorption schedules would need to be modified from those presented according to the designated economic scenario.


Financial Strength cf the Project Developer ;builders The Market Absorption Study assumes that the project developer/builders in CFD No. 93-1 IA SC (and also the lenders) have sufficient financial strength to adequately fund their projects, including paying their Special Taxes/ Assessments, and that they have sufficient financial reserves which could be utilized to supplement their cash flow positions, in the event that adverse economic or market conditions occur.

Accuracy of Information from Others In preparing this report, the market analyst was required to rely on information furnished by other individuals or found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either expressed or implied, is given by the market analyst for the accuracy of such information and the market analyst assumes no responsibility for information relied upon and later found to have been inaccurate. The market analyst 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.

Liability of Market Analyst The liability of Empire Economics, the market analyst responsible for this report, is limited to the client only and to the fee actually received by the market analyst. 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 limiting conditions and assumptions of the assignment and related discussion. The market analyst is in no way to be responsible for any costs incurred to discover or correct any deficiencies or any type present in the property--physical, financial, and/or legal.

T esti many or Court Attendance Testimony or attendance in court or at any other hearing is not required by reason of rendering this market analysis, unless such arrangements are made a reasonable time in advance of said hearing. Separate arrangements would need to be made concerning compensation for the market analyst's time to prepare for and attend any such hearing.

Right cf Publication of Report Possession of this report, or a copy ofit, does not carry with it the right of publication except for the party to whom it is addressed. Without the written consent of the market analyst, 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 properly written qualification and only in its entirety for its stated purpose.

Timeliness of the Market Absorption Study The Market Absorption Study performs a comprehensive analysis of the relevant land-use, economic and residential market conditions that are expected to influence the marketing success of the products/projects in CFD No. 93-1 IA SC. Nevertheless, the Study should be dated within six-months of the Bond Sale, or even sooner, should these landuse and/or economic market as well as real estate conditions change significantly.


APPENDIX E AMENDEDAND RESTATED RATE AND METHOD OF

APPORTIONMENT

E-1

RECORDING REQUESTED BY, AND WHEN RECORDED, RETURN TO:

City Manager City of Beaumont 550 East Sixth Street Beaumont, California 92223

AMENDED NOTICE OF SPECIAL TAX LIEN (Improvement Area No. 8C

of Community Facilities District No. 93-1 of the City of Beaumont)

Pursuant to the requirements of Sections 3114. 5 and 3117. 5 of the Streets and Highways Code of the State of California and Section 53328.3 of the Government Code of the State of California, the undersigned City Manager of the City of Beaumont, State of California, hereby gives notice that a lien to secure payment of a special tax is hereby imposed by the City Council of the City of Beaumont, State of California, acting as the legislative body of Community Facilities District No. 93-1 (the "District") with respect to Improvement Area No. 8C of said District. The special tax secured by this lien is authorized to be levied for the purpose of: (I) paying principal of and interest on bonds or other debt, the proceeds of which are being used to finance the acquisition and construction of public infrastructure facilities (the "Facilities"), including transportation facilities, domestic water facilities, recycled water facilities, sewer transmission and treatment facilities, traffic signals and street lighting facilities, public safety, public works and administrative facilities, watershed management and storm drain facilities, regional park and open space and trail facilities and financing costs and incidentals, (2) paying (without bonds) the cost of the Facilities, and (3) providing services related to the Facilities, together with necessary appurtenances thereto and site and right-of-way acquisition, and all other expenses incidental thereto and for administrative costs related to the bonds and the District.

The special tax is authorized to be levied on property within Improvement Area No. 8C of the District which has now been officially formed, and the lien of the special tax is a continuing lien which shall secure the annual levy of the special tax and which shall continue in force and effect until the special tax obligation is prepaid, permanently satisfied and canceled in accordance with law or until the special tax ceases to be levied and a notice of cessation of special tax is recorded in accordance with Section 53330. 5 of the California Government Code.

The rate, method of apportionment, as amended and restated, and manner of collection of the authorized special tax for Improvement Area No. 8C (the "Amended Rate and Method of Apportionment") is shown on Exhibit A, attached hereto and incorporated herein by this reference. The special tax shall be collected in the same manner as ordinary advaloremproperty taxes are collected and shall be subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ad valoremtaxes. Conditions, if any, under which the obligation to pay the special tax may be prepaid and permanently satisfied and the lien of special tax canceled shall be determined in accordance with the Amended Rate and Method of Apportionment.

Notice is further given that upon the recording of this notice in the office of the County Recorder for the County of Riverside, the obligation to pay the special tax shall become a lien upon all non-exempt real property within Improvement Area No. 8C of City of Beaumont Community Facilities District No. 93-1 in accordance with Section 3115.5 of the Streets and Highways Code.

I AppendixE

The names of the owners of the real property included within Improvement Area No. 8C and the legal description of the real property included within Improvement Area No. 8C and not exempt from the special tax as they appear on the latest secured assessment roll as of the date of recording of this notice or as otherwise known to the City Manager of the City of Beaumont are listed on Exhibit B, attached hereto and made a part hereof by this reference.

This Amended Notice of Special Tax Lien supersedes the Notice of Special Tax Lien previously recorded as instrument number 2CXX'i--0455240onJ une 23, 2cn; in theofficeoftheCounty Recorder for the County of Riverside, State of California.

Reference is made to the amended boundary map of City of Beaumont Community Facilities District No. 93-1 recorded in the office of the County Recorder of the County of Riverside, State of California, on April 28, 2006 as Instrument No. 2006-0311422, Book No. 66 of Maps of Assessment and Community Facilities at Page 41, in compliance with Section 3110, et seq., of the Streets and Highways Code of the State of California and the Act, which map is now the final boundary map of the District and the Improvement Areas therein.

For further information concerning the current and estimated future tax liability of owners or purchasers of real property subject to this special tax lien, interested persons should contact:

City Manager City of Beaumont 550 East Sixth Street Beaumont, California 92223 (951) 769-8520

DATED: May 21, 2007

City Manager, City of Beaumont

2 AppendixE

Exhibit A

AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT FOR IMPROVEMENT AREA NO. SC (SUNDANCE) OF COMM UNITY FACILITIES DISTRICT NO. 93-1

OF THE CITY OF BEAUMONT

A Special Tax as hereinafter defined shall be levied on and collected in Improvement Area No. 8C ("IA No. 8C") of Community Facilities District No. 93-1 of the City of Beaumont ("CFD No. 93-1") each Fiscal Year, in an amount determined by the City Council of the City of Beaumont through the application of the appropriate Special Tax for "Developed Property," "Final Map Property," and "Undeveloped Property," as described below. All of the real property in IA No. 8C of CFD No. 93-1, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent, and in the manner herein provided.

SECTION A DEFINITIONS

The terms hereinafter set forth have the following meanings:

"Acre or Acreage" means the land area of an Assessor's Parcel as shown on an Assessor's Parcel Map, or if the land area is not shown on an Assessor's Parcel Map, the land area shown on the applicable final map, parcel map, condominium plan, or other recorded County parcel map. The square footage of an Assessor's Parcel is equal to the Acreage multiplied by 43,560.

"Act" means the Mello-Roos Communities Facilities Act of 1982 as amended, being Chapter 2.5, Division 2 of Title 5 of the Govermnent Code of the State of California.

"Administrative Expenses" means any ordinary and necessary expense incurred by the City to carry out the administration of IA No. 8C of CFD No. 93-1 related to the determination of the amount of the levy of Special Taxes, the collection of Special Taxes including the expenses of collecting delinquencies, the administration of Bonds, the payment of salaries and benefits of any City employee whose duties are directly related to the administration ofIA No. 8C, and costs otherwise incurred in order to carry out the authorized purposes ofIA No. 8C.

"Assessor's Parcel" means a lot or parcel ofland designated on an Assessor's Parcel Map with an assigned Assessor's Parcel Number within the boundaries of CFD No. 93-1.

"Assessor's Parcel Map" means an official map of the Assessor of the County designating parcels by Assessor's Parcel Number.

"Assessor's Parcel Number" means that number assigned to an Assessor's Parcel by the County for purposes of identification.

"Assigned Special Tax for Facilities" means the Special Tax of that name described in Section D below.

"Backup Special Tax for Facilities" means the Special Tax of that name described in Section E below.

"Bonds" means any obligation to repay a sum of money, including obligations in the form of bonds, notes, certificates of participation, long-term leases, loans from govermnent agencies, or loans from banks, other

A-1 AppendixE

financial institutions, private businesses, or individuals, or long-term contracts, or any refunding thereof, to which Special Taxes for Facilities have been pledged.

"Building Permit" means a permit for new construction for a residential dwelling or non-residential structure. For purposes of this defmition, "Building Permit" shall not include permits for construction or installation of retaining walls, utility improvements, or other such improvements not intended for human habitation.

"Building Square Footage" or "BSF" means the square footage of assessable internal living space, exclusive of garages or other structures not used as living space, as determined by reference to the building permit application for such Assessor's Parcel.

" Calendar Year" means the period commencing January I of any year and ending the following December 31.

"CFD Administrator" means an official of the City, or designee thereof, responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes.

"CFD No. 93-1" means Community Facilities District No. 93-1 established by the City under the Act.

" City" means the City of Beaumont.

"City Council" means the City Council of the City, acting as the Legislative Body of CFD No. 93-1, or its designee.

"Consumer Price Index'' means the index published monthly by the U.S. Department of Labor, Bureau of Labor Statistics for all urban consumers in the Los Angeles-Riverside-Orange County area.

"County" means the County of Riverside.

"De.tel oped Property" means all Assessor's Parcels that: (i) were issued Building Permits on or before June I" preceding the Fiscal Year in which the Special Tax is being levied, and (ii) were created on or before the January 1st preceding the Fiscal Year in which the Special Tax is being levied, and that each such Assessor's Parcel is associated with a Lot, as reasonably determined by the City.

"Exempt Property" means all Assessor's Parcels designated as being exempt from Special Tax as determined in Section J.

" Final Map" means a subdivision of property evidenced by the recordation of a fmal map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq) or the recordation of a condominium plan pursuant to California Civil Code 13 52 that creates individual lots for which Building Permits may be issued without further subdivision.

"Final Map Property" means all Assessor's Parcels: (i) that are included in a Final Map that was recorded prior to the January I" preceding the Fiscal Year in which the Special Tax is being levied, and (ii) for which a Building Permit was not issued prior to the June 1st preceding the Fiscal Year in which the Special Tax is being levied.

"Fiscal Year" means the period commencing on July I of any year and ending the following June 30.

"I mprcwement Area No. SC" or "I A No. SC" means Improvement Area No. 8C as depicted on the boundary map of CFD No. 93-1.

A-2 AppendixE

"Lat" means an individual legal lot created by a Final Map, identified by an Assessor's Parcel Number for which a Building Permit could be issued.

"Maxi mum Special Tax'' means the Maximum Special Tax for Facilities and Maximum Special Tax for Services.

"Maxi mum Special Tax for Faci Ii ties" means the maximum Special Tax, determined in accordance with Section C that can be levied by CFD No. 93-1 in any Fiscal Year on any Assessor's Parcel.

"Maximum Special Tax for Services" means the maximum Special Tax, determined in accordance with Section C that can be levied by CFD No. 93-1 in any Fiscal Year on any Assessor's Parcel.

"Non-Residential Property" means all Assessor's Parcels of Developed Property for which a Building Permit was issued for any type of non-residential use.

"Operating Fund" means a fund that shall bemaintainedforIANo. 8C ofCFD No. 93-1 for any Fiscal Year to pay for the actual costs of maintenance, repair, and replacement of the Service Area, and the Administrative Expenses.

"Operating Fund Balance'' means the amount of funds in the Operating Fund at the end of the preceding Fiscal Year.

"Partial Prepayment Amount" means the amount required to prepay a portion of the Special Tax for Facilities obligation for an Assessor's Parcel, as described in Section H.

"Prepayment Amount" means the amount required to prepay the Special Tax for Facilities obligation in full for an Assessor's Parcel, as described in Section G.

"Proportionately" means that (i) the ratio of the actual Special Tax for Facilities levy to the applicable Assigned Special Tax for Facilities is equal for all applicable Assessor's Parcels and (ii) the ratio of the actual Special Tax for Services levy to the applicable Maximum Special Tax for Services is equal for all applicable Assessor's Parcels. In case of Developed Property subject to the apportionment of the Special Tax for Facilities under step four of Section F, "Proportionately" in step four means that the quotient of (a) the actual Special Tax for Facilities levy less the Assigned Special Tax for Facilities divided by (b) the Backup Special Tax for Facilities less the Assigned Special Tax for Facilities, is equal for all applicable Assessor's Parcels.

"Residential Property" means all Assessor's Parcels ofDeveloped Property for which a Building Permit has been issued for purposes of constructing one or more residential dwelling units.

"Service Area" means the landscape parkways, neighborhood park, easements and green belts within the boundaries of IA No. 8C and the City of Beaumont, and IA No. 8C's fair share of storm drain and flood control facilities.

"Special Tax'' means Special Tax for Facilities and Special Tax for Services.

"Special Tax for Facilities" means any of the special taxes authorized to be levied by CFD No. 93-1 pursuant to the Act to fund the Special Tax Requirement for Facilities.

"Special Tax for Services" means any of the special taxes authorized to be levied by CFD No. 93-1 pursuant to the Act to fund the Special Tax Requirement for Services.

A-3 AppendixE

"Special Tax Requirement" means Special Tax Requirement for Facilities and Special Tax Requirement for Services.

"Special Tax Requirement for Facilities" means the amount required in any Fiscal Year forIA No. 8C to pay: (i) the debt service or the periodic costs on all outstanding Bonds due in the Calendar Year that commences in such Fiscal Year, (ii) Administrative Expenses, (iii) the costs associated with the release of funds from an escrow account, (iv) any amount required to establish or replenish any reserve funds established in association with the Bonds, and (v) the collection or accumulation of funds for the acquisition or construction of facilities authorized by IA No. 8C provided that the inclusion of such amount does not cause an increase in the levy of Special Tax for Facilities on Final Map Property or Undeveloped Property, less (vi) any amount available to pay debt service or other periodic costs on the Bonds pursuant to any applicable bond indenture, fiscal agent agreement, or trust agreement.

"Special Tax Requirement for Services" means the amount determined in any Fiscal Year for IA No. 8C equal to (i) the budgeted costs of the maintenance, repair and replacement of the Service Area which have been accepted and maintained or are reasonably expected to be accepted and maintained during the current Fiscal Year, (ii) Administrative Expenses, and (iii) anticipated delinquent Special Taxes for Services based on the delinquency rate in IA No. 8C for the previous Fiscal Year, less (iv) the Operating Fund Balance.

"Taxable Property" means all Assessor's Parcels within CFD No. 93-1 which are not Exempt Property.

"Undeveloped Property" means all Assessor's Parcels of Taxable Property which are not Developed Property or Final Map Property.

"Zone A" means a specific geographic area as depicted in Attachment No. 2 attached hereto.

"Zone B" means a specific geographic area as depicted in Attachment No. 2 attached hereto.

SECTION B CLASSIFICATION OF ASSESSOR'S PARCELS

Each Fiscal Year, beginning with Fiscal Year 2006-2007, each Assessor's Parcel within IA No. 8C shall be classified as Taxable Property or Exempt Property. In addition, each Assessor's Parcel of Taxable Property shall be further classified as Developed Property, Final Map Property or Undeveloped Property. Lastly, each Assessor's Parcel of Developed Property shall further be classified as Residential Property or Non Residential Property.

1. Developed Property

SECTION C MAXIMUM SPECIAL TAXES

a. The Maximum Special Tax for Facilities for each Assessor's Parcel ofResidential Property that is classified as Developed Property in any Fiscal Year, shall be the amount determined by the greater of (i) the application of the Assigned Special Tax for Facilities in Table I or (ii) the application of the Backup Special Tax for Facilities. The Maximum Special Tax for Facilities for each Assessor's Parcel of Non-Residential Property that is classified as Developed Property in any Fiscal Year shall be the Assigned Special Tax for Facilities in Table I of Section D.

b. Prior to the issuance of Bonds, the Assigned Special Tax for Facilities on Developed Property set forth in Table I and the Assigned Special Tax for Facilities on Final Map Property and Undeveloped Property set forth in Section D.2 may be reduced in accordance with, and subject to

A-4 AppendixE

the conditions set forth in this paragraph. If it is reasonably determined by the CFD Administrator that the overlapping debt burden ( as def med in the Statement of Goals and Policies for the Use of the Mello-Roos Community Facilities Act of 1982 adopted by the City Council, the "Goals and Policies") calculated pursuant to the Goals and Policies exceeds the City's maximum level objective set forth in such document, the Maximum Special Tax for Facilities on Developed Property may be reduced (by modifying Table I) to the amount necessary to satisfy the City's objective with respect to the maximum overlapping debt burden level with the written consent of the CFD Administrator. In order to reduce the Maximum Special Tax for Facilities on Developed Property it may be necessary to reduce the Maximum Special Tax for Facilities for Final Map Property and Undeveloped Property. The reductions permitted pursuant to this paragraph shall be reflected in an amended Notice of Special Tax Lien which the City shall cause to be recorded by executing a certificate in substantially the form attached hereto as Attachment No. I.

c. The Maximum Special Tax for Services for each Assessor's Parcel of Residential Property that is classified as Developed Property for Fiscal Year 2006-2007 shall be $265.90 per dwelling unit. The Maximum Special Tax for Services for each Assessor's Parcel of Non-Residential Property that is classified as Developed Property for Fiscal Year 2006-2007 shall be $1,649 per Acre. On each July I, commencing July I, 2007, the Maximum Special Tax for Services for the prior Fiscal Year shall be adjusted by an amount equal to the percentage change in the Consumer Price Index for the Calendar Year ending in December of the prior Fiscal Year.

2. Final Map Property

a. The Maximum Special Tax for Facilities for each Assessor's Parcel classified as Final Map Property shall be the Assigned Special Tax for Facilities in Section D.

b. The Maximum Special Tax for Services for each Assessor's Parcel classified as Final Map Property in Fiscal Year 2006-2007 shall be $1,649 per Acre. On each July I, commencing July I, 2007, the Maximum Special Tax for Services for the prior Fiscal Year shall be adjusted by an amount equal to the percentage change in the Consumer Price Index for the Calendar Year ending in December of the prior Fiscal Year.

3. Undeveloped Property

The Maximum Special Tax for Facilities for each Assessor's Parcel classified as Undeveloped Property shall be the Assigned Special Tax for Facilities in Section D.

A-5 AppendixE

SECTION D ASSIGNED SPECIAL TAX FOR FACILITIES

1. Developed Property

Each Fiscal Year, each Assessor's Parcel of Developed Property shall be subject to an Assigned Special Tax for Facilities. The Assigned Special Tax for Facilities applicable to an Assessor's Parcel of Developed Property within Zone A and Zone B for any Fiscal Year shall be determined pursuant to Table 1 below.

TABLE 1

ASSIGNED SPECIAL TAX RATES FOR FACILITIES FOR DEVELOPED PROPERTY

Land Use Type Building Square Footage Assigned Special Tax for Facilities for Fiscal Year 2006-2007

Residential Property Less than 1,901 $1,558 per dwelling unit

Residential Property 1,901 - 2,150 $1,684 per dwelling unit





Residential Property Greater than 3,650 $2,583 per dwelling unit

Non-Residential Zone A NIA $12,592 per Acre

Non-Residential Zone B NIA $19,933 per Acre

2. Final Map Property and Undeveloped Property

Each Fiscal Year, each Assessor's Parcel of Final Map Property and Undeveloped Property shall be subject to an Assigned Special Tax for Facilities. The Assigned Special Tax for Facilities for an Assessor's Parcel classified as Final Map Property or Undeveloped Property for Fiscal Year 2006-2007 shall be $12,592 per Acre for Zone A and $19,933 per Acre for Zone B.

3. Increase in the Assigned Special Tax for Facilities

On each July 1, conunencing on July 1, 2007, the Assigned Special Tax for Facilities for each Assessor's Parcel of Developed Property, Final Map Property, and Undeveloped Property shall be increased by two percent (2.00%) of the amount in effect in the prior Fiscal Year.

SECTION E BACKUP SPECIAL TAXES FOR FACILITIES

Each Fiscal Year, each Assessor's Parcel of Developed Property classified as Residential Property shall be subject to a Backup Special Tax for Facilities. In each Fiscal Year, the Backup Special Tax for Facilities rate for Developed Property classified as Residential Property within a Final Map shall be the rate per Lot

A-6 AppendixE

calculated according to the following formula:

RxA B - -------------------

L

The terms above have the following meanings:

B Backup Special Tax for Facilities per Lot in each Fiscal Year

R Maximum Special Tax for Facilities rate per Acre for Undeveloped Property for the applicable Fiscal Year

A Acreage of Developed Property classified or to be classified as Residential Property in such Final Map.

L Lots in the Final Map which are classified or to be classified as Residential Property.

Each July 1, commencing on July 1, 2007, the Backup Special Tax for each Assessor's Parcel shall be increased by two percent (2.00%) of the amount in effect in the prior Fiscal Year.

Notwithstanding the foregoing, if all or any portion of the Final Map(s) described in the preceding paragraph is subsequently changed or modified, then the Backup Special Tax for Facilities for each Assessor's Parcel of Developed Property classified or to be classified as Residential Property in such Final Map area that is changed or modified shall be a rate per square foot of Acreage calculated as follows:

I. Determine the total Backup Special Tax for Facilities anticipated to apply to the changed or modified Final Map area prior to the change or modification.

2. The result of paragraph 1 above shall be divided by the Acreage of Developed Property classified or to be classified as Residential Property which is ultimately expected to exist in such changed or modified Final Map area, as reasonably determined by the City.

3. The result of paragraph 2 above shall be divided by 43,560. The result is the Backup Special Tax for Facilities per square foot of Acreage which shall be applicable to Assessor's Parcels of Developed Property classified as Residential Property in such changed or modified Final Map area for all remaining Fiscal Years in which the Special Tax for Facilities may be levied.

SECTION F METHOD OF APPORTIONMENT OF THE SPECIAL TAX FOR FACILITIES AND THE

SPECIAL TAX FOR SERVICES

I. Commencing Fiscal Year 2006-2007 and for each subsequent Fiscal Year, the City Council shall levy a Special Tax for Facilities on all Taxable Property within IA No. 8C until the amount of Special Tax for Facilities equals the Special Tax Requirement for Facilities in accordance with the following steps:

Step One: The Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax for Facilities rates in Table 1 as needed to satisfy the Special Tax Requirement for Facilities.

A-7 AppendixE

Step Two:

Step Three:

Step Four:

Step Five:

If additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first step has been completed, the Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Final Map Property, at up to 100% of the Assigned Special Tax for Facilities applicable to each such Assessor's Parcel as needed to satisfy the Special Tax Requirement for Facilities.

If additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first two steps have been completed, the Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property, excluding any Undeveloped Property pursuant to Section J, at up to 100% of the Assigned Special Tax for Facilities applicable to each such Assessor's Parcel as needed to satisfy the Special Tax Requirement for Facilities.

If additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first three steps have been completed, then for each Assessor's Parcel of Developed Property whose Maximum Special Tax for Facilities is the Backup Special Tax for Facilities shall be increased Proportionately from the Assigned Special Tax for Facilities up to 100% of the Backup Special Tax for Facilities as needed to satisfy the Special Tax Requirement for Facilities.

If additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first four steps have been completed, the Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property classified as Undeveloped Property pursuant to Section J at up to 100% of the Assigned Special Tax for Facilities applicable to each such Assessor's Parcel as needed to satisfy the Special Tax Requirement for Facilities.

2. Commencing Fiscal Year 2006-2007 and for each subsequent Fiscal Year, the City Council shall levy a Special Tax for Services on all Taxable Property within IA No. 8C until the amount of Special Tax for Services equals the Special Tax Requirement for Services in accordance with the following steps:

Step One:

Step Two:

The Maximum Special Tax for Services shall be levied Proportionately on each Assessor's Parcel of Developed Property at up to 100% of the applicable Maximum Special Tax for Services as needed to satisfy the Special Tax Requirement for Services.

If additional moneys are needed to satisfy the Special Tax Requirement for Services after the first step has been completed, the Maximum Special Tax for Services shall be levied Proportionately on each Assessor's Parcel of Final Map Property, at up to 100% of the Maximum Special Tax for Services applicable to each such Assessor's Parcel as needed to satisfy the Special Tax Requirement for Services.

Under no circumstances will the Special Tax for Facilities or the Special Tax for Services levied against any Assessor's Parcel used as a private residence be increased as a consequence of delinquency or default by the owner of any other Assessor's Parcel or Parcels within CFD No. 93-1 by more than ten (10) percent of the Special Tax that would be levied in that Fiscal Year, if there were no delinquencies, pursuant to California Government Code Section 5332l(d), as in effect on the date of formation ofCFD No. 93-1.

A-8 AppendixE

SECTION G

PREPAYMENT OF SPECIAL TAX FOR FACILITIES

The following definitions apply to this Section G:

"CFD Public Facilities" means $19,200,000 expressed in 2007 dollars, which shall increase by the Construction Inflation Index on January 1, 2008, and on each January 1 thereafter, or such lower number as ( i) shall be determined by the City as sufficient to provide the public facilities under the authorized bonding program for CFD No. 93-1, or (ii) shall be determined by the City Council concurrently with a covenant that it will not issue any more Bonds to be supported by Special Taxes levied under this Rate and Method of Apportionment.

" Construction Fund" means an account specifically identified in the Indenture or functionally equivalent to hold funds which are currently available for expenditure to acquire or construct public facilities eligible under CFD No. 93-1.

"Construction Inflation Index'' means the annual percentage change in the Engineering News-Record Building Cost Index for the City of Los Angeles, measured as of the Calendar Year which ends in the previous Fiscal Year. In the event this index ceases to be published, the Construction Inflation Index shall be another index as determined by the City that is reasonably comparable to the Engineering News-Record Building Cost Index for the City of Los Angeles.

"Future Facilities Costs'' means the CFD Public Facilities minus public facility costs available to be funded through existing construction or escrow accounts or funded by the Outstanding Bonds, and minus public facility costs funded by interest earnings on the Construction Fund actually earned prior to the date of prepayment.

"Outstanding Bands" means all previously issued bonds issued and secured by the levy of Special Tax for Facilities which will remain outstanding after the first interest and/or principal payment date following the current Fiscal Year, excluding bonds to be redeemed at a later date with the proceeds of prior prepayments of the Maximum Special Tax for Facilities.

The Special Tax for Facilities obligation of an Assessor's Parcel of Developed Property, an Assessor's Parcel of Final Map Property or Undeveloped Property for which a Building Permit has been issued or an Assessor's Parcel of Undeveloped Property that is classified as Undeveloped Property pursuant to Section J may be prepaid in full, provided that there are no delinquent Special Taxes, penalties, or interest charges outstanding with respect to such Assessor's Parcel at the time the Special Tax for Facilities obligation would be prepaid. The Prepayment Amount for an Assessor's Parcel eligible for prepayment shall be determined as described below.

An owner of an Assessor's Parcel intending to prepay the Special Tax for Facilities obligation shall provide the City with written notice of intent to prepay, and within 5 days of receipt of such notice, the City shall notify such owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by CFD No. 93-1 in calculating the proper amount of a prepayment. Within 15 days of receipt of such nonrefundable deposit, the City shall notify such owner of the prepayment amount of such Assessor's Parcel.

A-9 AppendixE

The Prepayment Amount for each applicable Assessor's Parcel shall be calculated according to the following formula ( capitalized terms defmed below):

plus plus plus plus less equals

Bond Redemption Amount Redemption Premium Future Facilities Amount Defeasance Administrative Fee Reserve Fund Credit Prepayment Amount

As of the date of prepayment, the Prepayment Amount shall be calculated as follows:

1. For Assessor's Parcels of Developed Property, compute the Assigned Special Taxes for Facilities and the Backup Special Taxes for Facilities applicable to the Assessor's Parcel. For Assessor's Parcels of Final Map Property or Undeveloped Property, excluding any Undeveloped Property pursuant to Section J, compute the Assigned Special Tax for Facilities and the Backup Special Tax for Facilities applicable to the Assessor's Parcel as though it was already designated as Developed Property based upon the Building Permit issued or to be issued for that Assessor's Parcel. For Assessor's Parcels classified as Undeveloped Property pursuant to Section J, compute the Assigned Special Tax for Facilities.

2. For each Assessor's Parcel of Developed Property, Final Map Property, Undeveloped Property, or Undeveloped Property pursuant to Section J to be prepaid, (a) divide the Assigned Special Tax for Facilities computed pursuant to paragraph 1 for such Assessor's Parcel by the sum of the estimated Assigned Special Tax for Facilities applicable to all Assessor's Parcels of Taxable Property at buildout, as reasonably determined by the City, and (b) divide the Backup Special Tax for Facilities computed pursuant to paragraph 1 for such Assessor's Parcel by the sum of the estimated Backup Special Tax for Facilities applicable to all Assessor's Parcels of Taxable Property at buildout, as reasonably determined by the City.

3. Multiply the larger quotient computed pursuant to paragraph 2(a) or 2(b) by Outstanding Bonds. The product shall be the "Bond Redemption Amount."

4. Multiply the Bond Redemption Amount by the applicable redemption premium, if any, on the Outstanding Bonds to be redeemed with the proceeds of the Bond Redemption Amount. This product is the "Redemption Premium."

5. Compute the Future Facilities Cost.

6. Multiply the larger quotient computed pursuant to paragraph 2 (a) or 2 (b) by the amount determined pursuant to paragraph 5 to determine the Future Facilities Cost to be prepaid (the "Future Facilities Amount").

7. Compute the amount needed to pay interest on the Bond Redemption Amount to be redeemed with the proceeds of the Prepayment Amount until the earliest call date for the Outstanding Bonds.

A-10 AppendixE

8. Estimate the amount of interest earnings to be derived from the reinvestment of the Bond Redemption Amount plus the Redemption Premium until the earliest call date for the Outstanding Bonds.

9. Subtract the amount computed pursuant to paragraph 8 from the amount computed pursuant to paragraph 7. This difference is the "Defeasance."

10. Estimate the administrative fees and expenses associated with the prepayment, including the costs of computation of the Prepayment Amount, the costs of redeeming Bonds, and the costs of recording any notices to evidence the prepayment and the redemption. This amount is the "Administrative Fee."

11. Calculate the "Reserve Fund Credit" as the lesser of: (a) the expected reduction in the applicable reserve requirements, if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirements in effect after the redemption of Outstanding Bonds as a result of the prepayment from the balance in the applicable reserve funds on the prepayment date. Notwithstanding the foregoing, if the reserve fund requirement is satisfied by a surety bond or other instrument at the time of the prepayment, then no Reserve Fund Credit shall be given. Notwithstanding the foregoing, the Reserve Fund Credit shall in no event be less than 0.

12. The Prepayment Amount is equal to the sum of the Bond Redemption Amount, the Redemption Premium, the Future Facilities Amount, the Defeasance, and the Administrative Fee, less the Reserve Fund Credit.

With respect to the Special Tax for Facilities obligation that is prepaid pursuant to this Section G, the City Council shall indicate in the records of CFD No. 93-1 that there has been a prepayment of the Special Tax for Facilities obligation and shall cause a suitable notice to be recorded in compliance with the Act within thirty (30) days of receipt of such prepayment to indicate the prepayment of the Special Tax for Facilities obligation and the release of the Special Tax for Facilities lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such Special Taxes for Facilities shall cease.

Notwithstanding the foregoing, no prepayment will be allowed unless the amount of Special Tax for Facilities that may be levied on Taxable Property, net of Administrative Expenses, shall be at least I. I times the regularly scheduled annual interest and principal payments on all currently Outstanding Bonds in each future Fiscal Year.

SECTION H PARTIAL PREPAYMENT OF SPECIAL TAX FOR FACILITIES

The Special Tax for Facilities obligation of an Assessor's Parcel of Developed Property or an Assessor's Parcel of Undeveloped Property for which a Building Permit has been issued and will be classified as Developed Property in the next Fiscal Year, as calculated in this Section H below, may be partially prepaid, provided that there are no delinquent Special Taxes, penalties, or interest charges outstanding with respect to such Assessor's Parcel at the time the Special Tax for Facilities obligation would be prepaid.

A-11 AppendixE

The Partial Prepayment Amount shall be calculated according to the following formula:

PP~((PG-A)xF)+A

The terms above have the following meanings:

PP ~ the Partial Prepayment Amount. PG ~ the Prepayment Amount calculated according to Section G. F ~ the percent by which the owner of the Assessor's Parcel is partially prepaying the

Special Tax for Facilities obligation. A~ the Administrative Fee calculated according to Section G.10.

With respect to any Assessor's Parcel that is partially prepaid, the City Council shall indicate in the records of CFD No. 93-1 that there has been a partial prepayment of the Special Tax for Facilities obligation and shall cause a suitable notice to be recorded in compliance with the Act within thirty (30) days of receipt of such partial prepayment of the Special Tax for Facilities obligation, to indicate the partial prepayment of the Special Tax for Facilities obligation and the partial release of the Special Tax for Facilities lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such prepaid portion of the Special Tax for Facilities for shall cease.

MANDATORY PARTIAL PRE PAYMENT: Prior to the close of escrow for the first transfer of title of any Developed Parcel after the date on which a Certificate of Occupancy for such Parcel was issued by the City, the Maximum Special Tax shall be subject to mandatory partial prepayment in a amount necessary to bring the Total Property Tax Burden for the then-current Fiscal Year to an amount less than or equal to 2% of the sale price of the Parcel. The amount required shall be due and payable upon transfer of title. No prepayment shall be required if the Total Property Tax Burden is not in excess of the 2% limit. The Builder shall notify the City in writing of the mandatory partial prepayment requirement at least 30 days prior to close of escrow. The City shall calculate and determine the prepayment amount using the methodology for a partial prepayment herein, such that the partial prepayment shall be in the exact percentage required for a Total Property Tax Burden not in excess of the 2% limit.

Notwithstanding the foregoing, no partial prepayment will be allowed unless the amount of Special Tax for Facilities that may be levied on Taxable Property after such partial prepayment, net of Administrative Expenses, shall be at least I. I times the regularly scheduled annual interest and principal payments on all currently Outstanding Bonds in each future Fiscal Year.

SECTION I TERMINATION OF SPECIAL TAX

For each Fiscal Year that any Bonds are outstanding the Special Tax for Facilities shall be levied on all Assessors' Parcels subject to the Special Tax for Facilities. If any delinquent Special Tax for Facilities remain uncollected prior to or after all Bonds are retired, the Special Tax for Facilities may be levied to the extent necessary to reimburse CFD No. 93-1 for uncollected Special Tax for Facilities associated with the levy of such Special Tax for Facilities, but not later than the 2050-2051 Fiscal Year. The Special Tax for Services shall be levied as long as it is needed to meet the Special Tax Requirement for Services, as determined at the sole discretion of the City Council.

A-12 AppendixE

SECTIONJ EXEMPTIONS

The City shall classify as Exempt Property (i) Assessor's Parcels owned by the State of California, Federal or other local governments, (ii) Assessor's Parcels which are used as places of worship and are exempt from ad valoremproperty taxes because they are owned by a religious organization, (iii) Assessor's Parcels used exclusively by a homeowner's association, or (iv) Assessor's Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement, provided that no such classification would reduce the sum of all Taxable Property to less than 87.34 Acres for Zone A and 9.23 Acres for Zone B. Notwithstanding the above, the City Council shall not classify an Assessor's Parcel as Exempt Property if such classification would reduce the sum of all Taxable Property to less than 87.34 Acres for Zone A and 9.23 Acres for Zone B. Assessor's Parcels which cannot be classified as Exempt Property because such classification would reduce the Acreage of all Taxable Property to less than 87.34 Acres for Zone A and 9.23 Acres for Zone B will continue to be classified as Undeveloped Property, and will continue to be subject to Special Taxes accordingly.

SECTION K APPEALS

Any property owner claiming that the amount or application of the Special Tax is not correct may file a written notice of appeal with the City Council not later than twelve months after having paid the first instalhnent of the Special Tax that is disputed. A representative( s) of CFD No. 93-1 shall promptly review the appeal, and if necessary, meet with the property owner, consider written and oral evidence regarding the amount of the Special Tax, and rule on the appeal. If the representative's decision requires that the Special Tax for an Assessor's Parcel be modified or changed in favor of the property owner, a cash refund shall not be made ( except for the last year oflevy), but an adjustment shall be made to the Special Tax on that Assessor's Parcel in the subsequent Fiscal Year(s).

The City Council may interpret this IA No. 8C and the levy of Special Taxes for purposes of clarifying any ambiguity and make determinations relative to the annual administration of the Special Tax and any landowner or resident appeals. Any decision of the City Council shall be binding as to all persons.

SECTION L MANNER OF COLLECTION

The Special Tax shall be collected in the same manner and at the same time as ordinary advaloremproperty taxes, provided, however, that CFD No. 93-1 may collect the Special Tax at a different time or in a different manner if necessary to meet its financial obligations.

A-13 AppendixE

(SAMPLE) Attachment No. 1

CITY OF BEAUMONT AND CFO NO. 93-11 MPROVEMENT AREA NO. SC CERTIFICATE

1. Pursuant to Section_ of the Rate and Method of Apportionment of Special Tax (the "RMA"), the City of Beaumont (the "City") and Community Facilities District No. 93-1 Improvement Area No. 8C of the City of Beaumont ("CFD No. 93-1 IA No. 8C") hereby agree to a reduction in the Maximum Special Tax for Facilities for Developed Property:

(a) The information in Table 1 relating to the Maximum Special Tax for Facilities for Developed Property and/or Undeveloped Property within CFD No. 93-1 IA No. 8C shall be modified as follows:

[ i nsertTable 1 shCMi ng effective change to special tax rates and;br insert change to special tax rates for Undeveloped Property]

2. Table 1 may only be modified prior to the issuance of Bonds.

3. Upon execution of the Certificate by the City and CFD No. 93-1 IA No. 8C the City shall cause an amended Notice of Special Tax Lien to be recorded reflecting the modifications set forth herein.

By execution hereof, the undersigned acknowledges, on behalf of the City of Beaumont and CFD No. 93-1 IA No. 8C, receipt of this Certificate and modification of the RMA as set forth in this Certificate.

CITY OF BEAUMONT

By:-------------CFD Administrator

COMMUNITY FACILITIES DISTRICT NO. 93-1 IMPROVEMENT AREA NO. 8C OF THE CITY OF BEAUMONT

Date:

By:_______________ Date:

A-14 Appendix E

IA8C

Attachment No. 2

Improvement Area 8C Zone Map

A-15 AppendixE

EXHIBIT B

COMMUNITY FACI L Tl ES DISTRICT NO. 93-1 IMPROVEMENT AREA NO. 8C

LISTING OF LANDOWNER AND PROPERTY

Property Owner

PARDEE CONSTRUCTION COMPANY, I NC.

KB HOME COASTAL INC.

DUBOSE MODEL HOME INVESTMENTS#116, LTD.

DUBOSE MODEL HOME INVESTMENTS#l17, L.P.

DUBOSE MODEL HOME INVESTMENTS#118, L.P.

DUBOSE MODEL HOME INVESTMENTS#lll, LTD.

DUBOSE MODEL HOME INVESTMENTS#l17, L.P.

DUBOSE MODEL HOME INVESTMENTS#119, L.P.

DUBOSE MODEL HOME INCOME FUND#S, L.P.

Property Description (legal) Tract No. 31468-5 as recorded in Map Book 414 Pages 74-85 in the County of Riverside, State of California, except for Lots 44, 45 and 46;

Tract No. 31468-6 as recorded in Map Book 418 Pages 1-11 in the County of Riverside, State of California;

Lot 91 of Tract No. 31468-3 as recorded in Map Book 398 Pages 72-85 in the County of Riverside, State of California

Tract No. 31468-7 as recorded in Map Book 418 Pages 12-22 in the County of Riverside, State of California, except for Lots 4, 5, 6 & 7;

Tract No. 34291 as recorded in Map Book 417 Pages 57-64 in the County of Riverside, State of California.

Tract No. 31468-8 as recorded in Map Book 418 Pages 91-102 in the County of Riverside, State of California.

Lot 46 of Tract 31468-5 as recorded in Map Book 414 Pages 74-85 in the County of Riverside, State of California






Lot 6 of Tract 31468-7 as recorded in Map Book i 418 Pages 12-22 in the County of Riverside, State ! of California

B-1

Acreage 120.21

32.92

0.216

0.178

0.195

0.188

0.174

0.162

0.188

AppendixE

APPENDIX F

FORMS OF CONTINUING DISCLOSURE AGREEMENTS

CONTINUING DISCLOSURE AGREEMENT (City of Beaurmnt Comm.mity Facilities District No. 93-1)

This Continuing Disclosure Agreerrent (the "Disclosure Agreerrent''), dated as of November 1, 2007, is executed and delivered b,t the City of Beaurmnt Community Facilities District No. 93-1 (the "District'') and Union Bank of California, N.A., as trustee (the "Trustee") and acting in its cap3.city as Dissenination Agent hereunder, in connection with the issuance of the $6,520,000 Beaurmnt Financing Authority 2007 Local Agency Revenue Bonds, Series E (lrrproverrentArea No. SC) (the "Bonds"). The Bonds are being issued pursuant to provisions of an Indenture of Trust dated as of January 15, 1994, b,t and between the Beaumont Financing Authority (the" Issuer") and the Trustee (the "Original Indenture'') and a Seventeenth Supplerrental Indenture of Trust, dated as of Nwember 1, 2007 (the "Seventeenth Supplerrental Indenture," and together with the Original Indenture, as previously arrended, the "Indenture''), b,t and between the Authority and the Trustee. The District, the Dissenination Agent and the Trustee covenant and agree as fol I o,vs:

SECTION 1. Purpose of the Disclosure Agreerrent. This Disclosure Agreerrent is being executed and delivered b,t the District, the Dissemination Agent and the Trustee for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in corrplying with S.E.C. Rule 15c2-12(b)(5).

SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreerrent unless otherwise defined in this Section, the follo,ving capitalized terms shall have the follo,ving meanings:

"Annual Report'' shall mean any Annual Report or any addendum thereto prwided b,t the District pursuantto, and as described i n, Sections 3 and 4 of this Di sci osure A greerrent.

"Beneficial owner" shall rrean any person which (a) has the po,ver, directly or indirectly, to vote or consent with respect to, or to dispose of o,vnership of, any Bonds (including persons holding Bonds through noninees, depositories or other intermediaries), or (b) is treated as the o,vner of any Bonds for federal i ncorre tax purposes.

"Disclosure Representative" shall mean the City Manager of the City or his or her designee, or such other officer or emplO{ee as the City shall designate in writing to the Trustee and Dissenination A gent from ti rre to ti rre.

"Dissenination Agent" shall rrean the Trustee, acting in its capacity as Dissenination Agent hereunder, or any successor Dissenination Agent designated in writing b,t the District and which has filed with the Trustee a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section S(a) of this DisclosureAgreerrent.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved b,t the Securities and Exchange Commission are set forth in the SEC website located at http://M1M1.sec.gw.

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"Participating Underwriter" shall n-ean any of the original underwriters of the Bonds required to corrplywith the Rule in connection with offering of the Bonds.

"Repository" shall n-ean each National Repository and each State Repository.

"Rule" shall n-ean Rule 15c2-12(b)(5) adopted b,t the Securities and Exchange Comnission underthe Securities Exchange Act of 1934, as the san-e may be an-ended fromtin-e totin-e.

"State" shal I n-ean the State of California.

"State Repository" shall n-ean any public or private repository or entity designated b,t the State as a state repository for the purpose of the Rule and recognized as such b,t the Securities and Exchange Comnission. As of the date of this DisclosureAgreen-ent, there is no State Repository.

SECTION 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than 225 days after the end of the City's fiscal year, comn-encing with fiscal year 2006-07, provide to each Repository and the Parti ci pati ng U nderwri ter an Annual Report which is consistent with the requi ren-ents of Section 4 of this Disclosure Agreen-ent. The Annual Report may be subnitted as a single docun-ent or as separate docun-ents comprising a package, and may include b,t reference other information as prwided in Section 4 of this Disclosure Agreen-ent. If the District's fiscal year changes, it shall give notice of such change in the san-e manner as for a Listed Event under Section 5(f).

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the District shall prwide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If b,t such date, the Trustee has not received a cop,t of the Annual Report, the Trustee shal I notify the District and the Dissenination Agent of such failure to receive the Annual Report. The District shall provide a written certification with each Annual Report furnished to the Di ssemi nation A gent and the Trustee to the effect that such Annual Report constitutes the Annual Report required to be furnished b,t it hereunder. The Dissenination Agent and Trustee may conclusively rely upon such certification of the District and shall have no duty or obligation to revie.v such Annual Report.

( c) I f the Trustee is unable to verify that an Annual Report has been prwi ded to R eposi tori es b,t the date requi red in subsection ( a) , the Trustee shal I send a notice to each Repository or to the Municipal Securities Rulemaking Board in substantially the form attached as Exhibit A.

(cl) The DisseninationAgent shall:

(i) deternine each year prior to the date for prwiding the Annual Report the nan-e and address of each National Repository and the State Repository, if any; and

(ii) to the extent information is kno.vn to it, file a report with the District and (if the Di sseni nation A gent is not the Trustee) the Trustee certi fyi ng that the Annual Report has been provided pursuant to this Disclosure Agreen-ent, stating the date it was prwided and listing all the Repositories towhich it was provided.

SECTION 4. Content of Annual Reports. The District's Annual Report shall contain or include b,t reference the follo.ving (unless otherwise stated, such information shall be as of the end of the most recent fi seal year):

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(i) The audited financial statements of the City, prepared in accordance with generally accepted accounting principles in effect from time to time. If the City's audited financial statements are not available b,t the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(ii) The balance in the Reserve Fund held underthe Indenture.

(iii) Total assessed valuation (per the Riverside County Assessor records) of all parcels currently sul::iject to the Special Tax within Improvement Area No. 8C of the District, shCM/ing the total assessed valuation for all land and the total assessed valuation for all imprwements within Improvement Area No. 8C of the District and distinguishing between the assessed value of developed property and undeveloped property.

(iv) With respect to delinquencies:

( a) deli nquency i nformati on with respect to the A pri I 1 0 tax payment date (including, without I irritation, the parcel number of each delinquent parcel, the identity of the property o.vner and the amount then delinquent) for each parcel delinquent in the payment of $2,500 or more in Special Tax or any parcels under common o.vnershipthat are responsible for $5,000 or more of Special Tax; and

( b) the total dol I ar amount of deli nquenci es i n I mprwement Area No. 8C of the District with respect to the December 1 0 tax payment date and, i n the event that such total delinquencies with respect to the April l0tax payment date exceed 5% of the Special Tax for the previous year, a Ii st of al I del i nquent parcels, amounts of del i nquenci es, I ength of del i nquency and status of any foreclosure of each such parcel.

(v) The number of certificates of occupancy issued b,t the City and the principal amount of prepayments of the Special Tax with respect to I mprwement Area No. 8C of the District for the prior Fiscal Year.

(vi) A land o.vnership summary listing property o.vners responsible for more than five percent (5%) of the annual Special Tax levy, as shewn on the Riverside County Assessor's last equalized tax rol I prior to the September next preceding the Annual Report date.

(vii) The principal amount of the Bonds outstanding and the balance in the Reserve Fund (along with a statement of the Reserve Requirement) as of the September 30 next preceding the Annual Report date.

(viii) A description of the status of the facilities being constructed with proceeds of the Bonds as of the date of the Annual Report (but only so long as such facilities are not completed), and the balance in the I mprwement Fund as of the September 30 next preceding the Annual Report date (but only until such fund is closed).

(ix) The number of building perm ts issued in the I mprwement Area No. 8C of the District during the prior Fiscal Year.

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Any or all of the items listed above rray be included b,t 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 Comnission. If the document included b,t reference is a final official statement, it nust be available from the Municipc1.I Securities Rulerraking Board or have been deposited with each of the Repositories. The District shall clearly identify each such other document so incl uded b,t reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the prwisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the follo.ving events with respect to the Bonds, if rraterial:

1. pri nci pc1.I and i nterest pc1.yment deli nquenci es;

2. non-payment related defaults;

3. mxli fi cations to rights of Bondholders;

4. opti anal , contingent or unscheduled bond cal Is;

5. defeasances;

6. rating changes;

7. adverse tax opinions or events acwersely affecting the tax-exempt status of the Bonds;

8. unscheduled draws on the debt service reserves reflecting financial difficulties;

9. unscheduled draws on credit enhancements reflecting financial difficulties;

10. substitution of credit or liquidity prwiders, or their failure to perform;

11. rel ease, substitution or sale of property securing repayment of the B ands.

(b) The Trustee shall, within one (1) Business Day of obtaining actual kno.vledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Trustee whether or not to report such event to the Bondholders. In the albsence of such direction the Trustee shall not report such event unless otherwise required to be reported b,t the Trustee to the Bondholders under the Indenture. The Trustee may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual kno.vledge'' of the occurrence of such Listed Events shal I mean actual kno.vl edge b,t the officer at the corporate trust office of the Trustee with regular responsibility for the adninistration of rraners related to the Indenture. The Trustee shall have no responsibility to deternine the rrateriality of any of the Listed Events.

(c) Whenever the District obtains kno.vledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the District shall as soon as possible determine if such event would be rraterial under applicable federal securities laws.

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(cl) If the District has determined that kno.vledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the District shall prorrptly notify the Dissenination Agent in writing. Such notice shall instruct the Dissenination Agent to report the occurrence pursuant to subsection (f).

(e) If in response to a request under subsection (b), the District determines that the Listed Event would not be material under applicable federal securities laws, the District shall so notify the Dissenination Agent in writing and instruct the Dissenination Agent not to report the occurrence pursuant to subsection ( f).

(f) If the Dissemination Agent has been instructed b,t the District to report the occurrence of a Listed Event, the Dissenination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board or the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) 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 Indenture.

SECTION 6. Ternination of Reporting Obligation. The District's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior rederrption or payment in full of all of the Bonds. If such ternination occurs prior to the final maturity of the Bonds, the District shall give notice of such ternination in the same manner as for a Listed Event under Section S(f).

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissenination Agent to assist it in carrying out its obligations underthis Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissenination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared b,t the District pursuant to this Disclosure Agreement. The initial Dissenination Agent shall be Union Bank of California, N.A. The Dissenination Agent may resign b,t prwiding thirty days written notice to the District and the Trustee. The Dissenination Agent shall not be responsible for the content of any report or notice prepared b,t the District. The Dissenination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it b,t the District in a timely manner and in a form suitable for filing.

SECTION 8. Amendment; Waiver. Notwithstanding any other prwision of this Disclosure Agreement, the District, Dissenination Agent and the Trustee may amend this Disclosure Agreement (and the Trustee and Dissemination Agent shall agree to any amendment so requested b,t the District) provided, neither the Trustee nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any prwision of this Di sci osure Agreement may be waived, provided that the fol Io.vi ng conditions are sati sfi eel:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or S(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 (as defined in the Rule) with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the ti me of the ori gi nal issuance of the Bands, after taki ng into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

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(c) The amendment or waiver either (i) is approved 0y the holders of the Bonds in the same rranner as prwi ded in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, rraterially irnpair the interests of the holders or B enefi ci al ONners of the Bands.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall descri be such amendment i n the next Annual Report, and shal I i ncl ude, as appl i cable, a narrative explanation of the reason for the amendment or waiver and its i rnpact on the type ( or, in the case of a change of accounting pri nci pl es, on the presentation) of fi nanci al i nforrrati on or operating data being presented 0y the District.

SECTION 9. Additional I nforrration. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other inforrration, using the means of dissenination set forth in this Disclosure Agreement or any other means of communication, or including any other inforrration in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required 0y this Disclosure Agreement. If the District chooses to include any inforrration in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required 0y this Disclosure Agreement, the District shall have no obligation under this Disclosure Agreement to update such inforrration or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Central Post Office. In lieu of filing with the Repositories, filing under this Disclosure Agreement may be rrade solely 0y transnitting such filing to the Texas Municipal Acwisory Council or any successor thereto (the "MAC") as prwided at http:/MM,W.disclosuresusaorg unless the United States Securities and Exchange Comnission has withdrawn the interpretive acwice in its letter to the MAC dated September 7, 2004, or any other organization or method apprwed 0y the staff or members of the United States Securities and Exchange Comnission as an intermediary through which issuers may, in compliance with the Rule, make filings required 0y this Disclosure Agreement.

SECTION 11. Default. In the event of a failure of the District orthe Trustee to comply with any provision of this Disclosure Agreement, the Trustee (at the written request of any Participating Underwriter or the holders of at I east 25% aggregate principal amount of Outstanding Bands, shal I but only to the extent funds in an amount satisfactory to the Trustee have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Trustee whatsoever, including, without limitation, fees and expenses of its attorneys), or any holder or B enefi ci al ONner of the B ands rray take such actions as rray be necessary and appropriate, i ncl udi ng seeking rrandate or specific perforrrance 0y court order, to cause the District or Trustee, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Trustee to comply with this Di sci osure Agreement shal I be an action to compel performance.

SECTION 12. Duties, Immunities and Liabilities of Trustee and Dissenination Agent. Article VII of the Indenture pertaining to the Trustee is here0y rrade applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture and the Trustee and Dissenination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Trustee thereunder. The Dissenination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Di ssemi nation A gent and Trustee, their officers, di rectors, empl O{ees and agents, harmless against any loss, expense and liabilities which they rray incur arising out of or in the exercise or perforrrance of its po.vers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissenination Agent's

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or Trustee's respective negligence or willful nisconduct. The Dissenination Agent shall be i:aid compensation b,t the District for its services provided hereunder in accordance with its schedule of fees as amended from ti me to ti me and al I expenses, I eg3.I fees and acwances rrade or i ncurred b,t the Dissenination Agent in the perforrrance of its duties hereunder. The Dissenination Agent and the Trustee shall have no duty or oblig3.tion to review any inforrration prwided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders, or any other party. Neither the Trustee or the Dissemination Agent shall have any liability to the Bondholders or any other i:artv for any monetary darrages or financial liability of any kind whatsoever related to or arising from this Disclosure Agreement. The oblig3.tions of the District under this Section shall survive resignation or remOJal of the Dissemination Agent and i:avment of the Bonds.

SECTION 13. Notices. Any notices or communications to or among any of the i:arties to this Disclosure Agreement may be given as fol lo.vs:

Tothe District:

To the Trustee:

City of Beaumont Community Facilities District No. 93-1 c/o City of Beaumont 550 East 6th Street Beaumont, California 92223 Ann: City Manager

Union Bank of California, NA. 120 S. San Pedro Street, Suite 400 Los Angeles, California 90017 Ann: Corporation Trust Dei:artment

Any person rray, b,t written notice to the other persons listed abcwe, designate a different address or telephone number(s) to which subsequent notices or communications should be sent.

SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Trustee, the Dissemination Agent, the Participating Underwriter and holders and Beneficial owners from ti me to ti me of the Bands, and shal I create no rights i n any other person or entity.

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SECTION 15. Counterparts. This Disclosure Agreerrent may be executed in several counterpm:s, each of which shall be an original and all of which shall constitute but one and the sarre i nstrurrent.


By-----------------------------City Manager

UNION BANK OF CALIFORNIA, NA., as Di sseni nation A gent and Trustee

By-----------------------------Authorized Representative

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party:

Name of Band Issue:

Date of I ssuance:

City of Beaurmnt Comm.mity Facilities District No. 93-1

Beaurmnt Financing Authority 2007 Local Agency Re.1enue Bonds, Series E ( I rrprwerrent Area No. SC)

December 13, 2007

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the abOJe--narred Bonds as required 0y the Continuing DisclosureAgreerrent, dated as of November 1, 2007, with respect to the Bonds. [The District anticipc1.tes that the Annual Report will be filed 0y ------------- .]

Dated:

cc: Issuer

UNION BANK OF CALIFORNIA, NA., on behalf of District

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CONTINUING DISCLOSURE AGREEMENT (Property ONner)

This Continuing Disclosure Agreerrent (the "Disclosure Agreerrent''), dated as of November 1, 2007, is executed and delivered b,t _______________ , a ______________ (the" Property ONner"), and Union Bank of California, N.A., as trustee (the ''Trustee'') and acting in its capc1.city as Dissenination Agent hereunder, in connection with the issuance of the $6,520,000 Beaumont Financing Authority 2007 Local Agency Revenue Bonds, Series E (I rrprwerrentArea No. SC) (the" Bonds"). The Bonds are being issued pursuant to prwisions of an Indenture of Trust dated as of January 15, 1994, b,t and between the Beaumont Financing Authority (the "Issuer") and the Trustee, as successor trustee (the "Original I ndenture"), and a Seventeenth Suppl errental I ndenture of Trust, dated as of N wember 1, 2007 ( the "Seventeenth Supplerrental Indenture," and together with the Original Indenture, the" Indenture"), b,t and between the Issuer and the Trustee. The Property ONner, the Dissenination Agent and the Trustee covenant and agree as fol Io.vs:

SECTION 1. Purpose of the Disclosure Agreerrent. This Disclosure Agreerrent is being executed and delivered b,t the Property Owner, the Disseni nation Agent and the Trustee for the benefit of the Beneficial ONners of the Bonds and in orderto assistthe Participating Underwriter in corrplyingwith S.E.C. Rule 15c2-12(b)(5).

SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreerrent unless otherwise defined in this Section, the follo.ving capitalized terms shall have the follo.ving meanings:

"Affiliate" of another Person rreans (a) a Person directly or indirectly o.vning, controlling, or holding with pcwer to vote, five percent (5%) or more of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent (5%) or more are directly or indirectly o.vned, controlled, or held with pcwertovote, b,t such other Person, and (c) any Person directly or indirectly controlling, controlled b{, or under common control with, such other Person; for purposes hereof, control means the pew er to exercise a control I i ng i nfl uence wer the managerrent or policies of a Person, unless such pcwer is solely the result of an official position with such Person.

"Annual Report" shall rrean any Annual Report or its addendum prwided b,t the Property ONner pursuantto, and as described i n, Sections 3 and 4 of this Di sci osure A greerrent.

"Assurrption Agreerrent" rreans an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial o.vners of the Bonds containing terms substantially sinilar to this Di sci osure A greerrent ( as modified for such Maj or ONners devel oprnent and financing pl ans with respect to I mprwerrent Area No. 8C of the District), whereb,t such Major ONner or Affiliate agrees to prwide annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in I rrprwerrent Area No. 8C of the District o.vned b,t such Major ONner and its Affiliates and, at the option of the Property ONner or such Major ONner, agrees to indemnify the Dissenination Agent pursuant to a prwision substantially in the form of Section 11 hereof.

"Beneficial ONner" shall rrean any person which (a) has the pcwer, directly or indirectly, to vote or consent with respect to, or to dispose of o.vnership of, any Bonds (including persons holding Bonds through noninees, depositories or other intermediaries), or (b) is treated as the o.vner of any Bonds for federal i ncorre tax purposes.

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"Disclosure Representative" shall mean the officer executing this Disclosure Agreement or his or her designee, or such other officer or emplO{ee as the Property ONner shall designate in writing to the Trustee and Dissenination Agent from time to time. At any given time, there shall only be one Disclosure Representative for the Property ONner.

"Dissenination Agent" shall mean the Trustee, acting in its cai:acity as Dissenination Agent hereunder, or any successor Dissenination Agent designated in writing b,t the Property ONner and which has filed with the Trustee a written acceptance of such designation.

"District'' shall mean Community Facilities District No. 93-1 of the City of Beaumont.

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

"Major Owner" shall mean an o.vner (including all Affiliates of such o.vner) of land in lrrprwement Area No. 8C of the District responsible in the aggregate for 2036 or more of the annual special taxes levied in Improvement Area No. 8C of the District.

"National Repository" shall mean any Nationally Recognized Municii:al Securities lnforrration Repository for purposes of the Rule. The National Repositories currently approved b,t the Securities and Exchange Comnission are set forth in the SEC website located at http:/MM,W.sec.gov.

"Particii:ating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Person" means an individual, a corporation, a partnership, a linited liability company, an association, a joint stock comi:any, a trust, any uni ncorporated organization or a government or political subdivision thereof.

"Repository" shall mean each National Repository and each State Repository.

"Rule" shall mean Rule 15c2-12(b)(5) adopted b,t the Securities and Exchange Commission underthe Securities Exchange Act of 1934, as the same rray be amended from time to time.

"Special Taxes'' shall mean the special taxes to be levied within Improvement Area No. 8C of the District.

"State" shal I mean the State of California.

"State Repository" shall mean any public or private repository or entity designated b,t the State as a state repository for the purpose of the Rule and recognized as such b,t the Securities and Exchange Comnission. As of the date of this Disclosure Agreement, there is no State Repository.

SECTION 3. Provision of Annual Reports.

(a) Property ONner shall, or, upon written direction, shall cause the Dissemination Agent to, not later than May 1 of each year, commencing with the Annual Report due May 1, 2008 (the "Report Date''), prwide to each Repository and the Particii:ating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Di sci osure Agreement with a COP{ to the Issuer. Not later than April 15 in each year, commencing April 15, 2008, Property ONner rray prwide the Annual Report to the Dissenination Agent. In lieu of filing the Annual Report with the Dissenination Agent, the Property ONner may file the Annual Report each Repository, with a COP{ to the Dissenination Agent and

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Issuer. Property ONner shall prwide a written certification with each Annual Report furnished to the Dissenination Agent and the Issuer to the effect that such Annual Report constitutes the Annual Report required to be furnished b,t it hereunder. The Dissenination Agent and the Issuer rray conclusively rely upon such certification of Property ONner and shall have no duty or obligation to review such Annual Report. The Annual Report rray be submitted as a single docurrent or as separate docurrents cornpri sing a package, and rray include b,t reference other inforrration as prwided in Section 4 of this Disclosure Agreerrent.

(b) If the Dissenination Agent has not received an Annual Report frorn the Property Owner or cannot verify that an Annual Report has been provided to Repositories b,t the Report Date, the Dissenination Agent shall send a notice to each Repository or to the Municipal Securities Rulerraking Board and the State Repository, if any in substantially the forrn attached as Exhibit A.

(c) The DisseninationAgent shall:

(i) deternine each year prior to the date for prwiding the Annual Report the narre and address of each National Repository and the State Repository, if any; and

(ii) if directed b,t the Property ONner, file the Annual Report with each Repository b,t the Report Date; and

(iii) to the extent inforrration is kno.vn to it, file a report with the Issuer, the Property ONner and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreerrent, stating the date it was prwided to the Repositories ortothe Central Post Office.

SECTION 4. Content of Annual Reports. The Property ONner's Annual Report shall contain or i ncl ude b,t reference the fol Io.vi ng:

(i) Relating to all property o.vned b,t Property ONner within lrnproverrent Area No. 8C of the District (the" Property"), a sumnary of the developrrent activity on the Property as of the preceding March 1 5, consisting of the fol Io.vi ng: (A) nuniber of acres A ots of the Property o.vned b,t the Property ONner or its Affiliates, (B) progress of construction activities on the Property, and (C) nuniber of acresAots of the Property sold b,t the Property ONner or its Affiliates to end users or builders as of such date.

(ii) Unless such inforrration has been prwided in a previous Annual Report, any rraterial changes in the i nforrrati on relating to the Property ONner and/or the Property contained in the Official Staterrent under the car,tion "IMPROVEMENT AREA NO. 8C - THE MASTER DEVELOPER AND KB HOME COASTAL - [PARDEE/KB HOME Coastal Inc.]," "IMPROVEMENT AREA NO. 8C -DESCRIPTION OF DEVELOPMENT," "IMPROVEMENT AREA NO. 8C - FINANCING PLANS OF THE DEVELOPERS - [Pardee/KB HOME Coastal]," and "IMPROVEMENT AREA NO. 8C -HISTORY OF PROPERTY TAX PAYMENT; LOAN DEFAULTS; BANKRUPTCY."

(iii) A description of the status of any land purchase contracts with regard to the Property ( otherthan with i ndivi dual hornebuyers).

(iv) Unless such inforrration has already been prwided in a previous Annual Report, a description of any change in the legal structure of the Property ONner and/or the financial condition of the Property ONner that would rraterially interfere with its ability to complete the developrrent plan described in the Official Staterrent under the caption "IMPROVEMENT AREA NO. 8C - THE

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MASTER DEVELOPER AND KB HOME COASTAL - [PARDEE;KB HOME Coastal Inc.]," "IMPROVEMENT AREA NO. 8C - DESCRIPTION OF DEVELOPMENT" and" "IMPROVEMENT AREA NO. 8C - FINANCING PLANS OF THE DEVELOPERS - [Pardee;KB HOME Coastal]" (collectively, the "Development Plan") or to ply its Special Taxes priorto delinquency.

(v) Property.

A description of any material changes in the Developrrent Plan with respect to the

(vi) A description of any rraterial changes in the financing plan of the Property Owner for the Development Plan described in the Official Staterrent under the caption "IMPROVEMENT AREA NO. 8C - FINANCING PLANS OF THE DEVELOPERS - [Pardee;KB HOME Coastal]" and the causes or rationale for such changes, to the extent the causes or rationale are kno.vn.

(vii) A description of any previously undisclosed rraterial arrendrrent to the land use entitlerrent for the Property.

(viii) An update of the status of any previously reported Listed Event described in Section 5 hereof.

(ix) A staterrent as to whether or not the Property owner and all of its Affiliates paid, prior to their becoming delinquent, all special taxes levied on the property o.vned 0y the Property Owner and such Affiliates within lrrprwerrent Area No. 8C and if such Property owner or any of such Affiliates is delinquent in the payrrent of such special taxes, a staterrent identifying each entity that is so delinquent, specifying the armunt of each such delinquency and describing any plans to resolve such delinquency.

Any or all of the items listed above rray be included 0y specific reference to other docurrents, including official staterrents of debt issues of the Property owner or related entities, which have been subnined to each of the Repositories or the Securities and Exchange Comnission. If the docurrent included 0y reference is a final official staterrent, it must be available from the Municipal Securities Rulemaking Board. The Property owner shall clearly identify each such other docurrent so included 0y reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Property owner shall give, or cause to be given, notice of the occurrence of any of the follo.ving events with respect to the Bonds, if rraterial:

1. bankruptcy or insolvency proceedings comrrenced 0y or against Property owner or Affiliate thereof that would materially interfere with its ability to complete the Development Plan or to pay its Special Taxes prior to delinquency;

2. failure to ply prior to delinquency any taxes, special taxes or assessrrents due with respect to the Property;

3. filing of a lawsuit (with proper service of process having been accomplished) against Property owner or, to the Disclosure Representative's actual kno.vledge, an Affiliate thereof, seeking damages, or ajudgrrent in a lawsuit against Property owner or Affiliate thereof, which could, if decided acwersely to the Property owner or Affiliate thereof have a significant impact on the Property Owner's abi Ii ty to pay Special Taxes or to sel I or develop the Property;

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4. any denial or terni nation of credit, any denial or terni nation of, or default under, any Ii ne of credit or I oan or any other I oss of a source of funds that would have a rrateri al adverse affect on the Property ONner's most recently disclosed financing plan or the ability of the Property ONner or any A ffi Ii ate to i:av Special Taxes prior to deli nquency;

5. any significant amendments to land use entitlement for the Property;

6. any previously undisclosed gcwemmentally--imposed preconditions to commencement or continuation of development on the Property that would materially interfere with its ability to complete the Development Plan or to l'.0-Y its Special Taxes prior to del i nquency;

7. any previously undisclosed legislative, adninistrative or judicial challenges to development on the Property that would rraterially interfere with its ability to complete the Development Plan or to l'.0-Y its Special Taxes prior to delinquency;

8. any rraterial change in the alignment, design or likelihood of completion of significant public imprwement being constructed b,t the Property ONner affecting the Property, incl udi ng major thoroughfares, se.vers, water conveyance systems and si ni I ar faci Ii ti es; and

9. The assumption of any obligation b,t a Major ONner pursuant to Section 6.

(b) The Trustee shall, within one (1) Business Day of obtaining actual kno.vledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request that the Property ONner promptly notify the Dissenination Agent in writing whether or not to report the event pursuant to subsection (f) of this Section 5 and promptly di rect the Trustee whether or not to report such event to the Bondholders.

( c) W he never the Di sci osure Representative obtains kno.vl edge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) of this Section 5 or otherwise, the Disclosure Representative shall as soon as possible determine if such event would be rraterial under applicable federal securities laws.

(cl) If the Disclosure Representative has deternined that kno.vledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Disclosure Representative shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Di sseni nation A gentto report the occurrence pursuantto subsection ( f) of this Section 5.

(e) If in response to a request under subsection (b) of this Section 5, the Disclosure Representative determines that the Listed Event would not be rraterial under applicable federal securities laws, the Disclosure Representative shall so notify the Dissemination Agent in writing and instruct the Di sseni nation A gent not to report the occurrence pursuantto subsection ( f) of this Section 5.

(f) If the Dissenination Agent has been instructed b,t the Disclosure Representative to report the occurrence of a Listed Event, the Dissenination Agent shall file a notice of such occurrence with the Repositories.

SECTION 6. Duration of Reporting Obligation. (a) All of the Property ONner's obligations hereunder shal I commence on such date as property o.vned b,t the Property ONner is responsible for payment of 2036 or more of the Special Taxes and shal I terni nate ( except as prwi ded in Section 12) upon the earlier to occur of the follo.ving: (i) the legal defeasance, prior redemption or payment in full of all

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the Bonds; (ii) so long as the Bonds are outstanding, at such tirre as property o.vned b,t the Property ONner is no longer responsible for payrrent of 2036 or more of the Special Taxes; or (iii) the date on which all Special Taxes are i:aid in full. Upon the occurrence of any such termination or suspension prior to the final maturity of the Bonds, the Property ONner shall give notice of such ternination or suspension in the sarre manner as for a Listed event under Section 5.

(b) If a portion of the Property in I mproverrentArea No. 8C of the District o.vned b,t the Property ONner, or any Affiliate of Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major ONner, the obligations of Property ONner hereunder with respect to such property o.vned b,t such Major ONner and its Affiliates shall be assurred b,t such Major ONner or b,t an Affiliate thereof and the Property ONner obligations hereunder will beterninated. In ordertoeffect such an assumption and ternination, such Major ONner or Affiliate shall enter into an Assumption Agreerrent. The entering into an Assumption Agreerrent b,t such Major ONner or Affiliate shall be a condition precedent to the conveyance of such property and the Property ONner shal I prwi de a COP{ of the executed Assumption A greerrent to the Trustee and the Authority prior to such conveyance.

SECTION 7. Dissemination Agent. The Property ONner may, from tirre to tirre, appoint or engage a Dissenination Agentto assist it in carrying out its obligations underthis Disclosure Agreerrent, and may discharge, without cause, any such Di ssemi nation A gent, with or without appoi nti ng a successor Dissenination Agent. The Dissenination Agent shall not be responsible in any manner forthe content of any notice or report prepared b,t the Property ONner pursuant to this Disclosure Agreerrent. The initial Dissenination Agent shall be Union Bank of California, N.A. The Dissenination Agent may resign b,t providing thirty days' written notice to the Property ONner, the Issuer and the Trustee. The Di sseni nation A gent shal I not be responsible for the content of any report or notice prepared b,t the Property ONner. The Dissenination Agent shall have no duty to prei:are any information report nor shall the Dissenination Agent be responsible for filing any report not prwided to it b,t the Property ONner in a tirrely manner and in a form suitable for filing.

SECTION 8. Arrendrrent; Waiver. Notwithstanding any other prwision of this Disclosure Agreerrent, the Property ONner, Dissenination Agent and the Trustee may amend this Disclosure Agreerrent (and the Trustee and Dissemination Agent shall agree to any arrendrrent so requested b,t the Property ONner) provided, neither the Trustee nor the Dissemination Agent shall be obligated to enter into any such arrendrrent that modifies or increases its duties or obi i gati ons hereunder, and any prwi si on of this Di sci osure A greerrent may be waived, provided that the fol Io.vi ng conditions are satisfied:

(a) If the arrendrrent or waiver relates to the provisions of Sections 3(a), 4, or S(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirerrents, change in I.Ml, or change in the identity, nature or status of an obligated person with respect to the Bands, or the type of business conducted;

(b) The undertaking, as arrended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirerrents of the Rule at the ti rre of the original issuance of the Bands, after taki ng i nto account any arrendrrents or interpretations of the Rule, as well as any change in circumstances; and

(c) The arrendrrent or waiver either (i) is approved b,t the Holders of the Bonds in the sarre manner as prwi ded in the Indenture for arrendrrents to the Indenture with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially i mpai r the interests of the Holders or B enefi ci al ONners of the Bands.

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In the e.,,ent of any amendment or waiver of a prwision of this Disclosure Agreement, the Property ONner 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 irrpact on the type (or, in the case of a change of accounting pri nci pl es, on the presentation) of fi nanci al i nforrrati on or operati ng data bei ng presented 0y the Property ONner.

SECTION 9. Additional I nforrration. Nothing in this Disclosure Agreement shall be deemed to prevent the Property ONner from disseninating any other inforrration, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other inforrration in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required 0y this Disclosure Agreement. If the Property ONner chooses to include any inforrration in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required 0y this Disclosure Agreement, the Property ONner shall have no obligation under this Disclosure Agreement to update such i nforrrati on or i ncl ude it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Central Post Office. In lieu of filing directly with the Repositories, any filing, including any Annual Report or notice, under this Disclosure Agreement rray be rrade solely 0y transnitting such filing to the Texas Municipal Advisory Council or any successor thereto (the" MAC") as prwided at http:/MM,W.disclosuresusa.org unless the United States Securities and Exchange Comnission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004, or any other organization or method apprwed 0y the staff or members of the United States Securities and Exchange Comnission as an intermediary through which issuers rray, in compliance with the Rule, rrake filings required 0y this Disclosure Agreement.

SECTION 11. Default. In the event of a failure of the Property ONner or the Trustee to comply with any prwision of this Disclosure Agreement, any Holder or Beneficial ONner of the Bonds rray take such actions as rray be necessary and appropriate, i ncl udi ng seeking rrandate or specific perforrrance 0y court order, to cause the Property ONner or Trustee, as the case rray be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default underthe I ndenture, and the sole and excl usive remedy underthi s Di sci osure Agreement in the event of any failure of the Property ONner or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. Neitherthe Property ONner nor the Dissenination Agent shall have any Ii abi Ii ty to the Holders or B enefi ci al ONners of the B ands or any other party for monetary darrages or financial liability of any kind whatsoe.,,er relating to or arising from this Disclosure Agreement.

SECTION 12. Duties, Immunities and Liabilities of Trustee and Dissenination Agent. Article VII of the Indenture pertaining to the Trustee is here0y rrade applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture and the Trustee and Dissenination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Trustee thereunder. The Dissenination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Property ONner agrees to indemnify and save the Dissenination Agent and Trustee, their officers, directors, employees and agents (each an "Indemnified Party" and, collectively, the "Indemnified Parties"), harniess against any loss, expense and lialbilities which they rray incur arising out of or in the reasonable exercise or performance of its pcwers and duties hereunder, including the reasonalble costs and expenses (including reasonable attorneys fees) of defending against any claim of liability, but excluding losses, expenses or lialbilities due to an Indemnified Party's respective negligence or willful nisconduct. The Dissemination Agent shall be paid compensation 0y the Property ONner for its services prwided hereunder in accordance with its schedule of fees as amended from ti me to ti me and al I reasonable expenses, I egal fees and advances rrade

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or incurred b,t the Dissenination Agent in the perforrrance of its duties hereunder. The Dissemination A gent and the Trustee shal I have no duty or obi i gati on to review any i nformati on prwi ded to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Property ONner, the Bondholders, or any other party. Neither the Trustee or the Dissenination Agent shall have any liability to the Bondholders or any other party for any monetary darrages or financial liability of any kind whatsoever related to or arising from this Disclosure Agreement. The obligations of the Property ONner under this Section shall survive resignation or remOJal of the Dissemination Agent and payment of the Bonds.

SECTION 13. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as fol lo.vs:

Tothe Issuer:

To the Trustee:

To the Property ONner:

B eaumont Fi nanci ng Authority 550 East 6th Street Beaumont, California 92223 Ann: City Manager

Union Bank of California, NA. 120 S. San Pedro Street, 4th Floor Los Angeles, California 90012 Ann: Corporation Trust Department

c/o ___________ _

Ann: _________ _]

Any person rray, b,t written notice to the other persons listed abcwe, designate a different address or telephone nuniber(s) to which subsequent notices or communications should be sent.

SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Property ONner, the Trustee, the Dissenination Agent, the Participating Underwriter and Holders and Beneficial ONners from time to time of the Bonds, and shall create no rights in any other person or entity.

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SECTION 15. Counterparts. This Disclosure Agreerrent may be executed in several counterpm:s, each of which shall be an original and all of which shall constitute but one and the sarre i nstrurrent.

_____________________ ,a ________________ _

By: ______________ , a _______________ , its

By:----------------------------------

UNION BANK OF CALIFORNIA, NA., as Di ssemi nation A gent and Trustee

By _______________ _ Authorized Officer

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party:

Name of Band Issue: Beaurront Financing Authority 2007 Local Agency Re.1enue Bonds, Series E ( I rrprwerrent Area No. SC)

Date of Issuance: December 13, 2007

NOTICE IS HEREBY GIVEN that _____________ (the "Property ONner'') has not prwided an Annual Report with respect to the aibOJe--narred Bonds as required 0y the Continuing Disclosure Agreerrent, dated as of Nwember 1, 2007, with respect to the Bonds. [The Property ONner anticipates thattheAnnual Report will be filed 0y _____________ .]

Dated:

cc: Issuer Property ONner

UNION BANK OF CALIFORNIA, NA., As Dissenination Agent

Authorized Officer

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APPENDIXG PROPOSED FORM OF BOND COUNSEL OPINION

Beaumont Financing Authority

550 East Sixth Street

Beaumont, California 92223

Re: Beaumont Financing Authority

December 13, 2007

2007 Local Agency Revenue Bonds, Series E (Improvement Area No. 8C)

Ladies and Gentlemen:

We have acted as bond counsel to the Beaumont Financing Authority (the "Authority") in connection with the issuance by the Authority of $6,520,000 aggregate principal amount of 2007 Local Agency Revenue Bonds, Series E (Improvement Area No. SC) (the "Authority Bonds"). The Authority Bonds are being issued pursuant to and by authority of the provisions of Article 4 ( commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the Govermnent Code of the State of California and the Indenture of Trust, dated as of January 15, 1994, between the Authority and Union Bank of California, N.A. (successor to BNY Western Trust Company which was successor to Meridian Trust Company of California) (the "Trustee"), as heretofore amended and supplemented including by the Seventeenth Supplemental Indenture of Trust, dated as of November 1, 2007 (collectively, the "Authority Indenture"). The Authority Bonds have been issued by the Authority to purchase from the City of Beaumont Community Facilities District No. 93-1 (the "District") its special tax bonds for Improvement Area No. SC (the "District Bonds"), the proceeds of which will be used to provide funds relating to the acquisition and construction of certain public facilities to be acquired and constructed on behalf of the District.

In such connection, we have examined the record of the proceedings submitted to us relative to the issuance of the Authority Bonds, including the Authority Indenture, the Tax Certificate (the "Tax Certificate"), dated the date hereof, by the Authority, the District and the City of Beaumont ( the "City"), certifications of the Authority, the District, the City, the Trustee 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 Authority Indenture, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Authority 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 Authority 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 occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur. Our engagement with respect to the Authority Bonds has concluded with their issuance and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Authority Indenture, the Tax Certificate and in certain other documents, including (without limitation) covenants and agreements compliance with which is

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necessary to assure that future actions, omissions and events will not cause interest on the Authority Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Authority Bonds, the Authority Indenture and the Tax Certificate are subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other 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 joint powers authorities and cities in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the foregoing documents. We express no opinion upon the plans, specifications, maps, fmancial reports, appraisals, market studies and other engineering or financial details of the proceedings, or upon the validity of special taxes levied by the District upon any individual separate parcel within Improvement Area No. SC. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Authority Bonds and express no opinion relating thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

I. The Authority Bonds constitute the valid and binding limited obligations of the Authority, payable solely from the Revenues (as defmed in the Authority Indenture), and any other amounts (including proceeds of the sale of the Authority Bonds) held by the Trustee in any fund or account, except the Rebate Fund, established pursuant to the Authority Indenture, subject to the provisions of the Authority Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Authority Indenture.

2. The Authority Indenture has been duly executed and delivered by, and constitutes the valid and binding limited obligation of, the Authority.

3. Interest on the Authority Bonds is excluded from gross income for federal income tax purposes under Section I 03 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Authority 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 when calculating corporate alternative minimum taxable income. We express no opinion regarding other federal or state tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Authority Bonds.

The foregoing represents our interpretation of applicable law to the facts as described herein. We bring to your attention the fact that our conclusions are an expression of professional judgment and are not a guarantee of a result.

Sincerely,

McFARLIN & ANDERSON LLP

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APPENDIXH BOOK-ENTRY SYSTEM

The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal of and interest on the Bonds to Direct Participants, Indirect Participants or Beneficial Owners (as such terms are defined below) of the Bonds, confirmation and transfer of beneficial ownership interests in the Bonds and other Bond-related transactions by and between DTC, Direct Participants, Indirect Participants and Beneficial Owners of the Bonds is based solely on information furnished by DTC to the Authority which the Authority believes to be reliable, but the Authority and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's largest securities depository, is a limited-purpose trust 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 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation, (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor 's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of 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 Bonds ("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. Beneficial Owners are, however, 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 Direct and Indirect Participants acting on behalf of Beneficial Owners.

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http://www.dtcc.com

http://www.dtc.org

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 Direct 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 ofDTC. The deposit of the 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 Direct or Indirect 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 from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmissions to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bonds documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Fiscal Agent and request that copies of notices be provided directly to them.

Redemption notices shall be sent 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 Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority 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, redemption price and interest payments on 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 Authority or the Trustee, on payable date in accordance with their 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 customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. ( or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its service as depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC ( or a successor securities depository). In that event, the Bonds certificates will be printed and delivered to DTC.

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The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the accuracy thereof.

Discontinuance ofDTC Services

In the event that (a) DTC determines not to continue to act as securities depository for the Bonds, or (b) the Authority determines that DTC shall no longer act and delivers a written certificate to the Trustee to that effect, then the Authority will discontinue the Book-Entry System with DTC for the Bonds. If the Authority determines to replace DTC with another qualified securities depository, the Authority will prepare or direct the preparation of a new single separate, fully-registered Bond for each maturity of the Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Indenture. If the Authority fails to identify another qualified securities depository to replace the incumbent securities depository for the Bonds, then the Bonds shall no longer be restricted to being registered in the Bonds registration books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Bonds shall designate.

In the event that the Book-Entry System is discontinued, the following provisions would also apply: (i) the Bonds will be made available in physical form, (ii) principal of, and redemption premiums if any, on the Bonds will be payable upon surrender thereof at the trust office of the Trustee identified in the Indenture, and (iii) the Bonds will be transferable and exchangeable as provided in the Indenture.

The Authority or the Trustee do not have any responsibility or obligation to DTC Participants, to the persons for whom they act as nominees, to Beneficial Owners, or to any other person who is not shown on the registration books as being an owner of the Bonds, with respect to (i) the accuracy of any records maintained by DTC or any DTC Participants; (ii) the payment by DTC or any DTC Participant of any amount in respect of the principal of, redemption price of or interest on the Bonds; (iii) the delivery of any notice which is permitted or required to be given to registered owners under the Indenture; (iv) the selection by DTC or any DTC Participant of any person to receive payment in the event of a partial redemption of the Bonds; (v) any consent given or other action taken by DTC as registered owner; or (vi) any other matter arising with respect to the Bonds or the Indenture. The Authority or the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal of or interest on the Bonds paid to DTC or its nominee, as the registered owner, or any notices to the Beneficial Owners or that they will do so on a timely basis or will serve and act in a manner described in this Official Statement. The Authority or the Trustee are not responsible or liable for the failure ofDTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner in respect to the Bonds or any error or delay relating thereto.

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