Unrated bonds latest to fund growth of Florida’s Villages senior development

The tax-exempt bond-funded march of the Villages retirement development in Florida continues next week with an unrated $163 million land development bond.

Senior manager Jefferies and co-manager Morgan Stanley tentatively plan to price the deal Sept. 10 for The Village Community Development District No. 15 (City of Wildwood, Florida) special assessment revenue bonds, series 2024.

It will fund infrastructure construction for a phase II residential part of District 15, one of 21 community development districts that have been used to build the age-restricted development to more than 76,000 homes and 146,000 residents, according to an online investor presentation for the deal. All households are required to have at least one person over 55 and no households can have residents under 19.

CDD No. 15 is planned to encompass more than 7,300 new homes. The developer, Villages Development Company LLC, already sold a Series 2023 bond in July 2023 to support infrastructure construction in the phase I residential area of District 15 — the district’s adjacent parcels.

The $155 million series 2023 had maturities from five to 30 years and were priced with yields to maturity from 168 to 181.5 basis points above AAA revenue bonds with identical maturities, according to date from the EMMA and TM3 websites.

The Series 2023 bonds came to market unrated as the Series 2024 bonds are doing.

PFM is the municipal advisor on the upcoming deal and Gray Robinson and Nixon Peabody are the co-bond counsels.

The Villages is a 55-plus residential and commercial development with 57 square miles of land, about 45 miles northwest of Orlando. From its roots in a trailer park founded in the 1970s it has grown into a massive development built around features appealing to well-off seniors, including at least 50 golf venues.

Descendants of the founding Moore family still call the shots at the Villages Development Company — all five members of the district’s board are employees of the developer or its affiliates, according to the investor presentation.

Wildwood-The Villages was the fastest growing U.S. Census Designated Place in the United States from July 1, 2022, to July 1, 2023, with a 4.7% population increase.

The new bonds will be repaid with special assessments on the purchasers of single-family homes planned for the 697 acres of phase II.

The developer expects to build a total of 3,700 homes in phase II, ranging in size from 1,600 square feet to over 4,000 square feet. Prices are expected to range from the low $200,000’s to over $1 million, according to the investor presentation.

The offering document presents 11 pages of credit risks for the bonds.

A hurricane could hit the phase II lands, making them “unable to support development,” ending the ability to pay the bonds, the document says.

That is the only appearance of the word “hurricane” in the 253 pages of the offering document. The word “climate” doesn’t appear, and the property insurance market in Florida, and its challenges for homeowners, is not mentioned.

“I am not as concerned about the climate of risk in Florida for The Villages,” said Joseph Krist, publisher of Muni Credit News. “Its Central Florida location does mitigate risk from storm surge or gradual shoreline issues due to rising oceans. The hurricane risk is what it is. I doubt it will deter demand.

“As for the cost of [property] insurance, there is some concern but the people who look to live in The Villages weigh that against what they see as the downside of where they currently live,” Krist said. “Rightly or wrongly, they believe that a move to Florida will lead to a cheaper cost of living. They will look at taxes (no income tax), perceived quality of life, costs and the hope never to shovel snow again as sufficient to offset the insurance cost.

“The deal will benefit from the long-term track record of The Villages,” Krist said. “Its control of the pace of development has allowed it to avoid problems and manage supply and demand pretty effectively. The brand has value.”

The developer plans to begin selling vacant homesites for custom homes in the phase II area sometime from October to December and to begin selling homes in January to March.

The developer is building a fourth “town center” with commercial buildings adjacent to phases I and II called Eastport Town Center, with an anticipated completion from April to June of 2025.

The developer expects to complete the infrastructure improvements — which include building roads, paths, bridges, tunnels, landscaping, drainage, fence and wall building, and land grading — by January 2026.

The total cost of the Series 2024 project is expected to be $187.4 million. The developer expects to raise $133.6 million of this from the series 2024 bond and contribute the remaining $54 million.

The bonds will have $11 million maturing in 2029, $17 million in 2034, $20.8 million in 2039, $26.3 million in 2044, and $88.2 million in 2055.

The bonds are being sold with a minimum denomination of $100,000 and are being offered only to “accredited investors” under the rules of the Florida Department of Financial Services, according to the preliminary limited offering memorandum.

However, this does not restrict who buys the bonds or the bond sizes on the secondary market, the PLOM said.

The community development district is a “local unit of special purpose government of the State of Florida,” the PLOM says. The bonds are issued according to the state’s 1980 law on the districts, the master trust indenture of 2023, and a supplemental trust indenture that will be dated Oct. 1 of this year.

The reserve account will be funded at 50% of the maximum annual debt service requirements for the series 2024 bonds but, when 98% of the planned home receive certificates of occupancy, will be reduced to 25% of the MADS requirements.

“The lien of the series 2024 special assessments on the phase II benefitted parcels is coequal with the lien of state, district, and municipal taxes, superior in dignity to all other state and local liens, titles and claims,” the PLOM says.

In May an independent environmental consultant obtained a phase 1 environmental site assessment report that said there are no current recognized environmental conditions, the PLOM reports.

The offering document warns that until there is the buildout of the homes in phase II, all bond payments are dependent on the developer making them. If the developer were to go into bankruptcy, the payments would be delayed or might not happen at all.

“A Florida bankruptcy court decision held that the board of supervisors of a community development district, as a creditor, may vote to approve a reorganization plan submitted by the majority landowner in the district, as debtor, notwithstanding that a majority of the members of the board of supervisors were affiliated with, or employed by, the landowner,” the PLOM warned.

The offering document’s risk section goes on at length about the risk of tax law changes and Internal Revenue Service audits of the bonds’ tax status.

A long IRS review of utility revenue bonds issued by the Village Center Community Development District in 1998 and 2003 ultimately led to the audit’s closure without changing the tax-exempt status of the bonds, which at that point were no longer outstanding.