Types of Consulting Services and Applications
Empire Economics performs research to provide issuers with information as to whether a CFD/project meets the issuers’ financing policy guidelines and to identify potential risk factors that should be disclosed to prospective bond purchasers.
Empire Economics’ consulting services cover a broad array of issues related to municipal finance; each type of study provides guidance on a critical topic:
Price Point Study
Are the prices being used to set the Special Taxes for the CFD/Project representative of current market conditions, so that the prices for which the homeowners purchase the homes will have a tax burden that conforms to the issuer’s policies, such as a maximum of 1.8% or 2.0%?
If the prices used to set the Special Taxes turn out to be higher than the prices that the homes actually sell for, due to the developer/builder using aggressive prices which is sometimes the case, then the homeowners would have tax burdens in excess of the issuer’s policies.
Market Absorption Study
Is the rate of absorption for the forthcoming CFD/Project based upon probable economic and real estate conditions, so that the Appraised value represents the issuer’s policy regarding a Value to Lien, typically a minimum of 3 to 1?
If the rate of absorption used for the Appraisal turns out to be higher than the actual rate of absorption, then the amount of infrastructure funded may be more than the level required to meet the market demand. Since the developers/builders would then be liable for the Special Taxes on the improved but unsold properties, then there is a higher risk of default on the tax payments.
Mortgage Loan Characteristics-Homeowner Equity Study
What are the equity levels of the current homeowners in the CFD/Project, considering that homeowners with significant amounts of negative equity have much higher levels of mortgage duress and special tax delinquencies?
Although a CFD that has a significant number of homeowners may be regarded as being a strong credit, if a substantial share of these homeowners has negative equity, then the marketability of their homes may be impaired and the amount of their mortgage debt on the homes may exceed the current market value.
Assessed Value Projections Study
What are the amounts of Assessed Value (AV) growth for the public entity during the foreseeable future, based upon a comprehensive analysis of each of the relevant factors, including housing price changes and turnover rates as well as new development, and how can the AV forecast be integrated into a public entity’s financial plan?
Previously, casual forecasts of future AVs started by reviewing recent trends, and then making some ad hoc adjustment; such an approach only works as long as a trend continues. However, due to the recent dramatic fluctuations in housing prices and the levels of development activity, a professional forecast that can identify turning points, rather than a simple extrapolation, is critical.
Evaluating the Competitiveness of the CFD/Project
For the remaining homes in a CFD/Project, how competitive are their prices in the marketplace, relative to other comparable new housing projects and also nearby existing homes that are for-sale, including homes that are under duress, such as foreclosures and bank owned?
Although a CFD/Project may have had a significant number of its homes occupied by homeowners, the marketability of its remaining homes may encounter challenges that result in a lengthy absorption time, since competing projects/homes that are under duress often significantly discount their prices.
Local Area Price Bubble and Economic Recovery
How does the housing price bubble for a particular public entity’s geographic area, such as a City, compare to that of Southern California, as a whole, and how is the area’s economy and housing market likely to recover relative to Southern California, considering the composition of its economic base and level of its unemployment?
Although Southern California experienced a significant housing price bubble and is expected to require several years for its housing market to recover, Empire Economics’ research has revealed that specific sub-areas, such as coastal vs. inland areas, have experienced substantial variations in the relative degrees of their price bubbles. Accordingly, for a public entity to have an understanding of specifically when its economy and housing market will recover provides critical information that can be utilized in its financial planning process.
Monitoring Report for CFDs/ADs Bond Issues Study
How can a public entity provide increased disclosure to municipal bondholders regarding the development progress of the residential and commercial-business projects in its Community Facility Districts/Assessment Districts (CFDs/ADs)?
After the initial CFDs/ADs bond sales, the bonds may be traded on the secondary market and so the amount of information available to buyers/sellers can assist them in making prudent decisions. The Monitoring Report provides market participants with timely information on the actual absorption of the homes and commercial/business buildings as well as their price trends, thereby enhancing the marketability of such bonds.