[Hadleyite]

Good point, but raises a question. Would the developer have been entitled to sell the amenities income to anyone? That is the justification for the inflated purchase price of the physical assets.

[katezbox]

Originally Posted by iaudit

Katzebox wrote:

"In our case, the VCDD needs to reimburse the developer for his cost in building out the amenities. Will the developer expect to receive an amount equal to just his cost? Of course not - no more than the guy selling that hypothetical business. He will expect to receive a return on his investment that rewards him for his dollars investment and the risk involved."

I guess I have a problem with this statement. Are we really talking about a hypothetical business being sold? Who else would be willing to buy the assets that he is selling? Doesn't seem to me that there would of a demand for the use of these assets, other than by the residents of the Villages.

iaudit,

I was using the hypothetical situation as an illustration only. If you read through the hundreds of bond posts, there are many that don't see why the VCDD pays more than book value to the developer.

My illustration may have oversimplified things, but I think it explains the concept. The Sentinel and some posters seem to think that this is a shady business practice - like keeping multiple sets of books (how many people think that is something fishy)? This is a valid business practice used to value income producing assets.

Of course, if the transaction is deemed not at arm's length, then the valuation may be suspect in terms of the true value of that future income stream and/or the cost of capital rate utilized in the discounting.

[spk7951]

Originally Posted by Hadleyite

Good point, but raises a question. Would the developer have been entitled to sell the amenities income to anyone? That is the justification for the inflated purchase price of the physical assets.

Why could he not sell the management rights if he so desired to a company outside of TV? There are companies that do business in managing amenities such as we have but for my money I prefer things as they are. I know of one 55 plus community that recently had the management company for their amenities go bankrupt and another community is involved in a lawsuit with their management company.

[Advogado]

Originally Posted by l2ridehd

There are several possible outcomes, none of which I believe would have a big impact on the homeowners.

1. The IRS wins. The bond interest becomes taxable. The bonds must be called, re-issued, different rate, but probably not a lot higher then today. Past interest rate deductions denied, which bond holders might do a class action suit against the CDD's and that cost would be paid by the homeowners. Worst case maybe $600 to $800 per home.

2. The IRS settles for some compromise position, probably a similar course as above but with about half as much impact to homeowners.

3. The IRS loses and nothing changes.

4. There is some agreement that whats in the past stays in the past, but going forward it has to change. Either elected boards, no more tax exemptions, or some other agreement and this would only impact new CDD's and new homes.

5. There is probably some other combination of events that some lawyer will dream up, but when you look at the total amount at risk, the total number of homes, the willingness of the bond holders to sue vs settle, even the worst case scenario is not all that bad.

Any agreement or settlement would have to be paid over time and in a manner so that everyone could still pay or the agreement would fail. Elected officials would step in before great numbers of retired people lose their homes or standard of living. None of want to pay an extra several hundred $$$, but it probably wouldn't change what we have for dinner tonight or where we play golf tomorrow. So life is still good.

I agree that there are various possible outcomes, but I wonder if you would explain your assumptions and math for your worst-case scenario, i.e., #1?
In addition, how and on what legal basis, could the Center Districts pass the costs on to the residents since the Center Districts can only tax within their boundaries and increases in the amenities fees are limited to the CPI?