[kingofbeer]

Originally Posted by CoachKandSportsguy

yes, bonds are written in legalese. . . primarily why i only buy treasuries or bond etfs

however, in non legalese terms, borrowing for a large project and expecting to come in under budget in today's world, is probably not realistic. The fuel cost increases this year would impact the budgeted costs as a major overrun.

So lets spitball:
Lets say the developer is on the hook for the overrun. that would make some sense. .
Lets say that the developer also makes money on the houses built, that maybe could be used to payoff the overrun. .
The developer just has to pay off the overrun, which it might be able to do with income from other parts of the business.

Yes, each CDD is separate, and on the books of the developer, each CDD development is a separate project. But at the end of the day, the overruns by the developer can be paid by the developer in any way he chooses. There are very profitable years, and there are marginally profitable years. Hopefully the profits from the very profitable years cover the increased costs for the marginally profitable years.

So a CDD project with a 15% projected return might come in at 10% now, still profitable, just not as profitable. .

but remember, I am just spitballing a different viewpoint.

False advertising IMHO. For example, they tack a bond of 40k to your property but based on the actual infrastructure cost, the bond should have been 55k. CDD bond seems like a complete sham to me. Better off having the builder pay for the infrastructure cost and increase the price of the home. How do we know that the builder got great costs? The builder has no real incentive to keep the cost low since the homeowner is going to pay for the cost in the end.

From AI:

While the bond debt service is a fixed amount meant to pay off infrastructure over 15 to 30 years, CDDs also charge an ongoing Operations and Maintenance (O&M) fee that recurs annually and can increase over time.

[BrianL99]

Originally Posted by CoachKandSportsguy

however, in non legalese terms, borrowing for a large project and expecting to come in under budget in today's world, is probably not realistic. The fuel cost increases this year would impact the budgeted costs as a major overrun.

So lets spitball:
Lets say the developer is on the hook for the overrun. that would make some sense. .
Lets say that the developer also makes money on the houses built, that maybe could be used to payoff the overrun. .
The developer just has to pay off the overrun, which it might be able to do with income from other parts of the business.

...

So a CDD project with a 15% projected return might come in at 10% now, still profitable, just not as profitable. .

but remember, I am just spitballing a different viewpoint.

Originally Posted by kingofbeer

False advertising IMHO. For example, they tack a bond of 40k to your property but based on the actual infrastructure cost, the bond should have been 55k. CDD bond seems like a complete sham to me. Better off having the builder pay for the infrastructure cost and increase the price of the home. How do we know that the builder got great costs? The builder has no real incentive to keep the cost low since the homeowner is going to pay for the cost in the end.

So SportsGuy, that's not how it works. There are contingencies and cost escalators built into the "projected final costs", along with carrying costs, interest, etc. A bond of this sort, should cover all but the most unusual calamity one might run into when doing such a project. Does that mean it never happens? No. It could happen. But in the case of this Developer, it seems to have happened on every single infrastructure project. If something happens 12-13 times in a row, that's a fairly good indication it's going to happen again.

Which in the course of normal business, means you stop doing business with that Contractor/Developer or you build in the expected cost over-runs to the estimate.

I agree with KoB, that's it's "false advertising". I think if you asked 100 people in The Villages "what's the Bond thing all about", 20%-30% wouldn't have a clue. The ones who have some understanding would say, "that paid for our roads and infrastructure" ... except that it didn't.

KoB is correct in his characterization of how it works. The Developer has ZERO risk with CDD bonds. The Developer doesn't have to make up for shortfalls or cost over-runs and that's the argument against the CDD process and why Florida has had so many problems with it. It can work great when the housing market is screamin' forward, not so well when things slow down.

Florida's economy depends on tourists and 2nd home owners ... leads the US in 2nd homes, with over 1,000,000 of them. It's in Florida's interest to promote this business, which is why they have the CDD system ... keep building housing.

[CoachKandSportsguy]

I am not suggesting that I have the answer. But currently, as I read the posts, you don't have the answer you accept.


I see a couple of issues with your response:
tldr: You are asking a reality question, but basing the answer on project costing concepts/theory, which may not apply in this particular situation

1) the developer is both the project owner and the project executioner/construction company. Your example of stop doing business with the construction company for overrunning projects doesn't work when they are owned together. Maybe that is why the newest southern project is a joint project with another partner?
2) noone's bond seems to be increased from the original bond assessed, and the bond payment is due to the bond holders, not to the developer. And you are looking for how the developer recoups his overrun, and its not related to the bond, the answer is elsewhere. And if you can't find it elsewhere, then the only answer is that the developer is paying for it.
3) Finally, the project might be a loss leader somehow, as in tax losses as an offset for corporate income somewhere else. The tax returns might be consolidated at the parent level, and so there might be reasons there.

however, I am not an expert in this area, however I do have experience with holding companies, intercompany transfer pricing, intercompany lending, and holding company consolidation accounting. And I think that looking at the bond is not looking in the correct location for your answer. The bond is the bond, assessed and in payment until finished.

gotta get my oil changed now!

[manaboutown]

The IRS thought it understood them, ah well...The Villages IRS Audit: Timeline of Events | Inside the Bubble