Make us your home page

CDD defaults may be disaster for a swath of homeowners

More than 50 of Tampa Bay's community development districts are in or near default, a condition that could have serious ramifications for thousands of homeowners across Tampa Bay and accelerate the decline of already troubled Florida banks.

Developers use CDD bonds, or "dirt bonds," to build roads, utilities and clubhouses. Of Tampa Bay's 115 community development districts, 28 have already defaulted and another 25 could be teetering toward insolvency. That's 46 percent of the total.

They include some of the biggest names in Tampa Bay residential real estate: New River and Longleaf in Pasco County; SouthBay and Live Oak Preserve in Hillsborough County; and Sterling Hill and Southern Hills Plantation in Hernando County.

Developers initially make CDD payments but gradually shed the expense as home buyers assume their proportional share. When the housing market collapsed, developers were left covering payments on unsold land.

The result has been massive defaults totaling nearly $700 million in the Tampa Bay area alone. Another group of neighborhoods, indebted to the tune of $476 million, are on a "watch list" owing to lackluster sales.

"Wow. Those are amounts I can't even get my hands around," said Mark Straley, a Tampa lawyer who helped set up CDDs around Tampa Bay.

• • •

In a pattern familiar to Tampa Bay residents behind on their house payments, developers are being foreclosed on by their bondholders, restructuring bond deals and in some cases relinquishing land to cover outstanding debt. That leaves thousands of Tampa Bay homeowners who bought in those neighborhoods in a predicament.

Will default reduce the appeal of these neighborhoods and snip property values? Will the builder they assumed would finish the community turn over remaining lots to a lesser builder? And, perhaps most troubling, will neighborhood upkeep suffer when CDD payments go missing?

"If the developer doesn't make his debt service, he also doesn't make operations and maintenance payments. Nobody cuts the lawn and trims the hedges and hours are cut at the clubhouses,'' said Richard Lehmann, a Miami Lakes businessman who tracks the state's nearly 580 CDDs in a publication called Debt Securities Newsletter.

Among the biggest development's on Lehmann's "watch list" is Connerton, the new town that was supposed to rise south of State Road 52 in central Pasco County. Terrabrook, the developer, has made its payments. But it miscalculated when it invested $45 million to build a giant clubhouse, miles of roads and other infrastructure. After selling only 200 homes, Terrabrook has been trying to sell the project at a loss and leave Florida.

Connerton's quagmire illustrates the stickiness of the CDD issue, complicated by the fact that most of these developments also carry huge bank mortgages.

When a development goes broke, the law ensures that CDD bondholders get repaid first. Since land values have crashed so badly, that means little or no money is left to pay off the bank mortgages on the same property. Banks can foreclose on the property. But that would obligate them to start making CDD payments in place of the insolvent developers. Few banks want to take on that debt.

The problem is epitomized by the south Hillsborough County community of SouthBay/Little Harbor. The developer defaulted last year on $57.4 million in bonds. But if and when the land reverts to CDD bondholders, the banks, which loaned the project $100 million, could lose every penny still outstanding.

So what started as a bond crisis could quickly spiral into a regional banking crisis.

"One way or another, the district is going to get its money," said Brian Lamb, whose Tampa company manages dozens of CDDs in and around Tampa. "But that leaves little for the banks."

• • •

Needless to say, developers loathe the publicity that CDD default brings. Perry Reader, developer of Pasco's Longleaf community, is negotiating with bondholders after his company, Crosland, defaulted on $23.7 million in construction debt.

"There's been a slowdown in sales, and we're caught with the ramifications," said Reader, whose neighborhood sports traditional front porches, a "village green" and a small downtown. "What's important is that the community stay healthy."

Lehmann considers a district in default when it can't make payments from current revenue and dips into emergency reserves. Even when bondholders agree to restructure debt, Lehmann doesn't drop neighborhoods from the default list. That's led to threats from development lawyers who think he's hurting sales by downgrading them prematurely. Lehmann scoffs at that notion. He publishes a list of CDD defaults on the Web site

"They want to have their cake and eat it too," he said. "They can't make the payment, but they don't want to be marked down as a defaulter."

Other Tampa Bay developers are surrendering to the market. The latest phase of the once stellar-selling Meadow Pointe community in Wesley Chapel — called Meadow Pointe IV — will likely revert to bondholders. Developers, led by Clearwater businessman Lee Arnold, plan to deed the land to creditors.

A bunch of other communities, most of which barely got off the ground before the market plunged, are prime CDD foreclosure candidates. They include Cordoba Ranch in Lutz, New Port Estates on Gandy Boulevard in Tampa, Concord Station in Land O'Lakes and Riverwood Estates south of Zephyrhills.

Insiders like Lamb and Straley still vouch for CDDs as financing vehicles. By appearing in a home­owner's property tax bill, CDD assessments are much easier to collect, unlike homeowners association fees, which usually are paid out of pocket.

Most examples of Tampa Bay neighborhoods turning shabby for lack of home sales are not CDD neighborhoods. Still, no one has underwritten CDD bonds in Tampa Bay since the housing slump took hold in 2007.

Lamb anticipates changes to CDD rules to prevent developers from drawing on the money too fast ahead of home sales.

"There's not a more secure way to finance construction," Lamb said. "The mechanism still works. It will come back."

Neighborhoods in trouble

These Tampa Bay neighborhoods have defaulted on repaying community development district bonds. Some will successfully renegotiate deals with bondholders. Others will fall further behind.

Hillsborough County

Highlands: $29.5 million

Heritage Isles: 8.8 million

Grand Hampton: $13.9 million

Live Oak Preserve No. 2:

$27.3 million

K-Bar Ranch: $5.6 million

Cordoba Ranch: $10.2 million

Belmont: $30 million

South Bay: $57.4 million

South Fork East: $23.8 million

River Bend: $19.6 million

Palm River: $6.6 million

New Port Tampa Bay:

$49.6 million

Oak Creek: $79.4 million

Cypress Creek of

Hillsborough: $22.7 million


Bella Verde Golf Community: $10.6 million

Concord Station: $19.7 million

Chapel Creek: $27.5 million

Lakeshore Ranch:

$10.7 million

Longleaf: $23.7 million

Country Walk: $13.6 million

Meadow Pointe IV:

$28.7 million

Zephyr Ridge: $10.4 million

New River: $27.3 million

Riverwood Estates:

$23 million


Spring Hill Killarney

$12.2 million

Sterling Hill: $47.3 million

Southern Hills Plantation: $12.4 million


Clearwater Cay Club:

$33.8 million

Note: The Debt Securities Newsletter, which tracks the states' nearly 580 community development districts, considers a district to be in default on its bonds when it can't make payments from current revenues and dips into emergency reserves.

Source: Richard Lehmann, Debt Securities Newsletter.

CDD defaults may be disaster for a swath of homeowners 12/05/09 [Last modified: Friday, December 11, 2009 6:38pm]
Photo reprints | Article reprints

© 2017 Tampa Bay Times


Join the discussion: Click to view comments, add yours

  1. No toll lanes north of downtown Tampa in three of four interstate proposals


    TAMPA — Express lanes may not be coming to downtown Tampa after all. Or at least not to the stretch of Interstate 275 that goes north through Bearss Avenue.

    Seminole Heights resident Kimberly Overman discusses the new interstate options with V.M. Ybor resident Chris Vela (left), Hillsborough County Commissioner Pat Kemp and HNTB consultant Chloe Coney during a Tampa Bay Express meeting Monday night at the Barrymore Hotel. [CAITLIN JOHNSTON  |  Times]
  2. Pinellas grants St. Pete's request to add millions to pier budget

    Local Government

    Times Staff Writer

    The Pinellas County Commission has granted St. Petersburg Mayor Rick Kriseman's request to dedicate millions more toward the city's new pier.

    The St. Petersburg City Council on Thursday  voted 7-1 to appropriate $17.6 million for the over-water portion of the Pier District. This is a rendering of what the new Pier District could look like. [Courtesy of St. Petersburg]
  3. Pinellas licensing board loses support for staying independent

    Local Government

    CLEARWATER –– The Pinellas County Construction Licensing Board on Monday lost its strongest supporter for staying independent.

    State Sen. Jack Latvala, a Clearwater Republican running for governor, said Monday that he will no longer support any legislation to keep the Pinellas County Construction Licensing Board independent. This photo was taken in August. [SCOTT KEELER | Tampa Bay Times]
  4. Triad Retail Media names Sherry Smith as CEO


    ST. PETERSBURG — Triad Retail Media, a St. Petersburg-based digital ads company, said CEO Roger Berdusco is "leaving the company to pursue new opportunities" and a member of the executive team, Sherry Smith, is taking over.

    Sherry Smith is taking over as CEO at Triad Retail Media, the company announced Monday. | [Courtesy of Triad Retail Media]
  5. Two new condo projects for same street in downtown St. Pete

    Real Estate

    ST. PETERSBURG — It lacks the panache and name recognition of Beach Drive, but 4th Avenue N in downtown St. Petersburg is becoming a condo row in its own right.

    Bezu, a condo project planned at 100 Fourth Ave. NE in downtown St. Petersburg, will have 24 units including a three-level penthouse with infinity pool.
[Courtesy of Clear ph Design]