May Day, May Day for Florida CDDs

It may not be a day that will live in infamy, but some may look back on May 1 as a pretty bad day in real estate development finance circles — at least where community development districts (CDDs) are concerned.

According to Richard Lehmann, author of the Florida CDD Report, on May 1, 2010, “a large number of projects will be making their first payment from current assessments [on district property owners], i.e. these are the projects begun in late 2006 or 2007 which have run out of their self funding time period and have no prospects of finding buyers within the economic lifetime of the developer.”

As if that doesn't sound bad enough, Lehmann goes on to write about the 70 such projects he's identified, many in Southwest Florida, “These are projects that have no sales momentum and are hugely overvalued. In short, these are the really ugly ones...We can also expect that entire projects will be going on the auction block or into Chapter 9 bankruptcy before year end.”

Lehmann also raises concern about hazards facing investors buying into the “bumper crop” of tax certificates. He notes that with the May 1 beginning of Florida's annual tax certificate sales cycle, a certificate holder could be in a position of having paid 100 cents on the dollar for a claim which is on par with a bond selling for 40 cents on the dollar.