Infrastructure Debt Crushes SW Fla. Developments

The debt piled up by developers to finance roads, sewers and golf courses in Southwest Florida is coming back to haunt new communities.

Palm Coast, FL – August 12, 2010

The debt piled up by developers to finance roads, sewers and golf courses in Southwest Florida is coming back to haunt new communities. In the real estate industry, such loans are called dirt bonds.
As these bonds slide toward default because of a stalled home-building industry, they threaten the future of residents, developers, bankers and bondholders…..
Most of the failures stem from projects started in the boom years from 2004-06 by builders using little or no money of their own, said Richard Lehmann, president of Investor Securities.
"Any developer with a couple hundred acres of land could form a CDD and raise tens of millions of capital," Lehmann said. "He didn’t have a dollar of capital in the deal."
While a project is being developed, there are no homeowners to pay their share of the bonds, so the developer is totally responsible, he said, but there was enough money to pay the bond holders for a year or two.
The problem came when the housing market crashed in 2006 and developers found themselves stuck with no money, no homes sold and a huge dirt bond to pay off, Lehmann said.
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3 replies
  1. Dave Stone
    Dave Stone says:

    CDD Debt

    At some places like Reunion, the developer (LA/Ginn and affiliates) simply stop paying the cdd payments on yet to be fully utilized property and the CDD board, populated by developer minions makes little or no effort to collect from the developer. Now the homeowners who have faithfully kept up their end of the bargain are supposed to come up with the O&M shortfall.

  2. Richard McGuire
    Richard McGuire says:

    CDD Concept

    I feel that the CDD is a terrible by product of an extremely overheated housing market. Typically a developer buys raw land, subdivides it, completes the infrastructure and sells the lots for a profit. The land is now worth more because he (the developer) has spent a lot of money improving it. To think that you would buy a lot in a neighborhood for say $50,000 and then find yourself stuck with a bill for infrastructure improvements for the next 25 years or so is hard to even believe. You are basically paying for it twice so that the developer dosen’t have to pay for it at all! The politicians NEVER should have allowed such a scam. How could this benefit anyone other than a slick well connected opportunist? This is now (and will continue to be) a very bad idea for all taxpayers and citizens in Florida. It’s hard for me to imagine anymore of a "sweetheart deal" for a developer. The CDD is a very bad idea.

  3. Evelyn Palmeri
    Evelyn Palmeri says:

    Infrastructure Debt Crushes SW Fla. Developments

    Can’t put anything over on Lehmann, he has a firm grasp of the obvious.

    How is SW Florida different than Flagler Co. Elected officials here whether they be county or city never saw a developer with whom they weren’t smitten.

    How long to you think voters will let Towne Center drain tax dollars? Can’t be too long before it’s down the same drain as the rest of their pipe dreams.

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