Moraga of Merced

Moraga of Merced is a planned development of 520 single family residences in the City of Merced in Central California. A subsidiary of Common Bond Capital Partners owns a 43-acre parcel 2 miles south of the University of California, Merced. This property is entitled for 233 homes with a vesting tentative map approved for the property, but no in-tract improvements yet constructed. In 2012, a subsidiary of Common Bond acquired the Property debt-free from a bank lender, which had foreclosed on its borrower/developer.

Common Bond’s Involvement

With a population of 81,000, the City of Merced is the county seat of Merced County in the heart of California’s Central Valley, roughly a 2 hours drive each from San Jose, San Francisco and Sacramento. In the early 2000’s, new home building in Merced boomed as the state established its newest University of California campus there. But the recession stopped new community development in its tracks (only 38 new residential permits in Merced from 2008 thru 2013). The surplus of entitled and finished home sites, created in the early 2000’s, crushed Merced’s residential land values in the recession.

As real estate values reached their nadir in the summer of 2012, Common Bond purchased 43.3 bank- foreclosed acres of land entitled for 233 homes in Merced. Common Bond’s favorable purchase price from the bank reflected the reality that the bank’s land collateral had been worth far less than the Community Facilities District (“CFD”) bond debt that encumbered it in a senior position to the bank’s loan. Additionally, Common Bond was able to buy $2.9 million (55% of the total bond issue) of the related defaulted CFD bonds and, thereby, gained control of the development.

Having acquired a majority of both the land and the bonds, to reduce its cost basis in the development, Common Bond successfully negotiated with the City of Merced to, 1) waive penalties and interest attributable to property tax delinquencies of prior land owners, and 2) use some of the CFD bonds acquired at a discount to discharge the accumulated property taxes.* As a result, both the land and the bonds have substantially increased in value since their purchase by Common Bond and Common Bond now owns a premier location with entitlements, a mere two miles from the main entrance of the burgeoning U.C Campus in Merced.

Strategy

The University of California is currently in the process of executing its plan to increase enrollment at U.C. Merced to 10,000 students by 2020 with an ultimate enrollment of more than 25,000 thereafter. Common Bond, having already created equity value in the land, is now evaluating two approaches to maximize value in selling the land:

As presently entitled for 233 single family homes or
Re-entitling the land for sale as a student housing project.

Both approaches are consistent with the makeup and growing population expectations of the area and are well located for either purpose.

Because the bonds are now current in all payments, Common Bond considers them liquid and, to maximize their utility, may sell the bonds (or a portion) to support continuing carrying costs of the land or to liquidate them when bond market conditions indicate desirable returns.

*Note: Both of these effective workout tools in California’s CFD law had previously been successfully introduced to the State legislature by Common Bond’s CEO, Bill Huck, following the mid-90’s recession.