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Return to: 1999 Feature Stories
CLIENT: BERRYMAN & HENIGAR
Jan. 11, 1999: Las Vegas Business Press
A unique financing program has helped a multi-billion dollar development come to life in the middle of the Southern Nevada desert.
The financing vehicle is known as a Special Improvement District (SID). The development is Summerlin, a 22,500-acre master planned community being built in Las Vegas by The Howard Hughes Corp., an affiliate of The Rouse Company of Columbia, Maryland. Summerlin has been the best-selling master planned community in the United States for five of the last six years.
In brief, an SID allows a developer the opportunity to finance major regional infrastructure improvements (roads, sewers, storm drains, etc.) over a longer period of time than conventional financing (if available) would typically provide. The public approval process, which is required to create the SID, can be expedited when the developer is the sole owner of the land within the district. Because the public agency is the conduit for issuing the bonds, the bonds are tax-exempt. The developer provides a development plan that includes a list of public infrastructure improvement projects that benefit a specific area of the development. The public agency agrees to proceed with the financing of the project by levying assessments upon the property and issuing the bonds. The bonds are repaid by assessments levied against the property within the area benefiting from the projects. The repayment of the assessments is the obligation of the property owner and is passed on from the developer to the merchant builder to, eventually, the home owner. The repayment of the assessments can either be by lump sum or by semi-annual installments (typically 10 to 20 years).
The costs associated with this type of financing include the typical underwriting costs of a bond issuance program, in addition to fees paid to the public agency to administer the SID. A portion of the bond proceeds pays for the audit by an assessment engineer of the project costs prior to acquisition by the public agency. The administration of the SID also includes apportioning the assessments to each tract and subsequently to each home or commercial project. The assessments are mailed to each property owner as a separate bill or paid to a mortgage company with each monthly payment.
The benefits of the SID provide for well-designed initial public improvements constructed by the private sector to accommodate the needs of the community upon full buildout. Without the SID, construction of public improvements would typically keep pace with the development of each subdivision's sales activity. With the SID, most of the infrastructure improvements are in place or in some stage of development prior to the first home sales.
There have been three SID programs for the Summerlin development project, with a fourth SID scheduled to be formed in 1999. Total financing raised to date is about $150 million.
When completed in 15-20 years, Summerlin will be one of the largest planned communities in the nation. Located on the western rim of the Las Vegas valley, Summerlin currently features 40 active neighborhoods with more than 170 model homes built by nearly two dozen home builders. The community has golf courses, trail systems, parks, a library, community centers, shopping centers and health care facilities. There are employment centers, business parks and public and private schools within the community. Planned in the next few years are four more golf courses, several parks, a regional mall, a hotel/casino and more commercial development. Eventually there will be 15 golf courses, interlinked parks and trails, community centers, schools, and various commercial establishments within a thriving community. The current population of 40,000 will grow to 160,000 upon buildout.
The Summerlin development would not have materialized without the foresight of the city of Las Vegas, which worked closely with Hughes Corp. officials. The initial challenge was to provide access to the then (1988) remote development. Most development occurs in a systematic pattern to avoid building offsite infrastructure. To access Summerlin, the city and Howard Hughes Corp. officials entered into a development agreement that included an interchange and a three-mile stretch of freeway (Summerlin Parkway) linking Summerlin to the rest of the community. The first SID included the parkway, arterial roads, sewers, storm drains, local water lines and other public improvements totaling about $73 million.
The assessments for the repayment of the bonds were eventually transferred to merchant builders and then assumed by the new home owners within each subdivision. The range of SID assessments to home owners typically averages approximately $50-$60 a month.
This initial development filled a need for a well-planned community that provided the amenities buyers expected. Drainage channels became linear parks and trails. Detention basins became parks and ball fields. The street cross-section was modified to widen the public right-of-way and provide more pleasant pedestrian experiences with walks back from the curb line and meandering alignment in the midst of landscaping. The perimeter walls for each development were constructed to ensure conformity. Major arterials were built to support construction traffic and the early residents.
As each village is being completed, the final cap on the roadway will be placed, resulting in a finished look that will not be subject to pavement cuts for utility connections.
Lastly, the overall development was segmented into different villages with their own themes, which were manifested in signage, wall treatment, lighting and landscaping.
Summerlin has been successful for a number of reasons: Las Vegas needed a community to house all the workers, trade people, professionals and executives moving to the rapidly expanding city; new residents were attracted to the lifestyle and amenities offered in Summerlin; the community also provides a wide variety of housing appealing to everyone's pocket books-from attached for-sale and for-rent product to detached product ranging from entry level to million dollar custom homes.
The SID process has also been smooth because of unique public/private partnerships. The public works departments of both Clark County and Las Vegas work closely with private sector officials to ensure that the development is in full compliance with the law and meets the infrastructure needs of the burgeoning community.
And the bottom-line? Thanks to the SID programs, Summerlin is transforming the west side of the Las Vegas Valley from raw desertscape into a thriving and attractive community.
Return to: 1999 Feature Stories