Community Development District Bonds (CDDs)

Investments >CDDs
Introduced to Florida in 1980, Community Development Districts (CDDs) present an alternative mechanism for real estate developers to finance, construct and maintain the necessary infrastructure to horizontally develop a community.

This includes the construction of roads, sewers, electrical grids, clubhouses, golf courses and other amenities. Noteworthy CDDs include:

  • Vierra East (Palm Bay, FL)
  • St. Lucie West (Port St. Lucie, FL)
  • The Villages (The Villages, FL)
  • Tampa Palms (Tampa, FL)
  • Westchase (Tampa, FL)
  • The Reserve (Port St. Lucie, FL)
  • Midtown Miami (Miami, FL)
  • Nocatee (Ponte Vedra Beach, FL)
  • Heritage Harbor (Tampa, FL)
  • Champions Gate (Champions Gate, FL)

Instead of securing a traditional bank loan to finance this construction, CDDs allow developers to create a special purpose quasi-legislative government for the community. This enables developers to issue tax-exempt bonds that are collateralized by the underlying real estate without incurring upfront development costs. The total debt of the bond issuance is allocated proportionately among each platted property within the CDD. Known as debt special assessments, the principal and interest are collected on each property over the course of 30 years to ultimately repay the bondholders in full. The obligation to pay this debt special assessment passes with the property’s chain of title from the developer to the homebuilder and, finally, to the homeowner(s).  

In addition to debt special assessments, the CDD may issue a second special assessment to fund the community's operations and maintenance (O&M assessment). This amount is calculated annually and ensures the District’s property and infrastructure is adequately maintained. Property owners are obligated to satisfy debt and O&M assessments along with their annual property taxes as a  “non ad valorem” line item on their tax bill.

Since 1980, CDDs have evolved into the preferred financing mechanism for residential developers. The bond debt’s affordable interest rates and low up-front financing costs permit developers to offer upgraded amenities and higher construction standards to homeowners while responsibly funding the community’s ongoing operation and maintenance. These communities have provided an effective means for growth within the State of Florida by providing a mutually beneficial solution to developers and homeowners alike.

CDD Tax Lien Investing in Florida

The acquisition of tax certificates on property within a Community Development District (CDD) can provide an investor with a significant return under the right circumstances with the proper due diligence.

When a property owner fails to pay property taxes, a tax certificate is sold at a tax lien auction to the lowest bidder. If the property owner fails to pay the taxes and corollary interest within 22 months, the bidder may elect to send the property to foreclosure via a tax deed auction. The winning tax deed bidder emerges from the auction with title to the property.

In most cases, the tax deed auction process administratively extinguishes any encumbrances on the property including mortgages and construction liens.  Similar to a typical tax deed auction, when a CDD property is auctioned at a tax deed sale the winning bidder may take immediate possession of the property following payment. CDD's are a quasi-legislative body, and like other governmental liens they are not extinguished by a tax deed sale.
Following the global economic recession of 2008, property owners of all types struggled to pay annual property taxes. Among the most adversely impacted asset classes were unimproved lots within CDDs. Of the 600+ CDDs in Florida, over 400 were created between 2003 and 2008. As institutional lending for new home construction disappeared, CDD developers were unable to sell their finished lots to homebuilders.  

These developers were left with a difficult decision: continue to pay the property taxes, debt special assessments, and O&M associated with their properties, grant a deed in lieu of foreclosure to the District, or abandon the property altogether. In most cases, developers elected to sign a deed in lieu of foreclosure, thus transferring title to the District. Without any source of O&M income from property owners, these CDDs often fell into disrepair and operated with large deficits. This left the State with vast a surplus of undeveloped and unimproved lots within hundreds of newly founded CDDs.  

In the years following the recession, uninformed tax lien investors purchased property tax liens on thousands of improved (fully developed but without a house) lots within CDDs throughout the State. Unaware that the CDD debt survived the tax deed auction, these investors left County auctions satisfied that they were the owners of a developed lots within a gated community at a significant discount to market prices. Upon realizing their error, these tax lien investors sought to recoup their investment by selling their liens; often at a significant discount.


50’ Front Single Family Lot:
  • Non-CDD Market Price: $40,000
  • CDD Lot @ Auction Price: $20,000
  • Outstanding Accelerated Debt Assessments: $55,000
  • Total Basis (assuming payment of accelerated debt): $75,000

In this chaos, KCP saw an opportunity to track new housing starts within defunct CDDS. As homebuilders and bondholders negotiated deals to resurrect defunct CDDs, KCP simultaneously acquired tax certificates and, in some cases, the corollary CDD bonds for the properties within the community.

More Information >
Goldstein Kite Environmental >
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
© Kite Capital Partners, LLC. All Rights Reserved.
Disclaimer: This Information contained herein is being furnished on a confidential basis, is limited and not intended to provide a representation of the merits or risks associated with an investment in the Fund. Nothing in this presentation constitutes an offer to sell or the solicitation of an offer to buy securities. Returns were reported quarterly rather than monthly up to Q4 2014. Years 2009 through 2013 have not been submitted to or reviewed by an independent third party auditor and this document is in no way a guarantee of the accuracy of those returns.