Real Estate Agent Metro District Experience

I've been a real estate agent in Northern Colorado as Metro districts have proliferated around me. The story that agents were always told was that the purchase price of homes in districts were cheaper because the cost of the infrastructure was included in the mill levy and not in the price of the home. This line of thinking seems to be going away now, as whenever a developer brings a MD proposal to the city of Loveland, they are asked point blank if the homes are being sold at a reduced price due to the MD and the answers I've seen are; no, they are being sold at market value. Even if homes were being sold at a reduced price, the extra taxes when added to the mortgage make the monthly payment the same or more so in terms of affordability MD's do nothing for consumers.

Back to my story, after looking for a home for a couple of years in a hot market my wife and I found a home we thought would work for us that was being built in a MD. I knew it would be more expensive, but I tried to ask what I thought were the right questions and did my research on this district to try to make an informed decision. We closed on our home on July 1, 2022, in December of that year we received a letter from the management company letting us know that we (and all our neighbors) would be charged a $700/year fee starting in January of 2023. Needless to say no one was happy about that, the management company did a very poor job of informing the community about what the fee was for and the rumors started to fly. Not expecting this fee, I wrote to the city council to inform them of this and not many on council (who approve all metro districts) realized this could happen but finally the city attorney confirmed that the service plan did allow for the fee. We eventually figured out that this fee was to keep a balanced budget as there wasn't enough money in the bank to keep the neighborhood running, the developer (backed by the one and only Bill Gates, yes, that Bill Gates) was starting to decrease their contribution.

I decided to fill a vacancy on the board shortly after all of this happened. It been very eye opening to me in the 9 months I been on the board as to how these things operate, and how much money and all the expenses the homeowners are on the hook for when it really gets broken down beyond telling a consumer your mill levy is "X" and your taxes will be about "Y".

Let's talk about the money, and I am going to use actual numbers from my district but in studying more MD's as they come up at city council, I am starting to believe that my district is in a better position than many others. (Many of you will recognize Thompson River Ranch and Parkside as two districts in Loveland that were either abusive to their homeowners to the point where people were losing their homes or one that just crashed and burned shortly after take-off when the developer pulled out).

Our district, as of the end of this year, had roughly just under $24 million in total expenditures to date (with most infrastructure construction completed), our bond was issued for $14 million in December of last year after about 80% of the homes in the neighborhood were completed. The timing of these bonds (issued after most homes are built) begs the question do developers need MD's or are they just trying to recoup expenses? I would argue the latter, if they needed the money upfront, I would think that's when the bonds would be issued. By the time our bond was issued our developer had already made $25,661,250 back from the sale of lots to builders. If they sell the remaining lots at current prices the total they will make is $31,350,000 or roughly 30% profit. If we add in the $14 mil from the bond that brings the number up to $45,350,000 or 90% profit. As a real estate agent, I fully realize that we need developers and developers need to make a profit on the work that they do. When we are talking about increasing profits by more than 50% that homeowners are paying to investors like Bill Gates at a time when homes in Colorado are getting less and less attainable I don't agree with that.

It sounds like the MD structure allows developers to decrease costs while they are developing in the short term, but the costs really seem to add up once the district is up and running and the homeowners are footing the bill. Here are some real expenses that our district is paying for right now:

Legal: $60k this might be high this year, but I don't see it dipping below $30k in years to come, this compares to most HOA budgets I see at about $5k/year.

Audits: $12k/year I don't see these in yearly HOA budgets, but they probably have reserve studies done every 5 years or so.

Elections: I'm told by our lawyer that these could run us anywhere from $12-30K and these are held every 2 years!

Bond management fees: $8k year, for some reason the district (homeowners) is paying to manage our bond while other people make money off it.

Bond interest: For our $14 mil bond we are paying $700k in interest every year! Obviously, interest is paid on the purchase of a home using a loan, but this is double dipping on the interest and forcing owners who pay cash for their homes to pay interest, not fair.

Consolidation costs: We are fortunate enough to be moving towards consolidation and homeowner control sooner rather than later, but our lawyer tells me that this is going to be in the neighborhood of $25k to do with the Tabor Election and legal work that needs to be done.

Additional O&M fees: Ours is $700/year and I see many other districts have these fees. Some, I'm sure, are to keep up amenities and to keep those amenities private (there is something else about MD's that makes no sense) but we have no amenities just a budget that has inflated greatly since the developer’s team decided years ago how much it would cost and carved it into stone though the mill levy. This was nothing that was disclosed to people when they bought their homes as it didn't exist before December of last year. For people on fixed incomes, it makes a difference.

Officer payroll: Our directors should get paid for the time they spend in meetings, but we decided to get rid of that. The decision was made that we can't, in good conscience, get paid while everyone in the neighborhood is paying extra to live here.

Provider costs for each district: We have 3 districts and it costs us money in triplicate when filings or accounting needs to be done, instead of have just one budget or set of costs like in an HOA.

Changes in Tax Laws: Another surprise in early 2023 was when I went to the assessor’s website and saw that my mill levy for the district had gone from 65 to 66.95 mills. This was done without notice to residents and was a result of a change in Colorado tax that reduced everyone's taxes but actually raised ours to remain revenue neutral. Now we are going to have to deal with less money in our annual budget due to recent tax changes by the state. I haven't seen the actual numbers yet but am told that they will be similar to Prop HH which would have reduced our profit by about $25k/year.

I am told that our developer advances (that the district has needed to function for the first few years) function essentially like a silent second. If we are good and keep paying our debt as planned for 30 years, the developer advances will drop off after that time. I was told by our accountant, should the homeowners decide to try to get ahead of the game and pay the debt off early, then the developer can then recoup those costs from us. Essentially, making it a prepayment penalty, I can't say this for sure, but I am guessing that is to make as much money as possible for those who have invested in our bond debt.

Speaking of people making money off our bond debt, I was told that investors in that bond should be public record. However, when I spoke to our bond advisor, he told me that it's a depository bond (DTC) and the investors in that bond come from many places and he doesn't know who they are. One might think that sounds like a loophole, that could enable developers to buy back the bond to keep making even more money.

TABOR is something else that concerns me greatly with regards to MD's, someone once told me that we can't build new subdivisions because of TABOR. It took me a while to figure out what that meant. I suppose that one could argue that cities can't issue more debt to put in infrastructure because voters wouldn't approve it. Seems like MD's are structured to get around TABOR rights as the district residents would never vote to take on debt or agree to the IGA's that are involved. Everything is voted on before anyone has purchased a home, by board members who will likely never live in the district and, again, these rules and debt are set in stone by the service plan. Even now as a board member, I cannot vote on anything of significance as I am not part of the controlling district.

Other concerns about MD's:

Disclosure: Service plans and other documents, supporters of MD's say that all the information is out there and that it's on the buyers to educate themselves before buying. Service plans tend to be very long (ours is 162 pages) and are written in legalese that is hard for the average person to understand. All the information is available but not always easy to find. It takes looking at various websites and talking to many people to put everything together including but not limited to MD websites, DOLA, bond offerings (ours is 270 pages long), etc. this is more than the average consumer is going to do along with everything else that is involved in purchasing a home.

Equity: I was told by the president of our board that the only allowable costs that MD's can recover through the bond are common expenses, meaning infrastructure that isn't under residential lots. However, taxes are paid based on the value of someone's home. So, we are all paying for the same common expenses but people with bigger homes or homes that were purchased at a more expensive time in the market are paying more. Sure, some of that is evened out when the county does their assessments but homes that cost more are always going to pay more.

Paying through mill levies: Our $700 fee was instituted because our taxes hadn't been fully assessed. I really don't understand why a developer would want to pay to keep a neighborhood afloat for the time period before the neighborhood is built out and the additional time it takes for taxes to be fully assessed. It seems like this system is bound to have financial problems in the early going.

Communication: This has been another big issue for our district, and it comes in many forms. Being required to use the local paper to announce meetings just seems like a waste of time. Meeting times in the middle of the day, when it’s most convenient for management and developer teams, doesn’t work well for residents and they feel purposely excluded. As a board member, I can only have a conversation with one other board member at a time. I realize this is a rule for local governments, but it really makes it hard to get anything done.

Thank you for your time and consideration, I would love to be able to talk to the task force if that’s a possibility in the future. I’ve really been trying to educate myself and the positions I am taking here I would love to discuss with others. I don’t claim that I am right about everything, but I have yet to have someone give me good evidence that I am wrong. I am always happy to have those conversations. As a Realtor, I feel it's my duty to advocate for my clients and consumers in general and I hope this task force will take my experience to heart and use it for positive change. Lastly, I will say that these experiences and positions are my own, I don’t speak officially for anyone else in my office, association or for any of the committees on which I serve. I do, however, find it interesting that when I am looking at listings on the MLS, I often find the verbiage “No Metro District” featured prominently when a home is outside of a MD.