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HomeMy WebLinkAboutSelect a Developer for the Redevelopment of Rodgers Senior C Dept. ID ED 15-18 Page 1 of 2 Meeting Date: 8/17/2015 CITY OF HUNTINGTON BEACH R REQUEST FOR. CITY COUNCIL ACTION MEETING DATE: 8/17/2015 SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Fred A. Wilson, City Manager PREPARED BY: Ken Domer, Assistant City Manager Kellee Fritzal, Deputy Director, Business Development SUBJECT: Select a Developer for the Redevelopment of Rodgers Senior Center Site; and, authorize staff to negotiate an Exclusive Negotiation Agreement (ENA) with the Developer for residential development Statement of Issue: At the January 23, 2015, City Council Strategic Workshop, the City Council developed a strategic objective for staff to present options for the reuse/redevelopment of the Rodgers Senior Center. On April 20, 2015, the City Council conducted a Study Session and reviewed options for the redevelopment of the site and directed staff to release a Request for Qualifications/Proposal for residential development. At this time, the City Council is requested to consider the top two developers and direct staff to negotiate an Exclusive Negotiation Agreement (ENA) with a selected developer. Financial Impact: Potential land sale proceeds greater than $14.6 million, depending on the final negotiated agreement, dedicated to park development. Recommended Action: A) Select a developer in which to enter into an Exclusive Negotiation Agreement for the residential development of the Rodgers Senior Center site; and, B) Direct Staff to negotiate an Exclusive Negotiation Agreement with the selected developer. Alternative Action(s): Do not select a developer and provide direction to staff. Analysis: Due to the construction of the new Senior Center at Central Park, the reuse/ redevelopment of the existing Rodgers Senior site became a City Council objective. The City Council reviewed three options at the April 20, 2015, Study Session: 1) Lease the space out to a non-profit or re-purpose the existing space; 2) Create a public park/re-purpose outreach facility as clubhouse/rental space; or, 3) Develop the site as residential, which would require a "Measure C" vote. The option to develop the site had several alternatives: 26 Single Family Residential Units with 5,875 square feet of public open space; 24 Single Family Residential Units with an 11,750 square foot pocket park; or 22 Single Family Residential Units with a 17,625 square foot mini park. xB -419- Item 16. - 1 Dept. ID ED 15-18 Page 2 of 2 Meeting Date:8/17/2015 On May 18, 2015, a Request for Qualification/Proposals (RFQ/P) was released on Planet Bids (the City's procurement site) and sent to interested parties including the Building Industry Association, Orange County Building Council, the Chamber of Commerce, and other known developers. The RFQ/P stated that the City's desired project consisted of 22 single family residential units with up to a 17,500 square foot park. The RFQ/P stated that selected developer will be required to submit the project and obtain the necessary approvals, elections, and entitlements to develop the property. An Exclusive Negotiation Agreement (ENA) will be established between the City and developer for a maximum term of two 2 ears. Additional) the selected developer is to be p ( ) Y Y, P responsible for community outreach, meetings, California Environmental Quality Act (CEQA) documents, entitlements, and approvals from the City. More importantly, the RFQ/P required the developer to be responsible for the "Measure U election along with all associated costs to develop the property, including any portion thereof intended for City purposes, such as the park, sidewalk, alleys, etc. The City received proposals from Christopher Homes, Pinnacle Residential, Shea Homes, and Woodbridge Pacific Group. A four (4) member panel reviewed the proposals and the two top- ranked proposals (Shea Homes and Woodbridge) were selected to participate in an interview process. After the interview process, based upon the weighted scores of the proposal and interview scores, the total score for both Shea and Woodbridge are tied. The panel concluded that both developers could successfully complete the project and conduct the required environmental studies and community outreach. RFQ-P Weighted Scores Christopher Pinnacle Shea WPG Total Average Score 65.0 61.0 92.0 91.0 Interview Weighted Scores Shea — WPG Total Average Score 3.8 4.8 TOTAL SCORE 95.8 95.8 TOTAL OFFER (millions) $14.60 $14.90 Accordingly, it is recommended that the City Council review the proposals and hear from the two developers prior to making a decision as to which developer to enter into an ENA. Representatives from Woodbridge Pacific Group and Shea Homes will be present at the City Council meeting to conduct a short presentation for the City Council consideration during this item. The order of presentation will be determined by the flip of a coin. Environmental Status: The selection of a developer does not require an Environmental Study. An Environmental Impact Report will be prepared by the selected developer. Strategic Plan Goal: Strengthen economic and financial sustainability Attachment(s): 1. Study Session Power Point—April 20, 2015 2. Request for Qualification/Proposal 3. Shea Homes Proposal 4. Woodbridge Pacific Group Proposal Item 16. - 2 HB -420- l xx 3 r i Ar Aw 2 y k \O \ a �a " \ Xfi S� s r r , r HB -421- Item 16. - 3 � N n s , s V •r-I c gfiffi C1� cn j V) V -N V E V V uLM •,.� LM o icon U -41 U V � .,� v v � � v 75 o u +j00 v E4 �g v a � Item 16. - 4 HB -422- .BY ✓ Via, #; t le\ loll poll r. 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' '• Y cif'S s� E 4 x 1,. r w a c . xB _431- Item 16. - 13 .. N O v `p ...�. v v v av N O i�l i�•1 O {y O �I cu r. rq u � O v " v Q rd V O a p vrd v v > > CL rd v Z ft W .� cu . cu AN s w rd 14 CIO cn o CIO rzo ° oft cu V ;�, p to N rt v � ci u f o .� u 75 rcql Item 16. - 14� � HB -432- a fir.. z� t *--i �e QS wi 1 I T � Aft o vv a wc� .> ,c W vJ �.. s a HB -433- Item 16. - 15 \ � F \ ^ 1 PCI nd 41 ° Lf1 vx ■� 000 • 3 � rd .� U U ° L u � v � rd t \y Y " \ Item 16. - 16 HB -434- i rr^^•1 LL V' JI � owl � 1�l 4-1 4-J O U O Y, +- cn cu 3 , s ror a)v ro rt u p CU rd X k4� V v� AR& a� f� Hs -435- Item 16. - 17 « � \ : �. � { \ / ° { \ � } . � \ � \ . 2 / � \ \ / \ � \ . ... w Cm }§. - 18 HB -36- x REQUEST FOR QUALIFICATIONS /PROPOSALS FOR REDEVELOPMENT OF MICHAEL E. RODGERS SENIORS' CENTER SITE Located at: 1706/1718 Orange Avenue Assessor Parcel Number 023-152-01 CITY OF HUNTINGTON BEACH Released on May 18, 2015 Submittal Deadline: July 1, 2015 by 4:00 PM HB _437_ Item 16. - 19 REUSE—EXISTING RODGERS SENIOR CENTER— 1706/1718 ORANGE AVENUE RFQ/P Table of Contents I. Introduction - Development Opportunity II. Description of Area and Site - Description - Surrounding Uses - General Plan and Zoning - Election Process - Development Parameters III. General Requirements of Project IV. Submission Requirements - Table of Contents - Cover Letter - Proposer's Qualifications - Proposer's Approach to Project - Content of Proposal - Financial Capability V. Evaluation and Selection Procedure - Selection Criteria - Proposal Transmittal - Selection Schedule - Right of Rejection - Conflict of Interest VI. Attachments - Parcel Location/ Site Map - Detail Description of Parcel - Photographs Page 2 Item 16. - 20 Ira -48- I - INTRODUCTION A. Development Opportunity The City of Huntington Beach (City) is a charter city, administered by a Council/City Manager form of government, encompassing an area of 28 square miles with an estimated population of 193,480. The total annual City budget is approximately $342.3 million for Fiscal Year 2014/15 with the General Fund portion of the budget totaling approximately $209.9 million. This Request for Qualifications/Request for Proposal (RFQ/P) presents a unique opportunity to explore development of a single family residential use and mini park at the existing Rodgers Seniors' Center site (Senior Center) after the City completes construction and transfers the Senior Center operations to a new facility at Central Park. The intent of this RFQ/P is to enable the City to identify highly qualified and capable entities with experience in single-family and related park development that can evaluate, plan, entitle, provide community outreach, and construct such a development pursuant to an Exclusive Negotiating Agreement (ENA) with the City. The City's objective is to redevelop this property in a sensitive, complementary manner to the surrounding community. The ideal Developer will: (1) be responsive to the RFQ/P submission requirements; (2) have experience and expertise in single-family residential and park development processing and approval, including obtaining necessary entitlements, (3) have expertise and experience in residential design and construction; (4) demonstrate excellent community relations and outreach programs for similar projects; (5) have experience and expertise in single-family residential marketing and sales; and (6) have financial experience and expertise. including financial capability, and access to project financing. Those responding to this RFQ/P must consider all aspects of development, including feasibility, entitlement processing, financing. elections, construction management, marketing and sales for the resulting development. Most importantly, this process will necessitate community involvement and involve a successful election for approval of the project as required by Section 612 of the City Charter. To this end, the City requires comparative information that will facilitate their decision-making process. II—DESCRIPTION OF AREA AND SITE A. Description The City owns and operates the Senior Center building and Seniors Outreach building_and the surrounding 2.09-acre property located at 1706 and 1718 Orange Avenue approximately 0.25 miles from the beach and 0.8 miles from the downtown area. The parcel is rectangular in shape and relatively flat with approximately 18,000 square feet of buildings and a 52,750 square foot (107 spaces) surface parking lot. The Assessor Parcel Number is 023-152-01. B. Surrounding Uses The Senior Center is situated in a primarily residential area bounded by Pecan Avenue, Orange Avenue, 181h Street and 171h Street. However, the 171h Street side contains a commercial use. Please see the parcel map/site map and related documents for examples of adjoining uses. Page 13 HB -439- Item 16. - 2 111 1 C. General Plan, Zoning and California Environmental Quality Act (CEQA) Compliance The Senior Center currently contains a General Plan designation of Public with underlying Residential Medium High Density at 25 dwelling units per acre (P RMH-25-d). The current Zoning designation is Open Space—Parks and Recreation (OS-PR). Additionally, the Senior Center site is not located within the Coastal Zone. However, an amendment to the General Plan and Zoning designations are required to develop the Senior Center site and would be subject to review and approval by the Planning Commission with final action required by the City Council. This project would also be subject to CEQA review and approval as required by the City. The park location within the Site and design will be subject to review/ approval by the Community Services Commission, Planning Commission and City Council. The City will be responsible for hiring and managing the CEQA consultant and will obtain reimbursement of CEQA costs from developer through a reimbursement agreement. It is anticipated that an Environmental Impact Report will be required for the project. As part of the CEQA process, the developer would be responsible for providing necessary submittal materials in order to process the project entitlements and EIR document. These submittals include, but are not limited to, site/project design plans, engineering plans, grading plan, preliminary Water Quality Management Plan (WQMP), soils report, Phase 1, and Phase II. The City has limited site information available, but would provide GIS exhibits for the General Plan and Zoning Map existing and proposed designations as well as copies of applicable codes including the Huntington Beach Zoning and Subdivision Ordinance and General Plan to the developer. The City would also provide a template for the preliminary WQMP and information on applicable city codes and specifications with respect to requirements of the Public Works and Fire Departments. D. Election Process - Charter Section 612 ("Measure C") Per Section 612(a) of the City's Charter, park land may not be sold, leased, exchanged or otherwise transferred or disposed of unless authorized by a majority vote of the City Council and by a majority of the electors voting on such proposition at a general or special election. Therefore, the current proposed project will require an election process in order to authorize the potential transfer and use change as proposed in this RFQ/P. Furthermore, the selected Developer will be required to lead and manage the process for an anticipated November 2016 general election— including the completion of all environmental assessments per CEQA requirements prior to being placed on a ballot until completion of an election. E. Development Parameters The City's main goal(s) for the outcome of this RFQ/P process are: l. Develop up to twenty-two (22) single family residential units on an approximately 2-acre site, including an approximately 17,000 square foot mini park component. The development should consist of 25-foot wide lots and an alley consistent with surrounding developments. 2. Achieve a first class single-family residential development with requisite design features and amenities that will compliment the surrounding neighborhood and City. Page 14 Item 16. - 22 HB -4 0- 3. At selected Developer's sole cost and expense, to lead and conduct all required entitlements, permits and measures necessary for the successful redevelopment of the Senior Center site. 4. Ensuring community involvement and a well educated electorate to achieve a successful "Measure C" approval. III— GENERAL REQUIREMENTS OF PROJECT The selected Developer will be required to submit the project and obtain the necessary approvals, elections and entitlements to develop the property. An Exclusive Negotiation Agreement (ENA) will be established between the City and Developer. The ENA will be for a maximum term of 2 years with the City. The developer will be responsible for community outreach, meetings, CEQA, entitlements and approvals from the City, and the"Measure C" election. The Developer will be responsible for all facets of development and shall bear all costs associated with developing the property, including any portion thereof intended for City purposes. The Developer will be responsible for leading and conducting any required "Measure C"process for the project and conducting all necessary community outreach and participating in all community meetings related to the project. The City cannot advocate for passage of the measure but will assist with the public education regarding the use of funds derived from the sale and development of the subject property in compliance with applicable law. The Developer will be solely responsible for all costs and risks associated with the entitlement and "Measure C" process, design, construction, operations and all other facets of the project. Among other things,this means that the City will have no liability in the event that the approved entitlements do not enable the responding party to proceed with the project in a financially feasible manner and City's title to the Site shall not be encumbered. First American Title Company (FATCO) is providing the City's title insurance coverage and has issued a preliminary title report, which the City can make available upon request. The Developer will be required to provide the City with quarterly written updates regarding the status of the project. including the entitlement progress. IV— SUBMISSION REQUIREMENTS Responses to the requests in this section should be in full and complete answer form, numbered consecutively, and with all requested information enclosed and all listed page limits and sizes honored. Each Developer team should provide as much information as it feels is necessary to properly convey its ideas. RFQ/P's must consist of the following sections in sequence shown below. A set of tabs to identify each part of the RFQ/P should be inserted to facilitate quick reference. Where page Page 15 HB _441- Item 16. - 23 limits are set, failure to follow guidelines may prevent the RFQ/P from being evaluated and the RFQ/P being removed from further consideration. For purposes of the evaluation, the Developer team should include information about any and every relevant member of their team to assist the City in its evaluation. Please tab your proposal using the following outline: Tab Title 1. Table of Contents 2. Cover Letter 3. Proposer's Qualifications 4. Proposer's Approach to Project 5. Content of Proposal 6. Financial Capability 1. Table of Contents (Limit to 1 pages) The Developer team should list elements of the RFQ/P and clearly identify the corresponding page numbers and appendix, if any (including tables, graphs, charts, etc.) 2. Cover Letter(Limit to 2 pages) All submittals should include a cover letter signed by the principal who has the authority to negotiate with the City. 3. Proposer's Qualifications (Limit to 10 pages) Identification of the Team -The proposal should identify the proposed development team, and provide the following information: • The name of the legal entity and type of organization; • The name, address, telephone number and email address of the individual and his/her firm which has the authority to represent and make legally binding commitments on behalf of the team; • The identity of all firms, partners (including silent partners) and the key staff members who would be involved in the development process. identifying their roles and expertise. This section of the response should also include the resumes and references for the key team members who will be responsible for the negotiation, implementation and development of the project, if selected; • Identifying whether the development team members have previously worked together on other development projects described in the proposer's response to the RFQ/P, and providing specific instances. Page 16 Item 16. - 24 HB -442- Relevant Experience and References - The City is interested in ascertaining the proposer's expertise with regard to projects of this nature and magnitude, including in the California coastal region and/or Orange County area. Please provide a brief description of completed projects that are most similar in design and scope to those referenced by this RFQ/P. Please provide information relating to the proposer's expertise and experience with the following: • Developing single-family residential and open space developments; • Working collaboratively with municipalities or other governmental agencies on similar development projects; • Community relations. Provide information about a maximum of five developed projects within last five (5) years, including the following: • Project name and location; • Total gross and net land area and gross building area; • Mix of product, identifying the size and number of each unit type and overall density per acre; • Financial summary, including the total development cost, the mix of debt, equity and any other sources of financing involved; • Examples of community outreach and participation efforts through the completion of the project; • Photographs of the project (if constructed), • Start and completion dates; and • The names and contact information for references for these projects. Include development partners, public agencies and financial partners. In addition to the maximum of five projects discussed above, please provide additional contact names and phone numbers as references to verify the relevant experience of the team members, including the names of the team members who worked on a particular study or project. The list of references should include studies and projects developed in the last five (5) years. 4. Proposer's Approach to Project (Limit to 6 pages) Development in the City requires a high degree of sensitivity to community interests. The City, as a participant in the project process, deems it essential that the chosen Developer has the appropriate philosophy and respect for public processes to navigate the development through the governmental regulatory, development and election processes, including attending public hearings and community/neighborhood meetings. Additionally, the City encourages the utilization of local vendors for material and supplies purchases and desires a development partner which will endeavor to "Buy Local" as the project progresses. Page 17 14B -44 _ Item 16. - 25 Please include in the response a narrative discussion on how the proposer's team would approach the following issues: a) What is your approach to resolving complex entitlement issues and running an election? b) How do you approach collaboration with public agencies and the conununity? c) Describe your methods for achieving public input during the pre-development, development and operational phases of the project. d) What type of entity would be created or selected to purchase the Site(s), obtain project financing, managing the project development and the on-going property operations? e) How would the development team minimize the City's liability for the project, including exposure to operating and revenue risk? Specifically address how the City would be insulated from lender recourse. f) Describe how you would meet the City's desire to "Buy Local" by utilizing local Huntington Beach suppliers, vendors and labor? 5. Content of Proposal (Limit to 20 pages) All proposals will need to include the following at a minimum: a) A conceptual description and plan for the Site showing the proposed uses; unit numbers, sizes and layout; open spaces and community amenities; access and circulation; and a description of the projected price points; b) A description of how the proposal benefits the community and City as a whole and how impacts on surrounding uses will be minimized: c) Steps to be taken to obtain the entitlements necessary for the project to proceed, including the public outreach process to be followed to ensure maximum public participation; d) The manner in which the Developer will work with the City to ensure an open and transparent process; e) A Financial Offer Form (Attachment 3) reflecting how the Developer would compensate the City for the right to pursue development must include; (i) an initial minimum deposit of 520,000 upon RFQ/P submittal; and (ii) the Financial Offer balance to City upon close of land sale; f) The means of financing the project without encumbering City 's title to the land; First American Title Company (FATCO) is providing the City's title insurance coverage and has issued a preliminary title report, which the City can make available upon request; g) The means to accomplish_. and identities of the entities who would oversee. the land use approval process. design, construction contract procurement, project financing, management of the on-site construction, marketing, facility operations and other Page 18 Item 16. - 26 HB -444- activities required to ensure project completion and success;and h) Proposed project timeline and implementation schedule (including election timeline). 6. Financial Capability (No Page Limit) For the ownership entity, all equity partner entities, and key team members, please provide: a) Audited financial statements for the last three years; b) A statement describing: (1) any litigation in which the entity and/or team members have been a party (include state, county, naive and case number) over the last five years; and (2) any instances of revocation of performance bond(s) and/or removal from a project by the entity and/or team members; c) A statement regarding any past or current bankruptcy activities. V—EVALUATION AND SELECTION PROCEDURE The City reserves the right to disqualify (or not select) any Developer team that does not completely fulfill all Submission Requirements. At its sole and absolute discretion, the City also reserves the right to reject any and all submissions, with or without cause, and to change the submittal requirements. The City may also reject all RFQ/P submittals and resubmit, in the present or revised form of the RFQ/P, or terminate the process at any time. If the City deems it appropriate, it reserves the right to amend this RFQ/P in order to adjust the selection criteria at any time. Furthermore, the City reserves the right to negotiate the terms and conditions of the Agreement contemplated under this RFQ/P. The C it y may, but is not required to, schedule interviews with Developer teams, which it selects following the submittal of responses to this RFQ/P. If selected to attend an interview, attendance of key Developer team members is required. For purposes of this RFQ/P, "key selected Developer team members" is defined as those individuals who are involved in the negotiation of agreements between the City and the selected Developer team and those members who will be responsible for development and management of the project. Incomplete qualifications/proposals may result in disqualification. The City reserves the right to request additional documentation to clarify or supplement information submitted in a proposal. Qualifications/proposals submitted in response to this RFQ/P may be made available following the release of the C it y's Request for Council Action (R C A) report to the City Council. Information considered confidential or a trade secret must be so designated as part of the proposal submittal and should be separately submitted to the City's legal counsel as provided herein. However, under the Public Records Act, there is no guarantee that such information or any confidential financial information can be maintained confidential and the submitting entity and all related Developer team members absolve City of any liability in connection therewith for any materials submitted. Page 19 I IB -445- Item 16. - 27 There is no guarantee that the City will decide to proceed with a project based on the RFQ/P submittals. Respondents assume the total cost for submitting responses to this RFQ/P. Furthermore, by submitting a response, the Developer team agrees to be bound by the terms, conditions and requirements of this RFQ/P. Selection of a Developer and the subsequent Agreement between the parties are subject to approval by the City Council. The City makes no guarantee that such approval, even if recommended by City staff, will be obtained. A. Selection Criteria The City will review the qualifications/proposals submitted and the input provided at the interview (if selected for an interview), and will evaluate qualifications/proposals based on the following criteria: Evaluation;, Criteria Available Points 1. Responsiveness to submission requirements outlined in 10 Section IV 2. Project quality and community compatibility 30 3. Quality and depth of experience and expertise in single- 15 family residential housing development 4. Total Financial Offer to City and assessment of 25 associated factors 5. Financial experience and expertise, including financial 20 capability, access to and source(s) of project financing Total Available Points Possible 100'' B. Proposal Transmittal Developers should submit proposals to the City at the address provided below. Proposals must be received by 4:00 P. M. on July 1, 2015. Postmarks. faxes or emails will not be accepted. Mr. Jim Slobojan, Fiscal Services Manager City of Huntington Beach 2000 Main Street Huntington Beach, CA 92648 The deadline for submitting questions for clarification is 4:00 p.m. on May 27, 2015. All inquiries should be directed by email to Mr. Slobojan at jsloboian�(i�surfcity-hb.or(. The questions and the City's Responses shall be posted in the Finance Department—Purchasing RFP section of the City's website Home Page (http://www.huntingtonbeachca.gov ) or at http://xNAN-\y.L)lanetbids.com/portal%poi-tal.cfni?CompanylD 15340 by June 2,2015. The PDF version of the RFQ/RFP can be downloaded at the City's website at littl)://uw,%w.huntinL,tonbeachca.<(ov/(or at http://www.planetbids.com/portal/portal.cfm?CompanyID=15340 section of the Home Page). Page 110 Item 16. - 28 HB -446- Please provide one unbound original and eleven bound copies of the submission. Facsimile or e-mail copies are not acceptable, although a CD-Rom may be requested by the City. Interviews of prospective Developers may be required. C. Selection Schedule The anticipated selection schedule is as follows: TASK DATE 1. Release RFQ/P May 18. 2015 2. Deadline for submitting questions for clarification: May 27. 2015 3. Issue Response(s) to RFQ/P Questions (if any June 2, 2015 4. Deadline for submitting proposals July 1, 2015 5. RFQ/P Review and Evaluation: July 2015 6. RFQ/P Selection, Notice of Intent to Award July 2015 7. Staff recommendation of RFQ/P Award to City Council August 2015 D. Conflict of Interest RFQ/P responses received by the City are subject to all standard City contracting requirements. VI—ATTACHMENTS Attachment 1 - Site Map Attachment 2 - Aerial View Attachment 3 —Financial Offer Form Page l l l HB -447- Item 16. - 29 Attachment 1 Site Map L 1 I i ! ✓ t I PECAN (UACA00A AVE) x' rrs• 2 ?7 3 _ ser_so`_ 28L° .sa ——— 28 27_ �— 2 36 ti —_—_ 261 125 —__ _ * ---- 26 25 ra' 30 24 23 37 ,r 241 123 _ _ ___ 24 23 33 5 22 21 _—— � — — 22 r s 2 p 22 2f _ 32 19 —SEAMS 7 0 1 AN CENIER— �^- k 20 w'is 20 13 _ ('yam}__20 _19 _ —_ � _ _ 23 16 17 22 _ 1—�tal 117�_ _ f 17 24 16 IIIV5 21 cs,p . 1s" 15 27 t t3 t8 ----jf 9 r3---- _ ----a1 ,3 28 1z 1r �� 418° 6L 4� _• 12 1r_—_—_417 BLS". —i2 rr 29 10 .9 16 -----t� 6----- ---- tt •�7 __8> 7 _ —9 3 1A --- -------- -----4 3 2. ras`�e 2�zs'�1 - rcbe 2 # ORANGE s' "fs'aeut_ 2, rid 72, 2$' 22 28 27ry 26 27'N North Page 112 Item 16. - 30 xB -449- Attachment 2 Aerial View 1, r r �r. J Y f ¢ � � glllll�jil \ c; <� ✓s it t � � a d/ �y r, Page 13 B -449- Item 16. 3 11 1 Attachment 3 Financial Offer Form Item Financial Offer Initial Deposit Amount $ Pursuant to the RFQ-P Section 5(e)(i),the Proposer is required to submit an initial deposit upon submittal of RFQ/P. Land Sale Balance Amount $ Pursuant to the RFQ-P Section 5(e)(ii),the Proposer is required to submit the balance of Financial Offer to City upon close of escrow on land sale. Total Financial Offer Total $ This form is to be completed and signed by individual authorized to represent and make legally binding commitments on behalf of the proposing firm/company: Name of Firm: Mailing Address: Phone Number: �) - E-Mail: Signature: Date: Print Name: Page 14 Item 16. - 32 HB -450- � / Y� rig � �� �✓r�: �c�� � \\� a � ��'�,� \ ��� ��%�° 5 \ / Yea -- s\ ! '. ixaQ - -: ,� \,:✓/. ���\\"\ � \\�\y���x�',l ''�� : -- �\ �//,/ � • x � a� x 0 � r � s.: \ r x, , 3 c a••oo,w,plrllil'll,IIIPIillllil QIII�fI �,\ s \ \ \\ g „. 1 \\ \• •I � IRS �. � i \ &\\\\� ti� � � 'y..-\��\\� � 9 \ m IiB-451- RS , x� Ite 16 \�\� g i Ole 3: TABLE OF CONTENTS 1. Cover Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 j 3. Approach to Project, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4. Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 i S. Financial Capability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6. Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 45 I I i 1 I I I h .' .. \ Item 16. - 34\\� % ,�� \ '',..� \ \ h�= n -412 pl,",", \\ ,3y3. _ I July 1, 201 Mr. Jim. Siobojan Fiscal Services Manager City of Huntington Beach � 2000 Main Street Huntington Beach, CA 92 f I Re, Response for the Redevelopment of Michael E. Rodgers Seniors`Center Site I Dear tr. Slobojan and the entire selection committee at the City of Huntington Beach, I Thank your for the opportunity to propose on the redevelopment of Michael E. Dodgers Seniors' Center! The entire property and setting is captivating and an incredible opportunity to create a truly special community- We look forward to a collaborative relationship that will achieve your goals, respect the existing neighborhood, and maximize the ity's return which will go a long way to improving its parks on a citywide basis. Shea Homes is partnering with. Keith Bohr and Jeff Bergsrna, owners of TEAM Real Estate and TEAM sign & Construction, With their local' knowledge and experience, they will be instrumental in coordinating our entitlement and election campaign efforts. We have carefully reviewed and considered the responsibilities outlined in the RFQ1P, and what we would be undertaking as the Developer of the ity's Michael E_ Rodgers Seniors" Center Site. Specifically, we understand and commit to the collaborative process detailed' in the response, in which the Shea Homes Development Team will plan, entitle, secure voter approval,and develop the Property in coordination with the City_This collaborative effort will commence upon our selection as the Developer. It is our objective to plans, entitle and :secure voter approval as soon as possible so that the City receives a return on their investment sooner rather than dater. As the Developer, we want to see this project through from inception to occupancy. We also understand that all precautions must be taken to properly address residents` concerns and implement a winning''Measure Cn campaign as the City will not likely get a 2no chance should'the voters not approve the ballet measure- We have outlined later in this proposal a general process for engaging the community and securing entitlement and voter approval. This must be an open process but also one that is led and directed—and our team will do just that. Shea Homes will bring a reputation for integrity, product innovation, and quality that can be relied on by bath the City and the community. Critical to success will be working in partnership with the City of Huntington Reacts, its residents and especially the site adjacent neighbors, with all having a vested interest in the mature and quality of the development. i i Shea Homes is highly qualified and capable to evaluate, plan, entitle, provide community outreach, and develop E single-family luxury hares. Our development and luxury home building experience is a great fit for this property, Below, are examples at recent and actively selling new luxury home projects that can be an example of demonstrating our expertise in building and selling luxury homes; f Lots Location H€ i Sze Range Price D�a_ n e Sausalito 54 Irvine 3,5 3-4, 11 1, gg, 0041, gg,00 .... S q ood _ 103� Irvine 2, 15-2,g6Q 1,fit 3� `t 2 000 Emerald Heights 1 g .Brea 3<337-3,313 r 1 26f9 - 1 400,000 Coral l i l e 79 Brea .... . 3 3 7--4,1 g1 � 1,500,000- 1 0 , ,0� _ _ eaho esxo . .. tt x , " � .__. Ha _453_ Item 16. - 35 Cover Letter Redevelopment of Michael E Rodgers Seniors'Center_Site July 1, 2015 Page 2 of 2 We have responded to the RFP/Q as directed with a site plan solution and corresponding valuation. Below is the conceptual product vie have developed for this site: F€otco! Bodrect+nslHalihs Gars ScLuaire Foota-qong 25 x 115' 3+bonus room/3.5/outdoor Ro_omJDeGks 2+Storeoe 2,750 $1.450 NO 25 x 116-Y 4+bonus room/3.510utdoor Room/Decks 3 2,t350 S-I,500,000 Shea Homes is a design driven and customer focused builder and our brand will further enhance the already incrediblystrortg appeal for this roastat site in Huntington Beach- Shea Homes Limited Partnership(Shea Homes)will be the Controlling Entity.This entity is the parent home building company of the Shea Family of Companies and holds substantially all of the Shea Homes'home building assets. Shea Homes funds the purchase of wholly-owned real estate assets utilizing funds generated from operations held as cash on the balance street,thus providing the Company the ultimate flexibility in structuring acquisitions or investments.The Company has the financial capacity and funds immediately available to meet the capital requirements of the proposed development project and has the ability to close on the transaction in the proposed time frame. The purchase price of the land, entitlement costs,land development costs,and all building costs Tor this project will be capitalized from cash on the balance sheet without the need for bank financing. There is a significant benefit of teaming up with a quality home builder so that both the City and, community have security and confidence in what will ultimately get built on the site. One of the hallmarks of Shea Homes!approach to development is our commitment to community outreach-working with the community to identify and address issues, Not only should the community have ma;ket acceptance,it should be ak source of community pride. Given the history of the site,there will be distinct opportunities requiring community stake-holders to remain engaged through regular meetings with agencies and City officials, We have provided several references from other municipalities Shea Homes has worked with and we encourage you to contact them to get a better understanding of our approach. I would also encourage you to contact all of our city contacts to discuss our abilities in executing infill development,but more importantly,our character as a. developer, Our collaborative planning effort will start immediately upon selection. Clearly,you have already created incredible value In this property, We would hope to further enhance the value by becoming your partner. Shea Homes is the only builder to be named a'Customer Service Champion"by JO Power for the years 2012 and 2013,joining the company of Ritz Carlton, Four Seasons Resorts.and Saks Fifth Avenue. We are especially proud of this achievement since ails is an award that cannot be applied for, it is granted by JD Power's independent survey prod_ Please don't hesitate to contact us for any additional comments or questions- Thank you again. Sinly, - Ney -I--- Bob Yoder Division ' ident - Shea Homes Southern California bob.yoder(&sheahomes-com 951-538-3980 - - sheaham".com 2 Ada_Sulte 2Z5,fcvine.CA 92910 1 D:S{49,6ZS- C143 SheaHomes.com ! 2 Item 16. - 36 HB -454- - 6r QUALIFICATIONS Entity Profile Controlling ar-1d Acquiring Entity Shea Homes Limited Partnership (Shea Homes) will be the Controlling Entity. This entity is the parent home building company of the Shea Family of Companies and holds substantially all of the Shea Homes' home building assets. The basic informa- tion requested on the Controlling Entity includes Entity Name Shea Homes Limited Partnership i Type of Entity & State Registered California Limited Partnership Year of Formation 1989 2 Ada, Suite 200 Street & Mailing Address Irvine, CA 926,18 Bob Yoder Contact Name, Title, Phone Division President Number & E-mail 951-739-9704 bobyoder( sheahomes.com Mike O'Melveny Name of Person to Execute Vice President, Land Acquisition Initial Documents 951-739-9709 mike.omelveny;a'sheahomes.com Sec Accompanying Organization Chart Relationship with Other Entities, and Additional Charts in Proposed Including Ownership Interests Financial Structure. wi WM i I i .: Item 16. - 3 7 �, QUALIFICATIONS I Company Profile Shea Homes was founded in 1968 and Is one of the largest privately owned \ home builders in the country. We design. build and market single-family \• ,i: K detached and attached homes across various geographic markets in Arizona, California. Colorado. Florida. Nevada, Texas and Washington. Shea serves a broad customer base including entry, move-up, luxury and active adult buyers. We Operate Under Three Brands: Shea Homes, the flagship brand that reflects the core "Live the Difference" value proposition, homes stylishly designed to meet the needs of discerning customers, with energy efficient features, built in an environmentally-responsible manner. The brand for this project will be, Shea Homes. Trilogy, our active lifestyle brand, designs and develops master planned communities targeted to meet the needs and active lifestyles of the "baby boomer" generation. Trilogy communities are resort-oriented, offering a choice in living to those looking for a lifestyle that revolves around wellness, continued learning and a sense of community. Trilogy's architectural design and amenities i ,' pm reflect changing needs of its residents, including business services, high-end clubs and a diverse range of recreational choices. SPACES, our newest brand, offers homes designed to appeal to 26-40 year-old buyers, which we believe will be a strong market segment as the housing market recovers. SPACES homes are designed to meet priorities set by their target customers: contemporary homes with flexible floor plans, stylish features, efficient, resource-saving fixtures and equipment at an affordable price. SPACES homes ' include energy-saving materials and construction that reduce the energy required TP11Ogy - to heat and cool home interiors. Shea Family of Companies: Shea Homes Is one of a group of companies collectively owned by the Shea family (the "Shea Family of Companies"). The Shea family began building homes in 1968 _ through J.F. Shea Co.. Inc. ("JFSCI"). In 1989, homebuilding under the Shea Homes i brand was moved to the newly-formed Shea Homes Limited Partnership ("SHLP"), an entity under the broader umbrella of JFSCI. j f PACES '. I I i f# XMIN \\ 13�Item 16. - 38 a 115 MR qF \HISINi r QUALIFICATIONS Members of the Shea Family of Companies J.F. Shea Company The Shea family's rich history began in 1881 when founder John F. Shea established a plumbing business in Portland, Oregon. From those beginnings, the company became a leader in the construction industry and has worked on projects that include the Hoover Dam, the Golden Gate Bridge, and tunneling sections of the nation's largest subwaY sY stems in New York. Chicago, Los Angeles, Washington D.C. and San Francisco. In addition to Shea Homes, the Shea family of companies includes: l i "All des: �f J.F. Shea Construction Inc. in the nation. J.F. Shea n most respected civil contractors � A n fth largest and As one e p g Construction continues to play a pivotal role in major civil engineering projects across the country The company is at the forefront of design-build methodology and employs a high caliber team that can develop large-scale construction solutions on-tinne and on-budget Recent examples of work include the LAX to 5 Crenshaw Metro Line and Carlsbad Desalination Plant. J� Shea Properties r Shea Properties is focused on developing, managing and owning apartment communities, office parks, retail centers, and mixed-use environments. Since v beginning operations in 1977, the company has grown to own and operate more Vie, I than 6,500 apartment units and 5 million square feet of commercial space. • Shea Mortgage Shea Mortgage was formed to facilitate the home loan funding process for Shea Homes. The company is a traditional mortgage lender with solid financial stability, abundant funding capacity and the expertise to efficiently take a home loan from application to closing in a timely, cost-effective manner. Bluestar Bluestar Resort & Golf was formed to deliver the high-level of service needed for proper management of the Trilogy spas, restaurants and golf courses. It has since grown to provide management and consulting services in Arizona, California and p '..li{ L Vy Hawaii. Shea Ventures Shea Ventures was created as a vehicle for investing capital into startup and early stage companies. Since 1968, Shea Ventures has invested more than $1 billion into 180 venture funds and over 500 startup companies including ealy investments in r Apple, Adobe, Compaq, Genentech and more. Reed Manufacturing Since joining the Shea Family of Companies in 1969, Reed Manufacturing's concrete guns and pumps have become the preferred industry choice for civil, residential and commercial construction projects. in B -+}t- v � ; Item 16. - 39 y \ z \ / \ L\. // '� *sue• a `46`3 � \. �f. d% �r a gp QUALIFICATIONS: PROJECT EXAMPLES I Sausalito: 9 Irvine, CA Acres: 9.2 Units: 54 Density: 7.4/acre - Footage: 3533-4011 square feet �- r Price Range: $1,300,000-$1,500,000 Type: Detached Costs: $78.0M Financing: All capital provided by , cash on Shea Home's balance sheet. ; Start Date: May 2013 Sales Start: September 2013 Project Description: z Sausalito is a development located in the City of Irvine. The site is located in the Master Plan community called Stonegate. The protect is currently � - y selling today. \ Entitlement Description: ' Master Plan and Site Plan was ` processed and approved in 2013. Public Agency References: City Planner; Dianne Vu. J City of Irvine: 949-724-6000 u 1 r WIN \ \ \ \ \ x \ Item 16. - 40so F ti' \ / � \ fiR \ f I • i, QUALIFICATIONS: PROJECT EXAMPLES DETACHED T Walnut: Walnut, CA �� Acres: 10 Units: 98 Density: 9.8/acre Footage: 1876-1954 SF for Multi Family; 2099-2243 SF for Detached i Price Range: 5700,0004950,000 PLAN KC PLAN xca PAEAGE Type: Attached and DetachedoEsfuk PaIa � Costs: 567.0Mw Financing: All capital provided b p Y cash on Shea Homes balance sheet. Start Date: October 2015 Safes Start: April 20116 .tt - Project Description: Walnut is a development located in the City of Walnut. The site is located north of Valley Blvd. and east ofL �� PLANz Suzzane. Fko 553v PAP'IiH MOO EREY Entitlement Description: Shea Homes processed a Specific Plan, Site Plan, and Tentative Mao. Community outreach was extensive as the site is adjacent to single family a homes.The City Staff, Planning Commissioners, and City Council are very satisfied with Shea Homes effort in processing this entitlement. Community outreach was extensive for ' CLAN If this project. Shea met several times j CRAFTSMAN FoK AL SPA ISH' with neighbors as a group, as well as individually. Neighbors overall were ATTACHED very satisfied with our communication,and more importantly, our plan. Walnut was approved by the City of Walnut council (votes in favor 5, against 0) on May 29, 2015. Public Agency References: t Director of Planning,Tom Wiener; ^ Planning Commissioner,Tom Sykes; i City Councilmen, Bob Pacheco. City of Walnut: 909-595-7543. I u/ \ \ ✓.0 UE \3r / �� a��- Item 16. - 41 j a a:. 141 �.�3,✓ I QUALIFICATIONS: PROJECT EXAMPLES I Baker Ranch: a Lake Forest,CA \ h 'A / Acres: 387 t \ Lin its.2194 Density: 5.7iacre NOW' *_ s Footage Range: 1500-4200 square feet M� Price Range:S400,000-S1,400,000 Type:Attached and Detacned Costs:S300.0M Financing: Ali capital provided by cash on joint venture balance sheet and S100.0M loan facility Start Date:June 2013u• g Sales Start: February 2014 i Project Description: Baker Ranch is a master planned community located in the City of Lake Forest, contiguous to the City of hirvine, in the heart of Orange County, California.The Pro act is n k currently planned to include approximately 1,780 single family residential units, up to 619 multifamily apartment homes and approximately 3-acres designated for r s r g \ commercial uses. Entitlement Description: Baker Ranch was approved by the City in July of 2010 via an amended Program Environmental impact Report,a General , Plan Amendment,Zone Change and s Development Agreement between Shea Baker Ranch and the City.Tentative Tract Map 16466 and an Area Plan covering •- p the Project received approval in 2012. Community outreach was minimal, but very ' successful.The project is currently selling today. Public Agency References: Director of Planning, Gayle Ackerman; City Manager, Bob Dunek; Planning Commissioners, "CJ"W. Brower,Jolene Fuentes, Robert De Almeida,Thomas Ludden&Jerry Verplancke; City Council Members, Dr Jim Gardner,Adam Nick, Dwight Robinson,Andrew Hamilton& Scott Vojgts. City of Lake Forest:949-461-3400. Item 16. - 42 , .:� HB - 1 ;� \ j, Lb \ \ QUALIFICATIONS: PROJECT EXAMPLES I Parkside Estates: Huntington Beach, CA � � Acres: 50s 4t' lg Units: 111 Density: 2-.2/acre Footage Range:3190-3832 square feet ; Price Range: $1,500,000-$1,700,000 Type: Detached #M Costs: $135.OM Financing: All capital provided by �s v cash on Shea Horre's balance sheet Start Date: Octobe-2015 Sales Start: February2016 �`3 A, 4}�.,.°..i9,'4Et.4` ,4Pa0•<41 i€.34€lM sS Pnf��"t€.`.§& Project Description: f � Elit Parkside Estates is a development located in the City of Huntington , Beach. The site is located east of the Balsa Chica Ecological Reserve.The project is approximately 50 acres in size and consists of 26.1 acres of residential which is divided into 111 single family lots. The remaining 23 acres is preserved as open space` which includes a park and trails, r aloe with over 7 acres of created g and restored wetlands and additional t• ' 9 environmentally sensitive areas. The �� � t r _ development of the property also , - �� provides regional sewer and storm IrE� s N drain improvements. Community outreach was extensive as the site is � \�A adjacent to single family homes. r r Entitlement Description: ', Parkside Estates was approved by the a ! :.., City of Huntington Beach in 2009 via an updated Environmental Impact I•, Report, A General Plan Amendment, r Zone Change and Tentative Tract Map.This project also received its Coastal Development Permit Approval in _.. October of 2012. Public Agency References: Public Agency References to contact: Planning Manager, Mary Beth Broeren. City of Huntington Beach:714-536-5271. W r aw r'- Y VOMIT-'I BUZ 10 2413 Item 16. - 43 dIR QUALIFICATIONS: PROJECT EXAMPLES The Edge: Costa Mesa, CAtr Acres: 1.7 Units: 19 ` Density: 11.2/acreTrl Footage: 1804-1896 square feet Price Range: $830,000-$850,000 Type: Detached y � \ Costs: $14.OM Financing: All capital provided by F, cash on Shea Home's balance sheet. Start Date: December 2015 x Sales Start: July 2015 Project Description: The Edge is a development located in the City of Costa Mesa.The site is located on Paularino Avenue, f north of Randolph Avenue and \ s f . west of Bristol St. The project is approximately 1.7 acres in size and consists of 19 residential lots. Entitlement Description: Shea Homes closed escrow without a tentative map, but with zoning in place. Community outreach was a tremendous success as some adjacent \ x neighbors were not initially in favor of � i development. The Edge was approved a by the City of Costa Mesa Planning \. s Commission (votes in favor 5, against 0) on September 8, 2014. The grand ' \`\ opening is July 2015. This project is \ g p ....:.�`\ a rent example of how Shea Homes q implemented community outreach by meeting with individual neighbors M I3 and developing a'win-win result. Public Agency References: Planning Commissioners Colir McCarthy, Rob Dixson; City Councilmen Jim Righeimer and Steve Mensinger. Costa Mesa: 714-754-5000.City of I j ar U.A �\ Item 16. - 44 \ \ \\ HB -a�, r a . o F i r \ Design development Team: John Olivier,Civil Engineering, Fuscoe Engineering Eric Zuziak, Architect/Planner,JZMK V'Zit'n over 20 years of experience, John's background inciudes ric Zuz ai<comureted -s arch zee rura� r terns.rio at Pichardso^ pnmarily urban. mixed-use, cfill and cornplex entitlement proiects, IVlagyr Mar�rr from 1954 to 1991. He becarne a licensee a:chilect out he also excels at multi-family residential and master-p'ianned in 991. .. 1 ing that perioo ire a sr ned rrrany ay.-aid winning communities. John has worked throughout Southern California but Psiden o r_� oleos. focuses !s efforts on os Angeles and Orange County. In 1991 EI ,oirred Dorius Arch;,ec`s as Drector of Des g-r v-vner e _'ohn has been read engi, eer of landrrlark developmen. such as le s<ape�vised a.i archit curai design apt vibes he fir-[ c'nangea 'A`oo Lii y East for the Irvine Company and the Orange County na,n,es to JZP-II< Pai^a"ler� rn 200 . -lis J rriary :_'on5 bil,ties Crean Park for the City of Irvine. -duce tine rf`,rect super: slon of aP arch itectur l o:sigl a ,rat es. at the f rm e as 'r~,,,. , av✓elopn ient and c;ent As a f Sri Pr= cipal and Project "lanager. John !gas the responsibility He brings w= tv. ,rrye t ye s o de i_,r axc ertise .o �le ',rim. of keeping the company growing and to drive client satisfaction HIS des_ i.�A.=' been �__I.��- '_.e�� nUrl"IerOuS mc'raClnes and .OV;lCo✓d-g leadership and sLipport to the various studios. (WVdW �_rnat�lvi nr_ _ssiona iourru s He as served as Pr l :}ya1-In- �USCOe.COn"l,� arge for nul��� s cts uding CUS',O i comes. m_lltifa' i y I Management Team; prorect m,xeo use urbc.r i dill prolects r s do It a Bob Yoder, Division President, Shea Homes �; ? rl-es, I"esorts se",o,,conlrl 1 ties, golf clUbhoUseS and a city D­b - Yoaer �is .esldenl l of Shea Homes Soutner- California, a His ciesi ,ns nave, nation a;and i lterna,iolai recogn,tlor uivrsion of Shea Homes,v.n is one or the largest. privately .f.�I awards including t:-r' A A Avv--d o. '"�@I"It,the Gold iVugnet - - .eld ho rebuiiders In re United States. He is respons!b�e for the -vard.t nc Du iJers Chi cue Aw J ti,e NA HID `Ja'' r,a s 'sr:,ara "'c' -ability of the divis ol, v✓h,;ch is engaged in the planning, aI tithe AME ^N✓a,rd. ci n asigr�. aevelOpment, costruction, inari<et:ng and sales of single studied ara �u e at Ei-e' vrrs y or S ! ,ern Ca nc' m u ple re ,der nal units jhr0LIgh0Jt Orange. Jos Angeles, School or A,rc'n ,Ire a a i;a c,enseo ai cr i in C II or is a r I � r*�ji a ,P'verside and San De r ar dr o Counties.Shea Homes � Ha�n�aii.Ne is a r,��r�faer of t1,e Inca , Institute.Of A,ch tects, __r�ren�'v oea�es n California Arizona. Coloraco. North Carolina, to' is NCA.RB cerr,i2d. S.uti� C aro'li exas and Washington. Landscape Architecture& Planning: Sitescapes, Inc. Mr. Yoor joined the S lea Homes team in Novernoer of 1996 as As a Par ner,Scot S oj_ 'nrir-gs u,!ent ,cars of exper once to 1 e e Pres dent of CommLi,ity Development Before that, Yoder firm In slid p'..nning an,l 8i idscaoe arc ,tectuPe Scott s c^X}jeriCl d .ne It`wo years with Privgon Communities, Inc. as Selior Project has pro oed r'' AiTh a �HCI< rOUnd it resldef-.!al, CO 2rC181 ycnager ` �OYKing On a 'dide'varlety Of COmmUnitles frGrYl agency and the Yl� i'Vai"<CIeSg!� r�71Sn@`✓land In r1r1"hei'YYi :I ne)'World Ili ss s ed affordable t0 UXl.lry homes. Ill adclitl0(1, Yoder-s(=ier✓t ten Oiler do r d o<yo C ,lay air Un iver a S;ud os hem ars rhino in the San Ga;rriel Valley and Iniand Ernicire region as Dark :n. Or la do o Ivi<,. lis so_c..alazed exile rie,ce has a iov a e Manager of Hix Homes. i im,, to Become an accomp;`!she i u ran rlesigne with al e,,ripi,asis thor� 1 he grew up working for his fa,.her's .orutruction laY'..O..IS t`�I�2s Ci�s..." ')I hO�,sll �. rnix;.i�- Ise, n "a"Y1 �)/ and compsnv, upo'l gradU,rtng front the University Of SOut} em r,ibiic recto" bC gees. _ khcv urge orevr'Oes for a to)ad Caliio l a. he serVeJ a5 head men S volleyball COao for tW0 years di bpeCirum, of Ur,Qe-stan�7 �g and the cXp.. Use .O e'v<r Uate rllOst Ohio `Mate University �O'IOw'ed by eight year's In the Same position every Landsca;ue Ar c'ni.ec-ura!c'rallenge in relation to rearing at USC His 1988 USC tear von the NCAA Championship. outdoo, _..aces and proo,arns for genera or very sp eclfiC uSes i c r- �� Mr. Yoder, has a aegree it Economics and a Masters n Eusines_ Howard Englander, Product Development/Marketing, Acirninistration w✓t ) al elupi,,asls in Pea, --state Finance frorrl USC. The Englander Company He is lso aci-ve y irrvo ved in leadership in the industry 11ovvard 'Englander, excusive to SI-)ea Homes, is president Of � John Vander Velde,Vice President,Shea Homes he Englander Compa a natio ally recognized research and gel-)n mined Shea Homes in 1999 and:s responsible for the consallt nci firm soec,ai,zing in re_.c er-)fial development He will wj,nagei7ient O`one of the ,aster-plannied communities in the share the latest in arch tectura,and planning achievements in SouoP" California Division.as v,,ell as entitlements for another housing and cclrmunity deveopment Previously, The Englander long te,rr coirrpany asset. Prior to this. John was responsible Cornpa,v served major ia'-d developers and builders throughout =or cons-.ruction operations in the Southern California Division h-ie wester, slates including Shea Homes,Gre; one, �en,/err. of Shea Homes In this role he was responsible for the oversight Brookfield, Near Urban `best and Sales-Regis. The Englander of the purchasing. field construction management, warranty Company specailzes in product development and provides a service, design center operations. safety and Shea Homes comprehensive aDproacl covering arch Lecture. community Insurance Program. He nas over-twenty five years of construction development, nrerchandlsing.and pricing strategies. lariag,,ement experience.After"P,ar,in0 hiS degree in Business pi g v v`� v yj ' /r✓i. n h'', AN i \ ''-t l>''INWIIIr, c \a w-- \, Item 1 6. /45 1 ll 10 /, .: \ \ r ?L Administration from California State Unrvers tv, Fullerton in'976 he per n p soally developed and built nine individual —all and skinny' entered the construction industry working for a general contractor homes aov✓mown very similar to the ones that will be prrcposed for Keith Bohr, Principal, Team Real Estate, Entitlement/Campaign the Rodger's s',te. The specific addresses are 306& 308 2nd Street, 224,226&228 6th Street, 317& 319 7tin Street an di 525&527 15th Owner of TE,4M Real Estate, a longtime HLn tin to Beach Street(photos enclosed'.Jeff is very familiar with-1 both t,e zoning resident and former city _Ic'f memder of almos� 8 years, vv 0 and building cede scan _rr,ents and how to most efficiently design j m y worked as a proj_ct mar:aaer or apwntorvn redevelopment ancl build these types o; homes, :,vhich on these encyclopedia lots prc,'ects °rorr 1987 995 Keith also worked for both the :25 x i?5)are on!v_ 19 feet vide and 35 fee' tall. Reoer'eio risen'Ag?nclp , In Lor g Teach and Tu Ih befog t s t o na to �e private sector as real eta_e consultu /broiler Michael Suydam, Principal,21st Century Communications a id developer.. was'_onoi ed to serve his coma-nin ty on Stratea,es (Staat 21) is a public affairs and cor_vrnunications tl-e City Council rom 2004-2012 c. rc as its Centennial Mayor in consulr�;,a firm. Eased in Oranc,,e County. Staat 21 or a full 2009, i;lith will be_akir e leaci to as iSt and coordn ate wlt a.•rge c� nubile. community ano government relations programs all ream nnembei s 'or ail facets c`ti 's pi o;t-ct e utiements. pus. a -or c iu ,c thr�ouahout Orange County and southern California. a CNDCa Cy and p0 tICa1 C rYtpala n. S'.rat 2,1 princth_,a s will:develop and irnplement a comorelnenslve r Ke h,a any y ass of experience ,r� rsoth� processing „trtlernent conTrmunications and ,nubiic outreach program that will a^o runn,rg IOCai carnpa'gr,s, hods his osIn s_roessfui cam,oaicr— JeveIop community trust and ensure transpa erlcy throughout the for City Council net he was on tie wirn�[rrg saes of Measures T process. In adrution to neighborhood community meetings held for (Senior Center) O 'l!Vras-ructure vla'ntenance) and Z (Comore c-al sirrouncing down-owi residents at the Rodger's Senior Center site. Prornerry�ax}. Kim wil� be taking the lead in co�:,�di rat-rg vim a:= �r'rat 2 r✓'il take our"dog and pony'shove on the pad to any and o ,-e team merYi as N'e. process the entitlements, IYLp emel'l, all local groups ti-�at accept our Inv'-attoll to present our proposed +he public advocacy- program ar d r-ur' the"Measure C election rorect to their membership includ;ng: an �pai7lr. In 200 Keith representeri Fiist Christian Ccmrrunity Council or, Agirc�. Dovvntovvn Baseness Improvement District. 0ru!ch n heir s-nccessful efforIs to re-open 8_:r4<e school -,rhic' Hu itiircon Bea,n �ommuni�y pram, Amigo de Boisa Chica E,ad been closed -or over a decade, Many of �e surrourdnhg -, `City 2olsa r ica. Co scrvancy, Boisa CI. a Lard Trus gun Rotary. ` ned abo herEsideots were t �ai,y very utaof ,� ta...'C.. Hunting-,on Beach Board of Realtors. Hunting_.l Beady Kiwa s, at vo nrd be ge Ercted by a private schoo,, w'�ere the students Sanrf C iv,/ar,s. Historic Resources Board, Huntington Beach dn't ,ive in the runedae neig oncood. Keith I eld se.^sal omor ow, Chamber of Commerce b^Jinner s Cycle Brea'Kfas. !neighborhood meetings a-,t,ne school sire and -ili-ii-i-atel,y oeveiooed ntin on Be ch Potary. Lions Club Soropt gist I-�ternational a comprehensive chase atop o"and D, lfue ;-la that ac-ic0 e7 uiitn`Cli-on Deach. Huntir'gton, beach omorror✓ Visit HID Board and u i the ne,ghbors concerns. The. o',ahning co!nmission unanimously -n of �ers that nave an interest he comma city outreach p ugram approve- tine prole-- and here was only one resident that:sook i l also 4nclude an interactive vvebsite. FAO's, Facebcok page and against -he nrrcject at ti-e pul-,lic hearing toll frc.; hotline. Jeff Bergsma, Architect,Team Design&Construction Brandon Powers, Principal, Powers Communications Owner of T (1, Construction sed III dovdntown vii Poi e_ is Ell r clitical Camps ac cons r r used in neicrboring Huntir'gron Peach for—e 25 years. up., is a Lcer sev Architect �e,neral Cont,a or area spec sizes it J span Dui=d, tau ding only �r al Beach_Bn r don is fa ri ar :�ith rrr r� uccessf ri icca r tare architect *I �ca s �, very er-icien- 1 ct o s it Hu tingto n 5each and will be in c'narge of developing who' he has oe -ned)a way to dev clop .rojects. and iii,.ierr,ert,ng the cam,pangrn strategy for the November -J16 Measure C' electron (as requires by Section 61 of the City �efr ,Jlh t_..ke the lead ir) oreca-ing and processi,�n the`ormal v har- r er). _r re Charter requires that anytime the City sells, lease urtntlerne^t Ap icatior hc,ud=ng coons hating t e de=gn h 0 : Y d cuilds more th an 3.00� square tees o parkland or beac,res that package the z2 S��rc,!e am+� ;or�,e�Ord pa= ,Und.�e`f has he Council put the lssuc>or-i the ballot for the HB voter's approval. successtllii y'1-JrE-par�a a orrcessed for approval no,e than 100 -ile Sties`'.c cam:paign strategy will isle designed n response to ent,tle!rleYrt apr� ca+nor:= over tine past 30 years. more r,c . f_ f �esus i a the polling that will be conducted in the spring and t-ar' SC to pug tie City of Huntington Beach- i that'!me Je`f nn�r r�r of 016 In Short, the campaign voll consist of the Strait 21 has becc ant nately lam liar w th the Citys Zu,,ning Codes a-,d Cory -nurnty outre c!r program. as well as a tradit-oral mail sign and building reouirer-ner,7s and has developed many, positive and or i scial meora carnpaian stra o tegy. going re onships vvitl staff members in all the various developme�'t depa�trr�ents, but artiCuariy n rianro'nng and There v� be an extensive malt campaign consisting of 2-4 mailings bu lding Jeff o,,ill be assisted 'fay Kent- Bohr as the entitlements sent to ail high propensity voters (both Vote by Mask and Poll make their w n av throgi- the various decision making bodies such \,'oters). A "YES on X"and "Improve Our <s" sign campaign, and as the Comrrnuhity Services Commission. Design Pevievv, Board possible cable TV ads. wi4l round out the campaign. Planning Commission and City Council. More specifically Jeff tras \� gq M, Id /� F NO ffiffl� Item 16. - 46 H� -�c,? j k j � \ ` it r \ y ° APPROACH TO PROJECT Approach There is a significant benefit of teaming up with a quality home builder so that both nA the City and Community have security and confidence in what will ultimately get ,a I �n 'r �roa h to development is built n the site. One or .he !�„Ilmarks of Shea Home a c bu o t e � pu p cur commitment to community outreach, working with the community to identify and address issues. Not only should the community have market acceptance, it should be a source of community pride. Given the history of the site, there will be distinct opportunities requiring community stake-holders to remain engaged W,ho through regular meetings with agencies and City officials. Cf hl�,u y� A/e have outlined in this proposal a process for engaging the community and .w securing approval for this entitlement and election process. Part of understanding this entitlement and vote is to educate the public that th r e underlying zoning accommodates 28 units, while only 22 are being sought for approval, along with more public open space. This must be an open process but also one that is led and directed - and our team will do just that. Sf yea Homes will bring a reputation for integrity, product nnovation, and quality that can be relied on by both the City and the community. Critical to success will be working in partnership with the City and neighbors so the broader community understands that the Rodger's Senior Center has a vested � interest in the nature and quality of the development, after the City completes construction and transfers the Sensor Center operations to a new facility at Central Park. Shea Homes Limited Partnership (Shea Homes) will be the Controlling Entity. This entity is the parent home building company of the Shea Family of Companies and holds substantially all of the Shea Homes' home building assets. Shea Homes funds the purchase of wholly-owned real estate assets utilizing funds generated from operations held as cast, on the balance sheet, thus providing the Company the ultimate flexibility it-, structuring acquisitions or investments. The Company has the financial capacity and funds immediately available to meet the capital requirements of the proposed development project and has the ability to close on the transaction in the proposed time frame. The purchase price of the land, the land development costs, and all building costs for this project will be capitalized r from cash on the balance sheet, without the need for bank financing. a f Shea will not encumber the property in any way before purchasing the property in cash from the City on a fee title basis, which will eliminate the City from any E . recourse moving for ward. Process Although we have developed a specific site plan for presentation in this RFP , we want to be clear about the process we would expect to conduct and follow in order to have a successful approval. The site plan has been set and is straightforward, and we believe this is an architectural exercise in addition to planning the park. ,-may e ' r \ H 4c ,ram rIA F E Item 16. - 47 vim rs i D 1 \ A i r " an JE ` Kati / 7 Although we have submitted a particular architectural style, our workshops will be focused on arriving at a final aesthetic that will both "fit in" as well as enhance the existing neighborhood. Our initial evaluation would suggest a broad range of styles versus a themed and uniform approach to reflect the current eclectic but rich fabric of the neighborhood. That being said, we will listen to stakeholders first and be prepared to respond and address alternative approaches. 3 I The site plan and architecture we have studied, and ultimately presented, are without direct input from the City and as importantly the broader community. Regardless of the level of City Staff and decision maker support, they will go nod:here v,�ithout broader community support. We recommend a "workshop' driven process that seeks and addresses neighbor z and broader community input - and literally makes them a part of the planning process. included belov- is our Public Outreach Process, defining the details. Although this process is iterative and must be flexible our initial thinking is as follows: k a;w 1 Neighborhood Meeting - this would be a more "exclusive" meeting, ideally .... hosted at the Senior Center, where the immediate adjoining neighbors would r be invited. This would be an opportunity to identify issues, suppoters, negative r nfluences, express the needs and goals of the Commission, and listen. There could be a follow up meeting, or individual meetings to address specific concerns. 2. Community Meeting - this wot;ld be a more general, City wide meeting hosted y at t1-�e Civic Center. 1t could be hosted as part of a Planning Commission "work shop" or independently just to solicit community input. Z. Community Design Cl�arrette - in response to these earlier meetings, a range of sketch level development solutions might be presented. 4 Additional reetings - depending on the tone. content, and progress at the earlier meetings, additional community meetings may be advisable or necessary prior to the submittal of a plan and the formal public hearhig process. Public Outreach Process Commitment to initiating a listening and learning process with various stakeholders, county leaders, civic leaders, governmental agencies, conservation organizations, interested community rnembers, etc. 'm Dynamic Panning Strategies � 1. Work r Collaboatively it •. 2. Design Cross-iunctior,ally �< 3. Compress Work Sessions 4. Communicate ih, Short Feedback Loops 5. Study the Details and the Whole 6. Confirm Progress through Measuring Outcomes r M \ : . .. RNMM e /. f Item 16. - 48 eft �ti , JN b d k IN >3 / 7. Produce Feasible Plans) 8, Use Process to Achieve a Shared Vision 9. Conduct Multiple Workshops/Open Houses 3 � a 10. Hold Workshops on or near the Property to gain broader appeal in order to secure votes Key E/ements in Dynamic Planing n Process Meaningful involvement: People see the of their input, rather than process disappearing behind the scenes. Trust in the Developer. Meaningful public involvement,education, shared community vision, turn opposition into support Feasible Plans: Collaboration: all points of view from the start. inclusion, col-,sensus building. Exce tional Design. Creative problem solving; specialists and special interest groups collaborating and employing a generalist approach in pursuit of holistic solutions. �� \ " Buy Local Shea Homes will make every reasonable effort to provide any and all qualified subcontractors that are based in Huntington Beach the opportunity to bid on this protect. Further, Shea Homes \tiill make every reasonable effort to require that its subcontractors primarily source their materials and supplies from Huntington Beach sUppliers (e.g., Home Depot Lowes, Pacific Appliances, Reliable Wholesale Lumber \ i"F Inc., Local Graphic/Sign Companies et al.) Shea vvill utilize boor the local HB Chamber of Commerce and the City s Business License databases to identify local vendors. 1 i i i MEMO \ \ p\ y iyr ,, It em em 16. 49 --' Alp X, # \ ;�✓/1/,, �; \� PROPOSAL We have responded to the RHP/Q as directed with a site plan solution and , corresponding valuation. Below is the conceptual product we have developed for this site - Number Square Parcel Bedrooms/Baths Garage Levels Pricing of Units Footage x ll� 71 2.750 a C ,00 cr __o,age /r) OK Ca-Dturing i the urosertv's connection with both environment and the surrounding neighborhood is the fundamental planning and design principle that guides all aspects of the concept plan for the redevelopment of Rodgers Seniors' Center. The Site Plan assumes 22 three-story homes, with impactful indoor/outdoor relationships that will be a critical component of these higher end homes in this coastal region of the City of Huntington Beach Our development and luxury home building experience is a great fit for this i i property. Below, are examples of recent and actively selling new home projects that can be an example of demonstrating our expertise in building and selling luxury homes: i I i Project Location Home Size Range Price Range _alitr_, vine Z,5- 4a.'!' $l ZC)0,OCC 300. aticod vine ,`1 96'. 000 1 a."0'000 !. 3,, 77-4.19' ,t,, 0C `t1.60 0.000 1 Along with the new homes. a Neighborhood Park will be developed at the same time the models will be built. More than a park, the neighborhood park is a progression of spaces designed to foster community by offering an engaging andscape The park is at once passive and productive. It may include a picnic area, shade structures. bar-b-ques, and p r lay structues. Also included in the park will be bioswales. Bioswales are proposed in the park to accept runoff from the project to ti-)e larger storn')water system,. They can be planted with native or adapted riparian plants or grasses. filter sediment and contaminants, and reduce the amount of runoff leaving the development. i ' a 'vatic u � s \ E' $ E /� c \; Item 16. - 50 F , x� -468 � Y R m g LLI \ . cy ' . I� to � s t .. z co Lo m Al LU LU .: o �< 9 � a M t R i y \ o o iuI'rs Z V f r J r C� cn Z / F— fn 2 < o a emu. �s R; 4 HB —469— Item 16 - 51 n got S •,', a\ CU i p WWII r � �I� I III i Yli l ii'�i � i i 4 ,i': YI • < cot ; is k: � _ .`\•.. V,gp iY I I d s \ 0 w_ V uj C Q x \\ a � ••�a ��x - a�� z Z � .aAT E`vs. p ` PTA— mwgg a, 3 / ,` � y ydtl•I k III§�, �• z F °fi�Y9 i ; \ a M N Mow sMVVR , z \ Item 16. - 52 HB -470- W \s Mr Wr .. Ez tt�S \ \ x \ 1 -4 cr \\ ry < i FEW, \ , \ z { \ 8 h III !yl Ably- p IV" \ « .. \\ \\ Wxg \ f •€2 LL `< ` yy :R > will\ CL U a \\ w uj w CE LJJ \ ti m �r 3, F- V) LU \\ LU O \\ LU \ U 3 �' ,.� may. .v \ 'i [•. �i \ jm . YY f '§ 81 �\ \\\ Epic too Q a� f •� l ` / NOW dI Am L c> xB -471- Item 16 53' a F ra ON Ml r r 11 AST pop, m \' e "aid \ ` 3; J V Vl \ 4 \. ac \ \ Igo, 11 r I f �'. , \� W vv IIII ill IIII �I� IIII 01.I jlll �A A _ 5_z y iliil \ 1110 '1 N r 1 U \ z w � H \ n Up = \ w Z w y CL Q U \ \\ Q w w LU tg ? \\ 0, w m w n Z 1pox 0 III IIVi II VV fl �'I�IB�,' ji�'i'II 'jk��'I, ` W Z s \ ZwZ glum ry r�a � � \ O y„ sc� y t a= j v III IjII VI " Ua ll IIl�ul�il, il''Y• Yy' me j \ IN r, � kw� I�I IIIII II��II' III .. I IIII III ±II v� vv Av .a v- v IIII aRE, 11F5 _x 6 pg1l vli c . \`• �� �� I,I+� II'jl�' IIitlllli�f� �, \ ' \ a � s \\ r € \ \ y� \ m \ ' , \ jvJ \\\C 3 a, low Item 16. - 54 HB —472— ya„ `, 3 / fi \oil aYWA list: .w rot �\ �� N �l /\.j. E UN RE 3P �\ \ •ems ./ WWI \ aF� r # :sty \ 'Y," ti•, Y>A�'.� r t 3 .cam Js,' `✓,,r \�, • Lam.,. � �, � £ ;�: �;":�� a\.;', ; \ � } a a NO 1-1 �OM 1,�OF low powLU X IT € ter, nILCO p V w w Z \" / � 3 �� ~ F i ( L ^ Z j \\\ d Z Q Z \\\ oIN \ \ \ ILNu t ICE \ oil 111pi \ M 11 \ \ \. 1 \ 7 \ \\ \s son, R ' k-u 1 gas \ �\ "M yl7 K r. 4 N -411111, ,413 .4 _ Item 16. - 55 , , 4 „F Lj lips a _ x 'j, Nit }.. is 51 3 }y: 'r r N No, �.PM 4 Magi WIN BW V F Q Xv.. J L, I..l C .., w� � W � r - i.- LUCL N IN A Way r ,^ Von �J U Z Rj O Z U 54 € � F' i As 2 ra yx � a a � � S 1 lip. 55 :�' jI 21 myral WTA zm OW 114 AM \ \ . � III \aN I "AGNIFTPon NMI its YjAW r Item 16. - 56 1 B -474- " Y u Y K �s Benefits to the City '�." �I f��ll.�[���'l' ■0,,� T __.�.�i� ��� i�7�!rtal �-� ��_' �, Hc-r!e �� ,ner5 -'^SSOclatio:� TI-c City _`;Ill benefit by u@ h_ -. - I,„r Yl luing n Ore pUbIC c'pen sl_pace tooay, at no additional nlalntenance cost to the I City,- of H�-Int;noton Beach. I The project v.!ill also incorporar veater conservation measures such as drought I tcl lart � tat cr oci _Intent ith the native cpecles in the area drip irrigation t l�lhi'I U dliG runoff ai-d on-Site rail i Dater capture syEtenl xi . options for Intere_ted horncowners Th le ..�II I_ rol,ch ,1?,, il_Shvl X Honres) of additional proh�erty t�-, a tided to the Cit`,, and County revenue streams. Honl­S ta g e i� hndc in out, COmr Ur iltleS and 'VJe manage:O eSSer th2 Impacts on surroundma uses ss much as possible. c )c c, ;1r=Se - 'os L, �. Ten_, c.la!"y `=rnce 'to mas. I 2. Land Development Phasing Grading and infrastructure ould be completed in 3. Th P=irk and th a h1ode1s will he built in `he first phase 5 h'Dme� each ,J -_,egln =^Oi i after :l-e moors_ start. and be complete in approximately one year. 4. cr El,l',_Ictic r,-C S s, be cnl,, one po,,nt of co-istruction access for the entire duration of the project. 5. Hcjrz Or Ol,,_re-ic tf ;ct be plane,-ed oU Ing nc-n-nal .working hours lam to 5pm f-londay through Saturday. 6. i Jcls_ _,nd Dust i „'e r�,iil l . i�p all dirt and grao,n j Watered d 1. ceasing operations Wen wind exceeds 20MPH Spray all graded areas with a s rci^r h,eln IitlOa7 e -lust.oil _c to I ✓ II 7. Comm unication Strategy: Pre-notification of construction activities would "cs =pr xliZratcl_ = an� ..,�o ^ echs 1-r;cr tc the commencement of construction with tine neighborhood. Constriction is anticipated to continue rt ally unl irel"r! d' So cddlticral riotificatlor .vc,u!d only occut, On an as �rePrie� ��asls. Shea, Hc^7 cs limited P&rtner_sirlp (,Shea Homes) ^.II! be the Controlling Entity.This c r tY Ic the pay "it horn i_'�hs, ding co npany of the Sl yea Faf7rl y of COn ipanl2S and holds substantially all of the Shea Homes home building assets. Shea Homes funds t l )%l `chaste Of '��h0 1 "�e eel eStBte asset Ln1i'_InCG funds Generated from operations held as cash on the balance sheet. thus providing the Company the c'til flr_xibilit,, in structuring ac:' lis;dons or investments_ The Company has the fI I nCla C rj' ��'rCi ,i_RT s lamed atel)) available t0 meetLi e Capital rP_CUIreI eels of the proposed deyelol_1n-lent project and has the ability to close on the transaction r the pro,�csed tin-ie T rc _ui-chasc price of the land. the and clevelopn-ient [I - I 3 � 16 _ 5 7 ' Item AW37 VP a ea l a \ y costs, and all building costs for this project will be capitalized from cash on the balance sheet, without the need for bank financing. jl Shea will not encumber the property in any way before purchasing the property in cash fron-i the City on a fee title basis.. which will eliminate the City from any financial Fa, L Wil.� recourse moving forward. t, Shea Honnes, Keith.. and Jeff will staff and manage the entitlement process and election campaign. The Team U,vill hold regular meetings with the City to discuss and agree upon all significant planning, entitlement, community outreach, election and u, development issues. i ;= Shea Homes will oversee the design, construction contract procurement, project financing. management of both land development and the on-site construction, sales and marketing, and all other activities (including posting of improvement bonds) required to ensure project completion and success. John Vander Velde, Vice President, will be the manager for this development. John is responsible for the rnanagernent of one of the master-planned cornmunities in the Southern California Division, as well as entitlements for another long term company asset. Prior to this, John was responsible for construction operations in the Southern California Division of Shea Homes. In this role he was responsible for the oversight of the purchasing, field construction management, warranty service, design center operations, safety and Shea Hornes Insurance Program. He has over twenty five years of construction management experience. Community Outreach/Entitlements/"Measure C" Election 'Vvle are ry cog i-ant that a comprehensive "community outreach" program v is m r paramount to tl e success of this project Shea Homes has been a longtime property j os nei (Sea Clif whopping Center cind Parkside Estates) in Huntington Beach and 1 s very familiar f" hove active and concerned its residents are when it comes to and use issues Tneretore. once selected vve will immediately commence a very trar ,parent all inclusi."e community outreach program that'✓ill continue through f4' t �oi�r a election o 3; and even l eycnd_Our iearTr, led by $ti at 21, will meet with every local group that will accept our incitation to come and present to therY. including • Council on Aging • Dewnto,ti"n Business Improver-7 -)t District • Huntington Beach Community Forum • Amigos de Bolsa CI-)ica • Bolsa Chica Conservancy • Bolsa Chica Land Trust • Surf City Rotary Huntington Beach Board of Realtors • Huntington Beach Kiwanis • Surf City K;wai pis • Historic Resources Board • Huntinaton Beach Tornoi-rovv • Chamber of Commerce Board of Directos & Winner's Circle Breakfast r • Huntington Beach Rotary r \ Item 16. - 5 8 ;\ , ; ��\ l / \ � ✓i y r� ' • Lions Club Soroptimist International Huntington Beach • Huntington Beach Youth Board • -inance Board • Visa HR Board The community outreach program will also include an interactive website. f Facebook page bol-h with FAQ s and a toll free hotline which will be prominently posted on the Rodgers Seniors Center site along with a site plan and elevations of our proposed project. Cur outreach l�yrograrii twill focus on listening carefully to the input we receive and doing our very best to address all residents concerns. Further. we are also are realists and knowv that no matter how much time, effort and money we expend to engage the public. there v,,ill be some community members that vvill not be content, unless there are zero I;omes built and the whole block becomes open space_ The best we can, do with -hose folks is to respectfully disagree and hope that we can design the proposed six lots of park in a way that meets some of their open space desires. It is very important that we work closely with the City to further identify what the city projects;%irrrl_)roverret its vvill do with the $14 Million dollars in revenues this site 1 will Generate. Those projects/improvements that staff initially identified at the City Councils Study Session held on April 20, 2015 included, • Expansion of Edison and Murdy Conr-ru pity Centers, Including Gymnasiums • Bartlett Park [mprovemerits • Bluff lop Par k Vail Irrrprovemerrts • Harbor Beach/Park Improvements • Acquisition of Central Park Encyclopedia Lots • Development of Jndew6o.ped Portions of Central Park • Le Bard Park Phase Il • Complete Cleanup and Develop Former Cur; Range for Park Purposes • Reinvest in Neiaw borhood Parks Vvitlh this areas 'Park' news for all Huntington Beach residents citywide we can look forward to spreading this neLAJs by partnering with the City to share witfr its residents both during the entitlement process and throughout the election campaign itself. As mentioned above. in addition to Holding "neighborhood'' and "town half" +Treetings we plan to meet vJith all of the City's existing community groups to present our project ''dog and pony° show. We will be sure to provide the City Council and Administration staff with a monthly synopsis of meeting notes to keep everybody up to speed on v%/hat we are hearing pro and con from Huntington Beach resdents. Although we have yet to meet with or conduct any professional polling of Huntington Beach residents,/voters. we are confident that our political campaign will consist of very positive messaging,somewhere along the lines of the Community Service department's slogan "Parks Make Life Better Vote Yes on "X" 1 \\ NONI \\ '� a i �, � � -� t Item 16. - 59 \ / 3 \ / .,... x. y e (fill in the letter the measure will Brave randomly assigned to it by the City Clerk). 'Improve Our Parks' or the like. Our election strategyti^rill mainly consist of a comprehensive educational campaign that will inform the residents of the many ciryv,✓ide park system improvements that rvvill be implemented iT the ballot measure is approved. It will conduct a very positive cam w campaign and e v./ill not be pennyv./ise and pound foolish' in the way w✓ w r e age our campaign. We all lose if vve ate not successful on Election Day. We are confident that the team we have put together will craft a great campaign strategy and implement that strategy resulting in a big victory for both Shea Homes and the City on November 2016 Our campaign l will depend heavily on both community interact on and mail pieces. as ;ell as, of course political signage, soda( ,media and even some cable television commercials. References 77 \ 's.i. fib,, �.a c/ y x. ,s, �� s�✓ '�� ; ,. l C -;!:n NCcI'Th_y The Edge os_i Fl na _, 75d :.o 17t1�-ISSso"',.c,r PI�Iri rN. tlw_ �i4 _54-52;0 l.,omiYll�SiOnCr' Current _ Tct't �1-7nnino c rn lli ,.Ong`' l_ rr n Sykes, a -rr43 Walnut oh,Pad-c'-'o ;�t_i �er unCk 9 'i-461-3410 :1rr±L tal Baker Ranch �c i nci �.�k.rrv�r Sµ 61-3=-63 - "� - _ _ ^rr � �u r_:c, �, _�n_'. �s,_ ;,r 5I-2o4- 9 ,5 _ _liarwU .�,0 Ma", Parkside Estates 111 G Z­i jc nni 7 i 4 G_,u /1 8r vi i,e vu 724-71:6r1 Sausalito ii v ir> Cindv i Litigation Shea Homes has been and is currently involved in typical litigation associated with homebuilding practices, which is primarily construction defect litigation. This is normal course of business for homebuilders Further discussion of Shea Homes° tigation risk is articulated in Shea Homes public filings. There have been no instances of revocation of performance bonds and/or removal from a project by Shea Homes. Shea Homes Limited Partnership has not filed for protection or relief under any applicable bankruptcy or creditor protection statute. �. // v \ \ / \ Item 16. - 60 /1y�� IJB..a F 7 MLa ti s Financial Offer Form Item Financial Offer i Initial Deposit Amount: $20,000.00 Pursuant to the RFQ-P Section 5(e)(1), the Proposer is required to submit an initial deposit Additional Deposit $130,000.00 Once Shea Homes is selected: I Land Sale Balance Amount: Pursuant to the RFQ-P Section 5(e)(ii), the Proposer $14,450,000.00 Is requlred to submit the balance oT Flnancia! Offer to City upon close of escrow on land sale. Total Financial Offer $14,600,000.00 This form is to be completed and signed by ii��di���idual authorized to represent and mal-:e legally, binding commitments on behalf of the proposing firm/company- Name of Firm: Shea Homes Limited Partnership �-133 linc, Address: 2 Ada, Suite 200, Irvine, CA 92618 Phone Number: 949-526-8825 E-mail: mike.omeIveny asheahomes.com Signature: � Printed Name: Mike O'Melveny Date: July 1, 2015 .. 71) Item 16. - 61 LL LLI �1 ' a U �J z C o N 3r ry 6 LJ C C CD Lj Li � O � N I 0 0 0 H N d CC 00 1 ��. Z �`• y T y � a N C L \ O L1 MT Alli E co 0 ot5 E o m c o c w - =� N <om � 3 t\4i _ C.3 eo 3 z a o z 025 c co z m W Item 16. - 62 HB -480- ta SKY ol Z \ '\\\\ /, ADDITIONAL INFORMATION Water Conservation and Water Quality The project would implement Low Impact Development (L1D) features such as permeable paverrient, on lot rain gardens and bio-retention systems adjacent to the roadways to provide water quality treatment and flow aLlenudlion to protect downstream receiving waters_The LID features would replicate pre-development hydrology characteristics \ and use natural processes to remove pollutants from storm water. The project would also incorporate water conservation measures such as drought tolerant vegetation consistent with the native species in the area, drip irrigation systems to minimize water use and runoff and on- �- rain ,water capture system options for interested homeowners. y.f A, Reduce Impermeable Paving Impermeable paving sheds a lot of �� ate, quickly clunr�g rainfall. A reduced aJ�ount of impermeable paving can allow stormwater to recharge the groundwater table, can provide more water for plants, and can take pressure off of the stormwater system downstream. Peplace imperr neable paving with planting beds and unit pavers set in soil or sand and grade to retain and manage stormwater on site. Sioswales BJosv✓ales can be used it-, the park to direct runoff from the project to the �g anger storrwater system. They can be planted with native or adapted riparian e plants or grasses end -an be designed shallow and natural-looking swale, or fcrrnal. BiOswales filter sediment and contaminants before sending stormwater � a downstream, and reduce the amount of runoff leaving the development 3 - j Native and Adapted Plant Palette f. Native plants are those that are found locally in nature. and adapted plants are those that thrive in the local climate. Designing with native and aOR dapted plants conserves water needed for irrigation and provides habitat for local wildlife. By nimizing awn area and choosing plants that are Le sized appropriately for their space, less energy is needed for pruning and 12 i I i �3 /iB �b Item 16. - 63 \. N - - ✓ ��1 r IR E ,< Sustainability Program Huntington Beach 22 Lots Sustainability Program Item Provided Buyer's Comment by Shea Option Site Install "first flush" sediment control Protects storm drainage system (CDS and NTS)to clean channels and streambeds site and adjoining condos Use native/drought-tolerant plant J Reduces water consumption species in common-area landscaping Install "smart" advanced capability Reduces water consumption irrigation controllers (Weather- Trac) in common areas Construction Recycle job site construction and Reduces material sent to demolition waste landfill Implement construction site 7 Protects storm drainage stormwater practices channels and streambeds Reduce vehicle track-out of soil J Protects against run-off and from site provides dust control Rinse basins for cleaning of ti Protects against concrete concrete trucks discharge Incorporate fly ash or slag cement By-product from coal- burning in concrete foundations power plants reduces Portland Cement content and material going to landfill Slab designed to minimize offsite J Reduces trucking from site trucking of excess soil Framing Use engineered lumber for beams Renewable resource Use engineered floor joist Renewable resource Use engineered roof truss tii Renewable resource Use engineered Oriented Strand Renewable resource sheathing for floors and roofs Use roofing material with 40-year v Reduces replacement which or greater lifespan reduces need for new materials and waste Use fiber cement siding Reduction in overall wood usage, reduces replacement which cuts need for new material; less paint maintenance reduces paint emissions Plumbing Install low-flow showerheads Reduces water consumption Install water-efficient sink faucets Reduces water consumption Install water-efficient toilets Reduces water consumption II :. Item 16. - 64 of SIB -481 . 7 r iAL "231 A'r' � R Sustainability Program Huntington Beach 22 Lots Sustainability Program Item Provided Buyer's Comment by Shea Option Install recirculation hot water 7 Reduces water consumption systems Alternative water piping system Reduces the mining and from copper (Cross-linked refining of copper; eliminates polyethylene PEX pipe) the possibility of copper pipe corrosion and slow water leaks Appliances / Fixtures Install Energy Star dishwasher J Reduces energy consumption Install Energy Star refrigerators Reduces energy consumption where provided Install Energy Star washing Reduces energy consumption machine (where provided) Install pin type compact Reduces energy consumption fluorescent lamps for hardwired fixtures kitchens Install photo or motion sensors on v Reduces energy consumption exterior lighting fixtures Install kitchen recycle bins Provides better consumer usage HVAC Engineered HVAC system Increased efficiency of system Test duct work for leakage Increased efficiency of system Install high-efficiency HVAC l Reduces energy consumption equipment with SEER rating of 13 Note: higher ratings could be or higher offered as options Bath fan with humidity sensor, Provides for better air quality motion sensor or timer Install TXV valve on air Reduces energy consumption conditioning system Windows Install vinyl frame windows with Increased energy efficiency. dual pane low emissivity lass Indoor Air Use low-volatile organic Reduces emissions into the compound VOC interior paints atmosphere Use water-based wood finishes Reduces emissions into the atmosphere Use low-VOC construction Reduces emissions into the adhesives atmosphere Low- or formaldehyde-free Provides for better indoor air insulation quality Natural gas clean-burning Reduces emissions into the fireplace atmosphere Potential Option Programs Photovoltaic solar systems Reduces energy consumption E TP i .. 1�� -��� Item 16. 65 a ", S K\\ .ri / a., i s�+ y r s� ram\ \," - f ' _ 4 m Sustainability Program Huntington Beach 22 Lots Sustainability Program Item Provided Buyer's Comment by Shea Option Solar water heating system Reduces energy consumption Air purification systems Provides for better air quality Radiant heat roof sheathing Reduces heat in attics Increased insulation More efficient Whole-house fans Alternative house cooling Increases in SEER levels of Reduces energy consumption HVAC equipment Carbon monoxide alarms Provides alert of indoor quality issues Consumer Education Materials Storm Water Pollution Prevention Consumer education uidelines for homeowners Landscape planning guides for Consumer education proper irrigation and run off control i \O901 o\ Item 16. - 66 ,�,' W� � �I13 -484- N l01 11, v FINANCIAL CAPABILITY As stated earlier. Shea Homes Limited Partnership (Shea Homes) will be the Controlling Entity. This entity is the parent home building company of the Shea Family of Companies and holds substantially all of the Shea Homes' home building assets. Shea Homes funds the purchase of wholly-owned real estate assets utilizing E funds generated from operations held as cash on the balance sheet, thus providing j the Company the ultimate flexibility in structuring acquisitions or investments. The Company has the financial capacity and funds immediately available to meet the capital requirements of the proposed development project and has the ability to close on the transaction in the proposed time frame. The purchase price of the and, the land developme�rt costs, and all building costs for this project will be capitalized from cash on the balance sheet, without the need for bank financing. 1 Capital Sources Shea Homes is a privately-held business with a strong capital structure. On December 31, 2014, Shea Homes had total assets of more than $1.6 billion comprised mainly of cash and real estate. The company's debt is comprised primarily of$750 million of unsecured bonds with maturity dates of March 2021 and March 2023. i Shea Homes funds the purchase of wholly-owned real estate assets and new joint venture interests utilizing funds generated from operations held as cash on the n balance sheet. thus providig the Company the ultimate flexibility in structuring acquisitions or investments. The Company has the financial capacity and funds mmediately available to meet the capital equirements of the proposed development r project and has the ability to close on the transaction in the proposed time frame. Shea has a formal project approval process which begins with individual projects being identified and underwritten by local division executives. A land committee package consisting of financial models, risk analysis and other documents is prepared for review and a formal presentation is made to the Land Committee. This committee s comprised of inembers of the Shea family as well as corporate executives for Shea Homes and generally meets on a monthly basis. No external revie-v or approvals are required for the acquisition of land by the company. I � E A `" The pages that follow are Shea Homes last three years of audited financials: I ��B _485 ,� t , Item 16. - 67 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) 0 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31,2014 OR 0 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 333-177328 SHEA HOMES LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) California 95-4240219 (State or other,jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 655 Brea Canyon Road,Walnut,California,91789 (Address of principal executive offices) (909)594-9500 (Registrant's telephone number,including area code) Securities registered pursuant to Section 12(b)of the Act: None Securities registered pursuant to Section 12(g)of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act. Yes ❑ No El Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act. Yes O No ❑ Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days. Yes ❑ No El Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website,if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files). Yes ❑x No ❑ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter)is not contained herein,and will not be contained,to the best of the registrant's knowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. R1 Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smaller reporting company.See the definitions of"large accelerated filer,""accelerated filer"and"smaller reporting company"in Rule 12b-2 of the Exchange Act. Large accelerated filer ❑ Accelerated filer ❑ Non-accelerated filer ❑x (Do not check if a smaller reporting company) Smaller reporting company ❑ Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act). Yes ❑ No ❑x None of the voting or non-voting common equity of the registrant is held by a non-affiliate of the registrant.There is no publicly traded market for any class of common equity of the registrant. Documents incorporated by reference: None Item 16. - 68 I-1B -4,86- EXPLANATORY NOTE The registrant is a voluntary filer and is not subject to the filing requirements of the Securities Exchange Act of 1934(the"Exchange Act").Although not subject to these filing requirements,the registrant has filed all Exchange Act reports for the preceding 12 months. 1113 -487- Item 16. - 69 SHEA HOMES LIMITED PARTNERSHIP INDEX Page No. PART I Item 1. Business 2 Item IA. Risk Factors 9 Item IB. Unresolved Staff Comments 23 Item 2. Properties 23 Item 3. Lo2al Proceedings 23 Item 4. '.Mine Safety Disclosures 24 PART II Item 5. >`hrket for Re«istrtnt's Common Equity. Rel•tted Stockholder Flatters and Issuer Purchases of Equity Securities 25 Item 6. Selected Financial Data 25 Item 7. ManawemenCs DiCCnSCiOn and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures Ahout Market Risk 46 Item 8. Financial Srttements and Supplementary Data 48 Item 9. Channes in and Disaucements With Accountants on ,AccountinL' and Financial Disclosure 84 Item 9A. Controls and Procedures 84 Item 9B. Other Information 84 PART III Item 10. Directors. Executive Officers and Corporate Governance 85 Item 11. Executive Compensation 86 Item 12. Security Qvv!)ership of Certain Beneficial O«°ners and i1%bnagement and Related Stockholder Matters 91 Item 13. Certain Relationships and Related Transactions. and Director Independence 93 Item 14. Principal Accounting,Fees and Services 99 PART IV Item 15. Exhihits and Financial Statement Schedules 100 Item 16. - 70 H13 -488- SHEA HOMES LIMITED PARTNERSHIP PART ITEM 1.BUSINESS Overview Shea Homes Limited Partnership,a California limited partnership("SHLP",the"Company", "us","our", or"we"),is one of the nation's largest privately owned homebuilders based on total number of home deliveries and total revenues according to data compiled for Builder Magazine's 2013 `Builder 100" list.We design,build and market single-family detached and/or attached homes in various geographic markets in California,Arizona,Colorado,Washington,Nevada,Florida,Virginia,North Carolina and Texas. We serve a broad customer base including entry, move-up, luxury and active lifestyle buyers.We have been recognized by industry professionals and our homebuyers for quality,customer service and craftsmanship,as evidenced by our receipt of some of the homebuilding industry's most prominent awards, including being named as"Builder of the Year"in 2007 by Professional Builder magazine and one of"America's Best Builders"in 2005 by the National Association of Homebuilders and Builder magazine.In 2011 and 2012, Shea Homes was honored as one of the 50 top consumer brands in the country to be named a"Customer Service Champion"by J.D.Power Associates. SHLP was formed January 4, 1989, pursuant to an agreement of partnership, as most recently amended August 6, 2013,by and between J.F. Shea,G.P.,a Delaware general partnership, as general partner, and our limited partners who are comprised of entities and trusts, including J.F. Shea Co.,Inc.("JFSCI"),under the common control of Shea family members(collectively,the"Partners"). J.F. Shea,G.P.,is 96%owned by JFSCI. S14LP is one of a group of companies owned by the Shea family(collectively,the"Shea Family Owned Companies"). Since 1881 in Portland, Oregon,beginning with only a plumbing contractor business, the Shea family has expanded to start and currently owns and operates various businesses,including homebuilding,heavy construction,venture capital,home mortgage, insurance and commercial property. The Shea Family Owned Companies have grown but remained privately held by the Shea family.The Shea family began building homes in 1968 through JFSCI and, in 1989,moved homebuilding under the Shea Homes brand to the newly formed SHLP,an entity still under the broader umbrella of JFSCI. Since our founding more than 45 years ago, Shea Homes has delivered almost 94,000 homes, including deliveries from unconsolidated joint ventures,and has expanded significantly to become one of the most well-regarded homebuilders in the markets in which we compete: • 1968: Residential homebuilding division was formed,operating in southern California; • 1970: Residential homebuilding division delivered first homes in northern California; • 1985: Opened San Diego division; • 1989: Acquired Knoell Homes and opened Arizona division; • 1996: Opened Denver division and acquired a portfolio of assets in California from Chevron Land; • 1997: Purchased Mission Viejo Company and its land holdings in California and Colorado from Philip Morris; • 1998: Purchased UDC Homes,Inc. and launched the Shea Homes Active Lifestyle Communities ("SHALC") division and the Trilogy Brand; • 2001: SHALC division began operations in Washington; • 2006: Acquired homebuilding land,commercial land and income properties that comprised the Denver Tech Center; • 2007: SHALC division began operations in Florida; • 2009: Launched the SPACES Brand; • 2010: SHALC division began operations in Nevada; • 2013: Opened Houston division; launched Shea3DTM product line;and SHALC division began operations in Virginia; and • 2014: SHALC division began operations in North Carolina. 2 HB -489- Item 16. - 71 Markets and Products For the year ended December 31,2014,we operated an average of 64 consolidated active selling communities in California, Arizona,Colorado,Washington,Nevada and Florida, and were in the process of commencing operations in Texas, North Carolina and Virginia. When determining markets to enter, we evaluate various factors, including local economic and real estate conditions, historical and projected population and job growth trends, number of housing starts, land availability and price,housing inventory, climate,customer profile,regional raw material costs,competitive environment and home sales rates. Within each homebuilding community, we offer a product mix depending on market conditions, studies and opportunities. In determining our product mix in each community,we consider demographic trends, demand for a particular type of product, margins, timing and economic strength of the market. While remaining responsive to market opportunities, we have focused, and intend to continue to focus, our core homebuilding business primarily on entry-level and move-up/luxury buyers, offering single-family detached and/or attached homes. For the year ended December 31, 2014, our product mix based upon deliveries was:43%entry-level, 39% move-up/luxury and 18%active lifestyle. While 43%of our 2014 deliveries were designed for entry-level buyers,the average selling price of our entry-level homes was $437,000 for the year ended December 31, 2014. Many of our entry-level homes contain a high number of amenities,particularly in California, and are located close to employment centers, which results in the relatively higher price compared to traditional entry-level homes. We operate under four brands that reflect our value proposition: homes designed to meet the needs of our customers, with standard energy-efficient features,built in an environmentally-responsible manner. • Shea Homes, our flagship brand,generally attracts entry-level and move-up/luxury buyers. Each of our segments,except the East,builds and markets homes under the Shea Homes brand. • Trilogy communities are master-planned communities designed and built to meet the needs and active lifestyles of homebuyers 55 and older. These communities combine quality homes with diverse resort-like amenities in our Southern California,Northern California,Mountain West, South West and East segments. • SPACES generally attracts 25-40 year-old buyers with contemporary,practical homes that have flexible floor plans and stylish,energy-efficient features at an affordable price point.We have opened SPACES communities in our Southern California, Northern California,Mountain West and South West segments. • Shea 3D, introduced in 2014, allows buyers to choose the placement of their kitchen,dining,entertainment, outdoor and other living areas to design a home that matches how the buyer lives. We have opened Shea 3D communities in our Northern California, San Diego,Mountain West, South West and East segments. We manage each homebuilding community as an operating segment and have aggregated these communities into reportable segments based generally on geography as follows: • Southern California, comprised of communities in Los Angeles, Ventura and Orange Counties, and the Inland Empire; • San Diego, comprised of communities in San Diego County,California; • Northern California,comprised of communities in northern and central California, and the central coast of California; • Mountain West,comprised of communities in Colorado and Washington; • South West, comprised of communities in Arizona, Nevada and Texas: and • East, comprised of communities in Florida,North Carolina and Virginia. In 2013, we entered the Houston,Texas housing market and acquired our first parcel of land in Winchester, Virginia for a SHALC project. In 2014,we acquired our first parcel of land in North Carolina for a SHALC project that is operated in an unconsolidated joint venture. We conduct our homebuilding business through projects that we wholly-own, operate in joint ventures with third parties and generally have a 50%r or less economic interest, and manage projects where we have no ownership interest.Most of our joint ventures and managed projects are Trilogy master-planned communities. For the Trilogy communities we manage,part of our compensation reflects the use and licensing of our Trilogy brand. 3 Item 16. - 72 ] IB -49()- The following table presents certain operating information for our reportable segments for the years ended December 31, 2014, 2013 and 2012: December 31, 2014 2013 2012 Southern California:' Homes delivered 481 271 249 Percentage of total homes delivered`'' 24% 14% 16% Average selling price $812,121 $757,376 $523,498 Total homebuilding revenues(in millions)(a) $ 393.5 $ 207.6 $ 134.0 San Diego: Homes delivered 252 256 194 Percentage of total homes delivered 13% 14% 12% Average selling price $568,095 $490,172 $440,897 Total homebuilding revenues (in millions) (a) $ 143.2 $ 125.5 $ 86.0 Northern California: Homes delivered 385 456 323 Percentage of total homes delivered 19% 24% 21% Average selling price $668,179 $510,300 $487,003 Total homebuilding revenues(in millions)W $ 259.3 $ 242.4 $ 166.1 Mountain West: Homes delivered 356 372 284 Percentage of total homes delivered 18% 20% 18% Average selling price $458,379 $444,156 $446,352 Total homebuilding revenues(in millions) (a) $ 175.7 $ 186.9 $ 147.8 South West: Homes delivered 511 510 492 Percentage of total homes delivered 26% 27% 31% Average selling price $324,456 $311,951 $280,283 Total homebuilding revenues (in millions) (a) $ 168.3 $ 160.7 $ 138.2 East: Homes delivered 0 25 31 Percentage of total homes delivered 0% 1% 2% Average selling price $ 0 $262,160 $230,645 Total homebuilding revenues (in millions) (a) $ 0 $ 6.6 $ 7.1 Total: Homes delivered 1,985 1,890 1,573 Average selling price $564,241 $473,177 $410,045 Total homebuilding revenues(in millions) (a) $ 1,140.0 $ 929.7 $ 679.2 (a) Total homebuilding revenues are primarily comprised of revenues from home deliveries and land sales. For additional segment information, see"Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations"and Note 18 to our consolidated financial statements. Strategy Provide Customers with Value via Design, Quality and Service An integral component of our business strategy is to design and deliver quality homes focused on specific product types in "core"housing markets,combined with a customer experience that is consistently among the leaders in the homebuilding industry. We have historically been at or near the top of individual customer service rankings for each of our homebuilding markets.In 2011 and 2012,we were also honored as one of 50 top consumer brands in the country to be named a"Customer Service Champion"by J.D.Power Associates.We are one of only two homebuilders to ever receive this award and the only homebuilder to have received this award in multiple years.We view a positive customer service experience and adherence to stringent quality control standards as fundamental to our business model and continued success.We believe our quality assurance programs help improve production efficiency,reduce warranty costs and increase customer satisfaction and referrals. Our commitment to product quality includes a comprehensive checkpoint evaluation at key points in the construction process,continuous improvement based on direct feedback and sharing of best practices with our TradePartners®. 4 HB -491- Item 16. - 73 Maintain Disciplined Operating Strategy We currently employ a lean"hybrid"organizational structure to reduce costs,maintain consistency and increase operational flexibility: • local-level,decentralized decision making to provide flexibility with regard to: personnel hiring,land identification and sourcing, land development and homebuilding processes; • regionalized purchasing for home construction and building materials to promote increased buying power,take advantage of regional market differences and facilitate nationwide cost sharing;and • centralized functions to provide cost-efficient operation of customer call center,customer service,architecture (construction documents)and other back office operations including accounting, information technology and payroll. We focus on lowering costs and construction cycle times through benchmarking and the sharing of best practices among divisions. By concentrating on these objectives,we believe we can manage our business through changing economic climates. We seek to allocate the capital necessary for new projects in a manner consistent with our overall operating strategy and based on market conditions. We utilize return on assets,peak cash investment, gross margin and net income margin as the primary criteria prior to deploying our capital resources. Capital commitments are determined via a formal land committee among selected executive and operational personnel who play an important role in ensuring that new projects reflect our strategy. Continue Balanced Land Policies We plan to capitalize on our existing land supply,which we believe is largely sufficient to support our homebuilding operations for the next two years in most of our divisions and limits our need to acquire land to execute our business plan. We also maintain a supply of lots that we strategically and opportunistically sell to other builders,capitalizing on demand for lot inventory.We generally only purchase entitled land but will provide the expertise to entitle land held by a seller and contracted to us under an option agreement.This provides a potentially lower cost way of controlling land inventory for the future. To reduce the risks associated with our investments in land,we utilize deal structures including long-term purchase options, rolling lot takedowns and purchase contracts that sometimes provide for payment to land sellers upon delivery of homes built on land purchased.We plan to continue land acquisitions,with a continued focus on core "A" markets closest to major employment centers and an emphasis on acquiring smaller land parcels with quicker turns.We focus on minimizing unsold, under-construction housing inventory. Preserve and Build on Positions in Existing Markets We will pursue growth to the extent that we believe it is consistent with our disciplined operating strategy, balanced land policies and overall commitment to quality. Our growth strategy focuses primarily on investing and acquiring land in core locations in our existing geographic markets.We believe our current geographic markets represent regions of the country that present above average growth potential based on long-term employment,demographic and economic trends.We have operated in most of these markets for many years and our teams have extensive local knowledge and critical business relationships that are essential in competing for land, subcontractors and customers.While we are focused primarily on growth in our existing markets, we will also opportunistically consider entry into new geographic markets that meet the same criteria as our existing markets and which we can reasonably support through our capital base. Marketing and Sales We believe we have an established and valuable brand,with a reputation for high quality construction,innovative design and strong customer service. We believe our reputation helps generate interest in each new project we undertake.Customers often comment on the quality of our homes and their positive buying experience.These attributes enhance our brand position and increase referrals. We use a variety of marketing platforms,including website, internet and mobile applications,customer information centers, advertisements, newspapers, magazines and brochures,direct mail,billboards and fully decorated model units.We focus on being at the forefront of technological based marketing, including how we communicate information to the marketplace.We have had success working through Facebook,Twitter,blogs and an application for Apple Inc.'s iPhone and iPod Touch devices.We also maintain a state-of-the-art website that allows potential customers to insert their existing furniture into our floor plans, and benefit from an exclusive arrangement with our website design firm. 5 Item 16. - 74 HB -492- Model homes are an important part of our marketing efforts where we focus on creating an attractive atmosphere at each community. We use local third party design specialists for interior decorations and furniture,which vary within models based upon characteristics of homebuyers.At December 31,2014,we owned 206 model homes.We also have home design service centers offering a range of customization options to satisfy individual customer tastes. To sell homes we employ commissioned sales agents who are licensed real estate agents where required by law.We also use P Y g independent brokers who are typically paid a market-based commission based on the price of the home. Customer purchase deposit requirements vary among markets based on state laws as well as customs and practices and are sometimes dictated by the financing program used by the consumer,as well as market conditions.Total base purchase price deposits range from$500 to $40,000(excluding options).Subject to applicable law and depending on a particular market,additional purchase deposits are required for options and upgrades and range from 10%to 100%of the option price(as opposed to the overall purchase price),with a higher deposit sometimes required for custom options or certain options above an amount designated for the community. Generally,higher deposit percentages are required for large option orders. Our sales contracts may include, among other contingencies, a financing contingency which permits customers to cancel and receive a refund of their deposits if they cannot obtain mortgage financing at prevailing or specified interest rates within a specified period. Our contracts may include other contingencies,such as the sale of an existing home. Our cancellation rate as a percentage of home sales orders averaged approximately 21%from 1997-2006 before the downturn in the homebuilding industry.Though this rate increased to a high of 31%in 2008,it returned to 20%in 2009.For the year ended December 31,2014,our cancellation rate was 16%. To reduce the risk of unsold inventory,we formalized our approval process of home construction starts.Generally,customers must have approved financing, no contingencies tied to the sale of an existing home,and an appropriate deposit before construction of a home begins. Depending on market conditions in each community,we may begin construction on a limited number of homes when no signed sales contracts exist to provide inventory to buyers who want a finished home for a quicker move in.In addition,we may use various sales incentives,such as payment of certain homebuyer costs as part of our sales process.Use of incentives and inventory construction is dependent on local economic and competitive market conditions. Land Acquisition and Development We have a disciplined and structured land acquisition process.Each acquisition must be approved by our land committee,which is comprised of members of senior management and directors of J.F. Shea Construction Management,Inc.,our ultimate general partner.The committee reviews potential new projects,and option and deposit funds are placed at risk only if approved by the committee.As part of this process,the committee reviews underwriting and due diligence information provided by our division management and land acquisition personnel and typically includes market,environmental and site-planning studies,project and market risk assessments,and financial analysis.We expect to acquire more land inventory in each market to meet expected demand. For our homebuilding operations,we typically purchase land only after substantially all of the necessary governmental development approvals or entitlements have been obtained so that development or construction may begin as and when market conditions dictate. The term"entitlements",as used herein,refers to the right,for the duration of the term of the entitlements,to develop a specific number of residential lots without the need for further public hearings or discretionary local government approvals.Entitlements generally give developers the right to obtain building permits upon compliance with certain conditions that are ordinarily within the developer's control. Although entitlements are usually obtained before we acquire land,we are still required to secure other governmental approvals and obtain permits prior to and during development and construction.The process of obtaining such approvals and permits can be costly,time consuming and difficult to obtain,and substantially delay the originally planned development cycle. We acquire land through purchase and option contracts. Deposits are generally refundable until the necessary entitlements and zoning, including plan approval and in some cases engineering plan approval,are obtained,at which time deposits become non-refundable.Actual land acquisitions are generally financed from cash on our balance sheet,cash flow from operations or,if necessary,our$125.0 million secured revolving credit facility. Option contracts allow us to control lots and land without incurring risks of land ownership or financial commitments other than,in some circumstances, a non-refundable deposit. We also enter into option contracts with land owners and developers and,in certain circumstances,other third parties,including affiliates,to purchase finished lots over time and before home construction begins.These option contracts may require a certain number of purchases per quarter.We typically have the right to decline to exercise future purchases and to cancel our future rights to lots,typically forfeiting only the deposits held by the sellers at that time. When we acquire undeveloped land,we generally begin development through contractual agreements with consultants and our TradePartners°(see below).These activities include site planning and engineering and constructing roads,sewer,water,utility and drainage systems and,in certain instances,recreational amenities.For additional information regarding our land position,see"Item 7:Management's Discussion and Analysis of Financial Condition and Results of Operations—Selected Homebuilding Operational Data—Land and Homes in Inventory." 6 HB -493- Item 16. - 75 Backlog Sales order backlog represents homes under contract to be built,but not delivered with the transfer of title. Revenue is recognized on homes under sales contracts when the home delivers. Homes deliver when all conditions of escrow are met, including delivery of the home or other real estate asset to the customer,title passage, appropriate consideration is received or collection of associated receivables, if any,is reasonably assured and when we have no other continuing involvement in the assets.At December 31,2014,we had a backlog of 918 units with a sales value of$551.7 million that is anticipated to be realized as deliveries,which are subject to cancellation, primarily throughout 2015. Seasonality Historically,the homebuilding industry experiences seasonal fluctuations.We typically experience the highest home sales order activity in spring and summer,although this activity is also highly dependent on the number of active selling communities,timing of new community openings and other market factors. Since it typically takes three to seven months to construct a new home,we deliver more homes in the second half of the year as spring and summer home sales orders convert to home deliveries.Because of this seasonality, home starts,construction costs and related cash outflows have historically been highest from April to October,and the majority of cash receipts from home deliveries occur during the second half of the year. Consumer Financial Services We make available certain financial services to our homebuyers through: • Shea Insurance Services,Inc.,a wholly-owned subsidiary that provides insurance brokerage services;and • Shea Mortgage,Inc.("Shea Mortgage"), an affiliate,that provides mortgage services. Construction As the general contractor for most communities,we employ subcontractors that meet our requirements for becoming TradePartners°.These requirements include quality and workplace safety standards and participation in various training programs.We typically hire TradePartners(IO on a community-by-community basis at a fixed price. Occasionally,we enter into longer term contracts or national account agreements(exclusive or non-exclusive)with suppliers or manufacturers if we can obtain more favorable terms or receive rebates based upon product usage and volumes.Our construction managers and field superintendents coordinate and schedule the activities of TradePartners°and suppliers and subject their work to quality and cost controls. We do not maintain significant inventories of construction materials, except for work-in-process materials for homes under construction.When possible,we negotiate price and volume discounts with manufacturers and suppliers to take advantage of production volume and regional purchasing capabilities,including parties such as Delta,for plumbing fixtures,and GE,for appliances. Prices for these goods and services may fluctuate due to various factors,including supply shortages that may be beyond the control of our suppliers. Quality Control and Warranty Programs We view a positive customer service experience and adherence to stringent quality control standards as fundamental to our business model and continued success.We believe our quality assurance programs help improve production efficiency,reduce warranty costs and increase customer satisfaction and referrals. Our commitment to product quality includes a comprehensive checkpoint evaluation at key points in the construction process,continuous improvement based on direct feedback from our TradePartnerso,and our participation in TradePartners" councils to discuss industry practices, solve problems and distribute information in an effort to build better homes. We offer our customers a comprehensive one or two-year fit and finish warranty for our homes and typically provide more limited ongoing customer service support for up to ten years in some markets as required by state law. Specific length,terms and conditions of these warranties vary depending on the market in which a home is sold.Additionally,post-delivery,we proactively provide one,five and eleven-month customer care home visits.On-site customer care personnel coordinate with TradePartners@ to service the homes. We record a reserve of approximately 1.0%to 2.0%of the home sales price to cover warranty and customer service expenses, although this allowance is subject to adjustment in special circumstances. Our historical experience has been warranty and customer service expenses generally fall within this allowance. We believe our reserves are adequate to cover the ultimate resolution of potential liabilities associated with known and anticipated warranty and customer service related claims. 7 Item 16. - 76 HB -494- Insurance Coverage We obtain workers compensation insurance,commercial general liability insurance, and insurance for completed operations losses and damages with respect to our homebuilding operations from affiliate and unrelated third party insurance providers. Policies covering these items are written at various coverage levels but include a self-insured retention or deductible ranging from$0.5 million to$15.0 million,depending on the layer. We typically procure general liability,workers compensation and completed operations insurance from affiliated entities to insure these retentions or deductibles, plus excess layers above the third party limits. See"Item 13: Certain Relationships and Affiliate Transactions, and Director Independence—Transactions with Unconsolidated Joint Ventures and Other Shea Family Owned Companies—Supplemental Insurance Coverage and PIC Transaction." We require TradePartners" to be insured for work on our communities for workers compensation,commercial general liability and completed operations losses and damages, and many of our TradePartners,c carry this insurance through our"rolling wrap-up" insurance program, where our risks and the risks of participating TradePartners@)on our projects are insured through a set of master policies. Competition and Market Factors Development and sale of residential properties is highly competitive and fragmented. We compete for sales with many large and small homebuilders,including homebuilders with national operations, based on various interrelated factors, including location, reputation, amenities, design, quality and price. We also compete for sales with existing home sales and rental housing. Demand for new housing is affected by, among other factors,consumer confidence and prevailing economic conditions, including employment levels and job growth or contraction, interest rates,and state and federal home ownership legislative policies. Other factors affect the housing industry and demand for new homes,including availability of labor and materials and increases in the costs thereof,changes in costs of home ownership, such as property taxes and energy costs,changes in consumer preferences, demographic trends and availability of and changes in mortgage financing programs. Government Regulation and Environmental Matters The homebuilding industry is subject to extensive and complex regulations.We and our TradePartnerso must comply with various federal, state and local laws and regulations, including zoning, density and development requirements and building, environmental, advertising and real estate sales rules and regulations. These requirements affect the development process, materials and designs of our properties. Moreover, we are dependent on state and local authorities to issue permits and other approvals to complete our projects. The time to obtain these permits and other approvals impacts our carrying costs.The effectiveness of granted permits is subject to changes in policies, rules and regulations and their interpretation and application. Some state and local governments in our markets have approved,and others may approve,slow-growth or no-growth initiatives that have and could continue to adversely impact land availability and building opportunities. Additionally, approval of these initiatives could adversely affect our ability to build and sell homes in the affected markets or could require satisfaction of additional administrative and regulatory requirements,which could delay or extend construction and increase costs. Our homebuilding operations are also subject to various local, state and federal statutes, ordinances,rules and regulations concerning land use and protection of health,safety and the environment. The particular impact and requirements of environmental laws for each project vary greatly according to location,environmental condition and present and former uses of the site and adjoining properties. Complying with such laws may result in delays,cause us to incur substantial compliance and other costs or prohibit or severely restrict development in certain environmentally sensitive regions or areas.To date, such compliance has not had a material adverse effect on our operations, although in the future it may have such an effect. We typically conduct environmental due diligence reviews prior to acquisition of land. Prior to development, we perform an appropriate level of site planning for each community, which may include design and implementation of storm water management plans,wetlands delineation and mitigation plans,perennial stream flow determinations,erosion and sediment control plans and archeological,cultural and endangered species surveys. We may be required to obtain permits or other approvals for our operations, particularly in environmentally sensitive areas,such as wetlands. Infrastructure projects impacting public health and the environment, such as construction of drain fields or connection to public sewer lines, and drilling of wells or connection to municipal water supplies,may be subject to inspection and approval by local authorities. We also could incur cleanup costs and obligations with respect to environmental conditions at our communities, including,under some environmental laws, conditions resulting from operations of prior owners or operators,or at properties where we,or others,have disposed of wastes. Although no assurances can be given,we are not aware of obligations or liabilities arising from environmental conditions in any of our existing communities that are likely to be material or adversely impact us. 8 HI3 -495- Item 16. - 77 Employees At December 31, 2014, we employed 668 people,including 330 management, office and administrative staff, 125 sales personnel and 213 construction personnel. No employees are covered by collective bargaining agreements. Employees of certain TradePartners" are represented by labor unions or are subject to collective bargaining arrangements. We believe relations with our employees and TradePartnerso are satisfactory. Business Segment Financial Data For business segment financial data,please see"Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations",as well as Note 18 to our consolidated financial statements. Availability of Reports This annual report on Form 10-K and each of our subsequent quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments, are available free of charge on our website,www.sheahomes.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to,the Securities and Exchange Commission ("SEC"). The information contained on our website is not incorporated by reference into this report and should not be considered part of this report. In addition, the SEC website contains reports and other information about us at www.sec.gov. ITEM IA.RISK FACTORS The discussion of our business and operations included in this annual report on Form 10-K should be read together with the risk factors set forth below. They describe various risks and uncertainties to which we are or may become subject.These risks and uncertainties have the potential to affect our business, financial condition,results of operations,cash flows, strategies or prospects in a material and adverse manner. As used below,the term"notes"and "Secured Notes"refers to the outstanding 8.625% Senior Secured Notes,due 2019, issued by Shea Homes Limited Partnership and Shea Homes Funding Corp. and guaranteed by certain of our subsidiaries. Market and Economic Risks The homebuilding industry, which is very cyclical and affected by a variety of factors, was in a significant and prolonged economic downturn, and, while the industry has attained a moderate level of stabilization and recovery,any return to a sustained and more normal economic and housing market environment is uncertain.A return to weak housing and general economic conditions or deterioration in industry conditions or in broader economic conditions could have additional material adverse effects on our business,financial condition and results of operations. The homebuilding industry is cyclical and is significantly affected by industry and local,regional and national economic conditions, including changes in: • employment and wage levels; • availability of financing for homebuyers; • interest rates; • consumer confidence; • levels of new and existing homes for sale; • demographic trends; • housing demand; and • government policies. These changes may occur on a national scale or may acutely affect some of the local regions or markets where we operate more than others. When adverse conditions affect any of our larger markets,they could have a proportionately greater impact on us than on other homebuilding companies that have a smaller presence in such markets. Our operations in previously strong markets,particularly California and Arizona,have adversely affected our results of operations disproportionately compared to our other markets in the latest downturn. 9 Item 16. - 78 HB -496- An oversupply of alternatives to new homes,including foreclosed homes,homes held for sale by investors and speculators, other existing homes and rental properties, can also adversely impact our ability to sell new homes, depress new home prices and reduce our margins on the sales of new homes. High levels of foreclosures not only contribute to additional inventory available for sale,but also reduce appraised values for new homes,potentially resulting in lower sales prices. As a result of the foregoing matters,potential customers may be less willing or able to buy our homes. The recent downturn in the homebuilding industry was one of the most severe housing downturns in U.S. history.This downturn was marked by the significant decline in demand for new homes, significant oversupply of homes on the market and significant reductions in the availability of financing for homebuyers. As a result,we experienced material reductions in our home sales and homebuilding revenues,and incurred material inventory impairments and losses from our joint venture interests and other write-offs. It is not clear at this time if these trends have permanently reversed or when we may return to meaningful,sustained profitability. In 2014, the housing market continued to improve from the most recent housing downturn. This recovery,which began in 2012, was primarily attributable to improved demand for homes, low inventories of homes available for sale and generally healthy and improving economic and demographic factors. Recent housing demand has been supported by population and household formation growth, as well as affordability largely attributable to low mortgage loan interest rates and increased consumer confidence. However, the performance of individual housing markets varied during the year, with home sales volume and selling price appreciation differing across markets due to, among other things,different levels of employment growth, unemployment rates and consumer confidence, and varying levels of new and existing home inventories available for sale. We expect such unevenness in housing market conditions will continue in 2015 and beyond,whether or not this housing recovery progresses and prevailing conditions in various housing markets and submarkets will fluctuate.These fluctuations may be significant and unfavorable in 2015 and future periods, and may include a softening or sustained deterioration of home sales activity and/or selling prices,which could be more pronounced in the markets where we operate. Additionally,while some of the negative factors contributing to the housing downturn appear to have subsided, several remain and others could return and, collectively,could intensify to inhibit future improvement in housing market conditions in 2015 and beyond. A housing or economic relapse or recession would have a material adverse effect on our business,financial condition and results of operations. Our ability to respond to any downturn is limited. Numerous home mortgage foreclosures during the recent downturn increased supply and drove down prices, making the purchase of a foreclosed home an attractive alternative to purchasing a new home. Homebuilders responded to declining sales and increased cancellation rates with significant concessions,including incentives,further adding to the price declines.With the decline in the value of homes and the inability of many homeowners to make their mortgage payments, the credit markets were significantly disrupted,putting strains on many households and businesses.These conditions could return if there is a weakening economy and housing market. We cannot predict the duration or ultimate magnitude of any economic downturn or the extent of a recovery. Nor can we provide assurance that our response to a homebuilding downturn or the government's attempts to address the troubles in the overall economy would be successful. The reduction in availability of mortgage financing over the recent downturn has adversely affected our business, and it is likely that access to mortgage financing going forward will be more restrictive than in previous housing cycles. Although there has been some improvement and a general increase in housing prices over the past three years,the mortgage_ lending and mortgage finance industries experienced significant instability during the recent housing downturn,beginning with. increased defaults on subprime loans and other nonconforming loans followed by a surge in defaults in the broader mortgage loan market.This in turn resulted in a decline in the market value of many mortgage loans and related securities. Lenders, regulators and others questioned the adequacy of lending standards and other credit requirements for many loan products and programs offered in__ recent years. Credit requirements have tightened,and investor demand for mortgage loans and mortgage-backed securities has declined. The deterioration in credit quality has caused most lenders to stop offering subprime mortgages and other loan products that are not eligible for sale to Fannie Mae or Freddie Mac or loans that do not meet Federal Housing Administration ("FHA') and Veterans Administration ("VA"') requirements.Fewer loan products, changes in conforming loan limits,tighter loan qualifications, higher down payments and a reduced willingness of lenders to provide loans make it more difficult for buyers to finance the purchase of homes. These factors have served to reduce the pool of qualified homebuyefs and made it more difficult to sell to entry-level and move-up buyers who historically made up a substantial part of our customers.These reductions in demand have adversely affected our business,financial condition and results of operations over the past several years,and the duration and severity of their effects are uncertain. 10 HB -497- Item 16. - 79 Liquidity provided by Fannie Mae and Freddie Mac to the mortgage industry has been very important to the housing market.These entities have required substantial injections of capital from the federal government and may require additional government support in the future. At times,the federal government has discussed changing the nature of its relationship with Fannie Mae and Freddie Mac,and possibly eliminating these entities. If Fannie Mae and Freddie Mac were dissolved or if the federal government stopped providing liquidity support to the mortgage market,there would be a reduction in available financing from these institutions.Any such reduction would likely have an adverse effect on interest rates, mortgage availability and new home sales. The FHA insures mortgage loans that generally have lower down payments and, as a result,it continues to provide important support for financing home purchases. Recently, more restrictive guidelines were placed on FHA insured loans,such as increased minimum down payments and increased insurance premiums.Further restrictions on FHA insured loans could be adopted, including, but not limited to,limitations on seller-paid closing costs and concessions. These or any other restrictions may further negatively affect availability or affordability of FHA financing,which could adversely affect our ability to sell homes. Some customers still utilize 100%financing through programs offered by the VA and United States Department of Agriculture. There can be no assurance these or other programs will continue to be available or will be as attractive to customers as programs currently offered,which could adversely affect our home sales. Elimination or reduction of the tax benefits associated with owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results. Significant expenses of owning a home,including mortgage interest and real estate taxes,generally are deductible expenses for an individual's federal and,in some cases,state income taxes, subject to certain limitations. If the federal government or a state government changes its income tax laws to eliminate or substantially modify these income tax deductions,the after-tax cost of owning a new home would increase for many potential customers.The resulting loss or reduction of homeowners' tax deductions,if such tax law changes were enacted without offsetting provisions,would adversely affect demand for new homes. Because most customers require mortgage financing, increases in interest rates could lower demand for our products, limit our marketing effectiveness and limit our ability to realize our backlog. Most customers finance their home purchases through lenders providing mortgage financing. Increases in interest rates could lower demand for new homes because the mortgage costs to potential homebuyers would increase. Even if potential new homebuyers do not need financing,changes in interest rates could make it difficult to sell their existing homes to potential buyers who need financing. This could prevent or limit our ability to attract new customers and fully realize our backlog in delivering homes because our sales contracts generally include a financing contingency which permits buyers to cancel their sales contracts if mortgage financing is unobtainable within a specified time. This contingency period is typically 30 to 60 days following the date of execution of the sales contract. Exposure to such financing contingencies renders us vulnerable to changes in prevailing interest rates. Cancellations of home sales orders in backlog may increase as homebuyers choose to not honor their contracts. For the years ended December 31,2014,2013 and 2012,our cancellation rate as a percentage of home sales orders was 16%, 15%and 15%,respectively. We experienced elevated rates of sales order cancellations from 2006 through 2008.We believe the elevated cancellation rates during this period were largely a result of reduced homebuyer confidence, due principally to continued price declines,growth in foreclosures, continued high unemployment and the fact that homebuyer deposits are generally a small percentage of the purchase price. A more restrictive mortgage lending environment since 2008 and the inability of some buyers to sell their existing homes has also impacted cancellations.Many of these factors are beyond our control,and it is uncertain whether they will cause cancellation rates to rise in the future. Home prices and demand in California,Arizona, Colorado, Washington, Nevada, Texas, Florida,North Carolina and Virginia have a large impact on our results of operations because we conduct our homebuilding business in these states. Our operations are concentrated in regions that were among some of the most severely affected by the recent economic downturn.We conduct our homebuilding business in California, Arizona,Colorado,Washington,Nevada,Texas,Florida,North Carolina and Virginia. Home prices and sales in these states have declined significantly since 2006 and,while improving,these states, particularly California, have experienced some economic challenges in recent years, including elevated levels of unemployment and precarious budget situations in state and local governments. These conditions may materially adversely affect the market for our homes in those areas.Declines in home prices and sales in these states also adversely affect our financial condition and results of operations. ll Item 16. - 80 HI3 .498- Inflation could adversely affect our business,financial condition and results of operations. Inflation can adversely affect us by increasing costs of land, materials and labor.We are currently experiencing a significant increase in the cost of labor and materials to construct our homes. In addition,with rising home prices, land prices have increased.We may be unable to offset these increases with higher sales prices. In addition,inflation is often accompanied by higher interest rates, which have a negative impact on housing demand.In such an environment,we may be unable to raise home prices sufficiently to keep up with the rate of cost inflation and,accordingly, our margins could decrease.Moreover,with inflation,the purchasing power of our cash resources can decline.Efforts by the government to stimulate the economy may not be successful,but have increased the risk of significant inflation and its resulting adverse effect on our business,financial condition and results of operations. Homebuilding is very competitive,and competitive conditions could adversely affect our business,financial condition and results of operations. The homebuilding industry is highly competitive.Homebuilders compete not only for homebuyers,but also for desirable land, financing, raw materials and skilled labor.We compete with other local,regional and national homebuilders,often within larger subdivisions designed, planned and developed by such homebuilders and developers.We also compete with existing home sales, foreclosures and rental properties. In addition, some competitors may have greater financial,marketing and sales resources with the ability to compete more effectively. New competitors may also enter our markets.These competitive conditions in the homebuilding industry can result in: • fewer sales; • lower selling prices; • increased selling incentives; • lower profit margins; • impairments in the value of inventory and other assets; • difficulty in acquiring suitable land,raw materials and skilled labor at acceptable prices or terms;or • delays in home construction. These competitive conditions affect our business, financial condition and results of operations. Operational Risks Supply shortages and risks of demand for building materials and skilled labor could increase costs and delay deliveries. The homebuilding industry has periodically experienced significant difficulties that can affect the cost or timing of construction, and adversely impact our revenues and operating margins,including: • difficulty in acquiring land suitable for residential building at affordable prices in locations where our potential customers want to live; • shortages of qualified labor; • reliance on local subcontractors,manufacturers and distributors who may be inadequately capitalized; • shortages of materials;and • increases in the cost of materials,particularly lumber, drywall,cement, steel,plumbing and electrical components,which are significant components of home construction costs. Competitive bidding helps control labor and building material costs.With the improvement of the real estate market,a trend of. increasing costs for material and labor has emerged in our markets.An increase in costs without an increase in selling prices of our homes could adversely affect our financial condition and results of operations. In most of our markets, we need to replenish our lot inventory for construction.If the housing market recovers,the price of improved or finished lots for construction in these markets could increase and adversely affect our financial condition and results of operations. 12 HB -499- Item 16. - 81 Homebuilding is subject to home warranty and construction defect claims and other litigation risks in the ordinary course of business that can be significant. Our operating expenses could increase if we are required to pay higher insurance premiums or incur substantial warranty and litigation costs with respect to such claims and risks. As a homebuilder,we are subject to home warranty and construction defect claims and other claims arising in the ordinary course of business. As a consequence,we maintain liability insurance in the form of a"rolling wrap-up"insurance program which insures both us and,in some markets,our TradePartners©.We also record customer service and warranty reserves for the homes we sell based on our historical experience in our markets and our judgment of the qualitative risks associated with the types of homes built. Because of the uncertainties inherent in these matters,we cannot provide assurance that,in the future, our insurance coverage and reserves will be adequate to address all warranty and construction defect claims. Costs of insuring against construction defect liability claims are high, and the amount and scope of coverage offered by insurance companies at acceptable rates is limited.The scope of coverage may continue to be limited,become further restricted,more costly,disputed or a combination of the above. Aggressive marketing/solicitation efforts from plaintiff construction defect lawyers,anti-builder legislation and case law,and decreases in home values as a result of general economic conditions can result in an increase in construction defect claims. Our insurance may not cover all of the claims arising from such issues, or such coverage may become prohibitively expensive. Notwithstanding,our annual policy limits presently are$50.0 million per occurrence and$50.0 million in the aggregate,a portion of which is insured through affiliate insurance companies, who may reinsure our policy limits from time to time.If we are unable to obtain adequate insurance against these claims, we may experience litigation costs and losses that could adversely affect our financial condition and results of operations. Even if we are successful in defending such claims, we may incur significant costs. Historically, builders have recovered a significant portion of the construction defect liabilities and defense costs from their subcontractors and insurance carriers.We try to minimize our liability exposure by providing a master insurance policy and requiring TradePartners°to enroll in a"rolling wrap-up"insurance policy. If we cannot effectively recover from our carriers,we may suffer greater losses because we may not have rights to pursue TradePartners°included in the"rolling wrap-up"insurance policy,which could adversely affect our financial condition and results of operations. Furthermore, a builder's ability to recover against an insurance policy depends upon the continued solvency and financial strength of the insurance carrier issuing the policy,as well as the insurance carrier's willingness to honor the policy. The states where we build homes typically limit property damage claims resulting from construction defects to those arising within a ten-year period from close of escrow.To the extent any carrier providing insurance coverage to us or our TradePartners°becomes insolvent or experiences financial difficulty, or disputes coverage,we may be unable to recover on those policies, which could adversely affect our financial condition and results of operations. Our success depends on the availability of suitable undeveloped land and improved lots at acceptable prices,and having sufficient liquidity to acquire such properties. Our success in developing land and building and selling homes depends in part upon the continued availability of suitable undeveloped land and improved lots at acceptable prices. Availability of undeveloped land and improved lots for purchase at favorable prices depends on many factors beyond our control,including risk of competitive over-bidding and restrictive governmental regulation. Should suitable land become less available, the number of homes we may be able to build and sell would be reduced, which would reduce revenue and profits.In addition, our ability to purchase land depends upon us having sufficient liquidity.We may be disadvantaged in compering for land due to our debt obligations, limited cash resources,inability to incur further debt and,as a result, more limited access to capital compared to publicly traded competitors. Poor relations with the residents of our communities could adversely impact sales, which could cause revenues or results of operations to decline. Residents of communities we develop rely on us to resolve issues or disputes that may arise in connection with development or operation of their communities.Efforts to resolve these issues or disputes could be deemed unsatisfactory to the affected residents and subsequent actions by these residents could adversely affect our reputation or sales.In addition,we could be required to incur costs to settle these issues or disputes or to modify our community development plans,which could adversely affect our financial condition and results of operations. 13 Item 16. - 82 HB -500- If we are unable to develop our communities successfully or within expected timeframes,results of operations could be adversely affected. Before a community generates revenues,time and capital are required to acquire land,obtain development approvals and construct project infrastructure,amenities,model homes and sales facilities. Our inability to successfully develop and market our communities and to generate cash flow from these operations in a timely manner could have a material adverse effect on our business,financial condition and results of operations. In addition,certain project-related costs such as sales and marketing expenses,model maintenance,utilities,taxes and overhead expenses,are time-based costs and could be significantly higher if the project duration is extended. Risks associated with our land and lot inventory could adversely affect our business,financial condition and results of operations. The risks inherent in controlling or purchasing,holding and developing land for new home construction are substantial and increase as consumer demand for housing decreases.The value of undeveloped land,building lots and housing inventories can fluctuate significantly from changing market conditions.If the fair market value of the land,lots and inventories we hold decreases,we may be required to reduce their carrying value and take significant impairment charges.We may have acquired options on or bought and developed land at a cost we will not be able to recover fully or on which we cannot build and sell homes profitably.In addition,our deposits for land controlled under option or similar contracts may be put at risk. In certain circumstances,a grant of entitlements or development agreement with respect to particular land may include restrictions on the transfer of such entitlements to a buyer, which may increase our exposure to decreases in the price of such entitled land by restricting our ability to sell it for its full entitled value.In addition,inventory carrying costs can be significant and result in reduced margins or losses in a poorly performing community or market. In a weak market,we have recorded significant inventory impairment charges and sold homes and land for lower margins or at a loss,and such conditions may return and persist for extended periods of time. Historically,our goals for the ownership and control of land were based on management's expectations for future volume growth.In light of weak market conditions that persisted from 2006 through early 2012,we significantly reduced purchases of undeveloped land and land development spending,and made substantial land sales to reduce inventory to better align with the then reduced rate of production.We also terminated certain land option contracts and wrote off earnest money deposits and pre-acquisition costs related to these option contracts. While housing market conditions have improved,future market conditions are uncertain and we cannot provide assurance we will be successful in managing future inventory risks or avoiding future impairment charges.We could be limited in the amount of land we can dispose of and,therefore,our cash inflows attributable to land sales may decline. Also,use of option contracts is dependent on the willingness of land sellers,availability of capital,housing market conditions and geographic preferences.Options may be more difficult to obtain from land sellers in stronger housing markets and are more prevalent in certain geographic regions. At a consolidated homebuilding project in Colorado, we have a contractual obligation to purchase and receive water system connection rights which,at December 31,2014,was$27.4 million,which is less than their estimated market value.These water system connection rights are held,then transferred to homebuyers upon delivery of their home,transferred upon the sale of land to the respective buyer,sold or leased,but generally only within the local jurisdiction.The risks inherent in purchasing,controlling or holding these water system connection rights are substantial and increase as consumer demand for housing decreases.The value of these water system connection rights and their marketability can also fluctuate from changing market conditions. If the fair market value of these water system connection rights decreases,we may be required to reduce their carrying value,which could adversely affect our financial condition and results of operations. Certain of our homebuilding projects utilize community facility district,metro-district and other local government bond financing programs to fund acquisition or construction of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on landowners,including land we own,and/or homeowners following the delivery of new homes in the community.Occasionally,we also enter into credit support arrangements requiring us to pay interest and principal on these bonds if taxes and assessments levied on landowners and/or homeowners are insufficient to cover such obligations.Furthermore,reimbursement of these payments to us is dependent on the district or local government's ability to generate tax and assessment revenues from the new homes. We also pay certain fees and costs associated with the construction of infrastructure improvements in homebuilding projects that utilize these district bond financing programs. These fees and costs are typically reimbursable to us from,and therefore dependent on,bond proceeds or taxes and assessments levied on landowners and/or homeowners. Until bond proceeds or tax and assessment revenues are sufficient to cover our obligations and/or reimburse us,our responsibility to make interest and principal payments on these bonds or pay fees and costs associated with the construction of infrastructure improvements could be prolonged and significant.In addition,if bond proceeds or tax and assessment revenues are not sufficient to cover our obligations and/or reimburse us,the amounts might not be recoverable,which could adversely affect our financial condition and results of operations. 14 HB -5,01- Item 16. - 83 Our consolidated financial statements could be adversely affected if we are unable to obtain performance bonds. In the course of developing our communities, we are often required to provide to various municipalities and other government agencies performance bonds and/or letters of credit to secure the completion of certain improvements in our communities such as roads, sewers, water systems and other utilities, and to support similar development activities by certain of our unconsolidated joint ventures. Our ability to obtain such bonds or letters of credit and the cost to do so depend on our credit rating, overall market capitalization, available capital,past operational and financial performance, management expertise and other factors, including surety and housing market conditions and the underwriting practices and resources of performance bond issuers.If we are unable to obtain performance bonds and/or letters of credit when required or the cost of operational restrictions or conditions imposed by issuers to obtain them increases significantly, we may not be able to develop, or we may be significantly delayed in developing,a community or communities and/or we may incur significant additional expenses and, as a result,our consolidated financial statements, cash flows and/or liquidity could be materially and adversely affected. We continue to consider growth or expansion of our operations, which could have a material adverse effect on our financial condition and results of operations. If the housing market continues to remain healthy, we will consider opportunities for growth, primarily within our existing markets, but also in new markets. Historically, our strategy has been to enter new markets using our existing brands,rather than the acquisition of existing homebuilding companies. Because we typically do not acquire existing homebuilders when entering a new market,we do not have the advantage of the experience and goodwill of an established homebuilding company.As a result,we incur substantial start-up costs in establishing our operations in new markets, and we may not be successful in taking operations in new markets from the start-up phase to profitability. If we are not successful in making operations in new markets profitable, we may not be able to recover our investment,which could adversely affect our financial condition and results of operations. In addition,growth of our business,either through increased land purchases or development of larger projects, may have a material adverse effect on our financial condition and results of operations. Any expansion of our business into new markets could divert the attention of senior management from our existing business and could fail due to our relative'lack of experience in those markets.In addition, while we do not currently intend to acquire any homebuilding operations from third parties, opportunities may arise in the future, and any acquisition could be difficult to integrate with our operations and could require us to assume unanticipated liabilities or expenses. Our business is seasonal in nature and quarterly operating results can fluctuate. Our quarterly operating results generally fluctuate by season. We typically experience the highest home sales orders in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of community openings and other market factors. Since it typically takes three to seven months to construct a new home, we deliver more homes in the second half of the year as spring and summer home sales orders convert to home deliveries. Because of this seasonality, construction costs and related cash and are historically highest from April to October, and the majority of cash receipts from home deliveries occur during the second half of the year. If, due to construction delays or other causes,we cannot deliver our expected number of homes in the second half of the year, our financial condition and full year results of operations may be adversely affected. We may be adversely affected by weather conditions and natural disasters. Weather conditions and natural disasters, such as hurricanes,tornadoes, earthquakes, snow storms,landslides, wildfires, volcanic activity,droughts and floods can harm our homebuilding business and delay home deliveries, increase the cost or availability of materials or labor, or damage homes under construction. In addition,the climates and geology of many of the states where we operate present increased risks of adverse weather or natural disasters. In particular, a large portion of our homebuilding operations are concentrated in California, which is subject to increased risk of earthquakes.Any such event or any business interruption caused therefrom could have a material adverse effect on our business, financial condition and results of operations. Utility and resource shortages or rate fluctuations could have an adverse effect on operations. Our communities at times have experienced utility and resource shortages,including significant changes to water availability and increases in utility and resource costs. Shortages of natural resources,particularly water, may make it more difficult to obtain regulatory approval of new developments.We may incur additional costs and be unable to complete construction as scheduled if these shortages and utility rate increases continue. Furthermore,these shortages regional economies where we operate,which may reduce demand for our homes and utility rate increases may adversely affect the es. 15 Item 16. - 84 11B -502'- In addition,costs of petroleum products, which are used to deliver materials and transport employees,fluctuate and may increase due to geopolitical events or accidents.This could also result in higher costs for products utilizing petrochemicals,which could adversely affect our financial condition and results of operations. We are dependent on the services of our senior management team and certain of our key employees,and loss of their services could hurt our business. We believe our senior management's experience in the homebuilding industry and tenure with us are competitive strengths, and our success depends upon our ability to retain these executives. In addition, we believe our ability to attract,train,assimilate and retain new skilled personnel is important to our success. If we are unable to retain senior management and certain key employees, particularly lead personnel in our markets,as well as our senior corporate officers,or attract,train,assimilate or retain other skilled personnel, it could hinder the execution of our business strategy.Competition for qualified personnel in our markets is intense,and it could be difficult to find experienced personnel to replace our employees,many of whom have significant homebuilding experience. Furthermore,a significant increase in our active communities would necessitate hiring a significant number of field construction and sales personnel, who may be in short supply in our markets. Information technology failures and data security breaches could harm our business. We use information technology and other computer resources to carry out important operational and marketing activities, as well as maintain our business records.Many of these resources are provided to us and/or maintained on our behalf by third party service providers pursuant to agreements that specify certain security and service level standards. Although we and our service providers employ what we believe are adequate security,disaster recovery and other preventative and corrective measures,our ability to conduct our business may be impaired if these resources are compromised, degraded,damaged or fail,whether due to a virus or other harmful circumstance,intentional penetration or disruption of our information technology resources by a third party,natural disaster, hardware or software corruption or failure or error(including a failure of security controls incorporated into or applied to such hardware or software),telecommunications system failure,service provider error or failure,intentional or unintentional personnel actions(including the failure to follow our security protocols), or lost connectivity to our networked resources.A significant and extended disruption in the functioning of these resources could impact our ability to conduct business and damage our reputation, which could cause us to lose customers, sales and revenue,result in the unintended public disclosure or the misappropriation of proprietary,personal and confidential information (including information about our homebuyers and business partners),and require us to incur significant expense to address and resolve these kinds of issues. The release of confidential information may also lead to litigation or other proceedings against us by affected individuals, business partners and/or by regulators, proceedings, which could include penalties or fines,could have a material and adverse effect onulators, and the outcome of such our consolidated financial statements. In addition,the costs of maintaining adequate protection against such threats, depending on their evolution,pervasiveness,frequency and/or government-mandated standards or obligations regarding protective efforts,could be material to our consolidated financial statements. Acts of war or terrorism may seriously harm our business Acts of war or terrorism or any outbreak or escalation of hostilities throughout the world may cause disruption to the economy, our company, our employees and our customers,which could undermine consumer confidence and result in a decrease in new sales contracts and cancellations of existing contracts, which,in turn,could impact our revenue, costs and expenses and financial condition. Failure to maintain effective internal control over financial reporting could materially adversely affect our business, results of operations and financial condition. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002("Sar Ox"),we are required to provide a report by management on internal control over financial reporting,including management's assessment of the effectiveness of such control. Changes to our business will necessitate ongoing changes to our internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations,including possibility of human error, circumvention or overriding of controls or fraud. Therefore,even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain adequate internal controls,including any required new or improved controls, we may be unable to provide financial information in a timely and reliable manner and might be subject to sanctions or investigation by regulatory authorities such as the SEC or the Public Company Accounting Oversight Board.Any such action could adversely affect our financial results or investors' confidence in us and could adversely impact the price of our notes. Furthermore,we are not an"accelerated filer"or"large accelerated filer"as defined in Rule 12b-2 of the Exchange Act,and as a result are not currently required to comply with the auditor attestation requirements of Section 404 of Sar Ox. 16 HB -503- Item 16. - 85 Regulatory Risks Government regulations could increase the cost and limit the availability of our development and homebuilding projects and adversely affect our business,financial condition and results of operations. We are subject to extensive and complex regulations that affect land development and home construction, including zoning, density restrictions,building design and building standards.These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to being approved, if approved at all.We are subject to determinations by these authorities as to the adequacy of water and sewage facilities,roads and other local services. New housing developments may also be subject to various assessments for schools,parks, streets and other public improvements. In addition, in many markets, government authorities have implemented no growth or growth control initiatives and preservation of land,often as a result of local grass-roots lobbying efforts. Furthermore, restrictions on immigration can create a shortage of skilled labor. Any of these regulatory issues can limit or delay home construction and increase operating costs. We are also subject to various local, state and federal laws and regulations concerning the protection of health, safety and the environment,including endangered species. These matters may result in delays, may cause us to incur substantial compliance, remediation, mitigation and other costs or subject us to fines,penalties and related litigation. These laws and regulations can also prohibit or severely restrict development and homebuilding activity in environmentally sensitive areas. We may incur additional operating expenses or delays due to compliance requirements or fines,penalties and remediation costs pertaining to environmental regulations within our markets. We are subject to local, state and federal statutes,ordinances,rules and regulations concerning land use and the protection of health and the environment, including those governing discharge of pollutants to water and air, handling of hazardous materials and cleanup of contaminated sites. The particular impact and requirements of environmental laws that apply to any given community vary greatly according to the community site,the site's environmental conditions and the present and former use of the site. We expect that increasingly stringent requirements will be imposed on homebuilders. Environmental laws may result in delays,cause us to implement time consuming and expensive compliance programs and prohibit or severely restrict development in certain environmentally sensitive regions or areas. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber.Furthermore,we could incur substantial costs,including cleanup costs, fines,penalties and other sanctions and damages from third party claims for property damage or personal injury,as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations.In addition, we are subject to third party challenges under environmental laws and regulations to the permits and other approvals required for our projects and operations. Changes in governmental regulation of our financial services operations could adversely affect our business,financial condition and results of operations. We assist customers with finding homeowners' insurance through Shea Insurance Services, Inc.,a wholly owned subsidiary of Shea Homes,Inc. ("SHI"). Through Shea Mortgage,an affiliate within the Shea Family Owned Companies but not a subsidiary of SHLP or consolidated in its financial statements, we are also able to offer mortgage origination options for our customers, helping us to ensure they secure financing for their home purchases. Our homebuilding operations sometimes offer financial incentives to our homebuyers to use Shea Mortgage in accordance with applicable laws. In addition to the financial benefits accruing to Shea Mortgage from these mortgage originations,the homebuilding operations are able to better manage the inventory of homes under construction and the closing process,as well as prequalify our homebuyers as a result of this affiliate arrangement. The homebuyers are not required to use Shea Mortgage as the homebuyer's lender. Each homebuyer may select any lending institution of his or her choice for the purpose of securing mortgage financing and is not in any way limited to obtaining financing from Shea Mortgage. These financial services operations are subject to federal, state and local laws and regulations.There have been numerous proposed and adopted changes in these regulations as a result of the housing downturn. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act(H.R.4173)was signed into law, which has and will continue to have, a significant impact on the regulation of the financial services industry, including new standards related to regulatory oversight of systemically important financial companies,derivatives transactions, asset-backed securitization, mortgage underwriting and consumer financial protection. Among other thins, this legislation provides for a number of new requirements relating to residential mortgage lending practices, many of which are to be developed further by implementing rules.These include,among others, minimum standards for mortgages and lender practices in making mortgages, the definitions and parameters of a Qualified Mortgage and a Qualified Residential Mortgage, future risk retention, limitations on certain fees,retention of credit risk,prohibition of certain tying arrangements and remedies for borrowers in foreclosure proceedings. The effect of such provisions on our financial services business will depend on the rules that are ultimately enacted. In addition,we cannot predict what similar changes to,or new enactments of, statutes and regulations pertinent to our financial services operations will occur. Any such changes or new enactments could have a material adverse effect on our financial condition and results of operations. 17 Item 16. - 86 1113 -50 - Financing Risks Our ability to generate sufficient cash or access other limited sources of liquidity to operate our business and service our debt depends on many factors, some of which are beyond our control. Our ability to make payments on our notes and to fund land acquisition, development and construction costs depends on our ability to generate sufficient cash flow, which is subject to general economic, financial, competitive,legislative and regulatory factors and other factors beyond our control.We cannot assure we will generate sufficient cash flow from operations to pay principal and interest on our notes or fund operations. As a result, we may need to refinance all or a portion of our debt,including our notes,on or before the maturity thereof, or incur additional debt.We cannot assure we will be able to do so on favorable terms,if at all.If we are unable to timely refinance our debt,we may need to dispose of certain assets, minimize capital expenditures or take other steps that could be detrimental to our business and could reduce the value of the collateral.There is no assurance these alternatives will be available, if at all, on satisfactory terms or on terms that will not require us to breach the terms and conditions of our existing or future debt agreements. Any inability to generate sufficient cash flow,refinance debt or incur additional debt on favorable terms could have a material adverse effect on our financial condition and results of operations, and could compromise our ability to service our debt, including our notes. In addition, we use letters of credit and surety bonds to secure our performance under various construction and land development agreements,escrow agreements,financial guarantees and other arrangements. Should our future performance or economic conditions make such letters of credit and surety bonds costly or difficult to obtain or lead to our being required to collateralize such instruments to a greater extent than previously, our business,financial condition and results of operations could be adversely affected. We have a significant number of contingent liabilities, including obligations relating to local government bond financing programs, and if any are satisfied by us, it could have a material adverse effect on our financial condition and results of operations. At a consolidated homebuilding project in Colorado,we have a contractual obligation to purchase and receive water system connection rights which, at December 31, 2014,was$27.4 million, which is less than their estimated market value. These water system connection rights are held, then transferred to homebuyers upon delivery of their home, transferred upon the sale of land to the respective buyer, sold or leased, but generally within the local jurisdiction. The risks inherent in purchasing,controlling or holding these water system connection rights are substantial and increase as consumer demand for housing decreases.The value of these water system connection rights and their marketability can also fluctuate from changing market conditions. If the fair market value of these water system connection rights decreases,we may be required to reduce their carrying value,which could adversely affect our financial condition and results of operations. Certain of our homebuilding projects utilize community facility district, metro-district and other local government bond financing programs to fund acquisition or construction of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on landowners,including land we own, and/or homeowners following the delivery of new homes in the community. Occasionally,we also enter into credit support arrangements requiring us to pay interest and principal on these bonds if taxes and assessments levied on landowners and/or homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government's ability to generate sufficient tax and assessment revenues from the new homes. At December 31, 2014 and December 31, 2013, in connection with credit support arrangements,there was$10.9 million and $8.6 million, respectively,reimbursable to us from certain agencies in Colorado and, accordingly,were recorded in inventory as a recoverable project cost. We also pay certain fees and costs associated with the construction of infrastructure improvements in homebuilding projects that utilize these district bond financing programs.These fees and costs are typically reimbursable to us from,and therefore dependent on, bond proceeds or taxes and assessments levied on landowners and/or homeowners. At December 31,2014 and December 31, 2013, in connection with certain funding arrangements, there was $14.0 million and$13.1 million,respectively,reimbursable to us from certain agencies,including$12.8 million and$11.9 million,respectively,from metro-districts in Colorado and, accordingly, were recorded in inventory as a recoverable project cost. Until bond proceeds or tax and assessment revenues are sufficient to cover our obligations and/or reimburse us, our responsibility to make interest and principal payments on these bonds or pay fees and costs associated with the construction of infrastructure improvements could be prolonged and significant. In addition,if bond proceeds or tax and assessment revenues are not sufficient to cover our obligations and/or reimburse us, these amounts might not be recoverable,which could adversely affect our financial condition and results of operations. 18 1113 -;();- Item 16. - 87 In 2009,we filed a petition with the United States Tax Court(the"Tax Court")regarding our tax filing position on the completed contract method of accounting("CCM")for homebuilding operations.Although we received a favorable ruling on February 12,2014,which permits us to continue use of the CCM for tax purposes (the "Tax Court Decision'), on July 15,2014,the Tax Court Decision was appealed by the U.S.Internal Revenue Service (the"IRS")in the U.S. Court of Appeals for the Ninth Circuit (the"Court of Appeals"). If the Tax Court Decision is overturned in whole or in part,we could be obligated to pay the IRS, applicable state taxing authorities and/or make distributions to the Partners for their respective amounts owed,which could adversely affect our financial condition and results of operations(see Note 13 to our consolidated financial statements). We have other contingent liabilities typical to the homebuilding industry. For further discussion, see Note 16 to our consolidated financial statements. The indenture governing our notes and our revolving credit facility do,and agreements governing our future indebtedness may, contain covenants that could adversely affect our ability to operate our business,as well as significantly affect our financial condition,and therefore could adversely affect our results of operations. The indenture governing our notes and revolving credit facility contain covenants that prohibit or restrict certain activities,such as: • pay dividends or distributions,repurchase equity or prepay subordinated debt; • incur additional debt or issue certain equity interests; • incur liens on assets; • merge or consolidate with another company or sell all or substantially all of our assets; • enter into transactions with affiliates; • make certain investments; • create certain restrictions on the ability of restricted subsidiaries to transfer assets; • guarantee certain debt; and • enter into sale and lease-back transactions. These covenants,among other things, limit our ability to grant certain liens to support indebtedness,to invest in joint venture transactions and merge or sell assets in connection with our business. This in turn could adversely affect our ability to finance our operations or capital needs or engage in,expand or pursue our business activities and prevent us from engaging in certain transactions that might otherwise be considered beneficial. In particular,restrictions on our ability to enter into joint venture transactions may limit our ability to undertake new large scale master-planned development opportunities, including developments of our homes under the Trilogy brand,and may thereby adversely affect our growth and results of operations.In addition,these covenants may restrict our ability to meet capital commitments under our joint venture agreements, including obligations to remargin joint venture loans,which may result in our ownership interests in the corresponding joint ventures being reduced or eliminated. The agreements we enter into governing our future indebtedness may impose similar or other restrictions. The restrictions contained in the indenture governing our notes and in any agreements governing future indebtedness may limit our financial flexibility,prohibit or limit any contemplated strategic initiatives,limit our ability to grow and increase our revenues or restrict our ability to respond to competitive changes. We conduct certain operations through unconsolidated joint ventures with independent and affiliated parties in which we do not have a controlling interest. These investments involve risks and are highly illiquid. We conduct certain operations through a number of unconsolidated homebuilding and land development joint ventures with independent and affiliated parties in which we do not have a controlling interest.At December 31, 2014,we had net capital investment and loan advances of$42.5 million in these unconsolidated joint ventures and guaranteed,on a joint and several basis, $55.7 million of outstanding liabilities for projects under development by these unconsolidated joint ventures. In addition,we may issue letters of credit under our revolving credit facility as credit support for liabilities of our unconsolidated joint ventures. 19 Item 16. - 88 HB -506- Our investments in the unconsolidated joint ventures involve risks and are highly illiquid, and their success depends in part on our joint venture partners' performance,which can be impacted by their financial strength and other factors. There are a limited number of sources willing to provide acquisition,development and construction financing to land development and homebuilding joint ventures and,as market conditions become more challenging,it may be difficult or impossible to obtain financing for our unconsolidated joint ventures on commercially reasonable terms. Due to tighter credit markets,financing for newly created unconsolidated joint ventures has been difficult to obtain. In addition,since we lack a controlling interest in our unconsolidated joint ventures,we are usually unable to require.these unconsolidated joint ventures to sell assets or return invested capital,make additional capital contributions, or take other actions without the vote of at least one other venture partner.Therefore, absent partner agreement, we may be unable to liquidate our unconsolidated joint ventures investments to generate cash. Our substantial debt could adversely affect our financial condition and results of operations. We have substantial debt. At December 31,2014,the total principal amount of our debt was$761.4 million.In addition,we have contingent liabilities which could affect our business. Our debt and contingent liabilities could have important consequences for the holders of our notes,including: • making it more difficult for us to satisfy obligations with respect to our notes; • increasing vulnerability to adverse economic or industry conditions; • limiting our ability to obtain additional financing to fund capital expenditures and acquisitions,particularly when the availability of financing in the capital markets is limited; • requiring a substantial portion of cash flows from operations for the payment of interest on our debt and reducing our ability to use cash flows to fund working capital,capital expenditures,acquisitions and general corporate requirements; • limiting flexibility in planning for, or reacting to,changes in our business and the industry where we operate;and • placing us at a competitive disadvantage to less leveraged competitors. We may incur additional indebtedness, which indebtedness might rank equal to our notes or the guarantees thereof. Despite our indebtedness,we and our subsidiaries may be able to incur significant additional indebtedness,including secured indebtedness, in the future, including under our revolving credit facility, which is secured on a pari-passu basis with our notes but will have the benefit of payment priority upon enforcement against the collateral. Although the indenture governing our notes contains restrictions on our and our subsidiaries' ability to incur additional indebtedness,these restrictions are subject to qualifications and exceptions, and, under certain circumstances, the indebtedness incurred in compliance with such restrictions could be substantial and certain of this indebtedness may be secured by the same collateral securing our notes, and the respective guarantees thereof.If new indebtedness is added to our and our subsidiaries' debt levels, the related risks that we and the note guarantors face would be increased, and we may not be able to meet all our debt obligations,including repayment of our notes,in whole or in part.If we incur any additional debt that is secured on an equal and ratable basis with our notes or the guarantees thereof,the holders of that debt will be entitled to share ratably with the holders of our notes in any proceeds distributed in connection with any enforcement against the collateral or an insolvency,liquidation,reorganization,dissolution or other winding-up of the applicable note issuer or guarantor.This may have the effect of reducing the amount of proceeds paid to holders of our notes. We could be adversely affected by negative changes in our credit ratings. Our ability to access capital on favorable terms is a key factor in our ability to service our debt and fund our operations. Downgrades to our credit ratings and negative changes to the outlook for such credit ratings have in the past required and,may in the future require, significant management time and effort to address. Such changes in the past have made it difficult and costly for us to access debt capital and engage in other ordinary course financing transactions relating to our new developments.Any future adverse action by any of the principal credit agencies may exacerbate these difficulties. Credit ratings assigned to our notes may not reflect all risks of an investment in our notes. Credit ratings assigned to our notes reflect the rating agencies' assessments of our ability to make payments on our notes when due.Consequently, real or anticipated changes in these credit ratings,or to the outlook for such credit ratings,will generally affect the market value of our notes. These credit ratings, however,may not reflect the potential impact of risks related to structure,market or other factors related to the value of our notes. 20 HB -507- Item 16. - 89 Other Risks We have a significant number of affiliates with whom we have entered into many transactions. Our relationship with these entities could adversely affect us. We are part of the Shea Family Owned Companies,which are operated in four major groups: homebuilding,heavy construction, venture capital,and commercial property development and management.Though our business forms the core of the homebuilding group, we have historically entered into many transactions with other Shea Family Owned Companies which are not part of the homebuilding group. These transactions range from management and administrative-related matters to joint ventures, transfers of assets and financial guarantees and other credit support arrangements.We are currently party to many such affiliate transactions. In the future, we will continue to be party to many of the affiliate transactions currently in existence,and it is likely we will enter into new affiliate transactions. The homebuilding group of the Shea Family Owned Companies, which is operated largely through us,has been operated as an independent business without credit support from the other Shea Family Owned Companies since 2011. If we are unable to continue to operate without such credit support,it could materially adversely affect our business,financial condition and results of operations. In addition,though we do not expect to receive new credit support from other Shea Family Owned Companies, we will still depend on our affiliates to provide us with certain management and administrative services. If these affiliates become unable to provide us with such services, we could incur significant additional costs to obtain them through other means due to lost efficiencies. Until August 2011, one of our affiliates,JFSCI,provided us with centralized cash management services.As part of this function, we engaged in affiliate transactions and monetary transfers to settle amounts owed. The resultant accounts receivables and payables from these transfers were paid monthly. In August 2011, we ceased our participation in the centralized cash management service and began to perform the function independently. Although the indenture governing our notes contains a covenant limiting transactions with affiliates,this covenant has a number of significant exceptions and, in any case, does not prohibit transactions with affiliates but only requires they be on arm's length terms.In particular,with respect to transactions involving the transfer of real property to an affiliate,we are required to obtain three third party independent estimates of the value of such real property when the transaction involves consideration exceeding$10.0 million.With respect to all other affiliate transactions,we are required to obtain an independent third party fairness opinion in connection with transactions involving consideration exceeding$5.0 million. Finally,though the current intention with respect to the Shea Family Owned Companies is to create four independent businesses that do not provide credit support to each other, it is possible the homebuilding group would be adversely affected by future financial and other difficulties arising with respect to the heavy construction, venture capital or commercial property group. For example,if any of the Shea Family Owned Companies not a part of the homebuilding group requires financial support,it is likely the attention and financial resources of the Shea family members could be diverted from us and toward the business in need of additional support. Moreover, if any of the Shea Family Owned Companies becomes subject to a bankruptcy, liquidation or similar proceeding,such proceeding could have a substantial effect on our business.It is possible that, among other consequences: • any existing affiliate transaction could be terminated,resulting in our inability to access needed services; • prior affiliate transactions could be examined and set aside,resulting in our liability to the bankruptcy or liquidation estate; and • such Shea Family Owned Company could be sold to an unrelated buyer, resulting in a loss of any synergies from which we benefit as a member of the Shea Family Owned Companies. The families and family trusts that own our equity interests may have interests different from yours. Entities directly or indirectly owned by the Shea family beneficially own substantially all of the equity interests in SHLP. As a result,members of the Shea family have the ability to control SHLP and,except as otherwise provided by law or our organizational documents,to approve or disapprove matters that may be submitted to a vote of SHLP's Partners.Each director of J.F. Shea Construction Management,Inc.,our ultimate general partner, is a member of the Shea family or an employee of other Shea Family Owned Companies.We have been advised that Shea family members do not currently plan to appoint any nonaffiliated or independent directors. 21 Item 16. - 90 HB -508- Our ownership group and their affiliates operate businesses using the Shea Homes brand that derive revenue from homebuilding and land development,including Shea Homes North Carolina,which are not owned by SHLP. We do not receive any brand licensing or sales revenue from these affiliated businesses,although in certain circumstances we provide them with management and administrative services. Certain of these affiliated entities have also engaged, and will continue to engage,in transactions with us. Shea Mortgage derives revenue from loan fees paid by our customers. Shea Properties LLC ("SPLLC")develops commercial properties that are sometimes built on land purchased from us, and we develop properties on land that is sometimes purchased from SPLLC. In the future,we may enter into other agreements with affiliates of SPLLC. Shea.family members comprising our ownership group are not restricted from engaging in homebuilding or land development activities through independent entities. The interests of our limited partners and owners of J.F. Shea Construction Management,Inc. could conflict with interests of our note holders. For example,if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our equity holders might conflict with the interests of our note holders.In addition, our owners may have interests in pursuing acquisitions,divestitures,financings or other transactions that, in their judgment,could enhance their investments,even though such transactions might involve risks to our note holders. Furthermore, our owners currently own, and may in the future own,businesses which may operate under the Shea Homes brand and directly compete with our business. In addition, although the indenture governing our notes contains a covenant limiting transactions with affiliates,this covenant has a number of significant exceptions and, in any case,does not prohibit transactions with affiliates but only requires they be on arm's length terms. No owner has any obligation to provide us with any additional debt or equity financing. The IRS can challenge our income and expense recognition methodologies. If we are unsuccessful in supporting or defending our positions, we could become subject to a substantial tax liability from previous years. In the normal course of business,we are audited by federal, state and local authorities regarding income tax matters. Significant judgment is required to determine our provision for income taxes and our liabilities for federal, state, local and other taxes. Any changes as a result of IRS and state audits could have a material adverse effect on our income tax provision or benefit, or other tax reserves, in the reporting period in which such determination is made and,consequently, on our results of operations,financial position and/or cash flows for such period. Since 2002, SHLP and SHI used the CCM to determine when to recognize taxable income or loss with respect to the majority of their respective homebuilding operations.Federal law allows homebuilders like SHLP and SHI to defer taxable income/loss recognition from their homebuilding operations until the tax year in which the contracts are substantially complete,rather than annually based on the percentage of completion method.The IRS objected to SHLP's and SHI's use of the CCM and assessed a tax deficiency against them,contending they did not accurately and appropriately apply the relevant U.S. Treasury Regulations in calculating their respective homebuilding projects' income/loss pursuant to the CCM for years 2004 through 2008,and years 2003 through 2008,respectively.SHLP and SHI believe their use of the CCM complies with the relevant regulations and filed a petition in 2009 with the Tax Court to contest the notice of deficiency and to challenge the IRS position. On February 12,2014,the Tax Court ruled in our favor,issuing the Tax Court Decision on April 21,2014. Pursuant to the ruling,we are permitted to continue to report income and loss from the delivery of homes using the CCM.As a result,no additional tax,interest or penalties are currently due and owing by the Partners or us. The IRS has appealed the Tax Court Decision to the Court of Appeals.We and the IRS have each filed briefs and the IRS is entitled to file a reply brief,which is due to be filed no later than March 2015. The Court of Appeals will schedule oral argument after briefing is completed;we cannot predict when it will schedule the argument or issue its decision. If the Tax Court Decision is overturned in whole or in part, SHLP and SHI would be required to recognize income for prior years that would otherwise be deferred until future years. With respect to SHI,this earlier recognition of income could result in a tax liability of up to$74 million (federal and state income taxes inclusive of interest).With respect to SHLP,the earlier recognition of income could result in the Partners incurring an additional tax liability of up to$134 million(federal and state income taxes inclusive of interest)for the years at issue,and SHLP would be required to make a distribution to the Partners to pay a portion of such tax liability.The indenture governing the notes restricts SHLP's ability to make distributions to the Partners pursuant to an agreement which requires SHLP to distribute cash payments to the Partners for taxes incurred by such Partners(or their direct or indirect holders)for their ownership interest in SIILP(the"Tax Distribution Agreement")in excess of an amount specified by the indenture (such maximum amount of collective distributions referred to as the"Maximum CCM Payment"),unless SHLP receives a cash equity contribution from JFSCI for such excess or unless we use some of our capacity under the indenture governing the notes to make restricted payments. The initial Maximum CCM Payment is$70.0 million,which amount will be reduced by payments made by SHI in connection with any resolution of our dispute with the IRS regarding our use of the CCM and payments made by SHLP on certain guarantee obligations permitted in the indenture. Such potential additional taxes imposed on SHI and tax distributions by SHLP may have a material adverse effect on the financial condition and results of operations of SHI and SHLP,respectively,which could compromise our ability to service our debt, including our notes. 22 HB -509- Item 16. - 91 Under our Tax Distribution Agreement, we are required to make distributions to our equity holders from time to time based on their ownership in SHLP, which is a limited partnership and, under certain circumstances,those distributions may occur even if SHLP does not have taxable income. Under our Tax Distribution Agreement, SHLP is required to make cash distributions to the Partners (or their direct or indirect holders)for taxable income allocated to them in connection with their ownership interests in SHLP.In addition, SHLP will be required under the Tax Distribution Agreement to provide tax distributions to the Partners (or their direct or indirect holders)for any additional taxable income allocated to them as a result of any audit,tax proceeding or tax contest arising from or in connection with any tax position taken by SHLP(or any entity treated as a"pass-through"entity under U.S. federal income tax principles in which SHLP has an ownership interest). If any audit,proceeding or contest in connection with years prior to 2011 (including those related to the CCM) ultimately results in an increase in taxable income allocated to the Partners, or any disallowance of losses or deductions previously allocated to the Partners, then we would be required to make additional tax distributions to them,even if the audit, proceeding or contest resulted in a reduction of a tax loss previously allocated for such period and no taxable income had been previously allocated to them for such period or would be so allocated after such reduction. Any distribution under the Tax Distribution Agreement could have a material adverse effect on our business, financial condition and results of operations,which could compromise our ability to service our debt, including our notes. Decreases in the market value of our investments in marketable securities could have an adverse impact on our results of operations. We have investments in marketable securities, money market funds and other short-term investments, of which the market value is subject to changes. Furthermore,during periods of financial stress, values of money market and short-term securities funds have come under pressure. Decreases in the market value in these investments could adversely affect our financial condition and results of operations. ITEM IB.UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES We lease 144,118 square feet of office space in various locations from affiliates and unrelated parties. All rents were at market rates at the time of lease execution. At December 31, 2014,we have satellite offices in Corona,California;Livermore,California; San Diego,California; Scottsdale,Arizona; Highlands Ranch,Colorado; and Houston,Texas. Subsequent to December 31, 2014,we entered into a new lease agreement and will move our operations from Corona,California to Irvine,California. The total square footage leased from affiliates is 82,188 and comprises offices in Livermore, San Diego and Highlands Ranch. Our corporate office is in Walnut,California,approximately 35 miles east of Los Angeles,California. JFSCI leases this office from an affiliate and SHLP bears 61.0% of its total cost. For information about land owned or controlled by us for use in our homebuilding activities, see"Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations—Selected Homebuilding Operational Data—Land and Homes in Inventory." ITEM 3.LEGAL PROCEEDINGS Lawsuits,claims and proceedings have been and will likely be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities,house construction standards, sales practices,employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies that administer these laws and regulations. In 2009,we filed a petition with the Tax Court regarding our tax filing position on the CCM for homebuilding operations. Although the Tax Court Decision permits us to continue use of the CCM for tax purposes,on July 15, 2014,the Tax Court Decision was appealed by the IRS to the Court of Appeals.If the Tax Court Decision is overturned in whole or in part, we could be obligated to pay the IRS, applicable state taxing authorities and/or make distributions to the Partners for their respective amounts owed,which could adversely affect our financial condition and results of operations(see Note 13 to our consolidated financial statements). 23 Item 16. - 92 1-1I3 -510- On or around October 10,2014, SHI was named as a defendant in an action entitled Aamodt v. Shea Homes, Inc.,Case No. 14- cv-01566,filed in the U.S. District Court for the Western District of Washington. The plaintiffs in the matter purported to bring a claim seeking an undisclosed monetary recovery for alleged construction defects under Washington's Consumer Protection Act originally involving approximately 589 homes,but subsequently amended their complaint to include approximately 964 homes and we have reached a tentative settlement of the case.While most of the settlement amount should be covered by insurance, one of our insurance carriers has denied coverage for the settlement and related matters. We are disputing this insurance carrier's position (see Note 16 to our consolidated financial statements). ITEM 4.MINE SAFETY DISCLOSURES Not applicable. 24 11B -S 1 1- Item 16. - 93 PART II ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES We are a privately held company,with no public or private trading market for our common equity.Ownership interests in SHLP are held in three classes: Class B.Class C and Class D.At December 31,2014,there is one holder of our Class B limited partnership interests,eight holders of our Class C limited partnership interests and six holders of our Class D limited partnership interests. See"Item 12: Security Ownership of Certain Beneficial Owners and Management"for information regarding the beneficial ownership of SHLP. No dividends were paid to our equity holders in 2014 or 2013.Our$125.0 million secured revolving credit facility(the"Revolver")and the indenture governing our 8.625% senior secured notes(the"Secured Notes")contain covenants that limit,among other things,our ability to pay dividends and distributions on our equity. See"Item 7:Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Notes Payable"for information about limitations on our ability to pay dividends. ITEM 6.SELECTED FINANCIAL DATA The following should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K. Years Ended December 31, 2014 2013 2012 2011 2010 (In thousands) Consolidated Statements of Operations: Revenues $1,140,606 $ 930,610 $ 680,147 $ 587,770 $ 639,566 Net income(loss) $ 133,399 $ 125,939 $ 29,184', $ (107,242) $ (55,215) Consolidated Balance Sheet Information (at end of year): Cash and cash equivalents,restricted cash and investments $ 247,143 $, 216,833 $ 304,865' $ 314,512 $ 190,391, Inventory $1,173,585 $1,013,272 $ 837,653 $ 783,810 $ 800,029 Total assets $1,666,710 $1,505,333 $1,373,537 $1,328,,116 $1,414,996 Total debt $ 761,404 $ 751,708 $ 758,209 $ 752,056 $ 730,005 Total equity $ 554,858 $ 445,457 $ 319,247 $ 328,003 $ '432,113 ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the section"Selected Financial Data"and our consolidated financial statements and related notes included elsewhere in this Form 10-K. RESULTS OF OPERATIONS The tabular homebuilding operating data presented throughout this"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes data for SHLP and its wholly owned subsidiaries and consolidated joint ventures.Data for our unconsolidated joint ventures is presented separately where indicated. Our ownership interest in unconsolidated joint ventures varies,but is generally less than or equal to 50%. Overview In 2014,we experienced a continuation of improved housing conditions that emerged in 2012. Generally,demand for new homes remained healthy during the year in our Southern California,San Diego,Northern California and Mountain West segments,while we saw demand improve in our South West segment during the fourth quarter,specifically,from our Phoenix communities,which were sluggish for the first three quarters of 2014. For the year ended December 31,2014,compared to the year ended December 31,2013,net new home sales orders increased 12%, which was primarily attributable to a 2%higher sales rate per community and an increase in the average number of active selling communities from 58 in 2013 to 64 in 2014.For the year ended December 31, 2014,compared to the year ended December 31,2013,homebuilding revenues increased 23%,which was primarily attributable to a 5%increase in homes delivered and a 19%increase in the average selling price ("ASP")of homes delivered.The higher year over year deliveries were primarily attributable to a 12%increase in new home sales.Gross margin,as a percentage of revenues,decreased from 23.8% in 2013 to 22.4%in 2014,primarily 25 Item 16. - 94 HB --51 attributable to$9.0 million in impairment charges and a$16.9 million legal charge related to a legal matter in Washington (see "Business—Legal Proceedings", "Gross Margin'and Note 16 to our consolidated financial statements).We ended 2014 with a backlog of 918 homes with a sales value of$551.7 million,up 8%and 18%,respectively,from December 31, 2013.We had$237.3 million in cash,cash equivalents and restricted cash at December 31, 2014 and expect to continue investing in new land opportunities in desirable locations to supplement our existing land positions. Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 (Dollars in thousands) Revenues $1,140,606 $ 930,610 $ 680,147 23% 37% Cost of sales (885,018) (709,412) (538,434) 25 32 Gross margin 255,588 221,198 141,713 16 56 Selling expenses (63,429) (54,338) (45,788) 17 19 General and administrative'expenses (54,921) (50,080) (43,747) 10 14 Equity in income(loss)from unconsolidated joint ventures 9,142 (1,104) 378 — Gain(loss)on reinsurance transaction 7,177 2,011 (12,013) 257 — Interest expense (595) (5,071) (19,862) (88) (74) Other income(expense), net (1,350) (778) 9,119 74 Income before income taxes 151,612 111,838 29,800 36 275 Income tax benefit(expense) ', (18,213) 14,101 (616) — — Net income 133,399 125,939 29,184 6 332 Less:Net loss(income)attributable to non-controlling interests 37 8 (146) 363 — Net income attributable to SHLP $ 133,436 $ 125,947 $ 29,038 6% 334% In 2014, net income attributable to SHLP was$133.4 million compared to$125.9 million in 2013. This increase was primarily attributable to a$34.4 million improvement in our gross margin (from higher revenues,partially offset by a lower gross margin Percentage),a$4.5 million decrease in interest expense(due to higher capitalized interest from higher qualified inventory),a$5.2 million improvement in our reinsurance transaction results,and a$10.2 million increase in equity income from unconsolidated joint ventures.These improvements were partially offset by a$32.3 million increase in income tax expense(due to a$15.6 million tax benefit in 2013 related to the reversal of our deferred tax asset valuation allowance),a$9.1 million increase in selling expenses (from higher home deliveries and revenues)and a$4.8 million increase in general and administrative expenses(from higher compensation and other volume related expenses). In 2013, net income attributable to SHLP was $125.9 million compared to$29.0 million in 2012. This increase was primarily attributable to a$79.5 million improvement in gross margins(from higher revenues),a$14.8 million decrease ininterest expense (due to higher capitalized interest from higher qualified inventory), a$14.0 million improvement in our reinsurance transaction results, and a$15.6 million reversal of the deferred tax valuation allowance. These improvements were partially offset by a$9.9 million decrease in other income(expense)(from decreased income on the sale of marketable securities),a$8.6 million increase in selling expenses(from higher home deliveries and revenues)and a$6.3 million increase in general and administrative expenses(from higher volume related and compensation expenses). Revenues Revenues are derived primarily from home and land deliveries. House and land revenues are recorded at delivery.Management fees from homebuilding joint ventures and managed projects are in other homebuilding revenues. Revenues from corporate,insurance brokerage services and our captive insurance company,Partners Insurance Company("PIC"),are in other revenues. 26 HB -513- Item 16. - 95 Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 (Dollars in thousands) Revenues: House revenues $1,120,019 $894,305 $645,000 25% 39% Land revenues 14,028 31,462 32,583 (55) (3)' Other homebuilding revenues 5,978 3,930 1,579 52 149 Total homebuilding revenues 1,140,025 929,697 679,162 23 37 Otherrevenues 581 913 985 (36) (7) Total revenues $1,140,606 $930,610 $680,147 23% 37%n, In 2014,total revenues were $1,140.6 million compared to$930.6 million in 2013.This 23%increase was primarily attributable to a 5%increase in homes delivered and a 19% increase in the ASP of homes delivered. In 2013,total revenues were$930.6 million compared to $680.1 million in 2012. This 37%increase was primarily attributable to a 20% increase in homes delivered and a 15%increase in the ASP of homes delivered. For the years ended December 31, 2014,2013 and 2012,homebuilding revenues by segment were as follows: Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 (Dollars in thousands) Southern California: House revenues $390,630 $205,249 $130,351 90% 57% Land revenues 2,330 2,175 3,617 7 (40) Other homebuilding revenues 520 226 22 130 927 Total homebuilding revenues $393,480 $207,650 $133,990 89% 55% San Diego: House revenues $143,160 $125,484 $ 85,534 14% 47% Land revenues 68 0 13 100 (100) Other homebuilding revenues 6 10 424 (40) (98) Total homebuilding revenues $143,234 $125,494 $ 85,971 14% 46% Northern California: House revenues $257,249 $232,697 $157,302 11% 48% Land revenues 0 8,300 7,923 (100) 5 Other homebuilding revenues 2,115 1,359 881 56 54 Total homebuilding revenues $259,364 $242,356 $166,106 7% 46% Mountain West: House revenues $163,183 $165,226 $126,764 (1)% 30% Land revenues 11,630 20,862 21,030 (44) (1) Other homebuilding revenues 852 811 (10) 5 - Total homebuilding revenues $175,665 $186,899 $147,784 (6)% 26% South West: House revenues $165,797 $159,095 $137,899 4% 15% Land revenues 0 125 0 (100) 100 Other homebuilding revenues 2,485 1,524 262 63 482 Total homebuilding revenues $168,282, $160,744'-; $138,161 5% 16% East: House revenues $ 0 $ 6,554 $ 7,150 (100)% (8)% Land revenues 0 0 0 - - Other homebuilding revenues 0 0 0 - - Total homebuilding revenues $ 0 $ 6,554 $ 7,150 (100)% (8)% 27 Item 16. - 96 HB -514- In 2014, total homebuilding revenues were$1,140.0 million compared to$929.7 million in 2013. This 23%increase was primarily attributable to a 5%increase in homes delivered and a 19%increase in the ASP of homes delivered. The increase in home deliveries was primarily attributable to the 77% increase in deliveries from our Southern California segment. The higher deliveries from our Southern California segment were driven by a 67%increase in new home sales orders and a 30%higher beginning backlog in 2014 versus 2013. The increase in the ASP was attributable to all three of our California segments,including a higher percentage of deliveries from our Southern California segment in 2014 versus 2013, which had an ASP of$812,121 in 2014 and is 44%higher than our Company average of$564,241. In 2013,total homebuilding revenues were$929.7 million compared to$679.2 million in 2012.This 37% increase was primarily attributable to a 20%increase in homes delivered and a 15%increase in the ASP of homes delivered.The increase in home deliveries was primarily attributable to a 98%increase in backlog at the beginning of 2013 versus 2012. For the years ended December 31, 2014, 2013 and 2012,homes delivered and the ASP of homes delivered by segment were as follows: Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 Homes delivered: Southern California 481 271 249 77% 9% San Diego 252 256 194 (2) 32 Northern California 385 456 323 (16) 41 Mountain West 356 372 284 (4) 31 South West 511 510 492 0 4 East 0 25 31 (100) (19) Total consolidated 1,985 1,890 1,573 5% 20% Southern California 107 47 48 128% (2)% Northern California 60 31 18 94 72 Mountain West 73 55 43 33 28 East 96 69 40 39 73 Total unconsolidated joint ventures 336 202 149` 66% 36% Total homes delivered 2,321 2,092 1,722 11% 21% Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 ASP of homes delivered: Southern California $812,121 $757,376 $523,498 7% 45% San Diego 568,095 490,172 440,897 16 11 Northern California 668,179 510,300 487,003 31 5 Mountain West 458,379 444,156 446,352 3 0 South West 324,456 311,951 280,283 4 11 East 0 262,160 230,645 (100) 14 Total consolidated $564,241 $473,177 $410,045 19% 15 Southern California $417,090 $293 304 $268,147 42% 9% Northern California 523,959 510,099 533,757 3 (4) Mountain West 390,211 367,715 351,584 6 5 East 289,960 258,426 196,140 12 32 Total unconsolidated joint ventures- $394,012 $334,921 $304,980 18% 10% Total ASP of homes delivered $539,598 $459,827 $400,954 17% 15% Nomebuilding deliveries during the year were a function of beginning backlog and new home sales orders.Deliveries in our Southern California segment increased 77% in 2014 versus 2013 as a result of a 30%higher beginning backlog and a 67%increase in new home sales orders. Deliveries in our San Diego segment decreased 2%as a result of a 7% lower beginning backlog,partially offset by a 2% increase in new home sales orders. Deliveries in our Northern California segment decreased 16%as a result of a 40% 28 xB -51 5- Item 16. - 97 lower beginning backlog,partially offset by a 5% increase in new home sales orders. Deliveries in our Mountain West segment decreased 4% as a result of a 2% lower beginning backlog and longer construction cycle times,partially offset by a 16%increase in new home sales orders. Deliveries in our South West segment were similar as a result of a 12%higher beginning backlog, partially offset by a 17%decrease in new home sales orders. The ASP of homes delivered is a function of product,geographic mix and general changes in new home prices. In 2014,each segment experienced some level of price increases,except for our Southwest segment. In addition to the impact of price increases, our San Diego and Northern California segments delivered a larger mix of higher priced homes in 2014 versus 2013. Deliveries in our Southern California segment increased 9% in 2013 versus 2012 as a result of a 108%higher beginning backlog,partially offset by a 2%decrease in new home sales orders. Deliveries in our San Diego segment increased 32% as a result of a 174%higher beginning backlog,partially offset by a 5%decrease in new home sales orders. Deliveries in our Northern California segment increased 41%as a result of a 130%higher beginning backlog,partially offset by a 22%decrease in new home sales orders.Deliveries were up 31%in our Mountain West segment as a result of a 123%higher beginning backlog,partially offset by an 8%decrease in new home sales orders. Deliveries in our South West segment increased 4% as a result of a 39%higher beginning backlog,partially offset by a 3%decrease in new home sales orders. Gross Margin Gross margin is revenues less cost of sales and is comprised of gross margins from our homebuilding and corporate segments. Gross margins for the years ended December 31, 2014,2013 and 2012 were as follows: Years Ended December 31, Gross Gross Gross 2014 Margin% 2013 Margin % 2012 Margin% (Dollars in thousands) Gross margin $255,588 22.4% $221,198 23.8% $141,713 20.8% In 2014, gross margin was$255.6 million compared to$221.2 million in 2013.This 16%increase was primarily attributable to a 23%increase in revenues,resulting from a 5%increase in new home deliveries and a 19%increase in the ASP,partially offset by increased construction and labor costs,$9.0 million of impairment charges and$16.9 million of charges incurred by SHI in connection with Aamodt v. Shea Homes, Inc., Case No. 14-cv-01566 and related matters, of which$13.3 million was accrued at December 31,2014(see Note 16 to our consolidated financial statements). In 2013,gross margin was$221.2 million compared to$141.7 million in 2012. This 56%increase was primarily attributable to a 37% increase in revenues,resulting from a 20% increase in new home deliveries and a 15%increase in the ASP,partially offset by increased construction and labor costs. Housing impairments,which are in cost of sales and reduce gross margins,are generally attributable to lower home prices in response to lower housing demand,which can result from weak economic and housing conditions,including elevated levels of foreclosures,higher unemployment, lower consumer confidence and tighter lending standards. Since the fourth quarter of 2009,the housing market experienced some stabilization and,as a result,impairments significantly diminished.However,in the fourth quarter 2014,we experienced lower housing demand in two communities in our South West segment,resulting in impairment charges. 29 Item 16. - 98 HB -51 6- Impairment by segment and type for the years ended December 31,2014,2013 and 2012 were as follows: Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 (Dollars in thousands) Impairment by segment: Southern California $ 284 $ 0 $ 0 100% — San Diego 0 0 0 - - Northem California 0 0 0 — — Mountain West 0 0 0 — — South West 8,751 0 0 100 — East 0 0 0 — — Total impairment $9,035 $ 0 $ 0 100% — Impairment by type:_ Inventory $9,035 $ 0 $ 0 100% — Joint venture 0 0 0 — — Total impairment $9,035 $ 0 $ 0 100% — Selling,General and Administrative Expense Selling,general and administrative expenses for the years ended December 31,2014,2013 and 2012 were as follows: Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 (Dollars in thousands) Total homebuilding revenues $1.140,025 $929,697 $679,162 23% 37% Selling expense $ 63,429 $ 54,338 $ 45,788 17% 19% %of total homebuilding revenues 5.6% 5.8% 6.7% General and administrative expense $ 54.921 $ 50,080 $ 43-747 10% 14% %of total homebuilding revenues 4.8% 5.4% 6.4% Total selling,general and administrative expense $ 118.350 $104.418 $ 89,535 13% 17% %of total homebuilding revenues 10.4% 11.2% 13..2°l0 Selling Expense In 2014, selling expense was$63.4 million compared to$54.3 million in 2013.This increase was primarily attributable to higher volume related costs,such as sales commission,closing costs and model costs,as well as advertising. Selling expense,as a percentage of revenues, decreased as certain fixed selling expenses were spread over a higher revenue base. In 2013, selling expense was$54.3 million compared to$45.8 million in 2012,but decreased as a percentage of revenues as a result of a higher revenue base.The$8.5 million increase was primarily due to higher volume related costs, such as sales commissions,closing costs and model costs,as well as advertising. General and Administrative Expense In 2014,general and administrative expenses were$54.9 million compared to$50.1 million in 2013.This increase was primarily attributable to higher compensation expense. In 2013,general and administrative expenses were$50.1 million compared to$43.7 million in 2012.This increase was primarily attributable to higher compensation expense,partially offset by decreased legal expenses.In 2012, we incurred$3.6 million in legal expenses related to the Tax Court CCM case. Equity in Income(Loss)from Unconsolidated Joint Ventures Equity in income(loss)from unconsolidated joint ventures represents our share of income(loss)from unconsolidated joint ventures accounted for under the equity method.These joint ventures are generally engaged in homebuilding and land development. 30 11 B -517- Item 16. - 99 In 2014,equity in income(loss)from unconsolidated joint ventures was$9.1 million compared to$(1.1)million in 2013.This increase in income was primarily attributable to income from two joint ventures in our Southern California segment that completed their operations in 2014. In 2013,equity in income(loss)from unconsolidated joint ventures was$(1.1)million compared to$.4 million in 2012.There were no significant earnings or losses from our unconsolidated joint ventures. Gain(Loss)on Reinsurance Transaction Completed operations claims for policy years August 1,2001 to July 31,2007,and workers' compensation and general liability risks for policy years August 1,2001 to July 31,2005,were previously insured through PIC. In December 2009,PIC entered into a series of transactions(the"PIC Transaction") in which these policies were either novated to JFSCI or reinsured with third-party insurance carriers. As a result of the PIC Transaction, a$34.8 million gain was deferred and to be recorded as income when related claims are paid. In addition,the deferred gain can be adjusted up or down based on changes in actuarial estimates. Any changes to the deferred gain are recorded as income or expense in the current period. In 2014,we recognized$7.2 million of income,primarily attributable to the claims paid on these policies.In 2013,we recognized$2.0 million of income as a result of claims paid on these policies,partially offset by adverse actuarial estimates,which increased the deferred gain. Interest Expense Interest expense is interest incurred and not capitalized.For all of 2014 and the latter half of 2013,substantially all interest incurred was capitalized to inventory as qualified inventory exceeded debt.During the first part of 2013 and all of 2012, some interest incurred was expensed since debt exceeded the qualified inventory amount.Assets qualify for interest capitalization during their development and other qualifying activities,such as construction;however,if qualified assets are less than the total debt,a portion of interest is expensed. In 2014,interest expense was$0.6 million compared to$5.1 million in 2013.This decrease was primarily attributable to higher qualified assets in 2014 versus 2013,relative to our debt balance.In 2014, interest expense represents fees for the unused portion of our$125.0 million secured revolving credit facility (the `Revolver")and is not capitalized. In 2013, interest expense was$5.1 million compared to$19.9 million in 2012.This decrease was primarily attributable to higher qualified assets relative to our debt balance. Other Income (Expense),Net Other income (expense),net is comprised of interest income,gains(losses)on sales of investments,pre-acquisition cost and deposit write-offs,property tax expense and other income(expense).Interest income is primarily from affiliate notes receivable, investments and interest bearing cash accounts. For the years ended December 31.2014, 2013 and 2012,other income(expense),net was as follows: Years Ended December 31, °Ic Change Change 2014 2013 2012 2013-2014 2012-2013 (Dollars in thousands) Other income(expense),net: Interest income $ 1,547 $ 2,204 $ 4,315 (30)% (49)% Gain on sale of investments 0 15 8,806 (100) (100) Pre-acquisition cost and deposit write-offs (1,303) (1,436) (2,039) (9) (30) Property tax expense (2,377) (2,766) (3,192) (14) (13) Other income 783 1,205 1,229 (35) (2) Total other income(expense),net $(1,350) $ ('778) $ 9,119 74% (109)% In 2014,other income(expense),net was$(l.4)million compared to$(0.8)million in 2013.This increase in expense was primarily attributable to decreased interest income. In 2013,other income(expense),net was$(0.8)million compared to$9.1 million in 2012.This decrease in income was primarily attributable to an$8.8 million gain on the sale of marketable securities in 2012 and a$2.1 million decrease in interest income. 31 Item 16. - 100 1 IB -5 1 8- Income Tax Benefit(Expense) SHLP is treated as a partnership for income tax purposes and is subject to certain minimal state taxes and fees; however, taxes on income are generally the obligation of SHLP's general and limited partners and their owners. SHI is a C corporation and its federal and state income taxes are included in the consolidated financial statements. At December 31,2014 and 2013, net deferred tax assets of SHI before reserves were$20.4 million and$16.8 million, respectively,primarily from available loss carryforwards, inventory and investment impairments, and housing and land inventory basis differences. At December 31,2014, SHI had net operating loss(`NOL")carryforwards of approximately $14.2 million, net, which expire by 2018 and are subject to annual limitations of$4.6 million. When assessing the realizability of deferred tax assets,we consider whether it is more-likely-than-not that our deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon generating sufficient taxable income in the future. We record a valuation allowance when we determine it is more-likely-than-not a portion of the deferred tax assets will not be realized. Because of the continued annual pretax losses of SHI through the year ended December 31, 2009,we determined it was more- likely-than-not,at December 31, 2009,the net deferred tax asset of$51.9 million would not be realized. Accordingly,for the year ended December 31, 2009, the deferred tax asset valuation allowance increased $32.7 million to fully reserve the net deferred tax asset. At December 2011 and 2010,our assessment of deferred tax assets was consistent with 2009 and the net deferred tax asset of $38.2 million and $48.8 million, respectively,remained fully reserved. For the year ended December 31,2012, SHI generated income before income taxes for the first time since 2007,a result of the beginning of the housing recovery. However, since we only returned to profitability in 2012 and the housing recovery being in its early stages, the$32.7 million net deferred tax assets at December 31, 2012 remained fully reserved. At December 31,2013, after experiencing continued profit improvement from operations, we determined it was more-likely- than-not that most of the net deferred tax assets would be realized,which,during the fourth quarter of 2013, resulted in a$15.6 million reversal of the valuation allowance on our deferred tax assets. We based this conclusion on positive evidence related to the actual pre-tax profits achieved during the year and higher levels of forecasted profitability in the future.We expected these increased profits to result in a greater realization of our NOL carryforwards before they expire than previously estimated, and the realization of deferred tax assets associated with impairments and basis differences of our inventory.At December 31, 2014 and 2013, the remaining valuation allowance of$0.3 million and$0.5 million, respectively,relates to capital losses that expire in 2016 and 2017, and impairment of debt securities that mature in 2021 and 2022,as it is unknown if these deferred tax assets will be realized. Accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcome of these future results could result in changes in our estimates of our deferred tax assets and related valuation allowances, and could also materially impact our consolidated financial condition and results of operations. Also,changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of our deferred tax assets. In 2014, income tax benefit(expense)was$(18.2)million compared to$14.1 million in 2013. The income tax benefit in 2013 was primarily attributable to the$15.6 million reversal of the valuation allowance. In 2013, income tax benefit (expense) was$14.1 million compared to $(0.6) million in 2012.The income tax benefit in 2013 was primarily attributable to the$15.6 million reversal of the valuation allowance,partially offset by increased taxable income compared to 2012. In 2014,we filed Form 3115 with the IRS to change our income tax accounting method of how we record certain expenses on our income tax returns beginning in 2014. As we believe it is more likely-than-not the change will be approved by the IRS,we reflected this income tax accounting method in our 2014 income tax expense. If we are unsuccessful in our application to change our income tax accounting method,we could incur an income tax liability for prior years ranging up to$13.5 million,and the Partners could have a reduction in their income tax liability ranging up to$13.5 million. Net(Income)Loss Attributable to Non-Controlling Interests Joint ventures are consolidated when we have a controlling interest or,absent a controlling interest, when we can substantially influence its business. Net(income)loss attributable to non-controlling interests represents the share of(income)loss attributable to the parties having a non-controlling interest. The net (income)loss attributable to non-controlling interests in 2014,2013 and 2012 was not material. 32 HB -519- Item 16. - 101 SELECTED HOMEBUILDING OPERATIONAL DATA Homes Sales Orders and Active Selling Communities Home sales orders are contracts executed with homebuyers to purchase homes and are stated net of cancellations. Except where market conditions or other factors justify increasing available unsold home inventory,construction of a home typically begins when a sales contract for that home is executed and other conditions are satisfied,such as financing approval.Therefore,recognition of a home sales order usually represents the beginning of the home's construction cycle.Homebuilding construction expenditures and,ultimately, homebuilding revenues and cash flow,are therefore dependent on the timing and magnitude of home sales orders. An active selling community represents a new home community that advertises,markets and typically sells homes through a sales office located at a model complex in the community. Sales offices in communities near the end of their sales cycle are not designated as an active selling community.An active selling community is a designation similar to a store or sales outlet and is used to measure home sales order results on a per active selling community basis. Presentation of home sales orders per active selling community is a means of assessing sales growth or reductions across communities through a common analytical measurement.The average number of active selling communities for a particular period represents the aggregate number of active selling communities in operation at the end of each month in such period divided by the number of months in such period. For the years ended December 31,2014, 2013 and 2012 home sales orders,net of cancellations, were as follows: Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 Home sales orders,net: Southern California 514 308 313 67% (2)% San Diego 254 249 262 2 (5) Northern California 376 359 459 5 (22) Mountain West 424 367 401 16 (8) South West 447 536 552 (17) (3) East 39 9 36 333 (75) Total consolidated 2,054 1,828 2,023 12% (10)% Southern California 111 46 66 141% (30)%;, Northern California 52 44 21 18 110 Mountain West 91 67 40 36 68 South West 14 0 0 100 0 East 120 83 72 45 15 Total unconsolidated joint ventures 388 240 199 62% 21% Total home sales orders,net 2,442 2,069 2,222 18% (7)% For the years ended December 31,2014,2013 and 2012,cancellation rates were as follows: Years Ended December 31, 2014 2013 2012 Cancellation rates: Southern California 12% 11% 12% San Diego 22 22 26 Northern California 14 14 10 Mountain West 16 16 14 South West 18 15 15 East 13 18 20 Total consolidated 16% 15% 15% Southern California 18% 10% 11% Northern California 17 30 5 Mountain West 17 20 20 South West 0 0 0 East 30 32 18 Total unconsolidated joint ventures 21% 25% 15% Total cancellation rates 17% 17% 15% 33 Item 16. - 102 HB -520- For the years ended December 31, 2014,2013 and 2012,average active selling communities were as follows: Years Ended December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 Average number of active selling communities: Southern California 11 6 8 83% (25)% San Diego 9 7 9 29 (22) Northern California 13 13 14 0 (7) Mountain West 12 15 14 (20) 7 South West 18 16 17 13 (6) East 1 1 3 0 (67) Total consolidated 64 58 65 10% (11)% Southern California 4 —4 3 0% 33% Northern California 4 2 1 100 100 Mountain West 5 5 5 0 0 East 3 2 2 50 (0) Total unconsolidated joint ventures 16 13 11 23% 18% Total average number of active selling communities 80 71 76 13% (7)% In 2014,consolidated home sales orders per active selling community were 32.1, or 2.7 per month,compared to 31.5,or 2.6 per month in 2013, a 2% increase. Overall,our Southern California,San Diego,Northern California and Mountain West segments continued to experience healthy demand for new homes, while for most of the year our South West segment experienced sluggish demand for new homes,resulting in a 26% decrease in its sales rate per community. In 2013,consolidated home sales orders per consolidated active selling community were 31.5,or 2.6 per month,compared to 31.1, or 2.6 per month,in 2012.Demand was stronger in the first half of 2013 compared to the second half of 2013 when mortgage rates peaked. Sales Order Backlog Sales order backlog represents homes sold and under contract to be built,but not delivered. Backlog sales value is the revenue estimated to be realized at delivery. A home is sold when a sales contract is signed by the seller and buyer, and upon receipt of a prerequisite deposit. A home is delivered when all conditions of escrow are met,including delivery of the home to the customer,title passage,appropriate consideration is received or collection of associated receivables,if any, is reasonably assured, and when we have no other continuing involvement in the home. A sold home is classified"in backlog"during the time between its sale and delivery. During that time,construction costs are generally incurred to complete the home except where market conditions or other factors justify increasing available unsold home inventory. Backlog is therefore an important performance measurement in analysis of cash outflows and inflows. However,because sales order contracts are cancelled by the buyer at times, not all homes in backlog will result in deliveries. 34 HB _521- Item 16. - 103 At December 31, 2014, 2013 and 2012, sales order backlog was as follows: Homes Sales Value ASP December 31, December 31, December 31, 2014 2013 2012 2014 2013 2012 2014 2013 2012 (In thousands) (In thousands) Backlog: Southern California 193 160 123 $166,087 $139,059 $ 87,675 $861 $869 $713 San Diego 102 100 107 71,164 50,223 47,580 698 502 445 Northern California 135 144 241 100,946 94,605 107,497 748 657 446 Mountain West 275 207 212 140,995 100,186 98,733 513 484 466' South West 174 238 212 56,293 82,565 67,519 324 347 318 East 39 0 16 16,242 0 4,192 416 0 262 Total consolidated 918 849 911 $551,727 $466,638 $413,196 $601 $550 $454 Southern California 30 26 27 $ 14,257 $ 9,383 $ 7,427 $475 $361 $275 Northern California 15 23 10 8,865 12,562 5,535 591 546 554 Mountain West 41 23 11 17,935 9,413 4,267 437 409 388 South West 14 0 0 6,983 0 0 499 0 0 East 74 50 36 22,221 14,447 8,495 300 289 236 Total unconsolidated joint ventures 174 122 84 $ 70,261 $ 45,805 $ 25,724 $404 $375 $306 Total backlog 1,092 971 995 $621,988 $512,443 $438,920 $570 $528 $441 Land and Homes in Inventory Inventory is comprised of housing projects under development, land under development,land held for future development,land held for sale,deposits and pre-acquisition costs. As land is acquired and developed,and homes are constructed,the underlying costs are capitalized to inventory. As homes and land transactions deliver,these costs are relieved from inventory and charged to cost of sales. As land is acquired and developed,each parcel is assigned a lot count. For parcels of land,an estimated number of lots are added to inventory once entitlement occurs. Occasionally, when the intended use of a parcel changes, lot counts are adjusted.As homes and land are sold,lot counts are reduced. Lots are categorized as (i)owned, (6) controlled (which includes a contractual right to purchase) or(iii) owned or controlled through unconsolidated joint ventures.The status of each lot is identified by land held for development, land under development,land held for sale, lots available for construction, homes under construction,completed homes and models. Homes under construction and completed homes are also classified as sold or unsold. 35 Item 16. - 104 H11 -522'- At December 31, 2014,2013 and 2012,total lots owned or controlled were as follows: December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 Lots owned or controlled by segment: - Southern California 1,628 1,890 1,989 (14)% (5)% San Diego 838 640 764 31 (16) Northern California 4,033 3,731 3,182 8 17 Mountain West 9,519 9,841 10,074 (3) (2) South West 2,261 2,063 1,876 10 10 East 1,273 765 25 66 2,960 Total consolidated 19,552 18,930 17,910 3 6 Unconsolidated joint ventures " 4,935 4,455 3,874 11 15 Total lots owned or controlled 24,487 23,385 21,784 5% 7% Lots owned or controlled by ownership type. Lots owned for homebuilding 7,033 6,277 6,448 12% (3)% Lots owned and held for sale 3,176' 3313 3,382' (4) (2) Lots optioned or subject to contract for homebuilding 6,309 6,306 5,046 0 25 Lots optioned or subject to contract that will be held for sale 3,034. 3,034 3,034 0 0 Unconsolidated joint venture lots 4,935 4,455 3,874 11 15 Total lots owned or controlled 24,487 23,385 21,784 5% 7% At December 31,2014,2013 and 2012,total homes under construction and completed homes were as follows: December 31, Change Change 2014 2013 2012 2013-2014 2012-2013 Homes under construction: Sold 623 611 630 2% (3)% Unsold 187 149 133' 26 12 Total consolidated 810 760 763 7 0 Unconsolidated joint ventures 126 119 64 6 86 Total homes under construction 936 879 827 6% 6% Completed homes.(a) Sold(b) 56 49 41 14% 20% Unsold 41 34 22 21 55 Total consolidated 97 83 63 17 32 Unconsolidated joint ventures 15, 8 9 88 (11) Total completed homes 112 91 72 23% 26% (a) Excludes model homes. (b) Sold but not delivered. 36 HB _52;_ Item 16. - 105 LIQUIDITY AND CAPITAL RESOURCES Operating and other short-term cash liquidity needs have been primarily funded from cash on our balance sheet and our homebuilding operations primarily through home deliveries and land sales,net of the underlying expenditures to fund these operations.In addition,we have,and will continue to utilize, land option contracts,public and private note offerings,land seller notes, joint venture structures (which typically obtain project level financing to reduce the amount of partner capital invested),assessment district bond financing,letters of credit and surety bonds,tax refunds and proceeds from affiliate notes receivable as sources of liquidity. In addition, as an additional source of liquidity,we obtained the Revolver in February 2014.At December 31, 2014,cash and cash equivalents were$236.9 million, restricted cash was $0.4 million and total debt was$761.4 million,compared to cash and cash equivalents of$206.2 million,restricted cash of$1.2 million and total debt of$751.7 million at December 31, 2013. Restricted cash includes customer deposits temporarily restricted in accordance with regulatory requirements and cash used in lieu of bonds. In February 2014,we replaced our$75.0 million letter of credit facility with the Revolver,which bears interest,at our option, either at(i) a daily Eurocurrency base rate as defined in the credit agreement governing the Revolver(the"Credit Agreement"),plus a margin of 2.75%, or(ii) a Eurocurrency rate as defined in the Credit Agreement,plus a margin of 2.75%,and matures March 1, 2016. Borrowing availability is determined by a borrowing base formula and we are subject to financial covenants,including minimum net worth, and leverage and interest coverage ratios.If we do not maintain compliance with these financial covenants,the Revolver converts to an 18-month amortizing term loan. At December 31, 2014, we were in compliance with these covenants and no amounts were outstanding. We believe the Revolver,combined with the other available sources, such as existing cash,cash equivalents and cash from operations,are sufficient to provide for cash requirements in the next twelve months. In evaluating this sufficiency,we considered the expected cash flow to be generated by homebuilding operations, our current cash position and other sources of liquidity available to us,compared to anticipated cash requirements for interest payments on our$750.0 million senior secured notes(the"Secured Notes") and Revolver, land purchase commitments and land development expenditures,joint venture funding requirements and other cash operating expenses. We also continually monitor current and expected operational requirements to evaluate and determine the use and amount of our cash needs which includes,but is not limited to,the following disciplines: • Strategic land acquisitions that meet our investment and marketing standards,including,in most cases,the quick turn of assets; • Strict control and limitation of unsold home inventory and avoidance of excessive and untimely uses of cash; • Pre-qualification of homebuyers,timely commencement of home construction thereon and mitigation of cancellations and creation of unsold inventory; • Reduced construction cycle times,prompt deliveries of homes and improved cash flow thereon;and • Maintenance of sufficient cash or other sources of liquidity that,depending on market conditions,will be available to acquire land and increase our active selling communities. Availability of additional capital,whether from private capital sources (including banks)or the public capital markets,fluctuates as market conditions change. There may be times when the private capital markets and the public debt markets lack sufficient liquidity or when our securities cannot be sold at attractive prices,in which case we would be unable to access capital from these sources.Weakening of our financial condition,including a material increase in our leverage or decrease in our profitability or cash flows,could adversely affect our ability to obtain necessary funds,result in a credit rating downgrade or change in outlook,or otherwise increase our cost of borrowing. Since 2002, SHLP and SHI used the CCM to determine when to recognize taxable income or loss with respect to the majority of their respective homebuilding operations. Federal law allows homebuilders like SHLP and SHI to defer taxable income/loss recognition from their homebuilding operations until the tax year in which the contracts are substantially complete,rather than annually based on the percentage of completion method. The IRS objected to SHLP's and SHI's use of the CCM and assessed a tax deficiency against them,contending they did not accurately and appropriately apply the relevant U.S. Treasury Regulations in calculating their respective homebuilding projects' income/loss pursuant to the CCM for years 2004 through 2008, and years 2003 through 2008, respectively. SHLP and SHI believe their use of the CCM complies with the relevant regulations and filed a petition in 2009 with the Tax Court to contest the notice of deficiency and to challenge the IRS position. On February 12,2014,the Tax Court ruled in our favor, issuing the Tax Court Decision on April 21,2014.Pursuant to the ruling,we are permitted to continue to report income and loss from the delivery of homes using the CCM.As a result,no additional tax, interest or penalties are currently due and owing by the Partners or us. The IRS has appealed the Tax Court Decision to the Court of Appeals.We and the IRS have each filed briefs and the IRS is entitled to file a reply brief,which is due to be filed no later than March 2015.The Court of Appeals will schedule oral argument after briefing is completed;we cannot predict when it will schedule the argument or issue its decision. 37 Item 16. - 106 HB -524- If the Tax Court Decision is overturned in whole or in part, SHI could be obligated to pay the IRS and applicable state taxing authorities up to$74 million and,under the Tax Distribution Agreement, SHLP could be obligated to make a distribution to the Partners up to$134 million to fund their related payments to the IRS and applicable state taxing authorities. Notwithstanding,the indenture governing the Secured Notes(the"Indenture")restricts SHLP's ability to make distributions to the Partners pursuant to the Tax Distribution Agreement in excess of the Maximum CCM Payment,unless S14LP receives a cash equity contribution from JFSCI for such excess or unless we use some of our capacity under the Indenture to make restricted payments. The initial Maximum CCM Payment is $70.0 million, which amount will be reduced by payments made by SHI in connection with any resolution of our dispute with the IRS regarding our use of the CCM and payments made by SHLP on certain guarantee obligations permitted in the Indenture. Payments of CCM-related tax liabilities by S1 LP pursuant to the Tax Distribution Agreement or by SHI will not impact our Consolidated Fixed Charge Coverage Ratio(as defined below) or our ability to incur additional indebtedness under the terms of the Indenture. If necessary, SHLP and SHI expect to pay any CCM-related tax liability from existing cash,cash from operations, our Revolver and,to the extent SHLP is required by the Tax Distribution Agreement to pay amounts in excess of the Maximum CCM Payment, from cash equity contributions by JFSCI. However,cash from homebuilding operations may be insufficient to cover such payments. See"Item 1A: Risk Factors—The IRS can challenge our income and expense recognition methodologies. If we are unsuccessful in defending our positions, we could become subject to a substantial tax liability from previous years"and"Item IA: Risk Factors— Under our Tax Distribution Agreement,we are required to make distributions to our equity holders from time to time based on their ownership in SHLP,which is a limited partnership and,under certain circumstances,those distributions may occur even if SHLP does not have taxable income." We are unable to extend our evaluation of the sufficiency of our liquidity beyond twelve months, and we cannot offer assurance that our future homebuilding operations will generate sufficient cash flow to enable us to grow our business, service our indebtedness, make payments toward land purchase commitments,or fund our joint ventures. For more information, see"Item ]A: Risk Factors— Our ability to generate sufficient cash or access other limited sources of liquidity to operate our business and service our debt depends on many factors,some of which are beyond our control" and"Item IA: Risk Factors—We have a significant number of contingent liabilities,and if any are satisfied by us,could have a material adverse effect on our liquidity and results of operations." The following tables present cash provided by(used in)operating,investing and financing activities: Years Ended December 31, 2014 2013 2012 (In thousands) Cash provided by(used in): Operating activities $ 2,454 $(47,867) $(6,655) Investing activities 34,976 (14,804) 16,888 Financing activities (6,733) (10,880) 1,157 Net increase(decrease)in cash $30,697 $(73,551) $11,390 Cash from Operating Activities In 2014,cash provided by (used in)operating activities was$2.5 million compared to$(47.9) million in 2013. This improvement was primarily attributable to increased cash receipts from deliveries of homes,partially offset by increased land acquisitions,land development costs, construction costs and selling,general administrative costs.Total land acquisition and development costs for 2014 were$(453.3)million compared to$(329.5)million in 2013. This increase was attributable to the continued favorable housing market conditions and our desire to add to our land positions in anticipation of continued demand for new homes. In 2013,cash provided by(used in)operating activities was$(47.9)million compared to$(6.7) million in 2012.This decrease was primarily attributable to increased land acquisitions,land development costs,construction costs and selling,general administrative costs,partially offset by increased cash receipts from deliveries of homes and land. Total land acquisition and development costs for 2013 were$(329.5)million compared to$(215.9)million in 2012. This increase was attributable to the improved housing market conditions that continued in 2013 and our desire to add to our land positions in anticipation of continued demand for new homes. 38 HB -525- Item 16. - 107 Cash from Investing Activities In 2014. cash provided by (used in)investing activities was$35.0 million compared to$(14.8)million in 2013.This improvement was primarily attributable to$25.2 million of collections on promissory notes with affiliates,principally the payoff of the note receivable from JFSCI,and$9.6 million of net distributions from unconsolidated joint ventures in 2014.In 2013,there were$(22.1)million of net contributions to unconsolidated joint ventures,of which $(12.3) million related to two unconsolidated joint ventures formed in 2013, which was partially offset by$4.1 million of collections on promissory notes with affiliates and $3.2 million of proceeds from the maturity and sales of available-for-sale investments. In 2013,cash provided by (used in)investing activities was$(14.8) million compared to$16.9 million in 2012.This decrease was primarily attributable to$(22.1)million of net contributions to unconsolidated joint ventures in 2013,of which $(12.3) million related to two unconsolidated joint ventures formed in 2013,compared to$(1 1.5)million of net contributions in 2012.In addition, we received$3.2 million of proceeds from the maturity and sales of available-for-sale investments in 2013 compared to$26.5 million in 2012. Cash from Financing Activities In 2014,cash used in financing activities was$(6.7) million compared to$(10.9)million in 2013.This reduction in cash used was primarily attributable to a$7.6 million decrease in principal payments on notes payable,partially offset by a$4.4 million cash payment for the acquisition of land from an affiliate under common control. In 2013,cash provided by (used in)financing activities was$(10.9) million compared to$1.2 million in 2012.This decrease was primarily attributable to higher principal payments to financial institutions and others. Notes Payable At December 31, 2014, 2013 and 2012, notes payable were as follows: December 31, 2014 2013 2012 (In-housnnds) Notes payable. Secured Notes $750,000 $750,000 $750,000 Revolver 0 0 0 Other secured promissory notes 11,404 1,708 8,209 Total notes payable $761A04 $751,708 $758,209 Secured Notes Our Secured Notes were issued on May 10,2011 at$750.0 million,bear interest at 8.625%paid semi-annually on May 15 and November 15, and do not require principal payments until maturity on May 15,2019.The Secured Notes are redeemable, in whole or in part,at our option beginning May 15,2015 at a price of 104.313 per bond, reducing to 102.156 on May 15,2016 and are redeemable at par beginning May 15, 2017.The Secured Notes may be redeemed prior to May 15,2015 subject to a make-whole premium.At December 31,2014 and 2013,accrued interest was $8.1 million and$8.1 million,respectively. The Indenture contains covenants that limit, among other things, our ability to incur additional indebtedness(including the issuance of certain preferred stock),pay dividends and distributions on our equity interests,repurchase our equity interests,retire unsecured or subordinated notes more than one year prior to their maturity,make investments in subsidiaries and joint ventures that are not restricted subsidiaries that guarantee the Secured Notes, sell certain assets,incur liens, merge with or into other companies,expand into unrelated businesses,and enter into certain transactions with our affiliates.At December 31,2014 and 2013,we were in compliance with these covenants. The Indenture provides we and our restricted subsidiaries may not incur or guarantee payment of any indebtedness (other than certain specified types of permitted indebtedness) unless,immediately after giving effect to such incurrence or guarantee and application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio(as defined in the Indenture)would be at least 2.0 to 1.0. "Consolidated Fixed Charge Coverage Ratio"is defined in the Indenture as the ratio of(i)our Consolidated Cash Flow Available for Fixed Charges (as defined in the Indenture)for such prior four full fiscal quarters, to(ii)our aggregate Consolidated Interest Expense(as defined in the Indenture)for such prior four full fiscal quarters, in each case giving pro forma effect to certain transactions as specified in the Indenture. At December 31,2014,our Consolidated Fixed Charge Coverage Ratio,determined as specified in the Indenture,was 3.38. 39 Item 16. - 108 HB -s26- Our ability to make joint venture and other restricted payments and investments is governed by the Indenture. We are permitted to make restricted payments under(i)a$70.0 million revolving basket available solely for joint venture investments; (ii)a$10 million general basket that can be used for joint venture investments and advances; and(iii) a broader restricted payment basket available if our Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture)is at least 2.0 to 1.0. The aggregate amount of restricted payments made under this broader restricted payment basket cannot exceed 50%of our cumulative Consolidated Net Income (as defined in the Indenture)generated from and including October 1, 2013, plus 100%of the aggregate net cash proceeds of, and the fair market value of,any property or other asset received by us as a capital contribution after May 10, 2011 or upon the issuance of indebtedness or certain securities by us after May 10, 2011, plus,to the extent not included in Consolidated Net Income, certain amounts received in connection with dispositions,distributions or repayments of restricted investments,plus the value of any unrestricted subsidiary which is redesignated as a restricted subsidiary after May 10,2011 under the Indenture. We have joint ventures which have used, and are expected to use,capacity under these restricted payment baskets. In 2013, we entered into an unconsolidated joint venture in Southern California and committed to contribute up to$45.0 million. At December 31,2013, we made aggregate contributions of$15.1 million to this joint venture. At December 31, 2014, all contributions had been returned to us, however, additional contributions are expected to be made in 2015. We also anticipate making additional contributions to other joint ventures. Revolver In February 2014, we replaced our$75.0 million secured letter of credit facility with the Revolver,which bears interest, at our option,either at(i) a daily Eurocurrency base rate as defined in the Credit Agreement,plus a margin of 2.75%, or(ii)a Eurocurrency rate as defined in the Credit Agreement,plus a margin of 2.75%, and matures March 1, 2016. Borrowing availability is determined by a borrowing base formula and we are subject to financial covenants, including minimum net worth and leverage and interest coverage ratios. If we do not maintain compliance with these financial covenants, the Revolver converts to an 18-month amortizing term loan. At December 31,2014,we were in compliance with these covenants and no amounts were outstanding. At December 31, 2014, covenant compliance for the Revolver was as follows: Covenant Actual at Requirements at December 31, December 31, 2014 2014 (Dollars in thousands) Covenant Requirements: Minimum Consolidated Tangible Net Worth(a� $ 579,189 $371,996 Minimum Liquidity $_ 229,416 >_$ 5,000 Ratio of Land Assets to Tangible Net Worth 1.23 <_2.0 Interest Coverage Ratio 3.53 Adjusted Leverage Ratio(h) 0.93 <_2.5 Permitted Maximum Senior Leverage Ratio 0 <_0.75 Actual Borrowinos/Permitted Borrowings(c) $ 0 $125,000 (a) Consolidated Tangible Net Worth("TNW-)cannot be less than the sum of: (a) 75%of consolidated TNW at December 31, 2013,plus (b)50% of the cumulative Net Cash Proceeds,as defined in the Revolver, of any Equity Issuances received by borrower after February 20, 2014,plus(c) 50%of the cumulative Consolidated Net Income, as defined in the Revolver, minus income taxes at an effective rate of 50%. (b) Not to be greater than 2.5 prior to and including December 31, 2014, and 2.0 after December 31, 2014. (c) Borrowing capacity under the provision of the borrowing base, as defined in the Credit Agreement. 40 HB -5-7_ Item 16. - 109 CONTRACTUAL OBLIGATIONS, COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS Contractual Obligations Primary contractual obligations are payments under notes payable,operating leases and purchase obligations. Purchase obligations primarily represent land purchase and option contracts, and purchase obligations for water system connection rights. At December 31, 2014, future estimated payments under existing contractual obligations,including estimated future cash payments, are as follows: Payments due by_period Less than 2-3 4-5 After 5 Total 1 Year Years Years Years (In thousands) Contractual obligations: Long-term debt principal payments $ 761,404 $ 1,904 $ 9,500 $750,000 $ 0 Long-term debt interest payments 291,537 65,068 129,438 97,031 0 Operating leases 9,671 2,293 2,718 2,217 2,443 Purchase obligations(1) 423,243 213,534 114,647 56,570 38,492 Total contractual obligations $1,485,855 $282,799 $256,303 $905,818 $40,935 (1) Comprised of$395.9 million of land purchase and option contracts, and$27.4 million of water system connection rights purchase obligations. We expect to fund contractual obligations in the ordinary course of business with existing cash resources, cash flows generated from operations, our Revolver,and issuance of new debt as market conditions permit. Land Purchase and Option Contracts In the ordinary course of business, we enter into land purchase and option contracts to procure land for construction of homes. These contracts typically require a cash deposit and the purchase is often contingent on satisfaction of certain requirements by land sellers, including securing property and development entitlements. We utilize option contracts to acquire large tracts of land in smaller parcels to better manage financial and market risk of holding land and to reduce use of funds. Option contracts generally require a non-refundable deposit after a diligence period for the right to acquire lots over a specified period of time at a predetermined price. However, in certain circumstances,the purchase price may not, in whole or in part,be determinable and payable until the homes or lots are delivered. In such instances, an estimated purchase price for the unknown portion is not included in the total remaining purchase price. At December 31, 2014,we had owned or controlled 7,067 lots in Colorado for which the purchase price is determined when the underlying lots deliver with a homebuyer or other purchaser. In addition,at December 31, 2014, we have an option to purchase 262 lots in Northern California where the purchase price is based on future price and profit appreciation of the homes delivered (see"Item 13—Certain Relationships and Affiliate Transactions, and Director Independence"). At our discretion,we generally have rights to terminate our obligations under purchase and option contracts by forfeiting our cash deposit or repaying amounts drawn under our letters of credit with no further financial responsibility to the land seller. However, purchase contracts can contain additional development obligations that must be completed even if a contract is terminated. Use of option contracts is dependent on the willingness of land sellers, availability of capital, housing market conditions and geographic preferences. Options may be more difficult to obtain from land sellers in stronger housing markets and are more prevalent in certain geographic regions. At December 31,2014, we had$24.8 million in option contract deposits on land with a total remaining purchase price, excluding land subject to option contracts that do not specify a purchase price, of$395.9 million,compared to$21.0 million and $422.3 million,respectively,at December 31,2013. Water System Connection Rights At a homebuilding project in Colorado,we have a contractual obligation to purchase and receive water system connection rights which, at December 31, 2014,was $27.4 million, which is less than their estimated market value. These water system connection rights are held, then transferred to homebuyers upon delivery of their home, transferred upon sale of land to the respective buyer,sold or leased, but generally only within the local jurisdiction. 41 Item 16. - 110 HB - 28- Land Development and Homebuilding Joint Ventures We enter into land development and homebuilding joint ventures for the following purposes: • leveraging our capital base; • managing and reducing financial and market risks of holding land; • establishing strategic alliances; • accessing lot positions;and • expanding market share. These joint ventures typically obtain secured acquisition,development and construction financing,each designed to reduce use of corporate funds. In December 2012, an unconsolidated joint venture,RRWS,LLC ("RRWS"),was formed and is owned 50%by us and 50%by a third-party real estate developer("the RRWS Partner"). Through two wholly-owned subsidiaries,RRWS owns land in two master planned communities in the central coast of California.One subsidiary develops lots and constructs and sells single family attached and detached homes. This subsidiary is also under contract to acquire residential lots from an entity controlled by the RRWS Partner. The other subsidiary owns commercial and residential land in which the residential land is intended to be sold to us for construction and sales of active lifestyle targeted homes. Several acquisition, development and construction loans were entered into by RRWS,each with two-year terms and options to extend for one year, subject to certain conditions. Each loan is cross collateralized and cross-defaulted with the other loan.We and RRWS Partner each executed limited completion,interest and carry guarantees and environmental indemnities on a joint and several basis. In addition,we and RRWS Partner executed loan-to-value maintenance agreements for each loan on a joint and several basis. We have a maximum aggregate liability under the remargin arrangements of the lesser of 50%of the outstanding balances in total for these joint venture loans or$35.0 million.Our and RRWS Partner's obligations under the remargin arrangements are limited during the first two years of the loans. In addition to remargin arrangements,the RRWS Partner and several of its principals executed repayment guarantees with no limit on their liability.At December 31,2014 and 2013, outstanding bank notes payable were$43.0 million and$47.7 million, respectively,of which we have a maximum remargin obligation of$21.5 million and$23.8 million, respectively. We also have an agreement from RRWS Partner, under which we could potentially recover a portion of payments we made. However, we cannot provide assurance we could collect under this agreement.No liabilities were recorded for these guarantees at December 31,2014 and 2013 as the fair value of the secured real estate assets exceeded the threshold at which a remargin payment is required. In November 2012, an unconsolidated joint venture,Polo Estates Ventures,LLC("Polo"),was formed and is owned 50%by us and 50% by a third-party investor("Polo Partner").Polo entered into acquisition,development and construction loans in July 2013 with two-year terms and options to extend for one year, subject to certain conditions. Each loan is cross collateralized and cross defaulted with the other loan.We and Polo Partner each executed loan-to-value maintenance arrangements for each loan on a joint and several basis.At December 31,2014 and 2013, outstanding bank notes payable were$12.7 million and$4.8 million,respectively, and total maximum borrowings permitted on these loans were$21.6 million and$21.6 million,respectively. We also have reimbursement rights where we could potentially recover a portion of payments we made. However,we cannot provide assurance we could collect such payments. No liabilities were recorded for these guarantees at December 31,2014 and 2013 as the fair value of the secured real estate assets exceeded the threshold at which a remargin payment is required. In May 2013,we entered into an unconsolidated joint venture,RMV PA2 Development,LLC("RMV"),to develop and sell land located in Southern California to the joint venture members and other parties.We have a preferred interest which earns a stated 10% preferred rate,with potential to earn additional earnings based on the cash flows of RMV up to a maximum of a 15%internal rate of return. We committed to contribute up to$45.0 million. At December 31, 2013,we made aggregate contributions of$15.1 million to RMV,which were returned to us by December 31, 2014. In 2015, we anticipate making additional contributions at amounts below the $45.0 million commitment, and expect such contributions will be returned by the end of 2015. In December 2011,Vistancia,LLC, a consolidated joint venture, sold its remaining interest in an unconsolidated joint venture (the"Vistancia Sale").As a result of the Vistancia Sale, no other assets of Vistancia,LLC economically benefit the former non- controlling member and we recorded an obligation for the remaining$3.3 million distribution payable to this member,which is paid $0.1 million quarterly.In May 2012,for a nominal amount, SHLP purchased this member's entire 16.7% interest;however,the distribution payable remained.At December 31,2014 and 2013,the distribution payable was$2.2 million and$2.5 million, respectively. 42 HB -S22q- Item 16. - III At December 31,2014 and 2013,total unconsolidated joint ventures' notes payable consisted of the following: December 31, 2014 2013 (In thousands) Bank and seller notes payable: Guaranteed(subject to remargin obligations) $ 55,675 $52,515 Non-Guaranteed 34,824 10,073 Total bank and seller notes payable(a) 90,499 62,588 Partner notes payable ro>: Unsecured 68,543 16,001 Total unconsolidated joint venture notes payable $159,042 $78,589 Other unconsolidated joint venture notes payable(c) $ 83,847 $55,441 (a) All bank and seller notes were secured by real property. (b) No guarantees were provided on partner notes payables. In January 2014,a$3.2 million partner note from one joint venture was paid in full. (c) Through indirect effective ownership in two joint ventures of 12.3% and 0.0003%,respectively,that had bank notes payable secured by real property in which we have not provided a guaranty. At December 31, 2014 and 2013,remargin obligations and guarantees provided on debt of our unconsolidated joint ventures were on a joint and/or several basis and include, but are not limited to,project completion, interest and carry, and loan-to-value maintenance guarantees. We may be required to use our funds for obligations of these joint ventures,such as: • loans(including to replace expiring loans,to satisfy loan remargin and land development and construction completion obligations or to satisfy environmental indemnity obligations); • development and construction costs; • indemnity obligations to surety providers; • land purchase obligations; and • dissolutions(including satisfaction of joint venture indebtedness through repayment or the assumption of such indebtedness,payments to partners in connection with the dissolution, or payment of the remaining costs to complete, including warranty and legal obligations). Guarantees, Surety Obligations and Other Contingencies At December 31, 2014 and 2013,maximum unrecorded loan remargin or other guarantees, surety obligations and certain other contingencies were as follows: December 31, 2014 2013 (In thousands) Tax Court CCM case(capped at$70.0 million) $ 70,000 $ 70000 Remargin obligations for unconsolidated joint venture loans 34,199 28,684 Costs to complete on surety bonds for Company projects 66,836 77,276 Costs to complete on surety bonds for joint venture projects 22,694 22,845 Costs to complete on surety bonds for affiliate projects 2,152 1,614 Total unrecorded contingent liabilities and commitments $195,881 $200,419 On May 10,2011,we entered into a$75.0 million letter of credit facility. At December 31, 2013,there were no letters of credit outstanding under this facility. In February 2014,this credit facility was replaced by the Revolver,which includes a$62.5 million sublimit for letters of credit. At December 31, 2014,there were no outstanding letters of credit under the Revolver. 43 Item 16. - 112 HB -5 30- We provide surety bonds that guarantee completion of certain infrastructure serving our homebuilding projects.At December 31,2014, there were$66.8 million of costs to complete in connection with$146.5 million of surety bonds issued.At December 31, 2013,there were $77.3 million of costs to complete in connection with$169.7 million of surety bonds issued. We also provide indemnification for bonds issued by certain unconsolidated joint ventures and other affiliate projects in which we have no ownership interest. At December 31,2014,there were$22.7 million of costs to complete in connection with $63.2 million of surety bonds issued for unconsolidated joint venture projects,and$2.2 million of costs to complete in connection with$3.5 million of surety bonds issued for affiliate projects. At December 31,2013.there were$22.8 million of costs to complete in connection with $63.7 million of surety bonds issued for unconsolidated joint venture projects, and$1.6 million of costs to complete in connection with$4.9 million of surety bonds issued for affiliate projects. Certain of our homebuilding projects utilize community facility district,metro-district and other local government bond financing programs to fund acquisition or construction of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on landowners, including land we own,and/or homeowners following the delivery of new homes in the community. Occasionally,we also enter into credit support arrangements requiring us to pay interest and principal on these bonds if taxes and assessments levied on landowners and/or homeowners are insufficient to cover such obligations.Furthermore,reimbursement of these payments to us is dependent on the district or local government's ability to generate sufficient tax and assessment revenues from the new homes. At December 31, 2014 and 2013,in connection with credit support arrangements,there was$10.9 million and$8.6 million, respectively,reimbursable to us from certain agencies in Colorado and, accordingly,recorded in inventory as a recoverable project cost. We also pay certain fees and costs associated with the construction of infrastructure improvements in homebuilding projects that utilize these district bond financing programs.These fees and costs are typically reimbursable to us from,and therefore dependent on,bond proceeds or taxes and assessments levied on landowners and/or homeowners.At December 31, 2014 and 2013,in connection with certain funding arrangements, there was$14.0 million and$13.1 million,respectively,reimbursable to us from certain agencies, including$12.8 million and$11.9 million.respectively,from metro-districts in Colorado and,accordingly, were recorded in inventory as a recoverable project cost. Until bond proceeds or tax and assessment revenues are sufficient to cover our obligations and/or reimburse us,our responsibility to make interest and principal payments on these bonds or pay fees and costs associated with the construction of infrastructure improvements could be prolonged and significant.In addition,if bond proceeds or tax and assessment revenues are not sufficient to cover our obligations and/or reimburse us,these amounts might not be recoverable. As a condition of the Vistancia Sale,and the purchase of the non-controlling member's remaining interest in Vistancia,LLC,we remain a 10%guarantor on certain community facility district bond obligations to which the we must meet a minimum calculated tangible net worth;otherwise,we are required to fund collateral to the bond issuer. At December 31, 2014 and 2013,we exceeded the minimum tangible net worth requirement. CRITICAL ACCOUNTING POLICIES Preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles("GAAP")requires us to make estimates and judgments that affect reported amounts of assets,liabilities,revenues and expenses, and related disclosures of contingent assets and liabilities.On an ongoing basis,we evaluate our estimates and judgments,including those that impact our most critical accounting policies.We base our estimates and judgments on historical experience and various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.We believe accounting policies related to the following accounts or activities are those most critical to the portrayal of our consolidated financial condition and results of operations and require the most significant judgments and estimates. Inveittory We capitalize preacquisition,land,development and other allocated costs, including interest,during development and home construction.Applicable costs incurred after development or construction is substantially complete are charged to selling,general and administrative, and other expenses as appropriate. Preacquisition costs,including non-refundable land deposits, are expensed to other income (expense),net when we determine continuation of the respective project is not probable. Land,development and other indirect costs are typically allocated to inventory using a methodology that approximates the relative- sales-value method. Home construction costs are recorded using the specific identification method.Cost of sales for homes delivered includes the specific construction costs of each home and all applicable land acquisition,land development and related costs(both incurred and estimated to be incurred) based upon the total number of homes expected to be delivered in each community.Changes to estimated total development costs subsequent to initial home deliveries in a community are generally allocated on a relative-sales-value method to remaining homes in the community. 44 1113 _;31- Item 16. - 113 Inventory is stated at cost, unless the carrying amount for inventory (other than land held for sale)is determined to be unrecoverable,in which case inventory is adjusted to fair value. For land held for sale,inventory is stated at the lower of cost or fair value less cost to sell. Quarterly, we review our real estate assets at each community for indicators of impairment. Real estate assets include projects actively selling, under development, held for future development or held for sale. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and prices of comparable homes, significant decreases in gross margins and sales absorption rates,costs in excess of budget, and actual or projected cash flow losses. If there are indications of impairment, we analyze the budgets and cash flows of our real estate assets and compare the estimated remaining undiscounted future cash flows of the community to the asset's carrying value. If the undiscounted cash flows exceed the asset's carrying value, no impairment adjustment is required.If the undiscounted cash flows are less than the asset's carrying value, the asset is deemed impaired and adjusted to fair value.For land held for sale, if the fair value less costs to sell exceeds the asset's carrying value, no impairment adjustment is required. These impairment evaluations require use of estimates and assumptions regarding future conditions,including timing and amounts of development costs and sales prices of real estate assets,to determine if estimated future undiscounted cash flows will be sufficient to recover the asset's carrying value. When estimating undiscounted cash flows of a community, various assumptions are made,including: (i)the number of homes available and expected prices and incentives offered by us or other builders, and future price adjustments based on market and economic trends; (ii)expected sales pace and cancellation rates based on local housing market conditions,competition and historical trends; (iii) costs to date and expected to be incurred,including,but not limited to, land and land development,home construction, interest,indirect construction and overhead, and selling and marketing costs; (iv) alternative product offerings that could impact sales pace, sales price and/or building costs; and(v)alternative uses for the property. Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales rates have a direct impact on the estimated price of a home,the level of time sensitive costs (such as indirect construction, overhead and interest),and selling and marketing costs (such as model maintenance and advertising). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flows. For example, if our objective is to preserve operating margins,our cash flows will be different than if the objective is to increase sales. These objectives may vary significantly by community. If assets are considered impaired, the impairment charge is the amount the asset's carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets or other valuation techniques. These discounted cash flows are impacted by expected risk based on estimated land development,construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when the assessment is made.These factors are specific to each community and may vary among communities.The discount rate used in determining each asset's fair value depends on the community's projected life and development stage.We generally use discount rates ranging from 10%to 25%, subject to perceived risks associated with the community's cash flow streams relative to its inventory. Completed Operations Claim Costs We maintain,and require our subcontractors to maintain, general liability insurance which includes coverage for completed operations losses and damages. Most subcontractors carry this insurance through our"rolling wrap-up"insurance program,where our risks and risks of participating subcontractors are insured through a common set of master policies. Completed operations claims reserves primarily represent claims for property damage to completed homes and projects outside of our one- to two-year fit and finish warranty period. Specific length,terms and conditions of completed operations warranties vary depending on the market where homes deliver and can range up to ten years from the delivery of a home. We record expenses and liabilities for estimated costs of potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported and is actuarially estimated using individual case-based valuations and statistical analysis.These estimates make up our entire reserve and are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built, changes in claims reporting and settlement patterns,third party recoveries,insurance industry practices,insurance regulations and legal precedent. Because state regulations vary, completed operations claims are reported and resolved over an extended period, sometimes exceeding ten years. As a result,actual costs may differ significantly from estimates. 45 Item 16. - 114 HB - ,2- The actuarial analyses that determine these incurred but not reported claims consider various factors,including frequency and severity of losses,which are based on historical claims experience supplemented by industry data.The actuarial analyses of these claims and reserves also consider historical third party recovery rates and claims management expenses. Due to inherent uncertainties related to each of these factors.changes based on updated relevant information could result in actual costs differing significantly from estimates. In accordance with our completed operations insurance policies,completed operations claims costs are recoverable from our subcontractors or insurance carriers.For policy years from August 1,2001 through the present,completed operations claims are insured or reinsured by third-party and affiliate insurance carriers. Revenues In accordance with Accounting Standards Codification ("ASC") 360,revenues from housing and other real estate sales are recognized when the respective units deliver. Housing and other real estate sales deliver when all conditions of escrow are met,including delivery of the home or other real estate asset to the customer, title passage, appropriate consideration is received or collection of associated receivables,if any,is reasonably assured and when we have no other continuing involvement in the asset. Sales incentives are a reduction of revenues when the respective unit delivers. Income Taxes SHLP is treated as a partnership for income tax purposes.As a limited partnership, SHLP is subject to certain minimal state taxes and fees;however,taxes on income realized by SHLP are generally the obligation of the Partners and their owners. SHI and PIC are C corporations. Federal and state income taxes are provided for these entities in accordance with ASC 740.The provision for,or benefit from,income taxes is calculated using the asset and liability method,whereby deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect the year in which differences are expected to reverse. Deferred tax assets are evaluated to determine whether a valuation allowance should be established based on our determination if it is more likely than not some or all of the deferred tax assets will not be realized.The ultimate realization of deferred tax assets depends primarily on generation of future taxable income during periods in which those temporary differences become deductible. Assessment of a valuation allowance includes giving appropriate consideration to all positive and negative evidence related to realization of the deferred tax asset.This assessment considers,among other things,the nature,frequency and severity of current and cumulative losses in recent years, forecasts of future profitability,duration of statutory carryforward periods,our experience with operating loss and tax credit carryforwards before they expire,and tax planning alternatives.Judgment is required in determining future tax consequences of events that have been recognized in the consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations. We follow certain accounting guidance on how uncertain tax positions should be accounted for and disclosed in the consolidated financial statements.The guidance requires assessment of tax positions taken or expected to be taken in the tax returns and to determine whether the tax positions are"more-likely-than-not"of being sustained upon examination by the applicable tax authority.Tax positions deemed to meet the more-likely-than-not criteria would be recorded as a tax benefit or expense in the current year.We are required to assess open tax years,as defined by the statute of limitations,for all major jurisdictions,including federal and certain states. Open tax years are those that are open for examination by taxing authorities. We have examinations in progress but believe no uncertain tax positions exist that do not meet the more-likely-than-not criteria. RECENT ACCOUNTING PRONOUNCEMENTS See Note 2 in our accompanying consolidated financial statements. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk primarily from interest rate fluctuations.Historically,we have incurred fixed-rate and variable-rate debt. For fixed-rate debt,changes in interest rates generally affect the fair market value of the debt instrument,but not earnings or cash flow. Conversely,for variable-rate debt,changes in interest rates generally do not affect the fair market value of the debt but do affect earnings and cash flow. We did not utilize swaps,forward or option contracts on interest rates or commodities,or other types of derivative financial instruments at or during the year ended December 31.2014.We have not entered into and currently do not hold derivatives for trading or speculative purposes.As we do not have an obligation to prepay fixed-rate debt prior to maturity,and we do not currently have a significant amount of variable-rate debt,interest rate risk and changes in fair market value should not have a significant impact on such debt until we refinance. 46 JIB -;;,- Item 16. - 115 In February 2014,we replaced our$75.0 million secured letter of credit facility with the$125.0 million Revolver, which bears interest,at the Company's option,either at(i) a daily eurocurrency base rate as defined in the Credit Agreement,plus a margin of 2.75%,or(ii)a eurocurrency rate as defined in the Credit Agreement,plus a margin of 2.75%,and matures March 1,2016. Borrowing availability is determined by a borrowing base formula and we are subject to financial covenants,including minimum net worth and leverage and interest coverage ratios. If we do not maintain compliance with these financial covenants, the Revolver converts to an 18-month amortizing term loan. At December 31, 2014, we were in compliance with these covenants and no amounts were outstanding. 47 Item 16. - 116 HB -534- ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm The Board of Directors, Shareholders and Partners Shea Homes Limited Partnership We have audited the accompanying consolidated balance sheets of Shea Homes Limited Partnership (the Company),a California limited partnership, as of December 31, 2014 and 2013, and the related consolidated statements of income,comprehensive income, changes in equity,and cash flows for each of the three years in the period ended December 31,2014.These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion. In our opinion,the financial statements referred to above present fairly, in all material respects,the consolidated financial position of Shea Homes Limited Partnership at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 in conformity with U. S. generally accepted accounting principles. /s/Ernst& Young LLP Los Angeles, California March 6,2015 48 t IB _s;s_ Item 16. - 117 Shea Homes Limited Partnership (A California Limited Partnership) Consolidated Balance Sheets (It? thousands) December 31, 2014 2013 Assets Cash and cash equivalents $ 236,902 $ 206,205 Restricted cash 426 1,189 Accounts and other receivables, net 147,508 147,499 Receivables from affiliates,net 6,403 31,313 Inventory 1,173,585 1,013,272 Investments in and advances to unconsolidated joint ventures 42,764 48,785 Other assets, net 59,122 57,070 Total assets $1,666,710 $1,505,333 Liabilities and equity Liabilities: Notes payable $ 761,404 $ 751,708 Payables to affiliates 4,797 21 Accounts payable 67,321 62,346 Other liabilities 278,330 245,801 Total liabilities 1,111,852 1,059,876 Equity: SHLP equity: Owners' equity 549,373 440,268 Accumulated other comprehensive income 5,106 4,788 Total SHLP equity 554,479 445,056 Non-controlling interests 379 401 Total equity 554,858 445,457 Total liabilities and equity $1,666,710 $1,505,333 See accompan-ving notes 49 Item 16. - 118 HB -536- Shea Homes Limited Partnership (A California Limited Partnership) Consolidated Statements of Income (In thousands) Years Ended December 31, 2014 2013 2012 Revenues $.1,140,606 $ 930,610 $ 680,147 Cost of sales (885,018) (709,412) (538,434) Gross margin 255,598 221,199 141,713 Selling expenses (63,429) (54,338) (45,788) General and administrative expenses (54,921) (50,080) (43,747) Equity in income(loss)from unconsolidated joint ventures 9,142 (1,104) 378 Gain(loss)on reinsurance transaction 7,177 2,011 (12,013)' Interest expense (595) (5,071) (19,862) Other income(expense), net (1,350) (778) 9,119 Income before income taxes 151,612 111,838 29,800 Income tax benefit(expense) (18ID 14,101R (616) Net income 133,399 125,939 29,184 Less; Net loss(income)attributable to non-controlling interests 37 8 (146) Net income attributable to SHLP $ 133,436 $ 125,947 $ 29,038 See accompanying notes 50 HB -537- Item 16. - 119 Shea Homes Limited Partnership (A California Limited Partnership) Consolidated Statements of Comprehensive Income (In thousands) Years Ended December 31, 2014 2013 2012 Net income $133,399 $125,939 $29,184 Other comprehensive income,before tax Unrealized investment holding ains during Y g the year 565' 552 1,569 gg b Less: Reclassification adjustments for investment gains included in net income 0 (39) (3,976) Comprehensive income,before tax 133,964 126,452 26,777 Income tax benefit(expense) (247) (242) 532 Comprehensive income, net of tax 133,717 126,210 27,309 Less: Comprehensive(income) loss attributable to non-controlling interests 37 8 (146) Comprehensive income attributable to SHLP $133,754 ., $126,21,8 $27,163 See accompanying notes 51 Item 16. - 120 HB -538- M �n aA a, oo r a O r ON 00 r O v 00 0 00 r O --^ D1 M r r v) cC O 00 M 00 O M N Q> N (V bg 64 O b CO bo O �O O �c 0, "o -zt a1 W O c0 r O r V1 O cb t1i oc fR r� > ❑ o ° M oc M ^ N O 00 r - ' oo 'T to oA 3 p O O M r �c 00 In M 't M •^ V) a' +• D, O oo - �n m oC a1 N N O d' M r a1 N �t U FR U O �ih Goa o r o ^ 00 0 00 0 0 w b o > oc ^ r 0c C o r ocv�, N r Mu c� aGi '� x p o3 o c > o U s� 6 O r U oc O O N O ^ r O oo ' O v) M >= M cc V-� Lv m y v o Lr^ M M O N N m ON N N cM^ N d�'ntj w o O .° a o. a c c U ° O E Le)N cn O r 00 U C� a\ oc 6> N by = m C �t 't C � N 00 ii ° U tt C1. a LZ U G. UE� > w O oc Ln 00 O\ r 7 N N i U L r ~ C cr ° O O O V) t7 � L r o ob C r^ M M a co ct O ,L Y M CC48 o °L E c U a o o N o M M o o 0 oc o "t � •_� O ^ GO 00 M r C O — 7= H�} v O N C O C ^ M cd cz N 'G 59 O Q, V G ' 'r u C G u .�.,.. U U G' cs C d)a T as > y bD cC > N N •� G G C N G� N '�, M '� Gm G O. N o °J G ° c N ° o ti N ° ? °�' c 3 N uC, yE v '� c� G -C 'T7 .� v G E ^ .� °" ;, ^ .G bG0 y •° .� ,, a,� c'3 a� a� ° o a o a a� a G o a G o °� o N . Q n Z U a D Q a Z U H p c Z U H aye ' Ca a> c y GJ ' LI C'j cC N U �_ o c ai c o o _c U c4 U (5 U U �U Ca Ln HB _5 19- Item 16. - 121 Shea Homes Limited Partnership (A California Limited Partnership) Consolidated Statements of Cash Flows (In thousands) Years Ended December 31, 2014 2013 2012 Operating activities Net income $ 133,399 $ 125,939 $ 29,184 Adjustments to reconcile net income to net cash provided by (used in)operating activities: Equity in (income)loss from unconsolidated joint ventures (9,142) 1,104 (378) (Gain)loss on reinsurance transaction (7,177) (2,011) 12,013 Net gain on sale of available-for-sale investments 0 (15) (8,806) Reversal of deferred tax asset valuation allowance 0 (15,630) 0 Depreciation and amortization expense 12,630 10,608 8,638 Inventory impairment 9,035 0 0 Net interest capitalized on investments in unconsolidated joint ventures (2,912) (2,278) (849) Distributions of earnings from unconsolidated joint ventures 18,790 7,100 1,400 Changes in operating assets and liabilities: Restricted cash 763 11,842 687 Receivables and other assets (2,607) (13,161) (18,134) Inventory (178,700) (185,596) (68,733)' Payables and other liabilities 28,375 14,231 38,323 Net cash provided by(used in)operating activities 2,454 (47,867) (6,655)' Investing activities Proceeds from sale of available-for-sale investments 184 3,165 26,547 Collections on promissory notes from affiliates 25,183 4,104 1,881 Investments in and advances to unconsolidated joint ventures (29,158) (26,145) (11,967) Distributions of capital from unconsolidated joint ventures 38,767 4,072 427 Net cash provided by(used in)investing activities 34,976 (14804) ;, 16,888 Financing activities Principal payments to financial institutions and others (3,308) (10,880)' (2,429) Contributions from non-controlling interests 15 0 1,746 Distributions to non-controlling interests 0 0 (344) Contributions from owners 945 0 2,352 Distributions to owners (4,385) 0 0 Other financing activities 0 0 (168) Net cash provided by(used in)financing activities (6,733) (10,880) 1,157 Net increase(decrease)in cash and cash equivalents 30,697 (73,551) 11,390 Cash and cash equivalents at beginning of year 206,205 279,756 268,366 Cash and cash equivalents at end of year $ 236,902 $ 206,265 $279,756 See accompanying notes 53 Item 16. - 122 HB -540- Shea Homes Limited Partnership (A California Limited Partnership) Notes to Consolidated Financial Statements December 31, 2014 1.Organization Shea Homes Limited Partnership,a California limited partnership("SHLP"),was formed January 4, 1989,pursuant to an agreement of partnership(the"Agreement"),as most recently amended August 6,2013,by and between J.F. Shea,G.P., a Delaware general partnership, as general partner,and our limited partners who are comprised of entities and trusts,including J.F. Shea Co.,Inc. ("JFSCI"), that are under common control of Shea family members(collectively,the"Partners").J.F. Shea,G.P.is 96%owned by JFSCI. Nature of Operations Our principal business purpose is homebuilding, which includes acquiring and developing land and constructing and selling new residential homes thereon. To a lesser degree, we develop and sell land to other homebuilders. Our principal markets are California, Arizona,Colorado,Washington,Nevada,Florida,Virginia,North Carolina and Texas. We own a captive insurance company, Partners Insurance Company,Inc. ("PIC"),which provided warranty,general liability, workers' compensation and completed operations insurance for related companies and third-party subcontractors.Effective for the policy years commencing in 2007,PIC ceased issuing policies for these coverages (see Note 11). 2.Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include SHLP and its wholly-owned subsidiaries, including Shea Homes, Inc. ("SHI")and its wholly-owned subsidiaries.The Company consolidates all joint ventures in which it has a controlling interest or other ventures in which it is the primary beneficiary of a variable interest entity ("VIE"). Material intercompany accounts and transactions are eliminated. Unless the context otherwise requires,the terms "we", "us", "our"and "the Company"refer to SHLP,its subsidiaries and its consolidated joint ventures. Use of Estimates Preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes.Estimates primarily relate to valuation of certain real estate and reserves for self-insured risks. Actual results could differ significantly from those estimates. Reclassiflications Certain reclassifications were made in the 2013 consolidated financial statements to conform to classifications in 2014. At December 31, 2013, in the consolidated balance sheet,advances to unconsolidated joint ventures of$1.0 million were reclassified from receivables from affiliates to investments in and advances to unconsolidated joint ventures. In addition,for the year ended December 31,2013 and 2012,in the consolidated statements of cash flows, advances of$0.8 million were reclassified from promissory notes from affiliates to investments in and advances to unconsolidated joint ventures,and collections of$0.1 million were reclassified from promissory notes from affiliates to distributions of capital from unconsolidated joint ventures,respectively. Cash and Cash Equivalents All highly liquid investments(original maturities of 90 days or less)are considered to be cash equivalents. Concentration of Credit Risk Financial instruments representing concentrations of credit risk are primarily cash,cash equivalents, investments and insurance receivables. 54 11B -541- Item 16. - 123 Cash in banks exceeded the federally insured limits;cash equivalents comprised primarily of money market securities and securities backed by the U.S. government; and insurance receivables were with highly rated insurers and/or collateralized.We have incurred no losses on deposits of cash and cash equivalents and believe our depository institutions are financially sound and present minimal credit risk. Inventory We capitalize preacquisition,land,development and other allocated costs,including interest,during development and home construction.Applicable costs incurred after development or construction is substantially complete are charged to selling,general and administrative,and other expenses as appropriate. Preacquisition costs,including non-refundable land deposits,are expensed to other income(expense),net when we determine continuation of the respective project is not probable. Land,development and other indirect costs are typically allocated to inventory using a methodology that approximates the relative-sales-value method.Home construction costs are recorded using the specific identification method. Cost of sales for homes delivered includes the specific construction costs of each home and all applicable land acquisition,land development and related costs (both incurred and estimated to be incurred)based upon the total number of homes expected to be delivered in each community. Changes to estimated total development costs subsequent to initial home deliveries in a community are generally allocated on a relative-sales-value method to remaining homes in the community. Inventory is stated at cost,unless the carrying amount(other than land held for sale)is determined to be unrecoverable,in which case inventory is adjusted to fair value. For land held for sale,inventory is stated at the lower of cost or fair value less cost to sell. Quarterly,we review our real estate assets at each community for indicators of impairment. Real estate assets include projects actively selling,under development,held for future development or held for sale.Indicators of impairment include,but are not limited to, significant decreases in local housing market values and prices of comparable homes,significant decreases in gross margins and sales absorption rates,costs in excess of budget, and actual or projected cash flow losses. If there are indications of impairment, we analyze the budgets and cash flows of our real estate assets and compare the estimated remaining undiscounted future cash flows of the community to the asset's carrying value.If the undiscounted cash flows exceed the asset's carrying value,no impairment adjustment is required.If the undiscounted cash flows are less than the asset's carrying value, the asset is deemed impaired and adjusted to fair value.For land held for sale,if the fair value less costs to sell exceeds the asset's carrying value,no impairment adjustment is required.These impairment evaluations require use of estimates and assumptions regarding future conditions,including timing and amounts of development costs and sales prices of real estate assets,to determine if estimated future undiscounted cash flows will be sufficient to recover the asset's carrying value. When estimating undiscounted cash flows of a community,various assumptions are made,including: (i)the number of homes available and expected prices and incentives offered by us or other builders, and future price adjustments based on market and economic trends; (ii)expected sales pace and cancellation rates based on local housing market conditions,competition and historical trends;(iii)costs to date and expected to be incurred,including,but not limited to,land and land development,home construction, interest,indirect construction and overhead, and selling and marketing costs; (iv) alternative product offerings that could impact sales pace, sales price and/or building costs; and(v)alternative uses for the property. Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales rates have a direct impact on the estimated price of a home,the level of time sensitive costs (such as indirect construction,overhead and interest), and selling and marketing costs(such as model maintenance and advertising). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flows. For example,if our objective is to preserve operating margins,our cash flows will be different than if the objective is to increase sales. These objectives may vary significantly by community. If assets are considered impaired,the impairment charge is the amount the asset's carrying value exceeds its fair value.Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets or other valuation techniques.These discounted cash flows are impacted by expected risk based on estimated land development,construction and delivery timelines;market risk of price erosion;uncertainty of development or construction cost increases;and other risks specific to the asset or market conditions where the asset is located when the assessment is made.These factors are specific to each community and may vary among communities.The discount rate used in determining each asset's fair value depends on the community's projected life and development stage.We generally use discount rates ranging from 10%to 25%, subject to perceived risks associated with the community's cash flow streams relative to its inventory. 55 Item 16. - 124 HB -542- Completed Operations Claim Costs We maintain,and require our subcontractors to maintain,general liability insurance which includes coverage for completed operations losses and damages. Most subcontractors carry this insurance through our`rolling wrap-up" insurance program, where our risks and risks of participating subcontractors are insured through a common set of master policies. Completed operations claims reserves primarily represent claims for property damage to completed homes and projects outside of our one- to two-year fit and finish warranty period. Specific length,terms and conditions of completed operations claims vary depending on the market where homes deliver and can range up to ten years from the delivery of a home. We record expenses and liabilities for estimated costs of potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported and is actuarially estimated using individual case-based valuations and statistical analysis. These estimates make up our entire reserve and are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built,claims reporting and settlement patterns,third party recoveries,insurance industry practices, insurance regulations and legal precedent. Because state regulations vary,completed operations claims are reported and resolved over an extended period, sometimes exceeding ten years. As a result,actual costs may differ significantly from estimates. The actuarial analyses that determine these incurred but not reported claims consider various factors, including frequency and severity of losses,which are based on historical claims experience supplemented by industry data.The actuarial analyses of these claims and reserves also consider historical third party recovery rates and claims management expenses. Due to inherent uncertainties related to each of these factors, changes based on updated relevant information could result in actual costs differing significantly from estimates. In accordance with our completed operations insurance policies,completed operations claims costs are recoverable from our subcontractors or insurance carriers. For policy years from August 1,2001 through the present,completed operations claims are insured or reinsured by third-party and affiliate insurance carriers. Revenues In accordance with Accounting Standards Codification("ASC") 360.revenues from housing and other real estate sales are recognized when the respective units deliver.Housing and other real estate sales deliver when all conditions of escrow are met, including delivery of the home or other real estate asset to the customer, title passage, appropriate consideration is received or collection of associated receivables, if any, is reasonably assured and when we have no other continuing involvement in the asset. Sales incentives are a reduction of revenues when the respective unit delivers. Income Taxes SHLP is treated as a partnership for income tax purposes. As a limited partnership.SHLP is subject to certain minimal state taxes and fees;however,taxes on income realized by SHLP are generally the obligation of the Partners and their owners. SHI and PIC are C corporations. Federal and state income taxes are provided for these entities in accordance with ASC 740. The provision for,or benefit from,income taxes is calculated using the asset and liability method,whereby deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect the year in which differences are expected to reverse. Deferred tax assets are evaluated to determine whether a valuation allowance should be established based on our determination if it is more likely than not some or all of the deferred tax assets will not be realized.The ultimate realization of deferred tax assets depends primarily on generation of future taxable income during periods in which those temporary differences become deductible. Assessment of a valuation allowance includes giving appropriate consideration to all positive and negative evidence related to realization of the deferred tax asset. This assessment considers, among other things,the nature,frequency and severity of current and cumulative losses in recent years, forecasts of future profitability,duration of statutory carryforward periods,our experience with operating loss and tax credit carryforwards before they expire,and tax planning alternatives.Judgment is required in determining future tax consequences of events that have been recognized in the consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations. 56 N13 -543- Item 16. - 125 We follow certain accounting guidance on how uncertain tax positions should be accounted for and disclosed in the consolidated financial statements. The guidance requires assessment of tax positions taken or expected to be taken in the tax returns and to determine whether the tax positions are"more-likely-than-not"of being sustained upon examination by the applicable tax authority. Tax positions deemed to meet the more-likely-than-not criteria would be recorded as a tax benefit or expense in the current year.We are required to assess open tax years,as defined by the statute of limitations,for all major jurisdictions,including federal and certain states.Open tax years are those that are open for examination by taxing authorities. We have examinations in progress but believe no uncertain tax positions exist that do not meet the more-likely-than-not criteria(see Note 13). Advertising Costs We expense advertising costs as incurred.For the years ended December 31, 2014,2013 and 2012,we incurred and expensed advertising costs of$12.1 million,$7.4 million and$6.6 million,respectively. New Accounting Pronouncements In April 2014,the FASB issued Accounting Standard Update("ASU")2014-08,Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08"),which is intended to change the criteria for reporting discontinued operations and enhance disclosures.Under this new guidance, only disposals representing a strategic shift in operations having a major effect on the entity's operations and financial results should be presented as discontinued operations.If the disposal does qualify as a discontinued operation,the entity will be required to provide expanded disclosures,as well as disclosure of the pretax income attributable to the disposal of a significant part of an entity that does not qualify as a discontinued operation.ASU 2014-08 will be effective beginning January 1,2015 and subsequent interim periods. The adoption of ASU 2014-08 is not expected to have a material effect on our consolidated financial statements. In May 2014,the FASB issued ASU 2014-09,Revenue from Contracts with Customers("ASU 2014-09"),which provides a single comprehensive model in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance,including industry-specific guidance. ASU No.2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.This update creates a five-step model requiring entities to exercise judgment when considering the terms of the contract(s)including(i)identifying the contract(s)with the customer,(ii)identifying the separate performance obligations in the contract,(iii)determining the transaction price, (iv)allocating the transaction price to the separate performance obligations,and(v)recognizing revenue when each performance obligation is satisfied.ASU 2014-09 will be effective beginning January 1,2017 and subsequent interim periods.We have the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of applying this ASU recognized at the date of initial application. Early adoption is not permitted. We are evaluating the impact the adoption of ASU 2014-09 will have on our consolidated financial statements. In August 2014,the FASB issued ASU 2014-15,Presentation of Financial Statements- Going Concern(Subtopic 205-40): Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern,("ASU 2014-15").ASU 2014-15 requires us to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures,if required. ASU 2014-15 will be effective beginning January 1, 2016 and subsequent interim periods.The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements. 3.Restricted Cash At December 31, 2014,restricted cash included customer deposits temporarily restricted in accordance with regulatory requirements and cash used in lieu of bonds. At December 31,2014 and December 31,2013,restricted cash was$0.4 million and $1.2 million,respectively. 57 Item 16. - 126 HB -544- 4.Fair Value Disclosures ASC 820,Fair Value Measurement,defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories: • Level I —Quoted prices for identical instruments in active markets • Level 2—Quoted prices for similar instruments in active markets;quoted prices for identical or similar instruments in markets that are inactive;and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date • Level 3 —Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date At December 31, 2014,the non-financial instruments measured at fair value on a non-recurring basis were Level 3 inventories with a$23.9 million net book value and a$14.9 million fair value,resulting in an impairment charge of$9.0 million recorded in cost of sales. Fair values for inventories using Level 3 inputs were primarily based on estimated future cash flows discounted for inherent risk associated with each asset.These discounted cash flows were impacted by expected risk based on estimated land development, construction and delivery timelines;market risk of price erosion; uncertainty of development or construction cost increases;and other risks specific to the asset or market conditions where the asset was located when assessment was made. These factors were specific to each community and may vary among communities.The discount rate used in determining each asset's fair value depended on the community's projected life and development stage.We generally use discount rates from 10%to 25%,subject to perceived risks associated with the community's cash flow streams relative to its inventory. At December 31, 2014 and 2013,as required by ASC 825, net book value and estimated fair value of notes payable were as follows: December 31,2014 December 31,2013 Net Book Estimated Net Book Estimated Value Fair Value Value Fair Value (hi thoucauds) $750,000 8.625% senior secured notes due May 2019 $750,000 $787,500 $750,000 $830,625 Secured promissory notes $ 11,404 $ 11,404 $ 1,708 $ 1,708 The$750.0 million 8.625% senior secured notes due May 2019(the"Secured Notes")are level 2 financial instruments in which fair value was based on quoted market prices in an inactive market at the end of the year. Other financial instruments consist primarily of cash and cash equivalents,restricted cash, accounts and other receivables, accounts payable and other liabilities and secured promissory notes. Book values of these financial instruments approximate fair value due to their relatively short-term nature.In addition,included in other assets are available-for-sale marketable securities,which are recorded at fair value. 5.Accounts and Other Receivables,Net At December 31, 2014 and 2013,accounts and other receivables,net were as follows: December 31, 2014 2013 (In thousands) Insurance receivables $136,155 $138,610 Escrow receivables 3,965 586 Notes receivables 4,091 3,155 Development receivables 1,317 3,093 Other receivables 3,941 4,031 Reserve (1,961) (1,976) Total accounts and other receivables,net $147,508 $147,499 58 FIB _545- Item 16. - 127 Insurance receivables are from insurance carriers for reimbursable claims pertaining to resultant damage from construction defects on delivered homes(see Note 11). Delivered homes for policy years August 1, 2001 to present are insured or reinsured by third-party and affiliate insurance carriers. At December 31,2014 and 2013, insurance receivables from affiliate insurance carriers were$61.4 million and$44.0 million,respectively. We reserve for uncollectible receivables that are specifically identified. 6.Inventory At December 31, 2014 and 2013,inventory was as follows: December 31, 2014 2013 (In thousands) Model homes $ 86,340 $ 87728 Completed homes for sale 32,350 20,285 Homes under construction 310,318 257,662 Lots available for construction 402,001 342,622 Land under development 107,120 122,257 Land held for future development 126,925 70,618 Land held for sale 78,845 791102 Land deposits and preacquisition costs 29,686 32,998 Total inventory $1,173,585 $1,013,272 Model homes,completed homes for sale and homes under construction include all costs associated with home construction, including land,development,indirects,permits and vertical construction. Lots available for construction include costs incurred prior to home construction such as land,development, indirects and permits. Land under development includes costs incurred during site development such as land,development,indirects and permits.Land under development transfers to lots available for construction once site development is complete and is ready for vertical construction. Land is classified as held for future development if significant development has not occurred. Land held for sale represents residential and commercial land designated for sale,including water system connection rights that will be transferred to homebuyers upon delivery of their home,transferred upon sale of land to the respective buyer, sold or leased,but generally only within the local jurisdiction. At December 31,2014 and 2013,land held for sale included water system connection rights of$12.6 million and$11.4 million,respectively. Impairment Inventory,including the captions above,are stated at cost,unless the carrying amount is determined to be unrecoverable,in which case inventories are adjusted to fair value or fair value less costs to sell (see Note 2). For the years ended December 31, 2014,2013 and 2012,inventory impairment charges were as follows: Years Ended December 31, 2014 2013 2012 (Dollars in thousands) Inventory impairment charge $ 9,035 $ 0 $ 0 Remaining carrying value of inventory impaired at end of year $ 14,888 $ 0 $ 0 Projects impaired 3 0 0 Projects evaluated for impairment(a) 145 126 132 (a) Large land parcels not subdivided into communities are counted as one project. Once parcels are subdivided,the project count will increase accordingly. 59 Item 16. - 128 1111 -5, 6- Write-off of Deposits and Preaequisition Costs Land deposits and preacquisition costs for potential acquisitions and land option contracts are included in inventory. When a potential acquisition or land option contract is abandoned,related deposits and preacquisition costs are written off to other income (expense),net. For the years ended December 31, 2014,2013 and 2012, write-offs of deposits and preacquisition costs were$1.3 million,$1.4 million and$2.0 million,respectively. Interest Capitalization Interest is capitalized to inventory during development and other qualifying activities and is charged to cost of sales as related units deliver.Interest is capitalized to investments in unconsolidated joint ventures during the period the joint venture has activities in progress to commence its planned principal operations,and is charged to equity in income(loss)from unconsolidated joint ventures over the useful life of the joint venture's assets. For the years ended December 31,2014, 2013 and 2012,interest incurred,capitalized and expensed was as follows: Years Ended December 31, 2014 2013 2012 (In thousands) Interest incurred $ 68,204 $ 67,048 $ 66,857 Interest expensed(a) $ 595 $ 5,071 $ 19,862 Interest capitalized as a cost of inventory $ 64,697 $ 59,699 $ 46,146 Interest previously capitalized as a cost of inventory, included in cost of sales $(68,780) $(60,448) $(54,733) Interest capitalized in ending inventory(b) $ 98,017 $102,100 $102,849 Interest capitalized as a cost of investments in unconsolidated joint ventures $ 2,912 $ 2,278 $ 849 Interest previously capitalized as a cost of investments in joint ventures,included in equity in income(loss)from unconsolidated joint ventures $ (2,444) $ (1,189) $ (849) Interest capitalized in ending investments in unconsolidated joint ventures $ 1,557 $ 1,089 $ 0 (a) For the eight months ended August 31,2013. and for the year ended December 31, 2012,assets qualifying for interest capitalization were less than debt,therefore,non-qualifying interest was expensed.For the period from September 2013 to December 2014,qualifying assets exceeded debt;therefore,no interest on the Secured Notes(see Note 10)was expensed. 2014 interest expense represents fees charged on the unused Revolver(see Note 10)that is not considered a cost of borrowing and is not capitalized. (b) Inventory impairment charges were recorded against total inventory of the respective community. Capitalized interest reflects the gross amount of capitalized interest as impairment charges recognized were generally not allocated to specific components of inventory. Model Homes Costs Certain costs of model homes are capitalized to inventory and amortized as selling expense when the related units in the respective communities deliver.For the years ended December 31,2014, 2013 and 2012, amortized model homes costs were$12.0 million,$10.3 million and$8.2 million,respectively. 7.Investments in and Advances to Unconsolidated Joint Ventures Unconsolidated joint ventures,which we do not control but have significant influence through ownership interests generally up to 50%,are accounted for using the equity method of accounting.These joint ventures are generally involved in real property development. Earnings and losses are allocated in accordance with terms of joint venture agreements. Losses and distributions from joint ventures in excess of the carrying amount of our investment("Deficit Distributions")are included in other liabilities. We record Deficit Distributions since we are liable for this deficit to the respective joint ventures. Deficit Distributions are offset by future earnings of,or future contributions to,the joint ventures.At December 31, 2014 and 2013,Deficit Distributions were$0.3 million and$0.4 million,respectively. 60 1-1B -547- Item 1.6. - 129 At December 31, 2014 and 2013,investments in and advances to unconsolidated joint ventures were as follows: December 31, 2014 2013 (In thousands) Equity investments $34,037 $47,748 Loan advances 8,727 1,037 Total investments in and advances to unconsolidated joint ventures $42,764 $48,785 At December 31, 2014 and 2013,and for the years ended December 31,2014, 2013 and 2012,condensed financial information for our unconsolidated joint ventures was as follows: Condensed Balance Sheet Information December 31, 2014 2013 (In thousands) Assets Real estate inventory $253,422 $267,460 Other assets 83,674 130,840 Total assets $337,096 $398,300 Liabilities and equity Notes payable $159,042 $ 78,589 Other;liabilities 58,376 99,395" Total liabilities 217,418 177,984 Equity: The Company(a) 33,731 47,397 Others 85,947 ' 172,919 Total equity 119,678 220,316 Total liabilities and equity $337,096 $398,300 Condensed Income Statement Information Years Ended December 31, 2014 2013 2012 (In thousands) Revenues $ 288,623 $ 90743 $ 46,586 Expenses (223,899) (85,594) (48,079) Net income(loss) 64,724 5,149 (1,493) The Company's share of net income(loss) $ 9,142 $ (1,104) $ 378 (a) At December 31, 2014 and 2013,includes Deficit Distributions of$0.3 million and$0.4 million,respectively. 61 Item 16. - 130 KB -548- At December 31, 2014 and 2013,total unconsolidated joint ventures' notes payable consisted of the following: December 31, 2014 2013 (In thousands) Bank and seller notes payable:, Guaranteed(subject to remargin obligations) $ 55,675 $52,515 Non-Guaranteed 34,824 10,073 Total bank and seller notes payable(a) 90,499 62,588 Partner notes payable(b) Unsecured 68,543 16,001 Total unconsolidated joint venture notes payable $159,042''. $78,589 Other unconsolidated joint venture notes payable M $ 83,847 $55,441 (a) All bank and seller notes were secured by real property. (b) No guarantees were provided on partner notes payables.In January 2014, a$3.2 million partner note from one joint venture was paid in full. (c) Through indirect effective ownership in two joint ventures of 12.3% and 0.0003%,respectively,that had bank notes payable secured by real property in which we have not provided a guaranty. At December 31,2014 and 2013,remargin obligations and guarantees provided on debt of our unconsolidated joint ventures were on a joint and/or several basis and include,but are not limited to,project completion,interest and carry,and loan-to-value maintenance guarantees. For a joint venture,RRWS,LLC("RRWS"),we have a remargin obligation that is limited to the lesser of 50%of the outstanding balance in total for these joint venture loans or$35.0 million,which outstanding loan balances at December 31, 2014 and 2013 were$43.0 million and$47.7 million,respectively.Consequently,our maximum remargin obligation at December 31,2014 and 2013 was$21.5 million and$23.8 million,respectively.We also have an agreement where we could potentially recover a portion of payments we made.However, we cannot provide assurance we could collect under this agreement. For a second joint venture,Polo Estates Ventures,LLC("Polo"), we have a joint and several remargin guarantee on loan obligations which, in total at December 31,2014 and 2013 were$12.7 million and$4.8 million,respectively.At December 31,2014 and 2013,the total maximum borrowings permitted on these loans were$21.6 million and$21.6 million,respectively.We also have reimbursement rights where we could potentially recover a portion of payments we made. However,we cannot provide assurance we could collect such payments. No liabilities were recorded for these guarantees at December 31,2014 and 2013 as the fair value of the secured real estate assets exceeded the threshold at which a remargin payment is required. At December 31,2014 and 2013,loan advances to unconsolidated joint ventures,including accrued interest,were$8.7 million and$1.0 million,respectively.These notes receivable bear interest ranging from 7.5%to 12%and mature through 2021. Further,a loan advance bearing 8% interest can earn additional interest to achieve a 17.5%internal rate of return, subject to available cash flows of the joint venture,and can be repaid prior to 2020. Quarterly,we evaluate collectability of these loan advances, which includes consideration of prior payment history,operating performance and future payment requirements under the applicable note. Based on these criteria,we do not anticipate collection risks on these loan advances. 62 - IJB -549- Item 16. - 131 Our ability to make joint venture and other restricted payments and investments is governed by the Indenture governing the Secured Notes(the"Indenture",see Note 10). We are permitted to make restricted payments under(i)a$70.0 million revolving basket available solely for joint venture investments and advances;(ii) a$10 million general basket that can be used for joint venture investments and advances; and(iii)a broader restricted payment basket available if our Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) is at least 2.0 to 1.0. The aggregate amount of restricted payments made under this broader restricted payment basket cannot exceed 50%of our cumulative Consolidated Net Income (as defined in the Indenture)generated from and including October 1, 2013,plus the aggregate net cash proceeds of,and the fair market value of,any property or other asset received by the Company as a capital contribution or upon the issuance of indebtedness or certain securities by the Company from and including October 1, 2013,plus,to the extent not included in Consolidated Net Income,certain amounts received in connection with dispositions,distributions or repayments of restricted investments,plus the value of any unrestricted subsidiary which is redesignated as a restricted subsidiary under the Indenture. We have joint ventures which have used,and are expected to use,capacity under these restricted payment baskets. In 2013, we entered into a joint venture in Southern California and committed to contribute up to$45.0 million. At December 31,2013,we made aggregate contributions of$15.1 million to this joint venture, which were returned to us by December 31, 2014. 8.Variable Interest Entities ASC 810 requires a VIE to be consolidated in the financial statements of a company if it is the primary beneficiary of the VIE. Accordingly,the primary beneficiary has the power to direct activities of the VIE that most significantly impact the VIE's economic performance,and the obligation to absorb its losses or the right to receive its benefits. At December 31,2014 and 2013,all VIES were evaluated to determine the primary beneficiary. Joint Ventures We enter into joint ventures for homebuilding and land development activities. Investments in these joint ventures may create a variable interest in a VIE,depending on contractual terms of the venture.We analyze our joint ventures in accordance with ASC 810 to determine whether they are VIES and,if so, whether we are the primary beneficiary.At December 31, 2014 and 2013,these joint ventures were not consolidated in our consolidated financial statements since they were not VIES, or if they were VIES, we were not the primary beneficiary. At December 31,2014 and 2013,we had a variable interest in an unconsolidated joint venture determined to be a VIE. The joint venture,RRWS,was formed in December 2012 and is owned 50%by us and 50%by a third-party real estate developer(the"RRWS Partner"). Several acquisition,development and construction loans were entered into by RRWS,each with two-year terms and options to extend for one year,subject to certain conditions. Each loan is cross collateralized and cross defaulted with the other loan. We and RRWS Partner each executed limited completion, interest and carry guarantees and environmental indemnities on a joint and several basis. In addition,we and RRWS Partner executed loan-to-value maintenance agreements for each loan on a joint and several basis. We have a maximum aggregate liability under the remargin arrangements of the lesser of 50%of the outstanding balances in total for these joint venture loans or$35.0 million. Our and RRWS Partner's obligations under the remargin arrangements are limited during the first two years of the loans. In addition to remargin arrangements,the RRWS Partner and several of its principals executed repayment guarantees with no limit on their liability. At December 31, 2014 and 2013,outstanding bank notes payable were$43.0 million and$47.7 million,respectively,of which we have a maximum remargin obligation of$21.5 million and$23.8 million, respectively. We also have an agreement from the RRWS Partner,under which we could potentially recover a portion of payments we made. However, we cannot provide assurance we could collect under this agreement. At December 31, 2014 and 2013,we had a variable interest in a second unconsolidated joint venture determined to be a VIE. The joint venture, Polo,was formed in November 2012 and is owned 50%by us and 50%by a third-party investor("Polo Partner"). Polo entered into acquisition,development and construction loans in July 2013 with two-year terms and options to extend for one year, subject to certain conditions. Each loan is cross collateralized and cross defaulted with the other loan.We and Polo Partner each executed loan-to-value maintenance arrangements for each loan on a joint and several basis. At December 31, 2014 and 2013, outstanding bank notes payable were$12.7 million and$4.8 million,respectively, and total maximum borrowings permitted on these loans were$21.6 million and$21.6 million,respectively.We also have reimbursement rights where we could potentially recover a portion of payments we made. However,we cannot provide assurance we could collect such payments. At December 31, 2014 and December 31, 2013,we had a variable interest in a third unconsolidated joint venture determined to be a VIE.The joint venture,Vistancia West Holdings LP("Vistancia West'),was formed in August 2013 and is owned 10%by us and 90%by a third-party investor("Vistancia West Partner"). A wholly-owned subsidiary of Vistancia West entered into a$27.5 million revolving credit facility in September 2014 with a three-year term,renewable annually subject to certain conditions.The revolving credit facility is secured by the underlying property and is non-recourse to us and the Vistancia West Partner.At December 31,2014,outstanding bank notes payable were$3.8 million. 63 Item 16. - 132 1 1B -550- In accordance with ASC 810, we determined we were not the primary beneficiaries of RRWS, Polo and Vistancia West because we did not have the power to direct activities that most significantly impact the economic performance of these entities, such as determining or limiting the scope or purpose of the respective entity, selling or transferring property owned or controlled by the respective entity,and arranging financing for the respective entity. Land Option Contracts We enter into land option contracts to procure land for home construction. Use of land option and similar contracts allows us to reduce market risks associated with direct land ownership and development,reduces capital and financial commitments,including interest and other carrying costs, and minimizes land inventory.Under these contracts,we pay a specified deposit for the right to purchase land,usually at a predetermined price.Under the requirements of ASC 810,certain contracts may create a variable interest with the land seller. In accordance with ASC 810, we analyzed our land option and similar contracts to determine if respective land sellers are VIEs and, if so, if we are the primary beneficiary. Although we do not have legal title to the optioned land,ASC 810 requires us to consolidate a VIE if we are the primary beneficiary. At December 31, 2014 and 2013,we determined we were not the primary beneficiary of such VIEs because we did not have the power to direct activities of the VIE that most significantly impact the VIE's economic performance, such as selling,transferring or developing land owned by the VIE. At December 31, 2014,we had$4.2 million of refundable and non-refundable cash deposits associated with land option contracts with unconsolidated VIEs,having a$60.6 million remaining purchase price. We also had$21.2 million of refundable and non-refundable cash deposits associated with land option contracts that were not with VIEs,having a$450.6 million remaining purchase price. Our loss exposure on land option contracts consists of non-refundable deposits, which were$24.8 million and$6.9 million at December 31, 2014 and 2013,respectively,and capitalized preacquisition costs of$4.4 million and$12.0 million,respectively,which were in inventory in the consolidated balance sheets. 9. Other Assets,Net At December 31,2014 and 2013,other assets were as follows: December 31, 2014 2013 (hi thousands) Income tax receivable $ 1,384 $ 2,199 Deferred tax asset(see Note 13) 20,159 16,337 Investments 9,815 9,439 Property and equipment, net 4,140 4,103 Capitalized loan origination fees 9,730 11,089 Deposits in lieu of bonds and letters of credit 8,653 10,294 Prepaid insurance 2,589 2,460 Other 2,652 1,149 Total other assets,net $59,122 $57,070 Investments Investments consist of available-for-sale securities,primarily private debt obligations,and are measured at fair value,which is based on quoted market prices or cash flow models.Accordingly,unrealized gains and temporary losses on investments,net of tax, are reported as accumulated other comprehensive income (loss). Realized gains and losses are determined using the specific identification method. For the year ended December 31,2013,there were$0.1 million of realized gains on available-for-sale securities. For the year ended December 31, 2014,there were no realized gains or losses. 64 11 B -s,1- Item 16. - 133 Capitalized Loan Origination Fees In accordance with ASC 470,loan origination fees are capitalized and amortized as interest over the term of the related debt. Deposits in Lieu of Bonds and Letters of Credit We make cash deposits in lieu of bonds or letters of credit with various agencies for some of our homebuilding projects. These deposits may be returned as the collateral requirements decrease or they are replaced with new bonds or letters of credit. 10.Notes Payable At December 31, 2014 and 2013,notes payable were as follows: December 31, 2014 2013 (In thousands) $750.0 million 8.625% senior secured notes,due May 2019 $750,000 $750,000 $125.0 trillion secured revolving credit facility(the"Revolver"),interest currently at the applicable Eurocurrency rate plus 2.75%, matures March 1, 2016 0 0 Promissory notes, interest ranging from 1%to 4%,maturing through 2016,secured by deeds of trust on inventory 11,404 1,708 Total notes payable $761,404 $751,708 Our Secured Notes were issued on May 10,2011 at$750.0 million,bear interest at 8.625%paid semi-annually on May 15 and November 15, and do not require principal payments until maturity on May 15, 2019. The Secured Notes are redeemable,in whole or in part,at the Company's option beginning on May 15, 2015 at a price of 104.313 per bond,reducing to 102.156 on May 15, 2016 and are redeemable at par beginning on May 15,2017.The Secured Notes may be redeemed prior to May 15,2015 subject to a make- whole premium.At December 31,2014 and 2013,accrued interest was$8.1 million and$8.1 million,respectively. The Indenture contains covenants that limit,among other things,our ability to incur additional indebtedness (including the issuance of certain preferred stock),pay dividends and distributions on our equity interests,repurchase our equity interests,retire unsecured or subordinated notes more than one year prior to their maturity,make investments in subsidiaries and joint ventures that are not restricted subsidiaries that guarantee the Secured Notes, sell certain assets, incur liens,merge with or into other companies, expand into unrelated businesses,and enter in certain transactions with our affiliates.At December 31,2014 and 2013, we were in compliance with these covenants. In February 2014, we replaced our$75.0 million letter of credit facility with the Revolver,which bears interest,at the Company's option,either at(i)a daily eurocurrency base rate as defined in the credit agreement governing the Revolver(the"Credit Agreement"),plus a margin of 2.75%,or(ii) a eurocurrency rate as defined in the Credit Agreement,plus a margin of 2.75%,and matures March 1, 2016. Borrowing availability is determined by a borrowing base formula and we are subject to financial covenants, including minimum net worth and leverage and interest coverage ratios. If we do not maintain compliance with these financial covenants,the Revolver converts to an 18-month amortizing term loan.At December 31, 2014,we were in compliance with these covenants and no amounts were outstanding. 65 Item 16. - 134 1 IB -552- 11.Other Liabilities At December 31, 2014 and 2013,other liabilities were as follows: December 31, 2014 2013 (In thousands) Completed operations reserves $136,155 $138,610 Warranty reserves 22,698 20,648 Accrued profit and revenue participation arrangements(see Note 12) 23,815 678 Deferred revenue/gain 22,769 29,358 Provisions for delivered homes/communities 9,116 10,591. Deposits(primarily homebuyer) 17,869 14,281 Legal reserves 15,705 4,576 Accrued interest 8,127 8,086 Accrued compensation and benefits 12,534 9,389 Distributions payable 2,169 2,531 Deficit Distributions (see Note 7) 307 351 Other 7,066 6,702 Total'other liabilities $278,330 $245,801 Completed Operations Reserves Reserves for completed operations primarily represent claims for property damage to completed homes and projects outside of our one-to-two year fit and finish warranty period. Specific length,terms and conditions of completed operations claims vary depending on the market in which homes deliver and can range up to ten years from the delivery of a home.Expenses and liabilities are recorded for potential completed operations claims based upon aggregated loss experience,which includes an estimate of completed operations claims incurred but not reported,and is actuarially estimated using individual case-based valuations and statistical analysis. For policy years from August 1, 2001 through the present,completed operations claims are insured or reinsured by third-party and affiliate insurance carriers. For the years ended December 31, 2014, 2013 and 2012,changes in completed operations reserves were as follows: Years Ended December 31, 2014 2013 2012 (In thousands) Insured completed operations Balance,beginning of the year $138,610 $131,519 $109,390 Reserves provided 15,133 19,002 40,087 Claims paid (17,588) (11,911) (17,958) Total completed operations reserves $136,155 $138,610 $131,519 Reserves provided for completed operations are generally fully offset by changes in insurance receivables(see Note 5); however,premiums paid for completed operations insurance policies are included in cost of sales. For actual completed operations claims and estimates of completed operations claims incurred but not reported, we estimate and record corresponding insurance receivables under applicable policies when recovery is probable.At December 31, 2014 and 2013, insurance receivables were$136.2 million and$138.6 million,respectively. Expenses, liabilities and receivables related to these claims are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built,claims reporting and settlement patterns, insurance industry practices,insurance regulations and legal precedent. Although considerable variability is inherent in such estimates,we believe reserves for completed operations claims are adequate. 66 14B -551- Item 16. - 135 Warranty Reserve We offer a limited one or two year fit and finish warranty for our homes. Specific terms and conditions of these warranties vary in the markets in which homes deliver. We estimate warranty costs to be incurred and record a liability and a charge to cost of sales when home revenue is recognized.We also include in our warranty reserve the uncovered losses related to completed operations coverage,which approximates 12.5%of the total property damage estimate. Factors affecting warranty liability include number of homes delivered,historical and anticipated warranty claims,and cost per claim history and trends.We regularly assess the adequacy of our warranty liabilities and adjust amounts as necessary. For the years ended December 31, 2014,2013 and 2012,changes in warranty liability were as follows: Years Ended December 31, 2014 2013 2012 (In thousands) Balance,beginning of the year $ 20,648 $17,749 $17,358 Provision for warranties 14,363 11,188 8,958 Warranty costs paid (12,313) (8,289) (8,567) Balance,end of the year $ 22,698 $20,648 $17,749 Deferred Revenue/Gain Deferred revenue/gain represents deferred revenues or gains on transactions in which an insufficient down payment was received or a future performance,passage of time or event is required. At December 31,2014 and 2013,deferred revenue/gain primarily represents the PIC Transaction described below. Completed operations claims were insured through PIC for policy years August 1,2001 to July 31,2007. In December 2009, PIC entered into a series of novation and reinsurance transactions (the "PIC Transaction"). First,PIC entered into a novation agreement with JFSCI to novate its deductible reimbursement obligations related to its workers' compensation and general liability risks at September 30,2009 for policy years August 1, 2001 to July 31,2007,and its completed operations risks from August 1,2005 to July 31,2007. Concurrently,JFSCI entered into insurance arrangements with third party insurance carriers to insure these policies. As a result of this novation, a$19.2 million gain was deferred and will be recognized as income when related claims are paid.In addition,the deferred gain may change based on changes in actuarial estimates.Changes to the deferred gain are recognized as current period income or expense. At December 31,2014 and 2013,the unamortized deferred gain was$14.9 million and$18.9 million,respectively.For the years ended December 31,2014, 2013 and 2012,we recognized$4.1 million,$1.4 million and$(4.7)million,respectively,of this deferral as income(expense),which was included in gain(loss)on reinsurance transaction, and includes both the impact of income recognized from claims paid and as income or expense from increases or decreases to the deferred gain from changes in actuarial estimates. Second,PIC entered into reinsurance agreements with unrelated reinsurers that reinsured 100%of its expected completed operations risks from August 1,2001 to July 31,2005.As a result of the reinsurance,a$15.6 million gain was deferred and will be recognized as income when the related claims are paid.In addition,the deferred gain may change based on changes in actuarial estimates.Changes to the deferred gain are recognized as current period income or expense.At December 31,2014 and 2013,the unamortized deferred gain was$4.7 million and$7.8 million,respectively.For the years ended December 31, 2014,2013,and 2012, we recognized$3.1 million,$0.6 million and$(7.3)million,respectively,of this deferral as income(expense),which was included in gain(loss)on reinsurance transaction,and includes both the impact of income recognized from claims paid as well as income or expense from increases or decreases to the deferred gain from changes in actuarial adjustments. As a result of the PIC Transaction,if the estimated ultimate loss to be paid under these policies exceeds the policy limits under the novation and reinsurance transactions,the shortfall is expected to be funded by JFSCI for the policies novated to JFSCI and by PIC for the policies it reinsured. 67 Item 16. - 136 xB -554- Distributions Payable In December 2011,our consolidated joint venture,Vistancia,LLC, sold its remaining interest in an unconsolidated joint venture (the "Vistancia Sale"). As a result of the Vistancia Sale, no other assets of Vistancia,LLC economically benefit the former non- controlling member of Vistancia,LLC and we recorded the remaining$3.3 million distribution payable to this member,which is paid $0.1 million quarterly.At December 31, 2014 and 2013,the distribution payable was$2.2 million and$2.5 million,respectively. 12.Affiliate Transactions Affiliate Receivables and Payables At December 31, 2014 and 2013,receivables from affiliates, net were as follows: December 31, 2014 2013 (In thousands) Note receivable from JFSCI $ 0 $ 21,588 Notes receivable from affiliates 15,303 18,822 Reserves for notes receivable from affiliates (12,917) (12,842)` Receivables from affiliates 4,017 3,745 Total receivables from affiliates,net $ 6,403 $ 31,313 In May 2011, concurrent with issuance of the Secured Notes,the previous unsecured receivable from JFSCI was partially paid down and the balance converted to a$38.9 million unsecured term note receivable,bearing 4% interest,payable in equal quarterly installments and maturing May 15, 2019. During 2013,JFSCI elected to make prepayments, including accrued interest,of$3.8 million and in 2014,paid the balance in full. At December 31, 2014 and 2013,notes receivable from affiliates, including accrued interest,were$2.4 million and$6.0 million, respectively, net of related reserves of$12.9 million and$12.8 million,respectively.These notes are unsecured and mature from August 2016 through March 2019. At December 31, 2014,these notes bore interest ranging from Prime less 0.75%(2.5%)to 4.20%, and at December 31, 2013,from Prime less .75% (2.5%)to 4.25%. Quarterly,we evaluate collectability of these notes which includes consideration of prior payment history,operating performance and future payment requirements under the applicable notes. Based on these criteria,two notes receivable were deemed uncollectible in 2009 and fully reserved. We do not anticipate collection risks on the other notes receivable. The Company,entities under common control and certain unconsolidated joint ventures also engage in transactions on behalf of the other, such as payment of invoices and payroll.Amounts resulting from these transactions are recorded in receivables from affiliates or payables to affiliates,are non-interest bearing,due on demand and generally paid monthly.At December 31,2014 and 2013,these receivables were$4.0 million and$3.7 million,respectively, and these payables were$4.8 million and$0.1 million, respectively. Real Property and Joint Venture Transactions Redemption or Purchase of Interest in Joint Venture In March 2012,our entire 5817c interest in Shea Colorado,LLC ("SCLLC"),a consolidated joint venture with Shea Properties 11, LLC,an affiliate and the non-controlling member,was redeemed by SCLLC. In valuing our 58% interest in SCLLC, and to ensure receipt of net assets of equal value to our ownership interest, we used third-party real estate appraisals.The estimated fair value of the assets received by us was $30.8 million. However, as the non-controlling member is an affiliate under common control,the assets and liabilities received by us were recorded at net book value and the difference in our investment in SCLLC and the net book value of the assets and liabilities received was recorded as a reduction to our equity. As consideration for the redemption, SCLLC distributed assets and liabilities to us having a net book value of$24.0 million, including$2.2 million of cash, a$3.0 million secured note receivable,$20.0 million of inventory and$1.2 million of other liabilities. As a result of this redemption,effective March 31, 2012, SCLLC is no longer included in these consolidated financial statements. This transaction resulted in a net reduction of$41.8 million in assets and$2.0 million in liabilities, and a$39.8 million reduction in total equity,of which$1 1.6 million was attributable to our equity and$28.2 million was attributable to non-controlling interests. 68 HB Item 16. - 137 Other Real Property and Joint Venture Transactions In January 2014, we entered into a purchase and sale agreement with an affiliate and acquired undeveloped land in Northern California. Consideration included$4.4 million of cash, assumption of a$1.3 million net liability, and future revenue participation payments (the"RAPA"),which is calculated at 1]%o of gross revenues from home deliveries,payable quarterly and limited to$19.6 million.The RAPA liability,based on a third-party real estate appraisal,is estimated to be$19.6 million,which is included in other liabilities(see Note 1 l). As the transaction is with an affiliate under common control,the$25.3 million of consideration to be paid in excess of book value was recorded as an equity distribution. In February 2014, we entered into a purchase and sale agreement to sell land in Southern California to an affiliate under common control for$1.0 million cash and assumption of certain construction obligations.The$0.9 million of net sales proceeds received in excess of the net book value of the land sold was recorded as an equity contribution. In June 2014, we entered into a purchase and sale agreement("PSA")to purchase land in Northern California from an unconsolidated joint venture in which we have a 33% ownership interest.We paid$2.7 million for 70 lots and acquired an option to purchase 262 lots in seven phases through 2019 for an estimated$18.5 million.The PSA also includes additional consideration based on future price and profit appreciation for each phase,payable after the last home delivery for that respective phase.In conjunction with the purchase of the 70 lots, we deferred$0.9 million of profit representing our proportionate share of the corresponding land sale profit from the joint venture and recorded it as a reduction of inventory. In October 2012,we sold land in Colorado to an affiliate for$4.6 million. As the affiliate is under common control,the$2.4 million of net sales proceeds received in excess of the net book value of the land sold was recorded as an equity contribution. At December 31, 2014 and 2013,we were the managing member for 13 and 10,respectively, unconsolidated joint ventures and received management fees from these joint ventures as reimbursement for direct and overhead costs incurred on behalf of the joint ventures. Fees representing cost reimbursement are recorded as an offset to general and administrative expense;fees in excess of costs are recorded as revenues. For the years ended December 31,2014, 2013 and 2012, $1 1.4 million, $8.0 million and$4.3 million, respectively,of management fees were offset against general and administrative expenses;and$1.1 million,$0.5 million and$0.2 million,respectively,of management fees were included in revenues. Other Affiliate Transactions JFSCI provides corporate services, including management,legal,tax, information technology,risk management,facilities, accounting,treasury and human resources. For the years ended December 31,2014,2013 and 2012,general and administrative expenses included$23.3 million,$20.3 million and$18.1 million,respectively,for these corporate services. We obtain workers compensation insurance,commercial general liability insurance and insurance for completed operations losses and damages with respect to our homebuilding operations from affiliate and unrelated third-party insurance providers. Some of these policies are purchased by affiliate entities and we pay premiums to these affiliates for the coverage provided by these third party and affiliate insurance providers. Policies covering these risks from unrelated third party insurance providers are written at various coverage levels but include a large self-insured retention or deductible. We have retention liability insurance from affiliated entities to insure these large retentions or deductibles.For the years ended December 31,2014, 2013 and 2012,amounts paid to affiliates for this retention insurance coverage were$21.3 million,$14.1 million and$13.1 million,respectively. 69 Item 16. - 138 HB -556- 13.Income Taxes Income Tax Benefit(Expense) For the years ended December 31, 2014, 2013 and 2012,major components of the income tax benefit(expense),primarily for SHI, were as follows: Years Ended December 31, 2014 2013 2012 (In thousands) Current: Federal $(19,361) $ 0 $ 0 State (3,673) (1,766) (78) Total current (23,034) (1,766) (78) Deferred: Federal 4,577 13,385 (532) State 244 2,482 (6) Total deferred 4,821 15,867 (538) Total income tax benefit(expense) $(18,213) $14,101 $(616) Reconciliation of Expected Income Tax Benefit(Expense) For the years ended December 31,2014,2013 and 2012,the effective tax rate differed from the 35%federal statutory rate due to the following: Years Ended December 31, 2014 2013 2012 (Dollars in thousands) Income before income taxes $151,612 $111,838 $ 29,800 Income tax expense computed at statutory rate $(53,064) $(39,143) $(10,430) Increase(decrease)resulting from: Non-taxable entities income(a) 35,893 25,275 7,134 State taxes,net of federal income tax benefit (2,603,) (1,901) (1,045) Small insurance company election(831b) 1,057 198 (2,583) Section 199 deduction 1,313 875 0 Change in valuation allowance for deferred tax assets 247 32,223 5,461 Other,net (1,056) (3,426) 847 Total income tax benefit(expense) $08,213) $ 14,101 $ (616) Effective tax rate 12.0% (12.6)% 2.1% (a) Non-taxable entities represent income or loss related to SHLP, non-controlling interests and consolidated limited partnerships and limited liability companies in which the taxable income or loss is reflected on the respective partners' tax return. 70 HB _557_ Item 16. - 139 Deferred Income Taxes At December 31, 2014 and 2013,the tax effects of temporary differences that give rise to significant portions of deferred taxes for SHI were as follows: December 31, 2014 2013 (In thousands) Deferred tax assets: Housing and land inventory basis differences $14,214 $ 8,746 Available loss carryforwards 4,961 7,696 Impairment of inventory and investments 482 782 Other 1,399 1,166 Total deferred tax assets 21,056 18,390 Deferred tax liabilities Income recognition (635) (1,544) Total deferred tax liabilities (635) (1,544) Subtotal 20,421 16,846 Valuation allowance (262) (509) Net deferred tax assets $20,159 $16,337 Due to a change in ownership of Shea Homes Southwest,Inc.,formerly known as Foundation Administration Services Corp.,a wholly-owned subsidiary,in 2001,NOL carryforwards utilized in a given year to offset future taxable income are subject to an annual limitation of approximately$4.6 million pursuant to Section 382 of the U.S. Internal Revenue Code of 1986,as amended. As a result of this annual limitation,available NOL carryforwards have been reduced by the amount expected to expire.At December 31,2014, SHI had NOL carryforwards of approximately$14.2 million,net,which expire by 2018 and are subject to annual limitations of$4.6 million. Valuation Allowance In accordance with ASC 740,deferred tax assets are evaluated to determine if valuation allowances are required.ASC 740 requires companies to assess valuation allowances based on evidence using a"more-likely-than-not"standard.A valuation allowance reflects the estimated amount of deferred tax assets that may not be realized due to inherent uncertainty of future income from homebuilding operations of SHI and potential expiration of net operating loss(the"NOL")carryforwards. The deferred tax asset amount considered realizable may change in the future,depending on profitability. Because of the continued annual pretax losses for SHI through the year ended December 31,2009,the Company determined it was more-likely-than-not that at December 31,2009,the net deferred tax assets of$51.9 million would not be realized.Accordingly, for the year ended December 31,2009,the deferred tax asset valuation allowance increased$32.7 million to fully reserve the net deferred tax asset.At December 2011 and 2010,our assessment of deferred tax assets was consistent with 2009 and the net deferred tax asset of$38.2 million and$48.8 million,respectively,remained fully reserved.For the year ended December 31,2012,SHI generated pretax income for the first time since 2007,a result of the beginning of a housing industry recovery. However,since we only returned to profitability in 2012 and the housing recovery was in its early stages,the$32.7 million net deferred tax assets at December 31,2012 remained fully reserved. At December 31,2013,the Company determined it was more-likely-than-not most of the net deferred tax assets would be realized,which,during the 2013 fourth quarter,resulted in a$15.6 million reversal of the valuation allowance on its deferred tax assets. The Company evaluated positive and negative evidence,including financial performance,to determine its ability to realize its deferred tax assets.In its evaluation,the Company gave more weight to objective evidence, such as sales backlog,compared to subjective evidence, such as tax planning strategies.Also,significant weight was given to evidence directly related to the Company's recent financial performance,such as customer traffic at its communities and cancellation rates,compared to indirect evidence,such as mortgage interest rates,or less recent evidence. At December 31,2013,in evaluating the valuation allowance,the Company gave more weight to its improving financial results in 2013,particularly growth in pre-tax income,gross margins and backlog sales value. The Company also estimated that if its pre-tax income continued,the NOLs would be realized before they expire in 2018.Additionally,the Company considered the subjective, direct positive evidence of improving market fundamentals and its plan to open new communities. 71 Item 16. - 140 Hs -558- f Prior to December 31,2013,the Company gave substantial weight to its losses incurred during the housing downturn in addition to other negative,indirect evidence,such as weakness in the economy,consumer confidence and housing market and a more restrictive mortgage lending environment. At December 31,2014 and 2013,the valuation allowance related to capital losses that expire in 2016 and 2017,and the impairment of debt securities that mature in 2021 and 2022.It is unknown if these deferred tax assets will be realized. Uncertain Tax Positions Since 2002, SHLP and SHI used the completed contract method of accounting("CCM")to determine when to recognize taxable income or loss with respect to the majority of their respective homebuilding operations.Federal law allows homebuilders like SHLP and SHI to defer taxable income/loss recognition from their homebuilding operations until the tax year in which the contracts are substantially complete,rather than annually based on the percentage of completion method.The U.S.Internal Revenue Service(the "IRS")objected to SHLP's and SHI's use of the CCM and assessed a tax deficiency against them,contending they did not accurately and appropriately apply the relevant U.S. Treasury Regulations in calculating their respective homebuilding projects' income/loss pursuant to the CCM for years 2004 through 2008,and years 2003 through 2008,respectively. SHLP and SHI believe their use of the CCM complies with the relevant regulations and filed a petition in 2009 with the United States Tax Court(the"Tax Court")to contest the notice of deficiency and to challenge the IRS position. On February 12,2014,the Tax Court ruled in our favor,issuing a formal decision on April 21,2014 (the "Tax Court Decision").Pursuant to the ruling,we are permitted to continue to report income and loss from the delivery of homes using the CCM. As a result,no additional tax,interest or penalties are currently due and owing by the Partners or us.The IRS has appealed the Tax Court Decision to the U.S.Court of Appeals for the Ninth Circuit(the"Court of Appeals"). We and the IRS have each filed briefs and the IRS is entitled to file a reply brief,which is due to be filed no later than March 2015. The Court of Appeals will schedule oral argument after briefing is completed; we cannot predict when it will schedule the argument or issue its decision. Notwithstanding the appeal by the IRS,we believe our position will more likely than not prevail and accordingly,have not recorded a liability for related taxes or interest for SHI.Furthermore,as a limited partnership,income taxes,interest or penalties imposed on SHLP are the Partners' responsibility and are not reflected in the tax provision in these consolidated financial statements.However,if the Tax Court Decision is overturned in whole or in part,SHI could be obligated to pay the IRS and applicable state taxing authorities up to$74 million and,under the Tax Distribution Agreement, SHLP could be obligated to make a distribution to the Partners up to$134 million to fund their related payments to the IRS and applicable state taxing authorities.However,the Indenture provides the amount we may pay on behalf of SHI and distribute to the Partners for this matter may not exceed$70.0 million,unless we receive a cash equity contribution from JFSCI for such excess or unless we use some of our capacity under the Indenture to make restricted payments.Any potential shortfall would be absorbed by the Partners. In 2014,we filed Form 3115 with the IRS to change our income tax accounting method of how we record certain expenses on our income tax returns beginning in 2014. As we believe it is more likely-than-not the change will be approved by the IRS,we reflected this income tax accounting method in our 2014 income tax expense. If we are unsuccessful in our application to change our income tax accounting method,we could incur an income tax liability for prior years ranging up to$13.5 million, and the Partners could have a reduction in their income tax liability ranging up to$13.5 million. 14.Owners' Equity Owners' equity consists of partners' preferred and common capital.Common capital is comprised of limited partners with a collective 78.38%ownership and a general partner with a 20.62%ownership. Preferred capital is comprised of limited partners with either series B ("Series B")or series D ("Series D")classification. Series B holders have no ownership interest but earn a preferred return at Prime less 2.05%per annum through December 31,2012(1.2%at December 31,2012)on unreturned preferred capital balances and Series D holders have a 1%ownership interest and earn a preferred return at 7%per annum through December 31,2012 on unreturned preferred capital balances.In August 2013,the Agreement was amended and the rates on the Series B and Series D were changed,effective January 1, 2013. Series B earns a rate of 1.2% from January 1,2013 to December 31,2016; 2.25%from January 1, 2017 to December 31,2020;and Prime less 2.05%from January 1,2021 and thereafter on unreturned capital balances. Series D earns a rate of 2.0%from January 1,2013 to December 31, 2016; 12.75%from January 1, 2017 to December 31,2020; and 7.0%from January 1,2021 and thereafter on unreturned capital balances. At December 31,2014 and 2013,accumulated undistributed preferred returns for Series B holders were$24.6 million and$22.7 million,respectively.At December 31, 2014 and 2013, accumulated undistributed preferred returns for Series D holders were$60.4 million and$56.6 million,respectively. Net income is allocated to Partners in a priority order that considers previously allocated net losses and preferred return considerations and,thereafter,in proportion to their respective ownership interests.Net loss is allocated in a priority order to Partners generally in proportion to their ownership interests and adjusted capital account balances,and,thereafter,to the general partner. 72 HB -559- Item 16. - 141 The general partner, in its sole discretion, may make additional capital contributions or accept additional capital contributions from the limited partners. Cash distributions are made to Partners in proportion to their unpaid preferred returns,unreturned capital and,thereafter,in proportion to their ownership interests. Distributions to Partners are made at the discretion of the general partner, including payment of personal income taxes related to the Company.In addition,distributions to Partners from other entities under control of Shea family members, such as JFSCI,can be used for payment of personal incomes taxes related to the Company and other uses. 15. Retirement Savings and Deferred Compensation Plans 401(k)Retirement Savings Plan JFSCI,on our behalf, maintains a 401(k) Retirement Savings Plan that includes a profit sharing component covering all eligible employees.The plan includes employer participation in accordance with provisions of Section 401(k)of the Internal Revenue Code. The plan allows participants to make pre-tax contributions. On a discretionary basis,we may match employee contributions up to a percentage of the employee's salary as determined by the Company. The profit sharing portion of the plan is discretionary and non- contributory, allowing us to make additional contributions based on a percentage of the employee's salary as determined by the Company. All amounts contributed to the plan are deposited into a trust fund administered by independent trustees. For the years ended December 31, 2014,2013 and 2012, matching 401(k)contributions were$0.9 million,$0.5 million and$0.5 million, respectively,which represented 50 cents on each dollar, up to the first 6% of the employee's base salary, subject to a cap,for a maximum of 3%,less forfeitures.For the year ended December 31, 2014 and 2013,profit sharing contributions were$1.1 million and $0.9 million,respectively, which represented 3%of the employee's base salary, subject to a cap. For the year ended December 31, 2012,there were no profit sharing contributions. Deferred Compensation Plan JFSCI,on our behalf, maintains a non-qualified Deferred Compensation Plan.The plan allows participants to defer up to 80%of base salary, 80% of commissions and 100%of bonus in a deferred account. Deferred amounts may be invested in a variety of investment funds.On behalf of each participant,on a discretionary basis,we may contribute to a separate account comprised of investment funds that correspond to such participant's deferred account. The plan is designed to comply with Section 409A of the Internal Revenue Code. Deferred amounts may be distributed to each participant upon a separation from service,death,disability,on a scheduled withdrawal date,or with committee approval in the event of unforeseen circumstances. For the years ended December 31, 2014, 2013 and 2012, we made no contributions under the plan. Shea Homes Appreciation Rights Plan On August 8,2012,the Company adopted,effective January 1, 2012,the Shea Homes Appreciation Rights Plan(the"SHAR Plan"), an equity appreciation plan designed to provide employees and non-employee service providers a financial incentive to contribute to the Company's long-term success. The SHAR Plan provides for the issuance of units representing the right to receive payment,generally at the time such units vest,based on the increase in book value,as defined,of SHLP's equity between the time of the units Effective Date and when the units vest. The board of directors of J.F. Shea Construction Management, Inc.,our ultimate general partner,administers the SHAR Plan and has the authority to make all determinations thereunder including participants, valuations,amount and timing of grants,vesting criteria, amount and timing of payments(including interim payments),modifications and termination. On August 8,2012,the directors approved the SHAR Plan 2012 Grant(the"2012 Grant"),effective January 1,2012(the"2012 Effective Date").Pursuant to the 2012 Grant, 1,021,947 units were issued at a stipulated base value of$10.00 per unit. The units issued pursuant to the 2012 Grant vest four years after the 2012 Effective Date. Subject to participant service eligibility requirements, appreciation in the value of the units during this period is payable to participants when such units vest. However,as a further incentive to participants, the directors concurrently approved annual interim payments of the 2012 Grant only,payable to participants in March 2013, 2014 and 2015.Upon vesting,for each eligible participant,interim payments will be offset against the full appreciation of these units and the resultant net amount payable to participant, if any, will be paid upon vesting,which occurs in March 2016. On August 6,2013,the directors approved the SHAR Plan 2013 Grant(the "2013 Grant"),effective January 1,2013 (the"2013 Effective Date"). Pursuant to the 2013 Grant,463,388 units were issued at a stipulated base value of$10.60 per unit.The units issued pursuant to the 2013 Grant vest four years after the 2013 Effective Date. Subject to participant service eligibility requirements, appreciation in the value of the units during this period is payable to participants when such units vest,which occurs in March 2017. 73 Item 16. - 142 1{B -_560- On June 3,2014, the directors approved the SHAR Plan 2014 Grant(the-2014 Grant"),effective January 1,2014(the"2014 Effective Date"). Pursuant to the 2014 Grant,381,909 units were issued at a stipulated base value of$14.79 per unit.The units issued pursuant to the 2014 Grant vest four years after the 2014 Effective Date. Subject to participant service eligibility requirements, appreciation in the value of the units during this period is payable to participants when such units vest,which occurs in March 2018. At December 31, 2014 and 2013,the Company accrued$6.5 million and$4.2 million,respectively,for this plan,which is included in other liabilities. 16. Contingencies and Commitments At December 31, 2014 and 2013,certain unrecorded contingent liabilities and commitments were as follows: December 31, 2014 2013 (In thousands) Tax Court CCM case(capped at$70.0 million,see Note 13) $ 70,000 $ 70,000 Remargin obligations and guarantees for unconsolidated joint venture loans (see Note 7) 34,199 28,684 Costs to complete on surety bonds for Company projects 66,836 77,276 Costs to complete on surety bonds for joint venture projects 22,694 22,845 Costs to complete on surety bonds for affiliate projects 2,152 1,614 Water system connection rights purchase obligation 27,352 30,506 Lease payment obligations to third parties 4,612 4,539 Lease payment obligations to affiliates 5,059 6,487 Total unrecorded contingent liabilities and commitments $232,904 $241,951 Legal Claims Lawsuits,claims and proceedings have been and will likely be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards,sales practices,employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations. We record a reserve for potential legal claims and regulatory matters when the specific facts and circumstances indicate they are probable of occurring and a potential loss is reasonably estimable. We revise these estimates when necessary.At December 31, 2014 and 2013,we had reserves of$15.7 million and$4.6 million,respectively, net of expected recoveries,relating to these claims and matters,and while their outcome cannot be predicted with certainty,we believe we have appropriately reserved for them. However, if the liability arising from their resolution exceeds their recorded reserves, we could incur additional charges that could be significant. Due to the inherent difficulty of predicting outcomes of legal claims and related contingencies,we generally cannot predict their ultimate resolution,related timing or eventual loss. If our evaluations indicate loss contingencies that could be material are not probable,but are reasonably possible, we will disclose their nature with an estimate of possible range of losses or a statement that such loss is not reasonably estimable. Other than the Tax Court Decision discussed in Note 13 and the matter discussed in the following paragraph, at December 31,2014, the range of reasonably possible losses in excess of amounts accrued was not material. As previously disclosed, SHI was named as a defendant in an action entitled Aamodt v. Shea Homes,Inc.,Case No. 14-cv- 01566,filed in the U.S. District Court for the Western District of Washington.The case was filed on or around October 10, 2014.The plaintiffs in the matter purported to bring a claim seeking an undisclosed monetary recovery for alleged construction defects under Washington's Consumer Protection Act originally involving approximately 589 homes,but subsequently amended their complaint to include approximately 964 homes and we have reached a tentative settlement of the case. While most of the settlement amount should be covered by insurance, one of our insurance carriers has denied coverage for the settlement and related matters. We are disputing this insurance carrier's position. At December 31, 2014,we accrued$13.3 million in connection with the settlement and related matters. Because of the uncertainty caused by the dispute with the insurance carrier described above,there can be no assurance the ultimate outcome will not be significantly different than the recorded reserve. If,for example,the insurance carrier prevails, SHI could be obligated up to an additional$9.7 million for the settlement and related matters. 74 H13 .561- Item 16. - 143 Letters of Credit, Surety Bonds and Project Obligations On May 10, 2011,we entered into a$75.0 million letter of credit facility.At December 31,2013,there were no letters of credit outstanding under this facility.In February 2014,this facility was replaced with the Revolver,which includes a$62.5 million sublimit for letters of credit.At December 31, 2014,there were no outstanding letters of credit under the Revolver. We provide surety bonds that guarantee completion of certain infrastructure serving our homebuilding projects.At December 31,2014,there were$66.8 million of costs to complete in connection with$146.5 million of surety bonds issued.At December 31,2013,there were$77.3 million of costs to complete in connection with$169.7 million of surety bonds issued. We also provide indemnification for bonds issued by certain unconsolidated joint ventures and other affiliate projects in which we have no ownership interest.At December 31,2014,there were$22.7 million of costs to complete in connection with$63.2 million of surety bonds issued for unconsolidated joint venture projects,and$2.2 million of costs to complete in connection with$3.5 million of surety bonds issued for affiliate projects in which we have no ownership interest.At December 31, 2013,there were$22.8 million of costs to complete in connection with$63.7 million of surety bonds issued for unconsolidated joint venture projects,and$1.6 million of costs to complete in connection with$4.9 million of surety bonds issued for affiliate projects in which we have no ownership interest. Certain of our homebuilding projects utilize community facility district,metro-district and other local government bond financing programs to fund acquisition or construction of infrastructure improvements.Interest and principal on these bonds are typically paid from taxes and assessments levied on landowners,including land we own, and/or homeowners following the delivery of new homes in the community. Occasionally,we also enter into credit support arrangements requiring us to pay interest and principal on these bonds if taxes and assessments levied on landowners and/or homeowners are insufficient to cover such obligations. Furthermore,reimbursement of these payments to us is dependent on the district or local government's ability to generate sufficient tax and assessment revenues from the new homes.At December 31,2014 and 2013,in connection with credit support arrangements, there was $10.9 million and$8.6 million,respectively,reimbursable to us from certain agencies in Colorado and,accordingly, recorded in inventory as a recoverable project cost. We also pay certain fees and costs associated with the construction of infrastructure improvements in homebuilding projects that utilize these district bond financing programs.These fees and costs are typically reimbursable to us from,and therefore dependent on, bond proceeds or taxes and assessments levied on landowners and/or homeowners.At December 31,2014 and 2013,in connection with certain funding arrangements,there was$14.0 million and$13.1 million,respectively,reimbursable to us from certain agencies, including$12.8 million and$11.9 million,respectively,from metro-districts in Colorado and,accordingly, were recorded in inventory as a recoverable project cost. Until bond proceeds or tax and assessment revenues are sufficient to cover our obligations and/or reimburse us,our responsibility to make interest and principal payments on these bonds or pay fees and costs associated with the construction of infrastructure improvements could be prolonged and significant. In addition,if the bond proceeds or tax and assessment revenues are not sufficient to cover our obligations and/or reimburse us,these amounts might not be recoverable. As a condition of the Vistancia Sale,and the purchase of the non-controlling member's remaining interest in Vistancia,LLC,we remain a 10%guarantor on certain community facility district bond obligations,which require us to meet a minimum calculated tangible net worth;otherwise,we are required to fund collateral to the bond issuer.At December 31,2014 and 2013,we exceeded the minimum tangible net worth requirement. At a consolidated homebuilding project in Colorado,we have a contractual obligation to purchase and receive water system connection rights which,at December 31,2014 and 2013,was$27.4 million and$30.5 million,respectively,which is less than their estimated market value.These water system connection rights are held,then transferred to homebuyers upon delivery of their home, transferred upon sale of land to the respective buyer, sold or leased,but generally only within the local jurisdiction. Lease Payment Obligations We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms of up to ten years and generally provide renewal options for terms up to an additional five years. In the normal course of business,we expect expired leases will be renewed or replaced.Equipment leases are typically for terms of three to four years. 75 Item 16. - 144 HB _ 62_ At December 31, 2014,future minimum rental payments under operating leases (excluding affiliate operating leases for office space—see below)having initial or remaining non-cancelable lease terms in excess of one year were as follows: Payments Due By Year December 31, (In thousands) 2015 $ 982 2016 931 2017 802 2018 743 2019 and thereafter 1,154 Total $ 4,612 For the years ended December 31, 2014, 2013 and 2012,rental expense for third party operating leases was$1.7 million,$1.7 million and$1.4 million,respectively. We also lease office space from affiliates under non-cancelable operating leases.The leases are for terns of up to ten years and generally provide renewal options for terms up to an additional five years. At December 31,2014,. future minimal rental payments under affiliate operating leases having initial or remaining non- cancelable lease terms in excess of one year were as follows: Payments Due By Year December 31, (In thousands) 2015 $ 1,311 2016 619 2017 366 2018 383 2019 and thereafter 2,380 Total $ 5,059 For the years ended December 31, 2014, 2013 and 2012, affiliate rental expense was$0.7 million,$0.4 million and$0.6 million, respectively. 17.Supplemental Disclosure to Consolidated Statements of Cash Flows Supplemental disclosures to the consolidated statements of cash flows were as follows: Years Ended December 31, 2014 2013 2012 (In 1 ousands) Supplemental disclosure of cash flow information Income taxes paid(refunded) $ 20,300 $1,181 $ (3,891) Interest paid,net of amounts capitalized $ 584 $4,946 $ 19,225 Supplemental disclosure of noncash activities Unrealized gain(loss)on available-for-sale investments, net $ 318 $ 271 $ (1,875) Reclassification of Deficit Distributions to(from)unconsolidated joint ventures from(to)other liabilities $ 45 $ (365) $ 212 Purchase of land in exchange for note payable $ 13,004 $4,379 $ 8,982 Contribution of inventory to unconsolidated joint venture $ 9,468 $4,082 $ 0 Deferred gain on inventory purchased from unconsolidated joint venture $ 901 $ 0 $ 0 Distribution to Owners for assumption of liability and revenue participation payments for land purchased from an affiliate under common control $(20,891) $ 0 $ 0 Elimination of consolidated joint venture inventory,receivables from affiliates and other assets $ 0 $ 0 $(41,600) Elimination of consolidated joint venture note payable and other liabilities $ 0 $ 0 $ (1,949) Redemption of Company's interest in consolidated joint venture and elimination of non- controlling interest,less cash retained by non-controlling interest $ 0 $ 0 $(39,651) 76 HB - 63- Item 16. - 145 18. Segment Information Our homebuilding business,which is responsible for substantially all of our operating results,constructs and sells single-family attached and detached homes designed to appeal to first-time,move-up,luxury and active lifestyle homebuyers.Our homebuilding business also provides management services to joint ventures and other related and unrelated parties.We manage each homebuilding community as an operating segment and have aggregated these communities into reportable segments based on geography as follows: • Southern California,comprised of communities in Los Angeles,Ventura and Orange Counties, and the Inland Empire; • San Diego,comprised of communities in San Diego County,California; • Northern California,comprised of communities in northern and central California,and the central coast of California; • Mountain West, comprised of communities in Colorado and Washington; • South West, comprised of communities in Arizona.Nevada and Texas; and • East,comprised of communities in Florida,North Carolina and Virginia. In accordance with ASC 280, in determining the most appropriate aggregation of our homebuilding communities, we also considered similar economic and other characteristics, including product types,average selling prices,gross profits,production processes,suppliers,subcontractors,regulatory environments,land acquisition results, and underlying demand and supply. Our Corporate segment primarily provides management services to our operating segments, and includes results of our captive insurance provider,which primarily administers claims reinsured by third party carriers and the deductibles and retentions under those third party policies. Results of our insurance brokerage services business are also included in our Corporate segment. The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 2. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented. Financial information relating to reportable segments was as follows: December 31, 2014 2013 (In thousands) Total assets: Southern California $ 370,522 $ 316,339 San Diego 149,748 160,593 Northern California 295,247 286,513 Mountain West 355,936 316,459 South West 192,359 155,416 East 24,791 5,096 Total homebuilding assets 1,388,603 1,240,416 Corporate 278,107 264,917 Total assets $1,666,710 $1,505,333 December 31, 2014 2013 (In thousands) Inventory: Southern California $ 305,770 $ 239,986 San Diego 128,241 142,395 Northern California 259,997 249,111 Mountain West 301,364 247,294 South West 156,716 132,484 East 21,497 2,002 Total inventory $1,173,585 $1,013,272 77 Item 16. - 146 HB -564- Years Ended December 31, 2014 2013 2012 (In thousands) Revenues: Southern California $ 393,480 $207,650 $133,990 San Diego 143,234 125,494 85,971 Northern California 259,364 242,356 166,106 Mountain West 175,665 186,899 147,784' South West 168,282 160,744 138,161 East 0 6,554 7150 Total homebuilding revenues 1,140,025 929,697 679,162 Corporate 581 913 985 Total revenues $1,140,606 $930,610 $680,147 Years Ended December 31, 2014 2013 2012 (/n thousands) Income(loss)before income taxes:' Southern California $ 82,029 $ 44,236 $ 12,843 San Diego 22,288 7,717 2,493 Northern California 51,219 40,648 19,292 Mountain West (4,982) 9,463 156 South West (1,498) 8,356 (2,173) East (3,032) (349) (202) Total homebuilding income before income taxes 146,024 110,071 32,409 Corporate 5,588 1,767 (2,609), Total income before income taxes $ 151,612 $111,838 $ 29,800 Years Ended December 31, 2014 2013 2012 (in thousands) Impairments: Southern California $ 284 $ 0 $ 0 San Diego 0 0 0 Northern California 0 0 0 Mountain West 0 0 0 South West 8,751 0 0 East 0 0 0 Total impairments $ 9,035 $ 0 $ 0 19.Results of Quarterly Operations(Unaudited) First Second Third Fourth Quarter Quarter Quarter Quarter Total 2014: Revenues $180,115 $256,083 $284,489 $419,919 $1,140,606 Gross margin $ 44,857 $ 60,273 $ 67,894 $ 82,564 $ 2.55,588 Net income $ 11,295 $ 28,703 $ 33,731 $ 59,670 $ 133,399 Net income attributable to SHLP $ 11,298 $ 28,707 $ 33,749, $ 59,682 $ 133436 2013: Revenues $134960 $217,310 $238,309 $340,031 $ 930,61`0 Gross margin $ 31,536 $ 48,426 $ 55,848 $ 85,388 $ 221,198 Net income $ 6,837 $ 19,532 $<25,826' $ 73,744 $ 125„939 Net income attributable to SHLP $ 6,838 $ 19,534 $ 25,824 $ 73,751 $ 125,947 78 IJB -565- Item 16. - 147 20.Supplemental Guarantor Information The obligations under the Secured Notes are not guaranteed by any SHLP joint venture where SHLP Corp does not own 100% of the economic interest,including those that are consolidated,and the collateral securing the Secured Notes does not include a pledge of the capital stock of any subsidiary if such pledge would result in a requirement that SHLP Corp file separate financial statements with respect to such subsidiary pursuant to Rule 3-16 of Regulation S-X under the Securities Act. Pursuant to the Indenture,a guarantor may be released from its guarantee obligations only under certain customary circumstances specified in the Indenture,namely(1)upon the sale or other disposition(including by way of consolidation or merger) of such guarantor,(2)upon the sale or disposition of all or substantially all the assets of such guarantor, (3)upon the designation of such guarantor as an unrestricted subsidiary for covenant purposes in accordance with the terms of the Indenture, (4)upon a legal defeasance or covenant defeasance pursuant,or(5) upon the full satisfaction of our obligations under the Indenture. Presented herein are the condensed consolidated financial statements provided for in Rule 3-10(f)of Regulation S-X under the Securities Act for the guarantor subsidiaries and non-guarantor subsidiaries. Condensed Consolidating Balance Sheet December 31,2014 Non- SHLP Guarantor Guarantor Corp tag Subsidiaries Subsidiaries Eliminations Total (M thousands) Assets Cash and cash equivalents $ 135,804 $ 93,386 $ 7,712 $ 0 $ 236,902 Restricted cash 259``' 113 54 0 426 Accounts and other receivables,net 120,135 27,193 16,616 (16,436) 147.508 Receivables from affiliates,net 6,369 14 20 0« 6,403 Inventory 993,507 178,859 4,353 (3,134) 1,173,585 Investments in and advances to unconsolidated joint ventures 25,343 1,619 15,802 0 42,764 Investments in subsidiaries 786,462 81,447 86,721 (954,630) 0 Other assets,net 22,298 36,690 134 0 59122 Intercompany 0 572,036 0 (572,036) 0 Total assets $2,090,177 $ 991,357 $ 131,412 $(1,546,236) $1,666,710 Liabilities and equity Liabilities: Notes payable $ 761,404 $ 0 $ 0 $ 0 $ 761,404 Payables to affiliates 20 0 3 4,774 4,797 Accounts payable 51,663 15,344 314 0 67,321 Other liabilities 176,160 77,701 40,904 (16435) 278`330 Intercompany 546,451 0 33,494 (579,945) 0 Total liabilities 1,535,698 93,045 74,715 (591,606) 1,111,852 Equity: SHLP equity; Owners' equity 549,373 893,206 56,318 (949,524) 549,373 Accumulated other comprehensive income 5,106- 5,106 0 (5,106) 5,106 Total SHLP equity 554,479 898,312 56,318 (954,630) 554,479 Non-controlling interests 0 0 379 0 379 Total equity 554,479 898,312 56,697 (954,630) 554,858 Total liabilities and equity $2,090,177 $ 991,357 $ 131,412 $(1,546,236) $1,666710 (a) Includes Shea Homes Funding Corp.,whose financial position at December 31,2014 was not material. 79 Item 16. - 148 HB -566- Condensed Consolidating Balance Sheet December 31,2013 Non- SHLP Guarantor Guarantor Corp(a) Subsidiaries Subsidiaries Eliminations Total (In thousands) Assets Cash and cash equivalents $ 153,794 $ 43,803 $ 8,608 $ 0 $ 206,205 Restricted cash 695 354 140 0 1,189 Accounts and other receivables,net 120,299 26,754 28,696 (28,250) 147,499 Receivables from affiliates, net 9,251 21,761 25 276 31,313 Inventory 749,832 263,213 3,361 (3,134) 1,013,272 Investments in and advances to unconsolidated joint ventures 22,068 1,357 25,360 0 48,785 Investments in subsidiaries 748,326 69,755 90,484 (908,565) 0 net 24 030 32 957 83 0 57 Other assets, e >070 Intercompany 0 465,706 0 (465,706) 0 Total assets $1,828,295 $ 925,660 $ 156,757 $(1,405,379) $1,505,333 Liabilities and equity Liabilities: Notes payable $ 751,708 $ 0 $ 0 $ 0 $ 751,708 Payables to affiliates 20 0 1 0 21 Accounts payable 36,594 25,334 418 0 62,346 Other liabilities 171,470 41,370 61,211 (28,250) 245,801 Intercompany 423,447 0 45,117 (468,564) 0 Total liabilities 1,383,239 66,704 106,747 (496,814) 1,059,876 Equity: SHLP equity: Owners' equity 440,268 854,168 49,609 (903,777) 440,268 Accumulated other comprehensive income 4,788 4,788 0'" (4,788) 4,788 Total SHLP equity 445,056 858,956 49,609 (908,565) 445,056 Non-controlling interests 0 0 401 0 401 Total equity 445,056 858,956 50,010 (908,565) 445,457 Total liabilities and equity $1,828,295 $ 925,660 $ 156,757 $(1,405,379) $1,505,333 (a) Includes Shea Homes Funding Corp.,whose financial position at December 31,2013 was not material. 80 1413 -567- Item 16. - 149 Condensed Consolidating Statement of Operations and Comprehensive Income Year Ended December 31,2014 Non- SHLP Guarantor Guarantor Corp(a) Subsidiaries Subsidiaries Eliminations Total (In thousands) Revenues $ 680,109 $ 444,229 $ 16,268 $ 0 $1,140606 Cost of sales (545,442) (338,185) (1,391) 0 (885,018) Gross margin 134,667 106,044 14,877 0 255,588 Selling expenses (38,268) (17,899) (7,262) 0 (63,429) General and administrative expenses (37,444) (14,979) (2,498) 0 (54,921) Equity in income(loss)from unconsolidated joint ventures (4,000) 119 13,023 0 9,142 Equity in income from subsidiaries 85,794 8,148 1,748 (95,690) 0 Gain on reinsurance 0 0 7,177 0 7,177 Interest expense (595) 0 0 0 (595) Other income(expense), net (6.709) 5.502 (143) 0 (1,350) Income before income taxes 133,445 86,935 26,922 (95,690) 151,612 Income tax expense (9) (18,183) (21) 0 (18,213) Net income 133,436 68,752 26,901 (95,690) 133,399 Less: Net loss attributable to non-controlling interests 0 0 37 0 37 Net income attributable to SHLP $ 133,436 $ 68,752 $ 26,938 $ (95,690) $ 133,436 Comprehensive income $ 133,754 $ 69,070 $ 26,901 $ (96,008) $ 133,717 (a) Includes Shea Homes Funding Corp.,whose results of operations for the year ended December 31, 2014 was not material. Condensed Consolidating Statement of Operations and Comprehensive Income(Loss) Year Ended December 31,2013 Non- SHLP Guarantor Guarantor Corp 40 Subsidiaries Subsidiaries Eliminations Total (In thousands) Revenues $ 505,510 $ 404,393 $ 20,707 $ 0 $ 930,610 Cost of sales (406,563) (302,081) (1,502) 734 (709,412) Gross margin 98,947 102,312 19,205 734 221,198 Selling expenses (28,925) (19,847) (6,566) 0 (54,338) General and administrative expenses (34,936) (12,294) (2,850) 0 (50,080) Equity in income(loss)from unconsolidated joint ventures (2,020) (65) 981 0 (1,104) Equity in income(loss)from subsidiaries 100,821 (1,443) (3,342) (96,036) 0 Gain on reinsurance 0 0 2,011 0 2,011 Interest expense (3,658) (1,413) 0 0 (5,071) Other income (expense), net (4,280) 3,428 808 (734) (778) Income before income taxes 125,949 71,678 10,247 (96,036) 111,838 Income tax benefit(expense) (2) 14,112 (9) 0 14,101 Net income 125,947 85,790s 10,238 (96,03,6) 125,939 Less:Net loss attributable to non-controlling interests 0 0 8 0 8 Net income attributable to SHLP $ 125,947 $ 85,790 $ 10,246 $ (96,036) $ 125,947 Comprehensive income $ 126.218 $ 86,061 $ 10,238 $ (96,307) $ 126,210 (a) Includes Shea Homes Funding Corp.,whose results of operations for the year ended December 31,2013 was not material. 81 Item 16. - 150 HB -568- Condensed Consolidating Statement of Operations and Comprehensive Income(Loss) Year Ended December 31,2012 Non- SHLP Guarantor Guarantor Corp(a) Subsidiaries Subsidiaries Eliminations Total (M thousands) Revenues $ 470,756 $ 200,329 $ 9,062 $ 0 $ 680,147 Cost of sales (372,576) (164,992) (1,343) 477 (538,434) Gross margin 98,180 35,337 7,719 477 141,713 Selling expenses (26,836) (13,531) (5,421) 0 (45,788) General and administrative expenses {30,560) (10,500) (2,687) 0 (43,747) Equity in income(loss)from unconsolidated joint ventures (338) (43) 759 0 378 Equity in income(loss)from subsidiaries 11,334 (20,211) (4,556) 13,433 0 Loss on reinsurance 0 0 (12,013) 0 (12,013) Interest expense (17,326) (2,532) (4) 0 (19,862) Other income(expense), net (5,411) 12,905 2,102 (477) 9,119 Income(loss)before income taxes 29,043 1,425 (14,101) 13,433. 29,800 Income tax expense (5) (601) (10) 0 (616) Net income(loss) 29,038 824 (14,1 11) 13,433 29,184 Less: Net income attributable to non-controlling interests 0 0 (146) 0 (146) Net income(loss) attributable to SHLP $ 219,038 $ 824 $ (14,257) $ 13,433 $ 29.038 Comprehensive income (loss) $ 27,163 $ (1,051) $ (14,111) $ 15,308 $ 27,309 (b) Includes Shea Homes Funding Corp.,whose results of operations for the year ended December 31,2012 was not material. Condensed Consolidating Statement of Cash Flows Year Ended December 31,2014 Non- SHLP Guarantor Guarantor Corp ai Subsidiaries Subsidiaries Eliminations Total (In thousands) Operating activities Net cash provided by (used in)operating activities $(159,184) S 146,682 $ 9,905 $ 5,051 $ 2,454 Investing activities Collections on promissory notes from affiliates 3,595 21,588 0 0 25,183 Investments in and advances to unconsolidated joint ventures (5,863) (299) (22,996) 0 (29,158) Distributions from unconsolidated joint ventures 121 125 38,521 0 38,767 Proceeds from sale of marketable securities 0 184 0 0 184 Net cash provided by (used in)investing activities (2,147) 21,598 15,525 0 34,976 Financing activities Principal payments to financial institutions and others (3,308) 0 0 0 (3,308) Distributions to owners (4,385) 0 0 0 (4,385) Intercompany 150,089 (118,697) (26,341) (5,051) 0 Other financing activities 945 0 15 0 960 Net cash provided by(used in) financing activities 143,341 (118,697) (26,326) (5,051) (6,733) Net increase(decrease)in cash and cash equivalents (17,990) 49,583 (896) 0 30,697 Cash and cash equivalents at beginning of year 153,794 43,803 8,608 0 206,205 Cash and cash equivalents at end of year $ 135,804 $ 93,386 $ 7,712 $ 0 $236,902 (a) Includes Shea Homes Funding Corp.,whose cash flows for the year ended December 31,2014 were not material. 82 HB -569- Item 16. - 151 Condensed Consolidating Statement of Cash Flows Year Ended December 31,2013 Non- SHLP Guarantor Guarantor Corp W Subsidiaries Subsidiaries Eliminations Total (In thousands) Operating activities Net cash provided by(used in)operating activities $(135,869) $ 74,342 $ 10,901 $ 2.759 $(47,867) Investing activities Proceeds from sale of available-for-sale investments 0 3,165 0 0 3,165 Investments in and advances to unconsolidated joint ventures (9,713) (275) (16,157) 0 (26,145) Distributions from unconsolidated joint ventures 0 0 4,072 0 4,072 Collections on promissory notes from affiliates 1,192 2,912 0 0 4,104 Net cash provided by(used in)investing activities (8,521) 5,802 (12,085) 0 (14,804) Financing activities Principal payments to financial institutions and others (10,880) 0 0 0 (10,880) Intercompany 92,150 (85,236) (4,155) (2,759) 0 Net cash provided by(used in)financing activities 81,270 (85,236) (4,155) (2,759) (10,880) Net decrease in cash and cash equivalents (63,120) (5,092) (5,339) 0 (73,551) Cash and cash equivalents at beginning of year 216,914 48,895 13,947 0 279,756 Cash and cash equivalents at end of year $ 153,794 $ 43,803 $ 8,608 $" 0 $206,205 (a) Includes Shea Homes Funding Corp.,whose cash flows for the year ended December 31, 2013 were not material. Condensed Consolidating Statement of Cash Flows Year Ended December 31,2012 Non- St LP Guarantor Guarantor Corp 1.) Subsidiaries Subsidiaries Eliminations Total (In thousands) Operating activities Net cash provided by (used in)operating activities $ 33,520 $ (64,012) $ 25,506 $ (1,669) $ (6,655) Investing activities Proceeds from sale of available-for-sale investments 0 26,547 0 0 26,547 Collections(advances)on promissory notes from affiliates 1,142 882 (143) 0 1,881 Investments in and advances to unconsolidated joint ventures (10,898) (229) (840) 0 (11,967) Distributions from unconsolidated joint ventures 0 427 0' 0 427 Net cash provided by (used in)investing activities (9,756) 27,627 (983) 0 16,888 Financing activities Principal payments to financial institutions and others (2,230) 0 (199) 0 (2,429) Intercompany 35,517 (10,820) (26,366) 1,669 0 Other financing activities 2,352 0 1,234 0 3,586 Net cash provided by(used in)financing activities 35,639 (10,820) (25,331) 1,669 1,157 Net increase(decrease)in cash and cash equivalents 59,403 (47,205) (808) 0 11,390 Cash and cash equivalents at beginning of year 157,511 96,100 14,755 0 268,366 Cash and cash equivalents at end of year $216,914 $ 48,895 $ 13,947 $ 0 $279,756 (a) Includes Shea Homes Funding Corp.,whose cash flows for the year ended December 31, 2012 were not material. 83 Item 16. - 152 HB -570- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures As of the end of the period covered by this annual report on Form I0-K,we carried out an evaluation,under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,of the effectiveness of our disclosure controls and procedures. The term "disclosure controls and procedures"as defined in Exchange Act Rules 13a-15(e) and l5d-l5(e) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management,including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.Based on the evaluation that was performed,our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Management's Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting,as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934,as amended. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations,internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures may deteriorate. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Based on this evaluation,management concluded that the Company's internal control over financial reporting was effective as of December 31, 2014. Changes in Internal Control Over Financial Reporting Our management,including our Chief Executive Officer and Chief Financial Officer,has evaluated our internal control over financial reporting to determine whether any change occurred during the fourth quarter of the year ended December 31, 2014 that has materially affected,or is reasonably likely to materially affect,our internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth quarter of the period covered by this report. ITEM 9B.OTHER INFORMATION None 84 IJB ->7 1- Item 16. - 153 PART III ITEM 10.DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Management Executive Officers The names, ages and positions of the executive officers of SHLP as of the date of this report are set forth below: Name L—t Position(s) Roberto(Bert) Selva 52 President and Chief Executive Officer Andrew Parties 56 Chief Financial Officer Ross Kay 50 Senior Vice President,General Counsel Andrew Roundtree 61 Vice President,Corporate Controller Directors SHLP does not have a board of directors.The names and ages of the directors of J.F. Shea Construction Management,Inc., which is the ultimate general partner of SHLP,as of the date of this annual report on Form 10-K are set forth below.As used herein, the directors of this Company shall mean the directors listed below acting on behalf of J.F. Shea Construction Management, Inc. Name �LE Position(s) John F. Shea 88 Director Peter O. Shea 79 Director Peter Shea,Jr. 47 Director John C. Morrissey 56 Director James G. Shontere 67 Director Roberto Selva.Mr. Selva has served as President and Chief Executive Officer since 2002. Previously,he served as President of our Colorado homebuilding operations, which he was instrumental in founding. Before joining us in 1996,Mr. Selva served as a senior executive with KB Home from 1994 to 1996. He previously served as Chief Financial Officer of Signature Homes.Mr. Selva holds an M.B.A.from UCLA and a B.S. from the University of Southern California. Mr. Selva serves on the Executive Committee of the Lusk Center for Real Estate at the University of Southern California and is former Chairman of the National Board of HomeAid America. Andrew Parnes.Mr. Parties has served as Chief Financial Officer since September 2012. Prior to joining us,he was an independent consultant from 2009 to September 2012,focusing on real estate and financial services companies,including serving on the Board of Directors of a privately-owned regional homebuilder. From 1996 to 2009, Mr. Parries served as Executive Vice President and Chief Financial Officer of Standard Pacific Corp, a publicly traded homebuilder, and from 1989 to 1996 as its Controller and Treasurer. He also was an auditor at the accounting firm of Arthur Andersen from 1980 to 1989.Mr. Parties holds a B.S.B.A.with an emphasis in accounting from the University of Arizona. Ross Kay. Mr. Kay has served as Senior Vice President and General Counsel since August 2012. Prior to joining us, he was at KB Home,a publicly traded homebuilder,from 1999 to 2012 and served as Vice President,Assistant General Counsel. He was also the General Counsel of The Blue Chalk Cafe from 1997-1999,and an associate at Orrick,Herrington&Sutcliffe and Berliner Cohen from 1990 to 1997. Mr. Kay holds a J.D. from Santa Clara University School of Law and a B.A. from the University of California, San Diego. Andrew Roundtree. Mr. Roundtree has served as Vice President,Corporate Controller since 2005.Prior to joining us,he was the Chief Financial Officer of Anaheim Sports Inc., a subsidiary of The Walt Disney Company and owner of the Anaheim Angels and Mighty Ducks of Anaheim.Mr. Roundtree holds a B.S. in Economics with an emphasis in accounting from Claremont Men's College. John F. Shea. Mr. Shea has been a member of the board of directors of the general partner of SHLP since SHLP's formation in 1989. He is currently Chairman of the Board for JFSCI after serving as its President and CEO until he retired in 2005.Mr. Shea holds a B.C.E. from the University of Southern California. 85 Item 16. - 154 11B -57- - Peter O. Shea. Mr. Shea has been a member of the board of directors of the partner artner of SHLP since SHLP's formation in F 1989. Since 2005,he has also served as Executive Vice President of JFSCI,and since 2000,has served as President of J.F. Shea Construction,Inc.Mr. Shea holds a B.B.A. from the University of California,Berkeley and a B.C.E.from the University of Southern California. Peter Shea, Jr.Mr.Shea has been a member of the board of directors of the general partner of SHLP since 2005. Since 2005,he has also served as President and Chief Executive Officer of JFSCI. Previously,he served as Chief Operating Officer of JFSCI for three years,prior to which he was Vice President of J.F. Shea Construction,Inc.Mr.Shea holds a B.S.in Civil Engineering from the University of California,Berkeley.He serves on the boards of Fidelity National Title and the Beavers,a nationwide construction engineering association, where he also served as President in 2012. John C. Morrissey.Mr.Morrissey has been a member of the board of directors of the general partner of SHLP since 2005.Since 2005,he has also served as Executive Vice President of JFSCI and Managing Director of Shea Ventures. Prior to joining Shea in 2003,Mr.Morrissey was a partner at the law firm Bingham McCutchen LLP. He received his B.A. in Economics from Yale College. He received a degree in Philosophy,Politics&Economics from Oxford University. He earned his J.D. degree from the University of Chicago Law School. Jaynes G. Shontere.Mr. Shontere has been a member of the board of directors of the general partner of SHLP since SHLP's formation in 1989. He has served as Chief Financial Officer of JFSCI since 1987,where he also serves as Corporate Secretary and is a member of the Board of Directors. Previously,Mr.Shontere served as Chief Financial Officer of a privately held manufacturer/distributor,prior to which he served as director of accounting for Taco Bell,a division of PepsiCo.Mr. Shontere holds a B.A. and an M.B.A.from the University of Southern California. He serves on the board of Ca1Tax,a business advisory board to the California state government. John F. Shea and Peter O. Shea are first cousins.Peter Shea,Jr. is the son of Peter O. Shea. Code of Ethics We have adopted a Business Ethics, Employee Conduct and Confidentiality Policy("Policy")for our directors,officers (including our principal executive officer,principal financial officer and principal accounting officer or controller)and employees, which qualifies as a code of ethics under Item 406 of Regulation S-K. A copy of this Policy is available free of charge on the Company's web site at www.sheahomes.com in the Investors section. We will disclose any waiver granted to our principal executive officer,principal financial officer and principal accounting officer or controller, and any amendment to this Policy,on the Company's web site at www.sheahomes.com in the Investors section. ITEM 11.EXECUTIVE COMPENSATION Compensation Discussion and Analysis The following Compensation Discussion and Analysis describes material elements of compensation for our executive officers. When we refer to"named executive officers"in this section,we mean our five executive officers listed in the Summary Compensation Table: Bert Selva,President and CEO,Andrew Parries,Chief Financial Officer,Layne Marceau,President—Northern California,Paul Barnes,President—San Diego,and Bob Yoder,President—Southern California. Compensation Objectives The objective of our compensation program for our named executive officers is to provide an appropriate level of compensation to attract,retain and motivate highly skilled and experienced executives. The program is designed to provide a combination of fixed and variable pay components that will result in compensation that recognizes both individual performance and our overall performance. Elements of Executive Compensation Our executive compensation program consists of several components,including base salaries,cash bonuses,long-term incentives, limited perquisites,deferred compensation plan and retirement benefits. 86 HB -5731- Item 16. - 155 Determination of Executive Compensation Our directors determine the amount and type of compensation to be paid to the named executive officers based upon scope of responsibility, and Company and individual performance. Our President and CEO makes recommendations and is part of the approval process with respect to the amount and type of compensation to be paid to the other named executive officers. Our directors have not created a formal compensation committee and have not historically engaged compensation consultants to assist them with determination of compensation for the executives. Base Salaries Base salaries are intended to provide a level of stability to our named executive officers' annual compensation package, as they are fixed at the beginning of each compensation year.Annually,base salaries are reviewed and our directors may consider factors including levels of experience,responsibilities,and personal and company performance. For 2014,base salaries for our named executive officers were increased by 3%each. Annual Cash Bonuses On August 6,2014,the Board of Directors of J.F. Shea Construction Management,Inc.,our ultimate general partner(the "JFSCM Board"),approved the 2014 Shea Homes Cash Bonus Plan(the"Bonus Plan"),designed as a financial incentive to employees that recognizes individual and Company performance. The objective of our compensation plan for 2014 relative to our senior mana-ement group was to promote the achievement of business goals and annual earnings objectives.Individual Bonus Plan target percentages were established based on Shea Homes net profit forecasted in the annual operating plan. For Bert Selva,the Bonus Plan award was based only on 1.25% of Shea Homes net profit,adjusted for certain non-recurring items. For Andrew Parries,the Bonus Plan award was based on .264%of Shea Homes net profit. For Layne Marceau,Paul Barnes and Bob Yoder,the Bonus Plan awards were based on .429%of Shea Homes net profit.Net profit is adjusted for certain non-recurring items. For Mr. Parties, Mr. Marceau,Mr. Barnes and Mr. Yoder,the Bonus Plan awards were based on the following weightings: 50% net profit, 25%customer service and satisfaction, 12.5%for interdivisional achievement and cooperation,and 12.5% discretionary,as reviewed and approved by Mr. Selva and certain directors of the JFSCM Board.The discretionary portion of the Bonus Plan may be based on division profit performance,performance impacting Shea Homes as a whole,and promotion of a safe work environment. Further adjustments may be made to recognize the named executive officers' contributions to business results. Annual cash bonuses are paid in two installments,approximately 75%is paid in December for the respective year based on preliminary results,and the remainder in March of the following year based on final results.In order to receive payments under our Bonus Plan,executives must be employed with us on each of the payment dates. Shea Homes Appreciation Rights Plan On August 8,2012,the JFSCM Board adopted,effective January 1, 2012,the Shea Homes Appreciation Rights Plan (the "SHAR Plan"), an equity appreciation plan designed to provide employees and non-employee service providers a financial incentive to contribute to the Company's long-term success.The SHAR Plan provides for the issuance of units representing the right to receive payment,generally at the time such units vest,based on the increase in book value,as defined,of SHLP's equity between the time of the units Effective Date and when the units vest. The JFSCM Board administers the SHAR Plan and has the authority to make all determinations thereunder including participants, valuations, amount and timing of grants,vesting criteria,amount and timing of payments(including interim payments), and modifications to and termination of the SHAR Plan. On August 8, 2012,the JFSCM Board approved the SHAR Plan 2012 Grant(the "2012 Grant"),effective January 1,2012(the "2012 Effective Date"). Pursuant to the 2012 Grant, 1,021,947 units were issued at a stipulated base value of$10.00 per unit.The units issued pursuant to the 2012 Grant vest four years after the 2012 Effective Date. Subject to participant service eligibility requirements,appreciation in the value of the units during this period is payable to participants when such units vest. However,as a further incentive to participants,the JFSCM Board concurrently approved annual interim payments of the 2012 Grant only,payable to participants in March 2013, 2014 and 2015. Upon vesting, for each eligible participant, interim payments will be offset against the full appreciation of these units and the resultant net amount payable to participant, if any,will be paid upon vesting, which occurs in March 2016. 87 Item 16. - 156 NB -5,74- On June 3,2014,the JFSCM Board approved the SHAR Plan 2014 Grant(the"2014 Grant"),effective January 1, 2014(the "2014 Effective Date"). Pursuant to the 2014 Grant,381,909 units were issued at a stipulated base value of$14.79 per unit. The units issued pursuant to the 2014 Grant vest four years after the 2014 Effective Date. Subject to participant service eligibility requirements, appreciation in the value of the units during this period is payable to participants when such units vest,which occurs in March 2018. For 2014 Bert Selva was ranted 50,528 units at a stipulated base value of$ P Y 14.79 per unit. Andrew Parties Layne Marceau Paul Barnes and Bob Yoder were each granted 15,158 units at a stipulated base value of$14.79 per unit under the SHAR plan.No annual interim payments are payable under the 2014 Grant. Non-Qualifted Deferred Compensation Plan JFSCI,on our behalf, maintains a non-qualified Deferred Compensation Plan.The plan covers employees who meet certain criteria and are selected by the committee that administers the plan. This plan is designed to allow participants to accumulate additional pre-tax savings. The plan allows participants to defer up to 80%of base salary, 80%of commissions and 100%of bonus in a deferred account. Deferred amounts may be invested in a variety of investment funds. On behalf of each participant,on a discretionary basis, we may contribute to a separate account comprised of investment funds that correspond to such participant's deferred account. The plan is designed to comply with Section 409A of the Internal Revenue Code. Deferred amounts may be distributed to each participant upon a separation from service,death,disability,on a scheduled withdrawal date,or with committee approval in the event of unforeseen circumstances. For the years ended December 31, 2014,2013 and 2012,we made no contributions under the plan. Retirement Savings Plan JFSCI,on our behalf, maintains a 401(k) Retirement Savings Plan that includes a profit sharing component covering all eligible employees,including our named executive officers.The plan includes employer participation in accordance with provisions of Section 401(k)of the Internal Revenue Code. The plan allows participants to make pre-tax contributions. On a discretionary basis, we may match employee contributions up to a percentage of the employee's salary as determined by the Company.The profit sharing portion of the plan is discretionary and non-contributory,allowing us to make additional contributions up to a percentage of the employee's salary as determined by the Company. Amounts contributed to the plan are deposited into a trust fund administered by independent trustees. For the years ended December 31, 2014, 2013 and 2012,the Company matched 50 cents on each dollar,up to the first 6%of the employee's base salary,for a maximum of 3%. Employment Agreements;Severance The Company has not entered into employment agreements with any of the named executive officers and none of the named executive officers are entitled to severance or change in control payments in connection with a termination of employment or a change in control. Further, upon termination of employment or change in control,the SHAR Plan does not immediately accelerate vesting of unvested units,or guarantee payments to participants with units, but allows the JFSCM Board to determine payments to the impacted participants, if any,at its sole discretion. Limited Perquisites Our named executive officers,in addition to their base pay,generally receive an automobile allowance, use of a company- provided gas card and a phone allowance. These amounts are included below in the Summary Compensation Table in the "All Other Compensation"column. Tax Considerations In determining which elements of compensation are to be paid,and how they are weighted,we consider whether a particular form of compensation will be deductible under Section 162(m)of the U.S. Internal Revenue Code of 1986, as amended(the"Code"). Section 162(m)generally limits the deductibility of compensation paid to our named executive officers (other than the Chief Financial Officer)to$1 mullion during any fiscal year unless such compensation is "performance-based"under Section 162(m). As a privately- held company, we have not historically been subject to the limitations under Section 162(m). Our compensation program is intended to maximize the deductibility of the compensation paid to our named executive officers to the extent we determine it is in our best interests. In addition,because there are uncertainties as to the application of regulations under Section 162(m),as with most tax matters,it is possible that our efforts to satisfy the conditions of Section 162(m)may be challenged or disallowed. 88 HB _;7;- Item 16. - 157 Summary Compensation Table The following table sets forth a summary of the compensation paid or accrued during the years ended December 31,2014, 2013 and 2012 to our Chief Executive Officer,Chief Financial Officer and the next three most highly compensated named executive officers. For a discussion of material factors related to named executive officer compensation see"Compensation Discussion and Analysis"above: Non-Equity Incentive Plan All Other Total Year Salary Compensation 0) Compensation(2) Compensation Bert Selva President and Chief Executive Officer 2014 $573,510` $ 2261,050 $ 30,243 $ 2,864,803 2013 556,803 1,898,950 30,786 2,486,539 2012 490,474 1,335,700 22904 1,849,078 Andrew Parties Chief Financial Officer 2014 365,005 472,900 25,313 863,218 Layne Marceau President—Northern California 2014 248,157 785,467 27,494 1,061,118 2013 240,890 975,327 28,262 1,244,479 2012 233,857 654,000 21054 908,911 Paul Barnes President—San Diego 2014 230,952 775,000 26,003 1,031,955 Bob Yoder President—Southern California 2014 230,952 775,000 24,466 1,030,418 2013 224,193 975,327 23208 1,222,728 2012 217,660 615,500 15777 848,937 (1) Represents amounts under the Bonus Plan,of which a portion was paid in December and the remainder paid in March,and interim payments under the 2012 SHAR Plan Grant paid in March 2015,March 2014 and March 2013,respectively.The estimated Bonus Plan value for each named executive officer for fiscal 2014 was as follows: Mr.Selva- $2,011,050;Mr. Parties -$410,400;Mr.Marceau- $710,467;Mr.Barnes -$700,000;and Mr.Yoder-$700,000.The interim payment under the SHAR Plan for each named executive officer for fiscal 2014 was as follows: Mr. Selva-$250,000;Mr. Parnes- $62,500;Mr.Marceau -$75,000;Mr.Barnes- $75,000;and Mr. Yoder- $75,000. (2) All Other Compensation consists of 401(k)matching and profit sharing contributions,and costs incurred by us in providing each named executive officer with an automobile allowance,use of a company-provided gas card and phone allowance.Matching 401(k)contributions for each named executive officer for fiscal 2014 was as follows: Mr. Selva-$7,800;Mr.Parnes-$7,800; Mr. Marceau-$7,445;Mr. Barnes-$6,929; and Mr. Yoder-$6,929. Profit sharing contributions for each named executive officer for fiscal 2014 was as follows: Mr. Selva-$7,800;Mr. Parties -$7,800;Mr. Marceau-$7,445;Mr. Barnes- was$6,929; and Mr.Yoder-$6,929. 89 Item 16. - 158 KB -576- Grant of Plan-Based Awards Table Estimated Future Payouts Under Non-Equity Incentive Plan Awards Name Plan Grant Date Target($/#units)(1) Bert Selva President and Chief Executive Officer Bonus Plan August 6, 2014 $ ' 2,143,263 SHAR Plan June 3,2014 50,528 Andrew Parnes Chief Financial Officer Bonus Plan August 6, 2014 $ 452,657 SHAR Plan June 3, 2014 15,158 Layne Marceau President—Northern California Bonus Plan August 6,2014 $ 735,568 SHAR Plan June 3,2014 15,158 Paul Barnes President—San Diego Bonus Plan August 6,2014 $ 735,568 SHAR Plan June 3,2014 15,158 Bob Yoder President—Southern California Bonus Plan August 6,2014 $;' 735,568 SHAR Plan June 3, 2014 15,158 (1) The amount shown for the SHAR Plan is the number of units granted.The stipulated base value of each unit is$14.79 and vest four years after the 2014 Effective Date.The participant must be employed continuously through the vesting date to receive payment. Under the SHAR Plan,the per unit value may not exceed 250%of the stipulated base value. See discussion above for additional information regarding the SHAR Plan. Non-Qualified Deferred Compensation Table The following table sets forth a summary of our non-qualified Deferred Compensation Plan paid or accrued during the years ended December 31, 2014, 2013 and 2012 to our Chief Executive Officer,Chief Financial Officer and the next three most highly compensated named executive officers.For a discussion of material factors related to named executive officer compensation see "Narrative Disclosure to Summary Compensation Table"above: Aggregate Executive Registrant Aggregate Withdrawals/ Aggregate Contributions Contributions Earnings Distributions Balance Bert Selva President and Chief Executive Officer $ 0 $ 0 $ 0 $ 0 $ 0 Andrew Parties Chief Financial Officer 0 0 0 0 0 Layne Marceau President—Northern California 0 0 0 0 0 Paul Barnes President—San Diego 0 0 7,212(t) (15,004) 118,728 Bob Yoder President—Southern California 0 0 0' 0 0 (1) We do not provide above-market or preferential earnings on the Deferred Compensation Plan, so these amounts are not reported in the Summary Compensation Table. Director Compensation Members of the JFSCM Board are members of the Shea family and/or employees of JFSCI.These directors receive no additional compensation for their service on the board,however, as employees of JFSCI,their costs, including compensation,are included in the allocation of shared services costs to us for corporate services provided by JFSCI. Compensation Committee Interlocks and Insider Participation The JFSCM Board serves the purposes of the Compensation Committee. For the year ended December 31, 2014,Bert Selva, SHLP President and Chief Executive Officer,assisted the JFSCM Board in determining executive officer compensation. 90 HB -577_ Item 16. - 159 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Limited partnership interests in SHLP are held in three classes: Class B,Class C and Class D.Profit allocations to the capital accounts of holders of these interests are made first to preferred returns,then to restore losses from prior periods,if any,and third to the Class C and Class D non-preferred interests. Holders of Class B interests are allocated a preferred interest in SHLP profits, which is based on an interest rate applied to their unreturned capital account,and are allocated profits to restore prior years' losses,if any,but no other share of profits.At December 31, 2012,the preferred interest rate was Prime less 2.05%. In August 2013,the rate was changed,effective January 1,2013 as follows: 1.2%from January 1,2013 to December 31, 2016; 2.25% from January 1, 2017 to December 31,2020;and Prime less 2.05% from January 1,2021 and thereafter. Holders of Class D interests are allocated a preferred interest in SHLP profits,which is based on an interest rate applied to their unreturned capital account,and are allocated profits to restore prior years' losses,if any.Holders of Class D interests also receive a non-preferred allocation equal to 1%of any remaining SHLP profits after the Class B and Class D allocations described above. At December 31, 2012,the preferred interest rate was 7.0%.In August 2013,the rate was changed,effective January 1,2013 as follows: 2.0%from January 1, 2013 to December 31,2016; 12.75%from January 1,2017 to December 31,2020;and 7.0%from January 1, 2021 and thereafter. Holders of Class C interests are allocated 99%of SHLP's profits,after allocation of profits to holders of Class B and Class D interests in accordance with the preferred allocations described above and to restore prior year losses allocated to the Class B and Class D interests,if any. J.F. Shea,G.P. is the general partner of SHLP and, as such,has authority to make all decisions with respect to SHLP other than those reserved to the limited partners. SHLP's outstanding Class C and Class D interests are the only interests that carry voting rights with respect to the matters reserved to the limited partners.Class C limited partnership interests are generally weighted with 99%of the vote, and Class D limited partnership interests are generally weighted with 1%of the vote. References to"beneficial ownership" in the following table refer to the percentage of the aggregate voting interest held by the limited partners through Class C and Class D limited partnership interests. The following table sets forth,as of February 27,2015,the percentage beneficial ownership of each person or entity that is or is deemed to be a greater than 5%beneficial owner. The table also identifies certain other entities that have direct or indirect beneficial ownership.No executive officer of SHLP beneficially owns any of SHLP's limited partnership interests,and SHLP does not have a board of directors. The mailing address of each owner listed below is 655 Brea Canyon Road,Walnut,CA 91759. 91 Item 16. - 160 HB -578- SHLP is effectively controlled by members of the Shea family,primarily John Shea,Mary Shea(wife of Edmund Shea— deceased) and Peter Shea. Percentage Beneficial Name of Beneficial Owner Ownership(1) Direct Owners J.F. Shea.G.P.(2) 20.62% Orlando Road LLC(3) 33.18 Virginia Road LLC(4) 20.10 Bay Front Drive LLC (5) 12.81 Tahoe Partnership 1(6) 3.43 The John F. Shea Family Trust(7) 3.56 Shea Investments Is> 3.09 Balboa Partnership(6) 2.79 Survivor's Trust under Article Eighth of the E&M Shea Revocable Trust(9) 0.26 Peter and Carolyn Shea Revocable Trust(10) 0.16 Indirect Owners 2013 Dorothy B. Shea Trust(3) 33.18% 2011 Mary Shea Trust(4) 20.09 2011 Carolyn Shea Trust(5) 12.81 John F. Shea, as Trustee(71 3.56 Mary Shea,as Trustee(9) 0.26 John C. Morrissey,as Trustee(9) 0.26 Peter and Carolyn Shea,as Trustees(10) 0.16 JFS Management, L.P.(2) 20.62 JFSCI(2) 20.62 J.F. Shea Construction Management, Inc.(2) 20.62 (1) Beneficial ownership is determined in accordance with Section 13 of the Securities Exchange Act of 1934 and the rules promulgated thereunder.Accordingly, if an individual or entity has or shares the power to vote or dispose of membership interests held by another entity,beneficial ownership of the interests held by such entity may be attributed to such other individuals or entities. (2) J.F. Shea,G.P. is the general partner of SHLP and, as such,has authority to make all decisions with respect to SHLP other than those reserved to the limited partners. J.F. Shea,G.P. also directly beneficially owns 20.62%of SHLP's limited partnership interests in the form of Class C limited partnership interests. JFS Management, L.P. and JFSCI are the general partners of J.F. Shea,G.P., and J.F. Shea Construction Management,Inc. is the general partner of JFS Management,L.P. As a result,JFS Management,L.P.,JFSCI and J.F. Shea Construction Management,Inc. may each be deemed to indirectly beneficially own 20.62%of SHLP's limited partnership interests. J.F. Shea,G.P. is 96.00%owned by JFS Management, L.P. and 4.00%owned by JFSCI. JFS Management,L.P. is 50.00%n owned by Shea Management LLC and 50.00%owned by J.F. Shea Construction Management, Inc. J.F. Shea Construction Management, Inc. is governed by a board of directors consisting of John F. Shea,Peter O. Shea, Peter Shea,Jr.,John C. Morrissey and James G. Shontere. J.F. Shea Construction Management,Inc. is 33.33%owned by the 2013 Dorothy Shea Trust,33.33%owned by the 2011 Mary Shea Trust and 33.33% owned by the 2011 Carolyn Shea Trust. Shea Management LLC is 16.67%owned by Peter Shea Jr.,9.09%� owned by John Morrissey,5.68%owned by Jim Shea,and 68.56% owned by certain employees of Shea Family Owned Companies and certain of the executive officers of SHLP. JFSCI is governed by a board of directors consisting of John F. Shea, Peter O. Shea,Peter Shea,Jr.,John C. Morrissey and James G. Shontere.JFSCI is 46.07%owned by the John F. Shea Family Trust, 25.54%owned by the Descendant's Trust under Article Tenth of E&M Shea Revocable Trust, 16.49%owned by the Peter and Carolyn Shea Revocable Trust, 3.93%owned by certain trusts for the benefit of the children of John F. Shea,4.46% owned by certain trusts for the benefit of the children of Edmund Shea and 3.51%owned by certain trusts for the benefit of the children of Peter Shea. (3) Orlando Road LLC directly beneficially owns 33.18%n of SHLP's limited partnership interests in the form of Class C limited partnership interests. As 99%owner of Orlando Road LLC,the 2013 Dorothy B. Shea Trust may be deemed to indirectly beneficially own 33.18%of SHLP's limited partnership interests. The trustee of the 2013 Dorothy B.Shea Trust are committees consisting of John Shea,Sr.,Dorothy Shea,Michael Wilsey,Tim Hobin,Edward Merrill,and/or Joseph Flanagan.The beneficiaries of the 2013 Dorothy B. Shea Trust are the descendants of John and Dorothy Shea, 92 11B -579- Item 16. - 161 (4) Virginia Road LLC directly beneficially owns 20.10%of SHLP's limited partnership interests in the form of Class C limited partnership interests.As 99%owner of Virginia Road LLC,the 2011 Mary Shea Trust may be deemed to indirectly beneficially own 20.10%of SHLP's limited partnership interests.The trustee of the 2011 Mary Shea Trust is a committee consisting of Edmund H. Shea III,Mary McConnell,Kathleen S.High,Colleen S.Morrissey and Ellen S. Dietrick. The beneficiaries of the 2011 Mary Shea Trust are the descendants of Mary Shea. (5) Bay Front Drive LLC directly beneficially owns 12.81%of SHLP's limited partnership interests in the form of Class C limited partnership interests. As 99%owner of Bay Front Drive LLC,the 2011 Carolyn Shea Trust may be deemed to indirectly beneficially own 12.81%of SHLP's limited partnership interests.The trustee of the 2011 Carolyn Shea Trust is a committee consisting of Catherine Shea Johnson,Peter O. Shea,Jr.and Sarah Shea Wylder.The beneficiaries of the 2011 Carolyn Shea Trust are the descendants of Carolyn H. Shea. (6) Tahoe Partnership I and Balboa Partnership are investment entities owned by various trusts,whose beneficiaries are the Shea family and descendants.Tahoe Partnership I owns 3.43%of SHLP's limited partnership interests,3.39%of which is in the form of Class C limited partnership interests and 0.04%of which is in the form of Class D limited partnership interests.Balboa Partnership owns 2.79%of SHLP's limited partnership interests,2.75%of which is in the form of Class C limited partnership interests and 0.04%of which is in the form of Class D limited partnership interests. (7) The John F. Shea Family Trust directly beneficially owns 3.56%of SHLP's limited partnership interests,3.10%of which is in the form of Class C limited partnership interests and 0.46%of which is in the form of Class D limited partnership interests.John F. Shea, as trustee of the John F. Shea Family Trust,may be deemed to indirectly beneficially own 3.56%of SHLP's limited partnership interests. The beneficiaries of the John F. Shea Family Trust are John F. Shea and Dorothy B. Shea. (8) Shea Investments owns 3.09% of SHLP's limited partnership interests, 3.05%of which is in the form of Class C limited partnership interests and 0.04%of which is in the form of Class D limited partnership interests. Shea Investments partners are various trusts,which are effectively controlled by committees consisting of John Shea, Sr.,Dorothy Shea,Michael Wilsey,Tim Hobin,Edward Merrill,and/or Joseph Flanagan. The beneficiaries of the partners of Shea Investments are the Shea family and descendants. (9) The Survivors Trust under Article Eighth of the E&M Shea Revocable Trust directly beneficially owns 0.26%of SHLP's limited partnership interests in the form of Class D limited partnership interests.Mary Shea and John C.Morrissey,as trustees of the Survivors Trust under Article Eighth of the E&M Shea Revocable Trust,may be deemed to indirectly beneficially own 0.26%of SHLP's limited partnership interests. The beneficiary of the Survivors Trust under Article Eighth of the E&M Shea Revocable Trust is Mary Shea. (10) The Peter and Carolyn Shea Revocable Trust directly beneficially owns 0.16%of SHLP's limited partnership interests in the form of Class D limited partnership interests. Peter and Carolyn Shea,as trustees of the Peter and Carolyn Shea Revocable Trust,may be deemed to indirectly beneficially own 0.16%of SHLP's limited partnership interests.The beneficiaries of the Peter&Carolyn Shea Revocable Trust are Peter and Carolyn Shea. ITEM 13.CERTAIN RELATIONSHIPS AND AFFILIATE TRANSACTIONS,AND DIRECTOR INDEPENDENCE The Shea Family of Companies We are part of the Shea Family Owned Companies.The Shea family consists primarily of John Shea,Mary Shea(wife of John Shea's cousin,Edmund Shea,Jr—deceased)and another cousin, Peter Shea,and their 17 children. While John Shea and Peter Shea actively participate in strategic management decisions for the Shea family companies,day-to-day management decisions with respect to the Shea family companies are made by Peter Shea,Jr. and John Morrissey, son-in-law of Edmund Shea,Jr.,who serve as directors of J.F. Shea Construction Management,Inc.,the ultimate general partner of SHLP. The Shea Family Owned Companies are operated in four major groups: homebuilding,heavy construction,venture capital and commercial property development and management.Much of the Shea Family Owned Companies' business has traditionally been operated and managed through JFSCI,with each of the homebuilding,heavy construction, and commercial property businesses providing management,administrative,financial and credit support to one another. Over the past several years, the Shea family and our management have made a series of changes to the business and operating structure of the Shea Family Owned Companies so that, currently: • the Shea family homebuilding business is owned and operated primarily through SHLP,SHI and their respective subsidiaries; • the Shea family heavy construction business is owned and operated primarily through JFSCI; • the Shea family venture capital business is owned and operated primarily through Shea Ventures,LLC;and • the Shea family commercial development and management operation is owned primarily through Shea Properties LLC and Shea Properties II,LLC,and operated primarily through Shea Properties Management Company,Inc. 93 Item 16. - 162 HIS -580- Transactions with JFSCI and Other Beneficial Owners of SHLP Partnership Interests Cash Management Services Provided by JFSCI Until August 2011, we participated in a centralized cash management function operated by JFSCI,whereby net cash flows from operations were transferred daily with JFSCI and resulted in affiliate transactions and monetary transfers to settle amounts owed.In August 2011,we ceased participation in this function and began to perform the function independently. Administrative Services Provided by JFSCI We,along'with certain other Shea Family Owned Companies,receive certain administrative services from JFSCI,including management,legal,tax,information technology,risk management,facilities, accounting,treasury and human resources. This sharing and resultant allocation of costs is based on reasonable and customary practices, is governed by written agreement and requires affiliate transactions and monetary transfers to settle amounts owed between entities. For these services, we pay JFSCI a fee based on time spent by JFSCI employees on our related work. For the years ended December 31,2014, 2013 and 2012, we recognized$23.3 million, $20.3 million and$18.1 million,respectively,of general and administrative expenses for corporate services provided by JFSCI. JFSCI Note Receivable Included in receivables from affiliates,net is an interest bearing note receivable from JFSCI,as follows: Highest Monthly JFSCI Ending At December 31, (net) Balance (in thousands) 2014 $ 0 $13,512 2013 21,588 24,648 2012 24,498 25,806 In May 2011,concurrent with issuance of the Secured Notes,the previous unsecured receivable from JFSCI was partially paid down and the balance converted to a$38.9 million unsecured term note receivable,bearing 4%interest,payable in equal quarterly installments and maturing May 15, 2019. During 2012 and 2013,JFSCI elected to make prepayments,including accrued interest,of $1.9 million and$3.8 million,respectively,and in 2014,paid the balance in full. For the years ended December 31, 2014 and 2013, the net note receivable from JFSCI earned interest of$0.5 million and$0.9 million,respectively. Non-Interest Bearing Receivables and Payables We and certain other Shea Family Owned Companies,primarily JFSCI,also engage in specific transactions with third parties on behalf of each other that primarily relate to employee payroll and payment of subcontractor and supplier invoices. The resultant receivables and payables are non-interest bearing and due on demand.Payroll is funded when paid and the receivables and payables resulting from subcontractor and supplier invoice payments are settled monthly. At December 31, 2014, 2013 and 2012, non-interest-bearing receivables from affiliates,including JFSCI,were approximately $4.0 million, $3.7 million and$2.1 million,respectively. During the years ended December 31,2014,2013 and 2012,the highest month-end balance of non-interest-bearing receivables from affiliates,including JFSCI,was$5.4 million,$4.7 million and$2.1 million,respectively. At December 31, 2014, 2013 and 2012, non-interest-bearing payables to affiliates,including JFSCI, which primarily result from payments made on our behalf by such parties,were$4.8 million,$0.1 million and$0.1 million,respectively. 94 11 B _;8 1- Item 16. - 163 Tax Distribution Agreement On May 10,2011,SHLP,the partners of SHLP,and the direct and indirect holders of all beneficial interests in SHLP,entered into an agreement which requires SHLP to distribute cash payments to the Partners for taxes incurred by such partners (or their direct or indirect holders) for their ownership interest in SHLP. Under the Tax Distribution Agreement, SHLP is required to make distributions to the Partners quarterly or annually if the aggregate income tax liability of the SHLP partners (or their direct or indirect holders)with respect to allocations of income to such persons for periods commencing on or after January 1,2011,at any time exceeds amounts previously distributed to such persons after January 1, 2011 (excluding for this purpose certain distributions otherwise permitted pursuant to the indenture).The aggregate income tax liability of the SHLP partners (or their direct or indirect holders)is determined on a notional basis by multiplying the income allocated to such partners (or their direct or indirect holders)for tax purposes by the highest aggregate marginal combined federal, state and local income tax rates applicable to such income. Under the Tax Distribution Agreement, SHLP is also required to make distributions to the Partners to pay the adjusted income tax liability of the SHLP partners(or their direct or indirect holders)as a result of an adjustment to items of income,gain,loss,or deduction of SHLP upon the resolution of any tax proceeding of SHLP or any entity treated as a"pass-through"entity under U.S.federal income tax principles in which SHLP has an ownership interest, including the Tax Court CCM case(see discussion of Tax Court CCM case in Note 13 to our consolidated financial statements). Such adjusted income tax liability of the SHLP partners (or their direct or indirect holders) is determined by multiplying the increase in income (or reduction of loss) allocated to such partners (or their direct or indirect holders)for tax purposes basis by the highest aggregate marginal combined federal, state and local income tax rates applicable to such income or loss. General Contractor Services SHLP, SHI, SHALC GC, Inc.,a wholly-owned subsidiary of SHI, and J.F. Shea Construction Management,Inc. hold contractor's licenses in various jurisdictions and use their licenses to build homes on behalf of their wholly-owned subsidiaries. These companies do not charge a fee for performing such contracting services. In 2010, we acquired a project in north Las Vegas, Nevada. Because neither SHLP nor SHI holds a contractor's license in Nevada,JFSCI,which holds a contractor's license in Nevada,is the general contractor on this project.JFSCI does not receive fees for this service. All project costs are paid by us. In Florida,J.F. Shea Construction Management,Inc.holds the contractor's license and acts as general contractor for our homes built in that state.J.F. Shea Construction Management, Inc.does not receive fees for this service. All project costs are paid by us. Transactions with Unconsolidated Joint Ventures and Other Shea Family Owned Companies Notes Receivable from Unconsolidated Joint Ventures Notes receivable, including accrued interest,from unconsolidated joint ventures were as follows: Interest Amount Outstanding at December 31, Borrower Maturitv Rate 2014 2013 2012 (hi thousands) AGS Jubilee,LLC June 2020 8.0% $ 371 $ 266 $ 268 Lake Norman North Carolina Holdings LP September 2020 12.0% 1,119 0 0 Polo Estates Ventures,LLC March 2015 7.5% 1,691 0 0 Tegavah Holdings LP October 2021 12.0% 2,885 0 0 Vistancia West Holdings,LP September 2020 12.0% 2,661 771 0 Total $ 8,727 $ 1,037 $ 268 The note receivable from AGS Jubilee, LLC bears interest at 8% but can earn additional interest to achieve a 17.5%internal rate of return,subject to available cash flows of AGS Jubilee,LLC, and can be repaid prior to its maturity in 2020. 95 Item 16. - 164 11B -_5822- Notes Receivable from Shea Family Owned Companies We also had notes receivable,including accrued interest, from the following Shea Family Owned Companies in which we had no ownership interest: Interest Amount Outstanding at December 31, Borrower Maturity Rate 2014 2013 2012 (In thousands) Shea Management LLC October 2017 Prime $ 2,367 $ 2,292 $ 2,219 Shea Properties Management Company,Inc. March 2019 Prime less 0.75% 10,573 10,572 10,572 Shea Baker Ranch,LLC April 2021 Prime plus 1% 0 2,254 2,160 Shea Properties I1,LLC August 2016 4.2% 2,363 3,704 4,989 Subtotal 15,303 18,822 19,940 Valuation reserve(1) (12,917) (12,842) (12,766) Total $ 2,386 $ 5,980 $ 7,174 (1) In 2009,we recorded reserves in the full amount of the notes receivable from Shea Management LLC and Shea Properties Management Company,Inc. due to uncertainty of collection.In June 2011,Shea Properties Management Company,Inc.paid the accrued interest for 2010 and 2011,and continues to pay current interest. Guarantees and Other Credit Support At December 31,2014,we had remargin guarantees of outstanding unconsolidated joint venture debt of$55.7 million,where we hold an ownership interest,of which our maximum remargin obligation was$34.2 million. We also have agreements and/or reimbursement rights,under which we could potentially recover a portion of any payments we made. However,we cannot provide assurance that we would be able to collect such payments. We provided indemnification for bonds issued by unconsolidated joint ventures and other Shea Family Owned Companies. At December 31, 2014, we had$22.7 million of costs to complete in connection with$63.2 million of surety bonds issued for unconsolidated joint venture projects, and$2.2 million of costs to complete in connection with$3.5 million of surety bonds issued for other Shea Family Owned Companies projects. In addition,we may issue letters of credit under our letter of credit facility on behalf of our unconsolidated joint ventures.At December 31, 2014, we had no letters of credit outstanding on behalf of unconsolidated joint ventures. Management of Joint Ventures We are the managing member for two unconsolidated joint ventures, Riverpark Legacy,LLC and Marina Community Partners, LLC,where one of our joint venture partners is SPLLC or Shea Properties 11, LLC,both Shea Family Owned Companies. At December 31, 2014 and 2013,we were the managing member for 13 and 10,respectively,unconsolidated joint ventures and received management fees from these joint ventures as reimbursement for direct and overhead costs incurred on behalf of the joint ventures. Fees representing cost reimbursement are recorded as an offset to general and administrative expense; fees in excess of costs are recorded as revenues.For the years ended December 31,2014, 2013 and 2012, $11.4 million, $8.0 million and$4.3 million, respectively,of management fees were offset against general and administrative expenses; and$1.1 million,$0.5 million and$0.2 million,respectively,of management fees were included in revenues. Redemption or Purchase of Interest in Joint Venture In March 2012,our entire 58% interest in Shea Colorado,LLC ("SCLLC"),a consolidated joint venture with Shea Properties II, LLC,an affiliate and the non-controlling member, was redeemed by SCLLC. In valuing our 58% interest in SCLLC,and to ensure receipt of net assets of equal value to our ownership interest, we used third-party real estate appraisals.The estimated fair value of the assets received by us was$30.8 million. However,as the non-controlling member is an affiliate under common control,the assets and liabilities received by us were recorded at net book value and the difference in our investment in SCLLC and the net book value of the assets and liabilities received was recorded as a reduction to our equity. 96 IJB -5831_ Item 16. - 165 As consideration for the redemption, SCLLC distributed assets and liabilities to us having a net book value of$24.0 million, including$2.2 million of cash,a$3.0 million secured note receivable, $20.0 million of inventory and $1.2 million of other liabilities. As a result of this redemption,effective March 31, 2012, SCLLC is no longer included in these consolidated financial statements. This transaction resulted in a net reduction of$41.8 million in assets and$2.0 million in liabilities, and a$39.8 million reduction in total equity,of which$11.6 million was attributable to our equity and$28.2 million was attributable to non-controlling interests. In December 2011,our consolidated joint venture,Vistancia,LLC, sold its remaining interest in an unconsolidated joint venture (the"Vistancia Sale").As a result of the Vistancia Sale, no other assets of Vistancia, LLC economically benefit the former non- controlling member of Vistancia,LLC and we recorded the remaining$3.3 million distribution payable to this member, which is paid $0.1 million quarterly. At December 31, 2014 and 2013,the distribution payable was$2.2 million and$2.5 million,respectively. As a condition of the Vistancia Sale,and the purchase of the non-controlling member's remaining interest in Vistancia,LLC,we remain a 10%guarantor on certain community facility district bond obligations,which require us to meet a minimum calculated tangible net worth:otherwise, we are required to fund collateral to the bond issuer.At December 31,2014 and 2013,we exceeded the minimum tangible net worth requirement. Supplemental Insurance Coverage and PIC Transaction We require TradePartners" be insured for workers compensation, commercial general liability and completed operations losses and damages,and most TradePartners" carry this insurance through our"rolling wrap-up" insurance program,where our risks and risks of participating TradePartners°working on our projects are insured through a set of master policies. These policies carry large retentions,which are our responsibility.Through retention liability policies, we obtain supplemental insurance for these"rolling wrap-up"programs from affiliated entities. Prior to July 2007,PIC provided these retention liability policies. Since August 2007,this insurance has been provided by Orlando Insurance Company, Inc.,Virginia Insurance Company,Inc. and Bay Front Insurance Company,Inc.,each wholly-owned by the Shea family. From December 2009 to February 2010,PIC paid$86.2 million of insurance premiums to certain third-party insurance carriers (including,in part through JFSCI) whereby PIC either novated or reinsured its workers' compensation,commercial general liability and certain completed operations risks,in each case,with third-party insurance carriers. This premium was partially funded from the sale of PIC's marketable securities. PIC will remain in business until the reinsured claims and matching reinsurance receivables are processed,which we estimate will occur in the next 5 years. As a result of the PIC Transaction, PIC's financial exposure is limited to (i)the portion of PIC's original policy limits not reinsured and(ii)to the extent of the reinsurance policies,the creditworthiness of its reinsurers,which are highly rated by AM Best and/or have sufficient loss reserves funded in trusts. We obtain workers compensation insurance,commercial general liability insurance,and certain insurance for completed operations losses and damages with respect to our homebuilding operations from affiliate and unrelated third-party insurance providers. These policies are purchased by affiliate entities and we pay premiums to these affiliates for the coverages provided by these third party insurance providers. Policies covering these items are written at various coverage levels but include a large self- insured retention or deductible. We have retention liability insurance from Orlando Insurance Company,Inc., Virginia Insurance Company,Inc. and Bay Front Insurance Company, Inc. to insure these retentions or deductibles.For the years ended December 31, 2014 and 2013, amounts paid to these affiliates for this retention insurance coverage were$21.3 million and$14.1 million, respectively. Real Property Transactions In the ordinary course of business,we may enter into land purchase agreements with Shea Family Owned Companies (affiliates under common control)to facilitate land development. We are currently negotiating a transaction with SPLLC,an affiliate under common control,involving the sale to SPLLC,or its affiliated entity,of approximately 41.5 acres of land owned by us and located in the Highlands Ranch Business Park within the Highlands Ranch master-planned community in northern Douglas County, Colorado. The purchase price of the property to be paid by SPLLC will be at our net book value, which will equal or exceed the current fair market value of the land.The land is presently zoned for commercial,business or industrial use. In connection with the purchase,we have authorized SPLLC to process entitlement and subdivision documents necessary to achieve single-family residential development by us on adjacent property owned by us,with the property being purchased by SPLLC being rezoned for multi-family rental housing,office and retail for development by SPLLC.We and SPLLC will jointly develop the common infrastructure serving the respective parcels once the new entitlements are received. 97 Item 16. - 166 1AB -584- In January 2014,we entered into a purchase and sale agreement with an affiliate and acquired undeveloped land in Northern California. Consideration included$4.4 million of cash, assumption of a$1.3 million net liability,and future revenue participation payments (the"RAPA"),which is calculated at 11%of gross revenues from home deliveries,payable quarterly and limited to$19.6 million. The RAPA liability,based on a third-party real estate appraisal,is estimated to be$19.6 million,which is included in other liabilities. As the transaction is with an affiliate under common control,the$25.3 million of consideration was recorded as an equity distribution. In February 2014,we entered into a purchase and sale agreement to sell land in Southern California to an affiliate under common control for$1.0 million cash and assumption of certain construction obligations.The$0.9 million of net sales proceeds received in excess of the net book value of the land sold was recorded as an equity contribution. In June 2014, we entered into a purchase and sale agreement("PSA") to purchase land in Northern California from an unconsolidated joint venture in which we have a 33%ownership interest. We paid$2.7 million for 70 lots and acquired an option to purchase 262 lots in seven phases through 2019,for an estimated$18.5 million. The PSA also includes additional consideration based on future price and profit appreciation for each phase,payable after the last home delivery for that respective phase.In conjunction with the purchase of the 70 lots,we deferred$0.9 million of profit representing our proportionate share of the corresponding land sale profit from the joint venture and recorded it as a reduction of inventory. In October 2012,we sold land in Colorado to an affiliate for$4.6 million. As the affiliate is under common control,the$2.4 million of net sales proceeds received in excess of the net book value of the land sold was recorded as an equity contribution. We and certain joint ventures lease office space under non-cancelable operating leases from the following Shea Family Owned Companies: Shea Center Livermore,LLC,Treena Street Partners and Highlands Ranch Shea Center lI,LLC.The leases are for terms up to ten years and generally provide renewal options for terms up to an additional five years. At December 31,2014, future minimum rental payments under affiliate operating leases were as follows: Payments Due By Year December 31, (In thousands) 2015 $ 1,311 2016 619 2017 366 2018 383 2019 and thereafter 2,380 Total $ 5,059 For the years ended December 31,2014, 2013 and 2012,affiliate rental expense was$0.7 million, $0.4 million and$0.6 million, respectively. Use of the Shea Homes Brand Most of the Shea family homebuilding business under the Shea Homes brand is owned and operated by us. However, some homebuilding businesses and projects under the Shea Homes brand are, and will continue to be,owned and operated by legal entities that are owned and controlled by the Shea family separately from us.These legal entities are not Guarantors and their assets are not pledged as collateral for the Secured Notes. The homebuilding projects and related businesses owned and operated by these legal entities include: • Shea Homes North Carolina—Builds homes in North Carolina and South Carolina under the Shea Homes brand and shares a website with SHLP. Shea Homes North Carolina also contracts with JFSCI for certain management and administrative services. Shea Homes North Carolina is based in Charlotte,North Carolina and is owned and operated by children and nephews of John Shea and Mary Shea. • Shea Mortgage.—Arranges mortgages for our homebuyers,helping to ensure homebuyers secure financing for their home purchases. Although closely related to the homebuilding operation,Shea Mortgage is owned directly by members of the Shea family. 98 HB -;s,- Item 16. - 167 Policy on Transactions with Affiliates We have a policy in place to routinely evaluate affiliate transactions, which includes obtaining the approval of the Board of Directors of J.F. Shea Construction Management,Inc. or third-party valuation appraisals where appropriate. Board of Directors Director Independence Although we are not listed on any national securities exchange, we have used the standards of director independence as promulgated by the New York Stock Exchange. None of the directors of J.F. Shea Construction Management,Inc.,our ultimate general partner, are independent under the New York Stock Exchange standard for directors or for compensation committee members. The members of the audit committee of the board of directors of J.F. Shea Construction Management, Inc., which include Peter Shea,Jr.,John Morrissey,James G. Shontere and Ross Kay,are also not independent under the New York Stock Exchange standards of independence for audit committee members. The board of directors of J.F. Shea Construction Management,Inc. determined that Jim Shontere qualifies as an "audit committee financial expert" as defined by SEC rules,based on his education, experience and background. ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES Ernst&Young LLP served as our independent registered public accounting firm for our 2014 and 2013 fiscal years. Services provided by Ernst& Young LLP and related fees billed in each of our last two fiscal years were as follows: December 31, 2014 2013 (In thousands) Audit Fees $497 $520 Audit Related Fees 12 12 Tax Fees 201 213 Total Fees $710 $745 In 2014 and 2013, audit fees include an annual consolidated financial statement audit and three quarterly reviews. Tax fees include fees for review of our federal and state income tax returns,tax planning and tax advice. The audit committee has considered whether the non-audit services provided to us by Ernst&Young LLP impaired the independence of Ernst&Young LLP and concluded that they did not. All services performed by Ernst& Young LLP were pre- approved in accordance with the pre-approval policy adopted by the audit committee.The policy requires pre-approval of all audit, audit-related,tax and other permissible non-audit services provided by Ernst&Young LLP annually and additional services as needed.The policy also requires additional approval of engagements previously approved but anticipated to exceed pre-approved fee levels. 99 Item 16. - 168 H11 -_-586- PART IV ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Page Reference (a)(1) Financial Statements, included in Part II of this report: Repoil of Independent Registered Puhlic ,Accounting Firm 48 Consolidated Balance Sheets at December31. 2014 and 2013 49 Consolidated Statements of Income for the Years Ended Decemher 31. -1014. 2013 and 2012 50 Crnlsolidated Statements of Comprehensive Income for the Years Ended December 31. 2014. 2013 and 2012 51 Consolidated Statements of ChanLes in Equm for the Years Ended Decemher 31.2014. 2013 and 2012 52 Consolidated Statements of Cash Flows for the Years Ended December 11.2014.2013 and 2012 53 Notes to Consolidated Financial Statements 54 (2) Financial Statement Schedules Financial Statement Schedules are omitted since the required information is not present or is not present in the amounts sufficient to require submission of a schedule,or because the information required is included in the consolidated financial statements, including the notes thereto. (3) Index to Exhibits See Index to Exhibits on pages 94-95 below (b) Index to Exhibits. See Index to Exhibits on pages 94-95 below (c) Financial Statements required by Regulation S-X excluded from the annual report to shareholders by Rule 14a- 3(b). Not applicable 100 HB _ 87_ Item 16. - 169 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized. SHEA HOMES LIMITED PARTNERSHIP (Registrant) By: /s/ROBERTO F. SELVA Roberto F. Selva Chief Executive Officer March 6,2015 Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date /S/ROBERTO F. SELVA President and Chief Executive Officer March 6, 2015 (Roberto F.Selva) (Principal Executive Officer) /S/ANDREW H. PARNES Chief Financial Officer March 6, 2015 (Andrew H.Parnes) (Principal Financial Officer) /S/ANDREW T. ROUNDTREE Vice President,Corporate Controller March 6,2015 (Andrew T.Roundtree) (Principal Accounting Officer) /S/JOHN F. SHEA Director March 6,2015 (John F.Shea) /S/PETER O. SHEA Director March 6,2015 (Peter O.Shea) /S/PETER O. SHEA,JR. Director March 6,2015 (Peter O.Shea,Jr.) /S/JOHN C. MORRISSEY Director March 6,2015 (John C.Morrissey) /S/JAMES G. SHONTERE Director March 6, 2015 (James G.Shontere) Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d)of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act: No annual report or proxy material was sent to security holders during the last fiscal year,and no such report or material is expected to be sent in the current fiscal year. 101 Item 16. - 170 11B -588- EXHIBIT INDEX Exhibit No. Description 3.1 Certificate of Limited Partnership of Shea Homes Limited Partnership(incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 filed with the SEC on October 14,2011 (File No.333-177328)) 3.2 Seventh Amendment and Restated Agreement of Limited Partnership(incorporated by reference to Exhibit 3.2 to the Company's Annual Report of Form 10-K filed with the DEC on March 5,2013 (File No.333-177328)). 3.3 First Amendment to Seventh Amended and Restated Agreement of Limited Partnership(incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 9,2013 (File No.333- 1 77328)). 4.1 Indenture,dated May 10,2011,between and among Shea Homes Limited Partnership,Shea Homes Funding Corp.,the guarantors party thereto,and Wells Fargo Bank,National Association,as Trustee(including the form of 8.625% Senior Secured Notes due 2019)(incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 filed with the SEC on October 14.2011 (File No. 333-177328)) 4.2 Intercreditor Agreement,dated May 10,2011,among Shea Homes Limited Partnership,the grantors party thereto,Wells Fargo Bank,National Association and Credit Suisse AG (incorporated by reference to Exhibit 4.3 to Amendment No.2 to the Company's Registration Statement on Form S-4 filed with the SEC on January 24,2012 (File No.333-177328)) 4.3 First Supplemental Indenture,dated October 16,2013,among Shea Homes Limited Partnership,and Shea Homes Funding Corp.,as issuers,the guarantors party thereto,and Wells Fargo Bank,National Association,as Trustee(incorporated by reference to Exhibit 4.1 to the Company's Form 10-Q filed with the SEC on November 12,2013(File No. 333-177328)) 4.4 Second Supplemental Indenture,dated November 4,2013,among Shea Homes Limited Partnership,and Shea Homes Funding Corp.,as issuers,the.guarantors party thereto, and Wells Fargo Bank,National Association,as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed with the SEC on November 4,2013(File No. 333-177328)) 4.5 Third Supplemental Indenture,dated February 25,2014,among Shea Homes Limited Partnership,and Shea Homes Funding Corp.,as issuers,the guarantors party thereto,and Wells Fargo Bank,National Association,as Trustee (incorporated by reference to Exhibit 4.6 to the Company's Form 10-K filed with the SEC on March 17,2014(File No. 333-177328)) 10.1 Tax Distribution Agreement,dated as of May 10,2011 (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-4 filed with the SEC on October 14,2011 (File No. 333-177328)) 10.2 Promissory Note,dated May 10,2011 from J.F.Shea,Co.,Inc.to Shea Homes,Inc. (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to the Company's Registration Statement on Form S-4 filed with the SEC on December 22, 2011 (File No.333-177328)) 10.3 Services Agreement,dated as of May 1,2011, among Shea Homes Limited Partnership, Shea Homes,Inc.and J.F. Shea Co.,Inc. (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to the Company's Registration Statement on Form S-4 filed with the SEC on January 24,2012(File No. 333-177328)) 10.4 Services Agreement,dated as of May 1,2011,among Shea Homes Limited Partnership, Shea Homes,Inc.,J.F.Shea,L.P. and J.F. Shea Construction Management,Inc. (incorporated by reference to Exhibit 10.6 to Amendment No.2 to the Company's Registration Statement on Form S-4 filed with the SEC on January 24,2012(File No. 333-177328)) 10.5 Shea Homes Appreciation Rights Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 10,2012 (File No.333-177328))+ 10.6 Offer Letter from Shea Homes Limited Partnership to Andrew H.Parries(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on September 5,2012(File No. 333-177328))+ 10.7 Credit Agreement dated as of February 20,2014,by and among Shea Homes Limited Partnership,the lenders from time to time party thereto,and U.S.Bank National Association as administrative agent(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on February 20,2014(File No.333-177328)) 10.8 Amended and Restated Security Agreement dated as of February 20,2014 among the Company,the Guarantors and Wells Fargo Bank,National Association as collateral agent(incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on February 20,2014(File No. 333-177328)) 102 1 zB -589- Item 16. - 171 r Exhibit No. Description 12.1 Statement of Computation of Ratio of Earnings to Fixed Charges 21.1 Subsidiaries of the Registrant 31.1 Certification of Chief Executive Officer Pursuant to Rule 13-14(a)of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer Pursuant to Rule 13-14(a)of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101 The following materials from Shea Homes Limited Partnership's annual report on Form 10-K for the year ended December 31,2014,formatted in eXtensible Business Reporting Language(XBRL): (i)Consolidated Balance Sheets, (ii)Consolidated Statements of Income, (iii)Consolidated Statements of Comprehensive Income,(iv) Consolidated Statements of Changes in Equity, (v)Consolidated Statements of Cash Flows,and(vi) Notes to Consolidated Financial Statements. + Indicates a management contract or compensatory plan or arrangement 103 Item 16. - 172 H13 -590- Exhibit 12.1 Shea Homes Limited Partnership and Subsidiaries Statement Re: Computation of Earnings to Fixed Charges The following table sets forth information regarding our ratio of earnings to fixed charges for the periods shown. In calculating the ratio of earnings to fixed charges,earnings are calculated as (a) income(loss)before income taxes,excluding income(loss)from joint ventures,plus (b) fixed charges,plus (c)capitalized interest included in cost of sales and equity in income (loss)from unconsolidated joint ventures,plus(d)distributed income of equity investees,minus (e)interest capitalized.Fixed charges are comprised of(a) interest incurred and(b) the portion of rental expense deemed to be representative of an interest factor.For the years ended December 31, 2011 and 2010, earnings were insufficient to cover fixed charges for each such year by$40.2 million and$9.6 million,respectively. Fiscal Year Ended December 31, 2014 2013 2012 2011 2010 (In millions,except ratios) Earnings: (Loss)/income before income taxes, excluding equity in income(loss)from joint ventures $142,470 $1 12,942 $ 29,422 $(105,177) $(67,395) Plus: Fixed charges 68,204 67,048 66,857 69,961 62,290 Capitalized interest included in cost of sales and equity in income(loss)from unconsolidated joint ventures 71,224 61,637 55,582 47,563 48,805 Distribution of earnings from unconsolidated joint ventures 18,790 7,100 1,400 650 400 Less: Interest capitalized (67,609) (61,977) (46,995) (53,155) (53,732) Total earnings as calculated 233,079 186,750 106,266 (40,158) "(9,632) Fixed charges: Interest incurred 68,204 67,048 66,857 69,961 62,290 Portion of rental expense deemed to be representative of an interest factor — — — — — Total fixed charges $ 68,204 $ 67,048 $ 66,857 $ 69,961 $ 62,290 Ratio of earnings to fixed charges 3.4 2.8 1.6 — — 1-I B - 9 1- Item 16. - 173 Exhibit 21.1 Shea Homes Limited Partnership List of Subsidiaries Name of Company Jurisdiction of Formation Highlands Ranch Development Corporation Colorado Monty Green Holdings,LLC Delaware Mountainbrook Village Company Arizona Partners Insurance Company Hawaii Serenade at Natomas,LLC California Seeven Summits Lodge,LLC Delaware Seville Golf and Country Club LLC Arizona SFHB 1,LLC Delaware SFHB Management, LLC Delaware SH AA Development,LLC Delaware SH AA Tehaleh, LLC Delaware SH Cascades,LLC Florida SH Jubilee, LLC Delaware SH Jubilee Management,LLC Delaware SH Lake Norman Manager,LLC Delaware SH Lake Norman Associates,LLC Delaware SH PA2 Development,LLC Delaware SH Tegavah Manager,LLC Delaware SH Tegavah Associates,LLC Delaware SH WR Marketin-.LLC Delaware SH Vistancia West Associates,LLC Delaware SHALC GC,Inc. Delaware Shea Capital II, LLC Delaware Shea Communities Marketing Company Delaware Shea Financial Services,Inc. California Shea Homes, Inc. Delaware Shea Homes Active Adult, LLC Delaware Shea Homes Arizona Limited Partnership Arizona Shea Homes Houston,LLC Delaware Shea Homes at Montage,LLC California Shea Homes Southwest, Inc. Arizona Shea Homes Vantis,LLC California Shea Insurance Services,Inc. California Shea La Quinta,LLC California Shea Otay Village 11,LLC California Shea Proctor Valley,LLC California Shea Properties of Colorado,Inc. Colorado Shea Riverpark Developers, LLC Delaware Shea Tonner Hills,LLC Delaware Shea Victoria Gardens, LLC Florida SHI JV Holdings, LLC Delaware SHLP JV Holdings,LLC Delaware SRD Management LLC California Tower 104 Gathering, LLC Colorado Tower 104 Oil,LLC Colorado Trilogy Antioch,LLC California UDC Advisory Services,Inc. Illinois UDC Homes Construction, Inc. Arizona Vistancia,LLC Delaware Vistancia Construction,LLC Delaware Vistancia Marketing,LLC Delaware Item 16..- 174 xB -s92- Exhibit 31.1 CERTIFICATIONS I,Roberto F. Selva,certify that: 1.I have reviewed this Annual Report on Form 10-K of Shea Homes Limited Partnership; 2. Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e))and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based on such evaluation: and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter(the registrant's fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely to materially affect,the registrant's internal control over financial reporting;and 5. The registrant's other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,process,summarize and report financial information,and (b)Any fraud, whether or not material,that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/Roberto F. Selva Roberto F. Selva Chief Executive Officer (Principal Executive Officer) Date: March 6,2015 HB _51)31_ Item 16. - 175 Exhibit 31.2 CERTIFICATIONS I,Andrew H. Parties,certify that: 1. I have reviewed this Annual Report on Form 10-K of Shea Homes Limited Partnership, 2. Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in this report; 4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e))and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter(the registrant's fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely to materially affect,the registrants internal control over financial reporting;and 5. The registrant's other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,process,summarize and report financial information; and (b)Any fraud,whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/Andrew H. Parties Andrew H. Parties Chief Financial Officer (Principal Financial Officer) Date: March 6,2015 Item 16. - 176 HI3 -594- Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with this Annual Report on Form 10-K for the year ended December 31,2014 of Shea Homes Limited Partnership,(the "Company")as filed with the Securities and Exchange Commission on the date hereof(the"Report"),I, Roberto F. Selva,Chief Executive Officer of the Company,certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002,that: 1. The Report fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934;and 2. The information contained in the Report fairly presents,in all material respects,the financial condition and results of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Annual Report on Form 10-K.A signed original of this statement has been provided to Shea Homes Limited Partnership and will be retained by Shea Homes Limited Partnership and furnished to the Securities and Exchange Commission or its staff upon request. /s/Roberto F. Selva Roberto F. Selva Chief Executive Officer (Principal Executive Officer) Date: March 6,2015 HB -595_ Item 16. - 177 Exhibit 32.2 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with this Annual Report on Form 10-K for the year ended December 31, 2014 of Shea Homes Limited Partnership,(the "Company")as filed with the Securities and Exchange Commission on the date hereof(the "Report"),I,Andrew H.Parries,Chief Financial Officer of the Company,certify,pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002,that: 1. The Report fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934;and 2. The information contained in the Report fairly presents,in all material respects,the financial condition and results of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Annual Report on Form 10-K.A signed original of this statement has been provided to Shea Homes Limited Partnership and will be retained by Shea Homes Limited Partnership and furnished to the Securities and Exchange Commission or its staff upon request. /s/Andrew H. Parnes Andrew H. Parties Chief Financial Officer (Principal Financial Officer) Date: March 6,2015 Item 16. - 178 HB -596- a y I i WHY SHEA HOMES? i I — >.. As a land seller. Shea Homes has earned a nationwide reputation as a high quality master-plan developer with extensive experience selling land to y public and private homebuilders throughout all of our master-planned _... _....... communities. We have deep relationships with buyers and they trust the process and service we bring when they buy from Shea. Aso 00.**L I At EA. - Snea Homes is one of the preeminent master-plan developers in Orange County. Our heritage includes overseeing the master development of portions of Mission Viejo, Aliso Viejo, and major, developments in Laguna ogmirn�d Niguel, including Bear Brand Vl✓e continue this tradition today with active master-planned communities in Brea. Aliso Viejo, and Lake Forest. I � The Company has also been recognized by homebuilding industry professionals and homebuyers for quality, customer service and craftsmanship. as evidenced by the Company's receipt of some of the industry s most prominent avvards. • 2007 "Builder of the Year" by Professional Builder magazine • 2005 "America's Best Builders' by the National Association of J Homebuilders and Builder Magazine. I Reputation for Service 1,000 000 Surveys During 2011. JD Power and Associates honored Shea Homes as a customer 800 Companies service leader among all industries by naming Shea as 1 of 40 top brands 40 Top Brands in the country. Shea Homes is the only builder to be named a 'Customer Service Champion" by JD Powers the last two years joining the company of 1 Homebuilder Chosen Ritz Carlton. Four Seasons Resorts. and Saks Fifth Avenue. i Reputation for Quality Quality construction is recognized through customer satisfaction and Shea Homes teas been ranked as the homebuilding leader in customer satisfaction in each of our major markets. • 2010 1st in every major market • 2009 1st or 2nd in, every major market • 2008 1st or 2nd in every major market The Englander Company Our design process is enhanced Reputation for Design by our exclusive arrangement Shea Homes is at the forefront of thoughtful: innovative design for master- with the Englander Company rrr planned co ,munities and homebuilding. Our Vistancia master-planned This relationship gives us unique community in Phoenix was recognized as Master Plan of the Year in access to the recognized leader 2005 and our recent SPACES concept has been recognized by industry in residential marketing, master professionals as the benchmark for meeting today design preferences and community planning and innovative € economic conditions. product design. I i ° Item 16. - 179 HB y, •ray � __l '� .� �.3 . 401 REFERENCES �01, L CITY OF FOREST : 3 � 11 Mayor C ER gyp, Scott Voigts Mayor Pro Tern June 25, 2015 Andrew Hamilton Council Members Dr.lim Gardner Adam Nick To Whom It May Concern: Dwight Robinson City Manager Robert C.Dunek We have worked with Shea Homes and Shea Properties in connection with processing land use entitlements for Shea/Baker Ranch, a proposed 387 acre master planned community located in the northwestern portion of the City of Lake Forest. When complete, this community will include approximately 2,379 residential units and 25,000 square feet of neighborhood serving commercial. The Shea/Baker Ranch project was part of an 800 acre area known as the Opportunities Study Area ("OSA") located under the flight path of the former MCAS El Toro analyzed by the City of Lake Forest between 2003 and 2011 for the purpose of converting the land use from an urban activity business park to a mixture of residential and commercial uses. Importantly, I consideration of highest and best use for the related properties was an integral component of this process. After approval of General Plan and Zoning Code amendments in late 2010, the Tentative Tract Maps were approved by the Lake Forest City Council in June of 2011 and the development is currently under construction. Unique to the Shea/Baker Ranch project was the fact that a little over half of the uncompleted gap in Alton Parkway between Irvine Boulevard and SR 241 was located within the Shea/Baker Ranch property. Also, a major source of downstream sedimentation in Upper Newport Bay originated from erosion of the Borrego Canyon Wash on the Shea/Baker Ranch Property. During the course of the Opportunities Study, Shea Homes and Shea Properties personnel worked with the City to reach acceptable terms for the change in land use while also facilitating the construction of Alton Parkway. They also were very effective in forging consensus among the State and Federal Resource Agencies on an acceptable solution to mitigate downstream sedimentation caused by unbridled erosion of the Borrego Canyon Wash. www.lakeforestca.gov 25550 Commercentre Dr.,suite 100 Lot e foresi,pieme ber fie post Ckol6q,,Ae future Lake Forest,CA 92630 ®raoxa�Aax (949)461-3400 j City Hail Fax (949)461-3511 Item 16 - 180 � � �, � � � `1113 -598 t Ail x - ' A, �., ;•. , 11 r i ACity,of.Huntin. c I 2000 MAIN STREET CAIAFORNIA 92648 DEPARTMENT OF PLANNING AND BUILDING 1y wLA� eazai° �c t bey t v f?Zttrata l?€tsit3rs ttldiivisivlt 714.536, 271 714,536.5241. ,luk 16. -7013 Subjects Shea Homes To Whom It Mav Concern: Shea llortaes and Shea Properties have been active dcwelopers in the City oflluntington Beach since 1996, `T`heir commitment to professionalism and se.sitivitx to the community°h:is been ut€wwaw erin , resulting in approval of two tat and important projects for our city`. Shea Properties successfully completed redevelopment of the second larg;;est shopping center in l Iuntinoton Beach. The challenges associated ww ith this project included delicate tenant relocation, disposition of a unique Collection of public art and strong neighborhood concern about inters f cation,design and compatibility, Shea He trtcs p€`o•tcct is situated on5t� acres adjacent to `a sensitive wwetland ec•osystetr€, us projectwas subiec't to exhaustive environmental and planning: re\ieww bytlae Cite and regional, State:and Federal agencies,which spanned more than as decade and involved complex layers of project approvals and extensive engincering,biological and cultural analyses. 4s the Cite°`s}srojecl manager for hoth projects,I have workedwith either'Shea Properties.Shea If onies or one oafth€it consultants on a regular basis fur over 16 years. Throughout both entitlement processes..,the Shea teants and their consultants consistently demonstrated technical expertise:and. effectively managed all aspects of their projects. Due to each site's characteristics,both prejjecttis were late>hly entt tio?nal for many in the community. Shea Homes and Shea Properties wwere consistently responsive to feedback.proactive in anticipating and addressing community concerns and instrumental in helping to educ tta the public.about their protects. The approval of their projects is a tes±aanaent to their integrity,their flexibility and their vwillin`ness to desicn a quality prc?jcct. lhat conrmitttacnt to duality and cooperation continues � through the plan check process. I The Shea companies are without a doubt two of the most knowledgable and conscientious developers that I have v%,orked with, Please convect me at 714-536-5550 should y--'ou have any questions revgarding our cxpc-rience wvorkin wwith them. Sincerely. ✓N1 lac h Broerc»`ry^ ,SIC"-P Planning Manager I \ W i \�\ r cos \�\\ \ \ w \ B -,�� Item 16. - 181 H r } \ MIX RNWe, fi F y i s y > x. . i for City of Brea Mr, John C. Danvers, PE.; Esq. Vice President, Community Development Shea Homes LP, Southern California Division 1250 Corona Point Court, Suite 600 Corona, CA 92879 Clear John: It isn't often I write a letter of support for a development entity such as Shea Homes, and f am very pleased to make an exception in this case. I understand Shea Homes is being considered for a land purchase in the San Gabriel Valley and i have no reservations in supporting Shea Homes as an outstanding home builder and a respectful and reasonable partner in working through the development process with government agencies. The Blackstone Planned Community in Brea represents a challenge given the involvement of two government agencies—the County of Orange and the City of Brea—along with two large home building companies Shea and Standard Pacific, in your role representing Shea as the master builder; i have found your understanding of government interests refreshing and your willingness to work with us towards mutually beneficial solutions to be thoroughly professional. While representing the interests of your company and Standard Pacific you remain aware of other significant factors such as wildlife and habitat preservation, public safety and sound planning principals. The flexibility you brought to the process allowed for development of a better public park, the construction of additional community amenities and, overall, an enhanced new community within the City of Brea. Shea Homes was a responsible land owner/manager during the economic downturn and has emerged as a reliable partner in the growing housing i construction trend. I I wish you the best with the land purchase and am confident Shea Homes will bring the same professional approach and positive attitude to your future projects that we have enjoyed at Blackstone. Best Regards, `tiarles View Public Works Director Cats courwil Bean Garcia Brett Murdock Christine Mttrick Roy Moore Marty Sirnon«ff .. ,t Pr .,<..., I i P g n e• Item 16. - 182 1111 -60i i-` A, p i • 3 ` r 8� 'Hia July 17,2013 i =gym To whom it may concern, CARMEN CAVE.Phi❑, If We have had an opportunity to work with the Shea Homes team as part of R!9 LLIP G.Tom:€iNODA the Vantis master plan development within City of Aliso Viejo. Vantis zc ss C liL N master plan community is approximately 36-acres,comprised of office and MIKE MUNZING high density residential.The remaining 10-acres are currently under VOLLIAM A Pt-i1LLIPS planning efforts. < ,., Lr< MARK A.PULONE As City Manager of City of Aliso Viejo, I have found Shea Homes SWOTTC.SMITH representatives to be professional,capable and responsive throughout the planning,entitlement and implementation of the project.They have proved SL�sAr.A.RAmos themselves to be knowledgeable and responsive to the community,which played an important role in the success of the project. The Shea Homes team also engaged the appropriate,qualified consultants as part of the development team through planning,entitlement and construction of the project.The development team proved to be competent and well directed. The Vantis master plan community is progressing nicely,with about 10- acres left to develop, The Vantis master plan community has provided more housing diversity and office options to the City of Aliso Viejo,and proven to be a compliment to the community. Please feel free to contact me at 949.425-2510 should you like additional information regarding any aspect of the Vantis master plan development and our interactions with Shea Homes. Sincerely, • I CI"Y Cr.";t 15�a v1iF-I01 :2 JOURNEY SJITE 100 Mark PlllOne �. .L3so Vt> tp City Manager CAL!f`Q iNIA 9265&5335 i PHONE rNE 949.425.2500 Pn>; P49.425,3699 I < c = ..n § E a �f -c,cl1- Item 16 183 _ F US, Ignacio G.Oehoa,P.E.,Interim Director 300 N Flower Street PubhcWto%rks Santa Ana.GA 92703 P.O,box 4048 5arta Ana.GA q2702-400 Integrity, Accountability, Service, Trust Teiephone (714)667-8800 I Fax. (714)967.0896 July 16,2013 To Whom It May Concern i The County of Orange has had the opportunity to work with Shea Homes as the Master Developer of the Tanner Hills Community Development(a.k.a.Blackstone).The project is located in the northeastern portion of Orange County within the City of Brea.When completed,the Blackstone development will comprise of a total of 791 high quality dwelling units as well as 570 acres of open space. Shea Homes has demonstrated their ability to produce a successful land development project.The Blackstone project required coordination and teamwork with two lead governmental agencies—The County of Orange and the City of Brea. Shea Homes took all steps necessary to meet all of the requirements associated with entitlements,permitting,and inspections and ensure both agencies were satisfied. Shea continuously work with County and City ensuring both an expeditious review and permitting process,and an environment where all stakeholders were able to effectively provide input.Additionally,it should be noted that this project was under construction,model homes were completed and opened,during a time in which several other developments were placed on hold due to the economic downturn. The development of Wildcatters Park,located in the Blackstone project,is a prime example of the strong coordination between Shea,the County,and the City of Brea,as well as Shea Homes'commitment to providing a high quality product. The park was recently dedicated to the City of Brea,and is a 16 acre facility which includes sports fields for soccer,football,and baseball,picnic areas,restrooms,and a walking trail.From initial planning,Shea Homes'proposed a park that was twice the size as required by code. The park had been through various planning stages for years,and had received approval from OC Planning in 2008, However even after receiving final approval,Shea Homes agreed to take additional time to work with the City of Brea to provide additional amenities to enhance the Brea community. These additional amenities were incorporated into the final design and construction.The final product is a park that is a significant improvement for the area community,both in terms of amenities and open space. Shea Homes'capable staff,and commitment to a collaborative process,in which all of the major stakeholders were involved,has mitigated many of the issues involved in getting a project of this scope from initial planning stages to completed construction. I Please feel free to contact me at(714)667-9649 should you like additional information regarding any aspect of the Tonner Hills Community Development,and our interactions with Shea Homes. Sincery, t Laree Brommer Land Ose Planning Manager O'C PianninglPlanned Communities I t _ - �� �� Item 16. 184 � � I � l g e 4 '� e v aa�1•�".. � ra�a ��b�� � �� - a: i � �91 F £ to „• � £' `5£ .millJ!,.� 1� l � ���� 3�.K d ''1�'�' - x - i ice*.' u F £ F. .. 8� a, - o 0-a5 Michael E. Rodgers , V SENIORS CENTER SITE Request for Oualifications/Proposals VV Submitted b W p 9 WOODBRIDGE PACIFIC GROUP " 1 II3 -60'1- Item 16. - 185 .-z .--: --'�5`�s s,. ��,,..�: r � ..�.:w �f.��a;.�_,:M -"F'...� �,�;��a, ._.c�s�p.�,;.�� ....« ,..»,,,�.ei� �';v.' �'� �.�.�o-..,, -..:a✓e�•����,;�...- s .�i.':` 4« Hw Q i r Item 16. - 186 HB -��34- Red evelopmerit of 7,11CH Al L I . RODGERS SENIORSCENTER SITE V0obrlcre Paclfc Grow- Anchorage Capital Group LLC — Financing Mconcensus — Community Outreach Powers Communications — Campaign Management Hannouche Architects, Inc. — Architect FORMA Design, Inc. — Landscape Architect Mannatt, Phelps & Phillips — Land Use and Campaign Attorneys Stantec — Civil Engineer . . A PROJECT SITE a 77 �¢ 3 - } �` Mh.�.,, k � NMI t. imp ^. a: Item 16. - 188 n low- a ,e i € t ' z+� S ,. . Fable of Contents 1. TABLE OF CONTENTS Page 1 2. COVER LETTER Page 3 3. PROPOSER'S QUALIFICATIONS Page 5 4. PROPOSER'S APPROACH TO PROJECT Page 15 5. CONTENT OF PROPOSAL Page 21 6. FINANCIAL CAPABILITY Page 37 APPENDIX Olt. h w „ Item 16. - 189 e � � a S V wa, I too' `n �I g .aa �, z a S d <u t,. .F t rage I.'",0.4r:lo aly Wank c rti � � - iF­ 3� 4ai 2< Corer Let.-ter WP_ 9 WOODBRIDGE PACIFIC GROUP July 1, 2015 Mr. Jim Slobojan Fiscal Services Manager CITY OF HUNTINGTON BEACH 2000 Main Street Huntington Beach, CA 92648 Dear Mr. Slobojan: Woodbridge Pacific Group (WPG) is pleased to submit this statement of qualifications in response to the city's Request for Qualifications/Proposal for the Redevelopment of the Rodgers Seniors' Center Site. With the demise of local government redevelopment agencies throughout the state, the redevelopment of the Rodgers Seniors' Center represents a rare opportunity for the private sector and the city to work together to achieve the city's goals for this site. WPG has been building and selling homes in Huntington Beach for the last four years at Brightwater and we hope to maintain our presence in Surf City by designing and building a high quality residential project at the Rodgers Seniors' Center site. Building homes and community amenities in cities like Huntington Beach is our core business. We focus on development opportunities that target the move-up, luxury home markets in many of Southern California's vibrant cities. In order to expand and diversify our homebuilding operations we partnered last year with our primary equity source Anchorage Capital Group to form a company—WPG Enterprise A LLC—with the objective of establishing a multi-project business platform. Anchorage has committed $200 million in equity capital to the venture. WPG is utilizing this capital for property acquisitions, land planning, entitlement, residential construction and home sales. With respect to the selection process, the truth of the matter is that there a number of homebuilders with the financial wherewithal to acquire the Senior Center property and the experience to execute a quality project. But that's not what makes this assignment challenging. In this case, the real challenge is to successfully entitle the property and then convince the voters that the proposal to convert the Rodgers Senior Center to a residential use and sell it to a developer has merit and is in the best interests of the entire city. What sets WPG apart from other homebuilders is our experience in Huntington Beach and our deep understanding of the community and its attitudes. It will take an extensive community w. outreach program during the entitlement period and a well-executed election campaign to be successful. WPG has the experience and the team to get the job done. Why should the city select WPG as the developer of the Rodgers Seniors' Center site? Our Team knows Huntington Beach. WPG has assembled a diverse group of professionals that have years of experience in Huntington Beach, working with the community to develop exceptional residential projects like Brightwater. Our development team is led by a 30 year Huntington Beach resident who has been engaged in the community as a developer for the last 22 years. Ed Mountford, the company's Vice President of Forward Planning, will head up our entitlement team and will be responsible for coordinating our efforts to produce a successful outcome on the Measure C election in November 2016. 27285 Las Ramblas, Suite 230, Mission Viejo, CA 92691 (949) 348-8162 _ _ _ .Item 16. - 191 RK FT, 2,s6" e..... Mr.Jim Slobojan Fiscal Services Manager CITY OF HUNTINGTON BEACH July 1, 2015 Our team includes other long-time Huntington Beach residents and business professionals who have contributed their talents to improving the quality of life in Surf City. WPG has recent experience entitling residential projects in the city. As outlined in our proposal, the schedule to entitle the Rodgers Senior Center site and place an initiative before the voters in November 2016 is extremely tight. Because of our experience in entitling and building projects in the city, WPG can hit the ground running if selected and provide the city with the best chance of meeting the aggressive schedule. A WPG has an extensive public outreach program. Undoubtedly there will be opposition to the y proposal to convert the Senior Center to a primarily residential use. WPG has a well-established public outreach program that will be employed to engage neighbors and other stakeholders in a process to minimize opposition and create widespread support for the project. This process will be led by Marice White, Principal of MCONSENSUS, who is expert in community issues management and was raised in Huntington Beach. An effective community outreach program will serve as the foundation for a successful election campaign. WPG has the right team to conduct the campaign to win the Measure C election. Recent city elections have shown that obtaining voter approval of initiatives requires a meritorious proposition and a compelling message. WPG has assembled a team of veteran campaign consultants with extensive experience in guiding winning political campaigns in Huntington Beach. Brandon Powers, Principal of Powers Communications, has been the chief architect of five political campaigns in Huntington Beach in the last four years and has won them all. No other political consultant has conducted as much voter research in Huntington Beach over the last two election cycles as Mr. Powers. WPG has the expertise and the resources to prevail. WPG is the caliber of homebuilder the city is seeking. WPG builds luxury homes in upscale communities in southern California. That's our company history and successful business model. The quality of our product is currently on display at Brightwater. WPG also has the financial capability to acquire the property and execute the project without the city incurring any financial liability. The following pages contain WPG's response to the city's RFQ. We believe it presents a compelling case that the city should select WPG as the developer of the Rodgers Senior Center. We look forward to the opportunity to work with the city on this challenging project. Please contact me at (949) 384-8162 ext. 230 if you have any questions concerning our proposal. Sincerely, Todd Cunningham, President Woodbridge Pacific Group Item 16. - 192 _r z a k v F617 gg­ f as ..Hs. ,_ e a,rF.✓.u,.„�, n ,.+s a..,. .,,.n,i<. ..... u....e "� _ IDENTIFICATION OF THE TEAM WOODBRIDGE PACIFIC GROUP Formed in 2011, Woodbridge Pacific Group (WPG) is a private homebuilding company based in Mission Viejo. In 2014, WPG formed a new entity—WPG Enterprise A LLC—to expand and diversify its operations. WPG Enterprise A LLC is a Delaware limited liability company by and between Woodbridge Pacific Group, LLC and Anchorage Capital Group, LLC a New York based capital firm that manages approximately $15 billion in investor funds. The Company was formed as a multi-project business platform for the purpose of acquiring real property and engaging in land planning, entitlement activities, property sales and/or residential construction and home sales. Anchorage Capital has pledged up to $200 million in capital to finance the venture. THE WOODBRIDGE PACIFIC GROUP TEAM Todd Cunningham— President of Woodbridge Pacific Group (WPG) 27285 Las Ramblas, Suite 230 Mission Viejo, CA 92691 (949) 384-8162 ext. 233 tcunningham@wood bridgepacific.com As President of Woodbridge Pacific Group, Mr. Cunningham is responsible for all the operations of the company and has the authority to make legally binding commitments on behalf of the company. Mr. Cunningham has been in the homebuilding business for over 30 years. His resume is included in the Appendix. Ed Mountford —Vice President of Forward Planning, WPG 27285 Las Ramblas Suite 230 Mission Viejo, CA 92691 (949) 351-3334 emountford@woodbridgepacific.com Mr. Mountford is responsible for entitlement, government and community relations for the company. He will manage the entitlement program and the Measure C campaign on this project. Mr. Mountford is a 31 year resident of Huntington Beach and has been working on development projects in the city for 22 years. He currently serves on the Huntington Beach Chamber of Commerce Board of Directors and the Board of the Bolsa Chica Conservancy. Mr. Mountford's resume is included in the Appendix. George Schader—Vice President of Land Acquisition, WPG 27285 Las Ramblas Suite 230 Mission Viejo, CA 92691 (949) 348-8162 ext. 232 gschader@woodbridgepacific.com Mr. Schader is responsible for the company's land acquisition operations. Over the course of his 30 year career, Mr. Schader has bought/sold $1 billion dollars of California real estate. Mr. Cunningham, Mr. Schader and Mr. Mountford will be the individuals responsible for negotiating an agreement with the city if WPG is selected. Mr. Schader's resume is included in the appendix. _ Item 16. - 193 / r Dan Huitt - Vice President of Operations, WPG 27285 Las Ramblas Suite 230 Mission Viejo, CA 92691 (949) 348-8162 ext. 239 dhuitt@woodbridgepacific.com Mr. Huitt is responsible for company's land development and homebuilding operations. He will oversee all facets of the development of the project site. Mr. Huitt is a licensed General Contractor in the State of California. Mr. Huitt's resume is included in the Appendix. Karen Sparao—Vice President Sales and Marketing, WPG 27285 Las Ramblas Suite 230 Mission Viejo, CA 92691 (949) 348-8162 kspargo@woodbridgepacific.com Ms. Spargo is responsible for the company's sales and marketing programs. Ms. Spargo has been selling homes priced from $1 million to $3.5 million in the Huntington Beach market since 2010. Ms. Spargo's resume is included in the Appendix. FINANCIAL PARTNER Anchorage Capital Founded in 2003, Anchorage Capital Group, LLC is a private investment firm able to invest across the capital structure with particular focus on credit and special situations in North America, Europe, Australia and other markets. Through various funds, Anchorage manages approximately $15 billion. Anchorage maintains offices in New York, London, Sydney, and Luxembourg. Anchorage invests in special situations and other opportunities with a view towards enhancing value as an active investor through restructuring, recapitalization, growth capital infusion and operational improvement. The firm works closely with management and other stakeholders to provide speed and certainty in fluid transactions and build consensus around a path towards improving the profitability and competitiveness of the companies in which it invests. Anchorage has raised approximately $2 billion (NAV) in its illiquid opportunities funds to enhance the firm's ability to make investments that are harder to value and may require significant time to fully realize value from restructuring or recovery. Murtaza Ali — Managing Partner, Anchorage Capital mali@anchoragecap.com Murtaza Ali is a Managing Director in the Portfolio Group. In this capacity, he is involved in driving value creation activities across a range of operationally intensive investments in homebuilding and other industries. Prior to joining Anchorage, he was a Principal with the Boston Consulting Group, where he led strategy and operational improvement projects. His profile is included in the Appendix. Item 16. - 194 -< 4 E -10 $S A..✓ . ,,... ,.a/..,'0\. IDi+Kda.re rxAlR az;i\ or..,,... \,..,,�f,FR ai.b� \\. .e..c,�_ -...+, . Pro-laser`s Qualifications Soo Kim — Portfolio Manager at Anchorage Capital soo.kim@anchoragecap.com Soo Kim is a Portfolio Manager and leads Anchorage's real estate and related investing activities. Ms. Kim joined Anchorage in 2009. Prior to joining Anchorage, she worked at Goldman Sachs, most recently as a Vice President in the Americas Special Situations group (AmSSG), where she was one of six industry heads responsible for the group's $3 billion public investment portfolio. Soo's profile is included in the Appendix. WPG'S CONSULTANT TEAM COMMUNITY/PUBLIC RELATIONS Marice White — Principal, Mconsensus marice@mconsensus.com As the name of her firm implies, Ms. White is a consensus builder. Ms. White has over twenty years of experience in bringing together groups with competing interests and finding common ground on which to build relationships and ultimately agreement. Ms. White's background is in public relations, public affairs and campaign management. She operates a consulting practice that focuses on helping real estate developers manage community issues and government affairs. On this assignment she will be primarily responsible for conducting the community outreach program and will play a support role in the Measure C campaign. Ms. White was born and raised in Huntington Beach and maintains close ties to the community. Her profile is included in the Appendix. CAMPAIGN MANAGEMENT Brandon Powers— Principal, Powers Communications brandon@brandonpowers.com Brandon Powers managed five political campaigns in Huntington Beach over the last four years and won them all. No other political consultant can make that claim. No one has conducted more voter research in Huntington Beach over the last four years than Mr. Powers. He is a 17-time recipient of the American Association of Political Consultants' National Pollie Awards, dubbed the "Oscars of political advertising" by Esquire Magazine. He also won a prestigious Reed Award from Campaigns and Elections Magazine in 2011, which had earlier named him a "Rising Star" in the political consulting industry. Mr. Powers will direct the Measure C campaign for WPG. A general outline of the campaign strategy is include in the response to Section 4 a. Mr. Power's profile is included in the Appendix. Item 16. - 195 fit* s �n Herz nr a 3 Frmrao_cer�s qualifications RESIDENTIAL ARCHITECT Samir Hannouche— Principal, Hannouche Architects samir@hannouchearchitects.com Samir Hannouche has designed a number of award winning homes in his 30 years as a residential architect. Mr. Hannouche has a wide variety of clients ranging from individuals with a single custom home to commercial homebuilders with hundreds of tract homes. Mr. Hannouche has produced innovative architectural elevations and floor plans for the three neighborhoods at Brightwater— Capri, Seagloss, and Azurene. These homes are priced from $1 million to $3.5 million dollars. He has collaborated with WPG on numerous other projects including Ualinda and Mirodor in San Juan Capistrano, Skye in Palm Springs, and Hillcrest in Chino Hills. Mr. Hannouche will be the principal residential architect for the redevelopment of the Rodgers Senior Center. His profile is included in the Appendix. LANDSCAPE ARCHITECT ` Carol MacFarlane — Principal, FORMA Design carol@formacompanies.com Carol MacFarlane is a twenty year resident of Huntington Beach and has had a significant influence on the aesthetics of the city with her innovative landscape designs on a number of prominent projects. Her Huntington Beach credits include the master landscape plan for the Brightwater community, landscape design for the Waterfront residential project by Robert Mayer Corp., Pacific Shores and the Bluffs by PLC/Christopher Homes, Truewind and Fairwind by TRI Pointe Homes. Ms. MacFarlane also designed Ralph Bauer Park and the new park adjacent to the Fairwind project. Ms. MacFarlane will be responsible for the landscape architectural design for the on-site park and the residential component of the project. Her profile is included in the Appendix. LAND USE ATTORNEY Susan Hori — Partner at Manatt, Phelps & Phillips shori@manatt.com Susan Hori is one of the most accomplished land use attorneys in the state. She has over twenty-five years of experience in land use matters. Her practice focuses on land use planning issues, including obtaining development entitlements and CEQA compliance. She currently acts as WPG's land use counsel on the Brightwater and Ridge projects in the City of Huntington Beach. In this engagement, Ms. Hori will be responsible for working with city staff and the City Attorney to ensure that the EIR complies with CEQA, and the city approvals are supported by the proper findings. Her profile is included in the Appendix. Item 16. - 1 )6 i_ - P 'y'1""' VIM 11 OR s ..�A., ,<r,,,,s...,q ,f� ,.yam-.,-„„ ,.,., .,_..o�,,, _.>._s.,,:..,M. <� .,.�.^� ,. ..�r %r ,.t .,,,,.,,r ,a:e„. Y,„x. .. a`ss.y._ u„•a �.:„., „=� MEASURE C CAMPAIGN ATTORNEY Randall Keen — Partner, Manatt, Phelps & Phillips rkeen@manatt.com Mr. Keen advises private sector and government clients on conflicts of interest, lobbying and campaign contribution requirements for both candidates and ballot measures. Mr. Keen has substantial experience with the Political Reform Act and advises clients on FPPC regulation compliance. His role on this project will be to assist the City Attorney, if necessary, with the ballot language for the Measure C initiative and ensure that the Measure C campaign complies with all state regulations. Mr. Keen's profile is included in the Appendix CIVIL ENGINEER Bill Maul, Principal Engineer, Stantec Corporation Bill.maul@stantec.com Bill Maul is Principal of Community Development with Stantec and is a licensed civil engineer. He was the project manager for all facets of the civil engineering work on the Brightwater project. Over the last ten years, Mr. Maul has developed an excellent working relationship with the City of Huntington Beach Public Works Department. His profile is included in the Appendix. TEAM HISTORY On the project development side, every member of the WPG team has worked together on major development projects in the past particularly in Huntington Beach. Samir Hannouche, President of Hannouche Architects has designed the homes for the last eight residential projects WPG has developed. These projects include the Capri, Seaglass, and Azurene neighborhoods at Brightwater. In 2005, Carol MacFarlane of FORMA was the landscape architect responsible for the design of the Brightwater community, and also the Ridge project, which was approved by the City of Huntington Beach in 2010. Bill Maul, Project Engineer with Stantec, was the chief design engineer for the Brightwater project and was responsible for the civil engineering on the Ridge project !' With respect to managing political campaigns, our team has a proven track record of guiding winning -, political campaigns in Huntington Beach. In 2014, Ed Mountford and Brandon Powers collaborated on the Huntington Beach Chamber of Commerce Political Action Committee's successful campaign to elect three members of the current city council. Mr. Powers also guided the successful campaign of a Huntington Beach City Council member in 2010. In 2012, he was the chief strategist for a successful State Assembly candidate in a district that includes Huntington Beach. Other team members have worked together on campaigns as well. For example, in 2008, Ed Mountford and Marice White joined forces with the Oxnard Chamber of Commerce to defeat Measure V, a no growth initiative in Oxnard that threatened a large scale master planned community where early polling showed substantial support for the measure. In 2012, Mr. Mountford and Ms. White formed an independent expenditure committee—Oxnard Coalition for Jobs and Transparency—to facilitate the re-election of an Oxnard city councilman. In summary, the WPG team has worked together for several years on a variety of very successful projects. Each of the consultants on the project development team have contributed their experience and talent to producing some of the finest examples of residential projects in southern California. _ -_ Item 10. - IV E F-7`711 T Ulm € v � i ._ �} 3ti'.e Ak.. 'r....s..4.p .u3 .•P ..., +1n ..3...,x. ...3a � r..^„_,a� m�2 .av�-3a.<....��3xK..W°4 -a.Ltca eW¢ .4k1��1 [Y !` Y opo-ser�s Q' dl' 'r-- This collaborative history will make for an efficient project development team in terms of producing timely and high quality results for the redevelopment of the Rodgers Senior Center. Without question, the most important component of the redevelopment of the Senior Center will be the ability of the developer the city selects to conduct an effective public outreach campaign and prevail in the Measure C election. Our team of Mr. Mountford, Mr. Powers and Ms. White have worked together in the past to conduct public outreach programs and win campaigns and they will give the city the best opportunity to accomplish its goal. RELEVANT HOMEBUILDING EXPERIENCE WPG's business model is to target the move up/luxury home market in vibrant communities such as Huntington Beach. WPG is currently building and selling homes in Huntington Beach at the Brightwater community. Brightwater offers single family detached homes in three neighborhoods, priced from $1.5 million to the low $2 millions. The homes range in size from 3,500—4,200 square feet. Since WPG --aw has an active project in the city with homes priced in the same range as proposed at the Rogers Senior _ Center site, WPG has a unique understanding of the new home market in Huntington Beach. Our sales and marketing team, led by Karen Spargo, has been operating in the Huntington Beach new home market for the last four years, and during that time has conducted extensive consumer research and developed a tried and true marketing and sales strategy. In short, our company has been successfully building and selling homes in Huntington Beach for the last four years and we are uniquely qualified to execute the project envisioned in this RFQ. WPG's history is deeply rooted in developing luxury single family homes in upscale communities. In addition to Brightwater, WPG currently has active projects in San Juan Capistrano (Mirador-70 SFD lots), Chino Hills (Hillcrest—75 SFD lots), Palm Springs (Skye—40 SFD lots), and La Quinta (Montera— 39 SFD lots). Similar to Brightwater, these projects provide open space/recreation amenities such as active neighborhood parks, passive recreation areas, and trails. Each of these projects required that we work collaboratively with city officials and the community during the entitlement process to address any issues or concerns expressed by the city staff and/or the community, and maintain an ongoing dialogue during the construction process. As evidenced by our relationship with the City of Huntington Beach, WPG values our relationships with the communities in which we operate. We also maintain ongoing communications with our adjacent neighbors and the broader community. We have outlined in detail in Section 4 below our approach to community outreach during the entitlement process which uses ascertainment interviews as the foundation for initiating meaningful dialogue and developing a rapport with stakeholders. However, our communication with neighbors does not stop after the project is approved. Because most of our projects are infill in nature, we are building homes adjacent to existing residential areas. Even under the best of circumstances homebuilding operations create noise, dust and other potentially adverse impacts. Before the start of any construction activities on a project site, our field staff visit each neighbor to give them written information about the nature of the construction activities including hours of operation, phone numbers of company field staff and the number of the city building department. Contact information is also posted on large signs on the site to provide the public with an opportunity to report any problems to WPG. The best example of WPG's experience in working collaboratively with local government agencies and community is the Brightwater project in Huntington Beach. It would be difficult to find another project with more challenges in terms of the number of the environmental issues confronting a developer item 16. - 198 - ; � � i.,r S. ORV roposer's Quatifications and the intense public scrutiny focused on the project. Building homes adjacent to a state Ecological Reserve presents many challenges and layers of complexity. Protecting a sensitive ecological area from disturbances caused by construction activities requires extraordinary vigilance. For example, WPG works closely with the City, County, and State Fish and Wildlife Agency officials to prevent untreated storm water runoff from entering the Ecological Reserve, and a host of other issues related to public access and resource protection. WPG also maintains regular contact with local environmental organizations who monitor the progress of the 35 acre habitat restoration at Brightwater. Those are just some of the "external" issues WPG deals with on a regular basis at Brightwater. There are also "internal" issues related to the effects of current construction activities on new homeowners. WPG has field staff at Brightwater dedicated to minimizing the impacts of construction activity on new homeowners and residents of the adjacent Sandover neighborhood as well. FIVE OF WPG'S MOST RECENT PROJECTS Brightwater— Huntington Beach, California The Brightwater project is located on the Bolsa Chica Mesa near Warner and PCH. After the project stalled during the last downturn ISO in the housing market the project's debti� holders, including Anchorage Capital Group, r became the new owners and WPG was brought in to revitalize he project. rr It is comprised of 355 homes, 182 being built by WPG. The three products designed and delivered by WPG are Capri, Seaglass, and Azurene. There are 34 Capri homes on roughly 4,000 square foot lots that range in building size of 2,200 to 2,700 square feet. Seaglass has 70 homes on roughly 5,500 square foot lots that range in building size of 3,100 to 3,550 square feet. Azurene has 78 homes on roughly 7,400 square foot lots that range in building size of 3,700 to 4,400 square feet. Construction of these homes began in March 2013 with an expected close out in the summer of 2016. Development costs for the 182 homes managed by WPG are projected to be $40,000,000 for horizontal development and $73,000,000 for vertical construction. The project was originally funded by debt and is now sustained by current operations. The current debt and equity holders are Anchorage Capital, Bank of America, Luxor Capital, and Atalaya Capital with Anchorage Capital taking the lead role. Reference: Ron Tippets, OCPW (714) 834-5394 s In a Li P Rancho San Juan — San Juan Capistrano, California Rancho San Juan is located on a hillside adjacent to San Juan Hills High School near La Pata and Ortega Highway. This development is comprised of 3� `,, 140 homes on 63.1 acres with two � ``� �9�Y � � neighborhoods of 70 homes each. Volinda was the first neighborhood developed with homes ranging in size from 2,800 to 3,800 square feet on roughly 10,000 square foot lots. These homes began construction in December a 2011 and closed out in March 2014. .R, Mirador is the second neighborhood, with homes ranging in size from 3,600 to 5,000 square feet on roughly 12,000 square foot lots. Construction began on the Mirador homes in January 2013 and are expected to close out in early 2016. Development costs for the 140 homes are projected to be about $32,000,000 for horizontal development and $44,000,000 for vertical construction. The project has been funded by equity contributed by IHP Capital Partners. References: Jay Pruitt, Partner/Senior Vice President IHP Capital Partners (949) 851-2121 Deena Berens, City of San Juan Capistrano (949) 443-6345 Belcourt— Bakersfield, California Belcourt is a large master planned community in the upscale Seven Oaks development in Bakersfield, California. The Belcourt community will have seven different products each in their own neighborhood. Two or three of the neighborhoods will be private, gated communities. WPG plans to build out several of the neighborhoods while selling off finished lots to selected guest builders. The development is mapped for 395 homes with construction beginning on the first neighborhood of 69 gated homes in late 2015. The land development costs, including the construction of a community center, are estimated to be $43,000,000. The purchase of the property and the initial land development has been funded by equity contributed by Anchorage Capital. References: Kate Shea, Bakersfield Planning Division (661) 326-3452 Marian Shaw, Bakersfield Public Works (661) 326-3724 Item 16. - 200 - f �.. .� �.., .. ,. F. .a..,�.. ,.., .. ,....,. ,., � r 3. Pro poser's Qualificati Skye— Palm Springs, California Skye will be a high-end contemporary product located near downtown Palm Springs. The community will be made up of 40 homes on 18 acres ranging in size from 3,300 to 3,700 square feet on 15,000 square foot lots. Grading is about to commence with model homes to begin construction in late 2015. It is anticipated that the project will take two to three years to build out. Development costs are projected to be about $15,000,000 for horizontal development and $16,000,000 for vertical construction. This project has also been funded by equity contributed by Anchorage Capital. F E 1) F Y 4 PLAN 3 -" PALM SPRINGS HOMES l t' —...- --.......... Rfirc,odBr%qe t'c�crfi" ems:v_3K>, tnr. PALV SPr?I1JG.5" CA ,.. Hillcrest— Chino Hills, California The Hillcrest community is located adjacent to Orange County, approximately 45 minutes from Irvine in Carbon Canyon within the city limits of Chino Hills. Hillcrest will have 76 homes ranging in size from 3,800 to 5,000 square feet on 8,000 square foot lots. Grading is underway with model homes expected to begin construction in August 2015. The community is projected to close out by mid 2018 Development costs are projected to be about $30,000,000 for horizontal development and $34,000,000 for vertical construction. This project has also been funded by equity contributed by Anchorage Capital. In addition to equity contributions by Anchorage, we are moving forward with debt financing from Wells Fargo that will finance the rest of the project. Reference: James Follis, Vice President Homebuilder Banking Group, Wells Fargo (213) 253-3223 Steven Nix, City of Chino Hills City Engineer (909) 364-2766 " Item 16. - 201 P...._ ,,.•.. ,,,,..,._ ___. ._„„s.,as ...�,.��-. ,,.z.,.o„o..,...._ v _�.�, ,$,.... ...... .�..u,,, _.,-F�F:.» z��>.z,�. `___,. .a....s_.. .r,...�... .. , u..,.M r�.��a.�Mr.». s: 40 r 10rtOce S uafifit__e LIOL S TEAM REFERENCES Mconcensus Newport Banning Ranch Barley Forge Brewing Co. Mike Mohler Greg Nylen 949-833-0222 Greg@barleyforge.com mohler@brooks-street.com (714) 641-2084 Powers Communications Orange County Supervisor Huntington Beach Chamber of Commerce PAC Michelle Steele Diane Thompson (714) 834-3220 (714) 698-0202 Hannouche Architects, Inc. Melia Homes Etco Homes BJ Delzer Afshin Etebar 8951 Research Dr., Ste 100 9560 Wilshire Blvd., Suite 200 Irvine, CA 92618 Beverly Hills, CA 90212 (949) 759-4367 (310) 691-5500 FORMA Design, Inc. Christopher Homes Group/ TRI Pointe Homes City of Huntington Beach PLC Land Company Tom Grable—Southern California 2000 Main Street 23 Corporate Plaza, Suite 246 Division President Huntington Beach, California Newport Beach, Ca 92660 10520 Jamboree Road, Suite 200 92648 (949) 729-9777 Irvine, California 92612 (714) 536-5511 Christopher Gibbs, CEO (949) 478-8600 Teri Elliott David DeLaTorre Jeff Rulon, COO David Dominguez Randy Menzel Bill Holman John Griffin Bob Milani Mannatt, Phelps & Phillips—Susan Hori Newport Banning Ranch Lyon Communities Mike Mohler Peter Zak (949) 833-0222 949-838-1244 Mannatt, Phelps & Phillips— Randall Keen The Aztec Group California Association for Health Services at Home (CAHSAH) Alan McAuley Dean Chalios, President 714-718-9286 (916) 641-5795 alan@aztecgrp.com dchalios@cahsah.org www.cahsah.org Sta ntec City of Irvine Lewis Community Developers Steve 011o, PE, LS Omar Dandashi, VP, Southern California Planned Communities (949) 724-7562 Omar.dandashi@lewisop.com (909) 579-1291 Item 16. - .... � !t� -� ,� - i s g, ,0� u _,.. Q,.,. .._ ..,;.. 4. Proposer's Approach to Project 4. Proposer's Approach to Project— a), b), and c): The entitlement process for the project site and campaign to win the Measure C election are inextricably linked. Meaning the entitlement phase will set the stage and provide the foundation for the election campaign. In summary, our approach to this project will start by engaging residents adjacent to the project site early in the initial design phase, and from there expand to include a broad cross-section of the city. In the paragraphs below we explain in detail how our team will approach the entitlement phase of the project, followed by the campaign to win voter approval of the initiative. We see the entitlement process as occurring in three phases, detailed below: Phase I • Community Ascertainment Phase II • Community/Stakeholder Outreach and Media Relations Planning • Identify Target Audiences and Develop Database • Public Outreach, Community Coalition Development, and Issue Resolution • Collateral Material Development and Communication Plan Implementation • Government and Media Relations Phase III • Public Hearings PHASE I - COMMUNITY ASCERTAINMENT Our team understands that converting the existing Rodgers Seniors' Center site, which is designated as "Public" on the city's general plan, to a primarily private residential use will face intense public scrutiny and require extensive community outreach. Initial outreach must focus on those most affected by the change—the neighborhood surrounding the project site. This effort will occur prior to the submittal of a development application to the city. Based on our experience, we believe that meeting with affected " neighbors during the early stages of project design provides valuable feedback that can benefit the developer, empower stakeholders, and foster good will and open dialogue. As a first step, we would host one or two neighborhood meetings at the Rodgers Seniors' Center to solicit input from surrounding residents on project design issues related to park location and composition, architectural themes, traffic patterns, and neighborhood character. Subsequent outreach efforts will be geared toward expanding the dialogue to include key community leaders/organizations, community activists, elected officials, homeowner groups, and other influential stakeholders. To accomplish this we will conduct a series of ascertainment interviews/meetings. The primary purpose of this effort will be to collect information vital to the success of the entitlement process and the campaign. This information is gathered via personal interviews. Ascertainment interviews, conducted with a number of active and influential stakeholders, are detailed, "off the record" discussions to evaluate community desires, potential stumbling blocks, and truly, the hopes and fears that community members have about the proposal. We typically use a questionnaire that has been developed in accordance with specific concerns and issues to guide the discussion. We find that Y this process is important to validate the impressions of the community and to obtain feedback on the project. Because our team members have conducted so many of these types of interviews, and use a IN - Item 16. - 203 JIM ..i, ...w_. 2.,. _ . � _JDOSe S f-� prOa.Ch to mect technique that builds trust and credibility, interviewees are often willing to share their thoughts with us with great candor and detail. It has been our experience that the ascertainment process serves as a trust building process between our team, the city, and the community. It engages all parties in the process and underscores all sides' commitment to seeing the process through with a willingness to work together collaboratively. The community ascertainment would start with key city decision makers and staff members. From there, we identify those individuals with a history as community leaders, particularly those with whom we can work to generate support for the project. It would also include some potential opposition figures to determine if their concerns can be mitigated. Once all the originally identified community leaders have been interviewed, any new names coming from the original interviews would be contacted. We would expect to conduct approximately 20—25 interviews. The purpose of this assessment process is to develop a thorough understanding of the community issues associated with the redevelopment of the Senior Center and to: Identify and establish relationships on behalf of the project with leaders in the community ..� Y p p j Y • Identify decision makers' and community leaders' perception of development and feelings toward general growth issues Identify how the property is currently perceived • Identify any specific issues that the community has with redevelopment of the property and explore options to mitigate those issues • Identify potential benefits the leaders see as needed and benefits that the redevelopment could bring to the community PHASE II - COMMUNITY & MEDIA RELATIONS PLAN Our team will draft a Community and Media Relations Plan that focuses on targeted audiences; developing materials that reach a broad range of interest groups and a diverse cross-section of the affected communities. For each key stakeholder and interest group, we will design specific tactics and outreach means and media to provide them with information and to facilitate two-way communication. For some stakeholders, mailed or e-mailed communication may be appropriate, for others, one-on-one meetings or smaller group meetings may be more appropriate. The Community Outreach Plan will meet the following objectives: • Identify key audiences and stakeholders, including the creation and maintenance of a community outreach database. • Effectively manage communication issues and keep stakeholders, including the media and community, properly informed. • Help the public understand the project and process. • Plan, design, and produce the necessary notices and materials for public meetings and outreach • Plan and implement all public meetings as needed and directed by the plan. • Provide for the proper distribution of notice materials and/or information to targeted and interested stakeholders. Item 16. - 204Mm. � . TI r ser`s ApprO'a-c to Project • Draft and disseminate information in a way that can be understood by a diverse cross-section of the community. • Develop messages and materials tailored to different audiences—state agencies, policymakers, internal stakeholders, opinion leaders, and media outlets. • Provide proactive outreach to leaders, civic/community organizations, special interest groups, and other interested parties. • Facilitate and sustain a public outreach environment that produces professional, productive, and ongoing relationships with key project leaders and stakeholders. • Provide verbal and/or written responses to constituent questions and/or concerns. • Inform the public of the project's ultimate benefits. Identify Target Audiences and Develop Database Our experience tells us that success is often the product of contacting the right stakeholders early on in the process. Since our team is deeply rooted in Huntington Beach, we have not only developed professional relationships with those individuals we need to be in touch with, but we have developed many personal relationships as well. We will draw on those relationships and build an extensive database of stakeholders for this project. Stakeholders would include elected and staff officials, neighborhood groups and homeowner associations, Chamber of Commerce, youth sports advocates, non-profit organizations and other key influential people/organizations. Public Outreach, Community Coalition Development and Issue Resolution Key components to the Community Outreach Program will be coalition development, supporter mobilization, and issue resolution. These efforts need to cover the Downtown area, key community members, and owners of adjacent properties, as well as interested groups and audiences. This approach will allow our team to be proactively positioned to counter potential opposition while building support for the project. A community support and issue resolution strategy will be drafted and will include the items detailed above, as well as focused outreach and relationship building in the identified project area. The end goal of this effort will be to minimize active opposition, while recruiting several motivated and influential supporters who will attend public hearings to speak in favor of the project. " Item 16. - 205 ' N. a �- s a 6 ..sY. .,.:.. ... may:.,, ...._.>,,,�„> Mtn .,..5�. ,.. \<__.e „x:Y£,<.✓. _ i_..eu "ro_m..»os-__.-., s.v 9e�b Al repT3oSe 'c Ap D roaC`7L to r je t Collateral Material Development and Communication Plan Implementation The first step in actively communicating is to create an efficient system of correspondence—this correspondence must include an identity or "brand" for the project. People will be more involved and better informed about the status of the project if they hear from us often through newsletters, workshops, and follow-up materials as well as personal interaction. • E-Newsletters • One-on-One Meetings • Workshops/ Presentations/ Meetings/Speakers Bureau • Web Page • Materials Review and Development— Materials might include: — Information kit — Media kit — Talking points — FAQs Myths and Facts In addition to appealing to opinion leaders, community groups, and elected officials separately, we will work to engage the media, explaining the objectives of the project as appropriate and the benefits to the public. Relationship with City Staff and The Council Because the Rodgers Seniors' Center site is owned by the city, our team and the city (i.e. staff and council members) are essentially "partners" in this endeavor. Our team is committed to working closely with Staff and the Council to ensure that lines of communication are open and we are providing city officials with regular updates throughout the entitlement process and during the campaign. As part of the ascertainment, elected officials and staff will be interviewed, providing our team with insights on what community groups and non-profit organizations we should be communicating with, and how to engage them in the process. We will solicit feedback from Staff and Council members on a regular basis so that we are aware of any issues or concerns they may have, or that may have been communicated to them by city residents. We are highly cognizant of the fact that we are engaged in a political process and that the success of this project is as important to the city as it is to WPG. To facilitate regular communications, we propose that monthly meetings be established with city management and interested Council members to review progress and develop solutions to any issues we encounter. We will provide honest and accurate information regarding the project and the campaign to ensure that our partners are briefed on a regular basis in order to avoid any surprises. PHASE III - PUBLIC HEARINGS The outreach program, along with the ascertainment, will identify those members of the community that are in favor of the project and the revenue it will provide to the city. Mobilizing the supporters of the project to attend public hearings and speak in favor of the project is the key element of this phase. Lists of supporters of the project will be developed during the ascertainment and outreach phases, and those individuals and organizations will be contacted prior to public hearings and asked to testify at the hearing. Item 16. - 206 1 r Ott ...,.a,a-p:.,n, - 4. Fro p user's Approach 0 Pro'ect CONDUCTING A WINNING MEASURE C CAMPAIGN OUR APPROACH A well-crafted public outreach campaign as described above provides the backbone for the first steps of a campaign to win a Measure C election. We have worked on successful campaigns in Huntington Beach, and elsewhere, that have each followed a specific process for winning the campaign. Step 1: Research Between digging into the fiscal details of the positive impacts this project would have for the city, to feedback gained during early community and stakeholder outreach, we will be given a good start in defining the terms to best shape the debate. Before we present that debate to voters directly, we will rigorously test those potential messages in detailed polling. With an extensive library of recent public opinion within Huntington Beach, our team has the tools to break past the topline opinions to really find the underlying issues, opinions, and concerns that will drive voter opinion during this election. Step 2: Strategy and Budget Development At this time, it is entirely unknown whether this election would start down 5-points or up 15. Initial research will help guide both the messages necessary for victory, as well as provide direction on those voters' needed to pick up in order for victory. In addition, here we will sort through the wide variety of methods of voter communication available and put together a plan to communicate our messages to the right voters, whether that is with Direct Mail, Slate Mailers, Cable TV, Social Media Promotion, Yard Signs, or Web and Mobile Ads. We have won races utilizing each —and the unique makeup of the 2016 electorate and the findings of our initial research will lead to advantages of some methods over others. Step 3: Execution The last step in this process is to turn that research and strategy into compelling advertisements that are noticed, understood, and drive voter behavior. Our team has won half a dozen national awards in y the past two election cycles alone for excellence in creating campaign advertisements that have run in Huntington Beach —both for Assemblyman Travis Allen in 2012 and for the Huntington Beach Chamber of Commerce PAC in 2014. Following this systematic and research-based approach to campaigns, our mutual experience in delivering hard-fought wins in tough ballot elections leads us to believe this is the best approach to winning a Measure C election in 2016. Section 4 Continued: d) WPG Enterprise A LLC (a Delaware Limited Liability Company), a partnership with Anchorage Capital Group LLC will be the entity to purchase the site and manage the development of the site and ultimately sell the homes. e) The city owns fee title to the Seniors' Center Property. WPG is offering to purchase the property on an "all-cash" basis with the city selling WPG fee title to the property. WPG would be purchasing the property "as is" with WPG indemnifying the city and releasing the city from and against any/ all losses, damages, injuries or claims that WPG may incur during the ownership of the property. Standard indemnification and release language would be included in the purchase and sale 5 - 0 c^n4. k h %%Pro- jcer's Approach to J agreement between WPG and the city for the sale of the property to WPG. The city is not being asked to carry a note for any portion of the purchase price being paid by WPG for the property. With the city having no financial involvement in the property after WPG's closing of the property, the city will not have any risk or liability after the purchase has been consummated/escrow closed. With WPG purchasing the property for cash, any financial partner or lender utilized by WPG to purchase the land, develop the site, construct the homes and/or to market and sell the ultimate homes to the home-buying public would be at WPG's sole risk and liability. Any financial partners or lenders to WPG would be with institutional sources of capital that will rely on WPG's representations and financial support of the project and will not request or receive any support or assurances from the city whatsoever. f) WPG will commit to giving priority to local vendors to the extent that they are available and the cost is comparable to non-local vendors. To accomplish this we will identify all of the vendors located in Huntington Beach who provide the types of products and services needed to complete the project. The products range from construction materials to appliances. The services range from interior design and merchandising to escrow companies. Local vendors will be contacted by WPG and asked to submit bids on the particular product or service needed at that time. Item 16. r n( e ` 5. Content- of Proposal 5. CONTENT OF PROPOSAL a) As directed in the RFQ, WPG has designed a site plan for the two acre Rodgers Seniors' Center property consisting of twenty two single family homes and an approximately 17,000 square foot public park. It should be acknowledged that the conceptual design shown on the following pages h i Planning Department, was developed absent any input from the neighboring residents or the c ty s a g p , Community Services Department or Public Works Department. The objective of this site plan is to confirm that twenty two residential lots and a 17,000 SF mini park can be developed on the site and to provide a preliminary site plan showing the conceptual layout of the uses. While we believe the proposed site plan is well conceived and achieves the objectives stated in the RFQ, WPG is not wedded to this particular configuration and is open to considering other designs if the city has a .9_= design preference. The site plan for the property locates the park at a mid-block location on 17th Street directly across from the neighborhood commercial center as shown on Exhibit 1 —Conceptual Site Plan. Four residential lots will flank the east and west sides of the park. Fourteen residential lots will front onto 18th Street. The park is strategically located at mid-block on 17th Street to take advantage of the higher traffic and pedestrian volumes on 17th Street providing maximum visibility to the public. The residential component of the project will consist of twenty two approximately 25 x 115 square foot single family detached lots designed to meet the site development standards established in the city's zoning code. The homes will range in size from 2,600 to 2,900 square feet. Energy efficiency will be the cornerstone of these homes. Water saving devices such as tankless water heaters, drought tolerant landscaping, and low flush toilets will be incorporated as well as energy saving measures such as electrical charging stations in the garages, energy star appliances, recycled construction materials, and options for photovoltaic cells. Preliminary home prices would range from approximately $1.4 million to $1.7 million. As shown on Exhibit 2, the architectural character of the neighborhood could include a range of styles from a very contemporary look to Spanish Colonial. Like the site plan itself, the architectural character of the neighborhood could be determined after input from the neighboring residents and city staff. With respect to the recreational theme of the mini-park, the location and small size of the park ' limits its.ability to accommodate any active uses other than children's play equipment. Given the constraints on irrigation presented by the current drought, WPG and FORMA have designed a park concept that incorporates an interpretive program into a primarily passive park setting by creating a "drought tolerant plant exhibit" which would use signage to identify and provide information about the various types of drought tolerant plants found in the park. The concept is that park users could learn about drought tolerant landscaping through interpretive signage and could use this information to guide them in purchasing drought tolerant plants for their homes thereby reducing water usage in the city. The active component of the park would include two age separated "tot lots". Shade structures, benches, picnic tables, ADA seating and other miscellaneous park elements would be incorporated into the design. The elements of the park are shown on the site plan exhibit. v - Item 16. - 209 ` ._adz ,.. , ..c .• ,�;�u+u, .,;,» k.t..,.,..o. .i.,,.. .., m, _.m,,._> _ ,r.,e-.u,'� ,e' e.YF:. Co vet of L � �0�C1 As far as the street scene is concerned, the existing curb adjacent sidewalks would be removed and replaced with sidewalks setback from the curb within a parkway. This is consistent with all the other street scenes in the neighborhood. Also, the existing bus stop on 17th Street near Pecan Avenue would be relocated to mid-block adjacent to the park. An important consideration in the design of the site plan is storm water runoff. WPG has learned from residents on 17th Street that during some storm events the storm drain system is inundated and water backs up overtopping the curb and flooding parkways. Converting the use of the Rodgers Seniors' Center site to residential and park use will reduce the amount of impervious surface on the site (currently approximately 90%) thus reducing storm water runoff. WPG's engineering consultant Stantec evaluated alternative methods for retaining storm water onsite to reduce peak flows from the proposed site plan. Alternatives for detaining some storm water onsite appear to be feasible depending on the composition of the soil. One alternative would have the residential lots and alley drain into a 48 inch perforated pipe under the alley. Runoff would be stored in the pipe and infiltrate t F the ground over time. Other alternatives can be considered depending on the soil characteristics and more detailed hydrological studies. Refer to Exhibit 3—Drainage. As stated earlier, there are other alternative site plans that could be considered for the project site. As an example, Exhibit 4—Alternative Conceptual Site Plan shows an alternative design for the site that eliminates the alley loaded plan in favor of creating a "paseo park" in the center of the site with homes that front onto the paseo park rather than the street. In this case, the paseo park connects Orange Avenue and Pecan Avenue using the same park elements as the proposed alternative with the exception of the tot lots. The design reflects an entirely passive park concept. Vehicular access to each home would be from 17th Street and 18th Street via three driveways on each street that lead to motor courts for access to each garage. Under this scenario, rather than have the city maintain the paseo park a homeowners association could be formed for the new homes for the purpose of maintaining the park thus relieving the city of that cost. The park would be open to the public but privately maintained. While WPG is not advocating this alternative because it does not reflect the design intent expressed by the city in the RFQ, it does demonstrate that there are other alternative site plans that may achieve the city's planning and economic goals. The point is that if WPG is selected as developer of the site we would be willing to work with the city to create a site plan that is financially feasible and meets the city's objectives and that of the surrounding community. ES T�, p a gw Q LU h ILI wUl zz WO I Aft [Aft ji .r �a _v. Ed<. .. + ie. MY Zb •: � t� � � tea: � C�} a.. w 2 IM ama� uW CL = S ': its Item 16. - 211 U"', \ \ ��\. � �« ��\ ��( ��§ ��> ltJik - 212 »w». .�� � a v �n a.. M 5 y' .: _ Item 16. -213 :�\ ��} ��t ��} \ . { �79 - ��\ � ��\ �2 } G r� �e ��\ ��1 « z ° !mtlk -»4 »c«s ��� . IF i z} y� k_,�� oo,,,...� ,, au�..'. ,m,,,zr;��,., .: .,�*'„ - s � � _ �...�::;r� ,a<.s ansvo �...broz-��s.. �'� *��sN.�.d,,.,x,�, .r."h� a\�,✓,R�.�wH,»sobo.,e.;a�,b ..ae,sw'�1 ' r., .�' PECAN AVENUE I I - - - I G _ r i 'PARK' I 1 % ;d w w ti .. ro 115'-0' • I �-----�I l:1iE.c' ORANGE AVENUE DESCRIPTION NOTES BASED ON THE PROPOSED SITE DESIGN, IT IS ESTIMATED THAT 1. SIZING FOR THE DETENTION BMP WAS BASED ON APPROXIMATELY A 340-FT LONG, 48-INCH CMP IS REQUIRED TO THE DCV REQUIRED BY THE TECHNICAL GUIDANCE DETAIN THE DESIGN CAPTURE VOLUME (DCV). THE DCV WILL BE DOCUMENT (TGD) AND IS APPROXIMATE. DIRECTED TO A TREATMENT SYSTEM. FLOWS EXCEEDING THE DCV WILL OUTLET VIA A SEPARATE STORM DRAIN PIPE. THE TREATED DCV WILL 2. THE TREATMENT SYSTEM MAY BE STORMFILTER OR CONNECT BACK TO THE PROPOSED ON-SITE STORM DRAIN SYSTEM MODULAR WETLANDS SYSTEM. WHICH WILL ULTIMATELY DISCHARGE TO THE EXISTING STORM DRAIN SYSTEM IN 17TH STREET. • a aF a 77, or � 4,1111 y - �t3 Item S a wo VIA, .x � R Vo011LEY rntof Proposal AO Page > 4 Wentanaky Wank �8, a Item 16. - 216 ; - 3 � R, lu Ell k Y/ Q Yl 4 ��iia Q xo a t.4 i �. U 1 Q Q l�7 �- 3 N�ire xr 3 � poll Al 0.111 R'� ,11�L a x �s t i ,jl IM- iLE ,` lti F pop . a • AR a „k. £ / ii a, xa y �4h'ti;/07' eLll":AE a w� w�a �3a a =a § Q ISO T Item 16. - 217 ..... z.. 1 � Y S MR, H.H R. C, y Vv" i y.. F yv, �'',.Item 16. - 218 ry t ? ¢ R ` S ...... Vw._ _,,,,A .,,-_.. <Es. 5. Content Of Proposal b) The proposed project benefits the neighborhood by reducing the intensity of use of the Seniors' Center property which now draws users from all over the city (e.g. traffic) and converts it to a more compatible single family residential use.The redevelopment of the property into single family homes and a park improves the aesthetics of the neighborhood by replacing a deteriorating building and parking lot with newly constructed luxury homes with contemporary architecture. These luxury homes will increase surrounding property values. Converting a portion of the property to a public park increases the recreational utility of the property, opening it to a larger segment of the community.The neighborhood park will be designed as an amenity to the neighborhood. It could include, depending on the design criteria recommended by the Community Services Department and neighborhood residents, children's play equipment, shade structures, and benches. Drought tolerant plant material could be used as an educational tool and demonstration project (e.g. signage that identifies the various plants)for park a. users to gain an understanding of what plant material is available for use in their own yards to reduce water usage. The surrounding neighborhood would also benefit from the reduction of the amount of stormwater runoff leaving the project site. From a city-wide perspective, the sale of the property for residential development will provide a substantial one-time revenue source to the city which will enable the city to invest those funds in upgrading existing parks and create new recreational opportunities throughout the city. In addition, the city will receive annual property tax revenue from the residential development, coupled with additional sales tax revenue generated by the construction of the project, and consumer spending by the new homeowners. c) This topic is discussed in detail as part of our response to Section 4. Proposer's Approach to Project. In summary, over the years of developing residential neighborhoods and master planned communities, WPG has utilized a comprehensive public outreach program to engage stakeholders far in advance of any public hearings on a project. Without exception, we find that reaching out to adjacent property owners, community groups, environmental groups, and a broad range of stakeholders before a development plan is submitted to a city or county dramatically improves the chances for successful entitlement. With respect to the specific entitlement steps, our team has years of experience entitling complex projects. The complexity of this project rests in the fact that the project seeks to convert a two acre property designated as open space to a residential use.The primary challenge will be to communicate to the public how selling the site will benefit city residents as a whole and that the benefits far outweigh the loss of the open space designation. Our team has extensive experience in developing the appropriate messages and identifying the best means of communicating those messages. d) An open and transparent process starts with the type of extensive public outreach process outlined in ` our response to Section 4. Proposer's Approach to the Project. Our experience tells us that establishing open lines of communication with community members, project stakeholders, elected officials, and city staff ultimately benefits the project by fostering trust and accountability. As part of the communications process, we propose establishing a monthly meeting with the city's management team to track the progress of the project through entitlement and the campaign to identify issues that need to be addressed and formulate solutions. Being able to partner with the city on this project is an exciting opportunity for WPG. Candidly, the advantage that WPG has over other companies proposing on this project is that we have already established an excellent working relationship with city staff and city council members through our existing projects in the city-we have a track record with the city. We have worked with every department at City Hall from planning, building inspection, community safety, and public works to management staff and the Council Members. We know Huntington Beach and we can successfully entitle the project, prevail on the Measure C campaign, and execute the project in a first- class manner. Item 16. - 219 �a 4 ewp � M Pit, z it x ` t j. i 4::. Nam..,,,,xia,.,,,ss.... ......_. »!.a ... v__...._, a..,-n:✓.au. ,F,�..,....,a ,s..,....._ .� ..,.a,.i.:w a.......... .,..A,s....., sit.... ': ��s..,.rs'"» Content of F"roposal e) Financial Offer Form Attachment 3 Financial Offer Form F= Item Financial Offer Initial Deposit Amount $20,000 Pursuant to the RFQ-P Section 5(e)(i), the Proposer is required to submit an initial deposit upon submittal of RFQ/P. Land Sale Balance *See Attached Explanation Amount 13 480 000 or 14,880,000 $ $ Pursuant to the RFQ-P Section 5(e)(ii),the Proposer is required to submit the balance of Financial Offer to City upon close of escrow on land sale. Total Financial Offer *See Attached Total $13,500,000 or$ 14,900,000 Explanation This form is to be completed and signed bNT individual authorized to represent and make legally binding commitments on behalf of the proposing firm/company: Name of Firm: Woodbridge Pacific Group Mailing Address: 27285 Las Ramblas, Suite 230, Mission Vieio, CA 92691 Phone Number: 949 384 - 8126 ext. 233 E-Mail: tcunningham@woodbridgepacific.com Signature: Date: July 1, 2015 Print Name: Todd Cunningham Item 16. - 220 v -1.,._y... ,..,, .w ,., ,..yr., .,s,...r 5. Content o£"Proposal FINANCIAL OFFER FORM EXPLANATION Land Sale Balance: Amount: a) $13,480,000, payable in cash 10 days after tentative tract map approval, or 45 days after the Registrar of Voters certifies the November 2016 election approving the rezone and sale of subject Property, whichever occurs later, or at the city's option: b) $14,880,000, payable in cash upon City Council approval of a final map for the project or 45 days after the Registrar of Voters certifies the November 2016 election approving the rezone and sale of the subject Property, whichever occurs later. Total Financial Offer: a) $13,500,000, payable in cash 10 days after tentative tract map approval or 45 days after the Registrar of Voters certifies the November 2016 election approving the rezone and sale of the subject Property, whichever occurs later, or, at the city's option: b) $14,900,000, payable in cash upon City Council approval of a final map for the project, or 45 days after the Registrar of Voters certifies the November 2016 election approving the rezone and sale of subject Property, whichever occurs later. K 6 �� , ,r ..a.�:�tk'ax xi :,,, a., ,.: ,, .r. .,.tea ..':.�sx..W.. , .,r, a,a•.. ..�., .�., ,a...ae ,.,.:�.._ f) As explained in Section 4. e), WPG will acquire the property from the city on an "all cash" basis through an established partnership with Anchorage Capital Group LLC. g) The entity purchasing the property will be WPG Enterprise A LLC a company formed by Woodbridge Pacific Group (WPG) and Anchorage Capital Group LLC for the purpose of acquiring and developing real estate. Anchorage Capital Group LLC provides the equity funding for the business and WPG is the manager. WPG provides all of the operations necessary to carry out the business plan including land acquisition, entitlement, product design, obtaining debt financing, construction, sales and marketing. WPG's management team will be responsible for overseeing all facets of the redevelopment of the Rodgers Seniors' Center. h) Proposed Schedule for Entitling and Developing a Residential Project on the Seniors' Center Property Under state law, the city council must act to place the question of whether or not to sell the Rodgers Seniors' Center property on the ballot a minimum of 88 days prior to the election. In this case, the deadline for the city council to take action to place the sale of the Rodgers Seniors' Center property on the November 2016 ballot is August 12, 2016. If the city council selects a developer for the project in August 2015, that leaves just 11 months to complete the entitlements for the project in order to meet the August 12, 2016 date. It is assumed that the city will prepare a Focused EIR since the only significant environmental issue appears to be limited to the conversion of land designated as open space to residential use. Following is the summary entitlement and development schedule for the project described in the RFQ. August 2015 — City selects WPG as Developer September 2015 — City/WPG execute Exclusive Negotiating Agreement and Reimbursement Agreement; — WPG initiates public outreach; — City selects consultant to prepare a Focused EIR; — WPG submits preliminary site plan for review; October 2015 — WPG submits applications for GPA, ZMA, TTM and CUP; — City issues Notice of Preparation for Focused EIR; November/December 2015 — Project review/EIR preparation January 2016 — City circulates Focused EIR for 45 day public review period; March 2016 — Public comment period ends; April 2016 — City completes Response to Comments; May 2016 — Planning Commission approves GPA, ZMA, TTM and CUP; Item - 3. m r iz r -'fin.. 5. Content 0f Proposal June 2016 — City Council certifies EIR and approves GPA, ZMA; July 2016 — City Council places initiative on the ballot; August 2016 — WPG team executes campaign plan November 2016 — Voters approve ballot measure authorizing city to sell Rodgers Seniors' Center property; — Registrar of Voters certifies election results January 2017 — WPG closes escrow on Rodgers Seniors' Center property 45 days after election certification for a purchase price of$13.5 million; June 2017 — City approves final map for residential project (alternative close of escrow at city's option purchase price increases to $14.9 million); July 2017 — WPG starts site improvements September 2017 — Start model homes and first phase production homes; March 2018 — Model homes open; May 2018 — First closing; March 2019 — Last closing. 'i The entitlement portion of the schedule is very tight and will require a developer with experience in processing projects through the city in order to make the August 12, 2016 deadline. WPG has that experience. Our most recent experience processing projects through the city was a tentative tract map for the last phase of residential lots at the Brightwater and Sandover communities in October 2014. WPG has the experience in processing projects through the city and has the team with the experience to win the Measure C election. 3 _ Item 211, g :3 ar B S � S Item 16. - 224 p v -Z, q v " � s 6. L1IC b1 6. FINANCIAL CAPABILITY a) In July 2014, Woodbridge Pacific Group formed a company with Anchorage Capital Group for the purpose of acquiring real estate and developing homes—WPG Enterprise A LLC (a Delaware Limited Liability Company). In less than a year the company has acquired several land assets. Because the company was formed in 2014, there is only one audited financial statement from July 2014 (inception) to December 312014 (attached). Founded in 2003, Anchorage Capital Group, LLC is a private investment firm able to invest across the capital structure with particular focus on credit and special situations in North America, Europe, Australia and other markets. Through various funds, anchorage manages approximately $15 billion. Anchorage maintains offices in New York, London, Sydney and Luxembourg. b) WPG Enterprise A LLC has not been a party to any litigation since inception. There have been no instances where WPG Enterprise A LLC has had a performance bond revoked or been removed from a project for nonperformance. c) WPG Enterprise A LLC has not been involved in any bankruptcy proceedings. j Item 16. - 225 WWI- 13 Anchora�e Capital Group,L.L.C. 610 Broadway 61� Floor New York,NY 10012 ANCHORAGE Tcl: 212 432.4600 C A P a -a- A. Z- ca R ID U P Fax: 212.432,4601 Mr.Jim Slovojan Fiscal Services Manager City of Huntington Beach 2000 Main Street Huntington Beach,California 92648 July 1, 2015 Dear Mr. Slovojan, We are the investment manager to a private investment fund that has partnered with Woodbridge Pacific Group ("WPG") to buy land and build new residential housing in the primary housing markets of Southern California. Founded in 2003, Anchorage Capital Group, L.L.C. ("Anchorage") is a private investment firm able to invest across the capital structure with particular focus on credit and special situations in North America, Europe, Australia and other markets. Through various funds, Anchorage manages approximately $15 billion. Anchorage maintains offices in New York, London, Sydney, and Luxembourg. We are intimately familiar with Huntington Beach and the Orange County coastal markets, having previously completed successful real estate investments in this area. WPG has made us aware of the opportunity to redevelop the Michael E. Rodgers Senior Center site, and we are excited to be part of a proposal that contemplates our cooperation with the City in achieving its goals for the site. We look forward to continuing our involvement in the residential development market in Huntington Beach. Sincerely, Ancho Group, L.L.C. r By: Name: Daniel Allen Title: Senior Portfolio Manager Item 16. - 226 } ll _,,- _ F pp ....... v 3 ,,,, ,...�_k u... 4 ..,a� ,.F.e. � £r 6. Financial Ca abitit VI PG Enterprise A LLC (a Delaware limited liability Company) Consolidated Financial Statements For the period from July 10, 2014 (inception) through December 31, 2014 T t a�� s ers se y 1 DJ i -n:'tl 11M ca.lpary teG byIBDQ NMI, ON ;___ 1 Item 10. - 227 p ni .xir !�'€ a�xs 3' s ""� ' 'Vv OR— a P y �s���. ..�.� � .. �.�, b,..�•,..a�, M�.+.«� ?XsK,u.�,�ra..2 „� or.,._s,.�.�. � � _� a�s,..�� �k,=_9w�__. i'✓s,�.�a �.�.,,a._/�_y.,..,,sm .� �„ ../�-. —�,H d3;: 6. Financiea Cca a iIl T i r WPG Enterprise A LLC (a Delaware Limited liability Company) Consolidated Financial Statements For the period from July 10, 2014 (inception)through December 31, 2014 Item 16. �S f PI mv _g{ 5,1 Z. 6. Financial Capability WPG Enterprise A LLC (a Delaware Limited Liability Company) Contents Independent Auditor's Report 3 Consolidated Financial Statements Consolidated Balance Sheet 5 Consolidated Statement of Operations 6 Consolidated Statement of Members' Equity 7 Consolidated Statement of Cash Flows 8 Notes to Consolidated Financial Statements 9- 16 �x 3 2 Item 16. - 229 w� V, ;a �§ ifj c EE �'��d✓ .n,�a� o�___ v. a .�._x. y-- �__ �, C. ..eu�n$ac.ya�.,,ws� ., ,. _-- .�, tease<, �..>... .-� %�, ,�'� ...._` �. ,.��� u...,�a, -,.� ._.�, �.,.. s.. � <v. Tel: 714-957-3200 3200 Bristoi Street,4th Floor 1-1,SDO Fax: 714-957-1080 Costa Mesa,CA 92626 www.bdo-com Independent Auditor's Report To the Members WPG Enterprise A LLC Mission Viejo,California We have audited the accompanying consolidated financial statements of WPG Enterprise A LLC, (the "Company"), which comprise the consolidated balance sheet as of December 31, 2014, and the related Fes„l`a consolidated statements of operations, members' equity, and cash flows for the period from July 10, 2014 (inception)through December 31,2014,and the related notes to the consolidated financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement,whether due to fraud or error. Auditor's,Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of WPG Enterprise A LLC as of December 31, 2014, and the results of its operations and its cash flows for the period from July 10, 2014 (inception) through December 31, 2014, in accordance with accounting principles generally accepted in the United States of America. i March 16,2015 EDO USA,LIP,a Delaware limited 4iabllrtY parenersh?,s-,he U-5 m—ber of BNO Intemationa'L-mited,a UK company limited by guarantee,and foams part o;the >ntemational,BDO network o`trx7.ependenaer I rras. BDO is tt,e brand name fm the B00 netwol and for each of the BY,mi,mber Finns. 3 Item 16. - 230 irk -1, ,� - y C� w, 9 i€ .,.ux.,._ re _.v �� ..,,< � v-w� �. ��,�a,, z s.,r... ._..� ,.,�. ,-_a,<_,�.. ,,, �k,,, ..� .F,��..,. a•,. c .,.� e.,_;'a��«.. ,.�. �a.,.,a,o_ ���. �`.�,v x .a . . Financial Ca abi i y Consolidated Financial Statements Oil ,ate .R Item 10. - 231 V 4\ a TIN m p c 6.. Fina—r,C<�-I Capabitity WPG Enterprise A LLC (a Delaware Limited Liability Company) Consolidated Balance Sheet December 31, 2014 Assets Cash $ 1,852,031 Real estate inventories 24,645,124 "., Prepaid expenses and other assets 3,000,112 Property and equipment, net 10,910 q, Total assets $ 29,508,177 Liabilities and Members' Equity Liabilities Accounts payable and accrued liabilities $ 2,159,575 Total liabilities 2,159,575 Commitments, Contingencies and Subsequent Events Members' equity 27,348,602 Total liabilities and members' equity $ 29,508,177 See accompanying notes to consolidated financial statements. 5 Item R OR gy €- L v -v <— -0? 6. Fi a C1c-11 Capability WPG Enterprise A LLC (a Delaware Limited Liability Company) Consolidated Statement of Operations For the period from July 10, 2014 (inception) through December 31, 2014 Cost of Land Sales $ 242,626 Operating Expenses: Search fees 543,015 General and administrative 30,024 Net toss $ (815,665) See accompanying notes to consolidated financial statements. 6 <<- = Item 10. - 233 3,,,­ _Yav t '?E 19 Al A .�:. ..i,_„-, w.tea- �..a k^.,..,.y.z„ ...�..,,. .i _.� ,Cf-.,dv...#�.e..-, a..9.b... a_.,x ., .�.Z'o.s.. �.c ,<<.,,,,.✓ ..r ai,.i., n,.....ma ,a... . ,..3,. F_. .,�_ ,..,. :.w )< ..d._�Ts.. _., r .a. 1 ,. WPG Enterprise A LLC (a Delaware Limited Liability Company) Consolidated Statement of Members' Equity Class A Class B Members Members Total Members' equity at July 10, 2014 (inception) $ - $ - $ - Capital contributions 26,756,053 1,408,214 28,164,267 Net loss (774,882) (40,783) (815,665) � ap. Members' equity at December 31, 2014 $ 25,981,171 $ 1,367,431 $ 27,348,602 See accompanying notes to consolidated financial statements. 7 ON �,,,- ON 'M.' 6. Financial Capability WPG Enterprise A LLC. (a Delaware Limited Liability Company) Consolidated Statement of Cash Flows For the period from July 10, 2014 (inception) through December 31, 2014 Cash flows from operating activities Net loss $ (815,665) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,016 Changes in operating assets and liabilities: Real estate inventories (24,645,124) Prepaid expenses and other assets (3,000,112) Accounts payable and accrued liabilities 2,159,575 Net cash used in operating activities (26,300,310) Cash flows from investing activities Capital contributions from members 28,164,267 Purchases of property and equipment (11,926) Net cash provided by investing activities 28,152,341 Net increase in cash 1,852,031 Cash, at beginning of period - Cash, at end of period $ 1,852,031 See accompanying notes to consolidated financial statements. 8 Item 16. - 235 ..< 'R W _. �F', ✓n. a _, 6._aae , m€ s ti. �.. g� .� ♦ t Caacabr to r ty WPG Enterprise A LLC (a Delaware Limited Liability Company) Notes to Consolidated Financial Statements � 1. Nature and Organization of Business Nature of Business - WPG Enterprise A LLC (the "Company"), was formed on July 10, 2014 ("Formation Date"). The Company was formed under the Delaware Limited Liability Act (the "Act") with an initial term commencing on July 10, 2014 and shall continue perpetually, unless the Company is earlier dissolved and terminated. The operations of the Company are governed by an operating a agreement initially dated July 21, 2014, and amended on August 1, 2014 and October 16, 2014 (the "Operating Agreement"). The member's liability is limited by the Act. The Company was formed to acquire, own, hold, maintain, operate, improve, develop, construct, sell, and otherwise use the designated property for profit, and do any and all other acts or things that may be necessary or incidental to carry on the business of the Company. Members of the Company include three entities managed by Anchorage Capital Group, LLC, a Delaware Limited Liability Company ("Anchorage Group"or "Class A") and WPG Investors 2 LLC, a California Limited Liability Company ("WPG"or "Class B") (collectively, the "Original Members"). The Company's Operating Agreement governs the Company's operations and members' financial and managerial rights and obligations. The manager of the Company is Woodbridge Pacific Group LLC, an affiliate of WPG (the "Manager"). The Manager has the exclusive and complete authority and discretion to manage the day-to-day operations and affairs of the Company and to make all decisions regarding the day-to-day business of the Company, as defined in the Operating Agreement. Currently, the Company owns land in La Quinta and Chino Hills, California, which are held in two wholly owned subsidiaries under the Company: Chino Hills Housing 2 LLC and La Quinta Housing 1 LLC.The Company is planning to develop the land in La Quinta and Chino Hills into master planned communities (the "La Quinta Business Plan" and the "Chino Hills Business Plan", respectively; collectively, the "Project"). The Project will include the development of residential and public use areas. The Company funds Project costs through capital contributions provided by its Original Members. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America ("GAAP"). Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. 9 Item 16. - 236 "-- F,ti : 9g " %+ fry T Y 6. Financial Ca a 1l1q, WPG Enterprise A LLC (a Delaware Limited Liability Company) Notes to Consolidated Financial Statements Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates. Significant estimates include the valuation of real estate inventories. Real Estate Inventories Real estate inventories consist of parcels of land and improvements and are stated at cost. The Company capitalizes development and other carrying costs to real estate inventory during the ' development and construction period. Impairment of Long-Lived Assets The Company assesses the impairment of real estate inventories and other long-lived assets in accordance with Financial Accounting Standards Board ("FASB")Accounting Standards Codification ("ASC") ASC 360-10-35, "Impairment or Disposal of Long-Lived Assets," which requires that long- lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing an asset's carrying value to the undiscounted estimated cash flows expected from the asset's operations and eventual disposition. If the sum of the undiscounted estimated future cash flows is less than the carrying value of the asset, an impairment loss is recognized based on the fair value of the asset. If impairment occurs, the fair value of an asset is deemed to be the amount a willing buyer would pay a willing seller for such asset in a current transaction. . Additionally, as appropriate, the Company identifies alternative courses of action to recover the carrying value of its long-lived assets and evaluates all likely alternatives under a probability weighted approach as described in ASC 360-10-35. As of December 31, 2014, the Company did not record any impairment. In developing estimated future cash flows for impairment testing for its real estate inventories, the Company has incorporated its own market assumptions including those regarding home prices, sales pace, sales and marketing costs, infrastructure and home-building costs, and financing costs regarding real estate inventories. The Company's assumptions are based, in part, on general economic conditions, the current state of the homebuilding industry, expectations about the short ' and long-term outlook for the housing market, and competition from other homebuilders in the areas in which the Company plans to develop. These assumptions can significantly affect the Company's estimates of future cash flows. For those communities deemed to be impaired, the Company determines fair value based on discounted estimated future cash flows using estimated absorption rates for each community. The Company believes that accounting for the impairment of long-lived assets is a critical accounting policy because the valuation analysis involves a number of assumptions that may differ from actual results. The critical assumptions in the Company's evaluation of real estate inventories impairment included projected sales prices, anticipated sales pace within each community, and applicable discount rates, any of which could change materially as economic conditions change. 10 ., _ Item 16. - 237 }� -i �S q� 00 - Qpabj I T WPG Enterprise A LLC (a Delaware Limited Liability Company) Notes to Consolidated Financial Statements Revenue Recognition In accordance with ASC Topic 360-20, Property, Plant, and Equipment - Real Estate Sales ("ASC 360-20"), revenues from land sales are recorded when title has passed to the buyer, collection of the purchase price is reasonably assured and the Company has no other continuing involvement in the sales transaction. The Company's land sales represent the amount of cash received from the selling of real estate investment inventory acquired by the Company to the extent such amounts are paid from the underlying investments. Profits represent the spread generated between the original cost basis of the investment and the exit sales price of the investment. During the period ended December 31, 2014, the Company did not record any land sales. Income Taxes a, The Company is not itself subject to federal, state or local income taxes. Each member is responsible for the tax liability, if any, related to its proportionate share of the Company's taxable income or toss. Accordingly, no provision for federal, state and local income taxes is reflected in the accompanying consolidated financial statements. The Company follows the requirements of ASC Topic 740, Income Taxes ("ASC 740"), relating to uncertain tax positions. Based on its evaluation under ASC 740, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its consolidated financial statements, nor has the Company been assessed interest or penalties by any major tax jurisdictions. The Company's evaluation was performed for the tax period beginning July 10, 2014 (inception) through December 31, 2014. If an uncertain income tax position were to be identified, the Company would account for such in accordance with ASC Topic 450, Contingencies. Property and Equipment Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets or, when applicable, the life of the lease, whichever is shorter. The following are the estimated useful lives of property and equipment: Asset Category Estimated Useful Lives Computer equipment 3- 5 years Fair Value Measurements ASC 820, Fair Value Measurements, requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows: Level 1 - quoted prices in active markets for identical assets or liabilities; Level 2 - quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or Level 3 unobservable inputs for the asset or liability, such as discounted cash flow models or valuations. The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company has no assets or liabilities that are subject to fair value measurement as of December 31, 2014. 11 Item 16. - 238 MIME= ,,� - - - .. zw�� � is La 3 d_ -1-A4, Tk ,, 6. Financial Caal' T WPG Enterprise A LLC (a Delaware Limited Liability Company) Notes to Consolidated Financial Statements Risk Management The Company is subject to risks incidental to the ownership, development, and investment in residential real estate. These risks and uncertainties include the competitive environment in which the Company operates, including, but not limited to, local, regional, and national economic conditions, consumer confidence, employment rates, the cost and availability of mortgage financing, home, and land valuations; fluctuations in interest rates; the availability of capital; uncertainties and fluctuations in capital and securities markets; the cyclical and competitive nature of the real estate industry; changes in tax laws and their interpretation; legal proceedings; the availability and cost of tabor and materials; and the effects of governmental regulation. In the normal course of business, the Company encounters economic risk, including credit risk and market risk. Credit risk is the risk of the Company's inability to sell an underlying real estate investment and therefore not meeting member investment return requirements per the terms of the Operating Agreement. Market risk reflects changes in the valuation of real estate investments held by the Company. Alt real estate investments owned by the Company are located in Southern California; accordingly, there is a geographic concentration of risk subject to fluctuation in the local economy. Concentration of Risks Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. As of December 31, 2014, approximately $1,602,000 exceeded the federally insured Limits. The Company has not experienced any losses related to uninsured cash balances. 3. Related party transactions Search Fee The Operating Agreement provides, among other things, that in consideration for services rendered to the Company, Woodbridge Pacific Group, LLC shall be paid a fee at the rate of $60,355 per month, payable as a project cost for general overhead and administrative expenses associated with the search for and identification of prospective properties ("Search Fee"). The Search Fee commences on April 1, 2014 (prior to incorporation date) and ends on the sooner of (a) either July 21, 2015 or the date on which $100 million has been committed to the Company for execution of approved projects ("Investment Term") or (b) the date that is six (6) months after such Class A Early Exit Election as defined in the Operating Agreement. As of December 31, 2014, the Company has paid Search Fees of approximately $543,000 to the Manager. Such search fees have been expensed in the accompanying statement of operations. Management Fee The Operating Agreement provides, among other things, that in consideration for any approved property in which residential home construction is involved, the Company shall pay to the Manager a management fee equal to 4.39% of the total sales value incorporated in the business plan of such approved property ("Management Fee"). The Management Fee for all other approved properties shall be based on a reasonable overhead fee level as agreed to by the Members upon final property acquisition approval. 12 - 239 Item 16. 3 cial [ F fj F{{y WPG Enterprise A LLC (a Delaware Limited Liability Company) Notes to Consolidated Financial Statements As of December 31, 2014, the Company has paid management fees of approximately $1,012,000 to the Manager. Such management fees have been capitalized to real estate inventories in the accompanying balance sheet. 4. Members' Capital The Company received cash contributions of approximately $28,164,000 from the Original Members for the period ended December 31, 2014, of which approximately $26,756,000 was received from Class A Members and $1,408,000 was received from Class B Members. Under the p Operating Agreement, the Original Members have committed to contribute $600,000 ($570,000 from Class A Members and $30,000 from Class B Members) ("Initial Capital Contribution") and CA agreed to make capital contributions to the Company as needed to execute each business plan for r each approved property and to maintain appropriate cash reserves in proportion to each Member's percentage interest. Each Member's percentage interest up to $50 million in total contributions shall be 95%and 5%for Class A Members and Class B Members, respectively. Each Member's percentage interest for total contributions received by the Company in excess of $50 million shall be 98.5%and 1.5%for Class A Members and Class B Members, respectively. Distributions are determinable based on the approved business plans of the Company and Waterfall, as prescribed by the Operating Agreement. The Waterfall is described as follows: (i) first, if any of the Members have made any remedial capital contributions (non- defaulting Member making a capital contribution ("Remedial Capital Contribution")) made by a Class A Member with respect to a default by a Class B Member or vice versa ("Cross-Class Remedial Loans"), then 100% to such Members (in proportion to the total amounts outstanding under their respective Cross-Class Remedial Loans (including all principal and accrued interest), until each such Member has received total distributions under this clause (i) equal to the total amount outstanding under its Cross-Class Remedial Loans as of the date of such distribution (including all principal and accrued interest), which shall constitute payment in full thereof; (ii) second, if any of the Members have made any cross-class remedial capital contributions (Remedial Capital Contributions made by a Class A Member with respect to a default by a Class B Member or vice versa ("Cross-Class Remedial Capital Contribution"), then 100% to such Members, in proportion to the unpaid amount of their respective Remedial Preferred Returns (defined below) until each Member has received total distributions under this clause (ii) equal to a Preferred Return on all of its Unreturned Cross-Class Remedial Capital Contributions as of the date of such distribution ("Remedial Preferred Return"); (iii) third, if any of the Members have made any Cross-Class Remedial Capital Contributions, then 100% to such Members in proportion to their respective Unreturned Cross-Class Remedial Capital Contributions as of the date of such distribution, until each Member has received total distributions under this clause (iii) equal to its Unreturned Cross-Class Remedial Capital Contributions; (iv) fourth, until each Member has received total distributions under this clause (iv) equal to a Preferred Return on all of its Unreturned Secondary Capital Contributions and Unreturned Primary Capital Contributions (less Cross-Class Remedial Capital 13 Item 16. - 240 1 - e E b } N . i — k' 6. Financial Ca a itit,, WPG Enterprise A LLC (a Delaware Limited Liability Company) Notes to Consolidated Financial Statements Contributions) as of the date of such distribution (each such Member's "Regular Preferred Return"), 100% to the Members in proportion to the unpaid amount of their respective Regular Preferred Returns; (v) fifth, until each Member has received total distributions under this clause (v) equal to its Unreturned Secondary Capital Contributions, 100% to the Members in proportion to the amount of their respective Unreturned Secondary Capital Contributions as of the date of such distribution; (vi) sixth, until each Member has received total distributions under this clause (vi) equal to its Unreturned Primary Capital Contributions, 100%to the Members in proportion to the amount of their respective Unreturned Primary Capital Contributions as of the date of - such distribution; (vii) seventh, until each Class A Member and each Class B Member has received an IRR of 15% (meaning for IRR greater than the Preferred Return up to 15%): (A) 20% to be distributed as Promote Cash pursuant to Section 5.1(b); and (B) 80% to the Class A Members and the Class B Members in proportions such that an equivalent IRR will be earned under this clause (vii)(B) by the Class A Members and the Class B Members; (viii) eighth, until each Class A Member and each Class B Member has received an IRR of 20% (meaning IRR greater than 15% up to 20%): (A) 30% to be distributed as Promote Cash pursuant to Section 5.1(b); and (B) 70% to the Class A Members and the Class B Members in proportions such that an equivalent IRR will be earned under this clause (viii)(B) by the Class A Members and the Class B Members; and (ix) thereafter, (A) 40% to be distributed as Promote Cash pursuant to Section 5.1(b); and (B) 60% to the Class A Members and the Class B Members in proportions such that an equivalent IRR will be earned under this clause (ix)(B) by the Class A Members and the Class B Members. R=' No distributions under this provision of the Operating Agreement were made during the period ended December 31, 2014. See Note 6. 5. Commitments and Contingencies Land Purchase Agreements On June 25, 2014, the Company executed an agreement for the purchase of land in Palm Springs, California ("Palm Canyon"), for $280,000 per market-rate "Finished Lot" with a minimum purchase price of $12 million, which consists of 68 single family detached lots and 18 live-work units. The Company paid a non-refundable deposit of $225,000 held in escrow, which has been capitalized to prepaid and other assets in the accompanying balance sheet. Upon the City of Palm Spring's final approval of an approved and unappealable tentative tract map, the Company shall make an additional non-refundable deposit of $200,000. Close of escrow will occur 30 days after the City's final approval of an approved tentative tract map. 14 Item 10. - 241 �. �T V .� o, WPG Enterprise A LLC (a Delaware Limited Liability Company) Notes to Consolidated Financial Statements On October 22, 2014, the Company executed a Purchase Sale Agreement for the purchase of land in San Juan Capistrano, California, for a purchase price of$176 million, which consists of 7 parcels of land. The Company paid a refundable deposit of $1,000,000 held in escrow, which has been capitalized to prepaid and other assets in the accompanying balance sheet. The deposit is refundable prior to the expiration of the contingency period, which was December 4, 2014 (the "Contingency Period"). See Note 6. On December 12, 2014, the Company executed a Purchase Sale Agreement for the purchase of land in Madera County, California, for a purchase price of $8.4 million, which consists of approximately 2,107 acres of land. The Company paid a refundable deposit of $150,000 held in ' � escrow, which has been capitalized to prepaid and other assets in the accompanying balance sheet. The Company has 45 days following the Company's acceptance of the seller's due diligence materials to determine whether to accept the agreement. See Note 6. Line of Credit 41 In connection with the Chino Hills Purchase Sales Agreement, the Company is required to deliver an irrevocable line of credit or other acceptable form to the California Department of Fish and Wildlife ("DFW") for $302,000. As of December 31, 2014, the Company has not provided such letter of credit to DFW. Performance Bonds In connection with the Chino Hills Purchase Sales Agreement, the Company is required to provide for replacement bonds for each of the performance bonds as described in the Purchase Sales Agreement within 180 days after the closing date. As of December 31, 2014, the Company has replaced and delivered such performance bonds to the appropriate obligee. Legal The Company may be involved from time to time in various claims, lawsuits and complaints, disputes with third parties, and actions incidental to the ordinary course of business. The Company is currently not involved in any such litigation which management believes could have a material adverse effect on the Company's financial position or results of operations. Although there can be no assurance, the Company is not aware of any material environmental liabilities relating to its real estate properties that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations or other environmental conditions with respect to the Company's real estate properties could result in future environmental liabilities. 6. Subsequent Events The Company has evaluated events from December 31, 2014 through March 16, 2015, the date the consolidated financial statements were available to be issued, for their impact on the consolidated financial statements. Prior to the expiration of the Contingency Period in connection with the Purchase Sale Agreement for the purchase of land in San Juan Capistrano, California, the Company elected to terminate the agreement and received their deposit of$1,000,000 in January 2015. 15 �- J� �s � . qL � t � x Uk iik OM 6. Financial Q-Tability WPG Enterprise A LLC (a Delaware Limited Liability Company) Notes to Consolidated Financial Statements In February 2015, the Company agreed to terminate the Purchase Sale Agreement for the purchase of land in Madera County, California. As a result of the termination, the Company was refunded their deposit of$150,000. In February 2015, the Company completed a capital call for $7,517,000 of which $7,142,000 was received from Class A Members and $375,000 from Class B Members for the funding of the Company's projects in Chino Hills and La Quinta and the continuation of due diligence for pending approved projects. In February 2015, the Company made a non-refundable deposit of$200,000 in accordance with the Palm Canyon agreement. 16 .` Item 16. - 243 2 S:E E d a ncgc Yntct`iLlC::.GH`y' :. cA a Item 16. _- ggp , w Al F RESUMES AND BIOGRAPHIES TEAM LEADER WOODBRIDGE PACIFIC GROUP (WPG) Todd Cunningham, President As President of Woodbridge Pacific Group, Mr. Cunningham manages community planning, housing product design, project planning, and oversees all construction, marketing, merchandising, and sales functions. A residential development company executive and owner in California's land and housing development industry over the past thirty years, he possesses in-depth experience in all aspects of the business. He strongly believes in the importance of, and is committed to maintaining at Woodbridge Pacific Group, a hands-on management approach in both daily operations and longer- term decision making. In 1994, he co-founded Woodbridge Development. The company has completed twenty-four new home neighborhoods in Southern California. In 2011, Cunningham partnered with Carl Nuess, a former , principal at IHP Capital Partners, to create Woodbridge Pacific Group, an entity that is currently building six projects throughout Southern California. Ed Mountford, Vice President of Forward Planning As a veteran entitlement specialist with over twenty-five years of experience, " Ed Mountford owns an exemplary track record of developing and implementing successful strategies to win government approval of controversial development projects. Mr. Mountford has secured approval of over 7,000 residential lots, over one million square feet of commercial uses, a major hotel, two golf courses, and a private high school. As Vice President of Entitlement for Hearthside Homes, Inc., Mr. Mountford was responsible for the company's pre-development activities including due diligence, community design, and entitlement. One of his most notable accomplishments was managing the entitlement process for Hearthside's flagship project—the 1,600 acre Bolsa Chica property in Huntington Beach. Under his direction, a multi-disciplinary consultant team prepared a Local Coastal Program for the property that was approved by the County of Orange and California Coastal Commission. More recently, Mr. Mountford managed the design and entitlement of a 320-acre master planned community in Oxnard. The SouthShore Specific Plan, approved by the city in 2011, provides for a mix of uses including over 1,500 homes, parks, a school, and commercial uses. Before joining Hearthside Homes, Mr. Mountford served as Vice President of Entitlement for the Irvine Company in Newport Beach where he was responsible for the entitlement, government affairs, and community relations programs for the company's Coastal Community Builders Division. Mr. Mountford lives in Huntington Beach and served on the city's Planning Commission from 1988— 1990. Item 16. - 245 ' s f, �t s 9 e n� Lx George Schader, Vice President of Land Acquisition A 30-year veteran involved in residential real estate in California (i.e., for-sale and for-rent), Mr. Schader has been responsible for forward planning, acquisition and disposition of properties, governmental processing, and entitlements. Over the course of his real estate career, Mr. Schader has purchased and/or sold approximately $1B in real estate, the bulk of the transactions located in the Southern California marketplace. Before joining Pacific Cascade Group, Mr. Schader worked for publicly traded national homebuilder MDC Holdings (Richmond American Homes), as well as private homebuilders such as The Presley Companies, Warmington Homes, MBK Homes (Mitsui & Co, Ltd), where he held upper level management positions of Senior Vice President and/or Vice President. Mr. Schader earned a BS degree in Economics from Stanford University, and captained the men's basketball team. He is a licensed California Real Estate Broker. Daniel Huitt, Vice President of Operations A 30-year veteran of land development construction management in the home building industry, Mr. Huitt serves as Vice President of Operations at Woodbridge Pacific Group. In his role, he oversees all facets of the company's operations in developing residential communities including managing the company's fiscal administration and execution and the company's related procedures including project management and development. Mr. Huitt established all the company's related procedures including Project Management, Purchasing for Onsite and Offsite, Customer Service, Option Programs, Building y Schedules, Budget Formats, etc. F Mr. Huitt is a licensed General Contractor in the State of California. Karen Spargo, Vice President of Sales and Marketing In her role at Woodbridge Pacific Group, Karen serves as Vice President of Sales and Marketing. In this capacity, she is responsible for the day-to-day management of all sales activities and is the managing Real Estate Broker of Record. She also oversees the marketing, promotional and advertising programs for the organization's residential :. communities. 011 A residential marketing executive in Southern California's housing industry for over two decades, she has in-depth experience in all aspects of residential sales and marketing. Prior to joining WPG, Karen was Vice President of Corporate Sales and Marketing for Standard Pacific Homes where she provided strategic direction and support to the company's divisional sales and marketing teams, managed and directed the creative process for national sales promotions, and oversaw national sales training and leadership initiatives. Item 16. :: r s l' b w.nswe..-„�.m..,,cvr,._-, ' '' - <w.r_a.,e. ✓,5w.,e.axd'4J, �. v..na.tsx �.. ua�N,. ...a4€m... _ Y�s,.'c-�,.,..,A< „- h..-F .�odR�9s*'�1:��'� _v ...� �a,._,ate,- .t s,a Apg en€ Ix @ANCHORAGE Operational Support at Anchorage Background Founded in 2003, Anchorage Capital Group, L.L.C. is a private investment firm able to invest across the capital structure with particular focus on credit and special situations in North America, Europe, Australia and other markets. Through various funds, Anchorage manages approximately $15 billion. Anchorage maintains offices in New York, London, Sydney, and Luxembourg. Anchorage invests in special situations and other opportunities with a view towards enhancing value as an active investor through restructuring, recapitalization, growth capital infusion and operational improvement. The firm works closely with management and other stakeholders to provide speed and certainty in fluid transactions and build consensus around a path towards improving the profitability and competitiveness of the companies in which it invests. Anchorage has raised approximately $2 billion (NAV) in its illiquid opportunities funds to enhance the firm's ability to make investments that are harder to value and may require significant time to fully realize value from restructuring or recovery. Operational Support Anchorage supports its investments through its Portfolio Group, led by professionals with extensive experience in operational oversight of portfolio companies. Members of the Portfolio Group have served in board and senior executive management capacities such as Chairman, CEO, CFO and other operational roles. The Portfolio Group plays an active role in helping companies maximize value by identifying expense reduction opportunities, recruiting management and board members, implementing effective governance, structuring incentive compensation, mitigating risk, and pursuing growth opportunities. 1 This information, furnished on a confidential basis to the recipient, does not constitute an offer of any securities or investment advisory services. It is intended exclusively for the use of the person to whom it has been delivered by Anchorage Capital Group, L.L.C., and it is not to be reproduced or redistributed to any other person without the prior written consent of Anchorage Capital Group,L.L.C. Item 16. 6 �z: Amw u '1 c mend, Illustrative Anchorage Involvement Newhall Land(formerly known as LandSource) Newhall Land is one of the largest master-planned communities in Southern California encompassing 30,000 gross acres of land for 20,000 homes. Anchorage accumulated much of the debt at distressed prices and led the in-court rights offering and restructuring of Newhall's balance sheet, which allowed Newhall to emerge from bankruptcy debt-free and with a strong capital structure. Anchorage is the largest shareholder and its designee serves as lead director on its board, playing a key role in the Company's operational restructuring. Crescent Resources Crescent Resources is a diversified land management and real estate development company ` jointly owned and controlled by Anchorage and one other investment firm. Anchorage accumulated debt at distressed prices and led the Company's reorganization, balance sheet restructuring, tax structuring, exit facility execution, and governance negotiations. Crescent VA shed over US $1.1 billion of debt and emerged well-capitalized and with significant liquidity. An Anchorage designee serving as lead director, together with Anchorage's partner and Crescent's - ° management team, drove the Company's post-emergence value enhancement and growth plans, which included Anchorage and its partner committing $150 million of growth equity capital. Working closely with Anchorage's Portfolio Group, the company has successfully hired world-class land development, management and sourcing teams and addressed a broad range of expense reduction and risk management issues. California Coastal California Coastal is a U.S. regional homebuilder whose primary asset is a luxury coastal community entitled for 300 units. The site is one of the last remaining coastal communities available for new development in Southern California. The company filed for Chapter 11 in the fourth quarter of 2009 as a result of defaulting on its debt and constrained liquidity. Anchorage converted its debt position into take-back debt and post-reorganization equity, and the company successfully emerged from Chapter 11 in the first quarter of 2011. Anchorage selected a local builder to develop and build out the remainder of the community, and worked closely with the builder to drive new product design and cost-cutting initiatives. The company launched new floor plans in Q1 2013 to enthusiastic buyer response, and is well-positioned to capitalize on home price appreciation in the region. 2 This information, furnished on a confidential basis to the recipient, does not constitute an offer of any securities or investment advisory services. It is intended exclusively for the use of the person to whom it has been delivered by Anchorage Capital Group, L.L.C., and it is not to be reproduced or redistributed to any other person without the prior written consent of Anchorage Capital Group,L.L.C. Item 16. - 248 ;i g Q P ., _ x AppendiX Investing and Operational Support Team Murtoza Ali is a Managing Director in the Portfolio Group. In this capacity, he is involved in driving value creation activities across a range of operationally intensive investments in homebuilding and other industries. Prior to joining Anchorage, he was a Principal with the Boston Consulting Group, where he led strategy and operational improvement projects. Previously, he held various operations roles at Target Corporation and POM Wonderful, most recently as General Manager at POM, running the health products business from 2006 to 2009. Earlier in his career, Mr. Ali was an Engagement Manager at McKinsey and Company, leading projects in the retail, consumer products and financial services industries from 2001 to 2004. He has an M.B.A. from the Wharton School and a B.S. in Chemical Engineering from the University of Pennsylvania,where he graduated summa cum laude. Paul Gordon is a Managing Director and leads various financing and capital raising transactions. Mr. Gordon joined Anchorage in 2011. Prior to joining Anchorage, he was a Managing Director at S.A.C. Capital Advisors, where he focused on loans, bonds and other debt instruments. Before that, he worked at Cerberus Capital Management, Citibank and Bear Stearns. He received an M.B.A. from the Wharton School of the University of Pennsylvania and a B.A., magna cum laude,from Cornell University. Soo Kim is a Portfolio Manager and leads Anchorage's real estate and related investing activities. Ms. Kim joined Anchorage in 2009. Prior to joining Anchorage, she worked at Goldman Sachs, most recently as a Vice President in the Americas Special Situations group (AmSSG), where she was one of six industry heads responsible for the group's $3 billion public investment portfolio. In AmSSG, she led investment efforts in the Automotive and Industrial sectors and built out the group's investing initiative in Retail Ms. Kim joined Goldman Sachs in 2001 in its Principal Investment Area and was a member of the investment team in the Distressed Debt Principal Investing group. Ms. Kim received an M.B.A from the Wharton School at the University of Pennsylvania and a B.S. in Chemical Engineering and Management Science from the Massachusetts Institute of Technology. x� 3 This information, furnished on a confidential basis to the recipient, does not constitute an offer of any securities or investment advisory services. It is intended exclusively for the use of the person to whom it has been delivered by Anchorage Capital Group, L.L.C., and it is not to be reproduced or redistributed to any other person without the prior written consent of Anchorage Capital Group,L.L.C. Item 10. - 249 dix Jon Weber leads the Portfolio Group at Anchorage. Previously, as a Managing Director heading the Portfolio Operations Group within the Special Situations Group (SSG) at Goldman Sachs, Mr. Weber's team was responsible for the operational oversight and value enhancement of more than 50 companies in the Americas and EMEA. Prior to joining Goldman Sachs, Mr. Weber served as President of Icahn Enterprises, L.P, a NYSE-listed master limited partnership, CEO of Philip Services Corporation and Viskase Companies, and as a board member of American Railcar Industries, National Energy Group, WestPoint International and XO Communications. Earlier in his career, Mr. Weber was Managing Director heading corporate and investment banking for JPMorgan Chase in Sao Paulo and a Principal in the Investment Banking Division of Morgan Stanley in New York. Mr. Weber began his career as a corporate lawyer at Weil Gotshal & Manges following his graduation cum laude from Harvard Law School. He also holds an MBA and Bachelor's degrees from Babson College. Mr. Weber is a Life Member of the Council on Foreign Relations. Contact For further information, please contact Anchorage Capital Group, L.L.C. at 610 Broadway 101 St. Martin's Lane New York, NY 10012 London WC2N 4AZ United States United Kingdom +1 212 432 4600 +44 207 659 0528 4 This information, furnished on a confidential basis to the recipient, does not constitute an offer of any securities or investment advisory services. It is intended exclusively for the use of the person to whom it has been delivered by Anchorage Capital Group, L.L.C., and it is not to be reproduced or redistributed to any other person without the prior written consent of Anchorage Capital Group,L.L.C. Item <- s sMt ' €t z z & n s ' ..�.'� x. �....... .. .... �,�.,..,-3��.c�r k:.._ .,._._ .�..�. .._ ' .n.�. .,ar.,..- „ ,,..J .r. Appendix COMMUNITY/PUBLIC RELATIONS Marice White— Principal, Mconsensus Ms. White brings a diverse background of public affairs, media relations and political campaigns to the many roles she undertakes on behalf of her clients. She is in demand as one of the top public affairs and campaign professionals in California with experience spanning all aspects of public relations, government and community relations, media relations and grassroots lobbying. Ms. White's projects have stretched across California —working with community groups, elected officials and a wide variety of local, state and federal agencies. She has a successful and proven track record providing direction, management, and strategic counsel on complex projects for a broad range of clients, including the development community, communications, energy, oil and natural resources, agriculture, business, water, tourism, and education...to name only a few. An often sought-after speaker, Ms. White is an expert at translating highly technical information and language into messages that resonate with the public. With extensive experience in navigating government agencies, elected officials and both the public and private sector— Ms. White has successfully lead her clients and project teams to victory. Additionally, her credibility spans both sides of the aisle and she is seen as a top facilitator and bridge builder between groups that are often at odds. Ms. White has successfully defeated a number of ballot box planning and so called "traffic/no growth" measures in recent years, including one effort where a coalition of business, residents, agriculture and labor was formed —this coalition is still looked to today as an example of diverse interests coalescing for a common cause to successfully achieve their goals. Ms. White holds a bachelor's degree in Political Science with an emphasis in voting and elections from the University of California, Irvine. Born and raised In Huntington Beach, Ms. White has received numerous approvals for land use clients in her hometown — including a controversial Home Depot, as well as projects in the downtown area and coastal zone. CAMPAIGN MANAGEMENT Brandon Powers — Powers Communications For more than a decade, Brandon Powers has been a nationally recognized, award-winning public affairs and political consultant who has guided all aspects of election success for clients throughout California. He is a 17-time recipient of the American Association of Political Consultants' National Pollie Awards, dubbed the "Oscars of political advertising" by Esquire Magazine. He also won a prestigious Reed Award from Campaigns and Elections Magazine in 2011, which had earlier named him a "Rising Star" in the political consulting industry. Most recently, Powers has noticeably been making his mark winning elections in Huntington Beach. In 2010, he guided Matthew Harper's campaign for city council. In 2012, he ran Travis Allen's campaign for State Assembly. And in 2014, he served as Chief Strategist for the Huntington Beach Chamber of Commerce PAC's successful efforts at reshaping the city council, in addition to running the campaign for newly-elected City Attorney Michael Gates. Item 16. - 251 ". Nw. �F t CIS Powers Communications I f ;"` MISSION STATEMENT Nr �a The Huntington Beach Chamber of Commerce Political L 6 Action Committee endeavors Hering Our Community Thrive Through Business to support candidates and causes that promote the interests of our local business community. We believe that quality of life for our residents is optimized where a vibrant local economy exists to .tune 24, 2015 generate the funding necessary for the city government to To Whom It May Concern, provide the best in public safety,infrastructure,and community services. I am extremely pleased to offer a letter of endorsement for Brandon Powers of Powers Communications. Brandon came highly recommended when our PAC did its search for a political consultant to help us effect change in the 2014 City Council election. Brandon has had many successes in his career and after interviewing him the PAC trustees felt confident he could deliver a winning strategy for us.And he indeed did deliver. All three of our endorsed candidates were victorious, placing 1, 2 and 3 in the polls and beating out two incumbents in the process. We found Brandon to be highly resourceful, doing excellent research, easy to work with and responsive to our wishes. He is candid and will tell you what you need to hear, not perhaps what you want to hear. We hope to use his services again in the next election cycle. Now that he knows much more about the political climate here in HB, we feel he will being us success again. I also believe he can do the same for your project and feel confident in highly recommending his services for your project or campaign. Best Regards, r� Dianne Thompson,Trustee Chair Huntington Beach Chamber of Commerce Political Action Committee .�.a�s . T Appendix Over that period of time, Powers has helped write and analyze more than a dozen public opinion surveys of Huntington Beach voters—giving him an unmatched recent library from which to quantitatively assess the citY's electorate. Supervisor Michelle Steel has said of Powers, "For almost ten years now, Brandon Powers has been someone I have trusted and leaned on to win." Assemblyman Travis Allen recounts, "To win my race, I had to defeat an opponent with all the money and endorsements. But I had something my opponent didn't have— Brandon Powers" Campaigns and Elections Magazine wrote: "In a state that isn't always kind to Republicans, Brandon Powers is quickly carving out a reputation as one of California's consultant power players" Brandon lives in Seal Beach, California. RESIDENTIAL ARCHITECT Samir Hannouche, Principal, Hannouche Architects Hannouche Architects, Inc. is a nationally recognized architectural firm known as a leader in creative design solutions, "Innovative, Market-Driven Design" and "Strong Client Service". The firm has received many architectural design awards including the M.A,M,E (Major Achievements in Merchandising Excellence) and prestigious "Gold Nugget" grand awards. The firms work has been published in industry magazines including "Professional Builder", "Luxury Homes", "Design /Build business", "residential Architecture", and "California builder", among others, Samir Hannouche is a licensed Architect and a member of the American Institute of Architects and N.C,A.R,B (National Council of Architectural Registration Boards). Samir is regularly invited to contribute to national conferences and symposiums as a juror and critic. He has also contributed his talents to professionally recognized design workshops such as the Plan Review Workshop at the annual National Association of , Home Builder's convention. Hannouche Architects design portfolio includes projects ranging from small, first time homebuyers, to distinctive custom residences, luxury condominiums, mixed-use buildings and international work comprising of high-rise mixed-use structures, Some examples are: On the Boards: Eagle Rock, Eagle Rock, CA- Urban Village 45 Units La Habra, La Habra, CA - Urban Village 32 Units Blue Jay, Hollywood Hills CA- Etco Homes Custom Home - 253 Item 16. &k f Tuscany Heights, Palm Springs, CA - Far West Industries Single Family Homes Southport, West Sacramento, CA - Mandarich Developments Two Separate Products Harbour Cove, Huntington Beach, CA- Sassoon Enterprises Town Homes Vivere, Palm Springs, CA- Monark Development Resort Condominiums San Juan Villas, San Juan Capistrano, CA- Urban Village 33 Units San Juan Hotel, San Juan Capistrano, CA- Urban Village 136 Rooms Seven Oaks, Bakersfield, CA-WoodBridge Pacific Group Four Separate Single Family Products Palm Springs, Palm Springs, CA-WoodBridge Pacific Group Single Family Homes Under construction: Newport Bay Marina, Newport Beach, CA - Etco Homes Mixed use Retail, Office and Residential over Podium Groves, Temecula, CA - Quinn Communities Single Family Homes Built: Live Oak Estates, La Verne, CA- Melia Homes Single Family Homes Belvedere, Vallejo, CA- Mandarich Developments Condos over podium Valinda, San Juan Capistrano, CA - WoodBridge Pacific Group Single Family Homes Mirodor, San Juan Capistrano, CA-WoodBridge Pacific Group Single Family Homes Item 16. - 254 3 . WI& Z ,'„ Appendix Built. (cont.) Capri at Brightwater - Huntington Beach, CA - WoodBridge Pacific Group Single Family Homes Seaglass at Brightwater - Huntington Beach, CA - WoodBridge Pacific Group Single Family Homes Azurene at Brightwater - Huntington Beach, CA- WoodBridge Pacific Group Single Family Homes Club House at Brightwater - Huntington Beach, CA - WoodBridge Pacific Group Villa Bonita, Redlands, CA- Brentwood Communities Town Homes Oakhurst, Beverly Hills CA - Etco Homes 5-Story, 34 Unit Luxury Condominiums Union Place, Placentia, CA- Etco Homes 125 Unit Apartments Sherborne at Harveston, Temecula, CA- Lennar Homes Single Family Homes Gallery Portraits, Temecula, CA- Gallery Homes Single Family Homes Bungalows, Temecula, CA- D. R, Horton Single Family Homes A.C. Washington, Murrieta, CA - AC Magnolia LLC Town Homes Temecula Lane, Temecula, CA - WoodBridge Pacific Group Single Family Homes Also including work accomplished for D,R, Horton, Taylor Woodrow, Brookfield Homes, Centex Homes, Western Pacific Homes, Tim Lewis Communities, JTS Communities, Gallery Homes, Corman Leigh, Monarch Homes, Polygon Communities, Richmond American, Empire Homes, Lennar and many others. I; _ _ Item 16. - 255 "'1 _ �a r- r a P se �� ;_ t - d 'iP .._. ,..a x-*�... ..t....�.,,. ..�< ,_ ,..s.,, +Akt.4R.. ,..aa� E✓ - Aaxi,�a.r,,.: ._,_�r,t. Ik%S�t.,,s, ,. pq LANDSCAPE ARCHITECT Carol S. MacFarlane, Principal, FORMA Design PROFESSIONAL EXPERIENCE Ms. Sullivan-MacFarlane has more than thirty-two years of professional experience in all aspects of landscape architecture including extensive experience in community level landscape design, park and streetscape design, resort design, and golf course landscape architecture. She has been an influential director on a diverse array of award-winning projects in communities throughout the West. As a Principal and Director of Landscape Design within FORMA's diverse cadre of landscape design services,she is a manager with unique talent and skills supported by the latest JL computer technologies. Ms. Sullivan-MacFarlane's leadership has refined FORMA's capabilities where responsibilities begin with the conceptual design process, cost estimating, construction documentation, and continue through to final implementation and construction management. Her experience, quality staff, and technical expertise ensure that FORMA's solutions are creative, state-of-the-art,feasible and technically sound. Carol has gained a well-respected reputation industry-wide for her delivery of creative design capabilities as well 2. as her efficient, well-tested, and clear construction documents. The detail,value engineering, and protection for the Client within the specifications are noted to be the best in the industry. In her career, Ms. Sullivan-MacFarlane has successfully directed, designed, and managed a variety of projects. The following are just a few she has designed and directed over her 32-year career. ❑ The Waterfront The Waterfront offers residents a place to call home in one of the prime Huntington Beach, CA coastal locations along what has been referred to as the California Christopher Homes and William Riviera. This prestigious gated community is situated adjacent to the Lyon Homes Waterfront Hyatt and Hilton hotels. William Lyon Homes provided the attached courtyard product that features four distinct fountains designed to emphasize the varied architecture styles featured within this breathtaking community. Christopher Homes provided the attached high-end homes that offer common area paseos and private courtyards to the residents. ----------------------------------------------------------—------------------------------------------------------------------------------- -------------------------- --------------------------------------------------- ❑ Brightwater The Brightwater community is situated on the Bolsa Chica Mesa in the Huntington Beach, CA City of Huntington Beach. The design consists of 350 single-family homes, Hearthside Homes many with expansive ocean views. Project amenities include two primary entries with community signage monumentation, streetscape design,tot lot and pocket park, public trail system with informational kiosk signage, a coastal overlook, and picnic areas including an iconic community gazebo and perimeter landscaping. _------------- --------------------.. -- ❑ Paraiso Located on Playa Vista Drive and Jefferson Boulevard in Playa Vista,the Playa Vista, CA architecture for the 54 units was inspired by Frank Lloyd Wright. Its non- Shea Homes symmetrical layout created an opportunity to develop three distinct courtyards. Each courtyard features a unique paving design and distinct detail motifs. Pottery and plant palette will link the design themes together. ------------------------------------------------------------------...-----......-----------------...-----------------------------------------------------------------------------------..-----------------------------------.-...---------------------------------- ❑ Laguna Hills Civic Center The future City Hall and Civic Center for the new City of Laguna Hills. This Laguna Hills, CA Spanish style building design includes a parking lot plaza, which links the City of Laguna Hills City's new Urban Village to the Civic Center front doors. The design includes amenities such as a focal fountain, sitting arbors,tree planters, enhanced paving. Item 16. ram, LA Appendix ❑ El Paseo Revitalization El Paseo, located in the heart of the Coachella Valley, is a unique Palm Desert, CA shopping, dining, and strolling district. In addition to world-class retail City of Palm Desert and restaurants, El Paseo is also one of five highly-regarded public art s �3 destinations within the United States. FORMA was retained to update and improve the El Paseo corridor along its entire two mile length to ensure that this special place remains the Rodeo Drive of the Desert. --------------------------------- --.---------------------------------------------------- -- --------------------.---------------------------------------------- ❑ Jurassic Park—The Ride Themed water ride/attraction based on the best-selling novel and movie Hollywood, CA Jurassic Park. Universal Studios Hollywood --------------- -----------------------------------------------------------------------------------...............------------------------------------------------- ----------------------.........-------------------------........---------------------..-..---------------------....-- ❑ Fairwind and Truewind Two redeveloped school sites featuring state-of-the-art single-family Huntington Beach, CA homes, a 2.0-acre public park, a dedicated , refurbished Wardlow little Tri Pointe Homes league parking lot park and snack shack with notable public art features at the entry to both communites. ----------------------------------------.......--------------------------------------------------------- .._.... -_-------------------....--------------------....._.--------------------------------------------------------------- --------------------------.......... ❑ Harveston Lake Public Park A public community park incorporating a man-made water feature with Temecula, CA amphitheater, village green, water slide pavilion, boathouse, tot lot Lennor and City of Temecula paseo system, and picnic areas. ----...---........--------....-----------------------------------------------------._...---------------------.-.... -...._......................... _----------------------------. ------------------------ .. ❑ Oak Creek Village & Public Parks 620-acre Community with two Public and three Private Parks, a retail Irvine, CA center, pedestrian bridge, and community streetscaping. The Irvine Company and City of Irvine --------------- -------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ❑ Huntington Seacliff Public Parks Several projects spanning 15 years of development of high-end single &Residential family residences combined with five creatively themed, dynamic public Huntington Beach, CA parks. PLC and City of Huntington Beach ------------- - - - -- -------------------------- --...---------------------------------------. ---------------------------------------------------------__--------------..------_----------------_-----------------.....-----------------.......----------------------------------------------------------------- ❑ City of Diamond Bar, Public Proposed 40-acre Public Sports Park. FORMA designed the sports park Sports Park which includes 4 lit Little League ball fields, 2 adult softball field overlays, City of Diamond Bar soccer fields, tennis courts, basketball courts and age separated tot lots. ------ - ...- --- --------- -..-................................................................................ ----..... . ----- -- ---------------- ❑ Pacific Shores 123 bungalows and 81 villas make up two distinct attached family Huntington Beach, CA product with lush landscaping and a 2.0-acre public park. :1 Christopher Homes Group PROFESSIONAL HISTORY ■ FORMA, Costa Mesa, CA Principal/ Director of Landscape Design ■ Lifescapes International, Newport Principal 9 Beach, CA QUALIFICATIONS AND EDUCATION ■ Bachelor of Science, Landscape California Polytechnic University, Pomona, CA Architecture ■ Bachelor of Arts, Design/Fine Arts UCLA PROFESSIONAL AFFILIATIONS ■ ASLA American Society of Landscape Architects ■ BIA Building Industry Association ■ ULI Urban Land Institute EIIIIIIII Item 16. - 25) 2.1 e, 4�,&� ,._.,wee.. .,..,.a t Lx LAND USE ATTORNEY Susan Hori, Partner at Manatt, Phelps & Phillips Susan Hori's practice focuses on land use planning issues, including obtaining development entitlements and regulatory permits for real estate development projects and resolving environmental issues affecting real property. The hallmark of Ms. Hori's practice is her track record of success in navigating the complex process of multi-agency a permits and approvals. Her clients include landowners, financial institutions, developers and builders in the residential, retail, hotel/resort, and commercial and industrial development industries. Ms. Hori represents clients on issues involving state and federal regulations, including the California Environmental Quality Act (CEQA), the California Coastal Act, Section 404 permitting under the Clean Water Act, National Historic Preservation Act compliance and Endangered Species Act permitting. Her representative experience includes work throughout Orange County and the Inland Empire, and projects as diverse as the Brightwater and Sandover residential developments in Huntington Beach, Banning Ranch in Newport Beach, Hellman Ranch (now Heron Pointe) in Seal Beach, the Terranea Resort in Rancho Palos Verdes, the Del Arno Fashion Center in Torrance, and industrial warehouse developments in Eastvale, Rialto, and Ontario. She has also advised clients on planning and zoning issues involving major specific plans throughout Orange County, such as the Beach and Edinger Corridors Specific Plan, North Tustin Specific Plan, and the Foothill Trabuco Specific Plan. CAMPAIGN ATTORNEY Randall W. Keen, Partner at Manatt, Phelps & Phillips Mr. Keen's practice focuses on all aspects of the law that are affected by government and government actions, government contracts, administrative and regulatory law issues, and administrative hearings and writs. Mr. Keen has substantial experience with California's Political Reform Act, and regularly advises private sector and government clients on conflicts of interest, ethics, lobbying, and campaign contribution requirements and restrictions for both candidates and ballot measures. He was the principal author of a statewide ballot measure, and has advised clients on a variety of ballot measure issues. Mr. Keen has also advised clients on state and local legislation. Item 16. - 258 ;13 - Y w yR v �6 ,� aE. . .,.. � ��...�.. � ��__.�., Appendix z Whether it's an urban p commercial center, ord z neighborhood, we b 'r ag the places that make aet rMu feel like home,E„ .3 CC 0. a',E Eu V k ayi�5�^4s w yJN "J""'71-1, r r lg 'M 41 iE 01", ""-w W 4, P! 1, Awl �g€ e' WF� 31r'#i£ 3 13 ()'Y ,`�bk71.._ ��# i� 1L f }i E lufrT7Y 3 5$ tll£C ��,fi iSa135 1LS11 1421 � 3T38St8 €'iI88 L 8T1t Tl vr,,W-4 t36 Yti S }y \ \g 7 vg R a � i' v e�zg r�s elftlt e t r� cFcenter, ��ri s va�a fG �CS € �t $8 p�9 0'10k € r 't�:ll 0'04 I heS` i?Ye i SY1 I2� ,3 �c3TE sae d veiti� xd' air r `O t LL W PT"i r�frpxr €ts #a n � �r .gS 'Sir irT,' i `,Y 3iv3 a�A I4F�ir rt. �yI�w.�LN yIAW, y� Y £' vMW Al ON r vnN�g �. . , Na t. 8 J, f 3 14. Rn �'•� - F <�� ���� � leg`'�°�-x � � 4 � � � 't ��� � a a`' 3'; uj; A f a 3 Item 16. - 260 ` \ r x '\\ ri yl� r kAL REDEVELOPMENT OF Michael E. Rodgers SENIORS' CENTER SITE Request for Qualifications/Proposals Submitted.by: wp WOODBRIDGE PACIFIC GROUP _ ; Item 16. - 261 Dombo, Johanna From: Bob Yoder<bob.yoder@sheahomes.com> Sent: Sunday, August 16, 2015 5:46 PM To: CITY COUNCIL; Wilson, Fred; Slobojan, Jim Cc: Mike O'Melveny Subject: RE: Rodgers' Senior Center- Shea Homes Offer Clarification--Agenda Item 16 Hello Mayor Hardy, Mayor Pro Tem Katapodis and City Council Members, We look forward to presenting our proposal for the Rodgers Seniors' Center site-and most importantly—our approach to insure a successful campaign. In the interim, if you have any questions, please do not hesitate to contact me directly on my cell (951) 538-3980. Thank you. SUPPLEMENTAL COMMUNICATION Bob Yoder, Division President Shea Homes Southern California r 951-538-3980 Date` From: Mike O'Melveny Sent: Thursday, August 13, 2015 12:15 PM To: city.council@surfcity-hb.org; fred.wilson@surfcity-hb.org; jslobojan@surfcity-hb.org Cc: Bob Yoder Subject: Shea Homes Offer Clarification--Agenda Item 16 City Council &Staff, We at Shea Homes are looking forward to our presentation before the City Council regarding the Rodgers Seniors' Center Site this coming Monday. After reviewing the staff report for Agenda Item No. 16, we were surprised to see how the two monetary offers for the land were listed, which one could wrongly interpret as Shea offering$300,000(2%) less than Woodbridge for the property. In reality Shea Home's offer of$14,600,000(w/$150,000 deposit) in an "apple to apple" comparison is$1,100,000 more than Woodbridge's offer of$13,500,000 (w/$20,000 deposit). Further, Shea Homes commits to closing escrow 5 business days after the election has been certified by the OC Registrar of Voters,while Woodbridge committed to closing escrow 45 days after election certification. Woodbridge does however provide for an option B offer of$14,900,000 to be paid after City Council's Final Approval of the Tract Map estimated to be in June of 2017. 1 cannot see why the City would want to be at risk for whatever reason (e.g. market collapse,terrorist attack on U.S. soil, another war)for an additional 8-10 months, potentially allowing Woodbridge to walk only losing their$20,000 deposit rather taking the "bird in the hand" with Shea and closing in November 2016. Attached for your reference is our original "Financial Offer Form" and "Project Schedule" (pages 27 & 28 of our original proposal respectively). Please reference the bottom line of the schedule which states we will close in November 2016, estimated to be November 29th, but as clarified above will more specifically be 5 business days after election certification. 1 We thank you for your consideration of Shea Homes for this project. Should you have any questions before Monday, please do not hesitate to email or call me directly at the number below. Sincerely, Mike O'Melveny TM 1�(O �� ����l�� a.; E? 5; J _s i v L`,vt) m ke, ), _ 2 Dombo, Johanna From: Tina Ruiz <christinaruiz4@yahoo.com> Sent: Sunday, August 16, 2015 2:47 PM To: CITY COUNCIL Pp Subject: Oppose Agenda Item 16!!I! 1 Dear Mayor Hardy, Mayor Pro-Tem Katapodis and City Council members, I am writing you today about Agenda item 916 — Selecting a Developer for Redevelopment of Rodger's Senior Center and negotiate an exclusive negotiation agreement with the developer for residential development. When I read agenda item #16 1 immediately had many questions. 1. Did we sell the property already? 2. I thought we needed to vote on new zoning to change the land use from open space/parkland to residential. If so, how can we be looking for a developer already? Why now? 3. Don't we put the city at legal risk by entering into an agreement with any developer before the public has voted to change the zoning? 4. What if the public votes against changing the area to residential and the ballot measure fails? I was disappointed to learn the answers to some of my questions by reading the RFQ/P bid proposal. From the city's RFQ/P "the selected Developer will be required to lead and manage the process for an anticipated November 2016 general election. So, the city wants the developer to pay the costs associated with not only putting a ballot measure on the Nov 2016 ballot but "Ensuring community involvement and a well educated electorate to achieve a successful "Measure C" approval. Well, that doesn't seem to fit the spirit of why Measure C was passed. Per Section 612(a) of the City's Charter,parkland may not be sold, leased, exchanged or otherwise transferred or disposed of unless authorized by a majority vote of the City Council and by a majority of the electors voting on such proposition at a general or special election. The spirit of Measure C was to ensure that voters had the opportunity to voice their opinions about how and if open space would be used in a different manner. It was not passed so that the city could make deals with developers who effectively then become lobbyists who ramrod through a specific land use change. It is unacceptable for the city to use the power and money of an outside developer to "persuade" the public to see their vision. I urge you to take no action on agenda item #16. We should not be selecting a developer at this time. The city should follow our city's charter and put the land use change on the November ballot without using outside developer's money influencing the outcome of the election. Sincerely, Christina Ruiz HB Resident SUPPLENNEW Meeting Crate: , Agenda Item ?ire. i Dombo, Johanna From: Carol Woodworth <kwoodworth@socal.rr.com> Sent: Saturday, August 15, 2015 4:46 PM To: CITY COUNCIL; Fikes, Cathy Subject: Agenda item #16 Dear Mayor Hardy, Mayor Pro-Tem Katapodis and City Council members, I am writing you today about Agenda item#16—Selecting a Developer for Redevelopment of Rodger's Senior Center and negotiate an exclusive negotiation agreement with the developer for residential development. When I read agenda item 416 I immediately had many questions. 1. Did we sell the property already? 2. 1 thought we needed to vote on new zoning to change the land use from open space/parkland to residential. If so, how can we be looking for a developer already? Why now? 3. Don't we put the city at legal risk by entering into an agreement with any developer before the public has voted to change the zoning? 4. What if the public votes against changing the area to residential and the ballot measure fails? I was disappointed to learn the answers to some of my questions by reading the RFQ/P bid proposal. From the city's RFQ/P "the selected Developer will be required to lead and manage the process for an anticipated November 2016 general election. So,the city wants the developer to pay the costs associated with not only putting a ballot measure on the Nov 2016 ballot but "Ensuring community involvement and a well educated electorate to achieve a successful "Measure C"approval. Well,that doesn't seem to fit the spirit of why Measure C was passed. Per Section 612(a) of the City's Charter,parkland may not be sold, leased, exchanged or otherwise transferred or disposed of unless authorized by a majority vote of the City Council and by a majority of the electors voting on such proposition at a general or special election. The spirit of Measure C was to ensure that voters had the opportunity to voice their opinions about how and if open space would be used in a different manner. It was not passed so that the city could make deals with developers who effectively then become lobbyists who ramrod through a specific land use change. It is unacceptable for the city to use the power and money of an outside developer to"persuade"the public to see their vision. I urge you to take no action on agenda item#16. We should not be selecting a developer at this time. The city should follow our city's charter and put the land use change on the November ballot without using outside developer's money influencing the outcome of the election. Sincerely, SUPPLEM T4L Carol Woodworth CUM "MUMC- T E 714-316-6619 Date: - Agenda Item No, t Dombo, Johanna From: Ed Mountford <edmountford@averizon.net> Sent: Sunday, August 16, 2015 11:33 AM To: CITY COUNCIL Subject: FW: WPG Response to Shea Homes 7/13 email FYI From: Ed Mountford <cc;,m ittu i ��)vE r; 0.nn�.��> Date:Saturday,August 15, 2015 1:33 PM To: "Fritzal, Kellee" Subject:WPG Response to Shea Homes 7/13 email Kellee; I'm responding to the August 13th email from Shea Homes promoting their offer for the Rodgers Seniors' Center property. Essentially Shea contends that their offer of$14.6 million with a closing date in November 2016 is better for the city than Woodbridge Pacific Group's offer of$14.9 million with a closing date seven months later(at city approval of a final map) because the city avoids the risk of the U.S. economy collapsing or a terrorist attack occurring on U.S.soil during the seven month period causing WPG not to close on the property. I can only respond by saying that such a doomsday scenario is, at best,farfetched. Let me address the difference in closing dates in a more rational manner. In order for Sheas's offer(which is$300,000 less)to match WPG's offer,the city would have to generate a return of 4%over the extended closing period to make up the shortfall of their offer. A 4% return is aggressive given today's interest rate environment and the city's prudent investment practices. WPG's closing date could very well be less than seven months after the election. The city is basically in control as to how long it will take to review and approve the final map. City staff could expedite the review process for final map thereby accelerating the closing date. Lastly, in regard to Shea's assertion that during the seven month period after the election there is the potential for WPG to simply walk away from the obligation to close escrow and suffer only a $20,000 loss;again,this is another outlandish statement by Shea. Regardless of which builder the council selects on Monday, hundreds of thousands of dollars will be invested in project design, engineering, environmental review, community outreach and the election process in order to achieve a successful outcome. At the end of the day, in the event Shea or WPG fails to close escrow(please remember that Shea can fail to close for any reason whatsoever),the city would own an entitled property that would be considerably more valuable than it is today. Clearly,the sky above Surf City isn't falling—it's glistening! SUPPLEMENTAL COMMUNICATION Ed Mountford Vice President,Woodbridge Pacific Group Meeting Date: . y Agenda Item No i Dombo, Johanna From: sleeplessmedia <sleeplessmedia@g mail.com> Sent: Sunday, August 16, 2015 6:00 PM To: CITY COUNCIL Subject: Item 16 - Pre disposing the Rodgers Senior Center Land Mayor Hardy, and council members, Stop the madness. First of all, the possibility still exists that your land grab from Chevron's generosity will face potential challenges from Chevron. Our city attorney does not have the ability to go up against Chevrons legal team. He can still barely figure out his role at the council meetings. Secondly, the measure to sell the land is likely to fail. People want open space. Especially in this area. Third, requiring the "selected " developer to lobby the voters on the measure presents a conflict of interest. The City makes it clear that the developer will have to pay for and do the city's dirty work. Let me guess.... the "selected" developer will have to include a "low - income" element, requiring increased density for compliance, subsidizing housing two blocks from the beach. No doubt the developer will be using "sustainable" development methods and will be one of the builders that already have extensive contacts with current council and staff.. The prudent thing is to verify that their are NO legal challenges whatsoever from Chevron, Then put it to a vote of the people. There is no need to initiate the steps of"pre selecting" a developer. You are simply trying to initiate the process early so you have another entity ready to lobby in place in time for the election to do your bidding. The people are not stupid. Stop treating them like they are. Chuck Johnson 15092 Kingston Lane Huntington Beach CA COMMUNICATION Meeting Late: Agenda Item No. i Dombo, Johanna From: Joseph mastropaolo <jamastropaolo@g mail.com> Sent: Sunday, August 16, 2015 10:33 PM To: CITY COUNCIL Subject: Agenda Item 16. 8-16-15 Dear Members of the City Council, I urge the City Council to table Agenda Item 16 of Agenda 8-17-15 because the property has not been voted as ready for development. Thank you. Joseph Mastropaolo Precinct 32285 SUPPLEMENTAL COMMUNICATION Meeting Cate; Agenda Item No,,— i Estanislau, Robin From: Flynn, Joan Sent: Monday, August 17, 2015 10:25 AM To: Estanislau, Robin Subject: FW: Oppose Agenda Item 16 - City Council Meeting 8/17/15 From: Cari Sent: Sunday, August 16, 2015 12:13 PM To: CITY COUNCIL Cc: Fikes, Cathy; Flynn, Joan Subject: Oppose Agenda Item 16 - City Council Meeting 8/17/15 Dear Mayor Hardy and Council Members, I am writing to oppose Agenda Item 16, recommending that we select a developer for the Rodger's Senior Center property. In the most simple terms, it appears that the "tail is wagging the dog"! There is no possible way to run a "fair and ethical" Measure C campaign, funded by a pre-selected developer who is purely motivated to "win the referendum". The city staff (government) is essentially anticipating (or rigging) the results of the ballot measure by "assuming"that the developer will be capable of investing a very LARGE amount of money which will result in successful passage of the measure, thereby giving the developer and city the"green light" to develop! This is"government sponsored cronyism" at it's very WORST???? You have basically created a "loophole" for the city and developer to by-pass the true will of the community. And let's just say the developer fails to pass the referendum. Have we now exposed ourselves to legal challenge?? I can only conclude that, as a city, we have become so desperate for sources of revenue due to our UNFUNDED PENSION LIABILITIES that our city leaders are willing to"risk all"to fill any short term deficiency. Please, I urge you, stop this train wreck now. This is not a proper solution to our long term financial solvency. This action is morally, ethically and perhaps legally wrong. I urge you to oppose Item 16. Sincerely, SUPPLEMENTAL COMMUNICATION Meeting Date:- Age a Item No. i Estanislau, Robin From: Flynn, Joan SUPPLEMENTAL Sent: Monday, August 17, 2015 10:24 AM To: Estanislau, Robin COMMUNICATION Subject: FW: Agenda Item#16 Meebng Date: Agenda Item Na. -----Original Message----- From: Carol Rapp Sent: Sunday, August 16, 2015 8:17 PM To: CITY COUNCIL Cc: Flynn, Joan Subject: Agenda Item #16 Mayor Harding and City Council Members, I am writing today with concern about Agenda Item #16. I think all of us who are paying attention to the City Council Member's actions and their votes need to be better informed. I encourage each of you to vote to shelf this Item until further information is available to those of us that are property owners and tax payers in the City of Huntington Beach. These are my questions: 1) How was this property appraised at around 14 Million Dollar figure and by whom? 2) Who were the four people on the board to narrow the bids down to two developers? 3) If this property is sold, what is the plan for the net proceeds? I seem to recall that the plan from the original developer of Pacific City, who subsequently went bankrupt, was to not only build the new Senior Center in Central Park, but also to develop the property which the current Senior Center sits on at 17th and Orange into a PARK. The reasoning and rightfully so, was to not give up any park space. Yes, the voters approved Measure C back in that time and it seems under those assumptions. If the City of Huntington Beach was really on it's toes, they would have made sure the current developer of Pacific City adhered to those original plans. We do not need more residents. We read daily how our current HBPD can't handle the load without overtime. We do not need to make developers rich. We need to get back to basics about running the City of Huntington Beach. We need the City to hold on to this property located at 17th and Orange. Respectfully, Carol 7 Rapp 1 Dombo, Johanna From: Sylvia Calhoun <skc347@yahoo.com> Sent: Sunday, August 16, 2015 8:09 PM To: CITY COUNCIL Subject: CityCouncil Meeting 17 August 2015 SUPPLEMENTAL Dear Sirs, COMMUNICATION I strongly oppose Agenda Items 16 and 18. Meeting Late; Sylvia Calhoun FIB resident Agenda Item hoc 1 Estanislau, Robin From: Dombo, Johanna Sent: Monday, August 17, 2015 2:31 PM To: Estanislau, Robin Cc: Agenda Alerts Subject: FW: Agenda item 14, 16 and 18 From: Ron Sterud [ iltc:rcns eru: ayaloo.com] Sent: Monday, August 17, 2015 2:20 PM To: CITY COUNCIL Cc: Fikes, Cathy; Flynn,Joan Subject: Agenda item 14, 16 and 18 Dear Mayor Hardy and Council Members, I am writing to urge that you oppose both Agenda Items 14, 16 and 18. Agenda Item 16-Selection of Developer for Rodger's Senior Center: How on earth can the city issue and RFP and pre-select a developer for an area that has yet to receive a "vote of people" which is required in Measure C? This process is completely backwards and does not honor the original intent of Measure C. The proper action should be for the city to place Measure C on the ballot, and only AFTER a vote by the people, should the city take any action regarding development of this property. Agenda Item 18-City Council Support for Export Import Bank: This is, quite simply, preposterous! The role of City Council is to focus on issues specific to Huntington Beach. To become involved with a high politicized national issue is a very dangerous precedent to set for city council. In addition, the supporting document for this resolution is false and misleading. For those very familiar with the Ex Im Bank, as I am due to the very nature of my business, this institution is nothing more than Corporate Welfare that has cost taxpayers billions of dollars. In addition, it has been very damaging to many industries across the country, while only benefiting a few hand selected, very large corporations. But, to my earlier point, whether one agrees or disagrees with the continuation of the Ex Im Bank, it simply isn't something that I expect my city council to become involved. Agenda Item 14-HBBID: As a BID member, I would like to state that the BID offers ZERO benefit to our city or downtown businesses. Many business owners, myself included would like nothing more than to see the BID disband. I urge you to vote no on agenda Item 14. Sincerely, Ron Sterud SUPPLE ENTAL COMMUMCATION Meeting Date, Agenda Item No. i H O M E S Lb the d,ff ren a I yI1t111 _ a A T". 1 r1 J t.•.. � .,,� mil_!. . r Redevelopment of - ` Michael E. Rodgers Seniors Center Site Huntington Beach, CA g � r ` � a Surf City USA 10 1 August 17, 2015 • • • • ! • • Shea Homes was founded in 1968 and is one of the largest • privately owned home builders in the country. We design, build • and market single-family detached and attached homes across ! various geographic markets in Arizona, California, Colorado, H o M E s Live the difference: Florida, Nevada, Texas and Washington. Shea serves a broad • • customer base that includes entry, move-up, luxury and active • adult buyers. • • • TEAM, founded in 1995, seeks out development opportunities • within the most dynamic markets in Southern California. Through • a unique in-house combination of entitlement, finance and ! design/build expertise, TEAM consistently completes and • delivers superior development projects for its clients, partners • and the communities within which they develop. OUR TEAM 2 • • • • • • • • • • • • • J Z M K • ERIC ZUZIAK, JZMK Architecture • P A R T N E R S • • • • • • MICHAEL SCHROCK, Urban Arena • • URBAN ARENA • • • • • 21 * STRAT MICHAELSUYDAM, 21Strat • • • • • • • • • • • • • WHY SHEA HOMES AND TEAM • • WHY OUR MEASURE C • • CAMPAIGN WILL SUCCEED: EOISON COMMUNITY CENTER • • Superior Shea Homes quality • Historic stability and • financial strength • • Extensive community • • outreach • FB MURDY • • Local campaign expertise - _ �g��MUNiTr CE"rE • and experience • • • • • • • • • THE SHEA DIFFERENCE • STABILITY: .+r • • The history of the Shea family of companies f' LI • dates back to 1881 • • We're a proud part of the American landscape • (Hoover Dam, Golden Gate Bridge) • QUALITY: • • We've built more than 90,000 distinctive, quality t ` • homes since 1968 • • The entire organization shares a commitment to • quality and customer satisfaction • • The only home builder to be named "Customer • Service Champion" by JD Power for two years • joining Ritz Carlton, Four Seasons and Saks. • FINANCIAL STRENGTH: • The Shea family of companies has diversified over i • time and now includes: • • J.F. Shea Construction • • Shea Ventures j.n.I'uwER • • Shea Properties • • Shea Homes ($1.613 in assets) • • • • • • • • • • q SAUSALITO • Irvine, CA r " ' • Acres: 9.2 • Units: 54 • Density: 7.4/acre d • Footage: 3,533-4,011 square feet • Price Range: $1,300,00041,500,000 • Type: Detached • Costs: $78.OM • Financing: All capital provided by . • cash on Shea Homes' balance sheet. • Start Date: May 2013 • Sales Start: September 2013 .moi • Project Description: Sausalito is a 138 • development located in the City of Irvine. • The site is located in the Master Planned • community of Stonegate. The project is • currently selling today. Ali. _ r • • • • • • • • • BAKER RANCH -- • Lake Forest, CA • Acres: 387 • Units: 2,194 Density: 5.7/acre _ Footage Range: 1,500-4,200 square feet . .• Price Range: $400,000-$1,400,000 • Type: Attached and Detached • Costs: $300.OM • Financing: All capital provided by cash on joint • venture balance sheet and $100.OM loan facility • Start Date: June 2013 • Sales Start: February 2014 • Project Description: Baker Ranch is a master • planned community located in the City of Lake • Forest, contiguous to the City of Irvine, in the heart • of Orange County, California. The Project is currently ;A planned to include approximately 1,780 single family _ m residential units, up to 619 multifamily apartment • homes, approximately 3-acres designated for • commercial uses, and over 30 acres of parks and • open space. • • PORTFOLIO EXAMPLES 7 • • • • • • • • PARKSIDE ESTATES • Huntington Beach, CA • Acres: 50 • Units: 111 • Density: 2.2/acre • Footage: 3,190-3,832 square feet • Price Range: $1,500,000-$1,700,000 SPANISiI GOITAOP. MnNI CPFV (OTfAOF • Type: Detached *- • Costs: $135.OM • Financing: All capital provided by • cash on Shea Homes' balance sheet. • Start Date: October 2015 " N, ' _ PLAN rA ' " ' sr^msN orr sPANrsu • Sales Start: February 2017 • Project Description: Parkside Estates is a • development located in the City of Huntington •• • Beach. The site is located east of the Bolsa Chica • Ecological Reserve. The project is approximately PLAN I PLAN 2 "1 N„ M„"„H, • 50 acres in size and consists of 26.1 acres of residential which is divided into 111 single family • lots. The remaining 23 acres is preserved as open • space which includes a park and trails, along with • over 7 acres of created and restored wetlands. • • PORTFOLIO EXAMPLES 8 • • • • own • • CORNERSTONE • Walnut, CA • Acres: 10 • Units: 98 • Density: 9.8/acre PLAN IC PLAN 2D • PROGRESSIVE PRAIRIE COTTAGE • Footage: 1,876-1,954 SF for Multi Family; 2,099-2,243 SF for Detached • Price Range: $700,000-$950,000 w x • Type: Attached and Detached g • Costs: $67.OM 0 • Financing: All capital provided by • cash on Shea Homes' balance sheet. PLAN IA PLAN 2E • Start Date: October 2015 PROGRESSIVE SPANISN MONTEREY • Sales Start: April 2016 • Project Description: Walnut is a development • located in the City of Walnut. The site is located • north of Valley Blvd. and east of Suzzane. The • project includes 37 homes, 61 three story townhomes, and a neighborhood park. • • PLAN IB PLAN 21 • CRAFTSMAN FORM AL SPANISN PORTFOLIO EXAMPLES 9 • • • • • • • • THE EDGE • Costa Mesa, CA • Acres: 1.7 _ • Units: 19 Density: 11.2/acre • Footage: 1,804-1,896 square feet Price Range: $830,000-$850,000 • Type: Detached • Costs: $14.OM • Financing: All capital provided by • cash on Shea Homes' balance sheet. _ .4 • Start Date: December 2015 -- • Sales Start: July 2015 • Project Description: The Edge is a development • located in the City of Costa Mesa. The site is located • on Paularino Avenue, north of Randolph Avenue and • west of Bristol St. The project is approximately 1.7 • acres in size and consists of 19 residential lots, and a small neighborhood park. • • • • • Fo�C5eHOI'M E S A 18TH STREET dam 111111111mr--low—low- IIIIIIIF Vow w mw Nor----low low---qmw,— M r LON L ON ON r) Vii 2,11 m ,or LU z> Ln ALLEY --I InShade Structures 70 LU IM M, 0 qr 01 t—mL m All 6 1 1111144 1 0111FAMDRI"I ION Uk% • 17TH STREET H O M E S Live the difference: 72 pg '1 •W j THE PROJECT 12 H O M E S Lve the dAcrenceif n ids 41 �'���■ I' F`Ig.-., j�r r�'^� �I�I Sf���I6� �',` r� I THE PROJECT 13 C5eI04 M E S Live the dlff en �p I 0lifr1 ■1�1� w1M r THE PROJECT 14 H O M E S Live the difl ence: TREET PERSPECTIVE PARK AT 17TH . ORANGE t � C llM1+ �1 �J.� t�•��} �'3�dk41�>{ i/:�M'16.�i�[5 n[ ti�hlhl '� riy4�:t� 6� R'.1��.� N L � ,. '"� i�� 1'. IIf�'"'vF ,' •:. --�.���a:l .+q► �! '•w'�'..{'y ° � 'ten �',t„ `• .` J is M Tr ..... e,.. Fdid .. THE PROJECT 15 H O M E S Gve fhe dNe.ence: STREET PERSPECTIVE PARK AT 17TH . ORANGE D SEATING AREA BBQ AREA SHADED EATING AR TURF PLAY AREA THE PROJECT 16 C51 O M E S ��:e the tltic.e^•• J • f� a : ill- --- III►:..:. � =---� wl - �. a THE PROJECT 17 H O M E S Lve the di Ne.ence O . • ul W ZY Tw Y'i' �t " A :09ow-i - THE PROJECT 18 H O M E S Inc t6a d��eraxc P HE PROJECT 19 • • • • • PARKS TARGETED FOR IMPROVEMENTS • • Expansion of Edison and Murdy Community • Centers, Including Gymnasiums ww .sj • • Bartlett Park Improvements • • Bluff Top Park Trail Improvements • Harbour Beach/Park Improvements • Acquisition of Central Park Encyclopedia Lots • I • Development of Undeveloped • Portions of Central Park , _ • Le Bard Park Phase II • Complete Cleanup and Develop • • Former Gun Range for Park Purposes • Reinvest in Neighborhood Parks • • • - IMPROVEMENTS• • 2 H O M E S 01• , ro ddre.«ice. �: •• t _.1 ENCYCLOPEDIA LOTS II Acquisition of Central Park Lots a - MURDY COMMUNITY CENTER Expansion and Gymnasium v� \ 1 � I Complete clean-up and develop gun range for park purposes i \ LETT PARK y provements L._ LE BARD PARK Phase II Improvements \ I Huns ian EDISON COMMU TTYCENTER \\ Expansion and Gymnasium, \ Y\ Bamm�y`A\r' � \ _ PARKS & IMPROVEMENTS 21 • • • 5• • • • • BUY LOCAL • We will make every reasonable _ _ TM EM s. - - - • effort to use qualified Huntington • Beach contractors • • We will make every reasonable • • effort to require contractors to • source materials from Huntington; -- • Beach Suppliers cm • We will use the local Chamber of • Commerce and the City's • RELIAB ' • Business License database to • identify these vendors. Rq..— • _ n �. • • • • • • • • • SHEA HOMES IS COMMITTED TO A TRANSPARENT, • • COLLABORATIVE OUTREACH PROCESS • • • Long History of Inclusive, • Respectful Community • Outreach & Proactive • • Communications - • • Incorporate Community 0 Input into Final Plan • Keep Public Informed • throughout Process 0 THE CAMPAIGN 23 • • • • -- • • • • • • SHEA HOMES IS COMMITTED TO A TRANSPARENT, • COLLABORATIVE OUTREACH PROCESS • • Mail and e-mail • Neighborhood and • community meetings, �. public workshops • i • • Web and social media, • local publications • l • • Outreach to local organizations • • Kee City informed • p Y • throughout the process • THE CAMPAIGN 24 • • • • • • • — • Live the difference • • ENGAGED 21 STRAT TO MANAGE • COMMUNITY OUTREACH AND CAMPAIGN • • Team Members' Entitlement Outreach Successes Include: • • ✓ City of Mission Viejo — Community Outreach for Aliso Ridge • Condo/Target Development • • Developed extensive community support, resulting in unanimous vote in favor • of project • ✓ City of Chino Hills — Community Outreach for Vila Borba Single • • Family Home Development • Conducted proactive community outreach to nearby homeowners, resulting in • 5-0 council vote. • • ✓ City of Anaheim — S.O.A.R. • Managed successful citywide grassroots mobilization effort urging Council to overturn approval of re-zone in Resort District. THE CAMPAIGN 25 • - • • • • • • HOMES • • ENGAGED 21 STRAT TO MANAGE • • COMMUNITY OUTREACH AND CAMPAIGN • • Team Members' Development-related and HB Campaign • Successes Include: • • ✓ City of Mission Viejo — Measure D • • • Convinced 62% of voters to oppose a harmful ballot-box zoning measure • ✓ Redwood City — Measure W • • Convinced 64% of voters to oppose Sierra Club-backed effort that would have • imposed restrictions on certain landowners • ✓ City of Azusa — Measure A • • Convinced 76% of city voters to approve development project on former • nursery • • ✓ City of Huntington Beach — City Council • Led campaign for top vote-getter in 2014 election THE CAMPAIGN 26 • - • • • • • • • Imp= PROMINENT HB LEADERS/RESIDENTS TO BE • • ENGAGED DURING PROCESS • • • • Current and Former City Council Members • • • Current School Board Members • • • Supervisor Michelle Steel • • • State Assembly members Matt Harper and Travis Allen • • State Senator John Moorlach • U .S. Congressman Dana Rohrabacher • • • • • • • THE CAMPAIGN • • • • i • • PROMINENT HB COMMUNITY GROUPS TO BE • • ENGAGED DURING PROCESS • • • Nearby Residents • Historic Resources Board • Huntington Beach Tomorrow • Chamber of Commerce • • Council on Aging • Huntington Beach Rotary • • Downtown Business Improvement District • Lions Club • • • Huntington Beach Community Forum • Soroptomist International • • Amigos de Bolsa Chica • Huntington Beach Youth Board • • Bolsa Chica Conservancy • City of Huntington Beach Finance Board • • • Bolsa Chica Land Trust • Visit Huntington Beach • • Surf City Rotary • Knights of Columbus Council 6020 • • • Huntington Beach Board of Realtors • Huntington Beach Family YMCA • • Huntington Beach Kiwanis • Huntington Beach Coordinating Council • • VFW Post 9557 Greater Huntington Beach Interfaith Council • • Surf City Kiwanis Woman's Club of Huntington Beach THE CAMPAIGN 28 • • • • • • • • il PROMINENT HB YOUTH SPORTS ORGANIZATIONS TO • • BE ENGAGED DURING THE PROCESS • • • Team 90 Inc. (California Rush Soccer) • AYSO - Soccer • • • Huntington Beach Oilers • South Huntington Beach Girls Youth Football and Cheer Fastpitch Softball • • NHB Futbol Club, Inc. • Huntington Beach Girls Softball Inc. • • Boys & Girls Clubs of Huntington Valley Huntington Beach High School Cheer • & Sports Booster Programs • Pacific Coast Hoops • Pee Wee & Junior Sports Programs • • YMCA — Adventure Guides • • Beach Cities Lacrosse i • Huntington Beach Pop Warner • • Huntington Beach Little League • Huntington Beach Junior Life Guards •• Huntington Beach Friday Night Lights • Vanguard Aquatics — Water Polo ! Flag Football THE CAMPAIGN 29 i • • • • • • THE CAMPAIGN • • • • We expect high turnout during presidential e election (68-72 percent) • • • Current Registered voters: 109,622 • • • Vote by mail , ballot language will play key, • f determining roles t • • Heavy outreach , education , supporter ID • and turnout • • Voter contact via door-to-door, mail , online • media, community forums, newspaper • • • • • • s t COMMUNITY OUTREACH/CEQA/CAMPAIGN • KEY MILESTONES & ACTIONS • • . • KEY COMMUNITY • - . • ELEMENTS • • Sept. 2015 Outreach Begins • • Benchmark survey and initial ascertainment meetings • Rollout letter/e-mail/online media inviting public to participate in • planning process • • • Oct. 2015 Initial Neighborhood and Community Meetings/ • Design Workshops • Follow up letter/e-mail/online media post-design workshop • Nov. 2015 NOP and Public Scoping • • Continue community meetings THE CAMPAIGN 31 • • • • • • • • • • • COMMUNITY OUTREACH/CEQA/CAMPAIGN • KEY MILESTONES & ACTIONS • KEY COMMUNITY • - Q . ELEMENTS • �- • Dec. 2015 • Post-scoping letter to nearby residents, interest list • • • Continue community meetings early December • • • Jan. 2016 • Continue community meetings • • • • Feb. 2016 • Mail/e-mail/online media notifying public about Draft EIR • • Continue community meetings • THE • • • • • • • _ CAMPAIGN 1 • • • • • COMMUNITY OUTREACH/CEQA/CAMPAIGN • KEY MILESTONES & ACTIONS • • • . . . . - Q . ELEMENTS • • March 2016 • Continue community meetings • • • April 2016 • Issue Final EIR • • • Letter/e-mail/online media notifying public about Final EIR and • Planning Commission hearings • • Continue community meetings • • • Planning Commission hearing, approval of GPA/ZC/CUP/EIR • • May 2016 • Letter/e-mail/online media notifying public about City Council • Commission hearings • • Continue community meetings • City council hearings, approval of GPA/ZC/CUP/EIR • • • THE CAMPAIGN • • • • • • • COMMUNITY OUTREACH/CEQA/CAMPAIGN • KEY MILESTONES & ACTIONS • • • . , . . ELEMENTS • June 2016 • City Council approves measure for November ballot • • LAUNCH CAMPAIGN • 0 Continue community meetings • • Benchmark campaign poll • • Letter/e-mail/online media notifying public about approval, campaign • • July 2016 • Define ballot language • Produce campaign materials • • Continue community meetings, cultivate supporters • Draft ballot arguments • August 2016 • Manage and secure relevant slate mailers • • Prepare and produce campaign signs • Continue community meetings, cultivate supporters • • Canvassing - voter education e THE CAMPAIGN 34 • • • • • • • • COMMUNITY OUTREACH/CEQA/CAMPAIGN • KEY MILESTONES & ACTIONS • • � . KEY COMMUNITY OUTREACH/CEQA ELEMENTS • • Sept. 2016 • Distribute campaign signs (in compliance with City code) • • • Campaign forums • • Canvassing - voter education • • Paid campaign advertisements — online and off • • Oct. 2016 • Direct Mail Programs begin (three full-color pieces, early to vote-by- mail, later to election day voters • • Absentee ballots drop • • Campaign forums • • Canvassing — voter education and vote-by-mail GOTV • • Tracking poll • Nov. 2016 • Final Direct Mail to Election Day voters and remaining Vote-by-mail • • • GOTV phone banks • • Canvassing - GOTV effort • • ELECTION DAY • • THE CAMPAIGN • • • • • • • • WHY SHEA HOMES AND TEAM • • WHY OUR MEASURE C • • CAMPAIGN WILL SUCCEED: • FEDISON COMMUNITY CENTER • • Superior Shea Homes • quality • • Historic stability and }, • financial strength • • Extensive community • ' outreach -' A • MURKY • • Local campaign expertise MMUNITY CENT • and experience • • • WHY SUCCESS 36 • •