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12/03/2012 Exempt Properties Certain properties are exempt from the Special Tax in accordance with the approved Rate and Method. In addition, the Act provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property within the District acquired by a public entity through a negotiated transaction, or by gift or devise, that is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. It is possible that property acquired by a public entity following a tax sale or foreclosure based upon failure to pay taxes could become exempt from the Special Tax. See "SECURITY FOR THE BONDS—Summary of Rate and Method — Classification of Parcels." In addition, the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property, for outstanding Bonds only, is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Act have not been tested. In particular, insofar as the Act requires payment of the Special Tax by a federal entity acquiring property within the District, it may be unconstitutional. If for any reason property within. the District becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal goveinment or another public agency, subject to the limitation of the Maximum Annual Special Tax Rate, the Special Tax will be reallocated to the remaining taxable properties within the District. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the timely payment of the Special Tax. '_Moreover, if a substantial portion of land within the District becomes exempt from the Special Tax because of public ownership, or otherwise, the maximum rate that could be levied upon the remaining acreage might not be sufficient to pay principal of and interest on the Bonds when due and a default would occur with respect to the payment of such principal and interest. The Act further provides that no other properties or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate or method of apportionment of an existing special tax. Risks Associated with Commercial Rea.I Estate Properties Dependence on Tenants. The ability of certain owners of Taxable Parcels within the District to pay the Special Taxes which will be levied on their property to pay debt service on the Bonds may depend primarily on the ability of their tenants to meet their financial obligations under their leases. In the event of defaults by tenants, delays may be experienced in enforcing rights and substantial costs may be incurred in protecting the property owner's investment. Furthermore, at any time, a tenant could seep protection under bankruptcy laws, which could result in the termination of the tenant's lease and an interruption or loss of rental income. Tenant Lease Expiration and Reletting of Space. No assurance can be given that tenants of buildings located on Taxable Parcels whose leases expire will renew their leases or that replacement tenants will be found. Consequently, there is a risk that expired leases may not be renewed, that the space may not be relet and that the terms of renewal or reletting (including the cost of required renovations or concessions to tenants) may be less favorable than under expired leases. The occurrence of any, or a combination, of these factors would have an adverse effect on the revenues which will be available to the property owner for the payment of Special Taxes. -32- 40 RESO. # 15237 MUFF # 505