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8. STAFF REPORTS A. Approval of assumption of the Owner Participation Agreement. $4,615,000 City of Redwood City Multifamily Revenue Bonds Series A 1987 (GNMA Collateralized - Redwood Plaza Project) (702-02) REPORT: Community Development Director, May 11, 1992 Housing Director Church presented the staff report describing how, in 1987 the City issued the above referenced bonds to finance the development of Redwood Plaza, consisting of 87 units for the elderly, and 14,000 square feet of retail/commercial. Under the terms of the tax exempt bond issued, 20% of the units had to be rented to people earning 80% of the median income, and the current owner, Mr. Willie Ostertag, had leased these units through the County Section 8 Program. Mr. Ostertag is now selling the building to Hong Seh Lim, Jeff C. and Gladys W. Kwok and Sze K. and Chiuyee J. Ho, tenants in common, and is asking the City to approve the assumption of the Financing and Regulatory and Financing and Development Agreements. In response to Council questions, Director Church advised that the new agreement provides that the new owners must assume all obligations and responsibilities in the original agreement without exception. Director Church stated that if the obligations of the original agreement are not met, the aforementioned bond will become taxable resulting in severe hardship to the owners. It is therefore in their own best interest to maintain the affordability criteria to protect the bond status and their investment, and avoid what is labled a "self-correcting event." Willie Ostertag, current owner of 830 Main Street, described the HUD regulations in place, the City regulatory agreements, and advised that he had made the new owners thoroughly aware of their obligations under the Financing and Regulatory and the Financing and Development Agreements. City Attorney Schricker advised that the funding of Redwood Plaza was the only situation in the country where the HUD agreement is subordinate to the City's Owner Participation Agreement, and that the requirements for maintaining the affordability obligations for low to middle income units are as stringent as they can be. In answer to Council questions regarding the new owners' ability or desire to maintain the property as well as Mr. Ostertag had, Willie Ostertag advised he had operated Redwood Plaza for six years and maintained a 1.2 vacancy rate at the residential level, that the money generated was satisfactory, that the new owners will be assuming the same mortgage and the same expenses, with an increase in the adjusted property tax rate, and that he did not believe the council would be faced with a request for renegotiation from the new owners. Mr. Ostertag advised that the new owners had no choice but to abide by the same regulations and obligations of the original agreements. Council discussed the absolute necessity for the new owners to understand their obligation under the law to abide by all the terms of the agreements Regular Meeting Minutes MINUTE BOOK NO. 51 May 18, 1992 Page 5 Page No. 8B .