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~A'5"" Clover Capital Corporation Memo To: Mike Church, City of Redwood City Fax: From: Peter Kelly Date: Re: 09/01/00 Redwood Shores Apartments As we discussed, there are several issues to consider with respect to Archstone's request to refund the existing bond issue through ABAG. Archstone will decide to proceed with the refunding if it is in its best financial interest. Though it has had no legal obligation to maintain affordable units at the project for two years, Archstone has most of the affordable units remain in place. The analysis for Archstone comes down to comparing the interest costs savings by using the tax exempt bonds vs. the revenue loss from continuing to maintain 30 affordable units on which the rent is to be capped at 30% of 80% of area median income (the cap would be about $1,500 today). 1. Financial Analysis: Interest Costs: Archstone's will be borrowing on a variable rate basis on the tax- exempt refunding bonds. If it retires the bonds instead, it's funding would be based on the LlBOR market rate. Based on historical comparisons of the applicable tax exempt bond rates against the LlBOR market, the tax --exempt bonds will have an interest rate advantage of about 1.75% or 175 basis points. Based on an approximate bond amount of $23,400,000, that would yield an annual interest savings of $409,000. That saving assumes that the relationship between LlBOR and the tax-exempt rate remains about the same, The difference between the two markets could increase or decrease during the term of the refunding bonds. Lease Revenue: Archstone has agreed to maintain 30 units for tenants making less than 80% of the area median income for a term of six years (2006). Area median is currently $74,900 (per HUD). 80% of median, therefore, is about $60,000. Archstone has further agreed to cap the rents on the affordable units at 30% of 80% of area median during the Qualified Period (2006). That would cap rents currently at approx. $1,500, The average rent being attained for the Market Rate units at Redwood Shores is about $2,300. Therefore Archstone is forgoing $800 in rent per month and on the affordable units or a total of $288,000 per year at current market rent levels. As we know, market rents are increasing quickly in the area. The increase in median 1112 Ocean Drive... Suite 101 ... Manhattan Beach, CA 90266 Tel: (310) 318-8805... Fax: (310) 318-1344... E-mail: pkelly@clovercapital.com ï".--'""-"'-T'"