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'11\ ..~ income will lag the growth in market rents and result in the gap growing as market rents continue to increase at record rates. This analysis indicates that Archstone's financial benefit of agreeing to refund the bonds will be only about $121,000 per annum for the 6 years that the affordable units remain in place. This advantage could shrink if market rents do not continue to increase at the current pace. The cost of refunding the bonds will be approx. $500,000. Thus, the decision to refund was not an easy or obvious one for Archstone, Archstone is assuming that market rents will increase over time and justify the time and expense of refunding the bonds. Part of Archstone's decision to proceed was based on the agreement to end the Qualified Period in 6 years and provide a cushion in the last couple of years of the refunding bonds to make up for any shortfalls during the Qualified Period. It now appears that the maturity date of the Refunding Bonds will continue to be 2008 instead of 2010. This significantly reduces the time between the end of the affordable units and the maturity of the Bonds, especially when one realizes that the affordable units will take some time to roll over to market rent units in the year after the end of the Qualified Period. 2. Benefits to Redwood City: Maintain 30 affordable units for at least 6 years: Archstone has no current legal obligation to maintain any affordable units at Redwood Shores. Approving the refunding bonds would ensure the existence of 30 units for at least 6 years. Rent Cap for Affordable Units: Rents will be capped at 30% of 80% of area median thus ensuring that the affordable units will remain "affordable". The average rent of the affordable units at Redwood Shores today is $1,650. If the refunding bonds are issued, the average affordable tenant will save $150 per month at renewal rather than facing rent increases of $500-800 per month if the existing bonds are retired. Failure to refund existing bonds means the permanent loss of all 61 affordable units: If these bonds are retired, all of the affordable units will be permanently eliminated. Possibility of refunding bonds in 2008: If these Refunding Bonds are approved, it keeps alive the possibility that Archstone could choose to refund the bonds again in 2008(or sooner). If that occurs, existing tax law would require that at least 61 units be qualified as affordable during the term of the refunding bonds. It is possible that the financial analysis at that time will make it economically attractive to Archstone to proceed with the refunding. Refunding now is the only way to maintain the possibility that the affordable units exist now, or in the future. Refunding through ABA G eliminates Redwood City responsibility for the bonds: ABAG will be the issuer of the new bonds and will maintain all responsibility for compliance and bondholder relations. Redwood City will have the benefit of 30 affordable units and none of the responsibility for the bonds. Clearly, it was not an easy decision for Archstone to refund these bonds. Obviously, Archstone believes it is in its financial interest to do so, but only on the basis of the agreement reached with staff last month. This memo points out the considerable benefit to the City and its citizens of maintaining the affordable units. Please call me to discuss any questions you may have. . Page 2