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IÓ~ß6 Redwood Shores Child Care Report 11/13/00 Page 6 of 7 The City will, however, be required to essentially advance the acquisition costs up to $3.2 million of its cash reserves to the owner of the project, to be repaid over 20 years. The payment of installments on these funds will be 1.5 percentage points in excess of the City's current primary short-term investment vehicle, LAIF. The rate as negotiated is intended to compensate the City for the loss of liquidity associated with making the advance, and the increased risk (over LAIF) that this investment represents. In the event of default by the developer, the City will take possession of the facility and would incur unknown expenses to operate the facility as a childcare center. Recovery of the unpaid balance of the City's commitment will be dependent on the net operating income of the facility. There may be some revenue in the future associated with the leasing of the office space. Every dollar of rental income per square foot in excess of the Base Rental Rate represents, in year 2000 dollars, approximately $30,000 per year of income to the City (.50 x 5,000 sq.ft. x 12 months). This amount would not be material with respect to the City's overall budget, but, if devoted to childcare activities and depending on market rental rates could represent a material addition to the City's childcare budget. The Council should be aware that using the $3.2 million of the ending fund balance would prevent that money from being used for other projects i.e. flooding. The Finance Director will be available to provide alternatives, which could allow both this project and substantial funding to alleviate flooding. Next Steps If the Council approves, by motion, the basic terms of this transaction, the developer will take the following steps to make a final determination on the financial feasibility of the project. These steps would include: . A more detailed environmental and geotechnical review of the site; . Preliminary design and cost estimates for the facility; . Incorporation of egress into the design of his adjacent hotel project; Neither party will be bound at this point to conclude the transaction. The above discussion provides a general overview of the concept of the proposed transaction. Final details of the transaction must be negotiated, including assurances of compliance with legal requirements regarding the City's financial participation and acquisition of its interests. Assuming agreement on the more comprehensive terms and conditions, public bidding documents will be prepared for Council review and consideration. 11