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Financing Strategy – Cash Loan As an alternative to issuing housing bonds, the City could choose to simply make a cash loan to Westwood Village. The loan would in effect become an investment. Froin an investment standpoint, a few concerns c�e raised, including: 1) All of the City's existing investments c�e federally guaranteed or insured against the loss of principle. A cash loan to a town home association would not car�y this type of protection. However the assessment would become a lien against the property; c�nd would be collected just like ad valoru�n taxes which c�e not subordinate debt. Historically, the City has restricted its investments to no more than a 10 year perzod. In all likelihood, the town home association would be looking fora payback period ofeither 15 or 20 years. One of the benefits cn� advantages of the HIA is a longer term than traditional financing. Typical home equity financingis 7 years. Based upon a$1 million total project amount that would be split evenly between all ofthe 47 units, the followingillust�ates bank financingcompared to HIA financing. Financin Bank HIA HIA HIA Term 7 10 15 20 Interest 7.59 6.5 6.5 6.5 Monthl Pa ment $341 $246.64 $188.57 $160.90 Annual P ment $4,094 $2,959.68 $2,262.84 $1,930.80 Annual Savin $1,13432 $1, 831.16 $2,163.20 2) The longer the term ofthe investment, the greater the risk that the City could receive a better return on their investment fromother traditional sources instead ofhaving t�,� fundstied to the HIA loan. Durzng the time this money is loaned-out, the City could potentially miss out on other investment opportunities that might produce even higher rates ofreturn. However with a HIA funding,the payback ofthe loan comes back to the City in three differentways. 1. Early pay-off – not all of the owners will want to fuun�e the improvements through this method cn� will pay offthe assessment immediately. It is estimated that approximately 20% of the homeowners will payoff the assessment immediately. In addition, there is not rest�iction for early pay-offc� anytime. 2. Evenly Amortized - the HIA funding is structured to be amortized evenly over the life ofthe district. Therefore, both przncipal c�nd interest are being � back evenly each year c�d as the investment becomes seasoned, it becomes more secure. Payoff when a unit is resold - when a home is sold, whatever assessment remains will be paid off. 1 f the average sales turnover in Roseville is 8% then each year 8% ofthe remaining assessment would be fully paid off. — 3) The City's cash reserves, while strong, car�lot sustain repeated loans ofthis size. The — City could make a loan to Westwood Village, but it may come c� the expense of a — futureneed that may prove to be a higher priority. The Council should be cautious in — making financial decisions ofthis magnitude in a vacuum. The Council is advised to — consider whether this investment will address a top priority, or even a top housin = priority. — 2