city's liability in doing that. the city is getting somethingan. supervisor mirkarimi: so that $55 million threshold, does that not -- the increasing liability by reclassifying dredging, a project construction, -- dredging, project construction, and there is no longer additional value to the city beyond $55 million venture provided by the authority to the city in the december 14 agreement? >> there, i think you're talking about the way something would qualify as eligible improvements, and there was concern expressed by the

authority that in getting ready for the race, there is dredging and other things that would have a long-term benefit for the port, that they have a way that they get repaid those investments, and we did consented to that change, but knowing that the city has an approval right -- and we did consent to that change. supervisor mirkarimi: i can keep asking, or you can keep going. you sort of bundled a few different comments in your remarks, which i appreciate, but i just want to dissect so we can be more clear. >> ok. supervisor mirkarimi: getting back to 30 and 32, this is sort of intertwined, so i want to make this as methodical as

possible. then, on the question of the adjustment approach -- of rents, which you have already touched upon, the appraisals or to establish the fair-market value for the properties for which property rights are transferred to the authority, and it said $4 per square foot for 30, 32, and $6 for all of the other piers and port properties, what does this mean for our liability? >> i would like to introduce jonathan stern, our deputy director. chair chu: i would like to ask you to adjust the microphone. >> good afternoon. deputy director. just to address supervisor

mirkarimi, through the chair, going back to the balancing, to answer that question of the december 14 formula, the agreement as it sort of stood then, the $55 million was sort of a threshold with the board of supervisors at that time, and at the time, both agreements were subject to an 11% of coral, attributed return on that $55 million -- subject to an 11% accrual. it looked like that was superior -- it looks like that was what we believed to be the value of piers 2 -- 30, 32, and this was about an equal balance

in. that is what we testified on december 14 -- and that was about an equal balancing. i will go through those components. the basic deal, just to be clear, is $55 million essentially being directly attributable to transfer of the appraised value of one property and piers 30, 32, without something else in that calculation, so i think that is actually pretty favorable. one of the specific changes, as to the rent, which were short question, 30, 32, -- which was your question, 30, 32, we had various hearings, saying what

we believe to be appraisals would be for these. those numbers were based on the program that we thought would be the highest and best use of 30, 32. approximately -- of new building space, which currently does not have any buildings. professional, outside assessment looked into the rents of the city of about $1.30 million, $1.40 million, and that is what we put into those equations, those very long, 66-year analysis that we shared with the board. the budget analyst. $4 per square foot, we do not yet know how many square feet will actually be there for the long-term leases. we thought that was the $4 that

were to favorably with the assumptions of that analysis and the overall dollars of that analysis, so we were comfortable with the $4. even though we had changed the process that the appraisals would happen at an earlier date and would be subject to verification process, like we are doing at pier 30. this will well encompass what those numbers turn out to be. chair chu: and just quickly, that includes the cpi in something i did not understand, the market reset? >> the market reset, it is something that is hard to analyze at this point in time, analyzing and looking at how that would affect the overall grant credit, but, again -- -- but the overall -- the

overall rent credit, but, again -- chair chu: conceptually. supervisor mirkarimi: let's keep in mind, through the chair, that our role is the fiduciary role that we play in understanding to what degree or scale that any of the deal had changed, so while you touch upon that topic, then it goes back to my earlier, -- my earlier question of mr. bentsen, in that those are liabilities -- my earlier question of mr. besnon. -- benson. this was to lock in a wait for them to collect a certain amount per square foot per year for 75 years, rather than the $6 per

square foot amount in the agreement for all of the long- term leases, except for piers 30 and 32. >> it was a matter of liability. bringing it back to liabilities, as well as asking for how we arrived at how the structure needs these, to answer that question, i have to go back to our assessment about what the issues were on december 14. under the agreement of december 14, based on our best estimate of what those valuations of the long-term leases are, based on what we did at the time, the entitlement work that had previously been done at this site, which they had been working on from about 2002 to 2006, we have a pretty good assessment about what that valuation would be. if you look at that valuation,

the property values, and how we could expect that evaluation process to transpire, as well as we expect the appraisal process to transpire, all of those coming in totality, if we add up all of those factors, we believe -- all of those, in totality, if we add up all of those factors, we believe it is as good. supervisor mirkarimi, discussing the internet note -- interim rents -- to sell the seawall. many of these are about certainty and contingencies, which we could not address in crafting agreements in roughly the six weeks leading up to december 14, and some of the things that have entered this agreement, going over this in

the presentation, we really have to address some of these contingencies. what happens if the primary obligations of the city do not happen exactly the way we think they will happen, so, specifically, the rental is outside of that case. we have an obligation to remove that trust, and we started exploring the question of sight of that, what would happen if we did not remove the trust. supervisor mirkarimi: keep in mind that in the responses from city families here, the question is, dramatically the deal changed, but those dates, but also speaks to vote -- to what may be material or not, and i think it is vital in the conversation that there at least be some characterization of knowing what is considered as in

the aggregates -- aggregate or portion of the deal that this compensation would come down to, so that is why i am trying to give you this methodically, clearly point by point, because i think we are dealing with the net effect of each deal that you have all committed to, city negotiators have committed to, post december 14, and yet, we have yet to determine what the aggregate deal would look like, so that is part of why we are here today. chair chu: thank you, supervisor mirkarimi. and did you want to add to that, brad? can you pull the microphone closer to you? >> these changes, it is with respect to the entire set of changes. city staff made a clear finding

that, on balance, all of these changes are not collectively material, and we consulted with the city attorney's office on that point, so i do want to suggest that the city attorney could weigh in on this matter, as well. chair chu: if i could ask the city attorney to weigh in on bass, .-- weighed in on back, and then we will go to supervisor -- if we could ask the city attorney to weigh in on that, and then we will go to supervisor campos. >> it would be to look at the changes and not in isolation a particular change. chair chu: ok. supervisor campos. supervisor campos: thank you.

through the chair, i know it is tough to finalize the specifics, so i want to keep an open mind. what you're trying to do. i have to begin by questioning the city attorney where they get that definition of materiality, because the resolution that was passed by the board of supervisors does not say that the board delegate the authority to staff to finalize implementation based on o -- an on-balance -- if there is case law that supports the city attorney's position? what is consistent with what i heard from the city attorney's office, so if i can, through the

chair, ask what the legal opinion is? >> through the chair, supervisor, the language in question is language that is customarily included in both development agreements and leases, and the traditional interpretation is that you would look at the changes in their totality and not in isolation. supervisor campos: it is very clear that the changes have to be in the best interests of the city and do not increase liabilities, are necessary or advisable note, and effectuate the purposes -- are necessary or advisable, and effectuate the purposes. i understand that there may have been a practice, but in terms of once this board delegates what we ought to rise, i would like to know what your

definition is -- but in terms of what this board delegates and what we authorize. >> the discretion the was conferred on both the port and the mayor's office under the resolution, and agreed to which they could appropriately conclude that the three-part test best-interest of the city did not materially increase obligations and liabilities and was needed to bring the america's cup to san francisco, whether they could reasonably conclude that it satisfied those -- that three-prong test. the ultimate question of materiality and liabilities is essentially a factual determination, based on a factual analysis and a business assessment rendered by the port and the mayor's office with

respect to the totality of the changes, and the role of the opposition is to determine whether or not there was a reasonable basis for the negotiators -- and the role of the office is to determine whether or not there was a reasonable basis. supervisor campos: if i may, i do not want to belabor this point, but going back to the question that supervisor mirkarimi asked about , so the new, revised agreement basically sets -- asked about, so the new, revised agreement basically sets -- four square foot -- per square foot, the agreement that was approved makes clear that what we approved was rents be set on an appraisal, and that is different, and the reason why i

voted? for setting -- why i voted for setting rent based on appraisal was to make sure the we got the most in red for the city -- in rent for the city, so setting it at $4, or $6, it may not do it. not a material change, because depending on how the appraisal looks, you could end up losing money. >> ok, supervisor campos, to that issue, i want to say that reports, one of its missions is leasing real property that the city owns, and in the course of that leasing, the port has real estate professionals, and you have heard from jonathan stern,

and we have a whole division, who routinely look at market comps, that set -- that represent the fair-market value of the property, and the $4 for 30, 32 is much greater than the analysis prepared. there was an analysis prepared that was the basis of our evaluation discussion of 30, 32, -- not an appraisal but a realistic economics firm looking at the fair-market value of the property -- but a real estate economics firm looking at the fair-market value. they concluded somewhere in the neighborhood of $1.30 million, a city more than 500,000 square

feet of development. this rent would be over $2.20 million, so it was much greater than the independent analysis we had at the time, so we are confident it is a fair-market rent. supervisor note -- supervisor campos: the board did not approve it be based on determinations by staff. the board approved that the winds blew -- would be based on an appraisal, -- the board approved that the rents would be based on an appraisal. that is different from what we approved when we voted on this, so to the extent that we're talking about what is material, to me, that is material, and i am not questioning why staff would do that in such or such a way. if that is not what we approved, then -- >> i agree that that is a change

from what you approved. i think one comfort in addition to being able to consult with the city attorney in this process is knowing that the term sheets and the dda's will come back to you, and i think it is good for us to hear the concerns that are important to you as we go back to the negotiating table. we want to hear what is most important to you as we start those more detailed negotiations so we can bring back a product. chair chu: supervisor, did you have additional questions? supervisor mirkarimi: i appreciate supervisor campos' questions. i went to get back to the generalities and what has been talked about since the release of the report -- i want to get back to the generalities.

we gave up a guaranteed participation, rent participation on some things, sales and transfers, into my perception, that was a loss. we've locked -- and to my perception, that was a loss. significant losses as reported note -- reported by harvey rose. unlike the other five bonus piers, and then allows things to be transferred back, in a period, which could cut either way, so i want to focus on those nuggets which called into question, i think, and i think there may not be any and point in the discussion or debate today of what is substantial or

material or not, but it helps -- i do not think there may be any -- and i think there merit -- i think there may not be any end point in the discussion or debate today. >> what i would suggest is if you one third-party corroboration of those -- if you want third-party corroboration of those, we are happy to do that so you have confidence in those numbers. with respect to pier 29, you mentioned that, supervisor mirkarimi, and i think you're saying that the city does not have discretion about long-term development at that site, and we disagree with that.

i want to explain -- the language in the agreement governing these additional pierrs, 19, 23, 29 -- additional piers, which could be developed in the future, we were here analyzing a case where the authority may spend $100 million. and if the city approved that, how could they get that money out? it was evident that the long- term development rights plus something else may not be sufficient for all of that, so consistent with the general principle of a good guess, we proposed these additional sites. i want to bring this back to the discussion of the committee hearing on december 8. one of the concerns that port staff and mr. rose have

addressed is the long-term haute -- the long-term rent loss. if we give up rent at too many sites, we cannot do as many public works projects. we were very clear at the negotiating table that 19, 23, and 29, represented, if they all begin development sites, and there were credits offsetting, -- if they all became development sites, that could affect things, so we insisted on a standard of sole discretion for these other piers, with the exception of 29, and that is really so we could make a judgment call later about whether or not the hit -- the

port balance sheet could handle that. in respect to 29 -- both the commission and the board have discretionary approval at 29. it is not approval for the rent authority. how much is spent is within the city's control and whether or not to developing 29 is also in the city's control. -- whether or not to develop 29. .-- supervisor mirkarimi: you already -- and then transfer but -- transfer back. >> on that issue, i think the budget analysts report spends a good amount of time going into a

concern -- a budget analyst's -- the budget analyst's report spends a good amount of time going into that concern. while they go through an entitlement process, and i think the budget analyst was concerned that the port may not be able to get a tenant or would occur some maintenance expenses for some time, and this is what we do at the port. there are properties that we lease on an interim basis all of the time, typically five years or less when we are not in a long-term situation, so we have a real estate staff that does this all of the time. some are leased for parking. it is a commodity. it is a very easy type of lease

to do, and we are very confident that if they gave those properties back to the port that we would be able to put out a request for a new parking operator and release those sites just as we do today, -- a request for a new parking operator and lease those sites just as we do today. pompez -- supervisor mirkarimi: their discretion, not ours, but to support for up to tenures -- back to the port for up to 10 years. america's cup. i think it is the discretion that is a concern and that it shifted in net two-week period in the agreement. >> -- it shifted in that two-

week period in the agreement. >> this is the business that the port is in, this kind of short- term leasing, and we know how to do it, and, frankly, it is not the business that the authority is in, running parking lots, so i think we are more confident of our ability to gain revenue for the site, but i hear what you are saying. supervisor mirkarimi: but in total, what we thought might be a certain dollar amount for us, it shifted. it is hard to say complete with a crystal ball with any kind of economic indicators, -- it is hard to say it completely with a crystal ball that it shifted because the guarantees had shifted. it then throws it back on a future board of supervisors to kind of figure out, and port, to figure out what that looks like,

so we do not know what that bottom line looks like yet. >> the proceeds that we were talking about earlier. i think we agree. this was an issue that deport -- the port saught and that we propose to the port commission and then the board of supervisors -- and that we proposed to the port commission. the harbor fund. the agreement is silent on that now. that is a change from the 14th. what we are hearing today is that you are concerned about that change, and we are going to discuss this at the negotiating table going forward. supervisor mirkarimi: it it is your position that these unresolved and -- concerns can be resolved because it comes back to us?