quotations was that the city was holding on by its fingertips. really, that type of press coverage continued up through the 31st, and representatives of the team went back to new england to visit rhode island officials, and there was a sense that other competitors, other cities were really in the running. that was the backdrop against which we -- first, the mayor knew some and later with city staff, reached out to the event authority to take advantage of the delegation of authority that the board had offered in its resolution. i will get into some of the details that counsel is going over earlier. the mayor had a series of exchanges with the ceo of

oracle least management. during those exchanges, and i was not party to them, but in essence, they established clearly the terms that oracle and the event authority were looking for in the city's bid that would bring us back into this preferred position to win the bid. so it was a high level term sheet discussion. in essence, they were wanting clarity about their ability to develop seawall lot 330 and years 30 and 32, and i will get into those details in a moment. we wanted to understand how the infrastructure financing district would work. with that high level direction, it was really -- the directors were very involved in all of the war and some analysis that supported that exchange.

the city team sat down again with the event authority to try to address their concerns. the other thing i will say before i get into the meat of my presentation is that the entire discussions about the america's cup and their investment was framed for policy workers and the public as a give/get. the invalid authority invested millions of dollars in the waterfront to improve the waterfront in preparation for the race, that there would be a way through development rights to recoup that investment -- the ebit authority invested millions of dollars. it is the view of city staff and negotiated the terms i am about to get into, that we honored that fundamental equation, that there is nothing that has changed with respect to that, that we made a very clear finding that on balance, all of

the changes, both the concessions that were made and the things that the city one in turn were not material with respect to the agreement, getting directly to your point. we consulted every day with the city attorney's office on that point. we were both very motivated to try to win the bid for the city because there were high expectations, but very clear that we had to operate within the framework of the board's resolution. so that is the background. i want to say that we welcome this transparent public process. it made the city's bid far better when it happened in the fall and through the early winter. we appreciate the budget analyst's focused attention on this deal. it is a big deal for the city, and it is important that there is good third-party review. we look forward to that continuing.

supervisor mirkarimi: mr. vinson, through the chair please, i appreciate the context, but i really want to get to the specific math if we possibly can. i have many questions. i know my colleagues will as well. we can structure one of two ways. i was going to let you respond to, as the budget analyst and relevant departments, want to speak to those concerns or issues, where we can direct the hearing by questions this way, but i wanted to give you the chance to go ahead and initiate. supervisor chu: before you do, i just want to make sure we recognize the chairman of the acoc. thank you for being here. and if we could go straight to the issues at hand, that would be great. thanks. >> ok. this is going to focus on those

two weeks. i will not spend a lot of time on this slide. this sets the requirements of the resolution with regard to city staff's ability to negotiate some of the changes that did not materially increase the city's obligations or liabilities, are in the best interests of the city, and were necessary and advisable. that is what we were operating with. i want to go over the structure of the future board approvals, just so that everybody is clear about how that process will work. first, the city is required by the california environmental quality act to conduct ceqa analysis on the event before entering any binding agreements, lease agreements related to the events, and that ceqa process started in early february. the first approval by the board

of supervisors is likely to be a term sheet approval from may to july. we are hoping. during that term sheet, we will discuss the terms of the venue leases, so the event of 40's use of property during the events, and also include scopes of work for the proposed waterfront improvements. so the board will be approving the amount of investments that will be allowed under this deal, and that is important. that goes to the question of balancing and the amount of development rights that will come later, and i will get into that. we are expecting a final environmental impact report in october to november time frame to allow construction to start in an earlier 2012. the board would approve local

this position and development agreements. these are essentially the financial development terms. not all of the terms because we will not know uses, but basically, that the equation of how much they have invested compared to how much credit they get is in the future against what rent the port will charge. we would expect that the dda's come to the board of supervisors sometime after january 2012. next, there would be a project level ceqa analysis for any project term development, and we would expect the long-term leases to come to the board in 2014 or later with probably another term sheet level approval regarding the uses for those sites. there are multiple discretionary approvals by the board of supervisors going forward related to how all of this works.

essentially, what we were negotiating with more certainty for the team on the financial terms and flexibility as to how they could be repaid. the major change, and i will put it in the context of all the changes later, that we want in this time was a guarantee that they would make $55 million in waterfront improvements up front before the match. in the december 14 agreement, they could differ much of that work until after the match. since the public expectation is so high that the waterfront improvement would be improved by the america's cup, we thought this was important from a port perspective. that $55 million translates to a right to a long-term lease of 30, 32, and the ability to purchase seawall what 330, subject to the state's approval. by making that $55 million in

investments, they will be at an equivalent amount of rent credits with an annual rate of return that they can apply against the red of 30/32, and -- against the event of 30/32 and the purchase of 330 -- against the rent of 30/30 chip. there is a new rite of the city against the agreement to pay for the costs. it's a concern is to not see other sites along the property that i will talk about a long -- in a moment, the city has that as an option, the ability to pay for waterfront improvements needed above $55 million. of course, that would be subject to the board goes the appropriation. there is another way to pay that

through infrastructure district financing proceeds. that is subject to the board's approval within the agreement in substantially the same form. next, if the investments above $55 million still are not amortized through one of those other means, appears -- appears -- piers 26 and 28 are available. finally, we get to the new ones in the equation that's were not specifically called out in the december 14 version. 29, 19, or 23 in the city's sole discretion. i think it is the view of court and city staff that -- campos -- port and city staff that unless

the board approves and agrees that it wants to see a high level of investment, that getting to the end of this development waterfall is a very remote possibility. supervisor chu: just to clarify, what you are saying is that the improvements, the $55 million would have to come to the board, in addition to any amount that would potentially be over that amount, and should that occur, in terms of how we would repay, there would be a number different options, which you have laid out here, which is to set up potentially the sea wall lot, but credits, and if that is not adequate, the city could choose to repay and reimburse the amount back so we could potentially have the option to say we just want to pay it out right? >> that is right. $55 million create certainty around a long-term lease of 30/32 and the sale of 330. it is only amounts above that that create other potential development rights, each subject

to the approval of the board. for the benefit of the public, i wanted to give a quick overview of the locations we are talking about. shown on this map, the most southern location is pierre 80. that will not be a development site. in the central waterfront, steve a lot 330, piers 30, 32, + 28 and 26, just south of the bay bridge. and this america's cup village location in the northern waterfront. piers 19 through 29 with potential development sites at 19, 23, and 29. i want to get into each of the detailed changes. if i'm getting to detail, we can all for it -- also defer to question and answer period right after we -- the mayor signed the agreement, that was put up

on the oewd web site, and he also put a summary on all of these changes as well as filed these changes with the clerk of the board. i want to say that generally, with respect to the body of the budget analyst report, we agree with the budget analyst's analysis of what the changes were and how they work. first, i have already described that if they make a $55 million investment in the waterfront, that they get the long-term lease. 30/32 and seawall lot 330, and i mentioned that they have to now make those improvements of front, which we think will be a major benefit to the city. in order to get to the financial certainty about how these work, we had to set the camera, get rid of $4 per gross square foot for the new building area. jonathan stern of our

development group, can get into the details on that. we established a rental rate of $6 per gross square foot, each subject to cpi adjustments over time, as is consistent with our leasing practice. we also define very clearly how to appraise seawall lot 330. that process is happening now. we expect that that appraisal process will be complete by may, and that we will be able to report to you what we think the value of c a lot 330 is. we had estimated it in a december hearing at $33 million. -- the value of seawall lot 330. in early january 2012, or concurrent with bringing the dea's to you -- the dda's to

you, the agreement is clear about how those monies could be spent. all of that is consistent with port's infrastructure financing law. we had only conceived of 26 and 28 as longer-term sites at the time when we were in front of you. we came up with a good idea, that they could be, if needed, to burn off more rent credits. they could just be interim least. they could control those interim lease revenues until they burn off the credits. that is a shorter term way of solving a small overage. i mentioned earlier that the city can essentially fund improvements above $55 million if it chooses to. that is a benefit to the city. we did remove the provisions providing for for participation

in lease or condominium sales proceeds, and i would like to dwell on that for just a moment. when we presented to you, we talked about this idea a lot. that on second or -- let's say the event authority were to build condominiums on seawall lot 330 and sold to private owners. the proposal was on second and subsequent sales, that the court would receive 1% of the sales price as an annuity to the harbor fund, to the public trust. it is a structure that we like and think should be replicated at other locations along the waterfront. we do have those for dissipation sales proceeds provisions -- those participation sales proceeds provisions in our leases. we tried to show the team that by applying those provisions to

subsequent sales that it did not affect their financial outcomes with those locations. i think we got a lot of the way there, but we did not get all of the way they're in showing that to them, so the agreement was silent on those issues -- we did not get all of the way there. it is an issue we will talk about. supervisor mirkarimi: you are hitting some point -- i would be inclined to say just go through it all, but on piers 30 and 32, would our liability of the city be substantially enhanced because the changes after the december 14 agreement reduce the basis as most of this is driven, the basis of the legacy value by

removing 30 and 32 from the calculation, thus greatly increasing the possibility that the then the authority would be entitled to reduce the scope of this improvement work, increase rent credits, or official long- term leases on other properties. >> i would have to dig up the reports, but what i hear you saying is -- did we dig up the city's liabilities by removing 30/32 from the legacy value of calculation? is that essentially what you said? supervisor mirkarimi: that is what i pulled out, yes. >> there is a complicated balancing provision looking at investments and how it is balanced against long-term development. this is section 7 of the agreement. the way it is structured as if they make $55 million of

investments, that amount, and the leases for 30/32 and see wall lot 330 are not part of the balancing. that is sort of the base case scenario. the balancing goes to investments made above the $55 million and how that translates or does not to additional development rights. i do not think we increase the 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: