other former of redevelopment agency funding sources, so -- supervisor chu: it looks like this is being paid for primarily through funds as well as transit oriented development. >> that is correct. supervisor chu: and is there any new staffing that will be hired through this grant? >> i am not certain of that at this time. with respect to the mayor's office on housing, i am not certain. supervisor chu: it looks like it is not, given that it is a resolution. there is no budget analysts report with this item. if there are no questions from the committee, why do we not go to public comment on other members of the public to wish to speak on this item? seeing none, public comment is closed. supervisor avalos: motion to

approve with a recommendation. supervisor chu: we have a motion to approve with a recommendation, and we will do that. please call items number five and six together. clerk young: item number five, approving a lease of approximately 9000 square feet with a rent of $25,597 per month, and sublease of 575 polk street, with the judice to counsel of california, and an agreement and authorizing other actions with this resolution. item number 6, approving the exercise of the mes expansion of approximately 9000 square feet at 555 polk street with the mattison family trust at a base

rent of $16,100, for use by the charm of public health and community justice center. supervisor chu: thank you. we have john updike. >> thank you, chair chu. i am mr. r updike. -- mr. updike. the highlighted area is the location of the city, city hall located here, so we are just a couple of blocks away from city hall. so in 1990, the board approved the initial 10-year lease for courtroom, a minister in offices for superior court, and that was extended for an additional 10 years in 2001, with the current landlord, the mattison family trust.

there are offices and one conference room that make up the 9000 square foot space. the month has been on hold overs since july 2011, while negotiations with both the landlord and be administrative office of the courts have progressed to a point that have produced what is before you today. in 2008, to give the background on what you have what you have in front of you and the way you have it, the board approved the state mandated court to transfer agreement between the city and they -- the aoc, subject to things that may impact the property, like this lease. under the legislation, the city was obligated to pay a county facility payment, but that cfp

could be reduced. this 10-year lease is fixed at $25,597 per month or about $34.80 per square foot. until its determination in july 21. it includes 15-year renewal option, and that is at 95% of fair market rent at that time. to give you a sense of comparables, what we found in the area, this is both rental transactions and listings or rent, the range from a low of $24.60 per square foot on an annualized basis to a high of $49 per square foot, so we believe this amount for the first floor, considering the pretty robust courtroom-related improvements to the city are in

the range. did we get that on the overhead? were you able to see that? great. i will leave that up there for a moment. the lease includes an expansion option, so this is that we begin to migrate into the other item on the agenda to include the 9000 square feet on the second floor, and that would occur upon the termination of the lease between the landlord and the california culinary academy in march 2013, which would then terminate all of their lease holding interests on july 31 of 2021. so along with this lease of 575 polk, it would also approve a sublease back to the aoc, under the same provisions that allows the city access to two holding cells in conjunction with our upstairs activities of the community justice center.

the courthouse construction funds can be a source of the base rent additional charges except for janitorial and security, because those were specifically excluded in the state legislation regarding transfer of court facilities. finally, the resolution allows the minor amendment to the transfer agreement itself that i started with done back in 2008 to allow the use of ccf funds to pay the rent to allow the city to offset the payment owed, and i think what others, they will explain that further for you. items six, this was originally a sublease of the california culinary academy done in 2008 to open the community justice center, so this address is slightly different, but it is essentially the same building. it is in 9000 square feet above what i was just talking about

and expires in march 2013 with no renewal options. the current rent is $21.50 per square foot, or $9,100 per month, so if you recall that list of comparable ones, it is below from what we could find. the rate would remain the same through july 31, 2021. there are no insulators -- in fleet -- inflators. this would allow the director property to affect an expansion option to the 575 polk lease that i spoke of earlier to include the upper floor space upon the expiration of the sublease. my apologies for this being one of the most complex lease- assemblies once brought to you, but this is the easiest way to do this. there is the facility at the building for the next nine years at an extremely

attractive fixed base rental price. so they should be considered as a package. to negotiate the agreement before you, we were forced by the landlord to consider this a package. that drove the deal turns in front of you, the favorable nature of the rates, and if we had broken apart these two 9000 square foot basis would have been significantly higher. so in that light, we certainly have been much more favorable agreement here, securing occupancy to 18,000 square feet at a combined rental rate of 2313 per square foot per year. -- $23.13 per square foot here. it also compares with our own

internal space costs. this is delivered in a price cheaper than we are able to deliver space to our own occupants in our own buildings, and, again, it is fixed for the next nine years. the budget analysts as outlined the statistics to date regarding operations, and there is a very thorough report, and we of representatives here today to address the details if you want to get into that, and we have members of the community to talk about the impact on the adjacent communities, as well, so there has been some discussions about perhaps a repackaging this for a short- term lease for the 9000 square feet on the second floor. to do that would result in a far higher rental rate on a per month basis. it would involve renegotiations of both the lease and the expansion option concept in the least for the underlying 575 polk, so we lose many of the

largest that we have with packaging this together as one agreement. should for any reason the board determined that the space is not needed any longer for that purpose, then we have several other potential uses, particularly the department of public health has identified specific program uses, and, frankly, we are out right now securing visas which may be becoming before your body very soon for expansions, many of which are either grant funded, revenue-based, where we just havewithin the city family of buildings to accommodate those programs. we're executing the show does -- shortest term leases possible, so if they become available, we can relocate those uses. this, because of its proximity to city hall, is an ideal candidate. the quality of the space,

location next to the seat of government, and the favorable occupancy costs fixed through 2021 makes it ideal for any other years, so i ask that you look at this not just in the context of what is needed for the community justice center, but is this an intelligence securing a space on a long-term basis at a fixed-base rate for our needs into the future. again, to give a little context to the picture of our space needs, we have got about 1.9 million square feet of city- owned offices, that is owned offices within the civic center and around the hall of justice. out of that 1.9 million square feet, we have about 5000 square feet of vacancy, and these are the occupancy rate today, 99.8%, so we are simply a few grant- funded positions or one program away from meeting space, and

that is in fact what we are doing right now in the marketplace, finding space for these one-off needs, because we do not have any space in our portfolio. finally, i would like to note that we did negotiate one opportunity for a termination of the lease, and that provides for a notice in june 30, 2015, with an effective date of june 30, 2016. the landlord wanted pretty significant notice in order to be able to re-purpose and release the space, so it is a one-year notice, but if we determine that these are not needed at this location at that time, we do have that ability, for whatever reason, to terminate without penalty. conversely, if we agree to stay for that remainder five-year term, we also have negotiated provision for additional tenant improvements of up to $108,000

for the state -- space, so we can refresh the space during this 10-year occupancy. the budget analysts has recommended some things, and we appreciate the meticulous nature of that review and certainly agree with those changes. we did miss a couple of dates there. i am joined by the ceo, and public health officials are also here to answer any questions you may have, and i am happy to answer any of your questions, as well. thank you for your time. supervisor chu: thank you. i am sure we will have some questions, but before that, i want to go to the budget analysts report. any questions at the moment? sir? >> on page 8 of our report, we point out as shown in table 1 the total cost of the proposed 575 polk street least to the city, and that would be over the

lease, over $3 million. that is for the continued operations of the 575 mes -- least -- lease. i would point out on page nine, as you know, the rent has been funded from the courthouse construction funds. there is a deficit in that fund, and what will happen is that the general fund will kick in to pay for the rental costs if that fund continues to have problems. we have no recommendation about that. i simply wanted to point that out to the supervisors. on page 10 of our report with regard to the expansion option, as shown in table two, the rent and operating expenses for dph

at 555 would be over $2 million, and that would be for the continued operations of the community justice center. on page 11 of our report, which point out that the superior court has entered into a tool hundred thousand dollars, two- year agreement with the rand corp., a nonprofit organization, to conduct a nonprofit -- to conduct a study, which should be finished in 2013, so our recommendations are on page 12, and as mr. updike has indicated, our first recommendation is we recommend that you amend the proposed resolution on page 2, 5, to change the correct date of when this is the transfer of maintenance and operation responsibilities for the polk street facility. it should be december 31, 2008,

and again, to amend the same relation -- resolution to obtain the correct date of when the 575 polk lease expires, june 30, 2011, and we recommend you approve that resolution as amended. regarding the other resolution, which you consider that to be a policy decision because of other results of the independent evaluation of the community justice center. it will not be known until the evaluation is completed in late 2013. that resolution would exercise an option to continue the lease for the community justice center for eight years and four months, which would commence in march 2013 and extend through july 31, 2021. i would be happy to respond to any questions. >> thank you, mr. rose -- supervisor chu: thank you, mr.

rose. i do have some. mr. updike? i think you talked about the package is being separate bowl -- being able to be separated. where the cjc is currently located, i thank you said if we would support the package, the terms could change? please speak to that a little bit more. >> that is correct. we have structured this to allow for what is called an expansion option, so there is essentially one master document that pertains to the occupancy of both the forest and the second floor. to separate out the second floor issue and make its short-term means we would have to renegotiate the lease and such a way to keep them separated, so we would have to strip out the expansion option issue or modify it significantly. the landlord had indicated to us that if there is not that

certainty of term, certainly at least until the first opportunity for exploration and 2015, the base rate would go up significantly to market, which is not an unreasonable position for the landlord to be taking, the idea being that they are providing us a break, because we are willing to commit to a longer-term. >> and in terms of beef -- least expansion, -- lease expansion, i just wanted to be clear that we are already in that space. it is just the sublease from the culinary group. >> yes. when that sublease expires, we do not have any rights. this captures the space under a new document, this master lease. supervisor chu: a kick, and there is a question about the space, and particularly the cjc

-- ok, and there is a question about the space. whether there is a program that should continue, and i know there is a rand study coming out that while deal with the effective use of the program, or maybe not, but i think many of us are in the mind that we do not want to be locked into a long-term lease when we may not have an interest in continuing the program, but separate and apart from that, one of the things you talked about, if we do continue forward with this please, there is quantity future demand and future use of the space and that we also ratified- year out clause. can you speak more about that component, and really how does it compare in terms of rental rates out there? i think you speak and alluded to this a bit. in any case, whether we support cjc going forward or do not, it

does seem like the city has a need to get additional space going forward, and it seems you are suggesting that the rates we are getting under this agreement would be favorable for the city. >> yes. i am not sure i could articulate that better than you did, chair chu, but we of a backlog. we are out in the marketplace looking for shorter-term lease is that we could find, so if we find opportunity is -- if we find opportunities in our own buildings, we would want to move them, but, frankly, we are out of space. adult probation is an issue. we have a space need there. grant funded programs, like the department of environment which has grown into where we have really put them in the memorial buildings. they will be ebidta as part of that seismic retrofit coming soon. they have nowhere to go. so we are looking at solutions

for those space needs. this is actually a very good, generically buildout 9000 square foot plant that could be used for a number of office uses, so there is nothing terribly particular about the buildout on the second floor that would preclude something, so i believe and adds value to our portfolio, and you would be seeing some and a number of these items that could potentially backfill, if, indeed, the cjh -- cjc is not the occupant. >> -- supervisor chu: i think it is important. through legislation, we had transferred over the operations of many the court facilities, except where the city had already entered into a lease or existing space, in which case as part of the transfer agreement, we would pay a court facility

fee basically that was roughly $300,000 plus. the city, once we transferred that responsibility, is still responsible for paying that $300,000 amount to the state. is that correct? >> that is correct. supervisor chu: and we have basically been able to credit ourselves to the extent that we are paying for a lease. is that correct? we are actually cutting ourselves, not paying the state as much, because we are paying for this lease component, correct? >> it is a quirk in the legislation, but, yes, we are doing our best to take advantage of the letter and the spirit of the law, and it does allow for that. supervisor chu: snow, going forward, the court would have to pay the fate, correct?

>> yes. supervisor chu: there was also a chord construction fund that was put in place in 1992, and i think there were penalties and other things that is not really this is the money, so forfeitures, all kinds, forfeitd things that go into that fund are actually the state's money in it would be something that we would have to turn over to the state, except for when we are paying for leases, correct? >> generally, i believe that is correct. mr. levenson might want to add to that. >> [inaudible] supervisor chu: i think you have to turn on the microphone. >> yes. here we go. the court house instructions pay for debt service based on participation at the courthouse. supervisor chu: once the construction fund finishes paying off the debt service on that fund, and we have no longer

a lease obligation, that money would not be coming to the general fund. it would be referred to the state, right? >> correct. supervisor chu: it would be in our interest to have a lease that we could pay for in terms of the corpus of latifi? >> that is right. essentially, it is being paid for with funds that would otherwise go to the state. we are also getting credit on the courthouse facility payment costs. supervisor chu: thank you. supervisor avalos: -- supervisor kim: regarding your response about the need for additional real-estate for other services that the city provides, realistically, if the board in the city decides not to continue the city justice center, we are still looking at another two years? it is not as though in need that exists today will be a need that we have at the end of the year

2014? he said you are searching for four term leases. how realistic is that in terms of getting these urgent need leases that the city has? >> quite realistic. frankly, we are surprised. we did not think we would be able to negotiate those. in the civic center, a lot of things are queued up and a lot of activity will happen over the next four years that will change the rates. lots of people said they have taken rates and they would rather have someone in there, paying them something, but they foresee a time in the near future where the rates will go up substantially, if things progress as currently planned. i am not sure that that never really happens, but that is the plan. supervisor kim: what about something that could come up on cue, at that moment? >> there is nothing in

particular, but there are a number of current leases with expiration dates on this, within a few months thereof, that need time to space plan. supervisor kim: one of my concerns is that we do not continue the justice center. and by some series of incidents, all of our other surplus needs for property have been tied up. but you feel pretty strongly that that is not a scenario that will be in front of us? >> we do. supervisor kim: something that would be interested in would be amending the least to come back to the extension in march 2013 for a plan with what we could do with that space. hopefully we can ask the department of public health to

coincide their collaboration. >> i believe that they will do what they can to accelerate the study. if i understand the difficulties of this study, the control groups that have to be involved, it is a lengthy study if you want meaningful results. short and greatly, we may not have that level of confidence in results. supervisor chu: would real- estate be able to come back to us before executing the extension in march of 2013? potential real-estate needs that we could put in that site? >> we could certainly do that, yes. i think we should require that come back to us in 2013 in that space.

supervisor chu: thank you. let's open these two items up for public comment. are there members of the public debt which to speak on items five or six? i have two speaker cards. >> good afternoon, chairman and supervisors. in the executive director of the civic center community benefit district. for those of you who may not be a bit -- be aware, this was approved by the board of supervisors one year ago in january. we started the operation in july of 2011. the c j c m. the court are in the community benefit the district. even if they were not in our

neighborhood, we believe that the services that they provide are a benefit to our neighborhood and the entire city of san francisco. as we have seen with the housing that has been created over the last few years, housing that incorporates services for these inhabitants has been more successful long-term. while we have this major world renowned company doing the study for the cac, -- cjc, we can always rely on anecdotal evidence, but the data provided will be a great service in helping you to make a decision about whether or not to continue the program. obviously, for our district is a great addition to the neighborhood. so, thank you. supervisor chu: