1, at which time our red will go up 25%. -- rand will go up 25% in allocation. -- rand will go up 25¢ -- 25% in that location. we are very crowded where we are and one manager has an office in a closet. that is actually true. we have grown from six full-time positions the 2006 to 115 full- time positions in 2012. it is a 109% increase over six years. over the past 18 months, we have been working with real estate to find suitable places to be located. we have learned -- looked from market street all the way to embarcadero as well as van nuys

and selma. the main criteria has been access to city hall, public transit, as well as a location for the public. of course, something that can fit within our budget and it's consistent with market rates and with a priority to put all our staff in one location. realistic and the department of the and armin have been working with hudson properties on the proposed lease at 1455 market. we have completed this negotiation process on the base lease and we have a mutually agreed upon document ready for signature appeared on this side are the favorable terms included in that base lease. these terms include the 24,440 square feet of space.

the term would be seven years with the option to renew. the the baseline rent will increase annually by $1. and the landlord has -- has included an allowance for renovations to the space. this is a shelf space that needs to be led out. right now, real-estate does project the buildout cost is too -- is likely to be $75 per square foot. additional costs will be covered by in-kind or cash donations and may be amortized if necessary. the department offered us the

opportunity to borrow at a rate of $10 per square foot in order to cover the costs. the way the lease is described, we will only exercise that option if the upcoming funding efforts did not pan out the way we anticipate a well. we currently have quite a few companies that do work in green buildings that are interested in either providing free or at- crossed services and technologies to the department of environment office to be negotiated with the space in the city. supervisor avalos: are any of those companies aware of the total costs it will take to build up? >> we have not gotten to that stage. most of the companies are waiting to see a final lease and then we can take it to that next level. if i may, i would like to bring out director of real-estate john update, to talk about conditions of the lease.

>> thank you, john updike, acting director of real estate. you have seen previous issues of finance relative to the budget. their comparables to those members on the screen before you now. this is considerably below market rates that we think are actually in the mid 30's to the mid 40's, moving very quickly, unfortunately, in this rapidly changing civic center market. as you average over time the cost for this particular location, it is on average a $30 per square foot rate over a seven-year term. that is a favorable position for the city to be in. and the tenant improvement amount is equivalent or slightly better than what the market is indicating.

i will be happy to answer any questions that you might have about the lease proposal itself. chairperson chu: supervisor kim? supervisor kim: i'm happy to see the amount -- immense amount of work that has gone into finding the space that will allow the organization to be in one space, but together they given the market conditions. my question was actually on the tenant improvement. if your asset up to about budgets, i'm wondering what the budget with the like if you only had $61 per square foot, and what it would look like you at $75 per square foot. >> we have not gotten to the point of setting up those budgets yet. it is a bit of a chicken and egg situation where without a signed lease we have not been able to engage a contractor to give us a cost estimate. but i will tell you the $61 we know is going to go to the basic

infrastructure that we will need regardless. the chp systems, the lighting, the wiring for computer and phone systems, the preliminary architectural design that the building's architect has done for us, which does include a core for private offices for senior staff as well as the conference room. if we cannot for some reason fund up to the $75, we may have to adjust the architectural design so that we have less private space. that would make us look more like some of the many tech companies that have much more open collaborative environment, which we tend to want anyway. we think that is where some of the trade-offs might be, in the construction costs. supervisor kim: i know i asked esther -- yesterday what the comparable costs were at this site. have you as other agencies to get a sense of what this cost is?

>> that is somewhat still in flux for final numbers, but this is very comparable. we are at about 10% of what the transportation authority is for their space. the space they have selected is slightly different in terms of the initial build-out. it is not exactly an apple for apple comparison. but it is closed and their needs are similar as well. supervisor kim: thank you. >> i just have two final slides. one of them is regarding lead certification. as is named for the green city index, we do think it is necessary for us to lead by example and had a goal of approaching the platinum interior. lead stands for leadership in energy and environmental design. it is a point base system for

achieving sustainable and green neighborhoods. leed provides building owners and operators a framework for identifying practical solutions for green building design, construction and operation, and maintenance. in san francisco, we have a minimum requirement in the environmental code drop -- chapter 72 reach leed goals. our leadership goal is to reach platinum, which would require 80 points or more. as you see on the side, our initial take at reaching leed platinum status in the current status right now is that we can count on 75 points, and there are five more that are not secured. considerations for reaching leed in this interior are the hvac systems, electrical, lighting, the type of flooring, interior

walls, as well as furniture. and using an existing building is consistent with overall sustainability. in sum, we have been working with real estate for 18 months to identify a location. we're very excited about this opportunity to move into one unified space that is sustainably designed. added that a highly competitive rate. we firmly believe it is a good investment for the department of the environment as well as for the city as a whole. if we delay, we could face a host of negative consequences for the department, which do in committee increased costs. the holdover lease that has been negotiated will have a 25% increase in our rent at 11 grove starting in november. as part of these -- this hold over negotiation, the ego-

centered is off the table -- eco-center is off the table soon. and we will have displaced employees, 30, that will have to relocate to to the renovation. we are requesting that the budget and finance committee approved the lease resolution with a favorable recommendation to the full board. we have a final lease negotiated, which is ready for signature, and we cannot conduct a fund-raising campaign and secure the funding sources and to lease is approved. regarding the budget, would you agree with all of the recommended cuts to our budget that the budget analysts recommend. i along with my director as well as the real-estate director are happy to answer any questions. thank you chairperson chu: before we go to the budget analyst report, just a quick question. i do not know which allegedly were far in these budget analyst recommendations for cats. >> we are ok with them.

>> madam chair, members of the committee, on the budget on page 84 of our report off -- page 8 of our report of our recommended reductions it is shown in 26 and 27, totaling $47,806 in 2012-13. these reductions would still allow an increase of 107% in the department's budget for 2012-13. regarding the lease, we have several comments on the bottom left page -- the bottom left of page 5. the annual costs would go up by 191,000 four hundred $71, or about 39% -- $191,471 or seven

-- or 39%. the real estate division estimates that the department of environment's tenant improvement will cost about $75 per square foot. and there is a funding gap of about $342,000. and the department comments that there are three possibilities, including fund raising, to pay for that gap. we recommended on page 8 that -- and as i am understand it, there's still not a final

executed a lease. we recommended a continuance to see the final executed lease as well as since the 340 two thousand dollars has -- $342,000 has not been secured, we want to see how that will be paid for. we will answer any questions. chairperson chu: colleagues, any questions about any components of it? >> we do have an executed these as of about 15 minutes ago. it in -- executed lease as of about 50 minutes ago. it is in our hands. chairperson chu: that is good news. we are moving quickly. colleagues, if we can't i know there is an agreement with regard to the budget analyst

recommendation -- if we can, i know there is an agreement with the regard to budget analyst recommendations. can we take that first? supervisor avalos: you have a final executive lease, which is good to hear. but it is impossible to approve the lease separate from the improvements. that is where we do not have certainty about how we will cover those costs. to what extent are you able to move in without the tenant improvements come off or is there movement in that area? >> if i can clarify on the execution of a lease, it is executed by the landlord delivered to the city pending the board authorizing it. just to clarify. the good question about bifurcating the base lease from

the tenant package. the challenge that we have is that for the project to move forward and our timeline to be met, we need to engage in design and construction services team from hudson pacific. the ownership needs to have confidence that the tenant improvement package is something that is approved as well by their tenants before moving forward. it is difficult to do one without the other and not have a serious schedule impact. we would be on hold taking the design to the next level to price this and get it into construction. supervisor kim: one other recommendation i would make is that we would be happy to come back to the board -- >> one other recommendation i would make is that we would be happy to come back to the board to clarify improvements. we know that we have the $61.

we can hit the ground running on a fund-raising campaign. i would be happy to come back and report to this committee or to the full board about how things are going, or at a time certain to provide more information. but as the director said, they are entering the plea linked. -- a intrinsically linked. supervisor kim: i do not feel comfortable with approving tenant improvements at the $75 per square foot. i think we either should have two architectural plans going forward, or you should commit to the plan once the fund -- the money is fund raised. but i do not feel comfortable with the potential alternative, which is increased rent, barred and amortized which seems to cover what seemed to be not necessarily tenant improvements. but i feel comfortable with the

lease as a whole. i'm happy to see the work that way into it. i'm trying to figure out how we can move forward on this with what the property owner has committed to for tenant improvements. >> what we're looking for is approval from the budget and finance committee to borrow the funds from the property manager, if necessary, for the extra dollars. we do not intend to exercise that unless absolutely necessary. we did try to put the language in the least that is not something that we plan to use. if we do have to execute it, if worst-case scenario happened and we actually do need to borrow the $10 from the property managers at the 8% rate, that would have a budget impact of about $45,000 per year that we would have more time to fund raise four. that is what we are hoping to

do. we're hoping to get the budget approval to exercise that option, but now that we are taking the approach to backfill the money that we think we will need to fill that out. chairperson chu: we have to take a break and then we can take public comment before we act on the item in any case. perhaps, we can do is go on to recess for half an hour and then return at 12:45 p.m. and then in the ensuing time, the department of environment can work with us to see what would be a good solution we are not sure whether it is necessary to have that additional $300,000 in additional improvements. i think there is a lack of desire to want to see it amortized over the rent. and to see it fund raised a few years down the line to pay for the amortization of improvements from a few years ago, i think he will have a harder time fund- raising for it than you would in

the beginning. let's have a quick conversation offline about that and then we can decide on the item later. colleagues, if we can, we have already taken the recommendations from the budget analyst with agreement. with that, we will come back at 12:45 p.m.