will be some right sizing of what they provide and we are considering that. in terms of what the replacement site might be, it may not be quite as large as the current site. the estimates of move costs and ongoing rental expenses are outlined a budget analyst report on pages 8 and 9 and reflect the reality of those particular sites we're looking at and the likely expenses. there is some reality to this figures. the proposed relocation site lease would be structured so the fiscal impact to the city does not commence until fiscal year 13-14. i want to talk briefly about checks and balances in the least. there are operational restraints in place where it is made clear

the corporation must use commercially reasonable practices, achieve the project calls, maximize the revenues, and maintain a reasonable cost structure in operating the market. these are all quotes from least -- they must apply best practices of the international facility management association and those of the international right of way association in their transaction dealings with subtenants so we have clear metrics for performance. if they do not, a notice of defect could be provided by the city and the path of resolution is undoubtedly the lease. if not resolved fairly and expeditiously, the city could take the extreme step of removing them management team under the terms of the lease. given however the 50-year excellent working relationships of far, we do not foresee that day coming. yet we have built into the lease this worst-case scenario and resolution to that scenario.

there are also robust reporting requirements along the way as we move through the phases of construction. these include approval requirements of this city that covers the development plan, the budget, the design, the leasing schedule, and the rent schedule. these are all protective measures to insure a fair and equitable process is used in providing subtenant agreements and revenue flows are maximized. that in our best interest so the commencement of net revenue to this city is as early as possible. these are joint mutual goals of the corporation, association, and the city. i want to thank monica and michael for their presentation and thank the council and our counsel who spent years putting this together.

it has been a thoughtful process going forward. we would not be here without the support and guidance of the corporation board as well as the pros a source the asian board who has been a partner in this venture. -- the pros association board. some issues need to come together but it has been moved out of land use and to the full board and it will be considering that i am on july 17. supervisor chu: does that complete your presentation? i do have a few questions. with regard to the 50-year positive experience we have currently, i think the budget analyst report noted in your presentation and you relate we have not been receiving revenue at our current configuration. from my understanding, that the result of our actions through

relocating the produce market from where it used to be from part of the redevelopment work. >> that is correct. the genesis is from the embarcadero we development in the 1960's and the movement of this site to its current location in 1963 that started the current 50-year lease. >> so we moved to prevent -- supervisor chu: we moved them to their present location because of redevelopment and the benefit -- that was sort of a structure we created? >> that's right. it really was a community- driven process to create the purchase of this site and a gift of deed and leaseback that was orchestrated and the early 1960's by key san franciscans to move it forward. supervisor chu: i want to clarify one component -- you talked about the 11,000 or $12,000 a month to help with the

relocation of the mta and department of technology for 15 years. that totals about $2 million. the way i understand the financial structure to work for the capital improvements to work, is that the net revenue -- is that going to be put back into paying the capital improvement for the first 20 years? is this revenue to offset the department of technology and mta, is that on top of this capital work? >> that is correct. the $2 million is in addition to the $100 million estimated for the actual capital production. that was a negotiated figure. we needed to create tolerance for sufficient moneys to the city that would at least assist in the relocation but not overburden the project and stretch it out.

we wanted to have the capital project concluded as quickly as possible so net revenues can flow to the city quicker. supervisor chu: in terms of the financials, from now until 2036, that's going to be a time in which the city does not believe we will be receiving any revenue coming in from the produce market because that revenue is being put back into paying the debt service for the capital improvements through the various phases. after 2036 is what we expect to see that $1.5 million in revenue annually? >> that is correct. the city is not in fusing any additional capital to move the project ford, has to survive and grow based on the existing revenue streams from existing tenants and other non-city sources with the exception of the capital reserve they have accumulated. supervisor chu: you mentioned in the earliest part of your

presentation a reference to 54 years. why that was relevant to creating a 60-year term. i did not quite catch how you got 54 years. >> if one assumes institutional financing in a 30-year term for each project phase, if we look out to the last project, phase four of the project, which at its slowest would be concluded in 2036, you add it 30 years of debt on top of that and that takes you to 2066. we determined a 60-year term in consideration of other long-term leases seemed reasonable and that the tolerance level we were hearing from the institutional find answers like u.s. bank or bank of america who indicated long term commitment and the city was buying into the vision of all of the phases of being concluded was imperative in order to secure the financing

from its institutions. >> the six -- supervisor chu: the 60-year lease is related to the financing mechanisms for the funding of this project? we're getting $107 million borrowed and invested over time basically? >> yes. supervisor kim: i do want to hear from the budget analyst because a number of concerns came from that report. back to the relocation and expenses for the department of technology and an t a, approximately $2 million a year. how was that number determined and tell me how the breakdown might be between 78 and department of technology. i know you have said mta has already included their relocation in their budget in the next two fiscal years. but i want to have a sense of are we reimbursing them for a

portion of that and how much are we leaving for the department technology? what is the anticipated cost of relocation? supervisor chu: this is a -- >> this is a good opportunity to clear up some misconceptions. there's a reference to a range of somewhere between $500,000 to $800,000 for the department technology relocation. that is the ongoing likely cost in the rental scenario to make the move. somewhere between $500,000 to $800,000 a year just for the department technology. that and teammate a decision some years ago to relocate from 901 rankin, a facility for which they do not have jurisdiction. it was rightfully felt the mta, since they did not have rights to the building they were occupying, needed to execute their move within their budgetary capacity and they made

that decision several years ago. the funding stream from the corporation to this city to assist in the relocation is solely to offset the department of technology costs. no funds will be moving to the mta. they are carrying the costs entirely within their budget, as is appropriate given the circumstances. supervisor kim: did mta determine their new site yet? >> they have. they're moving to two different sites. part of it is going to their bancroft facility which they recently required -- which the recently acquired. the other part is going to their marin facility. we checked in with a team looking at the asset management issues and confirmed as of most intelligent places for those two uses to go. that has been reconfirmed and those moves are underway. >> -- supervisor kim: bancroft has

been acquired and marin is a lease situation? >> yes. supervisor kim: i know this has come up before, but we have a sense that there are other city properties to determine if technology can move to to save on expenses or is that a priority in terms of what we're doing that search? >> we have looked very hard at any city assets that might work. a couple of the sites we're looking had to afford some opportunities but within the city's inventory, frankly, it is a corporation yard. it is industrial in nature, which is difficult to site and we don't have much in the way of surplus. in fact, the mta is also looking for a corporation yard space or industrial space. hard to find in this city. we have exhausted our search of city assets and turned to the private sector for the best opportunities we can find. supervisor kim: in terms of the

901 rankin site, i understand the organization will be subleasing that out and we as the city will gain in net revenue of that site, first collected in to the tenant relocation and tenant improvements of that site. is there a mechanism you have discussed in terms of how they lease the site in terms of either minimums or a way of determining what is a fair rent? >> in all honesty, i would estimate -- i look at my colleagues, and i think two of the six years was spent on that. how to fairly set a schedule. not knowing what the market might be 30, 40, 50 years from

now, yet rich enough to give us protection that their maximizing the sub net revenues and i think we struck an excellent balance. there is a leasing scandal that has to be submitted and that sets forth a market trend rate that is periodically adjusted based on a review and we define how something is comparable or not to the produce market because it has its own market. it is so large, to a degree they tend to set the market. we wanted to look beyond just that site and consider all factors on revenues. the city has a role in reviewing at and moving forward with its adoption. if it is a very transparent process so that the vendors and prospective subtenants understand the process and can see it so that it is fair and

equitable. >> -- supervisor chu: why do we go to the budget analyst report. >> madam chair and members of the committee, we point out on page 8 of our report that subsequent to the announce stabilization date, it is the first day of the first month after completion of all of the capital improvements, after which net revenues are positive for three consecutive months. after that date, the san francisco market corporation would be required to pay the city rent consisting of net revenues so that would be gross revenues last operating expenses in any debt services and its net revenues would go to this city's general fund. on page 5 of our report, we point out as summarized in

table 3 -- on page 9 of our report, the capital improvements total estimated cost are $107 million, over a 20-year time frame and those are further itemized in an attachment on page 21. by golly, we point out on page 11 that because of various unknown factors -- finally, we point out on page 11 -- this includes how much revenues at the city would receive which is still an unknown and we consider approval to be a policy matter for the board of supervisors. supervisor chu: thank you. just a final question -- with

regard to the revenues that would come in, from my understanding, the revenues would accrue to the city or accrue to pay for debt service is is generally as i understand that net revenues. what effort expenses the produce market incurs would be netted out of iran collected from folks who do not participate in that area. a key to maximizing how much revenue the city gets is making sure expenses are low or reasonable so we can see as much revenue as possible. how is it the city has a mechanism to make sure that is washed over? >> twofold -- there are definitions of what is extensions and the process that allows the city to intervene if we see an unreasonable expense. i referenced a couple of

associations that describe what the best management practices are for facilities. this is a very niche organizations in terms of produce markets. there are not a lot throughout the country and we use the international facility management association as our best metric. they will describe what is an appropriate expenditure and what an inappropriate expenditure. we have that base line to tie to. second, the history of the corporation and how it has survived so far is important and i would like michael to describe the current staffing model at the corporation. i think that will tell the story about the commitment of this organization to be as lean as mean as possible. -- lean and mean as possible. >> as john indicated, the market has a strong track record of

operating at the market. the city organization and merchants association books are certified an audited each year. as far as the culture and the dna at the market throughout, it is very lean. there are not any developers involved with the project and the development fees. all the dollars at the markets that the market. there are no shareholder dollars that go out of the market. it is a very difficult business, we work in the middle of the night, there's nothing glamorous about it.

that falls over to the market office and a bed nature of markets throughout the country are run in a very lean ways. >> -- we have the metrics and comparisons -- supervisor chu: we have the metrics and comparisons for best practices but the city has the ability to override or not approve budgets, it sounds like? >> an overall review of both construction and the budget in the sense of reviewing the leasing schedule which speaks to the anticipated revenues and expenses, so the city administrator or delegated authority, we have oversight, ongoing oversight responsibilities to insert ourselves if we find something that needs to be cured and there is a process to cure it. hopefully in a positive fashion

but worst case, even to the point of instituting new management. supervisor chu: thank you. any other questions from the committee quest for quite don't we open this up for public comment. i do have a few speaker cards. [reading names] if you heard your name, please come line up in the center aisle. >> good morning and thank you for hearing this. this has a certain irony for me to be here this morning speaking for the market. i have been honored to serve on the board for several years and i came to the redevelopment agency when the embarcadero was being finished and had the opportunity to work on the new market than, which does date me a bit but is also an ironic

ending that i get to come back and look at the new market being planned. the benefits of this project have been opened to and i want to underscore couple of them. the downstream impact will be on going because beyond the improvements there rejuvenation brings to the area, it will also address the emerging city food district that is a growing awareness that san francisco is not just a city for good food in restaurants, but there is a lot of innovation going on in the food industry. we believe the market rejuvenation will have a catalytic effect on anchoring this emerging trend.

the growth of the food industry was analyzed in the city and one of the recommendations of the city was part of that. there is also the issue of safety. there is traffic safety and cross traffic and local traffic and market trucks. this is going to be a huge plus for the neighborhood. i really want to underscore the fact that we have the need for these buildings to address safety regulations. thank you very much. >> i am the owner of the washington-will co., one of the markets at the wholesale produce market.

my business was started by my grandfather in 1931 and subsequently run by my father and uncles and i own it now. i have 15 employees. we have many customers throughout the city and we serve customers throughout the entire bay area. my father was in the position that i am in 1960 when he was working with the mayor to relocate the produce market from the building gave way to where it stands now. at that point, the deal was you guys get out of their and everyone is happy. merchants realize that's not climate we're operating in now. we very much appreciate the attention the city has shown to less. at the mayor's office has been very supportive and help us

along the way. the city attorney, the real- estate department, it was a hard-fought negotiations. we came up with something that's going to allow the market to continue to operate them provide the services that are of benefit to the entire bay area. to do so with a financial model that works for us and one that also works for the city. i would like to think supervisors cohen and maxwell. they have come down in the middle of the night to see what goes on there and it is great that we have district supervisors to understand what is going on and are trying to help us move along. thank you very much. supervisor chu: thank you very much. next speaker. >> i am a small family farmer

with my wife in half moon bay. it is a privilege for me to be here today. i'm a potential member of the new board of the san francisco wholesale produce market and also, i city councilman at the city of half moon bay and i have been chair of the san francisco regional water quality control board. i guess we you need is another board to serve on but this is a special board and it is so valuable for us as small farmers to be able to bring our produce every day, fresh and healthy produce to this market. it's a very unique situation. my wife is home talking in this high-tech age to the owners and buyers of our produce and it's very special. i'm not bringing in tractor- trailer loads, bringing small amounts that keep the small farmer in business and there are only a couple of us left. i strongly support this move forward and i think you will be

setting the stage for a terminal market that will be the no. 1 market in america. san francisco was number one on a lot of issues related to public safety and i strongly support you on this. supervisor chu: thank you for joining us in san francisco. next speaker. >> good morning, supervisors. thank you for the opportunity to prove it -- to provide comment on the expansion of the wholesale produce market. we have visited the market, 7:30 in the morning, was close to closing up. our staff has reviewed this proposal we strongly support the city's lease renewal with the market and its proposed expansion at the site in the baby. the market is a major piece of the region and the city's food distribution infrastructure and the san francisco food industry

supports more than 25 food businesses and employs more than six and a people, a number that will grow to over 1000 when the project is complete. without the capital costs to be paid by the city and over the long term, the market will provide a new source of revenue to the city through rent payments following completion of the proposed reinvestment project. the market is a good neighbor, having piloted some of the food composting in zero ways policies the city has rolled out as well as diverting a lot of its waste currently. what i want to say that has not been said is that this modernization project is happening in the context and much less cost than a similar efforts in other cities. state agencies provided millions of dollars in loans and over $100 million in grants to build a new philadelphia wholesale

produce market. new york city invested $110 million for the redevelopment of its fish market. in contrast, this proposal does not involve the city at the financing providing capital funds to the market. in conclusion, cities around the country working to develop these food hubs and hold on to the food distribution and aggregation facilities and we're lucky to have a strong one. we encourage you to support this proposal. supervisor chu: thank you. >> good morning, supervisors. i'm an owner and partner of veggie works inc. in san francisco. our business started in 1992 in the bayview/hunters point area and within seven years, we moved to the san francisco produce market. presently, i have 56 employees.

80% of them live here in san francisco. it breaks down to basically 60% in the mission district, 10% in brno, and 20% are in the bay view area. we do this with quite a few major companies in san francisco. in sunset, we do the high- school and we are to produce supplier for city college culinary arts program. i go back to where we started. we started with seven of us and from there we worked all the way of to our present employee count. we do help support our community