physical requirements of the facility and sometime it's hard to pin them down, but we're working hard to make sure it's the best terminal possible. >> right. i wonder is there a financial arrangement we have with the federal government for customs and immigration? >> yes, we have to pay. [ laughter ] >> okay. >> unfortunately, they provide a great service and we have a good working relationship with the -- they call them the port director of customs in san francisco. we provide the facility. they provide the manpower and we work in concert with the terminal operator and cruise terminal operators. >> thank you. are we prepared? the motion has been seconded. all in favor? >> aye. >> resolution no. 1266 has passed. >> okay. item 9b informational presentation under request for

proposal for master tenant opportunities at pier 38 located at delancey street and embarcadero. >> again we're looking for an rfp process to identify a development partner to upgrade and retenant the bulkhead building as a top priority for the port. this is only an information item and at this point we're not asking for an approval on rfp for pier 38, but we would like to receive your input, so it would be incorporated within the rfp and we would come back to you at a later point to seek your approval to issue the rfp. we believe that the immediate goal is to make improvements that will allow the retenanting of the bulkhead building in order to bring the bulkhead building back into economic use and provide an ongoing revenue stream to the port. we would like to get your input

into not only how to structure the rfp, so that pier 38 is redeveloped in the short-term with regards to the bulkhead building and in the longer term with regards to what happens to the remaining portion of pier 38? retenanting the bulkhead building would not necessarily trigger an expensive seismic pier upgrade and the entitlement process would not be as extensive as looking at the complete redevelopment of the pier. once the bulkhead repair is completed, retenanting could provide. and this could be accomplished relatively quickly. the outstanding issue is what happens to the rest of the pier? what is the plan? the remainder of the feasibility from these perspectives? how would it be implemented? if the bulkhead is repaired first, how would the rest of the pier be

integrated with the bulkhead? what happens if there is no plan for the remaining portion of the pier? is it in the port's interest to have the bulkhead completed, but leave the remaining pier empty or not upgraded? bear in mind that the long-term reuse of the entirety of the pier would include an expensive pier seismic upgrade. and superstructure rehabilitation. it would entail a lengthy environmental review process. a lengthy entitlement process including environmental review, plus trust coincidentcy and with that in mind i will focus on the three reuse strategies that were identified last october and noted in that staff report. the fourth option, which i'm not going to mentions with a no-project option. option 1, public works project, this option would require the port to invest in developing an

implementation strategy, act as the principal funding source, act as the developer to make the repair/upgrades and lease out to tenants. the parking lot would have to allocate the funds and maintain the pier on an ongoing basis. we do not recommend this a viable approach. option 2 would allow a developer to create an overall plan, individualing a allows them to have a long-term vision for the pier, test whether it's feasible, financially, entitle-wise, et cetera. the port could insist that the initial phase be retenanting the bulkhead building. and the

other advantages of the developer would shoulder the risk of its feasibility, entitlement risk, construction risk and retenanting risk. this approach would be similar to other projects done along the waterfront, including piers 1 and 1.5 to 5. the downside is looking at an overall project a developer would have to fund pier upgrades which would be expensive. and securing all of the entitlements, which would be a lengthy process. and if retenanting the bulkhead building is a primary goal, then this could happen, but only after a lengthy entitlement process. the third option, master tenant project through a competitive selection process, this option would allow a developer to make improvements necessary to achieve the goal of retenanting the bulkhead building. it would rely upon private

capital and expertise, using their risk to expedite the rehabilitation of the building. staff believes this action would get the immediate goal of retenanting the bulkhead building, but would not specific ally address the long-term issue of pier. through a solicitation process that is generally described in the staff report a respondent would have to propose an implementation strategy, but qualify a respondent for the remaining portion of the pier. we have included selection criteria on page 5 of the staff report for the draft rfp. generally speaking the respondents will be reevaluated based on one, experience and qualifications for the bulkhead

building portion, as well as the long-term redevelopment of the pier. 2, proposed design and retenanting program for the bulkhead building and 3, proposed financial terms for the bulkhead building. there is a tradeoff in the master developer versus master tenant options. with a master tenant option there is ability to retenant more quickly. but the long-term reuse is more uncertain. for the master developer option it would take time to retenant, but there would be a long-term reuse plan. given this tradeoff, we ask for your input and insight on how to structure the solicitation that would deliver a project that would retenant the bulkhead building as an initial phase, but also to consider what happens for the rest of the pier? we would love to incorporate your input for the rfp and then staff would return to the port

commission with a resolution, with authorizing such an rfp. thank you and we appreciate your comments and specifically would love to get your input on the solicitation process. >> public comment? we have curtis lind. you have to use the microphone. >> i represent some of the former tenants. and we were given, at the time, we were asked to leave, it was said both by the mayor and by the port director that we would get -- we would be able to go back when it was approved. i haven't seen or heard of any comments along those lines. so we're just concerned. thank you. >> is there any further public comment? commissioners? comments,

questions? >> does the short and long-term developer have to be one in the same or can we have two? a short-term developer and long-term developer? >> well, personally i would recommend that you have a single developer, using either approach. otherwise you have two developers climbing over each other and there could be a lot of property management issues that could be very difficult to unwrangle. so personally, i would say select a developer whether that is a master tenant approve or a developer approach and again, it's kind of a tradeoff of which portion you are doing first? are you willing to wait a little bit of time and develop a plan for the entire pier with initial phase for the bulkhead building? or is it flipped?

where you want to get the bulkhead building then and then relook as to what you are going to be doing later on? i personally would not recommend having two different developers. >> i'm just wondering because i know we want the bulkhead done as soon as possible, so people can move back in or there is an opportunity for people to be there. i am just wondering, it seems to me if we limit our solicitation for the bulkhead, if we say you also have to come up with a long-term plan? so we may get more offers if they are just looking at the short-term vision at this point. >> so i have a question, i guess. so when we did have tenants they were only in the

bulkhead? where were the tenants originally? >> i will pass it on to jonathan. >> good afternoon, commissioners, jonathan stern of the planning and development division. i had the privilege of working through that process, including the eviction action we took and first i want to say thank you for your patience, for your former tenants. this has been a complicated process. when that was a master -- they had the lease on the entire pier. other than the bulkhead, it was supposed to be all maritime operations and behind the bulkhead it was primarily maritime operations, dry-boat storage and did do some parking in there that was not conforming with his lease and was one of the eviction issues.

there was boat mooring and storage back there. >> in terms of the total space of the pier, the bulkhead represents what percentage of the space of the entire pier? >> the bulkhead foot print it is about 20,000 square feet, with two levels, so just under 40,000 square foot and the pier behind it is another 80,000 square feet. you had some ancillary uses, parking behind that shed space. >> so if we did have solicitation for the bulkhead, would the shed be available for parking or not? >> the engineering staff report raised the issue and i think the answer is that some of it would be available.

their analysis showed if you use the entire shed, even for storage or parking, that you would trigger. the seismic triggers and costly upgrades and entitlement. >> i know you gave us the information before. i don't remember, what was the cost of the seismic upgrade? >> it ranged from $2 million to $6 million and cost of the seismic upgrade puts you redoing the entire pier in the order of tens of millions of dollars. probably $20 to 30 million additional just do the seismic upgrade. >> so the $2-6 is just for the bulkhead renovation? >> just for the bulkhead and fire safety issues for parts of the shed that would be reoccupied. safe exiting, et cetera. >> so cosmetically, how would the pier look if we just do

the bulkhead? >> from the embarcadero, the bulkhead is the primary. from the water side, depending on the -- the real problem i think behind the bulkhead building itself would be the aprons, which are in disrepair, so it would depend if those aprons have to be repaired to some degree as fire exiting. whether they would change or not under this scenario. it's possible that we would have to leave the shed behind the bulkhead alone at this point, if we start touching it the project starts to grow. this is a very specific, concerted effort to get reoccupancy of the bulkhead and bring it back into economic activity without triggering the full project. >> so i guess at the time in october, we didn't know anything about pier 30-32 and the waterfront arena. so we're looking at -- say we think

outside seven years when we do have this arena sitting next to it. and just trying to figure out how everything looks from a viewpoint of view. so if the shed portion is just left alone, as looking very dilapidated, the bulkhead may look okay. i guess we have to take into consideration how it looks across the waterfront at that point and whether that is something to consider. so i think the other question is and i don't know if we know. we may have to ask the question in the rfp, would we know that somebody who is working on the bulkhead and we get that up and going, can someone really do long-term development on the shed without having to disrupt the tenants again? >> those are good technical questions. i think in other cases we have managed to do extensive repairs to portions of sheds, especially because the bulkhead is more enclosed and seems like -- i wouldn't say it's definitely possible. it seems like there are ways to work out those technical

details. so to continue to occupy the bulkhead, but continue to do the seismic upgrade and the work on the shed that needs to happen. as to the question about phasing, especially the 5-7-year outlook that you are bringing up commissioner, i would like to harken back to commissioner brandon's question, because i think she identified a very important part of that issue. if you are working with a single developer, as john suggested and recommended, that you could get your quick reoccupancy, have economic use, have money coming in to pay for those first-tier improvements and start the long work that we know needs to happen for the entitlement process. so i don't think we necessarily lose much time by doing this in a two-step process. at this point, based on some of the work that has happened with sea level rise and some of the engineering studies that we have seen, i think both in tems

terms of cost and utility of the pier, i think there is question that some feasibility work those happen about what is true long-term disposition is? it's possible this is one of the piers that ends up not being fully utilized. i think that is not an issue that we have grappled with, but it's important for the commission to know that we're less final of what the final disposition of the asset will be. >> so hearing that, i think we're trying to balance short-term and long-term and how it fits in with the neighborhood, et cetera. so without saying only short-term, or short-term and long-term, why don't we leave it open for innovative ideas from people to come back with? and we don't know how economically it works for whoever comes in to do this

and may have to work some numbers. but if we can leave more options on the table and then review it carefully with whoever comes back. is that something that you would be comfortable with, commissioner brandon? we could have people that want to do the short term and other people may say i will consider short and long-term. and it sounds like if we can get the bulkhead up and running and f can you do the long-term development and not wanting to disrupt tenants again, can we have both solutions working at once for us? and to figure out cosmetically to make sure that pier looks appropriate for what we expect that neighborhood to look like. >> thank you. i think that if i can summarize, i think we're still issuing an rfp that is more open to both long and short-term and we're going keep as to the highest priorities of the port, quick return of economic activity to the

facility and this sort of long-term or medium-term, if you will -- i don't want to use "cosmetic," it seems to limiting, but cosmetic and fitting character for this portion of the waterfront and what it's becoming >> the position of pier is a terrific position. i hate to see that we just let it go. >> right. >> commissioner adams, any questions or comments? >> no. i like for if to come back and i agree with commissioner brandon. we have to look at our options, whether short-term or long-term. so i would like for you to get back to us. thank you. >> thank you. item 9c, informational update on status of port infrastructure work tenant relocation and other port obligations under the lease disposition agreement in preparation for the 34th america's cup events in 2012 and 2013.

>> good afternoon commissioners. daily dunnim with the ports special events group. i am joined by my colleagues who contributed to the fourth periodic update to the commission on the port's preparations for america's cup events in 2012 and 2013 and i'm not here to present other than to be available with my colleagues for any questions that you have on the staff report. >> is there any public comment first? hearing none, commissioners, questions, comments? >> i would just like to commend director moyer and the staff for really making this almost a flawless process. if we look back at what we were facing when this all started and how the week in august happened, it was just wonderful. it was just really wonderful to watch everyone come in collectively together for such a successful event. so thank you very much. >> and i would like to echo. i think the fact that since

there were a lot of people concerned whether or not the port could executive time on budget and it seeps that we're proving that it can happen and everything has gone smoothly so far. so i think we're very pleased. thank you. >> item 10a, informational update opt port's real estate revenues. >> hi commissioners, my name is nate cruz with the real estate division at the port and i'm here with an informational update on real estate revenues. rather than spend a lot of time diving into details of the report you have been provided with, i want to spend some time

on the issues that i think are worth your attention here. the first is just a snapshot of where revenues come into the port. the amounts that are on is this this slide that you can see are the cash that was received by the port in the fiscal year 11-12. that is not necessarily what we would report in the financial statement, but subject to that process. the proportion of revenues is still a useful indicator.ú$'( sh fixed rent leases include land, and by that i mean empty land, and other types of industry leases and we have this other category of percentage rent leases. where people pay us a rent based on sales or other equation based on economic activity. >> is the base rent included? >> it is.

it's all encapsulated in that category. ground leases for development projects, as well as ferry excursions, which sort of just how it's categorized. so within those lease categories, i wanted to spend a little bit of time just talking about how the different types of uses drive revenue to the port. really i think the most interesting thing illustrated about this particular slide is how office and retail, if you look at the left-hand pie chart. that is the area that is under lease by each type of use. so the purple and blue are the

percentage rent tenants and retail and office tenants. if you look at the opposite side of the slide on the right-hand side, you see those two types of uses generate quite a bit of revenue to the port in proportion to their actual foot print that they take up. so i wanted to call what we're managing depends on the uses and how much economic activity trickles into the port. finally i just wanted to tell you this is the first of what we're trying to make a standard quarterly report. it will be sort of a boiled -down version of what you are seeing here today, but will have a number of sort of -- i think good statistic, measurable things we can compare quarter over quarter and will be useful and i want to leave the rest of my time for any questions that you may have. >> do we have any public comment? hearing none, i do have a

couple of questions. in your report, it does say in your forecasting methodology you are assuming existing leases would be replaced by leases with similar terms and expirations and i guess that is at -- you are forecasting at the current new parameter rents, not some cip increase? i'm just clarifying? >> we assume they will be replaced by similar leases, adjusted by a cip. >> so it's not bringing it up to where the current parameter represents are necessarily, using current parameter rents today? >> correct. >> but you are using cpi? >> yes. >> so i guess that answers my question. it's a more conservative methodology. you could use any methodology, but it means it's more conservative? >> yes. >> so that mean s there is more opportunity? >> we did an analysis of what if we brought -- if we looked

at all the leases of a certain size and pulled together a sample and compared those to how they look to the currently approved rates and they are close. if we brought everything up, we would have showed that the overall increase would have been 2.3% increase in rent, which is reasonable, but it doesn't -- i don't think that doesn't indicate there is a huge opportunity or that existing lease terms are well undermarket. >> and the other question was, i guess, and this is really maybe a question for elaine is that i guess we're talking about here that some of these ground leases that it doesn't change the value on the port's balance sheet. so i would think when we negotiate a new ground lease, we don't put in the fair market value of what we think that ground lease is

on balance sheet? we now have people paying us based on a fair market value, net present value, whatever way you calculate it and we're not changing the value on the balance sheet. >> good afternoon, president woo ho and commissioners, cfo for the report. government accounting standards require that we hold at transfer with appreciation. when we enter into a new ground lease, we wouldn't change the underlying values for finances, but of course show a change in the income statement. so it would should up in the income statement. >> given that this land is held in perpetuity for public trust we'll never have a chance to show what the true value of the port's lands, since we're always going to be leasing, whether it's a short-term lease

or long-term lease and yet we don't change our balance sheet. it seems backwards. >> it's certainly a restriction of the government accounting standards. >> when we go out for bonds, we're undervaluing our assets. >> we would state and make a large emphasis on our income and the strength of our income over time. >> so we wouldn't, even for instance as a footnote to our financial statements, apsay the fair market value and given that we actually entered a ground lease. so it's transactional and not note what we think that value is as a result of -- as a footnote to the financial statements, as another way to illustrate that? >> that is an interesting idea. let me talk to our fiscal

officer and it's a possibility to put that into the statement or as a footnote. >> i would say a footnote would probably be the most appropriate way. otherwise, the value never changes and yet, all we do is ground leases. okay? so i mean, we don't transfer assetvez very often. >> >> okay. >> i guess getting back to nate, in our ground leases have we a breakdown what percentage is retail, industrial, office? so i think you showed us and i think i understood the numbers that you showed us was what is not ground lease, but directly leased and that breakdown by industrial, retail, whatever? but we don't see the breakdown of what the ground