we need documents to be included for the clerk. items today will appear on the october 16th, 2012 board of supervisors agenda unless otherwise stated >> thank you, colleagues. we will call six out of

order first. six, we have the director who will be leaving so he wanted to be here. >>the clerk: resolution authorizing lease of 255,420 rentable square feet at bayshore boulevard, daly city, california from prolog *f sl.p. for a 20-year term plus two five-year extensions at rent of $2,449,642 with annual increases for san francisco municipal transportation agency's towed car operations and other services. >> for this we have ed with the mta and sinaly. >> good afternoon, ed riskos, transportation director. i want to thank you for shuffling the agenda to

accommodate this item, which is of great importance to the agency, which is why i wanted to be here so you could hear from my firsthand about it. what is before you is a resolution that would approve a leaswe have been seeing quite sometime that would solve a number of challenges we are currently facing. therefore it is very important to the agency. we have a wide array of assets in the mta across the city that we use to operator all the modes of transit that we operator, or transportation that we're responsible for, the lion's share which of course is muni. because of the diversity and age and condition of the assets, the real estate assets we have, about a year ago, at the direction of our board, we initiated

real estate master planning study, which is coming close to completion. one of the main impetuses is not just the deteriorating state of many of the assets we work in, some of which we own and some of which we lease, but also as we look to the growth of transit in the city, both from specific projects such as the brt projects, but also the general growth of transit ridership that we anticipate and growth of the city that we will need to accommodate, our fleet plan calls for 20% increase in number of vehicles we operator, from about 1,000 to about 1,200. as we were looking at how we would accommodate another 200 transit vehicles we did some kind of rough calculations and identified a need for 31 additional achers of real estate in order to support our transit and other

operations. so overlaying that with the poor state of repair of the facilities that we currently have, we thought it would be a good time to step back and take a more comprehensive evaluation of our facilities and of our options for meeting future demand. so that vision plan -- we are calling it vision plan. it is something that we will be briefing you on soon and coming to the board with, to our board, to your board and the public with. that plan at this point while we are just about done, we have a final draft report, there's still some final work to be done, that assumes the execution of this lease. it assumes the availability of this space. the letter i sent you and i think the good report from the budget analyst references possible uses for that space. one was the enforcement division. one of them is the video

shop, which is currently in temporary facilities also on lease space. the third is the training division, which is perhaps the best candidate for that space. the move of which is required to make the rest of the vision plan fall in place. the good news, although the plan isn't complete yet, i will share with you that assuming the inclusion of this lease in our portfolio, the processes identify the need for zero new additional space otherwise. so we went in thinking we would need 31 additional acres. looks like the conclusion of this plan will be no additional space. again, assuming this -- we are able to execute this lease. but that assumes that we're doing a lot of shuffling things around. we're moving functions out of one facility so that we can rehab and do joint development, so it is kind of an intricate puzzle

piece of which this lease is at the front end of making the space to make the rest of that vision implementable. we currently -- the lease initially would house the towed vehicle facility that's currently run by our contractor auto return out of pier 70. pier 70 is a pretty old, dilapidated facility. it was not obviously built for this function. the port of san francisco has notified us two years ago that they are pursuing development on that facility. at some point we would need to vacate the facility. while, you know, as of today that's not imminent, because of the time it takes for us to transition a big operation like this, we need to plan. we can't wait until the development is imminent and then kind of scramble to take our way out of the due diligence we have to do to

either purchase or lease space and the city processes we have to go through and all the steps. it takes time. so once we were informed by the port of this need to move, we started the process of evaluating alternative sites. that both i think are reports and subsequent info but the budget analyst's report speaks a little of that process. some of the sites and challenges in finding space this big in san francisco that was available and suitable and reasonably priced. and really what we found is there are very few, if any options out there that can serve the purpose of this function in our dense city. so that got us to the bayshore property that's the subject of this proposed lease that's before you for consideration. so what this property brings is it meets our --

what we see as an immediate need to get the auto return function out of pier 70. but importantly, as i mentioned in the beginning, it will help us meet future needs as the need to move training division out of the presidio yard up on geary and masonic, which it currently resides. again, that needs to happen in order for us to redevelop that facility and modernize it. it is ready now. or just about. it is close to ready now. we really have kind of a narrow window of opportunity here to capture a site that otherwise -- you know, that we don't really see available alternatives to. while i will speak to some of what the budget analysts raise, the fact is that this is a fair market value lease, we had an independent appraisal done.

we do think it is a reasonable value. the fact is that as you all know, and i was at the forecast san francisco event this morning where some economists confirmed this, real estate costs in this city are rising very, very fast. we are off the charts for the rest of the country. so the idea that delay might get us a better deal, i think we'd have to think about that in terms of reality of today's real estate market. so in terms of the budget analyst report, i want to thank them, first of all, for working so closely with our staff and developing what i thought was a very thorough and comprehensive report and raising a lot of good issues that i think are worthy of discussion. the first concern that the budget analyst report raised is that this lease, because it is more expensive than what we are currently paying the port at pier 70 will increase

the haul long-term operation. that is a factual statement, is it true. there is perhaps a bit of an issue of you get what you pay for. if you look at the conditions at pier 70. not just the basic layout and its less than ideal structure for supporting this operation, but if you look at some of the actual physical conditions, there's significant flooding where san franciscans are having to wade through to get their vehicles. the facilities for the employees are not ones we would generally accept for our own employees. these are good union jobs and people working in conditions that i think any of you would find are inadequate. so while we are paying less at pier 70 than we would be paying at bayshore, again, this is fair market value by independent appraisal and future uses we bring in

will help amortize some of that cost. the next point the budget analyst raised is -- this lease is more expensive than purchasing. again, that is absolutely correct. it is absolutely correct. however, we don't have a purchase option. we did -- we were interested in purchasing this space because we can't move that fast in government to do large real estate transactions. we are unable to do it to acquire it while it was on the market. while we agree that purchasing would be preferable generally to leasing, and we have been moving out of lease space over the years. i think we have provided information to your offices to that effect, we don't see a viable purchase option out there. as the budget analyst report said, this appears to be the best option. i think that was on the --

in the summary of the budget analyst report. at least the best option for lease space. there was concern raised by the budget analyst i think appropriately if we were to execute the option to enable the landlord to undertake improvements for us in the second phase, the first phase they cover at their cost but the second as an option where we could have them do it and finance it for us. that the interest cost was too high and probably not in the best interest of the agency, we agree with that. and finally a recommendation or concern raised that this causes a six-month overlap where we will be paying rent in two places. i guess what i would say to that is first of all we budgeted for a six-month overlap. looks like at this point that we could probably get that overlap down to three

months. gone, when you consider the time lines involved with moving this kind of operation, the due diligence we have to do, decisions we make in terms of setting up work orders with other agencies such as the port in this case and executing a lease, getting this done with only three months of overlap i think would be a tremendous achievement. so it is absolutely true that we have budgeted for six months and there will certainly be overlap. it would be impossible to do this i think without any such overlap. so i think every point raised by the budget analyst report was entirely accurate. i think there is still a good basis for supporting -- for us as a very important part of making our future real estate vision work. we accept the two recommendations the budget analyst made in the report. i think they were both good recommendations, one being i come back and report to you on that vision plan formally and publicly,

which i'm more than happy to do. the second is that we decline to exercise that option for having the landlord finance any phase two improvements. those are both recommendations we would accept. in close i guess i would say that i've been before you, i've been before my board and the public talking about my concerns about the operating budget of the agency and its inadequacy to deliver the level of service we want to provide and san franciscans expect us to provide. so in that context i want to assure you that very lightly i trade on decisions in terms of expending operating money that otherwise could be delivering front line service. i have worked to be very frugal in developing our budget and management costs in overtime. soon we will be before you with a third-party contract for workers' comp so we can

get a handle on our workers' comp costs. so i want to assure you that i would never want to ask you to authorize expenditures that i didn't think were essential for the agency. so with that i do have our cfo, our real estate manager representatives from the lease partner and our contractor all here to answer any questions that you might have. >> okay. thank you. if there are no questions from the committee at this time i would like to go to the budget analyst report. one second. supervisor campos? why don't we go to the budget analyst report. >> madam chair, members of the committee, supervisor campos. under this proposed new 20-year lease at 2650 bayshore boulevard in daly city -- this lease has two five-year options for the city's vehicle towing