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good morning, welcome to the budget and finance committee of the board of supervisors. i'm supervisor john avalos, the chair for the day. typically we are chaired by supervisor carmen chu, who is on a honeymoon, she just got married. we want to wish her and her husband well. i'm joined by shawn elsbernd, joined by jane kim. the clerk is victor young and staffed at sfgtv by mark bunch and michael friedman. >> please silence cell phones and electronic devices. completed speaker cards to be included should be submitted to the clerk. items acted on will appear

on the next board of supervisors agenda unless otherwise stated. >> thank you. the first item. >> item one, resolution approving and authorizing execution of lease with transportation and security administration for terminal space to be occupied by the u.s. transportation security administration, a federal agency in the inter national terminal and terminal 2 of the san francisco airport with a term of five years. >> great. thank you, mr. young. we are joined by kathy widener from the airport. ms. widener. >> good morning, chair avalos, supervisor elsbernd, kathy widener with the airport. the airport is seeking your approval with a new five-year lease with the transportation security union with 804,000 square feet comprised with 7,200 of existing square feet existing space at the terminal and 1,100 new office space on the first floor of terminal 2.

under the proposed lease the tsa will pay the airport a flat five-year rental rate of approximately $1.4 million a year for the five years of the lease. the tsa has had a lease presence at the airport since 2003. the most recent lease, the current lease was approved by the board in 2007. and the proposed lease was awarded to the tsa on a sole source basis as the agency mandated by the federal government to ensure aviation security at u.s. airports. sfo aviation management staff negotiated with the federal general services administration on behalf of tsa. as in the current lease the gsa prohibits federal leases from including rent adjustments based on unknown factors such as consumer price index. as the total amount of federal funds required for the lease need to be encumbered at the time the lease is approved. as a result the proposed

five-year lease -- the rent is a flat rental rate, determined based on the airport's fiscal year 2013-13 approved rates and charges, as well as current operating costs and escalated annually. based on the five-year projected operating budget. that is how we came to the 1.4 annual rent, 1.4 million annual rent for the lease. as the budget analyst report does point out the lease before you, as well as the current lease, makes 52 parking spaces available to the tsa at no additional costs aside from the rent. this again is a function of the gsa prohibiting federal agencies from paying for parking above a rental cost. i'd be happy to discuss that further if you'd like. but the budget analyst does recommend approval of the lease. i would be happy by to answer any further questions. >> thank you. thank you for your presentation. why don't we hear from the budget analyst first before entertaining any questions.

mr. rose. >> mr. chairman and members of the committee, as shown on page six of our report in table three, which is on page five, under this proposed five-year lease, as ms. widener stated 8,304 square feet, tsa would pay $8,399,433, an average of $203.76 per square foot per year, which is $3,445,423 or 69% than the current total revenue, which is $4,954,020 under the existing tsa lease. that reflects an average of $137.61 per square foot. incidently those include reimbursement of expenditures for services at the airport such as utilities and maintenance and those types of services.

also regarding the issue of the free parking spaces we point out on page six the existing 52 reserve parking spaces on the fourth level of the domestic terminal in the parking garage would continue to be provided by the airport to the tsa at no additional cost to the tsa. according to ms. arts, parking for tsa employees is provided without charge given that the functions performed by this federal agency are essential to airport operations. we do recommend you approve the resolution. >> thank you p mr. rose. colleagues, any comments or questions? okay. we can go on to public comment on this item. public comment is open. seeing no one come forward we will close public comment. a motion from supervisor kim to forward the recommendation. we will take that without objection. mr. clerk, could you please

call the next item. >> item two, resolution authorizing issuance and delivery of a multifamily housing revenue note not to exceed 70 million for purpose of providing financing and acquisition of 196-unit millty family residential project known as candle stick heights apartments. >> great, we are joined by the mayor's office representatives. >> morning, joan mcnamara, ma*ifr's office of housing. the resolution will authorize issuance of multifamily note to pay for construction and related development cost for candle stick heights. when completed, candle stick heights will be a 196-unit affordable family housing development located at 833-881 jamestown avenue. although originally conceived as ownership

housing with 66 units presently built, the development has been reprogrammed and as affordable rental housing. and this financing will enable the sponsor to complete the remaining 130 units. this development is significant because it has been undertaken without any city financial contributions and all unit also be affordable to households earning no more than 60% ami, or 61,800 for a family of four with 43 units specifically restricted to more than 50% or 61,500 for a family of four. to develop the units without city dollars, the sponsors, holiday development, l & m development partners and bayview hunters point multipurpose senior services structured a complex transaction that

will realize cost savings from below market rate financing provided by citibank and gain additional development resources from tax credit equity provided by wells fargo bank. with your support for this resolution we anticipate financing will close within the next two weeks, with the sponsor issuing a notice to proceed shortly thereafter. the first phase of unit also be occupied by april 2013, with the final 130 units completed by april of 2014 and occupancy shortly thereafter. i have with me here today two of the sponsors, kathy davis of the bay view hunter's point multipurpose senior services and se vin brown of holiday development. both of them as well as i are available for questions if you have any. thank you. >> thank you, ms. mcnamara. i think we can go to public

comment. perhaps if folks from development want to speak at that time that would be great. public comment is now open. seeing none, we will close public comment. motion to approve with recommendation? okay. we will take that without objection. next item, please. >> item three, resolution authorizing additional allowances up to $10 rentable square foot for improvements by landlords over seven years at 88% to be paid in additional rent in amount of $3,809.27 per month for property located at 1455 market street. >> we have the director of the department of environment here, melanie. >> good morning, supervisors. as you know, the board of supervisors adopted resolution june 5th, 2012 authorizing the lease

agreement between the city and county of san francisco and hudson properties for $24,400 square feet at 1455 market to be occupied by the san francisco department of environment. when i was last at the committee we only had estimates for tenant improvement costs. it was suggested we return in the fall with more tentative information and fundraising to offset the cost. today i would like to provide you with the details and ask for your support on amended resolution before you today. so since june our staff has worked with real estate to secure competitive bids for the needed improvements. the original budget was 2.7 million. through design decisions, we are using furniture and incorporating existing design features of the building, the department originally reduced that budget to $2 million, achieving a savings of over $700,000 from the original

budget. even with the value engineering and fundraising efforts the department still had a shortfall on the budget to complete the needed tenant improvements. our original request was for the full amount offered by hudson properties of $244,400. in working with the budget analyst, we did recognize their concern for amortizing the full $244,000. so over the last several days we have made additional decisions to lower the costs by 68,000. in addition, we hosted a reception with potential donors for our capital campaign last week and were able to secure additional commitments and strong potential interests, totalling 51,000 as well. so taking into consideration the budget analyst report, our value engineering and additional fundraising, we are proposing amendments to the resolution that reduces the amortized request by 55%, sittingly reducing the financing cost and reflecting additional

revenue we project based on our capital companies. since we are not a general fund department and are planning to start construction in two to four weeks, i'm here to ask that the board approve the amended resolution authorizing additional allowance of up to $5.10 per square foot for construction of improvements amortized by the landlord over the initial term of seven years. so thank you very much. look forward to any questions that you have. >> thank you very much. prior to requests -- supervisor kim? let's go to the budget analyst, then go on to questions. mr. rose. >> mr. chairman, members of the committee, on page five of our report we point out when we last issued a record last thursday, as shown in table one on page three, the department of environment would have paid a total of $5,132,403 in

base rent of the initial subject lease. as you know that was previously approved by the abusing at 1455 market street. then as shown in table three on page five, the total estimated $2,027,815 for tenant improvements was displayed and the department identified funding of 1,783,415. that left the balance or shortfall of 244,400. under the resolution as initially came to you, supervisors, the department of environment would borrow that 244,400 from the landlord, hudson 1455 market at an interest rate of 8%, resulting in total additional rent payments of 319,978. that includes principal of 244,400. 8% interest of 75578. that would be paid by the

department of environment to hudson 1455 market. as shown on page 6 the department would have paid a total rent, instead of 5,027, 815. it would be 5,452,381 over the seven-year term of the lease. that would be an additional $319,978. based on that data we recommended this approval of proposed resolution. however, as ms. nutter has stated, since the issuance of our report, the department has identified other funding. the bottom line is it reduces 244,400 needed of the needed loan to 123,790. based on that, we would withdraw our recommendation to disapprove the proposed

resolution and instead recommend the resolution be amended to reduce the 244,400 loan to not to exceed 124. we consider approval of proposed resolution as amended to be policy matter for the board and happy to respond to questions, supervisors. >> thank you, mr. rose. supervisor kim. >> thank you. mr. rose, what would the additional rent payment be now with the 8% interest above the 5.1 million we will be paying over the life of the lease? maybe that is a question for ms. -- >> it would be additional 1,929 a month over a -- each year for seven. >> additional 1,000 -- >> 1,929, almost 2,000 per month. >> the deal is we pay additional 2,000 over the life of the lease, seven years? >> the initial seven year

term, that's correct. >> how much would that total to roughly? >> it totals to 162,044 would be the total additional rent over that seven-year period. that includes the principle as well as the interest at 8%. >> thank you. i guess my next question is for ms. nutter. i know this week was of a concern the budget committee when it came to us this past spring due to amount lease that was coming before us. we understand that, of course, the real estate market is tight. so in many ways the good work we are doing in the

city and county is impacting our budgets as well. we now have to pay more in rent as real estate market improves. i know we had a lot of concerns already about this site, 1455 market street because of if cost being a little higher than we would like it. understanding that we need to move from grove street and war memorial site. we kept this in budget because we had a lot of concerns over the cost of the tenant improvements already. $2 million to me sounds like a lot. in and of itself. i would be reluctant -- this paying 2,000 more doesn't seem worth it when i believe you can probably do the tenant improvements within the existing budget. i'm reluctant without having a greater understanding of the budget in and of itself. why it is that you have to spend this additional money. what is it going towards. why can't you keep all your

existing furniture instead of some. why can't you incorporate all of the existing infrastructure. i'm not sure if you are doing more office space or shared space, like the tech company model. all those are, you know, answers that we don't have this time. not sure if you can answer at this point. >> sure. so couple things to mention. first and foremost the space is is a cold shell. no building amenities on the floor at all. we have had to absorb a lot of the costs for hvac, for electrical and for constructing any space. any walls in the space. that is one reason that the cost sounds high, is because it will is a cold shell. we have had to start from scratch. hc and electrical costs are hundreds of thousands in improvements needed for the space to occupy it. in term s of the design, we have really tried to minimize architecture so the way the design currently is, we are taking

a page from the book of tech companies and have open office and collaboration along the windows. all three sides, there's actually two two small offices but the rest is open for the rest of the staff. on the interior we have a couple conference rooms, a few private offices for senior staff who do a lot of hr work. we have tried to minimize the architecture. it's been a good collaborative process with rmw, who is our architect. bcci, the general contractor that was selected. they have known from the get go that value engineering was our number one priority but have really worked with us to cut costs. one other thing i mentioned as you probably know municipal projects are required. when it comes to reusing furniture there are requirements as pertained to achieving certain lead points for natural daylight harvesting and some of the decision