the pier multipurpose venue usable for public uses and other events such as convention, warriors home games, cultural events, family shows and performing arts and other uses including public space. retail and related parking facilities and develop on seawall lot 330 residential, hotel and/or retail uses and accessory parking in fiscally feasible and responsible under code 29 urging city and port officials to make evaluating and proposed project among its highest priorities and to take all appropriate steps to further environmental review of the proposed project. >> thank you very much. on this item we do have a number of presenters. we first will have jennifer, from the office of economic and workforce development who will give a presentation.

after jennifer completes her presentation, we will have monique morrier, offering her comments and to the budget analyst report on this item. before we begin, just for folks who are in the overflow room, we have an overflow room, room 263 that is available. if there are members of the public who are in that room that wish to speak during public comment we will make sure you have the opportunity to speak. just want to make sure you are aware of that. jennifer. >> thank you, good morning, supervisors. i'm jennifer matz from the office of economic and workforce development. i appreciate you holding this hearing under the somewhat compromised circumstances of no power. or compromised power. this is a meeting for the proposed warrior arena, the piers 30-32 and seawall project. by way of background fiscal faoez bt, its purpose is for the board of

supervisors to determine whether a proposed project is fiscally feasible before substantial predevelopment costs are incurred. it is a gate keeping measure that ensures costs are not occurred on infeasible. does not include approvals or entitlements. fiscal feasibility is required by law when a project is on city-owned property, construction costs over $25 million and pre-development costs of over a million. the determination must be completed before environmental review can commence. it is a relatively recent law. we have not done physical feasibility on all but we have done reviews of the explore tor yum, america's cup and san francisco wholesale produce mart. i would like to invite rick welts up to talk about this project. it seems a little bit -- doesn't seem to give enough context as we talk about fiscal feasibility for a project that you haven't seen or heard the description or seen or heard this opportunity.

we will be having a full design and transportation presentation in board of supervisors land use committee next monday but i wanted to give warrior's president rick well ts a couple minutes to talk about the vision for this arena. i want to yield to him. >> thank you, jennifer. supervisors. i am going to take a couple minutes to do an overview of the project design that has been released to date, the image you are seing in front of you right now is looking at the south part of piers 30, 32 and view north toward the bay bridge. couple of things of note on this. the design is meant right now more amassing design than architectural design. the arena that's placed 600 feet away from the embarkadero as far as it can be for several reasons, to enhance the view corridors, preserve the

views of bay bridge, especially for those coming from the south. the arena will be transparent in nature, utilizing primarily glass so that it is as transparent as it can possibly be on the site. as you can see, the early design concept shows that on the south side of the pier recreational use that steps down in the water. this slide shows more of the entire site plan. you can see the position of proposed arena. also see along the embarkadero on the piers 30-32 site about 135,000 square feet of retail proposed. perhaps the most distinguishing feature you can see on this slide is the fact that over 50% of the site -- in fact, quite a bit more than 50% of the site in the plan that's been proposed, over seven acres of new open public

space, that obviously with investment and rehabilitating the piers is what we think is a tremendous new public space opportunity in san francisco. the perimeter on all three sides will have access to the public at all times for pedestrian traffic as well as bicycle traffic. you can see that it actually from the water side on the south steps up to a plus 45 on the north side of the pier. that allows us to do several things. from an experience of those patrons who will be coming to events there it allows us to enter those patrons on the main con course and go down to their seats, or up to their seats, which will greatly experience the fan experience. one of the other things you see is robust maritime opportunities. part of the plan proposes

to relocate the fire boat station to this site. the three vessels you see on the north side to the left represent the city's fire boat fleet. there is a placeholder on the north and south side of the pier that is envisioned to accommodate water taxi, ferry landings and private craft in the lower right-hand corner of the site. we are very excited about having this enter into the review so these ideas can be fully vetted. the design will evolve as that takes place. >> in order to do the fiscal feasibility analysis it was important to come up with a broad outline of the proposed business terms for this deal. so the warriors in the city in port work to come up with a conceptual framework. that is not before you today as part of the resolution. i think it is important to

take a few minutes to describe the framework that forms the assumption in the feasibility report. the framework says this. the warrior also privately finance all development on piers 30, 32 and seawall lot 30. the city and port will reimburse warriors for agreed upon improvements for city-owned infrastructure. expenditures for improvement are reimbursable expenditures are capped at $120 million. funds for reimbursing those are limited to three sources. let me take each of those three individually. the warriors will privately finance all development. all buildings and improvements, including the multipurpose entertainment venue will be financed by the warriors. estimated cost is $1 billion. they will also finance rehabilitation of piers 30-32 with estimated cost of $120 million. the public open space and maritime amenities and other amenity also be privately financed. that includes as rick

mentioned 50% will be public open space, public small craft boat launch on suit side for kayaks. anticipate ferries and water taxis and excursions on the north side and exploring the feasibility of maintaining deep water berth on the east side of the facility. the city will reimburse -- city and port will reimburse warrior for agreed upon improvements the city owned infrastructure capped at 120 million with 13% cost of capital. the cost is estimated to be $120 million but if the conceptual framework creates space that if through cost saves thing rehabilitation of piers is less than 120 the city and warriors may negotiate for other public improvements up to the cap. those would include increased amounts of open space and maritime amenities. there's been a great deal of conversation around this 13% cost of capitol. i want to take a minute to

hopefully clearly explain what that means. when you look at other public private partnerships the city has engaged in over the years in which we have asked private partners to improve our infrastructure, there is a cost and rate of return which is often negotiated in those deals. in the hunter's partnership yard the rate of return was 20%. treasure island was 18.5. the lend lease deal proposed for piers 30-32 years ago had a 12.5 rate of return. the 13% rate of return reflects the risk that the warriors are taking in investing in our infrastructure. as i will continue to descrape because the sources are capped and because the sources may never equal 120 million, it is extraordinary risky for them to invest in our infrastructure. the funds for reimbursing costs are limited to three

sources. rent credits from piers 30-32, valued at 1.9 million a year. the sale price of seawall lot 30, valued at 30 million a year and new property tax revenue generate bid the yards your's development on both locations through creation of infrastructure financing district, estimated to yield about 5.8 million a year. >> to clarify the sales price is not per year, it is one time. >> one-time. the estimated total value of an infrastructure financing district, the amount that we could bond against for future property tax revenue off these two is approximately estimated to be 50 million. these values were determined by an appraisal that was conducted by the department of real estate with instructions provided by the city and port. there is then -- >> just one second. jennifer, we do have a few questions. supervisor a loss.

>> thank you, chair chu. feeling a need to kick the tires a little bit. but looking at my notes here, when we had america's cup before us. >> yep. >> there was a discussion about seawall lot 330, that being a portion to use to help subsidize development, at that time the seawall lot 330 was assessed at 33million, now 30 million. how are we at the difference? we have seen property values increase generally over the past few months. how are we at a lower property value? >> we did three appraisals under the america's cup. the value,ly need help from brad, who i know is here, we did three appraisals piers -- excuse me, the

seawall lot and take the value of the america's cup and that was lower than the 30 million that we are valuing it at. we had one that came in at 3 3 million, we had two others that brought an average down to an amount we agreed upon to use for transfer value, lower than 30 million. 30 million that is reflected came out of one appraisal in today's dollars and determined based upon looking at comparable sales -- recent comparable sales. >> right now we have not necessarily an agreement but understanding about 30 million. >> we have an understanding that is the number we will be using with some index for time when the transfer actually occurs. >> when we have term sheet, probably be more set in stone? >> absolutely. that is one of the recurring points i would like to make in the hearing is it is through the term sheet that all financial assumptions i'm presenting will be born -- borne out

and backed up with a robust fiscal analysis, that will be back to you this spring. it is that time we will ask you to opine on interest rate and structure. now this is conceptual, it create an outside framework for where this deal is going. >> i know the value of $30 million for seawall lot 330 comes with some assumptions about size, height, usage. what are we assuming? >> assuming current zoning and current conditions, what we asked the appraisers to do is look at highest and best use to maximum the development potential. whether or not as we all know waterfront development in san francisco is contentious and often times the maximum development that is allowed under zoning winds up being something that is a negotiation. so it anticipates -- the appraisal was based on the maximum development on that site. >> include what is kind of

height. >> the heights today i believe are 105 feet on that site. >> okay. thank you. >> thank you. i also wanted to ask in terms of what supervisor avalos was alluding to, we will see the term sheet that will come before us probably sometime next year. >> that will layout specifically the items. in terms of creating a conceptual framework, the thinking is we are able to put some level of price, some kind of value on these three different reimbursable sources so that they will be able to say reasonably we can get to 120 million to be reimbursed. >> yes. create an early understanding of a cap of costs and a cap of sources. i think one of the things we all struggled with during america's cup was trying to put limits on what the parameters of the deal were, so it felt important to create real structure around this. the numbers need to be fleshed out and fully

developed but the structure will remain. there will be these three sources as sources of reimbursement and cap of 120 million. >> thank you. >> a followup question. just a cautionary note. we are looking at the value of seawall lot 330 based on current zoning. you know, if somebody is moving forward, i just want to make sure we are talking about current zoning and if anything is changing of current zoning we would expect a change in value as well. i know we have had projects come before us that require new zoning. i would think that if there is anything that came forward that showed that we would have to do new zoning for seawall lot 330, that would change the value of that land. we would expect that to be reflected in future

agreements. not they want to go there but if it ever happened we would expect something greater than what is suggested right now. >> i don't know if the value would change. if final approves include zoning changes. the warriors are proposing -- warriors are paying predevelopment including entitlement and taking the risk. oftentimes the city will be reimbursing private developers for that cost. so there is really shared risks in the entitlements. if the warriors are proposing zoning changes that will come before you, evident in term sheet and move forward through the planning department processes, the costs and risks associated with that would be borne by the warriors up front in the entitlement process.

i hear you and i will take that. >> thank you, supervisor. also a clarification. you have the three reimbursable limited services, one, two and three. does the term sheet or does the conceptual framework anticipate we exhaust one before moving to the next, or it is interchangeable? >> it doesn't specifically create a waterfall. but this also sort of gets to the issue of the proposed return on the cost of capitol. it is the city's intention to negotiate to try to repay the warriors for their expenditure as quickly as possible, with as much up -- as large sort of chunks as possible. so the value is something that could come in early as a 30 million credit. the ability to bond against future property tax is a large chunk of money that could be put towards the reimbursing for those

infrastructure costs. what the framework anticipates another source of credit in it a lump-sum early to create net present value of what a 66-year lease is and apply toward the expenditures. what i think is important to understand is 120 is a cap. it is a cap that if those expenditures are not met, if they are not needed in order to rehabilitate the substructure, there could be an excess of value in the three buckets, in which kay they would not be exhausted but our goal is to have repayment as quickly as possible. >> thank you. >> some of the -- >> i have a question. >> are you finished answering the question? >> i am. >> we do have another question. supervisor kim? >> thank you. i have a couple questions

regarding the buckets. the questions are how to lower impact of 13% interest rate which has created a lot of interest among the members of the public. it is clear the sale price of the seawall can be paid up front. with property tax generated over time, the bond, is that something we can pre-credit it to reduce the 120 million? >> you can't pre-credit it until something is built. one of the things we are looking at and already talking to public finance experts that we engage, tom lockhart, chris lynch and assessor's office, we are engaging at an early stage, is a way to create a strategy that might allow community facilities district to create revenue that you could bond against as early as possible. even before traditionally

you can create infrastructure financing district that relies on revenues that are flowing from a completed project. in order to create a revenue stream that you can go out to the market and bond against in order to bring back that chunk of revenue in order to pay back the warriors. so we are -- to your question we are exploring ways to accelerate as much as possible in order to ensure quick repayment to warriors. >> i'm jumping a little ahead to the budget analyst report but it was stated it is possible we could reduce liability in terms of what we would owe 13% on, down to 29.6 million if we were able to use the estimated 34 million from the expected revenues and bond revenues. is that feasible? is that something from the get-go we could take out as

to what we would owe 13% interest on? >> that is right. we are attempting to have that remaining number of 30 million be something taken out early. if we can negotiate a value for the 66-year lease at net present value where you look at annual increases, look at what a reset would be, calculate the present value of those -- that rent stream today and give a credit, that would take out the reminder. >> okay. >> that is actually something i want to show. >> right. in the report it said even if you could not do that, that what remained was the 29.6 million, that is 13% annual rate on the 29.6 million is 3.8 million. that would exceed estimated annual fair market rent of 1.9 million. in that case because they have exhausted the three buckets that would be what the city would be committed to giving. nothing beyond that.

>> i think that's been one of misconceptions. if warriors have rate of return and more owed, whether because they exceed the 120 million of reimbursable expenditures or because there is a rate continuing to grow that somehow the city is still on the hook. this deal is being crafted to ensure there are only three sources of reimbursable -- by which warriors can get reimbursed for the substructures. it is a cap on total amount spent and cap on sources. >> my last question just on this point is what you had said regarding what if construction costs fall below 120 million. i have seen written the port could then negotiate other improvements to the site that would meet up to the cap. is it possible that actually that we could leave as an option that what we -- our lability to warriors would --

>> i want to be clear to explain why that is in the conceptual framework. because we drafted this at such an early stage we wanted to create space now to figure out if there were improvements. not ones we described that warriors are taking on, not open space in improvements described but if there are additional improvements or ones city wants done to degree that exceed what warriors would do in normal course of development we have carved out ability to negotiate a specific set of improvements with their own particular cost cap within 120. what my commitment is is that would be spelled out by term sheet wha. we are not asking for is a carte blanche that can be negotiated after approvals to fill that bucket. >> i appreciate that. that is one of my concerns, that we could use that. in the unlikely case the construction costs are below 120 million we use it for actually commitments we

expected the warriors to already -- like open space. >> that is not the intention. the intention is we were so early that we wanted to create this within 120 and not predetermine we wouldn't use up to the full -- up to what we think is the full value but that would come to you with specificity at term sheet stage. what it is and what it is costing. that would be something for you to opine on. >> thank you. >> i think some of misunderstandings and misconceptions have to do with some belief the city is giving cash or loan of money or some sort of guaranteed repayment or return. that is not true. what i have been trying to articulate is regardless of the cost of the repair, the reimbursement to warriors is capped at 120 million from three sources we have just discussed. our current estimate of the value of these three sources is less than 120 million. the port really has a

liability in the pier substructure, in piers 30-32 in form of crumbling pier. warriors have agreed to repair it with their money at their risk. what it means is under the current proposal, warriors do not get a return of their investment based on our current estimates of the value of these three sources. nevermind a return on their investment. if i can have the overhead. thank you. not that one. the light one. this is a pretty simple worksheet that we work with our consultants eps to present that really looks at the qualified cost and sources for reimbursement. taking out this notion is not an interest rate but cost of capital but taking out the cost of capitol,

the value if you look at the value of the three sources of reimbursement and look at them in two ways, there's the purchase credit for the seawall lot, projected isd bond, close to 55.5 million. the slight variable if you look at the fee value. if we could sell 3032, the appraiser looked at if we could sell 3032 what would the value be. 30 million. based upon calculations of what the net present value of the lease would be on 3032, that is 31 million. you see the three sources don't equal 120 million. so i think the conversation on 13% has over shadowed the notion that we don't get to it under the present value of the three. >> jennifer, i want to clarify. at the current state we anticipate we would need potentially 120 million to

be able to rehabilitate piers 30, 32, primarily substructure in order to support anything on top of it. what conceptual framework is laying out is saying no matter what the cost is even if it is higher than 120 million on piers 3032, the city is only liable for reimbursing maximum of 120 million period. not only are we limited to 120 million reimbursement cap but further limited to pay back that cap with these three sources. even if those three sources don't necessarily add up to 120 million, we are only limited to using those three buckets to repay it. ris subpoenaing on warriors. if what ends up being the value is not quite 120 million. >> that's correct. >> okay. thanks. >> key provisions is the concept -- separate concept

that we may agree on other improvements by warriors and other mechanisms, codified in the term sheet. one exciting example is relocation of station 35 from piers 22 down to piers 30, 32 and moving fire boats and stakes. i have assistant chief ken lombardi to say a few words about this opportunity. >> assistant chief lombardi with the san francisco fire department. the fire department has been looking at our facility at pier 22.5 for quite sometime as the piers behind have become dilapidated. most will notice as you are walking down embarkadero near the fire boats. we are looking at a project a year now where they will rebuild that and build a new pier out the back. it will be significant cost

out of our bond money passed in 2010 by citizens of san francisco for emergency safety and earthquake safety and emergency response that a lot of our fire houses are becoming older and need a lot of work and not seismickly safe. as warriors came about with this project they approached us, as this is a block away . this would create a great opportunity for fire department and citizens if we move this, have a state-of-the-art fire house that could house three fire boats. we have two, a new one coming at the end of 2013. currently we can't tie it up at the current facility. like i say we were going to do a new project