its own policies or contingency policies to a 10% from a 12% level yet. but that the department plans to go back and review that policy with the health commission. and, so, what i would think is probably a better thing to do is allow for the same kind of language so that if the department actually exceeds what the health policies or the health commission's policy is on contingency, then they have to go back for approval. if the health department or the health commission policy should change to 10 considertion, then it should be at 10% level. so, i want to make sure we allow for the health commission to exercise sort of their jurisdiction over the health department's policy on contingency before we sort of say a different level. >> madam chair and supervisor avalos, we concur with what the chair just stated. that seems reasonable. >> okay, thank you. do we have that motion? >> moved. >> we have a motion to accept the budget analyst's first recommendation and then to amend the budget analyst's second recommendation so that it is consistent with the department of public health's

policy in terms of contingency levels, and to authorize the clerk to be able to make these amendments to the legislation. and so we've got that amendment. and to approve the underlying item as amended. so, we've got that motion. we'll do that without objection. thank you. >> i just want to let the department know i will need to work with them to get a new signature on [speaker not understood]. >> thank you. the department will work to make sure that our clerk gets that information as quickly as possible so that we don't have any delays, that would be great. thank you. item 4, please. >> item number 4, resolution approving amendment number one to contract no. sfmta-2013-08 with new flyer of america, incorporated to purchase 17 additional 40-foot low floor diesel hybrid buses through the cooperative purchasing venture established by the state of minnesota materials management division for an additional amount of $11,7 80,00 5, and a

total contract amount of $48,6 69,369. >> thank you very much. on this item we have [speaker not understood] from mta. >> good morning. my name is [speaker not understood], sfmta. when we went before this committee in october last month october, we asked for your authorization to approve a contract with new flyer to purchase 35 hybrid buses. even though we have enough funds at that time, we did not have enough local matching funds to complete the project. recently we were able to identify additional local funds to match the federal funds available for this project. that's why we're coming back to you, to amend the contract to

increase the number of buses to be purchased by 17 buses. >> thank you. why don't we go to the budget analyst report on this item. >> madam chair, members of the committee, as shown in table 1 that's on page 3 of our report, the budget for the proposed amended contract for the 62 new buses with new flyer would be 48.7 million dollars. and as shown in table 2, which is on page 4 of our report, if you include the associated costs of 6.7 million, the total estimated project cost would be 55.4 million. we do recommend that you approve this resolution. >> thank you, mr. rose. why don't we open this item up for public comment. are there members of the public who wish to speak on item number 4? seeing none, public comment is closed.

>> motion to approve. with recommendation. >> we have a motion to send the item forward with recommendation and we'll do that without objection. thank you. item 5, please. >> item number 5, resolution authorizing the extension of a lease of 79,950 square feet of office space at 1380 howard street for use by the department of public health community behavioral health services division for a term of an additional five years from january 1st, 2013 through december 31st, 2017 at a monthly rate of $118,259.38 for the first six months of the extended term and then $131,5 84.38 per month for the remainder of the extended term. >> thank you. would you call item number 6 as well? >> item number 6, resolution retroactively authorizing the extension of a lease of real property at 760 harrison street for the department of public

health with the cort family living trust for a term of an additional five years from july 1, 2012 to june 30, 2017 at a monthly rate of $25,350. >> thank you. we have john update. -- updike. >> thank you. john updike, [speaker not understood]. i'll start with 1380 howard which is a request for five-year extension for a high-rise. the building has 79,550 square feet and is owned by the cort family trust. we have several programs administered from this location so it is primarily an office function. those uses include community oriented primary care, business and contracts office, their information technology management system. [speaker not understood] client relations. there is a client interaction area of the billion which involves a pharmacy, addiction treatment, behavioral health,

and substance abuse prevention. so, we've been leasing portions of this site since 1988 fairly recently increased the site footprint to include the whole building. the current rent has been flat, unchanged since 2006. the rent for the first six months will be $17.25 per square foot per year as the base rate. that's a 1.4% increase from the current rent. the rent increases to $19.75 square foot per year after that first six month year period. that sounds like a lot, but keep in mind this current rate that we're in today has been fixed for the last five years. so, when we have an adjustment to market rate, we expect a jump at that point. and here it is. this term of 19.75 a square foot per year is fixed for the remainder 4-1/2 years of this

second and final five-year option period. to give you a sense of the comparables of the marketplace, if we can go to the overhead. and this information really applies to both of the items before you i'll speak to. but you see the range on the low end, we have -- we're providing highlighted in yellow for you is the full cost to the city. so, that's comparable, then, to the numbers i'm going to speak to here. a low of $29 per square foot, and then we have several in the 40s to 48.50 a square foot. so, those are the comparable rentals. again, it's refleck i have of the discussions we've had previously, particularly for properties in south of market, that their rates are moving very fast. so, this particular instance, in addition to the base rent we're responsible for costs that are outlined in the budget analyst's report accurately on

page 4, and that brings our total cost of occupancy to $27.24 per square foot per year over the course of the next calendar year. so, again, in comparison to the market, we believe that's less than fair market rent. if you like, i'll give the presentation on 760 harrison. >> that would be great. >> all right. so, this particular request is retroactive acceptance of the second of two five-year options for renewal. this property is located between third and fourth on harrison. i have a map to get you oriented. this is dph's south of market mental health services clinic that occupies the whole 13,000 square feet of the property. this particular lease rate would be $23.40 a square foot per year. and in addition to that base rate, we would pay janitorial and utility services. so, the cost for the fiscal year 12-13 are shown in the budget analyst's report in this

case on page 3. and they total, then, $26.89 a square foot per year. again, considerably under those comparables that i showed you earlier. this, again, reflects what we believe is a negotiated rate that's below fair market rent. there was a considerable back and forth between the ownership and the city on this particular item, thus the retroactivity. the rate is like the previous item, fixed for the five-year term at that rate. the other increases will be for what's called pass throughs to essentially costs related to the facilities management, taxes, insurance that might go up per year, percentage share of that is passed on to the city. but the base rate remains the same for the five-year term. happy to answer any questions you might have about either one of these. >> thank you very much. why don't we go to the budget analyst's report for these two items. >> madam chair, on item 5 the

real estate department has a reported to us that rent for the last 54 months of 141,5 84 is equivalent to 95% of the prevailing market rate rentals. and as shown in table 3 on page 4 of our report, the rent and operating expenses total 2,177,043, that will be paid from general fund monies included in the dph's 12-13 and 13-14 budgets as previously approved by the board of supervisors. we recommend that you do approve that resolution. and regarding item 6, we point out on page 3 of our report that that -- the monthly base rent of 25,350 for all five years of the extension is actually the same as the current monthly rent. and as shown in table 2 on page

3 of our report, the first year turning rent operating costs of 349,516, that's displayed as i say in table 2. we recommend that you approve the resolution. >> thank you, mr. rose. why don't we go to public comment on these two items. are there members of the public who wish to speak on item number 5 or item number 6? seeing none, public comment is closed. >> motion to approve both [speaker not understood]. >> we have a motion for item 5 and item 6 with recommendation and we'll do that without objection. thank you very much. >> item 7. >> item 7, resolution finding the proposed rehabilitation of the 20th street hiss pork buildings on or near 20th street, east of illinois street, fiscally feasible pursuant to administrative code chapter 29 and endorsing the

term sheet between orton development, inc. and the san francisco port commission. >> thank you. we have [speaker not understood] on this item. wait one second so he can switch over the microphones. >> good morning, kathleen [speaker not understood], planning and development group. and i'm here today to talk to you about what we believe is an incredibly exciting project and opportunity to bring back to life some of the oldest buildings in san francisco. quickly, these are at pier 70 located in the city at pier 70, which is south of mission bay, east of potrero hill. and then what we're talking about specifically at pier 70 is the historic court that's shown in red in the locator map. we're here to ask for today are two specific actions which help

begin the process and get your concurrence that we're on the right track. we're requesting endorsement of the term sheet with orton development for the rehab of these buildings. and then the finding of fiscal feasibility so we can begin environmental review. very similar to what's done on the arena a week or two ago. so you understand the [speaker not understood], we've draft and had negotiated at this point is five pages, conceptual meeting of the minds how the business terms of what the project will be. by getting your, port commission concurrence, your concurrence, we know we're on the right track when we come back later in 2013 with a stack of documents that will be the final lease and project approval. at this point we're asking for that endorsement and the direction to go forward with c-e-q-a review. this came out of the port did a three-year long master planning process working with the community for pier 70 as a whole, the 70 acres.

this is why we have shipping pier going back 150 years. we have extraordinary historic buildings and barricaded off waterfront. our goals were to create parks and we also have a lot of, just asphalt. this is where the intel yard is now that will be moving. our goals were to create parks, save these buildings, bring the shore lines back to use and sustain ship repair. after we did the planning, we decided how do we move forward and started off with several different implementation efforts. we continue to work with our ship repair, crane [speaker not understood] circled in green is included in the 28. and the 2012 park bonds. so, that project is moving forward as the city and funded and for the sponsor public project. the waterfront site, which is the area circled in black, is a major site for major new development. it's a chance for new buildings. here we did a competitive process and selected a master

developer before the city. we will be coming forward in 2013 with plans for that site. and then the fourth initiative we undertook was what we call the 20th street historic buildings. the part circled in red where we went looking for the right use, the right developer to save these buildings. the buildings date back to 1885. they are extraordinary [speaker not understood] pictures to show you rather than tell you some of these. orton development is the partner we've brought forward. we chose them through a competitive process. they have extensive experience in doing just this, bringing obsolete buildings back to life. their proposal met or exceeded our objectives in the rfp and we're excited to bring this project forward. let's walk through the buildings. this is the office building at 1 illinois and 20th street. next to that we have this extraordinary power house that actually has power running through it right now, and we need to figure out how did we

do that. on that, we have another -- whats was the union iron office building built before the turn of the last century. and [speaker not understood] building. across the street we have the massive [speaker not understood] iron works machine shop, over 100,000 square feet. this is that stunning brick building we've seen on 20th street. behind that are these warehouses dating back, reusable. the goal here is identify particularly for these industrial buildings is they can bring them back to use for light industrial use. not shipbuilding as in past, but more the types of uses we see in the dogpatch, in the american can, the makers and uses of today's boutique industrial. and again, a warehouse building from the world war ii era. our goals here are to bring these buildings to use, get them safe, keep them from falling down. and then we'll also be creating open space and jobs.

we expect this business to employ 400 to 500 people. why do we think we can work -- we have a good project now and why this can come forward? this isn't the first time the port's been in contract with a project to save some of these buildings. this time i think we've fully got a contract and a possibility to go forward. the capital costs [speaker not understood] at 58 million is less. what we are carrying and the port's capital plan is 106 million for these projects. in our statement of the $2 billion of unfunded need. by moving forward, bringing a partner on, we take that back off our ledger, bring it on the developer. with that cost us less because, one, we're not changing the buildings as much as we thought we would do. rather than adjusting these industrial buildings to new uses, we're using them for their historic uses. and secondly, this is what they do. the orton team comes forward, fix the buildings, know how to

value engineer it. they're thinking seismic for the building machine shop, third to a half of what the port's engineering and cost estimates were because they dug in and did further investigations. [speaker not understood] odi has -- >> i'm actually pretty excited about the possibility of these buildings being restored. i have been looking at them for probably 20 years in san francisco. since i've been here, i go look at those buildings. they're amazing. what was originally $106 million the port estimate to $58 million. is there a change of usage in those two different estimates? is it more than just the engineering? how is that change in revenue [speaker not understood]? >> it's a different more value engineered lease hub. it's a setting for the industrial buildings. they're building them to a cold

shell standard. so, the tenant that comes in and brings in their next use will have some build out. it will be an additional cost, but something the intenant would intend to build in, their customized uses. >> do we see that as realistic, we'll be able to attract or we'll be able to attract at thection ants that will be able to do other part of the work that needs to get done renovating these buildings and making them usable? >> that's my next point here. we've got strong market interest. there's a lot of users out there. there really aren't this scale of light industrial spaces for -- it's the boutique manufacturing. it's the sf made. it's the kinds of uses that wanna be san francisco, want to be in dogpatch. we've heard from the orton team. i'll have eddie orton speak to

you at the end of this. [speaker not understood]. this is being pro formaed at realistic [speaker not understood]. the next piece, we've structured this deal that orton has offered, willing to commit up to 14 million. also because of their credit, their ability and their experience, able to bring tax credit investor, equity investment which is a 20% of the project cost as another equity partner into this. and strong debt. so, because of that and the rent, we can draw the capital needed. it's managing the costs is going to be the challenge here, but we think we have the skills and the partner to move forward. as i said, this is the term sheet. this is laying out the framework that we dive into next is really digging into all the costs. really working through the engineering. and when we're back here next year, we're going to know more on answering that and showing you exactly where the numbers are coming from and how we're

going to verify and control the costs. and then the last piece i'm about to step to is the structure of the deal here. this is a partnership deal. the port gets no revenue from these buildings now. in fact, we are a liability. we have problems out there. we could possibly document the loss of capital we've had from metal theft. but we are not asking for a guaranteed rent from these buildings until 20 years out. so, because of that it puts the developer in a situation they can bring more debt into the project, lowering the average cost of capital because we can bring other people's money into funding and doing the project. the key business terms is that odi will invest up to 14 million. the port is contributing a million and a half. that's funds that we have been carrying -- and we had budgeted in our capital budget because we were so concerned about these buildings, we had budgeted and funded a temporary shoring project that was designed to make sure that no

one would die if the brick collapsed. instead of spending a million and a half to prop the buildings up, we're now contributing a million and a half to the long-term solution. so, we felt that had already done. we're also on a waiting list for a grant that would also help with that, hoping that comes through. it's a small amount. the structure -- >> i'm sorry, a grant to do what? >> to contribute to the seismic rehab from the california cultural -- >> that would be a contribution above and beyond the 1.5? >> it would be 258,000. we applied for that a while back and we would be restructuring it from the shoring project to ultimate rehab. the deal is structured as a participating rent. the first call on the revenues after debt service is to repay the equity investment. and the return on that investment. once that is repaid, we share equally in the net revenue.

and we also get participation in the refinancing and sale in this moving forward. we established in this deal that there is a base rent. it starts in 20 years, which we're setting the amount now at 200,000. it would escalate with cpi. we're projecting that, that could be at the level of 400,000 20 years from now. orton would be either paying us this base rent or the participation rent. so, if we buy 20 years from now, if we've burned off that capital we would be getting 50% of the net. there are provisions in the deal that the start of that base rent might have to be delayed if to get the deal done we need more than 14 million of equity. but the base rent was an important piece to our commission. it was always wanting us to secure revenue since you know the port operates on the rents we earn.

so, that's the basic business deal outlined in the term sheet that we're looking for endorsement of. the second action is the final -- >> before you go too far, in terms of the business terms and the expenses, i think one of the points that were made in the past was the fact that i think you spoke a little bit about why it was not 106 million, why 58 million might be a reasonable number. primarily it has to do with sort of the engineering expertise of the partner that we have brought on board who has done rehab work in the past. but also the fact that you're not really building it out completely. so, really just creating the shell and allowing for future tenants to come in and make those improvements into the facility, which reduces much of the cost. and i guess i'm just wondering, should there be a situation where it's not 58 million, it's a different number, a higher number, is there sort of an upper cap? is there sort of a limit? because i think you spoke to -- you started to speak to, which is right now the expectation is that in 20 years we would have paid off some of this -- the

equity that or paid back the equity on it with the rent that we would not be collecting basically on that site. and, so, really we wouldn't start to collect the base rent until 20 years later. the expectation is that might move back depending if more is needed to fix up the facility. is there sort of an upper limit to what those expenses will be and how does the port intend to control those expenses? >> we -- that's the due diligence we're doing right now. we realize there may be one or two of these buildings that there isn't immediately a cost-effective rehab. we may come back with a refined project. that's what we're working through now. the port, when we come back with the actual deal, we'll have a clear process by which we're validating exactly how the -- what the project costs and how much is paid for the debt, tax credit investment.

and then the last piece, the expensive piece, is the orton equity. the deal structure that they're willing to commit and agree up to 14 million are base case scenario, which is one of the budget [speaker not understood] did a different version of. our best case scenario was the project put in 2 million and we would be able to burn that off in less than 10 years. if we need to go back to the 14 million is when it takes 20 years or more to be in the sharing position. the challenge in this project is controlling the cost and structuring it so we can bring in the debt in a reasonable way and secure the tenant. we're going to work that through. we're going to be documenting that. by the time we're here with a deal, we're a very controlled and very limited exposure for the port, construction cost overruns. that will be very structured in the transaction documents.

>> thank you. >> then on the -- i wanted to step back a piece. when we did our earlier planning for this project, we thought this would be a subsidy project. we thought this was a project that the port would need to put significant public funds in to make happen. when we went through our competitive process, we did an outreach. we had 150 people tour the site. we had 15 responses to our requests for interest. we did an rfp, out to 10 of those. we got four responses back. two ended up pulling out. we evaluated two solid proposals from well qualified development team. the other proposal led by equity community builders, their proposal was no rent to the port, that they were looking for a $9 million capital contribution and that the equity hadn't been secured yet. it would be at a cost in the

high teens. so, we were very excited to be able to come forward with a developer who had the funds in place and could move forward, but it needed to be in this partnership structure because that's how we manage risk for a project like this. the next question that we're asking is moving forward with the fiscal feasibility with you, and this is before entering into environmental review on a major project. we need the board to say it's a good idea to do that. and we have looked at this. we believe the primary fiscal economic and civic benefit of this project to saving these buildings. in addition, there's going to be tax revenues and rent benefits. we walk through those with a consultant. at the completion, the business is operating in these buildings will generate almost $800,000 a year in general fund revenue. we didn't cost through the indirect impact of the spending of those businesses or the construction cost benefits

because we thought this was a strong project looking at the direct benefit. there will also be 150 million a year going to the special funds for other -- that is other portions of civic need. i want to just walk through the next steps here. would be if you would endorse and find the fiscal feasibility and move forward. we do a lot more refining of the project. further project review including c-e-q-a, weild be coming forward with a proposed lease and transaction. * we'd we could start with construction next year, with occupancy in 2014. i'd like to quickly introduce eddie orton, let him speak a little more to what their interest and how they see this project moving forward and then i'm available for questions. i'd also mention that the budget analyst's report raised some good issues and we agree with the recommendations of term to pu