board of supervisors to amend the san francisco public works code to authorize the port to impose penalties to enforce the port's construction site sfoerpl water runoff control program, port building code section sun whoa 6a.3.2.5. b, request approval of a memorandum of understanding between the port of san francisco and the san francisco board of appeals to facilitate the transfer of permit appeal-related duties for port entertainment permits. c, request authorization to execute an amendment to the construction manager/general contractor contact with turner construction company to increase the total authorized contract amount from $100,107,601 to an amount not to exceed $101,250,601 to fund additional construction scope for the pier 27 james r. mer

man cruise terminal. request authorization to execute an amendment to the architectural and engineering contract with the joint venture of kaplan, mclaughlin, dias architects and pfau long architecture in association with bermello ajamil and partners to increase the total authorized contract frplt from $11,491,708 to an amount not to exceed $11,741,708, for additional construction administration services for the project. request authorization to execute an amendment to the memorandum of understanding between the port and the san francisco department of public works to provide additional project management services and to extend the term expiration. >> so moved.

>> any public comment? all in favor. opposed? the consent calendar carries. i do want to point out we have cynthia goldstein here representing the board of permit appeals. thank you for agreeing to work with us on these projects and for taking on that responsibility and thank you for joining us today. prrp. >> 11 a, request approval of second amendment to lease no. l-14282 with the san francisco bar pilots benevolent and protective association for space located at pier 9 located on the embarcadero at the foot of vallejo street to reduce the size of the premises.

>> monique, 10 years, unbelievable and congratulations. on to mormon dane matters. this amendment in front of you would reduce the size and rent of the parking area of the san francisco bar pilots current premises specify future rent adjustments, update the security deposit requirement and add new city and port legal requirements. this past december the port commission approved a third amendment to a lease with auto desk that increased their pier 9 premises by approximately 3900 square feet. they intend to construct a robotic laboratory in the improved shed space, which is located adjacent to its current premises. the amendment requires auto desk to invest no less than approximately $2 million in base building core and shell and tenant improvements bringing their total investment into the pier 9 facilities to 16 million dollars.

just this afternoon the board of supervisors voted unanimously their approval of this amendment. the expansion space abuts the bar pilots and would create a zero property line blocking the bar pilot's gate and making egress and ingress difficult for all tenants at the pier. auto desk and the bar pilots have mutually agreed to relocate the fence eastward thereby reducing the parking space by approximately 5,000 square feet, thereby improving path of travel and the impound turn around area. this reduces their parking area by 5,000 feet and decreases the corresponding monthly rent by approximately $5500. in consideration of

this consideration, auto desk is required to relocate their fencing gates plus any electronic devices at its sole cost and expense. they will reimburse the bar pilots for any cost incurred for access to the exterior apron deck that will be necessary due to the relocation of the fence. auto desk will also reimburse the port for any loss of rent resulting from the bar pilots space reduction or a loss of parking stalls through the term of their lease, which expires in 2023. port staff recommends the approval of this resolution. glad to answer any questions you might have. >> is there a motion? >> i have a motion we approve it. >> second? >> second. >> public comment? seeing none, commissioners. >> yes, i have a couple

questions, peter. so the rent that will be paid for the 5,300 square feet that the bar pilots are giving up that auto desk is responsible, what is the rate that they're going to pay? >> they are going to pay --. >> is it the rate that the bar pilots are currently paying? >> it is, correct, it is. plus cpi >> that was negotiated several years ago so does that adjust at some point or what happens. >> it will be adjusted by 3 percent annually. the space for parking in the shed is $1.06 per square foot and that will be adjusted 3 percent annually going on to the end of the lease. >> and the second question i had relates to what is the current parameter rent for the space for the bar pilots? i know they are paying let's say for the office 427, what's the current parameter rent? >> the current parameter rent is i believe around $3, is jeff

bowers here? turn it over to our real estate colleagues. >> the current market rate is 275 per square foot on a net basis. >> even with the amount of time? i know you have reported on this before to us, but it seems like in the interim of the last few months it has not changed in terms of the market conditions? >> well, there's market and then there are the parameters you are referring to, which is set annually so the last time we set them they became effective july 2013. i am coming before you march 27th with new recommendations for new rates and they are going up. the recommendation is for a higher rate. >> okay, i guess that won't -- steal your thunder for the next meeting. >> it's going to go up. i think you will be happy. >> pardon? >> i think you will be pleased. >> i'm just trying to project

out what happens in the future. as you know i'm always watching the cash flow. >> an increase, absolutely. >> what is the range. >> it's closer to 3.50 per square foot. >> you would expect if anybody did take that, it will also have a 3 percent cpi >> absolutely, indexed annually by 3 percent, yes. those are net so if we're getting 350 it's a full service, that's probably closer to 425 or 450 (inaudible) speaking. >> all right. >> so, peter, can you briefly discuss what the other proposed amendments to this lease are besides the auto desk piece? >> certainly. there are new city requirements in the agreement. again, i might turn it over to our real estate

friends -- that increase the amount of small business participation. mark, what's the other one? >> there's a change to the identification language. there is a clause that provides for encouragement of participation with small business, local small businesses. the other is right now the lease requires cash for a deposit and we're agreeing to allow another instrument which is going to be a stand by letter of credit which is very typical, very standard within larger security deposit amounts, which this would be. >> okay, so what would be the increase for small business? >> it doesn't, there is no set amount. it's standard language that's in our new lease that everyone signs, so any new

leases going forward there is a clause that encourages participation with small business. >> and so how will that happen with this lease? >> well, it's incorporated -- we're amending the lease so it's a second amendment. it's now rolled up so in their lease they are encouraged to participate with small business. >> and in what way will they do that? >> that's really a question that we would have to discuss with the bar pilots to see what their options would be. really it's a statement of participation. >> the language of the city requirement is encouraging participation with small business, the word is encourages? >> that's correct. >> so there's only two changes? >> those are the changes to -- yes. >> peter, did you already present the change to the

market reset? >> yes. >> okay. >> just to acknowledge what's going to happen is that based on your change in terms of the next year in january, lease at prevailing market rates rather than the higher base rent or the prevailing base rents, with the 20 percent discount we will be seeing a decrease in rental payment. >> essentially the market reset every 5 years, like many of our leases have, there's a market reset where the lease, there's a look at market, what's market for this premise, and the rent will be in this case will be now adjusted to market, whatever that is. in the past it was market rent if it's higher than the current --. >> my only issue is that's

fine and it's going to be lower because they negotiated this lease at a very high rate. my issue really is offering another 20 percent discount on top of that. >> well that, commissioner, that 20 percent discount has to do with originally, in the original lease back how many years ago, that is not a part of this amendment. that 20 percent discount was in the original --. >> but you are just reopening all the terms with this deal. >> this is true. >> and i think last time you came to us with this deal we had real issues with it. so to me they are two separate things. the auto desk lease and the rent parameters for the bar pilots are two separate issues and to combine them i think i may have an issue with that. because i don't understand why we would take a lower amount of rent going forward. >> well, that would only be the case if the market collapsed and the rents for that space, which is arguably the best space on the

waterfront, would be lower than what they are paying now. >> we're not talking 5 years from now, we're talking january of 2015. so it's only a few months away. so the market is not going to be collapsing that much in the next 6 months. >> right. >> what has changed since the last time you presented this item to us? >> we haven't presented this item in terms of the need to take back space in order to facilitate the auto desk expansion. i think you approved the auto desk expansion in december, i believe it was. in the course of the negotiations with the bar pilots to take back the space and make it available for higher use, if you will, this was one of the terms that they put on the table for negotiation. from the staff perspective it is a risk we take with all our other leases because we don't normally negotiate a market reset that has a floor, but you are correct, we were very

successful 5 years ago in getting an above market rate negotiated in and we do run the risk, the very real reset in january that the gross revenues will come down. so our --. >> i think our question is whether you are going to give both in terms of the change, in terms of the prevailing market rate and 20 percent, it's either one or the other but not both. that's my recommendation. >> so if that's your direction we will have to go back and renegotiate. we haven't negotiated that. >> well, you can adopt a resolution with that provision, but we have -- you have, the commission has a policy that maritime tenants get a 20 percent discount over rack right prior to rent. >> but that was not the case when this was negotiated several years ago at the higher than market rate. so i don't understand, this is inconsistent. we wouldn't be

in the situation and this i could -- the position of the bar pilots, they took a higher rent, there was no 20 percent offered at that time. it was negotiated for a future date. >> i can't speak to why they agreed to a higher rent. i really don't know. it was a windfall at the port at the time followed by several years of them being well, well, well below market. but your point is correct. we've done our best to conform the terms of our leases in this case on both the market reset and the maritime 20 percent discount and if that doesn't meet with your approval then we'll have to go back to the drawing board. >> i think the other two commissioners should opine whether that's something you want to consider or not. >> peter, i had two questions. one, substantively, in terms of the relinquishment of space, auto desk reimburses us for the

differential on that, but is that space going to be put to a different use or is it just going to be --. >> same use. >> parking? >> where the gate is? >> it will be moved back and that space -- jeff has a better idea --. >> building another workshop will --. >> i guess what i'm getting at is we're now treating it as parking space and getting rent based on that, but if it's effectively becoming higher use --. >> it's common area, that's what it is. there are 3 parking spaces that will stay there. the fence will be moved east so that common area will be moved. auto desk will pay us for the common area that was the bar pilots' space, so there's no down side in parking. we will keep the same parking revenue. >> but what i want to get at, it's not becoming some kind of new use.

>> not at all. it is not, no. >> you need to be clear that it does facilitate what is now a garbage area to be built out of a new workshop or whatever the right words are to describe that. >> well, the auto desk space, which is 3400 square feet, is currently used for storage. so it's very low use. so you passed a resolution that would allow them to take the 3400 square feet and build a robotics lab. as built, i might point out, that's going to be 5300 square feet with a market value of $30,000. the current market value is about $3,000. >> that's where i was going with this. >> so we are getting, those are those benefits that we get from these mini developments. >> do we get any concurrent increase in rents, though. >> well, we get a $2 million investment.

>> you are talking about two different leases, right? >> no, i'm trying to answer supervisor katz' question on the 3400 square feet. the fence will be moved. >> so they are paying 3,000 or 30,000? auto desk will be paying how much for that space? >> about 3,000 to 4,000 square feet. my point is that as built will be 5300 with a market value of $4 a square foot. >> but they will be paying --. >> during the term they have to amortize their investment. >> so they will be paying at the current prevailing rate as the bar pilots, which takes off the bar pilots lease how much per month? >> 5300. >> $500 dollars. >> right. >> then the other question i have, and this might be more for peter, where the lease with the bar pilots is updated to reflect the more current language regarding indecember

any mnify case, i am including the current lease had the 12b nondiscrimination language? >> absolutely. >> commissioners. >> i agree with commissioner wooho the presentation is kind of spoty to me and i'm not quite understanding me and i'd like to see you take this thing back and work on a more and bring it back to the commission. >> one point of clarification that i think might help is the 20 percent was in the original lease. >> we understand that, but that 20 percent is not actually occur at the commencement of the lease, it was based on the future. >> right. >> so what we just heard that this was a standard policy, we didn't use the standard policy at the beginning of the lease so we were not consistent with

our supposed policy and if the lease is being renegotiated as far as terms, we should try to figure out something that's fair to both parties. >> agreed. >> commissioners, would you mind please restating your direction? we heard a lot of different -- so is there a direction? >> i personally would like to see them separated. i mean i really don't think that giving up 5,000 square feet and the port is not getting any additional revenue because of that -- we only get to redo, reset the whole lease. >> i hear what you're saying. we're opening up the lease so there's not, i'm not sure how to separate it. could you be more clear? >> if we have to do it

together i think it should be more beneficial to the port. >> come back. >> yeah, i got the part come back, i'm still working on with what. but as you pointed out earlier, we've been back a few times and thought we had your direction and apaurpbtly -- apparently we have not. >> i think there's two parts, one is auto desk in recognition of the fact they are investing $2 million is getting the space for a lower rate for the time being because they have to amortize their 2 million. they would not be paying the prevailing market rate for the improved space because they are put not guilty 2 million. so we are getting the space is the as is usage. the second part of this is what is the bar pilots renegotiating on their lease as far as the reset. they are giving up the space, they won't have to pay that amount of rent any more because it will be

paid by auto desk, and what they have asked for in order to agree with this, they want their rent to be adjusted to prevailing market rent as of january with the 20 percent discount and i think what we are saying, or at least i am saying, to give them prevailing market rate when i just heard from jeff in terms of what that range will probably be, we will be losing some revenue and yet giving them the prevailing market rent which is lower than the current rent plus the 20 percent discount. that seems like it's not as fair to us in terms of our long-term projections of what we need to sustain in revenue for the port. >> and do you have a direction on what you think is fair or do you want us to come back and just --. >> i think there should be a discussion with the parties involved. i think it's -- i mean i think it's just --. >> as you've pointed out, we've been here, we've gotten that direction before, it was just now so if you have

something more specific in mind, that direction would be helpful. >> i want a little clarification as i understand it, the 20 percent discount is standard for maritime use? >> yeah, the port commission has a policy that provides a 20 percent discount for maritime use. >> so it would be the market rate discounted 20 percent for any maritime tenant. >> uh-huh. >> and that's what this would be? >> uh-huh. >> i'm challenging that policy saying it shouldn't apply to this lease to begin it. >> well, no, it does apply, it has a kick-in date that's already past. we're not proposing to amend that term and i think your direction is amend that term or don't double dip i think is your direction. >> one thing i would point out, you asked me, pier 9 prevailing rates which would go

to 3.50. actually the clause in the rent for prevailing we would look probably to bay and delta, which is 4.25 a square foot. so actually the rent is more in line with what the pilots are paying now. >> well i think then you need to come back and show us something and i think obviously talk with the parties involved. >> okay, thank you. >> did everyone get --. >> did you call for public comment already? >> yeah. so we'll have this item held over for further discussion. >> are you asking me or telling me? >> that was a statement. >> that's what i thought. >> you can call the next item. >> 11b, informational presentation on the cruise terminal management agreement with pacific cruise ship terminals, llc and passenger

fee increase for the james r. herman cruise terminal. >> good afternoon, i'm john dull, planning division. this is an informational presentation, there is no action required this afternoon and it serves as prelude to an item we would hope to bring later this month on your management agreement between the port and metro. this is another step in a long circuitous effort and a balancing act to deliver a new primary cruise terminal to the city of san francisco. it has taken about 20 years, so you are right. sibs the new cruise terminal was proposed at piers 30-32, upon a failure the port commission performed an analysis on a cruise terminal and berth alternatives throughout the port in 1998 and resolved that the port would require a new cruise terminal and authorized an rfp for a

developer to construct a two-berth cruise terminal at piers 30-32. while that pier 30-32 public-private partnership ultimately failed to produce a cus terminal, the portion that was faied, the watermark project, did generate $20 million in condo fees that eventually was used as seed money for a new cruise terminal. the port set up a panel which recommended the port develop a mad earn cruise terminal at pier 27 and, two, instead of a public-partnership, the port would principally fund the project its elf. on the down side, clearly there were

budgetary constraints. the port also had to balance the functional needs of a modern cruise terminal while meeting the regulatory requirements to provide public access. the design also accommodates vent use when a cruise ship is not berthed to maximize the utility of the building. in october, 2012, the port issued an rfp for a new terminal operator to manage cruise operations, events and parking and metro was selected last summer. we have negotiated a draft agreement, the proposed management agreement between the port and metro represents a balance of the port's operational needs and budgetary requirements. the port will have two operating cruise terminals, one at pier 27, one at pier 35 with a back-up berth at piers 30-32. while pier 27 will offer

greater efficiencies from a customer perspective, it will also entail higher operating costs as a result of it being a modern facility. so at pier 27 not only will you have shoreside power and a mobile gang way but for the first time you will have hvac to offset these higher operating costs we've identified 4 different revenue streams: one, an increase in the passenger fee from the current $12 per passenger to 18; a terminal fee payment that metro would pay and also splits between vent revenue and parking revenue that we would get from metro as well. so in the proposed draft agreement, metro would pay to the port a terminal fee of $180,000 a year, increasing with a cpi of 3 percent

annually. and as noted in the staff report there is a payment scheme intended to incentivize metro to berth as many cruise ships as possible. more cruise ships that call into san francisco the less payment to the port. this, however, is offset by the increase in the revenue that is generated from the passenger fee, more than offsets the loss, so to speak, of the base payment. 50 percent of gross -- secondly, 50 percent of gross revenues from a metro-generated event use and, three, 60 percent of gross revenue after deducting the 25 percent city tax for parking operations. this is less than the port standard 66 percent. port staff recommends a lower percentage because pier 27 ground transportation area, or

gta, will be operated as a manned parking lot and available only when there are no cruise bookings or other events scheduled. however, this percentage may have to be renegotiated as noted in the staff report based on the outcome of discussions/negotiations with bcdi regarding a permit amendment to allow such parking within the ground transportation area. in the event that bcdc determines that the parking capacity is reduced or eliminated, this would reduce the income to the port and the port's ability to forward the project. as shown be in exhibit e in your staff report, the port developed a base case financial scenario representing a break even scenario where generally port revenue equals port costs. the base case assumes revenue