maximize port revenues so the extent that the tech sector does that, we'll gladly take their money. however, because our space often has this industrial look that seems to be desirable by tech center tenants we have become the home to a number of nationally renowned tech center companies such as auto desk as well as others. the last question had to do with how we charge for views. relates a little bit to the classification of our space. sometimes we have class c space, but class a views so how do we reflect those views within our rates. within the rent schedule there's a view rate and a non view rate and the agricultural building in pier 35, a mark up for the view is anywhere between 25 and 60%.

the big mark up on the agoly cull so the relative value to the base facility condition is pretty large, that's the 60% increase. 35, the condition's a little bit better, the view isn't as good. that concludes the specific questions that were asked two weeks ago, but're available to answer any further questions you might have. >> so moved. >> second. >> okay. are there any public comment? no public comment? commissioners comments? >> yeah, i just had a question. i mean, i understand that we don't give outright what you would call as tenant improvements, but we often obviously give out rent credit and, which is in a way, recognizing that since they're putting improvements in, we're

putting in credit. what is the formula that we think of when we decide to give a rent credit, which in essence is recognizing the fact they're putting in the tenant improvement? how do we calculate that? is it e kwif lent to -- how do -- it may not even be 100% but what is the formula we think about when we do this? >> well, for most of the deals that are in the parameter rent level there's the smaller level deal, bread and butter deal. there's not a significant rent credit. anything that -- anything that's within the parameter rent schedule, you know, we have the delegated authority or have in the past to allow for a few months of free rent to make up for the tenant improvement allowance that you might have on the private sector side of things. when you look on the schedule

there's a net e effective come lum that's slightly less than the gross minimum. there's a delegated amount that the -- >> okay, so i guess my question really is probably relating both to parameter as well as non parameter as far as how we think about it. my question was looking at the schedule of the fact that parameter rent is a lot of transactions, but be not as far as percentage of revenue. if we were to look at the month parameter rents that come up versus the parameter rents, what is the equivalency of the rates being charged. i understand we're being asked to look at the parameter rent schedule and i'm looking at it in terms of the whole picture are the rental rates we use outside of parameter very similar in terms of what we would charge [inaudible]. >> i'll start that one. thank you for the question, commissioner.

i think it's a very good one. there isn't a hard and fast mechanism that we follow, but for the most part our requirement is that a credit that we're going to give to a ten ant has to apply to a real property improvement that has a useful lifelonger than the lease term and is specific to the tenant. an example of that may be that new new space is built out in an otherwise vacant shed, but if it's customized to have a kitchen of x nature, the walls would be something we would consider as improvement to the port's asset, but the customized kitchen has no resale value to us afterwards. one of the things important to note in the non parameters as they come to you is that oftentimes we are bringing you a transaction that changes the

use from storage to whatever else it is. in the case of the parameters, by definition the use is remaining the same so the are carpeting and painting and maybe some minor upgrades to the asset itself, but nothing as dramatic as converting storage space into office space or something like that. so we get into that second realm of non parameter. as you know we have a of uses. >> all right. >> sorry to steal your thunder. >> thank you. >> that is helpful to know and i guess we're trying to understand more and more how we -- because obviously this is the primary source of revenue for the port, to understand the

factors we're considering and how we're being competitive and make sure we're also keeping up with how the market operates and thinking about -- and my question which you tried to answer in your slides? in terms of the amount of tech space. my question is more strategic in the sense of how it's being applied today and knowing what space is being used by what sector or type of real estate it is, as we think about future, whether we want to keep that space as it is utilized today or as we look at in the future do we want to change it because we could upgrade it into something else so it's more strategic. if we were to think about the industrial warehouse space, would we want to say that

leasing out to more tech tenants, as an example, not the only usage, would be a better use of that space. let's try to figure out how the keep the revenue not what it's been, but the components of the future differently and thinking about the portfolio in a more strategic sense. >> we heard that question at the last hearing and we'll have to do homework on that to identify really which port funded capital upgrades might yield the best return to the report so stef will have to come back with that item, but as it relates it'll be on these smaller deals. a: >> thank you for that great report and answering our questions and further clarification. really appreciate it. >> thank you. on resolution number 1442, all

in favor say i. >> i. >> all opposed. resolution number 1442 passed as is. next item amy. >> item 12b with pacific gas and electric company for embark dare row project of submerged land between 28.5 of 23rd street, 52,272 square feet of underground access for horizontal directional drilling and 3 for a four year term with a 26 year option subject to be approval by the board of supervisors. >> good afternoon, brad benson, director of special projects. we've been in front of the commission two times before on this project. we were here on the initial

term sheet for this project in 2012 and last september the commission endorsed a revised term sheet that included substantial new terms and that was endorsed by board of supervisors in february of this year. we're back with the finance proposed license agreement for the project and we're excited about that. the project's been approved by the california public utilities commission after a very exhaustive process. to refresh your memory, san francisco has two different transmission systems, 115 kv system and 230 kv system, which is largely devoted to the downtown area in san francisco. the two systems don't speak to each other. you'll see on this map in blue are the two lines that serve

the 230 kv system to the embark dare row substation . those lines are running through the city [inaudible] one or both could be severed in a major earthquake and this project is really designed to provide redundant service to downtown and to connect these two different transmission systems so they speak to each other. so it's find on this slide, this is downtown san francisco. there's a faint red line around it. that entire area is served by the embark dare row substation. the project is before you today and the license agreement is a 3.5 mile, 230 kv submarine and underground cable that would connect the embarcadero

substation enclosed. there's the bus station that pge is planning to build. we're very pleased they've hired some high quality architects to build these substations because they should fit in with the surrounding neighborhood. this is the proposed 230 kv substation on the nrg site, also has a high quality look and feel to it. so the cpuc approved the

project on january 16, they conducted a mitigated neg deck analysis for the process. both pge and other committees responded to that and responded to all comments. you'll see the route of the proposed cable here. pge is planning to do something called horizontal directional dripping and if you look in the bottom left of this, they would drill down just north of the pier 30, 32 complex and really they would be drilling down beneath bedrock in this area of the project to get out the water. and then travel that 3.5 mile route and there would be a new horizontal directional drilling along 23rd street, fairly deep down below bedrock and deep out into the bay so that's the

route along port property. as i mentioned earlier there's a great deal of seismic risk that the 230 kv system is exposed to. pge hired an independent firm to do that seismic risk analysis which was part of the cpuc record and the numbers are pretty scary. there's a [inaudible] probability of the failure of both existing substation cables in a 7.8 earthquake, a 48.2% probability with a magnitude 7 earthquake and over the next 30 years, a 28% risk of both cables being cut. if that happens it could take two to four months to restore service to downtown. that would have severe impacts

on businesses and residents in that area. the estimated for a maximum outage, a seven week of a $3 billion hit to local businesses. thinking about the petrero neighborhood, the southern connection, we have focused a lot of our thinking on how to improve that neighborhood. it's an area that's been used for industrial purposes for quite some time, including power generation for the city. you'll see in yellow the pge ho down yard and in red is the existing open air potrero switch yard. compare that to the small green square on this, which is the proposed new gis enclosed station at the site. this is a view from illinois

street of the open air substation, which is something that has typically more industrial kind of neighborhood and of course this neighborhood's trying to transition to something else. so we've negotiated terms for the license agreement that are consistent with the terms that you adopted and that the board of supervisors endorsed with the term sheet. most of the land over 400,000 square feet of the land is submerged land. there's about 50,000 square feet of underground land that's the hdt drilling areas and just 21,000 square feet of lands along 23rd street that's mainly for sidewalk use. pge would pay the port prepaid rent for a 40 year term of approximately $7.6 million per

installment for a total of $15.2 million. we'd receive the first payment on the effective date of the license, sometime after the board of supervisors approves the license and received the second payment before january 1, 2015. there is contemplated that pge option for 26 years after the first 40 year term rent for that period would be determined by an appraisal process, subject to baseball arbitration, security deposits, but refundable in this case because they're prepaying all of their rent obligations under the agreement. and environmental security including our standard $10,000 environmental oversight deposit and robust $6 million letter of credit, 5 of which could go away after construction is

complete and environmental sampling data is submitted to water board. installation of the cable along the bay floor does create some limitations on port use in this area. it's not an area we've dredged in the past. we spent a lot of time talking with maritime division about the depths of the bay, and they do not dredge in these areas so as part of this license we would be limited from penetrating the bay mud in the area of the cable project or permitting lateral crossings. in the area north of piers 30, 32, we'd have to get pge's permission to install piles along the pier to enable maritime uses. we do contemplate in the license agreement situations where the city and port would have to construct a major

project and [inaudible] removal or relocation of the [inaudible] 1 line, but only after we jointly look at whether there's a way to design the city's project in a way that could avoid that relocation. and then i'm going to go into a little bit more detail, condition of the liensz is that they actually screen or enclose theotrero based on pge's benefit out of the project is $4.2 million based on the actual cost of the equipment.

separate and apart from the license agreement there's an option to acquire the ho down yard, which is this 3 acre site adjacent to pier 70. the port is not involved in this transaction. this is a benefit that's being conferred to the city. the department of real estate would have this option to acquire the site at a following the accidented price of $8.3 million based on appraisal. ixed price of $8.3 million based on appraisal. and this option contemplates that the excess value or the value of the approved lands value of the ho down yard would go to the potrero terrace and annex hope project.

pge was quite worried about the environmental conditions of the ho down yard and how that liability would be dealt with. i think we've had an effective negotiation with them. the city will not own any of the liability. that was made very clear at the board of supervisors. the department of real estate would find a third-party buyer who would clean up the fairly minimal contamination at the site and indemnify and hold harm he is pge for any future use of the site and that future owner would have to follow certain risk management and controls on the site to enable new uses wlshgs residential or office. this is a closer up view of the ho down yard right along 23rd street. it will be the gateway to the pier 70 project. our currentst mate of the improved land value of rezoning that site from industrial to

residential or office is north of $20 million. real estate in this area of the city is really hot. so as to the water front community benefit package, we think we have a very strong package through this deal. 8% of the prepaid rents would go into the benefit funds, that's $1.2 million. we will realize screening or enclosure of the potrero switch yard, subject to required approvals. relocation of the ho down yard industrial use, sidewalk improvements along 23rd street. pge has negotiated local hire and work force agreement with the office and work force development including the use of local residents for 30% of the labor positions. and i talked already about the

city option to acquire the ho down yard and those proceeds that would go to the public housing project. here are some options for screening. the potrero switch yard, either screening or enclosed substation. and just in closing, we think these changes, the screening of the switch yard, relocation of ho down yard are a vital step of pier 70 and being able to bring in that private investment from forest city. there are a few other approvals that are required for the project, bcdc and the water board and army core of engineers will have to sign off. the project schedule is coming right up. pge wants to start construction on land off of port property in august. off shore cable laying would

happen june of 2015 and the cable would be in service, april of 2016. so if the commission approves the license agreement, the next step would be for port staff to submit the resolution approving the license and resolution approving the option agreement to the board of supervisors for their consideration. thank you very much and available to answer any questions. >> motion and second. >> so moved. >> second. >> any public comment? commissioners comment? >> i guess i just want to i guess understand. i mean, the two transactions -- the last time i heard, did we have [inaudible] the ho down yard or was it always envisioned the city would always take over. >> that's a good question. in 2012 the option to acquire the ho down yard was an option that would come to the port.

>> okay. >> we did some thinking about that and i think made the ultimate determination that it was not appropriate for the port as a public trustee to be in the business of acquiring public property for private development. >> that's understandable. so you're presenting it as part of the transaction because pge's involved in both in terms of cable and potential option, but they really are separate transactions? >> yes. >> pge's involvement is the common thread? >> yes. >> and we're really just voting on the license and that alone by itself. >> that's absolutely correct. i'm just presenting it as information because it's part of this overall package. >> but when the board of supervisors, they'll look at both anyways, more of a broader exposure for them to look at both relevant to the city. >> yes. >> okay.

i think i don't really have any questions. i think this is more just detail from what you've been building in the past. >> commissioner brandon. >> thank you. that was a great presentation. i think you've done a wonderful job and great community benefits and a great lease for the port overall. i was just wanting to know, do you know what pge is planning on doing with their existing switch yard in the big red box? >> that's the one that -- under this agreement -- actually under the port license, the city has the ability to say to pge to we'd like you to screen that or enclose it in a building and we're going to be consulting with the planning department on that issue to get their view. i think the early sense is that

the city's preference would be to enclose it in a building rather than leave it as an open air station because i think that deals with both the aesthetic issues and sound issues. these open air sound stations tend to emit a buzzing sound that discourages development around them. we don't know whether or not cpuc would approve the sort of rate package to enclose that station, but we would issue our preference, pge would have to go through a process and use commercially reasonable efforts to obtain the rate funding and regulatory approvals to make that change. if we're successful if that, that would be a dramatic change in this neighborhood. >> yeah, that would be wonderful. and then the $1.2 million, is

that [inaudible] once the two payments are paid or is it done over time or -- >> i think it would be a percent of each payment, so approximately $600,000, one on the effective date around august, september, and the other would come before january 1, 2015. >> have we decided what we're going to do with the $15 million? >> that's subject to your appropriation decision as far as annual budget and we have not have staff discussions. >> [inaudible] budget. i think it would be a separate -- elaine was still here, but i think that would be a separate supplemental and on the revenue and the expense side so -- >> even in the recent budget submission it was not reflected. >> the budget submission that we submitted back in february,

no. and we did not amend a budget going forward, i don't believe, to take that into account. >> it's not reflected in the budget. >> i assume when we go to the board there will be a supplemental appropriation. >> or -- that's a good question. if there's a desire to spend it in the next two year -- because we've just had the approval of a two year budget and if there's a desire to spend it there would need to be a supplement appropriation. >> the question is, would you allocate more to capital? what i was going to request is if we can have a certain amount of it designated for the [inaudible] water front, maybe the piling, removal or other infrastructure needs in the southern water front. >> certainly, yeah. you're both right. if it flows through the water

fall funds through revenues, which it will, then the 15% designation to reserves. where we get that cash can be completely separate from this particular cash, but it will flow through and trigger both those policies. as you know, commissioner brandon, when we get an accumulation of funds, we try to program them for for beautify case for the plan we showed you last meeting. >> excellent. i just wanted to thank all the other folks who have worked on this. carol bach has provided invaluable advice on these environmental risk issues and help review the license. [inaudible] has been phenomenal to work with in terms of negotiating the license and

joanne is lead on the purchase and sail agreement which are unusual document so we have a great team at the port working on these complex deals. >> thank you. >> commissioner brandon, anymore thoughts? >> no. i mean, i want to thank you. i think this has been a long time in the making and it's nice to see it's getting down to the final yard line. >> thank you brad, you and your team. i want to thank my two fellow commissioners for their thorough input in this deliberation. >> finally, ontario smith has been a great negotiating partner in helping figure out all the difficult ins and outs. sorry for my repeated interruptions. >> thank you very much. resolution number 1443, all in favor say i.