>> okay. and thank you and thank you to all the members that came out from the hayes valley community to support russell. thank you all so much for being here. mr. clerk can we please move to item 12. >> item 12 is an ordinance to appropriate april $203,000 to the public works operating budget for waste stations in 2014-15. >> >> supervisor avalos. >> actually the author thor

is at jury duty and would like to continue this item today. >> there is a motion to continue this item. seconded by supervisor farrell. without objection it's continued to lawrt on in the meeting. item number 13. >> this is resolution for early buy out of baysubway airport not to exceed 1.2 million between the sub way and the commission. >> okay. roll call vote. >> on item 13. supervisor breed. >> aye. >> supervisor campos. >> aye. >> supervisor christensen. >> aye. >> supervisor cohen. >> aye. >> supervisor farrell. >> aye. >> supervisor mar. >> aye. >> supervisor tang. >> aye. >> supervisor wiener. >> aye. >> supervisor yee. >> aye. >> supervisor avalos. >> aye. >> there are 10 aye's. >> okay. this resolution is adopted unanimously. mr. clerk can you call the next item.

>> item 14 is establishing the appropriation limits for 2014-15 pursuant to california constitution. >> same house same call. with that this resolution is adopted unanimously. mr. clerk can you please call the next item. >> item 15 is for a lease for third and mission associates located at 167 jessie street for $1 per year base rent. >> same house same call. this is adopted unanimously. next item please. >> item 16 is accept and expend housing related parks program for the community housing development for projects identified in exhibit a for the agreement for the dates listed. >> same house same call. this resolution is adopted unanimously. next item.

>> item 17 was recommended without recommendation from the budget and finance committee and real property accusation at 19 1995e vans street for the clai spencer trustee of the william spencer clai spencer living trust for the purchase price as listed. >> supervisor campos. >> thank you madam president i have questions for staff but before that i wanted to ask the budget and legislative analyst to provide a brief overview. i know they expressed concerns and have a recommendation on this item if i may through the chair. >> [inaudible] >> yes, mr. rose. >> madam president and members of board, supervisor campos. briefly supervisors we pointed out that the proposed purchase price of this property of is

36-point 2% more than the appraised prize and that was done in august of 2014 of 11 million plus and for that plane and looking at the comparable sales provided to us even if you average out the lowest comparable sale that was provided to the real estate division by the appraiser retained by the real estate division there would be at least an $800,000 differentiable. that is that price would exceed the price being paid. i would point out mr.up dike subsequently reported to the budget and finance committee and orally advised the committee about subsequent comparable sales and certainly the board can and should consider his comments. our recommendation though as i stated we consider

this to be a policy matter. we do recommend -- we have a specific recommendation that you request the director of real estate to include language in future purchase option agreements and appraisals and other due diligence procedures prior to negotiating and agreeing to specified purchase prices for the city. and in that context regarding our recommendation mr. up dike did testify he was going to incorporate our recommendation in future amendments to the administrative code for the board of supervisors' consideration. >> if i may madam chair through the chair mr. rose did the department of real estate give you the additional appraisals that they're referencing in terms of the properties they have been looked at? >> to my knowledge they did not. that was done orally to the committee on the last hearing of the committee held. we have not looked at any

subsequent data. >> okay. thank you. thank you madam president. if i may through the chair to mr. updike. i have a fundamental problem with this item because what you have here is you have a proposal for the city originally to pay $16 million. now the amount is down to 15.$4 million to buy a property that our own appraisal through the process that we completed noted is worth 11.3 million. in other words we will be paying more than $4 million more of taxpayers money than the appraisal that we requested shows. i just don't think that we should be engaging in that kind of a transaction

where we are using taxpayer money to over pay for a property to the tune of $4 million, and so can you explain to us what happened here? how is it that we got to this point? because on its face this just looks horrible. >> thank you supervisor campos. through the chair john uplike director of real estate. i appreciate the ability to clarify where we stand on this item today. i would take issue with the potential that we're over paying so as the budget analyst noted there is more recent data that we believe speaks to current value so if i may go over that data, provide that to you and provide you background on process as to the complications when there is a lease with a purchase option and the difficulties at arriving at a price if i think that will

address your questions if i may? >> supervisor campos. >> yes. i mean -- yes madam president. any additional information they have is welcome. >> and i will be brief. thank you very much. o on the overhead now a list of what we believe are some relevant sales that occurred after the completion of the appraisal. appraisals are one person's person of value and by nature a look back worried on the status of the. >> backward on the status of the market. >> >> so they're somewhat limited and not being prospective but being retrospective. in this case we found two what we thought were comparable sales. one on alabama street and one on 16th street on a price per square foot basis -- thank you very much. we believe support this purchase price at -- depending how you look at the

acquisition. this is 2 acres of land and 1 acre of building on the 2 acres of land at $175 per square foot of land or 375 per square foot of building so that is a metric used in the marketplace. i think further and this was provided to the budget analyst as part of the review of this is the overall industrial market report in q 1- 2014 and the latest available data there isn't a lot of data because there isn't a lot of industry market in real estate. they tend to be for other purposes so that data suggested this price as one year prior to today was $337 a square foot. the acquisition before you is 10% over that amount and that is one year later than the average

data so we think the data supports the price. if could speak to process briefly. the challenge that we have when we try to strike a purchase option price in the future subject to the voters decision on a general obligation bond is that the negotiations occurred in late 2012. the agreement was struck in early 2013 and came before this board in the summer of 2013. in 2012 both the buyer the city, and the sell are, in this case the trust, had to really guess what the market would be if indeed the voters approved a bond and this matter came before the board for closing in 2015. we had to estimate either the rise or the fall of the market where each party had to take risk so we felt we did that that was supported by market activity. i believe this data suggests it d

we do have one report that says one value. i would proffer to you that if we got another report it might provide a different value. it is just one person's opinion of value and i don't know that should be the be all end all for the decision making process. >> let let me just say i think you should have done another report because it's one thing to come here and provide information orally and as the budget and legislative analyst noted the additional information you provided was orally given to them. they haven't verified the numbers. i don't know what the definition of comparable is so as a matter of process i don't think this is how you want to do business. even if everything you're saying is correct the fact that we're on the fly hearing there are additional numbers to me i don't feel

comfortable using taxpayer money to potentially over pay. i don't think any taxpayer approved anything that would lead to over payment of anywhere from $800,000 to $4 million, but let me ask you a question because one of the fund fund concerns that i have with is this. that you did the appraisal. >> >> in august of 2014 as i understand it. is that correct? >> that's correct. >> the lease that you signed where you agreed to purchase the property for the amount of $16 million begins in august of 2013; right? >> that is correct. >> so before you agreed to pay a specific amount for a property why wouldn't you do the appraisal before you actually agreed to a number? why was it that the appraisal was not conducted until a year after the lease went into effect? in other words, if i was going to

buy a house before i actually agreed to pay a specific amount for that house i would actually try to ascertain what the value of a comparable property would be. i wouldn't do the appraisal of that house a year after i agreed to pay a specific amount, so how does that work? >> through the chair if i may the difference is when you're buying that house you're committing to buy that house immediately. this is a purchase option right of an indeterminate period so take a look at the lease agreement we had the ability to strike the option anytime before the year 2017 if we so chose to extend the date of that option rate. the difficultly was the board had not yet approved the bond obligation measure so the date of that bond item was uncertain

at that time and so this is a prospective look two years in advance of the discussions as to value, so while an appraisal might be informative with value at that time it might not necessarily driven the purchase price agreed to between the prospective buyer and seller two, three, four years hence. that's the challenge and these are very rare. i want to point out that purchase options -- we had two in the last 10 years. this is the second one and they only come forward to this board in this odd circumstance of a general obligation bond measure and the process of the voters determining if the project moves forward so we determine if we have a right to move forward on it. >> so could i -- did you do any kind of analysis before you agreed to pay $16 million for a property as to what the actual

value might be? >> most certainly. our job in the real estate division is act really as your broker, as your consultant to know the market -- every aspect of the market whether residential, commercial, industrial so we felt in this case this number was going to be reflective of value and was reflective of all for the parcel 2 acres of land and what are the alternatives in the marketplace at that time? this remains the least expensive option today. >> with [inaudible] >> why didn't you sign an appraisal before the lease at that time? >> we ordinance early wouldn't do that because it only informs the value of the parcel at that time and that's not the form much agreement we're reaching.

we trying to estimate it prospectively a number of years hence. >> i have to say though that i think at least doing an appraisal gives a sense or a baseline when you're talking about that kind of money, and low and behold you agree to an maiment that a subsequent appraisal shows might be worth $4 million less. that's problematic. now i asked the city administrator which ultimately oversees this department -- i don't know if she's here, because i do have a problem with this kind of a transaction where we are agreeing to pay for a number that in the end turn turns out to -- it's not like it's somebody's own appraisal. it's the city's appraisal that was conducted and over pay by a certain time. i don't know if

the city administrator is here. >> i don't think due to a number of commitments she is unable to attend but i stand by what mr. rose indicated and we will address in the future code amendment best we can and due to the nature of the agreements and improve our diligence and i believe if we did an appraisal it would have likely supported the conclusion today. we don't have that in front of us and i realize that and you're acting a bit on faith. however that's i didn't am here to provide you with my expertise as to my definition of value. that's my vob and i take that seriously and we have looked at from a number of different angles. >> no one questions that. but we're not acting on faith but in the faises of a report that

shows we're over paying. one thing you said it doesn't happen very often has it happened before? >> in a decade we have done two of these. this is the second of two. the prior process was the same as this process and the appraisal was done as a diligence item before it came before the board like this process and the appraisal received was within 5% of the actual exercise price. it was appraised 5% less than the amount approved by the board. >> so in this case you did the appraisal differ you agreed to the amount? >> no sir. it was done later and the only way to do these complex transactions. >> i know my colleagues have questions and i appreciate the information but i will not be supporting this item. i don't

think we should approach these transactions this way. i wouldn't do it with my money. i would not buy a property at a price that my own appraisal says is $4 million more than it's worth and i don't think that we should be doing that with taxpayers money either. >> thank you. supervisor christensen. >> i certainly appreciate supervisor campos' concern about this. i don't think any of us want to over pay for anything and i was a little taken back by these numbers. i do recognize also that finding comps for unique properties can be difficult. have small properties so it's difficult to find -- repair uses in the city and finding them unavailable and

considering moving different services to outside of the city of san francisco which isn't a place for our business community in the city or for the workers who tend those facilities so i am pleased there is a 2-acre site somewhere in the city that can house city services. i guess the concern about the 4 million is somewhat balanced by the question i would like to ask mr. updike which is what is the cost to the city if we don't do this? is it possible there is another alternative plan for us that maybe more parsimonious? >> thank you supervisor christensen. on the overhead i indicated some of the impacts to delay. we have $1 million in sunk costs related to the ceqa process which in the determination of public works is not transferable to a new site so that is specific to this site that is lost but more importantly is the escalation costs of the construction

project. overall this is a $165 million project, 16 million of which is allocated for the acquisition, so the estimate is if we had to secure a new site and go through ceqa for approval of the site and looking at cost to 7- $15 million in inflationary costs of the project assuming the project did not have to be redesigned so that's a minimum expense for delay. >> okay. supervisor tang. >> thank you. i think supervisor christensen posed one of the questions i was going to ask and the complications we have with passing these general obligation bond measures and the process that we have to engage in because of that. want like a typical sales transaction like buying a private home for example so one of the issues that i wanted to raise going back to the issue with appraisals is although it was

done in 2014 based on the information i received and i wanted to confirm this with the director i want to know in what years were the sales that were conducted in that appraisal done? from my understanding it was based on sales that occurred in 2012, 2013, not necessarily buildings of the same comparable size so hence this $11 million amount so if you can confirm that? and also the fact let's remember when the bond measure came up that there was language in there that authorized the city to spend up to $16 million on purchasing a building, so although it would be nice if it was an amount to go under that legally that's the approved purchase price so if you can respond regarding the appraisal. >> thank you supervisor tang. yes, one of the key issues that we took with the appraisal was that smaller sites were used and the transactions were dated

2011 and 2012 transactions through the appraisers' conclusion. of the comparable sales six of them were not enough large enough for our project. only one of the comparable sales had enough land mass so the sales were smaller properties. while that allows a person to derive a price per square foot it was about we need 2 acres of land and whatever building came with it is great but we felt the information was a bit dated but that's not unexpected but the sales were much smaller and from our perspective it was not that helpful and we needed the 2-acres. >> thank you and one question

about environmental review because it was a bond measure that voters approved first to even be in discussions about the crime lab environmental clearance had to happen before the voters acted on it and hence more complicated in the process. >> it's one of the issues with the bond measure that requires a bond acquisition measure and we must show site control to complete the ceqa. to come before you so you can make a decision whether the matter should come before the voters so that matters to structure the leases with purchase options far in advance of the project and await the decision of the voters on the project itself. >> okay. supervisor yee. >> thank you madam president. in regards to the two comps that you showed on the screen

earlier when were those sales? >> both of those sales supervisor yee occurred in the latter part of 2014, the most recent being the last sale noted which is site size comparable to the acquisition site but the acquisition price was $35 million. >> okay. when this first purchase was brought to my attention i was taken aback like many of my colleagues here in terms why are we paying so much? so i asked the question why are we paying so much? and i think some of the questions that my colleagues asked today were the same questions i asked mr. updike privately. i asked to speak to me about the rational of this and so forth

and i am very appreciative for you to come and meet with me to actually explain what the process is, and what kind of latitude you had in your decision making, and your explanations to me were logical to me, but what came out of that discussion was we could tighten up the language administratively in terms what we could ask your office to do and not do, and i understand that these type of situations don't occur too often, but when they do occur we should probably have some policies around it where we could give you guidance. it seems like there is very little guidance at this point, so because of your explanation and because of the situation we're in and because of the latest concept you came up i will be

supporting this. >> thank you. supervisor cohen. >> thank you very much. mr. updike could you tell me what activity is going on there now? >> yes supervisor cohen. we are currently using the property for storage of materials for the department of technology, public safety swigz as well as central shops and vehicles awaiting for repair and actively used under the lease agreement with the ownership? >> how long have we been in that agreement? >> since the summer of 2013 with this board. >> correct me if i am wrong mr. harvey rose -- or we directed harvey to direct you to renegotiate the terms of the purchase? >> that's correct. >> and you were successful in some way getting it reduced down -- not much --

>> very nomally. yes. >> if this item was approved today could you say what the future is for the property? >> this property would be secured for the crime lab and moving from hunter's point and surrounded by development as [inaudible] moving forward with that project and traffic investigations as part of the hall of justice moving out of that facility as approved in the general obligation bond. >> okay. colleagues i too have expressed an uncomfortable feeling around the $16 million price tag associated with this particular piece of property, but the reality is that finding 2 acres of pdr space is going to continue to be difficult to find, and i do believe that mr. updike has done his best in trying to negotiate the fair

market value price. with that said dealing with the go bond makes it very complicated. meaning we go before the voters and see what we're going to do with this property requires us to honor that, but i can tell you as representing district 10 in the bay view that property owners see dollar signs and they're definitely using this as an opportunity to cash out. i will also say that given the high levels of -- the increasing crime trends that are happening. a lot has to do with our inability to process our crimes and so for me i am going to be approving this measure with looking to the future to be able to get this crime lab up and operational so the other discussion later on to talk about the need and the impact of

these crime trends that many of you have experienced in your own district the increase of crimes. now this is a real property acquisition like i said 16 -- 2 acres for $16 million is quite a hefty price. he was successful in getting it reduced somewhat but even through the negotiations -- correct me if i am wrong and the lead negotiator passed away. >> that's correct. >> okay. so this has been an ongoing process for a while. i hope you join me in supporting this measure. thank you. >> thank you. supervisor avalos. >> thank you president breed. it's interesting we had this same item -- similar item about the crime lab that came before us in 2010. we were looking at a different building for the crime lab and there was a problem with that building. we were trying to do -- design to build contract with the property owner i