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2015, cities across california will go beyond the retirement

and requires government employers to pay more than half the time of benefits and it would prohibit government officials from challenging any voter approved state or local ballot measures regarding compensation and retirement benefits. in other words it will create what you might consider a closed benefit system if it isn't approved if after the reinitiative passes and any other vote for defined benefits is not passed by the voters. so on behalf of aciu 10-1 with pete albert, cochair of the alameda county committee as well as other members of sf sfers are considering the process for passage next year and it will be bad for all stakeholders in the system,

active employees, retired employers and in time to meet the pay will become important in all time and investment has to be change. it's likely the actuarial to the interest rate must be lower to drive compensation rates. we want to provide an analysis of the impact of the closed system on the interest rate and subsequent cost of impact on the employer and you can anticipate a formal request from the union in the future on this. thank you. >> thank you. >> commissioner mei berger.

sorry. >> thank you. i'm patrick mantsa. i'm very disappointed when my request was turned down and you received only a hard copy. i just have passed out to the president and vice-president what you should consider in the meeting. i would like to thank president cohen for ruling on my testimony to be placed adjacent to the discussion in the published minutes. now we have to fix two other

problems. both related to the good order. the first is creating an e-mail in the person's listed. as you will see in the copies, i asked mr. hush to distribute. at least five other cities routinely send interested person's e-mails to me including the ethics commission. >> 30 seconds. >> and others. the second issue involves placing background files provided to commissioners in their briefing packets online as the 7th city departments listed in this handout routinely due including the ethics commission, health commission, puc commission and recreation and parks. if

they can do it, so can ers. that will comply with the sunshine ordinance that says you are to distribute to the public at the same time >> thank you very much. i have two more. >> thank you ladies and gentlemen, i wish to reiterate what mr. patrick said in support. yes, it's available online the agendas and the correlating documents for other government agencies and meeting and i see no other reason why the retirement board can't do that for the public. it's simple. it's a matter of organization, will and drive. thank you. >> thank you. next speaker. >> public speaker: good

afternoon, commissioners, clarence from rcff. everybody, take a little time to enjoy something different and go see or chids in the park at one of our county buildings with a lot of city and county retirees i was surprised to learn. this morning rccf met and asked me to represent them before you and ask a couple of things. one is will we know when any of the distribution will begin with regard to the proposition c settlement and the supplemental coal a if that's known. people are obviously anxious about it and if there has been any further decision with regard to the additional communication from the pob attorney regarding the charter language that cover those that appear to be

disenfranchised by the decision. second item no. 5 with regard to the proposal coming to all of you with regard to how to expend pension funds and we still maintain that such investments in this particular case do not meet the minimum standards of the investment policy and that we believe that they are high risk and they run the potential of endangering or at least the funds so liability would actually cost more expense to the city in the long run and that there should be much more due diligence done on this issue before it is finally vetted. i realizes it's only a discussion item but i think there is a long way to go on this. rccf is at this point unable to give an opinion one way or another except that it's very concerning and will oppose

any such action until there is time for more information and substantial information to let them know truly what the risk are to the pension fund. thank you very much. >> thank you, next speaker will be mr. david williams. you already went? >> yes. >> thank you. are there any other members of the public that would like to speak, please come up at this time. >> public speaker: my name is john spencer. i have been a member of the retirement system 41 years. i have been to only about three meetings. at everyone of those meetings it starts 10 after or 1:30 p.m.. i would like to see these meetings start on time or otherwise start a new starting time at 1:30 p.m. so everybody can be here at the starting time? >> thank you is there any

additional public comment? seeing none, public comment is closed. >> item no. 2. approval of the minutes of june 10 2015. >> approval on the minutes? >> i motion. >> let's get public comment on the minutes. >> seconded. >> thank you, president cohen. the june 10th minutes indicated i was going to attend the ethics commission meeting that day to testify that the ethics commission needs to conclude it's investigation of the two ethics complaints against commissioner wendy pass skin jordan. it turned out it was an interested person's meeting

regarding the november ballot which occurred. i had to wait until june 29th to testify to the full ethics commission about commissioner pass kin jordan. i repeated to them that pass skin jordan stated on a video posted on youtube that she had aggregated funds to qualify for the bgi threshold. i asked to look at those allegations in the anonymous complaints that she had aggregated funds. i noted several registered investment advisors refute the claim that ria's are not held to the minimum thresholds as investors to verdict with independent

non-city deputy attorney. we will get an honest reading on that particular issue. i again urge you to consider under your own code of conduct discussing ms. pass kin jordan's involvement with bgi in aggregating funds. thank you. >> is there anyone else who would like to speak on this item. all right. a motion and second is received. let's do a roll call vote. >> commissioner cohen, driscoll, make ras, pass skin jordan, stans bury. >> item is approved. next item.

item no. 3. consent calendar. action item. >> thank you, if there is no discussion on this item, let's take public comment on item no. 3. okay, is there any additional public comment? seeing none, public comment is closed.. is there a motion to accept the consent calendar. >> yes, i move to accept the consent calendar. >> a motion and seconded. this motion passes. thank you. >> mr. clerk, please call item no. 4. the #9 city clerk: item no. 4. discussion item. investment committee report. >> what i would suggest there is i believe a consensus to move forward on this that everyone makes sure they understand what the issues are and be prepared to discuss it and move

forward. if there is any questions from members of the commission, i would suggest they afford those to staff so we can move from the solid basis. it's a community as a whole and everyone is here so i have no further comments. >> all right. is there any discussion on item 4? okay, let's go to public comment. any member of the public that would like to comment on item 4. the investment committee report, please come up? commented comment is there any additional public comment? seeing none, public comment is closed. >> mr. clerk, could you call item no. 5. city clerk: item 5. discussion report report on potential investment in the mayor's office of housing and community development down payment assistance loan payment loan pool. >> i would like to make a couple remarks. i think it's important we separate the policy issues of this program that which myself and the mayor are advancing with the

fiduciary duty that we have as a board to ensure that we are looking at a sound investment. the staff has begun to look at the review of the poet portfolio over the past several weeks since we first began talking about this as a possible investment. so counter to what many have asserted in the public, this is an in fact not a high risk portfolio. in fact it's a foreclosure default rate. this loan portfolio has a default rate of 1% which is significantly lower and less risky than a few of the other investments that we have made, real estate investments that we've made. i also want to acknowledge that i have received many e-mails an communications that equate this investment

that is giving the mayor's office as incorrect. i want to go on the record that this is not a blank check given to anyone and that is from the mayor's office that is not true. we are buying the same type of asset loans that the board commonly purchases within and of course we'll do our due diligence and vet it to the strictly highest level that we do with all of our investments. i want to turn it over to staff to make a presentation on this discussion item. thank you. >> thank you. robert, director of public market. in discussion with the mayor's office of housing we have under taken a couple analysis with regard to what is acronym wise is the down payment assistance loan program. you will note from the memoey we have divided into two segments. one

is approximately 126 loans that were under written and has subsequently the home has been sold. you will see to president cohen's comments of the 126 of the capital from the program has been returned and there has been a very solid return from that relatively small component of it. the remaining 310 loans are still outstanding. by the way, refer to them as loans only because there actually is a silent equity position. i want to be clear about that. it's a loan from the terminology perspective but it's not a dead instrument. out of the 310 i have gone through analysis using k schuller information as an estimate value within san francisco. based on that information and when the loans were under written, there might be anywhere from half a dozen to a dozen

loans where they are underwater or have not appreciated at this point. half of those are the 2015 loans that were under written so far this year. they have done very well. the other point with regard to this program is that the ultimate return should this program be under taken by the retirement system is it is tied directly to the long-term appreciation rates of san francisco residential real estate. should it be flat what we would see then is return of the capital as opposed to any return on the capital to separate that. and you have the rest of our analysis there and i will open it up to any questions you might have. >> a couple questions. first of all, if you can just give us an idea of

what's the value of these homes, are these individual single family homes, condominiums, can you give us an idea of the structure and what's the market value of what they are costing, just to get a feel for that. >> sure. anecdotally, 310 loans. purchase prices, the oldest one on the books dates back to 1998. to $850,000. structure wise from single family homes to condominiums. >> thank you. you used a phrase i never heard before. silent equity position. can you talk about that? >> sure. it is easier to describe how

the position works from what would happen should a home be sold. in other words it qualified into the program and was held for a period of time and ultimately the owner sold the property. in terms of a water payment structure, the mortgage is paid out. the silent -- means they have no -- requirement for the property to be sold and the depreciation due to the dult program and the homeowner receives the rest through a program. >> is it closer to a bond. it's a dead interest. are you talking about a convert ability feature there. i still

don't get it. what a person signs up, what are they getting. those kinds of things. what kind of depreciation. i really don't have my arms around what type of security this is. >> sure, if you look at the page , at the bottom there is an example. this is a real life example. >> for the folks who may not have the example in front of them, i will read it and into the record so you can follow along with the discussion. >> a property was purchased in 2009 for $300,000 included a $90,000 which is 30% of the purchase price loan. the underlying property was sold in 2013 for $520,000 and a gross gain of $220000. the share of

appreciation owned by the mayor's office of housing was $66,000 which is 30% of $220,000 for a total value returned of $156000. the internal rate of return which is annualized is 13.1%. >> thank you, does that mean that 30% of the profit in all cases go to the mlh cd? >> yes. it various -- varies on how to individual qualifies from low single digits to this example to what you see approximately 30%. >> what determines the allocation? >> it depends on the qualifying nature of the individual. individuals on this program are required to put at least 5% down and there have been

substantially larger down payments. in the case that someone for example qualifies in the upper end of income and buying something at lower cost, they may qualify for a larger mortgage and first mortgage end up requiring a smaller loan. >> the sharing of the profits depends on the amount of the down payment, is that accurate? >> and the income of the individual. >> all right. tell me, what's the interest rate on these now roughly? >> the interest rate on the first mortgage is the market interest rate. about 4.25% these date. >> the interest rate was zero. there was two loans, one was the

borrower taking the loan from the bank, we are assisting with the down payment. the interest rate was zero and we get a percentage from the gain when the home is sold. >> it doesn't look like a debt at all. it looks like more inequity. >> agreed. >> let's call it an inequity position then. >> one last point. i did read the publication of san francisco's housing crisis. there was a lot of great points. it was educational. one question i have, it looks like there is a discrepancy in the number of loans in what you report and what mr. shaw reported. can you expand on that. did you look at all the loans in your analysis? was there about 115 loans difference is what he sites. --

cites. >> i have not looked at the full data, the full bmr's. that maybe the difference. i did not see the information. >> i'm sure you will get a copy. it's a below market rate for housing. >> that is correct. >> so that's a concession regarding the interest rate in this. so those are excluded from this analysis, correct? >> that is correct. >> wouldn't those be the highest risk loans? >> below market rate housing is subject to appreciation limitation rules which makes it very difficult to achieve the 7.5%. >> what 7.5%? >> if you look at the targeted return on the page of the memorandum, this is

all subject to 7.5%. bmr are capped to how much properties are allowed to tie per year per cpi. >> all right. just so you know, i'm on an educational mode on this particularly since i heard a new phrase. silent equity position. i'm on the information gathering mode. i want to be real clear. thank you. >> obviously timing is a big factor in this crisis. in the housing crisis, especially the loans made the year before 2008. so the place you are in the market with the high value and low

value matters. the fact that you are in this program when the program is considered lower valued, does that have a barrier on this program. >> i would say relative value does matter. if you recall 2007-2008. what contributed is the lack of down payments, no income loans, no documentation. so there were a lot of bad loans. not just the decline in housing prices but the lack of down payment and lack of documentation. >> so when you are looking to starting this program, the timing of it, do you consider that an added risk factor where we are in the market. it seems like it's one factor you are considering but you are saying it's not as bad as what happened in 2007

to loans because they are more qualified in this program. >> to differentiate we are would not be making new vintage year 2015 loans. so we are not making loans when the market is high. if this were to go through we would be buying existing loans and there is embedded equity in those loans. >> could you comment on your feeling of the risk of the program? >> i will give you some summary of what i think are some opportunities. i will ask bob to add to or clarify my comments. you know on some positive features one is that there is a down payment at 9.6%. so that's good. borrowers have invested their own equity in the program.

second, is it ties us to you know the appreciation of san francisco real estate. this is a gateway city. it's an amazing city with an amazing economy. it's world class companies you know all around the bay area. third importantly there is good equity in the existing package of loans. a fourth is if we were to buy these, it provides the city cash to make new vintage year loans. we are not assuming the risk of those loans. some risk of the program, one would be the impact of a decline in san francisco housing prices. second, if the either mediator longer term low or modest rate of appreciation in san francisco

real estate a third is a very long duration of loans, 30 years. a fourth is we have no control of the exit that is up to the time of the borrower as to when they sell. the transacting in real estate is expensive. the borrower assumes those cost but then that feeds into the gain of the property and we are still occurring that up through that door and lastly as it's proposed right here is that there is a cap on the return of 7.5 percent so there is no floor in terms of a potential return and ceiling of 10.5. i do want to