November 14, 2012
Piers 30-32 Citizens Advisory Committee Members Call Foul
Let's forget about whether or not the 13 percent rate return the City is proposing to pay the Golden State Warriors (GSW) on their reimbursable rehabilitation expenses for Piers 30-32 makes any sense for a moment. Instead, let’s look at how long it will take the City to repay those reimbursable expenses under the proposed conceptual financial framework which the Mayor has reviewed and endorsed.
As plugged-in people know, per the term of the City’s proposed financial agreement, the source of funds for the repayment of the $120,000,000 in rehabilitation expense for Piers 30-32 would be limited to rent credits, proceeds from the sale of Seawall Lot 330, and the sale of Infrastructure Financing District (IFD) bonds.
In order to minimize the reimbursable construction costs and interest expense, the Port will attempt to apply the expected proceeds of the Seawall sale ($30,400,000) and IFD bonds ($60,000,000) as early as possible, leaving an expected balance of $29,600,000 subject to the 13 percent interest rate and to be serviced by the aforementioned rent credits from the 66-year ground lease of the Piers.
Per the City’s proposed agreement, the fair market value of the rent credits for Piers 30-32 are expected to run around $1,970,000 per year. At the proposed 13 percent rate of return, the debt service on the outstanding $29,600,000 in reimbursable costs would be around $3,848,000 per year, an annual shortfall of $1,878,000 on the debt service alone.
Luckily, per the terms of the proposed agreement, "in the event that any debt remained at the end of the 66 year lease, the Port would not be required to pay any remaining debt to GSW." That being said, we couldn't find any language with respect to accrued interest.
Under the objections of a number of Piers 30-32 Citizens Advisory Committee (CAC) members, including the Committee Chair, San Francisco's Budget and Finance Committee is scheduled to consider the proposed development framework this morning.
From the objecting members of the CAC:
While we have been very patient and willing to work with the process, the fact that we were not given an opportunity to meet as a body and discuss the details in the Fiscal Feasibility Report prior to its consideration by the Board of Supervisors Budget and Finance Committee leaves us little choice other than voicing our dissatisfaction and disappointment with what was intended to be the primary vehicle for community input about the Warriors Arena project.
More specifically, our concerns and requests for change are:
1. The CAC did not have a formally scheduled meeting to discuss the Fiscal Feasibility document and the details contained therein which is before the Board of Supervisors Budget and Finance Committee this Wednesday, November 14th. Since this report will form the basis of the development's Term Sheet, we believe it is important for the CAC to be able to meet, to ask questions, and to get answers from City staff to our questions before the report is considered for approval by the BOS Budget and Finance Committee. We ask that the Budget and Finance Committee continue their consideration of the Fiscal Feasibility report for a hearing date that follows at least two Piers 30-32 CAC meetings which will first introduce the document and will second hold a meeting where the CAC receives answers to our questions that originate from the first meeting.
2. The CAC meetings seem to be scheduled on an ad hoc basis with no set schedule.
3. CAC meetings to date have been informational public presentations by the developer and various City departments. They do not allow for CAC members to engage in meaningful discussion of the details.
4. The CAC meetings have not considered the most fundamental question for this project and that is whether or not Piers 30-32 is a truly feasible, functional location, as it is located on an already congested primary roadway for many San Franciscans. We believe the first step the City should take before expending tremendous amounts of our, City staff's, and the Warriors time and resources is to have the Planning Department provide at least two more locations they believe might be viable for EIR consideration, and which might require lower infrastructure cost reimbursements to the developer.
The objecting members of the CAC have requested 30-60 days to review, discuss and weigh-in on the Fiscal Feasibility report prior to the Board of Supervisors Budget and Finance Committee’s hearing of the report which is scheduled to take place in an hour.
∙ All The Devilish Details For The Development Of Piers 30-32 [SocketSite]
∙ Reviewed By The Mayor, The Warriors’ Guaranteed Return Remains [SocketSite]
∙ Piers 30-32/Seawall Lot 330 - Warriors Development Project [sfbos.org]
∙ Timeline And Key Milestones For Building The Warriors Arena In SF [SocketSite]
∙ Piers 30-32 Citizens Advisory Committee Tips Off Tonight [SocketSite]
First Published: November 14, 2012 10:00 AM
Comments from "Plugged In" Readers
One can't help but assume the Warrior's CAC meetings and public outreach is merely for show and PR purposes.
Not really the best way to gain community support.
Posted by: anon at November 14, 2012 10:39 AM
honestly, short circuiting the committee is not good, but their "central question" is not, in my opinion, the central question. the interest arrangement looks like a backdoor public financing of the arena, paid for by the port of san francisco. this could be a good investment, it could be a negative one, but at 13% interest - far far higher than we'd find with any other loan arrangement - this is the central question.
Posted by: david m at November 14, 2012 12:24 PM
I agree with david, the location is secondary to the financing. I have no problem with the current location, but I would have no problem with another location that was sensible. But there is a fundamental problem with the 13% interest rate financing.
Posted by: lyqwyd at November 14, 2012 1:20 PM
People are aware that the interest rate financing for TI and hunters point is higher than what is being proposed for 30-32?
Posted by: Joe at November 14, 2012 1:57 PM
Why can't the city simply sell $90 million in infrastructure development bonds, rather than $60 million, then seek reimbursement through rent payments? Then there wouldn't be any haggling over whether a 13% interest rate is fair or usurious.
Posted by: zzzzzzz at November 14, 2012 2:40 PM
I totally agree about issuing bonds. 4% is a lot better rate than 13%.
And just because other projects have financing components that are higher than 13% doesn't mean that 13% is in the best interests of the city. It would be like saying, hey my neighbor has a 10% mortgage rate, so me getting an 8% mortgage is a fantastic outcome. Uh, no. Not even close.
Posted by: anon at November 14, 2012 3:11 PM
then where is the outrage at the development deals struck for TI or Hunters point?
or is this just being used as leverage by the people who dont want the arena
Posted by: Joe at November 14, 2012 4:24 PM
This is news to me Joe, any links? If it's true I'd certainly be disturbed by this as well.
I support the arena, but not at 13% interest rate. If they make the interest rate reasonable, then I would support the project, as it stands I oppose it.
Posted by: lyqwyd at November 14, 2012 4:55 PM
The TI/Hunter's Point thing was news to me-- and I'm pretty outraged about that too. Can we get some coverage of that?
Posted by: Alai at November 14, 2012 5:25 PM
I love when people are astounded by something yet unable to do basic research online.
Google 18% rate of return Treasure island or 22.5% rate of return Treasure island.
This is common on public lands, but by all means throw a fit because you don't know this.
Posted by: Bob at November 14, 2012 6:40 PM
Alai, from sfgate.com's John Coté, Warriors' interest rate riles arena foes:
City officials say the rate is actually quite reasonable when talking about private developers building public infrastructure.
The city's deals with private developers to build out Treasure Island and the Hunters Point shipyard include returns of 18.5 to 20 percent on public infrastructure, city documents show.
Documents related to negotiations with the Giants to develop what is now a port-owned parking lot south of the ballpark show that the team wants a return of 20 and 22 percent on its predevelopment costs and for putting in infrastructure like pilings and roads.
So while the deal that the Warriors are getting might not be all that outrageous relative to other similar plans, I'd still prefer the approach outlined by 'zzzzzzz', above.
Just because things were done that way in the past, even the recent past, doesn't mean we can't choose now to put a stop to it. Conduit bonds perhaps (if they're not going to do that, anyway)?
Posted by: Brahma (incensed renter) at November 14, 2012 7:16 PM
There's a difference between getting a total 20% return on a real estate development, and being guaranteed 13% interest from the city in perpetuity.
Posted by: Dan at November 14, 2012 11:09 PM
Anyone else experience the lovely "robocalls" sent out by the Warriors Sunday and Monday evening? They went to my mobile phone, and appeared to be addressed to everyone in SF... In combination with the (apparently legitimate) concerns of the CAC I certainly sense something fishy.
Posted by: Po Hill Jeff at November 15, 2012 12:18 AM
Had I known about the ridiculous guaranteed interest rates for Treasure Island and Hunter's Point I also would have raised objections, so that is a weak argument if you are attempting to say the Warriors should receive a give-a-way financial deal too.
Posted by: Jackson at November 15, 2012 8:18 AM
I am surprised that no one seems to mention the environmental impact on the waterfront of this proposed development. The loss of a large swath of magnificent water and East Bay views would be a travesty, with a 135-foot-tall, over-the-water structure ruining what otherwise is a city, state and national treasure. Anything that separates citizens of SF and visitors to our beautiful city is a detriment, not an advantage. Personally, I'd rather see the piers crumble into the water that have them serve as the foundation for a high-limit exception that will cost the city more in terms of quality of life than in money. I also believe that the price tag for fixing the piers is vastly overstated. Why not sell the adjacent lot 330 across the street to a developer who wants to build condos that do NOT exceed the height limit, then use the money to rehabilitate the piers and transform them into a park for all to enjoy. There are other locations for this huge development, which is much more than an arena. Let's think sensibly about all of this and make a decision that's right for everybody? Welcome the Warriors, but not on this site.
Posted by: Ed Kerry at November 15, 2012 8:18 AM
@Ed - right now, I can't get close to the water by pier 30/32. Under this proposal, I'll be able to walk along the water's edge all the way around the arena.
As mentioned many times before, this is the absolute best site west of the Mississippi River for a new arena. The only outstanding issue is the criminal 13% interest.
Posted by: anon at November 15, 2012 8:33 AM
@Bob, of course everybody should know to google 18% & 22.5% for Treasure Island, it was so obvious!
as anon pointed out, this provides more access to the water, views, and open space for the public, not less.
From my perspective this is the ideal location, and the design so far looks great. I only oppose the project at 13%.
Posted by: lyqwyd at November 15, 2012 8:53 AM
Yes the 13%, 18%, 22.8% numbers are crazy, but this is how it works for private expenditures on public land. This isnt something cooked up specifically for this project, and I dont see the point in blocking something simply because I didnt know the rules about similar developments
Posted by: Bob at November 15, 2012 4:06 PM
Just because something wrong was already happening before one learns about it is not a reason to be OK with it. Bonds could be sold at much better rates... So all cases are wrong and just a hidden way of cheating us
Posted by: lyqwyd at November 15, 2012 9:48 PM
Why are these interest rates so high? What is the justification for them?
Do these public works projects contain unusually high amounts of risk?
I guess there is always the chance that they could complete the public works part of it and then default or somehow not be able to complete the rest, but the compensation for that risk seems to high.
Is this common nationwide or is this just a San Francisco thing?
Posted by: NoeValleyJim at November 17, 2012 2:59 PM