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The Cup Runneth Over: S.F.'s America's Cup Decision Looms 

Wednesday, Feb 15 2012

Page 2 of 4

These rent credits serve as coupons the Event Authority can use to recover its expenditures via long-term leases on Pier 29 and, possibly, Piers 26 and 28. But these coupons keep giving: The monetary value of unused rent credits owed by the port to the Event Authority will compound annually at the Tony Soprano-like interest rate of 11 percent.

The port anticipates the Event Authority will spend and seek reimbursement for some $111 million, and potentially up to $136 million — a total more than double the numbers bandied about during the 2010 run-up to sealing the early America's Cup agreement. And while the Event Authority may only be repaid via a finite stream of port resources, there is no formal cap on its reimbursable costs.

With just weeks left to influence the deal — and, of course, grandstand — the supervisors' most basic motivation is to figure out if the city is receiving enough in return for a growing investment. With confidence waning in much-quoted predictions that the race will spawn $1.2 billion in business and 8,000 jobs, this is a complex task. "I've always thought the projections were — 'outlandish' is not the right word, but 'extremely optimistic' is an understatement," says Supervisor Sean Elsbernd.

Apart from the augmented costs, the supes' main complaints figure to coalesce around three issues: The Event Authority stands to take long-term control of the choice Pier 29; the city and port will receive no cut from rents and business on the land handed over; and, similarly, the city and port won't get a percentage from future condo sales on Seawall Lot 330.

These are the specific objections of those who have problems with the finer points of the deal. Yet the most serious critics of the America's Cup question the very framework underlying the arrangement. The port and Event Authority portray the setup as an exchange of private capital improvements by Cup organizers to neglected port facilities for long-term rent-free use and development rights. But this sidesteps the question of whether these improvements truly benefit the port — or just Ellison.

Of the $111 million the port anticipates reimbursing the authority in the near- and long-term, the lion's share — some $91.5 million — is earmarked for work on Piers 30-32. The crumbling piers were long ago "yellow-tagged," meaning they're not fit for any use beyond parking lots. The port hadn't planned to spend any money on them in the foreseeable future; in 10 or 15 years they'll likely be totally unusable. Now, however, the port plans to pay Ellison's Event Authority nearly $100 million to spruce up the piers, then set up Ellison et al. with a rent-free lease for the new and improved space until today's kindergartners are in their 70s. And, even after 66 rent-free years, the deal may not be done. If the Event Authority hasn't recouped its investment, the port is required to turn over half the revenue generated by the piers for 15 more years. Since work may be deferred for up to 10 years after the America's Cup, it's possible that the port will still be reimbursing the Event Authority into the 22nd century.

For those who'd question this scenario, Jonathan Stern, the port's assistant deputy director and head of waterfront development, acknowledges "that's fair. If the America's Cup was never a possibility, we might have made different choices of how to invest our money." But, he continues, deals like this have to be considered "in light of the event."

This doesn't cut it for everyone. "Team Ellison is having their cake and eating it too by restoring a pier that every expert agrees should ultimately be removed," says Aaron Peskin, the former board president and a vocal critic of the current America's Cup deal. "If this was part of a rational plan, we'd be restoring piers that have a potential economic benefit to the port. But that's not what Mr. Ellison wanted." Piers 30-32, Peskin continues, aren't saddled with any historic structures and present "potential for a large, bold real-estate play." The stumbling block for would-be developers of the past was the scores of millions of dollars in necessary rehabilitation work — which the city is now funding. "If you can get it for two-thirds of a century and have the city pay to fix it up," Peskin says, "why not?"

When cruise ships sail into the northern waterfront, they dwarf all they encounter. Thousands of tourists are disgorged from the building-sized vessels and proceed to Fisherman's Wharf to purchase shot glasses, fleeces, and soup in bread bowls before being terrified by that guy who leaps out from behind a bush. It's understandable why the city has, for decades, hoped to build a modern terminal that can accommodate more of these floating cities. But, in this game, you've got to spend money to make money.

The bundling of the America's Cup with the construction of the cruise ship terminal has been presented to the people of this city and its leaders as the development equivalent of the "You got your peanut butter in my chocolate!" "You got your chocolate in my peanut butter!" Reese's commercials. Here was a win-win scenario that gave everyone what they needed. Then the bill arrived.

The port's Stern notes that the city saved some money by combining pre-development and permitting costs of the combined America's Cup Village/cruise terminal projects. And the accelerated time frame kept "soft costs" — planning, designing, etc. — low. But there was a reason it took so long for the city to commit to building a cruise terminal: They're expensive.

About The Author

Joe Eskenazi

Joe Eskenazi

Joe Eskenazi was born in San Francisco, raised in the Bay Area, and attended U.C. Berkeley. He never left. "Your humble narrator" was a staff writer and columnist for SF Weekly from 2007 to 2015. He resides in the Excelsior with his wife, 4.3 miles from his birthplace and 5,474 from hers.


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