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Thursday, March 10, 2011

America's Cup: Gavin Newsom's Changes to Deal 'Could Be Very Significant'

Posted By on Thu, Mar 10, 2011 at 6:05 PM

click to enlarge What's it going to cost, Gavin?
  • What's it going to cost, Gavin?

At a late January America's Cup press conference, Lieutenant Governor Gavin Newsom said something a bit odd regarding the city's dramatically hammered-out deal to host the race: "We made a lot of promises. A lot of them have been reported. Candidly, a lot of them have not."

In fact, a full 16 pages of the compact had been crossed out and rewritten per then-Mayor Newsom between the Board of Supervisors signing off on the deal in mid-December and the deal's official acceptance on the final day of the year. Altering large sections of what is, in essence, a multi-million dollar real estate deal can have some financial consequences. Now we have an idea what they are.

An audit of the changes to the America's Cup deal by budget analyst Harvey Rose was released early this evening. While he hesitates to attach a dollar figure to the consequences of the altered deal, Rose notes "the cost could be very significant." Under certain circumstances, it appears the city could be out hundreds of thousands if not several million dollars a year -- over the course of a 66-year agreement.

Newsom was entitled to make changes to the Board of Supervisors-approved bid, so long as the "modifications did not materially increase the obligations or liabilities of the City." Reviewing the long list of alterations made to the agreement, however, Rose tells SF Weekly, "If that's not material, I don't know what is!"

At the top of Rose's list of questionable changes is a new agreement that would allow the Event Authority -- the organization created by yachting billionaire Larry Ellison to run the Cup -- to enter into long-term leases on a number of new waterfront properties. While the city could decline to allow Ellison's group to lease Piers 19, 23, 27, or 80, the deal as it stands allows the Event Authority "the unilateral right to establish a long-term lease for Pier 29." This, in Rose's eyes, is the epitome of a material alteration.

Another eye-catching change is the setting of just what the rates of those long-term leases would be. While the Board of Supervisors explicitly endorsed an independent appraisal, Newsom's office went 180 degrees the other direction. It set the rates of $4 or $6 per gross square foot "through negotiation between the Mayor's Office and other City officials and the Event Authority." Rather than an independent assessor, then, the city negotiated with the very group that intends to lease the land, allowing it a say in naming its price.

"The Board of Supervisors, when they approved this agreement, said it should be an independent appraisal," Rose says. "And here we find a situation where, in fact, rent is to be negotiated with the party of interest. That, to my judgment, is material."

Other findings of the fourth -- and most complicated -- budget analyst's report on the America's Cup deal:

  • The deal has been altered to no longer include the estimated $25 million of optional work on Piers 26 and 28 to be considered part of the mandated $55 million in infrastructure improvements required of the Event Authority. This is a net plus for the city.

  • On the other hand, the Event Authority will now pay no base rent whatsoever on Piers 30-32 -- throughout the 66-year agreement -- and may pay a particularly low rent on Seawall Lot 330.

  • The Event Authority is now entitled to give waterfront property back to the city for periods of up to 10 years before reclaiming it -- a situation the budget analyst estimates could cost the city up to $230,000 a year in reduced rent intake.
click to enlarge Hey! Who's paying for this?
  • Hey! Who's paying for this?
  • The city is no longer requiring the payment of a percentage of the earnings from each condominium sold or long-term lease transferred on future developments at Seawall Lot 330 -- which could result in millions of dollars lost over the course of many decades.

Supervisor Ross Mirkarimi, who tasked Rose's office with this analysis, said the findings made him a bit uneasy.

"My enthusiasm for us hosting the race remains intact. But my concerns have escalated considerably," he said. He was worried "that city negotiators, after we ratified the deal on Dec. 14, may have increased the obligations and liabilities of the city."

The unilateral right of the event authority to establish a long-term lease on Pier 29, the rent-free release of Piers 30-32, and the manner in which fair market value was determined all seemed "off" to Mirkarimi. He's called for a hearing on the budget analyst's findings on March 16 during the Budget and Finance Committee.

"I'm sure the city negotiators and the mayor had good reasons for doing what they did," said Mirkarimi. "But it's incumbent for them to explain it to the general public."

They'll get their chance to do so on the 16th.

Read the budget analyst's report here

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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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