America's Cup: Rollout of the "We Screwed Up!" Storyline Under Way

No! We want it back!
The San Francisco Chronicle today continued to thump the tub Supervisor Mark Farrell and others wheeled out last week. It's the "San Francisco and its Board of Supervisors screwed up the America's Cup deal because we're an insufferable, NIMBY city that ruins everything" tub.

Well, we are pretty insufferable. And we do often make things ridiculous for business and development in this city. That's a given, so you don't need to understand the dynamics of the since-imploded America's Cup deal to vigorously nod your head and chalk this up as yet another example of San Francisco breaking the camel's back by piling demand after unreasonable demand on a would-be developer.

The Chron is pushing that worldview via a pair of stories -- "Board of Supervisors blew America's Cup deal" and "Collapse of America's Cup piers deal a blow to S.F." It's an argument with enough wind behind it to carry you a great distance. But it's not the only argument. There are other ways of seeing things.

Our thumbnail thesis of both Chron stories goes like this: The America's Cup deal that Larry Ellison's people abruptly pulled off the table last week would have had him spending scores of millions of dollars to rehab crumbling Piers 30-32, an investment he'd recoup by receiving a rent-free 66-to-85-year lease for the site. But San Francisco tried to extract too many concession and time grew short -- and the limited amount of permissible development projects for the site could have entailed even more future concessions -- so Ellison backed out. As a result, no one's going to fix Piers 30-32 and we'll eventually have to spend a fortune to remove a rotting eyesore. How ya like them apples, San Francisco?

If the totality of the America's Cup deal was that Larry Ellison would fix up a decomposing pier and the city would recoup him by allowing him to occupy it, rent-free, for its operational lifetime, that'd be one thing. But that storyline ignores huge portions of the proposed deal -- the very aspects of the arrangement that our elected representatives asked tough questions about.

The Event Authority decided not to pass the event horizon when it came to sinking money into Piers 30-32, a fiscal black hole
In fact, Piers 30-32 were just part of the deal. The America's Cup Event Authority would also have received title to Seawall Lot 330 -- a scrap of land with an estimated value of $25 million which is likely the site of a future condo tower -- and rent credits that could have possibly been applied to Piers 26, 28, and a pier to be named later, which may have been Pier 29.

The supervisors were unable to get the Event Authority to agree to a binding spending limit, could not make any headway toward gleaning a portion of rent money for future development on the land it was handing over, and was also pushing for a 1 percent share of every future condo sale on the land (the Event Authority would have done so starting on the third sale; the supes wanted it on the second or first).

"Proportional rent" and a share of condo sales are commonplace for port deals. Not having them in the America's Cup deal was odd -- the port and city were, in essence, handing over their only revenue sources. That doesn't automatically make the deal a lousy one -- but it would be extraordinarily negligent for the supervisors to not argue these points. They are now being chided as obstructionist for doing so. That's an interesting way of seeing things (one wonders if this line of argumentation will hold if the supes intervene in the eviction of the Gold Dust Lounge -- but we digress).

Jasper Rubin, a San Francisco State professor of urban studies and planning, was quoted in today's front-page Chron article. He's a good choice -- former longtime city planner who oversaw portions of the waterfront and penned A Negotiated Landscape: The Transformation of San Francisco's Waterfront Since 1950.

Rubin confirms that, yes, the choices for Piers 30-32 are stark: Allow some manner of private development, or kiss it goodbye (and pay dearly for its removal). This has failed repeatedly, and it's likely that no one wants to sink any money into those piers.

But that doesn't mean that the city should have acquiesced to the deal Ellison's people were pushing at any cost. Fixing up the piers would have been nice -- but it may not have truly benefited the city based on the terms of the deal.

"Basically, they were giving away everything in order to get the structure repaired," he says of the now-sunk deal. Not gleaning a portion of the rents or condo sales "was odd. It's a zero-sum game. If you give away all your potential sources of future income to get the land fixed, all you're getting out of the deal is the agreement money will be invested in retrofitting the pier. You don't get anything off the back end. Everything hinges on what public benefit comes out of the deal -- and that was yet to be determined."

Rubin is not ready to weigh in on whether the city shot itself in the foot or dodged a bullet with regards to the imploded America's Cup deal. But he's also suspicious of the narrative the Chron and others are aggressively flogging.

"That line is, perhaps, a little dubious," he says. "Maybe [the supervisors] screwed up a little bit. But maybe it's for the best."

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Joe there are a few things that would be helpful to check out. Did Avalos and Campos, in their approach to exerting pressure, decline to take meetings in which they could have worked through these details before the time ran out? Didn't the Cup folks say that it would be acceptable to work out a percent cut to the city? And didn't everyone resolve the spending cap issue by creating a functional cap of the real estate to be involved? For instance Jane Kim, seemed satisfied. Just trying to reconcile the facts of what I know and you know.

Joe Eskenazi
Joe Eskenazi

 Paul --

I am unsure if Avalos and Campos actively skipped meetings. They did, however, push to delay the process by one week. They were unsuccessful in doing so and the project moved from Budget and Finance to the full board as planned -- until the Event Authority backed out last weekend.

The Cup folks did decide to include a 1 percent transaction on the THIRD sale of condos. The supes wanted more -- but, again, that plan moved on to the full board. The same goes with the hard cap vs. the "functional cap."

In any event, these details were being tinkered with. But the plan had moved on for a full vote. And it's really hard to conceive of it not passing. It doesn't seem likely to me that the late scrutiny by Avalos, Campos, Chiu and others of a plan that did indeed advance and was poised to pass was the major factor in the EA pulling the plug.




May I be so bold as to take a step back and squint at the potential long term outcome?   i.e.  Should Oracle/GG Yacht Club win the 2013 Cup, then they will again have the option of choosing home port for the next Cup race.  By that time the economy in all likelihood will be more stable which could entice more billionaires to fritter away millions of dollars by getting back into the racing business. Then, to no one's surprise, Piers 30-32 could/would be back on the bargaining table with team Ellison applying lessons learned from the 2011-2012 negotiations. Stop all the finger pointing and hand wringing about 2012/13 folks.  It ain't over till its over and it hasn't even started yet.  


Proving once again that the Chronicle should go out of business.


 Wish I could get a deal like that with my landlord.  "Hey, I fixed the broken kitchen cabinet.  Can I live here rent-free for the next 85 years?"

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