SAN IRANCISCO ?cannon Edwm M. Lee, Mayor 5? PARKS Philip A. Ginsburg, General Manager Via Email and Regular Mail July 24, 2014 Mr. Tom Hsieh Gleneagles Golf Partners, LP 2100 Sunnydale Avenue San Francisco, CA 94134 Dear Tom: The purpose of this letter is to clarify the Department?s willingness to allow Gleneagles Golf Partners, LP to extend its lease to operate at Gleneagles Golf Course (?Gleneagles?) in McLaren Park. Background on Original RFP and Lease GGP responded to a Request for Proposals that was issued by the Recreation and Park Department on August 25, 2004 for the operation and maintenance of Gleneagles Golf Course. Unlike other City?owned golf courses and as was described in the RFP, the prospective operator at Gleneagles would be responsible for all expenses and duties in connection with the operation of that property. GGP was selected and a lease was negotiated with Department staff. The lease, as negotiated, called for one initial term of 9 years and one possible option to extend for an additional 9 years. The lease called for GGP to assume all expenses and duties on the golf course and to receive approximately 93% of all revenues generated. The lease also called for $250,000 in capital improvements to be made to the property as proposed in your response to the RF P. The Depaitment is aware and grateful that you and your partners completed $250,000 in capital work to the property that the lease required to be completed to the Department?s satisfaction before the end of the initial term of your lease. Gleneagles Golf Partners Requests to Increase Greens Fees, Extend and Amend Lease and Change Ownership Profile Between 2010 and 2013 GGP and the Department met periodically to discuss a greens fee increase, a lease extension and possible additional amendments to the original lease. At request, in 2011 the Recreation and Park Commission approved a greens fee increase. During the course of these discussions, ownership group changed triggering a requirement to seek RPD Commission approval on both the ownership change, lease extension and revised leased terms. Speci?cally, under the lease amendment and extension and revised lease terms the Department agreed to: Mctanen Lodge in Golden Gate Park I 501 Stanyan Street San Francisco, CA 94117 I PHONE: (415) 831-2700 I WEB: s??ecparieorg . . I.r I . I provide rent credits for deferred maintenance or emergency repairs on the course up to 100% of the value of rent to the Department upon approval of the Commission; 0 Allow GGP to terminate the lease for any repair or extraordinary maintenance item exceeding $150,000 that the Department declined to fund; On June 20, 2013 the Recreation and Park Commission unanimously approved the changes to ownership pro?le, the lease extension and revised contract terms subject to approval by the Board of Supervisors. Gleneagles Golf Partners Withdraws Agreement for Lease Amendment and Extension Just prior to the lease extension and amendment being submitted to the Board of Supervisors for ?nal approval, GGP withdrew its agreement on the lease extension and new lease terms and asked that the matter be removed from calendar. Initial Term of Lease Expires Gleneagles Golf Partners lease at Gleneagles expired on November 30, 2013. On November 21, 2013, at your request, the Department issued a holdover letter permitting GGP to continue to operate the golf course on a month?to?month basis. Gleneagles Golf Partners Asks For Increases to Greens Fees In an email dated June 4, 2014, GGP asked the Department to legislation to the Board of Supervisors allowing for dynamic greens fees at Gleneagles. The Department agreed to submit such. legislation once a lease extension agreement was completed. In that same email, GGP asked to continue negotiations on a lease extension and amendments. The Department agreed. Gleneagles Golf Partners Gives 30 Days Notice of Its Intent to Vacate Premises if Department Does Not Agree to Gleneagles Demands for Economic Improvements to Lease By email dated June 25th, 2014 GGP noti?ed the Department that effective July 1, 2014 it was providing 30 days notice to abandon and vacate the golf course on July 31, 2014 unless we agreed to the following list oflease enhancements. ?[T]he new lease shall have the following provisions: 1) RPD assumes all utilities going forward starting on July 1, 2014, similar to other golf courses. 2) RPD assumes all liability of land including trees, shrubs, etc., with an understanding that leaseholder will manage land, trees, shrubs at cost?plus 20% arrangement. 3) RPD assumes responsibility of buildings, parking lots, fence and all irrigation and sewer with an understanding that leaseholder will manage same at cost?plus 20% arrangement. 4) Term of the lease shall be 5 year initial term with a 3 year mutual option. 5) Leaseholder will give access to LCTF/Laborers 261 or similar to operate a ?Job Training Center? at Gleneagles to develop job training skills for pre?apprenticeship workers for the duration of the lease. 6) Gleneagles will remain a satellite site for The First Tee of San Francisco/Visitacion Valley. 7) Gleneagles will convert as soon as possible to an E2 Links type POS system and adopt a pricing structure that includes resident and non-residents rates, similar to other golf courses. 8) Gleneagles will have dynamic pricing ?exibility and rates no lower than other City golf properties. 9) Cost?plus 20% can be used against rent up to the maximum projected rent of the lease. 10) If any one expense item is projected to cost more than $100,000 individually or cumulatively, then tenant shall have the right to give 60 day notice to terminate lease. 11) RPD Assume all water expenses over and above our 2012 water cost vs. 2013, due to leak on Hertz Field and erroneously billed by SFPUC to our account.? (email from Ton Hsieh, dated unc 25m, 2014.) The parties met in person on July 8, 2014 to discuss your list of demanded enhancements. Department Responds to Demand Letter on July 17, 2014 with Significant Economic Improvements On July 17th, 2014 the Department sent you a response to your June 25th demand letter. We countered with significant economic improvements to your lease as follows: a Department will pay electrical and sewer utility bills I Department will offer 100% rent credit for deferred maintenance and emergencies Department will allow GGP to terminate lease for any repair exceeding $150,000 which the Department declines to fund. I Department will subsidize water costs by paying for up to 10,000 units of water. 0 Department will fund EZ Links tee-time reservation system and will pursue ?exible pricing on course. 0 Department will pay for 50% of outstanding water bill with PUC (which Department successfully negotiated with PUC to reduce from 15k to 9k.) 0 Department will continue to support existing relationship with The First Tee and will support a job training program on site through LCTF/Laborers Local 261 All in, these new responsibilities under this proposed lease amendment could cost the Department approximately $100,000 per year of the extended term. Gleneagles Golf Partners Reiccts Department?s Offer on July 20, 2014 and Provides N0 Counter, But Reiterates Original Demands On July 20, 2014 GGP notified the Department that it rejected its July 17, 2014 proposal. GGP offered no counter proposal. In subsequent discussions with staff, GGP offered no compromises 01' counter proposals to assist in reaching agreement. Department Makes Another Effort to Reach Agreement on Lease Amendments In the last week, Commissioner Allan Low has attempted to help the parties reach agreement. With the Department?s approval, Commissioner Low offered that the Department pay first 12,500 units of water and offered to absorb 100% of the remainder of outstanding water bill with the PUC. Gleneagles Golf Partners Reiects Commissioner Low?s Improved Offer and Provides 0 Counter - On July 24th, Commissioner Low was informed by GGP that it had again rejected the Department?s proposal and that the parties were at a stalemate. The history of the parties lease amendment discussions clearly indicates the Department?s desire that Gleneagles Golf Partners continue to operate the golf course. Please contact Tom Hart on Monday, July 28th regarding your decision to vacate the golf course - on July 31' It is of the utmost importance to the course and the community that we may properly secure the facility and provide interim management to keep Gleneagles open to the public. a truly your hilip A. Ginsburg General Manager Cc Mark Buell, President, RPD Commission Allan Low, Vice President, RPD Commission Eric McDonnell, RPD Commission Gloria Bonilla, RPD Commission Tom Harrison, RPD Commission Meagan Levitan, RPD Commission Denny Kern, Director of Operations Katie Petrucione, Director of Finance and Administration Tom Hart, Property Management Julia Friedlander, Deputy City Attorney