ITEM NO. __7a_Supp______ DATE OF MEETING March 1, 2011 Real Estate Division Inventory Port of Seattle Commission March 1, 2011 Critical Question • As a steward of publicly-owned assets, it is our role to maximize the return on publicly-owned investments. With regard to real estate positions, the most critical question is: • When do we: - (1) maximize current return on an asset and create a recurring revenue stream or - (2) maximize the current value of an asset and sell that asset or - (3) when do we do both? Critical Drivers • Anticipated changes in the market • Expeditious response to market opportunities • Ongoing carrying, operating, and deferred maintenance costs • Uses for funds - increase borrowing capacity, - retire debt, - support alternative initiatives, - lessen tax levy requirements Favorable Implications to Sale Option - Provides capital infusion for debt retirement/funding alternative obligations - Minimizes future capital expenditure obligations - Removes ongoing maintenance and operating expense obligation - Reduces the public liability - Returns lands to the tax roles - May marginally reduce staffing costs. Unfavorable Implications to Sale Option - Eliminates a revenue producing asset that supports other obligations of the enterprise - Removes revenue producing assets and increases the reliance upon the tax levy - Removes the most attractive assets and burdens the public ownership with the least attractive assets - Reduces the portfolio upon which overhead allocations are charged Favorable Implications of Hold Option - Provides income to support bonding capacity/acquisitions/future obligations - Permits land uses that are consistent with market developments - May decrease the reliance upon the tax levy - May reduce future capital expenditure obligations - Maintains portfolio upon which to allocate overhead Unfavorable Implications of Hold Option - Does not provide for one time capital infusion to retire debt/fund alternative objectives - Requires ongoing obligations for maintenance and operating expenses - Keeps land off the tax roles (notwithstanding leasehold excise tax generated) Current Market Conditions Q4 2010 120% 96 Occupancy Rate % 100% 82 80% 90 79 Seattle 60% Kent Valley 40% 20% 0% Source: CBRE Commercial Industrial Seattle Close-in Industrial Vacancy 3,000,000 2,500,000 2,000,000 1,500,000 Demolition Deliveries Total Vacant 1,000,000 500,000 0 2006 -500,000 2007 2008 2009 2010 Total Market: 62,543,221 sf Planning & Development Activity 35 1 # of Expiring Permits 30 8 25 4 20 6 15 24 10 15 5 0 3 2010 Interbay SODO 2011 Waterfront 2012 Total Square Footage: 2,050,309 Valuation Principles • Rent assumptions: - Projections based on current rates increased by inflation - Building occupancies based on 2010 Budget average occupancy • Expense assumptions: - Actual expenses where appropriate/2008 BOMA Experience Exchange Report (most current available) - Future years increased by inflation • Cap rates: - 7.5%-9.5% @ 25 basis point increments • Discount rates: - 8.0%-10.0% @ 25 basis point increments Valuation Principles • Inflation assumption: 2.5%/year over 10 years • Applied capital improvement expenditures consistent with plan of finance • Assumes no brokerage/cost of sale charges • Assumes all sites environmentally clean Tier 1 Properties Property Occupancy 2011 Cap Ex 2012-2015 Cap Ex Revenue Protection Revenue Generation Value Low High Tier 1 Fishermen's Terminal 86 9,450 500 24,479 Maritime Industrial Center 100 2,123 0 0 Bell Harbor Int'l Conf. Center 100 1,185 0 290 26,593 34,101 Bell Harbor Marina 60 0 0 Incl. BHICC Incl. BHICC Shilshole Bay Marina 200 0 1,815 53,452 71,261 Tier 2 Properties Property Occupancy 2011 Cap Ex Revenue Protection 2012-2015 Cap Ex Revenue Generation Value Low High Tier 2 World Trade Center West 64 0 0 0 11,582 15,181 0 0 0 16,658 21,454 100 0 2,330 12,749 17,172 Pier 34 0 0 0 2,401 3,078 Pier 2 0 0 0 2,990 5,554 World Trade Center Garage Harbor Marina Corp. Center 70 Tier 3 Properties Property Occupancy 2011 Cap Ex 2012-2015 Cap Ex Revenue Revenue Protection Generation Value Low High Tier 3 Terminal 91 Uplands 69 0 0 0 67,039 80,659 CEM Site 1 0 0 0 9,110 9,110 Tsubota Steel Site 11 0 0 0 2,619 4,863 Terminal 5 SE 10 0 0 0 (62) (31) $205,831 $264,102 $15,500 $22,621 Total Tiers 1, 2 & 3: Pier 69 Eastside Rail Corridor 1,625 0 1,503 0 0 Notes: Includes all business plan prospective projects; excludes tenant improvements; excludes overhead projects Commercial Properties Property World Trade Center West Occupancy 64 World Trade Center Garage 2011 Cap Ex 2012-2015 Cap Ex Value Revenue Protection Revenue Generation 0 0 0 11,582 15,181 0 0 0 16,658 21,454 Low High Bell Harbor Int'l Conf. Center 100 1,185 0 290 25,593 34,101 Harbor Marina Corp. Center 70 100 0 2,330 12,749 17,172 Pier 34 100 0 0 0 2,401 3,078 Terminal 5 SE 100 0 0 0 (62) (31) Industrial Properties Property Occupancy 2011 Cap Ex 2012-2015 Cap Ex Revenue Protection Revenue Generation Value Low High Fishermen's Terminal 86 9,450 500 24,479 Maritime Industrial Center 100 2,123 0 0 Terminal 91 Uplands 69 0 0 0 67,039 80,659 CEM Site 1 0 0 0 9,110 9,110 Tsubota Steel Site 11 0 0 0 2,619 4,863 Pier 2 5 0 0 0 2,990 5,554 Marina Properties Property Shilshole Bay Marina Occupancy 98 Bell Harbor Marina Harbor Island Marina 70 2011 Cap Ex 2012-2015 Cap Ex Value Revenue Protection Revenue Generation 200 0 60 0 0 Incl. BHICC 0 0 0 Low 1,815 Total All Properties: Pier 69 0 0 1,503 Eastside Rail Corridor 0 0 0 High 53,452 71,261 Incl. BHICC 1,700 1,700 $205,831 $264,102 $15,500 $22,621 Policy Questions/discussion • Competitive processes--RFP vs. direct negotiation • Protocol upon when to consider for sale • Distinguish between a 'for profit' portfolio and a 'not for profit' portfolio