Template revised September 22, 2016.
COMMISSION
AGENDA MEMORANDUM
Item No.
6a
ACTION ITEM
Date of Meeting
July 25, 2017
DATE: July 18, 2017
TO: Dave Soike, Interim Executive Director
FROM: Dave McFadden, Managing Director Economic Development Division
Jeffrey Utterback, Director Real Estate & Economic Development
SUBJECT: Approval of ground lease for Port property in SeaTac, Des Moines Creek North
ACTION REQUESTED
Request Commission authorization for the Executive Director to execute a ground lease with TC
Northwest Development in order to develop an aviation-related, light-industrial facility in the
City of SeaTac near the Des Moines Creek Business Park (DMCBP).
EXECUTIVE SUMMARY
Port staff recently completed an RFP to select a developer for its Des Moines Creek North site in
the City of SeaTac. The firm selected, Trammell Crow Company (TCC), is one of the nation’s
leading developers and investors in commercial real estate. TCC has developed or acquired
more than 2,600 buildings valued at more than $60 billion and over 565 million square feet.
TCC has created a new, wholly-owned company TC Northwest Development, for this ground
lease and investment. TCC was recently named as the #1 Development Company in the US for
2016.
The investment made at Des Moines Creek-North will help fulfill the goals and economic
benefits of the Port of Seattle’s Century Agenda in the following ways:
• The project will provide approximately 90+ prevailing wage construction jobs during
the build out of the property. At full occupancy, the development will be home to
approximately 400+ full-time employees with an estimated payroll of more than $28
million annually.
• Complements the nearby Des Moines Creek Business Park by adding additional best-
in-class industrial inventory that will continue to attract and retain growing firms,
keeping jobs within King County and the nearby region.
• The design and construction will be completed primarily by locally owned, private
small businesses. This further serves to promote small business growth and
workforce development.
COMMISSION AGENDA – Action Item No. 6a Page 2 of 5
Meeting Date: July 25, 2017
This version as revised 9/16/2016
• The infill location of Des Moines Creek-North will help reduce sprawl by creating
new light industrial facilities adjacent to current road infrastructure, highways, and
public transportation.
The Port ultimately reached out to 30+ qualified real estate developers with records of
accomplishment in industrial and air cargo related development. The RFP document invited
each developer to present offers based on a variety of related building types – distribution,
manufacturing, and business park/incubator. Four developers submitted offers to the RFP and
included a Letter of Intent (“LOI”). Each offer and LOI was analyzed based on a matrix that
included economic benefits, development team experience, Century Agenda goals, project
debt/equity financing, and development concept.
Located just north of the Des Moines Creek Business Park (“DMCBP”) in the City of Des Moines,
this 22.47-acre undeveloped property is zoned Aviation Commercial (“AVC”) and will expand
upon the success of the industrial development at the DMCBP. It will also represent the first
new industrial development on Port property in the City of SeaTac in many years.
JUSTIFICATION
This ground lease, along with the Port’s adjacent land leases, represents another milestone in
the area’s land development.
The proposed development by TC Northwest Development will create more than 356k square
feet of high quality, light industrial space with supporting warehouse functions within 2
industrial buildings. Tenants may include food processors, manufacturers, and logistics
providers that support the aviation and air cargo industries.
TC Northwest Development will spend up to $25,000 in pursuit of tenant prospects that meet
the Port’s targeted list of users or industries to support the Port’s Century Agenda. A marketing
plan will be developed that specifically targets companies that create jobs by advancing trade
and commerce, that promote industrial growth, and stimulates economic development.
TC Northwest Development has committed to developing marketing materials, host marketing
events, and create a direct mail campaign that focuses on companies that support the
strategies and objectives of the Century Agenda. This campaign will be developed in
conjunction with the Port, who will review and approve all final materials.
Any building tenants that meet the criteria established will received 1 additional month of free
rent above typical market concessions on leases with a 7-year term or longer. TC Northwest
Development will be responsible solely for the financial impact of the free rent.
COMMISSION AGENDA – Action Item No. 6a Page 3 of 5
Meeting Date: July 25, 2017
This version as revised 9/16/2016
This project is a large step forward in pursuing the Century Agenda Strategy of “Positioning the
Puget Sound region as a premier international logistics hub.” In addition, it furthers the
airport’s strategic goal of maximizing non-aeronautical income.
DETAILS
The basic terms of the ground lease are as follows:
Des Moines Creek-North
1. Term - Initial term of fifty-five (55) years with two (2) ten year options to extend.
2. Base Rent from the day after expiration of the Due Diligence period:
o $0.075 per square foot or $73,409.00/year.
3. Base Rent from Substantial Completion or day 1 of the 15
th
month of the term,
whichever occurs first:
o $0.85 per square foot or $831,974/year.
4. Base Rent Adjustments: The applicable Base Rent will increase by ten percent (13.14%)
throughout the Term and any Extension Term beginning at the sixth (6th) Agreement
Year and then every five (5) years thereafter.
5. Base rent Adjustments reflecting Fair Market Value Re-appraisals and after the Base
Rent Adjustments:
o For the twenty-first (21
st
), thirty-first (31
st
), forty-first (41
st
), and fifty-first (51
st
)
Agreement years,
o the sixty-first (61
st
) and seventy-first (71
st
) Agreement years if the options are
exercised.
6. In no event will the Fair Market Rent adjustments be:
o less than one hundred percent (100%) of the then current Base Rent or
o more than one hundred and five percent (105%) of the then current Base Rent.
7. Prevailing wage and apprenticeship utilization required
Scope of Work
The execution of all necessary documents related to the proposed ground lease.
Schedule
Subject to Port Commission approval, the lease can be signed by July 31, 2017.
COMMISSION AGENDA – Action Item No. 6a Page 4 of 5
Meeting Date: July 25, 2017
This version as revised 9/16/2016
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Do not sign the lease.
Cost Implications: The loss of over $832k in initial annual revenue.
Pros:
(1) The property could remain available for an unknown airport operational purpose.
(2) There could be some other use identified that could align with the Port’s long term
goals.
Cons:
(1) The loss of $832k in annual revenue that is equal to more than $168 million over the
life of the lease with baseline escalations.
(2) The loss of leasehold excise tax of $106k per year (not including lease revenue
escalations) to the State.
(3) The loss of 90+ prevailing wage construction jobs.
(4) The loss of up to 400+ permanent jobs.
This is not the recommended alternative.
Alternative 2 – Sign the lease.
Cost Implications: $832k in initial annual revenue.
Pros:
(1) $832k in annual revenue equal to more than $168 million over the life of the lease
with only Base Rent escalations.
(2) Leasehold excise tax of $106k per year (not including lease revenue escalations) to the
State.
(3) The creation of 90+ prevailing wage construction jobs.
(4) The creation of up to 400+ permanent jobs.
Cons:
(1) The property would not be available for some yet unknown airport operational purpose.
(2) There could be some other unidentified use that could more align with the Port’s long
term goals.
This is the recommended alternative.
FINANCIAL IMPLICATIONS
The purpose of developing Des Moines Creek-North is to put the property back into productive
use with an aviation supportive and compatible development. To ensure a Fair Market Rent for
the land, the Port appraised the property in its current condition and then competitively
offered the property to the development community. This ensured the Port has a strong basis
to evaluate proposals for financial implications and aspirational goals.
COMMISSION AGENDA – Action Item No. 6a Page 5 of 5
Meeting Date: July 25, 2017
This version as revised 9/16/2016
The proposal being presented exceeds the financial expectations and addresses the aspirational
goals set by Commission.
Future Revenues and Expenses (Total cost of ownership)
The total estimated revenue is equal to more than $168 million over the life of the lease (75
years.) There are no financial requests being made as part of this ground lease approval.
The Port is making no capital investment as part of this ground lease. All capital costs will be
carried by TC Northwest Development.
ATTACHMENTS TO THIS REQUEST
(1) Property Map
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
None
