Item No:
Date of Meeting:

6d_attach 3
December 5, 2017

POTENTIAL SALMON BAY MARINA ACQUISITION
History of this Acquisition:
• Broker representing owners approached Port in March 2016 about potential acquisition.
• It's a complex urban property - 18 months of careful due diligence work has been completed.
• Negotiations are almost complete - sellers have agreed to Port $ offer and sale conditions.
The industrially zoned property is an existing recreational marina immediately adjacent to the western
edge of Fishermen's Terminal. It contains five docks supporting 166 slips. The 5+ acre fee-simple site
includes 2.23 acres in upland and 2.83 acres of fee-owned submerged land. An additional 1.73 acres of
submerged land is leased from the Washington State Department of Natural Resources, for a total
submerged site area of 4.56 acres.
The property has an approved Master Use Permit (MUP) for upland development of light industrial
facilities and replacement of docks D and E.
Sellers (DMW) of Salmon Bay Marina have accepted the Port's offer of $15,679,120. This price reflects
our original offer minus deductions for brownfields remediation:
Original Asking price from Seller
Original price agreed in Letter of Intent (LOI)
Port deductions for brownfields remediation
Revised price

$18,400,000
$16,836,120
$1,157,000
$15,679,120

(Port appraisal = $17.1 Million)
(see detail below)

Basis for Port Offer
• Port due diligence identified upland and in-water environmental contamination issues that may
require remediation. The Port has reduced price based on remediation costs.
• The seller has provided the Port a full cost reduction for the uplands cleanup related to past MARCO
shipyard contamination.
• Port is receiving all historic insurance policies from seller to cover potential future in-water claims. As
a result, the Port is not receiving any indemnification from seller (nor are we indemnifying the seller).
• Seller remains potentially liable party for future environmental remediation.
Brownfields Assessment
Former MARCO Shipyard Site
• The cleanup area within the historical MARCO lease area is contaminated and may need to be
remediated. Port consultants estimated that this work will cost $870,000.
In-Water Contamination (Docks D & E)
• The planned development of the property includes dredging of approximately 12,000 cubic yards
(CY) of sediment. The upper 4‐foot layer of sediments (approximately 4,000 CY) in the planned
dredge area is contaminated and requires off‐site disposal at a licensed landfill.
• The costs related to the handling and off‐site disposal of these contaminated sediments is in addition
to the normal costs we have assumed for the construction of the two newly permitted docks. The
additional cost related to the in-water work under docks D & E is estimated at $287,000.

Alternatives and Implications Considered
Option One: Purchase the marina: sub options related to rebuilding or demolishing the docks
Pros
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Cons
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The purchase would protect maritime industrial land and provide needed space for local
maritime and manufacturing companies.
The property is adjacent to Fishermen's Terminal.
Depending on development scenarios, the property generates the following Internal Rate of
Return (IRR)
 4.72% with rebuilt docks.
 5.55% with demolishing the docks.
The property provides the Port a brownfields remediation opportunity.
The Port has experience operating recreational marinas.
The property's shoreline may provide a long-term opportunity for habitat restoration.
Environmental liabilities are balanced by reduction in purchase price and assignment of historic
insurance policies.
Purchasing a recreational marina is not a Century Agenda priority.
Buying an aging recreational marina could bring unforeseen maintenance costs and create
constituent issues due to the need to raise rates to support needed improvements.
Roof covered moorage brings additional risk of fire, snow/weather damage, and collisions.
The acquisition and development uses Port capital at a time when there are other competing
needs and not a lot of long term financial capacity.
The property will not support Fishing Vessels due to depth constraints without deeper dredging
and constructing suitable fixed piers that would be prohibitively expensive. Newer fishing
vessels have greater depths and longer lengths that require suitable pier space.

Option Two: Execute a Right of First Offer
Pros
• Retains some control over property if it goes to market.
• Potential to save money IF market is soft or no offer made.
• Saves Port capital for some time (unspecified).
Cons
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Potential to lose property to buyer willing to pay more than Port.
May impact value of/feasibility for uplands building.
Sellers may reject Right of First Offer.

Option Three: Do Nothing - Pass on Acquisition Opportunity
Pros
• Retains Port capital for other priority projects and finance initiatives (ex. early repayment of
debt - equivalent upfront cost provides $4 mil. per year cash flow with an IRR of 4.2%).
• Avoids challenges and liabilities that come with acquiring and operating recreational marinas
with aging infrastructure and covered moorage.
• Avoids environmental liabilities.
Cons
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Potential to lose this maritime land to a non-compatible and non-maritime /Industrial use.
Loss of long term capacity for Fishermen's Terminal.

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Loss of ability to add needed light industrial space in the Ballard Interbay area at this site.
Missed opportunity to lead or help with brownfields remediation and environmental
enhancement at this site.

Dynamics
• This marina comes with:
o Live-a-boards
o Derelict Vessels - an estimated 10 to 20% of vessels appear to be derelict. As a
condition of closing, the Port will require proof of seaworthiness and require vessels
without proof to be removed. We would not take ownership until these vessels are
addressed. There is potential for customer complaint.
o Covered docks (that would need to be sprinklered immediately)
• The cost of dredging and building commercial docks for fishing vessels is prohibitive
• If adequately maintained the marina docks have a projected remaining life of 20 years. Docks D
and E would ideally be replaced in 2 years in order to utilize the existing Master Use Permit.
Replacing the docks to allow continued operation reduces the financial return on the Port's
investment. Without replacement the Internal rate of return (IRR) is 5.55%; with dock
replacement the IRR is 4.72%.

Financial Analysis Summary for Option 1 - Purchase the Marina
The financial analysis includes both the acquisition of the property and development of a two-story
60,000 s.f. flex-industrial building with two scenarios for the marina in the future:
1. The marina is maintained and operated only for the remaining life of the docks (estimated at 5
years for 2 docks and 20 years for the other 3 docks), then the docks are removed.
2. The docks are replaced as needed and the marina continues operation.
Key assumptions:
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The analysis period is 30 years with a terminal value included in year 30 to capture future
revenues
The uplands building revenues are based on leasing at $24 per s.f., 95% occupancy
Marina operating expenses include
o 2 new FTEs, not currently budgeted (additional after hour staffing provided by existing
employees at other facilities) - $170,000 per year
o Direct maintenance expense estimate of $200,000 per year
Operating lease and moorage rates and expenses increase 2.5% per year
o if the marina docks are removed, those revenues and expenses are removed
o if the dock are rebuilt, moorage would be open, not covered and the covered moorage
premium is removed
Construction costs increase 3.5% per year
Capital costs (in current dollars) for each scenario:
Base Costs for Both Scenarios (all costs in current dollars)
Property Acquisition
Initial site improvements
Uplands building construction
Year 30 building renovation
Subtotal

$15,679,000
$1,200,000
$13,239,000
$1,953,000
$32,071,000

Scenario #1 - Remove docks
Remove docks at end of useful life
Rebuild bulkhead
Subtotal for dock removal
TOTAL for Scenario #1

$1,519,000
$2,238,000
$3,757,000
$35,828,000

Scenario #2 - Rebuild dock (with uncovered moorage)
Rebuild docks D&E & bulkhead 2 years (based on MUP)
Rebuild docks A,B & C & bulkhead in 20 years
Subtotal for dock rebuild
TOTAL for Scenario #2

$5,879,000
$13,910,000
$19,789,000
$51,858,000

Financial Analysis results:

#1 Remove docks
#2 Rebuild docks
Payback
19 years
> 30 years
IRR
5.55%
4.72%
Terminal value
$30,979,000
$37,783,000
Year 3 NOI after depreciation (1)
$1,104,000
$853,000
Year 10 NOI after depreciation (1)
$1,558,000
$1,438,000
(1) Based on incremental NOI, excludes allocated costs and therefore will differ from actual
reported NOI
Note: results are made based on preliminary assumptions

Long standing management practice, which is evaluated periodically and updated earlier this year by the
ELT, is to use a risk-adjusted target rate of return for Port investments. The base rate is the Port's
average estimated cost of debt (currently 5.3%), which is considered a risk-free rate since debt can be
defeased to create annual cash flow savings. Projects are then scored based on several criteria including
security of revenues and the length of the payback period, and a risk premium is added based on the
score.

For this project the target rate of return would be 8% based on its risk profile (especially a relatively long
payback period). This is a target for information purposes only, and projects can still move forward
based on other non-financial benefits. To compare to a risk-free alternative, the Port could use $32
million to undertake early redemption of debt, increasing annual cash flow by over $4 million per year,
with a risk free return of 4.2% and a payback of 7 years.

Summary of SaBM Alternatives
Based on 30 Year Cash Flow Forecast w/ Terminal Value
11/8/2017

All Amounts in $000
Capital Outlays in today's $s

Uplands Development | No Docks Rebuilt
Capital Outlays
Acquisition Cost (includes Due Diligence and Initial Costs)
60K Light Industrial Building Construction
D&E Docks Demolition
ABC Docks Demolition
Bulkhead Rebuild
Light Industrial Building Update (roof, HVAC, paving, etc)

IRR:
Today's Cost
$16,879
$13,239
$190
$1,329
$2,238
$1,953

0
$16,879

2.5%
2

1

3

4

5

6

8

9

10

15

20

25

30

E

D
C
B

$225

A

$2,645
$4,453
$5,483

$347
$312

Uplands Development | All Docks Rebuilt

IRR:

4.72%

0
$16,879

1

NOI Before Depreciation
NOI After Depreciation
Terminal Value

2

Year
7

$13,239

$0
$0

Today's Cost
$16,879
$13,239
$5,879
$13,910
$1,953

Payback: 19 years

5.55%

NOI Before Depreciation
NOI After Depreciation
Terminal Value

Capital Outlays
Acquisition Cost (includes Due Diligence and Initial Costs)
60K Light Industrial Building Construction
D&E Docks & Bulkhead Rebuild
ABC Docks & Bulkhead Rebuild
Light Industrial Building Update (roof, HVAC, paving, etc)

1

$759
$393

$1,470
$1,104

$1,778
$1,412

$1,700 $1,712 $1,786 $1,831 $1,877 $1,924
$1,334 $1,346 $1,420 $1,465 $1,511 $1,558

Payback: > 30 years
2

3

4

5

6

Year
7

8

9

10

$2,177
$1,811

$1,936
$2,037

$2,190
$1,637

$2,478
$1,925
$30,979

15

20

25

30

B

$6,298

A

$27,678
$5,483

$347
$312

D
C

$13,239

$0
$0

E

$650
$74

$1,429
$853

$1,737
$1,161

$1,780 $1,794 $1,870 $1,917 $1,965 $2,014
$1,204 $1,218 $1,294 $1,341 $1,389 $1,438

$2,116
$1,540

$1,889
$390

$2,672
$1,208

$3,023
$1,559
$37,783

SaBM Preliminary Development Assumptions Nov. 8, 2017
*$ amounts shown in today's $s
SBM: Shilshole Bay Marina
SaBM: Salmon Bay Marina
Line-Item/Assumption

Amount*

Capital Investments
Construction Cost Escalation
Purchase Price
Due Diligence
Fire Sprinkler System
Site transfer costs

3.5%
$15,679,120
$300,000
$700,000
$200,000

Source/Notes
Project Management - Average annual cost escalation for King County from 1978 to 2016 was 3.5%.
Purchase & sale agreement
$300K authorized for C800993, approximately $192K has been spend as of (11/09/17)
Project Management estimate (9/19/17)
New sign, locks, safety equipment, etc. associated with initial Port ownership and operation - Maritime estimate (11/6/17)

Uplands Development
60K SF Flex Industrial Building
Future Building Refresh
Dock Removal - No Replacement
D&E Docks
A,B,C Docks

Bulkhead

Project Management estimate (11/8/17) - includes building construction, contaminated fill remediation, paving, utilities,
stormwater, and lighting. To construct to LEED Gold Standards may require higher construction costs
Project Management estimate (11/8/17) - includes roof replacement, painting, HVAC, and parking lot repairs expected in approx.
$1,953,338
year 30. Estimate includes a soft cost assumption of 21%.

$13,239,000

$189,556 Demolition cost based on estimates from Reid Middleton for fixed and floating dock redevelopments. Includes engineering, tax,
$1,329,029 and contingency costs. (6/27/17)
Site Inspection Report: "The overall condition of the bulkhead is Satisfactory. The bulkhead may have 15 to 20 years of remaining
service life, provide the recommended repair and rehabilitation, including replacement of the damaged piles, is completed and
the structure is properly maintained on a regular basis." Annual Maintenance expense does include cost estimates for piling
$2,238,113
repairs.
Maritime confirmed bulkhead will need to be rebuilt with or without new docks (11/2/17)
Based on Reid Middleton estimate (6/27/17). Includes engineering, tax, and contingency costs.

Dock Replacement
D&E Docks Redeveloped to Two
Floating Docks
A,B,&C Docks Rebuilt

Based on Reid Middleton estimate (6/27/17) for D&E redevelopment according to master use permit design.
$5,879,000 Includes demolition of old docks, new bulkhead, contaminated sediment dredging, and two new floating docks.
Net loss of approximately 260 linear feet of moorage due to loss of one pier.
Project management estimate for ABC Dock redevelopment for uncovered recreational boating moorage. Includes demolition of
$13,910,000 old docks, new bulkhead, contaminated sediment dredging, and 3 new docks. Net loss of approximately 200 LF due to Port
design standards.

Revenue
Rec Boating Moorage
Occupancy

90.0%

Moorage Rate Increase

2.5%

Monthly Moorage

$862,017

Covered Moorage Premium

$101,467

Average over the last eight years has been 94% for all POS Rec Boating Marinas.
Assumes lower occupancy due to limited service life and needed repair work.
10-year average: Moorage rates at SBM have increased by 2.6% per year
Rates based on Rec Boating rates for Fisherman's Terminal (FT Tariff). Revenue calculated based on total length of slip/berth
consistent with SBM moorage calculations
$2.00/ft. premium applied in addition to covered linear feet. Assumption vetted with Rec Boating.
If current covered moorage is rebuilt without coverage, premium would be reduced.

Guest/Daily Moorage
Kayak Storage
Uplands Development
Occupancy
Lease Rate
Tenant Improvements

$28,618
$2,250

Assumed at 3% of monthly moorage revenues. SBM 7-year average is 3.3%
SBM rate applied to SaBM current number of customers

Estimate by RE Development at 95%. 7-year average for FT: 93.5% with a low of 86% in 2010.
Annual NNN lease rate. Based on RE Development's discussions with brokers familiar with nearby flex industrial space. Does not
$24.00
include 12.84% leasehold occupancy tax.
RE
Development estimate. $5/sf for 10% of the space every 5 years
$10/sf initial
95.0%

Expenses
Rec Boating
Annual Increase
Allocated expenses
Employee Expenses
Utilities

2.5%

Standard assumption used in forecasting for non-employee related expenses. 7-year average: SBM expenses have increase 5%+
per year, needs further review.
This analysis does not include allocated expenses
Two staff at Grade 17 (midpoint $60K) + 40% Benefits = $84K x 2 people = $168K/year

$170,000
4% of marina
revenues Ratio from International Marina Institute information. SBM 7-year average is 3.9% of moorage revenues.

Uplands Building
Property management
Utilities

$30,000
$10,000

Estimate - roughly based on 2016 direct charges to MIC & SBM Uplands
4% of revenues based on IMI/MA Report

Maintenance
Marina
Uplands

$200,000
$40,000

Marine Maintenance estimate
Estimate/placeholder. All leases NNN (tenant is responsible for maintenance)

Salmon Bay Marina
Due Diligence Summary
7-20-17

Port of Seattle Staff

Seaport Project Mgmt:
Environmental:
CPO:
Maritime:
Recreational Marina:
Engineering:
Marine Maintenance:
Risk Management:
Economic Development:
Legal and Insurance:
Finance:

Tim Leonard, Rick Jenkins, Amy Kiessling, Mike Dyer
Roy Kuroiwa, Paul Meyer, Mathew Mateo
Tamara Hamel, Sofia Mayo
Kenny Lyles, Ray Giometti
Tracy McKendry, Giuseppe Alvarado
Chris Caudill, Jeremia Connor, Atilla Laszlo , Dan Lindsey, Sam
Asavareunchai, Randy Sweet
Jeff Gunn, George Washington, Blair Friedt, Alex Niccoli, & John
Hall
Jeff Hollingsworth
Dave McFadden, Jeffrey Utterback, Daniel Alhadeff
Isabel Safora, Elizabeth Black
Kelly Zupan, Tyler Cooley

Tasks Performed
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and cost estimates
Any DNR lease related documents or correspondence
Marina sediment probe surveys, sediment characterizations and dredge estimates (DOR,
Gravity, Pentec, SAIC and PND)
Site sediment core or surface sediment test results (physical and chemistry) and reports
Dredge characterization results and reports
Environmental assessment reports, such as Phase I or II Site Assessments.

Records of UST operation and closure
Cleanup documents related to the adjacent Marco property (that relate to work on the
marina)
o Waste management and disposal records
o Hazardous building materials assessment or notices (asbestos, lead-based paint, etc.)
o Water quality monitoring results and reports
o Biological Evaluation and all permits received (HPA, Corps permit)
o Rent roll for previous 5 years
o Insurance policies
o Previous environmental studies
o MUP Permit
o COE Permits
Performed site inspection and general condition assessment of existing facility docks, structures,
pavement, and utility systems including electrical, mechanical, stormwater, sanitary sewer, and
water main.
Prepare report summarizing site inspection findings and recommendations regarding any future
improvements required in short-term and long-term by Port

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o

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Consultants
Reid Middleton Engineering
Sound Earth Strategies
Echelon Diving
Geotech Engineers
Clark Nuber
Miller Nash Graham & Dunn LLP
Kidder Mathews

(Technical)
(Environmental)
(In-water condition assessment)
(Geology and Hydrology)
(Financial)
(Legal and Insurance)
(Appraisal)

Tasks Performed
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Reviewed of existing facility information and records (listed above) from seller
Prepared ASTM E1527-13-compliant Phase I Environmental Site Assessment for the Property
including a review of selected historical sources, collection and review of aerial photographs,
research and review of state and federal regulatory databases to obtain pertinent sediment data
for locality, reconnaissance of the property, and preparation of a written report including a
compilation of existing data and information.
Conducted a walk-through visual hazmat survey of the site to document suspect regulated
building materials (asbestos, lead-based paint, mercury- and PCB-containing components) and
provided description of the suspected regulated materials that were identified during the site
visit and provide a rough order of magnitude abatement estimate as a simple table.
Prepared and compiled existing site data and information to establish base map including
infrastructure, outfalls, bulkhead, fill activity, environmental conditions summary, and other
applicable environmental or regulatory conditions and features.
Researched Ecology, Department of Natural Resources, and EPA files for Lake Union sediment
quality assessments and surveys to identify studies with data pertinent to the Salmon Bay Area.
Prepared and compiled known and available existing sediment site data and information and
present sample locations on a figure for discussion purposes.
Reviewed the above data and identified sediment areas which exceed applicable freshwater
sediment cleanup standards.
Prepared a scope of work and a health and safety plan for a Phase II subsurface

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Investigation in conjunction with the geotechnical borings conducted, collected soil samples and
reconnaissance groundwater samples.
Analyzed soil and groundwater samples for the following: RCRA 8 metals; gasoline-, diesel-, and
oil-range petroleum hydrocarbons; volatile organic compounds; and chlorinated solvents.
Coordination of subcontracted drilling and utility locate services
Perform dive survey of undersides of docks, underwater piling, and bulkhead
Prepare summary report of findings
Prepare a preliminary geotechnical report that will include the results of the field explorations,
boring logs, site plan showing the boring locations, and preliminary conclusions and
recommendations for the geotechnical design elements
Perform condition assessment of docks, and waterfront facility elements
Attend coordination meetings with Port of Seattle
Prepare conceptual design exhibits for potential docks reconfigurations for large fishing vessels
Prepare preliminary cost estimates for concept docks replacement and reconfiguration related
improvements for large fishing vessels