Template revised September 22, 2016.
COMMISSION
AGENDA MEMORANDUM
Item No.
6b
ACTION ITEM
Date of Meeting
January 9, 2018
DATE: January 2, 2018
TO: Dave Soike, Interim Executive Director
FROM: James Jennings, Senior Manager, Aviation Properties
Wayne Grotheer, Director, Aviation Project Management
SUBJECT: Delta Inflight Services Tenant Reimbursement Agreement (CIP #C800883)
Amount of this request:
$1,116,000
Total estimated project cost:
$1,196,000
ACTION REQUESTED
Request Commission authorization for the Executive Director to: execute a Tenant
Reimbursement Agreement with Delta Air Lines, Inc. for $975,000 of this total under the
Airport’s AV-2 Policy for the design and construction of a project to prepare for occupancy
approximately 4,000 square feet of office space in the main terminal at Seattle-Tacoma
International Airport and $221,000 for non-tenant reimbursement Port costs associated with
this project. This request seeks a single Commission authorization to reimburse Delta for design
and construction and for non-tenant reimbursement costs associated with the project, a total
of $1,196,000.
EXECUTIVE SUMMARY
This project will develop currently unoccupied space on the second floor of the original Airport
Administration Building, adjacent to the Main Terminal Mezzanine, for use by the Delta Air
Lines (Delta) Inflight Services Group using a Tenant Reimbursement Agreement (TRA) between
the Port and Delta. This will allow Delta to locate all of their Inflight Services staff in one space
and convert a currently unleasable area in this location to leasable space. By using a TRA, design
and construction can be completed as one project with one team, ensuring Delta will be able to
complete the work on their preferred timeline. The space currently occupied by Delta’s Inflight
Services group will be returned to the Port for possible future development as a common-use
club.
JUSTIFICATION
This project supports the Century Agenda goal to meet the region’s air transportation needs at
the Airport by providing additional leasable space in a currently unoccupied area. This allows
Delta to operate their Inflight Services more efficiently and provides the Port with additional
revenue. It also supports the Aviation Division priority of financial performance by developing
space in existing buildings rather than constructing new facilities.
COMMISSION AGENDA – Action Item No. 6b Page 2 of 6
Meeting Date: January 9, 2018
Template revised September 22, 2016; format updates October 19, 2016.
DETAILS
This project will prepare for occupancy approximately 4,000 square feet of raw un-leasable
shell space on the second floor of the original Airport Administration Building, one level up
from the Ticketing Level, using a Tenant Reimbursement Agreement with Delta for its design
and construction. Delta is additionally improving another approximately 4,400 square feet of
adjacent existing office space, which will be built out by Delta as a tenant expense project for
their Inflight Services Group. The total of the two spaces will create an 8,400 square foot
Inflight Services office to support Delta’s expanding flight attendant group. This work is possible
because of the completion of the CTE Stairs project. Once Delta’s Inflight Services group has
moved, the space they are vacating on the Mezzanine level of the South Satellite will be
returned to the Port for future development.
Scope of Work
Approximately 4,000 square feet of this location is in a raw condition because it has been
partially demolished during previous projects including regulated materials abatement. This
project’s scope therefore includes the following:
(1) Additional demolition as required
(2) Additional regulated materials spot abatement as required
(3) Basic wall, ceiling, and floor finishes per Port standard
(4) Necessary life/safety and other infrastructure connection points to the lease line
Schedule
Activity
Preliminary Design start
2017 Quarter 3
Commission design
and construction authorization
2018 Quarter 1
Construction start
2018 Quarter 1
In-use date
2018 Quarter 3
This Request
Total Project
Design
$81,000
$81,000
Construction
$1,115,000
$1,115,000
Total
$1,196,000
$850,000
COMMISSION AGENDA – Action Item No. 6b Page 3 of 6
Meeting Date: January 9, 2018
Template revised September 22, 2016; format updates October 19, 2016.
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Leave the space vacant and do not build it out into leasable space
Cost Implications: $0 from the Port. The estimated cost of the project, $1,196,000, would be
avoided.
Pros:
(1) No capital funding costs are associated with this alternative
Cons:
(1) Leaving this space unimproved would keep the area un-leasable and would not
address the crucial need for additional leasable space.
(2) Would not realize the revenue from Delta for leasing this, and adjacent space not
subject to reimbursement by the Port, of approximately $1.27M annually.
(3) Does not provide Delta a key operational resource they are requesting
This is not the recommended alternative.
Alternative 2 – The Port build out this space to leasable condition without using a TRA, Delta
would then make their tenant improvements (TIs) after the Port’s improvements were
completed.
Cost Implications: $1,394,000
Pros:
(1) Would not require a TRA between the Port and Delta
(2) Port would receive approximately $1.27M in annual revenue from the lease of this,
and adjacent space not subject to reimbursement by the Port.
(3) Frees up space on Mezzanine level of South Satellite for development as common use
club
(4) More control related to Port project costs due to direct control of project by Port staff
Cons:
(1) Would require two separate projects. Port would construct improvements to make
the space leasable, then Delta would make their tenant improvements, which would
likely require them to remove portions of the Port’s original project scope
(2) More costly than Alternative 3
(3) Would take approximately 28 months to complete, missing Delta’s preferred
occupancy date by 22 months.
This is not the recommended alternative.
COMMISSION AGENDA – Action Item No. 6b Page 4 of 6
Meeting Date: January 9, 2018
Template revised September 22, 2016; format updates October 19, 2016.
Alternative 3 – Build out this space to leasable condition through a single construction project,
with a TRA with Delta to reimburse the Port’s leasable improvements portion.
Cost Implications: $1,196,000
Pros:
(1) Allows Delta to move their Inflight group on their preferred occupancy timeline
(2) Port would receive approximately $1.27M in annual revenue from the lease of this,
and adjacent space not subject to reimbursement by the Port.
(3) Frees up space on Mezzanine level of South Satellite for development as common use
club
(4) Less costly than other alternatives to build out the space
Cons:
(1) Because Delta is proceeding at risk with the design, there is a possibility that Port
standards may not be fully incorporated into the design until much later in the review
and approval process
(2) Less control on Port project scope and costs due to Delta completing leasable space
improvements
This is the recommended alternative.
FINANCIAL IMPLICATIONS
Cost Estimate/Authorization Summary
Capital
Expense
Total
COST ESTIMATE
Original estimate
$5,289,000
$0
$5,289,000
Previous changes – net
($4,093,000)
0
($4,093,000)
Revised estimate
$1,196,000
0
$1,196,000
AUTHORIZATION
Previous authorizations
$80,000
0
$80,000
Current request for authorization
$1,116,000
0
$1,116,000
Total authorizations, including this request
$1,196,000
0
$1,196,000
Remaining amount to be authorized
$0
$0
$0
Annual Budget Status and Source of Funds
The Delta Inflight Services Relocation (CIP #C800883) was included in the 2018-2022 capital
budget and plan of finance at $5,289,000. The scope of work has changed to a tenant
reimbursement and the decrease in budget was transferred to the Aeronautical Allowance (CIP
#C800753), resulting in no net change to the capital budget. The funding source for this project
will be Airport Development Fund (ADF).
COMMISSION AGENDA – Action Item No. 6b Page 5 of 6
Meeting Date: January 9, 2018
Template revised September 22, 2016; format updates October 19, 2016.
Financial Analysis and Summary
Project cost for analysis
$1,196,000
Business Unit (BU)
Terminal Building
Effect on business performance
(NOI after depreciation)
NOI after deprecation will increase
IRR/NPV (if relevant)
N/A
CPE Impact
Less than $0.01 in 2018
Future Revenues and Expenses (Total cost of ownership)
Leasing the 8,400 square feet of space will generate in excess of $1.2 million per year based on
the 2018 terminal rents.
ATTACHMENTS TO THIS REQUEST
None
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
None
COMMISSION AGENDA – Action Item No. 6b Page 6 of 6
Meeting Date: January 9, 2018
Template revised September 22, 2016; format updates October 19, 2016.