Template revised September 22, 2016.

COMMISSION

AGENDA MEMORANDUM

Item No.

ACTION ITEM

Date of Meeting

May 8, 2018

DATE: April 24, 2018

TO: Stephen P. Metruck, Executive Director

FROM: James R. Schone, Director, Aviation Commercial Management

James Jennings, Senior Manager, Aviation Properties

W. Allan Royal, Property Manager, Aviation Properties

SUBJECT: Amendment to Lease for EAN Holdings LLC (Enterprise/Alamo/National) “EAN”

ACTION REQUESTED

Request Commission authorization for the Executive Director to sign an amendment to the

current Enterprise/Alamo/National (EAN) rental-car lease, providing for an additional 18 years

to the term of their current lease, providing a total of 20 years to the lease with EAN for car

storage, washing, and maintenance in support of their operations at Seattle-Tacoma

International Airport.

EXECUTIVE SUMMARY

EAN has been in this location for a number of years and the facility (see Attachment 2) is critical

to their business in the Airport’s Rental Car Facility (RCF). EAN is an existing Airport tenant in

good standing and a valued rental car partner. The firm is a significant contributor to the Port’s

non-aeronautical revenue and generator of jobs as noted below. In addition, this location is

closer to the Airport’s RCF when compared to other locations that EAN considered, some as far

away as the Kent Valley, and may avoid potential emissions from a longer trip to the facility for

the 74,000 cars a year currently making that trip.

A snapshot of EAN’s contribution, for informational purposes, to the Port in 2017 (June 2016-

May 2017) is as follows:

Revenues paid to the Port

 Concession Fees = $11,524,610

 Customer Facility Charge Fees = $13,896,516

 Rent for Rental Car Facility = $1,105,228.56

Total number of EAN employees (peak)

 RCF = 296

 Service Facility = 35

 Third party service vendor = 94

COMMISSION AGENDA – Action Item No. _8c___ Page 2 of 4

Meeting Date: May 8, 2018

Template revised September 22, 2016; format updates October 19, 2016.

In addition, EAN will invest, at their own expense, in the facility to ensure its long-term viability.

The improvements EAN will make during the lease term, including some that are traditionally

the responsibility of the Landlord, are:

 Asphalt upgrades;

 Heating, Ventilation and Air Conditioning (HVAC) unit replacements;

 Lighting retrofit to improve energy efficiency;

 SMART building system installation, computer controlled, to improve lighting and HVAC

system efficiency;

 Security enhancements such as an upgraded camera system and better controls at the

entry/exit points;

 Additional lifts/maintenance bay installation;

 Office space, conference room, and break room updates (minimum new flooring and

paint).

Supporting a valuable rental car tenant who is significantly contributing to the tourism industry

in the Pacific Northwest is important to “Advancing This Region as a Leading Tourism

Destination and Business Gateway.”

JUSTIFICATION

EAN entered into a short-term lease with the Port in May 2016 for the building formerly known

as the Boeing Building, which is located north of SR-518 and the North Employee Parking Lot.

Boeing had a 30-year lease with 2 five-year options with the Port for this property, commencing

in 1985, and constructed this building in 1986 for its own use. EAN was previously a sub-tenant

of the Boeing Company in this building and has used this facility for many years for off-site

support (storage, car washing, and minor maintenance) of their operation at the Airport’s

Rental Car Facility. The timing of the initial lease between the Port and EAN coincided with

Boeing’s decision to not exercise their 5-year option, which resulted in the Port taking

ownership of the building via a reversionary provision.

Prior to this building reverting to Port ownership, an analysis was completed on the potential

uses for the facility. At that time, it was determined that the facility was not viable as an

industrial warehouse, primarily because of the lack of space on site to handle the much longer

trucks in use today than what this facility was designed for in the 1980s. The best use, as

determined by this analysis, was in support of rental car operations given its proximity to the

Rental Car Facility. A decision was then made to enter into a short-term lease, three years with

one, two-year option, with EAN while the site was evaluated for its need in the Sustainable

Airport Master Plan (SAMP). Current planning indicates that this site is not needed by SAMP for

the proposed period of the term of the lease with EAN.

The requested action is to amend the term of the existing lease to provide a total of 20 years of

lease term.

COMMISSION AGENDA – Action Item No. _8c___ Page 3 of 4

Meeting Date: May 8, 2018

Template revised September 22, 2016; format updates October 19, 2016.

AMENDMENT DETAILS

 Amend the current lease to allow for a total term of 20 years.

o Lease commencement date of May 21, 2016, is unchanged.

o 20-year term extends current lease by 18 years.

 Establish rent at an effective rate of $18.22/year.

o Note: the rental rate is currently considered “above market” for an industrial

property because of the unique use on the property.

o Rent escalations are evaluated every five (5) based upon Fair Market Value as

determined by appraisal.

 EAN to commit to capital improvements, at their expense, including asphalt upgrades;

replacement of HVAC units as needed; lighting retrofit to improve energy efficiency;

SMART Building system to improve efficiency of lighting and HVAC systems; and

installation of additional lifts/ maintenance bays. All improvements will be completed

by 2021 and must be approved by the Port.

Scope of Lease

Deal Points

 Building size 36,128 square feet

 Term 20 years, from lease commencement in 2016

 Rent $18.22 per square foot

 Escalations Re-evaluated every 5 years

 Repairs/maintenance Tenant responsibility including infrastructure

ALTERNATIVES AND IMPLICATIONS CONSIDERED

Alternative 1 – Do not amend the current agreement, stay with the existing short-term lease.

Cost Implications: None

Pros:

(1) At the end of the term of the lease the Port could go to the market for potential

alternative uses.

Cons:

(1) The Port would not have an excellent long-term deal with a valued tenant.

(2) EAN would not have the security of a critical component to their operations at the

Airport’s Rental Car Facility.

(3) 74,000 cars a year would be added to the area road system because of EAN’s long-

term lease at the Airport’s Rental Car Facility.

This is not the recommended alternative.

COMMISSION AGENDA – Action Item No. _8c___ Page 4 of 4

Meeting Date: May 8, 2018

Template revised September 22, 2016; format updates October 19, 2016.

Alternative 2 – Amend the EAN lease creating a long term agreement.

Additional guaranteed revenue: Approximately $11,200,000 (compared to the total revenue

generated in term of the current lease when extended to 20 years)

Pros:

(1) Get a mutually beneficial long-term lease for a valued tenant

(2) Receive $11,200,000 in additional incremental guaranteed revenue by extending the

current lease to a total of 20 years. Note: this does not take into account the five (5)

year rent evaluations.

(3) EAN would have the assurance of continued efficient operations with an improved

facility in close proximity to the Rental Car Facility.

Cons:

(1) The Port would lose the opportunity to explore an alternative use.

This is the recommended alternative.

FINANCIAL IMPLICATIONS

Potential of $11,200,000 nominal/$7,800,000 Net Present Value of non-aeronautical revenue.

ATTACHMENTS TO THIS REQUEST

(1) Lease Amendment

(2) EAN Building Graphic

PREVIOUS COMMISSION ACTIONS OR BRIEFINGS

None