Template revised April 12, 2018.

COMMISSION

AGENDA MEMORANDUM

Item No.

ACTION ITEM

Date of Meeting

October 9, 2018

DATE: September 17, 2018

TO: Stephen P. Metruck, Executive Director

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

James Jennings, Senior Manager, Aviation Properties

Denise Trogdon, Senior Property Manager

SUBJECT: Three Year Extension to the General Services Administration/Transportation Security

Administration (GSA/TSA) Main Lease and the GSA/TSA C1 Building Lease

ACTION REQUESTED

Request Commission authorization for the Chief Executive Officer to execute Lease Amendment

No. 25 (Exhibit A attached) of the existing Main Lease and Lease Amendment No. 3 (Exhibit B

attached) of the C1 Building Lease with the General Services Administration (GSA) for the

current occupancy of the Transportation Security Administration (TSA).

EXECUTIVE SUMMARY

GSA/TSA has two separate terminal space leases with the Port. Those two leases are commonly

known as the Main Lease (7,935 square feet) and C1 Building Lease (10,756 square feet) for a

total of 18,691 square feet of leased space at Seattle-Tacoma International Airport. The Main

Lease will expire on 10/31/2018 and is largely comprised of breakrooms and training spaces

throughout the airport; the C1 Building Lease will expire on 1/21/2019 and covers the

consolidated administration offices within the C1 Building. These two leases exist because the

Main Lease was put in place utilizing existing space soon after 9/11, whereas the C1 Building

Lease was developed as part of a comprehensive lease agreement, put in place back in 2008,

which included a significant tenant buildout. The two leases are written on GSA lease templates

and neither the Port nor GSA wishes to combine the leases into one lease at this time.

The request is to extend both leases for three years, align their expiration dates, and allow a one-

time option for GSA/TSA to reduce premises in the C1 Building Lease. The leased areas are

spread across the airport, and are depicted on Exhibit C (attached).

JUSTIFICATION

The proposed lease extension for each lease is approximately three years and will align both

leases termination dates. The proposed three year term is intended to provide flexibility to

accommodate potential construction impacts of a future C1 Building Expansion Project, subject

COMMISSION AGENDA – Action Item No. 6e Page 2 of 5

Meeting Date: October 9, 2018

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

to Commission authorization, which would potentially require a complete relocation of all

premises in the C1 Building Lease. It is anticipated that once the potential impacts of the C1

Building Expansion Project are known, a new longer-term lease would be negotiated to reflect

existing and relocated premises.

Under the C1 Building Lease, GSA/TSA will have a one-time option to reduce the total square

footage leased on or after March 1, 2019. The partial space reduction is only available under the

C1 Building Lease, and is anticipated to occur sometime in mid-2019. TSA has determined that

some of their office space (i.e., non-airport required administration and training areas) do not

need to be on-airport, therefore are anticipated to be relocated to an offsite property. With

airport rates significantly higher than offsite rates, this is not a surprise. Although this will result

in a loss of leased square footage, GSA/TSA rent to the Port will actually increase due to the

increases in rental rates as negotiated by Port and GSA staff. This change in the GSA/TSA

revenue stream has been reflected in the proposed 2019 budget. Additionally, the decrease in

leased area would potentially simplify the phasing complexity of the potential C1 Building

Expansion Project, which Commission approved $500,000 of funds for advance planning in June

of this year.

Lastly, with the significant shortfall of terminal space today, Aviation Properties has already

received requests for potential interim uses of portions of the to-be-vacated area from existing

airport tenants.

DETAILS

LEASE SUMMARY COMPARISON

The current terms and proposed amended terms of the two leases are as follows:

Main Lease

Current terms

Amended terms

Term

12/23/2001 – 10/31/2018

11/1/2018-1/21/2022

Area Leased

(in square feet)

7,935 sf

Annual Rent

$97.66/sf/yr

$128.85/sf – year 1

$153.26/sf – year 2

$161.66/sf – year 3

C1 Building Lease

Current terms

Amended terms

Term

12/1/2008-1/21/2019

1/22/2019-1/21/2022

Area Leased

(in square feet)

10,756 sf

Rent

$112.3/sf/yr

$128.85/sf – year 1

$153.26/sf – year 2

$161.66/sf – year 3

Option

One time option to reduce

leased area on or after

3/1/2019

COMMISSION AGENDA – Action Item No. 6e Page 3 of 5

Meeting Date: October 9, 2018

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

ALTERNATIVES AND IMPLICATIONS CONSIDERED

Alternative 1 – Allow the leases to expire

Cost Implications: None

Pros:

(1) Potential for return of terminal space that could be occupied by a tenant not otherwise

accommodated.

Cons:

(1) The Port would miss the opportunity to secure the three years of revenue and increase the

rental rate.

(2) GSA/TSA by policy does not permit holdovers, so the Port would be required to seek a

waiver from GSA/TSA.

(3) Does not support TSA’s mission in managing its facility efficiencies supporting the

critical security function they provide at the Airport.

This is not the recommended alternative.

Alternative 2 – Extend the two leases for five (5) years.

Cost Implications: None

Pros:

(1) Secures five (5) additional years of revenue.

Cons:

(1) Does not meet the TSA’s need to increase organizational efficiencies.

(2) Does not provide the Port with flexibility to develop the C1 Building Expansion Project

schedule.

This is not the recommended alternative.

Alternative 3 – Execute three (3) year lease extensions for both leases.

Cost Implications: None

Pros:

(1) Satisfies the occupancy needs of TSA to fulfill their critical security function at Seattle-

Tacoma International Airport.

(2) Provides interim commitment from GSA/TSA for space.

(3) Secures three years of revenue and increases rental rates over the three year term.

Cons:

(1) The space will not be available to potential tenants not otherwise accommodated in the

terminal.

COMMISSION AGENDA – Action Item No. 6e Page 4 of 5

Meeting Date: October 9, 2018

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

This is the recommended alternative.

FINANCIAL IMPLICATIONS

By extending the two leases for an additional three years, and increasing the negotiated rental

rate (based on Finance and Budget rate forecast), the Port will realize total revenue over the three

year term extension of $8,294,506. If GSA elects to reduce the area leased under the C1

Building Lease on March 1, 2019, total revenue would be reduced by $2,999,562 over the three

year term. This lease extension does not financially obligate the Port in any measurable way.

Main Lease

Current

Annual Rent

Amended Annual

Rent

Current annual rent

$774,932

Year 1

$1,022,425

Year 2

$1,216,118

Year 3

$1,282,772

Total revenue

$3,521,315

C1 Building Lease

Current

Annual Rent

Amended Annual

Rent

Current annual rent

$1,208,006

Year 1

$1,385,911

Year 2

$1,648,465

Year 3

$1,738,815

Total revenue

$4,773,191

Combined Rental

Streams

$8,294,506

Less revenue from

anticipated space return

3/1/2019

($2,999,562)

Net Total Lease Revenue

$5,294,944

ATTACHMENTS TO THIS REQUEST

(1) Exhibit A – Lease Amendment No. 25 to GSA Main Lease

(2) Exhibit B – Lease Amendment No. 3 to GSA C1 Building Lease

(3) Exhibit C – Graphic depicting spaces leased

COMMISSION AGENDA – Action Item No. 6e Page 5 of 5

Meeting Date: October 9, 2018

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

PREVIOUS COMMISSION ACTIONS OR BRIEFINGS

Main Lease #000307:

1) October 8, 2013, Commission approved Amendment No. 23 of the existing Main Lease

with the Transportation Security Administration represented by the General Services

Administration (TSA/GSA) to extend the term of the lease for five (5) additional years

from 11/1/2013 to 10/31/2018 and decrease the leased premises by 403 square feet.

2) October 5, 2010, Commission approved Amendment to extend the lease for an additional

three (3) years and increase the rental rate

3) May 12, 2009, Commission approved Amendment 18 to extend the lease for an

additional three (3) years and increase the rental rate, covering hold over period that

expired on October 31, 2010

4) September 11, 2007, the Port Commission authorized the construction of tenant

improvements with the General Services Administration (GSA) and the Transportation

Security Administration (TSA) for office space on the Mezzanine Level of the Main

Terminal.

C1 Building Lease #000995:

1) February 24, 2015, Commission approved Amendment No. 1 to construct administrative

office space and tenant improvements, to prepare contract documents; perform

construction services; execute and award outside professional services agreement;

advertise and award major and small works contracts; pre-purchase material and

equipment; provide contract administration and execution on behalf of GSA and TSA for

the construction of tenant improvement requiring an authorization of $1,312,000 of

Tenant Reimbursement CIP funds.

2) January 15, 2008, the Port Commission executed a 10 (ten) year Lease Agreement

(Lease) with the United States General Services Administration (GSA), on behalf of the

Transportation Security Administration (TSA) for the construction of tenant

improvements in the C1 Building.

3) August 14, 2007, the Port Commission authorized a $6,000,000 Tenant Reimbursement

CIP (CIP C800154). As part of that authorization, Port staff is required to bring any

project requesting funds in excess of $200,000 before the Commission for specific

authorization.

4) October 24, 2006, the Port Commission authorized an additional $488,000 to the C1

Project for a total of $1,288,000 for the TSA tenant improvements. This amount is

expected to be fully reimbursed back to the C1 Project by the GSA/TSA, as a part of the

10 year lease agreement with the Port.

5) January 31, 2006, the Port Commission authorized the C1 Project to spend $800,000, as

part of a $25,300,000 request for the C1 Building Interim and Final Baggage Screening

Systems project to design and build tenant improvements in the C1 Building on behalf of

the TSA.