Template revised April 12, 2018.
COMMISSION
AGENDA MEMORANDUM
Item No.
6e
ACTION ITEM
Date of Meeting
March 26, 2019
DATE: March 11, 2019
TO: Stephen P. Metruck, Executive Director
FROM: James Schone, Director Aviation Commercial Management
James Jennings, Senior Manager Aviation Properties
W. Allan Royal, Property Manager
SUBJECT: ATZ Lease Amendment for operation of the Doug Fox Parking Lot
ACTION REQUESTED
Request Commission authorization for the Executive Director to execute an amendment
substantially in the form attached hereto (Attachment 2) to the lease with ATZ, Inc., for a term
of three years and two one-year options, for operation of the parking facility commonly known
as the Doug Fox Parking Lot located north of South 170
th
Street and east of the Northern
Airport Expressway in the City of SeaTac.
EXECUTIVE SUMMARY
The Port owns an “off-airport” surface parking lot on South 170
th
Street that is approximately ¼
mile from Seattle-Tacoma International Airport (Airport). This property, commonly known as
the Doug Fox Parking Lot, is leased to and operated by ATZ, a local, small business. In 2012,
Port staff issued a request for proposals (RFP) for operation of this property as a park-and-ride
operation. ATZ was the sole responder to meet the minimum requirements of the solicitation.
On July 9, 2013, the Commission authorized the Chief Executive Officer to execute a lease with
ATZ for a term of five years with two five-year options.
The language in the lease requires that ATZ and the Port negotiate the terms for all option
periods and that if both parties are in agreement on the proposed terms, Port staff is to seek
Commission approval. Based on the requirements in the initial lease, ATZ and Port staffs have
been negotiating the terms for the first 5-year option period as the initial term is nearing
expiration, in June 2019. The proposed terms include revised concession rent, revised
minimum annual guarantees, an exclusion from gross revenues of advertising expenditures up
to $120,000 per year and a clause for how both parties will handle disruption to this business
caused by closure of the primary access routes to and from this property.
The Sustainable Airport Master Plan (SAMP) includes construction of a second terminal building
on the Doug Fox Parking Lot beginning in 2025. The current SAMP implementation plan
schedule estimates that roadway work to expand the airfield through relocation of the
COMMISSION AGENDA – Action Item No. 6e Page 2 of 9
Meeting Date: March 26, 2019
Template revised September 22, 2016; format updates October 19, 2016.
southbound lanes of the Northern Airport Expressway (NAE) will likely impact access to the
Doug Fox Parking Lot in 2024 and as early as 2023. Construction phasing for SAMP projects will
be refined as projects move through more detailed planning and design. Given the inherent
uncertainty of construction phasing at this current level of planning and project definition, Port
staff believes that the best use of this property in the near-term is continued use as a parking
facility and that the best financial return to the Port is via an amendment to the current lease
with ATZ. This lease is expected to generate over $16 million in non-aeronautical revenue
during the proposed five-year term of this option period.
JUSTIFICATION
The Doug Fox Parking Lot has been used primarily for airport parking since its development well
over 30 years ago. Although it is an “off-airport” site, the property has the advantage of being
relatively close to the Airport with a convenient approach for customers from the Northern
Airport Expressway as well as convenient access to the Airport for the operator’s shuttle vans
bringing customers to and from the Airport (Attachment 1). The lot provides the Airport with a
facility that competes in the off-airport parking market where prices are lower, while the Airport’s
main parking garage commands higher rates based on the value of its proximity to the terminal.
On May 22, 2012, the Commission authorized proceeding with design for pavement renewal
and replacement, a new and improved lighting system, new signage to improve visibility of the
facility, demolition of the existing building, and construction of a new building on this property
referred to as the Doug Fox Parking Lot Services Upgrade Project. These improvements were in
addition to a new drainage system for the property that was authorized by the Commission on
February 14, 2012.
Following those Commission actions, Port staff initiated a public RFP process for an operator of
the improved facility in anticipation of the expiration of the then-current lease with ATZ in
September 2012. The RFP was advertised broadly in various local, national, and industry-
specific publications. However, ATZ was the lone respondent that met the minimum
qualifications. ATZ is a locally-owned and operated small business that has over 30 years of
experience managing parking operations in the local airport market. The Commission approved
a lease with ATZ on July 9, 2013, that included a five-year term as well as two five-year options.
In September 2014, ATZ submitted a claim for harm suffered from changes to the construction
schedule for the Doug Fox Parking Lot Service Upgrade Project. Later that fall, an audit
identified that ATZ had failed to complete the divestiture of its ownership in another parking
facility located within three miles of the airport within the timeframe granted to it by the Port,
as was required by the RFP issued in 2012. On June 9, 2015, the Commission approved the first
amendment to the lease with ATZ that incorporated revised terms negotiated between ATZ and
the Port to account for the negative impacts of the delayed construction of the Doug Fox
Parking Lot Services Upgrade Project and that reflected both parties roles in these delays as
well as the delayed divestiture by ATZ.
The first five years of this lease have produced significant revenues to the Port, exceeding the
minimum annual guarantee (MAG) each year as noted in the table below.
COMMISSION AGENDA – Action Item No. 6e Page 3 of 9
Meeting Date: March 26, 2019
Template revised September 22, 2016; format updates October 19, 2016.
MAG, Revenue and % Rent to the Port during the Initial Five-year Term
During this period, ATZ has been a responsible tenant of the Port. An audit was conducted by
the Port’s Internal Audit staff in 2017 with no findings. The Washington State Department of
Revenue conducted an audit in 2017 with no findings. The tenant is in compliance with all
other aspects of their lease including use of alternative fuel shuttles, vehicle idling plan, small
business reporting and annual consultation with Port environmental staff on possible
improvements.
The proposed terms of this amendment are:
TERM: Three-year term with two 1-year options auto-renewed unless ATZ declines within 150
days prior to commencement of the option year.
MAG CONCESSION RENT
o Year 1 – $2,000,000 58%
o Year 2 – $2,000,000 58%
o Year 3 – $1,500,000 58%
o Year 4 – $1,500,000 57%
o Year 5 – $1,500,000 56%
The lower concession rents and MAGs as proposed by ATZ are the result of two factors: 1) the
greater uncertainty in the coming years about the demand for airport parking due to the rapid
growth in use of transportation network companies (TNCs) i.e., Uber, Lyft, and Wingz and car-
share companies as well as the potential for autonomous vehicles and 2) higher operating costs
relative to five years ago.
Marketing Exclusion from gross receipts - $120,000/year
The purpose behind this exclusion is that the current high concession fee serves to dis-
incentivize the tenant from advertising. As an example, if the tenant spends $1 on advertising
and revenues grow by $1.50 as a result of that advertising, the tenant has to pay an additional
$0.87 (58 percent of the $1.50) to the Port. In this example, the tenant spent $1.87 ($1 for
advertising and $0.87 in concessions fee) and only gained $0.63 in revenue. The proposed
exclusion of up to $120,000 per year in advertising expenditures is intended to encourage the
tenant to grow the business through more aggressive advertising and/or marketing.
In a worst-case scenario, if there were no increase in revenues as a result of the increased
advertising, the actual revenue reduction to the Port from the exclusion to gross revenues
COMMISSION AGENDA – Action Item No. 6e Page 4 of 9
Meeting Date: March 26, 2019
Template revised September 22, 2016; format updates October 19, 2016.
Doug Fox Parking Revenue Projections
5 Year with estimated 3% annual regional growth
Revenues shown are net of tax
Total Gross Rev
Less Marketing
Excl
Adjusted Gross
Rev
Concession
Rent
Net Rev
2018/2019 5,300,344$ 3,339,217$
2019/2020 (Year 1) 5,459,353$ (120,000)$ 5,339,353$ 58% 3,096,825$
2020/2021 (Year 2) 5,623,134$ (120,000)$ 5,503,134$ 58% 3,191,818$
2021/2022 (Year 3) 5,791,827$ (120,000)$ 5,671,827$ 58% 3,289,660$
2022/2023 (Year 4) 5,965,583$ (120,000)$ 5,845,583$ 57% 3,331,982$
2023/2024 (Year 5) 6,144,551$ (120,000)$ 6,024,551$ 56% 3,373,749$
28,984,448$ (600,000)$ 28,384,448$ 16,284,033$
would be the amount the tenant spent on advertising times the applicable concession fee
payable to the Port. As an example, if the tenant spent the full $120,000 allowed in one year
and there was no discernable increase in revenues, the actual revenue reduction to the Port
would be $120,000 x 58% or $69,600). ATZ has projected revenue to the Port of approximately
$16.3 million over the five years of the agreement with this provision incorporated into the new
lease (see table below). ATZ has requested that this provision be effective upon the date this
lease amendment is executed by both parties.
Early Termination Notice by the Port of Seattle if the property is needed for other
Airport uses
o If the Port elects early termination for other Port uses, by written notice to ATZ, the
notice triggers “wind-down” period of the lease, which includes suspension of the
MAG for the last four months.
o The percentage concession fee for the last four months that the business is
operating on the property will be 45, 30, 10, and 10.
o There is no other cost to the Port for this Early Termination Notice besides the
reduced concession fee and elimination of the MAG.
In the event of an “Access Disruption Event”
Definition – A continuing inability to use the southbound Northern Airport Expressway
Air Cargo Road on-ramp or South 170
th
Street off-ramp. This does not include
unplanned closures caused by such things as accidents, broken water mains etc., or
other events that impact the business of the Doug Fox Parking Lot.
o The inability to utilize either ramp shall mean: unable to be utilized by ATZ or their
customers for more than 10 hours per 24-hour day (midnight to midnight) during
any 10 days of any 30-day period.
o ATZ will be responsible for documenting these closures and after reaching five days
during a 30-day period that meets the above definition; ATZ will notify the Port
about this milestone and provide documentation of the events for Port to verify.
COMMISSION AGENDA – Action Item No. 6e Page 5 of 9
Meeting Date: March 26, 2019
Template revised September 22, 2016; format updates October 19, 2016.
Approximately 80 percent of the customers using this facility utilize the Northern
Airport Expressway southbound off-ramp to South 170
th
Street for access to the
facility.
o Upon ATZ’s notification and documentation to the Port that the full 10 days have
occurred in the 30-day period, ATZ and the Port will begin negotiations for relief for
a period of 120 days. During negotiations, there will be no MAG and the concession
fee will be 50 percent of the then applicable rate.
o If an agreement is not reached in the 120-day period, the lease will terminate 3
months later. The percentage concession rent for this final three-month period will
be 30, 10 and 10 (the same as the last three months of the “wind-down” period
noted above) and no MAG.
Effective date:
o The amendment would be effective July 1, 2019, except for the advertising
expenditure exclusion provision, which would be effective April 1, 2019.
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 - Issue a request for proposals for a new operator
Cost Implications: None
Pros:
1) This tests the market for the value of the property as a commercial parking facility
Cons:
1) Given the relatively short term (most likely five years), it is unlikely that a new operator
would be willing to make the investment required to market and operate the facility
2) Given the high percentage concession fee proposed by the current tenant, it is unclear
whether the Port would receive higher bids
3) There would be significant staff time involved in developing and running the request-
for-proposal process
This alternative is not recommended.
Alternative 2 - The Port operates the parking facility as it does the Main Parking Garage (i.e.,
Port staff would be used to run the entire operation)
Cost Implications:
o One-time cost of $440,000 for installation of revenue control system
o Approximately $1.8 million annual costs for staffing of cashiers and drivers
o Approximately $300,000 annual costs for shuttle leases and fuel/maintenance costs
o Unknown additional costs associated with branding and marketing of the facility
Pros:
1) The Port has direct control of the property
2) This would provide an economy lot option for the Airport’s parking program
COMMISSION AGENDA – Action Item No. 6e Page 6 of 9
Meeting Date: March 26, 2019
Template revised September 22, 2016; format updates October 19, 2016.
3) This has the potential to generate more income than Alternative 1 or 2, assuming that
the Port is able to achieve the same level of gross revenues as forecasted by ATZ.
However, there is significantly more risk.
Cons:
1) The Port would have to invest in the revenue control system
2) The Port would need to lease or buy shuttle vans and hire drivers with uncertainty
regarding length of time required for procurement of busses and hiring of drivers
3) The Port would need to invest in branding and marketing the facility
4) There are significant risks associated with achieving the same level of financial return as
Alternative 1
This alternative is not recommended.
Alternative 3 - Issue a request for proposals for a firm to operate this parking facility under a
management contract
Cost Implications: Similar costs for the revenue control system but with potentially lower costs
for operating the facility compared to Alternative 3. Further work would be necessary to
understand represented labor concerns if this is the preferred alternative
Pros:
1) This would likely be easier and quicker to set up than Alternative 3
2) This has the potential to generate more income than Alternative 1 or 2, assuming that
the Port is able to achieve the same level of gross revenues as forecasted by ATZ.
However, there is significantly more risk.
Cons:
1) The Port would have to invest in the revenue control system ($440,000)
2) The Port would request that the firm provide the shuttle vans (at Port cost)
3) The Port would need to invest in branding and marketing the facility
4) There are significant risks to operationalizing this alternative and to the financial
forecast
This alternative is not recommended.
Alternative 4 - Port changes the use of either some portion of or the entire facility (1,400 stalls)
to airport tenant employee parking, similar to that of the North Employee Parking Lot (NEPL)
and operates the facility with Port staff or via a consortium run by the airlines.
Cost Implications:
o One-time cost of $440,000 for installation of revenue control system
o Approximately $1.8 million annual costs for staffing if done by the Port
o Approximately $300,000 annual costs for shuttle leases and fuel/maintenance costs
if done by the Port
o Unknown additional costs associated with signage updates
COMMISSION AGENDA – Action Item No. 6e Page 7 of 9
Meeting Date: March 26, 2019
Template revised September 22, 2016; format updates October 19, 2016.
Pros:
1) It would significantly expand the capacity for airport tenant employee parking beyond
the 4,100 spaces available today in the NEPL and provide room for additional growth
(airlines operating at the Airport are currently requesting 900 additional stalls)
Cons:
1) This would involve a significant loss of non-aeronautical revenue as employee parking is
charged on a cost recovery basis unless the airlines were willing to compensate the
Airport for this loss of non-aeronautical revenue.
2) Using current revenue estimates with the proposed terms as negotiated with ATZ, the
Port would lose approximately $3 million per year in non-aeronautical revenue
3) If this facility were to be operated with the busses and drivers currently serving NEPL,
there would be a significant impact to the level of service (i.e., timeliness of arrivals and
departures)
4) If new busses and drivers were to be used for operation of this facility, there is
uncertainty regarding the length of time required for bus procurement and hiring of
drivers
5) If operated by an airline consortium, there may be labor implications
6) If a decision were made to allocate a portion of the lot for employee parking while
retaining the remainder for commercial parking, there would be significant operational
complexity
This alternative is not recommended.
Alternative 5 - Request Commission approval for a new lease and concession agreement with
ATZ based on terms negotiated with ATZ as noted below:
Cost Implications: None
Pros:
1) The Port enjoys a high level of non-aeronautical revenue from the property
(approximately $16.3 million over five years)
2) The term length works within the time-frame limitations of the SAMP
3) There is no interruption of service for those customers who currently use the Doug Fox
Parking Facility
4) There is no new capital or expense requirement of the Port
5) This supports a local small business
Cons:
1) This does not test the market for other operators
2) This does not allow for alternative uses for the site during this five-year period
This is the recommended alternative.
COMMISSION AGENDA – Action Item No. 6e Page 8 of 9
Meeting Date: March 26, 2019
Template revised September 22, 2016; format updates October 19, 2016.
FINANCIAL IMPLICATIONS
This agreement is expected to generate over $16 million in revenue to the Port over the 5-year
term.
ATTACHMENTS TO THIS REQUEST
(1) Presentation slides
(2) Lease amendment
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
December 11, 2018 – Lease amendment was on the agenda for consideration but was
deferred.
June 9, 2015, the Port of Seattle Commission authorized the ATZ Lease Amendment for the
Doug Fox Parking Lot.
April 14, 2015, the Port of Seattle Commission received a briefing and request to authorize
the Amendment but decided to defer the decision.
January 6, 2015, the Port of Seattle Commission authorized (1) an additional $427,000 to
complete the construction of the Doug Fox Site Improvements project for a total
authorization of $6,930,000, and (2) the Chief Executive Officer to execute change
orders to extend the construction duration by up to 180 days to complete changed
work associated with the operations building.
December 9, 2014, the Port of Seattle Commission was presented but deferred taking
action to authorize the Chief Executive Officer to amend the lease with ATZ for the
operation of the Doug Fox Parking Lot to extend the term nine months, defer
increases in the concession fee and Minimum Annual Guarantee, and provide other
modest relief for operational impacts and delays caused by construction of the Doug
Fox Parking Lot Services Upgrade Project.
December 2, 2014, the Port of Seattle Commission was presented, but deferred taking
action to authorize (1) additional $427,000 to complete the construction of the Doug
Fox Site Improvements project for a total authorization of $6,930,000, and (2) the
Chief Executive Officer to execute change orders to extend the construction duration
by up to 180 days to complete changed work associated with the operations building.
October 8, 2013, the Port of Seattle Commission authorized the Chief Executive Officer to
execute a major public works construction contract with the low responsive and
responsible bidder for an additional $1,385,000 for a total authorization of
$6,503,000.
July 9, 2013, the Port of Seattle Commission authorized the Chief Executive Officer to: (1)
advertise, award, and execute a major public works contract for the Doug Fox Site
Improvements project; and (2) execute a Developer Extension Agreement with the
Valley View Sewer District for an additional $3,322,000, for a total authorization of
$5,118,000.
COMMISSION AGENDA – Action Item No. 6e Page 9 of 9
Meeting Date: March 26, 2019
Template revised September 22, 2016; format updates October 19, 2016.
July 9, 2013, the Port of Seattle Commission authorized the Chief Executive Officer to
execute a lease with ATZ, Inc., for a term of five years with twofive5-year extension
options upon mutual agreement.
June 4, 2013, the Doug Fox Site Improvements project was presented to the Port
Commission but no final action was taken.
March 5, 2013, the Port Commission postponed consideration of the Doug Fox Site
Improvements project.
May 22, 2012, the Port Commission authorized the Chief Executive Officer to: (1) increase
the scope of the Doug Fox Site Improvements project to include resurfacing, lighting,
building, and road signage; (2) to execute utility agreements; and (3) to complete the
design of the project for an additional $768,000, for a total authorization of
$1,796,000.
February 4, 2012, the Port Commission authorized the Chief Executive Officer to complete
the design and to utilize Port Construction Services crews for the construction of the
Doug Fox Site Improvements project in the amount of $1,028,000.
