Template revised January 10, 2019.
COMMISSION
AGENDA MEMORANDUM
Item No.
6d
ACTION ITEM
Date of Meeting
May 14, 2019
DATE: April 17, 2019
TO: Stephen P. Metruck, Executive Director
FROM: Susie Archuleta, Real Estate Manager
Melinda Miller, Director Portfolio and Asset Management
SUBJECT: Opus Office Expansion at World Trade Center West
Amount of this request:
$151,000
Total estimated project cost:
$151,000
ACTION REQUESTED
Request Commission authorization for the Executive Director to execute a First Amendment to
the Opus Lease Agreement at the World Trade Center West, which would extend the original
60-month lease term by 16 months to a 76-month lease term.
EXECUTIVE SUMMARY
The World Trade Center West (“WTCW”) is located on Alaskan Way, across the street from the
Port’s Pier 66 complex. It is situated at the edge of the Seattle waterfront redevelopment
project, a massive construction project impacting the majority of Seattle’s downtown
waterfront. The proximity of the WTCW building to this construction project has been a major
leasing hurdle, severely hampering leasing of vacant WTCW office space.
Opus Solutions, LLC (“Opus”) is an existing WTCW third-floor office tenant. Opus’s lease
provides 11,927 square feet of office and a five-year term that expires April 30, 2023. The
office tenant adjacent to Opus plans to vacate the building once their lease expires, on August
31, 2019. Strong demand for Opus’s marketing services creates their need for more space and
this request for an office expansion and extension of lease term.
Port Real Estate Policy RE-1 limits Term Agreements on Port property to a 60-month lease term.
This is a request for Commission approval of a 76-month lease term, since this term exceeds the
lease term permitted by RE-1. The total costs associated with this request are $151,000.
JUSTIFICATION
The Port’s High Performance Organization Strategies and Objectives include Customer
Satisfaction. Opus is requesting an office expansion to further the growth and financial success
COMMISSION AGENDA – Action Item No. _6d___ Page 2 of 6
Meeting Date: May 14, 2019
Template revised September 22, 2016; format updates October 19, 2016.
of their business. Authorization of the lease extension will support this tenant’s growth and
financial success, and should increase customer satisfaction.
Additionally, staff has building occupancy and rent rate goals. The WTCW building is currently
92 percent occupied. This occupancy rate will dip to 82 percent with the August 31, 2019,
departure of an existing tenant. Approval of this request will enable staff to avoid any
disruption to occupancy, keeping an entire floor of the WTCW leased, while also achieving
market rent rates including annual escalation.
DETAILS
The Seattle waterfront is in the midst of major construction, including demolition of the Alaskan
Way Viaduct and rebuilding of the waterfront. Although the WTCW building is located at the
edge of this major development project, the market perceives the entire waterfront as being
negatively impacted by construction. Evidence of this attitude is WTCW Suite 230, which has
been vacant for over two years despite being represented by two different real estate brokers
during that time. It is very difficult to attract new tenants to this building in the current
waterfront construction climate.
Opus is an Oregon-based experiential marketing advisor and provider of global brand events.
Opus recently expanded into the Seattle market. The existing Opus office lease provides 11,927
square feet of office and a five-year term that expires April 30, 2023. Since their May 2018
lease commencement, rents have been paid timely. They continue experiencing strong
demand for their services, requiring more staff and therefore office space, to keep up with
demand.
The tenant occupying the suite adjacent to Opus has a lease expiration of August 31, 2019. This
tenant purchased their own office building in Seattle’s Westlake neighborhood. Once their
WTCW lease expires, they will vacate WTCW and move into their own office building.
The proposed First Amendment terms include a Tenant Improvement Allowance of $67,000 to
be used by Opus to demise the wall between the expansion space and their existing office,
demolish some existing private offices, and replace carpet and paint to match their existing
finishes. This allowance will not cover the total cost of Opus’s build-out, so Opus will pay out-
of-pocket for the cost not covered by the Port’s allowance. For this reason, the length of their
lease term is important to Opus, as it establishes the amortization period for their out-of-
pocket cost.
Port staff’s goals for the WTCW include maintaining a high occupancy rate and achieving
market rent rates. Leasing of vacant WTCW space while Seattle waterfront construction is in
progress is very challenging. Since construction began, WTCW has been represented by two
separate brokerage firms. Collectively, they have shown WTCW vacant space to a handful of
interested parties and generated no offers on vacant Suite 230. Based upon this leasing
COMMISSION AGENDA – Action Item No. _6d___ Page 3 of 6
Meeting Date: May 14, 2019
Template revised September 22, 2016; format updates October 19, 2016.
experience, staff thinks it unlikely and unreasonable to expect different results from any
additional space that becomes vacant in the WTCW building.
This First Amendment would stabilize the WTCW occupancy, enabling staff to achieve
occupancy and rent rate goals, and would also achieve the Port goal of customer satisfaction. It
preserves continuous rental income to the Port by avoiding an additional WTCW office vacancy
and secures the occupancy of the entire third floor of the WTCW for five years at market rates
that include annual escalations. Approval of this request provides:
1) expansion into the adjacent 6,641 square foot office space,
2) stable building occupancy,
3) market rent rates including annual escalations,
4) a lease term that continues five years after the expansion date, and
5) administration of only one lease agreement.
The First Amendment would provide Opus a total of 18,568 square feet of office and a lease
term expiration of August 31, 2024. This new expiration date provides a 16-month extension of
the original 60-month term. Because RE-1 limits lease terms to 60-months, Commission
approval of the 16-month term extension is required.
Key Lease Terms:
Premises sf 18,568
Original sf 11,927
Expansion sf 6,641
Term 76 months
Original 60 months
Extension 16 months
Effective date September 1, 2019
Base Rent Blended Rate ($/sf/yr) $17.96
Original $16.82
Expansion $20.00
Escalation ($/sf/yr) $1.00
Abatement 2 months
Tenant Improvement Allowance $67,000
Broker Fees $62,000
Inside $14,000
Outside $48,000
Security Deposit (avg 3 months' rent)
$148,000
Original $61,000
Additional $87,000
First Amendment
(amounts rounded)
COMMISSION AGENDA – Action Item No. _6d___ Page 4 of 6
Meeting Date: May 14, 2019
Template revised September 22, 2016; format updates October 19, 2016.
Cost Breakdown
This Request
Total Project
Abated Rent
$22,000
$22,000
Tenant Improvement Allowance
$67,000
$67,000
Broker fees – inside
$14,000
$14,000
Broker fees – outside
$48,000
$48,000
Total
$151,000
$151,000
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Port offers Opus a separate, five-year agreement for the 6,641 square foot
expansion space.
Cost Implications: $135,000
Pros:
(1) The Port saves $16,000 of Opus’s broker fees by avoiding a 16-month extension of the
term on the existing square footage.
Cons:
(1) The broker fee savings are likely not true savings, just a delay of the broker fees that
will be due when the existing space is renewed later.
(2) Port misses the opportunity to lock in the existing Opus office space, which pays
market rates, for 16 additional months.
(3) Opus is dissatisfied with the uncertainty of securing their existing premises for a
longer term.
(4) Opus does not want to administer two separate office leases.
This is not the recommended alternative.
Alternative 2 – Opus First Amendment that provides only an expansion of space but no
extension of term. The premises would increase to 18,568 square feet (original 11,927 square-
foot premises plus expansion of 6,641 square feet) but the expiration date would remain April
30, 2023.
Cost Implications: $70,000
Pros:
(1) Lowest up-front costs.
Cons:
(1) Provides the shortest lease term, creating highest WTCW vacancy risk.
(2) Provides the Port with the least amount of rental income.
(3) Forces Opus to choose between high out-of-pocket build-out expense, since a
shortened lease term decreases the amount of the Tenant Improvement allowance
the Port will provide, or a reduction in the scope of its office build-out.
(4) Term is too short for Opus to achieve satisfactory amortization of its out-of-pocket
expense for its office build-out.
COMMISSION AGENDA – Action Item No. _6d___ Page 5 of 6
Meeting Date: May 14, 2019
Template revised September 22, 2016; format updates October 19, 2016.
This is not the recommended alternative.
Alternative 3 – Approve the Opus First Amendment which provides a 76-month term (original
60-month term plus an additional 16 months) and premises of 18,568 square feet (original
11,927 square-foot premises plus expansion of 6,641 square feet).
Cost Implications: $151,000
Pros:
(1) Provides the longest lease term of all the alternatives, creating the lowest WTCW
vacancy risk.
(2) Provides the highest rental income to the Port.
(3) Creates highest customer satisfaction by supporting Opus’s continued growth and
associated need to expand.
(4) Supports Opus’s financial success by providing a lease term that enables a satisfactory
amortization period for their out-of-pocket build-out expenses.
Cons:
(1) Highest up-front costs.
This is the recommended alternative.
FINANCIAL IMPLICATIONS
Cost Estimate/Authorization Summary
Capital
Expense
Total
COST ESTIMATE
Original estimate
$67,000
$84,000
$151,000
AUTHORIZATION
Previous authorizations
0
0
0
Current request for authorization
0
0
0
Total authorizations, including this request
0
0
0
Remaining amount to be authorized
$0
$0
$0
Annual Budget Status and Source of Funds
The current total project estimate is $151,000. This project will be funded by the General Fund.
Financial Analysis and Summary
Project cost for analysis
$151,000
Business Unit (BU)
Portfolio Management
Effect on business performance
(NOI after depreciation)
This project will generate the Total Cash Flow of
$889,309 and increase the Net Operating Income by
$1,017,887 for a 60-month lease term.
IRR/NPV (if relevant)
NPV = $750,405 with payback period less than 2 years
COMMISSION AGENDA – Action Item No. _6d___ Page 6 of 6
Meeting Date: May 14, 2019
Template revised September 22, 2016; format updates October 19, 2016.
CPE Impact
N/A
Future Revenues and Expenses (Total cost of ownership)
Modernizing our existing assets readies them for current and future changes, extends their
useful life, and preserves the economic vitality of our operations. If approved, it would
preserve steady rental income by avoiding an office vacancy and securing the entire third floor
of the WTCW for five years at market rates.
ATTACHMENTS TO THIS REQUEST
(1) Presentation slides
(2) First Amendment draft
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
None
