Template revised January 10, 2019.
COMMISSION
AGENDA MEMORANDUM
Item No.
6e
ACTION ITEM
Date of Meeting
September 24, 2019
DATE: August 23, 2019
TO: Stephen P. Metruck, Executive Director
FROM: Melinda Miller, Director, Portfolio & Asset Management
Rebecca Schwan, Senior Real Estate Manager
SUBJECT: Second Amendment to the Ground Lease with Duke’s Chowderhouse, LLC. at
Shilshole Bay Marina
ACTION REQUESTED
Request Commission authorization for the Executive Director to execute the second
amendment to the ground lease with Duke’s Shilshole Bay Chowder House, LLC to change the
following: (1) to increase the square footage of the amended ground lease by 1,178 square feet
for a total of 9,200 square feet; (2) to increase the base monthly rent during the Construction
Phase from $3,216/month to $4,188/month and during the Post-Construction Phase from
$12,864/month to $14,753/month; (3) to defer payment of the Post-Construction Phase Rent
from December 1, 2019 to May 1, 2021; and (4) extend the term of the agreement to April 30,
2041.
EXECUTIVE SUMMARY
The intent of this request is to accommodate the revised design and schedule of Duke’s
restaurant development at Shilshole Bay Marina. Duke’s has leased a development pad for
construction of their flagship restaurant and the design and engineering have been
considerably more challenging than they expected due to soil conditions, design changes, and
the construction market. They have updated their schedule based on current permitting and
construction estimates. The restaurant is now scheduled to open in May 2021.
Duke’s has requested the following:
• Revert to a revised “Construction Phase Rent” from December 1, 2019 through April,
2021
• Begin “Post-Construction Phase Rent” on May 1, 2021, the updated opening date
• Extend the lease term to May 2041 to accommodate the design, permitting and
construction delays
In addition, the Port has requested that:
COMMISSION AGENDA – Action Item No. 6e Page 2 of 4
Meeting Date: September 24, 2019
Template revised June 27, 2019 (Diversity in Contracting).
• Duke’s increase their square footage from 8,022 square feet to 9,200 square feet to
allow for operational access area of three feet around the perimeter of the building.
Rent will be paid on this additional area.
JUSTIFICATION
Allowing this revision of the lease terms benefits the tenant by recognizing that the complexity
of building on this particular site has created unanticipated delay. Allowing them to defer
payment of full, post-construction rent for 17 months reduces the financial strain on a local,
family-run business that is making a significant investment in this important amenity for the
customers of Shilshole Bay Marina.
As required by the current lease, Duke’s has paid August and September 2019 rent at the full
Post-Construction Phase amount of $12,864 per month. If proposed changes are approved, this
rent paid will not be refunded and they will pay two additional months (October and November
2019) at that rate. On December 1, 2019, they will change to a Revised Construction Phase Rent
of $4,188 per month through April 2021.
The Port also benefits directly from the increase in square footage of an area that cannot be
leased to anyone else (three feet around perimeter of Duke’s existing site) and the additional
rent that comes with that change. Post-Construction Rents will be escalated on an annual basis.
Adding time to the end of the lease term to allow the original 20 years for amortization gives
the Port additional annually-escalated rent payments and improves the Net Present Value of
the agreement with no additional cost to the Port.
DETAILS
The lease terms to be amended:
Lease Term Current Agreement Amendment #2 eff. 12/1/19
Premises 8,022 SF 9,200 SF
Construction Rent/month $3,216 $4,188
Begin Post-Construct. Rent August 1, 2019 May 1, 2021
Post-Construction Rent/month $12,864 $14,753
Lease Expiration July 31, 2038 April 30, 2041
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Deny the proposed revisions. Leave the lease as written.
Cost Implications: Forgo incremental rent on the proposed additional 1,178 square feet over
the 20-year lease term
COMMISSION AGENDA – Action Item No. 6e Page 3 of 4
Meeting Date: September 24, 2019
Template revised June 27, 2019 (Diversity in Contracting).
Pros:
(1) No delay in increase from Construction Rent to Post-Construction Rent
(2) No additional administrative effort and cost in processing another Amendment
Cons:
(1) Tenant will not have operational area around their building so will have to request
access agreements or licenses when they need to use it (e.g. for exterior repair or
cleaning).
(2) Less rent to Port over the term of the lease
This is not the recommended alternative.
Alternative 2 – Grant proposed terms of Second Amendment
Cost Implications: No additional Port costs. Additional incremental rent over the 20-year lease
term
Pros:
(1) Will provide needed area for tenant’s operational access around the building so less
administrative time and cost.
(2) Will generate new incremental rent over the term of the lease.
(3) Will allow tenant to amortize their improvements over a full 20-year term as initially
intended.
(4) Will support our good relationship with this tenant who is investing $6+ million in this
project.
Cons:
(1) Postpones increase in rent by seventeen months
This is the recommended alternative.
FINANCIAL IMPLICATIONS
This is a ground lease and the development and construction costs are borne by the tenant.
There are no incremental costs to the Port for this request.
Financial Analysis and Summary
Project cost for analysis
No incremental costs to the Port for this request
Business Unit (BU)
Maritime Portfolio Management
Effect on business performance
(NOI after depreciation)
This amended lease agreement will generate the Total
Cash Flow of $4,723,230 for a 23-year lease term, an
increase of $950,314 as compared to the first
amendment. The first year post-construction lease
revenue for this amendment will be $134,776.
IRR/NPV (if relevant)
NPV: This second amendment will generate a marginal
NPV of $384,204 for a total NPV of $2,857,659 over the
COMMISSION AGENDA – Action Item No. 6e Page 4 of 4
Meeting Date: September 24, 2019
Template revised June 27, 2019 (Diversity in Contracting).
extended lease term.
CPE Impact
N/A
Future Revenues and Expenses (Total cost of ownership)
Future revenues will be generated based on lease rates and terms stated above in the second
amendment.
ATTACHMENTS TO THIS REQUEST
(1) Draft Second Lease Amendment
(2) Site Plan with new calculation
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
January 9, 2018 – The Commission authorized First Amendment to the Ground Lease
May 9, 2017 – The Commission approved the Ground Lease with Duke’s Chowderhouse LLC.
