Template revised January 10, 2019.
COMMISSION
AGENDA MEMORANDUM
Item No.
6i
ACTION ITEM
Date of Meeting
June 23, 2020
DATE: April 1, 2020
TO: Stephen P. Metruck, Executive Director
FROM: James Jennings, Director – Aviation Business and Properties
Bonnie Darch, Property Manager – Aviation Business and Properties
SUBJECT: Term Lease for American Express for the Operation of an Exclusive Lounge
ACTION REQUESTED
Request Commission authorization for the Executive Director to execute an Airport Term Lease
Agreement substantially as described in this memorandum with American Express Travel Related
Services Company, Inc. (Amex) of approximately 13,700 square feet and located in the Central
Terminal at Seattle-Tacoma International Airport (SEA). The proposed lease term is for ten years
with one five-year renewal option.
EXECUTIVE SUMMARY
The Amex Centurion Lounge is a high-end premium lounge, which has established itself as an
industry benchmark in airports world-wide and is seen as a significant passenger service amenity
for large-hub airports. Port staff has been negotiating in good faith with Amex to lease a new
13,700-square-foot unimproved space for an exclusive airport lounge. This space is located
directly above the food court on the South Mezzanine Level of the Central Terminal (general
location previously known as the “Flight Deck” or more recently CT-24MZ). After significant due
diligence conducted by Amex and Port staff, an agreement has been reached by both parties for
Amex to construct a trademark Centurion lounge. Costs associated with the construction of
needed improvements will be borne by Amex. Amex’s anticipated schedule is to have design
completed in late 2020, construction to start in early 2021, and completion and lounge opening
in late 2021. The first year of the lease will generate over $3 million in non-aeronautical revenue
to the Port, which is incrementally $2 million over their current lease revenue.
JUSTIFICATION
The proposed Amex mezzanine level location was previously part of the Airport Dining and
Retail’s (ADR’s) Lease Group 4A. For various reasons, the agreement for this location did not get
executed. As staff pondered whether to simply repost the challenging second-level location in
Lease Group 5, it was determined to instead offer an expanded footprint to Amex for their lounge
concept.
COMMISSION AGENDA – Action Item No. __6i__ Page 2 of 4
Meeting Date: June 23, 2020
Template revised June 27, 2019 (Diversity in Contracting).
The rationale for offering this upper level mezzanine location to Amex in lieu of reposting as a
food and beverage location was threefold. First, upper floor locations are inherently a challenge
for traditional sit-down food and beverage locations. Other airports have struggled with poor
performance, as well as some concept failures from stand-alone independent sit-down
restaurants located on upper floors. The challenges to success are primarily due to a lack of
passengers’ line-of-sight and unwillingness to make the extra effort to find a second-story access
point. Conversely, a second-story lounge concept is generally considered “exclusive” and even
“desirable” as passengers are typically willing to seek out a premium lounge destination location.
Next, Amex is anticipated to be displaced from their existing Concourse B lounge due to the
anticipated realignment of airlines linked with the opening of the International Arrivals Facility
(IAF). Lastly, Amex’s lounge concept will fully utilize the entire footprint of the upper-level
mezzanine floor plate, whereas the initial food and beverage offering only utilized a third of the
floor plate, essentially the publicly visible portion. The bottom line from a space utilization
perspective, is that we believe the viability of this upper level location is best suited for Amex,
who is uniquely positioned to utilize this central location because their passengers are made up
of multiple airlines and are not exclusive to a single concourse or satellite.
Staff has had multiple discussions related to Amex’s approach to constructing their tenant
improvements, and staff have strongly encouraged they consider a Project Labor Agreement
(PLA) as part of their procurement. Amex has indicated they are willing to consider it but are not
in a position to make a commitment at this point in time. They have committed to abide by Port’s
Resolution 3725 requirements, including paying prevailing wages, and have done additional PLA
due diligence with their project management consultant and been put in touch with the Port’s
Manager of Construction Labor Group to better understand the Port’s PLA process.
In light of the wide-spread economic uncertainties related to COVID-19, Port staff have recently
checked in with Amex on the status of this lease and project. Although they have indicated that
they are evaluating the potential impact of the COVID-19 crisis on their overall business model,
Amex leadership still supports proceeding with the SEA project and lease at this time. No one
knows how long COVID-19 will impact passenger traffic levels, and the timing of a potential
recovery to previous passenger levels, but both Amex and the Port would like to continue forward
with this mutually beneficial lease and project.
DETAILS
The key lease terms are:
Premises: Approx. 13,700 square feet on the Mezzanine Level on the south
side of the Central Terminal plus a small footprint (148 sf) below
the new elevator for a lobby/queuing area.
Term: 10-year lease, one 5-year option.
COMMISSION AGENDA – Action Item No. __6i__ Page 3 of 4
Meeting Date: June 23, 2020
Template revised June 27, 2019 (Diversity in Contracting).
Gross Rent: $220 per square foot per year for first five years, CPI adjustment at
year six for second five years, and year 11 if option is exercised.
Tenant Capital Investment: $16.5 million
Port Capital Investment $0
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Do not approve the proposed lease
Pros:
(1) Space would be available for a future alternative use and lease.
(2) Space could be utilized for a Port or other non-commercial use.
Cons:
(1) The Port would likely have to invest additional money to facilitate an alternate lease or
use.
(2) Risk that space could remain vacant / unleased for an unknown period of time, with
resulting lack of revenue stream.
(3) Could further delay the anticipated realignment of airlines to better align with the
opening of the International Arrivals Facility (IAF).
This is not the recommended alternative.
Alternative 2 – Approve proposed Amex lease.
Pros:
(1) Approval of a ten-year lease provides a level of certainty and commitment for both the
Airport and Amex.
(2) Consistent revenue stream for the Port.
(3) Increase airport seating capacity and provide a passenger amenity that would improve
the passenger experience.
(4) Aligns with the Airport’s post-IAF completion of Airline Realignment plans.
Cons:
(1) Not available for future lease or other uses.
This is the recommended alternative.
FINANCIAL IMPLICATIONS
The lease of the entire premises by Amex will result in revenues to the Port in excess of $30
million over the initial ten-year term. The first year of the lease will generate over $3 million in
non-aeronautical revenue to the Port, which is incrementally $2 million over their current lease
revenue. As there is no capital investment from the Port, all lease revenues are purely net income
to the Port. New revenues will be realized upon operation of the new lounge, which is expected
sometime in 2021.
COMMISSION AGENDA – Action Item No. __6i__ Page 4 of 4
Meeting Date: June 23, 2020
Template revised June 27, 2019 (Diversity in Contracting).
ADDITIONAL BACKGROUND
Amex is an existing tenant and excellent lounge operator. In their current space, they often keep
a waiting list or turn customers away during peak times because they simply do not have the
capacity. Fortunately, they have alternatives to offer these customers because they have good
relationships with airline lounge operators and cross-promotional partnerships with ADR tenants
that ultimately benefit our passengers. They are committed to SEA and serving our passengers
with a world-class experience.
ATTACHMENTS TO THIS REQUEST
(1) Presentation slides
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
None
