COMMISSION AGENDA MEMORANDUM ACTION ITEM Item No. Date of Meeting DATE : January 24, 2025 TO: Stephen P. Metruck, Executive Director FROM: Blaine Burk, Sr. Aviation Real Estate & Portfolio Manager 8e February 11, 2025 SUBJECT: STOC Vendor Contracts - Commission Exemption Request ACTION REQUESTED Request that Commission exercises its authority under RCW 53.19.020(5) to determine a competitive solicitation process is not appropriate or cost effective for vendor services at STOC and property management services with Urban Renaissance Property Company LLC at STOC, for a period of up to two years, and (2) for the Executive Director to execute all necessary agreements and amendments for vendor services and property management services not to exceed the amounts in the Commission approved annual budget. EXECUTIVE SUMMARY On October 22, 2024, the Commission approved the purchase of a three-building office property portfolio that includes two 11-story steel-frame buildings, and a low rise four-story concrete building, totaling 548,700 rental square feet, together with 1,959 parking stalls, known as International Place and commonly referred to as 'STOC' (SeaTac Office Center). The Port's acquisition of the property is set to be finalized on February 28, 2025, at which time the Port will become the owner of the buildings. The property is currently 83.4% leased by 38 tenants with 57 total suites ranging from as small as 124 sq ft to as large as 75,757 sq ft over several floors. The Port currently occupies approximately 10% of STOC office space (47,178 SF) with plans to increase that amount in the near-term. The property has vendor contracts in place to provide services such as janitorial, HVAC repair, parking management services, elevator maintenance, landscaping, property management services etc. These services are required to be provided under the terms of the leases the Port is assuming. Port staff is asking for Commission authorization to assume these vendor contracts as part of the transaction. STOC is currently managed by a third-party property management company, Urban Renaissance Property Company LLC (URG). URG's property management services are contracted under a Property Management Agreement (PMA) and include vendor management, lease billing/accounting, lease management, and construction management. To continue providing Template revised January 10, 2019. COMMISSION AGENDA - Action Item No. 8e Meeting Date: February 11, 2025 Page 2 of 4 existing tenants with uninterrupted building/property services, we are requesting to continue with the existing vendor service contracts and property management agreement for up to two years, during which time staff will work to procure these services in accordance with the applicable Port processes. JUSTIFICATION Staff is recommending the Commission determine that a competitive solicitation process is not appropriate or cost effective in accordance with RCW 53.19.020(5) for building/property management services at STOC given the number and breadth of property services required. Once the Port becomes owner of the buildings, the Port is required to provide these property services as part of the existing leases with tenants. In addition, Port staff is requesting a continuation of existing property management services, under the PMA, for up to two years, as a transition period after the Port assumes ownership. This will provide continuity of services for the tenants in STOC and ensure skilled property management services are in place for the benefit of the Port and tenants immediately upon taking ownership. The Port negotiated an amendment to the PMA incorporating Port-related requirements. During the first two years of ownership, the Port plans to (i) procure or otherwise acquire new vendor contracts and property management services in accordance with all applicable requirements and (ii) identify if any of the services could be provided by Port staff or existing Port contracts. Diversity in Contracting Any future procurements will include opportunities for WMBE and small businesses to participate within the procurement processes in partnership with the Port's Central Procurement Office. ALTERNATIVES AND IMPLICATIONS CONSIDERED Alternative 1 - Delay the acquisition of STOC in order to competitively bid the vendor contracts. Cost Implications: Risk losing earnest money paid ($6 million) under the Purchase and Sale Agreement for STOC if the seller doesn't agree to delay the acquisition date. Pros: (1) (2) Would allow for near-term competitive opportunities. The Port may identify vendors who can provide these services at a better value. Cons: (1) (2) (3) Risk in Seller backing out of the Purchase and Sale Agreement for STOC. Risk of losing earnest money paid ($6 million) under the Purchase and Sale Agreement. Would delay the Port's occupancy expansion plans at STOC Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 8e Meeting Date: February 11, 2025 Page 3 of 4 This is not the recommended alternative. Alternative 2 - The Commission exercises its authority under RCW 53.19.020(5) to determine a competitive solicitation process is not appropriate or cost effective for vendor services at STOC. Cost Implications: The costs associated with the STOC vendor contracts was incorporated into the Commission approved 2025 budget and will be requested in future years as part of the annual budget process. Pros: (1) (2) (3) Cons: (1) Continue to operate the STOC buildings with no interruptions to tenants. This two-year window would allow the Port to strategically plan for these services and identify services that can be handled by existing Port staff/contracts and procure those services that can't through applicable processes. Maintains provision of contractually obligated services at STOC. Does not immediately allow for competitive opportunities This is the recommended alternative. FINANCIAL IMPLICATIONS There are no incremental costs associated with the requested Commission approval to delay the competitive bid process for vendor service agreements at the STOC property for the initial 2 years of Port ownership. Continued use of established vendors to provide necessary services at the STOC property during the transition of ownership was reflected in the 2025 Approved Budget. The Operating Expense Budget for the STOC property in future years will be requested as a normal component of each year's annual budget process. Assumptions reflected in the Approved 2025 Budget were pro-rated based on an estimated April 1, 2025 acquisition date: STOC Property based on Owner Financials (in $millions) 2025 2026 2027 2028 11.1 $ (4.9) 6.2 15.0 $ (7.7) 7.3 16.3 $ (8.0) 8.3 16.5 (8.2) 8.3 Leasing & Capital Costs (0.1) (1.9) (1.7) (2.5) Cash Flow Before Debt Service 6.1 5.3 6.6 5.8 Effective Gross Revenue Total Property Expenses Estimated Net Operating Income $ Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 8e Meeting Date: February 11, 2025 Page 4 of 4 ATTACHMENTS TO THIS REQUEST (1) Presentation slides PREVIOUS COMMISSION ACTIONS OR BRIEFINGS October 22, 2024 - The Commission authorized execution of the STOC Purchase and Sale Agreement Template revised June 27, 2019 (Diversity in Contracting).