PORT OF SEATTLE 
MEMORANDUM 
COMMISSION AGENDA               Item No.      6a 
ACTION ITEM 
Date of Meeting    November 11, 2014 
DATE:    October 27, 2014 
TO:      Theodore J. Fick, Chief Executive Officer 
FROM:   James R. Schone, Director, Aviation Business Development 
James Jennings, Manager, Aviation Properties 
Deanna Zachrisson, Business Leader, Airport Dining and Retail 
SUBJECT:  Tenant Improvement for Baggage Claim Office Space for Airport Management
Services, LLC (C800154) 
Amount of This Request:         $350,917   Source of Funds:   Airport Development
Fund 
Est. Total Project Cost:           $350,917 
Est. State and Local Taxes:         $23,003 
ACTION REQUESTED 
Request Commission authorization for the Chief Executive Officer to  execute a Tenant
Reimbursement Agreement in the amount of $343,417 for costs already incurred by Airport
Management Services, LLC. (operating entity for Hudson Group) for the conversion of
unimproved space to office space. The total estimated project cost is $350,917. 
SYNOPSIS 
Airport Management Services, LLC. is the operating entity for Hudson Group (Hudson), the
convenience  and specialty retail concessionaire at Seattle-Tacoma International  Airport 
(Airport).  Hudson Group is an affiliate of Dufry North America (Dufry), Inc., the recently
selected duty free concessionaire at the Airport. Dufry and Hudson consolidated their office
space at the Airport in a new location in baggage claim (Exhibit A) in early 2014. The space was
previously used as construction laydown area and an airline data communications room. The
unimproved space required substantial modification to prepare it for occupancy. As a result, Port 
staff determined that the project to improve the space qualified for reimbursement according to
the Port's Tenant Reimbursement Guidelines.  The tenant reimbursement policy  had not 
previously been used for a non-airline project. Although Port staff previously determined the
portions of the project that were eligible for reimbursement, acknowledged the need for certain
code-required improvements beyond the initial scope, and thoroughly reviewed all of the
tenant's costs, they did not execute a Tenant Reimbursement Agreement, which always would
have required Port Commission authorization. Total funds expended by the tenant on this
project are $343,416.76.  This request provides the necessary authorization for Port funds to be

Template revised May 30, 2013.

COMMISSION AGENDA 
Theodore J. Fick, Chief Executive Officer 
October 27, 2014 
Page 2 of 6 
paid to the tenant for work already conducted under the Port's supervision and completed as well
as estimated Port costs to close the project. 
BACKGROUND 
Dufry began operations at the Airport in 2013 following the award of the duty free contract to
their firm in 2012. Initially, Dufry shared office space with its affiliate, Hudson, on the Airport's
pre-security mezzanine level. Hudson operates 22 retail locations, starting in 2005 and Dufry
operates 5 duty free locations in the Airport. With the addition of the duty free business, Dufry 
and Hudson realized that they needed additional office space to support their operations.  They
requested assistance from Port staff in locating new office space. This request came at the same
time as Port staff were preparing for a series of office relocations in the pre-security mezzanine
level area in order to provide more office space for airline tenants. The pre -security mezzanine
level office area is considered to be the most desirable space for airline offices due to its location
directly above airline ticketing operations.
Representatives from Dufry/Hudson and the Port looked at several potential locations and finally
settled on a group of rooms located on the baggage claim level of the main terminal adjacent to
baggage carousel #12. This location allowed the Port to provide the tenant with the additional
office space that it needed, while concurrently freeing up much needed space on the mezzanine
level. The space is a series of interconnected smaller rooms that had not been improved for over
20 years, rather used in a rough condition for construction laydown and data communications. It
was clear to all parties that improvements would be needed to make these rooms suitable for
occupancy and turnover to the tenant. The application of the Port's tenant reimbursement policy
in this baggage claim space represented an opportunity to facilitate the creation of leasable office
space which would benefit the Port in both the current and potential future leases. 
Commission Resolution 3605, Section 2.4, gives authorization to the Chief Executive Officer to
reimburse for work performed by tenants within their leased premises.  This policy allows for
tenants to complete tenant improvements but also remedy deficiencies in the space that are the
Port's responsibility within a single construction project.  This policy had primarily been used
for airline  improvement  projects.  Port staff determined that  the project proposed by
Dufry/Hudson also  met the criteria  for reimbursement according to the Port's Tenant
Reimbursement Guidelines. The benefit of this approach was that the tenant would be able to
make basic improvements that are normally the landlord's responsibility, while completing their
specific tenant improvements as one project. Typically, a tenant's ability to do this preparatory 
work, combined with their own improvements, has led to both faster occupancy and lower costs
than if the Port undertook the project.  Port estimators believe that the Port realized significant
cost savings with the tenant improvement approach in this project. 
However, in implementing this particular project, Port staff did not follow all of the Port's
Tenant Reimbursement Procedures, as reflected in AV-2. Specifically, a Tenant Reimbursement
Agreement documenting the tenant reimbursement amount, which was originally estimated at
$288,000, was not developed and signed by both parties.  And as this amount was above the
$200,000 threshold as reflected  in the Tenant Reimbursement Procedure that requires

COMMISSION AGENDA 
Theodore J. Fick, Chief Executive Officer 
October 27, 2014 
Page 3 of 6 
Commission approval, this project should have come to Commission for authorization before the
tenant was allowed to proceed with construction. Unanticipated costs materialized as the project
construction neared completion due to the discovery by Port Building Department inspectors of a
number of unacceptable conditions that were the landlord's responsibility and had to be
addressed before the space could be occupied. These change orders totaled $55,416.76 bringing
the total cost of the project to $343,416.76. 
The lack of full compliance with the Tenant Reimbursements Procedure can be attributed to
several factors.  This was the first time that the Tenant Reimbursement Guidelines and
Procedures were applied to an Airport Dining and Retail tenant project. The Port staff person
working on this project had no prior experience with tenant projects involving these policies. 
The Port  staff member designated by the AV Properties Manager, per the Tenant
Reimbursements Procedure, to oversee this project left Port employment in August 2013. This
occurred at the very time that the negotiations between Dufry/Hudson and the Port were taking
place. And it was these negotiations which would typically determine what documentation
would be required based on the Port's procedures. Additionally, insufficient staff resources
following the staff member's departure led to this project not receiving the necessary supervision
to ensure that all Port policies were followed. It was not until the cost reconciliation was
completed during the past several months that the failure to conform to Port policies became
known. In reviewing the project history, it is also clear that there was insufficient training of all
Port staff that work with this policy.  This training will be provided before any other tenant
reimbursement projects are started. 
PROJECT JUSTIFICATION AND DETAILS 
The baggage claim space that was improved by the tenant in this project provides sufficient
amount of space for their growing operational needs at the Airport while also freeing up much
needed office space on the pre-security mezzanine level for use by airlines.
Project Objectives 
Provide larger, centrally-located office space for the tenant in the main terminal. 
Prepare the preferred location for renovation by first removing portions of the 
electrical, mechanical and communications infrastructure left behind by a previous
tenant to facilitate the turnover to the tenant. 
Allow the tenant to perform the necessary site preparation and demolition work, which
was the Port's responsibility, in the preferred location to meet their desired occupancy
schedule. 
Scope of Work 
This scope of work included demolition of electrical infrastructure comprised of a transformer,
two electrical sub-panels as well as multiple electrical conduits of various sizes leading to and
from the space. This work also involved re-routing several electrical circuits for neighboring
tenants that had been established in the panels that had been identified for removal.

COMMISSION AGENDA 
Theodore J. Fick, Chief Executive Officer 
October 27, 2014 
Page 4 of 6 
In addition, portions of the communications cable tray, along with several runs of abandoned
communications cabling and several sections of HVAC supply and return ductwork were also
removed. This infrastructure had been installed by a previous tenant to support computer server
and communications network equipment that had been located in these rooms. 
Schedule 
Tenant submitted a demolition plan to the Port in August 2013 
Tenant contractor completed demolition in October 2013 
Tenant submitted 90% build out design for Port review in October 2013 
Tenant submitted all permit documents to the Port in November 2013 
Airport Building Department issued the construction permit in December 2013 
Tenant contractor began work in December 2013 
Airport Building Department granted the Certificate of Occupancy in March 2014
FINANCIAL IMPLICATIONS 
Budget/Authorization Summary              Capital     Expense   Total Project 
Original Budget                       $288,000          $0     $288,000 
Previous Authorizations                       $0          $0          $0 
Current request for authorization              $350,917          $0      $350,917 
Total Authorizations, including this request      $350,917          $0      $350,917 
Remaining budget to be authorized               $0          $0          $0 
Total Estimated Project Cost               $350,917          $0     $350,917 
Project Cost Breakdown                     This Request       Total Project 
Design                                    $70,613           $70,613 
Construction                                $249,802          $249,802 
State & Local Taxes (estimated)                    $23,002           $23,002 
Estimated remaining project closing costs               $7,500            $7,500 
Total                                       $350,917           $350,917 
Budget Status and Source of Funds 
This project, C800154 is included in the 2015  2019 capital budget and plan of finance. The
funding source is the Airport Development Fund

COMMISSION AGENDA 
Theodore J. Fick, Chief Executive Officer 
October 27, 2014 
Page 5 of 6 
Financial Analysis and Summary 
CIP Category             Renewal/Enhancement 
Project Type              Airport Infrastructure 
Risk adjusted discount rate     N/A 
Key risk factors             N/A 
Project cost for analysis        $350,916.76 
Business Unit (BU)          Terminal Building 
Effect on business performance  NOI after depreciation will increase 
IRR/NPV             N/A 
CPE Impact             Less than $.01. 
Lifecycle Cost and Savings 
This project has improved a previously un-leasable space that meets the current needs of
Dufry/Hudson as well as created an improvement suitable for a much longer period of time. 
STRATEGIES AND OBJECTIVES 
This tenant improvement project supports the Century Agenda objective to meet the region's air
transportation needs at the Airport for the next 25 years by maintaining and upgrading our
existing facilities. 
TRIPLE BOTTOM LINE 
Economic Development 
This project provides Dufry/Hudson with sufficient office space to adequately meet their
operational needs here at the Airport while also freeing up much needed space for airline offices. 
Environmental Responsibility 
This project was completed in accordance with all Port environmental standards. 
Community Benefits 
This project supports the Port's commitment to social responsibility by providing a work space
for Dufry/Hudson which contributes to the productivity of the business and support for
approximately 350 jobs. 
ALTERNATIVES AND IMPLICATIONS CONSIDERED 
Alternative 1)  Decline to provide reimbursement to Airport Management Services (operating
entity for Hudson Group) for the tenant improvements. It is not clear what action the tenant
might take in response to this alternative. This is not the recommended alternative. 
Alternative 2)    Reimburse the tenant for the tenant improvements necessary to make
unleasable space productive as office space. This project met the Port's criteria for reimbursable

COMMISSION AGENDA 
Theodore J. Fick, Chief Executive Officer 
October 27, 2014 
Page 6 of 6 
tenant improvements despite the lack of a signed Tenant Reimbursement Agreement by both
parties. The company is due this reimbursement. This is the recommended alternative. 
ATTACHMENTS TO THIS REQUEST 
Exhibit A:  Map of new Airport Management Services, LLC  office space on the
baggage claim level 
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS 
None