11a. Presentation Real Estate Strategic Plan Update
Item No. 11a_supp Real Estate Strategic Plan Briefing Date of Meeting March 23, 2021 1 Overview Real Estate Principles Port Property Profiles and Recommendations Acquisitions and Partnership Opportunities Legal Parameters Surrounding RE Development/Acquisitions Financing Options Mar April May June July August September October November December January February March Port Commission x x x Port RE Team x x x x External Advisory x x x Committee Port Property Acquisitions & Research and Partnership Recommendations Research 2 Port Real Estate Principles "The Port of Seattle will use its real estate, capital Framework assets and financial capabilities to accomplish the Century Agenda. These are tools to thoughtfully steward, rather than areas well-suited for specific Strategic Principles 25-year goals." Existing Properties Manage for the Mission Strategies for Operational Existing Strategic Principles Opportunity Properties Cashflow Use to Continually Evaluate Real Leverage Expertise Property Performance and Acquisitions Alignment with Operational Acquisition Principles Opportunity Strategies Partner to Amplify Cashflow 3 Port Property Development Recommendations 4 Contents Properties Being Evaluated FOCUS PROPERTIES PROPERTY GEOGRAPHY RESP YEAR Focus Properties: Fishermen's Terminal North Bay 2020 The 2020 Real Estate Strategic Plan will Salmon Bay Marina North Bay 2020 focus on this group of eight properties in T91 Uplands North Bay 2016/2020 the Port of Seattle's real estate portfolio. Harbor Marina Corporate Center South Bay 2020 Pier 69 Downtown 2020 World Trade Center West Downtown 2020 2016 PROPERTIES REVIEW PROPERTY GEOGRAPHY RESP YEAR Pier 2 South Bay 2016 Review Properties: CEM South Bay 2016 The 2016 Real Estate Strategic Plan Terminal 106 South Bay 2016 evaluated these properties. These properties are not the focus of the 2020 Tsubota North Bay 2016 Strategic Plan Update. L Shaped Site* SeaTac 2016 13 Acre Site* SeaTac 2016 *Properties now under the purview of the Sustainable 55-Acre Site* SeaTac 2016 Airport Master Plan (SAMP). S 200th St* SeaTac 2016 5 Fishermen's TerminalDevelopment Recommendations Port Properties Fishermen's Terminal Salmon Bay Marina Terminal 91 Keep operationally critical facilities in place to Evaluate the opportunity to utilize/modify the Continue to move Phase 1 development of light support maritime industry MUP at the uplands prior to its expiration industrial buildings through design and permitting Implement new developments to support Explore the opportunity to develop uplands to Make utility and infrastructure investments to both the existing maritime industries and support uses at Fishermen's Terminal support Phase II development of Uplands incubate new maritime industries Use uplands development to support Target maritime industries for occupancy in Phase Improve visitor experience thru wayfinding reinvestment in docks and waterside facilities 1 and Phase II signage and interpretive displays (1% for art Explore how to improve freight mobility and project) access for employees (especially as new development unfolds) 6 Fishermen's TerminalDevelopment Recommendations Port Properties Harbor Marina Corporate Center World Trade Center Pier 69 Consider putting property on market for sale Evaluate the Property in terms of its fit and Consider future leasing efforts tied to the Complete a feasibility study to determine alignment with Port's mission and in-water dependent uses and releasing highest and best use for property (including objectives (key lease expiration in 2022) marina) Evaluate the implications of a sale of the Re-evaluate Port's office needs post Evaluate relocation of commercial in water WTCW property COVID to determine space requirements uses to other Port properties at P69 Maintain mission supportive uses in the Explore a strategy to allow leases to expire Building such as the World Trade Center Evaluate how to reuse Clipper Caf space and/or only extend on the short term to Club through a long-term lease of the Evaluate P69 leasing options based on allow for maximum flexibility in the near space or consider relocation of such uses forecast of Port office space needs term 7 Evaluate Acquisition and Partnership Opportunities Manage for the Mission Leverage Expertise Partner to Amplify Impact What types of properties are What additional policy What other organizations have an being considered? objectives can be achieved interest in the success of this within the scope of the investment? primary business purpose? What is the business and performance purpose? How can others be brought into an Are there alternative investment to amplify impact? structures/approaches that What is the Port's mission would produce outsized objective? benefits compared to other When should the Port partner? initiatives? How will success be measured in the near, mid and long term? 8 "We're considering this property because it may." Support the Port's Mission Leverage Staff Expertise Partner to Amplify Impact The property can support The Port has experience and Potential to partner with maritime or air cargo industries capacity to address the other governmental (advance NWSA competitiveness) opportunities and challenges agencies/entities to Property advances SEA associated with the Property amplify impacts competitiveness and/or efficiency Property advances maritime The property and industries and protects industrial associated development lands can attract alternative The property enhances or protects sources of funding Port properties/operations through partnerships or The property could advance Port financing mechanisms energy and sustainability goals available to the Port The property's development could impact equitable economic development regionally 9 Some Caveats with the Evaluative Matrix The matrix we are about to review is intended to help staff evaluate and rank property acquisition/partnership options Preliminary rankings based on incomplete information about properties. Matrix will help staff focus on property acquisitions and partnerships that are most strategic to the Port More due diligence and research will be done on promising properties that show up during initial evaluation The fact that a property is being evaluated does not mean that the Port wants to acquire the property. As more research on priority properties is completed, we can use this matrix to further refine scores and better determine how these properties fit our mission/priorities 10 Criteria Derived From the Century Agenda The Property advances The Property advances NWSA competitiveness SEA competitiveness 5 = Immediately adjacent to key NWSA/Cargo site 5 = Within 0.5 miles of other SEA properties and 4 = Within 3 miles of NWSA terminal and can can be developed to enhance SEA support logistics efficiency and/or capacity competitiveness 3 = Could support key suppliers, transload 4 = Within 4 miles of SEA and can be developed facilities, and other support facilities to logistics to enhance SEA competitiveness terminals 3 = Can tangibly support current or future 2 = Industrially zoned with adequate access for operational need at SEA heavy trucks/logistics vehicles related to NWSA 2 = May be able to support some future operations operational need of SEA 1 = Not clear how property drives/support NWSA 1 = Does not support SEA's existing or future existing or future operations operations 11 Evaluative Matrix Continued Property advances Maritime Property protects Port economic development operations and industrial lands 5 = Can be developed (or utilized) to support 5 = Immediately adjacent to Port operating facility existing Port maritime line of business (cruise, 4 = Within 0.5 mile of Port operations and its fishing, etc.) development could impact Port operations 4 = Can be developed or utilized to support 3 = Within a MIC and zoned industrial maritime industries 4 = Could be developed or rezoned to protect or 3 = Can accommodate industrial maritime uses enhance industrial lands 2 = Could potentially support maritime uses 1 = Not clear on how property supports Port 1 = Cannot easily enhances/protects maritime properties or industrial lands uses 12 Equity and Sustainability Property Supports the Property Advances Port of Port's Equity Goals Seattle Sustainability Objectives 5 = In an Opportunity Zone (high 5 = Has the potential to support at least three Port poverty census tract) sustainability goals (stormwater mgmt. air and GH 4 = Location scores 8 or higher on the gas reduction, renewable energy generation, Port's Equity Index habitat restoration) 3 = Development affords Diversity in 4 = Could potentially support more than one contracting and workforce sustainability objective at a significant level development opportunities 3 = May be able to improve Port outcomes for 2 = May afford equity opportunities sustainability objectives (DC and workforce) 2 = Unclear how this property could support 1 =property not likely to advance equity sustainability goals 1 = Would detract from meeting sustainability goals 13 Leveraging Expertise and Partnerships The Port has experience and capacity to Potential to partner with other address the opportunities and public and private agencies/entities challenges associated with the Property to amplify impacts 5 = Full internal capacity and/or expertise to directly 5 = Property would serve the mission/objectives address 100% of the complexities and scale of of two or more public or private organizations in property/project. addition to the Port 4 = Has capacity and/or expertise to deal with the 4 = Property would serve the mission/objectives over 50% of the site complexities and project scale of 1 or more public or private organizations in 3 = Team has some capacity/expertise, but limited addition to the Port experience to address scale 3 = Property has the potential to serve 2 = Some relative capacity/expertise but would need mission/objectives of 1 or more public or private additional support for most of the project. organizations in addition to the Port 1= Limited capacity/expertise and would likely need 2 = Limited opportunity for partnership to rely exclusively on external parties. 1= No potential for partnership 14 Funding Options and Opportunities The property and associated development can attract alternative sources of funding through partnerships or financing mechanisms available to the Port 5 = An alternative financing/funding resource has been identified and will benefit the project 4 = An alternative financing/funding resource has been identified and has the potential to benefit the project 3 = Project is eligible for alternative financing/funding, but no specific opportunity has been identified 2 = Unclear if the project is eligible for or can attract alternative sources of funding. 1= No alternative sources of funding or financing are envisioned for the project. 15 15 Port Real Estate Development - Legal Parameters RCW 53.08.20 A port district may construct, Acquisition and operation of facilities condemn, purchase, acquire, RCW 53.08.255 add to, maintain, conduct, and Tourism-related facilities authorized operate sea walls, jetties, piers, wharves, docks, boat landings, RCW 53.25.190 and other harbor improvements, Eminent Domain warehouses, storehouses, elevators, grain-bins, cold RCW 53.08.260 Park and recreation facilities. storage plants. 16 Port Development Execution Options Port self Port Ground Lease to finances/performs Developer Joint development PRO requires little/no Port $, PRO 100% control; owning all influence development PRO "p"partnership to opportunities and liabilities through RFP, no financial risk reduce risk and achieve to Port multiple objectives CON some market limits on CON decision making and CON CIP limitations, time to what a developer can do, execution complexity completion, audit risk loss of property control 17 Next Steps WORKING DRAFT Implement key recommendations surrounding development or disposition of Port properties Complete due diligence on two to three top acquisition or partnership opportunities Determine costs/benefits for each potential development Determine possible financing and development options Provide routine updates and reports on objectives Complete analysis of Port financing options for real estate development project 18 Appendix: Market Snapshots 19 Market Context Region Unemployment: Initial Claims with Continued Claims, Jan - Sep 2020 Number Of Claims Number Of Claims 160,000 160,000 140,000 140,000 120,000 120,000 100,000 100,000 80,000 80,000 60,000 60,000 40,000 40,000 20,000 20,000 0 0 January-20 February-20 March-20 April-20 May-20 June-20 July-20 August-20 September-20 Snohomish Initial Claims Pierce Initial Claims King Initial Claims Snohomish Continued Claims Pierce Continued Claims King Continued Claims 20 Market Context OFFICE INDUSTRIAL Rent Collections: 96.4% Rent Collections: 99.4% CMBS Mortgage 2.3% CMBS Mortgage 1.2% Delinquencies: Delinquencies: US VACANCY 10.7% US VACANCY 5.7% Current: Current: Forecasted Peak: 12.7% Forecasted Peak: 6.9% in 2023 in 2021 BIG QUESTIONS BIG QUESTIONS WFH impact on vacancies? Who are the winners in the Rise or fall of coworking? supply chain disruption? Will telemedicine reduce Will manufacturing demand for medical office? meaningfully increase space demand? Sources: NAREIT, Trepp, Costar, STR, Zillow, US Census Bureau 21 Note: Mortgage delinquencies represent CMBS delinquencies. Data as of Aug 2020 where not specified. Market Context RETAIL HOSPITALITY/LODGING Rent Collections: CMBS Mortgage Free standing: 90.5% 23.0% Delinquencies: Shopping Center: 80.1% Hotel Occupancy: CMBS Mortgage 47.0% 14.8% Jul: Delinquencies: Aug: 50.2% US VACANCY 10.2% Recovery to 20-year historical average Current: expected in 2023. Forecasted Peak: 14.6% in 2021 BIG QUESTIONS BIG QUESTIONS Will $50 billion in delinquent Which retail categories will CMBS debt trigger a survive? broader financial crises? Which retail typologies will How many independent be successfully redeveloped hotels will not make it in the near term? through the downturn? Sources: NAREIT, Trepp, Costar, STR, Zillow, US Census Bureau, Moody's Analytics 22 Note: Mortgage delinquencies represent CMBS delinquencies. Data as of May 2020 where not specified. Market Context Regional Industrial Total Inventory and Deliveries, 2016-2020 YTD Puget Sound Industrial Vacancy, 2016-2020 YTD Total Inventory 8.0% (in Millions of SF) Total Deliveries (in Millions of SF) 7.0% 335m 4m 6.0% 5.0% 330m 3m 4.0% 3m 3.0% 325m 2.0% 2m 1.0% 320m 2m 0.0% 2016 2017 2018 2019 2020 315m 1m Seattle Metro King County 310m Pierce County Snohomish County 1m 305m m Avg. Rent* Vacancy Avg. Rent* Vacancy 2016 2017 2018 2019 2020 YTD Metro $11.69 5.4% Magnolia $13.83 2.6% King County $13.06 4.9% Ballard $16.89 5.5% King Co Deliveries Pierce Co Deliveries Pierce County $8.20 7.8% Duwamish N $13.16 6.1% Snohomish County $10.14 3.4% Duwamish S $12.75 1.3% Snohomish Co Deliveries Total Inventory *Avg. Annual NNN rate per square foot 23 Market Context Regional Office Total Inventory and Deliveries, 2016-2020 YTD Puget Sound Office Vacancy, 2016-2020 YTD Total Inventory Total Deliveries (in Millions of SF) 8.5% (in Millions of SF) 8.0% 216m 5m 7.5% 214m 5m 7.0% 212m 4m 6.5% 210m 4m 6.0% 208m 3m 5.5% 206m 3m 5.0% 204m 2m 4.5% 2016 2017 2018 2019 2020 YTD 202m 2m 200m 1m Seattle Metro King County Pierce County Snohomish County 198m 1m 196m m 2016 2017 2018 2019 2020 YTD Market Avg. Rent* Vacancy Submarket Avg. Rent* Vacancy King County $36.57 6.8% Belltown/Denny Regrade $41.76 4.7% King Co Deliveries Pierce Co Deliveries Pierce County $26.23 5.8% Pioneer Sq/Waterfront $40.60 8.7% Snohomish Co Deliveries Total Inventory Snohomish County $25.42 6.4% Queen Anne/Magnolia $37.47 12.2% *Avg. Annual Full Service rate per square foot 24
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