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PORT OF SEATTLE MEMORANDUM COMMISSION AGENDA Item No. 5d ACTION ITEM Date ofMeeting __J_u_ne_2_6~,_2_0_12__ DATE: June 18, 2012 TO: Tay Yoshitani, ChiefExecutive Of_fl~.,e~ - I . FROM: Craig Watson, General Counsel (_JWIV Elizabeth Leavitt, Director, Aviation Planning and Envirorunental Programs~ SUBJECT: Purchase offour adjacent tax lots owned by Nick Properties LLC and located northwest ofSea-Tac International Airport in 15400 block ofDes Moines Memorial Drive for fair market value of$1 ,238,000.00, with closing contingent on release ofclaims filed against the Port by RST Enterprises Inc. Amount of This Request: $1,600,000 Source of Funds: Airport Development Fund Est. State and Local Taxes: $17,000 Est. Jobs Created: 10 Est. Total Project Cost: $1,600,000 ACTION REQUESTED: Request Commission authorization for the ChiefExecutive Officer to (1) settle claims filed by RST Enterprises Inc. through authorization ofthe purchase offour adjacent tax lots owned by Nick Properties LLC for fair market value of$1,238,000.00, with closing contingent on release ofclaims; and (2) execute all documents necessary for purchase and conveyance ofsaid property as well as authorize the post-acquisition costs related to demolition ofexisting improvements on said property and site stabilization/restoration in the amount of$362,000 for total authorized amount of$1,600,000. The terms ofthe purchase and sale agreement for which approval is requested shall be as substantially set forth in the attached agreement; the property proposed for purchase is described in exhibits A-1, A-2, A-3, and A-4 to the proposed agreement; and the terms ofthe release ofclaims shall be as substantially set forth in exhibit B to the proposed agreement. SYNOPSIS: This request for Commission authorization for purchase and post-acquisition costs arises out of the General Counsel'srecommendation to settle claims filed by RST Enterprises Inc. The four tax lots that are the subject ofthe acquisition are adjacent to the Port-owned Vacca Farm Mitigation Site which the Port acquired more than eight years ago to meet wetland mitigation requirements related to construction ofthe third runway at the Airport. RST filed a tort claim and threatened to file a lawsuit complaining about flooding, drain pipe maintenance and drainage issues, as well as the Port'swetland mitigation activities related to the Port'sThird Runway COMMISSION AGENDA Tay Yoshitani, ChiefExecutive Officer June 18, 2012 Page 2 of5 Project and issues outlined in the Cherry Creek Environmental Report offindings following a hydrologic evaluation in February 2008. The General Counsel'srecommendation is to settle the claims and obtain a release from RST Enterprises Inc. and Nick Properties LLC by purchasing the subject property for fair market value of$1,238,000.00. The cost ofthe settlement was included in the 2012-2016 capital budget and is being funded by an open Third Runway CIP. BACKGROUND: Over the last five-plus years, Port staffhas evaluated RST'sclaims, considered alternatives to resolving RST'scomplaints and, since receiving RST'sformal claim in February 2010, have also evaluated the Port'sliability exposure and the potential cost ofdefending litigation. The Port obtained an updated appraisal from MAl appraiser Christopher Eldred for a valuation ofthe property at $1,238,000 as ofMay 5, 2012. The Port has also completed environmental due diligence. Until July 2010, RST owned the subject property, but RST conveyed the subject property to Nick Properties LLC, a related entity. James Terrile is the President and CEO ofRST as well as the Managing Member ofNick Properties LLC and would have authority to sign on behalfNick Properties LLC for sale ofthe subject property to the Port and would also have authority to sign on behalfofboth entities to provide the release ofclaims. Closing ofthe real estate transaction would be contingent on the Port obtaining a release and documents establishing authority to sign and convey property. Closing is anticipated by or before August 31,2012. RST and Nick Properties LLC will provide notice to their tenants and the property will be acquired free oftenancies, or any encumbering leases or other agreements. The subject property is being acquired without environmental indemnification since the environmental due diligence did not find contamination ofconcern to the Port. The Port anticipates that the subject property will be useful to meet wetland mitigation requirements for future projects in the event wetlands are affected and mitigation is required or to meet additional mitigation requirements arising out ofpast projects. Land for wetland mitigation is scarce in the Miller Creek basin so the subject property has value beyond its fair market value in that it serves the Port'sstrategic objectives ofenvironmental stewardship. In addition, the Port anticipates that some ofthe subject property could be useful as construction laydown area for materials and equipment and for staging future construction projects and may have development potential. This serves the Port's strategic objective ofensuring Airport vitality. The subject property consists offour adjacent tax lots located along the east side ofDes Moines Memorial Drive, in the 15400 block ofthis arterial, adjacent to the Port-owned Vacca Farm COMMISSION AGENDA Tay Yoshitani, ChiefExecutive Officer June 18, 2012 Page 3 of5 Mitigation Site. King County records indicate that the overall site area totals 148,892 square feet, or 3.42 acres. The existing structures are, or have been, used for recycling and vehicle maintenance as well as residential use. A wetland technical report for most ofthe subject property was prepared by ESA Adolfson (ESA) in October 2010, which found that the property is in the upper portion ofthe Miller Creek drainage basin and that ofthe property'stotal area, approximately 66,330 square feet ofthe northern and eastern portions ofthe site is encumbered by wetland, wetland buffer, and stream buffer. The presence ofthese sensitive areas limits the site'spotential for commercial development, but does not totally preclude development. Most ofthe property is located within the 100-year flood plain as established by the Federal Emergency Management Agency (FEMA). Under zoning, no structures may be built in the 100-year flood plain unless they conform with requirements in the zoning code. The appraisal performed by Chris Eldred is based on 82,562 square feet ofusable land (not counting the portions ofthe subject property encumbered by wetland, wetland buffer, and stream buffer). The value conclusion is thus 82,562 sf@ $15 per sfor $1,238,000.00. PROJECT JUSTIFICATION: Project Objectives: Settlement and release of claims while avoiding the cost ofdefending litigation. Purchase ofsubject property for fair market value. Environmental stewardship by acquisition ofsubject property useful to meet future wetland mitigation requirements. Ensuring Airport vitality by acquisition ofsubject property useful for construction laydown area for future construction projects. Preparing subject property for Port'sintended uses by demolishing existing improvements, restoring and stabilizing the site by removing any weeds and doing any necessary planting. PROJECT SCOPE OF WORK AND SCHEDULE: Scope ofWork: Acquisition is pending based on Commission authorization. Demolition and site stabilization will follow. Schedule: Acquisition August- 2012 Demolition/Site Stabilization September-December 2012 COMMISSION AGENDA Tay Yoshitani, ChiefExecutive Officer June 18, 2012 Page 4 of5 FINANCIAL IMPLICATIONS: Budget/Authorization Summary: Capital Expense Total proJect. Original Budget $1,600,000 $0 $1,600,000 Previous Authorizations $0 $0 $0 Current request for authorization $1,600,000 $0 $1,600,000 Total Authorizations, including this request $1,600,000 $0 $1,600,000 Remaining budget to be authorized $0 $0 $0 Total Estimated Project Cost $1,600,000 $0 $1,600,000 P.roJect' Cost Breakdown: Th'lS Request Toat 1 PrOJeCt. Acquisition $1,238,000 $1,238,000 Construction $260,000 $260,000 Construction Management $40,000 $40,000 Design $0 $0 Project Management I Environmental $40,000 $40,000 Permitting $5,000 $5,000 State & Local Taxes (estimated) $17,000 $17,000 Total $1,600,000 $1,600,000 Budget Status andSource ofFunds: While the Third Runway became operational in November 2008, the Port has maintained open CIPs recognizing that not all project obligations have been met. CIP #C001760, New Runway Land Acquisition, was included in the 2012-2016 capital budget and plan offinance with adequate remaining budget to meet this requested action. The source offunding for this project is the Airport Development Fund (ADF). FinancialAnalysis and Summary: CIP Category Compliance Project Type Environmental Risk ad.iusted discount rate N/A Key risk factors N/A Pro.iect cost for analysis $1,600,000 Business Unit (BU) Airfield Effect on business performance NOI after debt service will increase IRRINPV NIA CPEimpact CPE will increase by less than $.01, but no change to business plan forecast as this project was included. COMMISSION AGENDA Tay Yoshitani, ChiefExecutive Officer June 18, 2012 Page 5 of5 STRATEGIC OBJECTIVES: Environmental stewardship by acquisition ofsubject property useful to meet future wetland mitigation requirements. Ensuring Airport vitality by acquisition ofsubject property useful for construction laydown area for future construction projects. ENVIRONMENTAL SUSTAINABILITY: Acquisition ofthe subject property promotes environmental sustainability in that most ofthe property will likely become wetland and be protected and preserved for wetland mitigation. It is adjacent to the Port'sVacca Farm Mitigation site and lies within the Miller Creek basin where land for wetland mitigation is scarce. BUSINESS PLAN OBJECTIVES: Not Applicable. This is an acquisition that is part ofa settlement ofclaims so mainly addresses legal risk but has the benefit ofan acquisition for wetland mitigation and other uses that are consistent with the Port'senvironmental stewardship objective. TRIPLE BOTTOM LINE SUMMARY: Legal risk is addressed, release ofclaims obtained, and defense oflitigation costs are avoided. At the same time, the Port purchases for fair market value property that the Port anticipates will be useful to meet future wetland mitigation requirements associated with Port projects that ensure the vitality ofthe Airport. Port coincidentally protects and preserves the subject property for future wetland mitigation, exhibiting environmental stewardship. ALTERNATIVES CONSIDERED AND THEIR IMPLICATIONS: Alternatives have been considered as discussed in attorney-client privileged communications. OTHER DOCUMENTS ASSOCIATED WITH THIS REQUEST: Purchase and Sale Agreement with legal descriptions ofthe four adjacent tax lots at exhibits A-1, A-2, A-3, and A-4. Terms ofrelease [ofclaims] at exhibit B to purchase and sale agreement. Map ofarea showing property. PREVIOUS COMMISSION ACTIONS OR BRIEFINGS: None.
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