Main Terminal Space Conversions Memo
COMMISSION AGENDA MEMORANDUM Item No. 6e ACTION ITEM Date of Meeting February 26, 2019 DATE: February 15, 2019 TO: Stephen P. Metruck, Executive Director FROM: James Jennings, Senior Manager, Aviation Properties Wayne Grotheer, Director, Aviation Project Management James R. Schone, Director, Aviation Commercial Management SUBJECT: Airport Main Terminal Space Conversion (CIP #C801055) Amount of this request: $1,337,000 Total estimated project cost: $3,500,000 ACTION REQUESTED Request Commission authorization for the Executive Director to (1) proceed with design for all phases of the Main Terminal Space Conversions project at Seattle-Tacoma International Airport, (STIA) (2) construct Phase 1 of the project, and (3) use Port crews and small works contracts for construction. The amount requested under this authorization is $1,337,000 out of a total estimated project cost of $3,500,000. EXECUTIVE SUMMARY The purpose of this project is to convert, and upgrade vacant spaces located in the pre-security area at the Airport on the Ticketing, Mezzanine, and Second Floor levels. The offices affected meet an immediate need and accommodate anticipated new entrant airlines. With the growth in passenger traffic at the airport, there is a need to provide additional leasable support space for existing tenants and new tenants. Vacancy levels are critically low in many areas, especially pre-security. As demand continues to grow for tenant, contractor, and Port needs throughout the airport, finding ways to quickly maximize leasable area within the terminal is needed. This project was included in the 2019 2023 capital budget and plan of finance with an estimated cost of $2.515 million. The cost increase was driven by the need to provide more office space to new airline tenants. JUSTIFICATION This project supports critical objectives of the Port's Century Agenda to meet the region's air transportation needs at the Airport for the next 25 years and encourage the cost-effective Template revised April 12, 2018. COMMISSION AGENDA Action Item No. __6e__ Page 2 of 5 Meeting Date: February 26, 2019 expansion of domestic and international passengers and cargo service. This provides STIA with much needed leasable space to meet the needs of our growing airline partners. It also supports the Aviation Division's financial performance by increasing occupancy of leasable space without constructing new facilities. Diversity in Contracting For the immediate construction of Phase 1, staff anticipates a significant proportion of small works contract work to be completed by small businesses which include woman and minority businesses. For Phase 2, Women and Minority Business Enterprise (WMBE) aspirational goals will be established by the Diversity in Contracting Department. DETAILS This project will be completed in two phases. The first phase will address an immediate need to construct two office spaces for two new entrant airlines on the mezzanine level of the main terminal. These spaces will be designed and constructed by this request. Additional space on the Ticketing and Second Floor levels will be designed with a request for construction of these spaces to follow in a future Commission request. The work includes sub-dividing spaces where required, modifying heating, ventilation and air conditioning (HVAC), electrical, communications and lighting systems, completing interior finishes including ceilings and flooring, and installing Port standard telecommunications demarcation packages. The first space will be constructed in an expedited manner to provide two offices by Q2 2019, which is needed to support recently announced service by two new Airlines. The remaining spaces are needed to be able to respond to anticipated growth and will follow a more traditional timeline. Scope of Work The project scope of work includes the following: (1) Sub-dividing the existing vacant areas where required to provide manageably sized offices meeting airline needs and Port standards (2) Modifying heating, ventilation, and air conditioning (HVAC), electrical, communications and lighting systems (3) Constructing basic interior finishes including finished walls, ceilings, and flooring (4) Installing a Port standard telecommunications demarcation package for new tenants (5) Prepare related amenities as necessary or required by code Office furnishings, equipment, and any discretionary tenant improvements will be provided by the tenant and are not included in this project scope. Template revised September 22, 2016; format updates October 19, 2016. COMMISSION AGENDA Action Item No. __6e__ Page 3 of 5 Meeting Date: February 26, 2019 Schedule Activity Complete construction of first two spaces Q2 2019 Anticipated construction authorization for remaining work Q4 2019 Complete remaining construction Q4 2020 Cost Breakdown This Request Total Project Design $720,000 $720,000 Construction $710,000 $2,780,000 Total $1,430,000 $3,500,000 ALTERNATIVES AND IMPLICATIONS CONSIDERED Alternative 1 Build out all spaces to leasable condition through a single design and construction project Cost Implications: $3,500,000 Pros: (1) The Port would complete all the spaces to a leasable condition as a single action. (2) The Port would be able to take full advantage of the new Diversity in Contracting program with this construction contract. Cons: (1) Would take approximately 28 months to design, bid and construct, which would not meet the needed occupancy schedule. This is not the recommended alternative. Alternative 2 Build out Phase one to provide two of the requested office spaces immediately and start the design for the other spaces now. Cost Implications: $1,430,000 Pros: (1) This alternative will provide the new entrant international airlines key operational resources they are requesting on the timeframe they require. (2) Completing the design for the entire scope will expedite the process to complete the remaining spaces, in the hopes that they can be constructed to meet the anticipated airlines start-up schedules. (3) The Port would receive revenue from the lease of these spaces sooner than the other alternatives. Cons: (1) For the immediate construction scope, the Port would use Port crews and small works contracts and therefore not able to use the Port's Diversity in Contracting program. Template revised September 22, 2016; format updates October 19, 2016. COMMISSION AGENDA Action Item No. __6e__ Page 4 of 5 Meeting Date: February 26, 2019 This is the recommended alternative. FINANCIAL IMPLICATIONS Cost Estimate/Authorization Summary Capital Expense Total COST ESTIMATE Original estimate $2,515,000 $0 $2,515,000 Current change $985,000 $985,000 Revised estimate $3,500,000 $3,500,000 AUTHORIZATION Previous authorizations $93,000 $0 $93,000 Current request for authorization $1,337,000 $0 $1,337,000 Total authorizations, including this request $1,430,000 $0 $1,430,000 Remaining amount to be authorized $2,070,000 $0 $2,070,000 Annual Budget Status and Source of Funds Main Terminal Space Conversions (CIP #C801055) was included in the 2019-2023 capital budget and plan of finance at $2,515,000. A budget increase of $985,000 was transferred from the Aeronautical Allowance which will have no impact to the plan of finance. The project will be funded with the Airport Development Fund and revenue bonds. Financial Analysis and Summary Project cost for analysis $3,500,000 Business Unit (BU) Terminal Building Effect on business performance (NOI after depreciation) NOI after depreciation will increase IRR/NPV (if relevant) N/A CPE Impact Less than $0.01 in 2021 Future Revenues and Expenses (Total cost of ownership) Once occupied, maintenance of exclusive premises is the responsibility of the lessee, thus freeing the Port of our current obligation to maintain the space. In addition, these premises are currently leased to signatory airlines at the rate of $183.03 per square foot per year. The final billable lease area is dependent on exactly how the space gets divided, and how much space is consumed to create a shared access vestibule (which would not be leased premises). ATTACHMENTS TO THIS REQUEST Presentation slides Template revised September 22, 2016; format updates October 19, 2016. COMMISSION AGENDA Action Item No. __6e__ Page 5 of 5 Meeting Date: February 26, 2019 PREVIOUS COMMISSION ACTIONS OR BRIEFINGS None Template revised September 22, 2016; format updates October 19, 2016.
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