Template revised September 22, 2016. COMMISSION AGENDA MEMORANDUM Item No. CTION ITEM June 13, 2017 ACTION REQUESTED EXECUTIVE SUMMARY ��COMMISSION AGENDA Action Item No. Page of Template revised September 22, 2016; format updates October 19, 2016. JUSTIFICATION Panattoni is an industrial merchant developer. Like many similar developers in this asset class, they look to sell their investments as soon as the projects they develop are completed and the income from leasing is fully stabilized. This exit strategy is typically driven by the cost of their capital and the need to repay their original investors allowing them to achieve the highest Internal Rate of Return (“IRR”) possible The shorter the period they use the money, the higher the IRR they achieve, and the more profit they make as a developer as the result of the sale. In the US, the primary buyers of stabilized industrial assets are pension f unds, as is the case here The security provided to the Port by Des Moines Creek ILP, LLC matches what is currently provided by Panattoni. More importantly, the new tenant is investing $67.9 million in the property and its ultimate owners financial depth far exceeds that of the existing tenant. The Port should draw comfort by thi s level of investment and any concerns over lease payment defaults. ALTERNATIVES AND IMPLICATIONS CONSIDERED Alternative 1 The Port does not agree to the request to the assignment and assumption of the ground lease from Panattoni to Des Moines Creek ILP , LLC Pros: (1) The Port retains Panattoni as the ultimate responsible tenant under the existing ground lease agreement. Cons: (1) Could lead to a dispute with the current tenant. Based on the information provided to the Port about Des Moines Creek ILP , LLC, it would be difficult for the Port to establish that its refusal to consent to the assignment was not unreasonable. This is not the recommended alternative. Alternative 2 The Port agrees to the request to the assignment and assumption of the gr ound lease from Panattoni to Des Moines Creek ILP, LLC Pros: (1) The Port receives a matching level of lease security from the new tenant Des Moines Creek ILP, LLC that it currently has from Panattoni. (2) The Port is able to replace the original tenant with a tenant who has made a significant investment in the property and is focused on holding and maintaining the property long term. Cons: The Port releases a known tenant in Panattoni and enters into a ground lease with a new tenant with whom the Port does n ot have a current relationship. This is the recommended alternative. ��COMMISSION AGENDA Action Item No. Page of Template revised September 22, 2016; format updates October 19, 2016. ATTACHMENTS TO THIS REQUEST (1) Assignment and Assumption of Ground Lease Agreement (2) DMCBP_First Amendment to Phase III G round Lease Agreement PREVIOUS COMMISSION ACTIONS OR BRIEFINGS November 22, 2016 The Commission authorized the First Amendment to Phase III Ground Lease Agreement. June 10, 2014 The Commission authorized Des Moines Creek Business Park ground lease approval for Panattoni