4e
PORT OF SEATTLE MEMORANDUM COMMISSION AGENDA Item No. 4e ACTION ITEM Date of Meeting May 26, 2015 DATE: May 18, 2015 TO: Ted Fick, Chief Executive Officer FROM: Mark C. Griffin, Director, Real Estate Development SUBJECT: Des Moines Creek Business Park Revised Ground Lease and Option Agreement ACTION REQUESTED Request Commission authorization for the Chief Executive Officer to execute a modified ground lease and an option agreement amendment with Panattoni Development substantially in the attached form to support development of the FAA's new regional offices. SYNOPSIS On June 10, 2014, the Commission approved an option agreement and related form of ground lease with Panattoni Development to develop the Des Moines Creek Business Park (DMCBP). The federal General Services Administration (GSA) recently awarded Panattoni the right to construct the Federal Aviation Administration's (FAA) new regional offices at the south end of the DMCBP site. The approved ground lease has provisions related to condemnation, insurance and indemnification that federal government tenants cannot comply with due to federal law. This action authorizes a modified ground lease with Panattoni to permit a sublease between Panattoni and the GSA and an amendment to the option agreement to substitute phase three of the DMCBP project for phase two of the project to enable construction of the FAA facility. BACKGROUND The Commission authorized execution of an Option to Ground Lease Agreement (Option Agreement) with Panattoni Development at the June 10, 2014, meeting to develop the DMCBP. This action included approval of a form of ground lease that Panattoni would execute for each phase of the DMCBP project. In April 2015, the GSA awarded Panattoni the right to construct the FAA's new regional offices at the south end of the DMCBP site as phase three of the project (See Attachment 1 Master Plan for a depiction the project's three phases). The GSA chose Panattoni from a competitive process that included consideration of several other sites in the region. Panattoni will build an approximately 300,000 square foot office building and associated parking to house about 1,600 FAA employees. Panattoni will enter into a 20-year sublease with the GSA and must complete delivery and full occupancy of the FAA facility by August 1, 2017. The current approved form of ground lease states that any sublease is "subject to all of the covenants, conditions, agreements and terms of this agreement." This is a typical provision found in Template revised May 30, 2013. COMMISSION AGENDA Ted Fick, Chief Executive Officer May 18, 2015 Page 2 of 4 most ground leases, including the Port's agreements. In reviewing the approved form of ground lease, however, GSA identified a number of provisions that conflict with its required form of sublease with Panattoni given the federal laws, regulations and policies to which federal government tenants are subject. The ground lease provisions to which GSA cannot comply are generally those related to insurance, indemnification, condemnation, environmental liability, and binding mediation and arbitration. Staff proposes to enter into a modified ground lease with Panattoni that addresses the GSA's concerns. The modified ground lease provides the Port's consent to Panattoni's sublease with the GSA as a permitted sublease. In return for the Port's consent to the GSA sublease, Panattoni will agree to remain responsible for any deficiencies stemming from the variances from the original form of ground lease required by the GSA. The proposed modified form of ground lease is included as Attachment 2. Staff also proposes to enter into an amendment to the Option Agreement. The FAA facility will be constructed on the area currently designated as phase three of the master plan (see Attachment 1). The phase three acreage will now be under lease sooner than the area designated as phase two. The proposed amendment allows for substitution of the acreage, rental rate and required lease-up dates between the two phases such that the FAA facility will now be considered phase two and the remaining area currently designated as phase two will be deemed phase three. The proposed option agreement amendment is included as Attachment 3. FINANCIAL IMPLICATIONS The proposed action accelerates Panattoni's lease-up of the DMCBP project and the revenue the Port will receive from both land rent and reimbursement of the frontage improvement in lieu fees that the Port advanced to the City to complete the street improvements to 24th Avenue S. and S. 216th Street required for the project. STRATEGIES AND OBJECTIVES This action supports the Airport's objective to "maximize non-aeronautical net operating income consistent with current contracts, appropriate use of airport properties and market demand." TRIPLE BOTTOM LINE Economic Development The FAA facility will create a few hundred construction jobs and will house approximately 1,600 FAA staff upon completion. Environmental Responsibility The GSA requires the FAA facility to be Leadership in Energy & Environmental Design (LEED) Gold certified which will help ensure a quality and environmentally friendly facility. COMMISSION AGENDA Ted Fick, Chief Executive Officer May 18, 2015 Page 3 of 4 Community Benefits The City of Des Moines (City) has worked closely with Panattoni and the Port in supporting Panattoni's pursuit of the FAA facility and enthusiastically supports location of the facility in the City. ALTERNATIVES AND IMPLICATIONS CONSIDERED Alternative 1) Do not modify the ground lease and option agreement. The FAA facility would be located elsewhere in the region. This would slow the receipt of additional non-airline revenue from the DMCBP project. There is no upside to maintaining the current approved form of ground lease as it relates to the GSA sublease for the FAA facility. Panattoni agrees to cure any deficiencies arising from the variances needed by the GSA from the current approved form of ground lease. This effectively keeps the Port in the same position as it would have been under the current approved form of ground lease in the event of any disputes. This is not the recommended alternative. Alternative 2) Modify the ground lease and option agreement. The modified ground lease agreement will enable Panattoni's development of the FAA facility and generate additional nonairline revenue from the DMCBP project sooner than currently projected. Given these benefits, there is no downside to modifying the ground lease to allow for the GSA sublease for the FAA facility, particularly given Panattoni's agreement to satisfy any deficiencies that may result from the variances needed by the GSA from the current approved form of ground lease. This is the recommended alternative. ATTACHMENTS TO THIS REQUEST Attachment 1 DMCBP Master Plan Attachment 2 Revised Form of Ground Lease Attachment 3 Proposed First Amendment to Option to Ground Lease Agreement PREVIOUS COMMISSION ACTIONS OR BRIEFINGS October 28, 2014 Commission authorized execution of a First Addendum to the Amended and Restated Second Development Agreement with the City. June 10, 2014 Commission authorized execution of an option agreement and related ground lease agreements with Panattoni Development Company, Inc. or an affiliated entity; and (2) an Amended and Restated Second Development Agreement with the City. June 5, 2012 Commission authorized the execution of the second development agreement with the City and a ground lease with Puget Sound Energy. November 9, 2010 Commission passed Resolution No. 3646 at second reading, surplusing right of way needed by the City. COMMISSION AGENDA Ted Fick, Chief Executive Officer May 18, 2015 Page 4 of 4 November 2, 2010 Commission authorized acquisition of the abandoned streets within the DMCBP site and passed Resolution No. 3646 at first reading, surplusing right of way needed by the City. July 22, 2008 Commission authorized execution of the first addendum to the first development agreement with the City. February 27, 2007 Staff briefing on progress on the business park project. June 8, 2006 Staff briefing on the completed conceptual master plan. August 23, 2005 Commission authorized preparation of the conceptual master plan. June 28, 2005 Commission authorized the execution of the first development agreement with the City.
Limitations of Translatable Documents
PDF files are created with text and images are placed at an exact position on a page of a fixed size.
Web pages are fluid in nature, and the exact positioning of PDF text creates presentation problems.
PDFs that are full page graphics, or scanned pages are generally unable to be made accessible, In these cases, viewing whatever plain text could be extracted is the only alternative.