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Real Estate and Seaport Property Management Process and Procedure Line of Business: Real Estate Portfolio Management Seaport Lease & Asset Management Seaport Cruise & Maritime Operations Date Issued: [Date] Port of Seattle Table of Contents 1. Introduction .................................................................................................. 3 1.1 Purpose ............................................................................................................................ 3 1.2 Scope ............................................................................................................................... 3 1.3 References ....................................................................................................................... 3 1.4 Inquiries............................................................................................................................ 4 2. General Office Procedures .......................................................................... 4 2.1 Signed Documents........................................................................................................... 4 2.2 Boilerplate Templates ...................................................................................................... 4 2.3 File Documents ................................................................................................................4 3. Agreement Process ..................................................................................... 4 3.1 Commission Approval ...................................................................................................... 4 3.2 Market Rates .................................................................................................................... 5 3.3 New Agreements ............................................................................................................. 6 3.4 Marketing Vacant Properties ........................................................................................... 7 3.5 Documenting Agreement Decisions ................................................................................ 7 4. Appendices ................................................................................................... 8 4.1 Appendix A Term Sheet/Letter of Intent ....................................................................... 8 4.2 Appendix B Agreement Analysis Template .................................................................. 9 4.3 Appendix C Sample Lease Comparables ................................................................... 10 Rev. April 26, 2011 Page 2 1. Introduction 1.1 Purpose This procedure discusses the documentation and process for all non-aviation agreements. The intent of this publication is to clarify the process and procedure that Port staff needs to follow in order to consummate formal legal documents for real estate transactions undertaken by Real Estate and Seaport Divisions. The importance of following the established process and procedure cannot be overemphasized. The Port's real estate transactions are highly visible, are subject to audit, and are under intense scrutiny by the media and the public. If there is a need to make any change or update to this process and procedure, it is practice to carry such changes by involving the Portfolio Management and Seaport Lease and Asset Management leaders and other interested Port staff, so that all concerns are addressed and changes are properly made through the Port's approval process. This process and procedure manual does not intend to conflict with the Real Estate Policies and Procedures adopted by the Port of Seattle Commission. If there is conflict, the intent of the adopted Port Commission Policies and Procedures will be followed. 1.2 Scope This process and procedure applies to all staff persons (collectively, "the Property Manager") executing agreements on behalf of the Port. 1.3 References The Real Estate Policies and Procedures, and Resolution No. 3605, updated by Resolution 3628, adopted by the Port of Seattle Commission are located on the Port's Compass page: http://compass.portseattle.org/corp/legal/Pages/PoliciesandProcedures.aspx#re Resolution No. 3605, updated by Resolution 3628 A Resolution of the Port Commission of the Port of Seattle repealing Resolution No. 3181, and restating the master policy directive on the role and responsibilities of the Port of Seattle Commission and the administrative authority of the Chief Executive Officer and his/her designees. RE-1 Policy General Lease, Concession Agreement, Operating Agreement, and License Agreement Policy. RE-1 Procedure Month-to-Month Agreements, Concession Agreements, and Operating Agreements RE-2 Policy Strategic Real Estate Policies Regarding Acquisition, Use and Disposal of Real Property RE-2 Procedure Term Agreements, Concession Agreements, Operating Agreements, and License Agreements RE-3 Procedure Aquatic Land Leases Rev. April 26, 2011 Page 3 RE-4 Procedure Acquisition and Sale of Any Interest in Real Property RE-5 Procedure Commission to Real Estate Brokers for the Acquisition, Sale or Lease of Port Real Property RE-6 Procedure Real Estate Financial/Benefits Guidelines for Major Transactions Revised Code of Washington (RCW) the compilation of all permanent laws now in force. It is a collection of Session Laws (enacted by the Legislature, and signed by the Governor, or enacted via the initiative process), arranged by topic, with amendments added and repealed laws removed. Title 53 RCW pertains to Port Districts. Link to RCW website: http://apps.leg.wa.gov/rcw/. 1.4 Inquiries These processes and procedures are located in the Property Manager's Dashboard on the Portfolio Management SharePoint Site. Please direct all inquiries about this process and procedure to the Portfolio Management's Lease Administration Supervisor. 2. General Office Procedures The Property Manager will observe general office procedures that are common throughout the Port. These include, but are not limited to, the following: 2.1 Signed Documents Official agreement copies and original documents of record will reside in Accounting, and a copy of all agreements and work files will reside in the Portfolio Management Department. File requests from internal Port staff outside of Real Estate and Seaport Divisions, will be handled by the Property Manager, with the support of the Lease Administration Specialist or other support staff, when appropriate. 2.2 Boilerplate Templates The Property Manager will use the agreement boilerplate templates located in the Property Managers Dashboard folder in the Portfolio Management's SharePoint site. All templates referred to herein will reside in the Property Manager's Dashboard SharePoint Site. 2.3 File Documents The Property Manager will retain those documents referenced in section 3.5 below, Documenting Agreement Decisions, in the corresponding agreement file. 3. Agreement Process In conjunction with the Real Estate procedures (RE-1 to RE-6) and Resolution No. 3605, updated by Resolution 3628, the Property Manager must follow the following set of procedures to accomplish a given task related to leasing. 3.1 Commission Approval The Property Managers will follow Resolution No. 3605, updated by Resolution 3628, or consult with Legal Counsel on requirements for Commission approval. Rev. April 26, 2011 Page 4 The Property Manager will follow the Real Estate policies and procedures RE-1 to RE-6, and the commission approval process established by the Commission office. 3.2 Market Rates The Property Manager will work to achieve market rates for Port properties and at all times follow the Real Estate policies and procedures RE-1 to RE-6. The Property Manager will review market information on a regular basis during annual business planning process, during quarterly reviews, as vacancies open up, and/or during specific agreement negotiations as appropriate. The Property Managers will use a multi-layered approach to determine what to charge for leasable area in each portfolio. At minimum, the multi-layered approach will include at least one of the following: Researching market listings of similar types of properties for comparison purposes. Contacting area brokers to determine the current market rental rate range for similar properties being offered or recently encumbered. Hiring an Appraiser or Real Estate Consultant to complete an appraisal and/or opinion of value. The Property Manager will use the standard Agreement Analysis Template (attached as Appendix B), which will document the current market environment of all agreement decisions, including the use of base rental rate escalations over the specified term. Accordingly, depending on the then current market environment, rental rates over a term can be in the form of fixed stepped increases, periodic Consumer Price Index increases, periodic market rate adjustments, and/or other rent increases as negotiated with new property users. If market conditions justify or indicate a fixed rental rate as being appropriate, the agreed upon rate cannot exceed a term of five (5) years unless approved by the Port of Seattle Commission. Because market rates are captured in a range, rather than a specific amount, opinions can vary about an appropriate agreement rate for a property. In addition, many variables affect the agreement or market rate for a specific property. For example, the Port's cargo terminals are subject to the blended container terminal rate, which is uniformly applicable to all container terminal agreements. The remaining Seaport properties are, however, part of the larger Seattle industrial market. Accordingly, when the Property Manager completes market evaluations for the purposes of an agreement negotiation, the comparable properties considered will not be limited only to existing Port properties, but also to the privately owned competing properties in the marketplace. The marketplace properties are the properties that Port customers and prospective property users are using as a comparison. The resulting rates are subject to many variables, including the following: Overall economic conditions at the time of the agreement. Market conditions and timing (vacancy/occupancy rates). Availability of comparable and/or competing properties at the specific time. Ability to approve a specific agreement term (some facilities are limited to shorter-term agreements, which make them less attractive when compared to other available properties). Rev. April 26, 2011 Page 5 Property or facility characteristics, such as the age, condition, and functionality of the property. Maintenance responsibility (landlord vs. tenant). Property access restrictions, including the security access restrictions associated with some maritime facilities. The Port's overall strategy to maintain high occupancy rates and net income, avoiding the possible high cost of vacancies, remarketing, and other new agreement transaction costs. The Port's overall strategy to facilitate businesses and uses that support the Seaport's core business, and support industrial businesses which create family-wage jobs. Leasehold tax (currently 12.84%), collected in lieu of property tax, is computed as an addition to base rent, collected by the Port and then passed to the state. Competing properties may or may not reflect an allowance for real estate property tax in any quoted base rent. Shoreline Management Act, and related Endangered Species Act requirements. Tribal fishing rights. When appropriate, the Property Manager may complete periodic "independent benchmark" rental value determinations for port-specific properties as directed by the Division Managing Director or delegate. This practice should enhance and validate the Port's leasing practices and increase overall transparency, particularly when agreements are brought to the Port commission for approval. Additionally, this process will improve agreement file documentation of negotiated rates and terms, including the justification or rationale for other agreement terms. The Property Manager may use online resources, such as CoStar, Commercial Brokers Association, and other real estate market resources, to obtain market rate comparables. See Appendix C for an example of comparables. 3.3 New Agreements Agreement negotiations are normally undertaken by the Property Manager, and as directed by a Seaport or Real Estate Division Managing Director, or delegate. All proposals will be contingent on the following activities being completed at some point in time during the negotiation/agreement preparation and execution process: The Property Manager will review current Strategic Asset Management plan for each property to determine property availability. The Property Manager will review offer from a prospective or current Port property user. The Property Manager will review property user's credit history. The Property Manager will prepare a Term Sheet or Letter of Intent (See Appendix A). The Property Manager will prepare the Agreement Analysis Template (Appendix B), and any other documents required for a new agreement. The Lease Administration Specialist creates a work file at the request of the Property Manager, which contains a draft agreement, drafts of transmittal correspondence, and Commission Agenda memo or staff memo as applicable. The Property Manager coordinates with Port Counsel and other internal Rev. April 26, 2011 Page 6 department's approval for all agreements consistent with the Port's policies and procedures RE-1 to RE-6. Concurrently with the review of the draft agreement document, the Property Manager completes a draft Commission Agenda memorandum (or staff Agreement Execution Request memo if Commission action is not required). See Appendix C for sample Agreement Execution Request memo in the Agreement Analysis Template. If the agreement is to be signed by Port staff, documents will be routed with memo to the applicable Division Managing Director or delegate. All agreements will be signed and approved according to Resolution No. 3605, as updated by Resolution 3628, and the current Schedule of Redelegated Authority. The prospective property user should return the signed agreement to the Port prior to the Commission meeting whenever possible. If the agreement is not signed prior to Commission approval of the agreement, the Property Manager must follow normal procedure and have the document signed prior to the Port's signature. All new property user should provide all other documentation (insurance, surety, environmental reports, etc.), as outlined in the agreement document, prior to the Port's signature. The agreement documents will be returned to the Lease Administration Specialist for final distribution and final entry into the real estate agreement management system after the agreement is fully executed. 3.4 Marketing Vacant Properties The Property Manager will use a variety of methods to market vacant properties. While taking advantage of the visibility provided by our the Port of Seattle website, the Property Manager may also use signs advertising available properties, real estate listing services, as well as direct calls to customers and those who have expressed interest in leasing port properties. The Request for Proposal (RFP) process will be used when appropriate. Long-term agreements for Port properties with terms of ten (10) years or more may require a competitive procurement process such as an RFP and Commission approval. 3.5 Documenting Agreement Decisions After the Port and the other party execute the agreement, the Property Manager will retain the following documents in the corresponding agreement file. Agreements that are for temporary use or access, e.g. temporary license agreement, hold harmless, or non-revenue agreements, will not require an Agreement Analysis Template or a Term Sheet. All term agreements, which do not require Commission approval, will require the following documents retained and filed in their corresponding file: Term Sheet or Letter of Intent: Sample Lease Comparables: Appendix A Appendix C Agreement Analysis Template (includes Agreement Execution Request): Appendix B Rev. April 26, 2011 Page 7 4. Appendices 4.1 Appendix A Term Sheet/Letter of Intent SAMPLE TERM SHEET/LETTER OF INTENT Each deal is different. Revise the captions of this letter as needed. DATE NAME AND ADDRESS Dear ____________________: Thank you for your application for lease at _________. In response to your inquiry, the following will outline the specific terms the Port is willing to offer for lease. 1. Premises 2. Use 3. Term 4. Lease Rate 5. Security Deposit 6. Utilities and Maintenance 7. Port Improvements 8. Environmental and Clean-up Issues 9. Effect of Letter This letter is only a list of proposed points that may or may not become part of an eventual lease. It is not based on any agreement between the parties. It is not intended to impose any obligation whatsoever on either party, including without limitation an obligation to bargain in good faith or in any way other than at arms' length. The parties do not intend to be bound by any agreement until both agree to and sign a formal written lease, and neither party may reasonably rely on any promises inconsistent with this paragraph. This paragraph supersedes all other conflicting language in this letter. The parties may withdraw from further negotiations at any time and for any reason. If you have any questions or comments on any of the foregoing please feel free to contact me at (206)787-_______. This letter of interest expires on _______________________. Sincerely, ACKNOWLEDGED: (Property User's Name)_________________ _________________________ By ____________ Port of Seattle Title ____________ Date ___________ Rev. April 26, 2011 Page 8 4.2 Appendix B Agreement Analysis Template Rev. April 26, 2011 Page 9 Lease Analysis Input Prepared By: Date: 4/26/2011 Tenant N/A Scenario Name Scenario Description NPV $0 Discount Rate Location N/A Occupancy Status Agreement Type IRR N/A CPI Assumption Building / Floor N/A MIRR N/A Revenue $0 Suite/Space Analysis Start Date Lease Start Date Payback 1 Expenses $0 SF Analysis Term Lease Term Net Effective Rent $0.00 Capital $0 Analysis End Date N/A Lease End Date N/A Equivalent Level Rent N/A Net Income $0 Base Rent Schedule Abated Base Rent Total Lease Concessions Steps Start Month Start Date End Month End Date Annual PSF CPI Increase Monthly Annual Month Amount Total PSF 1 1 1/0/1900 1/0/1900 N/A 1 Rent Concessions 2 2 Abated Rent $0 $0.00 3 3 Rent Credit $0 $0.00 4 4 Total Rent Concessions $0 $0.00 5 5 6 6 Tenant Improvements 7 7 TI Expensed $0 $0.00 8 8 TI Capitalized $0 $0.00 9 9 Total Tenant Improvements $0 $0.00 10 10 11 Lease CommissionsL C i i 12 Inside Broker Commissions $0 $0.00 13 Other Rent Credit Outside Broker Commissions $0 $0.00 14 Month Amount Total Lease Commissions $0 $0.00 15 1 16 2 Other Lease Costs 17 3 Expensed $0 $0.00 18 4 Capitalized $0 $0.00 19 5 Total Other Lease Costs $0 $0.00 20 Total Lease Concessions $0 $0.00 Other Rent Schedule Inside Broker Commission Steps Start Month Start Date End Month End Date Annual PSF CPI Increase Monthly Annual 1 1 1/0/1900 1/0/1900 N/A $/SF/YR Total Commission $0 2 % of Total Lease Payment Detail 3 Base Rent % of Total Month Cap/Exp Payment 4 Abatement $0 5 Credit $0 6 Other Rent 0% $0 7 Opex Reimb $0 8 Opex Recoverable 9 10 11 Outside Broker Commission 12 13 $/SF/YR Total Commission $0 14 % of Total Lease Payment Detail 15 Base Rent % of Total Month Cap/Exp Payment 16 Abatement $0 17 Credit $0 18 Other Rent 0% $0 19 Opex Reimb $0 20 Opex Recoverable Tenant Improvements Other Capital / Expenses Operating Expense Assumptions Cap/Exp Month Amount Description Cap/Exp Month Amount Expense Reimbursement 1 1 Base Year Amount 2 2 Recoverable Expenses per SF $0.00 3 3 Non-Recoverable Expenses per SF $0.00 4 4 Expenses while Vacant $0.00 5 5 Expense Inflation N/A http://portal.portseattle.org/corp/RealEstateDiv/Portolio/dashboard/Property Manager Tools/Lease Analysis Template v1b.xlsm Budget Analysis Input Prepared By: Date: 4/26/2011 Tenant N/A Scenario Name Scenario Description NPV $0 Discount Rate Location N/A Occupancy Status Agreement Type IRR N/A CPI Assumption Building / Floor N/A MIRR N/A Revenue $0 Suite/Space Analysis Start Date Lease Start Date Payback 1 Expenses $0 SF Analysis Term Lease Term Net Effective Rent $0.00 Capital $0 Analysis End Date N/A Lease End Date N/A Equivalent Level Rent N/A Net Income $0 Base Rent Schedule Abated Base Rent Total Lease Concessions Steps Start Month Start Date End Month End Date Annual PSF CPI Increase Monthly Annual Month Amount Total PSF 1 1 1/0/1900 1/0/1900 N/A 1 Rent Concessions 2 2 Abated Rent $0 $0.00 3 3 Rent Credit $0 $0.00 4 4 Total Rent Concessions $0 $0.00 5 5 6 6 Tenant Improvements 7 7 TI Expensed $0 $0.00 8 8 TI Capitalized $0 $0.00 9 9 Total Tenant Improvements $0 $0.00 10 10 11 Lease CommissionsL C i i 12 Inside Broker Commissions $0 $0.00 13 Other Rent Credit Outside Broker Commissions $0 $0.00 14 Month Amount Total Lease Commissions $0 $0.00 15 1 16 2 Other Lease Costs 17 3 Expensed $0 $0.00 18 4 Capitalized $0 $0.00 19 5 Total Other Lease Costs $0 $0.00 20 Total Lease Concessions $0 $0.00 Other Rent Schedule Inside Broker Commission Steps Start Month Start Date End Month End Date Annual PSF CPI Increase Monthly Annual 1 1 1/0/1900 1/0/1900 N/A $/SF/YR Total Commission $0 2 % of Total Lease Payment Detail 3 Base Rent % of Total Month Cap/Exp Payment 4 Abatement $0 5 Credit $0 6 Other Rent 0% $0 7 Opex Reimb $0 8 Opex Recoverable 9 10 11 Outside Broker Commission 12 13 $/SF/YR Total Commission $0 14 % of Total Lease Payment Detail 15 Base Rent % of Total Month Cap/Exp Payment 16 Abatement $0 17 Credit $0 18 Other Rent 0% $0 19 Opex Reimb $0 20 Opex Recoverable Tenant Improvements Other Capital / Expenses Operating Expense Assumptions Cap/Exp Month Amount Description Cap/Exp Month Amount Expense Reimbursement 1 1 Base Year Amount 2 2 Recoverable Expenses per SF $0.00 3 3 Non-Recoverable Expenses per SF $0.00 4 4 Expenses while Vacant $0.00 5 5 Expense Inflation N/A http://portal.portseattle.org/corp/RealEstateDiv/Portolio/dashboard/Property Manager Tools/Lease Analysis Template v1b.xlsm Property and Tenant Prepared By: Input Date: 4/26/2011 Asset Information Location Valuation Property Cost PSF Building / Floor Property Value PSF Cost/Value As Of Org Subclass Cap Rate Reinvestment Rate Property Size (sf) Vacant Leased Total Leased % Finance Rate Submerged Land 0 N/A Land 0 N/A Budgeted Annual Operating Expenses Buildings 0 N/A Recoverable Opex psf Total 0 0 0 N/A Non-Recoverable Opex psf Opex while Vacant psf Expense Inflation Tenant Information Tenant Name First Contact Type of Business Projected Lease Signed Primary Contact Name Primary Contact Phone Primary Contact Email Tenant Credit Financial Review Credit Comment Credit Concern Security Deposit Amount Letter of Credit Amount Lease Guarantee Amount Unconditional / Conditional Description Other Security Amount Description Broker Information Port Broker Tenant Broker Company Company Name Name Phone Phone Email Email Market Information Market Leased % As of Market Comment Background & Prior Action Summary Other Notes http://portal.portseattle.org/corp/RealEstateDiv/Portolio/dashboard/Property Manager Tools/Lease Analysis Template v1b.xlsm Annual Cash Flow Prepared By: Date: 4/26/2011 Tenant Scenario Name Scenario Description Location Building / Floor Analysis Start Date Lease Start Date Suite/Space Analysis Term Lease Term SF Analysis End Date Lease End Date NPV Payback Discount Rate IRR Net Effective Rent CPI Assumption MIRR Equivalent Level Rent Annual Cash Flow NPV Nominal Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Revenue Base Rent Base Rent Abatement Other Rent Credit Additional Rent Opex Reimbursement Total Revenue to Port Expenses Opex Recoverable Opex Non-Recoverable Opex Vacant Tenant Improvements Expensed Lease Commissions Expensed Other Expenses Total Expenses CapitalCapital Tenant Improvements Capitalized Lease Commissions Capitalized Other Capital Total Capital Net Cash Flow http://portal.portseattle.org/corp/RealEstateDiv/Portolio/dashboard/Property Manager Tools/Lease Analysis Template v1b.xlsm 4.3 Appendix C Sample Lease Comparables Rev. April 26, 2011 Page 10
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