11a. Presentation Real Estate Strategic Plan Update

Item No.     11a_supp
Real Estate Strategic Plan Briefing               Date of Meeting March 23, 2021




1

Overview
Real Estate Principles
Port Property Profiles and Recommendations
Acquisitions and Partnership Opportunities
Legal Parameters Surrounding RE Development/Acquisitions
Financing Options
Mar    April     May      June      July     August   September   October   November  December  January  February   March
Port
Commission    x                                                          x                                          x
Port RE
Team                x                      x               x               x
External
Advisory                         x                          x                                                                   x
Committee
Port Property                                Acquisitions &
Research and                               Partnership
Recommendations                           Research
2

Port Real Estate Principles
"The Port of Seattle will use its real estate, capital
Framework                                                assets and financial capabilities to accomplish the
Century Agenda. These are tools to thoughtfully
steward, rather than areas well-suited for specific
Strategic Principles                                                  25-year goals."
Existing Properties
Manage for the Mission                                     Strategies for
Operational                    Existing                                   Strategic Principles
Opportunity
Properties
Cashflow                                                                     Use to Continually
Evaluate Real
Leverage Expertise                                                                             Property
Performance and
Acquisitions                                                        Alignment with
Operational                   Acquisition
Principles
Opportunity                   Strategies
Partner to Amplify                   Cashflow

3

Port Property Development
Recommendations

4

Contents  Properties Being Evaluated
FOCUS PROPERTIES
PROPERTY                   GEOGRAPHY    RESP YEAR   Focus Properties:
Fishermen's Terminal                 North Bay             2020
The 2020 Real Estate Strategic Plan will
Salmon Bay Marina                 North Bay            2020       focus on this group of eight properties in
T91 Uplands                       North Bay          2016/2020     the Port of Seattle's real estate portfolio.
Harbor Marina Corporate Center      South Bay             2020
Pier 69                                 Downtown             2020
World Trade Center West             Downtown            2020
2016 PROPERTIES  REVIEW
PROPERTY                   GEOGRAPHY    RESP YEAR
Pier 2                                    South Bay               2016         Review Properties:
CEM                      South Bay         2016     The 2016 Real Estate Strategic Plan
Terminal 106                        South Bay             2016        evaluated these properties. These
properties are not the focus of the 2020
Tsubota                           North Bay            2016
Strategic Plan Update.
L Shaped Site*                       SeaTac                2016
13 Acre Site*                           SeaTac                 2016
*Properties now under the purview of the Sustainable
55-Acre Site*                          SeaTac                 2016         Airport Master Plan (SAMP).
S 200th St*                            SeaTac                 2016
5

Fishermen's TerminalDevelopment Recommendations  Port Properties






Fishermen's Terminal                    Salmon Bay Marina                            Terminal 91
Keep operationally critical facilities in place to               Evaluate the opportunity to utilize/modify the                 Continue to move Phase 1 development of light
support maritime industry                                  MUP at the uplands prior to its expiration                     industrial buildings through design and permitting
Implement new developments to support                Explore the opportunity to develop uplands to              Make utility and infrastructure investments to
both the existing maritime industries and                    support uses at Fishermen's Terminal                          support Phase II development of Uplands
incubate new maritime industries
Use uplands development to support                      Target maritime industries for occupancy in Phase
Improve visitor experience thru wayfinding                  reinvestment in docks and waterside facilities                 1 and Phase II
signage and interpretive displays (1% for art
Explore how to improve freight mobility and
project)
access for employees (especially as new
development unfolds)                   6

Fishermen's TerminalDevelopment Recommendations  Port Properties




Harbor Marina
Corporate Center                  World Trade Center                           Pier 69
Consider putting property on market for sale                   Evaluate the Property in terms of its fit and                Consider future leasing efforts tied to the
Complete a feasibility study to determine                        alignment with Port's mission and                           in-water dependent uses and releasing
highest and best use for property (including                      objectives                                                    (key lease expiration in 2022)
marina)                                                  Evaluate the implications of a sale of the                 Re-evaluate Port's office needs post
Evaluate relocation of commercial in water                      WTCW property                                            COVID to determine space requirements
uses to other Port properties                                                                                                  at P69
Maintain mission supportive uses in the
Explore a strategy to allow leases to expire                       Building such as the World Trade Center                    Evaluate how to reuse Clipper Caf space
and/or only extend on the short term to                         Club through a long-term lease of the                      Evaluate P69 leasing options based on
allow for maximum flexibility in the near                         space or consider relocation of such uses                     forecast of Port office space needs
term                                                                                                                                     7

Evaluate Acquisition and Partnership Opportunities
Manage for the Mission     Leverage Expertise          Partner to Amplify Impact
What types of properties are            What additional policy                   What other organizations have an
being considered?                    objectives can be achieved            interest in the success of this
within the scope of the                investment?
primary business purpose?
What is the business and
performance purpose?                                                How can others be brought into an
Are there alternative                      investment to amplify impact?
structures/approaches that
What is the Port's mission
would produce outsized
objective?
benefits compared to other           When should the Port partner?
initiatives?
How will success be measured
in the near, mid and long term?


8

"We're considering this property because it may."
Support the Port's Mission     Leverage Staff Expertise      Partner to Amplify Impact
The property can support             The Port has experience and        Potential to partner with
maritime or air cargo industries            capacity to address the                  other governmental
(advance NWSA competitiveness)         opportunities and challenges           agencies/entities to
Property advances SEA                 associated with the Property           amplify impacts
competitiveness and/or efficiency
Property advances maritime                                             The property and
industries and protects industrial                                                     associated development
lands                                                                           can attract alternative
The property enhances or protects                                            sources of funding
Port properties/operations                                                        through partnerships or
The property could advance Port                                              financing mechanisms
energy and sustainability goals                                                       available to the Port
The property's development could
impact equitable economic
development regionally
9

Some Caveats with
the Evaluative Matrix
The matrix we are about to review is
intended to help staff evaluate and rank
property acquisition/partnership options
Preliminary rankings based on incomplete
information about properties.
Matrix will help staff focus on property acquisitions
and partnerships that are most strategic to the Port
More due diligence and research will be done on
promising properties that show up during initial
evaluation
The fact that a property is being evaluated does not
mean that the Port wants to acquire the property.
As more research on priority properties is
completed, we can use this matrix to further refine
scores and better determine how these properties
fit our mission/priorities
10

Criteria Derived From the Century Agenda
The Property advances               The Property advances
NWSA competitiveness               SEA competitiveness
5 = Immediately adjacent to key NWSA/Cargo site            5 = Within 0.5 miles of other SEA properties and
4 = Within 3 miles of NWSA terminal and can                can be developed to enhance SEA
support logistics efficiency and/or capacity                    competitiveness
3 = Could support key suppliers, transload                    4 = Within 4 miles of SEA and can be developed
facilities, and other support facilities to logistics                to enhance SEA competitiveness
terminals                                                  3 = Can tangibly support current or future
2 = Industrially zoned with adequate access for               operational need at SEA
heavy trucks/logistics vehicles related to NWSA               2 = May be able to support some future
operations                                                operational need of SEA
1 = Not clear how property drives/support NWSA            1 = Does not support SEA's existing or future
existing or future operations                                  operations

11

Evaluative Matrix Continued
Property advances Maritime            Property protects Port
economic development          operations and industrial lands
5 = Can be developed (or utilized) to support               5 = Immediately adjacent to Port operating facility
existing Port maritime line of business (cruise,
4 = Within 0.5 mile of Port operations and its
fishing, etc.)
development could impact Port operations
4 = Can be developed or utilized to support                3 = Within a MIC and zoned industrial
maritime industries
4 = Could be developed or rezoned to protect or
3 = Can accommodate industrial maritime uses            enhance industrial lands
2 = Could potentially support maritime uses               1 = Not clear on how property supports Port
1 = Cannot easily enhances/protects maritime             properties or industrial lands
uses


12


Equity and Sustainability
Property Supports the               Property Advances Port of
Port's Equity Goals               Seattle Sustainability Objectives
5 = In an Opportunity Zone (high                         5 = Has the potential to support at least three Port
poverty census tract)                                     sustainability goals (stormwater mgmt. air and GH
4 = Location scores 8 or higher on the                    gas reduction, renewable energy generation,
Port's Equity Index                                        habitat restoration)
3 = Development affords Diversity in                     4 = Could potentially support more than one
contracting and workforce                              sustainability objective at a significant level
development opportunities                            3 = May be able to improve Port outcomes for
2 = May afford equity opportunities                      sustainability objectives
(DC and workforce)                                    2 = Unclear how this property could support
1 =property not likely to advance equity                  sustainability goals
1 = Would detract from meeting sustainability goals

13

Leveraging Expertise and Partnerships
The Port has experience and capacity to          Potential to partner with other
address the opportunities and            public and private agencies/entities
challenges associated with the Property                to amplify impacts
5 = Full internal capacity and/or expertise to directly          5 = Property would serve the mission/objectives
address 100% of the complexities and scale of                 of two or more public or private organizations in
property/project.                                             addition to the Port
4 = Has capacity and/or expertise to deal with the              4 = Property would serve the mission/objectives
over 50% of the site complexities and project scale             of 1 or more public or private organizations in
3 = Team has some capacity/expertise, but limited            addition to the Port
experience to address scale                                   3 = Property has the potential to serve
2 = Some relative capacity/expertise but would need          mission/objectives of 1 or more public or private
additional support for most of the project.                     organizations in addition to the Port
1= Limited capacity/expertise and would likely need           2 = Limited opportunity for partnership
to rely exclusively on external parties.                           1= No potential for partnership
14

Funding Options and Opportunities
The property and associated development can
attract alternative sources of funding through
partnerships or financing mechanisms available to
the Port
5 = An alternative financing/funding resource has been identified and will
benefit the project
4 = An alternative financing/funding resource has been identified and has the
potential to benefit the project
3 = Project is eligible for alternative financing/funding, but no specific
opportunity has been identified
2 = Unclear if the project is eligible for or can attract alternative sources of
funding.
1= No alternative sources of funding or financing are envisioned for the project.
15 15

Port Real Estate Development - Legal Parameters
RCW 53.08.20                              A port district may construct,
Acquisition and operation of facilities            condemn, purchase, acquire,
RCW 53.08.255                            add to, maintain, conduct, and
Tourism-related facilities authorized           operate sea walls, jetties, piers,
wharves, docks, boat landings,
RCW 53.25.190                           and other harbor improvements,
Eminent Domain                            warehouses, storehouses,
elevators, grain-bins, cold
RCW 53.08.260
Park and recreation facilities.                            storage plants.

16

Port Development Execution Options
Port self                         Port Ground Lease to
finances/performs            Developer                 Joint development
PRO requires little/no Port $,
PRO 100% control; owning all
influence development             PRO "p"partnership to
opportunities and liabilities
through RFP, no financial risk         reduce risk and achieve
to Port                               multiple objectives
CON some market limits on       CON decision making and
CON CIP limitations, time to
what a developer can do,            execution complexity
completion, audit risk
loss of property control


17

Next Steps      WORKING DRAFT
Implement key recommendations
surrounding development or
disposition of Port properties
Complete due diligence on two to
three top acquisition or partnership
opportunities
Determine costs/benefits for each
potential development
Determine possible financing and
development options
Provide routine updates and reports
on objectives
Complete analysis of Port financing
options for real estate development
project

18

Appendix: Market Snapshots

19

Market Context
Region Unemployment: Initial Claims with Continued Claims, Jan - Sep 2020
Number Of Claims                                                                                                                Number Of Claims
160,000                                                                                                                               160,000
140,000                                                                                                                               140,000
120,000                                                                                                                               120,000
100,000                                                                                                                               100,000
80,000                                                                                                                                80,000
60,000                                                                                                                                60,000
40,000                                                                                                                                40,000
20,000                                                                                                                                20,000
0                                                                                                                      0
January-20    February-20    March-20      April-20       May-20       June-20       July-20      August-20   September-20
Snohomish Initial Claims              Pierce Initial Claims                   King Initial Claims
Snohomish Continued Claims        Pierce Continued Claims             King Continued Claims
20

Market Context
OFFICE                                  INDUSTRIAL
Rent Collections:              96.4%                                Rent Collections:              99.4%
CMBS Mortgage            2.3%                           CMBS Mortgage            1.2%
Delinquencies:                                                     Delinquencies:
US VACANCY              10.7%                         US VACANCY              5.7%
Current:                                                            Current:
Forecasted Peak:              12.7%                              Forecasted Peak:              6.9%
in 2023                                                             in 2021
BIG QUESTIONS                                BIG QUESTIONS
WFH impact on vacancies?                           Who are the winners in the
Rise or fall of coworking?                                 supply chain disruption?
Will telemedicine reduce                               Will manufacturing
demand for medical office?                           meaningfully increase space
demand?

Sources: NAREIT, Trepp, Costar, STR, Zillow, US Census Bureau                                                                                   21
Note: Mortgage delinquencies represent CMBS delinquencies. Data as of Aug 2020 where not specified.

Market Context
RETAIL                                HOSPITALITY/LODGING
Rent Collections:                                                      CMBS Mortgage
Free standing:               90.5%                                                              23.0%
Delinquencies:
Shopping Center:            80.1%
Hotel Occupancy:
CMBS Mortgage                                                                     47.0%
14.8%                     Jul:
Delinquencies:                                                      Aug:                        50.2%
US VACANCY              10.2%                         Recovery to 20-year historical average
Current:                                                            expected in 2023.
Forecasted Peak:              14.6%
in 2021
BIG QUESTIONS
BIG QUESTIONS
Will $50 billion in delinquent
Which retail categories will
CMBS debt trigger a
survive?
broader financial crises?
Which retail typologies will
How many independent
be successfully redeveloped
hotels will not make it
in the near term?
through the downturn?
Sources: NAREIT, Trepp, Costar, STR, Zillow, US Census Bureau, Moody's Analytics                                                                22
Note: Mortgage delinquencies represent CMBS delinquencies. Data as of May 2020 where not specified.

Market Context  Regional Industrial
Total Inventory and Deliveries, 2016-2020 YTD                   Puget Sound Industrial Vacancy, 2016-2020 YTD
Total Inventory                                                                                        8.0%
(in Millions of SF)                                                                   Total Deliveries
(in Millions of SF)          7.0%
335m                                                         4m        6.0%
5.0%
330m                                                         3m
4.0%
3m       3.0%
325m
2.0%
2m
1.0%
320m
2m       0.0%
2016        2017        2018        2019        2020
315m
1m
Seattle Metro            King County
310m                                                                                      Pierce County        Snohomish County
1m
305m                                                         m                 Avg. Rent*    Vacancy                  Avg. Rent*    Vacancy
2016        2017        2018        2019      2020 YTD                 Metro      $11.69        5.4%           Magnolia      $13.83        2.6%
King County        $13.06          4.9%               Ballard        $16.89          5.5%
King Co Deliveries                 Pierce Co Deliveries                                Pierce County          $8.20           7.8%            Duwamish N         $13.16           6.1%
Snohomish County       $10.14         3.4%          Duwamish S       $12.75         1.3%
Snohomish Co Deliveries          Total Inventory
*Avg. Annual NNN rate per square foot
23

Market Context  Regional Office
Total Inventory and Deliveries, 2016-2020 YTD                   Puget Sound Office Vacancy, 2016-2020 YTD
Total Inventory                                                                  Total Deliveries
(in Millions of SF)                                                                                                8.5%
(in Millions of SF)
8.0%
216m                                                       5m
7.5%
214m                                                       5m
7.0%
212m                                                       4m
6.5%
210m                                                       4m         6.0%
208m                                                       3m         5.5%
206m                                                       3m         5.0%
204m                                                       2m         4.5%
2016         2017         2018         2019       2020 YTD
202m                                                       2m
200m                                                       1m                      Seattle Metro              King County
Pierce County                   Snohomish County
198m                                                       1m
196m                                                       m
2016        2017        2018        2019      2020 YTD                  Market  Avg. Rent*    Vacancy             Submarket  Avg. Rent*    Vacancy
King County       $36.57         6.8%   Belltown/Denny Regrade       $41.76         4.7%
King Co Deliveries             Pierce Co Deliveries                                  Pierce County       $26.23         5.8%     Pioneer Sq/Waterfront       $40.60         8.7%
Snohomish Co Deliveries      Total Inventory                                Snohomish County      $25.42        6.4%     Queen Anne/Magnolia      $37.47       12.2%
*Avg. Annual Full Service rate per square foot
24

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