Metropolitan Airports Commission

Transcription

1 Metropolitan Airports Commission Management and Operations Committee Regular Monthly Meeting Agenda Monday, June 03, :00 pm

2 SEE ATTACHED SECURITY CHECKPOINT INFORMATION MANAGEMENT AND OPERATIONS COMMITTEE Mike Landy, Chair Rick King, Vice Chair Daniel Boivin, Commission Chair Timothy Geisler, F&A Chair Mike Madigan Don Monaco Lisa Peilen, Commission Vice Chair Paul Rehkamp, PD&E Chair OPEN FORUM METROPOLITAN AIRPORTS COMMISSION NOTICE OF REGULAR MEETING MANAGEMENT & OPERATIONS COMMITTEE Monday, June 3, 2013 at 1:00 p.m. Room 3048A, Terminal 1-Lindbergh Minneapolis-St. Paul International Airport AGENDA The open forum is a portion of the Commission meeting where persons will be allowed to address the Commission on subjects which are not a part of the meeting agenda. Speakers are asked to limit their remarks to two minutes each. Persons wishing to speak must complete a sign-up card prior to the start of the meeting. The sign-up card should be given to any staff person. The Commission may take action or reply at the time of the statement of may give direction to staff at the end of the meeting regarding investigation of the concerns expressed. CONSENT PROPERTY AND MINNESOTA RISK MANAGEMENT FUND RENEWAL Bill Hoyt, Manager, Insurance / Risk Management 2. TRASH & RECYCLING CONTRACT AWARD Phil Burke, Director of MSP Operations Mark Wacek, Environmental Administrator, Environment 3. ELECTRONIC DATA BACKUP AND STORAGE SERVICES AGREEMENT Dave Ruch, Director, Information Systems 4. AUTOMATED LICENSE PLATE RECOGNITION BID AWARD Matt Christenson, Police Commander Andrea Bolstad, Senior Buyer Facilities Administrator DISCUSSION - INFORMATION 5. FEDERAL SEQUESTRATION OPERATIONAL IMPACTS Roy Fuhrmann, Vice President, Management and Operations

3 6. EXTENDED LEASE TERMS FOR NON-AERONAUTICAL DEVELOPMENTS Eric Johnson, Director, Commercial Management & Airline Affairs Materials for this meeting are available at the following website: SECURITY CHECKPOINT INFORMATION Stop by the information booth near the tram station on the Tram Level. At the information booth, you will be asked to complete a security checkpoint access form and show valid, government-issued photo identification, such as a driver s license. Take your completed access form with you up two floors, to the Ticketing Level security checkpoints. Show your approved access form to security checkpoint personnel. You will then be screened just as if you were traveling. Access forms are only valid for the purpose of attending a public MAC meeting at a particular date and time. Commission Chambers are located on the Mezzanine Level overlooking the airport s central shopping area (above Chili s Restaurant), past the main security checkpoints. Allow yourself at least 30 minutes to park, complete the access form and get through the security checkpoint prior to the meeting. Parking in the following areas will be validated; please bring your parking ticket to the meeting. Directions to the Tram Level Information Booth From short-term parking: At the Terminal 1-Lindbergh entrance, take the escalator or elevator down to Tram Level. The information booth is straight ahead, in the center of the room. From general parking: If you park in the Blue or Red ramps, take the elevator down to the tram, which will transport you directly to the Terminal 1-Lindbergh Tram Level. When you exit the tram, the information booth is straight ahead, in the center of the room. If you park in the Green or Gold ramps, take the skyway to the Terminal 1-Lindbergh Mezzanine Level. From there, take an elevator or escalator to Tram Level. The information booth is straight ahead, in the center of the room. 5/29/2013 2:48:19 PM

4 MEMORANDUM ITEM 1 TO: Management and Operations Committee FROM: Bill Hoyt, Manager, Insurance/Risk Management ( ) SUBJECT: 2013 PROPERTY AND MINNESOTA RISK MANAGEMENT FUND RENEWAL DATE: May 21, 2013 Background MAC staff uses a process of inherent and residual risk assessment, benchmarking, retention and the transfer of risk. This process ensures projected adverse risks are mitigated while controlling costs. Annually, the transfer of risk involves the evaluation of traditional insurance and alternative methods to obtain the best coverage at the lowest cost. Deductibles or self-insurance is evaluated by looking at loss history, prevention, control and insurance market conditions. For 2013, staff recommends the MAC continue to use alternative methods of risk transfer by obtaining insurance and services through risk pools with other governmental entities, i.e., the Public Entity Property Insurance Program (PEPIP) for property/boiler/machinery/cyber and the Minnesota Risk Management Insurance Fund for auto/inland marine/garagekeepers. The insurance risk pools obtain insurance from international and domestic markets or retention. The retention is a percentage of premium or coverage that is self-insured by MAC based upon a modeling of the risk. Catastrophic losses such as Hurricane Sandy impact the cost and coverage of insurance obtained by the pools. Although insurance costs have been increasing along with greater coverage restrictions, entities that have had a favorable loss experience, or are located in a non-catastrophic risk area such as the MAC, are still able to obtain coverage and lower increases in costs. Property Insurance The MAC obtains coverage for property, contents, business interruption, cyber, boiler and machinery insurance along with fire protection, engineering consulting, regulatory boiler and machinery compliance inspection services through the Public Entity Property Insurance Program (PEPIP) which is owned by Alliant Insurance Services. This is a national program of governmental entities with collective insurable property values up to $300,000,000,000. Pool members share some insurance limits and coverage to reduce costs. A study was conducted to determine MAC s maximum foreseeable loss (MFL) which is $1,050,000,000. This assessment determines the limits of insurance MAC should obtain from the pool compared to total insurable values. Attachment 1 is a historical graph depicting the rate of cost per $100 of insurable values which determines the property part of the annual premium. The Not to Exceed Rate for the 2013 renewal is approximately a 5 percent increase over the expiring rate. Staff and Alliant Insurance Services will continue to negotiate the rate and coverage until the renewal is finalized. In the past two years the MAC has been able to negotiate a lower rate compared to the Not to Exceed Rate shown.

5 Attachment 2 represents MAC s insurable values as compared to the annual premium. The values represent a 1 percent inflation increase and value of properties eliminated or added during the year. As noted with Attachment 1, within the past two years the MAC has been able to negotiate a lower premium as compared to the Not to Exceed Premium. The Not to Exceed Premium also includes Boiler and Machinery along with surcharges paid to the State of Minnesota. Renewals Limits $1,025,000,000 $1,050,000,000 $1,050,000,000 Values $2,585,457,687 $2,649,958,117 $2,769,269,859 Base Deductible $250,000 $250,000 $250,000 Premium $783,000 $839,558 $923,000* * Not to Exceed Premium Non-Aviation Liability Insurance The MAC has obtained liability insurance through the Minnesota Risk Management Insurance Fund for property not directly associated with airport operations. Examples would be any noncontiguous property or land around our airports purchased to control noise or growth. This year staff negotiated coverage for this risk at no additional cost through the Aviation Liability Insurance with ACE USA with limits of $500,000,000. Limits Renewals $ 500,000 per person $1,500,000 per occurrence $ 500,000 per person $1,500,000 per occurrence N/A Deductible None None N/A Premium $7,961 $7,961 $0 Auto Physical Damage and Liability/Inland Marine/Garagekeepers Liability The MAC obtains coverage for this risk group through the Minnesota Risk Management Fund managed by the State Risk Management Department. The Fund participants consist of state agencies, political subdivisions and other governmental entities in Minnesota that are allowed to participate in the Fund by Minnesota Statute. The Fund self-insures and obtains reinsurance from traditional insurance markets. The Fund projects that it has saved participants a combined total of $5,000,000 in the past five years compared to traditional insurance. MAC s licensed and non-licensed (inland marine) fleet liability is insured to Minnesota Tort Cap Limits per Minnesota Statue while operating off MAC property in Minnesota and $5,000,000 outof-state through the Fund. In addition, MAC s Aviation Liability Insurance through ACE USA provides insurance coverage in excess of the $5,000,000 to $25,000,000 for licensed vehicles out-of-state.

6 The Fund is also used to insure physical damage for licensed and non-licensed fleet and equipment (i.e. noise monitoring equipment). The fleet insurable value is currently $55,127,096 as compared to the prior year renewal value of $52,041,461. The deductible is $1,500 for licensed vehicles and $2,500 for unlicensed vehicles up to $1,000,000. For vehicles with a value in excess of $1,000,000 (currently one vehicle) the deductible is $25,000. The Minnesota Risk Management Fund rewards participants that have a favorable loss history. MAC is ranked in the most favorable rate classification and received a premium rebate of $72,584 during the current policy year. MAC has utilized a portion of the rebate to enhance fleet safety training and equipment. Attachment 3 is a historical graph which represents each dollar of damage as compared to each dollar of premium after investment and administrative costs. It should be noted that the 2013 data only represents the first nine months of the policy year and MAC experienced a greater amount of losses during the adverse winter season. The MAC Fleet Safety Program continues to contribute significantly to the favorable loss experience. Garagekeepers Liability is for vehicles owned by others and subject to MAC s obligation at MSP parking facilities. Renewals Auto Liability/Physical Damage $102,093 $107,028 $110,363 Inland Marine $119,258 $126,094 $134,935 Garage Keepers $ 2,898 $ 2,898 $ 2,898 Total $224,249 $236,020 $248,196 COMMITTEE ACTION REQUESTED: RECOMMEND TO THE FULL COMMISSION THE FOLLOWING INSURANCE RENEWALS AND THAT THE EXECUTIVE DIRECTOR/CEO OR HIS DESIGNEE BE AUTHORIZED TO EXECUTE THE NECESSARY DOCUMENTS: PROPERTY ALLIANT INS. SERVICES $ 839,558 $ 923,000* NON-AVIATION LIABILITY MN RISK MGMT. FUND $ 7,961 $ 0 AUTO LIABILITY/INLAND MARINE MN RISK MGMT. FUND $ 236,020 $ 248,196 *Not to Exceed Premium TOTALS $1,083,539 $1,171,196 (Please see attachments 1, 2, and 3)

7 ATTACHMENT 1

8 ATTACHMENT 2

9 ATTACHMENT 3

10 MEMORANDUM ITEM 2 TO: Management & Operations Committee FROM: Phil Burke Director of MSP Operations ( ) Mark Wacek Environmental Administrator, Environment ( ) SUBJECT: TRASH & RECYCLING CONTRACT AWARD DATE: May 16, 2013 On March 18, 2013, the Commission authorized staff to issue a Request for Proposals (RFP) for trash & recycling service at MSP that was subsequently issued on April 1, On April 10, 2013, a pre-proposal conference was held for interested parties and six (6) companies attended. On May 1, 2013, proposals in response to the RFP were received from Republic Services, Incorporated and Waste Management. Summary of Recommendation This public memo will address the Minnesota Data Practices Act, the RFP requirements, the Review Team evaluation process, and an award recommendation. Minnesota Data Practices Act Under state law, information submitted by proposers to MAC and information created or maintained by MAC as part of the evaluation process remains not public until MAC has completed negotiating the contract with the selected proposer(s). The names of the proposers, however, are public once the proposals are opened. Information contained in the proposals is not public and should not be disclosed to anyone other than MAC Commissioners and staff. However, Commissioners may discuss the information contained in the proposal(s) at the Committee and Commission meetings to the extent reasonably necessary to conduct the business at hand. The information contained in this memorandum is public data. I. MINIMUM REQUIREMENTS In order to submit a proposal, proposers must have met the following Minimum Requirements, as set forth in the RFP: A. Provide scheduled service in accordance with the volume of waste generated at MSP. Also be able to provide unscheduled service seven days a week, 365 days a year, including holidays. B. Provide equipment repair 24 hours per day, seven days per week, including holidays within three hours of notice. II. KEY BUSINESS TERMS A. The term of the agreement is for three years, with one 3-year renewal option at the MAC s sole discretion.

11 B. Costs for compactor and front/rear load container hauling, labor costs for repairs, major component part costs and recycling costs were required to be provided on a per unit basis. C. The agreement is performance-based with liquidated damages for not meeting specific service parameters (schedule compliance, repair response time). III. EVALUATION CRITERIA The RFP evaluation process involved a focused review by Review Team members. The following information illustrates the major elements evaluated and scored by each Review Team member for each proposal submitted. A. Company Qualifications and Experience background qualifications and experience of the proposer, their quality of past performance and the similarity of other operations to the one described in the RFP. B. Hauling Service the proposer s plan and ability to accommodate MSP s required schedule and volumes of waste. This category also dealt with the proposer s recycling plan. C. Repairs and Maintenance the proposer s ability to maintain all equipment on a 24/7/365 basis. D. Financial Submission the overall cost of the service, including repair/maintenance costs and revenue sharing from recycling services. VI. REVIEW TEAM The Review Team consisted of: Phil Burke, Assistant Director of MSP Operations/Facilities; Mark Wacek, Environmental Administrator Environment; Linda Lewis, Facilities Supervisor Facilities; Jim Riley, Manager Field Maintenance/Operations; and Fred Medrano, Delta Airlines. MAC s Finance and Purchasing Departments served as advisors to the Review Team. V. PROPOSAL REVIEW PROCESS/RESULTS Each Review Team member reviewed the proposals individually, a meeting was held to discuss them collectively, and interviews were conducted for the two companies. Based on the analysis, it is the Review Team s unanimous recommendation that Republic Services be awarded the trash & recycling service contract at MSP for a term of three years. COMMITTEE ACTION REQUESTED: RECOMMEND THAT THE FULL COMMISSION AWARD THE CONTRACT FOR TRASH & RECYCLING SERVICE AT MSP TO REPUBLIC SERVICES, INCORPORATED FOR THREE YEARS WITH ONE THREE YEAR RENEWAL OPTION AND THAT THE EXECUTIVE DIRECTOR/CEO OR HIS DESIGNEE BE AUTHORIZED TO EXECUTE THE NECESSARY DOCUMENTS.

12 MEMORANDUM ITEM 3 TO: Management and Operations Committee FROM: Dave Ruch Director, Information Systems ( ) SUBJECT: ELECTRONIC DATA BACKUP AND STORAGE SERVICES AGREEMENT DATE: May 23, 2012 The MAC Information Services Department acts as the custodian of electronic data for many departments. In addition, some departments operate their own IT assets including data storage. Beginning in 2012, the MAC selected a company by competitive bid to provide offsite data backup by electronic transfer of the data from the MAC to the company. The same company provides offsite backup for the remaining magnetic tape backups that are still in use. This service has been extremely successful, and the Noise and Environment, Landside, Public Safety and Airside Operations departments have asked to be included in the offsite data backing service. Information Services staff consulted with these MAC departments to determine how much data would be backed up since the cost of the service is based upon the volume of data being backed up. The current agreement with Iron Mountain Information Management LLC was for one year ending on June 22, A Request for Bids (RFB) was issued on April 19, The Bid called for a three-year agreement, followed by three optional one-year renewals at the MAC s discretion. The services specified in the RFB include: Provide physical media storage with onsite pickup and delivery Provide streaming electronic data storage from the MAC to a secure facility Provide evidence of PCI and HPAA compliance Only one vendor responded, the incumbent, Iron Mountain Information Management LLC. The proposed agreement costs for the first year are listed below. (The following years costs are calculated assuming a 5.5% annual growth in the volume of data stored based upon historical experience.) Year 1 data $.72 / GB / month $160, Year 1 media and transport cost $ 5, Year 1 backup appliance rent $ 7, Year 1 recovery /restore services $ 2, Total Year 1 $176, Total Year 2 $186, Total Year 3 $196, Grand Total $559,506.00

13 Staff recommends that Iron Mountain Information Management LLC be awarded the contract for Physical and Electronic Data Backup Storage. COMMITTEE ACTION REQUESTED: RECOMMEND TO THE FULL COMMISSION THAT A THREE-YEAR CONTRACT WITH THREE ONE-YEAR RENEWAL OPTIONS BE AWARDED TO IRON MOUNTAIN INFORMATION MANAGEMENT LLC FOR PHYSICAL AND ELECTRONIC DATA STORAGE SERVICES FOR A COST NOT TO EXCEED $559, FOR THE INITIAL THREE-YEAR CONTRACT, AND THE EXECUTIVE DIRECTOR/CEO, OR HIS DESIGNEE, BE AUTHORIZED TO EXECUTE THE NECESSARY DOCUMENTS.

14 MEMORANDUM ITEM 4 TO: Management & Operations Committee FROM: Matt Christenson, Police Commander ( ) Andrea Bolstad, Senior Buyer Facilities Administrator ( ) SUBJECT: AUTOMATED LICENSE PLATE RECOGNITION BID AWARD DATE: May 22, 2013 The purpose of this memo is to request authorization to purchase another layer of security at MSP through the purchase of fixed and mobile Automated License Plate Recognition (ALPR). ALPR is the process by which vehicle license plates are automatically read and compared to a known database. The State of Minnesota provides 19 options as to which license plates will generate an alarm based upon selected criteria such as AMBER Alerts, stolen vehicles and law enforcement warnings. For example, if a vehicle that has an AMBER Alert on it passes an ALPR system, it will generate an alarm that can inform authorities. Squad-mounted ALPR is being used by the Minnesota State Patrol as well as a number of municipalities including Minneapolis, St. Paul and Bloomington. The system s continuous checking of vehicle license plates against alarm data increases effectiveness and safety by freeing officers from having to manually enter plates to query the state database. MAC staff is aware of the concerns raised during the recent legislative session regarding limiting the retention of ALPR data collected and held by police departments. While legislation did not pass this session, staff will continue to monitor future legislative efforts and ensure compliance with any new requirements. The Request for Bid (RFB) included minimum requirements that the system must allow MAC the ability to set the retention period of ALPR data in order to adhere to any future legislative requirements. On August 15, 2012, the MAC received a $165,000 Auto Theft Prevention Grant from the Minnesota Department of Commerce to equip one police vehicle with ALPR and to facilitate the installation of ALPR on the ingress roadway at T1 (Westbound Glumack Drive). The MAC issued an RFB for the ALPR system on March 18, 2013 and received the following two bids on April 22, 2013: 3M... total project cost of $92, ElSAG North America... total project cost of $120, MAC staff from the purchasing, legal, information services and police departments reviewed the bids and determined that both vendors met the minimum qualifications established in the RFB. MAC staff determined that 3M submitted the lowest responsible bid and is recommending 3M for the bid award. Staff has until December 31, 2013 to spend the funds received under the Grant. Staff is in the process of working with the Minnesota Department of Commerce to obtain authority to use the excess grant money to both further integrate the ALPR system into the MAC ivisn system and to expand the ALPR system to other locations or squad cars. COMMITTEE ACTION REQUESTED RECOMMEND THAT THE FULL COMMISSION ACCEPT THE LOWEST RESPONSIBILE BID FROM 3M FOR THE ALPR SYSTEM FOR THE AMOUNT OF $92, AND THAT THE EXECUTIVE DIRECTOR/CEO OR HIS DESIGNEE BE AUTHORIZED TO EXECUTE THE NECESSARY DOCUMENTS.

15 MEMORANDUM ITEM 5 TO: Management & Operations Committee FROM: Roy Fuhrmann, Vice President, Management and Operations ( ) SUBJECT: FEDERAL SEQUESTRATION OPERATIONAL IMPACTS DATE: May 24, 2013 The impacts of federal budget cuts and sequestration legislation continue to impact various parts of MSP airport operations as well as our reliever airport system. This memorandum provides a summary of the resolution of some of the immediate impacts and attempts to identify areas of concern and future anticipated expenditures that may be placed on the MAC to maintain current service, security and operational activities. Federal Aviation Administration Air Traffic Control Tower Closures and Personnel Furloughs On March 22, the FAA announced that it would stop federal funding for 149 contract towers across the country. This action would have closed the Anoka County Blaine Airport Air Traffic Control Tower (ATCT). A phased, four-week closure process was scheduled to begin on April 7. That phased closure process date was later revised to June 15 and would have closed the facilities unless the airports decided to continue operations as a nonfederal contract tower. The federal ATCTs at Flying Cloud and Crystal Airports were also included on the list, however the closure date had not been determined. Additionally, the FAA announced that Air Traffic Control Tower personnel would be required to take one unpaid day off per pay period. This furlough action would have affected the MSP ATCT staffing capabilities and potentially impacted the MSP airfield capacity. Considerable discussion on both local and national levels with congressional members and staff as well as industry concern about flight delays were expressed. To address these concerns, Congress authorized the FAA to use AIP funds to address budgetary constraints. Specifically, DOT stated: Transportation Secretary Ray LaHood announced May 10, 2013, that DOT has determined that the recently enacted Reducing Flight Delays Act of 2013 will allow the FAA to transfer sufficient funds to end employee furloughs and keep the 149 low activity contract towers originally slated for closure in June open for the remainder of fiscal year The FAA will also put $10 million towards reducing cuts and delays in core NextGen programs and will allocate approximately $11 million to partially restore the support of infrastructure in the national airspace system. This Act resolves these issues in the near term and effectively moves the discussion into the 2014 federal fiscal year.

16 Security Checkpoint Queue Management Terminal 1-Lindbergh has six checkpoints and Terminal 2-Humphrey has two in their respective Ticketing lobbies. The number of lanes varies between checkpoints (for example, T1 checkpoint 1 has two lanes and checkpoint six has six lanes) creating very uneven wait times during busier check-in times. Most passengers enter a line closest to where they checked in or utilize a checkpoint closest to their departure gate, without taking into account the varying wait times. To better balance the wait times, the Transportation Security Administration (TSA) utilized security checkpoint managers to even out the lines by moving groups of passengers between checkpoints. TSA s actions were unique to MSP in that they did not perform this service at any other airport. Earlier this year, TSA notified MAC staff that they would be discontinuing this service and moving their managers back to the security checkpoint lines to better manage their staff and screening responsibilities. The MAC discussed and reviewed with the airlines the need to continue active management of the security checkpoint queues. At this time, the airlines and TSA believe that based on the unique facility configuration of Terminal 1-Lindbergh, active queue management is necessary to maintain effective processing of passengers. Staff examined a number of options to address this service as well as exploring the use of technology to inform passengers about queue line wait times at the various checkpoints. After consulting with airline representatives, the TSA and other airports, the technology option is not ripe for implementation. As such, the MAC is working with the MSP Airport Foundation s Traveler s Assistance staff to form a group of volunteers to assist with this particular function. In the interim, the MAC Airport Police Department will expand their responsibilities with law enforcement officers that are currently located in close proximity to the checkpoints along with Community Service Officers to assist passengers through the security checkpoint queues. Law Enforcement Officers Security Directive D states The airport operator must ensure law enforcement officers are posted at each screening checkpoint during screening operations, unless alternate procedures are approved by the Federal Security Director (FSD). Since the FSD approved our Airport Security Plan, we are currently required to respond to security checkpoints within five minutes. To meet this requirement, the MAC has utilized officers on a part-time basis to provide law enforcement coverage at the security checkpoints. In June, 2002 MAC entered into a special reimbursement agreement with the TSA for this law enforcement coverage which was initially reimbursed at $30.12 per hour. This amount has been regressing since Our current agreement (valid until 9/30/15) provides $20.00 per hour for 64 hours of law enforcement coverage per day. For 2013, the MAC will be reimbursed $467,200. The total cost to the MAC, for the Part Time Officer program, after the reimbursement is $230,734 per year. The current part time officer program provides the benefit of additional officers in our critical areas (public non-secure) and makes them available for immediate response to checkpoint issues, provides additional customer service, increased law enforcement visibility and can augment our full time officers during critical incidents. Given the current budgetary climate, it is

17 anticipated that the reimbursement amount will continue to degrade as the TSA struggles with federal funding, potentially shifting the funding requirement to a local source. Exit lane Management Terminal 1-Lindbergh has four checkpoint exit lane locations and Terminal 2-Humphrey has one exit lane location. The exit lanes must be staffed whenever the exits are open to prevent someone that has not been screened through security from entering the sterile area of the terminal. Through a national announcement and local discussions, TSA has informed MAC that the TSA will no longer staff the exit lanes with TSA personnel as of December 1, To address this critical airport security issue, staff is in the process of exploring potential options, including infrastructural modifications, contract service providers and the legal authority for TSA to unilaterally withdraw from providing this function. At the current time, the TSA has not published exit lane staffing guidelines and there is considerable industry concern about this recent announcement. Potential staffing options include modification of an existing terminal contract with a current vender to add exit lane monitoring or issuing an RFP for this function. Operational and Budgetary Implications There are a number of operational and security concerns related to each of the above issues. In each case, there is usually an increased burden in operational costs and staffing requirements for the airport. At this time, staff continues to review available options and is working with airline representatives and the TSA to determine appropriate methods to maintain customer service levels while minimizing the budgetary impacts. However, there may be specific federal requirements that will dictate a particular path that may have a significant budget impact. MAC staff will continue to develop options and plans as requirements are identified. Once a recommendation is developed, staff will bring these options to the Commission for consideration. THIS IS AN INFORMATIONAL ITEM ONLY; NO COMMITTEE ACTION IS REQUESTED

18 MEMORANDUM ITEM 6 TO: FROM: Management & Operations Committee Eric Johnson, Director Commercial Management & Airline Affairs SUBJECT: EXTENDED LEASE TERMS FOR NON-AERONAUTICAL DEVELOPMENTS DATE: May 24, 2013 Introduction In recent discussions regarding the potential micro-hotel project the Commission voiced some concerns over the proposed 30 year lease term. While this proposed lease term may seem extensive when compared to other existing leases on the airport it is not out of line when you take a broader look at what is being done at other airports that are aggressively trying to create non-aeronautical land development programs. So the question for the Commission to consider is what is the appropriate amount of lease term for MAC to offer in these development requests? The purpose of this memo is to open a discussion regarding non-standard development projects in an effort to provide staff some direction and guidance when working on nonaeronautical development projects before coming to the Commission seeking approval. Non-Aeronautical Development Non-aeronautical development is popular terminology in the airport industry with most airports looking for every available opportunity to generate additional revenue as well as to diversify their revenue sources. Non-aeronautical development is also a very broad term that basically means anything that is not aviation related which may include farms, outdoor advertising, office, industrial, retail, restaurant, cell towers, pet boarding facilities, and hotels to name a few. Unlike airport development projects where the prospective tenant needs to be on the airport, non-aeronautical development opportunities are competing with other commercial land holders and in most cases are offering land leases vs. sale of land which is the more typical approach to commercial development. Additionally, there is another layer of complexity to these developments when you add in the relationship with adjoining municipalities, the Minnesota Department of Transportation, and Metropolitan Council, all of which have some say in access to public roads, property setbacks, retention ponds, and proposed land use. All of these factors add to the challenging environment airports face when making the decision to engage in this type of development. Therefore lease term plays a very important role in a perspective tenant s decision to lease airport land as well as the airports ability to compete in an open commercial real estate market. In a survey conducted by Airport Council International (ACI) participants in April of this year the question was asked of the airports exploring non-aeronautical development what lease terms are typically offered for development? The following results were submitted:

19 Dallas/Fort Worth Gerald Ford International Will Rogers World Airport Richmond International Savannah International Spokane International Pittsburgh International Fort Wayne International 40 years typically no greater than 75 years for special projects 50 years 40 years (term limited by State law) 30 years 50 years 30 years with a 20 year option 29 years with two 10 year options Up to 40 years based on investment While this list does not include every airport with a non-aeronautical development program it does show several examples of long term land leases for the purpose of commercial land development opportunities. Dallas/Fort Worth has one of the largest non-aeronautical programs in the country, and while they typically offer 40 year lease terms on their developments they did indicate that in special situations with projects that have a high capital investment they will make a case to their City board for longer lease terms, however, never longer than 60 to 75 years. Last month the Commission approved hiring CBRE as our continuing real estate consultant for marketing our Reliever Airport non-aeronautical parcels. When asked what their perspective was on the length of lease term MAC should consider they indicated that developers will be taking a 100 basis point reduction on an exit cap, because of the lease (compared to purchasing the property) and felt that any lease term less than 65 years will negatively impact the chances to get a developer to take a risk. CBRE indicated that they would do further investigation within their national brokering network to see if they could gain additional information on developing leased property. Hotel Developments Large, full service hotels tend to fall into a separate category when it comes to nonaeronautical developments. This is mainly due to the high level of capital investment that is required to develop such a facility. Some recent local examples would include: the new Radisson Blue at the Mall of America with 500 rooms that was constructed for $137.5M; McGough Cos. recently announced its plan to build a $70M hotel project on the Bloomington Central Station site; and MAC has also been approached with a proposal to develop a similar hotel estimated to be in excess of $100M. Due to the high levels of investment required to develop these types of properties, most airports have made special exceptions when it comes to establishing the lease term in their agreements. In 2012, a survey was conducted by ACI member participants asking other airports that have an on-airport hotel what term they provided in their agreements. Some of the results of that survey are listed as follows: Airport George Bush Intercontinental Denver International Portland International Philadelphia International Dallas Fort Worth Tampa International Knoxville Savannah International Will Rogers World Airport Lease Term for Hotel Development 40 years No options 15 year management contract the airport financed and owns the hotel ($150M) 40 years 13 year option 50 years 40 years 60 years 40 years two 10 year options 50 years two 10 year options 20 years one 15 year option and one 10 year option

20 As outlined in these examples, the term offered ranges from 40 to 70 years when options are included. Denver is an exception to this trend, but only due to the airports decision to finance and own the hotel outright. This option is not always financially viable or desired by all airports. With lease terms extending beyond 40 years there are many issues that need to be addressed in a lease regarding performance guarantees and reinvestment in the property to make sure that certain standards are maintained throughout the life of the property. Similar to the preceding section, this is a competitive market; and while airports do offer access to a large pool of traveling customers, the lease deal has to make financial sense to the developer. Airport projects also involve issues that are not part of most hotel projects such as limited construction space, FAA approvals, heightened security concerns, and connectivity to the terminal facility itself. These are all issues that need to be taken into consideration when making the decision to enter into this competitive market. Direction moving forward Staff is seeking some direction or parameters as we continue to move our non-aeronautical development program forward in conjunction with CBRE s marketing and brokering efforts. It would be helpful for the Commission to provide some feedback on what will be an acceptable level of lease term for these types of projects as well as the potential for a full service hotel at MSP. Staff would like to offer the following lease term guidelines for consideration and discussion: Small to medium developments: 1 to 6 acres Large developments: 6 to 20 acres Full Service Hotels: in excess of $50M 30 to 40 years 35 to 60 years 40 to 70 year While each of these potential development projects will need to be reviewed by staff and presented to the Commission for approval, it would be helpful to have some framework to be able to provide some direction to staff and our consultant as we move forward with this process. Additionally, staff will be coming back to this Committee in the next few months to discuss its authority to negotiate directly with developers for the targeted non-aeronautical development properties on the Relievers as well as establishing some potential negotiation parameters that would provide staff with a way to preauthorize potential development deals. THIS IS AN INFORMATION ITEM ONLY; NO COMMITTEE ACTION IS REQUESTED.