Title
Phoenix Sky Harbor International Airport Terminal 4 Concessions Lease Extension (Ordinance S-51449) - District 8
Description
Request to authorize the City Manager, or his designee, to negotiate and execute amendments to extend the terms of leases with Phoenix Sky Harbor International Airport Terminal 4 food, beverage, and retail concessionaires that are set to expire between 2026 and 2030, and other amendments consistent with this item.
Report
Summary
The Aviation Department will be implementing Terminal 4 modernization projects that exceed $400 million over the next five years. These projects are needed to maintain the terminal building systems and passenger experience in Terminal 4, which is now more than 35 years old. Implementing these projects will require concessionaires to adjust their business operations during the construction period. Additionally, plans for the development of the new west terminal will result in a significant reallocation of airlines across the three terminals, impacting the ability for concessionaires to accurately forecast demand, develop a business plan, and amortize capital investments. A negotiated lease extension will assist these concession businesses in managing the construction impacts and will provide an opportunity for concession companies to re-concept some stores with new local concepts and brands or refresh existing storefronts without long-term disruption of services to passengers.
The concession contracts eligible for the negotiated lease extension will be food and beverage contracts set to expire in June 2026, and retail contracts set to expire in December 2029 and November 2030. The proposed lease extensions will include an eight-year extension of the lease term with no options to extend. The key business terms to be negotiated include:
- Rent based on percentage rent of gross sales, determined by store category and store location
- Capital reinvestment plan
- Small business partner opportunities
- Brand re-concept and store refresh plans
As part of the negotiations, new provisions will be included in the lease agreements to require supporting Aviation Department workplace initiatives, such as childcare programs, partnering on customer experience programs, participating in annual financial and operational performance reviews, participating in the Aviation Department's sustainability program and Green Business Partner programs, and contributing to a new airport marketing program that will support promotion of concessions offerings. In addition, the amendments will contain other terms and conditions deemed necessary or appropriate by the City or the Aviation Director for airport operations and the passenger experience.
The concessions leases that will be amended by this action are leases: 131410, 133475, 143718, 143719, 144047, 144322, 144323, 144324, 145872, 145873, 145977, 146077, 146458, 146459, and a lease approved by the City Council on June 26, 2024, that is pending full execution with Casa Unlimited for a Terminal 4 Lobby food and beverage concept.
Contract Term
The proposed extension to the lease term will be eight years with no options to extend the term. The lease extensions are anticipated to commence on or about July 2026 for the food and beverage contracts, and on or about either January 2030 or December 2030 for the retail contracts.
Financial Impact
The negotiated percentage rent will commence with the beginning of the extended lease term. Extending the terms eight years for these Terminal 4 food and beverage, and/or retail concession contracts will result in no additional cost to the airport.
Location
Phoenix Sky Harbor International Airport, 2485 E. Buckeye Road
Council District: 8
Department
Responsible Department
This item is submitted by Deputy City Manager Mario Paniagua and the Aviation Department.