Title
RT Sky Harbor, LLC Lease Termination (Ordinance S-51763) - District 8
Description
Request to authorize the City Manager, or his designee, to early terminate Ground Lease 102545 with RT Sky Harbor, LLC (RT) in Sky Harbor Center at Phoenix Sky Harbor International Airport (PHX). Further request approval of the negotiated buyout of the remaining unamortized capital improvements to RT and request to authorize the City Controller to disburse all funds related to this item including reimbursement for the cost of demolition and removal of existing improvements on the site.
Report
Summary
RT leases approximately 15 acres of land at 1820 E. Sky Harbor Circle South in Sky Harbor Center under Ground Lease 102545 that RT assumed from JPMorgan Chase Bank, National Association on June 1, 2023. The property was improved by the construction of an office building, a 746-space surface parking lot, and a 1,300-space parking garage. These facilities have been vacant since February 2024. The Aviation Department (Aviation) wishes to obtain these facilities from RT at the negotiation payment amount of $10 million to buy out the remaining term on the Ground Lease, which expires on November 30, 2032. In addition to the buyout, Aviation seeks to reimburse RT in the amount of approximately $1.1 million for the demolition and removal of the existing office building structure on the site. RT will perform the demolition work in compliance with Title 34. At the completion of the demolition, Aviation will incorporate that portion of the land into the existing surface parking lot on the property. Aviation will utilize the remaining parking garage and the expanded surface parking lot for airport customer parking. These additions will help address growing parking demand and offset the reduction of airport parking inventory caused by the Taxiway Uniform project and the relocation of the Airport Special Events parking lot. These new parking facilities will help maintain adequate airport parking capacity to meet the growing public demand.
Contract Term
Ground Lease 102545 is scheduled to expire on November 30, 2032. The early termination of Ground Lease 102545 will be effective on the date of final inspection by Aviation of the demolition of the existing building structure and receipt of all documentation related to the demolition. The demolition and removal work is anticipated to be completed by late summer 2025.
Financial Impact
Aviation negotiated a $10 million buyout amount to account for the unamortized improvements and $1.1 million to reimburse demolition costs. The current lease provision utilizes a straight-line deprecation calculation to determine lease buyout value. Based on straight-line depreciation, the lease value would be approximately $12 million. To build new parking infrastructure with a similarly sized garage and surface parking lot, the construction cost is estimated at $20 million. In comparison with the straight-line appreciation value and new parking infrastructure construction costs, the negotiated buyout amount of $10 million with demolition cost of $1.1 million provides the best value for Aviation.
Concurrence/Previous Council Action
The Phoenix Aviation Advisory Board Business and Development Subcommittee recommended approval of the item on February 6, 2025, by a vote of 3-0.
The Phoenix Aviation Advisory Board recommended approval of the item on February 20, 2025, by a vote of 8-0.
Location
Sky Harbor Center: 1820 E. Sky Harbor Circle South
Council District: 8
Department
Responsible Department
This item is submitted by Deputy City Manager Mario Paniagua and the Aviation Department.