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Big Bucks, Big Plans for Port

by Staff
The News Tribune, August 31, 2007

As Tacoma facility grows, it looks toward $800 million in construction

In the next decade, the Port of Tacoma will embark on more than $800 million worth of construction projects to develop the east side of the Blair Waterway for shipping terminals. At the center of the projects is a deal the port negotiated with Toyko-based NYK Line to build the shipping company a $300 million container terminal.

The expenses begin to tick up from there. There's property to buy, an existing terminal to move and rebuild, rail lines to construct and roads to improve. There's even a third marine cargo terminal to consider as the port continues redeveloping the former site of Kaiser Aluminum.

The total cost: $812 million.

"It is a large number," Port of Tacoma Commission President Dick Marzano said Thursday. But he added that the cost is expected as land becomes more expensive.

In comparison, the new Tacoma Narrows bridge cost the state $849 million. The Port of Seattle's third runway will cost about $1.2 billion. SSA Marine and the Puyallup Tribe of Indians are developing a container terminal adjacent to the NYK terminal. Bob Watters, vice president with SSA Marine, estimated that the land and the construction of their terminal will cost about $318 million.

The port plans to use a combination of revenue bonds and its own revenue from leases and services to fund the projects.

The costs of developing the peninsula for shipping terminals are:

$121 million for land acquisitions.

This includes the cost of buying the dozen-plus properties that the port condemned on the East Blair Peninsula. Bob Emerson, the port's senior director of real estate and industrial development, said the port has completed about $30 million worth of the needed purchases and is in escrow with three more properties.

$300 million to build the NYK terminal.

The port announced in July that it would build a 168-acre terminal on the east side of the Blair Waterway for the shipping line, which will then lease it from the port.

Tim Farell, the port's executive director, said that NYK's lease which will end up paying for the construction of the terminal varies from other leases the port has with customers.

NYK's lease cost is based on a percentage of the land's value and the amount of debt incurred by the port to build the terminal plus a guaranteed percentage of profit. Structuring the lease this way helps the port and NYK account for unpredictable construction costs, Farrell said. The port estimates that the lease will generate about $40 million per year.

NYK will pay for the terminal's equipment, including the container cranes.

$81 million for infrastructure related to the NYK terminal.

This includes road improvements and rail tracks on the East Blair Peninsula.

$111 million to relocate the TOTE terminal.

Totem Ocean Trailer Express ships goods to Alaska via its terminal on the Blair Waterway. To build the NYK terminal, the port needs to move TOTE from its current location toward the mouth of the channel.

"It's like we are building a new terminal for TOTE," Farrell said.

Bill Deaver, TOTE's president, said the company is still negotiating a new contract with the port.

"Long-term we believe it will be a good move for TOTE because we will expand the terminal and have growth capability," Deaver said. "The move itself with be disruptive, but manageable."

$199 million for a third terminal.

The port bought the defunct Kaiser Aluminum plant in 2003 with plans to turn the land and nearby waterfront property into another shipping terminal.

Construction on the wharf begins this week when contractors will start driving the first of 820 concrete pilings into the waterway. The port has not announced a customer for the project.

The port will pay for the East Blair development with the operating revenue it earns from terminal leases and services, and by borrowing about $500 million in revenue bonds (bonds taken out for projects that will be paid back with the revenue from those projects).

That debt, which will occur over the next decade, is only for the Blair developments. The port's overall borrowing might actually be higher in the next decade.

But commissioners and port executives say it's all doable.

"We wouldn't be doing this if we didn't think we could take on the debt and get a rate of return so that we can expand and move forward," commission president Marzano said.

Farrell noted that the port's revenue five years ago was about $60 million. The port's 2006 operating revenue was $91 million, and Farrell anticipates it will be close to $100 million this year.

Port officials have said they don't plan to increase the port's tax levy rate to pay for the development, though the port's earnings do increase each year with the county's land value.

Greg Sundberg, managing director of Merrill Lynch in Seattle, said the port should be able to fund the Blair construction. Sundberg used to be the port's financial planner, though he doesn't work with the agency now.

"The port has a superb credit history. It's stronger than any Fortune 500 company," Sundberg said. "It's less a matter of financing and more a matter of making strategic investments. This seems like a strategic investment and they shouldn't have any trouble financing it."

As a safeguard, the port's own policy requires the agency's net revenue to cover its annual debt service twice. The port has maintained a debt coverage service ratio equal or higher than that for years.

Farrell said the port should be able to stay above its standard until 2011, at which point the ratio could slip below or hover right below the standard of two for a few years.

"It's our discipline internally," Farrell said. "The (bond) rating agencies love it. They see it as very conservative."

Big Bucks, Big Plans for Port
The News Tribune, August 31, 2007

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