DALLAS -- The Denver City Council gave its assent early Tuesday morning to a $1.8 billion, 34-year public-private partnership project to reconfigure the main terminal at Denver International Airport.
Madrid-based Ferrovial Airports, the lead private partner, will oversee the terminal project that will remake the airport’s Great Hall, with security screening areas moved to the top level of the terminal and add revenue-generating concession areas.
“This is what international cities do,” said council president Albus Brooks. “They make bold moves, and this is bold. We’re going from a small town to a small big city. We’re on a new level.”
The 10-2 vote approving the 1,500-page contract came shortly after 1:00 a.m. following a lengthy discussion on the proposal.
Ferrovial will contribute $82 million towards the $650 million project, and will receive annual payments from the airport totaling $1.2 billion over the 30 years covered by the agreement.
The annual payments of $24 million will include $15 million to offset the private partners’ financing cost and $9 million for operations and maintenance. The payments are indexed to inflation.
Denver International Airport will contribute $568 million to the terminal project. It will also be responsible for a $120 million contingency fund to protect the private investors from unexpected costs due to airline needs, changes in airport regulatory requirements, or changes requested by the airport.
The airport will receive 80% of the revenues from the expanded concession area with 20% going to the private partners.
The airport currently brings in some $700 million per year of operating revenue, with 46% of it coming from non-airline sources such as parking, car rental fees, and food and beverage sales.
The project will move the security check-ins to the upper level near the airline ticketing counters. The 30 screening lanes currently handle 4,500 passengers but the increased space and new technology will allow 34 new lanes to handle up to 8,500 passengers per hour.
Moving the security area will allow renovation of the entire Great Hall into a secured area with shopping and dining.
Kim Day, chief executive of Denver International Airport, said Ferrovial’s total investment of $378 million in cash, debt, and other costs over the life of the contract is expected to provide a return on their investment of 4.8% under the contracted requirements. The actual return could be 10.8% or more if concession revenues are higher than expected but that would also mean more money for the airport, she said.
“Cost is only one aspect of a project,” Day said. “Risk and delivery on time and within a specified budget are monumental elements that are important, particularly to government agencies.”
The airport handled a total of more than 29.5 million passengers in the first six months of 2017, up 7.4% from the same period in 2016 and the most passengers by mid-year in its 22-year history.
Ferrovial’s equity partner in the Denver airport project is JLC Infrastructure, an investment fund started by former NBA star Earvin “Magic” Johnson and Loop Capital.
Local partner Saunders Construction will renovate the main and upper levels of the 22-year-old terminal over four years, with work beginning in mid-2018. Citi is financial advisor to the private partners.
Madrid-based Ferrovial beat out two rival teams in July 2016 for the right to negotiate a deal with the city. If an agreement had not been reached by Sept. 1, the company would have been compensated for the time and effort it put into the bid with a $9 million walk-away fee.
DIA has $3 billion of outstanding senior debt and $895 million of subordinate lien debt rated A1 by Moody’s Investors Service and A-plus by Fitch and Standard & Poor’s.
The council also unanimously set a November election for a seven-part, $987 million general obligation proposal at the Monday session.
The ballot questions will include $431 million for transportation and mobility projects, $151.6 million for parks and recreation, and $117 million of improvements at city-owned cultural facilities.