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Not for Sale

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72 Guidebook for Developing and Leasing Airport Property the base value of airport assets. Land leases for commercial nonaeronautical uses should be based on current market rate comparables. Airside land, aeronautical facilities, and hangar rates should be based on comparable facilities at surrounding airports with similar attributes. In order to accurately value land and facilities, benchmarking of airports of similar size and with similar infrastructure (runway length, instrument approaches, security, and air traffic control for exam- ple), should be used in a consistent manner. The same benchmarked airports are tracked over time for comparative purposes. The appraisals and benchmark rates should be used as guidelines for the airport to determine baseline rates that can be subsequently adjusted as new information becomes available. The airport may vary its lease rates depending upon size, function, location, and level of improvements to the land and the facilities being leased. For example, the rental price of a build- ing or hangar may vary based on size, amenities, location, access, condition, construction, and allowable use by the airport. Likewise, the airport may want to vary land lease rates based upon factors such as the magnitude of the project, the synergistic effect the project may have on other tenants and/or future development, airside versus landside location, availability of utilities, and access (from both the airside and the landside). The airport may also adjust lease rates below established baseline rates if the tenant provides additional airport revenue through other sources, such as fuel sales or percentage of gross rev- enue. The airport should consider modifications to rental rates that include a percentage of gross sales, depending on the type of business being conducted. Similarly, the airport might consider land leases that require a percentage of any profit be paid to the airport on the sale of leasehold improvements or equity. Regardless of the rate-setting methodology used, the airport sponsor should create a transparent process for all stakeholders to see and understand. Once transparency is established, the airport sponsor can clearly outline the rationale and justification for its rates and charges, placing itself in a defensible posture that will either hold up to stakeholder criticism or that can be adjusted for broad acceptance by the aviation community. 6.2.4 Lease Term Determination The Airport Leasing Policy document should consider appropriate lease lengths. Land leases are routinely set at 20- to 30-year terms; lease terms beyond this length may be limited by local or state statutes. Provisions for the extension of a land lease should be included in the lease agree- ment and outline the requirements that must be met before the lessee is allowed to extend the lease, preferably contingent upon the lessor's concurrence and approval, by periods of 5 to 10 years. These extensions of the lease are considered addendums to the original lease document with all covenants and provisions of the original remaining in effect. The length of a lease and the ability to extend the lease term is an important consideration for potential tenants who will be making substantial investment in improvements that will need to be amortized over a number of years. It is important to consider the useful life of the improvements and the size of the tenant's invest- ment when negotiating length of term. Risk and reward should also be given due consideration. If improvements are very specialized, the developer may need a longer lease term than normal. Without knowing the exact functional life of the improvements, or how the niche industry might change and make the improvements functionally obsolete, the developer may require a buffer of term length to ensure that sufficient time exists to repay the debt and make a reasonable profit. 6.2.5 Reversion Best practices for leasing and developing airport property include reversion of improvements back to the airport sponsor at the termination of the lease. Therefore, the lease must be long enough