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OCR for page 80
80 Guidebook for Developing and Leasing Airport Property Monroe County Airport (BMG) Airport Type: General Aviation Tenant: Multiple Type of Business: Aircraft Storage Facility Location: Airside SOURCE: Monroe County Airport. SOURCE: Monroe County Airport. Project Overview After an economic recession in the early 1980s, development at Monroe County Airport (BMG) was stagnant and public funds were not available for development of hangars and aircraft storage facilities at the Airport. The Airport decided to look into means of enticing private development. The Airport Board approached local business and aviation partners and was able to attract tenants for an eight-unit, 29,000 square foot hangar complex, which was completed in 1994. The lease term for this facility was 20 years with a 10-year option for renewal, after which it would revert back to the Airport. Seeking ways of providing the tenant with incentive to maintain the facil- ity, the Airport decided to allow the tenant to retain a portion of ownership in the facility. The Air- port would become vested in the facility at a rate of 2.5% per year. At the end of 30 years, the tenant would still own no less than 25% of the improvements they developed. The Airport intends to be able to purchase the remaining portion of ownership in circumstances where the tenant intends to vacate at the end of the lease with money from an account created with revenue from lease payments. This methodology has been extremely successful at BMG. In 1998 a flight-training center with seven offices was constructed, and in 2000 a corporate flight department relocated to the airport and constructed a 13,000 square foot complex. The corporate flight department cited BMG's unique lease structure as a determining factor in their decision to relocate to the Airport. Key Stakeholders Following is a list of key stakeholders responsible for the development and ultimate execution of the lease arrangement: Airport Sponsor: Monroe County works closely with the Economic Development Associa- tion to identify development opportunities. The County also approves land acquisition efforts to prepare the Airport for future development.
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Case Studies 81 Monroe County Board of Aviation Commissioners: The four-person County Board persisted in finding ways to bring revenue to the Airport, after the Airport suffered from a lack of develop- ment as the result of a down economy. When it was clear that public funds would not be avail- able for development, the board approached private aviation business partners. Private Developers: Private organizations develop and own their facilities until the end of the lease term, or until they sell their portion of ownership to the Airport or a new tenant. Economic Development Association: Works closely with the Airport Sponsor to seek devel- opment opportunities. Key Lease Elements Initial lease terms at the Airport are for 20 years with a 10-year extension option. If tenants wish to vacate the facility, they have the option of transferring the lease to a new tenant or sell- ing their portion of ownership in the facility to the Airport. Ownership Structure: The most important element of the leases at BMG is the ownership structure. Private entities develop and own their facilities, and the Airport becomes vested in the facility at a rate of 2.5% per year. At the end of the 20-year lease term, the tenant still owns 50% of their improvements; if they choose to exercise the 10-year option, they still own 25% at the end of 30 years. Fair Market Value Appraisal: Appraisals will be conducted by both the Airport and the ten- ant. If the values of the two appraisals are within 8%, the average of the two appraisals will be con- sidered fair market value. If the values are not within 8%, a third, independent appraisal will be conducted. The highest and lowest of the three appraisals will be rejected, and the mid value will be considered fair market value. Rent Adjustments: Ground rents and facility rents should be adjusted per an agreed-upon frequency and methodology identified in the lease agreement. Adjustments are typically made every 3-5 years, and might be tied to the Consumer Price Index (CPI), whereby rental adjust- ment will be equal to the percentage change in CPI for the period prior to the last changes in rental rate. Financial Considerations for the Tenant Aviation-related businesses at Monroe County Airport do not pay property taxes. Further, tenants receive the benefit of retaining a stake of ownership in their improvements. When the lease has expired, the tenant is left with a transferable asset. The Airport will purchase the remain- ing portion of ownership for fair market value, or the tenant may transfer the lease to a new ten- ant at any time throughout the lease term. Benefits to the Airport Allowing the tenants to retain ownership in their improvements relieves the Airport from the duties of property management, and retention of tenant equity provides the tenant with incen- tive to keep facilities in good condition. With the construction of the hangar complex and the implementation of the tenant ownership incentives, BMG had reason to raise their rental rates, which were previously lower than some similarly sized airports. The Airport now invests the extra revenue created by the rate increases in its Building Fund, set aside for the purchase of equity at the end of a tenant's lease. Since the inception of this development project, based aircraft and air traffic at BMG have increased significantly. In 1994, there were 79 based aircraft; there are currently 101 based aircraft. The Airport estimates that over 100 jobs have been created by companies relocating to BMG. The Airport has since acquired additional land and secured AIP funding for future development.