Airport Revenue Diversification (2010)

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32 MULTI-USE DEVELOPMENT Several airports in the United States and Canada have under- taken very large development projects that will diversify activity on airport property and provide alternate revenue streams. The land available for development is sometimes so large that airports and their governing bodies have subdivided it into parcels and planned for specific development on certain sites. Plans for these parcels include general aviation devel- opment, air cargo and logistics centers, hotels, convention centers, office parks, intermodal centers, retail malls, industrial parks, golf courses, and sport arenas. Multi-use developments are inevitably complex, involving public and private partners, FAA assurances and obligations, extensive site preparation, and financing through a combination of grants, bonds, private capital, and tax abatements. For these large developments there is often innovative marketing and financing. The airports have a clear understanding of their market strengths; how- ever, in a weak economy there also appears to be no shortage of opportunities for an investor or developer. Highlighted here are several multi-use developments that demonstrate the diversity of non-aeronautical activity under consideration or in the works. Each deserves a full case study: • Pittsburgh International Logistics Centre—headquarters campus for Dick’s Sporting Goods. • Kansas City Business Centre—air and truck intermodal center. • El Paso International Airport—broad portfolio of businesses at the airport to capitalize on Mexico/U.S. trade opportunities and defense and military contract synergies with Biggs Army Air Field. • Edmonton International Airport (Port Alberta)— intermodal project that connects heavy rail, road, and air with the Prince Rupert deep water port and midwestern U.S. cities. • Miami Intermodal Center—an extensive ground trans- portation hub. • Southwest Florida International (Skyplex)—ambitious reuse program for former airport terminal site. Pittsburgh International Airport Pittsburgh International Airport has 4,262 acres available for development; 13 parcels (3,076 acres) that can be used for non-aeronautical purposes, and 5 parcels (1,186 acres) (A–F) that are located adjacent to the airfield and reserved for aeronautical activity (see Figure 28). The Alleghany County Airport Authority has partnered with the State Economic Development Agency and is pursuing industrial, research and development, office complexes, and additional development for airport use. On-going is the development of Pittsburgh International’s 440 acre North Field Site, which includes Dick’s Sporting Goods Headquarters and the PIT International Logistics Centre, located within Foreign Trade Zone #33. Dick’s Sport- ing Goods is leasing 116 acres of the land from the airport and building a $150 million, 670,000 square-foot building and a 60,000 square-foot aviation center. To move the project ahead, the Allegheny County Redevelopment Authority is serving as a conduit to receive a $7.25 million grant to complete the necessary infrastructure. Dick’s also received a 10-year, 50% tax abatement that is capped at a maximum of $825,000 in property tax savings. The second project on the North Field site is a public–private partnership between the Airport Authority and developer Trammell Crow Company. The Logistics Centre is a planned industrial park located within a foreign trade zone, which offers companies the opportunity to reduce or eliminate duties on imported goods (see Figure 29). The Authority is preparing the site and the developer will build two speculative buildings, ranging from 100,000 to 220,000 square feet, designed to house freight forwarders or other logistic operators. The build- ings are the first phase of an eventual $88 million development on 160 acres. Site improvements were paid for through a $5 million tax-increment finance bond, $2 million from the Airport Authority; and a $700,000 grant. Kansas City Intermodal Business Centre The Kansas City Intermodal Business Centre is a two-phased $232 million project that broke ground in October 2008 (see Figure 30). Trammell Crow Company is managing the devel- opment. Full build out involves an 800-acre multi-use devel- opment. Phase 1 of the project involves site infrastructure including roads and utilities on a 180-acre parcel south of the American Airlines overhaul base. There is good access to four Interstate highways; therefore, the modal transfer between air and truck will be emphasized. Phase 1 will offer infrastructure to support about seven buildings comprised of approximately 2.7 million square feet of commercial space suitable for light manufacturing as well as intermodal distribution and logis- CHAPTER SIX NON-AERONAUTICAL DEVELOPMENT

33 has 7,100 acres and is strategically located at the cross- roads of west Texas, southern New Mexico, and northern Mexico and in close proximity to the Biggs Army Air Field (see Figure 31). The airport has focused on its strategic location to develop a “borderplex” that capitalizes on international commerce. Cur- rently on airport property are the following non-aeronautical facilities in place or planned: • Two industrial parks supporting more than 200 commer- cial businesses and industrial operations. • A foreign trade zone. • The Butterfield Trail Golf Club, including an 8,800 square-foot club house and a signature golf course designed by Tom Fazio that opened in 2007. The airport is seeking a resort hotel development in association with the golf course. • Development of the Butterfield Trail Air Cargo Center is underway. This $60 million investment includes two air cargo buildings (288,000 square feet), 34 acres of aircraft parking, and 6.4 miles of roadways. The build- ings are now 70% occupied and are intended to capitalize on North American Free Trade Agreement-driven U.S./ Mexico trade. • The Texas Department of Transportation is a partner in constructing an inner loop road that will provide access to Mexico’s manufacturing base in east Juarez and to Ft. Bliss/Biggs Army Airfield. The airport would also FIGURE 28 Pittsburgh International Airport Development Areas. Source: Alleghany County Airport Authority. FIGURE 29 Rendering of the Pittsburgh International Logistics Centre. Source: Alleghany County Airport Authority. tics. The first building will be a 494,000 square-foot distri- bution center. As with Pittsburgh’s North Field develop- ment, the site is located within a very large foreign trade zone. The Kansas City Aviation Department will lease the land. Two million dollars of local funds has been put into site preparation. El Paso International Airport El Paso International Airport offers a striking example of diverse non-aeronautical land development. The airport

34 Phase 1 FIGURE 30 Kansas City Intermodal Business Centre. Source: flykci Newsletter, September–October 2008. FIGURE 31 Proximity map for El Paso International Airport. Source: Google Maps. like to develop an industrial park that supports defense contracts at the army base. • Seven hotels also operate on airport property. For El Paso International Airport, aeronautical operating revenues provide 40% of total operating revenues and non- aeronautical revenues contribute 60%. Rent from land and non-terminal facilities is an unusually large proportion of the operating revenue (see Figure 32). Edmonton International Airport—Port Alberta Edmonton International Airport is the fifth busiest Canadian airport, handling 6.4 million passengers in 2008. It is the largest airport by area covering more than 7,000 acres, with 3,000 available for development. It is a designated transship- ment zone similar to foreign trade zones in the United States. The Port Alberta project is in its early planning stages. The concept here is a global inland port that is a hub for export of

35 Canadian resources and a transshipment point for products streaming east and west and southeast to the U.S. Midwest. • Alberta has the second largest oil reserves in the world. • Port Alberta would connect northern timber products, petrochemicals, and agricultural products to consumers around the world. • It would serve as one of North America’s leading ware- housing and distribution hubs. • Edmonton is the first major city east of Prince Rupert with direct access to North American wide road transportation networks, including the Yellowhead Highway, a major truck route for paper, lumber, plastics, and specialty grains (see Figure 33). • The port concept offers wide air transport trade corri- dors across to Hong Kong or Shanghai, Chicago, Dubai, London, and Frankfurt (see Figure 34). Port Alberta is particularly interesting because its sponsors view the project in terms of global movement of resources and product. Its success as an inland port depends on the true integration of existing rail, road, and air systems. Canada’s newest deepwater port is Prince Rupert in British Columbia. Prince Rupert’s competitive advantage over west coast U.S. ports would be transit time and lower operating costs. The challenge is to out-compete west coast ports and Calgary. If products from China, Korea, Japan, and India can be brought to Prince Rupert and offloaded for transshipment from Port Alberta to U.S. midwestern cities, the plan may gain traction. The Port Alberta project is counting on west coast ports in the United States becoming increasingly congested marine facilities, and that it can provide seamless and rapid transfers between modes. Currently, the first two components of Port Alberta are underway through a partnership consisting of the Edmonton Regional Airports Authority, the Edmonton Economic Devel- opment Corporation, the Chamber of Commerce, and the city of Edmonton. Western Economic Diversification Canada con- tributed $2.26 million to develop a plan for Port Alberta and to establish a logistics support center that will serve as a one-stop cargo processing facility using the Smart Port Platform, an information technology to track and monitor cargo. Miami Intermodal Center MIC is a massive ground transportation hub located across from Miami International Airport (MIA) (see Figure 35). FIGURE 32 El Paso International Airport 2008 operating revenues. Source: FAA, AAS-400: CATS: Report 127. FIGURE 33 Regional distribution at Edmonton, Alberta. Source: Janet M. Riopel, Project Lead, Port Alberta.

36 FIGURE 34 Canadian Gateway Vision. Source: Janet M. Riopel, Project Lead, Port Alberta. FIGURE 35 Miami Intermodal Center. Source: Florida Department of Transportation, MIC Program (2009). The project dates back to the early 1980s when Dade County recognized that individual modal development required greater “connectivity.” The project already has a long history and involvement of many federal, state, and local agencies and stakeholders. To overcome the challenge of coordinating costs, permitting, and schedules, a Steering Committee of 12 partici- pating groups oversees the project. Initial construction began in 2001 and completion is scheduled for 2012. Total project cost is $1.7 billion. The MIC program includes a rental car center, the Miami Central Station, major roadway improvements, the MIA Mover, and a real estate development plan. The facility will serve as a hub for regional rail, Amtrak, buses, shuttles, private vehicles, rental cars, and taxis. The MIA Mover is a light rail system that runs between the airline terminals, the rental car center, and the station. An important element of the project is economic development of the area. The real estate develop- ment component has the potential for 1.4 million square feet of mixed-use development in and around the MIC. The Florida Department of Transportation owns the land and may either lease or sell parcels for hotels, office buildings, parking, retail, or restaurants. Southwest Florida International Airport— Skyplex Commercial Center Southwest Florida International Airport opened its new Midfield Terminal in 2005 (see Figure 36). After much consideration, the Lee County Port Authority decided to demolish the old terminal and undertake a large commer- cial multi-use development on the north side of the airport to include: • 75 acres of ramp accessible property for dedicated aviation use (old terminal site), • 715+ acres for non-aviation development, • Full federal inspection facilities to process international shipments, • Entire airport being designated as a foreign trade zone, and • Existing roadway access and utilities.

37 The Skyplex area already has an FBO/Gulfstream MRO facility, two cargo buildings, another FBO and airline fuel farms, rental car facilities, and a flight kitchen. In 2008, the Port Authority signed a ground lease on an initial 25 acres with an affiliate of John Madden Company for the development of an office park to be used primarily for medical research and development. The lease has options to expand development to approximately 145 acres. The first phase is in the final stages of permitting. The Port Authority is also negotiating with a hotel developer. The Port Authority is anticipating that all aviation devel- opment will be subject to FAA obligations and assurances as well as any limitations imposed by local zoning and the Lee County Port Authority Minimum Standards for Commercial Aeronautical Activities. The FAA has already approved a revised ALP. The Authority does not anticipate that it will partner or joint venture in any private business or development except to offer a ground lease. OTHER REVENUE DIVERSIFICATION DEVELOPMENT In addition to large development projects airports are engaged in the development of other facilities that provide services to passengers or offer low-impact complements to aeronautical activity. Convenience Stores Convenience stores are common within airport terminals and now also as stand-alone facilities. The emphasis here is on regular size packaging of personal care items at a reasonable “street” price. Vancouver International Airport was the first airport in North America to construct a 7-Eleven store in the terminal. The Dallas/Ft. Worth International Airport now has four convenience stores and one Shop 24, a large vending machine that offers more than 200 items. Everything ASAP, a store featuring travel items and gifts, has branches at the airports in Buffalo, Detroit, Minneapolis, and New York. Gas Stations Many airports have developed airport gas stations for passen- gers and employees. Examples of stand-alone gas stations at airports include Sacramento, Newark, Pittsburgh, and Denver. Typically, gas stations are paired with convenience stores. Health Clinics and Drug Stores Airports are experimenting with a variety of approaches to preventative and urgent care for travelers and employees. Pharmacies and walk-in health clinics are now available at many U.S. airports. They are set up to serve as urgent care stations and also to offer a limited number of medical services and medications. The clinics are situated before security screening and can serve travelers, their families, employees, and walk-in traffic. Many clinics offer free parking validations. The model takes advantage of longer wait times at airports and a trend toward retail clinics already available in mass market areas such as shopping malls or big box stores. Solantic, which operates walk-in clinics throughout Florida including several in Wal-Mart stores, has opened a clinic at Orlando Inter- national Airport. This clinic is open 13 h a day, 7 days a week, FIGURE 36 Southwest Florida International Airport Skyplex. Source: Lee County Port Authority.

and employs between 15 and 20 medical professionals, includ- ing two board-certified physicians. The clinic expects to treat 20,000 individuals per year including both employees and air travelers. Aero Clinic has clinics at Atlanta, Philadelphia, and Charlotte airports. These clinics focus on common requests of air travelers including ear infections, stomach aches, the checking of cholesterol and blood sugar levels, flu shots, heart medications, physical therapy, and asthma inhalers. Although most clinics take health insurance and Medicare payments, specific services are fixed price and posted. The SFO Medical Clinic is set up for a much broader audi- ence and services. The clinic is located before security in the San Francisco International Terminal. It serves as a certified vaccination center that offers immunizations advised by the World Health Organization and the Centers for Disease Control. As a service of the St. Mary’s Medical Center, the clinic also functions as an urgent care facility and participates in several preferred provider organizations. The clinic gives discounts for direct payments in cash or with credit cards. The clinic also offers occupational health for employees in the treatment and management of work-related illness or injury, including health and wellness, job site analyses, and injury prevention. The clinic provides FAA flight physicals and Immigration and Naturalization physicals, as well as after-hour drug testing. Inside terminals drug stores sell an assortment of over-the- counter medications, personal care items, office supplies, and blood pressure monitoring machines. OTC Drugs and More has stores at the Phoenix and Raleigh–Durham airports and markets its products as full-size containers at “street-pricing.” Harmony Pharmacy, located in Newark Liberty Airport and Terminal 5 at JFK Airport, specializes in filling prescriptions and providing sundries and other travel products. Nurse practi- tioners provide some basic primary care services as well. Hotels On-airport hotels are common at most large airports; however, it is not always the case. Plans are underway for Denver’s first on-airport hotel. A new trend at airports involves hotel rooms for passengers in transit. San Francisco International Airport is contract- ing with a concessionaire to construct and operate what it is calling “sleep units” in the international terminal behind security. The units would be a collection of Japanese-style pods or capsules that air travelers could rent by the hour. Such rooms would include a bed, desktop, data outlets, and a restroom, and would be available for a nap or to allow travel- ers to get organized before meetings. Westernized versions of these facilities are now available in Europe at London’s 38 Gatwick and Heathrow airports and in Amsterdam’s Schiphol Airport, and are operated by the Yotel chain. Pet Kennels On- or near-airport pet kennels have become very common. Continental Airlines operates the first airline-owned on-airport kennel at its Houston Bush International Airport cargo facility. The kennel provides 1,100 square feet of space for runs and exercise pens. It also can separate species into different rooms. Many options are available for day or overnight visits and pet services. Both private and nonprofit organizations are offering pet kennels near airports. Now Boarding, an affiliate of the Humane Society, opened a $4.5 million facility near the Minneapolis–St. Paul International Airport. This is a 24-h pet boarding facility with parking and airport shuttle service, overnight boarding, dog training, and spa treatments. Private vendors are operating kennel facilities near Houston Bush International, Houston Hobby, Charlotte International, Indianapolis International, New Orleans International, Chicago O’Hare, Jacksonville International, Portland (Oregon), and Los Angeles International airports. AFCO (Aviations Facilities Company Inc.) is combining airport parking and pet boarding. The concept is to “drop off the pet and the car, shuttle to the airport.” The AFCO facility has been developed as an upscale first class kennel for 200 to 250 pets, operating 24 h per day, 7 days a week. The devel- opment program involves $2 to $4 million in private capital improvements; a building of 25,000 square feet on 2.5 acres with a small outdoor play area. Total development time is estimated to be less than one year. Recreational Facilities Many airports now have golf courses, soccer fields, parks, bike riding and running trails, hockey rinks, swimming pools, and go-kart and motorsport tracks. These developments are excellent ways to diversify revenue, offer low-impact activity at airports, and bring non-airport users to the airport property. Table 4 provides a sample listing of airports that have golf courses and other recreational facilities on airport property. The golf courses, sports centers, and tracks are usually operated by third parties. Centennial Airport in Colorado, the third busiest general aviation airport in the United States, has actively sought devel- opment of recreational facilities on airport property because they are typically low impact and do not exhibit the same eco- nomic cycles as aviation. The Family Sports golf course, an ice arena, indoor sports field, and miniature golf course are located on airport land. These facilities are part of the South Suburban Parks and Recreation system offering recreational

39 activities for residents of the district. In addition, Centennial has leased airport property for a go-kart track, a Wings Over the Rockies Air and Space Museum, and a nonprofit child- abuse prevention program (see Figure 37). All of these pro- jects are positive community facilities and fit into the airport’s strategy to diversify revenues. The Track at Centennial is rec- ognized as one of the nation’s top tracks for hosting private parties and competitive kart drivers. The Track was also a way to use land for 20 years, while preserving the option to develop additional hangars on the parcel when the lease expires. Kansas City International has also planned and designed a motorsports park. The concept is based on a country club model with membership and a clubhouse. The track will include two separate joinable tracks (3.7 miles), a Champion Standard Kart track, a driving school, and private garages. The development program requires an estimated $25 million in private capital, a 300-acre ground lease, and two phases of development that would span two years. In Phase 1, the clubhouse, one motorsport track, and the Kart track would be constructed. Phase 2 adds the South Track, garages, and additional team units. Construction plans are on hold pending an improved economy. Storage Self Storage Airports have operated other ancillary businesses on the airport. Sarasota–Bradenton Airport owns and operates University Self Storage, a storage warehouse with air-conditioned and non-air conditioned spaces for rent. Airport Code State Golf Course Bicycle Trail Walking Paths Sports Center Motor Sports Aruba Queen Beatrix International AUA Aruba X Baltimore Washington International BWI MD X X Centennial APA CO X X X Cheyenne CYS WY X Chicago OíHare International ORD IL X Colorado Springs Municipal COS CO Proposed Dallas–Fort Worth International DFW TX X Dane County Regional MSN WI X Denver International DEN CO X Edmonton International YEG AB X El Paso International ELP TX X Fort Lauderdale International FLL FL X Fort Wayne International FWA IN X Logan International (Boston) BOS MA X George Bush Intercontinental IAH TX X Houston William P. Hobby International HOB TX X Kansas City International MCI MO Proposed Kelowna International YLW BC X Lambert–St. Louis International STL MO X Lincoln LNK NE X Miami International MIA FL X Mineta San Jose International SJC CA X X Minneapolis–Saint Paul International MSP MN X X Nanaimo YCD BC X Norfolk International ORF VA X Oakland International OAK CA X X Orlando International MCO FL X Ottawa International YOW ON X X Philadelphia International PHL PA X Phoenix–Mesa Gateway PHX AZ X Port Columbus International CMH OH X Ronald Reagan Washington National DCA DC X X Salt Lake City International SLC UT X X X Sarasota–Bradenton International SRQ FL X Savannah Hilton Head International SAV GA X Southwest Florida International RSW FL X Tucson International TUC AZ X Victoria International YYJ BC X Sources: ACI–NA and KRAMER aerotek inc. (2009). TABLE 4 ON-AIRPORT RECREATION FACILITIES

Cold Storage In the 1990s, the Greater Orlando Aviation Authority built a 34,000-square-foot refrigerated warehouse to compete with Miami air cargo handlers. The market for flowers and other perishables proved a difficult entry and the Authority sought to lease the property to a third party. Anchorage International Airport successfully rents out cold storage lockers in the airport to passengers needing to store fish and game in transit. Savannah/Hilton Head Revenue Diversification Savannah/Hilton Head International Airport is a good example of an airport that is broadly diversifying its portfolio of non-airline businesses. In 2008, non-aeronautical operat- ing revenues represented approximately 47% of total oper- ating revenues ($151 million); however, because Savannah/ Hilton Head is a destination airport, there is a large compo- nent of non-aeronautical that is passenger-dependent (FAA: AAS-400: CATA: Report 127). The airport has also actively pursued ancillary development on its 3,600 acre property. In addition to providing ground handling services for airlines and charters, the airport has operating revenues from the following ancillary activities (Ruaback 2009) (see Table 5): Government Facilities on Airports Government agencies and emergency response groups are frequent tenants of airports. Sometimes these agencies build their own facilities or lease space directly from the airport or a third party. Government groups include: 40 • Aeronautics divisions of a state’s department of trans- portation • Civil Air Patrol • MEDEVAC—emergency airlift services • Military joint use • National Center for Atmospheric Research (NCAR) • National Guard • National Oceanic and Atmospheric Administration (NOAA) • State police • U.S. Transportation Security Administration (TSA) • U.S. Customs • U.S. Forest Service • U.S. Postal Service. FIGURE 37 Track at Centennial Airport. (Source: Mitch Bowers at www.imagewerx.us.) Business Estimated 2008 Revenues Golf Course $62,000 Convenience Store $29,000 Hotels (14) $888,000 Restaurant $72,000 Federal Express Building Finance $120,000 Chatham County Mosquito Control Project Finance (estimated) $276,000 Office Space (old airport) $8–$10 per sq. ft Air Tran Reservations (old airport) $69,000 Logo Berms (estimated) $50,000 Ground Handling $440,000 Foreign Trade Zone $302,000 Source: Savannah/Hilton Head Airport, estimates by KRAMER aerotek inc. TABLE 5 SAVANNAH/HILTON HEAD INTERNATIONAL AIRPORT ANCILLARY BUSINESSES