Strategies for Reuse of Underutilized or Vacant Airport Facilities (2011)

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15 CHAPTER FOUR DAYTON INTERNATIONAL AIRPORT—UPS MENLO FACILITY AND CARGO HUB heavy freight on other airlines to transport it to DAY. The consolidation of operations enabled UPS to carry heavy freight on its own aircraft and use existing UPS hubs. FIGURE 10 UPS cargo facility, Dayton International Airport. FIGURE 11 Aerial view of Dayton International Airport. UPS continues to own and maintain the building at DAY and holds a ground lease for the land that will expire in Janu- ary 2020. Annual rent for the ground lease is $643,149. Ini- tially, UPS was not anxious to be released from its ground AIRPORT SPONSOR AND INTERVIEW PARTICIPANTS Airport Name Dayton International Airport (DAY) City, State Dayton, Ohio Airport Sponsor City of Dayton Person Interviewed Regina M. Holman, Airport Business Development Manager THE SITUATION The UPS Menlo Facility at DAY sits on 166 acres on the northwest side of the airfield (see Figure 10). The property was originally developed in 1981 by Emery Airfreight as its North American sorting center. At that time, Emery pro- cessed 900,000 lb of heavy freight per day and employed 350 people. In 1989, Emery was acquired by C.F. Inc., which renamed the company Emery Worldwide and the following year moved its headquarters to DAY. Emery continued to expand its cargo hub at DAY through the early 1990s. The property was designed as a 1.1-million-square-foot sorting facility with office space on the second floor. On one side of the building are 56 truck loading docks, container stag- ing, reloading positions, and a fuel farm consisting of four 1 million-gallon fuel tanks. On the other side of the building are 125 acres of apron, aircraft parking spaces for 70-plus aircraft, deicing pads, and direct access to Runway 6L-24R (see Figure 11). At its peak in 1998, operations included 6 mi of conveyor belts; 80 flights moved 3.5 million pounds of cargo per day. The facility employed more than 4,200 per- sonnel. Total payroll was $160 million. In December 2001, Emery Worldwide ceased opera- tions after an aircraft accident. Emery’s successor company Menlo Worldwide Forwarding was acquired by UPS in December 2004. UPS operated the facility for a year and a half, but closed it in June 2006 to consolidate Menlo Worldwide and UPS operations and reduce redundancies. At the time, UPS had 1,400 employees at the facility. UPS was leasing space for

16 that integrated carriers such as FedEx might be interested in additional ramp space. Redevelopment or reuse of the UPS facility turned out to be a complex undertaking because of a number of factors: • UPS still owns the facility and is not likely to sell or lease it to a direct competitor. • The property is very large, specialized, expensive (with respect to its ground lease rate), and has access to a primary runway. • FAA would prefer that the property remain as an aero- nautical facility. • Negotiations on the property will involve multiple parties including the prospect, UPS, the airport, the city, and the FAA. Buy-in by the community is also important. RISK MANAGEMENT As part of the initiative to reuse the property, the city of Day- ton and MergeGlobal identified the major risks and key miti- gants. This approach allowed the city to head off problems before they happened. Table 5 summarizes potential risks and solutions observed in 2005. They are still relevant. TABLE 5 KEY RISKS AND POTENTIAL SOLUTIONS, DAYTON MENLO FACILITY Key Risks Potential Solutions 1 UPS does not cooperate with reuse initiatives Work closely with UPS to achieve a good reuse that is also acceptable to them 2 Recruiting and signing on several nonexclusive ten- ants is complex Clearly communicate and quantify the Day- ton cost advantage and growth potential 3 Competitive offers from other area airports Seek long-term competitive commitments from new tenants to ensure initiative’s longevity 4 Airside facilities will be underutilized Launch a marketing effort to recruit more air carriers and freight forwarders to the airport Source: MergeGlobal, Inc. and city of Dayton, Ohio. As DAY pursued various options to reuse the facility, air- port staff kept stakeholders informed of progress. Although the FAA would have preferred that the property remain in use as an aeronautical facility, it was aware that the city of Dayton has not been able to secure a 100% aeronautical tenant. (Other DAY cargo facilities and hangars, privately owned, were challenged to keep occupancy up during the recent recession.) Although the city of Dayton annexed the airport, it is actually surrounded by the city of Vandalia. At one time, many of the employees of the Menlo Facility lease and kept the facility for overflow in the event that its Louisville hub was either at capacity or not available. How- ever, the Menlo Facility has not been used even once since UPS terminated operations and has been vacant for 4 years. REUSE OPTIONS Because UPS continues to own the building and to pay its ground lease, the city of Dayton has had time to find a good reuse for the property and develop community support along the way. Even before UPS officially closed the facility, the airport hired MergeGlobal, Inc., to consider redevelopment options and prepare a cost–benefit analysis (Figure 12). FIGURE 12 MergeGlobal alternatives for the Dayton UPS Menlo Facility 2005. The consultants recommended that DAY pursue a multi- purpose approach by developing an international air freight gateway, a less-than-truckload (LTL) cross-dock facility, and distribution center facilities, preferably in coopera- tion with UPS. The rationale was that the facility was big enough to support both an international air freight gateway and warehouse operation. Pursuing multiple tenants reduced financial risk and also allowed the city of Dayton to recruit different tenants simultaneously. The multipurpose approach also addressed the possibility that UPS might want to keep control of the facility or use part of it. An LTL cross-dock with warehouses was not as expensive as a conversion of the building to a heavy maintenance facility, so a maintenance option was not recommended. MergeGlobal also considered reuse of the facility as another domestic air freight opera- tion as a low probability; however, MergeGlobal thought

17 lived in Vandalia. The facility contributed to the local tax base. Since UPS shut down the hub, numerous houses have been built near the airport. DAY has maintained an active dialogue with the community as various reuse options were pursued. The community has indicated a preference for a tenant that will bring more jobs rather than a tenant that will just use the land and building for storage or warehousing. PROSPECTIVE REUSE After a 4-year search, a potential tenant is negotiating with all of the parties. Industrial Realty Group LLC signed a letter of intent with the city of Dayton in March 2010 that proposes a mix of aeronautical and nonaeronautical uses for the facil- ity. The project would include 200,000 ft2 for a maintenance hangar so that access to the airfield would be preserved for an aeronautical use. LESSONS LEARNED As the city of Dayton has developed its marketing program for reuse of the UPS Menlo Facility, several principles orga- nized the effort: • Work with all of the parties to make a good agreement. • Keep in touch with the community so that it is informed and that the airport understands community preferences. • Work with the FAA throughout the reuse process, especially if the new tenants are engaged in nonaero- nautical activity. • Go to many trade shows and virtual trade shows to recruit tenants. The market for tenants may be broader than the airport perceives; therefore, good exposure may bring surprising results. • Treat prospects extremely well and respond quickly to their requests. Encourage prospects to consider the air- port as a local agent that can help them. Typically, pros- pects are from another location. An airport can build important relationships through good deeds and assis- tance. The Dayton Property Development Team often will meet with a prospect’s contractors and estimators to help advance the feasibility and due diligence on a property. DAY considered the advantages of owning outright the Menlo Facility and finding a new tenant versus actively marketing the facility with the understanding that building negotiations would ultimately take place between UPS and the prospective tenant. Given how long it has taken to find a new tenant, the airport is pleased to have the ground lease cash flow and no additional costs for facility maintenance.