Generating Revenue from Commercial Development On or Adjacent to Airports (2017)

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148 C h a p t e r 6 Implementation Toolkit 6.1 Introduction The Self-Assessment Toolkit (Chapter 4) and Site Evaluation Toolkit (Chapter 5) were essentially fact-finding efforts, enabling guidebook users to assemble detailed information about the airport, its proposed development site, and the nature of its surrounding community. The steps in this Implementation Toolkit (Chapter 6) focus on taking action on the basis of that collected information. Initiating this toolkit signifies that the airport sponsor has: Completed the self-assessment and site evaluation analysis Determined that sufficient feasibility and opportunity exist to proceed to the next phase of analysis Determined that market and physical conditions are favorable or can be reasonably overcome Obtained governance approval to dedicate additional resources to continue development planning Defined the basics of a development concept plan The Implementation Toolkit includes two principal elements. The first element addresses a financial analysis, based on a preliminary plan, to project costs and revenue for the proposed development. At the end of this section, it will be possible to determine whether the development appears to be financially feasible. The second element considers a strategy for project development and management, including some action-oriented steps necessary to make the plan a reality. At the end of this section, the airport sponsor should have a solid understanding of who will be on the project team and how management responsibilities will be assigned. The 19 checklist sections inserted in the text include the following icon in the header as a reminder that the complete checklists can be found in Appendix C, “Chapter 6 Checklists,” and that customizable copies of the checklists can be downloaded from the ACRP Research Report 176 webpage: The checklists cover the following topics:  Preliminary Development Plan  Project hard costs  Project soft costs  Funding sources and typical revenue opportunities  Miscellaneous revenue

Implementation toolkit 149 Development program refinement Internal project management structure Community outreach strategy Identifying stakeholders Creating a message Outreach portfolio Revealing project plans to the public Permits and approvals (in two parts) Project team components Incentives Funding and financing Development and partnership strategies Marketing Construction management/property management/operation This guidebook is not intended to replace proper professional expertise. At many points in the development planning process, consultants may be needed (e.g., in finance, marketing, legal services, or engineering). The specific needs of each project will require the skills of a team, the nature of which will depend on the size and skill set of the airport staff and the accessibility of other municipal staff resources. When consultants are needed to provide professional expertise, the investment is money well spent. Although consulting fees add up-front expenses to the project, these costs will help prevent costly problems down the line, and the consultants also provide reliable information for future decision-making. Even if the airport sponsor will not be directly responsible for the execution of the financial analysis or the management decision to move forward, working through the Implementation Toolkit can still be of value. Consultants will gather information and offer options, but it will rest with the airport, as the property owner, to ultimately make decisions. By understanding the financial analysis process as well as the choices and decisions to be made, the airport can act as an informed client. From this position, it will be possible to provide input to the consultant based on local knowledge and make decisions with an understanding of how development decisions impact the project revenue stream.

150 Generating revenue from Commercial Development On or adjacent to airports 6.2 Financial Analysis At this point in the development analysis, the airport sponsor will need to conduct a basic financial review to confirm whether the investment in the project will be balanced by sufficient revenue and create a profitable center for the airport. Typically these numbers are projected over the construction and rental or sale of the completed project to determine when the revenues will pay for the investments, the potential profit, and the magnitude of the return to the airport. Initially, an elementary analysis can be done using a set of assumptions and best estimates of costs and revenues for the project as a whole, undergoing more refinements and iterations when more specific details and project time frames are identified. A preliminary decision will need to be made regarding the implementation strategy (e.g., whether to sell parcels, lease sites, construct buildings, or partner with a developer). Once the template for the analysis has been set up, alternative scenarios for leasing, sales, or joint ventures can be tested. This provides a basic starting point for reviewing the project’s financial feasibility: If the review supports the project’s feasibility, the analysis will be redone frequently as more accurate information becomes available. The responsibility for the financial review will be assigned depending on the capabilities of the airport organization. If the airport is part of a larger governmental organization or authority, in- house staff, likely in a financial department, may be familiar with project analysis. If not, the airport may engage an outside expert such as a real estate advisor. The information gathered for Working through the financial analysis, certain assumptions will have to be made regarding the plan, development costs, and revenue. Many of these assumptions will come from the site evaluation work, such as the market analysis (see Chapter 5). If the financial analysis finds the project to be feasible, the second section of this Implementation Toolkit provides a path to refine the Development Program and review alternatives regarding financing, partnerships, construction, marketing, and managing the development. If the financial feasibility analysis shows that the development revenues are not likely to cover costs—or if the return does not match the risks or effort involved—the development concept may have to be adjusted. Alternatively, the concept could be abandoned altogether as too risky in favor of other options to increase airport revenue, such as those outlined in Chapter 7, “Off-Airport Considerations and Revenue.” the financial review will be important in either case, as the advisor will look to the airport for key information about the project as inputs to the calculations.

Implementation toolkit 151 SOUND BITE Letters of Interest and Requests for Proposals have been used successfully by the airport to jump start the kind of development that is desirable to support airport operations and passenger services. 6.3 Preliminary Development Plan KNOW The financial analyses in this section of the toolkit will be based on the preliminary Development Plan that took shape at the conclusion of the site evaluation. A well-crafted preliminary Development Plan will: Be rooted in the Airport Layout Plan (ALP) and other updated land use or master plans completed by the airport Be informed by the site evaluation to avoid constraints to the extent possible Build on the opportunities identified in the market analysis This plan must be more detailed than the documents on which it is based, because it will provide the basis for projecting costs and revenues. The airport may have the in-house expertise to prepare the plan, or may benefit from consulting assistance, particularly if it has an established relationship with a planning or engineering firm familiar with the site. Preliminary engineering input is important to identify grading, road, and utility design issues. HAVE The questions in this section of the toolkit walk through the information that should be contained in the preliminary Development Plan and offers a narrative explanation of each element, including considerations for decisions that may need to be made at this point and alternatives that may be considered. The complete Preliminary Development Plan Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same plan can be downloaded from the ACRP Research Report 176 webpage. LAND AREAS FOR CERTAIN DEVELOPMENT TYPES? This information may already be in some ALPs. The chosen development types will be guided by: Permitted uses in the local zoning ordinance, unless variances or zone changes will be pursued Opportunities identified in the market conditions review The land use categories can be general (e.g., “industrial,” “retail,” or “business”) or more specific (e.g., “aviation services,” “distribution,” or “hotel”) if particular synergistic uses are being sought or the market study shows significant demand. Industrial and office space are perhaps most typical of airport-related developments, but a wide range of uses can be found across the country, including golf courses, training facilities, conference centers, entertainment venues, and even residential uses on certain sites.

152 Generating revenue from Commercial Development On or adjacent to airports Plan elements Notes Land areas for certain development types? General? Specific? As discussed in Chapter 3, “Legal Considerations,” FAA grant assurances, height restrictions, and Runway Protection Zones (RPZs) must be taken into account in defining land use areas. Aviation support uses typically would be located adjacent to the airfield, and other uses located farther from the air operation boundaries. Retail and hotel uses need good visibility from major roads. BUILDING LOTS? Assuming the land area in question will accommodate more than one principal use, building lots need to be defined to obtain subdivision approval as well as to provide a basis for calculating costs and revenues. Decisions about how to divide the property into lots are based on regulations and site features, including the following: • Zoning ordinances will establish minimum lot sizes; in many cases, lots also will be defined to conform to the minimum size with the potential to merge in the future if a user needs a larger site. • A larger land area than the minimum may be defined if there are physical constraints on the lot, such as wetlands or slopes, that affect the usable area. • A range of sizes may be advisable depending on the land uses sought (e.g., the minimum lot size required for a 200-room hotel). • Marketing data may indicate demand for smaller or larger properties. ESTIMATED BUILDING YIELDS? Building yields can be estimated if buildings will be constructed for lease. Zoning ordinances usually indicate the floor area that can be built on a lot of a certain size. Site evaluation results can be used to estimate usable area for building footprints. Again, the market review should have indicated the demands for space in the area, and whether to target smaller-scale or large headquarters facilities in marketing efforts. ROADS? In certain cases, existing roads may be in place to access the land planned for development. In other cases, new or extended roads may be part of the development plan. If needed, road construction may be a significant part of development cost. If road construction is necessary: • Road widths and lengths should be identified to quantify costs of construction. • New access roads to highway interchanges may also need to be developed. At the time the development seeks zoning or site plan approval, a traffic study may have to be presented defining improvements needed and proposed. A preliminary traffic review by a specialized consultant is helpful at this planning stage to identify the scale of improvements required to serve the proposed land uses. The volume of development of proposed uses, such as square feet of office or retail space or number of hotel rooms, should be estimated at least conceptually for such an analysis. In addition, mass transit connections and stops should be identified.

Implementation toolkit 153 Plan elements Notes Division of building lots? Zoning Ordinance minimums? Physical constraints increasing minimum area? Range of sizes by land use? Marketing data (demand)? Estimated building yields? Road construction? Identify widths and lengths? Identify new access roads? Infrastructure? Landscaping and amenities? DO Together with the information gathered through the Site Evaluation Toolkit, the information presented in this section will help guidebook users create a preliminary Development Plan for the proposed development. The Development Plan should begin to contain more accurate site information, including preliminary civil engineering concepts for road and infrastructure, and market data information with regard to current demand in the area. The preliminary Development Plan also should reflect a realistic concept based on land use patterns and requirements. Even if a consultant will create the Development Plan, the airport still has an active and valuable role: As the client, the airport can ask questions (e.g., asking about the assumptions made in the calculations). The airport also can provide input as needed based on the ALP and other planning documents, as well as local development requirements. INFRASTRUCTURE? The size and routing of new water and sewer lines should be shown on the plan. Stormwater management systems, such as piping and detention basins, also are generally required. Preliminary civil engineering analysis should be performed at this stage of planning. LANDSCAPING AND AMENITIES? Although these elements need not be shown in great detail at this point, zoning ordinances may require certain design features, such as landscaped buffers. It also may be helpful to establish a defined identity for the project and to include design elements, roadside landscaping, and signage. These amenities may not be a very large part of the development budget, but they could still be an important part of the overall development and approval process that should be considered.

154 Generating revenue from Commercial Development On or adjacent to airports Once complete, the preliminary Development Plan can be assessed based on the following questions: Is the plan based on and aligned with the ALP and other planning documents completed by the airport? Does the plan avoid the site constraints identified by the site evaluation to the extent possible and provide space for required design elements including stormwater, parking, and landscaping? Does the plan aim to serve market opportunities identified in the market analysis? If all of these things are true, then the airport has a good starting point for the financial analysis.

Implementation toolkit 155 6.4 Project Pro Forma KNOW What is a Pro Forma? As part of a Development Plan, a Pro Forma is a document that presents a set of calculations that use quantified data, such as acres of earth-moving, areas of paving, length of sewer line, and rents per square foot, to project costs and revenues and ultimately a net financial return over a period of time. Even if a development partner or master developer will be brought in on the project, the exercise of creating a Pro Forma is still important to demonstrate the basic financial feasibility of the development concept. Key inputs to the Pro Forma include: A project definition A project cost to build Revenues expected to be generated from the project An estimated construction schedule The amount of up-front cash investment The cost of the debt service The Pro Forma can be first executed on a preliminary basis, aggregating total costs, and revenues, to determine whether the project makes financial sense in the most basic way—that revenues will exceed costs, based on reasonable assumptions. At this stage of the toolkit, the details in the Pro Forma will be limited, as some decisions are still in flux regarding construction, pricing, financing, and timing. Assumptions will have to be made about the key inputs based on the information available to date, such as the market and engineering studies obtained during the site evaluation effort, and the likely time it will take to construct the project. The initial Pro Forma functions as a tool to reveal fundamental issues regarding the profitability of the proposed project. The first analysis for this document can include as many cost and revenue elements as can be reasonably estimated considering the preliminary level of analysis and engineering likely at this stage. Financial analysis is an ongoing process. The first Pro Forma will be refined frequently during the course of development planning as new and more detailed information becomes available regarding costs, revenues, financing, and the schedule of construction and sales or leases. The discussions of costs, revenues, planning, and management functions in the sections of this chapter toolkit will all tie back into the financial analysis. In this way, the project feasibility is constantly being checked. There may be a point where new information, such as unforeseen site conditions, will render the project unduly risky or unwise, even if it first appears sound. The building blocks of the Pro Forma are projections of project costs, revenues, and financing. In more detailed versions, the document shows the sources (investors, construction loans) and uses of funds (e.g., construction costs, engineering costs, interest charges) over time. Costs for construction and operation are subtracted from revenues to determine net cash flow. The analysis then projects the rate of return to the developer (and the airport sponsor) to determine SOUND BITE When the city (airport) tries to be a developer, they are clueless. They have no idea how to do a Pro Forma—they are uninformed about development economics.

156 Generating revenue from Commercial Development On or adjacent to airports whether the development project produces sufficient benefit for the risk. The return can be compared to other potential actions the airport could make to increase its income. For example, if the airport can achieve a 10% rate of return on another type of investment, does it make sense to take the risks of a real estate development if it is only going to yield the same return? The riskier the venture, the higher is the expected rate of return. If the risk tolerance of the airport governance is low, on the other hand, high rates of return should not be anticipated. HAVE This section of the toolkit enables guidebook users to explore Pro Forma templates and industry references for examples and provides sources for more information. Pro Forma templates may be obtained by using an Internet search engine, or they may be provided by a financial advisor. No specific worksheet is provided for this section. For illustration, however, an initial summary Pro Forma could look something like the example shown in Figure 3: Industrial/Office Park Subdivision—Lot Sales Project Revenues Number of Lots 25 Average Sale Price Per Lot $ 800,000.00 Gross Sales $ 20,000,000.00 Less Commissions (4%) -$ 800,000.00 Net Project Revenues $ 19,200,000.00 Project Costs Land Cost $ 2,575,000.00 Design, Engineering, Legal, Approvals $ 600,000.00 Sitework & Warehouse Construction $ 12,175,000.00 Amenities, Traffic Improvements $ 100,000.00 Management & Overhead $ 1,760,500.00 Total Project Costs $ 17,210,500.00 Net Cash Flow before Financing $ 1,989,500.00 Financing Interest $ 1,102,400.00 Net Cash Flow to Developer* $ 887,100.00 Cash Investment $ 1,020,600.00 Total Cash-on-Cash Return to Developer 86.90% Annualized Cash-on-Cash Return to Developer 19.90% Internal Rate of Return 22.40% *Cash/cash returns would be shared between the developer and the airport/airport sponsor per their contractual arrangement. Source: Adapted from Lemmon, W. Pro Forma 101 (2007), www.plannersweb.com Figure 3. Illustrative summary Pro Forma.

Implementation toolkit 157 A simple scenario could be installing roads and utilities for an industrial park and selling off lots. In this case, the revenue from the sales will be analyzed with respect to the investment to see whether it makes sense to implement the project. There are many ways to structure a Pro Forma. Online sources can provide helpful templates, including some that are oriented to particular development types, such as multi-family sales, development for rentals, or office development. An easy-to-understand explanation of the pro forma process, originally published in the Planning Commissioner’s Journal, is titled “Pro Forma 101: Getting Familiar with a Basic Tool of Real Estate Analysis” (Lemmon 2007). The complete article is available online at www.plannersweb.com. Other online resources include the “Professional Real Estate Development: Developer’s Tool Kit,” available online at www.ULI.org, “Quick Pro Forma,” available at www.Realty-Developer.com, and others. Standard industry references include Professional Real Estate Development: The ULI Guide to the Business (Peiser and Hamilton 2012), and Finance for Real Estate Development (Long 2011). DO Whether the airport chooses to develop a Pro Forma independently or with the help of a consultant, the information gathered will provide the necessary inputs to financial analysis for the Pro Forma document. Take enough time before proceeding to become familiar with a Pro Forma using the online and the print resources noted here.

158 Generating revenue from Commercial Development On or adjacent to airports 6.5 Development Program Overview The key information that forms the basis for the Pro Forma is explained in the following sections. As the topics are presented, the checklist sections can be used to enter information about a specific Development Program. First defined by the preliminary Development Plan, the project is further refined in the Development Program, which builds on the initial definition and reflects the information and insights gained by the site evaluation, notably the market analysis. As planning progresses and details are added, the preliminary Development Plan becomes a Development Program wherein the plan specifics are converted into quantified elements to estimate construction costs. A Development Program will be affected by the airport sponsor’s strategy, governance, and risk tolerance—as revealed by the self-assessment findings. A very conservative, low-risk program may start with selling raw land, then subdivision of building pads, and installation of roads and utilities. If the sponsor has the risk tolerance to act as the developer, the Development Program will itemize information, such as the number of square feet of office, hotel, industrial, or retail space to estimate costs of construction and lease or sale revenue. It is also a tool for showing the community and joint venture partners the vision of the development. SOUND BITE The airport was functioning like a city department rather than a property developer. The airport was very dependent on revenue from the airlines but has made changes and has been able to reduce the airline cost by 50%.

Implementation toolkit 159 HARD CONSTRUCTION COSTS? At this point, the Development Program depends on estimated construction costs. Whether in-house or consulting, site engineering expertise is necessary for accuracy. A professional will be familiar with available computer software that can be used to estimate quantities and produce the necessary cost estimates most efficiently. Costs can be grouped in various ways, but the categories of costs that should be estimated include: Earthwork/grading? Level terrain may require a minimum of cut-and-fill earthwork volume, whereas sloping sites may require grading of roadbeds to the correct engineering standards, creation of level building pads, and proper drainage of the site. Grading of individual lots will depend on whether the sponsor intends to construct buildings or offer shovel-ready sites. Road construction? The preliminary Development Plan will show the length and width of proposed roads. Costs for a sub-base, paving, and drainage will be estimated based on the calculated areas and per-unit costs. Utilities? The length and diameter of sewer lines, water lines, and storm drains should be available. If the site evaluation has revealed that treatment plant 6.6 Project Hard Costs KNOW Project hard costs are the visible “sticks and bricks” costs of construction. Unless the airport sponsor is very familiar with construction projects, consultant assistance will be needed to identify unit costs for different improvements, contingency factors, and soft costs. Funds spent for the studies done in the site evaluation also can be considered as part of the project costs. HAVE The checklists in this section of the toolkit can help guidebook users identify all of the project’s hard costs and to provide an estimated dollar amount for each. For each item, some explanation is given to help explain the term and identify the source of the information. The complete Project Hard Costs Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. LAND COSTS? Land costs may be determined by a recent purchase price, if the airport recently acquired the property, or be expressed as book value for a property that has been held by the airport for many years, taking into account the money that has been spent for carrying costs (e.g., taxes, insurance) or improvements over time. An appraisal can be useful to pin down the current market value, particularly if the land is anticipated to be the airport’s contribution to a joint venture, or if the intent is to sell the property. Land costs Notes Recent purchase price? Book value? Appraisal?

160 Generating revenue from Commercial Development On or adjacent to airports expansions or other facilities are needed, a share of the cost for the expansions also should be estimated. Building construction? The decision to include building construction costs in the Pro Forma depends on the airport’s chosen development strategy. Once the Pro Forma has been set up, alternative scenarios may be tested. At this stage of planning, however, a direction will likely be chosen to either (1) construct buildings, (2) lease or sell building sites, or (3) enter into a joint venture with a development partner. If building construction is anticipated, at this stage typical construction costs per square foot for the geographic area and building type (e.g., office, retail, or warehouse) can be utilized. If the intention is to modernize or rehabilitate existing buildings on the site, those costs also should be entered at this point. Landscaping and amenities? Detailed designs are unlikely at this point, but standard costs for lawns, entrance plantings, and any required buffers can be used in the estimate. Environmental remediation? If any on-site contamination must be cleaned up, a ballpark estimate should be obtained from a qualified consultant familiar with the investigation and included in the estimate. (See Chapter 5, “Site Evaluation Toolkit,” for a discussion of Phase I and Phase II ESAs.) Off-site costs? If a traffic review was conducted with the site evaluation, it may have shown that improvements would be necessary in the area to handle traffic produced by the proposed development. These improvements could include road widening, traffic signals, turning lanes, or ramps to highway interchanges. The traffic engineer should be able to provide an estimate of the costs for the specified improvements. If local ordinances require contributions to municipal facilities on a fair-share basis, the engineer should be able to estimate those costs. Demolition? If the property targeted for development includes existing buildings that will be removed, demolition costs must be estimated, including any costs for asbestos abatement. Contractor, construction management, and contingency fees? These costs can be applied as percentages of the hard construction costs.

Implementation toolkit 161 DO With the information gathered for this section in the toolkit, guidebook users can create a total anticipated hard cost of development for the proposed Development Program. If some of the costs are still unknown, it may be advisable to do additional research and develop preliminary cost estimates before proceeding with the development. Hard construction costs Check to select Preliminary cost estimates Earthwork/grading? Road construction? Utilities? Building construction? Landscaping and amenities? Environmental remediation? Off-site costs? Demolition? Contractor/construction management/contingency (as a percentage of hard costs)?

162 Generating revenue from Commercial Development On or adjacent to airports 6.7 Project Soft Costs KNOW HAVE Guidebook users are encouraged to identify the soft costs that are likely to be needed based on the answers to the questions in this section of the toolkit, and to provide an estimated cost for each soft cost item. Most items are fairly self-explanatory and do not include specific explanations. The complete Project Soft Costs Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. TITLE INSURANCE? LAND PLANNING AND DESIGN? CIVIL ENGINEERING? ENVIRONMENTAL CONSULTING? TRAFFIC ENGINEERING? LEGAL REPRESENTATION AND ADVICE? MARKET STUDIES? ARCHITECTURE? SURVEYING? GEOTECHNICAL ANALYSIS? PROJECT MANAGEMENT? LEASING OR SALE COMMISSIONS? PERMITS AND APPROVALS? APPLICATION FEES? PERFORMANCE BONDS? REQUIRED CONTRIBUTIONS TO MUNICIPAL FACILITIES/IMPACT FEES? FINANCING COSTS? These costs may include loan application fees, bank fees, interest payments, and costs incurred to issue bonds. CARRYING COSTS? These costs include insurance and property taxes. Whereas hard construction costs relate to the visible “sticks and bricks,” soft costs relate to the less tangible but still essential elements that make a real estate development happen. Soft costs may account for a significant portion of the total costs. Some of these expenditures may have taken place during the site evaluation. Area developers, architects, and other professionals can provide estimates for soft costs. Some items reflect the cost of obtaining permits and approvals, which in many locations can require substantial outlays for plan preparation, expert testimony, and land use attorneys. A complicated entitlement process with opposition from the community or approving body can be very expensive. This is another reason why community engagement is so important for the airport. Any lengthy delay in approval of controversial projects adds to the costs and lengthens the period before revenue comes in.

Implementation toolkit 163 OPERATING EXPENSES? Soft costs for operating expenses will include costs associated with management and maintenance. DO With the information gathered for this section of the toolkit, guidebook users can create a total amount of anticipated soft costs of development for the proposed development. If some of the costs are unknown, it may be advisable to do additional research and develop preliminary cost estimates before proceeding with the development. Once both hard and soft costs have been calculated, they can be added together to create an overall estimate of project costs. Soft costs likely to be needed Check to select Preliminary Cost Estimates Title insurance? Land planning and design? Civil engineering? Environmental consulting? Traffic engineering? Legal representation and advice? Market studies? Architecture? Surveying? Geotechnical analysis? Project management? Leasing or sale commissions? Permits and approvals? Application fees? Performance bonds? Required contributions to municipal facilities/impact fees? Financing costs? Carrying costs? Operating expenses?

164 Generating revenue from Commercial Development On or adjacent to airports Funding sources Check to select Preliminary funding estimates Grants? Bond proceeds? FAA grants? Government appropriations? Investor contributions? Loans? 6.8 Funding Sources and Typical Revenue Opportunities KNOW Included in this topic are revenues from the development and sources of funds to pay for creating the project. The projection of project revenues will depend on the development strategy selected by the airport sponsor, as well as on the Development Program defined earlier in this chapter toolkit. Revenue projections will be based on assumptions about market rents, time for construction, and time on the market for leases or sales, as drawn from market studies. It is important to keep in mind that a vacancy rate will be experienced as facilities or parcels lease up. Revenue projections should take that period of time into account. HAVE Answers to the questions in this section of the toolkit can help guidebook users identify sources of revenue and project funding and provide an estimated dollar amount for each. The complete Funding Sources and Typical Revenue Opportunities Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. Funding Sources GRANTS? Is grant funding available from state transportation or economic development offices? BOND PROCEEDS? Does the airport have the necessary authorizing statutes and capacity to issue bonds? Legal analysis will be necessary to identify any restrictions in bond covenants. FAA GRANT? Is the proposed project eligible for FAA funding? FAA grants are generally limited to aviation and safety-related projects. Infrastructure improvements would have to primarily benefit air travel to be eligible for FAA funding. GOVERNMENT APPROPRIATIONS? INVESTOR CONTRIBUTIONS? LOANS? SOUND BITE Financial institutions that will finance typically want to see a lease term of at least the mortgage term plus 10 years.

Implementation toolkit 165 Revenue Sources GROUND RENT REVENUE? This revenue source represents a lower-risk strategy, for which revenue is a contractual, fixed amount with escalation over time. A simple projection would include the number of parcels multiplied by the market lease rate, considering parcel acreage. LAND SALE REVENUE? If a land sale is the revenue source, the project’s duration will be fixed by the sale of all tracts. Revenue may be received on the sale of the entire tract, or apportioned by lot-by-lot sales. BUILD-TO-SUIT SALES AND FEES? This revenue source involves construction of structures to a future owner’s specifications. BUILDING OR FLOOR SPACE RENTS? If this revenue source is planned, buildings can be constructed “on spec” (without a tenant); however, that is a risky strategy in most markets. Pre-leasing of a certain percentage of space helps mitigate the risk and therefore is desirable before starting construction. PERCENTAGE OF RENTS? With this revenue source, the airport sponsor receives a portion of the rents charged by a joint venture partner or master developer, according to a prior agreement. EQUITY PARTICIPATION? This revenue source will involve a development partner, and/or a share of future revenue from an ultimate sale of the project. DO The input gathered in this section of the toolkit will enable guidebook users to create estimates for total anticipated revenue and financial resources available for the proposed Development Program. If some revenue stream or funding sources are unclear or unknown, it would be advisable to do additional research and develop preliminary numbers before proceeding further with the development. Revenue sources Check to select Preliminary funding estimates Ground rent revenue? Land sale revenue? Build-to-suit sales and fees? Building or floor space rents? Percentage of rents? Equity participation?

166 Generating revenue from Commercial Development On or adjacent to airports 6.9 Miscellaneous Revenue KNOW In addition to the traditional revenue sources identified in the previous section, revenue may also be obtained from a number of other sources, depending on the type of land use, ownership, or control of the project elements. For example, parcel owners or ground lessees in a development can pay fees to the project owner for maintenance of common spaces. Parking revenue from a common garage is also possible. HAVE Answers to the questions listed in this section of the toolkit will enable guidebook users to identify potential miscellaneous revenue sources produced by the development and estimate income for each source. The complete Miscellaneous Revenue Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. COMMON FACILITIES ASSESSMENT? HOTEL ROOM STAYS? PARKING FEES? RESIDENTIAL RENTS OR SALES? AIRPORT ACCESS FEES? RECREATION AREA FEES? DO The input gathered in this toolkit section will help the guidebook user estimate a total value of potential miscellaneous revenue for the proposed Development Plan. If miscellaneous revenue is not known, it should be left out of the equation at this point; however, if miscellaneous revenue is expected to be a significant part of the project revenue, it is advisable to develop preliminary numbers before proceeding further with the development. Updated numbers can be added to the other funding and revenue sources when they become available to create a total number for project revenue. Potential sources Check to select Estimated income Common facilities assessment? Hotel room stays? Parking fees? Residential rents or sales? Airport access fees? Recreation area fees?

Implementation toolkit 167 6.10 Detailed Pro Forma This discussion of a detailed Pro Forma is not presented in a “Know, Have, Do” format, and no specific checklist or worksheet is provided in this section. Because the process is especially variable and complicated, the guidebook does not offer a specific guided exercise; rather, the information in this section will help guidebook users understand the content and value of a detailed Pro Forma. Whether the detailed Pro Forma is created by airport staff or by a consultant with the necessary skills, that person will have the templates and resources for the task. The initial Pro Forma aggregates the total costs and income for the completed project, providing a snapshot of what the development can yield. In reality, however, it takes a number of years to complete a project of any complexity and produce revenue. The timeline to complete a project will be governed in large part by the approval and permitting process, the scale and scope of construction activities, and the market demand for the land, lots, or buildings that will be sold or leased, up to the point where it is fully occupied and under operation (or sold). Assumptions about the length of time needed for construction, and the rate at which the market will absorb the new space or available lots, are made based on market study results. Time to completion will affect the cost of the project. A detailed Pro Forma takes the project timeline into consideration. In detailed Pro Formas, the costs and revenues are spread out over time in accordance with the details established in the Development Program. The more detailed information enables the project planners to gain a realistic sense of the likely cash flow over the life of the project. The following information is needed: A schedule of construction A schedule of sales (land, buildings) or leases Construction loan proceeds and interest costs In its detailed form, the cash flow analysis allows the calculation of an internal rate of return (IRR). This statistic is the interest rate that will make the net present value of the net costs and revenues for the period of development equal to zero. For a project to be profitable, the IRR must be higher than the cost of funds used for the project. The higher the IRR, the more desirable the project. Once defined, the IRR can be compared to the return of other potential investments, allowing the airport sponsor to evaluate whether the proposed development makes sense for the airport given its available resources and alternate opportunities for revenue. For example, if the calculated IRR for the development project is lower than the expected return for investing in the securities market, the development project may not be the best bet. The cash flow analysis should show the following details: When cash has to be invested in the development When financing is needed beyond available cash to fund improvements When interest payments will be incurred When revenues start to come in to balance expenses as buildings are built and rented or land parcels leased When losses might occur in the earlier stages of development

168 Generating revenue from Commercial Development On or adjacent to airports Based on this information, the airport can evaluate whether the airport sponsor can support those losses, and when a drawdown of loans or grants will be necessary. Whether the airport can “support the losses” is essentially a question of how much the airport sponsor can afford to invest in the project. These questions relate back to the Chapter 4 self-assessment and the financial status of the airport, as well as to any legal limitations or restrictions on use of airport funds. The risk tolerance of the airport governance also is an element to consider. To the extent that the project cannot be self-financed, grants or loans will have to be used to fund the project. Financing schemes and costs will relate to the public or private status of the airport, but those costs need to be included in the projection of cash flows over the term of the project. At the point where the airport has reached the limit of what it can invest to cover project costs, it will be necessary to draw down loan proceeds and incur interest costs. Looking at cash flow over time will show that delays, such as long periods for approvals, environmental remediation, or unexpected field conditions, can have significant impacts on the profitability of the development because carrying costs and financing costs are extended while income to balance costs is postponed. This discussion is a reminder of the importance of the site assessment exercise. Of particular concern to FAA-obligated airports is the length of time needed for FAA review, approvals, and/or land releases. Reliable assumptions regarding this review time need to be factored into the analysis. Ideally, the need for non-aeronautical land release will be identified well before the project is initiated. The detailed financial analysis will need to be reviewed and updated frequently. The project planning proceeds and estimated costs will be refined as new information is gathered (e.g., specific estimates from construction contract bids). Further, the template may be used to test different scenarios, showing the sensitivity of project feasibility to changes in assumptions, such as rents, time delays, increased per-square-foot construction costs, off-site exactions, rental rates, and financing costs. For example, assuming that ground leases will rent at a price at the top of the market may be too optimistic. Will the project still be profitable if more conservative assumptions are used?

Implementation toolkit 169 6.11 Reality Check For even a preliminary Pro Forma, working through the exercise of identifying costs and revenues is valuable. It compels the sponsor to evaluate what the proposed development can bring to the airport while taking into account the expenses that will be needed to achieve it. Although a detailed Pro Forma will take resources to accomplish properly, a conscientious effort will support an informed “reality check”—essentially, a second Stop/Go decision point for the airport sponsor. Is the development effort likely to be profitable given the identified market opportunities, costs, timeline, and site constraints? The following questions should be answered in order to make a Stop/Go decision at this point. Will the development be profitable for the airport? How long will it take to be profitable? Is profitability dependent on a narrow range of market rents or sensitive to changes in construction costs? Are costs unpredictable? Can the sponsor fund the project until it turns a profit? Is a developer partner essential to share costs? Does the Development Program need to be refined to be less expensive, more limited, or less risky? If the Pro Forma shows a sufficient profit and return for the project needs and risk tolerance, the project may proceed to the next stage of planning for designing, permitting, funding, and implementing the Development Program. If the Pro Forma shows a high degree of sensitivity to market prices, construction cost increases, or other factors, it may be advisable to investigate a lower-risk strategy, develop an alternate Development Program, or perhaps consider another way entirely to increase airport revenue, including off-airport development.

170 Generating revenue from Commercial Development On or adjacent to airports 6.12 Development and Management Plan This section of the toolkit does not replace the need for professional consultants. Even an airport with substantial in-house expertise will need input from marketing, legal, and engineering experts. The following sections provide basic guidance to help guidebook users as they: Collect necessary information Make use of the site evaluation data Address a range of development decisions Formulate questions to ask consultants Evaluate the input and results of consultants’ efforts By this point in the process, goals for the development project will have been defined, and the airport sponsor will have become familiar enough with the critical issues to act as an informed client, equipped to direct and review consulting efforts. A basic development strategy will also have been defined, including lease/sell/build options and whether the airport plans to enter into a joint venture for the project, undertake it alone, or seek a master developer. Although the strategy can continue to evolve during development planning, at this point there should be consensus on a starting point. Recapping the alternatives, the airport’s strategies can include: Lease land Sell land Construct buildings for sale or lease Pursue build-to-suit construction Act as sole developer Engage in a joint venture Engage a master developer Hand over the project to a real estate advisor or project manager The selected strategy will reflect the individual airport’s financial resources and risk tolerance. For example, a program of ground leases will likely provide a reliable source of income, which will appeal to an airport that has a low risk tolerance. On the other hand, an airport with a higher risk tolerance and adequate financial resources may earn a greater return by constructing buildings for lease or by engaging with a joint venture partner to take advantage of possible market conditions improving rent or sale values. This section of the Implementation Toolkit provides a methodology for understanding and accomplishing key actions for implementing the development. After having created a Development Program and concluded that it is financially feasible, airport sponsors will need to identify the steps necessary to make the plan a reality. This section of the toolkit is less a checklist than a road map to building the project team.

Implementation toolkit 171 6.13 Using the Toolkit for One Airport This guidebook has been written to be intentionally broad to cover issues applicable to many airports and many potential development scenarios, including: Private or public airports FAA grant-obligated land and land that is not-grant obligated Development projects with or without public bidding and bonding restrictions Each scenario involves a distinct level of regulatory control (see Chapter 2, “Fundamentals,” and Chapter 3, “Legal Considerations”). Additionally, even within one airport, several classifications of land can be considered for development (e.g., land within the airport boundaries, land outside the airport boundaries, land with and without airfield access, land that is grant obligated, and land that is not grant obligated). Each variation involves specific levels of FAA control over actions to reclassify, develop, fund, or lease property. As part of the Self-Assessment Toolkit, guidebook users gathered the information necessary to identify the applicable tier for development. Airports also vary in their land resources and external conditions. Airports with large holdings can contemplate a range of uses on different land parcels. Others may have fewer resources to be developed more intensively, or no non- aeronautical land. (In the latter case, Chapter 7, “Off-Airport Considerations and Revenue,” suggests alternative income strategies.) Market conditions may dictate certain use types closely associated with airport operations, or they may suggest an opportunity for capturing a demand associated with off-airport institutions. Financial considerations may also dictate development strategy. Cash-poor airports may need to limit risk and overhead and may prefer to turn those risks and functions over to a buyer or partner. Local political contexts also differ. Some governmental and economic development agencies may support the local revenue- and job-creation aspects of the development with or without concern as to how airport operations may be affected. Other airports may find that local government does not support airport development plans, even to the point of opposition. Given all the possible scenarios of airport land status and location, it is important for the guidebook user to remember that the toolkit checklists must be filtered through particular circumstances and local knowledge. Some implementation steps will be relevant and others will not be applicable. Also, the topics discussed in the next sections of the guidebook do not necessarily have to be approached sequentially. Some of the activities discussed can be carried out on parallel tracks, and some will be ongoing. For example, a community outreach strategy initiated early in the process and laying groundwork for permitting or incentives can be continued as a factor in marketing the project.

172 Generating revenue from Commercial Development On or adjacent to airports 6.14 Development Program Refinement KNOW A preliminary Development Plan and the more detailed Development Program provide a basis for the costs and revenues that are put into the Pro Forma. Following the financial analysis, the Development Program is reviewed and adjusted as necessary for the most favorable yet reasonable financial feasibility, perhaps reducing certain costs or increasing higher value uses. HAVE The questions listed in this section of the toolkit function as prompts to consider whether any of the following possible refinements may make financial sense for the project. Guidebook users can re-run the Pro Forma to test any or all of the following adjustments. The complete Development Program Refinement checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. LAND USE DISTRIBUTION? Consider changes in the distribution of land use areas (e.g., more industrial, less office, more open space). LOT SIZE AND NUMBER? Consider changes in the lot sizes and/or the number of development lots. FLOOR AREA? Can changes be made to the projected floor area of different uses while keeping within the boundaries of local land use regulations and market demand? ROAD ALIGNMENT? Consider designs that change road alignments and adjust widths while keeping within design requirements. AVOID CONSTRAINT AREAS? Do opportunities exist to relocate the proposed development away from problematic areas, such as wetlands or shallow bedrock or groundwater? COSTS? Can new information or different assumptions be used to update cost estimates? TIMELINE? What happens if there are updates to the time frames for infrastructure installation and development phasing? Refinement options Check to select Notes Land use distribution? Lot size and number? Floor area? Road alignment? Avoid constraint areas? Costs? Timeline? SOUND BITE One thing all developers want is predictability.

Implementation toolkit 173 DO Answering the questions in this section of the toolkit offers guidebook users the opportunity to test some alternatives and assess whether there are immediate opportunities to improve the proposed development’s potential for revenue generation. These types of refinements will continue throughout the development process in response to new information related to factors such as field conditions, market factors, or unforeseen circumstances. Both for this exercise and when changes occur during the development planning process, the Pro Forma should be re-run to reveal any critical issues.

174 Generating revenue from Commercial Development On or adjacent to airports SOUND BITE The airport manager is an employee of the department of public works and spends two- thirds of his time on airport business and one-third of his time on municipal parking controls. SOUND BITE The airport has recently hired a dedicated marketing and communications director to promote development at the airport. 6.15 Internal Project Management Structure KNOW Larger airports and airport authorities may have a larger employee base or be able to draw expertise from other public agency departments. Smaller airports will have to weigh the needs of their particular projects against in-house expertise. The investment needed to hire qualified general overhead. HAVE Answering the questions listed in this section of the toolkit will enable guidebook users to develop a task-based job description for the project manager. The complete Internal Project Management Structure Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. Of the following responsibilities and tasks, which will be relevant to the project manager for the specific development the airport is considering? PRESENTATION OF DEVELOPMENT PROGRAM TO AIRPORT GOVERNANCE? REFINEMENT OR DIRECTION OF PROGRAM? FINANCIAL ANALYSIS? SELECTION AND COORDINATION OF CONSULTANTS? MANAGEMENT OF THE APPROVAL PROCESSES? NEGOTIATION WITH POTENTIAL DEVELOPMENT PARTNERS? NEGOTIATION OF LEASE TERMS WITH LESSEES? COORDINATION AND APPLICATIONS TO FAA IF LAND GRANT-OBLIGATED? REVIEW OF ASSURANCES? CONSTRUCTION OVERSIGHT? In the Self-Assessment Toolkit (see Chapter 4), checklist items examinedthe structure of the airport’s operations and whether staff would be responsible for management of a development project. At this point in the planning process, a decision should be made whether current employees can handle the project or if additional hires (or contracts with consultants) who have particular expertise are necessary. personnel to manage a development project can be compared to the cost of relying on more consultants, particularly if there are large land resources or if the project will take several years to complete. More in-house management can provide better internal control. If the decision is made to hire new employees, the salary cost will need to be allocated to the project expenses or, if the position is broader than just the development project, to

Implementation toolkit 175 DO The responsibilities and tasks selected in this section of the Implementation Toolkit can be used in combination with the results of the Self-Assessment Toolkit (see Chapter 4) to prepare the job description for the project manager and make an initial decision about whether the position will be internal or external. Is a staff person available who is largely capable of the task? If not, does the airport prefer to hire a staff person who can fill the role and complement the skill sets already provided by existing airport or municipal staff? What tasks will be assigned directly to the project manager and what tasks will be delegated to others? The cost of any such hire will need to be allocated appropriately in the Pro Forma. MARKETING THE PROPERTY? COMMUNITY ENGAGEMENT? PROPERTY MANAGEMENT? Relevant tasks for project manager Check to select Notes Presentation of Development Program to airport governance? Financial analysis? Selection and coordination of consultants? Management of the approval processes? Negotiation with potential development partners? Negotiation of lease terms with lessees? Coordination and applications to FAA (if land-grant obligated)? Review of assurances? Construction oversight? Marketing the property? Community engagement? Property management? Refinement or direction of program?

176 Generating revenue from Commercial Development On or adjacent to airports 6.16 Community Outreach Strategy KNOW With a feasible, well-designed plan and a professional project team, one might expect the approval schedule to be smooth sailing. For better or worse, however, unpredictability is always part of real estate development. Unanticipated objections, questions, and complications can always come out of the woodwork; new environmental or engineering problems might be discovered on the site. This is one reason why it is so important to remember that the airport does not operate in a vacuum; it is part of a surrounding community whose stakeholders can be supporters, partners, or objectors. Having taken the necessary time and effort to lay a strong foundation by nurturing relationships with community members in the residential, business, and public sectors will likely pay off in getting the proposed development project off the ground. This is why community context is touched on so often in this guidebook, and why it is discussed in this section of the Implementation Toolkit, before identifying permits and approvals. Community outreach is a long-term, ongoing process that should be underway before the project is introduced to the public in the permit process and that continues throughout and beyond the development implementation. HAVE At this point, guidebook users can refer back to the information collected in the Site Evaluation Toolkit to assess the airport’s place in the community. The more the airport is integrated into the land use and economic planning of the area, the easier it will be to present airport development as not only beneficial to the airport (which is, after all, the main point of the development effort), but also as beneficial to the larger community. This section of the toolkit addresses some of the issues to consider as part of developing a community relations strategy. The complete Community Outreach Strategy Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. PROACTIVE EFFORTS ALREADY UNDERWAY? The larger point here is that communication with the community should be a proactive, ongoing part of airport operations. If the airport is in the preliminary stages of considering development on non-aeronautical land, if such proactive communication is not already happening, some initial outreach efforts to connect with the community should be initiated prior to communications regarding the specific plan for development. For example, information about the economic impact of the airport could be shared generally. Establishing and maintaining positive relationships requires a continuous effort. HISTORY/CHALLENGES? It’s wishful thinking to believe that an airport development project will be supported or swiftly approved if there has been a history of conflict between the airport and the community. Even if frictions seem minor, the time to address them is before a development proposal is introduced. Particularly in more developed areas, issues of noise, safety, and traffic, among others, can fester for many years and only get worse if not addressed. As evidenced by the case studies in the research for this project, a new airport owner with only the best of intentions toward the community can find a proposed project undermined by a background of poor community relations caused by their predecessors.

Implementation toolkit 177 Examples of considerations Check to select Notes History/challenges? Frictions, even minor? Issues of noise, safety, traffic? Other issues? Relationship with previous owner/authority? Ongoing proactive efforts? Outreach ongoing? If not, initiated before announcing development plans? Fences to mend? Conflicts to be resolved before publicizing development? Established network of community leaders? Means of collecting concerns and working to find common ground? SOUND BITE There was initially a challenge addressing concerns by adjacent private land owners. Some land owners felt the public entity has an unfair advantage and should not be doing private development. FENCES DO Airport sponsors are encouraged to develop a community outreach strategy that takes into account the airport’s existing relationship with the community, existing efforts that may already be underway to build and maintain relationships, and any specific topics that may currently or historically have caused concern. The strategy should recognize if there is already a program in place that simply needs to be continued. If there is not a program in place, the strategy should consider both the short-term and the long-term. Staffing and associated costs should also be included in the strategy. The toolkit sections that follow will help guidebook users gather information about key stakeholders, outreach options, and potential community concerns. A more successful approach is to develop connections with local leaders in the community and spread the message that the airport recognizes their concerns and wants to find common ground to resolve them. The results of ACRP Project 03-31, “Aligning Community Expectations with Airport Roles,” (online release pending), will bea resource on this specific topic. TO MEND? If areas of conflict or concern exist between the airport and thecommunity, the airport should make the move to mend those fences well before detailed development plans are made public. Reacting in response to complaints provides little lasting strategic benefit to the airport.

178 Generating revenue from Commercial Development On or adjacent to airports 6.17 Identifying Stakeholders KNOW Depending on the location and urban development of the airport area, many types of stakeholders may be found in the community. Stakeholders may be public or private. It is important to keep in mind that business groups can play a major role in supporting airport activities both before and after development. HAVE Case Study: Bradley International Airport, Connecticut The Bradley Development League, a non-profit organization formed with local business support to advocate for Connecticut’s Bradley International Airport and the industries that have congregated around the airport, provides a good example of support from stakeholders. The League promotes airport operations and helps to market available sites, providing information on local incentives, the workforce, and the economic benefits of the airport. The League also coordinates with four area towns to provide expedited permit processing in the airport zone—an excellent example of how municipalities can act together to strengthen the airport along with its economic benefits. Possible stakeholders Check to select Notes Neighborhood and homeowners’ groups? Local and regional chambers of commerce? Other business and industry organizations? Local government agencies and officials? County and state government agencies and officials? Pilots’ organizations and airplane hobbyists groups? Economic development departments and agencies? School districts and higher education? Youth groups? Travel agencies and professionals? Airport tenants? Commercial aviation companies and trade groups? The following checklist will help guidebook users identify potential stakeholders. The complete Identifying Stakeholders Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage.

Implementation toolkit 179 DO Answering the questions listed in this section of the toolkit will enable guidebook users to better understand who the potential project stakeholders are and identify a specific contact person for each group. Stakeholders can be incorporated into the airport’s proactive outreach efforts immediately and should also be specifically brought in to the plan to reveal the project to the public (see the section on creating a message in this chapter).

180 Generating revenue from Commercial Development On or adjacent to airports 6.18 Creating a Message KNOW The airport has a positive economic impact on the community. To the degree that benefit is recognized and accepted by local elected officials and residents, an airport-sponsored development will be more easily supported. The airport sponsor should consider how to craft public relations material that clearly articulates the airport’s specific benefits. Economic impact studies covering these issues already may have been done by the airport, by local economic development agencies, or by a local academic institution. If the information does not already exist, the airport can check to see if statewide aviation data are available that may be used effectively or look to national aviation organizations for general numbers. HAVE The questions listed in this section can enable guidebook users to identify economic benefits of the project to the airport and the broader community. The complete Creating a Message Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. JOBS PROVIDED DIRECTLY BY AIRPORT OPERATIONS? JOBS PROVIDED BY BUSINESSES TIED TO THE AIRPORT OR LOCATED IN THE AIRPORT’S VICINITY? INCOME GENERATED BY THOSE JOBS? INDIRECT BENEFITS OF AIRPORT OPERATIONS TO LOCAL BUSINESSES? Typical businesses receiving such indirect benefits might include restaurants and hotels. PROPERTY TAXES AND PAYROLL TAXES PAID BY BUSINESSES TIED TO THE AIRPORT? If the airport is not tax exempt, the development will contribute property and payroll taxes that help support the community. INVESTMENT BY THE AIRPORT IN FACILITY IMPROVEMENTS ON AND OFF-AIRPORT? AIRPORT-SPONSORED ACTIVITY/PHILANTHROPY IN THE COMMUNITY? Potential benefits to airport Check to select Notes Jobs due to airport operations? Jobs due to businesses tied to airport or nearby? Income generated by jobs? Indirect benefits to local businesses, such as hotels? Businesses tied to airport add to property and payroll tax bases? Investment by airport in facility improvements on- and off-airport? Airport-sponsored activity/ philanthropy in community?

Implementation toolkit 181 DO The airport sponsor can use the data collected in this section of the toolkit to craft a message that the development project should increase community economic activity and wealth by attracting investors who will add to the job base and tax base. The emphasis should be on the common goals of community economic growth that will be furthered by the development project. If the local data are not available, the airport sponsor can consider opportunities to have a study done. A local university or economic development organization may be a cost-effective partner for the study. As a cautionary note, the project priority for the airport sponsor must be on those projects that promote airport self-sustainability and revenue growth, although messages to the community can focus on the resulting community benefits. The case studies for this project have shown instances where land sales or leases have been encouraged that provided jobs for the community but little revenue for airport operations. Although community support is important to the development’s implementation strategy and potentially to its revenue potential, the community’s desire for new jobs and additional development should not replace sound financial planning decisions about how best to generate revenue for the airport. (See the Chapter 4 discussion about evaluating development proposals from outside agencies and how to screen out ideas that are unlikely to help the airport.)

182 Generating revenue from Commercial Development On or adjacent to airports 6.19 Outreach Portfolio KNOW The strategic importance of proactive communication has already been stressed. The results of the Self-Assessment Toolkit (Chapter 4) will have established whether the airport has a regular outreach program for communication between the airport and stakeholders. This mechanism is important for garnering support not only for any new development project, but also for regular airport operations. Therefore, it should be an ongoing effort. This section of the Implementation Toolkit explores various outreach and engagement techniques the airport can employ to build relationships with the community. Not every strategy will be appropriate for every airport or situation. Smaller airports with smaller budgets will be in a very different position than larger airports which may be able to support more extensive efforts. HAVE The list of outreach options presented in this section of the toolkit can be used to develop a comprehensive outreach portfolio that best fits the airport’s needs and resources. The complete Outreach Portfolio Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. The online product (pending release in 2017) of ACRP Project 03-31, “Aligning Community Expectations with Airport Roles,” offers extensive information about these strategies. Internal ADVISORY BOARD? Does the airport have (or can it create) an advisory board made up of representatives from community and business groups and elected officials, to set up regular communication? COMMUNITY RELATIONS STAFF? Has the airport designated a community relations employee at the airport to act as a point person for information and complaints, and disseminate information about the airport or the development project? AIRPORT MASTER PLAN? Does the airport encourage public engagement in the airport master planning process as a way to encourage public “buy in” for a development concept in the very early planning stages? Case Study: Manchester International Airport, United Kingdom The Manchester International Airport in the United Kingdom has a Community Relations Manager and team that hold regular open meetings with the community in multiple locations as well as sessions with elected officials. The result of this ongoing outreach effort is a continuing “two-way street” of information and feedback: advance information flows to the community about airport changes and initiatives, and procedures for accepting and responding to feedback from the community (including complaints) are well organized and familiar. The Manchester airport also conducts an annual “Community Impact Review” and publishes a brief report covering outreach, philanthropic, and other activities. It also publicizes job opportunities, reinforcing the economic benefit of the airport. It stands to reason that if the airport is a big local employer, the community will want it to thrive.

Implementation toolkit 183 External OFFER WEBSITE INFORMATION? PUBLISH NEWSLETTERS (PRINT AND ONLINE)? OFFER AIRPORT TOURS? SPONSOR LOCAL EVENTS AND ORGANIZATIONS? OFFER SCHOLARSHIPS AND GRANTS? OFFER PROGRAMS FOR YOUTH INTERESTED IN AVIATION CAREERS? SEND SPEAKERS TO COMMUNITY GROUPS? Internal techniques/resources Check to select Notes Advisory Board? Community representatives? Business groups? Elected officials? Community relations staff? Airport Master Plan? External techniques/resources Continue Add Notes Offer website information? Publish newsletters (print, online)? Offer airport tours? Sponsor local events and organizations? Offer scholarship and grants? Offer programs for youth interested in aviation careers? Send speakers to community groups? DO The answers to the questions in this section of the toolkit can contribute to a comprehensive outreach strategy that best fits the airport’s needs and resources.

184 Generating revenue from Commercial Development On or adjacent to airports 6.20 Revealing Project Plans to the Public KNOW The decision to release airport development plans to the public is a strategic one. The most suitable strategy will vary with the particular community and, as noted earlier in the toolkit, with any past conflicts. The airport sponsor will be most aware of the particular local political nuances, and how and whether to use the suggestions listed in this section of the toolkit. There are benefits to getting the community in the loop at the earliest possible point in the process. Announcing plans early can be part of the airport’s regular public outreach and can contribute to a sense of transparency and to building a foundation of trust between the airport and the community. Some stakeholders may also have marketing or development expertise that they can contribute to the airport, or they may be able to offer funding ideas and connections. The sponsor also needs to be aware that the process of gathering information and assembling studies to create a plan will make certain individuals and businesses in the community aware of the airport’s intent. Even if preliminary plans are not released to the public, the airport should be ready and open to respond to inquiries. In general, the time for opening preliminary development plans to the public would be after: Research for the project is complete There is a rationale for the plan The airport is ready to explain the benefits and respond to comments HAVE Community concerns about airport development may result from the airport’s history with the community or may be due to specific features of the development being proposed. Some concerns may need to be addressed with the help of experts, who can be identified in the checklist that accompanies this section of the toolkit. In preparation for sharing development plans with the community, answering the questions in this section of the toolkit can enable guidebook users to anticipate community concerns and consider how to respond. The complete Revealing Project Plans to the Public Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. LAND USE COMPATIBILITY ISSUES? IMPACTS TO CIRCULATION (TRAFFIC)? NOISE? PUBLIC SAFETY? ENVIRONMENTAL IMPACTS? PROJECT FUNDING SOURCES? CONSISTENCY WITH LOCAL ECONOMIC DEVELOPMENT GOALS?

Implementation toolkit 185 DO If public outreach and stakeholder involvement strategies are proactive, the airport has the opportunity to both resolve concerns before they take root and garner support for the airport’s development efforts. For example, small-scale meetings and public sessions can be used to provide information about the project and take the community’s “temperature” before a planning board hearing. In preparing for such meetings or for other outreach strategies, the answers to the questions in this section of the toolkit can help guidebook users anticipate likely concerns that may be raised about the development, so the airport can be prepared to address them. The airport’s response should clearly explain how the development plan is consistent with and supportive of the community’s own master plan and economic development goals, and the benefits the proposed development will provide. It is important to be familiar with and understand those larger regional goals. Concern about development Area of concern? Expert assistance needed? Who could provide expertise?Yes No Land use compatibility issues? Impacts to circulation (traffic)? Noise? Public safety? Environmental impacts? Project funding sources? Consistency with local economic development goals?

186 Generating revenue from Commercial Development On or adjacent to airports 6.21 Permits and Approvals KNOW It has been pointed out several times throughout the guidebook how important and potentially expensive the permitting process can be. Approvals can be required at all levels of government: federal, state, county, and local. Once the Development Plan and Development Program have been refined, steps can be taken to prepare for and expedite approvals. These steps include identifying the scope of necessary permits and approvals by answering the following questions: Which agencies will be involved? What documentation will be required for approval? What is the sequence of the approvals needed? What expertise is required? This section of the Implementation Toolkit walks the guidebook user through the permitting and approval process using a series of questions and checklists. Compliance with FAA grant assurances and land releases will be necessary for grant-obligated airports. If private airports that may not have been grant obligated in the past wish to seek FAA funds for future improvements, the airports need to be aware they will be subject to compliance for future development on land that has not been released from FAA jurisdiction. Advance planning is important to show that the development land has been classed as non-aeronautical in required planning documents, such as the ALP. Required approvals can differ depending on ownership status. Private airports would be treated as private developers. Publicly-owned airports, by contrast, may not be required to obtain local site plan approval for locations on airport property or within the AOA. A review of relevant laws and regulations can confirm which agencies have approving authority. Airport sponsors are advised to bear in mind that, even when a project may be exempt from local approval, community coordination remains highly important. Local opposition can still complicate the development process. HAVE Permits and approvals could include, but are not limited to, the items listed in this section of the toolkit. The checklist is intended to track whether or not commonly needed permits or reviews are required. Additional permits or reviews can be added to the list as they are discovered. The complete Permits and Approvals Checklist is provided in Appendix C, “Chapter 6 Checklists,” along with a blank permitting matrix. A customizable copy of the same checklist and permitting matrix can be downloaded from the ACRP Research Report 176 webpage. SOUND BITE Leasing is not popular with developers. There has been trouble getting financing for projects on long-term lease properties. It has also been difficult to come to terms with the FAA on “fair market value” of a lease. SOUND BITE Delays or unpredictability in a development schedule are distinctly harmful to the development and redevelopment process.

Implementation toolkit 187 FAA Actions—If Grant Obligated ALP REVISION APPROVAL? LAND RELEASE REVIEW? NEPA DETERMINATIONS FOR ENVIRONMENTAL REVIEW? Subsequent Categorical Exclusion (CATEX), Environmental Assessment (EA), or Environmental Impact Statement (EIS); air quality impacts? LEASE REVIEW? Fair market value, term limit, renewal options, reversions? COMMUNICATION AT START OF DEVELOPMENT PROCESS? OTHER? Environmental Permits—Federal, State, or Local SOIL EROSION? WETLANDS FILL OR CROSSING? COASTAL JURISDICTION? REMEDIATION (ADDRESSING SITE CONTAMINATION)? FLOODPLAIN ENCROACHMENT? STORMWATER DETENTION AND DISCHARGE? WATER SUPPLY ALLOCATION OR MAIN EXTENSION? SEWER SYSTEM CONNECTION? FAA actions (If grant obligated) Check to select Notes ALP revision approval? Land release review? NEPA determinations for environmental review? Subsequent CATEX? Subsequent EA? Subsequent EIS? Air quality impacts? Lease review? Fair market value? Term limit? Renewal options? Reversions? Communication at start of development? Other?

188 Generating revenue from Commercial Development On or adjacent to airports CONTAMINATION INVESTIGATION AND REMEDIATION? FISH AND WILDLIFE/ENDANGERED SPECIES? SOLID WASTE MANAGEMENT? Land Use and Zoning Approvals—Local or Regional ZONING CHANGE? VARIANCE(S)? SITE PLAN APPROVAL? SUBDIVISION APPROVAL? REDEVELOPMENT AREA PLAN/AGREEMENT? Environmental permits (federal, state, or local) Permit required? Notes (including agency identification) Yes No Soil erosion? Wetlands fill/crossing? Coastal jurisdiction? Remediation? Floodplain encroachment? Stormwater detention and discharge? Water supply allocation or main extension? Sewer system connection? Contamination investigation and remediation? Fish and wildlife/endangered species? Solid waste management? Land use and zoning approvals (local or regional) Approval required? Notes Yes No Zoning change? Variance(s)? Site Plan approval? Subdivision approval? Redevelopment area plan/agreement?

Implementation toolkit 189 Transportation—State, County, or Local Jurisdiction NEW OR MODIFIED HIGHWAY ACCESS? RAMP OR ROAD EXPANSION? INTERSECTION AND SIGNAL IMPROVEMENTS? ROAD DRAINAGE? BUS ROUTING? TRANSIT STATION LOCATIONS? DO Once the research has been completed, it can be helpful to group the required permits into a matrix like the example shown in Table 1. In the table, review times are examples; actual review times will depend on local regulations. A blank permitting matrix has been provided in Appendix C, along with the checklist for this section of the toolkit. The matrix will need to be populated for each specific development proposal, and the timeline for the permitting will need to be verified locally. Time-frames for permit review often can be found in the statutes or regulations that established the permit procedures, so those sources should be consulted in laying out a timetable. It is critically important to build sufficient time into the schedule to obtain permits, particularly when negotiating with a potential user or funding source. Some time-frames are quite extended, and only begin when an application is declared complete. Identifying the scope of required permits will help airport sponsors refine the cost estimates and schedule to feed back into the Pro Forma. Transportation (state, county, or local) Check to select Notes New or modified highway access? Ramp or road expansion? Intersection and signal improvements? Road drainage? Bus routing? Transit station locations?

190 Generating revenue from Commercial Development On or adjacent to airports Table 1. Permitting matrix example. Agency Permit Type Documentation Consulting Review Time Planning board— Municipal Site Plan approval, Variances Site plans, Traffic studies, Planning reports Engineering, Architecture, Traffic, Planning 120 days State department of transportation Highway access Driveway access, Drainage plans Engineering, Traffic 90 days Planning board— County Site Plan approval Site plans, County road studies Engineering, Architecture, Traffic, Planning 120 days State department of environmental protection Sewer connection, Flood plain Wastewater calculations, Main extensions Engineering, Water quality 90 days Water department or municipal utility Water use Water consumption calculations, Main extensions Engineering 60 days U.S. Army Corps of Engineers or local environmental agency Wetland or stream stormwater discharge, Road crossing Wetlands limits, Site plans Environmental, Engineering 180 days FAA Land release Revised ALP, Joint venture/ lease approvals Legal, Aviation planning 270 days

Implementation toolkit 191 Table 2. Example of project team and contributions by role. Title Contributions/Focus Land planner Airport Master Plan, Development Plan, approvals, or variance testimony before planning board Civil engineer Road and utilities design, drainage, grading, Site Plan preparation, planning board testimony, cost estimating Architect Conceptual Site Plan, building design, planning board testimony Land use attorney Airport representative before planning board, direction of testimony, suggestions for strategy; preparation of drafts and review of agreements, easements Environmental remediation professional Assessment of site conditions, development of remediation plan, management of cleanup, obtain approvals from relevant agency Environmental resource or impact consultant Wetlands and wildlife studies, Environmental Impact reports for municipal approvals or state permits Traffic engineer Traffic impact studies and improvement recommendations, coordinat ion with transportation agencies, planning board testimony Transaction attorney (leases, sales) Airport representative in negotiation of lease and sales terms Aviation attorney (FAA issues) Identification of grant assurance issues and approval procedure, preparation of approval documents, coordination with FAA, identification of land use conflicts, review of leases for FAA compliance Real estate advisory/broker services Market analysis, identification of potential lessees/purchasers, marketing strategy, project management Capital markets advisors, bond counsel Bond financing 6.22 Consulting Needs—Building the Project Team KNOW Even with strong in-house management capabilities, and even with small-scale projects, some consulting expertise will probably be necessary to assist with engineering, legal, permitting, or design details. Expertise is needed both to address the permitting needs and to provide construction plans and specialized technical knowledge. Given the potential scope of consultants, clearly a central coordination role at the airport is needed to monitor milestones, review consultant work products, and maintain the schedule. HAVE Table 2 lists the consulting professionals who are most likely to be needed. A blank project team components checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. Guidebook users can fill in the blank table to identify who will be part of the project SOUND BITE The airport has a real-estate agreement with two large commercial real estate firms to market airport properties. team. The complete project team will include airport and/or municipal employees as well as consultants.

192 Generating revenue from Commercial Development On or adjacent to airports DO The answers to the questions in this section of the toolkit can be used to walk through the process of putting together the project team members. It may be too early in the planning process to identify every team member specifically, but there should be a basic understanding of which resources will be needed, which needs can be filled using the internal staff, and which will be brought in on a contract basis. Identifying the consultants who will be part of the team also will help to refine the cost estimates to feed back into the Pro Forma.

Implementation toolkit 193 6.23 Incentives KNOW HAVE The lists in this section of the toolkit can enable guidebook users to determine which tax and non-tax incentive programs may already be in place for the airport and which ones might be worth pursuing as an incentive for business attraction. The complete Incentives Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. FOREIGN TRADE ZONE? Foreign Trade Zone (FTZ) designation is a common airport- related incentive. FTZs are designated geographic areas within which merchandise is considered to be outside U.S. Customs territory. The designation allows businesses within the FTZ to defer or avoid normal tariffs and duties on imported materials and goods. There are nearly 300 FTZs throughout the United States. Additional information on FTZs is available at www.enforcement.trade.gov/ftzpage/applications.html or www.foreign- trade-zone.com/index.html. AIRPORT DEVELOPMENT ZONE? The designation of Airport Development Zone is a popular option for states and counties to stimulate investment. This designation may come with a variety of tax and non-tax incentives. TAX INCENTIVES? Income tax credits? Credits at the state or federal level—or both—can be granted on the basis of job creation or the level of investment by a new business. Sales and use taxes? These taxes also are abated in some programs for aviation- related businesses. Examples include the Bradley Airport Development Zone in Connecticut and the Economic Incentive Zone and Aviation Development Zone in Colorado Springs. NON-TAX INCENTIVES? Training programs? To attract business, training programs may be made available to development zone employees. Expedited permit processing? In this context, expedited permit processing refers to fast-tracking the review and permitting process for the businesses that will be attracted to the new development. Low-interest loans? The purpose of these loans is to support capital asset financing for relocating companies. SOUND BITE City council took action and offered an abatement on aircraft maintenance facilities and other aviation-related businesses. The waiver of local taxes has helped spur development. Tax incentives are commonly used to attract business to airport development zones throughout the United States, and should be considered in the project’s planning stages. Incentives can vary and may come from federal, state, or local sources. If the airport land is located within an economic development zone, that fact should be featured prominently in marketing and outreach strategies.

194 Generating revenue from Commercial Development On or adjacent to airports DO The availability and suitability of incentives should be explored early in the process. If suitable incentive programs are available, they can be highlighted in the proposed development’s marketing strategy. An important part of this exploration, however, is determining whether airport leadership, local elected officials, and the business community are receptive to the use of incentives. Opposition is best identified and addressed early on, so that a general level of consensus can be created before pursuing efforts to secure the incentives. Political entities may be responsive to initiatives that carry potential for economic revitalization. Federal and state elected officials are a good place to begin the conversation about establishing incentives for airport development. For example, if the airport is not already in an economic development zone, the airport may consider advocating for the county or state to designate a zone and formalize an incentive program. Incentives Check to select Notes Foreign Trade Zone? Airport Development Zone – tax incentives? Income tax credits? Sales and use taxes? Airport Development Zone – non- tax incentives? Training programs? Expedited permit processing? Low-interest loans? Case Study: Raleigh–Durham International Airport, North Carolina Resistance to the use of incentives on publicly-owned airport land may occur in some locales because the incentives can be viewed by the private sector as conveying an unfair advantage. A ULI panel study examining future development potential at Raleigh–Durham International Airport recommended against establishing incentives for just this reason. Raleigh–Durham already enjoys many attributes that are attractive to business, and incentives would be less justifiable there than in a less attractive location. Nationwide, controversy and debate about the use and efficacy of incentive programs certainly occurs, and the benefits and costs of such programs with respect to airport development is a worthy subject for potential further research.

Implementation toolkit 195 the the and the same be will has make would from for be and direct such of or on airport likely likely 6.24 Funding and Financing KNOW The project Pro Forma provided the base reference for the funding needed to implement project. The estimates on the Pro Forma should have allowed the airport sponsor to determine the portion of funding that could be provided through airport operations, the amount that would have to be financed, and when the funding would be needed. Shortly before proceeding with development is a good time for the sponsor to review and update the expense projections funding and financing plan. The funding that will be needed may come from one source or from a variety of sources. HAVE Several sources exist from which the necessary funding can be assembled to complete development project. The information gathered in this section of the toolkit will help guidebook users research and track information about funding options. The complete Funding and Financing Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the checklist can be downloaded from the ACRP Research Report 176 webpage. INTERNAL SOURCES? Reserves or free net revenue from airport operations can dedicated to fund initial planning and design efforts. In most cases, project scale dictate that other funding will be necessary for the construction costs. If the airport already received FAA grants, the grant assurances must be carefully examined to sure that any restrictions on revenue use would not be violated. The same caution apply to any outstanding bonds issued for earlier projects. GRANT AND LOAN SOURCES? The project may qualify for federal or state grants several sources, including but not limited to the following: Regional Economic Development Authorities? Grants or loans may be provided projects that create jobs and leverage other investment, or which generally improve public infrastructure, such as airport access roads or drainage. State Transportation Aviation Agencies? Similar grant and loan programs may provided by these agencies. Community Stakeholders? Stakeholders may be helpful in identifying grant loan opportunities from a variety of sources. APPROPRIATIONS? For airports with county, municipal, or state ownership, appropriations from state aviation funds or general funds might be possible. As appropriations have political aspects, it is here that positive community and stakeholder relations can be of significant help in advocating and securing funding. Departments transportation also can make appropriations for road improvements that would serve new development, improve airport access, and broadly benefit public use. BONDS? The airport sponsor may be able to issue bonds through its own organization through a city, county, or state government. These bonds could be tax-exempt based the likely share of public benefit, and typically take the form of either general obligation bonds backed by the government entity’s general revenue and taxing ability, or revenue bonds supported by the airport’s own net revenue. Further research, and the assistance of an underwriter or capital markets advisor, would determine the credit rating and interest rate on the debt, as well as legal and other costs of issuance.

196 Generating revenue from Commercial Development On or adjacent to airports Bond funds can be used for project engineering and design costs, construction of infrastructure, as well as the development project itself. For a general obligation bond, the issuing municipal entity would have to determine that it has sufficient legal and taxing capacity to support the new debt. For a revenue bond, the financial advisor, along with an engineering/feasibility consultant, can help determine that the airport has the revenue capacity to support the proposed bond debt service. In either case, bond counsel would be employed to assist the airport or municipality in bonding decisions and issuance. In all cases, existing bond resolutions and rate covenants must be examined for restrictions applicable to new issues. PARTNERS? Joint venture partners can be a source of funding, either through forms of cost-sharing, apportioning, or taking responsibility for construction costs. (Additional information on joint venture partnerships is provided in this toolkit in the section labeled “Development and Partnership Strategies.”) VALUE CAPTURE? Value capture encompasses other forms of bond financing. The concept is relatively simple, and its application to various projects in the United States was explored in detail in ACRP Report 121 (2015). The model assumes that certain properties and users benefit from the proximity to an airport, and the airport generates both direct and indirect economic impacts through job growth, property tax appreciation, and more passenger ridership and access. In this guidebook, these techniques are explored in more detail in Chapter 7, “Off-Airport Considerations and Revenue.” Potential sources Check to select Notes Internal sources? Grant and loan sources? Regional economic development authorities? State transportation aviation agencies? FAA-sponsored Airport Improvement Program (AIP) grant? Community stakeholders? Appropriations? Bonds? General obligation? Revenue? Partners? Value capture?

Implementation toolkit 197 DO The information collected in this section of the toolkit can be used to determine which funding sources are available, what amounts might be provided through each source, and the associated timeline for each funding source. For example, appropriations may be a politically viable funding option, but they may require some lead time to be put into the budget for the next fiscal year. Bonds may be a funding option, but they may require a public vote, and it may take several years to put the funds in place. As noted in the discussion of financial analysis, funding strategies and conditions, such as sources and interest rate costs, must be factored back into the refinements made to the Pro Forma.

198 Generating revenue from Commercial Development On or adjacent to airports 6.25 Development and Partnership Strategies KNOW At this point in the development planning, thinking about scenarios for ownership and project implementation should be fairly far along. The information gathered thus far on risk, professional expertise, and financial resources will all help shape a decision about whether the airport will “go it alone,” find a joint venture partner, or enter into an agreement with a master developer. Partnerships can be a good source of funding and offer a way of sharing the risks of development, but a partnership may not be appropriate for all situations. The plans for the development may be limited enough that the project can be self-financed through airport revenues or the parent entity without need for a partner. In the case of publicly owned airports, private participation can be constrained by statutory or regulatory constraints. After preparation of the Pro Forma, however, it may become clear that the airport does not have the resources, time, or expertise to complete the development project alone. In this case, it could make sense to seek a joint venture partner or perhaps turn the project over to a master developer. If a developer partner is brought in, it is helpful to remember that one of the most important aspects of a project is predictability. Complete predictability is impossible, but the more that potential issues and risks have either been resolved or accurately framed in advance, the more attractive the development opportunity becomes. Some tension may occur over issues of land control. Developers investing in long-term development involving significant vertical construction typically want as much control of the land as possible, but that may not be advisable or even possible for the airport. Land leases may offer the most long-term income dependability, but a partner may prefer the quicker turnaround of lot sales. Generally, for land leases, developers will look for as long a term as possible, which may conflict with FAA policies. For grant-obligated airports, lease terms are subject to FAA review. (For more information, see Chapter 3, “Legal Considerations.”) HAVE The information assembled using this chapter’s sections on “Finding Partners,” “Evaluating Partners,” and “Determining the Deal” can be helpful if the airport is considering a joint venture partnership. Finding the right partner will be important to the success of the project. The airport may need to consider several potential partners before finding the right match. Rather than a joint venture partner, the airport may prefer to work with a master developer. Unlike a venture partner, the master developer will most likely manage all aspects of design, approvals, construction, leasing, and property management. There is a trade-off with this arrangement: although it minimizes the resources that need to be invested by the airport sponsor, it reduces the sponsor’s day-to-day control. This arrangement may be suitable if the If the airport does not have the land resources to undertake development on its own, it also may be possible to enter into a joint venture with off-airport landowners or developers. The off-airport development may bring new customers and revenue to the airport. In such cases, the key is to determine what the airport is contributing to the deal: for example, the airport may contribute capital, infrastructure work, or other grant proceeds. If the airport governance has a low risk tolerance, an off-airport partnership may be worth exploring. (See Chapter 7 for additional details related to this topic.)

Implementation toolkit 199 Evaluating Partners DIRECT EXPERIENCE? Does the potential partner have direct experience in the type of development proposed? The premise in seeking a development partner is that the partner contributes the expertise to accomplish the development efficiently and not get stuck on a learning curve. AIRPORT EXPERIENCE? Has the potential partner worked with other airports or public partnerships? Is the project a natural progression for them? REFERENCES? Are references available? Are there built projects? INVESTMENT CAPITAL? Does the potential partner have the liquidity and capital to invest in the project and hold up their commitment to project costs? Finding partners Check to select Notes Professional networking? Professional real estate advisor? Economic development agency? primary concern is with the results of the development and not the process. The complete Development and Partnership Strategies Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. Finding Partners Potential joint venture partners can be found through networking and business outreach activities—another key benefit of community involvement. The question-prompts in this section of the toolkit will help guidebook users identify potential partners. PROFESSIONAL NETWORKING? Acquaintances in real estate, banking, and economic development may know of individuals or institutions looking for an opportunity or who have participated in public/private partnerships. PROFESSIONAL REAL ESTATE ADVISOR? A professional real estate advisor can be engaged to provide guidance and to locate investors. Ideally, the real estate advisor will have some knowledge of aviation, public finance, and/or other topics that may be unique to the project. In the case of publicly owned airports, engaging a real estate firm may also be beneficial as the firm may be better able to speak in “development language” to a potential partner who is not familiar with public-sector projects. ECONOMIC DEVELOPMENT AGENCY? A partner need not be a private developer. Economic development agencies can contribute funding and expertise to a project. Potential joint venture partners must be evaluated and selected carefully. A partner should be someone who “pulls together” as a teammate, and who can comfortably work in a partnership through the duration of the project. Consider those developers or partners that would be most interested in the project and the opportunities it represents. Examine their business history or record of development success and their references and consider the following:

200 Generating revenue from Commercial Development On or adjacent to airports COMPATIBLE GOALS? Are the airport’s goals compatible with the partner’s goals with respect to risk-sharing, investment returns, and long-term objectives? Determining the Deal No partnership exists without an agreement on the financial terms. Before the airport sponsor begins to look for a partner, it would be wise to have an internal understanding of the airport’s expectations on these four key elements of a partnership agreement: SHARES OF INVESTMENT? In most cases, the airport’s capital contribution to the joint venture would be the value of the land it is providing to the deal. That value should be confirmed independently with a professional appraisal conducted by a third party. PERCENTAGE RETURN? How much risk to share with the partner is primarily a function of the airport’s own risk tolerance, but risk-sharing for a public airport may also be constrained by statutes and regulations. Generally, risk is proportional to reward: the more risk a partner is expected to shoulder (i.e., the more the partner is “risk-burdened”), the more upside revenue the partner will naturally expect. ROLES AND RESPONSIBILITIES? What roles and responsibilities will the airport have? The partner? Up front, the partners must reach an agreement about the responsibilities of each through the process: which entity will obtain the approvals, manage contractor bids, manage construction and leasing, and so forth. SPLIT OF EXCESS PROFITS AND RESIDUAL VALUE? What provisions will be made to divide returns that may grow over time and exceed initial estimates? Evaluating partners Yes No Notes Direct experience? Airport experience? References? Investment capital? Compatible goals? Risk-sharing? Investment returns? Long-term objectives?

Implementation toolkit 201 Determining the deal Addressed in deal? Notes Yes No Shares of investment? Confirmed by third-party appraisal? Percentage return? Roles and responsibilities? Airport? Partner? Split of excess profits and residual value? DO Joint Venture Partner To help decide this sharing of risks and responsibilities, the financial Pro Forma should be run using numbers that reflect several scenarios of investment, cost, and revenue sharing assumptions. The airport sponsor will have to enter the negotiation knowing the arrangement that will best serve its own interests, and where compromises can be made. This is another instance in which professional real estate and legal representation will be an advantage. Master Developer The airport may prefer to work with a master developer. If the airport opts for the help of a master developer, it will essentially turn over all development responsibilities to a professional development company, releasing far more control over the project than in a typical joint venture. Often, the master developer obtains a ground lease for the property from the airport sponsor and proceeds to install infrastructure, prepare sites, and construct and rent buildings. Many airports have employed this approach. Examples include Southern California Logistics Airport in Victorville, California; Dayton–Wright Brothers Airport in Ohio; and the Indianapolis Airport Authority. A master developer is typically chosen through a Request for Proposals (RFP) process that is administered either by the airport sponsor or by the airport’s governing entity. The RFP defines the objectives for the project; provides a property description and mapping; describes the site’s location and the demographic and economic context; and identifies zoning and land use parameters (e.g., zones for aviation and commercial uses). The RFP also may include design guidelines. FAA restrictions, lease term limits, and other lease provisions should be noted. The time-frame desired for development phasing and completion also can be specified. For more information, ACRP Report 47: Guidebook for Developing and Leasing Airport Property (2011) is a pertinent reference that contains a detailed checklist for identifying key components of lease agreements. SOUND BITE A master developer was selected through a public selection process.

202 Generating revenue from Commercial Development On or adjacent to airports Prospective developers who respond to the RFP are asked to present their proposed development concepts. They also are asked to present financial information demonstrating their ability to undertake the project, as well as references confirming their real estate development experience. The proposal also includes the fee and pricing structure and/or joint venture terms, if applicable. Acceptance of a proposal is followed by negotiation of a Developer’s Agreement that outlines the responsibilities and obligations of both parties. The scope of the RFP will vary depending on the airport’s needs. If the airport has already done extensive groundwork in development planning, specific parcels may have already been identified for sale. If this is the case, the developer will only be asked for targeted assistance in marketing those sites. In other cases, the master developer will be asked to undertake all of this work—to conduct due diligence, undertake land use planning and infrastructure improvement, and propose unique, creative ideas for parcel use. The terms of a joint venture deal or agreement with a master developer must be factored into further refinements of the Pro Forma. For example, a partner may take on certain responsibilities that relieve the airport of approval costs, for example, but may also require a larger share of the revenue from the development.

Implementation toolkit 203 6.26 Marketing KNOW Whether the development effort is led by the airport sponsor, a joint venture partner, or a master developer, a marketing strategy is necessary for its success. Joint venture or master developer partners often are contractually responsible for marketing operations. Regardless, the airport sponsor should be aware of the underlying marketing strategy and review and contribute to it based on operational knowledge. Marketing strategy decisions do not wait until the last minute. Once approvals are in hand, it is time to begin discussions with marketing advisors. Here, coordinating with local economic development agencies can be very helpful, as they should be very willing to highlight the development project in their online or print marketing materials to attract businesses. Brokers or real estate advisory firms are another way to identify prospective tenants or lease holders. They can be engaged or provided with information to spread the word to their network about the development opportunity. Notes about working with a broker, are provided in the “Do” section. For larger or longer-term development projects, a marketing design or strategy firm may be employed to recommend graphics, logos, and media placement. HAVE The organization and intricacy of a marketing program will depend on the nature of the project to be promoted. Projects involving multiple uses, buildings, features, and land use plans will require a more structured and detailed program than a development project limited to ground leasing land parcels, though in either case a sustained effort is required to achieve the absorption goals of the project. Answering the questions in this section of the toolkit will help guidebook users consider several important elements of a marketing campaign tailored to the project needs. The complete Marketing Checklist is provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy of the same checklist can be downloaded from the ACRP Research Report 176 webpage. BRANDING? Establish an identity for the project. If the airport already has a strong market image, that is a good head start, particularly if the development project is aviation oriented. Otherwise, develop a name and a theme for the project that links it to the airport focus, signals the desired land uses for the project (e.g., town center, logistics park, flight training), and fixes an easily recognizable geographic location or other identity. COMPETITIVE ADVANTAGE? What makes the airport development site desirable? Airfield access? Intermodal availability? Larger, less expensive sites? Private jet services? Business travel for corporate headquarters? Mass transit access? Multimodal transportation? Infrastructure investment that has created shovel-ready parcels can really pay off in creating competitive advantage, as can other features and amenities that distinguish the development. COMMUNITY RELATIONS? Efforts at community relations can be of immense help in creating a positive presence in the community. Airport officials who are active in the community can promote awareness of the project, perhaps as speakers at economic development events. Business networking is a key part of marketing the project, especially within real estate organizations.

204 Generating revenue from Commercial Development On or adjacent to airports ADVERTISING? Advertising can be expensive, but ads most likely have a role in the marketing campaign. Effective advertising is about timing as well as placement; paying close attention to both will help the airport sponsor make the best use of the budget. MEDIA RELATIONS/SOCIAL MEDIA? Engaging a professional firm may be the most effective way to tap the media as part of the marketing strategy. The media strategy may include placing news stories about the project and providing updates on available sites and project progress on websites, Facebook pages, and Twitter feeds. POINT PERSON? Has a consistent point of contact been identified for inquiries about the project from potential users or lessees? This contact can be a designated in-house individual, if resources allow, or a member of the contracted broker or real estate advisory firm. DO The airport sponsor will have reached an initial decision as to whether the marketing will be done by internal staff or through a contract arrangement through the exercise on market conditions in Chapter 5, “Site Evaluation Toolkit.” Completing the checklist in this section of the toolkit will help guidebook users fine-tune the marketing strategy and related efforts. The combined decisions also will help refine the marketing costs, which can then be entered in the Pro Forma. The marketing strategy can help find potential customers, but a broker can play a more direct role in finding real prospects. A real estate broker can be directly engaged on an exclusive basis, although a broker agreement establishing the agreed fees and responsibilities will be necessary. Marketing campaign elements Check to select Notes Branding? Ties with airport identity? Themed and recognizable? Competitive advantage? Community relations? Officials active in community? Business networking ongoing? Advertising? Media relations/social media? Internal staff efforts? Hired professional firm? Point person? Internal staff member? Contracted broker or real estate advisory firm?

Implementation toolkit 205 Engaging a real estate broker does add another layer of complexity to the project, which may or may not be worth the effort. If the airport chooses to work with a broker, it is important that the selected broker or real estate advisor be familiar with the FAA grant assurances that may apply to the project, including limitations on lease terms, building height limitations, and fair market value requirements. With public airports, an RFP process may be required to identify and select an exclusive broker. Any contracts with marketing or real estate firms, including commission agreements with brokers, need to be reflected in the Pro Forma. Note that an experienced attorney will be needed to draft and negotiate lease and sale documents for the airport’s development property or buildings. FAA will review lease terms to confirm compliance with grant assurances. If the airport is grant obligated, the attorney should be familiar with FAA requirements. Key issues are lease terms and fair market value. (For more information on this topic, see Chapter 3, “Legal Considerations.”)

206 Generating revenue from Commercial Development On or adjacent to airports 6.27 Construction Management/Property Management/Operation KNOW Property management involves various elements and challenges as the project develops; accordingly, the management strategy needs to shift as the project moves from its construction phase, through lease-up, and into operations. For example, the development stage can easily result in disruption to airport circulation if access needs are not anticipated and minimized with effective planning. Traffic management plans should be in place during road and utility construction, and local approval conditions may require extra traffic officers and approval of detour plans. Similarly, as new sections of the development are opened, construction management and property management personnel should cooperate to preserve access and enforce soil erosion and noise controls. An airport sponsor can take the responsibility for construction, but more often will it be the purview of a joint venture partner or master developer. The latter approach is wise if the type and extent of construction are outside the airport’s experience. A developer partner also may have relationships with local contractors. A joint venture or developer agreement should address the construction contractor selection and approval process, with appropriate approval rights for the airport sponsor. As with the developer or partner selection itself, the specifics of selecting and approving contractors may be affected by public bidding requirements. In any event, references should be required. Property management needs are dependent on the nature of the project: a development consisting solely of parcels to be ground leased will involve only limited property management obligations, but they may still include maintenance of common landscaping areas, signage and other amenities, and road maintenance if roads are private. Management of lease payments and other lessee issues will still need to be handled. Projects involving new structures and leasing of space to tenants will entail additional responsibilities, such as tenant improvements, communication with and touring prospects, addressing building operations and complaints, and many other details. The airport’s strategy for ongoing management of the development must take into account the airport sponsor’s own resources and capabilities for maintenance, accounting, and tenant relations. Is the responsibility for property management something the airport can comfortably handle, or is it best undertaken by a partner or a third party? This section of the Implementation Toolkit presents three possible scenarios for property management. AIRPORT AS CONSTRUCTION MANAGER/PROPERTY MANAGER? If the airport already undertakes construction and property management, the new development may be assigned to an airport employee or added to the department that now handles property issues on the airport itself. MANAGEMENT ASSIGNED TO PARTNER OR MASTER DEVELOPER? If it appears best to assign construction management and/or property management to a joint venture partner or or a master developer, a formal agreement will be needed. As with a joint venture developer construction agreement, the management agreement should address contractor selection and the approval process, specifying appropriate approval rights for the airport sponsor. As with the developer or partner selection, the selection of contractors may be affected by public bidding requirements. For property management, if

Implementation toolkit 207 a is the property is owned by a partnership, all partners’ names should be stated in the management agreement, and all should sign the document. OUTSOURCED? Construction and/or property management responsibilities may be wholly outsourced to a construction contractor, management firm, or real estate services firm. As part of the selection process, a sponsor taking this approach should request copy of the firm’s contractor’s license, property management license, and/or real estate license. Most states require these licenses. HAVE The question-prompts in this section of the toolkit can help guidebook users decide whether the airport has (or would like to hire) staff capable of executing property management responsibilities. The complete Construction Management/Property Management checklist provided in Appendix C, “Chapter 6 Checklists,” and a customizable copy can be downloaded from the ACRP Research Report 176 webpage. With regard to typical construction management responsibilities, who will be responsible for: DEVELOPMENT OF BID DOCUMENTS? CONSTRUCTION CONTRACTOR SELECTION AND APPROVAL? CONSTRUCTION OVERSIGHT? Compliance with building codes? Soil erosion control? Noise ordinances? SAFETY PLAN DEVELOPMENT AND OVERSIGHT? TRAFFIC PLAN DEVELOPMENT AND COORDINATION? Construction management responsibilities Check to select Notes Development of bid documents? Construction contractor selection and approval? Construction oversight? Building code compliance? Soil erosion control? Noise ordinances? Safety plan development and oversight? Traffic plan development and coordination?

208 Generating revenue from Commercial Development On or adjacent to airports With regard to typical property management responsibilities, who will: ACT AS THE TENANT LIAISON? Monitor tenant with respect to lease obligations? Collect lease payments? Respond to tenant complaints and issues? Coordinate move-in process, tenant improvements? Sign leases on the owner’s behalf (possibly)? As appropriate to the project and the plan, who will be responsible for: FACILITY MANAGEMENT? Management of physical structures, outdoor spaces, and common spaces? Monitoring provision of any services provided by owner? Purchasing materials required for maintenance? Selecting and maintaining relationships with contractors for repairs and regular maintenance? Monitoring quality of repairs and maintenance work? Facility management responsibilities Area of concern? NotesYes No Facility management? Physical structures (inside, outside, common areas)? Monitor service provisions? Materials purchasing? Ongoing contractor coordination for maintenance? Maintenance quality monitoring? Property management responsibilities Area of concern? Notes Yes No Tenant liaison? Monitor tenant for lease obligations? Collect lease payments? Manage tenant complaints/issues? Coordinate tenant move-in and improvements? Sign lease on owner’s behalf?

Implementation toolkit 209 DO Decisions on property management cannot wait until construction is completed. The strategy should be selected in advance in order to hit the ground running when the project is ready for occupancy. Because a property manager has responsibilities in several different areas, the responsibilities may be divided among two or more members of the airport’s staff, or they may be divided between airport staff and a development partner. Property management responsibilities also may be outsourced. The checklists in this section of the toolkit can help guidebook users make a decision about how the project management responsibilities can best be assigned. With regard to construction management, as schedules, estimates, and bids for the construction work are obtained, that data must be factored into refinements of the Pro Forma. For public airports, there may be regulatory requirements to accept the lowest bid. Once decisions have been made regarding property management responsibilities, the Pro Forma should be updated with revised property management and operations cost projections, including the negotiated management fee or new in-house management costs. Finance and administration responsibilities Area of concern? NotesYes No Finance and administration? Budget preparation? Regular reporting to owner? Event coordination and leadership? Hiring/managing employees? Accounts payable and receivable? Accurate documentation skills? Compliance monitoring? As appropriate to the project and plan, who will be responsible for: FINANCE AND ADMINISTRATION? Preparation of budgets for capital improvements and scheduled maintenance? Regular reporting to owner? Management of events and tours to promote space? Hiring and managing of employees? taxes paid? Familiarity with all applicable laws and regulations? Collection of rents and disbursement of funds for property and employment taxes? Maintaining complete records of tenant interactions, complaints, repairs, and

210 Generating revenue from Commercial Development On or adjacent to airports 6.28 Summary This Implementation Toolkit has been designed to help guidebook users define the Development Program that best fits the airport’s needs and guide decisions regarding strategies and actions to implement the project. It is possible to pursue certain avenues concurrently; for example, it is possible to assemble the project team while at the same time carrying out actions that are part of the community outreach strategy and identifying funding sources. It will be critically important to dedicate enough staff time and resources for effective management and coordination. Considered together, the toolkits have taken the guidebook user through the process of self- assessment, site evaluation, and implementation, offering a step-by-step procedure for examining the factors involved in undertaking an airport real estate development project. By finding answers to the questions needed to complete each section of the toolkits, a wealth of information has been assembled, providing a head start for making the development a reality. The purpose of this guidebook is to minimize surprises, present the many issues that can arise or be anticipated, and present options for addressing them. Many of these issues may be relevant only to specific airports and development concepts. The complexity in planning and implementation shown in these chapters may discourage some sponsors, and may be enthusiastically embraced by others. If the world of development still looks complicated—it is! But take heart: by maintaining a focus on priorities and goals, assembling the right professional expertise, and paying attention to market and financial information, the development can be successful—both as an income source for the airport and an economic benefit to the community. Interest and enthusiasm for the development opportunity must always be tempered by a reality check. After working through the toolkits, it should be possible to answer the following questions: Are the FAA review and approval issues defined and initiated? What is the development strategy? Who are the consultants to be retained? Are there funds available to hire consultants? Have funding sources been identified? Is a development partner needed? Do financial projections show that the development project is feasible? Will community support from the development be forthcoming? Do any critical obstacles require re-examination of the project as a revenue generator? Does the development project remain consistent with the airport’s land planning and revenue goals? The complete set of checklists, including all the worksheets and tables presented in the toolkit topics discussed in the chapters and help guidebook users collect and review site evaluation criteria and options for development implementation. At this point, the airport sponsor has reached a final Stop/Go decision point. There may be a need to stop and gather more information, adjust the development design, or find the right staff person before continuing with the development project and taking it to completion. chapters, is provided in the appendices to this guidebook. The checklists coordinate with the

Implementation toolkit 211 Chapter 6 concludes the toolkits developed for airport use in planning for on-airport development. As described in Chapter 1, “Introduction,” the toolkit presented in Chapter 7 focuses on the special considerations involved in generating revenue from off-airport property that is not controlled by the airport.