Estimating Market Value and Establishing Market Rent at Small Airports (2020)

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42 5.1 Introduction The process and methodology for identifying appropriate airport and airport property characteristics play a vital role in an objective estimation of market value or establishment of market rent. As with any process or methodology, the details and the research approach are key aspects to a successful result. The nuances associated with estimating market value and establishing market rent can be streamlined by implementation of a consistent, repeatable process that provides the airport sponsor, airport management, and airport property managers, as well as existing and potential lessees, with a degree of certainty. As will be discussed in Chapter 6, eliminating ambiguity and increasing certainty provide a better framework from which to negotiate. In any market study, an initial step in the process is to define the market, which is intrinsically more difficult for small airports as the area surrounding the airport may not provide adequate market information. While use of local off-airport properties is considered reasonable when analyzing non-aeronautical uses of on-airport property, local off-airport properties are not as applicable to estimating market value or establishing market rent for on-airport, aeronautical properties. For this reason, and consistent with FAA guidance and industry best practices, identifying comparable and competitive airports becomes a significant step to conducting market research for on-airport, aeronautical properties. Upon defining the market, it is imperative to understand the characteristics of the land and improvements that developers, real estate agents, and lessees believe have the most impact on market value and market rent. Combining these characteristics with a consistent, repeatable process for identifying comparable and competitive airports provides the airport sponsor, airport management, and airport property managers with the necessary information to conduct a successful negotiation. As outlined in Sections 5.2 through 5.7, implementation of a logical process will ensure the most representative airports and underlying data are gathered. As an introduction to these sections, Figure 5-1 outlines the process which will be fully described throughout this chapter. 5.2 Airport Characteristics In any objective estimation of market value or establishment of market rent, identifying comparable markets is paramount. For example, an appraisal of a residential home will consider the local neighborhood as the market, research comparable sales, and make adjustments to ana- lyze the subject residential home. Identifying comparable markets for airports is significantly C H A P T E R 5 Airport and Property Characteristics

Airport and Property Characteristics 43 more difficult, as most locations throughout the United States possess an inadequate number of similar airports in the same market. As outlined in the NPIAS (2017–2021), there are currently 19,536 landing facilities in the United States consisting of airports, heliports, seaplane bases, balloonports, gliderports, and ultralight facilities. While a large majority of these landing facilities are private use (approxi- mately 74%), the remaining 5,136 range from the smallest single-runway general aviation airport with limited (if any) services to a large-hub primary commercial services airport predominately focused on air carrier operations. It is for this reason that conducting an objective estimation of market value or establish- ment of market rent for aeronautical use requires identification of appropriate subject airport characteristics that can be utilized to identify those airports having the most comparability with the subject airport. While there are many examples across the general aviation industry showing which airport characteristics are important, the most important characteristics from an FAA perspective have Figure 5-1. Overview of process described in Chapter 5.

44 Estimating Market Value and Establishing Market Rent at Small Airports only been recently defined. As stated in Compliance Guidance Letter 2018-3, Appraisal Stan- dards for the Sale and Disposal of Federally Obligated Airport Property: major factors that should be used to identify comparable properties for estimating FMV [fair market value] of aeronautical airport property include • Size of the metropolitan area and population; • Surrounding demographic profile and economic character; • Location of the airport; • Runway(s) length and orientation; • Airport classification, size, and function; • Number of operations and other activity statistics; • Number of based aircraft; • Fixed-base operators and the services provided; • Age and quality of facilities; • NAVAIDS and Air Traffic Control facilities; • Airport cost structure and fees (landing, fuel flowage, aircraft parking, hangar use); • Fuel sales; • Amenities at the airport; • Location on the airport; • Size of the property parcel in question; • Property function; and • Highest and best use of property. However, the list of important characteristics does not provide a means of attaining this information or provide necessary underlying information for consideration. Also, the survey conducted for this research indicated additional variability as to the airport characteristics impacting market value and market rent (Figure 5-2). The results of the survey indicated that proximity to a major metropolitan area was the most significant airport characteristic impacting market value and market rent, followed by runway length and aircraft operations. Proximity to a major metropolitan area will be analyzed as an off-airport characteristic in greater detail in Section 5.5. In addition to analyzing each characteristic, it is important to ensure (to the greatest extent possible) that data supporting each characteristic is available and measurable. While certain 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Pro xim ity to m ajo r me tro po lita n a rea Ru nw ay le ng th Air cra ft o pe rati on s Pre sen ce /ab sen ce of an air tr affi c c on tro l to we r Pre sen ce /ab sen ce of a pre cis ion ins tru me nt ap pro ac h Ba sed ai rcr aft Siz e ( ac rea ge ) o f a irp ort An nu al ge ne ral av iati on fue l v olu me s Ot he r Nu mb er of fix ed ba se op era tor s Nu mb er of sp ec ial ize d av iati on se rvi ce op era tor s FA A N PIA S/F AA GA Ai rpo rt As set St ud y c las sifi ca tio n Figure 5-2. Airport characteristics impacting market value and market rent.

Airport and Property Characteristics 45 characteristics may be deemed important, without an ability to attain or measure them, the employment of a consistent, repeatable process is prevented. Utilizing the results of the survey and considering availability and measurability, the following identifies those airport characteristics deemed most important in estimating market value and establishing market rent: • Airport classification and type of market – Airport classification—indicates type of airport based on the NPIAS and General Aviation Airport Asset Study. – Type of ownership—indicates public or private ownership of the airport. – Type of use—indicates public or private use of the airport. – Type of market—indicates type of customer and purpose for using the airport (e.g., national, regional, local, rural, resort/destination, metropolitan area). • Airport infrastructure – Total airport acreage—overall indication of airport land potentially available for develop- ment which, depending on overall land utilization, may or may not directly impact airport property market value or market rent. – Length of longest runway—indicates the type of aircraft that can physically utilize the airport, which may or may not be occurring. For example, a longest runway of 2,500 feet is unlikely to accommodate jet-type aircraft. • Airport amenities – Presence or lack of air traffic control—indicates the type and density of aircraft utilization. – Presence or lack of precision and non-precision instrument approaches—indicates the type of aircraft utilizing the airport and its ability to support aircraft operations during instrument conditions (which may be important to certain customer segments). • Airport activity – Aircraft operations—indicates the overall utilization of the airport, the type of utilization (e.g., itinerant, local, air carrier, military), market density, and demand for on-airport products, services, and facilities. – Based aircraft—indicates the type of aircraft utilizing the airport, as well as the density of the local market and demand for on-airport products, services, and facilities. – Fuel volumes—indicates strength of the market and demand for airport services. It is significant to note airport fuel volumes (specific to general aviation) can be difficult to attain from comparable and competitive airports. – Number of commercial aeronautical operators (e.g., FBOs and SASOs)—indicates supply of on-airport products, services, and facilities. As an example of the variability of public-use airports, Figure 5-3 compares three airports with a significant general aviation component that are located across the United States. The compara- bility among these three airports would be minimal, if any. Upon identification of the most important airport characteristics, a reasonable range should be established that encompasses the associated data point of each characteristic for the subject airport. A certain level of discretion may be appropriate when analyzing which characteristics should be included and if it is appropriate to weigh certain characteristics as more important. Yet airports within the range for each characteristic should be considered comparable unless a compelling reason dictates otherwise. From a research perspective, a narrow range on each characteristic will provide the most representative list, but this may not be appropriate or possible given each circumstance. Additionally, these airport characteristics can be utilized to identify competitive airports. However, by identifying an airport as competitive, the relative proximity between the airports becomes the most important characteristic. Upon identification of all airports within a certain distance of the subject airport, the identified airports can be analyzed in the same manner as comparable airports. However, potential limitations in airports located in a close proximity

46 Estimating Market Value and Establishing Market Rent at Small Airports mean that the established ranges may need to be expanded or certain airport characteristics may need to be eliminated. Effectively, the surrounding airports will dictate the adjustment to the ranges and characteristics in the effort to find those airports within a certain proximity (e.g., 25 miles, 50 miles, 100 miles) most representative of the subject airport. When identifying com- petitive airports, it may be appropriate to include privately owned airports. For example, when conducting an analysis pertaining to T-hangars, it would be prudent for airport management to fully understand all available facilities within close proximity to the subject airport and the related rental rates while understanding that privately owned airports have management flex- ibility related to rental rate establishment. 5.3 Airport Property Land Characteristics As with airport characteristics, identifying the most important airport property land characteristics is necessary to ascertain a dataset representative of the subject airport land (for aeronautical or non-aeronautical use). As outlined in Figure 5-4, the attributes of air- port land (e.g., landside access, airside access, presence of utilities) was identified as the most significant airport property characteristic impacting market value and market rent. In addition to the results of the survey, the airport property land characteristics deemed most important include the following: • Attributes – Type—highest and best use of the land – Use—aeronautical or non-aeronautical for commercial or non-commercial purposes – Size—developable and undevelopable – Configuration—dimensions and usability • Condition – Plat quality—completion or necessity of dirt work to prepare the site – Hazardous conditions—presence of any hazardous conditions • Amenities – Utilities—presence of normal and customary utilities (electric, water, etc.) Ha rt sfi el d- Ja ck so n At la nt a In te rn ati on al A irp or t •Classification: Primary Commercial Service Large Hub •Type of market: Metropolitan area •Acreage: 4,700 acres •Longest runway: 12,390' •Control Tower: Yes •Precision Approach: Yes •Aircraft Operations: 883,168 total •GA Aircraft Operations: 7,581 total •Based Aircraft: 3 total •FBOs: 1 As pe n/ Pi tk in C ou nt y Ai rp or t •Classification: Primary Commercial Service Nonhub •Type of market: Resort/destination •Acreage: 573 acres •Longest runway: 8,006' •Control Tower: Yes •Precision Approach: No •Aircraft Operations: 42,405 total •GA Aircraft Operations: 21,667 total •Based Aircraft: 95 total •FBOs: 1 Ha lf M oo n Ba y Ai rp or t •Classification: Reliever •GA Category: Local •Type of market: Local •Acreage: 325 acres •Longest runway: 5,000' •Control Tower: No •Precision Approach: No •Aircraft Operations: 50,150 total •GA Aircraft Operations: 50,000 total •Based Aircraft: 28 total •FBOs: 1 Figure 5-3. Variability of public-use airports.

Airport and Property Characteristics 47 • Access – Airside—quality of access to the airport infrastructure – Landside—quality of access from the landside – Location—prominence of location on the airport and proximity to aeronautical services • Additional considerations – Supply and demand—strength of market and demand for use (e.g., waiting list and available supply characteristics) – Use limitations—restrictions to the land (use, zoning, rules, development characteristics, noise and building restrictions, etc.) Upon identification of the most important airport property land characteristics, the rep- resentative data can be gathered from the comparable and competitive airports (for an aero- nautical use) or local off-airport properties and consolidated into appropriate groupings based on the type, use, and size (as appropriate) for each element of the subject property land. Upon consolidation, each gathered datapoint should be considered (and adjusted as appro- priate) for the remaining airport property land characteristics to reflect the subject airport property land. Consistent with industry standards and common real estate practices, adjustments for non- quantifiable variables (e.g., access) can be based on a scale of poor, fair, average, good, and excellent. Each level adjustment (e.g., from poor to fair, from fair to average) should represent a positive or negative adjustment to ensure consistency in the analysis. Utilization of any non- quantifiable scale (e.g., poor, fair, average, good, or excellent) results in a certain inherent level of discretion when determining which classification is most appropriate. As such, the analysis must utilize consistent classifications and adjustments to ensure that results are consistent across multiple analyses and representative of the subject airport property land. 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% La nd ty pe (la nd sid e/a irs ide ac ce ss, uti liti es) De ma nd Us e ( ae ron au tic al vs. no n-a ero na uti ca l) Co nd itio n ( ag e a nd ec on om ic l ife ) Im pro ve me nt typ e (ha ng ar, offi ce , sh op , e tc. ) Ac ce ss Am en itie s Siz e Us e ( air ca rri er vs. ge ne ral av iati on ) Us e ( co mm erc ial vs . no n-c om me rci al) Ot he r Figure 5-4. Airport property land and improvement characteristics impacting market value and market rent.

48 Estimating Market Value and Establishing Market Rent at Small Airports 5.4 Airport Property Improvement Characteristics Analyzing airport property improvement characteristics utilizes a similar process to the airport property land characteristics. However, the subject of the analysis shifts from land to improve- ments, resulting in new characteristics being deemed most appropriate. Consistent with Compli- ance Guidance Letter 2018–3, Appraisal Standards for the Sale and Disposal of Federally Obligated Airport Property, the FAA has recently defined some of the most important characteristics. In addition, the survey conducted for this research indicated additional variability as to the airport property improvement characteristics impacting market value and market rent (Figure 5-4). The results of the survey indicate that the type of land (i.e., landside access, airside access, and presence of utilities) was identified as the most significant airport property characteristic impacting market value and market rent, as described in the previous section. Following the identification of type of land, demand, and use (aeronautical or non-aeronautical), the most prominent airport property characteristics identified in the survey include condition (age and economic life), improvement type, access, and amenities. Each airport property improvement characteristic, similar to the airport characteristics, should be analyzed and, to the greatest extent possible, data supporting each characteristic be obtained. Utilizing the results of the survey as well as considering typical real estate practices, the following identifies those airport property improvement characteristics deemed most important in estimating market value and establishing market rent at small airports. • Attributes – Type—highest and best use of the improvement (hangar, office, shop, storage, aircraft parking, vehicle parking, etc.) – Use—aeronautical or non-aeronautical for commercial or non-commercial purposes – Age—construction date of the improvement, date of recent improvements, and remaining economic life (i.e., physical condition, lease term) – Hangar door height and width—ability to accommodate certain types of aircraft – Fire suppression—availability of adequately sized fire water source within a reasonable distance of the leased premises if required for the size of hangar • Condition – Construction materials—quality and current condition – Hazardous conditions—presence of any hazardous conditions • Amenities – Lighting—presence and type of lighting (e.g., fluorescent, halide, LED) – Utilities—presence of normal and customary utilities (electric, water, etc.) • Access – Airside—quality of access to and from the airport infrastructure – Landside—quality of access to and from the landside – Location—prominence of location on the airport and proximity to aeronautical services • Additional considerations – Demand—strength of market and demand for use (e.g., waiting list) – Height restrictions—limitations to the improvements for current or future development – Ownership of facilities—owned by the lessee on a ground rental basis or owned by the airport sponsor and leased on an improved basis As with the airport property land characteristics, upon identification of the most important airport property improvement characteristics, the representative data can be gathered from the comparable and competitive airports and consolidated into appropriate groupings based on the type, use, and size (as appropriate) of each element of the subject airport property improve- ments. Upon consolidation, each gathered datapoint should be considered (and adjusted if appropriate) for the remaining airport property improvement characteristics to reflect the sub- ject airport property improvement. Consistent with industry standards and real estate practices,

Airport and Property Characteristics 49 adjustments for non-quantifiable variables (i.e., condition, access, amenities) can be based on a scale of poor, fair, average, good, and excellent. Each level adjustment (e.g., from poor to fair, from fair to average) should represent a positive or negative adjustment to ensure consistency in the analysis and as appropriate given the underlying circumstances. Once the non-quantifiable variables have been determined, an average adjustment can be ascertained and factored into the base rental rate to estimate market value or establish market rent. For example, if non-quantifiable variables are adjusted by 5% for each level and the condition is excellent, access is fair, and amenities are average, the total adjustment would be +5%. Utilization of any non-quantifiable scale (e.g., poor, fair, average, good, or excellent) results in a certain inherent level of discretion when determining which classification is most appropriate. See Figure 5-5 for a rating comparison matrix and Figure 5-6 for photos illustrat- ing the variability in airport property improvements. Utilizing this process to determine the underlying market rent provides the airport sponsor, airport management, and airport property manager with a clear, repeatable process to analyze representative airport improvements at comparable and competitive airports. 5.5 Off-Airport Characteristics While FAA Compliance Guidance Letter 2018–3, Appraisal Standards for the Sale and Disposal of Federally Obligated Airport Property, states that aeronautical properties should be compared with other aeronautical properties, it may be appropriate to analyze off-airport characteristics during the identification of comparable airports. Additionally, off-airport characteristics will directly impact estimating the market value or establishing market rent for non-aeronautical uses. Certain characteristics are consistent for any land parcel, regardless of use (aeronautical or non-aeronautical). However, certain off-airport characteristics, from an FAA perspective and survey respondent perspective, do have an impact on market value and market rent. The characteristics identified in Section 5.2 (as outlined in FAA Compliance Guidance Letter 2018–3, Appraisal Standards for the Sale and Disposal of Federally Obligated Airport Property) include consideration of the “surrounding demographic profile and economic character.” Additionally, as outlined in Figure 5-2, proximity to or location within a major metropolitan area (e.g., metropolitan statistical area, combined statistical area) was identified as an important characteristic for consideration. Therefore, the following identifies those off- airport characteristics deemed most important as they pertain to estimating market value and establishing market rent: • Economic attributes – Population—indicates size of the market and potential demand – Median income—indicates strength of the market and purchasing power Condition Access Amenities Total Adjustment Excellent +10% +10% +10% +5% Good +5% +5% +5% Average 0% 0% 0% Fair -5% -5% -5% Poor -10% -10% -10% Figure 5-5. Rating comparison matrix.

50 Estimating Market Value and Establishing Market Rent at Small Airports Community Hangar Excellent Condition Community Hangar Poor Condition Storage Excellent Condition Storage Poor Condition Office Excellent Condition Office Poor Condition Figure 5-6. Variability in airport property improvements.

Airport and Property Characteristics 51 – Employment and workforce—indicate economic health of the market – Consumer Price Index—indicates economic trends of the market (if available) – Type of market—indicates type of purpose for consumers in the market (e.g., national, regional, local, rural, resort/destination, metropolitan area) • Property attributes (as pertaining to an analysis of non-aeronautical property) – Use and function—commercial or non-commercial purposes – Parcel size—indicates ability to accommodate different types of development – Utilities—presence of normal and customary utilities (electric, water, gas, etc.) – Location—prominence of location within the community – Roadway size and access—quality of access from major and intermediate roadways – Use limitations—restrictions to the land (use, zoning, development characteristics, etc.) The off-airport characteristics can be utilized in two different manners—as additional attributes for analysis of comparability of airports or as the basis of analysis for estimating market value or establishing market rent for non-aeronautical use properties on the airport. If off-airport characteristics are utilized as additional attributes for analysis of comparability of airports, a reasonable range can be established that encompasses the associated datapoint of each characteristic, as outlined in Section 5.2 of this report. 5.6 Tools to Identify Comparable and Competitive Airports As outlined in Section 5.2 of this report, the characteristics deemed important when deter- mining comparable and competitive airports are most appropriate when the underlying data is obtainable, which provides the framework to create a consistent, repeatable process. This effort is further supported by aligning the airport characteristics with data collected by the FAA for each public-use airport. Airport sponsors are encouraged to dialogue with airport end users and stakeholders at every level, asking what factors influence their decisions for any number of things related to aircraft operations, use of the airport, and leasing of airport land and improvements. By doing this, the airport sponsor may uncover a market factor that may not have been previously identified when selecting comparable airports. Many resources are currently available that, by an analysis of the available features, provide the underlying data to identify comparable and competitive airports based on the most important airport characteristics. These resources, which are shown in Figure 5-7, include the FAA Airport/Facility Directory, GCR AirportIQ 5010, AirNav, and the Aircraft Owners and Pilots Association (AOPA) Airport Directory. Each airport characteristic identified in Section 5.2 can be researched through a combination of these resources. As such, the available features of each resource are examined. Additional examples of applicable searches utilizing these resources are outlined in Appendix C. Airport/Facility Directory As available on the FAA website, the Airport/Facility Directory provides underlying airport data based on a simple search function. A limitation to this resource is the inability to search by identified categories (e.g., all reliever airports). Upon developing a representative list of comparable or competitive airports, the Airport/ Facility Directory can be utilized to identify the location, runway length, availability of fuel services, presence or lack of air traffic control, and presence or lack of precision and non- precision instrument approaches.

52 Estimating Market Value and Establishing Market Rent at Small Airports Airport/Facility Directory AirportIQ 5010 AirNav Airport Directory Figure 5-7. Available resources on airport characteristics.

Airport and Property Characteristics 53 AirportIQ 5010 The advanced search feature of AirportIQ 5010 provides an underlying basis to analyze airports within identified categories. Searches can be conducted based on a combination of or any one of the following: • Ownership (e.g., identify publicly owned comparable airports only) • Use (e.g., identify public-use comparable airports only) • Airport classification (e.g., identify reliever airports only) • Length of runway (e.g., identify airports with runways greater than 5,000 feet) • Presence or lack of air traffic control (e.g., identify airports with air traffic control) • Aircraft operations (e.g., identify airports with total aircraft operations less than 45,000) • Based aircraft (e.g., identify airports with total based aircraft greater than 25) • Presence or lack of fueling services (e.g., identify airports with jet or avgas availability) Upon developing a representative list of comparable or competitive airports, AirportIQ 5010 can be utilized to identify total airport acreage, as well as length of longest runway. Further, aircraft operations (air carrier, air taxi, general aviation local, general aviation itinerant, and military) and based aircraft (single-engine, multi-engine, jet, helicopters, gliders, military, and ultralights) can be identified. AirNav The advanced search feature of AirNav provides an underlying basis to analyze airports within identified categories. Searches can be conducted based on a combination of or any one of the following: • Use (e.g., identify public-use airports only) • Length of runway (e.g., identify airports with runways greater than 5,000 feet) • Presence or lack of precision or non-precision approaches • Proximity of competitive airports (e.g., identify all airports within 20 nautical miles of the subject airport) Upon developing a representative list of comparable or competitive airports, AirNav can be utilized to identify length of longest runway, presence or lack of air traffic control, aircraft opera- tions (air carrier, air taxi, general aviation local, general aviation itinerant, and military), based aircraft (single-engine, multi-engine, jet, helicopters, gliders, military, and ultralights). In addition, the number and type of aeronautical commercial operations (e.g., FBOs and SASOs) can be identified. Airport Directory The search feature of AOPA’s Airport Directory provides an underlying basis to analyze air- ports within a certain geographical area. By entering a city name, users can identify airports within the surrounding area utilizing a number of characteristics, including presence of air traf- fic control, presence of precision and non-precision approaches, and presence of aircraft fueling. Upon developing a representative list of comparable or competitive airports, the Airport Directory can be utilized to identify length of longest runway, presence or lack of air traffic control, presence or lack of precision or non-precision instrument approaches, aircraft opera- tions (air carrier, air taxi, general aviation local, general aviation itinerant, and military), based aircraft (single-engine, multi-engine, jet, helicopters, gliders, military, and ultralights), and number of aeronautical commercial operators (e.g., FBOs and SASOs).

54 Estimating Market Value and Establishing Market Rent at Small Airports 5.7 Methodology for Identifying Similar Airport Properties After identifying the comparable and competitive airports that will serve as a basis for esti- mating market value or establishing market rent, it is imperative to identify the airport property improvement characteristics and land characteristics that will be analyzed. But to understand and identify these characteristics pertinent to the current situation, the airport sponsor, airport management, or airport property managers can initiate the research process to identify similar airport properties at the comparable and competitive airports. Although certain states conduct annual or bi-annual surveys of representative market rental rates (e.g., Wyoming, Wisconsin), it is often necessary to make direct contact with management at the comparable or competitive airport to discuss the underlying questions. In addition to identifying the airport property improvement characteristics and airport property land char- acteristics, it is also imperative to ascertain the additional details that will allow for adequate analysis of market rental rates at the comparable and competitive airports identified. 5.8 Chapter Review Following the chapters on determining the approach to analysis and understanding FAA guidance, Chapter 5 outlined the roles of airport, property (land and improvements), and off- airport characteristics in estimating market value or establishing market rent, as summarized in Figure 5-8. Utilizing these characteristics to identify comparable and competitive airports, through both tools and methodologies, was discussed as well. Off-Airport Characteristics Economic attributes Property attributes Airport Property Improvement Characteristics Attributes Condition Amenities Access Additional considerations Airport Property Land Characteristics Attributes Condition Amenities Access Additional considerations Airport Characteristics Airport classification and type of market Airport infrastructure Airport amenities Airport activity Figure 5-8. Chapter 5 key aspects.