Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenues (2021)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

59 Repurposing Parking Facilities to Non-Vehicle Uses Together with Chapter 4, this chapter addresses the question, “If parking demand reduces, what can an airport do with the excess parking capacity?” Chapter contents focus on strategies to repurpose surplus airport parking capacity for non-vehicular uses. In general, the research conducted for this guidebook revealed that opportunities to repurpose parking structures for non-vehicular uses was severely limited. As shown on Figure 5-1, parking structures are designed to a lower live load (expressed as uniform pounds per square foot, or “Uniform psf ”), which includes any forces acting on a structure that are temporary or transient (such as people, furniture, vehicles, and other movable objects). This is primarily because groups of people and materials can weigh more, on a per-area basis, than occupied passenger vehicles. In addition, parking structures include several elements that may be incompatible with other low load uses, such as hotels, residences, and schools, including the following: • Parking structures are typically designed to provide lower vertical clearances than those used in spaces intended to be occupied by people (instead of vehicles); • Parking structures may include sloped floors (e.g., floors having a 1:10 slope or grade rather than level floors) that serve as vehicle vertical circulation ramps; • Parking structure floors are sloped (e.g., 1:50) to facilitate drainage; such slopes are typically unacceptable for non-vehicular uses; • Vertical circulation elements (e.g., elevator cores and stairs) in parking structures are often located at the periphery of the structure whereas hotels and other spaces intended for occu- pation by people place them centrally; and • Parking structure emergency egress stairs may be in locations inconsistent with those required by building code for other spaces intended for occupation by people. Lastly, airport operators interviewed as part of this research indicated that if public parking demand reduced such that they had surplus parking capacity, they would close all remote surface lots (which typically generate lower gross revenues per space and have higher operating costs as they may require shuttle buses) before considering repurposing a garage. If demand was such that a garage was no longer needed, they would remove the garage and replace it with a structure built for an alternative use, such as a hotel. As such, this chapter focuses on the (a) strategies for repurposing surface parking lots and (b) potential revenue benefits of an on-airport hotel, which is the most likely non-aeronautical land use that can substantially benefit from a terminal area location over other sites on an airport. C H A P T E R 5

60 Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenue 5.1 Prior ACRP Research ACRP has prepared several reports and guidebooks focusing on strategies to encourage and enhance non-aeronautical commercial development and revenue. These reports include: ACRP Report 47: Guidebook for Developing and Leasing Airport Property. This guidebook presents the process of developing and leasing airport property. It describes the different types of airport leases and associated elements. The guidebook also includes a descrip- tion of the airport owner/project sponsor role and provides an overview of the different decision considerations from the perspective of the airport sponsor, developer, and finan- ciers. Based on the airport goals, the guidebook provides a list of the different financing mechanisms, funding sources, and leasing agreement types available. ACRP Report 121: Innovative Revenue Strategies—An Airport Guide. This guide provides an inventory of revenue strategies available to airport operators. It highlights the areas of inno vation available to the airport to improve its revenue streams with respect to airport activities, land development, and financing. The report presents five strategy types: – Customer focus; – Airport-provided and shared services, facilities, and equipment; – Revenue participation in real estate and natural resource development; – Value capture and other innovative financings; and – Improvements to existing airport businesses. Each strategy and associated case studies are evaluated against the potential for improved net revenues, airport sponsor capital required, airport sponsor assumption of risk, imple- mentation complexity and issues, and airport-specific challenges. ACRP Research Report 176: Generating Revenue from Commercial Development on or Adjacent to Airports. This report provides a comprehensive overview of the steps and considerations for airport operators planning commercial development on a site on/adjacent to airport property. The report addresses airport-specific regulatory requirements for real estate development, including federal, zoning, environmental, and insurance considerations. Source: Walker Consultants. Figure 5-1. Minimum design loads, by use.

Repurposing Parking Facilities to Non-Vehicle Uses 61 The document also includes a self-assessment toolkit, a site evaluation toolkit, and an implementation toolkit for the reader to build an extensive understanding of the specifi- cities of airport commercial development landscape. ACRP Synthesis 1: Innovative Finance and Alternative Sources of Revenue for Airports. This report provides an overview of different financing mechanisms and revenue sources for airport operators. The document covers a range of different project delivery methods and operation management agreement alternatives for an assortment of different airport practices and privatization contracts. It includes a high-level summary of how to optimize commercial activity to increase non-aeronautical revenues. ACRP Synthesis 19: Airport Revenue Diversification. This report provides an extensive list of non-aeronautical development projects for revenue diversification purposes, includ- ing industrial parks, hotels, recreational facilities, health clinics, convenience stores. The document presents alternative land and facility uses, tenant services, and ancillary uses opportunities to enhance and diversify airport revenues. 5.2 Risk Reduction Strategies When exploring how to repurpose parking facilities for non-parking redevelopment oppor- tunities, one option available to airport operators is to partner with private sector developers. In its most simple form, the developer assumes responsibility for financing, constructing, leasing, and operating the property, and the airport operator realizes revenue from leasing the underlying land to the developer. Variations may exist where an airport may participate in some of the revenue generated by the developed property itself—income generated by the “improvements” versus income generated by the land—but in most cases, landowners are satisfied with earning a regular, fixed stream of ground rent income in return for shifting the responsibility of redeveloping a former parking facility onto a third-party. To accomplish this, it is critical that airport operators position airport properties to be attractive to development partners. The ideal scenario is one where a landowner can entertain multiple bids and proposals for a property. This creates a competitive environment that forces developers to negotiate more favorable outcomes for a landowner compared to negotiating with only a single party. The primary means by which a landowner can properly position a property is by exploring ways to reduce the risks inherent in real estate development. Real estate development risks come in many forms, and the most common types include the following: Entitlement risk, defined as the risk that governing bodies with regulatory authority over a project may not support certain elements of the project and withhold approvals or permits. Environmental risk, defined as the risk that underlying environmental issues may be cost prohibitive to remediate or cannot be remediated. Construction risk, defined as the risk that the cost of construction is higher than budgeted and/or the risk that construction takes longer than anticipated. Leasing and tenant risk, defined as the risk that a project fails to find tenants, rental rates fail to achieve their targets, and/or tenants fail to pay rent (credit risk). Capital markets risk, defined as the risk that interest rates increase, and financing becomes more expensive. Operating risk, defined as the risk that costs associated with labor, utilities, insurance, and/or real estate taxes increase relative to what was budgeted. These risks are inherent in every real estate project, and not only are they unavoidable but they are also expected. Investors “price” their expected returns on investment relative to the risk of a

62 Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenue project. This directly impacts property value for landowners: if the risks of a project are high, an investor will then seek ways to either increase revenue or decrease cost. For landowners, this typically translates into lower land value as an investor seeks to reduce cost by decreasing the purchase or lease price of the land. In addition, every investor has a risk threshold. If the risks of a project are perceived as too numerous, extreme, or insurmountable, potential development partners will turn away from a project or even an entire market in favor of one where the risks can be better mitigated. Developers and investors have different levels of risk tolerance based on type of land use/asset (e.g., office versus hotel), business model (e.g., equity developer versus real estate investment trust), and market (e.g., primary versus secondary). While there are common themes, for the landowner seeking a development partnership, ultimately it is in the landowner’s best interest to look for ways to reasonably decrease risk to attract developers and investors to an oppor- tunity. Therefore, if an airport owner or sponsor can reduce one or more of these sources of risk, it may have more success in attracting development partners to repurpose an existing parking facility. 5.2.1 How Airport Operators Can Reduce Risk A landowner should approach risk reduction with reason. Ultimately, the purpose of a development partnership is to shift the responsibility for a commercial development project to a third party. This inherently means shifting most of the risk of a development project onto the partner and away from the landowner. Therefore, landowners should consider pursuing approaches that incur zero or minimal additional costs to the landowner itself. Approaches that may incur a cost to the landowner should then realize a return on that cost, usually by increasing the underlying asking value/rental rate for the land. Therefore, a landowner, and particularly a public entity like an airport operator, should not attempt to address all categories of risk or all aspects within a category. For example, other than potentially addressing site preparation (see environmental risk and construction risk), a landowner cannot or should not directly address construction costs (e.g., by subsidizing the direct material and labor costs of a project). A landowner also need not bear any of the risk of operating the new development itself (e.g., by subsidizing a portion of the operating costs). An exception for this may be those development sites that have access to an airport’s utilities or where an airport operator has extended utilities to a site in anticipation of future development. Ultimately, there are some key approaches an airport operator can take to reduce the risk of redeveloping a surface parking lot and increase the likelihood of attracting a qualified partner through a competitive process. Approaches allowing airport operators to improve their position are described in subsequent paragraphs. 5.2.2 Entitlement Risk Entitlement risk is the risk that governing bodies with regulatory authority over a project may not support certain elements of the project and withhold approvals or permits. The range of entitlement risk varies from airport to airport. Some airport operators, often as independent authorities, may be situated in multiple jurisdictions and are obligated to a range of zoning codes that dictate land use and density, among other requirements. Others may have standing agreements in place that limit municipal intervention, particularly on zoning matters, or the airport operators themselves are subject to separate approvals processes meant to facilitate aviation and related land uses (and which can be leveraged for commercial

Repurposing Parking Facilities to Non-Vehicle Uses 63 development). Other airports, in contrast to those chartered as independent authorities, may be owned and operated by city, county, or state agencies, greatly limiting or entirely obviating the need for approvals from other city agencies for development on airport property. Regardless of the specific situation, it is critical for an operator to understand the jurisdic- tional environment they are in and to what extent non-aviation development on airport-owned land will be subject to local zoning codes. Long-term, but politically burdensome, solutions include municipal ordinances that allow the operator to move forward with development with minimal approvals. A somewhat simpler solution may be a Memorandum of Understanding or similar agreement between an operator and their local jurisdiction(s) that provide for similar outcomes. In practice, the need for a zoning change or variance for most airport operators will be limited. For those that do not benefit from their own zoning regime, most airports and lands owned by the operators are already zoned for aviation uses and uses that are compatible with aviation-adjacent or aviation-proximate uses. Industrial, retail, and office, for example, are frequently viewed by land planners and zoning authorities as compatible with proximity to an airport, and these land uses are frequently those targeted by development partners seeking to introduce new projects near an airport. The primary entitlements required for redeveloping surface parking lots come from FAA, specifically Order 5190.6B in the FAA Airport Compliance Manual. There are three important factors that have a material impact on redeveloping surface parking lots, or any airport-owned land, particularly for non-aviation land uses: Lease term. Order 5190.6B notes that a ground lease should not “exceed a period of years that is reasonably necessary to amortize a tenant’s investment,” and that “leases that exceed 50 years may be considered a disposal of the property.” That is, any lease term longer than 50 years would result in all proceeds being returned to the federal govern- ment rather than received by the operator. The misalignment of this with the private sector presents considerable challenges to redeveloping surface parking, which has been addressed in detail in ACRP Report 47 and other ACRP guidebooks and reports. How- ever, the FAA regional office can, at an airport’s request, consider and approve lease terms exceeding 50 years. Appraisal. The FAA notes that leases for airport building and facilities must be at “fair market value.” For non-aviation-related uses, the FAA will require a formal appraisal. For aviation-related uses, the FAA does not require a formal appraisal and will accept rates that are justified by industry standards, comparable leases, and other factors. Therefore, while the FAA expects that all leases are “commercially reasonable,” only ground leases for non-aviation-related land uses require appraisal. The result of this is that, regarding rental rates, aviation-related lease terms can be more flexible than non-aviation-related uses. If redeveloping a surface lot for non-aviation land uses, the operator must complete this appraisal prior to any procurement to establish a baseline rental rate for the ground lease. This factor—that an appraisal is required for non-aviation land uses—is not entirely burdensome, and in fact is rooted in best practice for airports and other landowners seeking to validate the value of their underlying land prior to engaging in a sale or lease of that land. Approval for non-aeronautical use. The FAA requires that an operator seek approval for non-aviation-related uses. Securing this approval is a threshold issue that presents more obstacles than lease term or appraisals discussed above. An operator must petition the FAA for “interim” non-aviation-related uses, and these approvals, when granted, typically run with the length of lease term for a building or ground lease. Many operators have

64 Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenue successfully petitioned the FAA to allow non-aviation-related uses; however, by and large, the FAA expects that airport-owned land should be used for aviation-related purposes, and introducing any non-aviation-related use to airport-owned lands will require FAA approval. Approvals of this kind are made at the regional level of the FAA. Among regions, experi- ence varies in evaluating redeveloping surface parking into non-aeronautical land uses that may bring new sources of revenue to the airport. Seeking approval requires a formal request issued by the operator that outlines (a) the justification for pursuing non-aviation development and (b) assurances that any such development will comport with operational requirements (e.g., height and glare considerations). Some regions are less receptive to such requests and require considerable effort on the part of the airport operator to justify why non-aviation development is not only appropriate, but overwhelmingly more beneficial and desirable than aviation land uses over the long term. This outcome occurs primarily in regions where non- aviation land uses on airport lands are largely untested, and an operator is making its first foray into commercial redevelopment of surface parking. These are challenges that face all airport operators. Developing property for non-aeronautical uses is frequently a subject of debate between airports and the FAA. However, this dynamic may be shifting more in favor of airports. On October 5, 2018, the president signed the FAA Reautho- rization Act of 2018 into law. The act addressed numerous issues, including non-aeronautical development of airport property. Section 163 of the act, “Limited Regulation of Non-Federally Sponsored Property,” specifically notes that the FAA may no longer “directly or indirectly regu- late . . . the acquisition, use, lease, encumbrance, transfer, or disposal of land by an airport owner or operator . . .” That is, an airport may, without FAA scrutiny, engage in the development of land it owns, even for non-aeronautical purposes with certain exceptions, as described below. Important exceptions to this rule still exist. First, development of the land must not interfere with the safety of airport operations. Second, the act is clear that airports must still obtain “not less than fair market value”—implying that an appraisal will still be necessary. Third, and perhaps the most restrictive, are the exceptions that apply to “land or a facility acquired or modified using federal funding” or “a Surplus Property Act instrument of transfer.” Any land subject to these factors will still face FAA scrutiny should an airport seek non-aviation devel- opment. Therefore, even with Section 163 explicitly limiting the FAA’s purview on non-aeronautical development activities, important excep- tions still exist that will result in the need for FAA approval. An operator should therefore determine the approach it wishes to take prior to procuring for a development partner. Limiting the parking lot redevelopment to aviation-related uses will limit the number of interested parties but will obviate much of the need for FAA approval for non-aviation uses. In contrast, making the lot available for a broader range of land uses will require FAA approval, but will be attractive to a broader and more competitive set of potential develop- ment partners. Regardless of the approach, any perceived uncertainty will reduce market interest, and thus an operator must determine its position and strategy prior to procurement. 5.2.3 Environmental and Construction Risk Each stage of development and construction brings a project closer to completion and, therefore, closer to generating the income that recoups and justifies the initial investment. Airports may consider partnering with adjacent property owners to present development opportunities to the market. This can provide larger, and perhaps better-configured, development parcels for potential partners. Operators with numerous, yet fragmented, noise properties that may be candidates for development may benefit most from this approach. However, while this approach benefits the airport operator, the benefit for the private landowner may be less clear as the project may still be subject to FAA Order 5190.6 and other airport development restrictions.

Repurposing Parking Facilities to Non-Vehicle Uses 65 As such, earlier stages of construction, such as environmental remediation and infrastructure installation, pose greater risk than later stages of construction, such as installing furniture, fixtures, and equipment (or FF&E). This is because construction costs are incurred well before the property generates cash flow whereas FF&E expenses are incurred much closer to when cash flow begins and an investor begins to earn a return on their initial investment. Environmental and construction risks are closely related in this regard. Both will impact total project cost and total delivery timeline for a new project, and therefore the ability for that project to generate sufficient and timely income to justify the investment. Examples of environmental factors include ground pollution, wetland mitigation, wildlife protection areas, or any other combination of physical and/or regulatory considerations that are clear thresholds for new development projects. Except for pollution, many of these envi- ronmental risks are tied closely with entitlement risk and should be addressed along with any other entitlements prior to a procuring for a development partner. Regarding cost and timing risk, pollution may require mitigation and increase the risk of a project. The extent of this mitigation, and the thresholds that “trigger” mitigation, varies across jurisdictions and may also be subject to federal programs (e.g., the EPA’s Brownfields or Superfund programs, which provide grants and funding for pollution mitigation, but also come with strict requirements for the level of cleanup required). Should mitigation be neces- sary, this will add cost, time, and complication to a construction project. In addition, non-environmental construction risks include the complexity/configuration of the site and its impact on staging (i.e., placement of equipment, such as cranes, and materials), extent of site preparation required (typically low for surface parking lots), extent of land development required (i.e., installing necessary utilities and, for larger sites, access and circu- lation roads), and the cost/availability of materials and labor over the course of delivering the project. Landowners should limit the extent to which they address these risks because, as stated above, one of the primary goals of procuring for a development partner is to shift the risks of redevelopment, particularly for non-aviation land uses outside of the typical purview of an airport operator, onto a third party. Should a landowner wish to mitigate some of these risks, however, it may consider investing some level of capital into earlier, more risky stages of construction. This can transform the opportunity closer to one that is “development-ready,” which is more attractive to a wider audience of development partners. This type of approach is similar to that taken by a specific type of investor: the land developer. A land developer focuses primarily on site preparation and “horizontal” improvements (site infrastructure), which prepare a project site for new “vertical” development (buildings). These investors spend capital on environmental, site preparation, and infrastructure (roads, utilities) costs for a site, then sell the land to developers who then take on the responsibility for erecting vertical improvements on that land. As the land developer is incurring a significant risk in investing in land development while stopping short of then developing income-generating projects on that very land, they can command a premium when selling the land. Public landowners, such as airport operators, can take a similar approach in addressing these high-risk, early stage efforts to address various environmental and construction elements. These investments will have a material, financial impact on the landowner, and therefore any expectation for proceeds from the lease of land to a development partner should ensure this investment is considered. If the airport operator is going to prepare a site by investing the capital into, for example, demolition of a former garage or clearing a former surface lot, the landowner should seek to recoup the cost of that preparation.

66 Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenue In some markets, this may be a “sunk cost” for the landowner as the challenges of leasing airport land for commercial development may require this initial investment to attract investors in the first place. Ultimately, the extent of this investment, and the likelihood an airport opera- tor will recoup this investment, depend heavily on the strength of the local market. A stronger market presents greater incentive (a) to developers to incur the risks of land development themselves and (b) for a landowner to negotiate a higher ground rent in exchange for land development activities already undertaken. A landowner can assess the extent to which it should consider investing in land development by comparing the potential proceeds earned from the lease of its lands to cost of preparing that land for development. A third-party advisor is helpful here, as a qualified advisor can provide estimates for each incremental investment in land preparation, provide an estimate for the potential value of the underlying land, and help the landowner identify what level of investment is appropriate given the market potential. Ultimately, whether an airport operator will need to invest considerable resources or no resources at all will vary widely from market to market. There is no one-size-fits-all approach to mitigating environmental and construction risks, and a landowner should at a minimum conduct the analysis described previously to determine what is appropriate. 5.2.4 Leasing and Tenant Risk Much of the previous discussion of entitlement, environmental, and construction risk addresses activities that lead up to a building becoming operational. While these activities carry risk, this risk ends once the building is open (with some exceptions, such as environ- mental issues which may not have been addressed properly). This is not the case for leasing and tenanting risk, which is persistent for as long as the property is operational, which could be decades. Landlords and their property managers seek to ensure that a property is generating a sufficient and consistent stream of income. Landlords must balance length of term, size of lease, frequency of renewal, and other factors to ensure ongoing revenue while also maintaining flexibility in a changing market. Other elements of leasing and tenant risk include tenants that pay rent late, fail to pay rent/default, or terminate a lease early. Airport operators should not seek to minimize the risks of these ongoing tenant issues, but they can play a role in minimizing leasing risk by becoming a tenant in a new development itself. One of the key lease-up periods in the lifecycle of a building is the period that occurs prior to the project opening. Many projects, depending on the market, will not be able to secure financing until a developer has demonstrated there is tangible demand for the new project. This tangibility often comes in the form of pre-leasing, where tenants execute lease agreements with the developer prior to the project breaking ground or during construc- tion. Depending on the market, pre-leasing requirements may range from 40% to 60% of the total rentable square footage. Markets that are strong may not need pre-leasing, but this is not common, particularly for airport submarkets and airport projects that face a bevy of other challenges. An operator could contribute significantly to reducing leasing risk and help a developer secure financing for the project by becoming a tenant in the new facility. For example, an operator could choose to relocate all or a portion of its administrative offices into a new office building development on a former surface parking lot. The presence of the operator could “jump-start” the pre-leasing effort, help the developer secure other tenants who may want to be near the operator’s administrative functions, and overall support the project.

Repurposing Parking Facilities to Non-Vehicle Uses 67 In this manner, the project becomes more like a “build-to-suit” project than a “speculative” project. A speculative development project is one where a developer finances, builds, and owns a multi-tenant property with only some or no tenants committed to signing leases prior to securing financing and/or groundbreaking (or the minimum amount of pre-leasing required to secure financing). By contrast, a build-to-suit development project is one where a user seeks to occupy a newly constructed building and hires one or more third parties to design, finance, build, operate, and/or maintain the building on their behalf. The user may finance and own the asset themselves or work with the third-party developer who will own the asset and to whom the user will pay rent. Build-to-suit projects are common for organizations seeking a specific type of facility that is not available on the market, a new facility in a market where there are only older facili- ties available, or a facility in a market where there is little availability overall. The benefits of a build-to-suit are that it allows a user to dictate the type of facility they want (including design and material quality, configuration, specialized equipment), and some structures provide opportunities for ownership. In this manner, not only could an airport operator support the lease-up of a new facility and attract a wider range of development partners, but it could also play a role in the design and construction of the facility. This can provide an important opportunity for operators who are offering development opportunities near the passenger terminal and wish to ensure a certain congruity in design between the two buildings. Becoming a tenant in a new facility reduces risk to the developer but increases risks to the airport operator who now must pay rent in a new facility. In addition, the developer may require that the operator, as tenant, execute a lease that is slightly longer-term than market. While this provides stability for the operator’s administra- tive functions, it may also limit long-term flexibility depending on the lease term. Therefore, becoming a tenant in a new project is a decision that the operator should take in concert with other long-term planning and operational decisions. Also, this approach can only reduce the risk in an office development. 5.2.5 Capital Markets Risk Capital markets risk lies in the potential that interest rates increase and thus, increase the developer’s cost to acquire construction funds. To mitigate this risk, an airport operator can identify properties that are in an opportunity zone and market them as such. Opportunity zones allow for developers to defer capital gains taxes on the sale of real estate investments, but only if the investments are held for a minimum of 10 years. These zones were created as part of the 2017 Tax Cuts and Jobs Act and thus, did not exist during research conducted for prior ACRP guidebooks related to non-aeronautical development. Furthermore, as of January 2020, the zones are largely untested, and the impact of airport-owned land within an opportunity zone is unclear. 5.2.6 Operating Risk Operating risk lies in uncertainties regarding future costs associated with labor, utilities, insurance, and/or real estate taxes and how those costs may vary from budgeted amounts. In general, airport operators have limited opportunities to address such risks and, as almost all U.S. airports are operated by public agencies, there may be more risks in some aspects (for example, labor costs may be subject to rules regarding minimum or living wages). Alternatively, the airport, as a large utility consumer (or even a generator), may have lower utility costs that it can in turn pass on to on-airport tenants.

68 Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenue 5.3 Terminal Area Hotels The discussion of leasing and tenant risk largely assumes that a project will be industrial or office in nature. In addition to these land uses, airports can also look for ways to support hotel development on airport-owned lands as well. Hotels are unique real estate products in that the operating model is subject to “leases” that renew every night for every room. In this sense, hotel operating performance is much more volatile and subject to broader market and consumer dynamics, acting more like retail commodities such as food, energy, and clothing than like other forms of real estate. Airports have a unique, yet indirect, means of supporting hotel development. Namely, hotels that are passenger terminal-adjacent, and especially those that have a direct physical connection, perform better than competing hotels elsewhere in the market. The reason for this is intuitive: a passenger seeking to add comfort to an extended layover is more likely to seek accommo- dations at a hotel attached to the terminal rather than spend additional time or money on a taxi or shuttle to an off-airport hotel elsewhere. Half of the busiest airports in the United States feature a hotel on airport property today or have one in planning phases. Hotels are a substantial amenity to airports in terms of conve- nience to travelers and elevating the profile and positioning of an airport. Airport operators across the U.S. have reinvigorated their push to develop hotels on airport land for a very important reason: on-airport hotels significantly outperform their off-airport counterparts. Table 5-1 summarizes the operating performance of a sample of full service, on-airport hotels over their competitive off-airport hotels (hotel names and locations are anonymized to respect confidentiality agreements). The “occupancy” metric for hotels is like other real estate in that it is an average measure of utilized space versus unutilized space over a period. “ADR” stands for “Average Daily Rate,” or the average room revenue earned per room. “RevPAR” stands for “Revenue per Available Room,” which is calculated by multiplying ADR by occupancy. RevPAR indicates a hotel’s ability to fill room at the average rate. If RevPAR is lower than ADR, a manager may consider lowering ADR to fill more rooms, and vice versa. Finally, “penetration” is a measure of the hotel’s performance relative to competitive hotels in the surrounding market. Thus, a hotel with a RevPAR penetration of 133% experiences 33% higher revenue per available room than other hotels in the market. As shown, almost all the on-airport hotels performed better than other nearby hotels across each metric. Furthermore, the on-airport hotels with terminal connections outperformed the Table 5-1. Full service on-airport hotel performance penetration analysis over competitive set hotels. Property Occupancy Penetration ADR Penetration RevPAR Penetration Notes Hotels with physical connection to terminal Hotel A 110% 120% 133% Hotel B 121% 127% 155% Hotel C 109% 135% 146% Hotel D 103% 124% 128% Hotel E 104% 84% 88% Unbranded hotel Hotel F 106% 143% 152% Hotels with no physical connection to terminal Hotel G 104% 132% 138% Hotel H 107% 86% 92% Inferior product Source: JLL.

Repurposing Parking Facilities to Non-Vehicle Uses 69 competing properties by a greater ratio than did the on-airport hotels with no terminal connec- tion. In the case of Hotel E, the on-airport property has underperformed the broader market, primarily because it is an unbranded hotel (brands help drive demand). Hotel H has also underperformed, primarily because its product is inferior to other hotels in its area. Therefore, for airports considering removing/replacing terminal area parking facilities, they may consider focusing the redevelopment opportunity on a hotel to better attract a narrow, but deep, range of development partners who specialize in this type of product and who may be attracted to the opportunity. Furthermore, even if the available property is not near the terminal, an on-airport hotel will likely be more successful than hotels located off-airport. 5.4 Future-Proofing New Parking Developments As noted at the beginning of this chapter, there is limited opportunity to repurpose existing parking structures for non-vehicular uses. Airports considering new garages, however, can “future-proof” the design with an eye towards future conversion to another use. This section presents potential modifications that could facilitate such conversions. Included are (a) a review of the rough order of magnitude cost implications of incorporating the potential modifications into the design and (b) the technical and financial feasibility of making the change if it was not incorporated into the initial design and construction. Modifications are categorized by the cost premium associated with incorporating the improvement into the design. Low-cost ideas are estimated to have a premium of less than 10% on the overall cost of the parking structure. Medium cost ideas are estimated to have a premium of between 11% and 25%. High cost ideas are estimated to have a premium exceeding 25%. Modifications presented in the following paragraphs include: Low-Cost Ideas (cost premium of 10% or less; some may reduce the overall cost) 1. Build to a shorter planning horizon, constructing fewer spaces upfront until more data on future demand is obtained; 2. Plan for conversion to other vehicular uses (such as TNC loading); 3. Design structure to support a future vertical expansion of less than 30% of the levels; 4. Provide higher floor-to-floor heights; 5. Design for less lateral drift (the amount a structure moves horizontally due to wind or earthquake forces); 6. Design for less differential settlement, which occurs when the soil beneath the structure expands, contracts, or shifts in an uneven manner, causing the foundation to settle at an uneven rate; 7. Strategically locate the vehicular vertical circulation ramp; 8. Design for a removable exterior facade; 9. Plan for future stair and elevator core locations; 10. Design wider stairs for potential higher occupant load; and 11. Provide additional mechanical and electrical infrastructure. Medium Cost Ideas (cost premium of 11% to 25%) 1. Design for physical separation requirements (e.g., fire walls, setbacks) associated with non- parking land uses; 2. Design top level of structure to accommodate a garden or park; 3. Design structure to support a future vertical expansion of more than 30% but less than 50% of the levels; and 4. Design one-level below grade.

70 Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenue High Cost Ideas (cost premium of over 25%) 1. Design using express ramps instead of sloping floor vertical circulation ramps; 2. Design structure to support a vertical expansion of more than 50% of the levels; 3. Design floors for a higher live load; and 4. Design using short-span construction (e.g., structural columns are more closely spaced). The following sections summarize the impact, benefits, and rationale for including each of the above ideas within the design or implementing the idea in a parking structure that would not have otherwise been designed to be converted to an occupied use. 5.4.1 Low-Cost Ideas 1. Build to a shorter planning horizon. Additional parking is needed at an airport typically as a result of increased originating enplanements, and parking demand at an airport is typi- cally expressed as a ratio of parking demand per annual originating enplanements. Airports, especially those that experience chronic parking shortages, tend to want to solve the park- ing issue for many years into the future. This is due to the time and disruption of building a parking structure, especially if it is located near the terminal. As described in Chapter 2, although enplanements have continued to increase at most airports, parking ratios have decreased, largely as a result of TNCs. That trend is expected to continue and perhaps accel- erate with the introduction of AVs. Building for a shorter planning horizon means that instead of solving the parking issue for the next 10 years or more, an airport would solve the issue for 5 years and develop a master plan of how to expand parking in the future based on more aggressive or less aggressive adoption of TNCs and AVs. This is essentially deferring a portion of the decision in terms of the number of parking spaces to build. This deferring practice would allow an airport operator to make the decision about how much parking to build with more data in hand. 2. Plan for conversion to other vehicular uses. As described in Chapter 4, moving TNC pickup and possibly drop-off areas into a parking structure adjacent to a terminal is a potential use of unneeded structure parking as the curbs become congested due to increased use. Similarly, TNCs are causing decreases in rental car use on a per enplane- ment basis. Relocating the resulting smaller ready-return car areas into unneeded areas of a parking structure may also have merit. However, such a decision would need to recognize (a) the operational requirements of rental car companies (such as their need to fuel, wash, and maintain vehicles), (b) the need for nearby vehicle storage/flexible space, and (c) the need to separate entering and existing rental car customers and employees from entering and exiting public parkers. During design, an airport could develop a functional layout that supports two or three alternate vehicular uses and provides the necessary vehicular ramps to support that plan. For structures that have been designed without that consid- eration, ramps or bridges can usually be added to the exterior of the structure to facilitate the alternate vehicular functions. 3. Design for future vertical expansion of less than 30% of the levels. Whenever possible, planning for horizontal expansions is preferred. It allows for the expansion to be constructed with minimal closures and disruption to the existing parking (i.e., those levels below the expansion), and it has less risk of modifications caused by code changes. However, designing for a future vertical expansion of less than 30% of the levels (i.e., a one-level expansion to a four-level parking structure), can be accommodated for a 10% cost premium, plus the costs of the additional level. Structurally, the elements that must be designed to accommodate a vertical expansion are the columns, foundations, and lateral load resisting system. Functionally, elements that must be designed to accommodate a vertical expansion include the ramping system, egress stair capacity, and elevator capacity. The purpose of the

Repurposing Parking Facilities to Non-Vehicle Uses 71 future vertical expansion would be to build to a shorter planning horizon now and construct the vertical expansion only if needed. Therefore, implementation of a vertical expansion of a parking structure that was not designed for a vertical expansion is not discussed here. 4. Provide higher floor-to-floor heights. Clearance heights for parking structures typically range from 7 to 9 feet. This results in floor-to-floor heights of 10 to 12 feet. Airport parking structures tend to be on the higher end of this range because customer experience and wayfinding are a primary design consideration. Floor-to-floor heights for other land uses such as retail, hotel, and office are generally in the 12- to 15-foot range. Understanding the potential future land uses and designing for an appropriate floor-to-floor height results in a 1% to 2% cost premium. This is especially true for the ground floor where there are no structural limitations on land use. 5. Design for less lateral drift. Lateral drift is the amount a structure moves horizontally due to wind or earthquake forces. The lateral drift of all buildings is limited to avoid issues such as glass windows breaking or elevator shafts not remaining straight. In high-rise buildings, too much drift can cause building occupants to experience motion sickness. The acceptable lateral drift for a parking structure is higher than most occupied build- ings because there are typically no glass facades or exterior windows. When designing a parking structure and considering a future conversion to another use, the lateral resisting system should be designed to limit the drift for an enclosed building with glass facade or windows. Bracing can be added to a parking structure that was not designed for a more limited lateral drift, but that change could require modifications to the columns and foundations where the bracing is added. 6. Design for less differential settlement. All structures are designed to accommodate some settlement of the foundations. Where the foundations bear on rock, the settlement is very small. In other cases, it can be up to 2 inches. If a foundation settles more than an adjacent foundation, stresses are introduced into the exterior facade and floors become uneven. As with lateral drift, the acceptable settlement for a building with glass facade or windows is less than for a parking structure. For structures that could be converted to enclosed build- ings, an airport would need to engage a geotechnical engineer to specify more stringent differential settlement limits that could be used for a building with glass facade or windows. 7. Strategically locate the vehicular vertical circulation ramp. There are several factors that should be considered when locating a ramp for vehicle vertical circulation. Flow capacity, convenience, wayfinding, and pedestrian conflicts should all be considered. For structures being designed for potential conversion, there are two strategies that have been used to determine where to locate the ramp. The first strategy would be to locate the ramp so that when it is removed, it creates a courtyard. The floorplate size and dimensions often seen in airport parking structures are not conducive to occupied buildings where occupants prefer to be nearer to the exterior. Creating a courtyard may contribute to solving this issue. The second strategy is to locate the ramp on the exterior of the structure or, preferably, as a “bump out” of the main structure. In this case the ramp could be removed, leaving a rectilinear building. 8. Design for a removable facade. Parking structures are required to have a vehicle barrier and a 42-inch-high pedestrian guardrail at the perimeter. This is typically accomplished with precast concrete spandrels or barrier cables. When a parking structure is converted to an occupied building, the spandrels (exterior beams) or barrier cables are replaced with a building envelope facade that is not required to provide a vehicle barrier. Barrier cables can be de-stressed and removed relatively easily. Spandrels used solely as vehicle barriers and pedestrian guardrails can also be removed relatively easily. For a typical precast con- crete parking structure, the spandrel also supports structural floor elements. In these cases, removal of the spandrel would require extensive structural modifications. To design a precast structure for adaptive reuse, the design team should use a beam to support

72 Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenue the structural floor members and a separate spandrel to provide the vehicle barrier and pedestrian guardrail. 9. Plan for future stair and elevator core locations. Like parking structures, all building types have preferred floor plan characteristics. For example, office buildings typically have the core in the center of the building and flat floor plates around the exterior. This differs from a parking structure where the cores are typically on the exterior of the structure. The design team should consider stair and elevator core locations that will work for both building types, or include in the design removable slabs that could accommodate a stair and elevator in the preferred location for the converted land use. Egress stair locations are typically determined by travel distance. The travel distance requirements for the potential land use should also be considered by the design team when determining the location of stairs. 10. Design wider stairs for potential higher occupant load. Stair widths and total stair capacity is determined by the expected occupancy of a building. The code-required occu- pant density of a parking structure is much less than most other uses. Future building uses, such as an office, will require more or wider stairs for the same floorplan area. The design team should plan for the egress needs of the potential building use and include stair egress capacities to meet that demand or plan for removable slabs to accommodate future stairs. 11. Provide additional mechanical and electrical infrastructure. Occupied buildings have more complex mechanical and electrical requirements than a parking structure. For parking structures that may be converted to other uses, the design team should plan for additional chase locations and include empty conduits to allow electrical and mechanical connections from the floors to the mechanical and electrical rooms. Also, the mechanical and electrical rooms should be oversized to allow for additional equipment to be installed. During the design of the parking structure, it would be helpful to develop the design of the potential building conversion to a level sufficient to determine the mechanical and elec- trical needs. This would allow the design team to confirm that the infrastructure provided is adequate to support the future building. Converting a building without the additional infrastructure can be accomplished, but it is likely to require structural modifications to accommodate the mechanical and electrical requirements. It could also result in some inefficiency in the design of the new space. 5.4.2 Medium Cost Ideas 1. Design for separation requirements of other potential land uses. The building code requires buildings to be separated physically or with a fire barrier wall from other build- ings. The distance and fire rating of the separation depends on the occupancy type of each building. The separation requirements for parking structures are less than many other building types. When designing a parking structure that may be converted to another use, the design team should consider the separation requirements of the potential future use and locate the parking structure accordingly. In tight sites, this additional constraint may produce a less than ideal parking layout or result in some other type of compromise to the parking layout. For parking structures that do not have the required separation distance, rated fire walls can be used to separate the occupancies. 2. Design top level of parking for a garden or park. Providing for such a conversion would allow a portion of the parking capacity, once not needed, to be converted to an amenity usable by airport passengers, family and friends meeting or dropping off passengers, and employees. Green roofs and amenity levels on the top levels of parking structures are less common at airports, but are being done at some non-airport locations. The structural loading require- ments are much higher than a parking structure. In addition to the increased load from soil, plant and tree beds, hardscape, and potential water features, the live load requirements are

Repurposing Parking Facilities to Non-Vehicle Uses 73 100 pounds per square foot versus 40 pounds per square foot for a parking structure. Designing for all or a portion of the top level to be converted to a garden or park requires increased columns (size, spacing, or both) and foundations as well as framing members (e.g., horizontal beams) for the area that will potentially be converted. 3. Design for a future vertical expansion of more than 30% but less than 50% of the levels. As noted previously, whenever possible, planning for horizontal expansions is preferred. Designing for a future vertical expansion of between 30% and 50% of the levels (e.g., a two- level expansion to a five-level parking structure) can be accommodated for a 25% premium on the initial levels. Structurally, the elements that must be designed to accommodate a verti- cal expansion are the columns, foundations, and lateral load resisting system. Functionally, elements that must be designed to accommodate a vertical expansion include the ramping system, egress stair capacity, and elevator capacity. The purpose of the future vertical expan- sion would be to build to shorter planning horizons first and then construct the vertical expansion only if needed. 4. Design one level below grade. Below grade parking has a higher cost not only because of the excavation and retaining wall requirements, but also because it often requires fire sprinklers and ventilation. In an adaptive reuse situation, creating what is essentially a base- ment can be advantageous to the conversion. It can be used to house the increased mechanical and electrical space requirements or other back-of-house requirements. In a situation where the level is partially below grade and there is access from the street, it can be used to meet the service or loading requirements of a building. 5.4.3 High Cost Ideas 1. Design using express ramps instead of sloping floor vertical circulation ramps. Most parking structures at airports use express ramps or circular helixes for vertical circulation of vehicles. This is primarily due to the high level of service provided by most airports to allow the passengers to enter and exit the parking structure quickly, but it is also beneficial to provide all flat floor parking for customers who may be loading and unloading luggage into and out of vehicles. From an adaptive reuse perspective, express ramps reduce the area dedicated to sloping vertical circulation ramps, which are unusable in occupied buildings. 2. Design for a vertical expansion of more than 50% of the levels. As noted previously, whenever possible, planning for horizontal expansions is preferred. Designing for a future vertical expansion of more than 50% of the levels (e.g., a three-level expansion to a five-level parking structure) can be accommodated for more than a 25% premium on the initial levels. Structurally, the elements that must be designed to accommodate a vertical expansion are the columns, foundations, and lateral load resisting system. Functionally, elements that must be designed to accommodate a vertical expansion include the ramping system, egress stair capacity, and elevator capacity. The purpose of the future vertical expansion would be to build to shorter planning horizons first and then construct the vertical expansion only if needed. 3. Design floors for a higher live load. As noted at the beginning of this chapter, parking structures have one of the lowest design live loads of any building type. Other building types with a similar uniform load, such as a hotel, have higher requirements in corridors and meeting rooms. Most other building types also have higher dead loads (i.e., the weight of the structure, utilities, and other fixed objects) to account for mechanical and electrical loads. For any potential reuse of a parking structure on levels that are on a supported slab, as opposed to a slab-on-grade, the additional dead and live load should be considered in the design. Modifying a structural system to support loads that are 100% to 200% higher than the original design is typically not feasible. Designing for these higher loads results in a significant

74 Rethinking Airport Parking Facilities to Protect and Enhance Non-Aeronautical Revenue increase in the cost of a parking structure. These costs can be minimized by limiting the area or number of levels that are being considered for repurposing. 4. Design using short-span construction. Short-span construction has columns at the front and back of the parking stalls, not just at the front as in long span construction. Shorter distances between columns allow for less structural depth, which can provide increased vertical clearances desired by non-parking uses. Short-span construction is not used often in airport parking structures because of the difficulty in parking and reverse parking, the desire to provide a more welcoming and pleasing environment by avoiding a “forest of columns,” and the desire to improve visibility and safety. Depending on the live load used for the structure, short-span construction may be required structurally without excessive structural depth. Short-span construction is used often in podium parking structures with an office building or other land use above the parking area. In addition to not being user friendly to park and reverse park, short-span construction creates an inefficient layout with columns interrupting every three spaces. It also hinders the ability to use one-way angled parking. 5.4.4 Structural Quality and Maintenance In addition to the strategies described above, an airport may consider constructing a parking structure of a lower quality with the intent of saving money given the potential future reduc- tion in parking demand. While this could achieve cost savings, the savings are likely to be modest. Parking structures have historically been designed and built to typically last 50 years or longer. Assuming future airport parking demand declines precipitously and therefore parking structures would not be needed for a 50-year planning horizon, parking structures could be designed and built with shorter lifespans in mind to reduce upfront project costs. However, contractor mobilization and minimum construction standards that support building codes must be met in support of safety considerations. Upfront savings of up to 10% may be possible by excluding protective building materials such as traffic toppings, concrete sealers, corrosion inhibitors, and other items. Many garages, however, already exclude these items. Such upfront savings, however, could be partially offset by higher annual maintenance costs. The most significant cost savings may be achieved through the decision to not maintain the condition of a parking asset. For example, instead of setting aside an annual amount (e.g., 1% of an initial facility’s construction cost, adjusted annually for inflation) for structural repairs and replacements, this set aside could be foregone, anticipating that the life of the asset will be shorter and therefore the need to preserve it could be less. This approach, however, may compromise safety and the customers experience and thus, is likely inconsistent with airport management goals.