A guide to land leasing at business airports

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Airports are mostly located away from most travelers’ final destinations because of their large size and issues around the noise from aircraft. Being located on the outskirts of urban areas, business airports often have a surplus of land, which can be used to make extra revenue.

The potential for profitable partnerships with external businesses is almost endless, with aeronautical and non-aeronautical companies both possible tenants.

“In the USA, general aviation airports have long thought of their real estate simply as land to separate them from their neighbors. They haven’t really considered the land as an income-producing asset,” says Peter Kirsch, attorney at law firm Kaplan Kirsch Rockwell. Kirsch has been involved in the development of airport infrastructure for over 30 years.

“That attitude has changed in recent years as airports have realized their aeronautical users can benefit from a subsidy from non-aeronautical developers.

“It’s a recent phenomenon and there is a range of revenue producing enterprises. Examples include farmland and crops to office buildings and hotels. It really is a case of how much real estate the airport has, rather than the limits of people’s creativity.”

Solar farms, movie theaters and golf courses are all other possibilities. Travel-related businesses often prove the most profitable. But a successful development at a business and general aviation airport doesn’t have to be associated with the airport’s business itself.

Location is key

Like any sort of real estate-orientated transaction, the location of the airport is key. Transactions are much like a private sector real estate development and are dependent on the market and the opportunities at a location. Often, a company will do everything it can to lease land at an airport if its location is suited to its operational, or even an individual’s needs.

“At a very large general aviation airport in Denver, one of the largest providers of cable TV communications in the world wanted to build a new headquarters office,” says Kirsch. “It’s CEO really liked his private jet and wanted to keep it near the office. They built their corporate office adjacent to the airport so he could take an elevator straight down to his jet.”

A bespoke approach to the business of real estate is what entices clients to use certain airports. This also applies to those passengers who are looking for a fast, low-key arrival and departure.

“A lot of recording artists come to Flying Cloud Airport in Minnesota, because the late-singer Prince’s Paisley Park recording studios are only ten minutes away,” says Bryan Del Monte, president at the Aviation Agency, a full-service aviation marketing company. “They come, record their music and then fly out, and nobody knows they were ever there. That’s much easier than going to Chicago or New York. Business airports can take data like this and consider what they can provide to different types of customer.”

hangar

Sheltair opened a US$55 million FBO hangar complex at Republic Airport in New York

Business airports can either wait for the right tenant to approach them or proactively go out and find businesses to lease land to. Either way, managers can take steps internally to be as attractive as possible to new business.

“Airports need to develop their facilities to support the maximum range of uses and keep in balance with community expectations,” says Milo Zonka, real estate and development manager at Sheltair. “Runway lengths, ramp space, and a taxiway system that promotes safety and efficiency are important. Fair and open procurement, equitable dealing with all tenants, and being a reliable partner to the private sector is also crucial.

“Service providers are usually small businesses making an investment in the airport at great risk to themselves. There will always be market risk and the challenge to manage one’s own business, but if airports can act in a way so as not to contribute to the risks, so much the better for all.”

Facilities first

The provision of maintenance, ground handling and fuel is also an important consideration if attracting aviation-related tenants. A business is more likely to buy into an airport’s real estate if it has the facilities to attract customers.

“If the airport is located somewhere bad, it doesn’t matter how many great attractions you have,” says Del Monte. “But most airports are well located, so it does come down to amenities and the types of FBOs and MROs that are there.

“For example, the area surrounding Vero Beach Regional Airport in Florida has an exceptionally high concentration of very wealthy individuals. Those airplanes don’t land at Vero Beach and instead go to Palm Beach International, around a 30 minute drive to their homes. They land there because it has the high-end FBOs, MROs, and the ability to service those types of turbine aircraft.

“When we looked at Vero Beach and discussed a growth strategy we stated to them that they had to embrace the types of business they were already getting. That meant becoming a destination airport focused on general aviation and giving that group as much love as possible. That would attract the businesses that supported general aviation, leading to more rents, more foot traffic, and more revenue for everyone.”

Sheltair’s Zonka agrees, “Jet users need to know they can get affordable, quality services from an airport, whether they base there or arrive and depart as a transient and they need to be comfortable that it is a safe, well-maintained facility,” he comments.

Ups and downs

The financial perk of leasing airport real estate is clear, but that isn’t the only benefit. Fort Lauderdale Executive Airport, Florida recently developed an office park adjacent to the airport that is not specifically designed for aeronautical businesses. The office park has become a high-end suburban location for all types of businesses. The catalytic effect of smart investment by general aviation airports is significant.

“Another benefit is the opportunity to serve public interests by encouraging development at the airport,” says Zonka. “It’s also brilliant to be serving the aviation system by offering a safe location to operate from and serving the community by adding private investment to the local tax base, creating jobs and economic vitality.”

helicopter

The helicopter shuttle that operates from several of Sheltair’s New York facilities allows operators greater flexibility and opens up markets that may not have been as accessible in the past

There are some potential pitfalls when it comes to partnering with a business on airport land. Administering leases can be challenging for airports, in addition to remaining a good neighbor to the surrounding community.

“There has been some controversy about airports that have spent airport money to build infrastructure in a speculative manner and then have to wait a considerable amount of years — and maybe never — to really see the return on that investment,” says Kirsch.

Europe versus USA

The considerations involved in such decision-making are where European and USA airports differ.

In the USA, all general aviation airports are required to operate as closed fiscal systems, meaning that all revenue generated from the airport has to be used for the airport. So, when a general aviation airport engages in non-aeronautical development, the benefits of that are bound directly to the aeronautical users because they help produce their rates and charges. In Europe, there is no legislative requirement to keep all the money generated in the airport, at the airport.

“The approach in the US reduces the incentive to make lots of money from non-aeronautical development because there is a ceiling on how much money an airport can make,” says Kirsch. “This is why airports often seek private partners because they can earn profit and take the money out of the airport. The restriction in the USA only applies to the airport owner itself, not the concessionaire or private entities they operate in the airport.

“The number and proliferation of general aviation airports in the USA means that it’s a very competitive marketplace for aviation-orientated businesses.”

Creating a buzz

Significant sums of money can be made by operators making smart decisions about airport real estate. It’s for airports to decide on what they want for their site, be it a focus on aeronautical or non-aeronautical businesses, or perhaps a mix. However, it is difficult for potential business partnerships to enter the tender process if they don’t know where they could fit into the airport’s wider plan.

Troy Hayes, creative director at the Aviation Agency says, “It’s important to find the partners who want to be a part of your project. Maximizing the use of the land business airports have has to be the prime objective.

“Appreciate the market share that you’ve got, it will help to ensure that your customers want to keep
coming back.”

 


Doing your homework

While there is an abundance of land ready to lease at business airports around the world, the airports themselves need to do their homework to better understand the traffic coming in and out of their region and why they are visiting.

“Most airports can only make more money if their tenants make more money. As the airport’s businesses are more profitable, they can raise rental rates,” says Bryan Del Monte, president at The Aviation Agency.

“We use ADS-B data to look into the traffic at our clients’ airports. When you cross reference that data with the jet registration information, you start to get a picture of why the customer is coming to you.

“With this knowledge, you can work out what you can give them at your airport in the form of real estate partners.”

Customer research, figuring out how to engage passengers, and having discussions with partners on what to do and how to expand are important aspects to consider. After that initial research is complete, airports can be more focused with their approach. Without understanding an airport’s market proposition, it’s difficult to prove its value to potential business partners.

 


Going for grants

The FAA’s Airport Improvement Program (AIP) provides grants to public agencies – and, in some cases, to private owners and entities – for the planning and development of public-use airports. For general aviation airports, the grant covers 90-95% ofa eligible costs, based on statutory requirements.

Eligible projects include improvements related to enhancing airport safety, capacity, security, and environmental concerns. In general, grant recipients can get AIP funds for most airfield capital improvements or rehabilitation projects. In some instances, airports can also receive grants for terminals, hangars, and non-aviation development. Certain professional services that are necessary for eligible projects like planning, surveying and design are also possible.

Projects related to revenue producing facilities may be eligible if the airport has already satisfactorily addressed all airside needs and the improvement will increase revenue for the airport.

However, projects related to airport operations and operational costs such as salaries, equipment, and supplies are not eligible for funding.

Because the demand for AIP funds exceeds the availability, the FAA bases distributions on how projects link with national priorities and objectives. AIP funds are typically first split up into major entitlement categories such as primary, cargo, and general aviation.

As part of its 2019 National Plan of Integrated Airports System (NPIAS) report, the FAA estimated that airports have US$35.1 billion in AIP-eligible projects between 2019 and 2023, or more than US$7 billion annually.

 

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Kirstie worked full-time on Business Airport International for over two years and is now a freelance journalist. Away from her writing commitments, you will find her blogging on her lifestyle website or training for her next charity run.

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