CB RICHARD ELLIS CONSULTING
355 South Grand Avenue, Suite 1200 Los Angeles, CA 90071-1549 T 213 613 3750 F 213 613 3780 www.cbre.com
October 19, 2005 Mr. Richard K. Mulligan CEcD Economic Development Director City of Mesa P.O. Box 1466 20 East Main Street, Suite 200 Mesa, AZ 85211 Re: Falcon Field Lease Analysis
Dear Mr. Mulligan: CB Richard Ellis Consulting (“CBREC”) is pleased to submit this revised draft of our market analysis and recommendation for establishing lease rates and terms for various land parcels within the Falcon Field airport boundaries. In making specific recommendations for lease rates on available land within Falcon Field, or any municipal airport, it is critical to understand the primary objective of the City. For example, is the goal 1) to absorb land at a rapid pace to generate immediate revenue; or 2) to maximize economic development opportunities, creating high paying jobs; or 3) maximize the long-term (e.g. 7-10 years) revenue to the Airport. Many airports view their main objective as expanding the field of general aviation in the community, thereby limiting leaseholds to purely aviation related businesses and limited support commercial. With several municipal airports in the Phoenix metro area, Mesa faces significant competition and thus “peer” pressure, and potentially political pressure to keep lease rates low. For this report, we have assumed the City desires a balance of the objectives, that is attract quality jobs in the near future, while increasing revenue over levels of the prior leasehold, by offering some discount to unrestricted market-rate fee land values, reflecting the ground lease limitations and restrictions. However, not necessarily accepting rates as low as necessary to compete with the Chandler or Glendale airports, given Mesa’s higher land values. I look forward to any comments or questions you may have. Respectfully Submitted;
Thomas R. Jirovsky Sr. Managing Director
CB RICHARD ELLIS CONSULTING
355 South Grand Avenue, Suite 1200 Los Angeles, CA 90071-1549 T 213 613 3750 F 213 613 3780 www.cbre.com
FALCON FIELD AIRPORT LEASE POLICY RECOMMENDATIONS
PREPARED BY: CBRE CONSULTING OCTOBER 2005
Falcon Field Market Lease Rate Analysis
October 19, 2005
BACKGROUND
The City of Mesa has developed a Design Review process and Design Guidelines in order to fast track the approval process for ground lease proposals related to various parcels of land within the boundaries of Falcon Field Airport. The City currently has several lease forms that include a variety of CPI and market adjustments. There are several leases at rents under $0.10 psf or with up to 20 years remaining in the lease term as outlined in the following chart. Falcon Field – Selected Lease Terms Lessee Parcel 31 Parcel 35A Parcel 10 Lot 25 Parcel 48 Lot 23 Parcel 47 Parcel 23 Parcel 24 Acres 2.1 6.2 2.2 0.46 2.0 1.1 5.0 2.15 0.68 Rent/SF $0.28 0.22 0.19 0.17 0.15 0.14 0.11 0.09 0.08 Expiration 2043 2025 2025 2008 2038 2028 2037 2008 2007
CBRE Consulting was retained to prepare a professional assessment of the appropriate ground lease rate for current development proposals based on parcel size and location (e.g. runway access, apron frontage, etc.). We understand that there are approximately 285 acres of undeveloped land: 14 acres in the southwest quadrant 26 acres on the eastern border, without runway access 45 acres in the northwest quadrant 200 acres of orchard property on west side of N. Greenfield Road. In addition there are several parcels with somewhat blighted industrial buildings on leaseholds that have 5-15 years remaining in their lease, and that the City would like to see rehabbed/redeveloped as soon as possible. A map of Falcon Field is shown on the following page.
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F a l c o n F i e l d U se & D e v e l o p m e n t
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Falcon Field Lease Properties
Phase 1 - Broker ( 100 Acres +\- ) Phase 2 - Future Aircraft Hangars Airfield Operations Airport Support Avation Related Revenue Support Aviation Revenue Support General Avation Public
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The City of Mesa makes no claims concerning the accuracy of the information provided nor assumes any liability resulting from the use of the information herein. The information provided is the property of the City of Mesa and is not to be distributed in any form nor used in any manner not authorized by the City of Mesa in writing. COPYRIGHT © 1988, 2005 CITY OF MESA, ARIZONA
Phase 1 Broker
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Source: City of Mesa Economic Development Created by: Planning - GIS Print Date: 11/21/2005
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Falcon Field Market Lease Rate Analysis
October 19, 2005
EXECUTIVE SUMMARY
The vast majority of municipal airports lease land at rents below the market value of surrounding industrial land. Many airport managers indicated that they discount rent because of use limitations, or to encourage certain uses important to the operation of the airport. Market Land Values Industrial land sales comps for parcel less than 10 acres in the Falcon Field market area indicate a range of sale prices from $4.26 psf to $7.61 psf with a weighted average of $5.28 psf. This represents a significant increase from land sales values of $4.00 psf in late 2003 and early 2004. Industrial Land Sale Comps – Falcon Field Market Area
Sale # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Sale Date 12/9/2004 8/19/2005 1/31/2005 8/3/2004 2/26/2004 9/29/2004 10/25/2004 6/18/2004 1/14/2005 1/6/2005 1/31/2005 1/31/2005 3/1/2004 Acres 6.26 3.75 4.83 2.03 1.98 1.45 5.13 0.97 2.06 0.89 3.79 1.04 1.27 SF Land 272,685 163,252 210,361 88,453 86,416 63,094 223,507 42,047 89,673 38,930 164,971 45,390 55,205 Sale Price 1,568,209 955,600 929,495 377,500 370,362 283,923 1,700,000 198,000 403,529 204,383 728,208 201,287 235,115 $/Acre $250,513 254,963 192,482 185,869 186,674 195,809 331,384 204,124 195,888 229,644 192,139 193,545 185,130 $/SF Land $5.75 5.85 4.42 4.27 4.29 4.50 7.61 4.71 4.50 5.25 4.41 4.43 4.26 4.26 – 7.61 5.28
Range Weighted Average
2.73
118,768
627,355
230,047
Recommended Lease Terms for Falcon Field There is no “absolute” lease rate that applies to all circumstances within a municipal airport. For this report we have primarily focused on helping the City establish a base lease rate that can be offered for new development projects. In general, CBRE Consulting recommends the City utilize a minimum 20 percent discount factor from fee ownership land values for all Falcon Field properties, reflecting the various financing challenges and other limitations of long-term ground leasing facing developers. CBRE recommends applying a 20% adjustment factor to the average sale prices of $5.28 psf for long-term leases in excess of 35 years, which would establish a base leasehold value for airport property of approximately $4.22 psf.
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Falcon Field Market Lease Rate Analysis
October 19, 2005
Based on current 10-year Treasury interest rates and comparable lease constants for other lease properties throughout the western U.S., CBRE recommends using an annual lease rate of 8 percent on land value, yielding a lease rate of $0.337 psf, as shown in the table below. Falcon Field Annual Lease Rate Determination
Unrestricted Fee Values /1 Adjustment for Leasehold Base Land Value Lease Constant Base Lease Rate
/1 Median value psf from area comp’s
$5.28 psf X .80 $4.22 psf X 0.08 $0.337 psf
This lease rate is consistent with the lease terms at almost every airport surveyed, i.e. lease rate is tied to a percentage of local land values. For example, while lease rates at Glendale and Chandler are approximately $0.20 psf, their industrial land is also priced at approximately half of Mesa land values. Maximum Lease Term There is professional disagreement among airport managers over the maximum length of a lease. Many argue for 25-year leases, especially for FBO tenants in order to enforce quality of service standards. CBRE recommends that there be two different standards for length of lease terms; 1) lessees with modest capital improvements would have maximum of 25 year leases and 2) lessee with large-scale developments (that are not likely to interfere with future airport operations) could be given lease terms (including options) of 50 to 65 years. “Market Rate Adjustments” As the land values begin to rapidly escalate due to the urbanization of the area, and since the City is planning to offer longer leases with up to 65-year terms, some future market adjustment mechanism is warranted. For owner-users, market adjustments could be negotiated every 10 to 15 years, based on a 20 per cent discount to comparable fee values. However for typical master developers, who lease space to 3rd party tenants, the ability of the developer to obtain permanent financing will be impaired if the leases contain clauses with “unlimited “ market rent increases in the near future. For developers seeking 40-year or longer lease terms, we recommend a full market rate reappraisal at year 30 of the lease, and at the exercise of any option period.
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Falcon Field Market Lease Rate Analysis “Off Airport” Property
October 19, 2005
For land parcels unrelated to any airport runways, but with visibility and access to external roads (i.e. McKellips, Greenfield, McDowell and Higley) and especially future development on land west of Greenfield Road, the City of Mesa should consider establishing lease rates based on unrestricted market land values with a 20 percent discount for lease limitations and an 8 percent rate of return. Adjustments for Existing Lessees As existing leases expire, there is concern that many lessees could be faced with dramatic increases, based on current land values and recommended lease rates for new development projects. It is important to reiterate that the recommended rate of $0.337 psf is the baseline for long-term leaseholds. Every lessee has the right to negotiate the terms of a new lease, as there are numerous circumstances under which reduced rates are appropriate. Lease extensions should mandate tenant improvements to the buildings that are in need of rehabilitation or cosmetic improvements. Master Developer Exceptions For large master developer parcels (>50,000 square feet of building) that meet the City’s design guidelines and planning objectives, CBREC recommends a policy to allow adjustments to the basic lease rate that reflect the risk factors and carrying costs associated with multiphase developments and sub-leases to 3rd party tenants. For example, we are familiar with many public agencies that give a 50 percent discount on base rent, during design, construction and lease-up for a period of up to 48 months. If there was a significantly large development requiring multiple phases, the discount could also be applied pro rata to the undeveloped portion up to a pre-defined time schedule for development. In exchange for these upfront rent adjustments, we also recommend participation rent provisions to allow the City to benefit from successful development. This could take the form of a percentage rent equal to 10 percent of the gross income or 15 per cent of the net income. The lessee would only pay the percentage rent to the extent it exceeded the base rent, as calculated at the end of each calendar year. Competitive Airport Lease Rates The following section summarizes the interview data collected for each airport, as well as industrial land values surrounding the airports, to compare the impact of market forces on airport lease rates. Interviews with airport staff indicate that each of the regional airports indicates a range of asking lease rates based on a number of factors, primarily access to airport runways and street frontage.
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Falcon Field Market Lease Rate Analysis
October 19, 2005
For those airports surveyed, the premium for parcels fronting the runway tends to range from 15% to 35%. For example, lease rates at Oakland County Airport in Michigan vary from $0.22 - $0.28/sf/yr, depending on access. Rates at the Chandler and Glendale Airports vary from $0.13 - $0.21/sf/yr. At Auburn Municipal Airport in Washington (which currently charges a flat rate of $0.26 for unimproved parcels), the airport manager’s personal opinion that the airport should charge a 12% - 20% premium for parcels with runway and street access. The range of airport lease rates and nearby industrial land values are summarized below.
Summary of Current Lease Rates at Municipal Airports Rates for Unimproved Land, Expressed as Price / Square Foot / Year
Airport Location Low Rate High Rate Industrial Land Value $4.00 - $6.00 $3.00 - $4.00 $3.00 - $4.00 n.a. $3.00 - $4.00 $4.00 - $6.00 $20.00 - $30.00 $8.00 - $9.00 $15.00 - $20.00 $20.00 - $25.00
Falcon Field Chandler Municipal Airport Glendale Municipal Airport Williams Gateway Airport Oakland County International Auburn Municipal Airport Van Nuys Airport Ontario Airport Long Beach Airport Torrance Airport Source: CBRE Consulting
Mesa, AZ Phoenix Area Phoenix Area Phoenix Area Oakland County, MI King County, WA Los Angeles, CA Ontario, CA Long Beach, CA Torrance, CA
$0.08 0.13 0.13 0.43 0.22 0.26 0.36 0.50 0.61 0.27
$0.28 0.21 0.18 0.45 0.28 0.26 0.57 1.10 1.56 1.65
The table shows that airport lease rates are based on land values consistently below surrounding industrial property. As a point of comparison, using a 20 percent discount from fee value and a lease constant of 8 per cent, the airport rates would be approximately $0.25 at Chandler and Glendale airports. Rates at several California airports tend to vary more widely. At Van Nuys Airport, lease rates vary from $0.36 - $0.57/sf/yr, and at Long Beach airport from $0.61 - $1.56/sf/yr. (for pure commercial land). At Ontario Airport, the lease rate for raw land is $0.50 psf, while land paved for vehicles is leased at $0.83 psf and land paved to support airplanes is leased at $1.15 psf. The premium is to compensate for the cost of physical improvements. At the Torrance, CA airport, aeronautical uses “inside the fence” are leased at below market rate of $0.27 psf, while land “outside the fence” is leased at full market value of $1.65 psf. Origination of Lease Rates Lease rates at many of the airports surveyed were determined by appraisal, but clearly not “highest and best use” market value. At one airport they used 50 percent of market value.
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Falcon Field Market Lease Rate Analysis
October 19, 2005
Other lease rates were determined based on negotiations with lessees and at several of the airports with limited turnover, historic lease rates were used (original methods were unknown). At Long Beach Airport lease rates were reportedly determined by an annual “return on value” factor – 8.5 per cent of the appraised highest and best use value for that parcel. At Williams Gateway Airport, the airport manager said that they should set annual lease rates at 10% of land value. At Sky Harbor and Deer Valley, the airport manager also indicated that 10% of land value for the base lease rate was appropriate. Some airports have two types of land: 1) parcels with runway access or “airside” and 2) “landside non-aeuronautical” parcels available for most any commercial or industrial use. Policies allow full market rents on those parcels “outside the fence”. Mechanisms for Increasing Rates The airports surveyed use a variety of mechanisms to increase lease rates. Almost all of the airports increase rates according to the Consumer Price Index (CPI) on an annual or tri-annual basis. Several airports also require 5-year or 10-year adjustments to market rates. Lease Rate Increase Mechanisms Airport Name
Falcon Field Chandler Municipal Airport Glendale Municipal Airport Phoenix Williams Gateway Airport Oakland County International Auburn Municipal Airport Van Nuys Airport Ontario International Airport Long Beach Airport Torrance Airport
Annual Increase
CPI CPI CPI every 3 years CPI CPI every 3 years Increase $0.01/sf/2yr N/A CPI CPI CPI CPI
Increase to Market Rates
Every 10 years None Every 5 years None Every 10 years None N/A None Every 5 years Every 5 years Every 10 years for nonaviation leases only
Semi-Annual Updates To assure that the City of Mesa is achieving up to date market rents on new leases, CBREC will be available to do semi-annual survey of the local industrial and commercial market, economic conditions (i.e. interest rates, cap rates etc) and recommend appropriate land lease rates for new leasehold applications on a parcel-specific basis.
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Falcon Field Market Lease Rate Analysis
October 19, 2005
AIRPORT SURVEY OF LEASE RATES AND TERMS
In order to recommend appropriate leasing policies and rate structures at other municipal and regional airports, CBRE Consulting interviewed staff at a dozen airports around Phoenix, as well as other areas across the U.S. The goal of these interviews was to determine: 1) 2) 3) 4) What lease rates the airports charge for unimproved land What is the basis for these rates (i.e. as percentage of land value) Do the airports charge a premium for parcels with better access to runways or streets What mechanisms do the airports use to adjust lease rates
CBREC also compared airport lease rates with private sector industrial land sales in the area to determine appropriate adjustment factors for the airport amenities, or discounts that may be applied as a matter of public policy to support aircraft uses. Where possible, CBRE Consulting also collected site maps of the surveyed airports, as well as sample leases, in order to gain a better understanding of the typical lease terms. The following airports were surveyed, with summaries on the following pages. Airport Name
Chandler Municipal Airport Glendale Municipal Airport Deer Valley Airport Sky Harbor Airport Williams Gateway Airport Oakland County International Auburn Municipal Airport Van Nuys Airport Ontario International Airport Long Beach Airport Torrance Airport
Area Served
Chandler, AZ Glendale, AZ Phoenix, AZ Phoenix, AZ Mesa, AZ Oakland County, MI King County, WA Los Angeles, CA Ontario, CA Long Beach, CA Torrance, CA
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Falcon Field Market Lease Rate Analysis Chandler Municipal Airport – Phoenix Area
October 19, 2005
Lease rates at the Chandler Airport vary according to parcel location and amenities. They currently have an RFP out for aviation-related development of some prime locations. The available parcels are unimproved. The asking rates for these parcels are $0.18 - $0.21 per square foot per year. Final rates will be determined in negotiations with lessees. The airport is also offering totally undeveloped parcels at $0.13 per square foot. Lease rates are increased by CPI on an annual basis, with no adjustment to market rates. There are leases in place up to 50 years in length, including options. Industrial Land Surrounding Chandler Airport There were only two recorded sales of industrial land in the last several years. These parcels sold at a range of $3.00 to $4.00 psf.
Sale # 1. 2.
Sale Date 3/24/2003 7/28/2004 Wtd. Average
Acres 3.1 2.6 2.85
SF land 135,036 113,331 124,184
Sale Price $410,000 453,024 $431,512
$/Acre $132,258 174,106 $151,355
$/SF Land $3.04 $4.00 $3.47
The current lease rate indicates a 5% return on comparable land values. Williams Gateway Airport Lease rates at the Williams Gateway Airport are based upon negotiation with lessees, although the Business and Properties Coordinator stated that if they did use a formula to determine rates, it would be about 10% of land value. All parcels have airfield access—there is no differential premium for location. Staff noted that there is no infrastructure for non-airfield property. The airport’s lease rates range from $0.20 - $0.25 per square foot per year for the older leases, up to $0.43 to $0.45 for the newer leases, and $0.43 is their current starting price. Rates are increased by CPI every 3 years, and there is a 10-year increase based on appraisal. Glendale Municipal Airport – Phoenix Area Glendale Municipal Airport’s lease rates vary according to location and whether or not infrastructure is provided. The quoted lease rates are: $0.21/sf/year – Premium parcel w/ infrastructure $0.18/sf/year – Premium parcel w/out infrastructure
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Falcon Field Market Lease Rate Analysis $0.16/sf/year – Non-premium parcel w/ infrastructure $0.13/sf/year – Non-premium parcel w/out infrastructure $0.08/sf/year – Non-developable parking apron
October 19, 2005
Lease rates are adjusted every three years based upon CPI. And a study is conducted every five years to evaluate whether prices should be adjusted according to market conditions. Industrial Land Surrounding Glendale Airport Recent sales of industrial parcels near Glendale Municipal Airport ranged from $2.50 to $5.00 and averaged about $3.66 psf.
Sale # 1. 2. 3. 4. 5. 6. 7. 8. 9. Sale Date 2/19/2003 4/10/2003 8/14/2003 9/8/2003 10/27/2003 2/27/2004 4/2/2004 4/28/2004 5/28/2004 Median Average Acres 5 3.444 2.946 2.495 3.461 3.357 4.153 4.482 4.8 3.46 3.79 SF land 217,800 150,020 128,328 108,682 150,761 146,230 180,905 195,220 209,088 150,761 165,226 Sale Price $633,798 $524,559 $300,000 $489,150 $723,739 $746,000 $662,516 $500,000 $868,536 $633,798 $605,366 $/Acre $126,760 $152,311 $101,833 $196,052 $209,113 $222,222 $159,527 $111,557 $180,945 $159,527 $159,596 $/SF Land $2.91 $3.50 $2.34 $4.50 $4.80 $5.10 $3.66 $2.56 $4.15 $3.66 $3.66
The current lease rates indicate a 5% to 7% return on comparable land values. Phoenix Deer Valley and Sky Harbor Airports There are no ground leases in place at Deer Valley Airport for unimproved land. The airport has only two FBO’s and in both cases the airport leased the improvements and the land. The airport owns most of the hangars at the airport, and leases them out itself. However, CBREC spoke with Paul Blue, the Deputy Aviation Director, Business & Properties at the Sky Harbor Aviation Department, who manages more than 1,600 leases at the Deer Valley, Goodyear and Sky Harbor Airports. Mr. Blue provided some general information about leasing policy and rate guidelines at all of the airports. In pricing lease rates for unimproved land, the Department looks at comparable properties around the airport, and sets lease rates at a 10% annual return on the estimated value. If appropriate, they assess a 25% - 50% premium for runway access. In terms of adjusting rates, the Department most typically uses a mechanism based on CPI, although these mechanisms vary widely. Only in one existing lease are there provisions for
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Falcon Field Market Lease Rate Analysis
October 19, 2005
increasing a lease to market rates based on appraisal. The Department would only be interested in using this type mechanism for very large leaseholds. Finally, for FBO-type operations, the Department prefers lease terms of 25 years in length or less because it is nearly impossible to enforce quality of service provisions on ground leases, and they believe that shorter lease terms create competition and improves the quality of service provided by all lessees. Lease terms of 50 to 60 years are allowed for developments outside the “Fence”, since they are not likely to be affected by changes in airport operations over time. Industrial Land Surrounding Deer Valley Airport There have been 35 sales of industrial parcels near Deer Valley Airport since 2003, at an average price of $9.13 psf. Recent sales ranged from $6.33 to $30.81psf.
Sale # Sale Date Median Average Acres 1.67 2.05 SF land 72,571 89,485 Sale Price $714,647 $817,330 $/Acre $381,155 $397,866 $/SF Land $8.00 $9.13
At a 10% rate of return, these land values indicate lease rates of $.80 - $.91/sf/year at the Deer Valley Airport, excluding any premium for runway access.
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Falcon Field Market Lease Rate Analysis Oakland County International Airport /1 – Oakland County, Michigan
October 19, 2005
Lease rates at the Oakland County Airport, near Detroit, are based on historic rates which are increased by $.01/sf/year every two years. This is currently their only mechanism for increasing rates, although they are considering switching to annual adjustments based on the Consumer Price Index (CPI). Lease rates vary according to parcel location and access, although the airport is considering switching to a standard fixed rate for all parcels.
•
The standard lease rate is $0.22 per square foot per year. This type parcel has runway access but no highway access (NW corner parcels). Premium parcels are priced at $0.25/sf/year. This type parcel has both runway and “main thoroughfare” access (commercial exposure on a busy road). The most expensive parcels are at $0.28/sf/year. These parcels are at the intersection of two busy streets.
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Industrial Land Surrounding Oakland County Airport There were no comparable industrial land sales within close proximity, as the area surrounding the airport is mostly state land/park, residential and commercial use. Within 10miles radius, industrial land parcels went for an average price of $3.37 psf.
Sale # 1. 2. 3. 4. 5.
Sale Date 8/7/2003 1/29/2003 9/1/2003 5/25/2004 3/23/2004 Median Average
Acres 2.81 4.62 9.59 3.38 3.93 3.93 4.86
SF land 122,404 201,247 417,567 147,233 171,000 171,000 211,890
Sale Price $582,000 262,500 1,500,000 $480,000 $747,500 $582,000 $714,400
$/Acre $207,117 56,818 156,478 142,012 190,417 $156,478 $146,863
$/SF Land $4.75 $1.30 $3.59 $3.26 $4.37 3.59 3.37
The current lease rates indicate a7% to 9% return on comparable land values.
/1 Note: ‘international’ is not a real accurate description for the airport because there is only one commuter that flies 10 miles to the east across the river/lake to Canada. It is a local personal aircraft/becoming a business type corporate jet/small cargo airport.
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Falcon Field Market Lease Rate Analysis Auburn Municipal Airport – King County, Washington (near Tacoma)
October 19, 2005
Lease rates at the Auburn Municipal Airport are a flat rate of $0.26 per square foot per year for unimproved parcels, and $0.41/sf/year for improved parcels. They do not charge a premium for location, although the Airport Manager stated they should charge a 12-20% premium for parcels with road frontage and runway access. The unimproved parcels do not have infrastructure, and would require water, power and streets before being developed. Lease rates are based on an MAI appraisal, which derived rates with a simple formula based on commercial property rates surrounding the airport. They used 50% of the average commercial rate, plus a small factor of approximately 10%. The airport manager did not feel this simple formula was adequate. Industrial Land Surrounding the Auburn Airport The area around the Auburn Municipal Airport includes Federal Way/Auburn and Kent Valley industrial sub-markets. There have been 7 sales since 2003, at an average price of $4.95 psf.
$/SF Land $3.82 $4.00 $2.90 $6.00 $6.16 $8.07 $2.86 $4.00 $4.95
Sale # 1. 2. 3. 4. 5. 6. 7.
Sale Date 6/12/2003 12/4/2003 12/12/2003 6/29/2004 8/31/2004 9/30/2004 12/15/2004 Median Average
Acres 1.50 1.66 3.17 1.95 4.17 3.00 3.22 3.00 2.67
SF Land 65,340 72,424 138,085 84,966 181,710 130,807 140,024 130,807 116,194
Sale Price $249,700 $290,000 $400,000 $509,796 $1,120,000 $1,055,135 $400,000 $400,000 $574,947
$/Acre $166,467 $174,426 $126,183 $261,353 $268,489 $351,372 $124,436 $174,426 $215,521
Land prices have and continue to rise significantly over the past year due to a newly completed expansion at the Port of Tacoma. Land has become a hot commodity for developers and investors throughout the Puget Sound area.
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Falcon Field Market Lease Rate Analysis
October 19, 2005
Van Nuys Airport - Los Angeles, CA The Van Nuys Airport is currently in negotiations with most of its lessees to renegotiate rates. Below are some recently settled rates, which staff described as a representative range:
• •
$0.36/sf/year ($16,000 / acre / year) $0.57/sf/year ($25,000 / acre / year)
Variations in rate represent differential access to runway areas, street access, visibility and size of leasehold. Final rates are determined in negotiations with lessees, but rates are based on appraisals for land value only. Most of the leases are still at 1990 rates, around $14,000/acre/year. Rates are adjusted annually by CPI only. Industrial Land Surrounding Van Nuys Airport The industrial land parcels in this area have sold as high as $98.50 psf for a very small parcel, but at an average price of approximately $24 psf.
$/SF Land 56.73 22.07 28.04 10.41 98.50 28.04 24.16
Sale # 1. 2. 3. 4. 5.
Sale Date 10/7/2003 11/25/2003 7/8/2004 3/28/2005 4/27/2005 Median Wtd. Average
Acres 0.25 0.52 1.31 1.78 0.15 0.52 0.80
SF land 11,000 22,433 57,063 74,418 6,599 22,433 34,303
Sale Price 624,000 495,000 1,600,000 775,000 650,000 650,000 828,800
$/Acre 2,466,403 961,165 1,221,374 436,128 4,276,316 1,221,374 1,034,190
The airport lease rates indicate a 2% average return on comparable land values.
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Falcon Field Market Lease Rate Analysis Ontario Airport – Ontario, CA
October 19, 2005
The standard lease at the airport includes a 5-year adjustment to market value, and annual increases based on CPI. The airport is currently working to implement the annual rent increases, but does not have them in place on all leases. Lease Rates at Ontario Airport
Land Type Industrial Airport Land Unrestricted – Unpaved Unrestricted – Paved for Vehicles Unrestricted – Paved for Aircraft Approach Safety Zone (unpaved) Runway Protection Zone (w/ potential for surface lease) Runway Protection Zone Airport Land E. of Haven Street – “Calif. Commerce Center” Land w/ Commercial Potential Land w/ Industrial Potential Industrial – Approach Safety Zone Rate / SF $0.50 $0.83 $1.15 $0.42 $0.37 $0.27 $0.55 $0.52 $0.45
Industrial Land Surrounding Ontario Airport There have been 13 sales of industrial parcels near the Ontario Airport with a median sale price of about $8.32 psf.
Sale # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Sale Date 6/10/2003 1/30/2004 4/30/2004 5/21/2004 6/16/2004 6/24/2004 6/30/2004 7/27/2004 8/4/2004 8/25/2004 8/4/2004 9/13/2004 10/15/2004 Median Average Acres 0.99 2.00 3.36 3.35 2.49 3.10 0.37 4.00 0.52 0.32 0.52 1.24 4.33 1.39 1.86 SF land 43,124 87,120 146,400 145,860 108,464 135,036 16,036 174,240 22,500 13,939 22,500 54,014 188,615 60,548 80,960 Sale Price 310,000 1,400,000 600,000 780,709 2,590,000 1,174,000 613,000 1,450,000 183,000 140,000 160,000 527,500 1,400,000 613,000 871,401 $/Acre 313,131 700,000 178,524 233,153 1,040,161 378,710 1,665,308 362,500 354,308 437,500 309,777 425,407 323,326 370,605 380,940 $/SF Land 7.19 16.07 4.10 5.35 23.88 8.69 38.23 8.32 8.13 10.04 7.11 9.77 7.42 8.32 8.75
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Falcon Field Market Lease Rate Analysis Long Beach Airport – Long Beach, CA
October 19, 2005
The Long Beach Airport uses appraisals to determine land values and lease rates. The airport calculates rates based on an 8.5% return on land value. Highest and best use is determined for each parcel; land values and lease rates are subsequently calculated based on this use. Runway and or street access are significant factors that go into the appraised value as well. The appraised highest and best uses for most parcels at the airport are industrial or business park uses. For example:
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$1.56/sf/year – Chevron station $0.61/sf/year – Business park
Rates are increased annually according to CPI, and adjusted every five years to market: Industrial Land Surrounding the Airport There were 12 sales of industrial land within 5-miles of the Long Beach Airport. These parcels sold at prices up to $30 psf with an average price of about $16 psf.
Sale # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Sale Date 6/13/2003 9/18/2003 12/23/2003 12/17/2003 2/19/2004 2/26/2004 7/1/2004 7/21/2004 10/18/2004 10/21/2004 1/3/2005 1/14/2005 Median Average Acres 0.80 3.82 2.20 1.80 0.73 3.77 0.87 1.70 1.33 0.46 0.54 1.33 1.33 1.61 SF land 35,000 166,552 95,830 78,408 31,640 164,221 37,800 74,052 57,935 20,037 23,522 57,935 57,935 70,244 Sale Price 405,000 2,690,500 1,437,500 1,126,000 470,000 2,475,000 575,000 700,000 925,000 585,436 780,000 1,305,000 852,500 1,122,870 $/Acre 504,045 703,673 653,439 625,556 647,026 656,499 662,595 411,765 695,489 1,272,687 1,444,444 981,203 656,499 696,314 $/SF Land 11.57 16.15 15.00 14.36 14.85 15.07 15.21 9.45 15.97 29.22 33.16 22.53 15.14 15.99
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Falcon Field Market Lease Rate Analysis Torrance Airport – Torrance, CA
October 19, 2005
Lease rates at Torrance Airport include a base rent and percentage rent (often 9-10% of gross receipts), which vary from lease to lease. Base rents quoted by the Airport Property Manager for two parcels are:
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$0.27/sf/year ($1,000/acre/month) – Aeronautical uses $1.65/sf/year ($6,000/acre/month) – Lowe’s Hardware
Rates for aeronautical uses (FBO’s and hangar uses) are lower than for commercial (nonaviation-related) uses, because of restrictions on the allowable uses, and because the commercial lessees are more profitable. All rates are adjusted by CPI annually, but only the commercial leases have 10-year increases to market value as well. All aviation-related parcels (“inside the fence”) have both street and runway access, so there is no rent differential. Rates for these parcels are below market value for the land, in order to retain the aeronautical tenants. Historical rates are used, and are increased by CPI only. For the commercial parcels “outside the fence,” rates are based on land values, which are determined by appraisal. The airport calculates rates based on return on value rates from 6 – 8% of land value per year. Commercial lessees include car dealerships, shopping centers and a Lowe’s Hardware. Staff also stated that their “inside the fence” lease rates are lower than at some other airports because of a prohibition against selling jet fuel, preventing jet traffic and noise, but also restricting the types of lessees they might attract. Finally, the airport staff is negotiating new leases of 30- 40 years in length from final phases of construction. Industrial Land Surrounding Torrance Airport The industrial land parcels in varied from 1-acre parcels to 2.5 acres, which sold at an average of $20.85 psf.
Sale # 1. 2. Sale Date 11/25/2003 4/22/2004 Average Acres 0.91 2.52 2.28 SF land 39,501 109,800 99,174 Sale Price 600,000 2,910,000 1,755,000 $/Acre 661,667 1,154,441 908,054 $/SF Land 15.19 26.50 20.85
The current lease rates for “outside the fence” land is approximately 8% of comparable land values.
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Falcon Field Market Lease Rate Analysis
October 19, 2005
QUALIFICATIONS
Founded in 1978 as Sedway Group, CBRE Consulting is a nationally recognized full-service real estate and urban economics consulting firm. CBRE Consulting is a subsidiary of CB Richard Ellis, the world’s largest real estate company. CBRE Consulting provides clients with market assessments, financial projections, and economic analyses based upon extensive experience with all facets of real estate and its place in the economy. Our services include the following major real estate consulting areas: Market Research and Analysis-Market supply and demand projections, highest and best use studies, tenant mix studies, product and pricing recommendations, development strategies. Financial Analysis-Pro forma projections, due diligence, financial modeling, financial and development feasibility studies, land residual analysis, transaction structuring. Real Estate Strategy and Asset Management-Asset evaluation and positioning, acquisition and disposition strategies, strategic business plans, portfolio review, negotiation support, RFP/RFQ preparation and developer selection. Economic Development and Redevelopment-Community-based economic development, neighborhood and commercial revitalization, business attraction and retention, economic base and target industry analyses, public/private ventures, military base reuse. Valuation Services-Narrative appraisals for financing, valuations for strategic business planning, appraisal review, appraisal process management. Economic and Fiscal Impact-Economic analyses, fiscal impact analyses, economic multiplier studies. Negotiation and Public Private Partnerships-Analysis and structuring for public and private sector clients. The principals of CBRE Consulting have extensive experience in assisting cities, counties and other public agencies in asset management strategies involving long-term ground leases. We have worked with the Los Angeles County Department of Beaches and Harbors, The Los Angeles World Airport Authority, the Los Angeles MTA and numerous school districts.
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