By Bill Dunn
From time to time, it becomes necessary to determine the current value of airport property. The reasons for obtaining current valuations may range from a desire by an airport sponsor to determine if rental rates are meeting required FAA guidance. Rates may be for actual real property such as hangar facilities, tie-downs, or simply airport owned land leased under long-term leases to others for development. Yet in other cases, a tenant at the airport currently leasing airport land or facilities from the airport may wish to validate that they are paying an appropriate rate and not overpaying.
Of course, there are other reasons to determine the valuation of airport property. Those may include, but certainly are not limited to the purchase of sale of airport improvements such as hangars, purchase of easements for fencing or access, Avigation easements, surplus property dispositions and site redevelopment and land use planning.
Under these circumstances, the parties may wish to obtain an airport property appraisal. But remember that the valuation of airport facilities and properties isn’t the same as establishing the value on the local commercial storage facility down the street from the airport. Airports are quite different in character, makeup and uses. There are numerous factors that go into establishing market value of airport property or soon to be airport properties or off-airport access to airport facilities. Local, State and FAA requirements also play a significant factor in establishing values.
There are normally three traditional models that are applied to valuations. These include what are often called “Comps” or comparable sales. Others include an income approach and a cost approach. However, when it comes to valuing airport properties, there are three primary approaches. These include 1) looking at off-airport land and applying a specific rate of return, 2) a direct comparison of other airports and 3) a cost recovery method. The latter two items are those that are most often applied to airport related facilities and infrastructure.
Direct comparison to comparable airports means finding airports that are like situated to the airport being studied. These airports should have similar locations to population densities, demographics, cost of living. They should also have similar runway configurations, e.g. single runway to single runway, matching runway lengths, FAA ATC (if it exists), similar number of FBO facilities (or lack thereof), available navaids, instrument approaches, landing fee structures (if they exist) and the application of rates and charges at the comparable airport. Remember, the goal is to find a truly comparable airport. The comparable airport may not even be in the same state as your airport.
A cost recovery process to establish rental or lease rates looks at the actual cost of operating the airport along with planning for reserves and allocating that cost among users and tenants of the airport. Cost recovery can be a much more complex process to ensure that costs are allocated fairly and equally to all users of the airport. It may also be difficult to link the cost recovery rates and charges to the true market value.
Whatever method is used to establish lease rates, an obligated airport sponsor must still ensure that they are in full compliance with both the FAA Grant Assurances and the agencies Policy of Rates and Charges.
Undertaking a valuation study can be complex process. It’s well worth the investment to see the assistance of a professional to help you in the process and avoid any pitfalls. It’s also a wise choice to engage local airport based businesses and tenants early in the process.
Next month, we’ll begin a series of columns and take a deep dive into the nuances of the FAA policy on Rates and Charges and the FAA policy on use of airport revenue.
