With respect to aeronautical characteristics, the FAA uses the term “fair and reasonable.” Why is the FAA doing this? I think airports are unique and that the number of active operators – those who want to rent real estate in an airport – is much more limited than for real estate outside the airport. However, if you go back to the definition of market rent, you can see that many of them are still in effect. The challenges faced by aviation professionals are much greater, although some factors coincide with their cousins outside the airport. While some airports deduct their rental prices by analyzing land values outside the airport and applying a predetermined return, my experience is that this method is the exception rather than the traditional practice at airports. Nevertheless, it is still common for some airports to compare the sale of non-aeronautical assets to support the value/lease of aviation assets at the airport. However, the unique characteristics of aviation characteristics are not reasonably compared to non-aeronautical characteristics used for non-aeronautical purposes. Comparison with land values outside the airport is considered unsuitable for a number of reasons. Negotiating a lease remains one of the most difficult challenges facing airport management and tenants today. Both parties are trying to do the best business, while admitting that they will have to live with this business partner in the 20, 30, maybe even 40 years. Perhaps trying to get the last dollar out of this lease is not that important in the long run. A lease is a partnership and a partnership must be beneficial to both parties in order for it to prosper. Regardless of this, there are several new paradigms that tenants and landlords today face, as well as some of the same challenges that have existed for decades. Unfortunately, this is where the challenges begin.
Airport leasing does not take place every day. When an airport makes a new lease every 2 to 3 years, it is very busy. If you want to see a particular type of real estate in an airport – freight, FBO, corporate hangar, MRO, etc. – the time between new leases can be 10 to 20 years. For those of you who have read my previous articles, you know that I am in favour of comparing similar types and uses, as opposed to a single rate for all airport real estate. I emphasize the concept of “new lease” because there are large differences between the current recently negotiated leasing rates compared to those that have been adjusted over time by the CPI or another index to obtain the current interest rate. Although the current interest rate is set by a market rent assessment or analysis to adjust the rate to the “current market level,” there are several problems that most airports and their experts/consultants generally do not recognize.