Agenda

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C. 7

To:	Board of Supervisors
From:	Keith Freitas, Airports
Date:	March 19, 2013

Contra

Costa

County

Subject:

Consumer Price Index Rent Adjustment Waiver for the Buchanan Field and Byron Airports

APPROVE	OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR	RECOMMENDATION OF BOARD COMMITTEE

Action of Board On: 03/19/2013

APPROVED AS RECOMMENDED

OTHER

Clerks Notes:

VOTE OF SUPERVISORS

AYE:

John Gioia, District I Supervisor
Karen Mitchoff, District IV Supervisor
Federal D. Glover, District V Supervisor

ABSENT:

Candace Andersen, District II Supervisor
Mary N. Piepho, District III Supervisor

Contact:

Beth Lee, (925) 646-5722

I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown.
ATTESTED: March 19, 2013
David Twa,

BY:	, Deputy

RECOMMENDATION(S):

APPROVE and AUTHORIZE the Director of Airports, or designee, to waive the Consumer Price Index rent adjustment starting April 1, 2013, for a one-year period. (Concord and Byron Areas)

FISCAL IMPACT:

This action has no direct financial impact on the County General Fund. The Airport Enterprise Fund will not recognize additional revenue estimated at $53,000 annually based on a 3% Consumer Price Index factor.

BACKGROUND:

A primary goal of the Airports Division for 2013 is to create and implement a business retention and attraction program to strengthen and grow the Buchanan Field and Byron Airports. While the poor economy is a global condition, the aviation industry has been disproportionately impacted and will be slower to recover. The aviation market sector is limited and there is strong competition within the region to retain and attract the limited users to each airport.

BACKGROUND: (CONT'D)

Airports staff has analyzed the tenant and business loss data and competitive market rental rates to understand underlying factors for downturn in based aircraft and increased tenancy turnover at both airports; but most notably at Buchanan Field. The findings were most informative:

• 91% of tenants at Buchanan Field and 67% of those at Byron have recently vacated hangars due to cost
• 11% to 68% (depending on hangar type) of people offered a hangar at Buchanan Field and 46% for Byron declined due to cost
• 3% to 41% (depending on hangar type) of those on the Buchanan Field and 23% on the Byron hangar waiting lists asked to be removed due to cost
• 45% of a recent marketing poll respondents for a new development at Buchanan Field indicated they would decline the opportunity due to cost
• The County rental rates are higher than fair market value compared to their competitors (2011 Cost/Square Foot):

Airport T-Hangars Box Hangars Shade Hangars Tie-Down Annual Hangar CPI Increases
Buchanan Field $ 0.35 $ 0.58 $ 165.07 $ 60.00 Yes full amount
Napa $ 0.23 $ 0.51 $ 102.00 $ 40.00 AAC votes annually; no increase in last 3 years
Livermore $ 0.34 $ 0.39 $ 180.00 $ 76.00 Yes; minimum of 1.5%
Hayward $ 0.31 $ 0.31 None $ 60.00 Yes but at 75% of annual CPI amount
Nut Tree $ 0.27 $ 0.27 None $ 50.00 Yes full amount
Average $ 0.30 $ 0.41 $ 149.02 $ 57.20

Comparison to
Average 14% 29% 10% 5%


Byron $ 0.25 None None $ 40.00 Yes full amount
Rio Vista $ 0.20 $ 0.20 None $ 32.00 No(1 increase in past 5 years of $1/month)
Nut Tree $ 0.27 $ 0.27 None $ 50.00 Yes full amount
Average $ 0.24 $ 0.24 None $ 40.67

Comparison to
Average 4% Not Applicable Not Applicable -2%

- - - - - - - - -

Changes in Based Aircraft are as follows:

2010 2011 % Difference 2012 % Difference
Buchanan Field 446 447 .02% 416 -7%
Byron Airport 98 98 0% 111 12%

Many, but not all, of the airport leases and rental agreements include an annual Consumer Price Index (CPI) rent adjustment. Of those that have this increase, some include the following language: “In no event will the Ground Rent for any year be less than the Ground Rent in effect for the immediately preceding year. In the event there is a decrease in the CPI or in the fair market rental value of the Premises, Ground Rent for the year in question will be the same as the Ground Rent for the preceding year (emphasis added)”. The emphasis is on fairness and equity to best ensure that adjustments are supported by market conditions.

As indicated in the above information, the Contra Costa County fair market hangar rental rates exceed the competitive average and, as a result, are negatively affecting tenancy. A majority of hangar tenants will get a CPI rent increase on April 1, 2013, as these agreements do not include the fair market rental value language. Thus, the first crucial step in retaining and attracting new hangar users to the airports is to waive CPI starting April 1, 2013, for one year, based on the fair market rental rate comparison, in order to make our rental rates more competitive.

The CPI waiver is the first step in initiating the County’s economic retention and development program for the airports. Airports staff will work with tenants, businesses and other stakeholders to develop additional retention and attraction programs for the airports.

The Aviation Advisory Committee reviewed and supported the CPI waiver at their February 14, 2013, meeting and recommended allowing for two additional years of CPI waiver depending on the updated fair market rental valuation information at the end of each year.

On February 25, 2012, the Airport Committee of the Board of Supervisors reviewed the CPI waiver for a one-year period and approved scheduling this item before the full Board of Supervisors for their review and approval.

CONSEQUENCE OF NEGATIVE ACTION:

Will result in a majority of the airports’ tenants receiving a hangar rental and business ground rent increase; making our rates even less competitive which may prompt additional loss of tenants and associated business revenue.

CHILDREN'S IMPACT STATEMENT:

Not Applicable