““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
Hangar Trends: Turn hangars into investments
You most likely think of a hangar as a place to be rented by the month to protect an aircraft from high winds, hail and paint-blistering sun. Hangars, however, can also be investments, and investment options have grown to include condominium-style arrangements and, more recently, long-term prepaid leases.
Among the benefits of these new alternatives are that the property is already developed, and you can invest without the headaches of building and managing a stand-alone facility. An investment hangar also may allow for subleasing when you don't need it for your own airplane or even as a headquarters for an aviation-related business.
The ultimate benefit of condominium hangars and long-term prepaid hangar leases is that you're buying an asset that you can resell, assign and depreciate for tax purposes. An ordinary rental hangar's return on investment is solely the protection of the contents, and while that is important, the possible return from a lease or condominium deal may be worth much more in the long term.
Here's a look at three companies whose hangar projects can serve as investment vehicles. While many developers sell hangars that can also be investments, these are unusual because of the fuel arrangements, lease terms or management policies.
One of the earliest developers of condominium-style hangars was The Ribeiro Companies, which built the first Quail Air Center adjacent to Las Vegas' McCarran International Airport. Quail Air Center is fenced off from the airport, and tenants taxi their airplanes through a security gate to reach McCarran and its runways. Hangar sizes range from 3,500 to 12,000 square feet and separate office space is available.
An interesting feature of Quail Air Center is that it operates as a nonprofit supplier of ground-support services. Quail Air Center sells fuel to tenants at a substantial discount-the savings are enough to help some frequent fliers pay for the hangar. Quail doesn't sell fuel or provide any services to transient operators flying into McCarran.
The Quail facility occupies leased land, and hangars can be purchased outright or leased from The Ribeiro Companies. With Ribeiro's approval, leaseholders can also sublease their property.
Henderson Executive Airport, seven miles to the south, offers another option to McCarran Airport. Henderson has a 6,500-foot runway, large enough for most business jets, and a single FBO operated by the airport. Ribeiro is developing two projects here-Henderson Quail Commercial Aviation Center and Henderson Quail Air Center-on 80 acres of airport property for which it holds a 50-year lease. Henderson Quail won't offer the same nonprofit FBO discount that Ribeiro provides at McCarran, but the company has negotiated substantial fuel savings from the FBO.
Hangars at the Commercial Aviation Center are under construction and scheduled to open early this spring, and these will be available for lease, with three- to five-year terms. Longer terms may be negotiated, according to The Ribeiro Companies. Commercial tenants can operate an aviation-related business from their hangars, which range in size from 4,000 to 12,000 square feet.
Construction on the Henderson Quail Air Center facility is set to begin by March. These hangars will also range from 4,000 to 12,000 square feet, and will be available for lease or purchase but not for operating an airport business.
Ascend Development is investing $100 million in a new prepaid-lease hangar complex at Stewart International Airport, north of New York City. It will be Ascend's second Parkavion hangar development; the first is at Hayward Air Terminal in the San Francisco Bay Area.
Ascend's business model involves building luxurious hangars, selling long-term prepaid leases, usually 40 years, and then maintaining the facilities for the leaseholders. Any extension to the leasehold that Ascend can negotiate with the property owner, typically the airport and local government, is passed on to the leaseholder without additional fees. Ascend retains ownership of the buildings, but the leaseholder would have to pay for any renovations.
The long-term leases look attractive to some airport operators because they motivate Ascend and its leaseholders to maintain their buildings. "It brings a level of investment that airports really want," said Ascend president Gary Briggs. Many airport leases are structured so that improvements- such as buildings and landscaping-become airport property after the lease expires. Ascend retains ownership of all of its facilities, he explained. "If I have only a 20-year lease [and don't own the building], why maintain it?"
For buyers of Ascend's prepaid leases, the cost of the lease represents an investment and the risk involves whether the value of that lease will appreciate. Some prepaid leaseholders at Parkavion Hayward received offers of 20 to 25 percent above the selling price just two years after they purchased, according to Briggs. "New airports are not being built and land is scarce," he said. "I think demand is going to continue to increase."
Ascend's minimum prepaid lease term is 40 years, and leaseholders can sublease or sell their remaining term at any time.
At Stewart, Ascend signed a 40-year lease with options to extend on as much as 34 acres on the northwest side of the airport. While Stewart is 68 miles and about a 90-minute drive from New York City, Ascend's research showed that strong demand exists for hangar/office space in a location that is that far from a major metropolitan area. Stewart is attractive because the cost of living is low for flight and maintenance crews based there. And when the airplane is needed by principals located in New York, pilots can fly to nearby airports, such as Teterboro or White Plains, to pick them up. Briggs is aware of the cost involved to fly deadhead legs to pick up passengers, but the lifestyle benefits for employees and the reasonable price of hangar space at Stewart make up for that, he said.
The raw-land cost at Stewart is about 10 percent of what it is at airports nearer New York City, Briggs said. The preconstruction price for a Parkavion hangar at Stewart is $195 per square foot. A hangar large enough to accommodate a Gulfstream GV will cost about $2.3 million. You can add office space for an additional charge. Ascend won't begin construction at Stewart until it fills 40 percent of the first-phase space. Once that happens, finalizing plans and obtaining permits should take about six months, followed by about a year of construction. Ascend is targeting April or May for groundbreaking of the first phase at Stewart. The next Parkavion facility is planned for Austin, Texas.
One feature that Ascend doesn't offer is fuel service. As at Parkavion Hayward, the airport's FBO provides all fuel and other ground services, because Ascend doesn't want to compete with FBOs. "FBOs love the idea," Briggs said. "We're bringing them a whole slew of customers without them having to invest in new buildings."
Opened in mid-2006, the $33 million Premier Jet facility at McClellan-Palomar Airport in Carlsbad, Calif., combines prepaid hangar leases with a full-service FBO. While McClellan- Palomar is too small for the largest business jets, with just 4,600 feet of runway, the county airport division plans to add 1,100 feet to the landing strip to make it more attractive as a business aviation alternative for the San Diego area.
Premier Jet covers 15 acres and includes 19 hangars that the company sold on a prepaid-lease basis. Because it is the FBO, Premier Jet can offer special fuel pricing to tenants, and it does so on a cost-plus basis that varies depending on the volume purchased. Hangar leaseholders can sell or sublease their property, just as those at Parkavion can; however, Premier Jet buyers can also operate any type of business from their facility, not just aviation-related enterprises.
With the high amount of traffic flying to San Diego-area airports, strong demand exists for hangar space. Premier Jet created a service where space is rented to transient or local aircraft when the leaseholder doesn't need it.
In July 2006, hangars at Premier Jet were selling for $235 per square foot and office space for $225 per square foot, with 30-year lease terms. Premier Jet has an option for a 10-year extension to its 30-year lease with the county aviation division that owns the airport.
Jeff Ross, one of the partners who helped develop Premier Jet, said he would consider the prepaid lease concept at other airports, but that depends on the facility owners' willingness to sign long-term leases with property developers, something that many airport officials hesitate to do.