Applying the Global Airport Cities Lessons to All Airports
As the Global Airport Cities website, members, and community prove, the concept of the Airport City or "Aerotropolis" has been contemplated and, in some places, implemented for many years.
However, although many airports around the country are not currently in a position to develop a full airport city due to land, funding, or demand constraints, everyone wants to maximize revenue or "extract value" from one of their largest assets - real estate. So, what lessons can these airports take from airports cities to implement at their airports?
Public-Private Partnerships:
In general, public-private partnerships (PPPs) have the potential to utilise the airport's tax exempt status, which will decrease the cost of capital for infrastructure.
Hotels/Retail - There are many ways to form PPPs for the development of hotels or retail properties. As one example, contributing the land to a transaction at little or no cost for a period of time drives up the private developer's returns during the first few years of operation and makes the transaction more feasible. Successful hotels and retail will bring the airport income for the long-term (see "percentage rent" below), so offering a partnership in the form of incentives during the construction and formative years of the business is often a sacrifice well worth it.
Office - While speculative office tower development is still largely stalled, one area is still showing moderate activity - high visibility headquarters or 'branded' office buildings. Many companies desire not only the visibility (including signage) of an airport headquarters, but the access to major highways and hotels as well.
Parking and Consolidated RAC Functions - Private assistance in the management of on-airport parking and rental car facility functions can dramatically reduce costs while improving performance metrics. In many cases, a private firm works with airport employees to help implement best practices, including customer service, communication, and bookkeeping.
Facilities Management - The assistance of a consultant or a private partner has proven to save dollars per sqft in negotiations with janitorial and security firms, utility companies, and contractors procured for capital projects.
Percentage Rent: A lesson from many of the Global Airport Cities, percentage rent as a component of hotel, retail, restaurant, RAC, and other ground leases is an excellent way to extract value from current real estate. Percentage rent can be calculated in a multitude of ways: as a percentage of the operator's revenues, as a percentage of profit, or as a percentage of revenues over a certain "breaking point," just to name a few. Percentage rent can even be applied to industrial leases to collect a percentage of the developer's sub-lease income from tenants.
Airports of every size and situation can benefit from the best practices proven by Global Airport Cities.
We hope you'll join us in Memphis on Wednesday, April 13 to learn more during the Session B2: Mixed Land Use & Commercial Property Development Around Airports.
Kurt Little
Managing Director, Public Institutions, Jones Lang LaSalle
