Van Nuys Airport Tenants Want New Rental Rates to Reflect Less Activity

Tenants at Van Nuys Airport are looking for some relief when their landlord, Los Angeles World Airports, makes adjustments to the rental rates next year. Activity at the Valley airfield is down and many businesses located there have made spending cuts as need for their aviation-related services dropped in the poor economy. But with Van Nuys operating at a deficit and LAWA wanting the airport to be more self- sufficient there is a general feeling among some tenants that lease rates would increase to make up the shortfall. LAWA representatives, however, said that cutting costs remains a priority and will be looked at first before pursuing new revenue sources. What some tenants would like is at least a freeze on the current rates if not a reduction as property values at and around the airport – as throughout the entire Valley – have fallen. “The airport needs to be realistic,” said Clay Lacy, one of the long-time charter and aircraft management operators. “To push a raise in rent at this time is crazy.” While some newer leases will include an annual increase of 2 percent, the five year adjustment required by the city charter is based on fair market value of the property. LAWA will sit down with leaseholders to negotiate a new amount and if no agreement is reached then the appraisers get involved. Tenants will see rents change in either February or July, depending on their lease, but already some of the master tenants are taking a pro-active approach to work with LAWA on the adjustment. In October, the Van Nuys Airport Association sent a letter and a 6-page analysis on the diminished fair market value of land and buildings at the airport to a LAWA official who handles real estate. The diminished value is tied directly to the economy, property that has sat vacant for years, the increase in the fuel flowage fee, the threat of a phase-out of certain older jet aircraft, and a budget heavy in expenses, staffing and overhead. While the agency understands that businesses are suffering that will be reflected when looking at fair market value, but in the end it is the real estate being valued and not the businesses themselves, said Debbie Bowers, deputy executive director for commercial development. Because airport property values had not been artificially high before the economy tanked there is no guarantee that they will drop, Bowers said, adding that rental rates are currently being adjusted at Los Angeles International Airport and appraisals are showing an increase in fair market value. The airport association wants to finalize the adjustment before July and if no agreement can be reached is willing to work collectively on a joint appraisal for each leasehold. Whereas in past years tenants on the larger airport properties would deal individually with LAWA on rent adjustments that the master tenants have banded together reflects the seriousness of the matter. With the high end of the rental rates in the $38,000 per acre to $40,000 per acre range, even a small percentage increase means thousands of dollars. “We are in such a delicate position that if some operators got a raise they would leave the airport or close up shop,” said Bruce Ackerman, president and CEO of the Valley Economic Alliance. If appraisals are needed then it is the hope of some tenants that the general economic conditions can be taken into consideration when placing a value on property. There are also micro-economic issues that should be considered as well; issues that LAWA did a good identifying in the last appraisals but did a poor job in valuing, according to Robert Rodine, an aviation consultant with clients at Van Nuys. For instance location is of importance with parcels of lands in the middle of the airport of more value than those closer to either end of the runways. The shape of a property should be considered, and visibility to pilots. “If you cannot be seen from the runway you are going to lose business,” Rodine said. Visible or not, loss of business has been common the past year at the airport. Aircraft sales and fuel sales are down. Corporate flight departments have closed. Everyone is hurting, said Lacy, who has been at the airport for more than 40 years. “Right now there is no demand for hangars,” Lacy said. “Every airplane that wants to be in a hangar is in a hangar.” This drop in activity comes as LAWA seeks to make Van Nuys less reliant on LAX to kick in a subsidy to make up for budget deficit. The current budget projects a $2.3 million shortfall. If their rents go up there is a feeling among some tenants that LAWA is balancing the Van Nuys budget on their backs. “They are not always looking at the expense side, and they look to raising more revenues,” said one long-time leaseholder. That is not necessarily true, Bowers countered. While landing fees, another increase to the fuel flowage fee, and an airport deficit recovery charge are all possibilities the higher priority is on cutting expenses, Bowers said. “Even after the last budget cycle we are address some things on the operational side that will show some cost savings,” Bowers said.