City to extend low-rate leases on hangars

Issues surrounding the Boulder City Airport playing a role in many of the most contentious stories about city government over the past several years is nothing new.

Issues regarding the airport were part of why a former city manager and city attorney were fired by a previous city council, which resulted in a nearly $1 million settlement earlier this year. And the controversy continued this week as the city council considered what to do about hangars at the city-owned facility.

Nothing about the current hangars —including who owns them —is completely clear, an issue addressed directly by Rod Woodbury, a former Boulder City mayor and the lawyer representing a group of hangar tenants. Referring to a settlement for $153,000 approved without discussion or public comment as part of the consent agenda earlier in the evening, Woodbury noted that, “If they were crystal clear, we would not have on the consent agenda tonight Rob Martin getting over $150,000 because that’s what happens. He didn’t agree and he litigated. I’m not saying everyone would litigate but some owners would litigate if they feel strongly about it or if they have the wherewithal to do it. That’s not what we want.”

While there has been an airport in Boulder City since the mid-1930s, the Municipal Airport, which is south of the original airport site, did not open until 1990. The city did not build hangars but they did lease land to developers that would be used for hangar construction. The leases were for a period of 20 years with an option for an additional 10 years. Notably, the lease terms state that at the end of the initial period and any options, the hangars that were built reverted and became property of the city.

Those leases began expiring in the past couple of years and, at the direction of former councilmembers, reversion clauses began to be exercised and the city began leasing some of the hangars —which they now own —for market rate which is about five times what the average tenant is paying for a land lease. As more leases expire, pressure has built from a group of tenants called the Boulder City Airport Association, represented by Woodbury for the city to further extend the original leases at something close to the current rate instead of charging market value.

City Manager Taylour Tedder introduced the subject to the council after several current tenants urged the council to extend the current leases during the public comment period.

“In the past, the municipal airport leased undeveloped airport property to developers to construct airport storage hangars,” Tedder said. “The tenants were provided ground leases with an initial term of 20 years with a 10-year option. After the hangars were developed, the ground leases were subdivided and assigned to different individuals. There are 111 general aviation hangars on ground leases at the airport and these ground leases expire over the next five years. We have 12 expiring Sept. 27 of this year, nine on Oct. 27 of this year, 16 expiring Nov. 6, 12 expiring Sept. 12 of 2024, and then 62 expiring Nov. 20 of 2028.

“The lease agreements do indicate that once the leases expire, the land improvements become the city’s property, however, per staff research, extension is possible.”

A former version of the city council directed staff to get a third-party appraisal, which was done in November of 2022. Appraisals came back at $5.71 per square foot per year gross and $4.64 triple net rate. (Under a gross rate lease, the city would be responsible for the maintenance of the hangers while on a triple net lease, maintenance is the responsibility of the tenant.) Council directed staff to move forward with new lease options at the gross rate for a period of three years with an option for an additional two years. In March, staff presented an additional option of deferring leases. Tenants presented their proposal at that time. “Council determined more time was needed to explore options and work with the tenants. Council directed staff to extend leases expiring in April and May for six months,” Tedder said.

City staff and the tenant group represented by Woodbury worked together with the appraisal company and the end result was for a rate of $2.59 per square foot on a lease where the council had exercised the reversion option and as low as 38 cents per square foot for land only, not accounting for already installed utilities.

Two items influence all of this. First, the FAA advises that leases on hangars not be for any period longer than 50 years. That agency also requires that municipal airports that receive federal funds should be as self-sustaining as possible and that leases and rentals are at fair market value. Staff, in their report, said that the $2.59-per-square-foot rate would bring in enough revenue for the airport to qualify as self-sustaining.

As explained in the meeting, using a hangar size of 1,085 square feet, the average tenant is currently paying about $46 per month or $553 per year. Under the proposed new rate, that same hangar would rent for $234 per month or $2,810 annually.

Council was presented with two options, the first would be to extend the current leases at the market rate of $2.59 per square foot. The second option would be to enter into new leases as the old ones expire. If that option were chosen, state law requires that an RFP process take place with potential users bidding for the space. There is an exception to that law if the total area is less than 25,000 square feet, it is leased to a single person and not for more than three years with an option for an additional two years.

The group, represented by Woodbury, is asking for a rate of no more than 77 cents a square foot with a one-time extension fee of $4.50 per square foot to be paid. As Tedder noted in his presentation, “The pro of this approach is that the current tenants would be happy. The con is that this would open the city to lawsuits alleging discrimination by the 28 tenants who currently pay market value.”

Tedder also noted that this approach would also drive down fair market rate for undeveloped land that the city intends to lease to developers for more hangars. There is currently a waiting list to lease a hangar at the airport.

When Woodbury made his presentation, he included a list of what he called the mutual goals of the BCAA and the city which listed as one item, “reducing conflicts, including LAWSUITS.” which was on the presentation slide in all caps.

Woodbury alleged that the root issue is that city staff (per instructions from the council in 2021) assumed reversion and used that number in the budget claiming that, without reversion and the higher rate, the airport would be bankrupt. He noted that the group he represents is OK with reversion as long as it’s down the road. Up to 20 years down the road.

Councilmember Sherri Jorgensen, who had to disclose at the beginning of this discussion that she and her husband are members of an LLC with another party and the LLC owns a plane and leases a hangar, gave a long statement that she read from the dais. She noted that the city attorney had advised her that she did not have to recuse despite this entanglement.

“We don’t want to be Henderson,” she said, asserting that, “local pilots do so much for our youth.”

She continued, “This is Boulder City. This is what we pride ourselves in. Knowing and caring about our community and giving back to it. When the airport becomes simply grounds for making revenue, many of these things get lost. We need only to look over the hill to see the end-result and ask ourselves if this is the direction we want to head.

“We don’t have to solve all of the airport’s woes with this one decision. We need to decide, what kind of airport do we want. Do we want out airport to be reflective of what we see over the hill or do we want it to reflect our present values?”

After nearly three hours, the council opted to go against the advice of staff and not exercise their reversion rights and continue to extend the current leases for 10 years with an option for an additional 10 years. The actual rate of the extended leases as well as the fee to be paid for the extension will be on the agenda at a future meeting.

NOTE: After print publication of this story, a representative of the city pointed out that the 28 tenants leasing hangars that the city owns after exercising their reversion rights actually pay a rate based on the appraised value as is required by state law. Because the old leases ended and the city opted to exercise their right to assume ownership of the actual hangars, these are new leases and Nevada law requires that new leases be at appraised value. However, in the meeting, Tedder used the term “market value.” The market value as determined by a study was presented as being $2.59 per square foot annually. The tenants of those hangars currently pay the appraised value which is $4.56 per square foot annually.

Also, the current rate being paid by the tenants of the 111 hangars that have leases which expire soon was presented as the average that was quoted in Tedder’s presentation. The $46 per month figure used was the figure used in that presentation and is an average. But there is a range. The tenants of those 111 hangars currently pay between 40 cents and $1.36 per square foot annually.