Council finalizes new hangar ground leases

What started with a bang ended with more of a whimper as the City Council voted unanimously to approve revised lease terms on a dozen hangars at the Boulder City Municipal Airport.

After a series of requests for staff to go on the record explaining things like fair market value and how an enterprise fund works (issues which have already been extensively covered by the Boulder City Review), the council combined all of the proposed leases into a single motion and approved them without further discussion.

What was not discussed is the crux of the issue: ground lease rates versus building lease rates. Under the terms of the original leases signed 30 years ago (20-year leases with an option to extend for an additional 10 years at the same terms), the city had the right to assume ownership of the hangars at the end of the lease period and negotiate new leases based on the building and the land.

Though a previous council had exercised that option on a group of hangars whose leases expired in the past several years, this version of the council has opted not to exercise that legal right, which is known as reversion.

In a previous meeting, the council voted to flatten all of the lease rates so that everyone leasing space for a hangar will end up paying the same rate as leases expire and are then extended. This does not apply to the hangars, which the city took possession of and that rent for much higher building rates.

As these are improved ground leases, the lessees are only paying for the space under which the hangars are built as well as for basic improvements such as the installation of utility services, not for the hangars themselves.

When discussion was underway about flattening the rates, the proposal was to take the amount of money currently collected by the city for ground leases and divide that by the number of hangars to come up with a new rate.

In the initial discussion, put forward by Councilmember Steve Walton, the idea was floated to then apply a percentage increase — put forward at that time as something between 15% and 25% — and make that the new rate.

However, in the final vote, the council opted not to apply a percentage increase. If the new, flattened rate ended up being less than the city was charging under the old lease, the lessee would pay a one-time extension fee that would be the equivalent of the difference between the old rate and the new rate for one year. If the rate on the extended lease ended up being higher than under the expiring lease, there would be no extension fee.

All of the new, extended leases will come with an extension fee. Indeed, under the new lease terms, every single one of the leases of the ground under the hangars at issue right now will realize considerable savings over what they had been paying previous to the extension under new terms.

One of the hangars is much larger than the others at immediate issue and the ground under it is leased to the National Park Service. The other 11 are all leased to individuals who stand to realize savings over the 10-year lease period of more than $7,000 per lessee.

This figure was determined by subtracting both the new annual lease rate extended over 10 years and the extension fee from the amount the leases would have paid under the terms of the leases which were expiring.

These figures all come from a spreadsheet provided as part of the meeting agenda and were compiled by the city. Details on the dozen leases being extended right now are as follows (all rates are per year charges, not monthly):

Hangar 3-02; Lessee, NPS; Old rate, $6,489.69; New rate, $2,640; Extension fee, $3,858.69; 10-year savings, $34,637.

Hangar 3-04; Lessee, Douglas Holland; Old rate, $1,488.48; New rate, $600.60; Extension fee, $887.88; 10-year savings, $8,000.

Hangar 3-06; Lessee, Justin Mackie; Old rate, $1,459.76; New rate, $600.60; Extension fee, $859.16; 10-year savings, $7,732.44.

Hangar 3-08; Lessee, Thomas Buck; Old rate, $1,459.76; New rate, $600.60; Extension fee, $859.16; 10-year savings, $7,732.44.

Hangar 3-10; Lessee, Mark Leseberg; Old rate, $1,488.48; New rate, $600.60; Extension fee, $887.88; 10-year savings, $8,000.

Hangar 3-12; Lessee, Mark Leseberg; Old rate, $1,488.48; New rate, $600.60; Extension fee, $887.88; 10-year savings, $8,000.

Hangar 3-14; Lessee, Johnny Dickerson; Old rate, $1,459.76; New rate, $600.60; Extension fee, $859.16; 10-year savings, $7,732.44.

Hangar 4-03; Lessee, Dudley Pflaum; Old rate, $1,459.76; New rate, $600.60; Extension fee, $859.16; 10-year savings $7,732.44.

Hangar 4-05; Lessee, Micheal Bruno; Old rate, $1,488.48; New rate, $600.60; Extension fee, $887.88; 10-year savings, $8,000.

Hangar 4-07; Lessee, Keith Sandin; Old rate, $1,298.61; New rate, $534.33; Extension fee, 764.28; 10-year savings, $6,878.52.

Hangar 4-09; Lessee, Robert Dugan; Old rate, $1,459.76; New rate, $600.60; Extension fee, $859.16; 10-year savings, $7,732.44.

Hangar 4-11; Lessee, Chad Hesterman; Old rate, $1,459.76; New rate, $600.60; Extension fee, $859.16; 10-year savings, $7,732.44.

It should be noted that the 10-year savings figures presented here are a simplification. The new, extended ground leases all have a provision for annual increases of between 2% and 6%. If the council were to vote each year to increase rates by 2%, the total savings per lessee would come to about 10% less than the figures above. If they were to vote to increase the rate by 6% each year, potential savings could be around 30% less.

Also, all of the new leases come with an option to extend them for an additional 10 years, which would result in similar savings over the next decade, or until September of 2043.

As leases on the other hangars expire, the council has voted to extend those as well for an additional 10 years with a 10-year renewal option at the same rate offered to this group of leases.

For a full list of the expiring leases along with names of lesees and amounts due to be paid, see the online version of this article at bouldercityreview.com.