Hangar lease issue at rest until September 2024

And just like that, it was all over.

With a single vote, the City Council brought the contentious issue of ground leases for general aviation hangars at the Boulder City Municipal Airport to a close. At least until September of 2024 when ground leases on an additional dozen hangars will expire and should, if the city hews to the current plan, offer an extension.

(“Single vote” is a bit of poetic license. All of the leases were on the agenda as a single item. But City Clerk Tami McKay asked that a couple of them be considered first and separately due to some minor differences in the length of the extensions. It was actually three votes. All were unanimous.)

Councilmember Sherri Jorgensen abstained on the first vote because it is for a hangar in which she has some personal interest. To review, Jorgensen and her husband are members of an LLC with Kyle Larsen. Said LLC owns an airplane which is stored in a hangar for which Larsen is the lessee, which means that Jorgensen has a financial interest in the lease for that hangar. In all of the discussion about the hangars, Jorgensen has disclosed her interest but this is the first time she has abstained.

There was no discussion and no public comment.

As a reminder, the hangars were originally developed under improved ground lease rates 30 years ago under 20-year leases with an option to extend the lease for an additional 10 years. Per aviation experts, the intent of these kinds of leases was to offer developers the land at a low enough cost that they could build the hangars, lease them out and make a reasonable profit over the years covered by the original lease.

Per all of the contracts, the city has the right to what is known as “reversion.” Under reversion, at the end of the lease period and any optional years, the city would take possession of the hangars which they could then lease out at much higher building lease rates.

In opting to offer 10-year extensions of the existing ground leases with an option for an additional 10 years, the city has forgone their reversion rights.

Writing in Aviation Pro magazine, Michael Hodges, president and CEO of Airport Business Solutions said that in his conversations with FAA officials, he recommended the exercise of reversion clauses. He also said that reversion clauses are standard in many kinds of commercial real estate deals and that airports “are not special” when it comes to reversion.

“The risk of letting that private hangar owner “win,” is that it will set a precedent for every other deal in the future,” he wrote. “There is no such thing as a “special deal just between us” anymore. Everybody wants to brag about the deal they made, and then everybody wants that same deal or better. The enforcement of the reversion clause on these types of tenants must be enforced diligently at airports, because these are the deals that can impact all of the larger, more substantial deals at your airport. You don’t want to be the person that your successor mentions every time a bad lease deal comes up under their watch.”

Instead of exercising reversion, as the original leases called for, the council has voted, instead, to flatten the rates for all hangars under ground leases and extended those leases.

Under this arrangement, some lessees will pay more than they have been paying and some will pay less. Those paying less are subject to a one-time extension fee that represents the savings for one year of the lease under the new rate.

To make everything more complicated, there is a separate group of hangars in which a previous version of the City Council did opt to exercise reversion rights. Those 28 hangars are now owned by the city and are leased out at higher building rates.

While almost all of the hangars approved for extension in the previous vote resulted in significant savings for the hangar lessees, with this group of hangars, all lease rates are actually increasing.