Purchase Hangar with ground lease?

[dans2992]

So, I'm considering purchasing a 40x30 hangar from a developer at Falcon Field in Mesa, AZ. Apparently, the land is "leased" from the city until 2056. I've purchased real estate before, but nothing with a "lease" component like this. What typically happens in these arrangements? Upon expiration the city just comes in and takes it away from you?

This would mainly be an investment. I have my plane at a city-owned hangar with waaaay below market pricing. Waiting list is years and years for city hangars. Not sure if, money wise, this is a good "investment" or not.

Any thoguhts? Suggestions? I'm thinking I can probably only get one plane in a 40x30... well maybe if 2nd plane is a cub or something......

 

[Doc Holliday]

At the end of the lease the hangar reverts to the city.

Some leases have clauses for extensions, read it carefully. Also, the lease will state what's allowed and not allowed.

 

[midlifeflyer]

You will find that ground leases are very standard at airports. It is part of the grant assurances for federal funding. They tend to be long term. Suggestion: read the lease. How long? Is it long enough for a return in your investment? Does it have renewal options? What does the reversion clause say?

pretty decent article here. Your specific situation should be individually examined.
https://www.aopa.org/news-and-media/all-news/2019/march/pilot/for-the-record-ground-control

 

[dans2992]

Thanks. That’s useful info....

Does anyone know what happens, generally with hangar rent for city hangars at an airport? Does it usually stay significantly below what “market rate” would be in a free market situation? (Currently, there is a 5 year waiting list for T-hangars... at $240/mo, which is way cheaper than what I’d imagine the free market rate would be..)

Maybe this is another situation or “how to make a million dollars in aviation....”

 

[Clip4]

The airport controlled hangar rent increases at the determination of the airport authority or local govt. It is hard to establish what the free market rate is because the airport will also have revenue from the fuel which is not a free market price.

 

[dans2992]

I’m assuming that the 5 year waiting list is indicative that the hangars are “underpriced”.

Maybe not?

 

[Scott Mitchell]

Or supply isn’t adequate. Obviously there is still land available to be developed, but someone has to take that initiative and whatever controlling govt needs to allow it.

I’m assuming that the 5 year waiting list is indicative that the hangars are “underpriced”.

Maybe not?

 

[dans2992]

Or supply isn’t adequate. Obviously there is still land available to be developed, but someone has to take that initiative and whatever controlling govt needs to allow it.

There are no hangars available anywhere in town, but once you get to the top of the waiting list, they’re like $250/mo. I’m wondering if people would pay a premium on a month to month basis to get a hangar _now_ while they’re waiting on the wait list...

 

[mandm]

You have to read the contract carefully. I have read a few contracts and saw clauses that the fees increase every few years, another said that the ground lease has one renewal period, another said that the airport buys the hangar back from the owner for $1, another said that the owner is responsible to remove the hangar from the land at the end of the ground lease (could be a liability/debt for you).

I have looked at a couple hangars and contacted the airport management who said they would just negotiate a new extension (at a higher rate of course). That is not a guarantee and I guess just depends upon the current environment at that time. Who knows what will happen in 2056? This is a risk, unfortunately.

Another question is, how much are you talking for a 40x30 hangar? And what are the annual fees? Most that I saw would run a T hangar ground lease at least $100-150/month. Your deal now at $250 is good and probably just stick with that. Location is key too - which one do you prefer? I mean if it had a nice bathroom, lounge, etc then maybe it’s worth the risk, we will probably be on our way out anyway by the time 2056 arrives.

 

[Llk]

California has had some atrocious situations develop over time on public airports where either lazy or selfish managers are wooed into creating industrial air parks.

Van nuya is one example- a developer comes in and takes over the “ground leases” and inflates them as they are for because, of course, they allege to “improve” the area. Of course the improvements are a pittance compared to the ground lease hike.

Also, a gentleman I was leasing a t hangar from was willing to sell it to me for $30k. That said, the contract from the air park had first right of refusal- so they of course snatched up the deal and hiked up my lease to $750.

Keep commercial leases away from your airports as much as possible - they will eventually shut down affordable airport space.

 

[dans2992]

So... apparently going rate for these hangars on sublet is $650-$700. While the city hangars are $220, but unobtainable with a huge wait list.....

Interesting situation... I also see a lot of them with the “token” 152 all taken apart, and the rest of the hangar filled with crap, crap, and more crap.

 

[Sinistar]

Being a newbie hangar owner just a few thoughts.

We are in a 50x35 and two high wings or two low wings may not work without high rash likelihood. We've had the skylanev and a rv4 in there with plenty of room. So I would assume single plane unless you know the 2nd is small. What plane will you be putting in there will tell the others what else will fit.

I think that's a good lease duration!! At 36yrs remaining you will be hard pressed to find a longer lease 95% of the time We have just under 80yrs left on ours which is very rare and played a big role in rent vs buy.

I'd watch out for the other costs. Up here FCM is a bit like FFZ. Parallel runways and lots of training flights and often one off the busier/est Deltas in the country. The taxes and other MAC (Metro Airport Council) fees really jack up ownership costs so we aborted buying there.

Another thing to watch for is upcoming assessments. We just had all surfaces but the runway resurfaced. So that was 50x20ft of assessment for the new asphalt. We were expecting it and budgeted (thankfully).

I hope you can get it if the price and monthly costs are reasonable!

If you're buying it just to rent to a single plane i think you'll still be pitching in money. On busier airports i found that you need to have an average of 3 units (or more) to make money.

Last thought is how you will finance if you aren't paying cash?

 

[dans2992]

I would pay cash, but running the numbers, it doesn’t seem to make sense. Cost to buy is $130k, association fees run $130/mo (which covers ground lease and upkeep of hangar doors, etc).

I hear you can lease them to someone and get $600-$650/mo. Similar size T hangars from the city are $227.

If you look around, these seem to quite often be “man caves” for older folks... not sure what will happen when they all pass on and GA inevitably shrinks... :/

No doubt you’d be “money ahead”, but.... I don’t think it competes favorably with other investment opportunities....

 

[Scott Mitchell]

This is a great thread. Learning a lot.

Anyone near Sacramento have information on Mather’s hangar situation?

 

[Sinistar]

Sorry, missed the part in your first post that this wouldn't be for your own plane so just investment purposes.

Yeah your $130k earning 7% is just over $9k/year. But that will compound and if its stock its only %15 on the gain (with risk).

Rental at $650/month minus the $150 you stated is $500/mo or $6k per year. I definitely do not think the property would appreciate enough to catch it up to the cash being invested elsewhere.

Lets say you could target to rent specifically to two RV owners (small wingspan). They should both fit. But you'd want like $800/mo to make decent cash. That would mean they'd each be charged $400 which you might not get as they just might pay $600/month for a private hangar.

Definitely think you need a multi unit rental or big huge business hangar to make good money.

 

[mandm]

130k for one hangar is a lot of money in one spot, but your management fees are awfully low, I would look into that to see if that’s temporary (new developer sales pitch that quickly escalates upon purchase or ??). I was looking at hangars myself and found a pretty nice one, a box hangar 50x60 but the annual management fee was close to $10,000 per year and the lease had about 10 years left (aka risky). The owner was taking a loss on it and it’s been sitting on the market for a good year so it’s not easy to turnover either. But again that depends on your airport and the politics of it. If it’s GA friendly it will sell quickly, if not, no one might buy it. I saw another hangar for sell, a clamshell in bad shape, for about $10,000. Again sitting on the market with no buyers, probably due to the lease being claimed back by the airport.

For investments, you want to make sure you can cash out. Rental properties would have better returns, more certainty, and you could use the profits to rent the hangar and then some. A hangar is nice to have but the numbers don’t make sense, doesn’t mean I’m not keeping my eye out for one.