Title
Enter New Ground Lease and Amend Fixed Base Operator Agreements with Cutter Aviation Deer Valley, Inc. (Ordinance S-44150)
Description
Request to authorize the City Manager, or his designee, to enter into a 30-year ground lease (Lease) with Cutter Aviation Deer Valley, Inc. for land at Phoenix Deer Valley Airport. Further request to authorize the City Manager, or his designee, to amend two current fixed base operator (FBO) agreements with Cutter at Phoenix Deer Valley Airport to extend the term of the agreements and to combine the agreements into one. Currently, revenue to the City is approximately $122,000 per year. Revenue to the City over the term of the new agreements will be approximately $11.8 million.
Report
Summary
Cutter Aviation Deer Valley, Inc., (Cutter) currently operates two Fixed Base Operations at Phoenix Deer Valley Airport, providing aircraft storage, fuel sales, maintenance services, and avionics and aviation supply sales. Cutter intends to grow the services it offers to local and transient aircraft operators through a new hangar development and improvements to its FBO facilities.
Cutter will invest not less than $5 million to construct new aircraft storage hangars that consist of approximately 60,000 square feet at Phoenix Deer Valley Airport. Cutter will also make an investment of not less than $2 million to upgrade and improve its FBO facilities. In order to allow Cutter to amortize these investments, the term of the FBO agreements will be extended 23 years. Upon expiration, ownership of all investments and improvements will be conveyed to the City. The FBO agreements will be combined into one agreement and the rental rate will be based on a ground lease at fair market value instead of the current methodology of a minimum annual guarantee. The area of the current FBO leased premises is approximately 20 acres.
Upon completion of the improvements, a legal survey will be completed. If the square footage of the leased premises is reduced, then rent will be adjusted to reflect the change and Cutter will receive a credit from the rent commencement date for the difference. If the square footage is increased, Cutter will pay to the City the difference from the rent commencement date.
Contract Term
The terms of the Lease and FBO agreement will be 30 years with no options to extend. If the leased premises are needed for airport expansion purposes, the City may terminate the Lease by giving Cutter at least 12 months' prior written notice. In that event, the City will buy out the unamortized portion of the initial investment. All other terms and conditions of the Lease and all prior amendments not in conflict with the amendment will remain in full force and effect.
Financial Impact
The ground rental rate for the new development will be $0.54 per square foot per year, plus applicable taxes, adjusted annually according to the Consumer Price Index (CPI).
The ground rental rate for the FBO leasehold and agreement will be $0.138 per square foot in the first year and will be adjusted according to the CPI at the beginning of years two through seven. At the beginning of year eight, the rate will be $0.49 per square foot per year, plus applicable taxes. At the beginning of years nine through 30, the rate will be adjusted according to the CPI. In no event will the rate be less than the rate for year nine.
Currently, revenue to the City is approximately $122,000 per year. Revenue to the City over the term of the new agreements will be approximately $11.8 million.
Concurrence/Previous Council Action
This item was recommended for approval by the Downtown, Aviation, Economy and Innovation Subcommittee on Dec. 6, 2017 by a vote of 3-0.
Location
Phoenix Deer Valley Airport, 702 W. Deer Valley Road.
Council District: 1
Department
Responsible Department
This item is submitted by Deputy City Manager Deanna Jonovich and the Aviation Department.