Title
Ground Lease for Cornerstone Aviation LLC at Phoenix Deer Valley Airport (Ordinance S-50929)
Description
Request to authorize the City Manager, or his designee, to enter into a ground lease with Cornerstone Aviation LLC (Cornerstone) for approximately 69 acres of undeveloped, vacant property at Phoenix Deer Valley Airport (DVT). Further request to authorize the City Treasurer to accept all funds related to the ground lease.
Report
Summary
Cornerstone is requesting to enter into a ground lease at DVT for the purpose of constructing aircraft storage hangars for sublease and other aeronautical facilities in three construction phases at DVT with an investment of over $100 million. Phase I will be approximately 32 acres and will consist of 230 hangars. A maximum of 138 of the Phase I hangars will be T-hangars, which are appropriately sized for small aircraft; the remaining hangars are designed for medium-sized aircraft, and small corporate jets. Phase II will be approximately 15 acres and is anticipated to include a fuel farm for Cornerstone tenants and avionics maintenance facilities. Phase III will be approximately 22 acres and will include corporate hangars capable of housing large corporate aircraft, additional maintenance facilities, and access from 7th Street. Other aeronautical uses will be considered for all three phases to be approved at the sole discretion of the Aviation Director.
Contract Term
The term of the lease will be 45 years and will commence on the lease effective date. The lease will include separate development terms of up to 24 months at no rent for each phase. The development term for Phase I will begin at the lease effective date. Cornerstone will have an option to develop the Phase II and Phase III parcels within 48 months after the lease effective date. Failure of Cornerstone to commence construction on either or both option parcels by the end of the 48-month option period will result in the undeveloped parcels reverting back to the City. When construction of all three phases is complete, an additional five-year option period will be added to the lease; execution of the option period will be at the sole discretion of the Aviation Director.
Financial Impact
Following conclusion of the development term for Phase I, rent for Phase I is anticipated to be $766,656. In order to secure options to develop the Phase II and Phase III parcels, Cornerstone will pay approximately $132,967 per year for up to four years from the lease effective date. Phase II and Phase III will each have separate development terms of up to two years at no rent. At the conclusion of the development term for either phase, or when development is complete on either phase, whichever occurs first, rent for the completed phase(s) will be set at the then applicable rental rate for Phase I. All rents will be subject to annual increases per the Phoenix-Mesa-Scottsdale Consumer Price Index. Total ground rent anticipated over the contract term, including the five-year option period, is expected to be approximately $82,655,100. Additionally, the City will receive revenues from Specialized Aviation Service Operator permits of two percent of gross sales from the hangar subleases, and from fuel flowage fees which will apply throughout the lease term. Rent credits for improvements constructed by Cornerstone that benefit DVT may be applied at the sole discretion of the Aviation Director.
Concurrence/Previous Council Action
The Phoenix Aviation Advisory Board, Business and Development Subcommittee recommended approval of the item on May 2, 2024 by a vote of 3-0.
The Phoenix Aviation Advisory Board recommended approval of the item on May 16, 2024 by a vote of 6-0.
Location
Phoenix Deer Valley Airport: 702 West Deer Valley Road
Council District: 1
Department
Responsible Department
This item is submitted by Deputy City Manager Mario Paniagua and the Aviation Department.