Title
Lux Air Ground Lease Agreement and Fixed Base Operator Lease Amendment (Ordinance S-44805)
Description
Request to authorize the City Manager, or his designee, to enter into a 30-year ground lease with DBRT Goodyear FBO, LLC, dba Lux Air, for premises at Phoenix Goodyear Airport. Further request authorization for the City Manager, or his designee, to amend the existing Fixed Based Operator Lease Agreement 138997 (FBO Lease) with Lux Air so that it expires on the same date as the ground lease. The ground lease and amended FBO Lease may contain other terms and conditions deemed necessary or appropriate by the City manager or his designee. The combined rent through the terms of the ground lease and amended FBO Lease will be approximately $5,316,706, not including CPI adjustments.
Report
Summary
Under the FBO Lease, Lux Air currently leases approximately 418,655 square feet of land for the purpose of operating an FBO at Phoenix Goodyear Airport. Lux Air wants to expand its services and to invest approximately $6 million to construct new aircraft storage hangars. Under the ground lease, Lux Air will lease approximately seven acres of undeveloped land near its existing FBO facility. When the ground lease expires, ownership of all hangar improvements will be conveyed to the City.
The FBO Lease will be amended to extend its term to coincide with the expiration date of the ground lease and to replace the existing minimum annual guaranteed rent with a ground rental rate. After construction of the hangar improvements is complete, a legal survey will be conducted and the square footage of the premises and rent under the ground lease will be adjusted accordingly.
Contract Term
The term of the ground lease is 30 years and will begin on the date Lux Air has beneficial occupancy of the hangar improvements or 18 months after the effective date of the ground lease, whichever occurs first. There are no options to extend the term of the ground lease. The FBO Lease will be amended to extend its term to expire on the same date as the ground lease.
Financial Impact
Rent for the first year of the ground lease will be approximately $82,328. Rent will be adjusted annually according to the Consumer Price Index (CPI).
The rental rate for the ground lease will be $0.12 per square foot per year for the first 20 lease years. Rent for the first 20 lease years of the amended FBO Lease will be approximately $50,238. Beginning on lease year 21, the rental rate for the ground lease will increase to $0.44 per square foot, plus applicable taxes. Rent will be adjusted annually beginning in lease year 22 based on the CPI, but a CPI adjustment shall not exceed 2.5 percent for any lease year. Rent shall not be adjusted down or go below the previous year's rental rate.
Currently, the revenue received annually under the FBO Lease is $50,000. The combined rent through the terms of the ground lease and amended FBO Lease will be approximately $5,316,706, not including CPI adjustments.
Concurrence/Previous Council Action
This item was recommended for approval by the Downtown, Aviation, Economy and Innovation Subcommittee on June 6, 2018 by a vote of 4-0.
Location
Phoenix Goodyear Airport, 1658 S. Litchfield Road, Goodyear, Ariz.
Council District: Out of City
Department
Responsible Department
This item is submitted by Deputy City Manager Deanna Jonovich and the Aviation Department.