TECHNICAL REPORT Lee s Summit Airport Business Plan Non-Aviation Development Evaluation

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1 Business Plan September, INTRODUCTION TECHNICAL REPORT Lee s Summit Airport Business Plan Non-Aviation Development Evaluation This technical report serves as a supplement to the draft Lee s Summit Airport Business Plan. Its purpose is twofold. First, to discuss the development potential of vacant parcels located on the Lee s Summit Municipal Airport (LXT) and second, to review the feasibility of: a) closing the Airport and redeveloping the entire property, and b) relocating the Airport to a location beyond the City of Lee s Summit s (City) limits. The Performance Alternative presented in the Airport Business Plan recommends that certain portions of Airport property currently owned by the City (including parcels that are in the process of being acquired by the City) be developed for non-aviation purposes. It was stated in the Business Plan that this property, consisting of five parcels totaling 85 acres, could potentially be developed commercially or for light industrial uses that require convenient road and highway access and utilities but do not require direct airfield access. This technical report presents an evaluation of these five parcels to approximate the development and market potential of each, as well as the costs necessary for infrastructure improvements. The second issue studied during the preparation of this report centers around the issue that the City is currently experiencing commercial growth and has limited developable land. The municipal Airport contains over 500 acres of land located within the City limits that could potentially be used for this growth to occur. The City is questioning the cost and public benefit of maintaining its municipal Airport in light of the fact that it needs land to respond to demand for development that could bring jobs and increase tax revenues to the City. If the City cannot accommodate such demand, the community may be forced to send such development elsewhere, along with the numerous spin-off benefits that come with it. The real estate portion of this report was provided by a sub contractor, CB Richard Ellis and their Kansas City Industrial Team (KC-CBRE). CB Richard Ellis is the world s largest full service commercial real estate service provider. The KC-CBRE Industrial Team has a combined 70 years of industrial real estate brokerage and development consultative experience in the Kansas City metro area. This technical report will present an update to a similar evaluation of these issues completed in 2002, with a focus on legal and cost considerations. 2. DEVELOPMENT POTENTIAL OF VACANT LAND ON AIRPORT PROPERTY Figure 1 illustrates the location and acreage of five (5) vacant parcels that exist on LXT property that have the potential of future development with non-aviation uses. In addition, this figure shows the relocation and upgrade of Strother Road (Rd). The development feasibility of each parcel was determined through a review of its: R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 1

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3 Business Plan September, 2009 Topography Amount of developable land per parcel Zoning Availability of utilities Access Necessary drainage improvements Airport-related restrictions (height restrictions, clearance from existing and future navaids and weather stations or areas reserved for future airport-dependent development). It should be noted that building height restrictions are not anticipated to be a major concern within the proposed development sites. All five of the sites are located outside of the primary surface, and the 35 foot building restriction line. An FAA Airspace Analysis Form should be completed for a full evaluation to determine all potential height hazards. Also, drainage is not anticipated to be a concern for development on these properties. Based on ground contours, water flow can be redirected away from developable land towards a retention/detention area to be included if necessary, as part of the development site plan. 2.1 Analysis of Development Parcels The potential non-aviation development parcels are numbered 1 through 5 on the Airport Plan presented in Figure 1. A description of the development feasibility of each parcel is provided below. For site development, municipal water and sanitary sewer service is a necessity. Water and sewer utility service is considered on site if an existing utility line runs adjacent to the site, as shown in Figure 1. Lateral sewer and water utility connections are required for all sites, but some Parcels would also require utility extensions. The distance and cost estimate to bring the water and sewer utilities to the site is shown in Section 2.3. Parcel 1 - This parcel is a 23.6 acre site located west of the Airport. It is accessible from Strother Rd. or from an extension of Douglas Rd. The driving distance to I-470 is 2.25 miles. The site extends westward about 400 feet from the planned Airport expansion. It is zoned AG (Agricultural). There is a half-acre area with a pond and small adjoining wetlands located in the northern portion of the site. Immediately surrounding the pond, to a distance of approximately 30 feet, the grade is greater that 15 percent and therefore, undevelopable. The areas of the parcel near Strother Rd. and surrounding the pond to approximately 160 feet have a grade between 5 and 15 percent. These areas are suitable for commercial (non-retail) use. The rest of this site has a grade of less than 5 percent, making it suitable for light industrial or commercial use. In summary, approximately 17.5 acres of this parcel is developable. Water service is available on site, and a sewer extension of approximately 2,000 ft. would bring the closest sewer line to the center of this parcel. Gas is not available to the parcel. Parcel 2 This is a 3.8 acre site located north-west of the Airport. It is accessible from the planned re-route of Strother Rd. Driving distance to I-470 from the parcel is 2.1 miles. It is zoned AG. There are no wetlands in this site. The vast majority of this site has a grade of less than 5 percent except for a small portion on the east side which has a grade of 8 percent making R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 3

4 Business Plan September, 2009 it suitable for light industrial or commercial use. In summary, approximately 3.5 acres of this parcel are developable. A water line is available adjacent to the parcel, but a sewer extension of approximately 3,000 ft. would be required. Gas is not available to the parcel. Parcel 3 - This is an 11.9 acre site located north-east of the Airport. Access to this parcel would be from the planned re-route of Strother Rd. Driving distance to I-470 from the parcel is 1.7 miles. It is zoned AG. There are two wetland areas totaling 0.15 acres near the south-east corner of the site. Immediately surrounding the wetlands, to a distance of approximately 20 feet, the grade is greater than 15 percent and therefore, undevelopable. In the center of the parcel, there is a steep slope of approximately 30 percent and about 8 feet wide that runs south from the relocated Strother Rd. for 500 feet. The rest of this site has a grade of less than 5 percent making it suitable for light industrial or commercial use. In summary, 10.9 acres of this parcel is developable. Water is available to the site, but a sewer extension of approximately 1,000 ft. would bring the closest sewer line to this site. Gas is not available to the parcel. Parcel 4 - This is an 18.3 acre site located east of the Airport. Access to this site is from Hagen Rd. Driving distance to I-470 from this parcel is 2.0 miles. It is zoned AG. A 1.6 acre pond is located near the northern side of the site. Immediately surrounding the pond, to a distance of approximately 30 feet, the grade is greater than 15 percent. The rest of this site has a grade of less than 5 percent, making it suitable for light industrial or commercial use. In summary, 12 acres of this parcel is developable. Both water and sewer utilities are available adjacent to the site, but gas is not. Parcel 5 - This is a 31.9 acre site located south-east of the Airport. Access to this parcel is from NE Town Centre Blvd. and is zoned PI (Planned Light Industrial District). Driving distance to I- 470 from the parcel is 0.6 miles. There is one location on the west side of the site that is breeched by 0.37 acres of a pond, and 0.38 acres of wetland. An approximate 0.02 acres of wetland is located near the south east corner of the site. Extending eastward from the pond there is a large portion of grade between 5 and 15 percent. There is a small hill within the site that is relatively flat on top but has a grade above 15 percent on the north side and between 5 and 15 percent on the south side. In the very south west corner of the site, the grade is between 5 and 15 percent making it suitable for commercial use only. All other areas within the site have a grade less than 5 percent making it suitable for either industrial or commercial use. In addition, the Airport s Automated Surface Observation System (ASOS), a weather station, is located just north of the parcel. The ASOS includes a wind meter at the top of a 35 pole. Within a 500 foot radius of the wind meter, buildings and structures must not be tall enough to alter the wind patterns. This places potential additional restrictions on developments of certain heights on Site 5. Both water and sewer utilities are available adjacent to the site, but gas is not. In summary, 18 acres of the parcel is considered developable, with the potential for some height restrictions near the ASOS. A table summarizing the physical factors of all of the parcels is provided below. Please R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 4

5 Business Plan September, 2009 note that grades and acreages as listed are approximate. Also, the amount of developable land is based on accessibility of utilities and land grades of less than 5 percent. Table 1 - Parcel Analysis Summary Parcel Zoning AG AG AG AG Pl-1 Total Acres Wet Acres Water Service On Site On Site On Site On Site On Site Sewer Service 2,000 ft. 3,000 ft. 1,000 ft. On Site On Site <5 % Grade* 75% 90% 90% 85% 65% 5percent-15 % Grade** 20% 10% 5% 10% 25% >15 %Grade*** 5% 0% 5% 5% 10% Approximate Developable Acres * Land with grades in this category is suitable for commercial (non-retail) use and light industrial use. ** Land with grades in this category is suitable for commercial (non-retail) use. *** Land with grades in this category is unsuitable for development. 2.2 Market Issues for Consideration The City is interested in understanding the opportunity cost of the Airport. This opportunity cost is based on the anticipated development potential from a market perspective, of the 85 acres of vacant land which currently exists on the Airport property. There are several issues to be reviewed relative to the development and disposition of this land. Each of these issues is summarized below with further detail provided in Appendix A: The Kansas City Metro Area Market Analysis. Demand for Industrial Sites in Lee s Summit s SubMarket Demand estimates for industrial land as detailed in The Kansas City Metro Area Market Analysis (Appendix A) is based on historical data. It indicates that a maximum of 20 to 50 acres of annual land absorption is a likely range for the Lee s Summit community. This range was estimated from the historical absorption for the Kansas City (KC) Metro area and comparing the regional trends to absorption in the City. Thus, it is reasonable to assume that 50 acres of industrial property absorption in the City is the maximum anticipated. As noted below, there will be competition from the neighboring business park, Lakewood Business Park that has had undeveloped parcels available for more than 20 years as well as other competing parks within the City. This includes but is not limited to: developments on the east side of I-470 and other industrial developments along the South 291 Corridor including the more than 80 acre former Pfizer site and thousands of acres of master planned or industrial zoned parcels both in the City and neighboring communities. Demand will continue for the range of R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 5

6 Business Plan September, 2009 size of parcels noted below and is predicted to remain within the historical absorption ranges, subject to the condition of the economy over the coming years. Size of Parcels The size and type of parcels in demand in the City s industrial submarket will generally range from parcels of a half acre up to 20 acres. Occasionally, larger parcels will be in demand, but these will be rare and less frequent than those parcels designed to accommodate 5,000 to 250,000 square foot (SF) industrial buildings. The predominance of demand will be for the smaller parcels and diminishing demand as the size increases. Competition Numerous improved industrial parks within the City including the Lakewood Business Park to the east of the Airport, developments on the east side of I-470 and other industrial developments along the South 291 Corridor including the more than 80 acre former Pfizer site and hundreds of acres of master planned or industrial zoned parcels, plus future potential industrial/business parks will serve as competition for the Airport s development parcels. Positive Factors The primary benefit to these parcels may be their proximity to the Airport for companies who own private aircraft and use them in their business or whose customers do so. Many companies may appreciate this convenience that would go away if the Airport were to be decommissioned. Limiting Physical Factors The primary limiting factors to be considered for the disposition of these parcels are as follows: Lack of freeway/interstate exposure. Proximity to the airport and associated noise issues could deter users from locating within the ALP. For parcels where there are wetlands or issues with topography, the usability of the parcel will need to be taken into account in pricing. A solution is to preserve these wetlands as City owned parcels to be potentially used for regional stormwater drainage if acceptable under reasonable engineering standards. Limited infrastructure on some parcels. Infrastructure Requirements Each parcel will require, if not already available, the following infrastructure extensions: Frontage roads Interior roads for breakup of larger parcels into smaller parcels All utility extensions Wetland mitigation R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 6

7 Business Plan September, 2009 Pricing It will be important that these parcels are priced competitively within the marketplace in a manner that takes into account the limiting factors of each parcel. Absorption The Kansas City Metro Area Market Analysis addresses the broader KC metro industrial markets absorption of land. As noted therein, the City submarket can be projected in normal regional and national economic conditions, to absorb no more than 20 to 50 acres per year. Anticipated Land Values Although there would be the possibility to consider ground leases for the subject parcels (whether the 85 acres or the larger redeveloped airport site) this alternative is highly discouraged from practical experience within the community. The use of ground leases on the former Olathe Naval Air Base, now New Century Business Park, has, in a number of instances, been a limiting factor for the interest of some companies. A similar reaction is anticipated for the project that the Kansas City, Missouri Aviation Department is developing in conjunction with the Trammell Crow Company on excess land at Kansas City International Airport (KCI). Both of these projects are subject to restrictions on the sale of land due to the Federal Aviation Administration (FAA) guidelines and policies. As a result of this, other inducements are required to balance out those limiting factors. The sale of clean-titled, shovel-ready parcels without limiting conditions has the greatest sale potential. Any impediment to development could reduce the sale potential of the parcel. Examples of impediments include: Unusual soil conditions (i.e. subsurface rock and/or unstable soil) Limiting easements (i.e. utility or other easements that might transect a site to limit the full development of the parcel) Height limitations or other unique requirements related to the Airport Wetlands mitigation issues (i.e. any requires that add expense and/or limited coverage to mitigate existing wetlands) Onerous storm water detention issues (i.e. any needs to detain storm water on site that limit full and reasonable development of a parcel) The summary in Section 2.1 of the airport parcels identified some limiting factors do exist, which reduces their market potential. General pricing for industrial property based upon present market conditions is in the following ranges: 1/2 acre to 1 acre parcels: $3.00 $3.25 PSF 2 to 3 acre parcels: $2.25 $2.75 PSF 5 to 10 acre parcels $2.00 $2.50 PSF R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 7

8 Business Plan September, acre parcels $1.25 $2.00 PSF Note: All of the pricings that are referenced herein are based upon historic averages in the region over a multi-year period (based on internal CB Richard Ellis propriety data sources and other market research). This report does not account for the immediate to mid-term depression of commercial real estate values that are impacting the market due to the present recession and broader credit crisis. Rather, this report assumes that a normalization of land pricing will occur sometime within the calendar year 2010, toward prices experienced 12 to 18 months prior to the date of this document. 2.3 Development Potential of Each Parcel The following are specific comments and recommendations with regard to each of the parcels noted in Figure 1. As discussed in Section 2.1, water is available on site for all five parcels, and sewer is only available on site for parcels 4 and 5; an extension would be required for parcels 1, 2, and 3 to have on site sewer. Parcel 1 This 23.6+/- acre site is noted as only having 17.5+/- acres developable due to grade and wetland issues. The biggest hurdle for the development of this parcel is the cost to bring infrastructure and access to the site, which is located a significant distance from other commercial development. This makes incurring such expense less attractive. Therefore, demand is marginal and the return on investment would be highly marginal. Additionally, diminishing the value of the parcel even furthe R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 8

9 Business Plan September, 2009 to the Pavestone concrete batch plant to the east, which would likely limit the viability of this parcel for higher quality development. Should the Pavestone parcel be redeveloped consistent with the neighboring properties, this parcel could easily be developed into smaller lots. Note that the northern portion of the parcel would have some height restrictions due to the adjacent ASOS. Table 2 - Parcel Pricing Summary Parcel Total Acres Developable Acres (approx.) Price per SF of $2.00- $1.50- $1.25 $2.25 $ Developable Acres Potential Site Value $950,000 $340,000 $910,000 $1.0 Mil. $1.2 Mil. Water Service On Site On Site On Site On Site On Site Sewer Service 2,000 ft. Ext. 3,000 ft. Ext. 1,000 ft. Ext. On Site On Site Utility Extension $220,000 $330,000 $110,000 $0 $0 Potential Sale Price $730,000 $10,000 $800,000 $1.0 Mil. $1.2 Mil. Note: All pricing assumes developed parcels: i.e. rough graded, utilities to plot lines, light industrial zoning in place; platted as parcels that remove any unreasonable excess portions that undevelopable and might create a tax burden on the parcel. For general planning purposes, a cost of $110/lf was used to estimate sewer utility extension. Potential sale price is the utility extension price reduced from the potential site value The estimated value of the five parcels is between $1.25 and $2.50 per square foot as described in the draft airport business plan. This price estimate is based on parcel size, existing topography, developable area, available utilities and other such parcel amenities based on the concept of a stabilized economy and real estate market. According to recent appraisal and acquisition data provided by the City for these same or adjacent parcels, these properties have an appraised value of $0.95 per square foot or less. While the sample appraisal values supplied by the City are significantly below the estimated parcel values from the business plan, these estimated values are in line with the recent acquisition values. Note that other recent city purchases for parcels along Colbern Road, adjacent to I-470 Exit 10A, were acquired for up to $3.00 per square foot. These parcels have significantly greater market value due to their location than Parcels Marketing Development Parcels If the City intends to market these parcels, the following program should be implemented: Utilizing the expertise of the City Staff and an experienced commercial real estate development firm to partner and generate a master plan and marketing plan. Have the parcels shovel-ready, as much as possible, eliminating questions about soil conditions, stormwater detention, and wetlands mitigation. For the parcels above, activities may include delineating wetlands and extending water/sewer service. R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 9

10 Business Plan September, 2009 Prepare reasonable protective covenants consistent with the existing development surrounding the parcels, both on-airport and off-airport ground that will preserve the highest level of development but not be onerous for purchasers. Engage the services of a commercial real estate brokerage firm, realtor, that focuses with sufficient resources and experience in the disposition of industrial land and buildings. Work in conjunction with both the City s Economic Development Commission (EDC) and the regional EDC Kansas City Area Development Council (KCADC) economic development organizations for broadest exposure in addition to the marketing efforts of the selected realtor/broker. Allow reasonable signage on the parcels. Consider the possibility, based upon market demand, of speculative development of industrial facilities ready to go through either the airport authority or a development authority. Review the possibilities of a bundled tax abatement program covering all of the parcels that will allow for tax abatement and industrial revenue bond issues at a cost- effective level for smaller entrepreneurial purchasers wishing to build and own industrial facilities. Similar programs have been in use over the past several years in the Johnson County community of Olathe, which have effectively allowed the development of small entrepreneurial companies owning industrial facilities. 2.5 FAA Airport Land Release The five parcels under consideration for sale (e.g., release) are each part of the overall airport property. As such, these parcels are obligated to the FAA for airport use. As part of the Federal grant assurances and associated regulations, all property that has been included as part of the airport property, cannot be sold or used for non-aviation purposes without a formal approval by the FAA or Missouri Department of Transportation (MODOT). This policy has several purposes but is primarily intended to protect property acquired for a public airport from being arbitrarily diverted from public use. In fact, all that is required for airport property to be subject to this federal obligation is that the property has been depicted on a federally approved Airport Layout Plan (ALP). The property in question need not be acquired with federal funds to be federally obligated. All five subject parcels at LXT are included on the approved ALP and thus subject to this obligation. Per FAA Order A, Airport Compliance Requirements Any property described as part of an airport in an agreement with the United States or defined by an Airport Layout Plan (ALP) is considered to be "dedicated" or obligated for airport purposes by the terms of the agreement. Notwithstanding this federal policy, FAA (and MODOT) will allow property to be used for non-aviation purposes or sold outright for airport-compatible developments upon completing a formal FAA land release process. Thereafter the property may be used or disposed of for non-aeronautical uses. Briefly, the requirements of the land release are summarized below: R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 10

11 Business Plan September, 2009 FAA Land Release A formal request is submitted to the FAA, which may be in the form of a letter with accompanying documentation. In the case of LXT, the request would include the following: What specifically is being requested (long-term lease, release for sale, etc.) Why the release is requested (i.e., such as economic development) A justification of why the property is not needed for airport purposes The specific properties involved, with an illustration How the property was acquired by the airport The present condition and use of the property Anticipated future use after disposal The current Fair Market Value (FMV), per appraisal How the property sale revenues will be used for airport needs (certify compliance with FAA s Revenue Use Policy, dated 2/16/99). Sale revenue may not be diverted for other City purposes. Provide a comparison of the relative advantage or benefit to the Airports or City from the sale, as opposed to retention for rental income. ALP Update (Pen & Ink Change) As the release of the property is a change to the ALP, an ALP update must also be submitted for FAA/MODOT review and approval. As part of this submission, the formal airport property map would also be updated, indicating the final date of the release or sale of the affected parcels. A boundary survey is typically required. Environmental Approval In coordination with FAA and MODOT, an environmental review may also be applicable (e.g., federal Categorical Exclusion or Environmental Assessment). If the FAA agrees with the justification to release the property for the overall public benefit, the proposal will be published in the federal register for comment. After receiving public comment, and assuming the FAA determines that the land is not needed for present or foreseeable airport purposes, the release would be complete. Note that the City may be required to document how the proceeds from the sale or lease of the property is retained by the City exclusively for funding airport needs, as well as other obligations that may be established in the release. Release of airport property is common for locations that have reasonable airspace protection (i.e., from local zoning) and that can be realistically shown to be surplus to the airport s needs through the airport planning process or other justification. It is not uncommon for a land release request to require over a year to execute, depending on its complexity. Per the findings of this study, it is reasonable to assume that the subject five parcels could be approved for release. 3. AIRPORT REDEVELOPMENT EVALUATION Redeveloping the entire LXT for commercial use was considered as an alternative. This technical report presents a review of the feasibility of: a) closing the Airport and redeveloping R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 11

12 Business Plan September, 2009 the entire property and b) relocating the Airport. This review is discussed in terms of the cost of preparing the site for resale also referred to as greenfielding as well as the cost of relocating the Airport to another location. The feasibility of closing the Airport is also described in the sections below. 3.1 Airport Redevelopment Cost The redevelopment cost for LXT is the estimated cost to prepare the property for an alternative use, or for resale. This estimate was calculated two ways as shown below. The first calculation is the estimated cost of removing all airport infrastructures to result in an empty lot. The second calculation is the estimated cost of removing only airport equipment such as hangars, airport lighting, and the weather station, but leaving the pavement in place. R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 12

13 Business Plan September, 2009 Table 3 - Airport Redevelopment Cost 1 Item Quantity Unit Demo Cost Total Value Runway 637,450 SF $6.5 $4,143,425 Taxiway 749,400 SF $6.5 $4,871,100 Apron 583,300 SF $6.5 $3,791,450 Hangars 75,700 SF $5 $378,500 T-Hangars 216,550 SF $5 $1,082,750 RCO 1 EA $1,000 $1,000 RCO, PAPI, VASI, REIL, Beacon, 11 EA $1,000 $11,000 Segmented Circle Runway Lighting 7,840 LF $2 $15,680 Taxiway Lighting 5,700 LF $2 $11,400 Fencing 23,930 LF $4 $95,720 Weather station 1 EA $30,000 $30,000 Total $14,431,025 Say $14,430,000 SF = Square Foot, EA = Each, LF = Linear Foot Table 4 - Airport Redevelopment Cost 2 Item Quantity Unit Demo Cost Total Value Hangars 75,700 SF $5.0 $378,500 T-Hangars 216,550 SF $5.0 $1,082,750 RCO, PAPI, VASI, REIL, Beacon, 11 EA $1,000 $11,000 Segmented Circle Runway Lighting 7,840 LF $2.0 $15,680 Taxiway Lighting 5,700 LF $2.0 $11,400 Weather station 1 EA $30,000 $30,000 Total $1,529,330 Say $1,530,000 SF = Square Foot, EA = Each, LF = Linear Foot The first estimated redevelopment cost of $14.5 million is significantly higher than the second estimated redevelopment cost of $1.5 million. Although leaving the majority of the infrastructure on the property is cheaper, reusing the existing roads and buildings in the redevelopment limits the land use potential. R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 13

14 Business Plan September, Airport Relocation Cost The airport relocation cost is an estimate of how much a new replacement airport in a different location would cost. The following estimate assumes the new runways would be 100 x 5500 feet (ft.) and 75 x 4200 ft. The taxiway is assumed to run the length of both runways and to contain five stubs per runway (10 total for LXT). All other infrastructure is assumed to be the same as the existing airport. This estimate includes an Airport redevelopment cost of the existing airport equivalent to the second redevelopment cost shown above which accounts for removing only airport equipment and retaining the pavement in place. Table 5 - Airport Relocation Cost Item Quantity Unit Value Total Value Runway 865,000 SF $ 17 $14,705,000 Taxiway 949,000 SF $16 $15,184,000 Apron 583,300 SF $16 $9,332,800 Hangars 75,700 SF $20 $1,514,000 T-Hangars 216,550 SF $20 $4,331,000 Runway Lighting 7,840 LF $75 $588,000 Taxiway Lighting 5,700 LF $40 $228,000 Fencing LF $28 $700,000 RCO 1 EA $10,000 $10,000 PAPI 4 EA $50,000 $200,000 REIL 4 EA $15,000 $15,000 Rotating Beacon 1 EA $65,000 $65,000 Windsock/Segmented Circle 1 EA $35,000 $35,000 Weather station 1 EA $150,000 $150,000 1-mile access Rd 5,280 LF $165 $871,200 Site Work Estimate $60,000,000 Land Acquisition Estimate* 455 AC $15,000 $6,825,000 Total $114,754,000 Assume Airport Redevelopment Cost 2 $1,530,000 Relocation Total $116,284,000 Say: $116,000,000 *The 455 acre value used in this table was derived from the total acreage minus the non-airport use acreage of the 5 parcels discussed in chapter 2. Note: Five of the existing airport buildings are privately-owned. Their relocation cost is included; however, the relocation would likely create issue with the existing land leases. The majority of this relocation cost comes from the anticipated site work needed for constructing the new airport. The site work is assumed to cost approximately 1.25 times the construction costs of the Airport. R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 14

15 Business Plan September, 2009 Also, it should be noted that the value of the 500 acre greenfield airport site, similar to other size sites positioned in relation to interstates and with generally available utilities, have in recent years only sold in the range of $.35 to $.50 per SF (based on internal CB Richard Ellis propriety data sources and other market research). These values are based on market research and are in line with the recent appraisals of existing airport property, which include several tracts valued from $0.29 to $0.34 per square foot. These values are different from property values discussed earlier because small parcels with good access and utilities may sell for $1 to $3 per square foot, however, large areas of raw land generally have a much lower value. As such, private sale of the former airport property may only yield approximately $10,000,000. In summary, the relocation of the airport and sale of the current property is not financially feasible. 4. DEVELOPMENT OF A BUSINESS PARK ON THE EXISTING AIRPORT SITE The decommissioning of the Airport to convert it into a more than 500 acre business park is an option that in today s circumstances is not very viable. (Figure 2 is provided as an illustration of how the existing Airport could be subdivided into potential development parcels.) With the abundance of other greenfield options both within the City and surrounding areas suitable for industrial/business park development, it is unlikely that the cost benefit of greenfielding this site and converting it to a business park would be economically viable in the near term (5 to 10 years). As noted in Section 2.2, there is already an abundance of other greenfield sites. Based upon historical absorption levels, the number and quality of competitive sites, and constraints to useable acreage discussed above, it would require anywhere from 20 to more than 40 years for the entire 500 acre airport property to be occupied, considering such a multitude of limiting factors, this estimate is optimistic. These conclusions are based on an evaluation of the regional industrial property market that is provided in Appendix A. If, in fact, the City were to pursue this alternative, then it would be important to consider holding off the development and sale of portions of the 85 acres referenced above to ensure that the development, both in terms of parcels and road alignment and type of facilities, was done in a much more comprehensive master plan approach. It might become a limiting factor on the most efficient and highest quality development achievable if parcels were sold to individual users that restricted the most efficient and best quality development for the overall project. 5. AIRPORT CLOSURE FEASIBILITY REVIEW The closure of a public-use airport can be a time consuming and costly legal challenge for a municipal airport owner. Particularly, for airports that have: Accepted land from a federal program, Purchased property using FAA funding, or Taken a federal grant for airport improvements within the last twenty years. The FAA requires a thirty day notice of intent to close a facility. During this time, the FAA will perform a review of the proposed closure to determine if the airport sponsor is obligated to keep the airport open and operating, per the grant assurances outlined in the Airport R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 15

16 Business Plan September, 2009 Improvement Program (AIP) and/or any deed restrictions existing for federally deeded property. 5.1 FAA Grant Assurance Requirements It is the policy of the FAA to not approve the closure of an airport that has accepted federal funds (AIP grants) or is under a deed restriction from the Federal Surplus Property Act. In fact, according to the Airport Compliance Division of the FAA, they have never approved an airport closure under those circumstances and no airport owner has been successful in closing their facility without FAA approval. R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 16

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18 Business Plan September, 2009 Airport owners who have accepted AIP funding are obligated to the federal government to comply with the grant assurances outlined in each AIP grant. Typically, the assurances of the AIP grants last for twenty years; however uses of AIP funds for property acquisition obligate the grantee indefinitely (i.e., the requirement does not expire). Below is an excerpt from the FAA s Airport Grant Assurances as they relate to the duration and applicability of the obligations agreed to by the airport owner (i.e. airport sponsor) when they accept federal funding: B. Duration and Applicability. 1. Airport development or Noise Compatibility Program Projects Undertaken by a Public Agency Sponsor. The terms, conditions and assurances of the grant agreement shall remain in full force and effect throughout the useful life of the facilities* developed or equipment acquired for an airport development or noise compatibility program project, or throughout the useful life of the project items installed within a facility under a noise compatibility program project, but in any event not to exceed twenty (20) years from the date of acceptance of a grant offer of Federal funds for the project. However, there shall be no limit on the duration of the assurances regarding Exclusive Rights and Airport Revenue so long as the airport is used as an airport. There shall be no limit on the duration of the terms, conditions, and assurances with respect to real property acquired with federal funds*. Furthermore, the duration of the Civil Rights assurance shall be specified in the assurances. *Condition applicable to LXT. As noted, there is no limit to the duration of these obligations on property that was purchased with AIP funds. Additionally, Section C, Paragraph 19 of this document further make public airport closure infeasible per regulation, stating: C. Sponsor Certification. The sponsor hereby assures and certifies that: 19. Operation and Maintenance. a. The airport and all facilities which are necessary to serve the aeronautical users of the airport, other than facilities owned or controlled by the United States, shall be operated at all times in a safe and serviceable condition and in accordance with the minimum standards as may be required or prescribed by applicable Federal, state and local agencies for maintenance and operation. It will not cause or permit any activity or action thereon which would interfere with its use for airport purposes. These assurances obligate an airport sponsor to keep the airport open at all times and not allow any action that would interfere with its use as a public-use airport. By the virtue of this assurance, the airport owner has agreed to keep the airport open to be used as an airport for the applicable duration of the obligation. Table 6 provides the FAA grant history for LXT. R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 18

19 Draft Business Plan September, 2009 Table 6 - FAA Grant History for Lee s Summit Municipal Airport Grant No. Grant Expiration Year Date Description Grant Value Airport Layout Plan Report $3, None* Purchase of Airport $25, Construction of Taxiway and Apron Expansion $14,788 AIR A Runway and Taxiway Markings $15,720 AIR A Land Acquisition $5,807 AIR A Widen, Construction, and Extension of Parallel Taxiway $32,126 AIR A Expand Aircraft Parking Apron and Access Taxiway $36,322 AIR A 1990 None* Land Acquisition and Easements $244,351 AIRS A 1991 None* Supplement to AIR A for Acquisition and Easements $158,849 AIR A 1991 None* Reimbursement for Previously Purchased Land $2,903,941 AIR A 1992 None* Widen, Extension, Reconstruction, Marking, and Lighting of Runway Construction of Parallel Taxiway. Installation of PAPI, REIL, Segmented Circle, Wind Indicator, and Obstruction Lighting. Additional Land Acquisition. $1,542,494 AIR A 1992 None* Land Acquisition and Easements for Runways 18-3 and Approach Areas $22,400 AIR A 1993 None* Land Acquisition for Runway 36 RPZ. Widen, Extension, Reconstruction, Marking, and Lighting of Runway Construction of Parallel Taxiway. Installation of PAPI, REIL, Segmented Circle, Wind Indicator, and Obstruction $90,000 Lighting. AIR A Master Plan, Airport Layout Plan Update, and Economic Benefit Analysis $104,912 AIR A Master Plan $2,500 AIR A 1998 None* Expansion of Apron, Construction of Taxiway, and North Access Road, and Land Acquisition $1,472,350 AIR A Seal and Mark Aprons and Associated Taxiways $20,869 R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 19

20 Draft Business Plan September, 2009 Table 6 - FAA Grant History for Lee s Summit Municipal Airport (Continued) Grant No. Grant Expiration Year Date Description Grant Value AIRE A 2001 None* Land Acquisition and Grading, Site Preparation, & Installation of AWOS $150,000 AIRE A 2002 None* Land Acquisition, Grading, Site Preparation, & Installation of AWOS, and Benefit-Cost Analysis $150,000 AIR A None* Land Acquisition, Grading, Site Preparation, & Installation of AWOS, and Benefit-Cost Analysis $1,651,909 AIR A 2002 None* Land Acquisition, Grading, Site Preparation, & Installation of AWOS, and Benefit-Cost Analysis $3,998,091 AIR A Rehabilitation of Apron and Seal Taxiway Joints $37,181 AIR A 2003 None* Land Acquisition for Runway Extension $2,948,702 AIRE A 2003 None* Land Acquisition for Runway Extension $150,000 AIRE A 2004 None* Land Acquisition and Pavement Maintenance $150,000 AIR A 2004 None* Land Acquisition and Phase 1 Construction of Runway Extension $9,100,119 AIRE A East Terminal Development $150,000 AIR A East Terminal Development and Continuation of Phase 1 Construction of Runway Extension. $3,289,289 Total $28,470,720 * Per the FAA Airport Grant Assurances Section B.1, there is no expiration date for grants that have been used to fund land acquisition. R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 20

21 Draft Business Plan September, 2009 As shown, the City has successfully obtained airport development funding from the FAA and MODOT for a wide range of airport improvements. With new funding received recently, the current development grant assurances do not expire until However, as property acquisition grants for safety and capacity improvements have also been obtained by the City, there is no expiration date associated with the City s federal assurances. This is essentially the case with most municipal airports throughout the United States (U.S.). The assurances are intended to prevent closure of all key public airports included in the FAA s National Plan of Integrated Airport Systems (NPIAS). 5.2 Repayment of Grant and Revenue Diversion In addition to the grant assurances, the grant agreement does not have provisions for repayment of federal monies in order to cancel the grant and associated terms and conditions. Per FAA policy, because of the important role that each airport has in the NPIAS, the FAA would not support any effort to rescind the contract (grant) obligations. An additional obligation of an airport owner is that any money earned by the sponsor operating the airport can only be spent on the airport. Publicly owned airports cannot divert their revenue off of the airport. The FAA Airport Compliance Division has stated that if an airport is closed without FAA approval, any revenues earned on or from that property are considered airport revenues and must be paid back to the FAA. In other words, if the FAA denies permission to close the airport, they will consider it to be airport property no matter what the use is. If the land is sold, the sponsor could be obligated to repay the FAA up to three times the sale price. Below, US Code, Title 49, and dictate the procedures and penalties of revenue accountability and diversion: Sec Project grant application approval conditioned on assurances about airport operations. (n) Recovery of Illegally Diverted Funds.-- (1) In general.--not later than 180 days after the issuance of an audit or any other report that identifies an illegal diversion of airport revenues (as determined under subsections (b) and (l) and section 47133), the Secretary, acting through the Administrator, shall-- (A) Review the audit or report; (B) Perform appropriate fact finding; and (C) Conduct a hearing and render a final determination concerning whether the illegal diversion of airport revenues asserted in the audit or report occurred. Sec Restriction on use of revenues (a) PROHIBITION- Local taxes on aviation fuel (except taxes in effect on December 30, 1987) or the revenues generated by an airport that is the subject of Federal assistance may not be expended for any purpose other than the capital or operating costs of-- (1) the airport; (2) the local airport system; or R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 21

22 Draft Business Plan September, 2009 (3) any other local facility that is owned or operated by the person or entity that owns or operates the airport that is directly and substantially related to the air transportation of passengers or property. (5) PENALTY FOR DIVERSION OF AVIATION REVENUES- The amount of a civil penalty assessed under this section for a violation of section 47107(b) of this title (or any assurance made under such section) or section of this title may be increased above the otherwise applicable maximum amount under this section to an amount not to exceed 3 times the amount of revenues that are used in violation of such section.'. 5.3 Landmark Airport Closure (Meigs Field) There have been cases in the past where airport sponsors chose to disregard federal requirements and closed their airport without FAA permission. Perhaps the most well publicized closure is Meigs Field, which was closed by the City of Chicago in 2003 without approval. In this particular instance, the airport was not obligated via grant assurances as it had not received AIP funding within the durations outlined above. Additionally, Meigs Field, like LXT, was not federally deeded property, so there were no deed restrictions applicable. The City of Chicago did however close the airport without providing notice to the FAA. Based upon that violation, the FAA levied a fine against the City of Chicago of $33,000, which was the maximum penalty at that time ($1100 per day for thirty days). In addition, the FAA also fined the City $1 million for diverting airport revenue by using airport money to pay the contractors for the demolition of the runway. Records indicate that the city spent an additional $550,000 on legal fees disputing the fines. In total, the closing of Meigs Field cost the City of Chicago over $1.6 million. If the airport was obligated by grant assurances (such as the case with LXT the FAA would have ordered the City of Chicago to reopen the Airport at the city s expense. Note that due to the national publicity and outcry from airport and pilot groups that continued for years, Congress increased the fine for Failure to Notify the FAA of Airport Closure from the previous $1100 per day to $10,000 per day. The regulation is entitled the Meigs Legacy Amendment. 5.4 Local Airport Closure The local example of an airport closure, which did obtain FAA approval, is the Richards- Gebaur Memorial Airport in Kansas City, Missouri. Although the KC did eventually receive FAA approval, the process took KC several years and significant financial resources according to the FAA. This was a very unique case; the Airport was one of several owned by KC (the same sponsor) and KC ultimately documented to the FAA that the aviation system would not be adversely impacted because the sponsor could better accommodate air traffic at its other facilities. As such, their ownership of multiple airports avoided the problem of public obligation and revenue diversion. The alternative airports owned by KC essentially served as replacement airports, absorbing local demand and airport revenues, without the need to actually build a new facility. KC s argument in this case would not be applicable for LXT. R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 22

23 Draft Business Plan September, Airport Relocation or Replacement Airport relocations and replacements are not uncommon; however, they typically occur when a municipal airport is relocated to a recently closed military airfield. In the first half of the 20 th century, the U.S. government built military bases and airfields in every state, and often included facilities with multiple long runways. In the final quarter of the century many of these facilities were surplused and closed as part of the Base Realignment and Closure (BRAC) activities. For example, in New York, two large Air Force Bases (AFB) were closed by the military, both of which had runways of over 10,000 feet in length (Griffiss AFB and Plattsburg AFB). Shortly thereafter, both host communities closed their smaller municipal airports and relocated airport operations to the former AFBs (Oneida County in Utica and Clinton County in Plattsburg, NY). These efforts were possible after significant study and coordination, and FAA s concurrence with the associated relocation plans and financial support through the FAA s Military Airport Program (MAP). Although less common, replacement airports have been constructed. However, such projects have occurred when the existing airport is highly constrained by development, creating significant noise impacts, or safety issues (non-compliance with FAA design standards) that pose a strong purpose and need to justify FAA approval. At LXT, it does not appear that there is a condition that would provide an adequate justification to MODOT or FAA. As such, these agencies would not support a relocation plan in general, nor would it be eligible for federal or state funding. As estimated in other sections of this study, the cost for an airport relocation of LXT is anticipated to easily exceed $100 million, and thus is not considered feasible. An example of an airport relocation is the Columbia Regional Airport (COU), in Columbia, Missouri, which was relocated in 1967 by the City using federal funds. However, the situation that lead to the relocation, as summarized below, would not apply to LXT. The original Ozark Airlines identified a need for a longer runway for their new jet aircraft during the 1960 s. The City of Columbia moved quickly to support continued air service for the area. While air service was provided in Kansas City and St. Louis, roads and vehicles during this time were not of the caliber they are today; the local highway was a curvy two lane road. The increased travel time provided the demand for local air service in Columbia. The existing COU runway was less than 4,000 feet and insufficient for airline use. The existing runway was constrained by a river at one end and development along Interstate 70 on the other. The encroaching development had also reduced land use compatibility around the Airport and noise disturbance was increasing. Construction cost estimates to improve COU were similar to building a new airport; however, even with the improvements COU would still not meet future needs. There was ample farm land available for purchase. The 1,000+ acres of land was purchased for under $500,000 (approximately $3 million in 2009 dollars), which amounts to under $0.10 per square foot adjusted for inflation. COU was relocated due to the major restrictions at the existing location on the airfield expansions needed for the anticipated continuation of air service (which eventually ended as R.A. Wiedemann & Associates & CB Richard Ellis, Inc. 23