FBO Real Estate Management: The Devil is in the Details
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Credit: Getty Images/Ziviani
In developing a smart FBO real estate management strategy, it’s important to pay attention to the details in two key areas:
Keeping pace with demand for hangar space
Maximizing current and future hangar agreements
In today’s FBO marketplace, keeping pace with demand for hangar space can be a two-edged sword. In many markets, our discovery work shows that there are waiting lists of aircraft owners seeking quality hangar space. This creates a dilemma for FBO operators who wish to meet this demand, but find that the cost of building new hangars is becoming prohibitive.
Just a few short years ago, an FBO operator could build a 25,000 square foot box storage hangar at an average cost of between $100 to $125 per square foot. Today, the cost has more than doubled, resulting in sizeable increases in hangar rates to customers and massive pushbacks from aircraft owners and operators.
Therefore, it’s incumbent upon the FBO operator to understand their particular marketplace, in terms of customer mix and rent cost thresholds, and create a strategic hangar build plan that can scale to meet operational needs, both now and into the future.
Further consideration should be taken to maximize current hangar agreements, and be transparent with future aircraft hangar tenants regarding the reality of inevitable rental cost increases for new hangar construction.
In the course of negotiating hangar agreements, the following are the common issues and considerations to take into consideration:
Sublease of Your Master Lease
Remember that all leases for property, storage hangars, T-hangars tie-downs and office space are sub-leases to your master lease. In some cases, these subleases need to be approved by your airport sponsor.
Your master lease may contain price increases such as CPI and property reevaluations. Therefore, your sub-leases should contain the same price increase language. In addition, make sure you add clauses in the sub-leases that spell-out the operational issues that may occur, such as no storage of cars, boats and no living quarters are allowed in the hangar.
Know Your True Costs
Before setting rental rates, know the true costs of your property and hangars. With hangars, include the cost of utilities and an estimate of repair and maintenance costs, as well as insurance.
Another item to include would be a hold-harmless clause. This will protect you from needless problems. Also keep in mind that there has been a major push over the last few years from airport sponsors to increase land rental rates. If your master lease is coming up for renewal, be aware of potential large increases and try to negotiate with your airport sponsor as soon as possible.
Stay On Top of Fuel Discount Agreements
When offering fuel discounts as part of a hangar lease, put the fuel uplift numbers in writing. If the customer does not meet the estimates, make sure you have a clause in the sub-lease that outlines the fuel charges to be back billed.
In managing your real estate holdings, it’s important to think strategically and act tactically. If possible, join a group of like minded FBO owners and operators to get other views and insights into running a successful FBO enterprise.
Real Estate Management is one of the four R’s we introduced in our opening FBO Management blog series: Managing the R’s to Profitability. The four R’s are:
4. Real Estate Management (discussed here)
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Please leave any comments you have about this blog post below. If you have any questions, please send us an email: John Enticknap, jenticknap@bellsouth.net; Ron Jackson, ronjacksongroup@gmail.com.
ABOUT THE BLOGGERS: John Enticknap is the founder of Aviation Business Strategies Group (ABSG). He has more than 35 years of aviation fueling and FBO services industry experience and is an IS-BAH Accredited auditor. Ron Jackson is co-founder of ABSG and president of The Jackson Group (TJG), a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.