The Town of Addison (“Town”) and Addison Hangars, LLC (“Addison Hangars”), a wholly owned subsidiary of the Sky Harbour Group (NYSE-SKYH), entered into a ground lease effective June 20, 2022, which, among other things, called for the redevelopment of a certain 6.5-acre site located at 4505 Claire Chennault Drive at Addison Airport. Pursuant to the ground lease, Addison Hangars is to design, construct, and operate an exclusive corporate/executive jet hangar campus on the 6-acre site subject to a 40-year lease term to consist of five 14,200 square-foot private hangars and one 30,000 square-foot, semi-private jet hangar. Each hangar will have 28-foot-high hangar doors designed to accommodate Aircraft Design Group III aircraft, which includes the larger business jet aircraft capable of operating at Addison Airport. Upon completion, Addison Hangars intends to sublease and operate the facility dedicated to serving high-end business aviation users including corporate and private flight departments that operate large, late-model business aircraft. Addison Hangars is expected to commence construction in the first quarter of 2023, with construction to be completed within 24 months. Estimated construction value of the building improvements is expected to exceed $25 million.
Addison Hangars is now requesting the Town to consider and consent to a proposed First Amendment to Ground Lease (“First Amendment”) which, among other things, will add 6.06-acres of airport land to be subject to the ground lease. The additional airport land (“Phase II”) is located on Claire Chennault Drive, across from Addison Hangars’ original “Phase I” development. The Phase II site is a rectangular parcel bounded by Claire Chennault Drive to the north and Taxiway Uniform to the south.
Pursuant to the terms and conditions of the proposed First Amendment, Addison Hangars proposes to construct four 14,000 square-foot private executive hangars and one 28,800 square-foot, semi-private executive jet hangar for a total of 91,500 additional square feet of executive jet hangar space. Each hangar will be designed to accommodate Aircraft Design Group III aircraft, which are the larger business-class aircraft that frequent Addison Airport. The project will include over 87,000 square feet of heavy aircraft concrete apron with a design capacity rated for 100,000-pound, dual-wheel tandem landing gear; nearly 100 off-street vehicle parking spaces; and airport-friendly landscaping. The estimated construction cost of the Phase II project is $27 million.
The proposed Phase II development site is where the Cavanaugh Flight Museum and Monarch Air have been located for many years. Cavanaugh Flight Museum subleases its hangar facilities from Jani-King International, Inc., which leases are due to expire May 31, 2024. Monarch Air’s ground lease is due to expire the end of February 2023. Existing building improvements are regarded to be in fair condition and would require substantial capital investment to bring them to current market standards. Pursuant to the terms of the proposed First Amendment to Ground Lease, Addison Hangars would take possession of each of the parcels as the existing leases expire.
Under the proposed Amendment, Addison Hangars is responsible for the demolition of the existing building improvements at its sole cost, expense, and risk. Prior to demolition, the Town is responsible for the remediation of any hazardous materials as such is defined in the ground lease, up to $500,000. The First Amendment to Ground Lease reflects that the Town will delegate the sole and absolute discretion for performing the remediation at the Town’s expense to the city manager; any required expenditures in excess of $500,000 will require the city council’s consent.
As an inducement for the Town to enter into this First Amendment to Ground Lease, Addison Hangars agrees to deliver a $250,000 non-refundable security deposit to the Town. Upon substantial completion of the Phase II Building Improvements, the security deposit is to be credited as pre-paid rent. Should Addison Hangars default on the ground lease as amended, it will forfeit the security deposit. Additionally, if the Town consents to the First Amendment to Ground Lease prior to February 1, 2023, Addison Hangars will contribute $250,000 to the Town toward the cost of repairs and improvements to be made to the airport’s service vehicle road, a common-area element of the airport. Should the Town not give its consent to the First Amendment to Ground Lease prior to February 1, 2023, Addison Hangars will, instead, increase its non-refundable security deposit to $500,000, also to be credited as pre-paid rent upon substantial completion of the building improvements. The security deposit is separate and apart from any payment and performance bonds required during construction required under the ground lease.
Pursuant to the proposed lease terms, the proposed Phase II development represents approximately $205,000 in annual real estate revenue and $66,500 in annual fuel flowage fees for the airport; collectively, an estimated $14.8 million in airport revenue (un-discounted) over the 40-year lease term. When discounted at 6% per annum, the projected cashflow yields a net present value of $5 million in today’s dollars. It is estimated that the Town’s business property and ad valorem tax base will benefit by as much as $612,000 per annum once the tenant’s business operations stabilize.
Sky Harbour Group, Addison Hangars, LLC’s parent company, intends to finance the design, construction, and operation of this new executive hangar campus with loan proceeds originating from the sale of Series 2021 tax-exempt, public activity bonds through municipal conduit issuer Public Finance Authority. These public activity bonds do not require the full faith and credit of the Town and, do not constitute Town-issued debt or a monetary liability obligation of the Town. The bonds are secured by Sky Harbour's qualifying projects, including the Addison project's leasehold interest and building improvements, and are repaid from the operating revenues generated by the properties.
The proposed First Amendment to Ground Lease further supports the Town’s objectives for the Airport by enhancing the overall value of Addison Airport with new development, increased revenue, and an enhanced tax base. The proposal achieves the Town Council’s Strategic Pillars and Milestone associated with the Airport. Finally, the proposed use is consistent with the 2013 Airport Strategic Plan and the 2016 Airport Master Plan Update.
The city attorney has reviewed the First Amendment to Ground Lease and finds it acceptable to form for the Town's purposes.
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