End User Value Proposition
Users of airside aviation facilities – across a spectrum of business lines – make real estate decisions based on two primary drivers: relative economics and growth.
End User Case Study: Air Cargo
While new infrastructure is more expensive and results in a substantial rent premium, the leasing cost of an airside facility is typically not among the most relevant factors in a decision regarding air cargo facility usage, due to rent’s relatively small contribution to the overall expense profile.
For an air cargo company, airport-based operating expenses consist primarily of (1) rent and (2) throughput costs.
In the overall scope of an air cargo company’s operating profile, facility rent is de minimis.
Using the benchmarks above, a cargo company will generate somewhere between $363 million and $544 million of gross revenue annually using a 200,000 square-foot facility.
A base rental rate of $15/sq. ft. on the 200,000 square feet – and even a theoretical doubling of that rate to $30/sq. ft. – hardly even registers.
A cargo company cannot afford to delay expansion when it has greater throughput opportunity – time is money!
The opportunity cost of delay could be tens of millions of dollars every six months.
Burrell Aviation’s solution addresses and remedies each of these challenges.
Challenge 1: Scarcity
Airside real estate in close proximity to a major population is akin to “beachfront property.”
- At a busy airport, there likely will not be an additional facility just sitting idly for a cargo operation’s expansion.
- There likely won’t even be a vacant parcel that could be rented directly from the airport and could be developed to accommodate the company’s facility needs.
Recognizing the scarcity in suitable parcels for development within the vicinity of major population zones, Burrell Aviation has strategically assumed control of land at airports where its parcel is the last available option for a large-scale cargo operation.
Even if a vacant parcel happens to be available at the same airport to accommodate a company’s expansion (unlikely at a busy airport that has been developed over many decades), there are additional obstacles that stand in the way of immediate development.
Challenge 2: Governmental Regulatory Hurdles
- Conducting business with a government is a lengthy and burdensome process involving a multitude of stakeholders (airport staff, their contracted engineers, and their governing body of elected officials, among others).
- Renting from an airport – whether raw land or a developed facility – forces a company down this bureaucratic avenue.
- Burrell Aviation has successfully undertaken these laborious efforts and secured staff/commission approval for executed leases (and will continue to do so), alleviating the need for a cargo company with urgent expansion needs to endure a possible year-long (if not more) government process.
One component of protocol at a large, well-developed airport (such as where many mature cargo operations are stationed) is a formal procurement process, in the form of a Request for Proposals (“RFP”). Many municipalities/airport authorities have a strict code that requires them to seek alternative bids for their space (even if the airport is receiving interest only from the one tenant). The preparation of an RFP response is time-consuming and expensive, as the company will need to engage multiple experts to respond to all of the questions and fully comply.
Perhaps even worse, conformity with the requirements of the RFP will demand more stringent construction standards (efficiency certifications, unionized labor, etc.) that don’t truly benefit the cargo operation, based on its specific needs, but which drive up construction costs.
A company will find itself having to comply with much more rigorous construction requirements than at its current facility, where it enjoys grandfathered status.
Construction Costs for Same Cargo Facility
Even if a vacant parcel happens to be available at the same airport to accommodate a company’s expansion (unlikely at a busy airport that has been developed over many decades), there are additional obstacles that stand in the way of immediate development..
Challenge 3: Speed to Market
The proper developer would have to be identified, and they would first have to gain familiarity with the new site.
- The developer would have to assign their internal engineers, plus engage external consultants and engineers, before they can even consider presenting a plan for going vertical with construction.
Burrell Aviation, by contrast, has already done that work (including the engagement of external engineers) in the conceptual design of a facility that optimizes the land and airfield attributes.
The developer would then have to line up financing for the facility’s construction.
Depending on the nature of the sublease (from the developer to the cargo company), this could be an uncertain or cumbersome proposition.
Burrell Aviation will have a credit facility in place with a lending institution, and will be able to immediately seek approval for construction draws.
The mathematical reality is that a cargo company can pay more in rent to pay significantly less overall.
Example Cargo Facility: Airside Operating Expense Comparison
A company that pays $15/sq. ft. in base rent is actually paying approximately $161/sq. ft. in total airside expenses.
- These airside expenses exclude the primary operating expense such a company incurs: the cost of owning/renting and fueling the aircraft fleet.
By paying $13/sq. ft. more in base rent, a company can unlock the considerable efficiencies attainable with a new, customized facility and actually save approximately $23/sq. ft. on a holistic basis.