MD Helicopter moves to renegotiate land leases

 - September 27, 2007, 6:09 AM

MD Helicopters has requested a concessionary renegotiation of the land leases for its main plant and offices at Falcon Field in Mesa, Ariz. The company made the petition to the City of Mesa in July after the rent on most of its 46-acre site automatically doubled during the last year under terms of the leases, first signed in 1983 when the company was known as Hughes Helicopters. As presently drafted, the new leases are scheduled to expire in 2033. MD leases three parcels–each covered by separate lease agreements–at Falcon.

The City of Mesa owns Falcon Field. Airport director Corrine Nystrom is handling the lease negotiations on behalf of the city and told AIN, “MD is an important tenant and important to the City of Mesa. Both parties need to look at the situation realistically and make it work.”

MD CEO Lynn Tilton has said, “We want to stay.” But MD’s general counsel, Randy Walti, noted that MD has received several relocation offers from other states.

Nystrom called the negotiations “complicated” and noted that FAA grant restrictions and the area’s soaring property values might limit the city’s ability to mollify MD.
According to Nystrom, the airport receives approximately $1 million annually in federal grants and a similar amount in state funds, and that affects its flexibility to make deals. “In many ways our hands are tied,” she said.

That stand has drawn fire from several area business groups, which fear that MD might relocate unless it can reach new and more favorable lease terms. The president of Mesa’s Chamber of Commerce characterized the City’s response to MD’s request as apathetic.

However, even with the lease rate increases, airport tenants are currently paying 20 to 25 percent less than market value, according to Mike Haenel, senior v-p of the Phoenix office of Grubb & Ellis, the airport’s leasing agent. Haenel also pointed out that the leases “cost significantly less than a [land] purchase.”

He told AIN that area land values are up 30 to 40 percent since 2005 and that airport land, which currently leases for 32 cents per sq ft, sells for $10 per sq ft. By those calculations, MD’s site–without the structures–is worth more than $20 million.
Purchasing the land is not an option for MD because it is located too close to the airport runways, said Nystrom.