VNY tenants: rent rates need review

 - January 27, 2010, 10:26 AM

Tenants at Van Nuys Airport (VNY) in Southern California are upset that their rental rates keep increasing while the California economy continues to deteriorate, airport businesses close or move away and operations at the airport decline. In a letter to Gina Marie Lindsey, executive director of airport owner Los Angeles World Airports (Lawa) and board of airport commission president Alan Rothenberg, the Van Nuys Airport Association asked for help.

The letter focused on an issue that continually bedevils Van Nuys Airport tenants, especially master tenants that sublease property to airport businesses. The issue is that Van Nuys adjusts rental rates every five years and, the letter noted, the 2010 appraisal shows that fair market value of Van Nuys land has increased. The airport, the letter added, “has also taken steps to impose a mandatory airport deficit recovery payment at VNY, a rent adjustment requiring tenants to compensate for airport operating losses. The current budget projects a $2.3 million shortfall at VNY this fiscal year.”

A proper look at the data, according to the airport association, would show that rental rates ought to decrease “due to current economic conditions that have depressed land values and caused vacancies to climb.” According to the association, a study of 15 major aviation companies at VNY by the Valley Industry and Commerce Association showed that there have been 383 net jobs lost (41.21 percent) at the airport since December 2007. It is likely that more jobs have been lost if all VNY businesses are considered. Operations at Van Nuys were 403,727 in 2008 (2009 numbers are not available), down from a peak of 504,303 in 2002.
Curt Castagna, president and CEO of master leaseholder Aerolease Group, is well aware of the economic problems affecting Van Nuys because he has the empty hangars that underscore the situation. Aerolease has had to lower some rents to 1990 levels to retain tenants. Castagna doesn’t want to fight Lawa and the city of Los Angeles; rather, he wants to work together to improve the airport, attract new business and preserve its vital role as a reliever for Los Angeles International Airport (LAX).

The problem is that it’s difficult to know what Lawa means when it says that it is running VNY at a deficit. The authority owns VNY, LAX and LA/Ontario International Airport, and VNY tenants are not privy to Lawa’s accounting methods and how overhead is spread among the three airports.

Castagna and the other tenants are concerned that the proposed rental hike of 25 to 30 percent might be excessive in this economy. “Let’s figure out a better way to work together. There has been a loss of jobs, a minimum of 300, probably more.
Let’s partner in this and realize we’re both feeling pain. Now let’s work this out to rebuild it so we can focus on bringing in more jobs and more activity. If we let the issue hang, we can’t establish rates and use those as a means to attract tenants and clients back to Van Nuys,” he said.

The best way to move forward, Castagna said, would be for Lawa to switch Van Nuys to a yearly renewal with an index-based increase. This might work more smoothly instead of an appraisal-based system every five years that results in endless bickering and delays. “Appraisals aren’t an exact science,” he pointed out.

Lawa leadership has had discussions with the tenants about these issues and is aware of the problem.

According to a Lawa spokeswoman, while it has met with tenants, the current appraisal has not been completed, so it isn’t fair to say that Lawa has already latched on to an increase in market value. Appraisals come into play only when initial negotiations are unsuccessful, she said. “VNY’s 2009-2010 operational budget is down 23 percent. Lawa is committed to working with our tenants to identify ways to bring down costs at VNY to assist them during this period of economic uncertainty. All options are on the table to be considered.”