2004/09/20 City AirportREPORT TO:
'C""ity of Kalispell
Past Office Box 1997 -- Kalispell. Montani 59903-1997 - Telephone (406)758-7700 Fax(406)755-775B
The Honorable Mayor Pamela B. Kennedy and City Council
FROM: Fred Leistiko, Airport Manager
Frank Garner, City Manager
SUBJECT: Changes to Airport Leases
MEETING DATE: September 20, 2004
BACKGROUND:
Earlier this year, Council approved a standard ten-year lease form with a built-in 3% annual, compounded
escalation clause for all renewal and new construction leases. The new lease rate is 16 cents per square foot on
150% of the footprint of the building(s). Should any lease be sublet, the new lease form contains the caveat that
the City Airport will receive 2% of the annual sublease to be applied toward administration costs.
There are five existing leases at the City Airport with some of them dating as far back as the 1950s. The annual
revenue from these leases is $2,430 per year. The good news is that for the first time in approximately 20 years,
a new hanger is under construction at the City Airport. This new hanger will generate a new construction value
of approximately $125,000 which, conservatively, will create a tax base of 1-1/2% to 2%. Again, following the
conservative side, this new hanger will generate approximately $1,875 per year in taxes and an annual lease rent
of $864. Serious discussion is underway with a firm out of Missoula who wishes to construct two T-hangers
and two 60x60 hangers for a total construction cost of $750,000. If this project comes to fruition, it will
generate approximately $11,250in an annual tax base and $7,920 in an annual lease rent.
It has come to management's attention that lending institutions when financing new construction activities on
leased land have a problem with financing terms exceeding the ten year lease term currently used. Attached is a
letter from one of our leading lending institutions verifying this financing requirement. Therefore we would
like to propose a change to the current lease form as follows:
• Renewal of existing leases to be based on a 10-year lease with the option of two additional five year
terms.
• New construction leases will run for a period of 20-years or the life of the construction financing as
established by the lending institution. This change allows flexibility for new hanger owners to
negotiate with lending institutions for permanent financing based on size and cost of the project.
After new construction leases are entered into, a Developers Agreement will be prepared at the time the
building permit is taken out. The Developers Agreement will insure the new structure is placed upon the tax
roles and that the taxes paid will meet a pre -determined amount, set by the County Tax Assessor. This
document then will generate a guaranteed arnount of taxes in the event future state taxing legislation results in
the reduction of personal property taxes. This is similar to our standard "payment -in lieu -of -taxes" agreement
used in all city developers' agreements.
RECOMMENDATION: Council approve a change in the recently adopted lease to provide the flexibility
of a ten year term with two five year options for existing leases as well as new construction leases with a
twenty-year term or a term to match the financing requirements.
FISCAL IMPACT: Hanger rents now require a lease of land equaling 150% of the footprint of the structure
with an annual compounded 3% escalation rate. In addition to the annual rental revenue, the leased hangers are
owned privately and will then generate tax revenue. The immediate impact when the five hangers are
completed will be $13,125 to the annual tax base as well as $8,784 in annual lease rents.
The attached site map prepared by Robert Peccia and Associations shows an additional potential 36,600 sq. ft.
for additional hanger development which could bring approximately $5,860 in lease revenue and (based upon
Carver's hanger construction costs) somewhere in the neighborhood of $9,000 in an annual tax base.
ALTERNATIVES:
Respectfully submitted,
r �
Fred Leistiko,
Airport Manager
As suggested by Council.
Frank Garner,
Acting City Manager
Enclosure: Sample Proposed Lease Agreement
Glacier Bank Letter Regarding Typical Financing Requirements for Leased Land
Proposed Site Map for New Hanger Construction
Letter of Intent from Missoula Firm
GLACIER
BANK
Date September 10, 2004
Fred A. Leistiko, Airport Manager
PO Box 1997
Kalispell, Montana 59901
Dear Mr. Leistiko
This letter is in response to your request for information on bank underwriting guidelines to finance
improvements on leased ground. More specifically, hangers to be constructed on leased ground at the City
Airport,
Glacier Bank and other lenders in the valley have been able to accommodate loan requests at Glacier Park
International (GPI) and on other leased ground properties such as Evergreen Rail industrial Park Mike
Daigle (257-5994) would be a good contact at GPI and Mark Johnson (751-4412) would be a good resource
for information of ERIC lease terms.
The structure of the lease is key to the availability of financing.
What do we look for in a lease?
1. The term of the lease must beat least as long as the full amortization term of the loan and provide
for reasonable and clearly defined renewal options. A typical lease designed to support
construction of major improvements would run for an initial term of 20 years with two five year
renewal options.
2. Any price escalators in the lease must be well defined and tied to an established independent index
such as the Consumer Price Index. A typical lease would provide for a price increase every five
years tied to changes in the CPI.
Marketability of the property is also a key underwriting issue. We would look at the structure of
the lease, its transferability and any related "Condo Associations". It is not uncommon for a
Condo association to be formed for purposes of holding the ground lease, providing insurance and
common area maintenance. The individual Condo (or hanger) owners would theta have the ability
to file a Declaration of Unit Ownership to facilitate the transfer of unit ownership without
renegotiating or transferring the underlying ground lease.
4. Finally we would underwrite the individual borrower and the improvements using standard credit
underivriting guidelines.
I hope this information is helpful. If you have questions please don't hesitate to ca[l me at 756-4256.
Dennis S. Beams
EVPIChief Credit Officer
Glacier Bank (wiviv.glacierbank.com)
P.O. Box 27, Kalispell, Montana 59901.
Phones: (Office) 406-756-4256
(Cell) 406-261-4556
(Fax)406-758-4351
www.glacierbank.comemail: glocier@glacierbank.com
MEMBER FDIC AN EQUALOPPORTUNITY
& B Woodworkers, Inc.
mrllmm�t<
To Fred Ix- istiko,
Pleas.c contact Todd Berg at (406) 370 - 4502 if there are any questions.
Todd Berg
2216 Missoula Ave. - Missoula, MT 5,$)8o7,-3,538 & (4o6) 370-4502
{
Ulty of Kalispell
Post Cif=ice Box 1997 - Kah,apell. NIoma a 59903-1.997-'i`eiephone E4€ 0758-7703 'a l,406)758-7758
REPORT TO:
FROM:
SUBJECT:
MEETING DATE:
BACKGROUND:
The Honorable Mayor Pamela B. Kennedy and City Council
Susan Moyer, Community Development
Prank Garner, City Manager
Extension of the of the Airport TIF District
September 20, 2004
Kalispell City Airport/Athletic Complex Urban Renewal District
The City Council adopted Ordinance No. 1242 on July 17, 1996, approving the Kalispell City Airport/Athletic
Complex Redevelopment Plan as an urban renewal plan. Goals established by this Plan are as follows:
• To minimize hazards to navigation;
• To develop the airport in accordance to any airport layout plan;
• To increase development opportunities on nearby properties;
• To promote compatible land use in and around the airport;
• To establish a funding mechanism for airport operations; and
• To establish a priority schedule for plan implementation.
Regardless of whether or not the airport is upgraded to a Class B designation, the need for infrastructure work
such as running utilities to new hangers, asphalt paving of taxi areas, deferred maintenance, etc. continues to
exist as long as the City owns and operates the airport. if a contract is entered into with the FAA for the
expansion of the airport and realignment of the runway, the T1F funds will be the source for the 5% match of
FAA dollars as well as any ineligible FAA costs. Finally, Tax Increment is a source for the $for$ match of
Economic Development Redevelopment funds for job creation and small business expansion and/or retention
within the district as well as a mechanism to help future private development within the district.
This Urban Renewal District is due to sunset on July 30, 2006 unless Council wishes to extend its life by the
sale of a bond to complete the above activities. At the present time the district generates approximately
$250,000 per year in increment as well as a $50,000 per year payment in lieu of taxes from Rosauers. These
funds will be available to retire an annual debt on a bond sale to preserve the District.
RECOMMENDATION: City Council approve staff moving forward with identifying specific costs for the
remaining projects to be accomplished as well as working with Dorsey & Whitney in preparation for a bond
sale.
ALTERNATIVES:
Respectfully submitted,
Susan Moyer, Director
Community Development
As suggested by Council.