# I 

# I i I . 

## TO **: .** 

**FROM:**

**SUBJECT :**  **DA TE:**  Manageme n t & Op e ra t ions C ommi tt e e

Gary 

### E . Schm i d t , D i recto r of R eliever Ai r ports 

### (61 2 - 7 2 6 - 813 5 ) **RECOMMENDATION** RE: 

### TEMPORARY CREDIT TO RELIEVER **AIRPORTS COMMERCIAL OPERATORS** J une 23 , 2009 .



# I 

# I I 

# i I Given t he state of the economy, includi ng t h a t of general avia tio n , s taf f has rece i ve d a reques t for rent relief from a number of co m mercial t enan ts on t he relie v er airports . The ave rage profi t margin in an aviation commercial business is tYP i c a ll y i n t he 

### low single d ig i ts , mos t ofte n iess than 

### 4 . W i th the loss of aviation activi ty i n t hese d epressed economic ti m es , many o f these businesses can 't sus t ain t he loss i n revenue w ithout f ac i ng closu re. T hese opera t o rs provide services which be n e fit t h e flyin g p ublic. Sta f f b e l ieves i t is reasonable and cons i s te n t with our mission to l ook at ways to help t he m sustain t heir businesses. Currently , commercial ope rato rs pa y re nt pe r Ordi n ance N o. 107, w hic h . se ts forth a combination of g roun d re nt an d a percentage o f gross s a l e s . A very act ive business p ays a lesser ground rental rate (C hart C of Ordinance No. 107) whi l e a very low volume bus i ness pays a hi ghe r ground rental ra te which is equivalen t to aircraft s torage tenants ( C h a rt 

### A) in lieu of percentage ren t . There is also a groun d ren t al rat e catego ry w i thou t pe rcen t a g e re nt for commerc i al t enants who opera t e a m id - volume bus i ness ( Chart 

### 8 ) . Staff and the Chairman have analyz e d a l te rn at i v es to o f fer reason a ble a nd fair relie f fo r t h e commercial operators. The s t aff recommenda t io n i s for a re n t adj ustmen t in t h e f orm of a credi t to every commercia l leasehold e r's acc oun t whic h i s a pplicable t o t he fi rst 5 8 8 , 000 square feet of property calcula t ed by th e ra t es o ut line d in Chart C of Ordi n ance No. 1 0 7 , which i s the lowest ground rent avai la bl e t o co mmerc ia l ten a nts a nd w h ic h are the ra t es t raditionally c h arged to commercial t e na nts w i t h a n a ct ive bus i ness (588 , 000 squa re fee t represents the larges t amount of act i ve com m e rcia l spa c e of any R eliever A i rport c omm e rcial tenant). The credit will apply to Cha rt 

### 8 and Chart C com m ercial leaseholde rs who are charged g round ren t re gardless of t h e act ual ra t es pai d b y a le a seholde r u nder th e ir applic a ble chart . T he amoun t of t he app l icable rel i ef will be calcula t ed per t h e ra t es i n C har t C. All leases held by a pa rt i cula r t enan t are cons i dered toge th e r in applying t he 588,000 t hreshold . This credit w i ll no t apply t o t hose w ho opera te u nde r t he Chart A f ee structure since 

### t here i s litt l e, if any, bus i n es s b ei n g c onducte d from the le ase h old . Th e credit i s recommended to be phased i n as fo l lows :  Forty percent (4 0) reduction o f the ground renta l ra t e f o r each m onth duri n g th e firs t fou r mon t hs after imp l ementati on , 

## o . Thirty p ercent (30) reduct ion of t h e g round ren t a l ra t e f or each m onth dur i ng t he ne xt four months, and 

# MEMORANDUM

### t : J Twenty percent (20) reduction of the ground rental. rate for each month during the final four months of the year, aft er which the ground rental rate wou l d revert back to that out l ined in Ordinance No. 

### 107 . The one year period would begin at the next appropriate bi l ling cycle following Commission approval . . Under this recommendation, the typical credit will range from 

### $2500 to 

### $10 , 000 over the twe l ve month period . The l argest operators, however, would receive upwards of 

### $20,000 . The total cost to MAC of the adjustment is nearly 

### $270,000. Staff has analyzed the impact on the Reliever Financial Model from the implementation of this recommendation. The result would be a one time decrease in revenue of approximately 

### $270,000 as out l ined above. Based on the assumptions that drive the model, including the impa ct of losing the on - going percentage revenue from a major commercial subtenant at the St . Paul Downtown Airport that ceased operations in 

### 2009, the recommended relief is projected to move the surcharge date from 

### 2019 to 

### 2014. The implementation of the

. surcharge in any given year is at the discretion of the Commission. COMMI TTEE ACTION REQUESTED : THAT THE M&O COMMIT T EE RECOMMEND THAT THE FULL COMMISSION PROVIDE

. TEMPORARY RENT CREDIT FOR RELIEVER AIRPORT COMMERCIAL OPERATORS BY IMPLEMENTING THE CALCULATION OUTLINED ABOVE AND THAT THE PROPER OFFICER OF THE COMMISSION EXECUTE THE NECESSARY DOCUMENTS .



# I I 1 ... _ . . _- ......................... _ ................................ ...... .