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Airport courts developers
TheStar.com - Business - Airport courts developers
Pearson's operator leasing property for development in bid to reduce landing fees and maximize revenue
January 16, 2007
Pearson International Airport wants to lease prime land to developers to reduce landing fees, which are among the highest in the world.
The Greater Toronto Airports Authority, operator of Pearson, is expected to announce today that a 6-hectare site across from Terminal 3 on the east side of Airport Rd. is available for an estimated $300 million development. The site, now a parking lot, could hold a 400-room hotel, conference centre, retail shops and two office buildings.
"We think it's pretty exciting that we have the opportunity to build a commercial development there," said Howard Bohan, the GTAA's director of properties and concessions.
Bohan said a project of this magnitude is a first for a Canadian airport authority, but there would likely be more in the future as the GTAA figures out how to maximize revenue from its real estate.
"We are taking a look at all the lands that we have to see how we can put them to use to drive additional revenue," said Bohan.
The GTAA is one of Greater Toronto's biggest landlords, managing 1,820 hectares of airport lands and 733,000 square feet of space at Pearson.
The main use for the money would be to lower landing fees, he said, declining to specify how much the fees could be reduced if the development is leased out.
"There's no doubt we're an expensive airport. But it's hard to say how much fees can be reduced. It would really depend on the proposals that we get."
Airlines are charged fees to use the airport, which are in turn passed on to consumers.
Pearson is among the world's highest, charging $10,986 (U.S.) for a Boeing 747-400 to land, while New York's LaGuardia charges $5,031 (U.S.).
At the beginning of the year, the GTAA raised its airport improvement fee from $15 to $20 per passenger to pay for its extensive $4.4 billion redevelopment program. The GTAA's board also approved a 1.45 per cent increase in landing fees for this year.
The fees cover airport improvements, which the GTAA has argued were needed to make Toronto competitive internationally. As well, nearly a third of landing fees goes straight to Ottawa for rent.
Air Canada, a frequent critic of the GTAA, has called the airport improvement fee increase "completely unreasonable," saying it was "irrefutable proof that the government has to rein in airport authorities."
Other airlines have said they have cut landings at Pearson because of expensive fees.
Meanwhile, the GTAA argues that fee comparisons can be misleading, since unlike other airports, they are bundled into one figure.
"It's the difference between going to an all-inclusive resort and an à la carte resort," said Scott Armstrong, a spokesperson for the airport.
The land, which is owned by the federal government and managed by the GTAA, would be leased on a long-term basis likely starting at 50 years with an option to renew, said Sheila Botting, senior managing director for Cushman & Wakefield Lepage Inc.
The GTAA hired the firm to find ways to maximize land use.
"There is currently a shortage of land in the area, so we think this will be well received by developers," said Botting.
The site is bounded by Airport Rd. to the west, Viscount Rd. on the east, Highway 409 to the south and the LINK train to the north.
Vacancy rate for Class A buildings are at 5 per cent in the airport area, compared to 7.5 per cent overall for the GTA West area, said Botting.
A 7- to 8-per-cent vacancy rate is considered a balanced market, which makes it attractive for developers to build, she said.
The site, formerly designated for a runway clearing and deemed surplus, is serviced by highways 409, 401, 427 and Airport Rd., and will be connected to the airport through the LINK train station.
"This will have direct access to millions of people who use the airport every year," said Botting.
The total development may hit about a million square feet, and the GTAA is looking at options ranging from building the entire site or developing it in parcels.
A million square feet would be roughly equivalent to one of the major new office towers going up in Toronto, such as the Bay-Adelaide Centre which is 1.1 million square feet.
However, because of height restrictions at the airport, the buildings would be spread over a much wider footprint. The office buildings would likely be no taller than 13 storeys. The authority says the site can hold two such buildings of a total of 400,000 square feet.
While not a significant size for the market, it means developers should be able to get going quickly on proposals, said Botting.
While the GTAA claims this is the first time a development proposal of this scale has been made by a Canadian airport authority, other such developments have taken place in Europe, Asia and the United States. Zurich airport for example, has about 1 million square feet of development.
Currently, Terminal 3 has a 474-room Sheraton Hotel, the only hotel directly on site.
The new development is not expected to impact business there, said Bohan.
The airport area currently has 5,200 rooms, but there is a projected higher demand for rooms over the next five years, according to a report prepared for the GTAA.
This is not the first time that a transportation authority has tried to find ways to maximize revenues through their land holdings.
The Toronto Transit Commission is currently looking at unloading more than a dozen surplus properties.
Unlike the TTC, however, the GTAA is only looking to lease, not sell lands.
And Bohan cautions that future announcements will likely not feature as comprehensive a land package from the GTAA.
"We have smaller land parcels that can house small offices and some industrial land, but nothing really like what we are offering here," he said.
The deadline for proposals is March 1, with the selection of the winning candidate in April. The GTAA hopes that development can start in July.