Airport Courts Developers

Discussion in 'Buildings' started by yyzer, Jan 16, 2007.

  1. yyzer

    yyzer Guest

    from today's Star...

    Airport courts developers - Business - Airport courts developers
    Pearson's operator leasing property for development in bid to reduce landing fees and maximize revenue

    January 16, 2007
    Tony Wong
    Business Reporter

    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.

  2. alklay

    alklay Guest

    They have improved the airport to make it more competitive yet the landing fees makes the airport uncompetitive. Go figure.
  3. Mike in TO

    Mike in TO Guest

    The fees are nuts... last summer I car-pooled down to Buffalo to fly to NYC saving about 2/3 of the cost a ticket out of YYZ would have cost. For a group of four people we saved over $1000 by going to Buffalo.
  4. spmarshall

    spmarshall Guest

    I'm trying that option for my trip to California this April. Even with the bus fare to Buffalo, I'm paying less than half of what I would if I flew from YYZ.

    Part of it though is that the US government subsidizes airlines and airports, unlike Canada, who prefers to download all the costs to airlines and then to consumers.
  5. When I fly anywhere in the US, I always try to fly out of Buffalo. Flights to New York for example are usually 1/4 of the price.
  6. FutureMayor

    FutureMayor Guest

    We all know the landing fee MYTH at Pearson is untrue so I don't know why we continue to bash the GTAA.

    Even if the GTAA was really selling/leasing land to off set airport landing fees, it strikes me as unsustainable in the long term.

    The development in question has already gotten approval from Mississauga. Should be good for the area and act as a nice gateway to the airport.

  7. I think airline competition is the bigger reason for cheaper flights out of Buffalo.

    I've always been surprised that Pearson never chose to build commercial development as part of the new terminal project. All the new European airports have large retail and office areas attached.

    This development should provide even more impetus to extend the people mover to the GO line.

    There also appear to be some fact check problems with the article:

    They definitely mean square metres of space.

    A 747-400 definitely cannot land at LaGuardia.
  8. allabootmatt

    allabootmatt Guest

    Yeah, I was gonna say...I don't think LGA even gets any widebodies at all, except for maybe the odd 767 on a positioning flight to Chicago or something.

    Maybe someone more knowledgable can help out here, but aren't Pearson's landing fees not quite as high as advertised, since the GTAA charges one all-inclusive fee as opposed to several?

    Nonetheless, this development kick is one more reason why, in my opinion, the GTAA is a model public (or semi-public, whatever) agency. Being business minded has helped them utterly transform our airport infrastructure without a cent of public money, and in fact generating revenue for the government (the ludicrous ground rent system). The TTC could learn a thing or two, though it looks like Giambrone, at least, has.
  9. simply Dan

    simply Dan Guest

    Air France, KLM, British Airways and Lufthansa are all adding extra flights to Toronto Pearson. Asian carriers are doing the same and I read Emirates is looking at offering Toronto-Dubai service in the future. That should be enough proof that high landing fees aren't keeping major carriers from expanding on their Toronto routes.
  10. Ed007Toronto

    Ed007Toronto Guest

    And once the airport is done they will start paying down the debt allowing the fees to be reduced in the long run.
  11. In terms of 'done', one of the staff at the Pier F Trial this past Saturday threw in the line "until our next expansion phase 10 years from now" during one of his announcements.

    I do not know this person's name, what rank they have, or how precise he meant to be when he said '10 years', but the point is that Pier G construction will not be starting anytime soon, so 'done' will be coming up pretty quickly. First though, they do have quite a large terminal, parking garage, and associated road network to level over the next year.

  12. alklay

    alklay Guest

    It appears that the GTAA is empire building and will look for any opportunity to expand its jurisdiction and projects, whether necessary or not - witness their desire to start up the unneeded Pickering airport.

    I just heard a professor from York University, who specializes in the business of travel and airports, speak about this topic. He stated that the airport landing fees will not be going down and at best, this will just slow down the yearly increases - and because of the debt structure there will have to be yearly increases.
  13. I think it's a little unfair to say that they are "empire building". Like other land owners, they will logically want to make the best use of any land they own. The parcel in question, immediately opposite the airport itself, is in a prime location for construction of a hotel, not to mention offices for companies which want to be near the airport. Airport management has some responsibility to maximize the return on their assets.
  14. spmarshall

    spmarshall Guest

    Development to reduce landing fees and fund operational costs is pretty unsustainable, but if it reduces its debt-load, I'm fine by it. Especially if this helps to lead to a real airport transit link, not a Blue 22 gouge-fest brought to you by the crooks at SNC Lavalin.

    This isn't empire-building, but Pickering activity sure is. More demolitions and evictions are going on over there yet again as the GTAA licks its lips with the idea of developing that land.
  15. alklay

    alklay Guest

    From the Globe:


    Airport looks to stoke up revenue stream
    GTAA to lease land at Pearson for hotel, towers to stem reliance on landing fees

    The Greater Toronto Airports Authority is looking to boost its revenue and reduce Pearson International Airport's reliance on aircraft landing fees by leasing land for a new hotel development and two towers of prime office space.

    The development plan, with an estimated value of $300-million, involves a 15-acre site that is now used for parking and has been designated as excess by Canada's largest airport. The site fronts on Airport Road, which separates it from Terminal 3, but is connected to the airport and parking by Pearson's new passenger shuttle train service.

    "This has tremendous potential for the development community," said Sheila Botting of Cushman & Wakefield LePage Inc., the real estate firm advising the GTAA on the project. "There is a tremendous shortage of land in the airport vicinity."

    Vacancy rates for prime office space are only about 5 per cent in the area, Ms. Botting said.

    The project, still in the early planning stages, could include between 300 and 400 new hotel rooms, as well as up to 400,000 square feet of office space, she said. Regulations would limit the project's height to about 12 or 13 storeys. Conference, restaurant and retail facilities also may be included in the venture.

    A request for proposals has been issued to the development community with a deadline of March 1. The winning developer is expected to be named in April, with preliminary planning work beginning this summer, Ms. Botting said.

    While terms of a deal are still to be decided, airport officials indicated that it likely will involve a long-term land lease of 50 years or more, with options for renewals.

    The GTAA leases the land from the federal government, but Howard Bohan, the GTAA's director of properties and concessions, said no federal approval is required for the development since it is in keeping with the airport's master plan.

    Mr. Bohan said the development deal is likely the first of several transactions involving parcels of excess land at Pearson.

    Separately, the GTAA plans to build a five-level parking garage that will have 5,000 spots for airport employees.

    Rick Erickson, an aviation consultant who heads RP Erickson & Associates in Calgary, said the GTAA's efforts to bolster its non-aeronautical revenue come amid complaints from airlines about rising aircraft landing fees.

    "As far as raising new revenue goes, this is welcome news. But will it offset Pearson's reputation as an expensive airport in the world? I don't think so," he said.

    Still, Mr. Erickson said it's important for Pearson to broaden its revenue sources, following the example of airports such as Vancouver and Calgary.

    Over the past eight years, the GTAA has spent $4.5-billion to upgrade and expand Pearson, including $3.3-billion for Terminal 1.

    In 2005, Pearson became the world's most expensive place to land a plane, according to a study by the Air Transport Research Society (some myth!!). The study also said that Pearson needs to pull in a larger share of revenue from sources such as retailing, fast food and leasing space.

    Society president Tae Oum said yesterday that he expects Lloyd McCoomb, who takes over as GTAA president on Feb. 1, will pay more attention to retailing and commercial development than his predecessors. Mr. McCoomb, currently the GTAA's vice-president of planning and development, will be replacing the retiring John Kaldeway.

    "Pearson is well behind other major airports in the world in terms of generating non-aviation revenue," said Mr. Oum, who is a professor at the University of British Columbia's Sauder School of Business. "It's a step in the right direction to boost commercial developments."

    Its a shame the landing expenses are so high. I would imagine that such hurts the economy of the region.

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