Creative in Carlsbad

Oct. 6, 2006
New thinking and new money are redefining McClellan-Palomar Airport.

A short drive north of San Diego, within earshot of the coastal waves of the Pacific, lies McClellan-Palomar Airport, part of the County of San Diego's system of general aviation airports. During an era of tremendous development around it, the airport remained fairly static, with little support for significant change. Enter Richard Lee Sax, a developer and partner in a tired FBO, and Peter Drinkwater, a new director for the county's airports. With the financial backing and operations experience of Denver-based Ross Aviation, the airport recently unveiled a glimpse of where the facility is headed - Premier Jet. And Premier Jet introduced a new concept: the 30-year hangar subtenant.

Recalls Sax, "As far as real estate is concerned, Carlsbad was on fire; the north [part] of San Diego county was a hot development environment. The needs of the airport and the aviation community were changing rapidly."

Sax, a lawyer immersed in the development opportunities, became familiar with McClellan-Palomar Airport as a private pilot, and in time became a partner in Borroughs South Coast, a long-time and what he terms a tired fixed base operation.

"We started planning the facility [Premier Jet] and over a period of 12 years, the concept grew to what you see today," explains Sax.

Premier Jet, opened this summer, is a $33 million, 15-acre complex that includes 61,000 square feet of office space and another 140,000 square feet of corporate hangar space - 19 hangars in all. At the same time, the Premier Jet investment is serving as a catalyst to the airport as a whole, explains airport director Peter Drinkwater, who says a change in thinking at the county level has helped facilitate forward progress at McClellan-Palomar.

Comments Drinkwater, "The people that I work for, the Board of Supervisors, have encouraged innovation in our business relationships."

It was that new, innovative approach, he says, that led to the Premier complex getting county approval. Central to the FBO proposal was a prepaid lease (PPL) concept which hadn't been well received by officials in the past.

Sax credits Drinkwater with bringing a new attitude of openness to the airport, and encouraged the airport director to sit in on company planning sessions. "I did invite Pete, as I did previous airport directors," explains Sax. "Pete, and several members of his staff - notably from the real estate and engineering departments - came to untold number of meetings. I had never seen anything like that in the way of cooperation. I finally realized I was getting more than lip service." A number of things were holding up progress at the FBO and the airport, officials say, including a new master plan to get in touch with where the market had gone. With the proposed FBO, the concerns centered around a fear of piston aircraft users being pushed off the airfield; and, the unique condo concept in which subtenants prepay 30-year leases with Premier Jet.

The prepaid lease concept, says Sax, is a way to get up front buy-in with tenants. During his 28 years in real estate, he explains, he developed a niche for dealing with leased properties and for office condos. "Leased land is a rarefied environment," he says. "About 80-85 percent of lenders are systematically excluded when you're talking leasehold; they just don't get into the leased environment. The second rarefied environment is bringing condo concepts to things that have not been traditionally condo concepts.

"The niche market of condominiums and leased land jived perfectly with the airport concept."

Under a PPL, which Sax says is effectively sold out, a typical tenant signs a 30-year lease and pays up front some $225 per square foot, over 30 years. "This is a chance for someone to have a fully depreciable office, write off his land lease, and keep his rent flat," he explains.

Meanwhile, the airport received $600,000 of that money up front as part of the 30-year leasehold deal. "That's not the whole enchilada, that's just the up front," says Sax. "We still pay ground rent at the full retail rate for the full 15 acres."

Part 16 - A Catalyst

Concerns about the proposed FBO were significant enough that the local pilots group filed a formal FAR Part 16 complaint with FAA, alleging it would bring with it an unfair competitive environment. FAA ruled in favor of Premier Jet. During this time, Sax had teamed with Ross Aviation, which brought additional investment money as well as FBO operations experience (see sidebar). The addition of Ross was the final piece of the puzzle, says Sax.

Says Drinkwater of the Part 16 experience, "The GA pilots wound up better off as a result of this development. That north side of the ramp didn't get the impetus for funding from FAA until the Part 16. It prompted them to move it up their priority list."

Other development is also happening: Magellan Aviation has broken ground on new FBO facilities; and, the county is preparing to build a GA/office terminal building.