Buoyed by Turn-Around, County Approves $2.75 Million Loan To Buy 3 Buildings at Airport
FlaglerLive | March 5, 2015
For a time a few years ago, the county commission’s bet on the Flagler County Airport as an office and industrial zone looked dismal: most of the buildings were empty, abandoned by companies they’d been built for and leaving the county paying the bills. But by late last year, and after a few false starts, the county administration had managed to fill every building again with solid, long-term tenants while making the airport attractive to new companies, such as Aveo Engineering, the manufacturer of specialized aviation lighting that’s been cleared to build a facility at the south end of the airport.
“We are 100 percent fully occupied of everything we have leasable at the airport right now,” Roy Sieger, the county airport director, said.
Now the county wants more. County Administrator Craig Coffey and Airport Director Roy Sieger are proposing to buy back three buildings totaling 58,000 square feet that had been part of a county deal with developer Rich Smith almost a decade ago—a deal that soured during the housing boom.
The administration wants to buy the buildings for $2.75 million and fold them into the airport’s revenue-generating properties as it leases them to various tenants. Most of the space in those buildings is already occupied by tenants.
“We think this is just a smart thing to do as a proprietary fund of the airport, and we’re really excited about it,” Coffey said, “we think this will help make us a full, again, going from mom-and-pop to more and more corporate, more and more professional airport.”
The county commission earlier this week agreed, on the condition that none of the money in play come from property taxes, or involves taxpayers directly. Coffey and Sieger pledged that it does not: the buildings would be bought with a 15-year loan at 4 percent interest. The loan would be financed with money generated by tenants currently. Sieger says that even after the annual loan payments are accounted for, the properties would still yield a profit of $181,000 at current leasing rates—and likely more, once more space is leased. Sieger says once fully rented, the properties would yield an additional $150,000 a year.
“We have some hiccups,” Coffey said. “Not real bad ones.”
One of them, though he did not mention it, is a repeat of the county’s strategy at the height of the housing boom: it invested public dollars at the airport on a bet that it would recoup them and then some. It didn’t work out that way for several years after the bust, when the county had to subsidize the operation to keep making payments on various loans. Nothing says that the economy won’t sour again, causing tenants to leave and upsetting the county’s balance sheet. But that’s an inherent risk of an operation predicated on the county government operating as a landlord.
Other issues: the sheriff may be moving soon, so is the New Way Church, though the county is confident it will keep the church for a few more years before it moves into a facility of its own elsewhere. There are still construction costs to be invested in one of the buildings, which is unfinished, and one of the units in the buildings was sold, legally, by the former developer, so the county will only earn common area fees from that space (about 1,500 square feet).
Sieger filled in the commissioners on the buildings’ history.
In November 2006, the county commission approved leases for a company called Triangle Air to build a 23,000-square-foot set of six hangars hangar for corporate jets and a 28,000-square-foot office and warehouse building. It also approved a 7,500 square-foot office building for the Lighthouse Development Group Inc. Both companies had the imprint of developer Rich Smith. The buildings would theoretically cost the county nothing. They’d be built at their lease owners’ expense, rented out, and the county would get 4 percent of the gross rent price charged occupants.
It didn’t quite work out. The Smith operations stopped making rent payments to the county in June 2012. The developer defaulted on the bank loan, even though he was still collecting rent money from existing tenants. The three-story Airport Corporate Center was never finished: half the second floor and all of the third floor were left undone, though the third floor was used for a time by a dance studio that proved a troublesome tenant. The hangars were more successful, with the office-warehouse building fully occupied and most of the six hangars’ office space occupied, including by the sheriff, AT&T, a gymnastics studio and a church.
In all, 81 percent of the leasable space at all three, combined facilities is currently leased.
Meanwhile the county contended that the bank had an obligation to the county to “cure” the default as far as the county was concerned, and won combined payments of $75,000. Last July, the bank won a court order to foreclose both properties, and a judicial sale of the properties was ordered. Fifth Third Bank bought the properties in September. Coffey then quickly began negotiations with the bank to buy the property.
Commission Chairman Frank Meeker wondered why the county did not bid at the public sale. “We wanted our money back for the rent amounts owed but were purposely trying not to interfere,” Coffey said. “We would have had to come here and ask you to give us ability to spend $5 million and then we would have had to show you how it works. The numbers wouldn’t have worked.”
If the county were to acquire the Airport Corporate Center, it would generate $30,000 in annual revenue, leaving it still in an annual deficit of $1,488. “That’s because basically two-thirds of the facility is not leased right now,” Sieger said.
The Triangle Air hangars and office space’s combined 50,000 square feet are generating $475,500 in annual revenue. Subtracting common area maintenance charges of $49,200, that nets $426,300 a year. “This would basically help carry the three-story until it got on its feet,” Sieger said, referring to the corporate building.
“We’ll pay for the loan with the money that we get from right here,” Sieger said.
The county hopes to close on the deal on March 30.
Should the county’s best hopes materialize, the extra cash generated from the county airport leases will not mean more money for the county’s general fund. “When it’s rolling in cash,” Commissioner Barbara Revels said, “we don’t get to use it for the public, either.” The airport is a so-called enterprise fund, which means it must run on dollars it generates, and may not have those dollars used by other county funds
“We’ll buy some jet planes and start Roy Airlines,” Commissioner Charlie Ericksen joked.
But the county still has loans to pay off at its airport fund, and wants to build more reserves there.