Tenants at East Hampton Airport face big rental increases

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A group of businesses and organizations that rent lots on the 600-acre town-owned East Hampton Airport property are facing dramatic increases in their annual rents in coming years.

In order to comply with an agreement the town reached with the Federal Aviation Administration last year, officials say that they will begin charging 10 of 13 tenants fair market rents when their leases expire over the next five to 20 years. Two are already charged fair market values and the other tenant is the town’s own police department.

Most of the tenants, which include the Phoenix House, LTV, The Country School, and the Maidstone Gun Club, are being charged this year between $30 and $45 a year per 1,000 square feet of property.

If those leases were adjusted today to reflect fair market-value, as required by the FAA for airport property, many of the annual rents would increase by more than $20,000, far more than double in all cases. According to documents provided by the town, the gun club currently pays $100 a year; and the highest rent this year, paid by a company that leases two adjacent properties and subleases space to commercial tenants, is $9,216.

“This is the first I’ve heard about it,” said Robert Caruso, a tenant at 56 Industrial Road. Mr. Caruso runs Robert Caruso Studios, a woodworking company, and shares a lot he rents from the town with G.T. Power Systems. “I guess I have to educate myself,” he said.

“I have options … to renew or buy the land and all kinds of things,” said Ron Sullivan, who runs Ron Sullivan Welding at Industrial Road Site 21. He also had not heard about the eventual rent increases. “I don’t see how they are going to do this.”

Because the town accepted money from the FAA for work at the airport, it was required to adhere to a list of “grant assurances.” One of those assurances is that any town-owned airport land that is rented out should be priced at fair market value; also, all the revenue from rents should go only into the airport fund in the town budget.

The FAA goal is to keep the airport viable and self-sufficient and to prevent it from being used as a financial resource for purposes other than aviation.

The town received its last grant from the FAA in 2001. Those applying to the rental of properties do not expire until 2021; others expire in 2014.

An audit by the FAA in 2001 revealed that the town was charging far below fair-market rates for those properties. Subsequently, a group of town officials—including town attorneys Laura Molinari and John Jilnicki, Town Supervisor Bill McGintee, airport manager Jim Brundige, and Town Councilman Pete Hammerle—negotiated with representatives from the FAA over how to compensate the airport fund for the years of low rents.

The town came to an agreement with the FAA in June 2007. It calls for the town to begin charging fair-market rent for all 11 tenants when current leases expire and that $232,844 be moved from the general fund into the airport fund in order to make up for lost revenues. Earlier this year, the Town Board made that transfer.

Although the town rents out lots to a total of 12 tenants for non-aeronautical uses, one of the tenants—AT&T, which operates a cell-phone tower northwest of the airport—has been charged an annual rent above fair market value.

The town also agreed with the FAA to pay 75 percent of fair-market rent into the airport fund each year for its own use of a 7.35-acre airport property at the corner of the Wainscott Northwest Road and Industrial Road. It is the site of the East Hampton Town Police Department headquarters and a training facility for the East Hampton Fire Department.

Taking into account increases in the consumer price index since the property was appraised in 2005, the town should have paid $54,023 from the general fund into the airport fund last year for its use of the parcel.

The rental of land at the airport for non-aeronautical uses dates back to the late 1970s, according to Ms. Molinari, when the town began leasing out parcels, most of which line Industrial Road along the southern border of the airport property. They are considered part of the town’s “Industrial Park.”

Ms. Molinari said last month that the town offered the land for below-market rent in order to encourage economic development and local employment.

In 2001, members of the East Hampton Aviation Association and the East Hampton Airport Property Owners Association submitted a list of complaints to the FAA, claiming, among other things, that the town was not directing airport revenues to the airport fund and was not charging fair market value for its tenants at the Industrial Park.

“You have this disparity between what fair market value is and what is actually being charged,” said Gene Oshrin, a pilot and a former member of the Aviation Association who was involved in the dispute. “That revenue was supposed to subsidize the airport. That was the reason for creating the industrial park—so the airport would be self-sustaining.”

Despite corresponding for years with town officials and the FAA, Mr. Oshrin said that none of the complaints from his organization prompted the FAA to enforce its policies in the town.

It was only after conducting an audit of the town’s airport fund in 2001 that FAA officials complained to the town about the low rent on the properties.

“I started here in April of ’04,” Ms. Molinari said. “When I got here, there was a letter on my desk waiting for me from the FAA, saying, ‘We haven’t heard from you and you owe us all this money.’”

FAA officials could not be reached for comment, but Mr. Jilnicki said last week that they had told him that the audit of the airport fund was unrelated to any complaints about violating the grant assurances.

Mr. Jilnicki said that money that was transferred into the airport fund early this year reflected revenues that the fund should have received from 2000 to 2005, minus the amount of money that the town collected in general property taxes over those six years and directed into the airport fund to help pay for airport operations.

The town put an average of about $66,000 per year in tax revenues into the airport fund over the last three years. Other revenue is collected through hangar site rentals, landing fees, and fuel sales.

In a letter to the FAA in 2001, former Assistant Town Attorney Richard Hammer wrote that the town’s decision to set rental rates on airport property below market rates “has been offset by contributions from the general fund.” But by paying the $232,844 into the airport fund, town officials essentially conceded that the tax revenues do not make up for the low rents.

Ms. Molinari explained that the FAA is interested in keeping airports as self-sufficient as possible, and viewed the town’s charging of below-market rent for the airport properties and collection of money from taxpayers for the airport fund as a subsidy for the businesses around the airport.

“The thought is that the airport is a self-sustaining entity and does not need any taxpayer dollars to be supported,” Ms. Molinari said.

Despite the opinion of the FAA that the town should not need to collect taxpayer dollars for the airport fund, Ms. Molinari said, the 2007 agreement between the FAA and the town does not require that the town stop doing so.

Although the town paid for an independent appraisal of all the properties in 2005, the town must wait until the leases run out or the tenants express an interest in renegotiating before it can begin charging fair-market value. The leases expire between 2013 and 2027.

In a 2005 appraisal of all the parcels that are rented for non-aeronautical use, the company Given Association calculated how much the fair market rent for every property should have been when the leases began.

According to the appraisal, the base annual fair-market rent for the properties when the leases began—between 1996 and 2004—would have been anywhere from $15,600 for Map Easy, a map company on 1.84 acres on the north side of Industrial Road, to $62,500 for the 7.35 acres used by the police and fire departments.

The Maidstone Gun Club, which uses about 10 acres to the northwest of the airport, pays $100 per year in rent, which Mr. Jilnicki said is due to the fact that it is considered a community facility and is used for training for the police department. According to the appraisal, the a fair market annual rent for the property in 1996 would have been $43,700.

Under the town’s below-market lease with him, Robert Rattenni, who operates facilities that offer smaller commercial spaces to his own tenants on 6.5 acres at 39 and 41 Industrial Road, is scheduled to pay $9,216 in rent in 2008. His 15-year lease is set to expire in 2017.

At the time Mr. Rattenni’s lease began in 2002, the fair market base rent for the two properties would have been $67,900 a year. Instead, he paid $6,912 that year, according town records.

Mr. Rattenni, who was reached by phone last month, said that he had not heard about the negotiations between the town and the FAA and would not comment.

Although many of the leases include options to buy the properties after a certain period, the town is required to get approval from the FAA to sell any airport property, according to its grant assurances.

In 1994, the town sold property occupied by the Living Water Full Gospel Church at 69 Industrial Road for $84,000 without permission from the FAA. But in the negotiations with the town over the use of the airport properties, Mr. Jilnicki said, the FAA did not address the unapproved sale of the church land.

Mr. Jilnicki said that the owners of Wainscott Farms—at the corner of the Daniel’s Hole Road and Industrial Road—had expressed interest in buying the property.

FAA officials have refused to consider the sale of any of the properties, or the rental of any new ones, until the town approves a master plan and layout plan for the airport.

Town Councilman Pete Hammerle said that there a number of vacant parcels on Industrial Road and a waiting list of business owners who are interested in renting them.

“We have to produce an airport layout plan, and hopefully they will allow us to lease Industrial Park lots that are undeveloped,” Mr. Hammerle said.

When the grant assurances that refer to property rentals expire in 2021, Mr. Jilnicki said, the town could decide it has to charge fair market rent for the properties around the airport. But only two tenants have leases that expire after 2021: 77 Industrial Road, formerly East Hampton Studios, whose lease expires in 2027, and AT&T, whose lease ends in 2023.

Mr. Jilnicki said that he was under the impression that the Town Board wants to rent all properties in the future at fair market value.

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