Getting grounded in airport deals

February 26, 2008 4:51 AM

Say you're a real estate investor. Say an airport in the New York region is expanding to become a major hub. What would you do? What would you buy?

The facility in question is Stewart International Airport, which was recently acquired by the Port Authority of New York and New Jersey via a lease buyout. The plan: Expand the airport so it can handle an increased amount of traffic, easing congestion on the remaining three airports in the metropolitan area. So extreme is the congestion in New York that 50% of flights, according to local papers, miss their intended arrival or departure times. Apparently, $500 million has been earmarked for the ten-year expansion.

Stewart is located near the sleepy (but somewhat drug-addled) town of Newburgh, about 55 miles north of New York City. Its runways are already equipped to handle international flights. The airport is currently surrounded by fields and a smattering of hotels.

Obviously, the airport expansion will require a considerable investment in new buildings and infrastructure, both by the government as well as private enterprise. Right now, I'm trying to picture what types of opportunities might be in store for savvy real estate investors. The following things spring to mind:
-Raw land
-Warehousing (including mini-self storage)
-Hotels and bars
-Housing for the families of airport employees

Of these, raw land is the least attractive, because of the negative cash flow due to high property taxes. I'd prefer an investment with a near-term payout, such as income from a rental or warehouse, rather than a speculative property or a flip. But I'm not averse to going into a larger investment as part of a syndicate or partnership.

Put on your thinking caps, people. What opportunities, both in-the-box and out-of the-box, can be envisioned as likely due to this deal?

posted by Gordion Knott to work & money (10 comments total)

Facilities (offices/lots) for rental car agencies. Kitchen facilities for food prep for airlines. Gas/service station (or anything else) catering to taxi drivers. Cell phone tower. Offsite parking with big discounts for local business travelers and 'concierge' services - oil changes and detailing. Drive-through coffee shop. EMT/Ambulance service. Health clinic with late hours for airline staff. Shipping facility for Fedex, DHL, etc. Snow removal & landscaping.

I've heard airlines rent 'crash pads' - furnished apartments to house their staff overnight. Talk to some flight attendants and find out what they like to do between the airport and where they stay.

Of course, it's New York, so you can bet most of these opportunities will be locked up friends of local pols.
posted by These Premises Are Alarmed at 5:09 AM on February 26, 2008

Dry cleaning for airline staff and business travelers. Wind energy generation plant. Bottled water production for airline and airport shops. Workout facility with late hours for overnight airline staff. Dunkin Donuts. "I Love New York" themed gift-shops for business travelers who need to pick up something for their kids. Conference facility for business travelers. Micro-office rental facility for same. Japanese-style micro-hotel. Golf course, day spa, massage parlor. Limo service for surrounding counties.

What would be useful for snowed-in travelers? Pizza delivery? What do baggage handlers and TSA screeners and airport mechanics really want? You gotta figure they'll live mostly locally.

All local utilities will need an upgrade. Being a utility in NYS isn't easy, though.

I go to EWR regularly enough and I have never stepped off the airport facility, so I don't think you're selling to passengers. You want to provide a service to airline or airport staff or something that's brought TO the travelers.
posted by These Premises Are Alarmed at 5:21 AM on February 26, 2008

So extreme is the congestion in New York that 50% of flights, according to local papers, miss their intended arrival or departure times.

I think the problem is actually air traffic control's inability to scale up to meet traffic. A new airport in the NYC area could have zero impact on flight delays.

What opportunities, both in-the-box and out-of the-box, can be envisioned as likely due to this deal?

The deal isn't done until it is done. Expect some strong opposition to the airport. Plans will change. The process will drag on far longer than you expect. A conservative portfolio of lottery tickets and sub prime mortgages may be a safer investment.
posted by b1tr0t at 6:22 AM on February 26, 2008

I have always wondered why airports don't supply cots to stranded travelers. I wonder if some sort of cot rental company that could deliver on short notice and has clearance at the airport would be viable. It can't be more problematic than people trying to sleep on the floor on top of their luggage. Have you ever seen weary families traveling with small children stranded at the airport? That has to be hell. Did they bring enough formula? Is it available at an airport shop? How about diapers? How about 2 hours with some babysitter so the parent(s) can eat a meal in peace? Maybe some sort of service that helps ease the frustration of frazzled stranded travelers. It doesn't always happen due to bad weather, sometimes a mechanical failure or a bumped flight will do it.
posted by 45moore45 at 6:36 AM on February 26, 2008

REIT REIT REIT ... there's a reason why REITs are around for those wanting exposure to real estate. You can play locally, but that's really risky for a somewhat limited upside in my opinion.
posted by geoff. at 6:47 AM on February 26, 2008

REITs are around for those wanting exposure to real estate

geoff., that's true, REITs are a convenient investment for people looking for real estate exposure. However, the Vanguard REIT Index ETF has been in a tailspin since January 07, dropping from a high of 85 to 60. The reason for this decline is that REITs typically invest for appreciation, rather than income. And the market slump has affected their returns.

Income-motivated investors on Mefi (including me) look at these figures and chuckle, because rents in 2007 have been stable or even gone up in some areas.

REITs are bad for highly motivated, serious real estate investors for several reasons: 1) They're battered by market downturns because they don't focus on income; 2) They don't pass on tax benefits like depreciation and interest writeoffs; 3) They can't be safely purchased via leverage (OPM, ie mortgage money); 4) They don't offer the investor managerial control over the properties in the portfolio, and are in fact separated by several operational layers from the assets they invest in (as are mutual funds, of course).
posted by Gordion Knott at 7:01 AM on February 26, 2008

I think the problem is actually air traffic control's inability to scale up to meet traffic. A new airport in the NYC area could have zero impact on flight delays.

It's not ATC. It's the number of runways. ATC gets blamed because when weather goes bad, separation minima increase and the pilot announces, "ATC has extended our ground hold." You really don't want planes coming in every ninety seconds when the weather's 200 and a half.
posted by MarkAnd at 7:08 AM on February 26, 2008

I think the problem is actually air traffic control's inability to scale up to meet traffic. A new airport in the NYC area could have zero impact on flight delays.


To echo MarkAnd's comment in simpler terms: runways can manage a finite number of airplanes per hour. Bad weather decreases that number. Increased capacity (by, for example, adding another airport) decreases congestion. Well, in the short-term anyway.
posted by dirtynumbangelboy at 7:11 AM on February 26, 2008

As has been alluded to already, the big money to be made in land and property speculation comes early, either on an informed guess or (more commonly) on insider knowledge. Play poker every week with some local politicians, and you might get some good land suggestions. By the time the proposed development is announced publicly, property prices have (generally) had a chance to appreciate to take this new development into account.

So you are looking for secondary or tertiary opportunities for speculation -- without good inside info (always the smart way to do it), you are going to have to rely on guesses and the best demographic/economic development/future trends data you can find. You can't compete with the research abilities of the big players (unless you have the cash to fund a team of eager young analysts who like to crunch census data and so on) but you can look for small and otherwise overlooked opportunities at the margins.

So start driving the area (plus getting hold of all the detailed information you can get -- maps, drawings, etc -- from the local planning offices and whomever else has a hand in the deal) and think about what happens if 10,000 more cars start being routed off a certain highway exit, or where the hotels and long-term parking lots might be located, or what the impact three miles away of a new light-rail station might be. Your chance to buy cheap farmland and turn it into a concourse has passed, but the impacts of the big development can spread outwards a surprisingly long way. (And conversely, houses in the approach path to the runway might drop in value because of the noise pollution -- not all the effects are positive, and you will want to consider this, as well.)
posted by Forktine at 7:55 AM on February 26, 2008

Note I'd stay a bit clear of raw land or nearby property speculation.

Eminent domain can kill you.
posted by bitdamaged at 9:08 AM on February 26, 2008