HomeMy WebLinkAbout2017-11-29 Council Packet - Work SessionAGENDA
CITY COUNCIL WORK SESSION
NOVEMBER 29, 2017 – 6:00 P.M.
KENAI CITY COUNCIL CHAMBERS
210 FIDALGO AVENUE, KENAI, AK 99611
http://www.kenai.city
A. Call to Order
B. Introduction – Mayor Gabriel
C. Public Comment (limited to 3 minutes per speaker; 30 minutes’ aggregate)
D. Presentation on Land Sale and Leasing Policies and Procedures by City Manager Paul
Ostrander and Assistant to City Manager Christine Cunningham with Airport Land Sale
Valuation Presentation by McDowell Group
E. Additional Public Comment (limited to 3 minutes per speaker; 30 minutes’ aggregate)
F. Council Discussion
G. Adjournment
Date: August 22, 2017
To: Terry Eubank, City of Kenai
From: Donna Logan and Katie Berry, McDowell Group
RE: Analysis of City of Kenai Leased Land Purchases Valuation Methods
Summary
This memo com p ares the revenue benefits of continuing to lease select City of Kenai Municipal Airport land
pa rce ls with t he reven ue benefits from sale of t hose parcels. An av erage present value of continuing to lease
each parcel is calcula t ed usi ng a variety of land va lue appreciation rates and discount rates. The present value
of lease r evenues are compared to curren t exp ecte d land sale p rices . A lso presented are City of Kena i Airport
Fund bu d get im p licati o ns of cont in uin g to lease all parcels compa red to selling all parce ls.
Results of the ana lysis show t he av erage p resent value of fu t u re cas h flows is muc h higher than the current sale
price; therefore, the Ci t y w o uld receive a hig h er valu e from contin uing to lea se each parce l w ith the same lease
ter ms rather t han sa le of t he land.
Pr ope_rty tax revenues from so ld properties are deposit ed in the Cit(s Ge neral Fu nd an d no t speci ficall y u sed
for airport opera t ions. These revenues cou ld be used for other Ci t y budget priorities. However, even if the
expected property tax revenue is used to support airport functions (t r ansferred to the Airport Fund), the
expected revenue benefi t to the City is st ill greater when the City reta ins and continues to lease this set of
parcels compared to the revenue generat ed by land sales.
Methodology
This ana lysis uses a standa r d discounted cash flow method t o cal cu late the p rese nt value of future land lease
payments and the sale of land at lease expiration for each Ci t y of Ke n ai Mun i cipal Airport land parcel currently
un der evaluation . The discounted cash flow method is the most app ropr iate methodology available to analyze
t h e pr esent va lue of each parce l d ue to the land's use as an in co me-g enerati ng asset.
ASSUMPTIONS:
The following assumpt ions are important to t his evaluation:
• All present values (of expected income streams) were calculated assuming that each parcel has a
new lease beginn ing immediately with the exact same lease terms as the current ren tal agreement.
• Annual lease amounts we re assumed to be adjusted in accordance with City of Ke nai practice of
applying renta l rates to updated appraised land va l ues every five years.
• No costs of land ownersh ip, i ncluding land maintenance and lease admin istration, are incorporat ed
in this analysis.
1400 West Benson Bouleva rd, Suite 5 10 •Anchorage, A l aska 99503 •Telephone 907.274.32 00
www .mcd owellgrou p .net
To estimate the present value of the lease , the following steps were taken:
• Future annua l l ease income was calculated based on each parcel's current rental rate and the future
land va l ue, given a range of land value appreciation rates.
• Yearly estimated lease income under ea ch appreciation rate scenario was then discounted using a range
of d iscount rates to find the present value of each payment.
• Present value of the land sale at lease expiration was calculated , assuming the present sale va l ue is
equal to the future appraised value and given the land appreciation rate scenarios.
• Sa le income was discounted using the same discount rate range employed in the analysis of l ease
payments.
The summation of the present value of each future lease pa yment and eventual land sale provides a range of
es t imated present values for each parcel.
The current sale price for each parce l is assumed to be the current appraised value, given previous sale of City
land at appraised va lue.
GROWTH RATE SCENARIOS
A range of land value appreciation rates was used in this analysis to account for uncertainty in the fu t ure value
of each parcel.
• Kenai-specific appreciation rate of 2.9 percent is an annuali zed grow th rate based on the
appraised value of centra l mixed u se (CMU ~-zoned parcels of airport land owned by the City of
Kenai from 1990 to 2015 .
• Parcel-specific appreciation rate is an annua lized rate ca lculated based on each parcel's appra ised
value from 1990 to 20 15, where availab le.
• Conservative appreciation rate of 1.0 percent land value appreciation per year w as used to reflect
previous analysis of City land sales .
Table 1. Land Value Appreciation Rates
Parcel Kenai-Specific Rate Parcel -Specific Rate Co nservative Rate
4323017 2 .9% 2.4% 1.0%
432303 1 2.9% 3.8% 1.0%
4 3 2701 5 2.9% 2.5 % 1.0%
4327028 2.9% 1.7% 1.0%
4 333006 2.9% 3.2% 1.0%
43330 07 2.9% 5 .6% 1.0%
4338003 2.9% 3.2% 1.0%
4338004 2.9% 2.7% 1.0%
4705501 2.9% 2 .6% 1.0%
DISCOUNT RATE SCENARIOS
A set of implied discount rates were derived by evaluating the sale of previously-leased City-owned Municipal
Airport land. The implied discount rates are equal to the internal rate of return in the discounted cash flow
method, given the land 's appraised value , sale va lue, and current lease terms. Long -term r isk -free rates based
Airport Land Lease Valuation McDowell Group• Page 2
on 30-year Treasury bond yields one month prior to each land sale were subtracted from each implied discount
rate to find a range of implied risk premia in excess of risk -free returns.
To calculate the current implied discount rate range, an estimate of current market risk-free returns based on
2017 30-year Treasury bond yields was added to each estimated risk premia.
Table 2 . Implied Discount Rates
Parcel Implied Premia Risk-Free Rate Discount Rate
4327008
4327037
4333002
4705303
2.5%
3.7%
3.2%
3.8%
2.8%
2.8%
2.8%
2.8%
5.3%
6.5%
6.0%
6.55%
The ten-year expected portfolio return of 6.1 percent to the City's permanent fund was used as a discount rate
scenario, in addition to the calculated implied discount rate range.
Results
The following table presents the average present value of lease payments and futu re land sales given the
different discount rate scenarios for each parcel under each land value apprec iation scenario. These results
represent the present value of the future stream of payments for each parcel and are not an ind ication or
estimate of the land sale price.
Table 3. Average Present Value of Land Lease by Appreciation Rate Scenario
P t V I Present Value Present Value
resen a ue p 1 S ·t· C · A L
P I K · A . t. R t arce -pec1 1c onservat1ve verage ease arce ena1 pprec1a ion a e . . . . S . Apprec1at1on Rate Apprec1at1on Rate Present Value
cenario Scenario Scenario
4323017 $196,868 $178,080 $139,088 $171,345
4323031 $546,856 $660,269 $386,355 $531,160
4327015 $235,215 $210,922 $15 2,994 $199,7 10
4327028 $302,104 $236,839 $210,899 $249,947
4333006 $274,966 $298,950 $178,849 $2 50,92 2
4333007 $214,820 $314,215 $169,220 $232,752
4338003 $152,524 $163,108 $108,032 $141,221
4338004 $1,203,083 $1 , 143,285 $849,980 $1 ,065.449
4705501 $671 ,140 $634,974 $478.400 $594,838
For each parcel , the average present value of future cash flows is much higher than the current sa l e price. This
finding indicates that the City would receive a higher va lu e from retaining and conti nu i ng to lease each parcel
with the same lease terms.
Airport Land Lease Valuation McDowell Group• Page 3
Table 4. Average Presen t Value of Land Lease Compared to Land Sale
p 1 Average Lease Present Current Assessed Difference of Lease to
arce Value Value/Sale Price Sale Present Value
4323017 $171 ,345 $90,000 +$81,345
4323031 $5 31,160 $250,000 +$281, 160
4327015 $199,7 10 $128,315 +$71,395
4327028 $249,947 $179,255 +$70,692
4333006 $250,922 $150,000 +$100,922
4333007 $232,752 $150,000 +$82,752
4338003 $141,221 $70,000 +$7 1,22 1
4338004 $1 ,065,449 $550,000 +$515,449
4705501 $594,838 $250,000 $344,838
Property Tax Implications
Wh i le the City curr ently earns property tax revenue from the leased lan d, current leaseholders ben efit from a
'reversion factor' which progressi vel y decrea ses the t axabl e amou nt of property each yea r. Because the property
owner is the City, and therefore exempt from being ta xed for the remainder of the property's as sess ed value,
the City wou ld generate h igher total property ta x for each parce l by selling the land to a non-exempt entity.
The following table shows the differe nce between the present value of lease cash flow s and the parcel 's land
sale price when the average present value of property tax is incl uded for both the land lease and land sa le cases.
Desp ite higher property tax revenue from the land sa le option , the present value of leasing each p arce l
continues to outweigh the current val ue of land sale . This again implies that the City shou ld retain and continue
to lease each parcel.
Table 5. Average Present Value of Land Lease Compar ed t o Land Sale i ncluding Pr operty Tax Revenue
p 1 Average Lease Average Sale Difference of Lease to
arce Present Value Present Value Sa le Present Value
4323017 $177,792 $97,352 +$80,440
4 323031 $551,978 $274, 131 +$277.847
4327015 $213, 172 $142, 165 +$7 1,006
4327028 $262,658 $193.743 +$68,916
4333006 $265,536 $165,112 +$100,424
4333007 $238,405 $159,289 +$79,116
4338003 $146,519 $76, 127 +$70,393
4338004 $1, 107,492 $598,066 +$509,426
4705501 $605,940 $262,689 +$343 ,251
Delayed Lease
The previous results rely on the assumption that a new lease could i mmed iate ly be arranged at the same leas e
terms as the current lease fo r each parcel. It is more realistic to assume that there would be some delay i n
arranging a new lease if the current lease expired immedia t ely. To capture this delay, the present value of lease
payments, future sales va l ue, and property tax were calcu lated for each appreciation rate and discount ra te
sce nario by parcel assuming that a new lease would begin after a delay of 10 years . When this delay is
A irport Land Lease Valuation McDowell Group• Page 4
incorporated , the results of the analysis show that, for all but one parce l, the City has a higher prese nt value
from retaining and leasing the land co mpa red to land sale value.
For one parcel (#4327028), the current sale price and present value of property tax payments in the sell scenario
outweigh the average total present value of continuing to lease this parcel , given a lon g delay in arranging a
new lea se. Thi s can be largely attributed to this parcel 's r ela tive ly l ow parcel -s pecific land value appreciation
rate of 1.7 percent, which contributes t o lower expected future lease payments and sa le price at lease
termination.
Table 6. Average Present Value of Land Lease Compared to Land Sale including Property Tax
Where New lease Begins in 10 Yea/S
p 1 Average Lease Average Sale Difference of Lease to
arce Present Value Present Value Sale Present Value
4323017 $125,062 $95,377 +$29,685
4323031 $412,043 $268,635 +$143.407
4327015 $151,155 $138,470 +$12,686
4327028 $180,678 $189,626 -$8,948
4333006 $193,909 $161 ,384 +$32 ,524
4333007 $194,795 $157,890 +$36,905
4338003 $106,504 $74,619 +$31 ,885
4338004 $786,2 95 $585,454 +$200,841
4705501 $429,275 $259,350 +$169,925
Budget Stability
Currently, all lease revenue generated from rental of Municipa l Airport land is deposited in the City's Airport
Fund, which supports airport operations. When Municipal Airport land is sold , the procee ds are deposited as
principal in the City's Airport Sale Perma nent Fund , the earnings of which also support airport operations
through the Airport Fund.
To evaluate the impact on the Airport Fund from sale of each parcel , the value of yea rly leases was compared
to the additional expected earnings that could be withdrawn from the Permanent Fund given the additional
principal that wou ld be added to the Fund from land sales.
The yearly additional earnings that could be withdrawn from the Fund were calculated firs t by fi nd ing the
difference between expected fund earnings given the market value w ith addi ti onal princ ipal and th e expected
fund earnings given the current marke t value with no additional principal. In both cas es, the expected annual
portfolio return of 6.1 percent was used to estimate future Fund value. Additiona lly, annual fees of 0.18 pe rcent
were deducted fro m t he Fund 's market value.1
While a higher Fund market value due to new principal from land sales would yield higher expected earnings in
each year, the City rest ricts Fund withdrawa ls to 5 percent of the Fund 's market va lue each year, based on a 5-
year moving average market value. I n the first five years following land sa les, th is woul d lea ve a significant gap
1 Fund expected earnings and fees based on Alaska Pe rmanent Capital Management-City of Ke nai Permanent Funds Investment Review
for the period end ing Dec em be r 31 , 2016.
Airport Land Lease Valuation McDowell Group• Page S
in airport funding as Fund earnings withdrawals would be restricted by the past Fund market value before
additiona l principal was deposited and significant lease payments would no longer be deposited in the Airport
Fund.
After the initial five years following land sales, a gap persists between the total yearly lease payments that would
be deposited in the Airport Fund for all evaluated parcels and the additional earnings that could be withdrawn
from the Fund given land sales. At no point did this analysis identify a year in which the additional expected
Fund earnings would outweigh the anticipated lease income.
Table 7 . City of Kenai Expected Airport Fund Revenue
Calendar Average Annual Expected Annual Addit_ional Difference between
y Payments from Land Permanent Fund Earnings Lease Payments and PF
ear Lease from Land Sale Earnin s from Land Sale
2018 $138,254 $0 +$138,254
2019 $138,254 $19,250 +$119,004
2020 $138,254 $39,444 +$98,8 10
2021 $138,254 $60,438 +$77,8 16
2022 $138,254 $82,068 +$56,187
2023 $154,954 $104, 155 +$50,800
2024 $154,954 $107.256 +$47,699
2025 $154,9 54 $109,660 +$45,295
2026 $154,954 $111,504 +$43,451
2027 $154,9 54 $112,946 +$42,008
As previousl y noted, the City could earn higher property tax re venue by selling Municipal Airport land. Whi le
this tax revenue is deposited in the City's General Fund and is not specifically used for airport operations, the
revenue represents an economic benefit to the City. When the expected property tax revenue is added to the
previous analysis of Airport Fund revenue , the expected revenue benefit to the City is still greater when the City
retains and continues to lease this set of parcels compared to the revenue generated by land sales.
Table 8 . City of Kenai Expected Total Revenue Including Property Tax Revenue
Calendar Total Annual Revenue Expected Total Annual ~iffere~ce betwee~ J0 :a1I
Year from Land Lease Revenue from Land Sale eaLse deSve1nuRe an ° a an a e evenue
2018 $144,471 $6,364 +$138,108
2019 $144,601 $25,760 +$118,841
2020 $144,734 $46,105 +$98,629
2021 $144,868 $67,253 +$77,615
2022 $145 ,006 $89,041 +$55,964
2023 $161 ,844 $111 ,292 +$50,552
2024 $161 ,985 $114,561 +$47,425
2025 $162 ,127 $117,138 +$44,989
2026 $162 ,272 $119,160 +$43,113
2027 $162,416 $120,785 +$41 ,632
Airpot1 Land Lease Valuation McDowell Group• Page 6
City of Kenai
Airport Land Sale Valuation
Prepared for:
City of Kenai
GROUP November 29, 2017
McDowell Group
•Multidisciplinary Research and Consulting Firm Since
1972
•Several projects regarding KPB and Kenai's visitor
industry, seafood industry, transportation, oil and gas,
and education sectors
• 17 professional staff in Anc.horage, Juneau, and
Bellingham
Mcoo tUl n
GROUP
Purpose of Valuation Analysis
•Relative value of retaining ownership versus selling
land
• Identifying factors impacting land valuation
• Developing scenarios to understand various influencing factors
• Broadening understanding of near and longer term impacts of
leasing vs. selling city airport land
• Recognizing potentia l revenue impacts on airport and city budget
Mco ~Wl 11
GROUP
Financial Aspects of Selling City Land
•Comparing lease value to expected sale value
• Net Present Value methodology (standard approach)
• 9 separate scenarios analyzed
•Two considerations when estimating growth and value
•Growth in land value
• Current value of future earnings
• Role of inflation
•Property tax revenue Mcoo ~L 11
GROUP
Growth Rate of Land Value Scenarios
1. City of Kenai Land Value (2.9% annual)
•Appraised value of similar CMU-zoned parcels of airport land from
1990 to 2015
2. Parcel-specific Land Value (1. 7-5.6% annual)
• Appraised value of each parcel from 1990 to 2015 where available
3. Conservative Estimate (1.0 % annual)
• Previous analysis performed by the City of Kenai
McooW!!u
GROUP
Discount Rate Scenarios
•Components of a discount rate
• Inflation
• Risk premia
'
•Expected return to City of Kenai Permanent Funds
•Scenario A. 6.1% annual over next 10-year period
•Implied risk premia based on previous City land sales
• Scenario B. Low discount --5.3% annual
• Scenario C. High discount --6.55% annual
Mco alUL11
GROUP
Step 1: Sample "Parcel fl:' Land Value
Growth
Expected Future Land Value
$585,719 •Current Appraised Value: $
600
•
000
$15 0 I 000 $500,000
•Historic Land Value $4 00,000
Growth Rate: 5.6 Percent $300,000
{2000-2015) $200,000 $1 50,000
$100,000
$0
2017 2022
•Lease Duration: 25 years
•Lease Rate: 6.0 Percent
per Year -Average City Growth Rate (2.9%)
-ConseNative Growth Rate (1.0%)
$192,365
2027 2032 2037 2042
-Average Parcel Growth Rate (5.6%)
Mco atUL n
GROUP
Sample "Parcel A" Expected Lease
Payments
• Step 2: Future Value
(Growth Rates Scenarios 1, 2, & 3)
$26,762
$15,942
$10,982
$9,000
-City Growth Scenario -Parcel Growth Scenario
-Conservative Growth Scenario
• Step 3: Present Va l ue
{Considering Inflation's Impact on Value)
-High Di scou nt Rate Scenario C {6 .55 %)
-City Growth Scenario -Parcel Growth Scenario I I
-conservative Growth Scenario McDo~ell
GROUP
Step 4:
Sample ''Parcel A'' Cumulative Present Value
Growth Rate Scenarios 1, 2, & 3/High Discount Rate Scenario C
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
'<"J'? fi' '),\;) rfi
•Parcel Growth Scenario •City Gro wth Scenario •Conservative Gro wth Scenario
~" '),\;)
$171.098
$135,829
$117,368
Mco c;tJL 11
GROUP
Sample "Parcel A" Present Value Estimates
Present Value of Future Lease Payments Only
Discount Rate Scenario A
(Portfolio)
Discount Rate Scenario B (Low)
Discount Rate Scenario C (High)
Average
Growth Scenario 1
(Kenai)
$142,459
$155,482
$135,829
' Growth Scenario 2
(Parcel-Specific)
$180,420
$198,838
$171,098
Growth Scenario 3
(Conservative)
$122,639
$132,949
$117,368
Present Value of Future Lease Payments and Potential Sale at End of New Lease
Discount Rate Scenario A
(Portfolio)
Discount Rate Scenario B (Low)
Discount Rate Scenario C (High)
Average
Growth Scenario 1
(Kenai)
$210,251
$237,395
$196,815
Growth Scenario 2
(Parcel-Specific)
$306,644
$351 ,354
$284,648
Growth Scenario 3
(Conservative)
$165,982
$185,320
$156,359
Average
$148,506
$162,423
$141,432
$150,787
Average
$227,625
$258,023
$212,607
$232,752
Step 6: Property Tax Implications
•Two "final" scenarios incorporating current City of
Kenai portion of Borough property tax revenue
implications (excluding future land improvements)
"Continue to Lease/Potential Future Sale"
Scenario
"Sell Now"
Scenario
Lease and Final Property Tax Total Present
Value
Expected Sale
Price
(current
appraised value)
Property Tax
Present Value
(25 years)
Total
Present
Value
Difference
Sale Present Value Present Value
(25 years)
$232,752 $5,654 $238,406 $150,000 $9,289 $159,289 + $79, 117
Mcoc;lUL 11
GROUP
Considering Delayed Lease Renewal/New Lease
Under a 25-Year Lease Scenario
Hi h Discount Rate Scenario C
$140,000
$141,432
$120,000
$107,013
$100,000
$80,000
$60,000
$40,000
$20,000
$0
•New Lease Beginning Immediately •New Lease Beginning in Ten Years Mco oW!!u
GROUP
Implications of Delayed Lease
Renewal/New Lease
•Present value of lease still outweighs sale value
"Continue to Lease/Potential Future Sale"
Scenario
Lease an d Fina l Cumulati ve
Sa l e Present Va l ue Prope rty Tax
Pr ese nt Valu e
(25 yea r s)
Tota l Prese nt
Va lue
Ex p ected
Sa l e Pr ice
(c urren t
app r ai sed
va lu e)
"Sell Now"
Scenario
Cumu lative Tota l Present
Propert y Tax Va lue
Pr ese nt Va lu e
(25 years)
Difference
$190,176 $4,619 $194,795 $150,000 $7 ,890 $157,890 + $36,905
Mco0 Wl 11
GROUP
City of Kenai Budget Implications
•Land Owned by City and Leased
• Lease revenue deposited in City Airport Fund {Operations)
• Tax revenue deposited in City General Fund
•Land Sold
• Sale proceeds deposited in City Airport Permanent Fund
{Investment)
• Fund earnings withdrawn annually to support airport operations
• However, withdrawal capped at 5% of the average Fund market value
• Tax revenue deposited in City General Fund {same if leased)
Mcod t!JL n
GROUP
2018 $138,254*
2019 $138,254
2020 $138,254
2021 $138,254
2022 $138,254
2023 $154,954
2024 $154,954
2025 $154,954
2026 $154,954
2027 $154,954
$0**
$19,250
$39,444
$60,438
$82,068
$104, 155
$107,256
$109,660
$11 1,504
$112,946
Difference
+ $138,254
+ $119,004
+ $98,810
+ $77,816
+ $56,187
+ $50,800
+ $47,699
+ $45,295
+$43,451
+$42,008
* Includes expected Airport Fund Revenue from nine City of Kenai Airport Land parcels.
** Assumes all nine City of Kenai Airport Land parcels are sold.
GROUP
Implications for City of Kenai Revenue
(Airport Fund AND Property Tax)
Calendar Year
2018
2019
2020
20 21
2 0 22
2023
2024
20 25
2026
2027
Total Annual Revenue from Land
Lease
(Lease Payments and Property Tax}
$144,471 *
$144,601
$144,734
$144,868
$145,006
$1 61 ,844
$161 ,985
$162,127
$162,272
$162,416
Expected Total Annual Revenue
from Land Sale
(Airport Permanent Fund
Withdrawal and Property Tax}
$6,364**
$25,760
$46, 105
$67,253
$89,041
$111,292
$1 14 ,561
$117,138
$119,160
$120,785
Difference
+ $138,108
+ $118,841
+ $98,6 29
+ $77,615
+ $55,964
+ $50,552
+ $47,425
+ $44,989
+ $43, 113
+ $41 ,632
* Includes expected Airport Fund Revenue from nine City of Kenai Airport Land parcels.
**Assumes all nine City of Kenai Airport Land parcels are so l d.
GROUP
Conclusions
•Based on our various scenarios, present value of
continuing to own and lease the land is greater than
value of selling
•Parcel-specific sales decisions
• Recommendation to evaluate each parcel given other
considerations such as the potential econom i c development
associated with sale
Mco c;tUl n
GROUP
donnal@mcdowellgroup.net
www.mcdowellgroup.net
c owe :
GROUP
Prepared for:
City of Kenai
November 29, 2017
LAND SALE
AND LEASING
POLICIES AND
PRACTICES
Land Sale and Leasing
Policies and Practices
Working Group:
City Manager Paul Ostrander
Assistant to City Manager Christine Cunningham
Finance Director Terry Eubank
Airport Manager Mary Bondurant
City Planner Matt Kelley
City Attorney Scott Bloom November 29, 2017
1 | P a g e
TABLE OF CONTENTS
Introduction …………………………………………………….……….. p. 2
Background …………………………………………………………..…. p. 3
Where We Are …………………………………………………….……. p. 4
Objectives ………………………………………………………….……. p. 6
Recommendations ……………………………………………….……. p. 7
Action Plan …………………………………………………….….……. p. 14
Timeline …………………………………………………………….…... p. 15
Appendix …………………………………………………….…..……... p. 16
Draft Land Management Plan
Draft KMC Revisions KMC 21.10
2 | P a g e
INTRODUCTION
For the last ten years, the City has not entered into a new lease without deviating from
the current Kenai Municipal Code and approved lease form, and the Kenai City Council
has expressed dissatisfaction with the way the City executes new leases as well as
renewals of land within the Airport boundary. Additionally, the City’s code contains strict
lease requirements and, at the end of a lease, there is not a defined process addressing
permanent improvements. In recent years, a number of issues have been raised, and a
temporary policy approved by Council, with regard to the sale of lands and the City’s
approach to the sale of lands.
In order to address these issues, Administration formed a working group of City staff
involved in land management to evaluate and develop recommendations. The group
included the City Manager, Assistant to City Manager, Finance Director, Airport Manager,
City Planner and City Attorney. The group focused on recommendations to address the
above issues as well as simplify and streamline the City’s land sale and lease program to
encourage growth, development, and a thriving business community through reasonable
and responsible land policies and practices.
3 | P a g e
BACKGROUND
In 1963, the FAA transferred ownership of nearly 2,000 acres of land to the City of Kenai. Most of
the land is located in the core business area of Kenai surrounding the Kenai Airport, and the sale
of some of these lands formed the basis for economic development in Kenai. The deed requires
the land be managed for airport activities and support of the Airport and requires the written
consent of the FAA to sell or lease land for non-aviation activities. Subsequent deeds of release
have been obtained allowing some properties to be leased or sold. Some of these deeds have
conditions such as restricting lands adjacent to the airport for lease only and for aeronautical use
and others allow for sale.
The City has also received title to lands over the years from the State of Alaska and Bureau of
Land Management as well as through Kenai Peninsula Borough foreclosures or through private
donations. Many of the conveyance documents contain restrictions or reversionary clauses or are
otherwise restricted by ordinances setting the land aside for a public purpose. However, the land
deeded to the City by the FAA has been the focus of most of the City’s lands policy decisions.
In 1975, the City first defined rules and regulations for governing the administration of City-owned
lands. The public safety building had been constructed in 1972 and was partially financed by the
FAA, and the land occupied by the Kenai Library was purchased for $42,900. In 1978, a provision
for a 50% lease cap was enacted to provide reasonable assurance of stability in future lease rates
to investors, developers, and encourage leasing. At this time, the City had not yet begun to
actively sell lands and only managed leases that were in existence at the time.
In 1981, the City began to actively dispose of lands and enacted ordinances to encourage and
streamline disposal. When applicable, lessees were encouraged to purchase their leased land.
With the City entering into a program of land sales, the use of the lease rate cap, which
encouraged leasing and discouraged sale of City lands as well as necessitated transfers of
increasing amounts each year from the General Fund to the Airport Fund, had outlived its
usefulness and was restricted to property on the Airport used for aeronautical purposes.
In 1983, many changes were made in how the City managed lands. The City hired a Land
Manager, and several lands-related ordinances were passed to streamline land disposal.
However, the price of the oil fell dramatically in 1986 and Alaska went into recession. This was a
year of decline in land values, land sales and leases. As property values continued to drop in
1987, there was a dramatic increase in lease rescissions. By 1990, it appeared that the economic
recession had reached the bottom and was taking a gradual upturn.
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WHERE WE ARE
The City’s current land sale and leasing program
came largely as a result of the 2006 repeal and
reenactment of the airport land sale and leasing
code sections as a result of recommendations in
the Supplemental Airport Master Plan.
The new code established the Airport Reserve,
prohibited land sales within the Reserve, amended
guidelines for setting the length of the lease terms
with higher investment requirements and a
maximum 35-year term, added additional
requirements for lease applicants, eliminated the
ability of new lessees to have the right to purchase
once a development plan had been completed,
increased the capitalization rate used to calculate
rental rates from 6% to 8%, and established a new
method of setting and adjusting land rents based
on an airport-wide zone-based appraisal.
Since those amendments, the City has deviated from the code in order to enter into each new
lease as well as facilitate negotiated sales of land. In 2015, Administration conducted an economic
analysis of income (revenue) to the Airport which compared leasing versus sale of two unsolicited
offers to purchase properties assuming a 50-year period. The conclusion was the Airport would
lose revenue in a sale, and the City declined the offers.
In 2016, the City updated zoning within the Airport Reserve and relocated the Airport Reserve
boundary. Also in 2016, the City Council approved a policy for the sale of ten specific airport
leased lands with substantial constructed leasehold improvements. The policy is in effect for a
period of five years (expires in July of 2021) and, recognizing the value of a lease with a
guaranteed revenue stream, approves a sale at 125% of fair market raw land appraisal with the
lessee to pay for appraisal costs.
The City’s land management approach has historically been to manage land as situations arose
and without an active management plan or strategy. The City wears “two hats” when reviewing
Airport land decisions strictly in terms of FAA compliance and revenues generated for the Airport
while viewing General Fund land decisions in terms of potential economic or other benefits to the
City in addition to revenues generated. This is not the best way to achieve optimal performance
from the City’s land holdings for the greatest benefit to the residents of Kenai.
City personnel assigned to land management duties have been limited to a percentage of the
duties carried out by an Administrative Assistant position in the City Manager’s office since 1986
and recently, re-assigned to the Planning Department. In February, 2017, after a joint work
session of the Kenai City Council and Airport Commission and appointment of a new City
Manager, Administration formed an internal working group to evaluate and develop
recommendations related to City-wide land sale and leasing policies.
Photo Courtesy of the Redoubt Reporter
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The City is unique in its ownership of a large and diverse amount of public land, owning a total of
353 subdivided parcels of which 226 are designated General Fund and 127 are designated Airport
Fund. Nineteen (19%) of City-owned parcels are currently under lease, generating an annual
revenue of approximately $734,696.
Inside the Airport Reserve, 34 parcels are currently under lease and approximately 12 subdivided
parcels are available for lease. Outside the Reserve, 14 parcels are currently under lease, of
which 10 have been approved for sale, and approximately 30 parcels remain available for lease.
The General Fund has 22 parcels currently under lease and an undetermined number of lands
available for lease or sale. Approximately 30% of City leases are in the latter half of the lease (not
including Shorefishery leases renewed in 2016), and another approximately 12% have lease
terms over 80 years with no incentive to maintain or improve the permanent improvements on the
premises.
Airport
Parcels
36%
General
Fund
Parcels
64%
City-Owned Parcels
Leased
Parcels 19%
Unleased
Parcels
81%
City Leases
*Graphs represent subdivided parcels, not acreage
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OBJECTIVES
The working group began meeting in
February, 2017 and met regularly to discuss a
City-wide approach to Land Management as
well as address the current issues affecting
the City’s land decisions as well as meet
Administration’s goal to simplify and
streamline the City’s land sale and lease
program to encourage growth, development,
and a thriving business community through
reasonable and responsible land policies and
practices. The working group defined the
following objectives to help achieve this goal:
City-wide Approach to Land Management
Business-friendly Rules
Policy Predictability
Uniform Application of Policies
Lease Incentives
Promote Economic Development
The working group took a City-wide land management approach to actively manage land based
on the unique features and requirements of each parcel rather than a “one size fits all” or “as
needed” approach.
Except for lands within the Airport Reserve (“on Airport”), most City-owned lands have
conveyance or legislative restrictions which must be considered when evaluating the property for
lease or sale. Some restrictions are outdated, such as property off Wildwood Drive, which was
set aside for a future firehall and prohibited from sale when what is now Wildwood Correctional
Complex was still a military communications base. Other restrictions require the land be used for
a specific public purpose, such as for parks and recreation.
For lands located “on Airport,” which cannot be sold, the group took an approach focused on
leasing requirements to make the Kenai Airport not only attractive due to its size and central
location, but due to it having the best leasing environment of all the airports on the Kenai
Peninsula.
"To encourage growth, development,
and a thriving business community
through reasonable and responsible
land policies and practices"
File Photo
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RECOMMENDATIONS
1. LAND MANAGEMENT PLAN
A City-wide Land Management Plan is an active approach that requires an inventory of the City’s
land holdings and an analysis of each parcel in terms of any conveyance or legislative restrictions
or need for public use as well as the potential economic and other benefits to the City whether
the land is Airport Fund Land or General Fund Land.
The Land Management Plan would provide a comprehensive evaluation and characterization of
each City-owned parcel to guide decision making processes to include the following elements:
Property type (e.g. physical characteristics such as size, improvements, quality, condition,
permitted uses, zoning)
Purpose (e.g. public use such as parks, public safety, library, rights-of-way or surplus,
meaning all other property vacant or occupied)
Status (e.g. public use, under lease, available for lease or sale)
Highest and best use (e.g. value measurements including market value, market rent, net
present value calculation)
In addition to development of the plan itself, Administration would develop procedures and
standards for management of City lands with a focus on business-friendly practices and customer
service. The advantages of an active approach are improved policy predictability and uniform
application of policies as well as the opportunity for increased return from public land assets for
the greatest benefit to the residents of Kenai. It would also allow the City the ability to determine
which properties are best suited for a public purpose, lease, sale, devotion, or which properties
may be eligible for economic incentives for development as well as a mechanism to evaluate
properties on an ongoing basis.
Implementation of a successful City-wide Land Management Plan may require additional
investment in technology support systems and human resource support and training. The Plan
would require an ongoing review of current holdings and summary of changes, proposed
changes, market research, upcoming events (land sales, lease expirations or leases requiring
action) as well as development of procedure manuals, forms, and databases to ensure efficient
and consistent work.
2. KENAI MUNICIPAL CODE (KMC) REVISIONS
When considering revisions to the City’s land code sections, which provide the City’s policies and
procedures for land leasing and sale, the working group reviewed the current code and legislative
history as well as the City’s available land data. The group also consulted with real estate
appraisers, bankers, surveyors, aviation consultants, and other land professionals as well as
reviewed the land policies of other municipalities and competing airports in order to consider the
needs of existing leaseholders and business community to manage land for the greatest benefit
of the residents of Kenai and the Kenai Municipal Airport.
The following recommended revisions simplify and streamline the City’s land sale and lease
program to encourage growth, development, and a thriving business community, which provides
the greatest benefit to the Airport as well as the residents of Kenai:
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Provide Applicant-Friendly Rules
“Applicant friendly” rules balance the interests
of the City with those of the applicant, do not
place excessive burdens on the applicant,
provide a predictable process for application
approval, attract new lessees to vacant land
and retain existing leaseholders.
The City currently requires a lease applicant to
submit a deposit with the application to ensure
performance, which is not required by other
similarly situated municipalities or Airports, and
increases an applicant’s upfront costs. Other
procedures place un-necessary burdens on the
applicant and do not provide a predictable
process for approval.
Current Code/Procedure
Recommendation
Applicants must inquire with the City as to which lands
are available for leasing.
Listing of all available land and “on Airport” lease rates
both online and at City Hall.
The City refers applicants to the City's code for lease
information and processing procedures.
Application, instructions, FAQ, and standard lease forms
available online and at City Hall.
$100 application fee and $4,800 cost-recovery deposit
to ensure performance.
$100 application fee and no deposit requirement.
Applicant responsible for subdivision/appraisal costs, if
any.
Applicants must submit Application, Development
Plan, Business Plan, Site Plan and KPB Compliance.
Applicants submit Application on updated form.
No application fee for extensions, amendments or
assignments although similar processing time.
$100 fee for applications for extensions, amendments and
assignments.
No application publication notice.
Application notice to be published in newspaper and
online.
No requirement for all applications to be referred to
the Airport and Planning & Zoning Commissions.
Require all applications be referred to Airport and
Planning & Zoning Commissions.
The above recommendations provide an online resource for lease information and forms, remove
the requirement for application deposits, remove the requirement for additional documents to be
submitted with applications, provide for public notice and a predictable processing procedure, and
maintain Kenai’s application fees as the lowest of any in the State.
Offer Longer Lease Terms
The City currently limits lease terms to a maximum of 35 years for “on Airport” property unless
the City determines a shorter term is in the best interests of the City. On Airport terms are limited
by state statutes and airport regulations to a maximum of 55 years. Additionally, the FAA may
consider a lease with a term over 50 years “a disposal of the property,” and a “disposal” of airport
property would be a breach of the FAA grant assurances that an airport operator commits to as a
condition of receiving airport improvement funds.
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There is no requirement to limit the term of leases “off Airport.” The terms for leases inside the
Airport boundary but outside the Airport Reserve as well as all other City leases are set based
upon the durability of the proposed use, the amount of investment in improvement proposed and
made, and the nature of the improvement proposed with respect to durability and time required
to amortize the proposed investment. However, the useful life of a building depends largely on
the maintenance and upgrading the building receives.
The Kenai Airport offers shorter lease terms than other municipal and state airports in Alaska and
this, in combination with other factors, puts the Airport at a disadvantage for attracting new lessees
while longer lease terms ensure a longer schedule of revenues.
Lower Development Thresholds for Determining Initial Length Lease Term
The City currently sets the initial term of a lease on Airport land by applying the lessee’s proposed
investment to the term table in the City’s Code. If an applicant proposes to invest less than
$100,000, the lease term cannot exceed five years. This is a high threshold for a five-year lease
and discourages smaller investors from leasing at the Airport as compared to other Alaska airports
which grant a five-year term for an investment between $7,500 and $15,000. Additionally, the
term table is subject to the City’s determination that “a shorter term is in the best interest of the
City”. This open-ended exception reduces predictability for applicants.
Amending the term table to set the five-year term investment/value at $7500, allowing for smaller
investment increments, and removing the provision related to setting a shorter term in
combination with other factors provides greater opportunity and predictability for business owners
to locate and invest in Kenai’s economy. (See Appendix: Draft KMC Revisions KMC 21.10 for
recommended term table)
Predetermined Conditions for Lease Extension and Renewal
As more of the City’s leases reach the later part of the lease term, current conditions for lease
extension and renewal discourage the lessee to invest in maintenance or further development as
well as potentially restrict the lessee’s ability to sell its leasehold interest. For instance, a lessee
with five years remaining in the lease and no right in the lease to renewal will have difficulty finding
a buyer or new investor without being granted an extension or renewal of the lease.
The City currently determines the term for the renewal of an expired lease by applying the value
of the lessee’s improvements to the term table. The improvement value must be determined by
an appraisal paid for by the lessee. The appraisal can be costly and may not provide an accurate
dollar value to the City, as a building can increase in value even when the condition of the
improvement is deteriorating, or the process does not provide assurance a longer renewal term
will be granted to justify the cost of an appraisal.
For an extension that does not involve a purchase (which uses the same methodology as above
for a renewal), the City’s investment requirement is $25,000, the highest requirement of airports
on the Kenai Peninsula and is a greater per year investment than is required for the initial term of
a lease according to the current investment table.
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Current Code/Procedure
Extension of Existing Lease Renewal of Existing Lease Renewal of Expiring Lease
Current Lessee or Purchaser Current Lessee Current Lessee
Amendment to Existing Lease Only
Amends Lease Term
New Lease with New Terms New Lease with New Terms
New Term Based on: New Term Based on: New Term Based on:
Lessee: New Investment (Required);or
Purchaser: City-Approved Appraisal of
Improvements Purchased Paid for by
Lessee
Improvement Value Determined by
an Appraisal Paid for by the Lessee
Improvement Value Determined by
an Appraisal Paid for by the Lessee
One Year of Term for each $25,000 of
Investment not to Exceed 35 Years
Term Table begins with Value of
$100,000 for 5-year Term Not to
Exceed 35 Years
Term Table begins with Value of
$100,000 for 5-year Term Not to
Exceed 35 Years
Recommendation
Extension of Existing Lease Renewal of Existing Lease Renewal of Expiring Lease
Current Lessee Current Lessee or Purchaser Current Lessee or Purchaser
Amendment to Existing Lease Only
Amends Lease Term
New Lease with New Terms New Lease with New Terms
New Term Based on: New Term Based on: New Term Based on:
Initial Investment + New
Investment (Required)
Initial Investment + New
Investment (Required); or Purchaser:
Purchase Price plus New Investment
(Not Required)
Remaining Useful Life, Purchase
Price, or Appraised Value of Existing
Improvements + New Investment (Not
Required)
Term Table begins with $7,500 of
Investment for 5-year Term Not to
Exceed 45 Years
Term Table begins with $7,500 of
Investment for 5-year Term Not to
Exceed 45 Years
Term Table begins with $7,500 of
Investment for 5-year Term Not to
Exceed 45 Years
The above recommendations as well as recommendations for setting the lease term for renewal
and extension using the same term table as is used in setting the term for initial leases and
providing public notice to allow for competition, allow a lessee a predictable method to renew or
extend the lease at a lower cost and risk to the lessee and greater advantage to the City, as the
renewal or extension term length is more accurately based on the condition of the principle
improvement or investment and provides motivation for the lessee to maintain buildings in good
condition.
Protect Lessees from Excessive Rent Increases
Kenai’s existing policy for setting lease rates consists of either an initial appraisal paid for by the
lessee and renegotiation appraisals every five years paid for by the City for individual parcels “off
airport” or outside the Airport Boundary, or, for “on Airport” properties, the City has an airport-
wide, zone-based appraisal paid for by the City and conducted every five years to determine the
initial lease rate and subsequent rates based on 8% of the fair market value as determined by the
appraisals.
A change from the current five-year appraisal cycle to a 10-year “Market Analysis” (defined in the
draft code revisions to KMC 21.10 contained in the Appendix) with an annual CPI adjustment
11 | P a g e
period provides less expense for the City in appraisal costs and greater predictability in rent for
lessees. Annual rent would be computed by multiplying the CPI adjusted fair market value of the
land by the lease rate percentage for each parcel (currently 8%). An additional provision would
be added to cap annual rent increases for aeronautical leases to no more than 50% in any given
five-year time. For “on Airport” properties in which a full appraisal has been performed on all
parcels, the annual rent for each parcel would be available and published in the City’s schedule
of fees adopted by the City Council.
For the City to realize the full benefit of an amendment to the policy for setting lease rates, existing
lessees would need to convert to the new method. Allowing current lessees to convert their leases
to the new form would allow them to take advantage of these protections from unexpected rent
increases as well as take advantage of any other conditions available in the new lease form, such
as the predetermined conditions for lease extension and renewal or favorable provisions for the
disposition of improvements.
Provide Favorable Provisions for the Disposition of Improvements
Under recent new leases granted by the City, at the end of a lease when the lessee does not
continue in occupancy under a new lease or extension, the lessee has the option of removing the
improvements and restoring the premises, selling the improvements to a succeeding lessee of
the premises, or sale by the City. Prior leases granted using the current or previously approved
lease form, give the City title to lessee constructed improvements passed at the end of the lease.
The downside to the City taking title to the improvements is that the lessee has no real incentive
for taking good care of the improvements as the end of the lease term approaches and the City
runs the risk of “inheriting” a building in poor condition and with the expense and/or liability of
repairing and maintaining the inherited building until a new lessee can be found for it. By contrast,
the most recently used method for disposition, provides lessees with an incentive to maintain their
facilities in good condition and does not leave the City with the burden of an increasing inventory
of older buildings needing maintenance and repair.
Kenai’s current disposition of improvements practice, as reflected in the latest leases have not
been incorporated in the City’s Code or updated lease form, which would increase predictability
and uniformity for potential lessees.
Offer Development Incentives
One way the City has encouraged investment and leasing of undeveloped properties is to offer
development incentives. These incentives would apply a credit toward rent for a maximum of five
years. The credit would only include the value of site preparation work on the leased premises
which would always remain to the benefit of the City.
In order to assure the work was completed as agreed, an estimate of the value of the work,
including a scope of work, prepared by a professional engineer must be provided to the City and
accepted prior to work being performed and the credit would not be applied until the approved
scope of work was completed.
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Provide a Methodology for Sale of Leasehold Properties
The City does not currently have a methodology for sale of leasehold properties as it is generally
understood that a lease provides greater revenue potential than a sale. However, a temporary
policy is in place for ten specific “off Airport” leased lands with substantial constructed leasehold
improvements. The policy is in effect for a period of five years (expires in July of 2021) and
approves a sale at 125% of fair market raw land appraisal with the lessee to pay for appraisal
costs. It does not address the sale of other or future properties.
In order to provide a predictable and uniform methodology for sale of City-owned parcels to
leaseholders, the working group consulted with real estate appraisers and other professionals to
gain a better understanding of practices used in valuing the lease fee interest subject to a ground
lease. The McDowell Group provided the City with research and analysis which confirmed it is in
the City’s financial best interests to lease rather than sell. The City used that data to assist in
determining what additional investment by a lessee is needed for the net present value of new
property taxes on the additional investment to be equal to or greater than the net present value
of the schedule of cash flows being provided by the lease.
In the case of the ten specific parcels subject to the temporary policy referenced above, the
working group recommends providing those lessees a second option to a sale at 125% of fair
market value. That option would require additional development at as provided in the next section.
Provide a Methodology for Sale of Vacant Properties
The City’s ordinances currently allow for sale of land outside the Airport Reserve not under lease
at Fair Market Value by outcry auction or by competitive sealed bids or by negotiated sale to
encourage a new commercial or industrial enterprise beneficial to the City. There is not a
methodology in place to determine in advance which parcels of land are best suited for sale or
guidance on what conditions justify negotiated transactions which may be in the City’s best
interests.
As part of an overall Land Management Plan, City staff would review the City’s land inventory and
consult with City departments to determine which properties are no longer needed for a public
purpose and whose lease or sale would provide a greater public benefit. Property would become
available for sale if it meets a set criteria, including: the property is not currently used by a City
department or does not support a City function or foreseeable use by the City; the City is not
obligated to use the property for the purpose in which it was conveyed or circumstances have
changed such that the purpose is no longer needed; the property is a non-performing or under-
performing asset and greater value can be generated by its sale; or, significant economic
development opportunities can be generated by selling the property.
Based on an analysis of the individual parcel as provided in the Land Management Plan, it may
be in the best interests of the City to sell parcels after significant development has been
completed. For parcels in which the City would consider a sale and, in order for the City to ensure
development is complete, it is in the best interest of the City to enter into a lease and base the
sale price on the Fair Market Value as determined by an appraisal. Sale at Fair Market Value
would require a minimum investment based on a number of known rates and factors determined
to provide the City with economic value.
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The minimum development would be based on the appraised value so individual lots would vary,
but an example of minimum development requirements based on Fair Market Value would be as
follows:
Minimum Development Requirements
Quick Reference Chart
Appraised Fair Market Value of Land: Required Minimum Development for Sale at
Fair Market Value:
$100,000 $390,000
$125,000 $487,500
$150,000 $585,000
$175,000 $682,500
$200,000 $780,000
$225,000 $877,500
$250,000 $975,000
$275,000 $1,072,500
$300,000 $1,170,000
3. UPDATE FORMS AND PROCEDURES
Once rents, fees, and procedures are updated and streamlined with features that benefit current
leaseholders and attract potential lease applicants, the City will need to update its forms and
internal processes as well as provide a listing of all available land and standard forms both online
and at City Hall.
4. AFFIRMATIVE MARKETING PLAN
Once rents, fees, and procedures are updated, an affirmative marketing plan will ensure the
continued success of the City’s land leasing and sale programs.
The plan will promote the City of Kenai and the Kenai Municipal Airport as business friendly by
providing a “one stop shop” of information on the City and Airport web sites as well as in
information package or brochures so a party interested in the possibility of leasing or purchasing
City land to locate a business in Kenai can go to the web site or review the brochure to find all
essential leasing or sale information presented in layman’s terms, including the advantages of
living and doing business in Kenai, property available for lease or sale, the applicable application
form, a sample lease, current rental rates (if available), the term investment table, the disposition
of improvements, links to the applicable sections of the Code, a summary of the application
processing steps and typical timetable.
The lease information package or brochure could be distributed as part of an active marketing
strategy in which the City provides the information to targeted groups at trade shows, networking
events, or one-on-one visits with business owners. Information on properties available for sale
would be marketed to receive the widest possible exposure to the market place. This would be
accomplished through direct marketing techniques, such as requests for proposals (RFPs),
advertising, posting the property on the multiple listing service (MLS) or any other appropriate
method.
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ACTION PLAN
The following Action Plan represents recommendations specific to the leasing of lands inside the Airport
Reserve and the Draft KMC Revisions KMC 21.10 contained in the Appendix:
City of Kenai
Leasing of Lands Inside the Airport Reserve ("On Airport")
Action Plan
Initiative Discussion Action
Applicant-friendly Rules
Balance the interests of the
Airport with those of the
applicant.
The City requires applicants submit a $100
application fee and $4,800 cost-recovery
deposit to ensure performance.
Amend KMC 21.10.040 & 050 to remove deposit
requirement but require applicant to be
responsible for subdivision costs, if any.
Do not place excessive burdens
on the applicant.
The City requires applicants submit a
Development Plan, Business Plan, Site Plan and
KPB Compliance with application.
Amend KMC 21.10.040 to remove requirement to
submit separate documents with application.
Provide a predictable process for
application approval.
The City does not have an application fee for
extensions, amendments or assignments
although staff processing time is similar.
Amend the City's fee schedule to include a $100
application fee and process for extensions,
amendments and assignments.
Attract new airport lessees to
vacant land and retain existing
leaseholders.
Applicants wishing to lease land must inquire
with the City as to which lands are available for
leasing.
Provide a listing of all available airport land and
lease rates both online and at City Hall.
The City does not require all applications to be
referred to the Airport and Planning & Zoning
Commission(s).
Amend KMC 21.10.070 to require all applications
be referred to Airport and P&Z Commissions with
notice to be published.
Provide application and standard lease forms for
new leases, renewals and amendments both
online and at City Hall.
Policy Predictability
Make longer lease terms with
lower investment thresholds
available
The City requires applicants to invest $100,000
in new improvements to obtain a 5-year lease.
Amend KMC 21.10.090 Term Table to provide a
lower dollar threshold ($7,500) for a 5-year lease
and shorter investment increments.
Include predetermined
conditions for lease renewal
The City limits lease terms to a maximum of 35
years and allows an open-ended exception to
determine a shorter term.
Amend KMC 21.10.090 to determine the length
of an extension based on the same term table as
an initial lease ($7,500 per year).
Protect lessees from excessive
rent increases
The City requires a lessee to invest an additional
$25,000 for each 1-year extension of an existing
lease, not to exceed a total term of 35 years.
Amend KMC 21.10.100 to compute annual rent
and adjustments using the latest appraisal and
applying CPI and add 50% cap provision.
Promote maintenance of
leasehold improvements with
favorable provisions for the
disposition of improvements
The City's term table puts Kenai at a significant
disadvantage for attracting tenants to the
Airport.
Add section of Code to provide for Ownership of
Improvements constructed by lessee, excluding
site development materials.
Provide reasonable lease
requirements
The City uses a standard lease form adopted by
City Council.
Update standard lease form approved by
Resolution by the City Council under KMC
21.10.150 and provide online and at City Hall.
Provide for lessee appeal of City
decisions
Recommended predetermined conditions and
protection from excessive rent increases
reduces need for appeals.
Amend 21.10.100 to update appeal procedure
and exclude appeals for annual CPI adjustments.
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Initiative Discussion Action
Uniform Application of Policies
Rent setting methodology Kenai’s existing airport land rental system
consists of an airport-wide, zone-based
appraisal conducted every five years.
Amend KMC 21.10.100 to compute rent using
latest appraisal done every 10 years and applying
CPI annually.
Individual lease rent
adjustment
Currently, the City adjusts the rent in
individual leases every five years during the
lease term w/ no upward limit.
Amend KMC 21.10.100 to compute annual rent
and adjustments using the latest appraisal and
applying CPI and add 50% cap provision.
Lease term length
determination
The City allows an open-ended exception to
determine a shorter term.
Amend KMC 21.10.090 to remove exception.
The decision to grant a lease rests in the sole
discretion of the City Council.
Public information and
process
The City has an excellent website but it
does not provide a resource for potential
lessees to find necessary lease information.
Provide a listing of all available airport land,
lease rates, and standard forms both online
and at City Hall.
Standard lease form The City requires City Council approval of
the standard lease form but has granted
non-standard leases by ordinance.
Provide a mechanism by Ordinance section
to allow existing lessees to convert to new
lease form and discourage deviation from
form.
Incentivize the Leasing of Airport Land
Provide the best leasing
environment of all the airports
on the Kenai Peninsula.
Its large size, location, and extensive facilities
give Kenai Airport a significant advantage over
other airports.
Add section of Code to provide development
incentives to encourage investment and provide
rent credit for site work on lease land.
Promote the Kenai Municipal Airport, Land Leasing Program and Economic Development in Kenai
Affirmative marketing plan The Airport does not currently have a complete
online or paper resource available for potential
lease applicants.
Provide land listing, rates, benefits of leasing,
application and standard lease forms, procedures,
and FAQ online and in brochures.
TIMELINE
The purpose of presenting the recommendations of the working group is to provide a starting
place for discussions regarding recommended changes to the City’s land sale and leasing policies
and procedures. The timeline for finalizing and implementing any approved changes will depend
on City Council action. The next City Council meeting is scheduled for December 6, and the land
sale and leasing policy and procedures recommendations will be included as a Discussion Item.
Depending on approval of any recommendations or revisions, implementation of
recommendations would take place in phases, with completion of code revisions and forms
occurring over subsequent months and preparation of the City’s first Land Management Plan
occurring over the next year.
Comments may be submitted to the City Manager or via email to the Assistant to the City Manager
at ccunningham@kenai.city
16 | P a g e
APPENDIX
Draft Land Management Plan
Draft KMC Revisions KMC 21.10
Photo Credit: Eagle Eye Gallery
CITY OF KENAI
MUNICIPAL LANDS MANAGEMENT PLAN
AND
LANDS INVENTORY ANALYSIS
Prepared by
City of Kenai
Planning & Zoning Department
2017
D R A F T
City of Kenai
Municipal Lands Management Plan and Lands Inventory Analysis
TABLE OF CONTENTS
INTRODUCTION
PROVISIONS
Kenai Municipal Code
ACQUISITION
Trade/Exchange
DISPOSAL
Sale
Lease
Trade/Exchange
RIGHT OF WAYS, ENCROACHMENTS, and EASEMENTS
Right of Ways
Encroachments
Easements
Access
Utility
PUBLIC FACILITY PARK, CEMETERY, TIDELANDS AND SHOREFISHERY
LEASED LANDS
VACANT LAND AVAILABLE FOR LEASE
LANDS FOR FURTHER STUDY
SURPLUS LANDS
LEASED BY CITY FROM OTHERS
LANDS FOR ACQUISITION CONSIDERATION
GENERAL POLICY RECOMMENDATIONS
PLAN IMPLEMENTATION
APPENDIX:
Maps
City of Kenai
Municipal Lands Management Plan and Lands Inventory Analysis
LAND INVENTORY
LONG-TERM LEASED LANDS (AIRPORT FUND)
The following City Owned lands are currently under lease or obligation to private and public parties. Lease terms
vary from 5 to 99 years with twenty to fifty-five being most common. Kenai Municipal Code requires that they
have a development plan. Annual rental rates varies from no-cost free to Fair Market Value. Most lease rents
are adjusted by appraisal every five years. The number in parenthesis (Lease 00-000) is the city’s
administratively assigned lease number.
Alaska State Court System (Lease 09-L-AF-01)
Address Legal Description KPB Parcel ID Parcel Size
145 Trading Bay
Road
Lot 13, Cook Inlet
industrial Air Park
043-230-13 1.21 acres
Land Use Plan Zoning Map # Fund
Central Commercial
(CC)
Central Mixed Use
(CMU)
Airport Fund
Unit Number Deed of Release
D-3 Yes – Sale or Lease for Non-Aviation
Purposes
Conveyance Document
QCD 27 Deeds / 303
Airport Reserve Boundary Water or Sewer
Parcel is outside Airport Reserve Boundary Water and Sewer is available
Description: The subject parcel is leased to the Alaska Court System to provide parking for
the Court House. City Constructed Improvements (Paved Parking Lot) to be reimbursed by
Lessee and is not subject to redetermination clause. Lease allows the right to request a sal e.
Recommendation: Retain ownership and continue lease.
City of Kenai
Municipal Lands Management Plan and Lands Inventory Analysis
GENERAL FUND LANDS – CONSIDER SALE. These are General Fund Lands which are
not being leased or utilized for a public purpose. These lands could be considered for sale.
Mommsens Subdivision
Address Legal Description KPB Parcel ID Parcel Size
1113 First Street Lot 1A, Mommsens
Subdivision, Replat
of Addn No. 1 & 2
039-101-07 .21 acres
Land Use Plan Zoning Map # Fund
Suburban Residential
(RS)
Suburban Residential
(SR)
General Fund
Unit Number Deed of Release
N/A N/A
Conveyance Document
Clerk’s Deeds 355/171
Airport Reserve Boundary Water or Sewer
Parcel is outside Airport Reserve Boundary Water and Sewer is available
Description: The subject parcel is undeveloped and located west of First Street in Mommsen
Subdivision. The subject parcel could be developed with residential uses. Ordinance No.
1414-91 declared not needed for a public purpose.
Recommendation: Consider sale of parcel in General Land Sale.
Mommsens Subdivision
Address Legal Description KPB Parcel ID Parcel Size
1117 First Street Lot 2, Mommsens
Subdivision, Replat
of Addn No. 1 & 2
039-101-09 .26 acres
Land Use Plan Zoning Map # Fund
Suburban Residential
(RS)
Suburban Residential
(SR)
General Fund
Unit Number Deed of Release
N/A N/A
Conveyance Document
Clerk’s Deeds 355/171
Airport Reserve Boundary Water or Sewer
Parcel is outside Airport Reserve Boundary Water and Sewer is available
City of Kenai
Municipal Lands Management Plan and Lands Inventory Analysis
Description: The subject parcel is undeveloped and located west of First Street in Mommsen
Subdivision. The subject parcel could be developed with residential uses. Ordinance No.
1414-91 declared not needed for a public purpose.
Recommendation: Consider sale of parcel in General Land Sale.
Mommsens Subdivision
Address Legal Description KPB Parcel ID Parcel Size
1121 First Street Lot 4, Mommsens
Subdivision, Replat
of Addn No. 1 & 2
039-101-11 .26 acres
Land Use Plan Zoning Map # Fund
Suburban Residential
(RS)
Suburban Residential
(SR)
General Fund
Unit Number Deed of Release
N/A N/A
Conveyance Document
Clerk’s Deeds 355/171
Airport Reserve Boundary Water or Sewer
Parcel is outside Airport Reserve Boundary Water and Sewer is available
Description: The subject parcel is undeveloped and located west of First Street in Mommsen
Subdivision. The subject parcel could be developed with residential uses. Ordinance No.
1414-91 declared not needed for a public purpose.
Recommendation: Consider sale of parcel in General Land Sale.
Carl F Ahlstrom Subdivision
Address Legal Description KPB Parcel ID Parcel Size
2615 Wildwood Drive Lot 9 Carl F Ahlstrom
Subdivision
039-063-09 .27 acres
Land Use Plan Zoning Map # Fund
Suburban Residential
(RS)
Suburban Residential
(SR)
General Fund
Unit Number Deed of Release
N/A N/A
Conveyance Document
Clerk’s Deeds 355/171
Airport Reserve Boundary Water or Sewer
Parcel is outside Airport Reserve Boundary Water and Sewer is available
Description: The subject parcel is undeveloped and located east of Wildwood Drive. The
subject parcel could be developed with residential uses. Ordinance No. 456-78 stated to retain
parcel for future Fire Station.
Recommendation: Consideration should be given as to if a future Fire Station is needed on
City of Kenai
Municipal Lands Management Plan and Lands Inventory Analysis
this parcel. If not needed for a public purpose, consideration should be given of parcel in
future General Land Sale.
AIRPORT LANDS – CONSIDER SALE / LEASE. These are Airport Lands which are not
being leased or utilized for a public purpose. These lands could be considered for lease for non -
aviation uses and later after development, consider for sale.
Gusty Subdivision
Address Legal Description KPB Parcel ID Parcel Size
11663 Kenai Spur
Highway
Tract A, Gusty
Subdivision Addition
No. 2
047-160-01 .90 acres
Land Use Plan Zoning Map # Fund
Central Commercial
(CC)
Central Mixed Use
(CMU)
Airport Fund
Unit Number Deed of Release
N/A Yes – Sale or Lease – November 11, 1986
Conveyance Document
QCD 27 Deeds / 303 – 4/20/1964
Airport Reserve Boundary Water or Sewer
Parcel is outside Airport Reserve Boundary Subject Parcel is not connected to water and
sewer. Would require extension of water and
sewer main to serve parcel.
Description: Located on the south side of the Kenai Spur Highway opposite Coral Street. The
subject parcel is accessible via the Kenai Sur Highway. Parcel can be sold or leased for non-
aviation purposes. See Deeds of Release for Restrictions. The subject parcel is located within
the Part 77 Approach Zone, however it is located outside of the Departure / Approach Runway
Protection Zone. Will need Ordinance declaring not needed for Public Purpose to sell.
Recommendation: Consider lease of parcel for non-aviation purposes. Continue to market as
available for Lease. After development, consider sale at Fair Market Value to Lessee.
City of Kenai
Municipal Lands Management Plan and Lands Inventory Analysis
Gusty Subdivision
Address Legal Description KPB Parcel ID Parcel Size
11631 Kenai Spur
Highway
Tract B, Gusty
Subdivision Addition
No. 2
047-160-02 .90 acres
Land Use Plan Zoning Map # Fund
Central Commercial
(CC)
Central Mixed Use
(CMU)
Airport Fund
Unit Number Deed of Release
Unit G-4 Yes – Sale or Lease – November 11, 1986
Conveyance Document
QCD 27 Deeds / 303 – 4/20/1964
Airport Reserve Boundary Water or Sewer
Parcel is outside Airport Reserve Boundary Parcel would need a main extension for
Coral Street under Kenai Spur Highway to
connect to water/sewer.
Description: Located on the south side of the Kenai Spur Highway opposite Coral Street. The
subject parcel is accessible via the Kenai Sur Highway. Parcel can be sold or leased for non-
aviation purposes. See Deeds of Release for Restrictions. The subject parcel is located within
the Part 77 Approach Zone, however it is located outside of the Departure / Approach Runway
Protection Zone. Will need Ordinance declaring not needed for Public Purpose to sell.
Recommendation: Consider lease of parcel for non-aviation purposes. Continue to market as
available for Lease. After development, consider sale at Fair Market Value to Lessee.
Chapter 21.10 LEASING AND ACQUISITION OF AIRPORT RESERVE LANDS
21.10.010 Lease of Airport Reserve Land.
(a) This chapter applies to City-owned land within the Airport Reserve.
(b) The provisions of this chapter shall not alter or amend the terms, obligations or rights granted
under leases existing prior to the effective date of this chapter.
21.10.015 Definitions.
When used in this Chapter, the following terms shall have the meaning given below:
(a) “Aeronautical Use” means any use land within the Airport Reserve that involves, makes possible,
or is required for the operation of aircraft or that contributes to or is required for the safety of
such operations. It includes, but is not limited to: Air taxi and charter operations; Scheduled or
nonscheduled air carrier services; Pilot training; Aircraft rental and sightseeing; Aerial
photography; Crop dusting; Aerial advertising and surveying; Aircraft sales and service;
Aircraft storage; Sale of aviation petroleum products; Repair and maintenance of aircraft; Sale
of aircraft parts; Parachute activities; Ultralight activities; Sport pilot activities; and Military
flight operations.
(b) “Airport Reserve” means the City-owned land reserved from sale and designated under KMC
21.05.010 and 21.05.020.
(c) “City” means the City of Kenai, its elected officials, officers, employees or agents.
(d) “Consumer Price Index (CPI)” means the CPI for all Urban Consumers (CPI-U) for Anchorage,
Alaska
(e) “Expiring Lease” means a lease with less than one (1) year of term remaining.
(f) “Existing Lease” means a lease with at least one (1) year of term remaining.
(g) “Lease Extension” means extending the term of an existing lease.
(h) “Annual Rent” means an amount paid to the City annually according to the terms of the lease.
(i) “Lease rate percent” means a percentage when applied to the fair market value of land will
establish a rate of rent commensurate with rental rates prevalent in the local area as determined by
a qualified real estate appraiser.
(j) “Airport Market Analysis” means an analysis that is conducted by a qualified general real estate
appraiser and determines the gross changes that have occurred in the local market since the
previous airport-wide appraisal as well as conducting a Lease Rate Analysis.
(k) “Lease Rate Analysis” means an analysis of data collected from other land leases to determine
whether the City’s lease rate percent reflects the market.
(l) “Lease Renewal” means a new lease of property currently under lease to an existing lessee or a
purchaser.
(m) “Fair Market Value” means the most probable price which a property should bring in a
competitive and open market as determined by a qualified independent appraiser, or the value as
determined by the latest appraisal adjusted by the change in Consumer Price Index from the date
of the latest appraisal.
(n) “Non-Aeronautical Use” means any use of airport land that is not an aeronautical use.
(o) “Permanent improvement” means a fixed addition or change to land that is not temporary or
portable;
(1) “Permanent improvement” includes a building, building addition, retaining wall, storage
tank, earthwork, fill material, gravel, and pavement, and remediation of contamination
for which the applicant is not responsible.
(2) “Permanent improvement” excludes items of ordinary maintenance, such as glass
replacement, painting, roof repairs, door repairs, plumbing repairs, floor covering
replacement, or pavement patching.
(p) “Professional Estimate of the remaining useful life of the principle improvement” means an
estimate of the number of remaining years that the principle improvement will be able to function
in accordance with its intended purpose prepared by a Qualified Real Estate Appraiser, engineer,
or architect licensed in Alaska.
(q) “Qualified Independent Appraiser” means a general real estate appraiser certified by the State of
Alaska under AS 08.87, with experience in appraising airport property.
(r) “Site Development Materials” means materials used for preparing a lease site for building
construction or to provide a firm surface on which to operate a vehicle or aircraft; “Site
Development Materials” include geotextile, fill, gravel, paving, utilities and pavement
reinforcement materials.
(s) “Site preparation work” means work on the leased premises to include clearing and grubbing,
unclassified excavation, classified fill and back fill, a crushed aggregate base course and utility
extensions.
21.10.020 Lands Available for Leasing.
City-owned land within the Airport Reserve may be leased as provided in this Chapter unless:
(a) The land is identified in the latest Federal Aviation Administration-approved Airport Layout
Plan as being required for the operation or safety of the Airport or for the construction,
preservation, future construction, or future expansion of facilities on the Airport, including:
(1) Runways, runway safety areas, taxiways, aprons, water lanes, water taxiways, and other
aircraft operational areas;
(2) Access roads, public streets, parking lots, and other facilities for use by motor vehicles;
and
(3) Public terminal buildings.
21.10.025 Special Use Permits.
Airport Reserve Land unavailable for lease may be utilized under a Special Use Permit approved by
the City Council. A Special Use Permit may provide for temporary activities such as aircraft fueling,
parking, loading and unloading, temporary cargo staging and handling, and maneuvering purposes.
Subject to the approval by the City Council of the terms and rent, the City Manager may, without
subjecting the property to appraisal or competitive process, grant a Special Use Permit for the temporary
use of real property owned by the City for a period not to exceed one (1) year.
21.10.030 Qualifications of Applicants or Bidders.
An applicant or bidder for a lease is qualified if the applicant or bidder:
(a) Is an individual at least eighteen (18) years of age;
(b) Legal entity which is authorized to conduct business under the laws of Alaska; or
(c) Is acting as an agent for another and has qualified by filing with the City a proper power of
attorney or a letter of authorization creating such agency.
21.10.040 Initial Lease Application.
(a) All applications for lease of lands must be submitted to the City on an approved application
form provided by the City. Applications will be dated on receipt and payment of the non-refundable
application fee as set forth in the City’s schedule of fees adopted by the City Council.
(b) The application form must include the following information:
(1) The purpose of the proposed lease;
(2) The use, nature, type and estimated cost of improvements to be constructed;
(3) The dates construction is estimated to commence and be completed (ordinarily a
maximum of two (2) years); and
(4) A comprehensive description of the proposed business or activity intended.
(c) Applications which propose a subdivision shall require the applicant to be responsible for all
costs associated with the subdivision, including but not limited to any new appraisal, engineering
services, surveying and consulting costs, unless in the sole discretion of the City Council, the City
Council determines that the subdivision serves other Airport purposes. If the Council determines that
other Airport purposes are served by the subdivision, the City Council may choose in its sole
discretion to share in the subdivision costs with the applicant in whatever amount the City Council
determines is reasonable given the benefit to the Airport.
(d) Anytime during the processing of a lease application, the City may request, and the applicant
must supply, any clarification or additional information that the City reasonably determines is
necessary for the City to make a final decision on the application.
21.10.060 No Right of Occupancy – Application Expiration.
(a) Submitting an application for a lease does not give the applicant a right to lease or use the land
requested in the application.
(b) The application shall expire twelve (12) months after the date the application has been made if
the City and the applicant have not, by that time, entered into a lease, unless the City Council for
good cause grants an extension for a period not to exceed six (6) months.
21.10.070 Lease Application Review
(a) Applications shall be reviewed by City staff for:
(1) Application completeness;
(2) Conformance with Municipal Ordinances;
(3) Conformance with the Airport Layout Plan, Airport Master Plan, Federal Aviation
Administration regulations applicable to the Airport, Airport Improvement Projects,
Airport Sponsor Grant Assurances to the Federal Aviation Administration, and Airport
regulations and operations; and,
(4) Conformance with the Comprehensive Plan.
(b) Based on the initial review and staff recommendation for action, if the City Manager
determines the application is complete, the application shall be referred to the Airport Commission
and the Planning and Zoning Commission for review and comment, together with the City
Manager’s recommendation for approval or rejection.
(c) Notice of applications for new leases, renewals or extensions must be published in a
newspaper of general circulation within the City. The notice must contain the name of the applicant,
a brief description of the land and the date upon which any competing applications must be
submitted (thirty (30) days from the date of publication).
(d) The recommendations of the City Manager, Airport Commission and Planning and Zoning
Commission shall be brought to the City Council. The decision whether or not to lease land or
authorize a lease extension or renewal rests in the sole discretion of the City Council.
(e) The City Council may waive provisions of this Chapter to lease property or interests in real
property with the United States, the State of Alaska or an Alaska political subdivision when in the
judgment of the City Council it is advantageous to the City to do so.
(f) If the applicant is in default of any charges, fees, rents, taxes, or other sums due and payable to
the City or the applicant is in default of a requirement of any lease or contract with the City a lease
shall not be entered into until the deficiencies are cured.
21.10.080 Application for Lease Amendment, Extension or Renewal.
(a) A request from an existing lessee for a lease amendment, extension or renewal of the lease
must be submitted to the City on an application form provided by the City. Applications must be
complete and dated on receipt and payment of the non-refundable application fee as set forth in the
City’s schedule of fees adopted by the City Council.
(b) An application for an amendment must include the following information:
(1) The purpose of the proposed amendment;
(2) The proposed change in use or activity; and
(3) A comprehensive description of the proposed business, if applicable.
(c) An application for a lease extension must include the following information:
(1) The use, nature, type and estimated cost of additional improvements to be
constructed;
(2) The dates new construction is estimated to commence and be completed (ordinarily a
maximum of two (2) years).
(d) An application for a lease renewal must include the following information:
(1) For a lease renewal of an existing lease:
(i) The use, nature, type and estimated cost of additional improvements to be
constructed;
(ii) The dates new construction is estimated to commence and be completed
(ordinarily a maximum of two (2) years).
(2) For a lease renewal of an expiring lease:
(i) A professional estimate of the remaining useful life of the principle
improvement on the property, paid for by the applicant; or
(ii) A market value appraisal of the principle improvement on the property, paid
for by the applicant; or
(iii) The purchase price of improvements in a bill of sale executed by the current
lessee and proposed purchaser; and
(iv) The use, nature, type and estimated cost of additional improvements to be
constructed, if applicable.
(v) The dates new construction is estimated to commence and be completed
(ordinarily a maximum of two (2) years) if applicable.
(e) Applications for amendment, extension or renewal shall be processed in accordance with the
Lease Application Review provisions of this Chapter. The City has no obligation to amend, renew or
extend a lease and may decline to do so upon making specific findings as to why a lease renewal,
extension, or amendment is not in the best interest of the City.
21.10.085 Competing Applications.
If another complete and otherwise approvable application for a new lease, extension or a renewal is
received for the same property within thirty (30) days from the notice of application publication date by a
different applicant, City staff shall process the application and forward the application, the City
Manager’s recommendation and the Commissions’ recommendations to the City Council for approval of
the application anticipated to best serve the interests of the City. The City Council may approve one of the
applications, reject all the applications or direct the City Manager to award a lease of the property by
sealed bid. An applicant for a renewal or extension may withdraw an application for a renewal or
extension at any time prior to a decision by the City Council whether or not to approve such a renewal or
extension.
21.10.090 Length of Lease Term.
(a) The length of term for an initial lease shall be based on the amount of investment the applicant
proposes to make in the construction of new permanent improvements on the premises as provided
in the application. The City Council may offer a shorter lease term, if the City Council makes
specific findings that a shorter lease term is in the best interest of the City.
(b) The maximum term of an initial lease shall be determined according to the following Term
Table:
TERM TABLE
Applicant’s Investment/Value ................. Maximum Term of Years
$ 7,500… ...................................................... 5
15,000 .......................................................... 6
22,500 .......................................................... 7
30,000 .......................................................... 8
37,500 .......................................................... 9
45,000 ......................................................... 10
52,500 ......................................................... 11
60,000 ......................................................... 12
67,500 ......................................................... 13
75,000 ......................................................... 14
82,500 ......................................................... 15
90,000 ......................................................... 16
97,500 ......................................................... 17
105,000 ........................................................ 18
112,500 ........................................................ 19
120,000 ........................................................ 20
127,500 ........................................................ 21
135,000 ........................................................ 22
142,500 ........................................................ 23
150,000 ........................................................ 24
157,500 ........................................................ 25
165,000 ........................................................ 26
172,500 ........................................................ 27
180,000 ........................................................ 28
187,500 ........................................................ 29
195,000 ........................................................ 30
202,500 ........................................................ 31
210,000 ........................................................ 32
217,500 ........................................................ 33
225,000 ........................................................ 34
232,500 ........................................................ 35
240,000 ........................................................ 36
247,500 ........................................................ 37
255,000 ........................................................ 38
262,500 ........................................................ 39
270,000 ........................................................ 40
277,500 ........................................................ 41
285,000 ........................................................ 42
292,000 ........................................................ 43
300,000 ........................................................ 44
307,500 ........................................................ 45
(c) The length of term for a lease extension shall be determined according to the Term Table and
based on the total amount of the investment provided in the initial lease application and the
estimated cost of additional permanent improvements as provided in the application for lease
extension and provided no extension shall extend a lease term past forty-five (45) years.
(d) The length of term for a lease renewal of an existing lease shall be determined according to
the Term Table and based on the total amount of the investment provided in the initial lease
application and the estimated cost of additional permanent improvements as provided in the
application. The renewal term of an existing lease pursuant to a transaction between the current
lessee and a new buyer and prospective lessee will be determined by the purchase price of
permanent improvements in a bill of sale and the value of proposed additional permanent
improvements, if any. The term for renewal of an existing lease cannot exceed 45 years.
(e) The length of term for a lease renewal of an expiring lease shall be determined according to a
professional estimate of the remaining useful life of the principle improvement on the property, paid
for by the applicant or the Term Table and based on the following:
(1) The purchase price of real property improvements in a bill of sale executed between the
lessee and proposed purchaser; or
(2) A market value appraisal of the principle improvement on the property, paid for by the
applicant; and
(3) The estimated cost of any additional investment the applicant proposes to make in the
construction of permanent improvements on the premises as provided in the application.
(4) The term for renewal of an expiring lease cannot exceed 45 years.
(f) Before the City approves or extends the term of a lease, permit, concession, or other interest for
a non-aeronautical use of a premises that the City has determined in writing will be needed for an
aeronautical use in the future, the City will first estimate when the premises will likely be needed for
aeronautical use. A term or a term extension for a non-aeronautical use of those premises may not
run beyond the time that the City estimates the premises will become needed for an aeronautical use
and is subject to further extension only to the extent the aeronautical use need does not arise or is
otherwise satisfied or deferred by the City.
(g) Before the City approves or extends the term of a lease, permit, concession, or other interest for
any use of a premises that the City has determined in writing will be needed for airport development
in the future, the City will first estimate when the premises will likely be needed for airport
development. A term or a term extension for use of those premises may not run beyond the time that
the City estimates the premises will become needed for airport development and is subject to further
extension only to the extent that need does not arise or is otherwise satisfied or deferred by the City.
(h) If the initial lease, term extension, or lease renewal granted to the applicant requires
construction of permanent improvements, the lease or term extension shall be subject to the
following conditions:
(1) The lessee to complete the proposed permanent improvements within a reasonable period
of time set by the City, considering the cost and nature of the improvements. Provided
however, that the time allowed shall not ordinarily exceed twenty-four (24) months after
the effective date of the lease, renewal, or extension.
(2) The lessee to provide a performance bond, deposit, personal guarantee, or other security
if the City Council determines security is necessary or prudent to ensure the applicant’s
completion of the permanent improvements required in the lease, renewal, or extension.
The City Council shall determine the form and amount of the security according to the
best interest of the City, after a recommendation by the City Manager considering the
nature and scope of the proposed improvements and the financial responsibility of the
applicant.
(3) At no expense to the City, the lessee must obtain and keep in force during the term of the
lease, insurance of the type and limits required by the City for the activities on the
premises.
(4) Within thirty (30) days after completion of the permanent improvements, the lessee shall
submit to the City written documentation that the improvements have been completed as
required. The City Manager shall make a report to the City Council of completion as soon
as reasonably practical.
(5) If the applicant shows good cause to the City Council, and the City Council determines
the action is in the best interest of the City, the City Council may grant an extension of
the time allowed to complete permanent improvements by Resolution that is sufficient to
allow for the completion of the permanent improvements or for submission of
documentation that the permanent improvements have been completed. No extension or
combination of extensions granted shall exceed twelve (12) months or cause the total
time allowed to complete permanent improvements to exceed thirty-six (36) months.
(6) If, within the time required the applicant fails to complete the required permanent
improvements the City shall:
(i) If the application is for a new lease or lease renewal, execute the forfeiture of the
performance bond, deposit, personal guarantee, or other security posted by the
applicant under subsection (2) of this section to the extent necessary to reimburse the
City for all costs and damages, including administrative and legal costs, arising from
the applicant’s failure to complete the required improvements, and initiate
cancellation of the lease or reduce the term of the lease to a period consistent with the
portion of the improvements substantially completed in a timely manner according to
the best interests of the City.
(ii) If the application is for a lease extension, the City shall terminate the amendment
extending the term of the lease or reduce the term of the extension at the City’s sole
discretion.
21.10.100 Principles and Policy of Lease Rates.
(a) Annual rent shall be computed by multiplying the fair market value of the land by the lease rate
percentage for each parcel inside the airport reserve. The annual rent for each parcel inside the
airport reserve shall be published in the City’s schedule of fees adopted by the City Council; and
(b) The City shall determine the Fair Market Value of all land within the Airport Reserve annually based
on the latest appraisal conducted for the City by a qualified real estate appraiser and adjusted annually
based on the rate of inflation determined by the Consumer Price Index; and
(c) The City shall conduct an Airport Market Analysis once every ten (10) years to determine whether a
market adjustment in either fair market value or lease rate percentage is in the best interests of the
City; and
(d) If the City determines from the Airport Market Analysis that a market adjustment to the lease rate
percentage is in the best interests of the City, the new lease percentage shall be utilized to compute
annual rents for the next fiscal year; and
(e) If the Airport Market Analysis or extraordinary circumstances determine a fair market value
adjustment is in the best interests of the City, the City shall retain the services of an independent, real
estate appraiser certified under Alaska state statutes with experience in appraising airport property to
determine the Fair Market Value of all land within the Airport Reserve and shall use these values to
compute annual rents for the next fiscal year.
(f) The City shall adjust the annual rent of a lease by giving the lessee written notice at least thirty (30)
days in advance of the expiration of the previous adjustment period; and
(g) The annual rent of any individual lease may not increase by more than 50% in any given five (5) year
time period for leases for aeronautical purposes; and
(h) If a lessee disagrees with the proposed change in rent, (excluding CPI determinations, which cannot
be appealed) it must:
(1) Provide notice of appeal in writing within ninety (90) days supported by the written appraisal
of a qualified real estate appraiser, selected and paid for by lessee (the “Second Appraiser”);
and
(2) The City and the lessee shall promptly meet to attempt to resolve their differences between
the First Appraiser and the Second Appraiser concerning the fair market value of the
premises or lease rate percentage; and
(3) If the City and lessee cannot agree upon such value then, with all deliberate speed, they shall
direct the First Appraiser and the Second Appraiser to expeditiously and mutually select a
third qualified real estate appraiser, paid for jointly by the parties (the “Third Appraiser”);
and
(4) Within thirty (30) days after the Third Appraiser has been appointed, the Third Appraiser
shall decide which of the two (2) respective appraisals from the First Appraiser and the
Second Appraiser most closely reflects the fair market value or lease rate percentage of the
premises; and
(5) The fair market value or lease rate percentage of the premises shall irrefutably be presumed to
be the value contained in such appraisal selected by the Third Appraiser, and the rent shall be
redetermined based on such value; and
(6) Notwithstanding anything to the contrary herein, rent shall continue to be paid at the then-
applicable rate until any such new rental rate is established, and lessee and the City shall
promptly pay or refund, as the case may be, any variance in the rent, without interest thereon
accruing to the extent to be paid/refunded in a timely fashion.
21.10.110 Temporary Development Incentives
(a) The City Council may include in a lease a temporary rent incentive to encourage investment as
follows:
(1) A credit may be applied toward rent for a maximum of five (5) years. The credit may only
include the value of site preparation work on the leased premises to include clearing and
grubbing, unclassified excavation, classified fill and back fill, a crushed aggregate base
course and utility extensions.
(2) An estimate of the value of the work, including a scope of work, prepared by a
Professional Engineer licensed to work in Alaska must be provided to the City and
accepted prior to work being performed.
(3) Any changes to the estimate of the value of the work or scope of work must be provided to
the City and accepted prior to work being performed.
(4) For the credit to be applied, the approved scope of work must be completed.
(5) A certification from a Professional Engineer that the accepted scope of work has been
completed must be provided to the City and accepted at the completion of the site
preparation work.
(6) Credit will be limited to original Professional Engineer’s estimate unless another amount is
accepted by the City in advance of work being completed.
(7) Once the work is completed as proposed and the Professional Engineer’s certification of
completion has been received, a credit shall be applied to the lease payments, prorated as
necessary for a maximum of five (5) years.
21.10.115 Ownership of Improvements.
(a) Permanent improvements on the premises, excluding site development materials, constructed,
placed, or purchased by the lessee remain the lessee’s property as long as a lease for the
premises remains in effect with the lessee, including renewals, any period of extension
approved by the City pursuant to the provisions of this Chapter, or any period of holdover.
(b) Unless otherwise provided in a land lease or the department otherwise directs under (f) of this
section, at the expiration, cancellation, or termination of a lease that is neither extended nor
followed by a successive lease, the departing lessee may do one or more of the following:
(1) remove lessee-owned permanent improvements from the premises, remediate any
contamination for which the lessee is responsible, and restore the premises to a clean
and neat physical condition acceptable to the City within 90 days after the expiration,
cancellation, or termination date of the lease; or
(2) sell lessee-owned permanent improvements to the succeeding lessee, remove all
personal property, remediate any contamination for which the lessee is responsible,
and leave the premises in a clean and neat physical condition acceptable to the City
within 60 days after notice from the City that the City has approved an application for
a lease of the premises by another person or such longer period specified in the
notice, but in no event more than 180 days after the expiration, termination, or
cancellation date of the lease;
(c) If the lessee does not timely remove or sell the lessee-owned permanent improvements on a
premises in accordance with the requirements of this section, any remaining permanent
improvements and any remaining personal property of the departing lessee will be considered
permanently abandoned. The City may sell, lease, demolish, dispose of, remove, or retain the
abandoned property for airport use as the City determines is in the best interest of the City. The
lessee shall, within 30 days after being billed by the City, reimburse the City for any costs
reasonably incurred by the City, including legal and administrative costs, to demolish, remove,
dispose, clear title to, or sell the abandoned property and to remediate and restore the premises.
(d) Site development materials that a lessee completes or places on a premises become part of the
City-owned realty and property of the City upon completion or placement. The lessee
(1) Must maintain the site development work and site development materials throughout
the term of the lease or successive lease, including any extensions and periods of
holdover; and
(2) May not remove the site development materials unless the City approves in writing.
21.10.120 Lease Utilization.
Leased lands shall be utilized for purposes within the scope of the application, the terms of the lease
and in conformity with the ordinances of the City, and in substantial conformity with the Comprehensive
Plan and Airport Master Plan. Utilization or development for other than the allowed uses shall constitute a
violation of the lease and subject the lease to cancellation at any time.
21.10.130 Bidding Procedure.
With the approval of the City Council, the City Manager may designate a specific lot or lots to be
leased through competitive sealed bid. In a sealed bid offering, the City Manager shall award the lease to
the qualified bidder utilizing a procurement procedure which may consider qualitative factors in addition
to the amount of any one (1) time premium payment to be paid by the successful bidder. Provided
however, that high bidder and the bidder’s lease proposal shall be subject to all provisions of lease
application review and approval under this chapter.
21.10.140 Lease Execution.
When issuing a lease to an applicant, the City shall hand deliver or mail the document to the
applicant. The applicant shall have sixty (60) days from the date on which the lease is hand delivered to
the applicant or mailed within which to execute and return the lease to the City Manager. If the applicant
shows good cause to the City Manager, and the Manager determines the action is not inconsistent with the
City’s best interest, the Manager shall grant an extension not exceeding sixty (60) days for the applicant
to execute and return the lease. Upon the failure of the applicant to timely execute and return the lease
agreement, the City Manager shall withdraw the offer of the lease in writing.
21.10.150 Form of Lease.
(a) When leasing land under this chapter, the City Manager shall use a standard lease form that is:
(1) Drafted to:
(i) Provide a reasonable basis for the lessee’s use of the premises,
(ii) Foster the safe, effective, and efficient operation of the airport,
(iii) Conform with the applicable requirements of the KMC, including this chapter,
Alaska statutes, Federal Aviation Administration regulations, and other applicable
Federal law, and
(iv) Provide for the best interest of the City.
(2) Approved as to form by the City Attorney; and
(3) Adopted by resolution of the City Council.
(b) The City Manager may enter into a land lease that deviates from the standard form adopted
under subsection (a) of this section, if:
(1) The City Manager believes the action is in the best interest of the City;
(2) The lease is approved as to form by the City Attorney; and
(3) The lease is approved by resolution of the City Council.
21.10.170 Payments.
(a) Upon execution of the lease, the lands become taxable to the extent of its leasehold interest and lessee
shall pay all real property taxes levied upon such leasehold interest in these lands, and shall pay any
special assessments and taxes as if the lessee was the owner of the land.
(b) Rent shall be paid annually in advance. The payments shall be prorated to conform to the City of
Kenai’s fiscal year beginning July 1 and ending June 30. The lessee shall have the option of making
payments on a monthly basis.
(c) Lessee shall be responsible for all sales taxes applicable to its operations or due on payments under
the lease.
21.10.190 Acquisition of Real Property.
The City, by authorization of the City Council, expressed in a resolution for such purpose, may
purchase, acquire an interest in or lease real property needed for a public use within the airport reserve on
such terms and conditions as the Council shall determine, but no purchase shall be made except for Fair
Market Value as determined by an appraisal performed by a qualified real estate appraiser.