Airport Terminal Lease

Klimek Wanted A Better Lease For City

By Jon A. Brake

City Commissioners Ed Klimek said he did not like the lease agreement the City was about to sign with General
Aviation Training and Testing Service, Inc. located at the Manhattan Airport.

The City Administration had placed the lease on the consent agenda which is usual passed by the commission
without discussion. Klimek had asked that the item be placed on the general agenda so the Commission could
look at the lease.

Klimek pointed out that the lease had three things which he did not agree with:

1. The City is receiving only $2,500 a year for the old terminal building. He thought it should be more.

2. The lease is to run for 20 years without a rate increase. He thought the City should be able to raise the rent
5-10 years down the road.

3. The lease does not have a buy-out clause. Klimek thought the City should have the right to purchase the lease.

The Company provided the Commissioners with an Estimated Economic Influence on the City of Manhattan. A
part of the estimate showed the company paid investors $338,000 last year. Klimek said higher rents could come
from the money paid to the investors.

The vote to sign the lease as recommended by the City Administration passed by a 3-2 margin. Klimek and
Karen McCulloh voted "no." Commissioners Bruce Snead, Carol Peak and Mayor Roger Reitz voted "yes."

Here is the Memo given to the Commission:

CITY COMMISSION AGENDA MEMO

December 27, 1999

FROM: Kenneth A. Black, Airport Director

SUBJECT: Airport Lease Agreement — General Aviation Training and Testing Services, Inc.

PRESENTER: Kenneth A. Black, Airport Director

BACKGROUND

General Aviation Training and Testing Services, Inc (GATTS) has been doing business on the Airport since July
1997. Their business services include advanced flight instruction and on-line aviation testing. They employ six
people full time and the vast majority of their clients are from outside Manhattan, Kansas. General Aviation
Training and Testing Services, Inc. advertises nationally in the Aircraft Owners' and Pilots' Association
magazine, AOPA PILOT.

General Aviation Training and Testing Services, Inc. started their business in the old passenger terminal and
they have expanded on two separate occasions as other tenants have left the premises. General Aviation
Training and Testing Services, Inc. approached Airport Administration about leasing the entire building late this
summer. At that point, they leased over 2/3 of the building and the Riley County Law Enforcement Agency had a
separate agreement with the City for the use of the former Kansas Air Center space.

The Riley County Law Enforcement Agency has been notified of the City's plan to terminate the agreement with
them on or about January 1, 2000. The agreement with the Riley County Law Enforcement Agency was on a
month-to-month basis. The Riley County Law Enforcement Agency has made arrangements with General
Aviation Training and Testing Services, Inc. to remain on the premises through March. The City of Manhattan
should be able to offer alternative workspace to the Riley County Law Enforcement Agency in the north tower of
the stone hangar by mid-February. Long-term, the architect for the Eureka Valley Fire Station is modifying the
station layout to include office space for the Riley County Law Enforcement Agency.

DISCUSSION

The new lease agreement with General Aviation Training and Testing Services, Inc. has been negotiated by the
City Attorney and Airport Administration with their attorney. Three months of effort has been expended on this
agreement and City Administration believes that the agreement (see Enclosure 1) should bear fruit for the City
and the Airport for several years to come.

This lease provides for the rental of the entire building on a long-term basis. It also gives General Aviation
Training and Testing Services, Inc. an option for the use of approximately 10,000 sq. ft. of land on the south end
of the building. The essential elements of this lease agreement follow:

A building lease for approximately 4,300 sq. ft. of space.

Guaranteed access and 20 dedicated parking spaces with signage to be provided by General Aviation Training
and Testing Services, Inc.

Primary lease term is 20 years with three 10-year option terms.

The City shall connect City water and sewer to the building within one year.

The City shall maintain the parking lot adjacent to the building.

The City conducted a code inspection which is attached to the agreement. General Aviation Training and Testing
Services, Inc. will accept the building as is.

General Aviation Training and Testing Services, Inc. shall pay all utilities.

The annual rent is $2,500.00.

General Aviation Training and Testing Services, Inc. pays for all maintenance, repairs, and capital
improvements.

General Aviation Training and Testing Services, Inc. maintains all landscaping adjacent to the building.

If more than 50% of the leased premises are destroyed after ¾ of the primary term or during the option terms,
then General Aviation Training and Testing Services, Inc. may rebuild or terminate the lease.

The City conducted an asbestos inspection which is attached to the agreement. General Aviation Training and
Testing Services, Inc. will accept the building as is.

General Aviation Training and Testing Services, Inc. may sub-lease the facility with the consent of the City.

General Aviation Training and Testing Services, Inc. shall have the right of first refusal to meet any bona fide
written offer of sale on the same terms and conditions of such offer.

General Aviation Training and Testing Services, Inc. shall have the option to expand its business activity onto
two parcels south of the building that encompass approximately 10,000 sq. ft.

City Administration has conducted an analysis of the lease terms for this agreement versus the status quo
situation and programmed capital improvements. This analysis assumes that all of the building is available for
rent in today's market at $5.50 per square foot per year. The first part of the analysis addresses the potential
revenue from renting the facility at this rate over a twenty-year period as shown below.

The second part of the analysis examines the benefit of the new lease terms. These benefits include utility
expenses, maintenance expenses, and capital improvements that the City of Manhattan should not have to
expend funds for during the term of the lease. The utility and maintenance expenses are based upon 1998
expenditures in these areas. The projected capital improvements are currently included in the 2000 û 2005
Capital Improvements Program as item AP01-0715P where $250,000 of the $418,000 was intended to go towards
refurbishment of the building. The remaining $168,000 in this item was intended for parking lot improvements on
the eastside of the Airport.

The third part of the analysis calculates future rents under the new lease terms.

The fourth and final part of the analysis compares the potential revenue from a lease at the current rental rate to
the benefits plus future rents under the new lease terms.

The outcome of this analysis indicates that the City should benefit from this lease arrangement with General
Aviation Training and Testing Services, Inc. The Airport Advisory Board agrees with this assessment as shown
in Enclosure 2. City Administration also considers this analysis to be a conservative one. It does not even
address the economic benefit of the services provided by General Aviation Training and Testing Services, Inc.

The Economic Development potential of this business for the Airport and the City of Manhattan is best
addressed by the owner and operator of General Aviation Training and Testing Services, Inc. Mr. Dale Wolcott
will be present at this meeting to respond to any questions the Commissioners may have.
 

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