A group of businesses and organizations that rent lots on the 600-acre town-owned East Hampton Airport property are facing dramatic increases in their annual rents in coming years.
In order to comply with an agreement the town reached with the Federal Aviation Administration last year, officials say that they will begin charging 10 of 13 tenants fair market rents when their leases expire over the next five to 20 years. Two are already charged fair market values and the other tenant is the town’s own police department.
Most of the tenants, which include the Phoenix House, LTV, The Country School, and the Maidstone Gun Club, are being charged this year between $30 and $45 a year per 1,000 square feet of property.
If those leases were adjusted today to reflect fair market-value, as required by the FAA for airport property, many of the annual rents would increase by more than $20,000, far more than double in all cases. According to documents provided by the town, the gun club currently pays $100 a year; and the highest rent this year, paid by a company that leases two adjacent properties and subleases space to commercial tenants, is $9,216.
“This is the first I’ve heard about it,” said Robert Caruso, a tenant at 56 Industrial Road. Mr. Caruso runs Robert Caruso Studios, a woodworking company, and shares a lot he rents from the town with G.T. Power Systems. “I guess I have to educate myself,” he said.
“I have options ... to renew or buy the land and all kinds of things,” said Ron Sullivan, who runs Ron Sullivan Welding at Industrial Road Site 21. He also had not heard about the eventual rent increases. “I don’t see how they are going to do this.”
Because the town accepted money from the FAA for work at the airport, it was required to adhere to a list of “grant assurances.” One of those assurances is that any town-owned airport land that is rented out should be priced at fair market value; also, all the revenue from rents should go only into the airport fund in the town budget.
The FAA goal is to keep the airport viable and self-sufficient and to prevent it from being used as a financial resource for purposes other than aviation.
The town received its last grant from the FAA in 2001. Those applying to the rental of properties do not expire until 2021; others expire in 2014.
An audit by the FAA in 2001 revealed that the town was charging far below fair-market rates for those properties. Subsequently, a group of town officials—including town attorneys Laura Molinari and John Jilnicki, Town Supervisor Bill McGintee, airport manager Jim Brundige, and Town Councilman Pete Hammerle—negotiated with representatives from the FAA over how to compensate the airport fund for the years of low rents.
The town came to an agreement with the FAA in June 2007. It calls for the town to begin charging fair-market rent for all 11 tenants when current leases expire and that $232,844 be moved from the general fund into the airport fund in order to make up for lost revenues. Earlier this year, the Town Board made that transfer.
Although the town rents out lots to a total of 12 tenants for non-aeronautical uses, one of the tenants—AT&T, which operates a cell-phone tower northwest of the airport—has been charged an annual rent above fair market value.
The town also agreed with the FAA to pay 75 percent of fair-market rent into the airport fund each year for its own use of a 7.35-acre airport property at the corner of the Wainscott Northwest Road and Industrial Road. It is the site of the East Hampton Town Police Department headquarters and a training facility for the East Hampton Fire Department.
Taking into account increases in the consumer price index since the property was appraised in 2005, the town should have paid $54,023 from the general fund into the airport fund last year for its use of the parcel.
The rental of land at the airport for non-aeronautical uses dates back to the late 1970s, according to Ms. Molinari, when the town began leasing out parcels, most of which line Industrial Road along the southern border of the airport property. They are considered part of the town’s “Industrial Park.”
Ms. Molinari said last month that the town offered the land for below-market rent in order to encourage economic development and local employment.
In 2001, members of the East Hampton Aviation Association and the East Hampton Airport Property Owners Association submitted a list of complaints to the FAA, claiming, among other things, that the town was not directing airport revenues to the airport fund and was not charging fair market value for its tenants at the Industrial Park.
“You have this disparity between what fair market value is and what is actually being charged,” said Gene Oshrin, a pilot and a former member of the Aviation Association who was involved in the dispute. “That revenue was supposed to subsidize the airport. That was the reason for creating the industrial park—so the airport would be self-sustaining.”