Developer Jeff Dritley acknowledges he did not set out to run a municipal airport when he first started talking to the City of Hawthorne two years ago.
Dritley, who is managing director of Kearny Real Estate Company, is a developer with industrial and office projects on his resume, not necessarily the bona fides for running a general aviation airport for profit. Yet Dritley had a very good reason for agreeing to assume management responsibilities for the airport late last year: Under the terms of the agreement with the city, Kearny also gets to develop the property. And in Los Angeles County, where large-scale industrial properties are increasingly hard to find, this is a powerful incentive.
To our knowledge, the operate-and-develop deal for Hawthorne Airport is a unique public-private agreement. True, cities have invited developers to build at other municipal airports. In the case of the Hawthorne Airport, the airport operator and the airport developer are the same. While City Manager Richard Prentice concedes the city will not make any money on the deal for at least seven or eight years, the city is taking the long view that developing the yawningly empty airfield can bring some fresh industrial enterprises — and a larger tax base — to a city that has not fully recovered from the decline of aerospace during the early 1990s.
Dritley is currently processing entitlements to build up to 190,000 square feet of new industrial space on the non-runway portions of the 80-acre airport, which is located near the coastal edge of southwest Los Angeles County, just south of Los Angeles International Airport (LAX). In late July, the developer, in partnership with Morgan Stanley Real Estate Fund V, deepened his stake in the area by purchasing a 92-acre property immediately next to the airport currently occupied by Vought, a maker of fuselage parts for Boeing. (Kearny and Morgan Stanley acquired the property in a popular type of deal known as “sale-leaseback,” which offers Vought some potential tax advantages.)
The Vought purchase gives Kearny effective control of 172 contiguous acres in Hawthorne. In the future, Vought, which occupies buildings originally built for Northrup, could eventually consolidate its operations in half the site, allowing Kearny the possibility, as yet unplanned, that portions of the Vought site could be developed together with the airport.
Currently, the airport is earning “nearly nothing,” according to Dritley, and is threatening to nose-dive into red rink. Hawthorne’s city charter prevents the city from putting general fund money into the airport. That limitation, plus the facility’s continually weak and weakening performance, motivated the city to approach the developer in the first place.
In exchange for shielding the city from financial loss, the developer got a deal with a great deal of upside. Under the terms of the agreement, Kearny will reimburse itself first from airport revenues for the cost of infrastructure construction, plus take another 10% of revenues on top of that. At that point, Kearny will pay a monthly rent to the city, based on the average rent of the previous 36 months, which is about $40,000. Any airport revenues beyond that level will be distributed between the developer and the city at a ratio of 75% to 25%.
The unusual deal reflects the unusual nature of the site. Hawthorne Airport is a fragment of an immense aerospace plant formerly operated by Northrup, where fighter jets of the Second World War were manufactured. When Northrup abandoned the site in the 1970s, the aviation giant contributed the runway and some neighboring buildings as a municipal airport. While undoubtedly well-intended, the subsequent Hawthorne Airport has never been a huge success in civil aviation, probably because LAX is just a few miles north and attracts most general aviation traffic in the region.
Dritley and Hawthorne city officials met during the course of an earlier project, when the developer’s company, along with Catellus Development and Morgan Stanley built a new office complex for the in the city for the Los Angeles Air Force Base (see CP&DR Deals, September 2003). While some locals may not be aware that an air base is in the city — the facility is essentially an office building in charge of procurement for the Air Force — Kearny’s successful completion of that project made the developer a logical choice for the city to approach for a proposal about developing the airport.
In a lighthearted moment, Dritley is willing to agree that taking over the Hawthorne Airport is something like assuming control of a floundering hotel and a closed military base at the same time. Even Dritley likes to describe the Hawthorne Airport as “my McClellan,” referring to the Sacramento County base that closed in 2001 and is currently undergoing a makeover as a business park (see CP&DR Deals, June 2000).
On the airport operations side, there is much to do. As it exists, the Hawthorne Airport has a pleasantly deliciously noir atmosphere of by-gone prosperity gone a little shabby. There is a coffee shop where the blue-fluorescent lighting and waitresses adorned with a smidge too much eye makeup help preserve the illusion that it’s forever 1963.
Even if he did not set out to become, effectively, the general manager of a commercially challenged general aviation airport, Dritley says he is surprised by how much he is enjoying the role. Wearing his airport management hat, Dritley says that the adjacency of LAX could work to Hawthorne’s advantage, by offering “a better hotel” to the growing number of general aviation pilots, including the fast-growing charter jet industry. Hawthorne can compete with the immense airport by offering a “better level of service” than LAX, Dritley contends. Travelers, for their part, would remain conveniently close to LAX-area hotels and meeting rooms.
Perhaps Dritley would relish the role less if advantageous real estate development were not in the offing. Little matter. By foregoing the profit motive, the city has been able to parlay a potential liability—a failing airport—into a magnet for bringing new business to the city, without losing control of a major public asset. If Kearny can perform, the city is the big winner in the long run, even if it never pulls another nickel out of the Hawthorne Airport.
