(FDOT) contracted with the Center for Urban
Transportation Research (CUTR) at the University of
South Florida to develop guidelines for determining
FMV of airport property. The study on which this
article is based was completed in April 2012.
In addition to reviewing literature on the subject,
CUTR interviewed managers of Florida public-use
airports, as well as the staff of federal and state
government regulatory agencies, and private industry stakeholders, including FBOs and independent
appraisers, regarding their experience with airport
property valuation. The feedback, comments and
professional expertise of these aviation industry
professionals were used in the development of the
FMV BASICS — MAJOR APPROACHES
Three established approaches are used to
determine property value:
1. Sales comparison approach
2. Cost approach
3. Income approach
1Sales comparison approach is based on sales of comparable property, adjusted for differ- ences in physical characteristics (location,
size, condition, amenities, etc.), time on the market, and local economic conditions. This approach
is based on the principle of substitution, assuming
that a prudent agent will not pay for a given property more than it would cost to purchase comparable substitute property.
2Cost approach hinges on what it would cost to recreate the property with the same value. This includes the cost of building an identical structure, adjusting it for lost value (depreciation).
3Income approach is based on estimating the revenue that could be generated by the best alternative use of property. This methodology
is appropriate for evaluating income-producing
rental or commercial property.
Each method has its limitations and cannot be
applied to all circumstances. Multiple factors,
including the purpose of valuation, the common use
and type of property, and the quality and quantity
of data available for each approach, need to be considered in choosing the most appropriate estimation
method. The sales comparison approach ignores the
opportunity cost of the property and requires substantial market data that is not always available. Cost-
based approach does not capture market realities and
alternative use of the property. Income approach has
limited use when the property is unique and it can’t
be converted into alternative use.
Finally, if all three estimation methods are equally practical, it is possible to use a weighted average of the three estimates, obtained by different
approaches. The goal of the appraisal, the type of
property, and the adequacy and reliability of data
used in each of the three approaches will influence
the weight that is given to each approach.
Discussions with the Florida aviation community and private industry professionals revealed
that the sales comparison approach is by far the
most widely used approach for valuing airport
property in the state. It is the most straightforward approach to estimate market value since
it captures the interaction of the fundamental
market forces, such as supply and demand, that
ultimately determine the value that the asset can
command on the market.
COMPARING APPLES TO APPLES
The aviation professionals who were interviewed
for the study revealed that the main difficulty for
them with estimating FMV is finding the basis for
comparison. Picking appropriate comparables is
the key to accurate property valuation. There are
two distinct types of airport property: aeronautical
and non-aeronautical, and the valuation process is
slightly different for each property type.
The value of property is directly related to its
use. Permitted uses for these two types of property
vary significantly, with aeronautical property typically having more restrictions on its use compared
to non-aeronautical property. FAA requires that
aeronautical property may be used only for aero-nautical-related purposes, while non-aeronautical
property can be used for any purpose that is not
incompatible with the on-airport operations.
For the purpose of determining FMV rates,
airports must clearly distinguish between aeronautical and non-aeronautical property, as these
two types of airport property require different
treatment as far as valuation is concerned. It
is recommended that, for the purpose of FMV
assessment, aeronautical property is compared
with similar aeronautical property at other airports. FMV of non-aeronautical property, on the
other hand, should be determined by comparing
it with other similar property, serving the same
function, and located in the local community
around the airport.