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'Inventing A Category': Developer Building 1.1M SF Hangar Network For Business Jets

The size of the fleet of business jets in the U.S. has soared since the onset of the pandemic, and a new real estate company has formed to give them a new type of place to rest their wings.

The Sky Harbour hangar at Sugar Land Regional Airport near Houston.

Sky Harbour Group, a New York-based company founded by CEO Tal Keinan, went public earlier this year and has raised millions to develop the first network of private hangars — what it calls "home basing solutions" — for business jets.

"We’re inventing this category," Keinan, a former fighter pilot in the Israeli Air Force, told Bisnow in an interview.

In an investor prospectus filed with the Securities and Exchange Commission earlier this month, SHG said it plans to spend nearly $300M building roughly 1.1M SF of hangars at six U.S. airports over the next five years. 

The difference between what SHG offers and what currently exists for most business jets is dedicated space. Most jets are stored with fixed-base operators alongside other planes owned by other companies or people, Keinan said. SHG develops individual hangars on leased land, then subleases full hangars to tenants for between two and eight years.

"The square footage of the business aviation fleet in the United States keeps growing. It was growing at a rapid rate before Covid, Covid just put it into overdrive," Keinan said. "There is not enough space to keep these airplanes."

SHG has ground leases for land at six airports: Sugar Land Regional Airport near Houston, Miami-Opa Locka, Addison Airport outside Dallas, Nashville International Airport, Centennial Airport outside Denver and Deer Valley Airport in Phoenix. 

At each of its airports, SHG's prospectus states, it builds facilities with clusters of between nine and 19 hangars at an average of 12K SF each. Each hangar has up to 2K SF of office space for the tenant to use to host meetings, as well as a cleaning staff and maintenance on hand.

"Some people turn it into a fantastic clubhouse and it is sort of their space," Keinan said. "You are on a multiyear lease, so you can do whatever as long as it’s legal."

SHG went public in a merger with a special-purpose acquisition company earlier this year at a valuation of $777M. Last year, it raised $166M in debt financing and sold $55M worth of shares to finance its construction program, and it raised nearly $150M through the SPAC process.

Its stock debuted at $10 a share in January, spiked to over $35 in March, but was down to $3.65 per share at the close of trading Wednesday. Keinan dismissed the share price as irrelevant to the business SHG is well underway with creating.

"When we went public we really barely had any revenue to speak of," Keinan said. But now, "we are a company that makes money. We always have the option of stopping or slowing down our growth. We don’t want to. But that is always an option. It’s not like we have a race against the clock. We are a real estate company and developer."

Keinan said the idea has taken off along with the demand for private travel and the increase in corporate planes in circulation: Gulfstream reported its strongest year for private jet orders in 2021 since 2008.

"Before Covid ... 95% of people who could afford [taking private jets] never did it. It’s not that they didn't do it regularly, they never did it," Keinan said.

The pandemic, and the strains it put on the air travel system, made many people and companies get over issues of morality and perception and realize that private flying was an option for them, Keinan said. That led to a surge in orders for private jets — except a similar surge in jet hangar construction didn't come.

It's an experience he felt personally. Keinan founded the hedge fund Clarity Capital and said a lot of his clients owned personal jets, and would voice their frustrations around the experience to him. Once he bought his own jet, he immediately empathized.

"I found out the hard way that there is nowhere to put it," he said. 

He also found that, with the increase in private planes, the experience of storing them with a fixed-base operator has become an increasing point of friction for their owners. FBOs can take hours to prepare a plane for takeoff, and technicians need access to the planes to move them around — like a Manhattan parking lot, except for $50M jets.

"The most common type of accident in aviation is called 'hangar rash,' which is when you bang one plane into another in the hangar," he said. "For you and me, it’s no big deal. But, for somebody who spent $60M, $70M, $80M on an airplane, you might not want strangers walking in and out all the time."

SHG has already demonstrated demand for its offerings. Its existing facilities in Sugar Land and Nashville are 100% leased, and it has six executed letters of intent for its 16 proposed hangars in Phoenix, which have yet to begin construction, according to its prospectus.

The demand is not universal, however — it started construction in Colorado last month at an expected cost of up to $76M, but has no LOIs or leases signed. Its Opa Locka hangars are 33% leased, with LOIs covering 42% of the available space.

Even as SHG has yet to start construction on the majority of its pipeline, Keinan said eventually the company hopes to have hangars in 50 major markets.

SHG's prospectus notes that a risk for the company includes the rising cost of construction and the lack of guarantee for rental demand for its hangars. It is dependent on two major customers so far, it disclosed — Keinan declined to comment on whom, although he showed Bisnow examples of a Chevron hangar in Sugar Land.

Keinan dismissed the idea that an impending recession could dampen demand  for such a specialized luxury offering because so many planes have already been bought that there is a nationwide backlog, and their owners have to put them somewhere.

"Once those aircrafts are delivered, that’s it, they are in the fleet," he said. "So even if you have a deep recession, those airplanes still need to live somewhere. It’s not like you can push them into the ocean ... We think what is happening right now with this swelling is permanent. This is not something that goes back."