Astorino Proposes P3 Long-Term Lease Deal With Oaktree to Manage Westchester Airport

Real Estate In-Depth | November 2016

Westchester County Executive Robert P. Astorino with Emmett McCann, managing director at Oaktree and Marsha Gordon, president and CEO of the Business Council of Westchester.

WHITE PLAINS—Westchester County Executive Robert Astorino has proposed a plan to implement a public-private partnership (P3) whereby Oaktree Capital Management, L.P. would manage operations at Westchester County Airport under a 40-year-lease deal.

The long-term lease deal, if approved by the Westchester County Board of Legislators, would save taxpayers more than $140 million, improve the overall passenger experience, and strengthen environmental protections, according to the County Executive.

Astorino stressed that Westchester County would retain ownership of the airport and that the deal with Oaktree Capital would maintain the current footprint of the airport and preserve the quality of life of the surrounding communities. The transaction will also require the approval of the Federal Aviation Administration.

The proposal, which was made possible by Westchester’s eligibility in a Federal Aviation Administration program that allows small to mid-sized airports to be run as public-private partnerships, would involve a 40-year revenue-sharing lease between the county and Oaktree Capital Management, whose record includes the successful completion of similar P3 projects in Baltimore, Puerto Rico and London.

Astorino said that the proposal is supported by major airline tenants such as JetBlue Airways, American and United Airlines, and would keep in place the current limits on passengers, the footprint of the terminal and the hours of operation. The number of gates at the airport would remain at four and there would be no new runways or extensions of existing runways needed.

“The driving force behind this proposal is simple—unlock millions of dollars of value that have been created at the airport and put this idle money to work in ways that benefit everyone who lives, works and visits Westchester,” said Astorino. “We are creating a reliable, long-term source of funding that will assist taxpayers, help pay for parks, police, day care and all of our other services, and enhance the passenger experience at our airport, and doing all of this without changing the current character of the nearby neighborhoods. This is smart government adapting to the future, while protecting the present and past.”

Under the P3, funds paid to the county from airport operations could be used for county programs. Under the present structure, airport revenue can only be used for airport-related programs or operations.

“Westchester is building on a national trend towards delivering the airport improvements and innovation this country needs,” said Emmett McCann, managing director at Oaktree and lead for the firm’s airport efforts. “By utilizing the strong demand for stable long-term infrastructure investment, creating a best-in-class passenger experience, and successfully aligning the interests of all stakeholders, the county is enhancing the local economy and creating jobs without placing a further burden on the airport’s neighbors and local taxpayers. We expect this project to serve as a model for similar airports across the country.”

The proposals calls for the county to receive an upfront payment of $130 million from Oaktree, which after revenue share and expenses will provide the county with net proceeds of $111 million over the course of the lease.

The proceeds have been structured like an annuity to create a steady, long-term revenue stream that the county can draw on to offset expenses and help to keep taxes stable over the next four decades, county officials stated. First year net revenue to the county will be $15 million; followed by a net revenue of $5 million in each of the next four years; followed by average net revenue of more than $2 million for the remaining years on the lease. Oaktree’s payments can be applied to the county’s operating budget as early as 2017.

The partnership with Oaktree also relieves the county of the financial responsibility for capital improvements and ongoing maintenance at the airport. Oaktree has committed to spend at least $30 million in Oaktree-funded capital improvements in the first five years, in addition to other federal funding available to the airport. Oaktree will also make significant additional investments over the course of the lease. The $30 million in Oaktree capital spending will produce an estimated 300 construction jobs.

Oaktree’s investments in technology, infrastructure and amenities will go toward: redesigning the passenger lounge with enhanced seating, reconfiguring the ticketing area to simplify boarding, improving parking with valet and garage check-in options, enhancing the arrival area with new baggage claim equipment, and upgrading concessions and restaurants with more food and dining offerings.

As part of the agreement, JetBlue Airways, American Airlines and United Airlines have each agreed in principal to a long-term use agreement to serve the airport. The deal provides the airlines with long-term price certainty, greater operational efficiencies and guaranteed capital improvements.

“JetBlue looks forward to a reinvigorated and modern Westchester County Airport to provide our HPN customers the same award winning customer experience at the airport that they enjoy onboard,” said Jeffrey Goodell, JetBlue vice president Government and Airport Affairs. “JetBlue customers will be able to move seamlessly through the airport and enjoy enhanced food and beverage offerings to significantly improve their airport experience.  We commend County Executive Astorino for pursuing a solution that modernizes HPN to the benefit of all airport stakeholders.”

Another facet of the agreement involves a new on-site wastewater treatment facility that will capture and treat de-icing fluid. In addition Oaktree will also bring in wildlife management and protection programs to our airport.

Two of the county’s major business organizations praised the P3 initiative at Westchester County Airport.  “Westchester Airport is already one of the county’s greatest competitive advantages,” said Marsha Gordon, president and CEO of the Business Council of Westchester. “What is so impressive about this public-private partnership is how balanced it is. The plan is pro-business, pro-environment, pro-neighborhood and pro-taxpayer and that’s all good for Westchester.”

William Mooney, Jr., president and CEO of the Westchester County Association, praised the deal as beneficial to the entire county. “This is fabulous for the county, fabulous for taxpayers and the entire community, particularly non-profits. It sets an example for the rest of government to think creatively to better utilize our assets and resources.”

Oaktree worked in close partnership with various levels of government to create the first P3 for a major airport in the United States with the San Juan, Puerto Rico airport. It also jointly created a 50-year P3 with the Maryland Port Administration for the Seagirt Marine Terminal in Baltimore, which is the primary port serving Washington, D.C. Oaktree also intends to have Connor Capital SB, a transportation investment firm, as a strategic minority investor that will assist with management oversight, operational transition and stakeholder management. The lease with the county is being managed through Oaktree’s Infrastructure Investing group.

CIBC Capital Markets acted as financial advisor to Westchester County on this transaction.