October 29, 2008

Tacoma Narrows

Although most people think of the bridge the falls in the video, I have been following the sale of this municipally owned airport for a couple years. At one time there was a rumored private investor who wanted to buy the airport, but in the end it was to be sold to the county government, Pierce County.

The thing we should all be focusing on is, what price did the City of Tacoma sell the airport to Pierce County? Although the market value, according to Mike Slevin (the city’s interim public works director), was estimated to be anywhere between $10 million and $20 million in recent years as reported in an article written by Niki Sullivan in the News Tribune. The sale price was determined to be $5 million.

In the end the sale price has been dropped to $3 million, why? Turns out, according to the article, federal law dictates that the sale price is determined by expenses incurred over the previous six years. After an audit the the City of Tacoma could only come up with $3 million, thus the sales price.

This begs the question, what have been the expenses incurred the previous six years by the City of Worcester at ORH? The debt expense has been about $600,000 per year so that is about $3,600,000 over 6 years. On the other hand, there has been subsidies on the operating expenses at varying levels by MassPort. My best guesstimate is that the City of Worcester's share is probably around $3,000,000.

Does that mean the most that we could sell the airport for is $6,600,000?


Jahn said...

Fed'l law dictates the price between gov't enitites only ??..............or between a private buyer and public seller as well?

Wow....thats an eye opener

Steve said...

From what I can figure, the airport, as currently operated, could turn an annual profit of about $100,000, if they would stop spending money to support non-existent airline operations.

I think a business turning a $100,000 profit is worth about 1/2 million dollars. That would yield a 20% ROI. Paying $5 million would yield a 2% ROI.

** Note: Profit estimates are based on Worcester's income compared to Fitchburg's expenses.

Jahn said...

But Steve, I think we have to factor in the value of the real estate, too.. .......argueably the buyers hands are tied if it has to be used as an airport.....but if some the real can be put to other uses?????

Not that it's nec. of indicative of market value....but i once looked a while back and tha airport is valued at about $25M by the assessor.......double check me tho

Steve said...

jahn said:

"..but if some the real (estate) can be put to other uses?????"

Anyone willing to buy the airport, or any other business, is speculating on what they can do with it that the current owners aren't. That's the nature of buying a business.

There are plenty of what-if games you can play:

What if we get Jetblue to fly out of ORH?

What if we get Linear Air to move their base to ORH?

What if I get Unum to move to some parcel of real estate up there?

What if, what if, what if......

The fact of the matter is that all of these ideas are pure speculation, and have no history to back them up.

If the area around the airport is so valuable, Worcester should sell it off separately.