Airport Real Estate Development & Highest-Best-Use Analysis
This article examines the federal regulatory framework governing airport real estate development, including grant assurances, land use categories, valuation standards, and FAA approval procedures. Analysis draws from 49 U.S.C. § 47107, FAA Order 5190.6C, Chapters 3 and 22, the FAA Reauthorization Act of 2024 (Pub. L. 118-63, Sections 703 and 743), published appraisal studies, and audited financial disclosures from named airports. All data is current as of March 6, 2026.
Airport real estate development is constrained by federal grant assurances that require non-aeronautical ground leases to be priced at Fair Market Value (FMV) based on highest-and-best-use analysis, and that all airport revenues be expended for airport purposes. The FAA Reauthorization Act of 2024, Section 743, narrowed FAA's land use jurisdiction to projects that materially impact aircraft operations or federal investments, replacing prior case-by-case determinations with a 45-day notice procedure. Airport authorities with sustained commercial development programs (DFW generating $48.5 million ground lease revenue in FY 2019; Denver accelerating land development as of 2023; Dallas Executive approving a 40-year hotel ground lease in February 2026) derive non-aeronautical revenue from ground leases and extend economic development roles beyond the airport fence through regional site development and infrastructure partnerships.
The Federal Framework
Airport real estate development operates within a layered federal regulatory structure that constrains how airport land may be used, what may be charged for its use, and how proceeds flow.
Grant Assurance 24 (Fee and Rental Structure) requires airport sponsors to "maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances." Sponsors may charge below fair market value (FMV) to aeronautical tenants, but are required to charge FMV to non-aeronautical tenants. FAA's Revenue Use Policy merged this obligation with the prohibition on revenue diversion — meaning that a below-FMV non-aeronautical lease is treated as a form of revenue diversion (Source: FAA Revenue Use Policy, 64 FR 7720–21).
Grant Assurance 25 (Airport Revenues) requires that all revenues generated by the airport be expended for capital or operating costs of the airport, the local airport system, or other facilities directly and substantially related to air transportation. Revenue from the sale or transfer of airport real property is classified as airport revenue (Source: 49 USC § 47107(b)).
Grant Assurance 31 (Disposal of Land) addresses the sale of airport property purchased with federal grant funds, requiring disposal at FMV and reimbursement to the FAA in proportion to the federal share of the original purchase (Source: 49 USC § 47107(c)(2)).
Land Use Categories Under FAA Order 5190.6C
FAA Order 5190.6C, Chapter 22 (updated February 20, 2026), implements the FAA's Policy Regarding Processing Land Use Changes on Federally Acquired or Federally Conveyed Airport Land. The Order defines four categories of airport land use:
| Land Use Category | Definition | FAA Action Required | Examples |
|---|---|---|---|
| Aeronautical use | Involves, makes possible, is required for safety of, or is directly related to aircraft operations | None | Runways, taxiways, aprons, hangars, FBOs, fueling, ARFF, ATC |
| Airport purpose | Directly related to actual operation or foreseeable aeronautical development; non-aeronautical components do not conflict with aeronautical needs | None | Terminal complex (including concessions, car rental counters, parking), FBO facility including parking |
| Non-aeronautical use | All other uses not aeronautical or airport purpose; aviation-related uses that do not need to be located at an airport | FAA consent (federally conveyed land) or approval (federally acquired land) | Hotels, warehouses, car rental facilities (stand-alone), flight kitchens, airline reservation centers |
| Mixed use | Both aeronautical and non-aeronautical components, where the non-aeronautical component could be located off-airport | FAA consent or approval | Mail distribution centers with air cargo operations, aircraft manufacturing with engineering/R&D, cargo operations with warehousing |
For airport real estate development purposes, the regulatory distinction is between aeronautical use/airport purpose (no FAA action required) and non-aeronautical/mixed use (FAA consent or approval required). Residential use on airport property is prohibited.
The Highest-and-Best-Use Standard
FAA Order 5190.6C, Chapter 3, § 3.6 establishes the standard for valuing airport land when it is leased for non-aeronautical use or disposed of through sale: "Any 'highest and best use' determination should consider the probability of achieving such use and should not be speculative."
The highest-and-best-use analysis must be based on:
- The economic potential of the property
- Qualitative values (social or environmental) of the property
- Use factors affecting land use — zoning, physical characteristics, private and public uses in the vicinity, neighboring improvements, utility services, and access
For non-aeronautical leases, this standard feeds directly into the FMV rental rate requirement under Grant Assurance 24. A lease at below FMV — measured against the highest-and-best-use value of the property — is treated as a form of revenue diversion.
Appraisal practice at airports reflects this standard. Riverside County, California, contracts a master appraisal of its five county airports every five years, with the appraised FMV used both to set new ground lease rates and to adjust existing leases. Existing leases contain a provision that adjusts base rent to one-twelfth of 8% of the then-current FMV of the leased premises (Source: Riverside County TLMA, "Airport Master Appraisal Services RFP," December 2, 2024). The Metropolitan Airports Commission (Minneapolis-St. Paul) uses a peer-airport comparative method, deriving market-based rental rates for aeronautical ground leases from an analysis of unimproved aeronautical land rents at comparable airports — rates that ranged from $0.25 to $0.55 per square foot at MAC reliever airports as of 2023 (Source: MAC, "Reliever Airport Market Rent Update," 2023).
FAA Reauthorization Act of 2024: Section 743
The FAA Reauthorization Act of 2024 (Pub. L. 118-63), signed May 16, 2024, contains Section 743, which revises the scope of FAA authority over airport real estate projects. Key changes:
Narrowed jurisdiction. FAA retains authority to regulate projects that: (1) materially impact the safe and efficient operation of aircraft at, to, or from the airport; (2) adversely affect the safety of people or property on the ground from aircraft operations; or (3) adversely affect the value of prior federal investments. For projects where FAA has land use authority only over a portion of the project, the agency may not extend jurisdiction to non-aeronautical portions — reversing FAA's prior position (Source: Kaplan Kirsch & Rockwell, "FAA Reauthorization Act Makes Key Changes to Airport Law," May 14, 2024).